ANNOUNCEMENTS by Customs in February served to confirm what has been promised for some time - Customs is tightening its approach, including action against service providers in the supply chain such as freight forwarders, licensed Customs brokers and operators of licensed premises.
In one sense this is no surprise. These types of actions against service providers have, in part, been the subject of public comment and additional legislation by the Federal Government and Customs since the release of the first results of the Operation Polaris exercise in May 2012.
The prosecution action announced in relation to alleged attempts to evade anti-dumping duties is also part of the wider compliance agenda, driven by concerns that some parties have been evading duties put into place to protect local industry against dumping.
Such concerns also led to the introduction of “anti-circumvention” provisions similar to those in place overseas aimed at actions being taken to avoid the effect of the measures. In those provisions, even though the actions do not involve deliberately mis-stating the nature or origin of goods (allegedly the case with the prosecution announced by Customs), the provisions allow for an investigation into actions taken to “circumvent” the measures and if specific circumvention is found to have arisen, then the ADC can impose additional duties on those exporters.
Ironically the ADC announced the results of its first investigation shortly after the Customs announcements and will recommend to the Parliamentary Secretary responsible for dumping to impose additional duties (going back to April 2014) on exports of aluminium extrusions from one exporter.
However, although we anticipated these issues would become public knowledge, the announcements have some wider consequences.
1. The language used in the announcements suggests a high level of confidence by Customs that it is correct. However, there is still a presumption of innocence and there could be some other explanation behind all these allegations. Perhaps it may be too early to suggest that those affected are part of the “unscrupulous” category of persons in the supply chain. Perhaps some less aggressive terminology would have sufficed? It would be interesting if Customs made public announcements if it was found that the affected parties were not, in fact, culpable as suggested. Even though parties are not named there is some level of general suspicion on the parties affected.
2. The announcement on the importer and freight forwarders and dumping issues may have benefitted from identification of the goods in question, given that there are a wide variety of goods where Customs and the ADC have communicated concerns on steps being taken to try and avoid measures.
3. The announcements on suspensions on the licensed service providers will clearly have an impact on others in the same position. However, there is more that could have been stated.
Why was the action taken – was it based on isolated incidents or had there been widespread and continuous non-compliance? What were the offending actions and relevant provisions? If the aim is to eliminate non-compliance and offending behaviours, then surely there are some lessons that could be communicated here and learned by industry to allow it to respond and improve? Without identifying parties or events, good regulation (according to the Government’s own rules) would require some transparency and engagement with industry on its compliance activities. Presumably some sort of outreach would be useful and could be developed and delivered to industry relatively easily. The focus and nature of Customs compliance activities has been less public recently and it would be in the interests of all parties for these issues to be better communicated.
4. The alleged “circumvention” activity described above was the failure by the affected parties to “pass on” the existing dumping measures to customers by increasing prices. Presumably, the affected parties elected to “wear” the duties themselves, possibly selling at a loss which defeated the effect of the measures. This is only one of several behaviours proscribed as circumvention leading to significant additional duties and very public disclosure of the parties involved, which is the case in dumping investigations.
The short message here is pretty clear on an increased level of compliance activity associated with a mindset that there are problems and miscreants to be managed. To the same effect, the ANAO Report on the TCO system which was released recently disclosed that Customs will be more actively engaged in the investigation of the alleged misuse of TCOs to the detriment of local industry and Government revenue, which is another angle where we can expect attention.
Industry should be taking as many steps as possible to ensure compliance - by themselves and their clients - and ensuring that they also protect their interests in a proactive and comprehensive fashion.
For more information, contact writer: Andrews Hudson, Partner, Gadens Melbourne. E: This email address is being protected from spambots. You need JavaScript enabled to view it.
There are not many people who admit they enjoy going to work. Genial Nick Kassis is one of them, writes John Newton.
After almost 15 years with the same company and nearly a quarter of a century in the freight industry, Kassis finds his role in the air export department of Freightnet International in Victoria both interesting and stimulating.
“My main role is to run and develop the department, providing support and guidance to my colleagues. We are a medium-sized organisation of 11 employees, with aligned offices in Sydney and Brisbane. Freightnet has been in operation for 34 years.
“Coming into my 15th year, it must be said that I do enjoy coming to work. Our organisation prides itself on maintaining a friendly work environment and servicing our customers to the highest standard,” said the father-of-three, who started his career as a document runner, compiling Customs entries, before moving to Rohlig where he started in the air import department before being employed by Freightnet.
“I also manage some customers on the import side of things as well. I think it is important to stay current with import and export processes, as these are constantly changing. Constant updated Customs, airline, shipping time, trucking and government requirement/procedures are never ending and I find the only way to keep your finger on the pulse is to be active in all, or as many areas as possible,” said Kassis, who grew up in Moonee Ponds (the same place as dame Edna Everage).
Asked if the industry in Australia was in good shape, he claimed it had suffered over recent years. “I worked through a golden age when the automotive industry was at its peak, business in general was booming and many freight forwarders, as well as local businesses, were benefitting. In today’s climate, I do hope that our industry (logistics and manufacturing) can continue to grow rather than business being taken offshore.
“Freightnet is quite diverse in its approach and I believe we can adapt and adopt new strategies quite quickly, giving us every opportunity to fit in with what the market requires.” However, Kassis said he felt the push for new technology would impact the industry this year – a great example is the roll out of the IATA Multilateral e-Air Waybill Agreement (Resolution 672) “to which we are a signatory.”
He contends the industry in Australia was keeping up with other major countries in the world. “We have kept up and continually grow in technological advances. New free trade agreements also are a good sign that the Australian government wants to compete and ‘be amongst it’ ”.
On whether he’d like to see any changes, Kassis said: “Sadly, I feel the days of close personal relationships with the airlines and shipping lines will change - again through the way we now communicate electronically, but changes like this are inevitable and the new breed of freight forwarders will embrace the new technology. Basically, the industry will change or evolve depending on what advances are made in communication - and aircraft and vessels servicing Australia.”
An enthusiastic Kassis added that he had no qualms about recommending the industry to young people. “It’s a fantastic industry to be in and I would encourage people who enjoy working hard, who want to learn and also like to travel. It would be a great career choice for them, backed up with excellent training facilities.”
Known as being ‘tinny’, Kassis said he’d been fortunate “to win an airline ticket or two” – and winning two business class tickets on the Etihad network was a highlight. “My wife and I went on a very short trip to Turkey – in fact, for just five days. Having three young children, we were limited to how long we could be away. But Istanbul – and in particular, Gallipoli – were truly amazing and spiritual places to visit.”
Continuing economic uncertainty in Europe, a slow down in China, plus security concerns and high fuel prices have proved challenging for the air freight sector in the past few years.
UK-based Virgin Atlantic has for the most part done better than many of its peers, posting record performances in two of the past five years. For the most part, it has used available capacity cleverly and has been able to exploit the changing pace of its various markets in the face of yield reductions.
Fortunately, Virgin Atlantic’s primary market - the US - has recovered, fuel prices have fallen dramatically and 2015 is looking very positive.
An announcement due later this month (March) is expected to elaborate on the deepening relationship between Virgin Atlantic’s and Virgin Australia’s air cargo operations and networks.
AirCargo Asia-Pacific recently spoke to John Lloyd, director of cargo for Virgin Atlantic on the changing markets and the direction Virgin Atlantic is headed in 2015.
Lloyd joined Virgin Atlantic Cargo in 1987 and has more than 30 years’ experience in the cargo industry. While recognising Virgin Atlantic Cargo will never be the biggest cargo carrier, he has instilled a passion for customer service in the organisation that has ensured it is consistently rated as one of the best cargo-carrying airlines in the world, winning 13 ‘Cargo Airline of the Year’ awards since 2002.
He joined Virgin Atlantic Cargo as Cargo Operations Officer based at Gatwick and has steadily progressed within the company from supervisory and management positions based at Heathrow and Gatwick, to general manager – Operations and general manager - Cargo before he was promoted to his current position of director of Cargo.
In his role, he and his team manage Virgin Atlantic’s cargo operations around the world. In addition, Virgin Atlantic Cargo offers a further 350 on-forwarding destinations world wide including those of its local partner Virgin Australia.
Last year was a year to forget for growth and yields in the air freight industry. How is 2015-16 shaping up for Virgin Atlantic? Every airline wants and needs to operate with the best possible margins and, in our case, optimise the contribution cargo makes to the airline overall. While there have been significant fluctuations in the air cargo market in the last few years, our business and share of the market have been quite resilient. Two of the past five years have been record years for our cargo business. In 2013, we maintained our revenues at GBP225.3 million very close to the previous three years and we carried 224,500 tonnes. Our figures for 2014 have yet to be reported but our tonnage was on a par with 2013 and we will be between one and two percent of that again, despite some capacity reduction. Overall, we held our position last year, achieved a slight increase in market share and had a load factor of 74 per cent, significantly above industry average. We are quite confident about the year ahead.
A couple of cargo carriers have moved to introduce surcharge-free pricing. The industry seems largely to support the move at least in principle. Any comment on the initiative and any plans to follow suit? We are discussing this right now. It would be easy to just make a snap decision but we want to get some feedback from our customers first about what works best for them. We fully support a clearer, simpler charging structure but we do need to consider processes or controls that protect us against fuel price spikes in the future. Surcharges are certainly a source of tension with customers so the move to something simpler now makes sense. The reality is that there has been an abundance of all-in rates in the market for some time.
The deepening alliance between Virgin Atlantic and Virgin Australia is exciting. What does it mean for freight forwarders in both your combined markets? We have an excellent working relationship with Virgin Australia that dates back to the start of 2009. Under the terms of our agreement, we sell all of Virgin Australia’s long-haul international capacity connecting Sydney and Brisbane with Los Angeles. It works for both parties. For Virgin Australia, it generates a healthy financial contribution from cargo without the need for, and cost of, an in-house operation and they trust us to deliver the highest levels of customer service. In 2014, the amount of cargo we attracted for the Virgin Australia network rose by just over 20 per cent year-on-year. We saw growth throughout the year and 2014 ended with the highest December tonnages we have seen in four years. For Virgin Atlantic, it ensures we can connect customers in Australia and around the world with the rest of our network over the US west coast and means we have valuable transpacific capacity both ways. It also gives us a presence in Australia, which has always been a very important market for us from both a financial and emotional point of view because we have a strong connection with customers there and we remain passionate about working with them. We have just appointed Neil Vernon as Virgin Atlantic Cargo’s vice president Sales International and Australia is one of the first markets he is going to visit in his new role. Both we and Virgin Australia are actively looking for ways to further develop our relationship.
Global economic problems continue with China, Russia and elsewhere on the globe. What markets most impact Virgin Atlantic Cargo’s growth? China is certainly a factor. We are still filling our aircraft but the market is suffering a little at the moment and yields are suppressed, though this may only be a short-term situation. Otherwise, we are fairly well protected. Our primary market has always been the US and our service levels and reliability mean we compete well on the routes we serve. We don’t flood the market with capacity and we have a good spread of medium-high demand routes. Our latest route to Atlanta has started positively with very encouraging load factors and in June we open our tenth US route to Detroit. Whatever is happening in the world, the priority for us is to stay close to our customers. Our approach is based on talking to our customers to understand what it is that works for them and to then ensure we offer the service levels and pricing that makes Virgin Atlantic the right choice for their business.
What other new destinations might prove attractive this year? As I said, Atlanta is still a relatively new route for us and it will soon be joined by Detroit. Otherwise this year is about increasing frequencies of some existing routes. This will include extra services to Atlanta, New York JFK, Los Angeles, San Francisco and Las Vegas. Detroit gives us another gateway in the US Midwest and we expect it to generate a lot of on-forwarding business for our trucking services to other points nearby.
Fuel price reductions must be a boon for freight operations. Is Virgin locked into hedging contracts or can we soon expect a sharp reduction in surcharges? Yes, we have a comprehensive hedging portfolio that will take a little time to unwind and feed back into pricing levels.
High value shipments and pharma have been growth areas for carriers. Is Virgin Atlantic developing any special or unique freight services? Air cargo is obviously a premium mode of transport in terms of its speed and reliability, so quite a high percentage of what we already carry is of relatively high value. Pharma business contributes a growing share of our revenues and we expect this to increase thanks to the reliability of our cool chain service. We have always taken a simple approach to our services because our customers are influenced only by what we promise, how we deliver and the value we provide. The hands-on nature of the way we work and our service levels lend themselves well to time- and temperature-sensitive cargo or any shipments that demand a premium service. We certainly want to grow our share of the high value market this year and our customers should be confident that whatever we offer will come with the guarantee of a high class service they can rely on.
You pulled out of Mumbai in India at the end of January, despite the country being tipped to deliver solid growth going forward. What was the rationale? India has been a very important market for Virgin Atlantic for nearly 15 years but the passenger and cargo yields ex Mumbai are very different to the level from Delhi and we could not see any signs that this was going to improve. We never like to pull off a route because we work hard to build relationships with customers and appreciate the support they give us but the harsh reality is that we have an expensive aircraft asset that we have to make the most of, because airlines have to make money. Our customers in India appreciate the commercial realities of business and they understand that we are still very committed to India with our daily Delhi flights.
Virgin will have a major transatlantic focus in 2015 but you have talked before about the levels of excess capacity on these routes. How is this going to impact your cargo business and how can you succeed when other carriers are struggling? We know the market very well because it has been our biggest market for over 30 years. There’s no question that it is extremely competitive, but we are adding capacity on routes where we are already well established as a high quality carrier or in new markets like Atlanta and Detroit where we can see good cargo potential. Customers that choose to fly their cargo with Virgin across the Atlantic are very positive about these opportunities to use us more.
Delta acquired a 49 per cent stake in Virgin Atlantic and you now share a transatlantic joint venture. What does that mean in real terms for the cargo customers of both airlines? What are you already doing together and what might we see in the future? It means that in terms of frequencies and destinations, we will have a very substantial offering for our customers covering 245 departures a week to and from 19 destinations. Our big focus now is to get our systems talking to each other so we can book directly into each airline’s capacity. In support of this, we have already co-located our handling in a lot of stations to ensure a fast and seamless service for the customers of both airlines.
People often forget that Virgin is not a big airline in terms of its fleet and route network because you have arguably punched about your weight thanks to the Virgin brand and your high customer service – but how difficult is it to maintain this? Is a strong brand and great service enough when competing against today’s handful of big global carriers? We have a strong brand and a reputation for high class service and so sometimes we are perceived to be a bigger airline that we actually are. We have a good network of routes in and out of the UK and serve some important trade lanes but we do often stop and ask ourselves ‘why do customers need to use us?’ If you take the need to be price competitive as a given, I believe customers choose to fly their cargo with Virgin Atlantic because we look after our customers, we always try to be flexible to meet their requirements, we’re both proactive and approachable, and if something goes wrong at any point, we fix it quickly. Our load factors suggest we are getting the balance right. We also run a lean and efficient cargo operation and we have extremely effective capacity and revenue management processes that ensure we make the right decisions about the business we carry and deliver reliable service. Sometimes the bigger the competition is, the easier it is to compete against because they can’t always do what we can do. We work hard on our customer relationships and continue to target those customers we know place a higher value on service.
What are your biggest concerns for the air cargo industry in 2015? The security environment given the world we live in today.
IIN the past, many under-performing companies have managed to slip under the radar and escape insolvency. With market conditions changing, these businesses need to change course if they want to avoid going under, warns RSM Bird Cameron.
Andrew Beck, national head of turnaround and insolvency at RSM Bird Cameron said: “In 2014, many indebted companies were able to repay the interest on their debts but not able to reduce the actual debt itself. Neither could they invest in maintaining or updating equipment or make strategic investments.
Low interest rates let these ‘zombie’ companies maintain their commitments to their financiers. As such, it is unlikely that these financiers will seek to enforce their security any time soon and this is how zombie companies will continue to battle on. The number of zombie companies may even increase, given there is no expected increase in interest rates in the near future.”
According Beck there are four signs that indicate a company may be heading for zombie status:
1. Covering the bare minimum. Companies that can only cover the bare minimum such as running costs and interest-only repayments.
2. Paying interest but not the debt. If a business is incapable of paying down the actual debt to an agreed timeline then it may already be a zombie. So, unless its operating practices improve dramatically, it is likely to become insolvent regardless of bailouts and support.
3. Put a hold on growth. Zombie companies generally are not able to invest in new business or hire new staff. When organisations need to put a prolonged stop to growth and expansion, especially if market conditions are average, this can be a warning sign.
4. Financiers will be reticent. When companies have reached the point where they are only covering interest and not paying off the actual debts, smart financiers and investors become more hesitant to continue funding the business. This may in turn lead to additional debt from alternate sources (e.g. creditors including the ATO) which may go largely unpaid if the company is declared insolvent and will leave lenders and investors without their money.
Beck said: “When an organisation consistently underperforms financially and is doing the bare minimum to meet its financial obligations, it could be a sign that the business is about to reach zombie-status.
“When this happens, there are two options. The first is to try to save the company with an overhaul of management practices and operational procedures. The second is to put an end to the cycle and shut down the business. Either way, a zombie company cannot be allowed to continue to wander aimlessly, potentially taking others down with them.”
IAG Cargo has reported commercial revenue (flown revenue plus fuel surcharges) of EUR992 million for the year from 01 January through December 31, 2014, a decrease of 7.5 per cent on 2013.
Following the cessation of its long haul freighter leasing contract with GSS on April 30, 2014, IAG Cargo ran a significantly reduced freighter program, which is reflected in the following figures: 5,453 million cargo tonne kilometres (CTKs) for the year decreased by 3.5 per cent compared to 2013, while capacity decreased by 5.0 per cent.
On a like-for-like basis, adjusting the prior year’s figures to reflect a directly comparable freighter operation, commercial revenue increased 2.4 per cent and volumes of 5,453 million cargo tonne kilometres (CTKs) for the year were an increase of 6.7 per cent; capacity increased by 2.3 per cent.
On a reported basis, overall yield (commercial revenue per CTK) for the year was down 3.2 per cent on 2013 at constant exchange rates.
Commenting on the performance, Steve Gunning, chief executive at IAG Cargo said: “These are strong results, built on exceptional performance for our premium product portfolio and an increase in load factors over the course of the year.
“In 2014 we delivered on our promise to lead the industry in sensible capacity management; replacing our freighters with capacity agreements on key trade lanes and launching EuroConnector, which benefits customers through time definite services and has increased narrow body usage across our European network.
“We have also been at the forefront of industry innovation. Following a sizeable investment, for example, IATA has now ranked us the leading European carrier for electronic air way bill penetration. We have also continued to innovate around our temperature-sensitive product, winning Good Distribution Practice certification and Wholesale Distribution Authorisation for our Constant Climate Centre at Heathrow – the first such award to be made from a national authority to an air cargo carrier.
“Our 2014 results have therefore placed us in a strong position for 2015, which we intend to build on by working in partnership with other airlines to improve our network proposition, increase infrastructure investment and continue to provide products and services that add value to customers’ businesses.” commercial revenue (flown revenue plus fuel surcharges) of Euro 992m over the period from 01 January through December 31, 2014, a decrease of 7.5 per cent on 2013. On a like for like basis, adjusting the prior year’s figures to reflect a directly comparable freighter operation, commercial revenue increased 2.4 per cent versus last year.
AIR cargo will not be covered until the second phase of the pilot scheme for the Trusted Trader Program (TTP). The first stage will focus on containerised sea exports, while the second phase will cover not only air cargo but also participants in the import supply chain.
A third phase may include opening up the pilot to additional participants from all areas of the supply chain.
It is expected that within 12 months there will be around 40 pilot participants, all of which would become full members when the scheme is in place.
The pilot is under the aegis of the Australian Customs & Border Protection Service (ACBPS), with involvement by the specialist global consultancy KGH Border Services.
Pilot participants are being selected in consultation with the Department of Agriculture, the Australian Taxation Office and the Department of Infrastructure & Regional Development’s Office of Transport Security.
An ACBPS briefing paper explains the TTP is being developed in accordance with the Authorised Economic Operator (AEO) Implementation Guidance from the World Customs Organization.
This explains that “the advantage of having a pilot is that there can be continued testing and refinement of protocols within a live environment. This can be done prior to the inclusion of greater numbers or additional segments of supply chain operators.”
Validation of pilot participants will focus on a company’s entire operations and not merely one specific part – that is, not just imports or exports but validation for the complete supply chain functions that a company undertakes.
The pilot will be introduced in a phased approach, with no time frames dictated for any phase.
Participants will be actively encouraged to provide feedback, which will be considered for incorporation or adaptation. ACBPS explains that “wherever possible, the TTP will leverage off other security or facilitation programs to maximise the benefits to participants and avoid regulatory duplication”.
Specialist consultant KGH Border Services has been selected by ACBPS as partner in the design and implementation of TTP.
Nominally based in Sweden, KGH has a global network of partners and staff, almost all of them with hands-on experience in Customs, logistics, security and transport.
It is headed by Lars Karlsson, regarded as something of a charismatic figure.
Pim Berkhuizen will be KGH’s project manager for TTP.
Teresa Conolan, assistant secretary for ACBPS’s trusted trader branch described the partnership as an important step forward.
“KGH Border Services brings a wealth of knowledge and experience in working with Customs administrations internationally to set up authorised economic operator programs.
Conolan said pilot participants would have to meet international supply chain security and trade compliance standards, but they would receive a number of benefits like enhanced client service through the provision of a dedicated client service manager, fewer examinations and priority consideration of applications for advance rulings, duty drawbacks and tariff advice reviews.
TTP would increase supply chain certainty and reduce red tape, she said. The risk management approach would enable ACBPS to focus its resources on areas of high and unknown risk.
ANNOUNCEMENTS by Customs in February served to confirm what has been promised for some time - Customs is tightening its approach, including action against service providers in the supply chain such as freight forwarders, licensed Customs brokers and operators of licensed premises.
In one sense this is no surprise. These types of actions against service providers have, in part, been the subject of public comment and additional legislation by the Federal Government and Customs since the release of the first results of the Operation Polaris exercise in May 2012.
The prosecution action announced in relation to alleged attempts to evade anti-dumping duties is also part of the wider compliance agenda, driven by concerns that some parties have been evading duties put into place to protect local industry against dumping.
Such concerns also led to the introduction of “anti-circumvention” provisions similar to those in place overseas aimed at actions being taken to avoid the effect of the measures. In those provisions, even though the actions do not involve deliberately mis-stating the nature or origin of goods (allegedly the case with the prosecution announced by Customs), the provisions allow for an investigation into actions taken to “circumvent” the measures and if specific circumvention is found to have arisen, then the ADC can impose additional duties on those exporters.
Ironically the ADC announced the results of its first investigation shortly after the Customs announcements and will recommend to the Parliamentary Secretary responsible for dumping to impose additional duties (going back to April 2014) on exports of aluminium extrusions from one exporter.
However, although we anticipated these issues would become public knowledge, the announcements have some wider consequences.
1. The language used in the announcements suggests a high level of confidence by Customs that it is correct. However, there is still a presumption of innocence and there could be some other explanation behind all these allegations. Perhaps it may be too early to suggest that those affected are part of the “unscrupulous” category of persons in the supply chain. Perhaps some less aggressive terminology would have sufficed? It would be interesting if Customs made public announcements if it was found that the affected parties were not, in fact, culpable as suggested. Even though parties are not named there is some level of general suspicion on the parties affected.
2. The announcement on the importer and freight forwarders and dumping issues may have benefitted from identification of the goods in question, given that there are a wide variety of goods where Customs and the ADC have communicated concerns on steps being taken to try and avoid measures.
3. The announcements on suspensions on the licensed service providers will clearly have an impact on others in the same position. However, there is more that could have been stated.
Why was the action taken – was it based on isolated incidents or had there been widespread and continuous non-compliance? What were the offending actions and relevant provisions? If the aim is to eliminate non-compliance and offending behaviours, then surely there are some lessons that could be communicated here and learned by industry to allow it to respond and improve? Without identifying parties or events, good regulation (according to the Government’s own rules) would require some transparency and engagement with industry on its compliance activities. Presumably some sort of outreach would be useful and could be developed and delivered to industry relatively easily. The focus and nature of Customs compliance activities has been less public recently and it would be in the interests of all parties for these issues to be better communicated.
4. The alleged “circumvention” activity described above was the failure by the affected parties to “pass on” the existing dumping measures to customers by increasing prices. Presumably, the affected parties elected to “wear” the duties themselves, possibly selling at a loss which defeated the effect of the measures. This is only one of several behaviours proscribed as circumvention leading to significant additional duties and very public disclosure of the parties involved, which is the case in dumping investigations.
The short message here is pretty clear on an increased level of compliance activity associated with a mindset that there are problems and miscreants to be managed. To the same effect, the ANAO Report on the TCO system which was released recently disclosed that Customs will be more actively engaged in the investigation of the alleged misuse of TCOs to the detriment of local industry and Government revenue, which is another angle where we can expect attention.
Industry should be taking as many steps as possible to ensure compliance - by themselves and their clients - and ensuring that they also protect their interests in a proactive and comprehensive fashion.
For more information, contact writer: Andrews Hudson, Partner, Gadens Melbourne. E: This email address is being protected from spambots. You need JavaScript enabled to view it.
There are not many people who admit they enjoy going to work. Genial Nick Kassis is one of them, writes John Newton.
After almost 15 years with the same company and nearly a quarter of a century in the freight industry, Kassis finds his role in the air export department of Freightnet International in Victoria both interesting and stimulating.
“My main role is to run and develop the department, providing support and guidance to my colleagues. We are a medium-sized organisation of 11 employees, with aligned offices in Sydney and Brisbane. Freightnet has been in operation for 34 years.
“Coming into my 15th year, it must be said that I do enjoy coming to work. Our organisation prides itself on maintaining a friendly work environment and servicing our customers to the highest standard,” said the father-of-three, who started his career as a document runner, compiling Customs entries, before moving to Rohlig where he started in the air import department before being employed by Freightnet.
“I also manage some customers on the import side of things as well. I think it is important to stay current with import and export processes, as these are constantly changing. Constant updated Customs, airline, shipping time, trucking and government requirement/procedures are never ending and I find the only way to keep your finger on the pulse is to be active in all, or as many areas as possible,” said Kassis, who grew up in Moonee Ponds (the same place as dame Edna Everage).
Asked if the industry in Australia was in good shape, he claimed it had suffered over recent years. “I worked through a golden age when the automotive industry was at its peak, business in general was booming and many freight forwarders, as well as local businesses, were benefitting. In today’s climate, I do hope that our industry (logistics and manufacturing) can continue to grow rather than business being taken offshore.
“Freightnet is quite diverse in its approach and I believe we can adapt and adopt new strategies quite quickly, giving us every opportunity to fit in with what the market requires.” However, Kassis said he felt the push for new technology would impact the industry this year – a great example is the roll out of the IATA Multilateral e-Air Waybill Agreement (Resolution 672) “to which we are a signatory.”
He contends the industry in Australia was keeping up with other major countries in the world. “We have kept up and continually grow in technological advances. New free trade agreements also are a good sign that the Australian government wants to compete and ‘be amongst it’ ”.
On whether he’d like to see any changes, Kassis said: “Sadly, I feel the days of close personal relationships with the airlines and shipping lines will change - again through the way we now communicate electronically, but changes like this are inevitable and the new breed of freight forwarders will embrace the new technology. Basically, the industry will change or evolve depending on what advances are made in communication - and aircraft and vessels servicing Australia.”
An enthusiastic Kassis added that he had no qualms about recommending the industry to young people. “It’s a fantastic industry to be in and I would encourage people who enjoy working hard, who want to learn and also like to travel. It would be a great career choice for them, backed up with excellent training facilities.”
Known as being ‘tinny’, Kassis said he’d been fortunate “to win an airline ticket or two” – and winning two business class tickets on the Etihad network was a highlight. “My wife and I went on a very short trip to Turkey – in fact, for just five days. Having three young children, we were limited to how long we could be away. But Istanbul – and in particular, Gallipoli – were truly amazing and spiritual places to visit.”
Continuing economic uncertainty in Europe, a slow down in China, plus security concerns and high fuel prices have proved challenging for the air freight sector in the past few years.
UK-based Virgin Atlantic has for the most part done better than many of its peers, posting record performances in two of the past five years. For the most part, it has used available capacity cleverly and has been able to exploit the changing pace of its various markets in the face of yield reductions.
Fortunately, Virgin Atlantic’s primary market - the US - has recovered, fuel prices have fallen dramatically and 2015 is looking very positive.
An announcement due later this month (March) is expected to elaborate on the deepening relationship between Virgin Atlantic’s and Virgin Australia’s air cargo operations and networks.
AirCargo Asia-Pacific recently spoke to John Lloyd, director of cargo for Virgin Atlantic on the changing markets and the direction Virgin Atlantic is headed in 2015.
Lloyd joined Virgin Atlantic Cargo in 1987 and has more than 30 years’ experience in the cargo industry. While recognising Virgin Atlantic Cargo will never be the biggest cargo carrier, he has instilled a passion for customer service in the organisation that has ensured it is consistently rated as one of the best cargo-carrying airlines in the world, winning 13 ‘Cargo Airline of the Year’ awards since 2002.
He joined Virgin Atlantic Cargo as Cargo Operations Officer based at Gatwick and has steadily progressed within the company from supervisory and management positions based at Heathrow and Gatwick, to general manager – Operations and general manager - Cargo before he was promoted to his current position of director of Cargo.
In his role, he and his team manage Virgin Atlantic’s cargo operations around the world. In addition, Virgin Atlantic Cargo offers a further 350 on-forwarding destinations world wide including those of its local partner Virgin Australia.
Last year was a year to forget for growth and yields in the air freight industry. How is 2015-16 shaping up for Virgin Atlantic? Every airline wants and needs to operate with the best possible margins and, in our case, optimise the contribution cargo makes to the airline overall. While there have been significant fluctuations in the air cargo market in the last few years, our business and share of the market have been quite resilient. Two of the past five years have been record years for our cargo business. In 2013, we maintained our revenues at GBP225.3 million very close to the previous three years and we carried 224,500 tonnes. Our figures for 2014 have yet to be reported but our tonnage was on a par with 2013 and we will be between one and two percent of that again, despite some capacity reduction. Overall, we held our position last year, achieved a slight increase in market share and had a load factor of 74 per cent, significantly above industry average. We are quite confident about the year ahead.
A couple of cargo carriers have moved to introduce surcharge-free pricing. The industry seems largely to support the move at least in principle. Any comment on the initiative and any plans to follow suit? We are discussing this right now. It would be easy to just make a snap decision but we want to get some feedback from our customers first about what works best for them. We fully support a clearer, simpler charging structure but we do need to consider processes or controls that protect us against fuel price spikes in the future. Surcharges are certainly a source of tension with customers so the move to something simpler now makes sense. The reality is that there has been an abundance of all-in rates in the market for some time.
The deepening alliance between Virgin Atlantic and Virgin Australia is exciting. What does it mean for freight forwarders in both your combined markets? We have an excellent working relationship with Virgin Australia that dates back to the start of 2009. Under the terms of our agreement, we sell all of Virgin Australia’s long-haul international capacity connecting Sydney and Brisbane with Los Angeles. It works for both parties. For Virgin Australia, it generates a healthy financial contribution from cargo without the need for, and cost of, an in-house operation and they trust us to deliver the highest levels of customer service. In 2014, the amount of cargo we attracted for the Virgin Australia network rose by just over 20 per cent year-on-year. We saw growth throughout the year and 2014 ended with the highest December tonnages we have seen in four years. For Virgin Atlantic, it ensures we can connect customers in Australia and around the world with the rest of our network over the US west coast and means we have valuable transpacific capacity both ways. It also gives us a presence in Australia, which has always been a very important market for us from both a financial and emotional point of view because we have a strong connection with customers there and we remain passionate about working with them. We have just appointed Neil Vernon as Virgin Atlantic Cargo’s vice president Sales International and Australia is one of the first markets he is going to visit in his new role. Both we and Virgin Australia are actively looking for ways to further develop our relationship.
Global economic problems continue with China, Russia and elsewhere on the globe. What markets most impact Virgin Atlantic Cargo’s growth? China is certainly a factor. We are still filling our aircraft but the market is suffering a little at the moment and yields are suppressed, though this may only be a short-term situation. Otherwise, we are fairly well protected. Our primary market has always been the US and our service levels and reliability mean we compete well on the routes we serve. We don’t flood the market with capacity and we have a good spread of medium-high demand routes. Our latest route to Atlanta has started positively with very encouraging load factors and in June we open our tenth US route to Detroit. Whatever is happening in the world, the priority for us is to stay close to our customers. Our approach is based on talking to our customers to understand what it is that works for them and to then ensure we offer the service levels and pricing that makes Virgin Atlantic the right choice for their business.
What other new destinations might prove attractive this year? As I said, Atlanta is still a relatively new route for us and it will soon be joined by Detroit. Otherwise this year is about increasing frequencies of some existing routes. This will include extra services to Atlanta, New York JFK, Los Angeles, San Francisco and Las Vegas. Detroit gives us another gateway in the US Midwest and we expect it to generate a lot of on-forwarding business for our trucking services to other points nearby.
Fuel price reductions must be a boon for freight operations. Is Virgin locked into hedging contracts or can we soon expect a sharp reduction in surcharges? Yes, we have a comprehensive hedging portfolio that will take a little time to unwind and feed back into pricing levels.
High value shipments and pharma have been growth areas for carriers. Is Virgin Atlantic developing any special or unique freight services? Air cargo is obviously a premium mode of transport in terms of its speed and reliability, so quite a high percentage of what we already carry is of relatively high value. Pharma business contributes a growing share of our revenues and we expect this to increase thanks to the reliability of our cool chain service. We have always taken a simple approach to our services because our customers are influenced only by what we promise, how we deliver and the value we provide. The hands-on nature of the way we work and our service levels lend themselves well to time- and temperature-sensitive cargo or any shipments that demand a premium service. We certainly want to grow our share of the high value market this year and our customers should be confident that whatever we offer will come with the guarantee of a high class service they can rely on.
You pulled out of Mumbai in India at the end of January, despite the country being tipped to deliver solid growth going forward. What was the rationale? India has been a very important market for Virgin Atlantic for nearly 15 years but the passenger and cargo yields ex Mumbai are very different to the level from Delhi and we could not see any signs that this was going to improve. We never like to pull off a route because we work hard to build relationships with customers and appreciate the support they give us but the harsh reality is that we have an expensive aircraft asset that we have to make the most of, because airlines have to make money. Our customers in India appreciate the commercial realities of business and they understand that we are still very committed to India with our daily Delhi flights.
Virgin will have a major transatlantic focus in 2015 but you have talked before about the levels of excess capacity on these routes. How is this going to impact your cargo business and how can you succeed when other carriers are struggling? We know the market very well because it has been our biggest market for over 30 years. There’s no question that it is extremely competitive, but we are adding capacity on routes where we are already well established as a high quality carrier or in new markets like Atlanta and Detroit where we can see good cargo potential. Customers that choose to fly their cargo with Virgin across the Atlantic are very positive about these opportunities to use us more.
Delta acquired a 49 per cent stake in Virgin Atlantic and you now share a transatlantic joint venture. What does that mean in real terms for the cargo customers of both airlines? What are you already doing together and what might we see in the future? It means that in terms of frequencies and destinations, we will have a very substantial offering for our customers covering 245 departures a week to and from 19 destinations. Our big focus now is to get our systems talking to each other so we can book directly into each airline’s capacity. In support of this, we have already co-located our handling in a lot of stations to ensure a fast and seamless service for the customers of both airlines.
People often forget that Virgin is not a big airline in terms of its fleet and route network because you have arguably punched about your weight thanks to the Virgin brand and your high customer service – but how difficult is it to maintain this? Is a strong brand and great service enough when competing against today’s handful of big global carriers? We have a strong brand and a reputation for high class service and so sometimes we are perceived to be a bigger airline that we actually are. We have a good network of routes in and out of the UK and serve some important trade lanes but we do often stop and ask ourselves ‘why do customers need to use us?’ If you take the need to be price competitive as a given, I believe customers choose to fly their cargo with Virgin Atlantic because we look after our customers, we always try to be flexible to meet their requirements, we’re both proactive and approachable, and if something goes wrong at any point, we fix it quickly. Our load factors suggest we are getting the balance right. We also run a lean and efficient cargo operation and we have extremely effective capacity and revenue management processes that ensure we make the right decisions about the business we carry and deliver reliable service. Sometimes the bigger the competition is, the easier it is to compete against because they can’t always do what we can do. We work hard on our customer relationships and continue to target those customers we know place a higher value on service.
What are your biggest concerns for the air cargo industry in 2015? The security environment given the world we live in today.
IIN the past, many under-performing companies have managed to slip under the radar and escape insolvency. With market conditions changing, these businesses need to change course if they want to avoid going under, warns RSM Bird Cameron.
Andrew Beck, national head of turnaround and insolvency at RSM Bird Cameron said: “In 2014, many indebted companies were able to repay the interest on their debts but not able to reduce the actual debt itself. Neither could they invest in maintaining or updating equipment or make strategic investments.
Low interest rates let these ‘zombie’ companies maintain their commitments to their financiers. As such, it is unlikely that these financiers will seek to enforce their security any time soon and this is how zombie companies will continue to battle on. The number of zombie companies may even increase, given there is no expected increase in interest rates in the near future.”
According Beck there are four signs that indicate a company may be heading for zombie status:
1. Covering the bare minimum. Companies that can only cover the bare minimum such as running costs and interest-only repayments.
2. Paying interest but not the debt. If a business is incapable of paying down the actual debt to an agreed timeline then it may already be a zombie. So, unless its operating practices improve dramatically, it is likely to become insolvent regardless of bailouts and support.
3. Put a hold on growth. Zombie companies generally are not able to invest in new business or hire new staff. When organisations need to put a prolonged stop to growth and expansion, especially if market conditions are average, this can be a warning sign.
4. Financiers will be reticent. When companies have reached the point where they are only covering interest and not paying off the actual debts, smart financiers and investors become more hesitant to continue funding the business. This may in turn lead to additional debt from alternate sources (e.g. creditors including the ATO) which may go largely unpaid if the company is declared insolvent and will leave lenders and investors without their money.
Beck said: “When an organisation consistently underperforms financially and is doing the bare minimum to meet its financial obligations, it could be a sign that the business is about to reach zombie-status.
“When this happens, there are two options. The first is to try to save the company with an overhaul of management practices and operational procedures. The second is to put an end to the cycle and shut down the business. Either way, a zombie company cannot be allowed to continue to wander aimlessly, potentially taking others down with them.”
IAG Cargo has reported commercial revenue (flown revenue plus fuel surcharges) of EUR992 million for the year from 01 January through December 31, 2014, a decrease of 7.5 per cent on 2013.
Following the cessation of its long haul freighter leasing contract with GSS on April 30, 2014, IAG Cargo ran a significantly reduced freighter program, which is reflected in the following figures: 5,453 million cargo tonne kilometres (CTKs) for the year decreased by 3.5 per cent compared to 2013, while capacity decreased by 5.0 per cent.
On a like-for-like basis, adjusting the prior year’s figures to reflect a directly comparable freighter operation, commercial revenue increased 2.4 per cent and volumes of 5,453 million cargo tonne kilometres (CTKs) for the year were an increase of 6.7 per cent; capacity increased by 2.3 per cent.
On a reported basis, overall yield (commercial revenue per CTK) for the year was down 3.2 per cent on 2013 at constant exchange rates.
Commenting on the performance, Steve Gunning, chief executive at IAG Cargo said: “These are strong results, built on exceptional performance for our premium product portfolio and an increase in load factors over the course of the year.
“In 2014 we delivered on our promise to lead the industry in sensible capacity management; replacing our freighters with capacity agreements on key trade lanes and launching EuroConnector, which benefits customers through time definite services and has increased narrow body usage across our European network.
“We have also been at the forefront of industry innovation. Following a sizeable investment, for example, IATA has now ranked us the leading European carrier for electronic air way bill penetration. We have also continued to innovate around our temperature-sensitive product, winning Good Distribution Practice certification and Wholesale Distribution Authorisation for our Constant Climate Centre at Heathrow – the first such award to be made from a national authority to an air cargo carrier.
“Our 2014 results have therefore placed us in a strong position for 2015, which we intend to build on by working in partnership with other airlines to improve our network proposition, increase infrastructure investment and continue to provide products and services that add value to customers’ businesses.” commercial revenue (flown revenue plus fuel surcharges) of Euro 992m over the period from 01 January through December 31, 2014, a decrease of 7.5 per cent on 2013. On a like for like basis, adjusting the prior year’s figures to reflect a directly comparable freighter operation, commercial revenue increased 2.4 per cent versus last year.
AIR cargo will not be covered until the second phase of the pilot scheme for the Trusted Trader Program (TTP). The first stage will focus on containerised sea exports, while the second phase will cover not only air cargo but also participants in the import supply chain.
A third phase may include opening up the pilot to additional participants from all areas of the supply chain.
It is expected that within 12 months there will be around 40 pilot participants, all of which would become full members when the scheme is in place.
The pilot is under the aegis of the Australian Customs & Border Protection Service (ACBPS), with involvement by the specialist global consultancy KGH Border Services.
Pilot participants are being selected in consultation with the Department of Agriculture, the Australian Taxation Office and the Department of Infrastructure & Regional Development’s Office of Transport Security.
An ACBPS briefing paper explains the TTP is being developed in accordance with the Authorised Economic Operator (AEO) Implementation Guidance from the World Customs Organization.
This explains that “the advantage of having a pilot is that there can be continued testing and refinement of protocols within a live environment. This can be done prior to the inclusion of greater numbers or additional segments of supply chain operators.”
Validation of pilot participants will focus on a company’s entire operations and not merely one specific part – that is, not just imports or exports but validation for the complete supply chain functions that a company undertakes.
The pilot will be introduced in a phased approach, with no time frames dictated for any phase.
Participants will be actively encouraged to provide feedback, which will be considered for incorporation or adaptation. ACBPS explains that “wherever possible, the TTP will leverage off other security or facilitation programs to maximise the benefits to participants and avoid regulatory duplication”.
Specialist consultant KGH Border Services has been selected by ACBPS as partner in the design and implementation of TTP.
Nominally based in Sweden, KGH has a global network of partners and staff, almost all of them with hands-on experience in Customs, logistics, security and transport.
It is headed by Lars Karlsson, regarded as something of a charismatic figure.
Pim Berkhuizen will be KGH’s project manager for TTP.
Teresa Conolan, assistant secretary for ACBPS’s trusted trader branch described the partnership as an important step forward.
“KGH Border Services brings a wealth of knowledge and experience in working with Customs administrations internationally to set up authorised economic operator programs.
Conolan said pilot participants would have to meet international supply chain security and trade compliance standards, but they would receive a number of benefits like enhanced client service through the provision of a dedicated client service manager, fewer examinations and priority consideration of applications for advance rulings, duty drawbacks and tariff advice reviews.
TTP would increase supply chain certainty and reduce red tape, she said. The risk management approach would enable ACBPS to focus its resources on areas of high and unknown risk.
The prosecution action announced in relation to alleged attempts to evade anti-dumping duties is also part of the wider compliance agenda, driven by concerns that some parties have been evading duties put into place to protect local industry against dumping.
There are not many people who admit they enjoy going to work. Genial Nick Kassis is one of them, writes John Newton.
AirCargo Asia-Pacific recently spoke to 
What other new destinations might prove attractive this year?
Low interest rates let these ‘zombie’ companies maintain their commitments to their financiers. As such, it is unlikely that these financiers will seek to enforce their security any time soon and this is how zombie companies will continue to battle on. The number of zombie companies may even increase, given there is no expected increase in interest rates in the near future.” 
IAG Cargo has reported commercial revenue (flown revenue plus fuel surcharges) of EUR992 million for the year from 01 January through December 31, 2014, a decrease of 7.5 per cent on 2013. 
