As the global air freight sector emerges from a fairly lacklustre peak season and second half of 2018, the situation remains relatively buoyant in the Middle East region, with the market for the region’s air cargo carriers strengthening in the second half of the year.
For example, while the global air freight sector saw volumes in the normally peak month of November fall by 1.4%, year on year, and drop 2% from their levels in October, the Middle East − alongside North America and Latin America − saw volumes expand by around 1.7% in November, and that followed a 5% increase in FTKs in October. Indeed, IATA figures indicate that seasonally adjusted international air cargo demand for capacity among Middle Eastern airlines trended upwards throughout the second half of 2018, helped by stronger trade to and from Europe and Asia. Full-year FTK figures, when confirmed, are expected to show growth of around 4%, year on year among the region’s carriers – roughly on a par with traffic growth figures globally – although available capacity grew by more than 6%, leading to a fall in load factors of around one percentage point.
On a lane-by-lane basis, Middle East to Asia traffic and Europe to Middle East traffic grew by around 5% last year, while the smaller Middle East to North America and Africa to Middle East lanes saw volumes decline by around 2% and 6%, respectively.
Led by speciality products like pharmaceuticals and perishables, alongside smaller but up-and-coming e-commerce shipments, cargo growth is expected to continue this year.
For the largest carriers in the region, these special products have increasingly become a key bedrock to their volume growth. Qatar Cargo for instance, which saw a healthy 10.6% growth in 2018, year on year, has continued to build on its pharmaceutical and perishables business, alongside developments in other areas. It also last year introduced an automated mail management system across its network that benefits customers of postal mail and e-commerce.
Noteworthy new connctions for the carrier include the launch of its freighter service from Doha to Macau, connecting to the US west coast and expanded to include Guadalajara, Mexico early this year, with transpacific operations set to become a key factor in the carrier’s growth going forward.
Qatar Airways chief officer Cargo, Guillaume Halleux, says: “We have had a very successful 2018. Our customers have welcomed the transpacific route, which is a faster solution over the Pacific for Asian exports destined for the Americas, and we are delighted to add Guadalajara as another stop on this route.”
Emirates SkyCargo too made further good progress last year, with its pharmaceutical traffic reaching over 73,000 tonnes in 2018, thanks in part to having the world’s largest EU Good Distribution Practices (GDP) certified multi-airport hub at Dubai. Addressing the importance of offering consistent conditions for the carriage of pharmaceuticals, Emirates SkyCargo last year continued to develop its ‘pharma corridors’ initiative across select destinations on its network. Working with ground handling partners and other stakeholders, the initiative ensures uniform high standards for the handling of temperature-sensitive pharmaceuticals from origin to destination, with Emirates SkyCargo currently boasting 20 pharma stations across its network.
The airline also carried close to 400,000 tonnes of perishables in 2018. “With increasing levels of interest globally in international cuisine and culinary flavours, more and more people are looking to source produce from around the world in their local supermarkets,” the carrier says. All told, the airline flew close to 2.6 million tonnes of cargo across six continents in 2018, up 4% from 2.5 million tonnes a year earlier.
For belly-only carriers such as Flydubai, specialised commodities like pharma and perishables are also underpinning their growth.
“Perishables and pharmaceuticals remain vital components of our cargo operations and we continue to work towards developing cargo solutions to underserved markets,” Mohamed Hassan, vice president of Flydubai Cargo says. The carrier also regularly works with international medical institutes and NGOs to deliver vaccines and medicine around its network.
And like other carriers, so too with e-commerce, as the carrier taps the key role that Dubai plays as a regional hub, one that is seeing increasing volumes of online shopping goods. The growth in this sector will remain a key growth driver for the carrier Hassan notes: “While the trading environment will remain challenging in 2019, we expect the e-commerce market in the region to continue to grow.”
Niche cargo
In the region’s all-cargo business, while e-commerce is not currently part of the cargo makeup for heavy-weight and out-sized specialist Coyne Airways, pharma and perishables does comprise an important part of its varied cargo carried across the region.
“Moving forward, we are turning our attention more and more to special products,” says Liana Coyne, managing director of Coyne Airways. “We have always prided ourselves in facing up to the kind of difficult cargo that others found too challenging, and it is something that our customers know us for.” Alongside its forte of moving over-size oil and gas equipment into western Kazakhstan, for instance, the carrier also uplifts temperature-sensitive pharmaceuticals into Baghdad and, of all things, ice-cream into Afghanistan.
“I am extremely proud of our operations team, who take this all in their stride,” she adds. “We are now considering how best to both demonstrate our capabilities to new clients and to ensure that we are always at the forefront of best practice.”
Coyne says the company is constantly reviewing its customers’ needs in an ever-changing environment and looking to provide solutions in those areas that others find hard – and for potential partners to help it put together “innovative routings and services”. And its ever-evolving adaptation to new opportunities includes e-commerce traffic.
“As the e-commerce boom drives additional global freighter activity, these opportunities are becoming more prevalent and we are seeing new entrants in the marketplace with whom to work,” she notes.
Progress on the ground
As the region’s growth continues and evolves, ao must its cargo handling infrastructure.
The region’s biggest cargo handler, Dnata, has delivered a series of initiatives during the past couple of years to optimise the ground handler’s operations at its key Dubai hubs, covering facility improvements, process changes, infrastructure upgrades and IT development.
“We opened a new customer service centre and cargo integrated control centre (CICC) located in the Dubai Airport Free Zone, as well as another cargo warehouse, increasing our processing capacity by 25%,” says Kevin Ennis, Dnata’s cargo vice president for commercial and business development, UAE Airport Operations.
The main purpose of the CICC is to enhance the customer service experience and ease the process of information flow between all cargo stakeholders, Ennis explains. The CICC functions 24/7 representing all process stakeholders and ensures the efficient and optimal management of workforce, facilities and processes, thus increasing productivity of cargo services, he says. It also serves to monitor, troubleshoot and enable quick decision-making to enhance movement and efficiency of cargo.
Unified processes
“Last March, we became the first ground handler to implement a global roll-out of the iCargo terminal operation suite across all our stations,” he adds. “This investment enables us to manage our air cargo movement worldwide seamlessly and have all our operations on one cargo management IT platform using unified processes.”
Once fully implemented, in stages by 2020, the system will have a user base of over 5,000 employees across 27 stations in 10 countries where Dnata has key operations.
“We also implemented a cutting-edge, cloud-based software platform that enables freight forwarders, agents and airlines to plan all land transport processes with us more efficiently. This solution is the first of its kind in the aviation cargo industry,” Ennis adds.
Again, speciality products bubble to the surface, with Dnata working to improve product handling as well. Importantly for cool chain products like pharmaceuticals, Dnata’s Dubai operations have been awarded IATA’s Center of Excellence for Independent Validators in Pharmaceutical Logistics (CEIV Pharma).
New competition
Nearby, the completion of the new Istanbul Airport (ISL) could have implications for carriers and airports in the Gulf, particularly given Turkish Airlines’ substantial growth track and global ambitions.
While teething problems are clearly expected – Turkish Airlines has already stated it will straddle both Atatürk (IST) and ISL airports following the official launch on 29 October of what will subsequently be known simply as ‘Istanbul Airport’, with freighter flights remaining at IST for most or all of this year.
“Turkish Airlines is a formidable force in air cargo,” says Coyne. “However, it remains to be seen how TK will manage dual hubs” at IST and ISL she adds, noting that Emirates has managed to do it, “and do it well” in DXB and DWC. “But it was not without teething pains and an extraordinary amount of effort from all the stakeholders involved to overcome them,”
she adds.
Making a success of Emirates’ dual-hub operation
In the four and a half years since Emirates SkyCargo first commenced freighter flights from Dubai World Central (DWC), the carrier has shuttled more than one million Unit Loading Devices (ULDs) and 1.2 million tonnes of cargo via a ‘bonded corridor’ trucking service between its dual hubs in Dubai that connects cargo carried on Emirates’ passenger and freighter flights.
Since April 2014, a fleet of 49 trucks operated by Allied Transport Company on behalf of Emirates SkyCargo, including 12 refrigerated trucks for temperature-sensitive goods, have linked DXB and DWC on a 24-7 basis, operating close to 300,000 trips.
In order to ensure the safety and integrity of cargo in transit, all the trucks in the fleet are equipped with satellite tracking and operate in a pre-determined geo-fenced route between the airports, planned and monitored round the clock by a dedicated team. The trucks are also fitted with tamper-proof locks for each journey, verified by Emirates Group Security and Dubai Customs.
Henrik Ambak, senior VP for worldwide cargo operations, says the efficiency of the corridor has created a two-airport cargo hub capable of handling close to 3 million tonnes of cargo per year. “Our fleet of 49 trucks function similar to a continuously rolling conveyor belt, allowing connection times of 4.5 hours between cargo arrival at one airport and departure from the other, thereby effectively integrating two airports into a single hub,” he says.
Elephant in the room
One ‘elephant in the room’ is the ongoing blockade of Qatar by four neighbouring states – Saudi Arabia, the United Arab Emirates (UAE), Bahrain and Egypt – which began in early June 2017 and shows no signs of ending. While Qatar Airways described 2017 as the “most challenging year in its 20-year history”, largely due to declining seat sales on the passenger side, the cargo part of the business appears to have ridden out the storm rather well. Reconfiguring its network and enjoying a boom in charter operations as a result of the blockade, Qatar Cargo continues to thrive and grow, despite the blockade.
Where it did have an impact was on business in the UAE, somewhat ironically. One air cargo analyst, who requested anonymity, notes that prior to the diplomatic crisis there were a lot of businesses who were based in the UAE but had offices or significant interests in Qatar and other places in the region. “The embargo took many by surprise and, in the early days, there was some hope that it might all be resolved as quickly as it seemed to have come about. It has lasted longer than most anticipated and necessarily led to some restructuring,” he says.
“From an air cargo perspective, I am sure that many of Qatar’s former clients mourn the loss of lift, which was often deliberately priced to undercut the home carriers such as Emirates and Etihad. I am also sure that those home carriers are shedding no tears about the same and are quietly relieved that they do not have to contend with such an adept competitor,” he adds.
Another politically sensitive issue is the future of Etihad Airways and Etihad Cargo. Following major losses, the Abu Dhabi-based carrier has undertaken a major restructuring programme, including cutting its cargo fleet in half with the sale of its five A330 freighters to DHL and a substantial exodus of foreign expatriates from the struggling cargo division. The carrier hopes that redeployment of its remaining five B777Fs – leased from Atlas – to a more-limited selection of markets in Asia, Europe and the US, along with better use of bellyhold capacity and “efforts to maximise premium product verticals such as SkyStables (equine), FlyCulture (arts and music) and FastTrack (mail and courier) products, while prioritising investments in digital and physical infrastructure”, will improve its results.
Etihad’s problems have revived talk of a possible merger of Etihad and Emirates, with one long-time cargo industry executive noting that there was “never supposed to be two international carriers out of the UAE”.
Other highly sensitive issues in the region include the devastating war in Yemen and the murder of the dissident journalist Jamal Khashoggi – and whether Saudi Arabia’s involvement in these will limit international investment in the Kingdom; but there seem few signs of that happening to date.
Iran sanctions
Meanwhile, the US’ re-imposition of sanctions on Iran has thwarted many companies’ ambitions of tapping the country’s pent up demand for not just consumer goods, pharmaceuticals and perishables, but oil and gas related cargo as well.
For many companies based in the Middle East, trading with Iran was a large and lucrative part of their business. “Many businesses were excited about the prospect of doing business in Iran, because of its oil and gas developments and its broad accessible consumer base of 80 million people, 73% of whom live in urban centres and 60% of whom are under the age of 30,” notes one air cargo analyst, with the reimposition of sanctions also affecting business confidence.
He says the differences between the European Union and the US over the sanctions has put a number of business owners into difficult positions, because of the fact they cannot comply with one set of regulations without breaching others.
Opportunities
While an outcome to the Iran problem remains to be seen, one thing that appears clear within the region’s air cargo sector is that technology will be a key driver of change and growth in the Middle East as it is across the industry. In an air freight market that remains challenging, with fast-changing demand patterns, Flydubai Cargo is keen to point out that it is continuing to innovate, “becoming the first airline to use blockchain technology in the air freight industry in partnership with dnata, Emirates Innovation Lab and IBM”, the Dubai-based belly carrier says.
The blockchain-based solution replaces paper-based contracts with smart contracts and integrates all key trade process stakeholders from the purchase order stage and will certainly become an increasingly common concept in the industry as the months go by.
The carrier also continues to use only electronic Air Waybills (e-AWB).
Flydubai also began, in 2018, to offer live animal transport across its network with additional features such as door-to-door
or airport-to-airport transport and the option to book return flights for pets and other live animals.
For Coyne Airways, set to celebrate its 25th year of operations and with a new managing director, Tristan Koch, the carrier sees a continuation of cost-consciousness from the shippers and greater competition between different transport modes. This includes for specialty products like pharma and fresh flowers, once again reviving the old bug-bear of ocean shipping.
Rationalisation of freight capacity
Coyne also anticipates, “increasing rationalisation of freight capacity and demand, with yields being pushed up; and some disruption to traditional flows from China to the US, with some cargo being diverted regionally”.
In a rapidly changing geopolitical and trade environment, the region’s energy riches and air freight infrastructure seem set to continue to provide opportunities – particularly for those that can
rapidly adapt.
