Working Together for a Sustainable Air Cargo Industry
Good morning and thank you for the opportunity to address you today.
The strategic value of air cargo
First, let me extend thanks to our hosts—Malaysia Airlines—and to all the many sponsors of this important week.
It is appropriate that we are meeting in Malaysia. It is a country which has always seen aviation as a strategic component of its development. That is for good reason. Aviation is a vital contributor to Malaysia’s well-being. It contributes MYR 7.3 billion to the Malaysian economy and supports 102,000 jobs.
Kuala Lumpur International Airport (KLIA) is the flagship of a world-class airport system. Dozens of airlines—including our host and IATA member, Malaysia Airlines--provide the connectivity that gives Malaysian businesses access to global markets. These airlines are joined with other companies in the value chain.
During my over three decades at Cathay Pacific, I developed a strong appreciation for the air cargo business.
On the one hand, I could see it as a great enabler of economic growth by helping high value products find their way to global markets. Handling over three million tonnes of cargo annually, Hong Kong is the world’s top port for international cargo bringing huge economic benefits to the local and regional economy.
I also saw cargo as a growing part of the airline business. Cathay Pacific ranked third in the world in terms of freight tonne- kilometers and cargo was about 29% of our total turnover. That was well above the global average of 11%. And it is more than double the global average for business class revenues which is 14%.
Without fancy wines and comfortable seats, cargo draws much less attention than business class—maybe because passengers – “self-loading freight”, as cargo people call them – make a lot more noise about the quality of the service!
Or could it be that air cargo connects markets so efficiently that what we do is taken for granted by governments, consumers and even businesses.
The “Air Cargo Makes it Happen” campaign is one of the steps the industry is taking to raise the profile. I hope that you will visit the display in the KLIA departure hall and that it will serve as inspiration for awareness raising activities in your important markets.
Indeed, air cargo makes a lot happen. Global freight volumes exceed 45 million tonnes. And all indications are that it will continue to grow steadily to satisfy the needs of a growing population.
Growing the Business Together
By value, about 35% of goods traded internationally travel by air. But if we look at volume, air cargo only handles half a percent. The question for today is how to propel growth sustainably, with quality products, efficiently delivered by a well-coordinated value chain.
Aviation is a team effort. And that is particularly true for air cargo.
Under my watch at IATA, we will continue to manage the Cargo Account Settlement Systems (CASS) efficiently. Last year CASS safely handled $33.4 billion of your cash with 99.990% accuracy in 104 locations worldwide. We will continue to drive cost efficiency and enhance customer service levels while safely managing the industry’s distribution needs.
I am also making it a priority for IATA to work even more closely with our industry partners.
One clear example is the need to modernize the cargo agency program. I have tasked Des Vertannes and his team to collaborate with the International Federation of Freight Forwarders Associations (FIATA) to bring forward proposals that I can present to the IATA Board of Governors at year-end.
I am also fully supportive of the Global Air Cargo Advisory Group—or GACAG. All its members won’t always agree about everything. But our fates are linked as we are in the same business. By focusing on our common interests, I am confident that much can be achieved.
Safety is the number one priority
Safety is always the top priority for everyone connected with the industry. Last week we announced that 2011 was the safest year in aviation history. The Western-built jet hull-loss rate was 0.37 per million flights – the equivalent of one accident every 2.7 million flights.
For cargo, safety has some unique challenges. In addition to managing safe operations, we need to ensure that what is loaded onto the aircraft itself is safe to transport. At the end of the Symposium the IATA Dangerous Goods Board will meet for its 100th session. For over 50 years, this body has set industry standards and best practices for the safe transport of these special shipments.
Managing dangerous goods is a dynamic challenge. Historically, regulators put the responsibility on airlines. With the proliferation of shippers, many of whom are unaware of dangerous goods regulations, that approach is no longer viable. The concerns over shipping lithium batteries is a good example of a situation in which the supply chain needs to work together with regulators to manage safety throughout the shipping process.
Hand-in-hand with safety is security. The 2010 Yemen printer cartridge incident was a reminder of the evolving challenge and the need for constant vigilance. Many regard it as air cargo’s 9.11 in terms of the changes that it is bringing to the air cargo business. It is important that we work together on industry solutions, or we will have regulatory solutions imposed on us.
What are the parameters for an industry solution?
First, we must preserve speed along with security. Entire industry sectors have built their business models on the availability of fast air cargo supply chain links. If we don’t keep the speed, business models around the world would change dramatically—and many could disappear.
The second element is the need for a multi-layered approach that includes the entire value chain.
The areas we should focus on are:
1. Providing data for risk management,
2. Securing the supply chain upstream, and
3. Incorporating the latest technology.
Let’s discuss each.
We are making progress on data provision. IATA is working with stakeholders and regulators to harmonize risk-assessment measures in compliance with the World Customs Organization SAFE standards.
I should highlight two important developments:
1. IATA, Airlines for America (A4A), FIATA and other stakeholders are working jointly with regulators on projects such as the EU and the US Air Cargo Advanced Screening pilot project to achieve harmonized results
2. A jointly developed e-Consignment security declaration is being put forward as a recommended practice within the International Civil Aviation Organization (ICAO) Annex 17 regulations. This will help facilitate a consistent provision of data to regulators for risk management purposes.
Securing the Supply Chain:
The second element is securing the supply chain and Malaysia is in the forefront as it launched the first IATA Secure Freight pilot initiative in 2010. Secure Freight evaluates the strength of a nation’s aviation security infrastructure and works with the civil aviation authorities to ensure that cargo has come from either a known consignor or regulated agent and has been kept sterile until it is loaded. It identifies the gaps within a security regime, and helps to seal this process upstream which will prevent bottlenecks at the airport.
The success of the Malaysian pilot will be commemorated during this Symposium with a MoU that commits us to work together for full implementation. Meanwhile Kenya, Mexico, Chile, South Africa, Egypt and the United Arab Emirates are set to start their own programs. Notably, China and Brazil are also showing interest.
On the technology side, we all know the present constraints of security systems. The good news is that regulators are listening to and involving industry in discussions on technology.
It is clear that a robust risk-assessment needs both physical and data screening programs. And of course these must be harmonized. The worst thing for both industry and states would be to have these programs competing with each other across airline networks. It is imperative that Customs Administrations and Civil Aviation Authorities coordinate their requirements and initiatives.
Europe’s discussion of a Red List of states from which cargo would be banned would be a step in the wrong direction. It would isolate countries most in need of help. And the capacity capabilities of neighboring countries would be put under pressure.
The EU’s new rule on security measures, EC 859/2011, for cargo from non-EU countries, is a step in the right direction because it embraces mutual recognition of cargo security programs from 3rd states. Enabling self-accreditation with an independent audit by 2014 has the potential to offer a combination of flexibility with a robust security regime.
However, while appreciating the cooperative intent, the reality is that the industry is now placed with the burden of auditing many thousands of entities within a timescale that is, frankly, impossible to meet. This could have been avoided had industry been engaged earlier in the process. Nevertheless, IATA stands ready to help the regulators, airlines and the value chain with a streamlined implementation of this regulation. We have a proven history when it comes to audits through our recognized IOSA and ISAGO programs as substantive examples.
To sum up, we need to focus on securing the whole supply chain and to recognize that this is a long-term process. There is nothing to gain by forcing a premature solution.
Alongside ensuring safety and security, environmental responsibility is a key element of the industry’s license to grow.
The whole aviation industry—airlines, airports, air navigation service providers and manufacturers—have committed to
- Improving fuel efficiency by 1.5% annually to 2020,
- Capping net emissions from 2020 with carbon-neutral growth, and
- Cutting net emissions in half by 2050 compared to 2005.
This global supply chain approach has seen much progress on optimizing routes and procedures and the development of sustainable biofuels. Much is going on across the cargo supply chain to align with environmental best practices. But the headlines today are being dominated by the threats of retaliatory measures as a result of Europe’s unilateral and extra-territorial approach to including international aviation in its emissions trading scheme (ETS) from the start of this year.
Nobody wants a trade war. That is why we are focused on ICAO, where governments meet to deliver global solutions for the air transport industry. I believe that Europe has understood that a global solution is better than a regional one. We continue to encourage Europe to be a sincere participant in the ICAO process. Their task is to facilitate agreement on a global framework for market based measures by the 2013 Assembly based on principles which states have already agreed on.
Alongside a license to grow based on safety, security and environmental responsibility, to be successful the air cargo value chain must meet customer expectations with efficient and quality products and processes.
The e-freight program is absolutely essential to air cargo’s long-term competitiveness. Our goal is 100% coverage by 2015. And I want to thank everyone here for their contribution to achieving the 2011 interim target of 10% penetration on enabled trade lanes. With your efforts, we reached 11.1%.
How do we get to 100% in 2015? I see three essential components:
First, we need to understand e-freight is a supply chain initiative. I am very pleased that GACAG has taken-up the e-freight baton and is driving it forward as an industry initiative.
Second, the IATA Board asked us to concentrate on the implementation of the e-air waybill (e-AWB) in 2012. The challenge is to reach 15% penetration by year-end and 100% by 2014. Achieving this will be an important motivating factor for other stakeholders, including customs. That is important because we will need governments to step up their verification and implementation of the Montreal Convention for this to succeed.
Moving to a completely paperless system is a huge challenge. Technology exists to adapt existing legacy systems. But it does take commitment and internal focus. Already, our colleagues at Cathay Pacific and Emirates have mandated 100% e-AWB in their home markets. So we know it can be done. And we are confident others including Korean Air, Singapore Airlines, KLM and Lufthansa, will soon set similar targets.
And finally, we need to ensure that we are ready to go paperless in the rapidly developing BRICS markets. I have challenged the IATA cargo team to put a special focus on those countries to ensure that they ready to be a part of the global e-freight network with dedicated resources.
E-freight is the single most important project to shore-up the competitiveness and efficiency of air cargo. Changing how an entire industry operates will not be easy. But we did it with e-ticketing in just 48 months. And I am confident that the foundation stones have been solidly laid and that, with a strong team effort, we will meet the 2015 goal.
The Quality Agenda
Efficient processes can only deliver their maximum potential if quality is well managed. Last year we called for the Cargo 2000 standards to become industry standards used beyond the Cargo 2000 membership. The Cargo 2000 Board took up the challenge and made their Master Operating Plan an Open Source platform. This effectively makes Cargo 2000 the industry benchmark for performance and quality. They will also be introducing a membership grading system to further identify the highest-quality participants.
Quality is not just an airline issue. Look at how we manage the growing demands for handling time and temperature sensitive shipments—particularly perishable goods and pharmaceuticals. Ensuring the integrity of these products during transit is an essential obligation of the industry. In July this year, with the agreement of the whole industry, we are mandating the new ‘Time and Temperature Sensitive’ label which will improve the quality of these important shipments.
Lastly, we need to ensure quality data—whether for supplying regulators for risk management, customs to protect borders, or for airlines to ensure the safety of dangerous goods. The message improvement program gives all parties the ability to check gaps in this area. It is key to the success of certain programs, such as the planned automation of US customs in 2013 and of course e-freight.
I urge all industry constituents to make the improvement of data quality a priority. By doing so we will gain the confidence of regulators and customs authorities that is necessary to motivate them towards paper-free processes.
Our Relationship with Governments
I have covered a lot in a short space of time—from securing our license to grow with safety, security and environmental responsibility to improving our processes and ensuring quality delivery. Overarching all of this is a very important industry stakeholder—governments.
Governments have big challenges—creating jobs and economic growth. Aviation can help. And that is a message that we need to get to them.
Some governments understand. Malaysia is one of them. China, Singapore, South Korea and others have an enabling regulatory structure and have invested to facilitate growth. But the enlightenment is not universal. As a result, many countries are missing out on benefits—jobs and economic activity that aviation could help deliver.
In Washington last week I said that if you want to kill an industry, bind it in regulation and heap lots heavy taxes on it. Probably not by design, but it is what we see in a lot of countries.
Tomorrow I will be in India where the industry is in crisis. It is plagued by high taxes on fuel and tickets, rising infrastructure costs and insufficient airport capacity and infrastructure.
Europe provides a similar example. Departure taxes in the UK, Austria and Germany siphon off over $4 billion from the industry. The EU ETS will add to that burden. The UK won’t expand Heathrow. Frankfurt got a new runway at the expense of night flights—hitting cargo operations. The Single European Sky is decades delayed. And the Commission is trying to change slot allocation rules that work.
I passionately believe that aviation is a force for good in our world. But passion may not be enough to convince governments. So we are quantifying aviation’s economic benefits in studies covering 58 countries conducted by Oxford Economics. These tell a great story about an industry that provides quality employment to millions and drives trillions of dollars in economic activity.
It is a compelling story. The air cargo value chain does amazing things. Flower farmers in Kenya have jobs because they are connected to markets in Europe. Component producers in Japan and China provide local employment for products that are distributed globally. Vital medicine and supplies can be shipped to remote corners of the planet provided there are just a few kilometers of runway.
And the story is best told by a united industry. This symposium proves that the cargo industry can and does work together. We will, of course, have our differences which we will represent vigorously. But we all have a stake in air cargo’s success. And in fact the common interest extends beyond the value chain to all businesses that are enabled by air connectivity. We should all be sending a common message to governments everywhere of the need for fair taxation and policies that enable competitiveness.
This is my first Cargo Symposium as IATA’s Director General and CEO. But it will not be my last. I intend to keep close watch on developments in cargo—directly, through the capable leadership of Des and his team, and in the activities and programs of GACAG. I have personally met with FIATA’s President and top team. I offered my personal support in striving for a new collaborative agenda. I very much hope that this will result in a positive outcome soon.
There is a lot of work to do
- To make a safe industry even safer
- To work together, as an industry and with governments, to improve security and environmental sustainability
- To improve competitiveness by delivering e-freight and the important component of the e-Air Waybill
- To improve quality with the Cargo 2000 standards
- To make the GACAG partnership deliver true value to the business
- To modernize the agency program
- And to work together to achieve competitiveness-enabling regulations that improve the prospects for the industry and the broader economy
It’s a big agenda. And the next few days are a great and unique opportunity to agree to actions to move it forward. I wish you a successful Symposium and look forward to tracking progress in the year ahead.