A swift and pragmatic response

posted on 27th May 2020
A swift and pragmatic response

Although the air cargo sector has responded quickly and well to the various challenges, Patrik Tschirch, CEO of LUG aircargo handling, fears there may be recurring lockdowns and other business-inhibiting regulations for the next 12-18 months and a recession that will impact volumes

What have been the biggest challenges – as a business and operationally? How have you responded?
Cov-19 has certainly challenged us but we have reacted swiftly, pragmatically, and efficiently.

We stopped employment of agency workers and asked our office staff to work from home even before the German government announced the first restrictive measures. We set up a crisis team that meets once a week (by video conference) to discuss all urgent safety and security issues. In cooperation with all staff, we developed a pandemic plan that includes distance and hygiene rules for everyone. We created teams that were able to work separately and with as little encounter between employees as possible. We decoupled work shifts and created work places with sufficient distance between them. Where this is not possible, staff wear masks. Truckers may only enter the building one by one.

We also make sure that we have enough personal protective equipment and disinfectant on hand at all times, even though procurement is a major challenge. I must say, in general, we were well prepared for the lockdown and had organised sufficient laptops and other supplies before there was a run on them.

Has there been any significant cooperation between stakeholders?
All members of the Frankfurt airport cargo community work closely together to keep the airport running, uphold services, and safeguard operations in the long-term. We help each other when and wherever necessary. We are still competitors, but we co-operate for the common good. LUG has had no instance of Cov-19 infection. But we lend staff to companies that have run into problems. And we expect the same from the other companies.

What challenges have been presented by the introduction of cargo-only passenger aircraft services, and/or increased numbers of freighter aircraft?
We have always had clients with belly cargo and full freighters. However, we were quick to adapt to handling charter carriers at our usually quality levels.

Has the increased number of healthcare-related shipments presented any particular challenges or opportunities?
Over the past few years we have continuously expanded our handling of health care and other temperature- and time-sensitive products. We were thus well able to handle double the quantities of pharmaceuticals in February and March. We have all the necessary procedures in place which are easily scalable. We are ISO 9001:2015, TAPA B, and CEIV Pharma certified.

Have you had to let go of or furlough significant numbers of staff?
We have not let any permanently employed staff go, so far. We have registered for short-time work in Munich and Hamburg as the cargo business at these airports has collapsed. We have also been able to place some staff in Munich with a warehouse operator that was looking for additional temporary help.

However, at Frankfurt airport we remain pretty busy. Before Easter, cargo volumes were, in fact, up on last year. However, since then they are shrinking. In the week after Easter, Frankfurt airport recorded a decline in freight of almost 30% compared to the previous year. I have no idea what the future will bring.

Can your operations and businesses be sustained in the current environment?
LUG is part of the family owned Dettmer Group that has always upheld a conservative business model. In good times we accumulated reserves for bad times. That helps us now. We have therefore not had to ask for any government help, so far.

In addition, the loans that are currently being offered by the German government are short-term and have to be paid back. This could prove difficult for some companies in the low-margin cargo handling sector.

However, it would be useful if the German government would relax some of the requirements in our labour laws for the duration of the crisis. For example, those relating to daily/weekly working hours, social rooms, etc.

Have you been able to maintain service levels?
We have responded in an agile way to the quickly changing volumes, product and aircraft mix. Of course, we try to maintain our usual, high quality service in these challenging times. It helps, that we have been at the forefront of digitalisation for many years.

We have always prided ourselves of good labour relations. In fact, we do not suffer from staff absenteeism. In these times of uncertainty, I am very proud of our team, and would like to use this opportunity to thank them for their effort and dedication.

Has the changed environment meant you have had to change your charging structure – for example via cargo handling surcharges?
This is an industry with very low margins and low wages. If we want to survive (as an industry), this should change. But this has been my mantra for many years. As example, some handling agents across Europe have adopted the principle of surcharges, which carriers have used for many years already. Whether this is the way to pursue is every single company’s decision; we will not charge a surcharge for now.

What new opportunities have arisen, if any, amid the challenges of the last few weeks?
We have been able to demonstrate very effectively to shippers and airlines alike our capabilities in handling temperature- and time-sensitive products as well as hazmat and valuables. And we opened ourselves to charter operators.

What lessons have been learned for future contingency planning?
We have amended the LUG contingency plan already. We are going to increase stock levels of protective equipment and masks, for example.

How well do you feel the air cargo handling sector has responded to the various challenges?
I think the air cargo sector has responded very quickly and well to the various challenges.

How do you see the situation evolving over the coming weeks and months?
The shift in product mix will continue – more pharmaceuticals, less car and machinery parts, more imports, less exports.

In the past two years, many airlines had reduced their freighter fleets. We see a revival of the freighter business now.

Freight is also getting more attention from airline management these days. Hopefully this will drive forward digitisation and process optimisation in our industry. Many airlines still work with outdated legacy systems. On the other hand, the collapse of the passenger business will mean that many necessary investments will be shelved.

I fear we might be faced with recurring lockdowns and other business inhibiting regulations for the next 12-18 months – until a preventive Cov-19 vaccine becomes available. In addition, the worldwide recession will impact volumes.

What preparations do you have in place for volumes returning to more normal levels as restrictions are eased?
As we have not shed any staff so far, we would be able to return to normal operations very quickly. In fact, I am confident that all our staff would be very happy if volumes would pick up at all stations rapidly.

Do you have any other comments or observations about the current challenging environment?
I am afraid there will be a price war soon as airlines, handlers, forwarders, and truckers struggle for survival. The transport industry is bleeding. There will be bankruptcies and mergers in all sectors. In addition, payment terms will deteriorate. Companies will ask for commercial relief from service providers and so on.

I am not an economist. I don’t know whether to expect a deflation or a hyperinflation. There will be a recession and volumes will be down on many routes for quite some time. As CEO, I have to prepare for such scenarios.