ANGLO-Arab Insurance Brokers (AAIB) has introduced a new cargo insurance facility developed specifically for companies operating in Afghanistan.
Amman-based AAIB has extensive operations across the Middle East and in parts of Africa, specialising in high-risk and non-standard insurance coverage. It has, for instance, been a pioneer in cargo insurance for Iraq and Iraqi Kurdistan.
Underwritten with A-rated security, the new Afghan policy provides full coverage for air, sea and land shipments, with or without war risk.
“This highly competitive facility represents a new chapter in Afghanistan insurance,” claimed Iain Blake, AAIB’s senior broker. “We are now able to offer our clients a complete and truly cost-effective way of insuring the shipment and storage of their goods in this high-risk environment.”
AIR cargo demand in international markets was 11.3 per cent lower in July than a year earlier — but much better result than the 16.5 per cent drop recorded in June.
All regions except Africa saw improvement in demand compared to June. The Middle East was the only region to grow. Latest figures from IATA show:
• Falls by Asia-Pacific carriers, European carriers and North American airlines were 9.5 per cent, 16.2 per cent and 14.6 per cent, respectively;
• African carriers posted the worst performance at -25.9 per cent. This was the only region to see a deterioration in freight demand compared with June when the region’s carriers posted a 20.2 per cent decline compared with the same month the previous year;
• Middle Eastern carriers were the only region to grow — posting a one per cent growth in demand July-July.
• Latin American carriers posted a 1.2 per cent fall in demand July-July.
IATA says the stabilisation of air freight demand in the first quarter and its improvement in the second quarter has helped reduce the rate at which excess capacity has been growing. But load factors are still lower than levels seen at the same time last year and downward pressure on freight rates and revenues continued to intensify in July.
“The freight numbers tell an interesting story,” said Giovanni Bisignani, IATA’s director general and chief executive officer. “The sector is being boosted as companies re-stock depleted inventories. Once inventories are at desired levels in relation to sales, improvements in demand will level off until business and consumer confidence returns. Given the large amount of debt in all sectors of the economy, instant relief is not in the forecast.
On international passenger demand, all regions saw improved performance compared with June, but Asia-Pacific airlines are experiencing the extremes of the global recession. The 7.6 per cent fall in passenger demand compared with July 2008 was the largest decline of any region. At the same time, compared with the -14.5 per cent recorded in June, the relative improvement to -7.6 per cent was also the biggest among all regions.
THE Association of Asia Pacific Airlines (AAPA), which represents 17 major airlines in the region, says members’ international cargo traffic measured in FTKs fell 11.4 per cent year-on-year in July.
Cargo capacity fell 12.1 per cent year-on-year, and cargo load factors were 66.9 per cent.
In the cabins, the airlines carried 11.5 million passengers in July, down 7.8 per cent year-on-year. International traffic measured in RPKs fell 8.5 per cent. Seat capacity fell 6.5 per cent, but failed to match the decline in demand.
SERIAL cargo airline owner/operator Viktor Bout remains in custody in Bangkok, despite a Thai court ruling on August 11 against his extradition to the United States that it did not have the authority to punish actions done by foreigners against foreigners in another country.
Both the Americans and the Thai government prosecution team reacted with disappointment and the latter subsequently met the 72-hour deadline to state whether an appeal would be filed. The Office of the Attorney-General is appealing at the request of the Foreign Affairs department who in turn were asked formally by the US Government.
This means that instead of being released for probable immediate return to Russia, whose government has pressed for this to happen, Bout will continue to be held until the appeal is heard.
There was no indication of a date for this at our deadline.
The US Department of Justice wants to try Bout on charges related to the sale of large amounts of weaponry to Colombian rebels and is believed to have other possible charges in the works.
Based on the August 11 court decision, however, there is now some doubt that Thai judges will approve extradition, even if a strong case is argued in the appeal.
There has been some speculation that Thailand might try Bout itself - he was captured by Thai forces in a joint sting with US agents - but that has never held a lot of credence, despite the sting being on Thai territory.
Bout has a colourful reputation, including his ‘Merchant of Death’ nickname.
He denies the gun-running and other allegations, claiming he is just a straightforward air cargo operator.
Meantime, despite Bout being off the scene, the shadowy sector of illicit or dubious air freight shows no sign of being cleaned up. A large number of freight airlines are regarded askance by the EU and other authorities. But even with restrictions and international warnings, business continues to be brisk.
A key difficulty is that many of the suspect carriers also handle legitimate consignments across international boundaries, further muddying the waters for would-be investigators.
CARGOITALIA, Italy’s new all-cargo carrier, has successfully performed its first commercial flight since it was re-formed under new management and ownership.
The flight left Milan Malpensa, Italy bound for Hong Kong, carrying cargo on behalf of three major Italian forwarders. It returned to Milan after a technical stop at Almaty (Kazakhstan).
Commercial director Roberto Gilardoni said: “Operationally, the flight went perfectly. Commercially, we achieved average 87 per cent load factors both ways which is very gratifying, and an indication of market demand, enthusiasm and loyalty for an Italian-owned and operated service.
“To have operated our first flight so quickly and so successfully after a total re-launch is a major achievement given the enormous amount of preparation required, and is thanks to the hard work and determination of our own staff, our contractors, our business partners and the authorities. We could not have asked for better support.”
Cargoitalia’s first scheduled flights to Hong Kong start 09 September. Sales in Italy will be handled by the airline’s own sales team, while terminal and ramp handling at its Milan (Malpensa) Airport home base will be provided by ALHA and SEA respectively.
In Hong Kong, the carrier will be represented by New Asia Capital Resources, while handling will be performed by HACTL. Ten days after the HK service - on 19 September - the airline will introduce its second route, operating twice weekly Milan - New York – Toronto – Milan – Abu Dhabi – Milan also using MD11SF equipment.
The new Cargoitalia is the result of amalgamating the original Cargoitalia (which suspended operations in 2008) with the recently-purchased Alitalia full cargo business. Cargoitalia’s new owners are ALIS (Aerolinee Italiane S.p.A. – 66.7 per cent) and Intesa SanPaolo (33.3 per cent). ALIS in turn is owned by the family of Chairman and CEO Alcide Leali (62 per cent), other private investors (8 per cent) and Ricerca S.p.A. (Benetton), Selin S.p.A. (van den Heuvel) and Banca Intermobiliare, each having 10 per cent stakes.
THE ONGOING war by governments against alleged airline airfreight cartels continues, but with higher stakes as the likelihood of multi-party and individual civil action cases for damages increases, writes Kelvin King.
Such is the climate of fear in the industry that almost no-one will be quoted publicly on the cases and many also are worried about informal discussions and email communications such as those between Emirates and Air New Zealand revealed by Business Day when the magazine learned they would be used by the Australian Competition and Consumer Commission (ACCC) in its Australian Federal Court case against Emirates for alleged price fixing (see story this page).
ACCC Federal Court proceedings against Emirates allege that the carrier was involved, with other airlines, in air cargo cartel activity between 2002 and 2006 in a number of overseas markets.
Emirates is the ninth airline to be the subject of ACCC proceedings for fuel surcharge price fixing. As is well known, Qantas, British Airways, Air France, KLM, Martinair Holland and Cargolux already have been hit with a total of A$41 million in penalties.
Federal Court proceedings by ACCC are still under way against Singapore Airlines Cargo and Cathay Pacific and it has said further actions against other airlines can be expected over the next few months.
In other jurisdictions, Air France, KLM and Martinair Holland and Qantas (separately) all were fined by Canada’s Competition Bureau after pleading guilty to cartel activity.
In Europe, the Commission of the European Communities is expected to announce the results of its investigation into air cargo price fixing within the next few weeks, with prosecutions likely to follow.
The likelihood of European prosecutions has brought a renewed burst of activity from multi-claim legal specialists, seeking to encourage civil action by shippers against carriers that have pleaded guilty, or been found guilty, of cartel-type offences.
Such civil action, with the potential for substantial settlements, already has created a lot of additional worry within the aviation industry.
EVEN in a recession, climate change is top of IATA's agenda, according to its director general and chief executive Giovanni Bisignani.
"Two years ago IATA announced that it would achieve carbon neutral growth on the way to a carbon free future, and introduced a four-pillar strategy focusing on all players addressing climate change together.
“Seven per cent is how much our emissions will fall this year. Five per cent from reduced capacity as a result of the recession and two per cent as a result of our strategy.
“Look at our amazing work on bio fuels. They have the potential to reduce our carbon footprint by up to eighty per cent. IATA set a target of 10 per cent alternative fuels by 2017. Nobody thought it possible, but four airlines have tested bio fuels, making certification a reality by 2011. But where are the governments? Of the trillions of dollars in stimulus funds there is nothing on aviation bio fuels.”
A panel session at the recent IATA agm in Kuala Lumpur on this issue agreed the airlines had to be united on this front or progress would be doomed.
Akbar Al Baker, chief executive of Qatar Airways, believed IATA had been too slow to react on this issue. He said trying to be heard in the UN meeting on climate change in Copenhagen in December this year would be hard. “With all due respect to our friends in IATA and the good work they have done we should have been raising our concerns much earlier.
“It is insane the amount of taxes that Willie (Willie Walsh, chief executive of British Airways) is having to pay.”
He also confirmed that in August a Qatar airways flight would operate from London Gatwick to Doha operating with bio fuels developed in conjunction with a research and development arm of the Qatar Foundation.
Walsh himself said the issue was a priority for British Airways: “Consumers respect companies that are corporately responsible in difficult times. We’ve got to address the environment for the long term.
“We have to collaborate, because with the current patchwork, it will cost the airlines in the long term.”
Other panel members said airlines might withdraw from certain routes if emissions taxes became too exorbitant. It also was noted that some markets were going to be free, while in others the carriers had to pay.
Tony Tyler, chief executive of Cathay Pacific, agreed with Walsh and advised that his airline had launched a number of public relations campaigns in Hong Kong to overcome misconceptions about environmental damage caused by airlines. He also urged the aircraft and engine manufacturers to play their part in product development for the good of the industry as a whole.
Bisignani also announced in Kuala Lumpur that the board had taken a landmark decision that by the year 2020, the airline industry would achieve carbon neutral growth.
Delegates were advised that funds had been allocated to achieve this goal, however it was hoped that approaching the various governments and advising them of what was being implemented would encourage them to reduce existing taxes so that the savings could be re-invested in the IATA scheme.
AIRCARGO Asia-Pacific has long reported the decisions of courts in Australia and elsewhere with regard to cargo pricing and other arrangements between carriers. We will continue to do this.
We are concerned, however, that there is evidence of fundamental misunderstandings at government regulator level of the value - and legitimacy - of co-operation between competing carriers when handling air cargo. Airlines (and their agents) are legally entitled to co-operate within accepted competition frameworks to ensure the efficient, timely delivery offreight on behalf of their customers at a delivered price that ensures the products will find willing buyers at their destination.
Unfortunately, the regulators' recent cartel wins and multi-million dollar (mainly airline) penalties - and jail sentences on a few employees - have had the effect of intimidating staff, making them afraid to do their jobs and limiting the freedom of inter-carrier communications, a cornerstone ofthe aviation and air cargo industries. We also have found some regulators' employees using colourful and inflammatory language in describing their actions, further adding to airfreight employee nervousness.
The demonising of airlines and individual executives has had and is having a negative effect on the efficient and economically sustainable operation of the international air cargo business. We do not support cartels - and we condemn those found guilty of them - butneither do we endorse witch hunts, no matter how well-meant they are.aviation and air cargo industries.
A NEW survey by Datamonitor has found that despite severe cost cutting programs, major integrators DHL, TNT, FedEx and UPS have seen a major profit drop in the last quarter, largely due to significantly lower volumes as well as customers opting for cheaper freighting alternatives.
However, both DHL and UPS have gained some ground on their competitors and are cautiously optimistic, despite the impact of the Global Financial Crisis (GFC).
Datamonitor logistics and express senior analyst Erik Van Baaren says FedEx reported poor figures last month and now TNT has announced a double digit decline in Q2 revenues in its express division despite volumes decline bottoming out in the last few months.
Similarly, DHL Express's revenues fell by 28.6 per cent in Q2 and even after discounting the effect of its exit from the US domestic market, still were down by more than 15 per cent.
UPS saw a similar decline in revenues, hit by lower volumes, a lower yield per item, customers sending lighter packages, currency effects and customers opting for cheaper alternatives.
However, both DHL Express and UPS were able to gain significant ground on major freight forwarders in the supply chain service and freight markets, despite this market segment suffering more from the economic crisis than the small package/express market.
DHL was able to win large contracts in the life science, fashion, industrial, high tech and automotive sectors, but saw overall revenues decline due to lower rates and fuel surcharges.
UPS' freight volumes decreased by just two per cent, in sharp contrast with the industry’s average double-digit decline. The recent opening of healthcare freight-handling facilities in Puerto Rico and in the Netherlands underlined UPS' strategy to strengthen its position further in this sector.
Datamonitor believes the structural changes that have taken place in the express industry in terms of geographic focus, distribution models and customer preferences will require the leading firms to reorganise their networks. This implies shifting their geographic focus to emerging markets such as South America and the BRIC countries (Brazil, Russia India and China), and improving their road networks in order to cater for customers that want alternative transport modes.
The rise of e-commerce has been another fundamental change in the distribution models used by express customers, which has prompted express firms to increase their home delivery distribution capabilities and exploit one of the few remaining growth engines of the express market, says Van Baaren.
“The development of industry-specific solutions combined with a global integrated service is another way for express companies to counter the negative effects of the economic downturn which, despite showing signs of receding, does not yet appear to have entered a phase of recovery.”
ANGLO-Arab Insurance Brokers (AAIB) has introduced a new cargo insurance facility developed specifically for companies operating in Afghanistan.
Amman-based AAIB has extensive operations across the Middle East and in parts of Africa, specialising in high-risk and non-standard insurance coverage. It has, for instance, been a pioneer in cargo insurance for Iraq and Iraqi Kurdistan.
Underwritten with A-rated security, the new Afghan policy provides full coverage for air, sea and land shipments, with or without war risk.
“This highly competitive facility represents a new chapter in Afghanistan insurance,” claimed Iain Blake, AAIB’s senior broker. “We are now able to offer our clients a complete and truly cost-effective way of insuring the shipment and storage of their goods in this high-risk environment.”
AIR cargo demand in international markets was 11.3 per cent lower in July than a year earlier — but much better result than the 16.5 per cent drop recorded in June.
All regions except Africa saw improvement in demand compared to June. The Middle East was the only region to grow. Latest figures from IATA show:
• Falls by Asia-Pacific carriers, European carriers and North American airlines were 9.5 per cent, 16.2 per cent and 14.6 per cent, respectively;
• African carriers posted the worst performance at -25.9 per cent. This was the only region to see a deterioration in freight demand compared with June when the region’s carriers posted a 20.2 per cent decline compared with the same month the previous year;
• Middle Eastern carriers were the only region to grow — posting a one per cent growth in demand July-July.
• Latin American carriers posted a 1.2 per cent fall in demand July-July.
IATA says the stabilisation of air freight demand in the first quarter and its improvement in the second quarter has helped reduce the rate at which excess capacity has been growing. But load factors are still lower than levels seen at the same time last year and downward pressure on freight rates and revenues continued to intensify in July.
“The freight numbers tell an interesting story,” said Giovanni Bisignani, IATA’s director general and chief executive officer. “The sector is being boosted as companies re-stock depleted inventories. Once inventories are at desired levels in relation to sales, improvements in demand will level off until business and consumer confidence returns. Given the large amount of debt in all sectors of the economy, instant relief is not in the forecast.
On international passenger demand, all regions saw improved performance compared with June, but Asia-Pacific airlines are experiencing the extremes of the global recession. The 7.6 per cent fall in passenger demand compared with July 2008 was the largest decline of any region. At the same time, compared with the -14.5 per cent recorded in June, the relative improvement to -7.6 per cent was also the biggest among all regions.
THE Association of Asia Pacific Airlines (AAPA), which represents 17 major airlines in the region, says members’ international cargo traffic measured in FTKs fell 11.4 per cent year-on-year in July.
Cargo capacity fell 12.1 per cent year-on-year, and cargo load factors were 66.9 per cent.
In the cabins, the airlines carried 11.5 million passengers in July, down 7.8 per cent year-on-year. International traffic measured in RPKs fell 8.5 per cent. Seat capacity fell 6.5 per cent, but failed to match the decline in demand.
SERIAL cargo airline owner/operator Viktor Bout remains in custody in Bangkok, despite a Thai court ruling on August 11 against his extradition to the United States that it did not have the authority to punish actions done by foreigners against foreigners in another country.
Both the Americans and the Thai government prosecution team reacted with disappointment and the latter subsequently met the 72-hour deadline to state whether an appeal would be filed. The Office of the Attorney-General is appealing at the request of the Foreign Affairs department who in turn were asked formally by the US Government.
This means that instead of being released for probable immediate return to Russia, whose government has pressed for this to happen, Bout will continue to be held until the appeal is heard.
There was no indication of a date for this at our deadline.
The US Department of Justice wants to try Bout on charges related to the sale of large amounts of weaponry to Colombian rebels and is believed to have other possible charges in the works.
Based on the August 11 court decision, however, there is now some doubt that Thai judges will approve extradition, even if a strong case is argued in the appeal.
There has been some speculation that Thailand might try Bout itself - he was captured by Thai forces in a joint sting with US agents - but that has never held a lot of credence, despite the sting being on Thai territory.
Bout has a colourful reputation, including his ‘Merchant of Death’ nickname.
He denies the gun-running and other allegations, claiming he is just a straightforward air cargo operator.
Meantime, despite Bout being off the scene, the shadowy sector of illicit or dubious air freight shows no sign of being cleaned up. A large number of freight airlines are regarded askance by the EU and other authorities. But even with restrictions and international warnings, business continues to be brisk.
A key difficulty is that many of the suspect carriers also handle legitimate consignments across international boundaries, further muddying the waters for would-be investigators.
CARGOITALIA, Italy’s new all-cargo carrier, has successfully performed its first commercial flight since it was re-formed under new management and ownership.
The flight left Milan Malpensa, Italy bound for Hong Kong, carrying cargo on behalf of three major Italian forwarders. It returned to Milan after a technical stop at Almaty (Kazakhstan).
Commercial director Roberto Gilardoni said: “Operationally, the flight went perfectly. Commercially, we achieved average 87 per cent load factors both ways which is very gratifying, and an indication of market demand, enthusiasm and loyalty for an Italian-owned and operated service.
“To have operated our first flight so quickly and so successfully after a total re-launch is a major achievement given the enormous amount of preparation required, and is thanks to the hard work and determination of our own staff, our contractors, our business partners and the authorities. We could not have asked for better support.”
Cargoitalia’s first scheduled flights to Hong Kong start 09 September. Sales in Italy will be handled by the airline’s own sales team, while terminal and ramp handling at its Milan (Malpensa) Airport home base will be provided by ALHA and SEA respectively.
In Hong Kong, the carrier will be represented by New Asia Capital Resources, while handling will be performed by HACTL. Ten days after the HK service - on 19 September - the airline will introduce its second route, operating twice weekly Milan - New York – Toronto – Milan – Abu Dhabi – Milan also using MD11SF equipment.
The new Cargoitalia is the result of amalgamating the original Cargoitalia (which suspended operations in 2008) with the recently-purchased Alitalia full cargo business. Cargoitalia’s new owners are ALIS (Aerolinee Italiane S.p.A. – 66.7 per cent) and Intesa SanPaolo (33.3 per cent). ALIS in turn is owned by the family of Chairman and CEO Alcide Leali (62 per cent), other private investors (8 per cent) and Ricerca S.p.A. (Benetton), Selin S.p.A. (van den Heuvel) and Banca Intermobiliare, each having 10 per cent stakes.
THE ONGOING war by governments against alleged airline airfreight cartels continues, but with higher stakes as the likelihood of multi-party and individual civil action cases for damages increases, writes Kelvin King.
Such is the climate of fear in the industry that almost no-one will be quoted publicly on the cases and many also are worried about informal discussions and email communications such as those between Emirates and Air New Zealand revealed by Business Day when the magazine learned they would be used by the Australian Competition and Consumer Commission (ACCC) in its Australian Federal Court case against Emirates for alleged price fixing (see story this page).
ACCC Federal Court proceedings against Emirates allege that the carrier was involved, with other airlines, in air cargo cartel activity between 2002 and 2006 in a number of overseas markets.
Emirates is the ninth airline to be the subject of ACCC proceedings for fuel surcharge price fixing. As is well known, Qantas, British Airways, Air France, KLM, Martinair Holland and Cargolux already have been hit with a total of A$41 million in penalties.
Federal Court proceedings by ACCC are still under way against Singapore Airlines Cargo and Cathay Pacific and it has said further actions against other airlines can be expected over the next few months.
In other jurisdictions, Air France, KLM and Martinair Holland and Qantas (separately) all were fined by Canada’s Competition Bureau after pleading guilty to cartel activity.
In Europe, the Commission of the European Communities is expected to announce the results of its investigation into air cargo price fixing within the next few weeks, with prosecutions likely to follow.
The likelihood of European prosecutions has brought a renewed burst of activity from multi-claim legal specialists, seeking to encourage civil action by shippers against carriers that have pleaded guilty, or been found guilty, of cartel-type offences.
Such civil action, with the potential for substantial settlements, already has created a lot of additional worry within the aviation industry.
EVEN in a recession, climate change is top of IATA's agenda, according to its director general and chief executive Giovanni Bisignani.
"Two years ago IATA announced that it would achieve carbon neutral growth on the way to a carbon free future, and introduced a four-pillar strategy focusing on all players addressing climate change together.
“Seven per cent is how much our emissions will fall this year. Five per cent from reduced capacity as a result of the recession and two per cent as a result of our strategy.
“Look at our amazing work on bio fuels. They have the potential to reduce our carbon footprint by up to eighty per cent. IATA set a target of 10 per cent alternative fuels by 2017. Nobody thought it possible, but four airlines have tested bio fuels, making certification a reality by 2011. But where are the governments? Of the trillions of dollars in stimulus funds there is nothing on aviation bio fuels.”
A panel session at the recent IATA agm in Kuala Lumpur on this issue agreed the airlines had to be united on this front or progress would be doomed.
Akbar Al Baker, chief executive of Qatar Airways, believed IATA had been too slow to react on this issue. He said trying to be heard in the UN meeting on climate change in Copenhagen in December this year would be hard. “With all due respect to our friends in IATA and the good work they have done we should have been raising our concerns much earlier.
“It is insane the amount of taxes that Willie (Willie Walsh, chief executive of British Airways) is having to pay.”
He also confirmed that in August a Qatar airways flight would operate from London Gatwick to Doha operating with bio fuels developed in conjunction with a research and development arm of the Qatar Foundation.
Walsh himself said the issue was a priority for British Airways: “Consumers respect companies that are corporately responsible in difficult times. We’ve got to address the environment for the long term.
“We have to collaborate, because with the current patchwork, it will cost the airlines in the long term.”
Other panel members said airlines might withdraw from certain routes if emissions taxes became too exorbitant. It also was noted that some markets were going to be free, while in others the carriers had to pay.
Tony Tyler, chief executive of Cathay Pacific, agreed with Walsh and advised that his airline had launched a number of public relations campaigns in Hong Kong to overcome misconceptions about environmental damage caused by airlines. He also urged the aircraft and engine manufacturers to play their part in product development for the good of the industry as a whole.
Bisignani also announced in Kuala Lumpur that the board had taken a landmark decision that by the year 2020, the airline industry would achieve carbon neutral growth.
Delegates were advised that funds had been allocated to achieve this goal, however it was hoped that approaching the various governments and advising them of what was being implemented would encourage them to reduce existing taxes so that the savings could be re-invested in the IATA scheme.
AIRCARGO Asia-Pacific has long reported the decisions of courts in Australia and elsewhere with regard to cargo pricing and other arrangements between carriers. We will continue to do this.
We are concerned, however, that there is evidence of fundamental misunderstandings at government regulator level of the value - and legitimacy - of co-operation between competing carriers when handling air cargo. Airlines (and their agents) are legally entitled to co-operate within accepted competition frameworks to ensure the efficient, timely delivery offreight on behalf of their customers at a delivered price that ensures the products will find willing buyers at their destination.
Unfortunately, the regulators' recent cartel wins and multi-million dollar (mainly airline) penalties - and jail sentences on a few employees - have had the effect of intimidating staff, making them afraid to do their jobs and limiting the freedom of inter-carrier communications, a cornerstone ofthe aviation and air cargo industries. We also have found some regulators' employees using colourful and inflammatory language in describing their actions, further adding to airfreight employee nervousness.
The demonising of airlines and individual executives has had and is having a negative effect on the efficient and economically sustainable operation of the international air cargo business. We do not support cartels - and we condemn those found guilty of them - butneither do we endorse witch hunts, no matter how well-meant they are.aviation and air cargo industries.
A NEW survey by Datamonitor has found that despite severe cost cutting programs, major integrators DHL, TNT, FedEx and UPS have seen a major profit drop in the last quarter, largely due to significantly lower volumes as well as customers opting for cheaper freighting alternatives.
However, both DHL and UPS have gained some ground on their competitors and are cautiously optimistic, despite the impact of the Global Financial Crisis (GFC).
Datamonitor logistics and express senior analyst Erik Van Baaren says FedEx reported poor figures last month and now TNT has announced a double digit decline in Q2 revenues in its express division despite volumes decline bottoming out in the last few months.
Similarly, DHL Express's revenues fell by 28.6 per cent in Q2 and even after discounting the effect of its exit from the US domestic market, still were down by more than 15 per cent.
UPS saw a similar decline in revenues, hit by lower volumes, a lower yield per item, customers sending lighter packages, currency effects and customers opting for cheaper alternatives.
However, both DHL Express and UPS were able to gain significant ground on major freight forwarders in the supply chain service and freight markets, despite this market segment suffering more from the economic crisis than the small package/express market.
DHL was able to win large contracts in the life science, fashion, industrial, high tech and automotive sectors, but saw overall revenues decline due to lower rates and fuel surcharges.
UPS' freight volumes decreased by just two per cent, in sharp contrast with the industry’s average double-digit decline. The recent opening of healthcare freight-handling facilities in Puerto Rico and in the Netherlands underlined UPS' strategy to strengthen its position further in this sector.
Datamonitor believes the structural changes that have taken place in the express industry in terms of geographic focus, distribution models and customer preferences will require the leading firms to reorganise their networks. This implies shifting their geographic focus to emerging markets such as South America and the BRIC countries (Brazil, Russia India and China), and improving their road networks in order to cater for customers that want alternative transport modes.
The rise of e-commerce has been another fundamental change in the distribution models used by express customers, which has prompted express firms to increase their home delivery distribution capabilities and exploit one of the few remaining growth engines of the express market, says Van Baaren.
“The development of industry-specific solutions combined with a global integrated service is another way for express companies to counter the negative effects of the economic downturn which, despite showing signs of receding, does not yet appear to have entered a phase of recovery.”
