IATA steps up its cargo game
A dramatically redrawn environment for air cargo has the industry on over-drive as new pressing security issues add to the already tough agenda for most air cargo supply chain businesses. Amongst the industry champions working to ensure sense and order prevails, not just for its member carriers but the greater air cargo supply chain is the cargo team of the International Air Transport Association (IATA). Donald Urquhart reports from Geneva on IATA's progress.
December 1, 2010
While security is the latest knock on the hull of the air cargo industry, the market turmoil of late-2008 and early-2009 has been seared in the minds of every air cargo industry executive. A recovery of unexpected strength from late last year brought relieve to the industry, but left niggling questions as to whether it was a false promise. According to IATA’s chief economist Brian Pearce, the air cargo rebound that began in late 2009 is now moderating, but should continue at a more modest, but still positive pace through 2011. Crucially, he doesn’t foresee the much feared ‘double-dip’recession. “Looking at the rebound in profitability that we’ve seen in the past year, it’s been quite a remarkable performance,” said Pearce in reference to the over 20 per cent year-on-year growth in volumes from late-2009 through much of 2010, speaking to journalists at IATA’s Cargo Media Day in Geneva. That rebound, powered by inventory restocking as businesses turned to air freight as the mode of choice in the race to get key components and goods to factories and markets, put the air transport industry “at the leading edge of the global economic recovery,” Pearce said. According to IATA, international airfreight traffic grew 24 per cent and revenue generated by air cargo rose 30 per cent through the first 10 months of 2010 compared to the same period last year. The rebound, which is expected to return air cargo traffic to late-2007, early-2008 peak levels by the end of 2010, followed an unprecedented decline in which global air cargo traffic plummeted by around 25 per cent over an 18-month period starting in May 2008. Cargo slippage But Pearce highlighted what he described as the “slight slippage of air cargo growth” in recent months, something most in the industry have been watching with some trepidation as a potential sign of a ‘double-dip’recession. But the IATA economic guru doesn’t see things heading into another recession, instead he sees it simply as part of the industry business cycle, one in which the inventory restocking phase has come to an end. “Companies have now got comfortable levels of inventories, filled their shelves and warehouses to the right sort of levels so they’re no longer getting product to market as quickly as before and I think that’s why we’ve seen a pause in air freight markets, but that’s not the end of the cycle. “We’re now going to see companies shipping product in line with growth in final demand – consumer spending and business capital spending, rather than restocking and that will be slower growth, but nonetheless it will increase,” he says. The industry is moving into a different phase now, with not only freighters and twin aisle passenger aircraft being reinstated, but substantial new passenger belly capacity coming on-stream in the months ahead. “As a result we’ve gone past the peak of maximum utilisation. The big impulse to improve profitability is starting to wane as capacity comes back into market,” Pearce said. “Market conditions for profitability are not going to be as favourable as they were earlier this year. There is still scope for growth but going to be a tougher environment in 2011 because there are more people competing for the business that is starting to slow down from earlier this year.” This is also reflected in flattening yields, he added. Uneven growth But the continued growth will, like the recovery over the last year, be uneven he cautioned, pointing to the “booming” economies in Asia and other emerging regions, particularly Latin America. Pearce points out that third-quarter 2010 air cargo traffic remained below third quarter 2007 traffic across the North Atlantic. In stark contrast, intra-Asia cargo volumes during the third-quarter were 40 per cent above the corresponding period in 2007. “Over the next year the forecasts for Asia and Latin America are for very strong growth and we expect that to generate substantial business for the air cargo industry, as well as general economic growth.” Much of the substantial Asian growth will be an expansion of trade lanes within Asia itself, “which is very good for carriers that serve that region,” he said. For airlines without significant operations in Asia, cargo alliances, partnerships and joint ventures will be increasingly viewed as a means to gain access to these emerging markets, Pearce said. “Europe is going to be very challenged over the next couple of years, with some specific threats to the industry arising from that, but for the emerging markets, prospects look very strong and I think that’s very positive for the air cargo industry going forward.” Among the issues potentially impacting the European economies and hence the cargo market, are the end of the stimulus spending, dramatic fiscal tightening and concern over the stability of some of Europe’s individual economies. “The worry is that the situation is not over yet, a number of governments may yet default on debt,” Pearce warned, adding that another direct problem facing airlines is that of increasing taxation, in which governments are turning to carriers as a source of additional revenue to help plug some of their financial gaps. But these are not the only challenges facing the air cargo industry, as the events of October clearly demonstrated, security concerns are no longer the sole preserve of the passenger side of the business. Security in the spotlight With the discovery of the Yemenoriginated plot to bring down a cargo aircraft, the entire air cargo industry has been instantly and forever changed. But as IATA’s security director, Ken Dunlap notes: “It is important to remind ourselves that the response from the industry and from regulators needs to be measured”. “Air cargo is the lifeblood of global commerce. If governments resort to knee jerk reactions and try to appease public sentiment through catchy phrases, we certainly think we can damage this fragile global economy through wrong moves in supply chain security and securing air cargo,” he said echoing the sentiments across the industry. One of the pressing tasks is harmonisation of regulations and protocols and a key push in that direction for IATA is a standardised security declaration on which the organisation has spent six months developing an electronic version. As IATA’s global head of cargo Des Vertannes notes, every carrier uses some form of security declaration, but in the aftermath of the Yemen bomb attempt, a “lack of industry clarity” resulted in carriers applying the new requirements for declaring the origin of their cargo in different ways creating “a wave of unrest and dissatisfaction as well as a bottleneck.” The new e-security declaration would help alleviate this problem and Vertannes and his team have presented the document to ICAO and the world’s aviation regulators. “We’ve shared it with all of them, so it’s up to them to decide if it’s fit for purpose,” he adds. ICAO focal point One heartening development for Dunlap is what he describes as the “almost global outreach to the industry” from various governments and governmental groupings, to “help craft solutions on what is obviously going to be a long term agenda.” “There is no regulator that is going to come out with an emergency directive that is going to solve things in the short term. This is too fabulously complex a problem to be solved with some brilliant sentence or paragraph,” Dunlap said. He added that it is also encouraging that “ICAO will be the focal point for finding a global solution to a global problem.” This will help provide clarity in the definitions he said, for instance what is global security, what is elevated risk cargo and what is security screening. This has been a recurring problem over recent years with the US, the UK and the EU amongst others, all coming out with different definitions of essentially the same thing. “Now if we change the focus to ICAO, that puts standardisation where it needs to be and now when we have a regulator writing about enhanced risk or elevated screening it will be globally understood,” he explains. A key challenge he adds, is to keep the global momentum up. “I don’t see any deal breakers yet, anything that’s going to take the train off the track, but coming from this part of the industry we want to see things continuing at a strong pace.” IATA sees the way forward through three concepts, including getting screening technology into the airports that’s been languishing in laboratories and tapping supply chain solutions like IATA’s Secure Freight. “And certainly we need to take risk analysis based principles and wrap whatever solutions we come up with in risk management because as everyone knows, air cargo is a fabulously complex, fabulously large paradigm that helps the world economy operate.” IATA believes cargo needs to be targeted, cargo needs to be profiled and intelligence agencies can use advanced cargo data to do that. For IATA, this is exactly where E-freight fits into the picture alongside the new electronic version of the Security Declaration. There are two dynamics going on right now, according to Dunlap. “Everyone wants data, but the other half of the equation is whether the regulators can use this data – do they have the infrastructure in place to utilise this information?” IATA’s emphasis is to get the standards in place and get the data moving and when there’s a mature enough infrastructure, start doing the targeting, Dunlap said. Already there are various versions of this – in the UK there is the Known Consignor programme, in the US there is the TSA Certified Cargo Screening Programme and in the EU security regulations were recently changed to allow for secure supply chain processes. At the global level significant changes were made to ICAO’s Annex 17, to encourage the use and development of secure supply chains. Secure Freight Another linch-pin of IATA’s efforts to ensure a supply-chain wide effort is its Secure Freight programme. Essentially a set of standards, operating manual, templates and definitions, the programme is tailored for countries that have no, or very little, supply chain processes in place and are trying to provide the equivalent of ICAO’s Annex 17. It is a system for countries that don’t want to start with a blank sheet of paper and want to take advantage of a system developed from the best practices available from other countries, as well as industry, says IATA’s assistant director for Secure Freight, Carolina Ramirez. IATA worked with various international regulators and industry to devise the end-to-end solution that covers the entire supply chain, including for instance, airport security improvements such as improving access control, CCTV systems, to ensure a layered approach to security. The first pilot launched in Malaysia in November with the cooperation of Malaysian authorities and stake holders, including MASkargo. Three secure freight shipments were successfully processed in November, with the pilot running for six months. Other pilots will also be carried out in Egypt and unspecified countries in the Middle East. E-freight While the industry has been struggling to get buy-in and greater implementation of e-freight – something that is estimated to result in cost savings of nearly US$5 billion annually for the entire air freight industry – the initiative received an unanticipated boost by the Yemen bomb attempt. “The security issues raised by the Yemen incident coincidently raised the profile of e-freight in the sense that all of sudden there was a realisation that there is a better way of obtaining information than today,” said IATA’s head of cargo e-business, Guillaume Drucy. He added that if the industry migrates to 100 per cent e-freight, it would be in an even better position to provide accurate and timely information about the cargo it was moving to security authorities. “We see today that we are able to come up with answers for the regulators and governments with e-freight as an important component in providing advanced cargo data,” he said. E-freight, which Drucy emphasises is not an airline initiative, but an industrywide initiative, now consists of 20 documents that have been converted to electronic form. Of these, 12 represent the core documents – the set needed in order to remove the document pouch for a piece of general cargo. A crucial ‘missing’piece of the puzzle was added a few months ago in the form of the e-air waybill. E-freight is now live in 39 locations (countries and territories), meaning the legal and regulatory environment, customs procedures and infrastructure for electronic data transfers are all in place for e-freight shipments between any of those locations. In the month of October 2010 Drucy said close to 12,000 international e-shipments were transacted, a 50 per cent growth over June and 40,000 domestic e-freight shipments were undertaken in various countries. This represents only one per cent of global air cargo shipments and a paltry 2.8 per cent of the trade lanes where e-freight is now in operation, but Drucy is undeterred. “This is actually right where we want to be at this point,” he says pointing out that it was necessary to first pilot the programme and then ensure the structure was in place before ramping up volumes. Driving the volumes Now that the e-air waybill is in place, “it’s time to drive the volumes, a nice time for the industry to go for 100 per cent,” he added. Indeed, there is no time to waste if IATA has any hope of reaching its Board of Governors-mandated 100 per cent e-freight volumes by 2015 on all trade lanes where e-freight is implemented. IATA estimates it will have another 41 locations live by that date, bringing the total to 80. “It’s an aggressive goal,” Drucy admits, but adds it is “achievable, if we do a number of things right.” This includes industry engagement to get across the message that, “this is an industry initiative, not an IATA initiative,” and to encourage further adoption. It also means ensuring there is the appropriate infrastructure in place to enable the electronic data transfers. And lastly there must be an embracing regulatory environment to allow it to work. In some countries this has been held up by the fact they have not ratified the Montreal Convention 1999, or MC99. On this last point Vertannes held out criticism for the governments that have yet to ratify MC99 which he described as a “lever for doing business on an electronic platform”. “Any government that invests in infrastructure for air cargo stimulates enormous trade through that gateway. You don’t have to be an originator of large tonnes to stimulate large tonnes – if you want to keep a vibrant air trade business for your country than you need to be competitive and e-commerce is crucial to this, yet many governments have been slow to ratify MC99 as a lever of electronic trade. “Here we are trying to introduce something that has been experienced on the passenger side and we still have this resistance at governmental levels.” Vertannes said IATA is now working intensively industry on “a path of adoption,” in order to reach this 100 per cent target. “Adoption has to come with complete support from industry – it cannot come from just two or three factions – every stakeholder involved in our industry has to come to the party.”