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Cargo

Growing pains

E-commerce has given a massive boost to air cargo traffic and is the biggest factor behind the capacity glut that left a scramble for lift, and now air cargo logistics providers need to adapt to meet demand as Keith Mwanalushi finds
 

The one constant that can be associated with every aspect of e-commerce today, and as it evolves in the future, is rapid change. Players must quickly solve their supply chain challenges to ensure they capture available business value.

 

Interestingly, DHL recently launched its latest research report on the evolution of e-commerce supply chains. The study shows that, despite understanding the vital importance of it on customer retention and satisfaction, most companies have failed to fully implement an e-commerce strategy – findings that could well be of interest to air freight operators.

 

The report reveals that 70% of B2C companies and 60% of B2B companies are still working towards the full implementation of their strategy, even though 70% of respondents rate e-commerce as ‘Very Important’ or ‘Extremely Important’ to their business in terms of volume and revenue.

The report also uncovered the major barriers to full strategy implementation, which include changing customer expectation, pace of delivery, and limitations in existing infrastructure.

 

Nabil Malouli, Global e-Commerce Product Lead at DHL Supply Chain said, “It’s clear to see the importance of considering quality customer service within the e-commerce strategy, but with customer expectations constantly evolving and changing, companies are under pressure to keep up with building out their e-commerce offerings and the new supply chains they require, resulting in the challenge of full implementation.

“Supply chains need to keep up with and respond to new business models, service expectations and technological needs of customers in order to capture new ones and retain existing ones.”

 

The evolving demands of e-commerce means that in the next 3-5 years over 50% of businesses will be making some type of change to their distribution strategy.  To deal with this pressure many companies are opting to partner with a third-party logistics company (3PLs) to augment their in-house resources and capabilities, enabling them to quickly and effectively scale to capitalise on e-commerce opportunities.

Malouli added: “What companies need in the e-commerce journey depends on where they are coming from. They are all in different places in terms of implementing their e-commerce strategy, which means they will have different strategies and expectations about how to move forward with their supply chains.

 

“Many companies opt to partner with a 3PL(s) to help them respond to this changing environment while ensuring they have the expertise and flexibility to meet changing customer expectations.”

 

E-commerce shift

 

The express freight business, which is increasing due to the growth in the e-commerce sector, is a huge driver and airports like Leipzig/Halle (LEJ) in Germany are lapping it up. The e-commerce sector, primarily on routes to and from China, and the exchange of goods with the Asia-Pacific business region offer huge potential.

 

“The e-commerce business is the segment developing with the greatest dynamism – regardless of general fluctuations in the air freight market,” reports Mario Patyk, Head of Business Development Cargo/Logistics at Leipzig/Halle Airport.

 

Patyk says this segment (e-commerce) is largely supporting the ongoing development of the airport and its continual growth, which has been continuing for more than 13 years.

 

LEJ handled more than 1.22 million tonnes of cargo in 2018, making it the fifth-largest air freight hub in Europe and the number two in Germany. Freight volumes have increased more than tenfold since 2007 and continue to grow significantly. Overall, more than 50 cargo airlines fly from Leipzig/Halle to over 200 destinations worldwide every year.

 

For the first half of 2019 (January to June) LEJ reports freight volumes rose by 0.5% to 609,644 tonnes and aircraft movements increased by 0.9% to 38,659.

 

Considering the increasing demand, the Supervisory Board at Mitteldeutsche Flughafen AG – MFAG (the airport’s operator) has set out further strategic plans to expand the airport.

 

The shareholders have now unanimously cleared the way for investments in new apron areas, logistics and office buildings in the northern and southern parts of Leipzig/Halle Airport. This will create new direct and indirect jobs in various areas of activity the whole region will benefit from in the long term.

 

The most important decision is that LEJ will gain a second Cargo City in the northern part of the airport site. Taken together with the expansion of the DHL hub, which was announced with DHL during the autumn of last year, the planned investments will total about half a billion euros during the next few years – the largest investment package for the Central German airports since the 1990s. The airport company will bear the responsibility for the investments.

 

DHL Aviation moved its European hub from Brussels Airport to LEJ in early 2008, leading a significant increase in cargo traffic at the airport.

Patyk feels that LEJ offers ideal conditions for companies connected to the air freight and logistics sectors: “It has direct connections to the trans-European motorway and railway networks and to seaports via daily goods trains and it has adequate capacity reserves. Furthermore, it is centrally located in Europe – 15 European countries can be reached within eight hours by truck.”

 

Aside from DHL, another notable player based at LEJ are The Volga-Dnepr Group. In June, the Group and the airport operator jointly said they would continue to expand their strategic partnership at the airport in the areas of air freight and logistics.

 

The Group and MFAG will join forces in creating an effective logistics system in Leipzig/Halle Airport to boost cargo infrastructure development and set the facility as freight multimodal hub for scheduled and charter operations of the Group.

 

The agreement involving the two companies means a further boost for the cargo hub. Investments of up to €500 million are due to be made to expand this facility during the next few years. The Group will operate both charter and scheduled operations to and from Leipzig accumulating regular and project traffic on board AirBridgeCargo Airlines and Volga-Dnepr aircraft. Boeing freighter fleet will fly up to 20 weekly flights to LEJ until the end of 2021, while gradually increasing this number to 50 in 2030.

 

Both companies are also planning to intensify their cooperation in the fields of marketing, sales as well as the development of business and personnel. As many as 500 new jobs are due to be created in various fields of activity as part of this cooperation arrangement.

 

The airport’s subsidiary, PortGround, offers logistics, ground and passenger handling services as well as freight services from one source and the airport has an around the clock operating permit for cargo flights.

 

“The airport has adequate capacity reserves. Customs offices are open at the airport round the clock, too and this is particularly relevant for the e-commerce sector,” Patyk accounts.

 

The airport is also planning to invest about EUR 500 million to expand the apron areas and construct logistics and office premises to cater for the increase in demand. “We are fully convinced that the investment programme will attract more freight forwarding companies and e-commerce consolidators to Leipzig/Halle and this, in turn, will strengthen demand to and from LEJ.”

 

The global air cargo industry has seen a somewhat slump in demand for the first half of 2019. Industry confidence regarding the outlook, however, remains relatively upbeat. Year-on-year demand for air freight edged back into positive territory in March 2019 with 0.1% growth. After four consecutive months of contraction, this is an encouraging development, according to IATA. But the headwinds from weakening global trade, growing trade tensions and shrinking order books have not gone away.

 

In response to these market conditions and at LEJ, Patyk says they are currently experiencing lower growth in the integrator freight volumes and higher proportional growth in the non-integrator segment. “We are therefore expecting growth during the second half of the year, too. The increase during the first half of the year amounted to about 0.5%.”

 

Need for speed

 

As IATA has previously stated, the significant growth of e-commerce has already had a profound effect on retailers and manufacturers’ logistics needs as they seek to reach their customer as quickly and cost effectively as possible whilst providing supply chain transparency.

On top of the speedy and free delivery, facilitating quick, easy and often free returns has become an important criterion for online consumers and a major cost for retailers to handle unwanted, used or damaged goods each year. Shipping items can become very expensive, and managing supply chains, logistics and reverse logistics involved in e commerce is often difficult.

 

E-commerce is a challenge for logistics providers who need to understand the newly emerging trends and patterns, better anticipate expectations and volumes, and adapts their network coverage, products and service level agreements accordingly.

The cargo express delivery sector will be watching these trends and patterns very closely too.


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