Good morning to the cargo world. I am sorry that I cannot join you in Bangkok. I know that you are in good hands with Aleks and the IATA team. And I appreciate the opportunity to deliver some brief video remarks.
The industry is in crisis. Nobody knows that better than our cargo colleagues. It has been a tough 12 months since we met in Rome. By June 2008 cargo was shrinking even as the price of oil was skyrocketing towards its July peak of US$147. Falling fuel prices provided little relief as cargo demand fell off a cliff. After a shocking 22.6% decrease in December, it dropped a further 23.2% in January.
Airlines lost US$5 billion last year and we expect losses of US$2.5 billion in 2009. It looks better but it hides the fact that our industry is getting smaller. This year global airline revenues will shrink by US$35 billion to about US$500 billion. Cargo demand will fall by 5% and cargo revenues will drop by 9% to US$54 billion. And that is just the airline story. The pain is spread throughout the cargo supply chain. We are in this crisis together.
What can we do? How can we survive? I see four critical areas:
- protect the cash
- keep the shipments secure
- deliver a better product
- and improve efficiency
All involve the entire supply chain.
Protecting the Cash
Our first priority is protecting the US$28 billion of your money in our Cargo Settlements System (CASS). Even in the banking turbulence of 2008 we did not miss a single payment cycle with collection success maintained at close to 100%. We expanded CASS to 10 new markets, including domestic markets in the US, China, and Brazil, export markets in Chinese Taipei and Colombia and import markets in Hong Kong and Singapore. We are committed to further expansion this year and achieving a 15% reduction in unit charges and even better level of service.
Keeping the Shipments Secure
More efficient security does not take a back seat in a crisis. We will continue to fight the secure flight requirements for 100% screening. Our new Secure Freight strategy focuses on a data-driven, risk-based approach with shared responsibility throughout the supply chain.
Building the Future
As we battle this crisis, we must look for opportunities that will build our future with a more efficient industry. What do customers want? A good price and a great product. And in crisis…they will only get more demanding.
Cargo 2000: Helping us deliver a better product:
Cargo 2000 quality standards are even more important in this crisis. And IATA is committed to Cargo 2000. It is part of our recommended quality standard. But to be effective we need the whole supply chain to be aligned with a common vision on how to deliver quality. That is what Cargo 2000 is all about.
e-freight: Helping us improve efficiency
Improving quality without reducing costs will not get us far. We need to modernize the old paper-based processes of air cargo with e-freight. E-freight already operates at 18 locations and 26 airports, 22 of these are the top airports for international freight volumes. We have already proven that we can eliminate 50% of the paper by converting 12 of the 30+ documents that accompany every shipment to electronic format. The benefit is not just for airlines but for the whole cargo supply chain.
Now we need to do more and we need to work even faster. We have a tough target for 2010. We must deliver capability to remove 64% of the paper from 81% of international shipments. That means eliminating 20 documents and being live in 44 locations. If you think that we can wait until the crisis is over think about the benefits you would lose - US$4.9 billion in cost savings for the supply chain, 22% reduction in shipper buffer stock, 25% reduction in customs penalties, an average 24 hour decrease in shipping time and a 1% increase in market share.
Everybody benefits. Everybody needs to participate. The standards exist. We cannot afford to wait. IATA has built the e-freight infrastructure with tried and tested standards and a critical mass of locations. Now the supply chain must act to drive up volumes. We are on the right track. In 12 months the volume of e-freight consignments has increased five-fold. But we still have a long way to go. Now is the time for customers, customs, and governments to insist on e-freight as THE standard way to do business.
Change is never easy but a crisis is painful. We must use it as an opportunity to drive change that builds a more solid future for this great industry that supports 32 million jobs and US$ 3.5 trillion in economic activity. I wish you all a great conference and I look forward to hearing the results from Aleks, Tom and all the team.