Where has all the cargo gone?
Recent editions of the AIT eNewsletter have both discussed and reported on the declining profits of the international air carriers led by all five of the major USA based airlines, in addition to the downfall of some small regional or niche carriers. The headlines continued in October:
United $779m in the red - United Airlines parent UAL Corporation posted a quarterly loss due to July's record-high energy prices and a drop in the value of its fuel hedges as oil later plummeted, Reuters reported.
Continental posts third quarter loss - Continental Airlines has reported a third quarter 2008 net loss of US$236 million, down 2.1 percent from last year's $241 million. High fuel prices continued to negatively impact results during the quarter.
Financial tsunami hits Hong Kong airport - Hong Kong's international airport saw a fall in cargo and passenger numbers in September, with the Airport Authority citing the global financial crisis as a major reason for the drop, Dow Jones reported.
Spanish airline halts operations - Spanish airline LTE International has suspended all operations after informing Spanish authorities it was in serious financial difficulty, Dow Jones reported.
Analysts see red for Chinese airlines - China's airline industry will most likely end up in the red in 2008 as it confronts a slowing domestic economy and the prospects of a global recession according to industry executives and analysts, Reuters reported.
This unfortunate downward trend is not only plaguing the airline industry - the ocean supply chain is equally being impacted:
Asia's shipping lanes hit hard - The ports and shipping lanes of Asia, the arteries of world trade through which goods and commodities surged in the boom times, are starting to seize up as the financial crisis strangles demand, AFP reported.
APL cuts capacity as global trade slows - Container shipping line APL has announced dramatic cutbacks to its Asia-Europe and transpacific capacity. APL will reduce capacity in the Asia-Europe trade by close to 25 percent, while slashing 20 percent off its transpacific trade.
In reviewing all of these headlines, some nagging questions loom on the forefront of our collective consciousness: where has all the cargo gone? Has a decrease in demand been brought about by slumping economies? Have the slumping economies been caused by the troubles on Wall Street? Or is it the housing crisis in the United States which in turn was caused by the mortgage industry? Was it the consumers themselves living outside their means? Is it even possible to go back in time to find an incident, point to it and say, "There! It started there?"
Another headline read,
World air cargo decline gains momentum, August off 2.7% - The latest international traffic data for August released by the International Air Transport Association (IATA) has confirmed that the downturn continues and is gathering momentum.
World airfreight traffic saw its third consecutive month of contraction with a 2.7% decline recorded for August, following a1.9% drop in July and a 0.8% fall in June.
Asia Pacific carriers led the decline, posting a 6.5% decline in July and a 6.8% year-on-year decline in August.
Adding to a point made in the next article, the same report went on to say:
An IATA statement declared: "Economic distortions surrounding the Olympics in China and a weakening Japanese economic outlook contributed. While some recovery in this weak performance is expected in coming months, clearly the region's economics are feeling the impact of the turmoil in the financial markets."
HKSG Group - Weekly News Summary, October 13, 2008
It seems the world's economic engine has shifted down a few gears. As discussed here often, the laws of supply and demand are both the most predictable and wreak the most havoc on transportation and the global supply chain. Consumer demand decreases, therefore output of factories (supply) decrease and less cargo is shipped.
World leaders now struggle to find a way to shift the gears of the global economy into "drive" again, as certainly we are in "neutral," or perhaps even worse- rolling backwards. Stimulus packages may help certain economic segments such as real estate; only time will tell when air transportation (a leading economic indicator) will be cruising along once again.
More Gold Unlikely In Post-Olympic Competition
After the glitter of the Olympics, Beijing moved center stage for the logistics sector, but chances of further world records are decidedly slim.
It is certain that in addition to showcasing the New China on a world stage, Beijing officials firmly believed that hosting the 2008 Summer Games would bring about its own economic "jumpstart." The following article by industry insider Ian Putzger notes that although there may be some increase in demand for China exports, an increase in capacity is not expected, with existing and available lift handling all impending growth.
With the sporting extravaganza out of the way, optimists had predicted a spike in air cargo demand as factories that had been idle during the athletics event ramped up production to make up for lost business. Indeed, output from the Chinese capital and adjacent areas was up in early September, but operators were unfazed. "There's been a surge since the Olympics ended, but we should have no problem handling it with the capacity that's available," commented Giorgio Laccona, chief executive of forwarder IJS Global.
James Gagne, chief executive for Greater China at Agility, agreed that the increase in demand should not cause any significant backlogs. "Beijing is a passenger aircraft market," he added.
Indeed, Nippon Cargo Airlines suspended its Beijing freighter just before the Olympics and will not resume the service in the foreseeable future. "The market is not big enough to support a full freighter," remarked Shawn McWhorter, president for the Americas.
If the post-Olympics mini-peak proves a product of wishful thinking in a troubled industry, what about the coming peak season for traffic out of Asia? According to Gagne and Laccona, recent signals suggest that demand is picking up already and building up for a spike in traffic later on. Ole Ringheim, senior vice president, airfreight for the Asia-Pacific region at DHL Global Forwarding, is bracing himself for a capacity crunch.
"Forecasts from several of our clients do suggest a relatively strong period for movement of air freight, and we take this as a positive signal for the remainder of the year," he said.
Singapore Airlines Cargo is planning to reinstate some flights that were suspended in response to weaker demand earlier on, but the focus will be on the Asia-Europe sector. Traffic to Europe looks set to be stronger than across the Pacific, reflecting the weakness of the U.S. economy, observed Tan Chong Beng, senior manager of industry affairs and mail.
There is a general consensus that the coming peak will arrive rather late, probably by November, and will be less pronounced than in past years. A major reason for this has been the build-up of capacity into China in recent years, which has outpaced market growth. Moreover, some production-in the garment sector as well as in electronics-has begun to shift away from China to other parts of Asia, notably Vietnam, Laccona pointed out.
While lift out of China has surged in recent years, freighter capacity in the Asia-Pacific region has dwindled lately as carriers cut back operations in response to soaring fuel costs. The coming peak seems to be as much as result of rising demand as of diminished capacity.
DHL Global Forwarding estimates there is 10 percent less commercial capacity available to North America and 5% to 6% less from Asia to Europe.
"We have sourced ten additional freighter rotations ex-China and expanded our traditional Q4 contracts by approximately 15% to 19% through commercial arrangements with our core carrier programs, covering in particular Hong Kong, China, Taiwan, Vietnam and Korea, and to some degree also Singapore and Malaysia. Through our in-house carrier, Starbroker, we have also lined up some additional capacity in our Miami and Brussels hubs to cover certain programs into Latin America as well as Africa," Ringheim reported.
Singapore Airlines sees some room for charter activity, but others are skeptical. Neither Agility nor IJS see much scope for charters, feeling they have sufficient scheduled capacity in hand. According to McWhorter, relatively few charters have been lined up in Hong Kong so far.
"The cost of charters has been high. It was up to $600,000 out of Hong Kong a short while ago," Gagne remarked.
The wild card in the equation is uncertainty about last minute demand. There has been speculation that importers may have been too cautious in their orders and will need to scramble to guarantee sufficient supplies at the last moment, prompting a spike in air cargo demand.
By Ian Putzger
Featured Web Site: www.bts.gov
About BTS
The Bureau of Transportation Statistics (BTS) was established as a statistical agency in 1992. The Intermodal Surface Transportation Efficiency Act (ISTEA) of 1991 created BTS to administer data collection, analysis, and reporting and to ensure the most cost-effective use of transportation-monitoring resources. BTS brings a greater degree of coordination, comparability, and quality standards to transportation data, and facilitates in the closing of important data gaps.
BTS' basic authorizing legislation is the Safe, Accountable, Flexible, Efficient Transportation Equity Act: A Legacy for Users (SAFETEA-LU), which authorizes $27 million each year for a five year period (2005-2009). This funding comes from the Highway Trust Fund, and is administered within the Research and Development account under the Federal Highway Administration.
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The website showcases an excellent publication titled, Pocket Guide to Transportation, 2008. In this 56-page Government booklet, readers will find numerous industry statistics including:
- Safety
- Security
- Mobility
- Economy
- Environment
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Author: Johnson, Deborah; Nguyen, Long X.
Corporate Author: United States. Bureau of Transportation Statistics
Publisher: United States. Bureau of Transportation Statistics
Year: 2008
URL: http://www.bts.gov/publications/pocket_guide_to_transportation/2008/pdf/entire.pdf
Database: NTL Digital Repository
Book Review: The Bid Managers Handbook
by David Nickson
Gower Professional Publishing
May, 2008
One way of securing new and long term business in international transportation is in response to a "bid," or RFQ (Request for Quotation). Individual companies, 3PL's, third-party bid companies (Ariba) and buyer consortiums often release their combined logistics business to the transportation industry in order to solicit rates and service quotations. Their goals are obvious: reduce cost, improve service, manage transit times (and therefore spending), increase value added services, and possibly reduce the number of service providers.
Some bids are elaborate processes beginning with an RFI (Request for Information); successful completion of which can get you to the next RFQ round. Upon evaluation and consideration, the freight forwarder may be invited to meet with the company's transportation council or senior purchasing managers.
A great deal of time and effort is put into responding to the numerous bids that take place throughout the year. These bids often entail extensive travel and dedicated resources to complete. This month's featured book details how to get the most out of the process.
The original Bid Manager's Handbook continues to provide an invaluable resource in the battle to win new business. Winning significant business on the right terms is an increasingly complex, challenging and time-consuming task, and a successful bid is a vital part of any business offering its services or products to another. This book will help you to enhance the probability of success in winning bids at the desired margins and to set up and run effectively a bid management team. The Handbook is aimed at sales staff managing multi-disciplinary bid teams, and project and technical managers who find themselves managing a bid to support a sales campaign.
Taking a practical approach and using real-life examples, David Nickson leads the reader through every stage of planning for, producing and delivering a bid. Crucially it also shows how to save time - the most important commodity in any bid - without affecting quality.
Now the original Bid Manager's Handbook has been repackaged to include additional material that expands on the writing and editorial side of the bid, the use of bid management software and the bid review process.
www.ashgate.com
Lufthansa Cargo rewards innovative ideas for
climate-friendly airfreight
Environmental prize for young researchers, customers and staff
Lufthansa Cargo AG is conferring its first-ever innovation prize next year. The "Cargo Climate Care Award," as the prize is labeled, is intended to honor committed endeavors by customers and staff of Lufthansa Cargo AG as well as students and young scientists. It will go to participants who come up with innovative solutions for improving the environmental balance of airfreight traffic.
The prize for students and young scientists is worth a total of 10,000 euros and will be awarded in two categories: aircraft technology and logistics. Participation in the competition is open to students, university graduates and PhD students from Germany, Austria and Switzerland. Entries must consist of concepts or models detailed in a dissertation or final examination paper, or stemming from a working group or an ongoing research project. The issue, which they should address, is how the airfreight industry can improve its environmental balance through technical or logistic innovations. Entries may be submitted by students of all disciplines, specialized fields of study or faculties in the German-speaking region.
The closing date for submission of entries is 20 December 2008.
Entries will be adjudged and evaluated by jury of experts chaired by Prof. Dr. Dr. h. c. Hans-Christian Pfohl, who heads the air traffic working group at Darmstadt Technical University. Lufthansa Cargo will publish a list of nominees for the award in early February. The winners of the award for young researchers as well as selected customers and staff of Lufthansa Cargo will be presented with their prizes at a gala presentation ceremony to be staged at the close of the first Lufthansa Cargo Environmental Conference in Frankfurt on 26 February 2009.
"The "Cargo Climate Care Award is part of the activities and efforts we undertake at Lufthansa Cargo in the interest of environmental and climate protection. Besides optimizing our processes, those efforts are aimed at reducing fuel consumption as well as expanding our environment management system and underpinning the commitment of the entire staff.
Our overall objective is to lower our specific CO2 emissions in airfreight transport by 25 percent by 2020," said Lufthansa Cargo Chairman and CEO Carsten Spohr. Lufthansa Cargo is, simultaneously, intent on promoting and furthering research: "With our vision of a climate-friendly airfreight industry, we aim to motivate students and young scientists to develop new insights and fresh ideas in ongoing research and development in the field of lowering emissions," Spohr continued.
The forms for entering the Cargo Climate Care Award competition will be available at the start of the winter term 2008/2009. Participants can register at www.lufthansa-cargo.de/ccc-award, where they will find the terms and conditions as well as the necessary application documents for participation.
Lufthansa Cargo AG
Corporate Communications
www.lufthansa-cargo.com
What Price Green Logistics?
A new 3PL Logistics study says 'green' supply chains are essential for future business success yet the majority of logistics executives are unwilling to spend the money to make it happen.
The survey shows that while the 'greening' of the supply chain will have an increasing impact on network design, transport modes used, selection of equipment, business processes, behaviors and balance sheets, only 46% of respondents say that going 'green' is a selection factor.
While theft continues to be the top security concern, logistics professionals note their customers are becoming increasingly concerned about the costs of meeting security compliance mandates in the face of terrorist threats.
Dr. John Langley from the Georgia Institute of Technology commented, "The greatest shared challenge is that of forming and growing successful collaborative relationships between users and providers of logistics services. Without a commitment from both sides little progress can be made in the greening of the supply chain and supply chain security. More than three quarters of 3PL users rate consolidation, routing, and mode selection as the top services 3PLs can contribute to green strategies. However, just 31% indicate that their 3PLs currently offer these capabilities."
Although 76% of respondents called their 3PLs secure, the survey revealed a gap between customer expectations and 3PL capabilities.
"Though the overall 3PL picture is similar to last year, it has become clear that green supply chain and supply chain security are increasingly becoming key drivers for success," said Dennis Wereldsma, Global Leader of Cap Gemini's Distribution Sector.
Conducted by the Georgia Institute of Technology and sponsored by Oracle, Cap Gemini and DHL, this latest 3PL study polled 1,644 logistics executives from North America, Europe, Asia Pacific and Latin America.
www.aircargoworld.com
October 2008
Aviation industry pushing ahead
with green agenda
MONTREAL -- International passenger traffic slowed to a five-year low in July and sagged further in August, but the International Air Transport Association and its 230 member-airlines feel compelled to push ahead with their Green Vision.
First sky-high fuel prices and fare surcharges staggered the airline industry. Now it's caught up in the global credit-market meltdown and the threat of world recession.
About 30 airlines have gone under and 20 more are at risk of failure as travel demand wanes, says IATA CEO Giovanni Bisignani. Airlines are cutting jobs and grounding aircraft to counter a 30 per cent rise in jet fuel. They're expected to post a collective $5.2-billion US loss this year.
But the race for fuel-cost savings and better environmental performance without compromising safety and security is as urgent as ever, says Gunther Matschnigg, IATA's senior vice-president for safety, operations and infrastructure. Biofuels are a key part of the future.
The airline industry is fingered as a global-warming culprit, but IATA says aviation is a small part of the big problem of climate change, accounting for two per cent of global carbon dioxide emissions.
But its carbon footprint is growing, and shock treatment is needed.
The first challenge is to cut up to 18 per cent of the aviation fuel wasted because of inefficient infrastructure and flight operations. That would reduce carbon emissions significantly, says Matschnigg.
Then governments and fuel suppliers must focus on alternatives. The goal: 10 per cent of total airline fuel needs to be met by alternative fuels by 2017. Governments must improve infrastructure, invest in technology and use financial incentives to get results; Europe is leading the way in setting standards.
Matschnigg says immediate gains are available from engine and airframe upgrades.
Fuel makes up 40 per cent of airline operating costs. By 2020 a 25 per cent fuel saving can be won from new-generation engines and wings, lightweight materials, fleet renewal, more efficient airports, better descent and departure paths, and more direct routing, the IATA says.
Biofuels for jets offer big emission gains. First-generation biomass fuels made from sugars, starches, oils or fats from farm products that compete with food production are not yet allowed for aviation fuel, says David Behrens, director of IATA's infrastructure strategy. Second-generation biomass fuels from forest and farm residues and municipal waste is already here. Third-generation biomass made from algae -- green pond scum -- and other crops need lots more research but has high potential for reducing emissions.
The IATA is backing either second- and third-generation biomass fuels to blend with kerosene or petroleum-derived fuels. Next-generation aircraft will be able to use a wider sources of fuels, says Behrens.
Ultimately Green Vision claims "zero emission" aircraft could be flying by 2050, a goal that has been met with skepticism from Boeing, Airbus, the big engine manufacturers and others.
But 10 per cent use of biofuels is a realistic near-term goal, they say, and such a blend could be certified for commercial use by 2013.
"The biggest problem with biofuels is cost as well as yet unproven performance," said Richard Aboulafia, senior vice-president at consultants Teal Group Corp. in Virginia. "The real progress in fuel economy and environmental performance is going to come from advances in engine and airframe technology."
Boeing successfully tried a biofuel blend in one engine of a big C17 transport two years ago. It is studying algae as a source of alternative jet fuels in partnership with NASA.
Many airlines, spurred by soaring fuel prices, have tried out biofuel blends up to 30-70 or even 50-50, including Virgin Atlantic, Continental, Air New Zealand, Japan Airlines, Lufthansa, in co-operation with engine builders General Electric, Pratt & Whitney, Rolls-Royce and Honeywell.
Robert Gibbens
Canwest News Service
© The Vancouver Sun 2008
Rolls-Royce brings propeller engines back in vogue
Aviation Company claims the design could cut an airline's fuel bills and greenhouse gas emissions by 30%
It evokes images of the vintage days of aviation, when flying around the world was a luxury few could afford. But propeller-driven aircraft, inspired by the iconic Spirit of St Louis, could make a return thanks to innovative fuel-saving designs.
The Guardian has learned that Rolls-Royce recently cleared a major hurdle in testing its new design for a propeller-driven engine, involving a double rotor and new blade shape. Engineers have called Rolls-Royce's design a "tremendously significant" step forward.
The company claims the design could cut an airline's fuel bills and greenhouse gas emissions by 30%. "We're talking about saving $3m or 10,000 tons of CO2 per year per aircraft if you introduce an open-rotor on to a 100-200-seater aircraft," said Mark Taylor, an engineer at Rolls-Royce who is leading a project to design the next generation of aircraft engines.
Modern propeller-driven engines, also known as advanced open rotors or turboprops, are acknowledged to be more fuel efficient than the turbofan and turbojet engines used by most aircraft today. But, despite much research and testing by all the major engine manufacturers in the early 1980s, they never caught on, partly because they are far noisier. But with the growth in aviation causing major environmental concerns, aeronautical engineers believe that the open-rotor engine could have a new lease of life.
"We believe that, based on our test, we can produce a quiet and efficient open-rotor engine," said Taylor. The company believes its design would be quieter than any aircraft in operation today.
Rod Self, an acoustic engineer who works on aircraft engines at Southampton University said Rolls-Royce's latest work was "tremendously significant - they are a significant player in this market. On the noise front, they've got the best models going and … a lead on others in the field."
Efficiency improvements are sorely needed, said Alice Bows, a climate scientist at the University of Manchester's Tyndall Centre who specializes in aviation's environmental impact, said: "The amount of CO2 from aviation looks to be 2-3%, a relatively small proportion of the world's total. But you've got annual growth of 6-7% in terms of passenger kilometers with efficiency improvement only at around 1%."
Turbofan engines work by sucking in air with a enclosed fan at the front of the engine. Most of this air is pushed out of the back to produce the thrust needed, with the rest used to burn fuel to drive the fan. The more air that is pushed out rather than burned, known as the bypass ratio, the more efficient the engine is. Put simply, open-rotor engines have a higher bypass ratio than turbofans or turbojets for an equivalent-sized device.
Another reason for the higher efficiency of open-rotor engines is that, unlike traditional engines, they do not have a casing around the propeller. The casing increases weight and drag. "Because you've removed the [casing], you're able to go to much bigger fan diameters and not incur the weight and drag penalties," said Taylor.
The airline industry has been here before. The oil crisis in the late 1970s encouraged engineers to design engines inspired by the old propeller-aircraft of the first half of the 20th century but incorporating the jet technology used in the more modern aircraft engines.
American engine manufacturers Pratt & Whitney and General Electric, both funded by NASA, flew open-rotor designs for several hundred hours on McDonnell Douglas and Boeing aircraft. But two factors prevented open rotors from being used commercially - noise and propeller designs. In addition, the drop in the price of oil meant there was no great incentive to save fuel.
But the rise in the price of oil over the past year coupled with environmental concerns mean that efficient engine designs once again look attractive.
Rolls-Royce's design uses two sets of propellers near the rear of the engine, which rotate in opposite directions. This reduces the energy wasted when propellers twist some of the air, rather than pushing it all straight backwards. "If you have a second set spinning in the opposite direction, you untwist it and recover the energy from that air. That goes into useful force to drive the aircraft forward," said Self. "But it's even more noisy."
The sources of noise in an open-rotor engine come from different aspects of the propeller, such as their thickness and whether the tips spin faster than the speed of sound. Rolls Royce's engineers specifically tackled these problems by increasing the number of blades on the rotors, changing their shape from the traditional elongated to a more squat design and making the blades thinner. The result was, claims Rolls-Royce, a set of rotors that can turn at a slower speed - and hence make less noise - while maintaining a high efficiency.
The British-based company is not the only one investigating the open-rotor concept. General Electric, Pratt & Whitney and French company Snecma all have open-rotor prototypes under construction, though commercial secrecy means their progress is unclear.
Taylor said there was a choice for airlines. "You could go for a low-noise advanced turbofan or you could trade that for some noise and go for a much more efficient engine and that is the question we're asking the aviation industry. What would you rather have - a bit better noise profile or better fuel burn and lower CO2?"
www.guardian.co.uk
© Guardian News and Media Limited 2008
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