News
- Troubled carriers turn over a new leaf
- 7/15/2009
Troubled carriers turn over a new leaf
Canada: Air
Low rates and a trade imbalance caused by the volatile Canadian dollar have prompted operators to offer new products and services, writes Marcia MacLeod
The recession has hit Canada hard.
Volumes have dropped 2-3% for some integrators, while Vancouver and Calgary airports have seen a 15 or 16% fall. A lot of the remaining traffic is also less profitable.
"We’re seeing a massive drop in density, " says Joe Le Beau, VP commercial, Americas at British Airways World Cargo (BAWC). "We can have a 100% load factor, but the cargo is lighter than usual and therefore brings less revenue."
To make matters worse, there is a huge imbalance in cargo, with Canadian exports adversely affected by the strong Canadian dollar.
"We are seeing 15-20% more import cargo than export loads, " says Norman Boivin, VP operations and aviation at Aeroports de Montreal. "This creates problems when trying to attract new cargo operators, as the cost of getting goods out becomes too expensive."
To increase exports, the Canadian dollar has to come down. "Our dollar should be worth around US$0.80, " explains Howard Jones, president of GSA Network Cargo Systems International, "but now it’s worth US$0.86 or $0.87."
Instability in the dollar is worse than the rate itself, though. "We’ve always been able to work around a high or low dollar, " says Ruth Snowden, executive director at Ciffa, the Canadian freight forwarders’ association. "It’s the volatility that’s hard to deal with. You can’t plan if you don’t know what the exchange rate will be."
Needless to say, reduced volumes, particularly exports, and the resulting increase in space has put pressure on rates.
According to one forwarder, a shipment that last year cost C$1.40 (US$1.22) a kilo for fuel alone is now being flown for 40-45 cents. An all-in rate that was C$3 now costs C$1.
"Airlines are quoting silly rates, " agrees one insider. "You can’t take cargo for Canada to Europe for 20 cents per kilo, or to the Middle East for 30 cents, and still cover your costs. But I’ve seen these sorts of rates on offer."
And, as well as airlines being open to negotiation - which was not the case before the recession - a number of carriers are now offering an all-in rate.
"All-in rates will be a big issue this year and next, " says Jones. "Forwarders welcome the introduction of all-in rates because they know where they stand."
Local vs US gateways
Excess capacity available in Canada has, however, led to less cargo going out of US gateways. In fact, in some cases, cargo is being trucked north of the border and flown out of Canadian airports.
"It’s no longer cost-effective to truck lower deck cargo to the US, " says Eric Allard, VP air freight, Canada at Schenker. "Now that Bax’s air freight network is fully integrated into Schenker’s, I’m flying export cargo on our own B757s to Toledo, Ohio and trucking it to Canadian airports for uplift. We could pick up a consignment in the morning in San Diego for delivery to London the next day."
"We only use US gateways if there is a clear cost advantage, and the customer doesn’t mind if transit takes a little longer, " says John Levin, president and CEO Canada at Kuehne + Nagel.
The need to find more business has led some carriers to agree to go "offline", if there is sufficient inducement. "Last year, no carrier would have dreamed of coming to somewhere like Winnipeg, " says Geoffrey Robinson, VP at Sea Air International Forwarders. "Now they will - if there is a good opportunity."
"We prefer to support Canadian ports and airports, " agrees Bob Walker, VP international trade at Carson International and president of Ciffa. "In some cases, though, we’re forced to use US ports or airports."
Integrators like UPS still tranship at their US hubs - and anyone shipping to or from Latin America may have to tranship in the US; direct services from Canada to the Middle East are also in short supply.
"We still truck to Miami to serve Latin America because there is much more widebodied capacity, " says Robinson.
"It takes three days by road and costs 10 cents per pound for the truck. Perishables can bear the extra cost. But it is not a reliable service - if there are too many passengers, luggage or mail, cargo is offloaded."
"But, " says Jerry Staples, VP marketing and business development at Halifax Airport, "trucking to the US is still part of the dilemma for Canadian airports. We could fill more capacity out of Halifax with our perishables.
"We’re trying to persuade a cargo carrier to stop here instead of New York, trucking imports south. We’re two hours’ flying time closer to Europe - and flying is more expensive than trucking."
Boivin agrees. "Aeroports de Montreal is talking to the government about how we can get accurate statistics on the volumes of Canadian cargo going to and from the US so we can better understand the issues and try to ensure Canadian cargo flies out of Canada."
New main deck capacity coming into Canada could encourage more use of local airports.
New services
Cargolux, for example, began flying a B747 weekly into Toronto in April. The airline has met with some resistance, however, because of its high tariff, and although it is currently reviewing its pricing structure, no rate reduction has yet been announced.
Other new carriers include Lufthansa, which put a freighter into Toronto twice weekly last September. It is now increasing frequency to five a week, and has obtained fifth freedom rights, allowing it to carry on to Los Angeles.
Emirates began an A380 service linking Toronto with Dubai three times a week and Cargoitalia starts a twice-weekly service from Milan to Toronto in September, appointing Network Cargo Systems as GSA. However, Korean Air’s freighter now calls at Miami, reducing the amount of capacity available in Toronto.
Halifax benefits from Asiana, which launched a weekly B747 freighter service calling Seoul, Anchorage, New York, Halifax, Brussels, Seoul in January, and charter airline ABX, which began linking Halifax to Liege twice weekly in partnership with TNT.
Integrators have increased their focus on western Canada. Purolator added DC10s to its B777 service into Calgary, where UPS is opening its 15,000sq metre warehouse in October. FedEx increased capacity into Calgary from A310s to A300s.
Calgary is now constructing a cargo facility, Deerfoot North, due to open in 2011, which will provide 50-60,000sq metres of apron space and an initial 120125,000sq metres of warehousing on a 112ha site.
Cargojet, which has interline agreements with international carriers to move their cargo in Canada, is also doing well. In addition to introducing B767s, it is expanding its regional service, Cargojet Regional, which uses 21 small aircraft to fly cargo around Canada.
Bellyhold space is increasing, too, thanks partly to new bilateral agreements and partly to Toronto Airport’s reduction in charges. A new bilateral agreement with Turkey saw Turkish Airlines start a daily A330 departure from Toronto to Istanbul this month.
Toronto also boasts extra capacity from Aero Mexico’s new daily service to Mexico City with B737s and Air India’s increased frequency to Mumbai, which jumped from four flights a week to a daily service.
KLM returned to Calgary in May after a 10-year gap, while Montreal has also seen extra bellyhold space from Aero Mexico, and Air Canada added Geneva and Rome in June. Air Transat started a service to Venice, US Airways now links Montreal with Charlotte, and Air France added a fourth daily frequency to Paris.
Air Canada also doubled its bellyhold capacity from Ottawa to Europe and added a summer service from Toronto to Dublin.
Open Skies
Whether Open Skies with Europe will have any positive influence on Canadian air freight is debatable. No-one thinks it will lead to more services during the recession, if at all.
As Jones points out, there are so many flights from eastern Canada into Europe, there may not be room for more.
If Open Skies encourages more holiday charters to target Canada, it could have a detrimental effect.
"Holiday charters add capacity in summer, undercut the scheduled airlines, rely on spot rates - and then leave at the end of the summer, " Le Beau complains.
"They have less focus on cost and will take anything to fill their space."
Forwarders will obviously use a carrier that offers the capacity they need at a good rate, but most are careful about working with holiday charters.
If they do not build and maintain good relationships with scheduled carriers, they may not get the winter capacity they need.
In addition, as Robinson points out, "holiday charters aren’t usually very well versed in their aircraft or understand what forwarders want".
This is probably why Air Transat has set up Air Transat Cargo. "We fly to the Caribbean in winter and Europe in summer - but we offer year-round capacity to Paris, London and, with Thomas Cook Airlines, Manchester and Glasgow, " says newly appointed cargo director Paul Nugent.
"We have some A330s, which take up to 15 tonnes, and we have a strong expertise in moving perishables, a major traffic for us."
Air Transat has launched new services to Venice, Lamezia and Pescara in Italy, adding to a network that offers direct capacity to six French regional airports.
However, some traditional air cargo has switched to sea freight.
Bellville Rodair, for example, has seen pharmaceuticals, hanging garments and spare parts switch to sea. It has even developed a multimodal container for hanging garments that can be used for air, sea or road transport.
Being innovative is one way companies can survive the recession. Concentrating on service is another. While the temptation is to go for the cheapest rate, as one forwarder puts it, the industry needs to support the carriers if they want to have capacity available when the market picks up.
Posted: 10-07-2009
Article from International Freighting Weekly:
www.ifw-net.com
Published: 10/07/2009 BST