the head of the freight Department of the International air transport Association (IATA) ::
The head of the freight Department of the International air transport Association (IATA) Glyn Hughes in late September called for Moscow to participate in the workshop “Digital technologies in the trucking industry” organized by IATA in collaboration with the Association of air transport operators (aato). Correspondent ATO.ru Glenum met with Hughes to discuss, in which direction is the air cargo market, why the industry is difficult given the changes, and why in Russia it is difficult to enter the industry.
– First, please tell us about the current developments in the cargo market. What are its prospects and what can be traced with the trends?
– Last year was the best for the air cargo market since 2010, and this for several reasons. First — the global economy showed impressive results: for example, Japan, whose economy was in recession for several years, Brazil, whose economy stagnated. Do not forget about the strong economies of the US and Europe, there was high consumer demand in the Chinese market. All these factors provoked the inflow of consumption.
In addition, the growth of the air cargo market has contributed to the development of e-Commerce e-commerce share in international trade today — 10%. This kind of trading is a huge potential for growth, especially if we take into consideration that 5% of these 10% is streaming media, not having physical form (tickets, music and so on). E-commerce is a very positive medium-and dalneyshuyu trend.
We also saw very strong growth in the transport of pharmaceuticals through the air. And now we are seeing support for the various programmes for improving ground infrastructure, which has traditionally been at a low level, for the transportation of pharmaceuticals from the airlines, logistics companies, ground service companies, etc.
Interestingly, despite the desire of the President of trump to destroy the world economy through sanctions, trade tariffs and barriers, we see positive trends on the air cargo markets. U.S. companies suffering from the so-called retaliatory measures from China, transferred their production to other countries, and this is good news for air cargo.
The market looks positive, we expect 4% growth this year that will be added to the 9% surge last year; profitability is also steadily growing — this trend held for 18 months.
– You mentioned the importance of e-commerce market for the air cargo industry. As for your forecast how actively it will develop in the near future?
– A few times a year there are events by which to judge the situation on the market. One of these days is the celebration of the Bachelors in China on November 11 (aka — world day of shopping). Each year the number of purchased products is growing in double figures. In addition, a growing number of purchases via phone on the way to work, at work, during lunch, in the evening. This is just a confirmation that e-commerce is a 24 — hour shopping. Now barriers for shopping is fully gone. For example, usually after work, we want to make the purchase, but this is impossible, since the stores are closed. Traditional shopping has a time frame, which do not have online shopping. Flexibility is the first advantage of e-Commerce, the second is convenience, third availability. Product selection is not limited to friends me stores in the neighborhood. So in the long term of online shopping will remain. But a large number of shopping now — domestic consumption (we see this in China, USA and parts of Europe). Cross-border shopping is not well developed, and this is a good opportunity for transportation. If you consider that custom or different organizations are not likely to contain this trend, for example by using tariffs.
Thus, the development of e-commerce — this is an incredible opportunity for transportation, but only if it is cost-effective, and delivery of goods at home, is well developed. After all, if you work all day, then shipping can’t bring the goods home to you. UPS came up with a solution — if earlier it was necessary to put the signature of the customer after each delivery, but now it is not, they just leave the package at the house. And even costs of loss and damage of goods by the weather less than the cost of courier trips home and back a few times due to the fact that the customer is not at home. So the market offering new solutions. Also, the new solution offers DHL in Europe: she delivers a package in a special box, which the customer opens through code. Such decisions will be distributed to support e-commerce.
– What, in your opinion, freight passenger airlines affect the business of cargo airlines?
Great question, because most modern passenger aircraft have excellent roomy compartments for cargo. For example, a passenger of the Boeing 777-300ER can carry 30 tons of cargo only takes a cargo version of the Boeing 757. Approximately 50% of the total volume of freight is carried by passenger aircraft and 50% cargo. So it is very important to have a route network linking the two types. It becomes particularly effective transfer of cargo between airports. Take, for example, Heathrow. They landed not so many cargo planes — 90% of the volume of cargo transported by passenger aircrafts and in Frankfurt 60-70% of trucks. So for industry it is important to have a route network connecting the two so the cargo could be delivered cargo airline to the hub, and then go to the passenger plane.
– Is there a trend as the development of specialization of cargo airlines for various cargo?
– Yes and no. I tell you the example of AirBridgeCargo. It has strengthened its position worldwide and has chosen a strategy of specialization on many types of goods. If we talk about the pharmaceutical industry, the ABC has invested heavily in certification and passed her one of the first in the world (IATA leads the program CЕIV Pharma), confirming the necessary qualifications to transport medical supplies at the highest level. Also, the airline spetsializiruyutsya on the transport of animals — it will work with IATA on a similar program, and she carries spare parts for the aircraft. That is, we see not so much the focus of the airlines on specialization on one type of goods, how much focus on many types of goods, but of very high quality transportation.
Despite convenient geographical position and transit potential of Russia is still underdeveloped :: Fæ // Wikimedia.org
Russia’s transit potential, cross-polar routes and the prospects of intermodal transport
– Why Russia’s transit potential is not used by the international freight industry?
– If you look at the world map, you will see that Russia is literally in the center of the world. So as not to be close to Russia, is that possible to fly from Canada to the US, but even then, if you fly near Alaska, you will be quite close to Russia. And you have to ask, what’s the problem? This lack of marketing or people concerned by the difficult transit procedures? I think it’s a combination of several factors. For example, perhaps there are issues of rights to fly over Russia, the weather in the winter. But I would say that the case is still in the legislation. While the cargo is beneficial to land in Russia after arrival at the airport if he stands on the platform or goes to the terminal and back, you still need to complete a Declaration. And if you need to fill the Declaration and pay a Deposit, which will be unlocked only in case of departure cargo aircraft for the next flight — this is a problem.
Some countries have a free trade zone, which provides a good tool for the introduction of a transit point, because the cargo can fly, to leave the airport, stay in the free trade zone — still in the storage area. And if you think about the advantages of geographical position, Moscow, for example, is close to Europe is three and a half hour flight. If there was a free trade zone, the goods would come from Asia and be in the free trade zone, just 3.5 hours from almost all of Europe, and it’s 400 million consumers. The geographical position of Moscow would put on the market the best products and very fast delivery. But in this city it is impossible to transport cargo between airports in the area of customs. Again, if Russia had a national policy for air cargo covering all aspects of the market (we encourage all countries to accept it), it would help the development of the economy: the introduction of the state programs of development of cargo transportation that would include the transit of cargo, departure, arrival, creating a free trade area would entail the inflow of investments.
– And speaking of cross-polar routes, how they are popular among cargo airlines?
– It comes down to the Economics of transportation. Attention is directed to a combination of factors: how many flight hours you want to get from the aircraft, the cost of fuel, which determines the shortest path between destinations, the value of the goods that you are transporting, as well as the profitability that you generate from this flight. So when fuel was cheap, the demand from senders relatively low, and profitability was very low, carriers are looking for the cheapest route than the most direct. And so they cut right to overfly Russia. Now there is the reverse situation — carriers have huge traffic demand to/from Asia, and if they can make the flight at 90 min so they will do it. The cost of fuel goes up, which also means that operators are seeking to reduce time of flight, so now, I think these tracks are becoming more and more attractive. But it’s cyclical.
– There is another type of transport, the prospects of which I would like to know your opinion, is intermodal transportation…
– In fact, almost all intermodal cargo, as the airport they get on the truck and in exactly the same way it left. Take, for example, the initiative of China’s “one boat, one road”, they are actively investing in port in Pakistan, then there is the creation of a simplified effective chain “railway — aviation — Maritime transport”. Because the consumer wants to receive the goods as soon as possible, but also efficient in terms of cost. By using intermodal transport is the transportation of oversized cargo, for example, from China (or any other centre of production) by sea to regional distribution centres where the goods will be to wait for the order (logistics platform of Alibaba, for example, has identified five regional distribution centers). Then on the plane to deliver goods in peace, well and from airports by truck directly to the customer. Also in the future, possible delivery using drones and unmanned vehicles.
The digitalization of the trucking industry
– Held in September in Russia, the seminar “Digital technology in the trucking industry” you mentioned that the industry is not ready for a full paperless. Why? And which countries are closest to do it?
– That’s a good question. Industry-air freight old waste a lot of processes and a lot of people who used to do things the old way. Lead such a comparison: I am sitting in front of you with a sheet of paper and a pen, you sit in front of me with an iPhone and a laptop. I think this is the root of the problem. In the industry a lot of people like me — people who used to work in the old way. The industry needs young people whose whole life is somehow connected with digital technology — with their appearance, the process of abandoning paper is a natural.
However, I’m not saying that the problem is the people, here it is in the mix of things. First, the branch history had worked with paper, people do not want to change. Second, there is a very difficult question of communication: for example, when passengers refused the paper, it was only a matter of changing the communication between passengers and the airline. But if we remove the paper from the freight, it’s about communication carrier ground service providers, customs, customer, government agencies… So in this game too many actors who must act together to hold hands and say, “We’ll do it together!”. And in order for that to happen, you need strong leadership and initiative from the state.
For example, consider the airport of Dubai for me is one of the best examples. Dubai customs was the first to introduce e-AWB (electronic air waybill. — Approx. Atogo). They said to continue the effective work they need to get rid of the paper, ordered everyone to move to electronic customs Declaration with an electronic invoice, and the work was done!
In other countries — take, for example, the UK — custom works the other way around. They welcome as electronic document management and paper. And thereby left the decision on transition to electronic document management market players. Airports China — Beijing, Shanghai, Guangzhou, Shenzhen is a question of prestige, they want to outperform the competition in innovation, where the driver of the transition to electronic document management is the competition.
So, as I said, the difficulty is that each country works differently. In Russia, for example, leading industry players say about the need to maintain paper documents. I heard the head of Domodedovo customs says about the stupidity of putting the nine stamps on the invoice and that for efficiency, it is necessary to pass to electronic document management.
– Continuing the theme of the digitalization of industry in Russia… is It difficult to implement e–freight in our country? How far we have progressed?
– Yes, it was difficult. If I’m not mistaken, originally there were nine different ministries, which were to adapt the legislation. And it happened at a time when Dmitry Medvedev has declared that they have the initiative to establish electronic government (e-government), and Vladimir Putin said he wants to be in the top 20 on the index level logistics. But you can’t get into the top 20, using paper documents. So was the desire of leaders to change the situation, but first it was necessary to ratify the Montreal Convention, which, as you know, took 10 years. Well, no one gave up and the document was ratified last year, and the e-AWB, as it became known, will be supported in October. Now, however, lawmakers say that they must approve the form of the document. However, the problem is that electronic documents there is no form, and if you want to print an electronic document, it comes out of the printer in the form that is now accepted, we need to prove it to them. I think that this should satisfy the government. As soon as the government gives us the green light, we will begin to conduct seminars and demonstrations in order to attract technology providers (Appendix ATO 10 October it became known that the Ministry of justice registered the order of Ministry of transport “On approval of forms of electronic bill of lading in civil aviation”.) It is also very important in this market technologies are necessary, and we advise all market players and service providers to look at international standards and to adapt them to the users. Then everything will be OK.
– Last year in Russia introduced a system of payments for air freight (CASS). Tell us about the process of introduction and about the difficulties that you encountered.
We started this project in 1979 in Japan, he now works in over 80 countries. And over the last 25 years were absent from only one country — Russia. We as an organization manage CASS now already for almost 40 years, and it shows how technology can be used to achieve efficiency. The value of our system is that it automatiseret processes such as payment, preparing and sending bills… But, as it happens with any innovation, some market players to CASS wary. The introduction of such processes we need leadership that was shown by “Aeroflot” in the implementation of CASS in Russia. The number of join the system, freight forwarders are now more than 60 (an increase of 500% compared to the beginning of the process). And we encourage carriers to join the system.
“Aeroflot” (the second place on volume of cargo in January–August 2018) demonstrated leadership in the implementation of CASS in Russia: Leonid Faerberg // Transport-photo.com
Barriers to the development of transportation
– Earlier You mentioned the sanctions, trade tariffs and barriers… Tell us how the political situation in the world affect the industry?
Our economic Department monitors the products that were affected by the trade war between the US and China. The first types of products for which targeting both sides, are not what we transport. The US, for example, has imposed restrictions on the import of aluminium and finished products — washing machines and so on. All of this is being transported by sea. China is also aiming to completed products such as Harley Davidson motorcycles. So the first wave of sanctions have not affected the goods for the freight. But with the development potentially of sanctions is not excluded.
However, as I said before, production in this case will move our industry will only benefit from this. So, due to the trade war we will lose and gain. However, IATA has insisted that the global economy should be open. We don’t like trade tariffs and barriers, because all that is artificially holding back economic activity does not benefit the global economy. And all that does not benefit the global economy, does not benefit the industry of cargo transportation. And if people will have to pay 25% more for their cars, washing machines, phones, they will have less money for other spending. In the end people will change phones every three years, whereas previously they did it every two years. So this will be a problem for our industry. So we’re lobbying both sides to keep the global economy open.
– Could you name the three constraining factor in the growth of the air cargo market?
– The most important factor: people need to be accepted and supported future. Because, as I said earlier, many do not go to change the order of things, which always worked. But the world is changing and our industry must become more forward-looking.
Second, we need legislative support from the state. Not enough States around the world understand the importance of the air cargo industry. Here take, for example, Russia. You have a thriving economy, and people want to buy high-quality goods produced outside the country. But if the import process was not adjusted, and the cost of transporting goods in the country is high, the final cost of the goods is passed on to the buyer — is higher than it should be. And the buyer can’t spend money on other goods produced in the country.
The third is infrastructure. Today airports, rather, seek to improve the infrastructure of passenger terminals, rather than to pay attention to the terminals. They see a smiling or angry faces of the passengers, but don’t see a problem with the cargo infrastructure. From long handling damaging to the national economy. So we encourage the airport operators to look at its cargo infrastructure as a strategically important objects for the country.