“The Upside” was the theme that Niko Hermann, partner in Aviation Aerospace and Defence group of consultants Oliver Wyman, chose for his presentation on logistics. This came from the title of a book by Adrian Slywotzky, an Oliver Wyman management guru, whose theme was that if you are the fi rst to spot risks and take steps to manage them, you can have enormousadvantages in a market.
In the logistics business, Hermann divided the challenges into industry risks such as high fuel prices, security, climate change concerns, deregulation and overcapacity; stagnation risks such as the danger of slow or explosive growth in some markets; customer risks such as forwarders and logistics providers consolidating; project risks such as depending completely on a large IT project for success; brand risks, such as the fact that the airlines were ceding brand value to forwarders and logistics companies; and competitor risks – for example the threat fromthe integrator model.
As an example, he pointed to the fact that airlines were being singled out as environmental villains, even though their contribution to carbon emissions was relatively small. “People are being made to feel guilty about fl ying or buying fl own products,” hetold delegates.
Yet there was an opportunity here for an airline or air freight company to be proactive and gain an advantage.“Soon there will be a required declarationof food miles. Whoever has aprepared environmental declarationin place that can show the benefi ts theyhave produced in this area will comeout ahead,” Hermann predicted.
Another potential threat was the new capacity coming into the China market and putting rates under pressure.“Competition is clearly stillintensifying and unless the US pressuresChina into a revaluation of itscurrency, the current trade surpluswith Europe and the US will continueto make freight economies more challenging,”Hermann suggested. Butthere were also upsides. There was stillenormous growth potential in China,and rising consumer demand wouldhelp balance traffi c.
Meanwhile, China’s carriers were hungry for operational and technical sophistication, and those who entered into joint ventures early had gained valuable experience from them. In India, Hermann saw the risks as competitive asymmetry, with the Middle Eastern carriers having early mover advantages; a regulatory environment that was very dependent on politics; a worsening infrastructure capacity crunch; and rapid fl eet growth from local carriers.
But once again, he said fi rst movers had gained a tremendous early advantage, particularly because the market was still unsophisticated and so new entrants could shape it and its products. Other upsides were that India’s hubs were well situated between Asia and Europe, and there was no language challenge, in contrast to China.
Turning to the consolidation among forwarders, Hermann observed how, in the past 10 years, 30 leading players in the sector had been merged into just seven. This meant the balance of power was shifting for airlines as their customers gained greater buying power. But the upside was that airlines now had the possibility to move beyond being mere discount providers to becoming part of the delivery system of a forwarder. There was also an opportunity for smaller airlines to combine in alliances such as Cargo Counts and Leisure Cargo.