Aircargopedia Newsblast: August 2021!
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18th August 2021  
 


Dear Air Cargo Professional:

Know more about the Global Air Freight Market Report 2021 by Pat from SUNTEC.

Understand Yield Management in this article by Peter Canellis, Professor of Management, Vaughn College.

In more World Air Cargo news, Amazon announces major Air Cargo investment at Newark Liberty Airport by Kevin Pflug.

ATSG Looks to Future Growth With EFW A330 Slots.
  DJ Ghosh

D.J. Ghosh
President & Publisher
AIRCARGOPEDIA
WWW.AIRCARGOPEDIA.COM
”The Complete Encyclopedia for the Air Cargo Professional & Investor”


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Global Air Freight Market Report 2021: Growth, Trends and COVID-19 Impact

While land and ship cargo transportation remain as favourable options, goods transport by air is considered as the quickest and the unhindered mode of transportation. With the COVID-19 pandemic, the air cargo faced significant challenges in 2020, such as fallen global trade volumes, global economic activity and weakening consumer confidence. In January 2021, the air cargo demand returned to pre-COVID levels (January 2019) for the first time since the onset of the crisis.

Cargo airlines are increasingly embracing multichannel sales approaches as they attempt to cater for all types of customer. Whether its via bots, highly trained staff or booking platforms, carriers want to make themselves easily available to any customer - it's no longer a case of booking solely via a carrier's own website.

The demand for cold chain logistics via air freight for healthcare products by air is rigorously increasing along with the ever-tightening government regulation in the countries.

Key Market Trends

Strong African Air Freight Industry Driving the Market

As Africa continues to be an investment hub with several emerging economies, the upward trajectory is expected to catalyze the continent's air cargo and logistics sectors. The hunger for natural resources and desire for fresh produce have been pushing several countries to invest in the African aviation market. This transforming scenario has compelled the industry to shift gears to follow a disciplined approach in terms of policy framing, infrastructure, and connectivity.

Just after a year of Single African Air Transport Market's (SAATM) launch by the African Union (AU), 27 countries signed the historic agreement for opening the skies to date. It is regarded as an important initiative for liberalizing the aviation sector, including air cargo, which may offer an immense benefit for African airlines in terms of accessibility and connectivity. Currently, 85% of Africa's air freight is being moved by foreign carriers who rarely collaborate with African carriers.

The Cape Town airport serves as a sub-hub and has seen tremendous growth in cargo volumes over the last three years. The additional flights into the southern African regions from Cape Town have promoted the growth in the trade of automotive, electronics, agricultural, and other perishable products.

Over the year, air cargo volumes have been supported by strong capacity growth and investment linkages with Asia. The Middle Eastern carriers reported a decline of 2.2% in year-on-year international cargo volumes in November 2020. The lack of international connectivity is hampering air cargo recovery in the region, however seasonally adjusted demand is supporting on an upward trend.

E-commerce Growth Creating Great Opportunities for Air Freight Industry

The e-commerce sector is forecasted to grow at 14% globally over the forecasted period creating a great opportunity for the air cargo industry. The global e-commerce industry, which makes up about 16% of the total air cargo business, is projected to grow more than double to USD 4.4 trillion by 2025.

Some global carriers are working to gain a bigger share of the door-to-door delivery market that has been dominated by online shopping giants, such as Amazon, Alibaba, and JD.com. The Dubai-based Emirates launched Emirates Delivers, Lufthansa has Heyday, and British Airways' parent IAG has Zenda in order to explore the opportunities in the same day delivery and door-to-door delivery market.

The air cargo industry is well-positioned to capitalize on the growth in e-commerce. It is built to handle e-commerce, approximately 80% of business-to-consumer cross-border e-commerce is transported by air. Air cargo has become the preferred way of shipment for electronics due to relatively small volume or tonnage in comparison to high value.

Competitive Landscape
The air freight industry is moderately fragmented in nature. The industry is dominated by some of the major players operating in multiple regions across the world. The growing demand for air freight transportation services has posed new challenges to the air cargo service providers. Airlines need to focus on implementing fuel-efficient solutions and accommodate innovative technologies, to provide cost-effective services.

Companies like Lufthansa Cargo have invested in digital capabilities with their own e-booking, and also want to make their bookings available to others, so that the Application Programming Interface can offer the accessibility of the inventory in the systems.

The air freight industry has been recently immense disturbed with the recent regulatory disputes (US-China trade war), anti-national activities, and COVID-19 pandemic leading to the cancelation of a huge number of flights due to safety concerns and fall in the number of passengers. Special economic zones (SEZ), free trade zones (FTZ), and the bonded warehouses are projected to cater to significant warehousing needs for the freight moving in and out of the airport shortly.

Pat Praveen
SUTEC LLC.
suntecrm.com

For any questions, please contact Pat at pat@suntecrm.com
For more info please visit www.suntecrm.com


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Yield Management: The Three-Slide Guide

New Yorkers (like me) of a certain age (like me) remember Sy Syms .

Sy was a retail clothier who, in his radio and television advertising, explained his pricing policy in clear and explicit terms. Prices were set for new clothing that just arrived at the store. If the goods weren’t sold after a set period, they were discounted by a specific percentage and if they weren’t sold after a second stated time had elapsed, they would be discounted yet again.

Three generations later, futurist Mike Walsh 2 tells us in his book, The Algorithmic Leader 3 , that with so many variables affecting our business decisions, we shouldn’t obsess about coming up with “right” answers but, rather, strive to be “less wrong” over time.

Using the insights provided by Sy and Mike, along with the help of a few simple sketches, we can understand the principles of Yield Management whose correct application are so important in Supply Chain Management and Asset Management.

Let’s say that we’re selling some product or service and agreed on a price to charge in the marketplace. Basic Economics (and common sense) tells us that we will sell more units if we lower the price and fewer if we increase it. This relationship is represented by the diagonal line in Figure 1.

Yield Management

Continuing to consider Figure 1, our price multiplied by the quantity that can be sold at that price gives us our total revenue. This is indicated by the rectangle with diagonal stripes which takes up part of the area under the diagonal line.

Two other areas under the diagonal (Demand) line require our attention. They are the two triangles, one above and one to the right of the “revenue rectangle”, that comprise the balance of the area under the Demand line. The areas of both triangles represent lost potential revenue; but for different reasons.

The triangle to the right represents lost revenue because the selling price is too high. This seems perfectly straightforward, and it is.

The triangle on top of the “revenue rectangle” is more interesting. This lost revenue is known as the “consumer surplus”. What does this mean? Notice that the Demand line extends up and to the left from the point that indicates the sell price (point “A”). Unlike those potential purchasers to the right of the rectangle who would not pay the sell price, those above the rectangle would have been willing to pay MORE than the sell price, but since they only have to pay the stated sell price, they enjoy a “surplus” by pocketing the difference between the price they were willing to pay and the price that they actually did pay.

Knowing the relationship between price and demand, how can we use this to increase our revenue by:
• Capturing some of the Consumer Surplus and …
• Stimulating purchases by price-sensitive customers?

We can understand how to do this by examining Figure 2

Yield Management

If we divide our “Buyers” who bought at price level “A” but were willing to pay more into two groups, we can command a premium at price level “B” from some of those buyers. Comparing Figure 2 with Figure 1 we see that, while not completely eliminating the consumer surplus, we have cut into it and moved it from consumer surplus (i.e., consumer savings) to revenue for us. We do this by providing some form of differentiation in the product or service. Differentiation could take the form of some relatively low-cost enhancements or early availability. Not everyone will pay the premium (i.e., pay at price level “B” in our example), but some will.

The above discussion addressed how to get more revenue from the buyers (all of whom originally would buy at price level “A”); but what about those for whom price level “A” was already too expensive? This is very straightforward: we just reduce the price to “C”. However, as Sy told us, we only do this after we are sure that we’ve sold all that we can sell at price level “A”. By doing this, we have claimed more of what was previously lost revenue from those who would not buy at price “A” but would buy at price “C”. The basis for the strategy has now been defined. If we imagine subdividing the groups yet again, we can see that more potential revenue can be realized. As more price levels (accompanied by some differentiating features) are offered, we can minimize lost revenue. There is no one “right” price, so we have to come up with a way that we can be (thanks, Mike!) “less wrong”.

Yield Management

Economics explains a lot about human nature; or maybe it’s the other way around – you can decide that one for yourself. The next time you buy tickets for the theater or a sporting event, book a flight or a hotel or arrange for a shipment of freight, you might remember that the buying choices you make among those selling choices that were offered by the providers were driven largely by the concepts we examined here today.

Peter Canellis

Regards,
Peter Canellis
Professor of Management
Vaughn College of Aeronautics and Technology


Transport Logistics

Amazon Announces Major Air Cargo Investment at Newark Liberty Airport

17 August 2021

Earlier this month, Amazon announced that it has entered a 20-year lease agreement with the Port Authority of New York and New Jersey to redevelop and expand certain air cargo facilities at Newark Liberty International Airport.

According to a press release issued by the Port Authority, Amazon is expected to transform two existing structures, Buildings 339 and 340, into a new state-of-the-art air cargo facility with a planned investment of $125 million for renovations. The lease, which remains subject to final negotiation and is expected to take effect later this year, will provide the Port Authority a lump sum upfront payment of $150 million and another $157 million in additional rent over the 20-year lease, which provides for approximately 250,000 square feet of cargo space on 23 acres at Newark Liberty.

The air cargo campus’s transformation will significantly upgrade Newark Liberty’s cargo capacity, as well as related service capabilities overall. The airport already stands as a major domestic and international shipping center and this infrastructure investment by Amazon will serve to enhance the Port Authority’s efforts to modernize operations at Newark Liberty to better compete in the growing air cargo sector.

New Jersey Governor Phil Murphy expressed his excitement for the project and stated, “This investment in Newark Liberty International Airport will create 1,000 jobs and provide significant opportunities for minority- and women-owned business enterprises. Air cargo is vital to the international supply chain, and with this new partnership, Newark will continue to be a global leader in logistics. This new e-commerce hub will provide needed revenue to the Port Authority while also bringing new jobs to our state.”

“Newark Liberty is a critical driver of the regional economy,” said Port Authority Chairman Kevin O’Toole. “This single partnership has the potential to grow the airport’s workforce by almost 5 percent and enhance its role as a vital part of our recovery from the economic impacts of COVID-19. The months to come will see additional investments as we deliver on our promise of transforming Newark Liberty into a world-class facility for our region.”

Moreover, Port Authority Executive Director Rick Cotton noted, “The exciting air cargo project that the Board has authorized today marks the latest important step in this agency’s commitment to shaping the future of air cargo by expanding capacity at Newark Liberty and by customizing the delivery of world-class air cargo operations and services.”

Amazon’s investment in Newark LIberty’s air cargo capacity is expected to create more than 1,000 jobs at the airport.

Peter Canellis
Kevin Pflug


Air Canada Cargo

ATSG Looks to Future Growth With EFW A330 Slots

Aug 06 2021

Cargo Aircraft Management (CAM), the leasing arm of Air Transport Services Group (ATSG), has secured twenty A330 conversion slots with Elbe Flugzeugwerke (EFW) as it turns to the future and follows “the natural progression of growth.”

ATSG told Cargo Facts that the A330 slots will run from around mid-2023 through the end of 2025, with the majority likely to be at EFW’s facility in Dresden (DRS). In the meantime, ATSG, which still holds thirty-two more conversion slots with Israel Aerospace Industries (IAI), said the 767 will remain its primary mid-size freighter. CAM will continue to acquire aircraft to fulfill those slots and may even consider more beyond that, depending on the market, the company said.

ASTG


While CAM’s 767 portfolio is largely North America-heavy, the company expects the A330 to open up new streams of customer interest and demand internationally. ATSG said that, looking at the next five years or so, it was important to make a move to capitalize on market conditions and trends. CAM is still “heavily committed” to the 767 platform and feedstock will still be available in the next several years, but the A330 platform represents the natural course of expansion and will complement the A321 platform, for which CAM will induct its first aircraft (1972, ex-Thomas Cook Airlines) this November at the PEMCO facility in Tampa (TPA).

With EFW’s next available slots stretching into 2025 and beyond, ATSG said that, as the market leader, it wanted to secure those slots. ATSG told Cargo Facts that it intends to focus on the A330-300 and sees good feedstock between twelve to twenty years old, but may consider the A330-200 if there is specific customer demand for it. ATSG has not made a firm decision on engine type yet, it said.

Meanwhile, CAM’s two latest 767-300BDSF conversions (29606, ex-American Airlines, and 27449, ex-Omni Air) will soon join DHL’s U.K. fleet and Amerijet, respectively.

CAM expects to place nine 767-300Fs on lease in the second half of 2021, and at least ten more in 2022, ATSG said in its second-quarter results today.

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