Date: 8 March 2011
Remarks of Giovanni Bisignani at the World Cargo Symposium, Istanbul
It is a pleasure to be in Istanbul, a city that links East and West, with one foot in Asia and the other in Europe. Its role in world trade was built on transportation, starting with sea and now aviation. I thank Deputy Under-Secretary Suat Hayri Aka for his remarks which underlined the importance that Turkey places on air transport. The connectivity that aviation provides is key to Turkey’s economic success. I also thank our host –Turkish Airlines - for this event. Under the great leadership of my good friend and member of the IATA Board of Governors, Dr. Temel Kotil, Turkish Airlines ranks among the fastest growing airlines.
This symposium’s theme is “Air Cargo--Connecting the World”. We are a $68 billion industry, transporting 35% by value of all goods traded internationally. Our mission is of critical importance to the globalized world in which we live. And this cannot be achieved by airlines alone. Governments, customs authorities, freight forwarders and suppliers are critical partners in the value chain. To be successful, we must all be focused on serving the needs of our common customer - the shippers. This symposium is a unique forum to identify issues together, and much more importantly, to agree on actions needed to move this industry forward.
State of the Industry
Let’s start by looking at where we are. Aviation is shell-shocked and fragile. We made some money last year - $16 billion. It was just a 2.9% margin, so not the basis for a big celebration. But after a decade in which we lost $50 billion, any number that was not red was a major achievement.
Last week, we announced our outlook for this year. As oil prices rise, profits fall. Assuming an average oil price of $96 per barrel, profits will plummet 46% to $8.6 billion. That’s a pathetic 1.4% margin. But it could have been much worse. Fortunately the global economy continues to improve. GDP growth forecasts have been upgraded to 3.1%. We expect cargo to grow 6.1% to 46.2 million freight tonnes this year. With careful capacity management, we see yields improving by 1.9%.
There are risks to even this weak forecast. Starting with the oil price, which is rising on political speculation. If high energy prices stop or slow economic growth, the industry situation will change dramatically and quickly. With a 1.4% margin, there is no buffer to withstand a shock. We must shore-up the competitiveness of this industry.
IATA is playing a role. First we are keeping your money safe. Our financial systems settle over $300 billion annually. Last year, the Cargo Accounts Settlement System (CASS) handled $29 billion with a success rate of 99.994%. We do this with constant attention to improving efficiency and strengthening controls. Our operations now cover 101 locations, with CASS in Germany and Brazil being the latest additions.
Another important IATA role is to improve competitiveness. Since 2004, IATA achieved over $55 billion in savings. We did this with $15.9 billion savings through new routes and more fuel efficient operations, $2.5 billion in operational costs, $19.1 billion in reduced user charge and taxation, and $17.6 billion through our Simplifying the Business program. All of these successes were team efforts that benefitted the entire industry.
We must become even safer and more secure, to offer better quality and improved efficiency with improved competitiveness. The question for today is: “What team efforts are needed to achieve this?”
Safety is our number one priority and we are delivering results.
The Western-built jet hull loss rate for 2010 was the lowest in aviation history, with one accident for every 1.6 million flights. IATA carriers outperformed the industry with 1 accident for every 4 million flights. Why this difference? The IATA Operational Safety Audit (IOSA) has played a big role. All IATA carriers have met its 967 standards and recommended practices and are on the IOSA registry.
We have taken the same approach with ground operations. The IATA Safety Audit for Ground Operations (ISAGO) sets a global standard that will help us to mitigate the $4 billion cost of the 11% accidents that occur on the ground. There are 95 ISAGO registrations covering 58 ground handling service providers and 83 airports have met these standards.
Along with safety in the air and on the ground, when it comes to cargo the safe handling of dangerous goods is a paramount responsibility. We are making constant innovations to make the Dangerous Goods Regulations as accessible as possible. The latest advancement is the web-based EasyDGR product. But there is an emerging risk that we must address. It is the proliferation of internet-based commerce. Individual sellers are not professional shippers and they don’t know their responsibilities to label, pack and declare dangerous goods. They may not even be aware that certain chemicals or products pose a threat to staff and property when shipped via post or express companies. To date, the websites that are facilitating this commerce have listened to our concerns but have not taken action. As stakeholders in the global cargo industry, we must find a way to bring them to action before we have a catastrophe.
Along with safety, our other top priority is security. The Yemen incident clearly showed that there remains a real threat. It also showed that with collaboration, government intelligence is a critical and effective component of our defenses. I congratulate governments on working with industry to deliver an effective and targeted response. I am pleased to see many governments and regulators here, especially from the United States. The relationship that we have built over the last year with Secretary Janet Napolitano of the Department of Homeland Security (DHS) is driving positive change with a completely new and cooperative approach.
Industry and all governments must work together to secure air cargo without reducing the speed that is critical to the global economy. The reality is that today many governments and politicians are working on changes to air cargo security that would dramatically affect the business. Saying “no” or “impossible” only excludes us from the debate. IATA is taking the lead to engage governments with our knowledge expertise and solutions.
Next week, IATA will be co-sponsoring a paper at ICAO that will underline the need for coordinated efforts. Our message to all governments is clear. Effective cargo security must be based on a combination of three measures. First, we must take a supply chain approach. This means a layered approach to protect shipments from the moment they are packed until loaded onto the aircraft. The United Kingdom, the United States and others have achieved this. The Secure Freight initiative is a template for industry and governments to work together in countries where such programs don’t exist.
In 2010, we began a pilot in Malaysia with the cooperation of Malaysia Airlines, the Malaysian government, freight forwarders and shippers. The IATA Board of Governors was confident enough in the results to make adopting Secure Freight in two additional countries a target by the end of this year. The United Arab Emirates will be one of those countries. Security is our common goal. Secure Freight should be driven by government and industry cooperation on investment, processes, technology and risk assessment.
Second, we also need governments to certify better screening technology to supplement the supply chain approach. We do not advocate 100% screening. Intelligence is the most effective tool to combat terrorism and it must support risk assessments. And where there is a need for screening, we need the technology to screen pallets and oversize items. And I would add that governments must cooperate on mutual recognition of standards to avoid redundant checks.
Finally, we must make better use of electronic information to support intelligence efforts. It is important that governments understand e-freight’s capabilities and incorporate it into their security plans. The 20 documents that we have converted to electronic format give a clear picture of who is shipping what and where. One of the e-freight message standards is a security declaration. This gives a clear picture of who has screened what and where. This has the endorsement of the industry and we hope that the International Civil Aviation Organization (ICAO), the World Customs Organization (WCO) and regulators will endorse it soon. This would be the catalyst for more extensive use of e-freight, including for outbound processing and risk assessment. And the combination of advanced electronic information and screening information will enhance security.
This assumes that we have been able to implement e-freight effectively and globally. The IATA Board of Governors has given us clear targets. They want 10% e-freight volumes by the end of this year, and by 2015 the goal is 100%. We began e-freight in 2004, the same year we started e-ticketing. We achieved the 100% e-ticketing target in 48 months. On e-freight, by the end of 2010, we had countries representing 80% capability but only 2.8% penetration.
Most governments have now implemented legislation to recognize electronic documentation. Major markets that still need to ratify the Montreal Convention 99 are Thailand, Indonesia, Russia and Vietnam. With the network in place, we must move much faster to increase volumes. The $4.9 billion savings that 100% e-freight will bring are critical to making this a sustainable business for everybody. The benefits are shared across the supply chain and cutting a day off of transit times is a game changer for an industry that sells speed. It’s a no brainer. If we can be faster and cheaper, we need to get it done.
A major achievement was the e-air waybill developed in cooperation with the International Federation of Freight Forwarders Associations (FIATA). Some locations are very aggressive in implementation. Cathay Pacific accepts only e-air waybills for shipments originating in Hong Kong. In Amsterdam, freight forwarders using e-air waybills bypass the documentation center and go directly to the dock, saving up to an hour of processing time. In South Korea, freight is dispatched as soon as the e-air waybill is received, saving time and money.
Hundreds of freight forwarders in various locations are experiencing savings with paperless freight. So we know it works, the network is there, the cost savings are being realized, and expectations have been set with aggressive targets. Now it is up to all of us to move this forward by making use of the system. Shippers should demand the e-freight convenience and quality. Governments must make e-freight a customs and intelligence requirement. And forwarders and airlines should target the cost savings and service efficiency in their business plans.
Lastly, I want to address quality. Cargo 2000 has developed our industry’s first quality standards. These should not be the property of a club of a few airlines and forwarders. My vision is for these standards to evolve to global quality standards for the industry by the end of this year.
Cargo is a competitive business - 98% goes by sea and 2% by air. Sure we handle the high value goods, 35% of the value of goods traded internationally. But imagine if our 2% of volume increased by even just 1%? The only way to do it is by improving our competitiveness. That’s not just a cost issue, which e-freight is helping to address. Customers paying any premium to ship by air demand quality. They want to know that their shipments are on time and if not, they need to know when they will arrive to plan around the delay. This is basic good business practice that the air cargo industry must implement. And IATA, with Des Vertannes and the team, will work with Cargo 2000 and the industry to implement it.
Building the Future on Change
We are partners in an industry that must change. Over the last 40 years we earned a margin of 0.1%. The industry is weak and every shock is a body blow to our fragile profitability. At IATA’s last Annual General Meeting (AGM), I launched Vision 2050, beyond crises and shocks to the big changes needed to become a sustainable industry.
We worked with Harvard University’s Professor Michael Porter, famous for his expertise on competitiveness. His first reaction to the industry’s situation was “what a mess”. With the inspirational leadership of Singapore’s Minister Mentor Lee Kuan Yew and 35 key strategic thinkers, we will present a vision for the future at our next AGM in Singapore.
Cargo will be a key component of that future. And the need for cargo to change in the near term is critical. IATA’s cargo agenda is to catch-up on using technology, improve safety and security, and implement quality standards. But success will only come with collaboration. The Global Air Cargo Advisory Group – the International Air Cargo Association (TIACA), IATA, FIATA and the Global Shippers’ Forum (GSF) working together - is an example of the cooperative leadership we need.
This symposium must not just be a talking shop to meet targets like 10% e-freight by the end of the year. We need actions and commitments. I follow cargo issues closely since I joined IATA. Cargo has been on the board priorities every year. I look forward to being updated by Des and his team on the results of your meetings.
I will retire from IATA this year and take on new roles in the industry, namely boards and teaching. I will hand over to Tony Tyler, CEO of Cathay Pacific, one of the top two airlines for international freight volume. I know that Tony will pay keen attention to transformations in the cargo business. And IATA will continue to strengthen its role as a catalyst bringing industry and government together.
We have an important common mission, supporting air cargo’s important role, connecting the world safely, securely, efficiently, with high quality standards and of course profitably. I wish you a successful symposium.