The air cargo industry is going through a transformation at multiple levels, thereby, becoming increasingly dynamic. And freight forwarders are an important part of this transformation. In this candid conversation with Marcel Fujike, SVP Global Head Products & Services Air Logistics, Kuehne+Nagel, we talk about all the different facets of the air cargo industry from post-COVID recovery to the shift towards sustainable operations and much more. Edited excerpts:
As per IATA’s recent report, air cargo capacity was 12.5% above February 2021, however, remains constrained, 5.6% below February 2019 levels. What is keeping the global air cargo industry from crossing the pre-COVID levels of capacity?
I think you need to slice the world into certain segments now. If you see the US, Europe or even India, things may be getting back to normal. But the world’s largest EXIM market i.e. China is by far not back to normal. Then you will see why we are still below pre-pandemic volumes. China is pretty restricted and freighter, as well as passenger movement to and from China, has been held up. Only recently the lockdowns have been lifted. There isn’t much production moving outside China right now, and it is one of the main factors we have not reached pre-pandemic air cargo levels yet. The other main driver is of course the Ukraine war. It has 2 impacts – firstly, one of the largest air cargo fleets is grounded due to the war, and secondly, all the cargo carriers moving from Asia to Europe cannot fly over the Russo-Ukrainian air space. This means more time staying up in the air and fewer rotations for carrying cargo. Both these factors are considerably restricting capacity.
What is your take on the global uberisation of air cargo capacity? What are the roadblocks anticipated on the journey towards achieving such uberisation?
Uberisation for me would mean that I have more or less an offer, that I can just book the service and it is standardized in terms of quality and a pre-defined price. The first roadblock would be that we don’t yet have an open world but there are air traffic rights in place – it’s not that every airline can fly wherever they want to fly. So, this means capacity is somehow limited or the providers are limited to serve certain routes. On certain routes, you may have service providers who may not be providing equal quality or equal capacity. That speaks against uberisation.
We have different quality and reliability levels amongst airlines. And on the other hand, we have quality, capacity and reliability demand from the customers too – so customers are stuck on certain airlines’ names. For example, if you talk about pharma, you have certifications and validations, and normally you have a prime carrier that is validated and have certain SOPs then that need to be operated in the way as stated, and then you have a backup carrier. With uberisation, it would mean that any carrier could come in and fly the cargo and that isn’t the case right now. At the moment, the quality offered is not the same among all carriers.
What is the effect of sanctions-related shifts in manufacturing and economic activity, and rising oil prices (the by-product of the Russo-Ukrainian war) on air cargo community?
I think it is pretty obvious. It is negative for the end consumer but not necessarily negative for the aviation or air cargo industry as such. For the airlines, it means having higher costs because of the need to pay more for fuel. But the carrier can just increase prices because there are no rail or road alternatives, especially because of the war. The option of moving cargo via sea is also facing a lot of problems at the moment. If you really want and have to move goods in a certain time frame, you need to use air cargo for it. This is regardless of how much more the fuel costs; the airlines will adjust the price. In former times, rising air freight costs would have meant that air freight would have gone away, but with the absence of alternatives, at the moment for air cargo, especially for carriers, it is a nice situation. The one who is suffering is the shipper or end consumer, and you can see that by the inflation rates, which are at sky high levels at the moment.
For freight forwarders and carriers, the higher the market rate, the more money you make. The margin is a lot higher today than pre-COVID. In the last 50-60 years, air cargo never made money, but in the last couple of years, it has printed money. It tells you really about the whole situation.
This is an abridged version of the original interview that was published in the July edition of the Logistics Insider magazine. To read the complete article, click here.