Aircargopedia Newsblast: May 2020!
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18th May 2020  
 


Dear Air Cargo Professional:

Understand the financial impact of COVID-19 on the air cargo industry

Know more about Vendor Management with this informative article written by Peter Canellis, PhD, PE, Professor of Management.

Emirates SkyCargo has expanded its weekly scheduled cargo flight operations to cover 75 destinations across six continents

COVID-19: Humanitarian air deliveries to Africa ramped up with dispatch from UN’S new cargo hub in Belgium
  DJ Ghosh

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


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Air Canada Cargo

Financial Impact of COVID-19 on the air cargo industry

Compiled by Aircargopedia 


Data on the economic impact of COVID-19 on air transport has been obtained from different source, it has been used internally, and some has been shared with our partners during the multi-organization meetings. Alongside this, various air cargo bodies have produced their study, which is updated on a weekly basis and shared with other partners.

However, most of the estimates do not include potential impacts on the international air freight movements on cargo-only aircraft because of the lack of reliable data. What stands out is one of the recent assessments:

Global air cargo capacity is down by 35 per cent

Only 20 per cent of belly cargo is still flying

Freighters capacity has been stable for the last four weeks

Airports are of course feeling the impact as well, as they are a very significant part of the entire mechanism enabling air cargo. Even during the full closure of airports to passenger traffic, a substantial share of airport and airside infrastructure remains open, which means that the overall cost base for operations remains almost the same, as most airports costs are fixed.

How have cargo operations changed as a result of coronavirus?

What will be the impact on the worldwide air cargo logistics industry and it’s affect on the industry’s ability to recover from COVID-19?

The impact on the worldwide air cargo logistics industry is significant and will affect the industry’s ability to recover from COVID-19. Utilization of passenger aircraft, expanded use of the charter flights, demands on the flexibility in bi-lateral and multi-lateral regulations, new standards for operations, protection of personnel: We are witnessing new procedures and logistics arrangements almost every day. It’s a big task to collect information and even a bigger one to disseminate it to the right businesses for more uniformity and compatibility.

We are to continue studying the changes. There is an initiative in which we participate for the creation of a working Document on a post‐COVID‐19 recovery path. It started with the involvement of all aviation related international organisations, and the document will give comprehensive answers to what extent air cargo operations changed as a result of coronavirus. It also will propose possible recovery guidance (short-, medium- and long‐term) with respective influencing factors and foreseeable challenges associated.

Will the future of the air cargo industry be different as a result of this pandemic?

Air cargo will play a significant role in supporting the recovery of the global supply chain and the economy. One of the key tasks is to safeguard the functionality of the air cargo supply chain to the maximum extent possible. A presumably stable element in recovery scenarios, air cargo will play a significant role in supporting the recovery of the global supply chain and the economy. One important condition is the facilitation and flexibility of rules.

Hopefully, it will make many interesting assumptions regarding the future and propose possible recovery guidance (short, medium and long‐term). I especially want us to jointly come to an understanding of respective influencing factors and foreseeable challenges.

For more news and information about the air cargo industry, please visit AIRCARGOPEDIA.COM.


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The Logistics Provider’s Role in Vendor Managed Inventory

Peter Canellis, PhD, PE, Professor of Management

Manufacturers and retailers are considering vendor-managed inventory (VMI) as a way to reduce inventory and its associated carrying costs even further. This article discusses the basic principles of VMI.

VMI: What is it?
Vendor Managed Inventory the (VMI) is a means of improving supply chain effectiveness by having suppliers assume responsibility for maintaining manufacturers’ or retailers’ inventory levels.

In order to do this, the supplier:
• Has access to the manufacturer’s inventory data
• Replenishes stock based on a clear set of negotiated business rules.

Why do it?
VMI helps to improve fill rates and inventory turns simultaneously. Without good control of inventory, a manufacturer or retailer will carry too much of what is not needed, too little of what is needed, or too much of everything. The figure below serves to illustrate these various scenarios.

Vendor Management img1

Who does it?
The shift in responsibility for replenishment can be very effective in the retail environment where many products that are used independently of each other (e.g. soap, cat food, tissues, etc.) are purchased by consumers. It also can work well in the ‘business-to-business’ environment for certain types of parts and components. It is most effective in business environments that require high volumes of relatively small parts with generally stable demand over time. VMI is not an appropriate strategy for environments that deal in highly customized or seasonal products

Vendor Management img2

There is a critical difference in how VMI is applied depending upon whether it is used in the retail or manufacturing environment. In retail, the job of monitoring and replenishing shelves can be assigned to the supplier. Although many SKU’s may be involved, their independence of each other minimizes the problem of a stock-out: you can still buy cat food even if your favorite soap is sold out, and your second choice for soap will be, for the most part, good enough to see you through. For a manufacturing or assembly operation, the situation is completely different. The bill of materials for the product to be manufactured specifies an exact number of specific SKU’s. If anything is missing, production cannot be completed.

How does it work?
Because of this difference, the VMI model used in manufacturing and assembly typically includes an intermediary that is positioned between the manufacturer and its many suppliers. This intermediary logistics service provider is the hub operator.

Business rules that govern the VMI arrangement are set up between the manufacturer and each of its suppliers. These rules, set out in purchase orders and contracts, include provisions for maintaining maximum and minimum levels of stock for each SKU. The rules are communicated to the hub operator, who is responsible for working with the supplier to ensure that they are enforced, and for notifying the manufacturer of any lapses in compliance.

The hub operator responds to fulfillment calls from the manufacturer and places replenishment calls to the supplier.

Vendor Management img3

The information flow required to support this operation is illustrated in the figure below.

From the demand side:
• The manufacturer provides the supplier and the hub operator with business rules
• The manufacturer sends a pull signal to the hub operator
• The hub operator prepares the shipment and sends an advance ship notice to the manufacturer with a copy to the supplier.
• The manufacturer sends a receipt to the hub operator to indicate that product has been received.

It is important to note here that simultaneous transmission of the advance ship notice by the hub operator to both the manufacturer and the supplier is critical to making the model work. If the product being shipped were under the supplier’s direct control (as is the case in a ‘standard’ or ‘non-VMI’ environment), the supplier would have the security of knowing that the shipment would be recorded by its own people and systems to ensure subsequent invoicing.

In the VMI environment, by contrast, the supplier will not know that product has been shipped (and thus eligible for billing) without being informed by the hub operator. The hub operator provides a ‘virtual extension’ of the supplier’s inventory management system, and this carries with it a heavy responsibility to ensure that shipping information is transmitted quickly and accurately.

Vendor Management img4

What are the costs and benefits to the participants?

Many suppliers are, at first, reluctant to establish VMI arrangements with their customers; in fact many often do so only under pressure. However, once VMI operations are up and running, most suppliers experience considerable benefits; specifically:

• Increased customer satisfaction - Improved understanding of demand patterns results in fewer stock-outs which, in turn, reduce the supplier’s exposure to late charges
• Better control of production - Access to real-time visibility helps suppliers to schedule production more efficiently and shorten cycle time
• Improved competitive position – Participation in a VMI program helps to lock in the customer because switching costs have been increased. Also, since VMI capabilities can be applied to other customers, VMI know-how can be used by suppliers as a sales and marketing tool.
• Improved financial position – Suppliers will often be able to negotiate favorable commercial terms with their customers as an inducement for participating in a VMI program. This might include regular payment cycles and / or an agreement to purchase product after a specified maximum time period has elapsed. This latter arrangement would relieve the supplier of responsibility for obsolete inventory.
• Reduced storage costs at production facilities – The supplier can ship product almost immediately to the VMI hub after production, freeing up space that was previously used for storage of finished product. This space can now be used for production or other value-added activities.
• Turn fixed costs into variable costs – Storage space in a manufacturer’s facility is typically dedicated for this purpose. This results in underutilized capacity; either in low demand periods when not as much product is being made, or in periods of very high demand when product is being shipped as soon as it is produced. When the supplier ships to a VMI hub, the supplier only pays for the storage space that is being used over the time period that product is being stored.
• Lower administration and fulfillment costs

The benefits that accrue to manufacturers are:
• Material is received ‘Just-In-Time’
• Inventory turns are Increased because the product is not carried by the manufacturer for any significant length of time prior to use
• Purchase from the supplier is executed at the time of consumption, thus reducing the manufacturer’s cash-to-cash cycle
• Multiple suppliers’ products are staged in one location (the VMI hub)
• Warehouse space can be reclaimed for manufacturing activities
• “Line Down” prevention becomes proactive rather than reactive
• Buyers are freed up from ‘expediting’ functions, allowing them to concentrate on value-added functions such as supplier development
• Opportunities appear to collapse the Bill of Materials ( BOM), and to receive material in kits
• Obsolete inventory is reduced

What are the challenges to implementation?

Migration to a VMI environment doesn’t happen overnight. Potential challenges to implementation of a successful program are rooted in various process, people, or systems issues.

From the process perspective, a clear understanding of business rules is required including:
• When title to inventory is transferred from the supplier to the manufacturer or retailer
• Whether or not there is a maximum period for inventory to be carried on supplier’s books
• Provisions for obsolescence
• Roles and responsibilities of the supplier, manufacturer or retailer, and the logistics provider
• Reporting requirements
• Exception management
• Significant changes to forecast

From the ‘people’ perspective:
• Each participant must be willing to commit resources
• A realistic view by all participants, recognizing that there will be a “shake out” period required for implementation
• Understanding, acceptance, and confidence of all participants. This will be made a lot easier with the choice of an experienced hub operator who understands that it has a dual responsibility to both supplier and manufacturer for communication, care and custody of product, and inventory control.
• Excellent communications among all parties

From the ‘systems’ perspective:
• Proper requirements gathering must be conducted in order to understand the systems changes that are required to support the new business arrangement
• Adequate testing is needed to ensure systems reliability
• Tight controls on ASN’s and Dock Receipts are required in order to support accurate inventory control

In the proper environment, focus on these issues will result in a beneficial arrangement for all participants.

Peter Canellis


Peter Canellis, PhD, PE
Professor of Management
Vaughn College of Aeronautics and Technology
peter.canellis@vaughn.edu

Southwestcargo

FAA Allows Airlines to Carry Cargo in Passenger Cabins

May 15, 2020

Last month, the Federal Aviation Administration (“FAA”) issued guidance allowing airlines operating in the United States to transport cargo in the passenger cabins of aircraft.

The FAA’s announcement comes on the heels of media reports that several major U.S. airlines sought permission to carry cargo in passenger cabins and remove seats to maximize cargo capacity.

Issued on April 15, 2020, the FAA’s Safety Alert for Operators notes that, “It is an extraordinary situation, however, for an entire passenger cabin to be loaded with cargo. Passenger cabins are not designed for an all-cargo configuration.”

The Safety Alert states that the FAA considers that the following four locations to be appropriate for carrying cargo on airplanes configured with passenger cabins:

• Lower deck cargo compartments.
• Existing approved stowage locations in the passenger cabin.
• Passenger seats located in the passenger cabin.
• Floor of the passenger cabin (passenger seats removed), using seat tracks to tie cargo down.

The FAA’s guidance opens up a much needed new source of revenue for US-based airlines. As Delta CEO Ed Bastian recently told the Seattle Times, “We believe it could be up to three years before we see a sustainable recovery [in travel]. Whether it’s two years or three years or four years is anyone’s guess,”

Peter Canellis
Kevin Pflug


Turkish Cargo

Emirates SkyCargo’s global network grows to 75 destinations

Dubai, UAE, 14 May 2020

Emirates SkyCargo has expanded its weekly scheduled cargo flight operations to cover 75 destinations across six continents. Through its wider reach, Emirates SkyCargo is able to transport essential commodities and other urgently needed cargo more rapidly across the world, allowing exporters and importers across markets to benefit from direct access to widebody cargo capacity.

Some of the destinations recently included in Emirates SkyCargo’s network include Colombo, Conakry, Dakar, Dhaka, Dublin, Khartoum, Kuala Lumpur, Perth and Quito.

Emirates Sky Cargo

In addition, Emirates SkyCargo has also upped frequency of flights to several key destinations such as Amsterdam, Beijing, Bengaluru, Brussels, Chennai, Chicago, Frankfurt, Hanoi, Johannesburg and London allowing businesses more choice and flexibility in having their cargo shipped to customers and supplementing additional cargo capacity for the transport of urgent and necessary goods.

Over and above scheduled flight operations, Emirates SkyCargo also operates charter flights in response to customer demand.

Since March 2020, Emirates SkyCargo has played an important role globally in the transport of urgently required medical supplies including personal protective equipment such as masks and gloves, pharmaceuticals, healthcare equipment, electronics such as laptops and mobile phones as more people around the world have turned to online working and learning, food items including fruits, vegetables, sea food and meat. The carrier operated over 2,500 flights in the month of April. Currently Emirates SkyCargo is operating more than 100 flights a day from its hub in Dubai.

South African Airways
COVID-19: Humanitarian air deliveries to Africa ramped up with dispatch from UN’S new cargo hub in Belgium

01 May 2020 ROME/LIÈGE

The United Nations World Food Programme (WFP) has kick-started a network of global logistics hubs that will support the entire aid community and ensure the delivery of vital medical and humanitarian supplies to developing countries at a time when commercial air transport is at a virtual standstill.

“The window of opportunity to surge medical and humanitarian equipment into Africa to curb the pandemic is closing fast,” said Amer Daoudi, WFP’s COVID-19 Response Director. “Our global logistics support system is up-and-running, and this delivery marks the first of many cargo shipments we will fly to all corners of the globe,” he added.

A WFP-contracted Boeing 757 cargo flight departed the newly-established Global Humanitarian Response Hub in Liège, Belgium, late on Thursday carrying almost 16 metric tons of medical cargo and personal protective equipment like masks and gloves on behalf of UNICEF and the International Committee of the Red Cross (ICRC) destined for Burkina Faso and Ghana. Some of this cargo will then be moved to its final destination in the Republic of Congo.

WFP is setting up the logistics backbone for global COVID-19 efforts, rolling out a global hub-and-spokes system of air links to dispatch vital medical and humanitarian cargo and transport health workers to the front lines of the pandemic. Global Humanitarian Response Hubs located close to where medical supplies are manufactured in Liège, Dubai, and China will link to regional hubs in Ethiopia, Ghana, Malaysia, Panama, Dubai, and South Africa, where a fleet of smaller aircraft will be on standby to move cargo and personnel into priority countries. The network builds on pre-existing UN Humanitarian Response Depots (UNHRD) - including Brindisi in Italy.

WFP expects to transport the equivalent of 37 Boeing 747 planeloads over the next six weeks from China and Malaysia to 130 countries around the world. Once the service is fully up and running, as many as 350 cargo and another 350 passenger flights could fly every month.

While this flight is the first from the new hub in Liège, WFP has dispatched more than 300 metric tons of humanitarian and medical cargo to 89 countries, since late January, supporting governments and health partners in their response to COVID-19. These shipments include masks, gloves, ventilators, testing kits and thermometers.

Aid agencies and health authorities have been struggling to get supplies to fragile settings. They are hindered by the breakdown of global supply chains, the collapse of commercial air travel, border closures, and disruptions to shipping. WFP’s logistics network will bridge the gap in essential services, ensuring humanitarian and health responders on the frontlines of the pandemic can stay and deliver lifesaving assistance.

WFP is also mounting a regional passenger air service to ferry humanitarian and health workers across East and West Africa to overcome disruptions to commercial air services, with the first flights expected in coming days. The service will be expanded to the Middle East, Latin America and Asia soon. WFP also stands ready to set up air links with Geneva and Rome if commercial services are disrupted.

“To put it simply – without our logistics support, the response to COVID-19 in the world’s most fragile settings would stutter to a halt, leaving millions at risk,” Daoudi added.

WFP appealed for an initial US$350 million to kick-start global common logistics services, a call echoed by humanitarian partners in April, who highlighted the urgency of these vital WFP-led efforts.

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