CAAS talks to Adrien Thominet, CEO of ECS Group, about the impact on cargo GSSA companies of the massive and dramatic changes to the air cargo landscape this year, and identifying new revenue streams for the airlines they represent
What have been the main implications for cargo GSSA companies of the massive and dramatic changes to the air cargo landscape this year?
Our biggest challenge is to find new business opportunities for the airlines we represent – currently almost 140 – against the backdrop of a drastic fall in capacity. We are doing everything we can to bring them business, by putting together bespoke and unprecedented operations via charter or passenger-to-freighter flights, to destinations in their networks and also by creating new routes. Our global sales network, the synergies that we create between our offices worldwide and our client portfolio, allow us to create these new opportunities and to find business solutions all over the world.
Digitalisation also plays a key role, enabling us to take quick action and to provide solutions to our clients, as well as to support our business and help our sales and operational teams in their everyday work. The tools that we’ve made available to our teams to help them manage performance and revenue, optimise the pricing strategy, conduct commercial planning and load optimisation, and facilitate ad-hoc pricing, all help them do these tasks more effectively. To optimise our sales and increase our sales density, we also offer our clients e-booking and e-quote solutions via the partnerships we have forged with the market’s leading platforms.
From an organisational viewpoint, we have put in place all possible measures to enable our teams to work remotely and ensure they are as safe as possible.
What are the implications to you as a GSSA – commercially and operationally – of the shift away from belly cargo capacity towards main deck capacity and cargo-only ‘passenger freighters’?
Our business is selling cargo capacity. We are very responsive and can implement solutions very quickly. These solutions include charters, for example. Our TCE (Total Cargo Expertise) ops team, based in Germany, is a major asset in this regard. Their expertise allows us to manage all the operational aspects in the same way as an airline – including QSS (quality, safety and security) customs, interlines, track and trace, RFS, loading supervision, claims, et cetera. An excellent example is the charter flight PPE shipments from China to Europe put in place from March, thanks to the combined efforts of our teams in Germany (TCE and Globe Air Cargo Germany) and in China (Globe Air Cargo China). Operations such as these take place every day and allow our clients to keep their business activities going; between March and August, we operated over 500 charter flights.
We also offer our clients the ability to market new routes, by creating synergies within our sales network but also within our client portfolio, including via interline agreements. In addition, thanks to the airlines we represent via Total Cargo Management (TCM) contracts, we can use available aircraft from their fleets, meaning we have additional capacity and resources to offer solutions to our clients.
How have you adapted to these changes – as an organisation, and in the interests of your airline and forwarder clients?
Our organisation is focused on sales and operations. Firstly, we have stepped up the coordination that is needed when working remotely. Secondly, we have strengthened the synergies between our offices and ensured they are in place across the board in order to meet new needs and bring new business opportunities. We have also accelerated our digitalisation, which we began two years ago, to support sales and operations. We’ve used this time of crisis to emphasise our digital developments, in particular in terms of revenue and performance management via our business intelligence tool (Apollo), by rolling out our in-house ad-hoc pricing tool (Quantum), and by training all of our employees in digital tools via our in-house e-learning platform (Discovery).
And the most important thing is that we are rolling out new services and new skills to diversify our business and to allow our clients to outsource more activities and obtain higher yields. These include the entire ops side, with our Cargo Ops Expertise service, which includes TCE Germany (all ops aspects including QSS), procurement and the GHA side. Other services we are rolling out include mail outsourcing and consultancy – for both letters and e-commerce parcels – via our GSA Mail Solutions entity. There is also our Cargo Revenue Optimisation service, which includes commercial planning and pricing, and of course performance management and analysis. And thanks to our Cargo Digital Factory, we offer digital solutions to our clients – e-booking, track and trace, business intelligence, etc.
All of this allows us to set up bespoke operations for our clients and to be a real business finder and business facilitator for them
How do your volumes, revenues and profitability this year compare with last year?
We’re outpacing the market trend. In short, despite the unprecedented conditions, our operational and sales teams have worked tirelessly to put tailor-made operations together, often at the last minute, for our clients.
CUSTOMER VERTICALS
Which customer verticals or national or regional markets continue to suffer most from the air cargo capacity constraints currently affecting global markets? Do you see any solutions to that?
What we are seeing is a 13% contraction in the global air cargo market in September 2020 (the latest figures available at the time of responding) compared to the same period last year (weight), and therefore an improvement compared to August, in particular for Europe, North America and Asia Pacific. But these are also the regions that are experiencing the greatest falls in volume when you compare the June-September period to the same period in the previous year, which saw a drop of around 20% in volume transported.
One of the greatest challenges that has emerged from this crisis lies in increasing yields, as these are the cause of disruption to the transport costs faced by shippers and importers (+38.5% charges globally, YoY, in September 2020 vs September 2019. Source: IATA).
Solutions involve creating opportunities and launching tailor-made operations, including by creating new routes to maximise synergies between our clients and minimise the impact of decreases in capacity.
Which customer verticals and/or national or regional markets, if any, are benefiting from crisis? What are you doing to capitalise on that?
The impact on our industry’s activity is unprecedented – and not just in the short term; returning to a situation that is equivalent to the way things were before COVID-19 will be a very long process. However, it’s full-freighter operators that will come out on top.
For our part, we have decided to rely on our strengths and our values to move forward together. We are also making progress together by working in different ways, by seeing digital as a source of help and support in our daily work. We use our knowledge to benefit our clients, for example by operating passenger-to-freighter flights with our TCM airlines that were able to convert their aircraft. In other words, we are capitalizing on our values and on our expertise to emerge from this crisis alongside our clients.
How involved have you been in any preparations for possible vaccine transport next year? Do GSSAs have any particular role or responsibility in preparing for that?
As a GSSA, we sell all kinds of cargo capacity on behalf of our clients, whether they are dedicated to general cargo or specific shipments. Via our portfolio of airlines, and in particular that of our TCM airlines, we will be capable of supporting the distribution of vaccines, as we do in other special time-critical circumstances that require specialist aircraft and specific routes.
Airlines are currently preparing their offerings in line with local authorities in each country, which are coordinating orders and the main forwarders. On our end, we can offer our freight forwarder clients temperature-controlled solutions via our Total Cargo Expertise entity (dedicated cooling/heating service), in particular via the airlines we represent under TCM contracts.
We have, therefore, created a comprehensive and worldwide offering of solutions, in particular via passenger-to-freighter flights and highly specific procedures. But the fact remains that the entire logistics chain still isn’t clearly defined, and laboratories haven’t confirmed the conditions in which vaccines need to be transported. For example, it appears that the latest vaccine from Pfizer needs to be transported at -80°C, which is impossible via air freight. We are doing everything we can to be ready, but there are still a lot of unknowns.
SUPPLY AND DEMAND OUTLOOK
Most passenger airlines are obviously anticipating significantly reduced passenger airline operations next year, and likely for several years. How do you see the supply and demand situation most likely developing next year?
The recovery will be slow, and volumes look set to remain similar to those for this year. But the approximately 20-30% loss in capacity will not result in disruption because over-capacity previously stood at more than 30%. This doesn’t stop those airlines that were primarily focused on passenger activities from suffering greatly from the many flight restrictions, and that’s why many of them are currently reorganising their cargo division to step up their offering in this business area.
With passenger airlines obviously among the major losers of this year’s crisis, and cargo airlines benefiting currently, which other sections of the air logistics chain are particularly suffering from or benefiting from the current environment?
Airlines that were able to put new solutions in place, such as charter flights and aircraft conversions, are coping better than those that were not able to do so. GHAs now have significant activity volumes with the sharp increase in charter flights, but they are not benefiting from the increase in transport costs. For example, at the height of the first wave, our GSH team in Paris organised a 24/7 schedule to be able to meet demand.
Has your involvement in air cargo handling changed significantly this year as a result of the COVID-19 challenges? How do you see that involvement evolving?
Handling isn’t our core business but we have these skills within the group through our subsidiaries GSH in France, AirLog in Italy, and Atlantis/ACI in Canada. We are currently seeing a period of intense activity with charters and passenger-to-freighter flights, which is making up for a fall in traditional activities.
Do you see any potential significant casualties if the current constrained capacity continues for much of next year?
Yes, of course. Even if prices rise as capacity falls, in keeping with the principle of supply and demand, it won’t compensate for the lack of earnings that has resulted from these drastic falls in capacity. The major risk, of course, is bankruptcy for certain airlines and cash constraints for all.
Are cargo GSSAs among the winners or losers of this year’s crisis?
The air cargo industry is a hugely interdependent ecosystem, and if your partners and clients are in difficulty, then you are too. At ECS Group, we are doing everything we can to support our clients; our teams in the field, both sales and operations, are working tirelessly and giving 100% so they can keep on bringing business to our clients. We are playing our role as a business finder and a seller within the industry by finding our clients new sources of revenue and new business opportunities (marketing new routes and setting up charter and passenger-to-freighter operations). We are neither winners nor losers, but we are fighters – fighting to adapt ourselves and to keep supporting our customers as best we can.
More than ever, air cargo needs to stand united to overcome this crisis, and all stakeholders are fully aware that alone, they are nothing. That’s our philosophy at ECS Group – we move forward together and we leave no-one behind. This is what allows us to have such a powerful sales network (1200+ employees across 155 offices in 50 countries). To tackle this crisis and emerge from it stronger, we are also expanding our service solutions, because airlines will have greater need of outsourcing solutions.
MODERNISATION OR DIGITALISATION INITIATIVES
Have you accelerated, stepped back from, or maintained any significant modernisation or digitalisation initiatives as a result of the challenges this year, or seen your clients doing so?
We have accelerated our digitalisation strategy, which we have been rolling out for several years now. Demand is high because our industry has a significant delay to make up, and the crisis has exacerbated this gap between our industry and others. It isn’t that our core business is changing – we are a GSA, and our priority is sales. Instead, the idea is to give our field teams the tools they need and to optimise their processes to allow them to perform even better and even more effectively than they already do. They are unrivalled experts in their business lines and their markets. No machine and no artificial intelligence could replace this expertise, and that’s not the goal.
What digital brings to our employees is greater efficiency, more fluidity and improved performance, because it allows them to process a much larger volume of data and it simplifies their day-to-day work. The speed and reliability of the tools that we make available to them make a valuable contribution to the business. These tools were created by our Cargo Digital Factory and as such are perfectly designed to meet the specific needs of our business. They are: Apollo, our business intelligence and reporting system; Pathfinder, our tracking system; and more recently, Quantum, our in-house ad-hoc pricing support system.
It’s these tools that mean our clients can, for example, benefit from the services of our Cargo Revenue Optimisation department, which is focused on performance management and revenue maximisation, via commercial planning, pricing, analysis, and real-time reporting and decision-making support systems.
This is also what our clients are looking for. Thanks to our accelerated process of digitalisation, which has taken place primarily through training and change management (we have launched our in-house e-learning platform, Discovery, which gives all of our employees access to some fifteen online courses), we are able to meet these requirements.
Where do you see your role as a GSSA in terms of participating in or initiating modernisation or digitalisation initiatives?
Human expertise is crucial in our industry: to understand the specific and unique needs of each airline, human analysis is irreplaceable. It’s our field teams who find new business opportunities for our clients – whether it’s marketing new routes, setting up charter operations, or simply our ability to load holds, it’s all down to our employees. In the same way, our recently launched Freight Forwarders programme enables us to find solutions for our forwarder clients to allow them to transport cargo – as well as to help our airlines that don’t have the critical mass to insource a partnerships department, to ensure they can continue to sell capacity in the long term.
However, human expertise can be made simpler and easier using digital tools. That’s why we’ve gone digital over the last two years – so we can keep pace with and anticipate the industry’s changes in this regard and offer our clients bespoke solutions. For example, by working with e-booking and e-quote platforms, we can offer clients the ability to optimise their buying and selling processes and to increase their visibility to increase sales. By working with load optimisation tools, our teams can offer our clients more capacity and better load factors. Thanks to our in-house ad-hoc pricing tool, our employees can issue quotes more quickly and make sure that our clients get the fairest price.
Digital tech is therefore a way of supporting the business and of helping us in our role as a business finder, to generate new sources of revenue and increase sales for our clients.
In addition, as a GSA, we are a fervent promoter of digital solutions, because we can reach all of our forwarder clients via our portfolio of airline clients.
OTHER DEVELOPMENTS AND INITIATIVES
We have built our organisation to be aligned with that of airlines. As a result, we are able to meet all of their cargo activity outsourcing needs, either in their entirety (via a TCM contract) or on a custom basis, with each service able to be outsourced independently. This includes all of the sales aspects, of course, as well as ops activities, which can be fully or partly delegated – in particular QSS.
Another important focus for us is diversifying our service offering and investing in new skills and new business lines that complement our activity as a GSSA. For example, we offer airlines the ability to delegate full data entry to us. Another example of new outsourcing solutions is our recent launch of GSA Mail Solutions, a new entity that offers comprehensive sales and operations outsourcing solutions to airlines for postal and e-commerce traffic, as well as bespoke EDI solutions. This allows us to create new yield opportunities for our clients, while also ensuring that a booming sector – linked to the growth in B2C and C2C flows – is secured in the long term.
