3:00pm Session 09/20/11 - gatech.edu

3:00pm Session 09/20/11

Air Cargo

Industry Overview

Greg Andrews, Managing Director EMIL-SCS The Georgia Institute of Technology

Agenda

The Air Cargo Industry

The Air Cargo Network - Providers

Top Air Cargo Markets – Trade Lanes

Air Cargo Freight – Equipment

Air Cargo Freight Flow Chart

Industry trends

Positive influences impacting shipper choice

Negative influences impacting shipper choice

Air Cargo – What you should know?

How to ship?

Negotiating Rates-Contracts

Your Air-Waybill


Versus other modes

• What are the alternatives?

Ocean

Rail

Truck

Barge

Pipeline


Facts & Figures:

• Only 2% of the worlds cargo moves via Air

• 32 million jobs, 3.5 trillion in economic activity

• 2001 Revenue = $307 Billion

• 2011 Forecasted Revenue = $598 Billion

Source: IATA 67th annual meeting Singapore


Facts & Figures:

• 32.3 million freight tons moved in 2001

• 48.2 million freight tons projected in 2011

2008 Net profit = -16.0 Billion

2009 net profit = -10.0 Billion

2010 net profit = 18.0 Billion @ 3.2% margin

2011 projected net profit = 4.0 billion

Source: IATA 67th annual meeting Singapore


Facts & Figures


Facts & Figures

Source: 2010/2011 Boeing Air Cargo World Forecast


Facts & Figures


Facts & Figures


Who uses air cargo?

Why?

When?


Who uses air cargo?

• High Tech

• Automotive

• Fashion

• Retail

• Pharmaceutical

• Humanitarian Response

• Department of Defense

• Manufacturing

• Emergency conditions


Who uses air cargo?

• Any company who has hosed up their supply chain and needs to expedite material or products to satisfy customer demand

• In short, everyone-although as we highlighted in the previous slide certain industries elect to choose air cargo as their primary mode of transport


Why? When the costs are so high would industry choose this mode?

• Why the fashion/apparel industry?

• Why the High Tech industry?

• Why would Wal-Mart, Target, Home Depot use this mode?


When?

• If your products enjoy high margins

• If speed to market means capturing market share and increased revenue

• If your product has seasonality

• If your product is light weight, cubing out over actual weight

• If your product has a short shelf life

• The rapid pace and speed of technology outdates your current product


When?

• If your Supply Chain is inefficient, improperly aligned, out of balance due to:

Material shortages

Component failure

Forecasting errors

Spikes in customer demand

Service failures

Capacity shortages

Customs compliance issues

Inventory position-strategy

Natural disasters

The Providers

What & who make up the Air Cargo Supply Chain?

• Shippers – First and Foremost

• Air Cargo Carriers – All cargo freight

• Passenger Airlines – Belly freight

• ACIM Wet Lease Operators

• Freight Forwarders

The Providers


• 3PL Service Providers

• Customs Brokers

• Intermediaries

• Trucking

• Expedited Trucking

• Airports

The Providers


• Terminal operators

• Ground handlers

• Couriers

• Integrated carriers

UPS

FedEx

DHL

TNT

Carriers Forwarders Belly Operators

Alaska Air Cargo Cargolux China Air Eva Air Cargo Evergreen Korean Air Cargo Lufthansa Atlas Martinair Cathay Pacific Japan Air Lines Emirates Kuwait Airlines Etihad Saudi Arabian Airlines Lan

Delta American Airlines United British Airways Air Canada Southwest Airlines KLM Any Passenger Airline

Kuehne & Nagel Uti Forwarding Ceva DB Schenker Dachser Agility Damco Panalpina Matson Ryder Logistics Landstar Geodis Hellmann Penske Sinotrans

Examples: only a fraction of the total players

Top Cargo Airports

Source: WTO

Trade Lanes

Source: Airports Council International

Air Cargo Freight - Equipment

Unit Load Device A unit load device, or ULD, is a pallet or container used to load luggage, freight, and mail on wide-body aircraft and specific narrow-body aircraft. It allows a large quantity of cargo to be bundled into a single unit. Since this leads to fewer units to load, it saves ground crews time and effort and helps prevent delayed flights. Each ULD has its own packing list (or manifest) so that its contents can be tracked.


Cookie Sheets

Talking Points - automated rollers, belts - Load Masters - Fuel vs Load - Weather – Summer vs Winter - Turning into the wind - Runway Length 10,000 – 12,800 - Jet Blast - Taxi Clearance - Push Back vs Tug Nose In - Automated Retrieval – Put-A-way


Ground Handling Equipment Main Deck Loader – front end loading the Nose of a 747


Lower Deck Cargo – Freight Belly Freight loaded in combination with Passengers Combi-Freight 50% of the worlds freight moves via commercial airlines hauling both passengers and freight 100% mandatory screening of all freight moving commercial aircraft by Dec-31, 2011


Upper Deck-Main Deck cookie sheets loaded into position via Main Deck Loader


Air Cargo freight staged on the apron for loading


FedEx Hub in Memphis


Main Deck Palletized freight – loaded onto smaller cookie sheets


ULD Cans loading into a DHL Plane, again loaded with loose packages, boxes, letters. You can see the packages through the plexi-glass walls


ULD Cans loaded into the main deck of a UPS plane. The ULD top conforms to the inside dimensions of the planes contour. ULD’s are loaded with loose package freight, or regular pallet sized freight top filled with loose packages

Air Cargo Freight

A380-800F 59–71 LD3s 66 pallets

A330-300 32 LD3s 11 pallets

B747-400 32 LD1s 5 pallets + 14 LD1s

B767-300 30 LD2s 4 pallets + 14 LD2s

B727-100F none 8 pallets

Plane Type ULD-Containers Pallets

Different Planes, with different capacity

Air Cargo Freight Flow Chart

Trends

According to a Boeing company release, a fleet of 100 of the new planes will save 175 million pounds of fuel each year, while emitting 277,000 fewer tons of carbon dioxide. In addition to outpacing current competition, the new MAX planes are said to have an operating cost that’s 7-percent less than the company’s future competition; future fuel-burn numbers are expected to outpace competition by 4 percent.

747-MAX

Fuel Efficiency Load Capacity Speed Alternative Fuels

Trends

The A380's upper deck extends along the entire length of the fuselage, and its width is equivalent to that of a widebody aircraft, 49% more floor space than the current next-largest airliner, the Boeing 747-400 and provides seating for 525 people in a typical three-class configuration or up to 853 people in all-economy class configurations. The A380-800 has a design range of 15,200 km (8,200 nmi; 9,400 mi), sufficient to fly from New York to Hong Kong for example, with a 150 ton payload

A380

Bigger is better

http://en.wikipedia.org/wiki/Fuselage

http://en.wikipedia.org/wiki/Boeing_747-400



http://en.wikipedia.org/wiki/Travel_class



http://en.wikipedia.org/wiki/Economy_class

http://en.wikipedia.org/wiki/Range_(aircraft)

Complex Global Supply Chains Inventory Management Reduced Cycle Time Outsourced-Offshore Manufacturing New Markets – Growth Opportunities

Positive Influences – Impacting a shipper’s choice to use Air Cargo

Reduced Cycle Time • # 2 behind reduced inventory, take time out of delivery cycle • Customers want it now, instant gratification • Speed to market is a competitive weapon • Reduced inventory in transit-SOX • Lower safety stock quantities

Inventory Management • Inventory is a ( 9-Letter derogatory curse word ) • OEM’s are increasingly moving to build to order models • The Forwarder assets become your warehouse • The quick fix answer to poor planning and forecasting • ―smoke jumpers‖ philosophy, management style • Increased turns, lower inventory on the shelf

Positive Influences – Impacting shipper decision to use Air Cargo

Complex Global Supply Chains • Supply Chains are becoming increasingly more complex • Stretching further, and across multiple trade barriers, time

zones • Demand for Air Cargo Service will continue to increase • Air Cargo is in most cases the first mode of choice into a new

market

Offshoring-Outsourced Manufacturing • Quick access to low cost labor markets • Quick access to low cost raw materials • Quick delivery of finished goods to market • Transparent delivery issues, C level managers see you as the

equalizer, example: Just FedEx it, what is the problem?


New Markets Growth Opportunities • Air Cargo Expected to grow to 36 million tonnes within the

next five years ( TIACA) a growth rate just under 5% • China and India growing over 8% • Central and Eastern EU to grow at 6% to 8% • Emerging Markets, developing 3rd World Countries turning into

major global economies with a growing middle class accumulating disposable income


“Negative Influences” Impacting a

shipper’s choice to use Air Cargo

Capacity Constraints Increasing rates Impact of the trade imbalance Fuel surcharges Security Regulations

Capacity Constraints • 100% of Fortune 500 building/sourcing in China

• Retailer hogs-seasonality-spikes in demand

• Freight being bumped off the plane, left on the apron

• Ocean freight shifts to Air Cargo creating surplus freight and constrained capacity

Peak Season Rate Adjustments • Previous (August—October)

• Now (July-November, if demand high extend through December)

• Isn’t it ―year round‖ now due to offshore manufacturing?

• China New Year Holiday peak (get out before plants close)

• If no peak then ―Artificially Create‖ peak, by parking planes

Negative Influences – Impacting shipper decisions

Roller Coaster ―Rate Ride‖ by the carriers • Short term vision - revenue management strategy • Wild-Wild-West, get whatever the market will bear • Carriers too far removed from the shipper • No sense of partnership or ―win-win‖ • Gotta be a big dog to get good service-rates • Rate collusion by foreign owned carriers, collectively setting

the rates

Lane Imbalance • Backhaul return often is a disaster • Carrier inability to run the right product mix • East bound subsidizing West bound lane • Carriers fighting to stay out of bankruptcy • Overall negative perception of financial mismanagement • Customers over promise and under deliver on their freight

commitment


Fuel surcharges that defy logic or reason • Being used to ―pad revenue‖? • Why currently are Air Cargo Service Providers and Forwarders

under scrutiny and investigation for price fixing? • Need a ―formal regulatory branch to administer FSC in the air

cargo world, similar to the DOE-DOT in the trucking sector

Security regulations -terrorist threats • Legislation that is not practical, and is counter productive to

air cargo and global supply chains • Separating fact from fiction and hype – Advanced Manifesting • 100% screening of air cargo • Cost to implement all of these programs is being borne by the

shipper, is that fair? • The role of TSA and CBP fighting turf battles, where TSA is

trying to re-invent the wheel, rather than partner and learn from the decades of experience that CBP has under their belt

• One size fits all policy, without regard to differences in passenger and air cargo movement


What are you trying to ship? What size? Can it move via Air? Will it fit on a

plane? Dimensional weight Vs. Actual Weight Domestic calculation

Length x width x height x # pieces 194

International calculation Vs. Actual Weight Length x width x height x # pieces 166

What Value? Do you declare Value at a higher rate Take the carriers liability at $0.60 cents/Lb. Or self insure with Cargo Liability insurance

Air Cargo – what you should know?

Shipping

Your shipment has a weight of 150 # lbs.

However it has dimensions of 60‖ x 42‖ x 28‖

You are shipping from Atlanta to Chicago

Actual weight = 150 lbs.

Dimensional weight = 364 lbs.

From Atlanta to Paris, France

Dimensional weight = 425 Lbs.

Example: Size

Your shipment has a value of $4,200 USD

It has an actual weight of 150 lbs. versus dimensional weight of 364 lbs. & 425 lbs.

The carrier or forwarder’s liability is between $0.50 and $0.60 cents per pound, unless you declare your value at higher shipping rates.

ATL to CHI : 364 x $0.60 cents = $218.40

ATL to Paris : 425 x $0.60 cents = $255.00

Example: Value

What is the delivery date? Do you need next day? 2nd day, 3rd day? Can you ship via truck and make your delivery

commitment? What service level should you use?

Where are you shipping to? What Region – Geography? Who are the air cargo service providers in the

region? What are the transit lead times?


Shipping?

What are the customs regulations at destination? Are you the importer of record?

What are the terms of delivery? Will you pay duties/fees/taxes? Destination delivery? Terminal handling fees?

Who has the liability of damage in transit What if your shipment is damaged or

destroyed? When do you transfer title-ownership of goods

When do you invoice, recognize revenue?

How do you negotiate rates? What rate do you pay?


Shipping

What volume do you have? At what frequency?

Do you have one-off shipments or do you have repeat volume moving weekly, monthly

Can you forecast with accuracy? Can you ship what you commit to? Do you have lane balance, import and export

freight? Or, are you like everyone else stuffing the

pipeline? Do you have high value shipments? Dangerous goods/hazardous shipments? Do you pay your bills net/15..net/30..net/120


Negotiating Rates

Do you bundle/aggregate your freight? Does the air cargo forwarder also move your

Ocean Freight? Do you have enough volume to create a

competitive landscape, playing one provider against the other?

Will you negotiate short term contracts-typically less than 1-year or enter into long term contracts 2-3 years?

Will you buy block space agreements, and pay whether or not you have freight on that day, week?

Will you select air cargo service providers on the spot market?


Negotiating Rates

Rates: are quoted in price per Kilo Can be all inclusive Door to Door Can be Airport to Door, Door to Airport Can be Airport to Airport Typically include line item entries for

Security Surcharges Fuel Surcharges Brokerage Fees Duties/Taxes Forwarding Fees Terminal Handling Fees Advanced Manifest Fees


Your Air-Waybill

Kulula Airlines – South Africa

Kulula Airlines – South Africa

Kulula Customer Relations

On another flight with a very "senior" flight attendant crew, the pilot said, "Ladies and gentlemen, we've reached cruising altitude and will be turning down the cabin lights. This is for your comfort and to enhance the appearance of your flight attendants."

Examples of Great Customer Service?



"Thank you for flying Kulula. We hope you enjoyed giving us the business as much as we enjoyed taking you for a ride."



"Welcome aboard Kulula 271 to Port Elizabeth. To operate your seat belt, insert the metal tab into the buckle, and pull tight. It works just like every other seat belt; and, if you don't know how to operate one, you probably shouldn't be out in public unsupervised."



"In the event of a sudden loss of cabin pressure, masks will descend from the ceiling. Stop screaming, grab the mask, and pull it over your face. If you have a small child travelling with you, secure your mask before assisting with theirs. If you are travelling with more than one small child, pick your favorite."



"Your seats cushions can be used for flotation; and in the event of an emergency water landing, please paddle to shore and take them with our compliments."



Heard on a Kulula flight. "Ladies and gentlemen, if you wish to smoke, the smoking section on this airplane is on the wing. If you can light 'em, you can smoke 'em."

Now that you are Air Cargo Experts

Go Forth and Conquer

Documents

3:00pm Session 09/20/11 - gatech.edu