Partnerships are the future for Saudia Cargo
With a dwindling number of freighter carriers in the air cargo market, there are good growth opportunities through partnerships with belly carriers who require maindeck capacity on certain trade lanes and partnerships also make sense for expanding a carrier’s global footprint, said Saudia Cargo’s VP for commercial.
March 22, 2016
By PLA Editor
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Saudia Cargo is in discussions with at least two Chinese carrier groups on a strategic partnership to extend its footprint in North Asia. Speaking to Payload Asia during the recent Air Cargo India event in Mumbai, Saudia Cargo’s vice-president commercial, Rainer Mueller said talks are ongoing with Chinese carriers including both the Hainan Group and Air China.
“What I foresee is the strengthening of our footprint in this area, so it will be similar to our partnership on the North Atlantic and we will be looking into strategic partnerships in North Asia,” he said.
This type of cooperation is already up and running on the North Atlantic with an existing pro-rate agreement between Saudia Cargo and Virgin Atlantic Cargo.
“Virgin Atlantic is taking shipments for us from United States the United Kingdom and then the shipments are being transferred to us in Manchester and Heathrow and then we are taking shipments to Saudi Arabia and the Middle East.”
Mueller said the carrier is now at the stage of taking this cooperation to the next level and is finalising the agreement with Virgin. “I think more or less we are aligned, now it’s really just to finalise the agreement,” he added.
“I foresee that this trend of partnerships in the industry is ongoing – there will be more and more of this cooperation,” he said pointing to the fact there are less and less freighter carriers.
“This means that there are belly carriers concentrating more on the belly product, but on certain lanes they will require a freighter product,” he said, adding that “during this show we have been contacted by three major players who were never talked to us before. So, yes I see this as a trend that is going to be more important in the future once the volumes go up.”
Aside from the North Atlantic and North Asia, Saudia Cargo is looking at the same concept in Africa where talks are also ongoing with potential partners on top of Saudia’s existing partnerships. The same strategy is also being pursued in Europe. “So yes we are actively looking into additional cooperation and partnerships all over the globe – wherever it makes sense for both parties,” Mueller said.
Competition ground zero
Although the neighbouring Gulf carriers in Dubai, Abu Dhabi and Doha frequently steal the headlines with everything from route expansion to aircraft orders, the simple fact remains – Saudia Cargo is the largest freighter operator in the Middle East. But what of the competition from these rapidly expanding carriers?
“We are in a different position compared to Qatar, Etihad and Emirates – they are all more or less having the same business model which is hub and spoke and then going everywhere and connecting to everywhere,” Mueller explains.
“Our business model is different as we have a much stronger home market,” which generates both imports and exports, he said noting that the population of Saudi Arabia is nearly 28 million compared to Dubai for instance, which is around eight million.
“What we are doing is concentrating on certain markets that we can really add value with our freighters. Concentrate on those markets where there is growth potential, where there is also demand for high-value products and I think that is the right place to be with our freighters,” he said. And indeed this is where one crucial difference comes into focus – Saudia Cargo concentrates on B747Fs, whereas the neighbouring carriers are focusing more on A330Fs and B777Fs.
“B777Fs are great aircraft as long as fuel prices are high, but now fuel prices are low which is giving a big advantage to us with our B747 freighter fleet.” He was also clear on the issue that Saudia pays market price for its fuel, in every market, including Saudia Arabia, contrary to speculation in some quarters that the carrier enjoys subsidised or at least cheaper fuel as national carrier of the world’s second largest oil producing nation.
“There are also high-volume customers who really want to see the B747,” he said citing the example of Kenya. Flowers are a volumetric cargo that is a B747 commodity. Other carriers have to go there with A330s which they’re routing via some other gateway, he notes.
“We are focusing on certain markets where we can really offer value with our particular product. We are not a network carrier promising the whole globe, this is not our way forward and this may be why we are not feeling that much of this competition as others are.”
Saudia recently added to its fleet from May until December last year, adding four B777s with Mueller quick to add that, “for us, the B777F is the ideal aircraft on certain lanes, but not in general.”
The core of Saudia’s freighter fleet will remain anchored around the B747s of which it operates 10 B747-400s (three of which are ERFs operated by Air Atlanta and by ACT) and two of the latest generation B747-8Fs. Aside from the three wet-lease aircraft, the remainder are all owned and this is a key part of Saudia Cargo’s fleet strategy.
“When it comes to fleet expansion we prefer to have a fleet that is somehow ‘breathing’, according to the development of our demand. So in case we need additional aircraft, the first priority is that we check the market and consider whether to lease-in additional capacity.”
The India challenge
On the India market specifically and also more generally, Mueller says carriers need to put more focus on on the final delivery, the final mile of our logistics process. While not talking door-to-door delivery he says a greater focus on notifying the customer that the cargo has arrived as well as working with the forwarder, the customs broker and the importer to manage the last mile.
“I think we can influence that part of the logistics chain. We can talk to the forwarders, we can involve the customs brokers and make sure this process doesn’t get stuck at a certain point,” he said. This includes ensuring that everyone knows the shipment arrived, all documents have been provided and are ready for customs clearance and customs is alerted so that clearance can be undertaken and the cargo picked up.
“It doesn’t make sense we just fly the cargo eight hours and then leave it in the warehouse for another couple of days because we are taking out the biggest advantage of our product which is speed. So that can be influenced by the airlines,” he adds.
“My feeling is that Customs will always be ready to cooperate, but they won’t run after the cargo in the warehouse – they need to be contacted,” he added in reference to India where cargo dwell times can easily run into multiple days.
This is one of the main challenges in the India cargo environment and as a result of what often becomes a huge backlog, customs authorities will slap an embargo, or certain limitations, on the airlines. Mueller says he’s even seen cargo staying on the ramp because the warehouses were all full from the backlog.
He’s reluctant to point the finger at freight forwarders, saying its more complicated than that because it also involves several payers including the airlines, Customs brokers and Customs officials etc.
Of course any conversation these days would not be complete without bringing up the topic of e-commerce. “E-commerce is on one hand the big chance for the industry meaning we will see increasing volumes, we will see them asking for higher value products and of course we are concentrating on that to offer products as required.
“But I think the airlines and the whole industry also has to think about the day after. We have to be prepared as soon as these volumes have reached a critical mass that then maybe those customers might come to the point of asking themselves: ‘Hey, why should I involve Saudia Cargo when this is something I can do on my own?’. Indeed sage words considering the recent announcement of Amazon doing pretty much just that.
“So this is something that we have to take into consideration and we have to develop strategies to deal with it, meaning we always have to offer on one hand a competitive product so that we are not getting redundant and at the same time we have to look into partnerships that might allow us to extend the logistical chain that we are in right now.
“Of course that is something that you cannot do on your own, but I can imagine in certain markets an airline together with other partners like freight forwarders, setting up a product that is facilitating e-commerce,” Mueller said.