Emirates cargo boss hopes for ‘U’ shaped recovery

It may seem contrarian, but there is at least one air cargo executive out there that does not wish for a sharp recovery in the global economy. Speaking to Payload Asia on the sidelines of the recent Air Cargo Europe event, Ram Menon divisional senior VP for Emirates SkyCargo said he hopes for a gentle recovery.

Air & Cargo Services air cargo Air Cargo Asia air cargo freight air cargo handling Air Forwarding air freight Air Freight Asia Air Freight Logistics air freighter air freighting Air Logistics Asia Air Shipping Asia airlines cargo airways cargo asia cargo news Boeing 777F cargo aviation Emirates SkyCargo global economic recovery Ram Menen

“This is clearly the worst recession since 1930s and we thought history wouldn’t repeat itself, but it did and here we are in the middle of it,” he said noting that March and April saw the worst cargo volumes thus far.

“I think we’re over the bottom,” the SkyCargo boss said with some optimism citing the visible stability in the stock markets over the past few months. “We’re starting to see a slowing of decline and I’m still very hopeful that in last quarter this year we will see signs of recovery.”

“But this is one recovery that I hope is not a ‘V’ shape because the very foundations of he economy have been shaken, so we need a little bit of healing there and settling down that’s why a ‘U’ shaped recovery is a better one and that’s what it looks like we’re going through now,” he said.

He pointed to the fairly steady fluctuations in the stock market which gives rise to wealth creation, and this should continue over the next few months he said. “But if the recovery starts going drastically high, the danger is, because the foundations are not strong enough at the moment the global economic recovery could turn into a ‘W’ shape and a ‘W’ scenario means that weare all in deep trouble.”

Ultimate stress test
Menon notes that those carriers that have survived until now have had very good business models and were alreadystrong companies heading into the crisis, but he likens the current situation to thefinal stretch of an endurance race whichis always the most difficult and painful.“This last stretch will be the ultimatestress test,” he added.

“I’m still sticking to my cautious optimism that the last quarter of this year we’re going to see some signs of a recovery coming in.” Menon links the recovery of the air cargo sector with a recovery in the automotive sector. Until that happens he said, there will be growth, but not huge supply chain movements.

With air cargo handling most of the global automotive industry’s component traffic, the air cargo industry developed a high degree of dependency on that sector and “we have taken that for granted,” Menon said.

He points to the coinciding timing. “If you look back, air freight fell off the cliff when the automotive sector stopped production. That was a major effect, of course not the only effect, but like when you throw an anchor down, the chain follows the weight.”

Shaken foundations
But among the reverberations from this unprecedented global economic downturn is the disruption to the process of globalisation. Menon feels the result of this economic shake-up will be a debate over regionalisation versus globalisation.

“I expect the global economy will end up somewhere in between the two for the next four-five years as countries try to protect their industry, but globalisation will come back because at the end of the day, the consumer doesn’t want to pay a higher price for the same thing he can get in China.”

In the meantime, all anybody can do is wait and watch. “The best we can do at this stage is watch and be ready as the market comes back and I’m pretty sure it will start coming back in the last quarter of this year and supply and demand situation will get a bit better, a bit more balanced,” Menon said.

But in this final stretch there may be no choice but to make further capacity reductions, “so this last stretch is the painful stretch.” SkyCargo has shrunk its capacity in the market by nearly 25 per cent, inline with much of the industry, but while the depressed volumes are one issue, it’s really the dismal yields that inflicting the most pain with overall industry yields down at least 20-25 per cent.

And in the midst of all this, Emirates is taking on 17 new passenger aircraft and another Boeing 777F will join SkyCargo this month close on the heels of the first one which was delivered last month.

One lucky stroke for the SkyCargo division was an earlier decision to exchange one B777 production slot with the passenger side. “Whew,” says Menon as he wipes his brow in mock relief,perhaps the only relief he’s going to see until the end of the year.

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