New technology interfaces between stakeholders are set to strengthen the pace of change in air freight, Air France-KLM Cargo EVP Marcel de Nooijer tells Stuart Todd
Marcel de Nooijer moved into the hot seat at Air France-KLM Cargo in December 2016, having previously held the posts of managing director of Martinair and executive vice president at KLM Cargo.
And in an interview with Cargo Airports & Airline Services, Air France KLM Cargo’s executive vice president insists the French-Dutch cargo carrier is now back on the path to growth after the heavy losses and restructuring efforts of recent years – with a little help from much-improved market conditions.
“2017 was a very good year for the air cargo industry and for Air France-KLM Cargo too,” he notes. “We saw a recovery (in the market) in the middle or in the third quarter of 2016 and that recovery continued throughout 2017. Supply and demand were more in balance, leading to much better business conditions.
“Amsterdam Schiphol, one of our two major hubs along with Paris-CDG, posted record annual cargo traffic of 1.75 million tonnes last year, which says something about the strength of the market. However, this is related to volume and demand. From a yield perspective, as an industry, we have still not returned to the levels of 2014.”
Without going into too much detail, he notes: “It is fair to say that before 2017, the industry had suffered a prolonged decline in unit revenues. These are now recovering, and this recovery is still ongoing.”
He expressed optimism about the market outlook in 2018, driven by “a couple of fundamental developments” − one being the continued better balance between capacity and demand, and the other being the opportunities offered by cross-border e-commerce.
“I don’t want to say that e-commerce in itself is the ‘golden egg’ of the industry but it creates a significant base load onboard the bellies and presumably on freighters too, meaning there is much more scope to optimise your total fleet capacity − and that’s a structural change from the past.”
With an eye on e-commerce, last summer AF-KLM Cargo introduced a new innovative sorting system capable of handling up to 2,000 items per hour. De Nooijer also expected two of the unit’s key verticals, pharma and perishables, to deliver strong growth this year too.
“We are in line with our budget so far in 2018,” he notes. “The market is evolving as we expected and we are confident that we are in for another good year.”
AF-KLM Cargo performance
Although AF-KLM Cargo’s full-year performance in 2017 showed a modest increase in tonnages and revenues, with each up by around 1%, the main improvements were achieved in the final quarter, when a unit revenue increase of 4.7% combined with a 3.3% rise in traffic to deliver a 6.8% increase in revenues.
Air France-KLM Cargo’s financial results have now moved to “a cargo contribution reporting model” as part of a group re-organisation, making them difficult to compare with its loss-making performance in recent years. De Nooijer says: “This contribution amounts to what we deliver to the group in terms of total revenues, minus the costs we are accountable for. And that contribution was strong in 2017. Our cargo results last year were definitely above what we anticipated them to be.”
A major factor in the turnround has been the restructuring and adjusting of Air France-KLM Cargo’s freighter fleet, with the reduction from 11 aircraft in 2014 to six currently − two B777 and four B747-400s.
“In 2014, those freighters were making losses of €72 million, and we have since recovered completely,” De Nooijer notes. “Today, the freighters are clearly adding value to our financial performance and playing a key role in complementing the capacity of our global belly network, itself enhanced by a higher quality influx of new wide-body aircraft.”
Bringing down fixed costs significantly − the unit has trimmed its workforce by 18-20% in recent years − has also contributed to AF-KLM Cargo’s improved performance, De Nooijer adds. “We have made our operating model more robust, got our cost position very much under control, and demonstrated that we can manage the volatility which exists in the industry,” he says. “We are primed for growth.”
A key element in AF-KLM Cargo’s growth strategy now is forging partnerships with other airlines.
“We created new momentum in 2017 in our co-operation with China Southern − an established maindeck operator into Asia − and also took a significant step forward with Jet Airways Cargo, a strong player in the fast-developing Indian market. And we are looking at other parts of the world where we could forge such tie-ups. It will not be restricted to China or India. There is more to come.”
Quality initiatives and e-freight
De Nooijer also emphasies Air France-KLM Cargo’s commitment to quality initiatives such Cargo iQ (CiQ), the unit having been one of the founding members of its precursor Cargo 2000.
“Being a founding father is one thing; actively using the CiQ platform is what it’s all about,” he notes. “We use a KPI structure, based on the CiQ settings, on a daily basis to really review our operational performance and last year, with the restructuring, we also put a lot of emphasis on data relating to performance management.
“Quality is, to a great extent, driven by fact-based management and I think that is where, as an industry, we should grow. There is an obligation for us to work transparently − not only with airline partners, but also with the other stakeholders in the supply chain − because in the end, greater transparency will help us all.”
As an example, De Nooijer highlights the European Green Fast Lane initiative with Kuehne + Nagel, Jan de Rijk (one of AF-KLM Cargo’s preferred road feeder services providers), Swissport, and Dutch Customs.
“The focus has been on ensuring that data related to bookings can be re-used by the various stakeholders, thus limiting the amount of re-entering of data,” he explains. “Re-entering is a manual process where there is a risk of mistakes being made. If you create a single data solution in a Cloud set-up, you prevent a lot of re-entering and you motivate the re-use of data.
“And this has driven a significantly improved performance in our trucking-related products. We’ve seen dramatic changes − close to 20% more reliability on trucks, arriving, for instance, out of Frankfurt, one of our key stations.
“So far, we have rolled out European Green Fast Lane at 23 stations in Europe, which represents roughly 75% of the cargo we ship annually in and out of Schiphol. And this supports the overall quality of service to the customer.
“This is really where technology reaches your handling and shipping capability. And you don’t do that by yourself, but in close co-ordination and co-operation with your partners in the chain; and in the end shippers will benefit from this. This is a clear example of why digitisation is such an essential part in radically changing this business.”
AF-KLM Cargo had also made considerable progress in the implementation of e-air waybills, De Nooijer notes. “In 2017, more than 70% of our air waybills were electronic and for me this is an important marker; and we’ll continue to push on that as an individual airline and also within IATA.
“But the e-air waybill is only one part of the e-freight jigsaw,” he stresses. “At the end of day, it’s about moving to a fully digital process for air cargo shipments. We see that as a priority.”
De Nooijer says there has also been a strong uptake of AF-KLM Cargo’s digital platform, MyCargo, which allows customers to book directly online but also to get quotes and information on the latest best deals.
“The switch from offline to online bookings within a nine-month period of 2017 was close to 15%, which represents a tremendous change in customer behaviour and indicates that the market is ready for a more digital approach to business. The strategy to go heavy and deep with digitisation is the one to pursue.”
Innovation and technology
Looking at innovation and technology in a broader sense, De Nooijer pointed out that the air cargo industry had taken a little bit longer than others to get its act together.
“Many players, including ourselves, have legacy systems that need to be revised if we are to meet customer requirements on digitisation, transparency and control. Fortunately, technology triggers new ways of working and allows us to be much more flexible and get closer to customers − one example, being through APIs (Application Programming Interfaces). That level of technology was not around a few years ago and we can more easily develop what I would call ‘hybrid’ bridges between other stakeholders that will really strengthen the pace of change in our industry. I’m sure about it.”
Commenting on the possible impact of bitcoin and blockchain in the air cargo field, De Nooijer says: “While there has been a lot of focus on bitcoin, I think blockchain will be a tremendous driver of change in our industry. We are a transaction-oriented business and how cool would it be, say, to have complete clarity, in the form of a permanent and secure ledger of all transactions related to cargo shipments, from each member of the supply chain − starting with the original purchase order all the way through to the delivery to the consignee warehouse?”
Elaborating on the opportunities offered by cross-border e-commerce, De Nooijer says this “new vertical” encouraged new thinking and “network” thinking.
“As an airline, you’re pretty good on the airport-to-airport stuff, but the product doesn’t stop at the airport. So for me, it’s important to see how we can work with specific partners − either with parcel operators, mail companies, freight forwarders and online retailers − in order to bring a full solution to the e-commerce market and help minimise the hurdles in the e-fulfilment process,” he explains. “This also fits into our partnership strategy with other airlines, where we co-operate horizontally but there is also scope to develop vertical partnerships with other stakeholders.”
The spirit of partnership and the new thinking ethos was demonstrated last year when AF-KLM Cargo launched a same-day product, 12SEND, in collaboration with courier company Parcel International, which specialises in first-mile and last-mile services.
“Air France-KLM serves a multitude of European destinations with narrow-body aircraft,” De Nooijer says. “These bellyholds are rarely utilised for cargo, which is understandable from a network operations perspective. You need a quick turnaround (of passenger flights) and if you complicate processes with more handling activities, such as for cargo, you reduce your turnaround capability − which is a negative point in a highly competitive market.
“But we have been able to tap a niche market by mixing parcels into the (passenger) baggage process at Schiphol Airport, optimizing our capability and developing a product which allows a consumer in Madrid, for example, to order a handmade suit from a tailor in Amsterdam and receive that suit the same day. Cross-border e-commerce growth has created this opportunity for air cargo.”
European airport congestion and capacity issues
Turning to the recent European airport congestion and capacity issues, De Nooijer says the situation was nowhere near as black as it has been painted.
“It was not so long ago that the industry was confronted with structural overcapacity,” he notes. “In my view, the congestion everybody speaks about can be mitigated to a large extent by a much better interaction and co-ordination of ground handling processes.
“There is also a tremendous waste in cargo capacity on aircraft. If you look at the IATA average in terms of load factors globally, these hover between 40-50%, which means there is huge scope for optimisation. As an industry, I think the obligation we have is to make the most of the capacity available on the ground and in the air and take waste out of the system, especially at times when traffic is growing overall.”
To support this argument, he points to the conclusions that could be drawn from the restrictions on freighter flights at Amsterdam Schiphol.
“Schiphol saw roughly 11% fewer freighter flight departures in November on the previous month and the expectation was, as a consequence, that there would 11% less freight. But that was not the case. I believe it was zero or close to zero, which means that a solution was found − more than likely through the greater use of belly capacity.
“Even with the imperfect management ‘tools’ deployed in what was an ad hoc situation, the industry was still able to absorb the traffic lost to full freighters at Schiphol. Imagine what could be achieved with a more concerted and co-ordinated effort by all parties − the capacity issue would largely disappear.”
Airports being more selective in the type of cargo traffic they handle could also contribute to offsetting capacity issues, De Nooijer argues. “Certain airports could develop competences in certain verticals − which I think is a natural process anyway. At AF-KLM Cargo, we have capabilities in handling live shipments, such as horses, with our combis and full freighters − making Schiphol a kind of specialised centre for this kind of traffic.
“So yes, there is room for greater selectivity, but without it being absolutely set in stone. In Europe, I think the industry is very well served by airports, which cater for ever-more demanding markets. However, and without suggesting there is a danger of destructive competition between them, maybe the spirit of partnership should evolve a little bit more between airports.”