Good morning and a warm welcome to the 9th World Cargo Symposium. I’d like to begin by saying thank you to China Eastern Airlines, our host for this event. Mr Liu Shaoyong, Chairman of China Eastern, and all his team, have made us feel very welcome. Shanghai is a fantastic venue for this event. If anyone ever expresses any doubt over the ability of trade to transform people’s economic prospects, then invite them to see Shanghai. A greater advertisement for the beneficial power of commerce cannot be found anywhere in the world.
I would also like to thank Mr. Jiang Zhuoqing, Vice Mayor of Shanghai for his informative comments. There can be no doubt that the government of China not only understands the benefits of aviation connectivity, but also backs that up with solid investment. The growth of aviation in China over the past two decades, accompanied by a transformation in infrastructure and safety, has been remarkable. It is greatly to the credit of Chinese political leaders and regulators that they were able to develop a vision for aviation and then follow it through. The Chinese people will reap a wonderful dividend from this. Our 20-year passenger forecast envisages 5.5% growth in China, leading to it becoming the world’s largest air travel market around 2030. Every new flight is a chance for China’s citizens to make new economic connections, exchange scientific and business ideas, and develop educational, leisure and cultural opportunities.
China is already one of the leading air cargo nations, accounting for 7% of global air freight. Our current cargo forecast looks out to 2018, and again, it is good news for China. Air cargo volumes to, from and within China are set to increase by 4.9% a year over this period. This is comfortably ahead of the global average for this period, of 4.1%. We are also seeing that the growing Chinese middle class is driving demand for foreign goods, which will help create a more sustainable and balanced economy. This will have beneficial effects for air cargo flows.
After a dismal few years of negligible growth, the general picture for air cargo in 2014 was of strengthening volumes as economic recovery gathered pace. Global FTKs were up by 4.5%, which was better than was expected after a slow start to the year. Julie Perovic from IATA’s Economics Team will be presenting the picture in more detail a little later, so I will not dwell on the data now. But I would like to emphasize a couple of key points.
Firstly, while the growth in volumes is welcome, it is not being matched by an improvement in yields and revenues. Cargo revenues remain $5 billion below their 2011 peak, and yields are set to decline for a fourth straight year in 2015. As Glyn Hughes, IATA’s Head of Cargo, has pointed out, doing more work for less money is not a sustainable business model for the long term. So the industry has a major challenge on its hands to find a way to make air cargo pay.
Secondly, the overall growth figures do not explain the story of the kind of goods being shipped. We all know that the days of moving mainly boxes of software, domestic printers and desktop computers have gone forever. Increasingly, air cargo is being used for ever-more sensitive goods. These require greater speed, tighter security, and absolute temperature integrity. The complex procedures and facilities that are needed for these shipments are both a challenge and an opportunity. And it is why the theme of this conference is ‘Improving the Customer Experience’.
This theme may seem a little obvious to some. Surely “improving the customer experience” is something that should be a natural aim of any business? It should be embedded in the DNA of any company or organization, and not require a specific conference to discuss. Of course, that is true. And we certainly don’t mean to suggest that the industry is not already working hard to do just that. But in fact, it is precisely because the industry is going through a transformation in its relationship with its customers that we want to capture that in our theme this week. There is a revolution going on, affecting every shipper, freight forwarder, airline, technology and service supplier to this industry. Much of this transformation is going on unheralded. Our aim this week is to shine a light on these trends and innovations. We want to demonstrate how these changes are linked to a wider strategy of business transformation that will keep air cargo at the forefront of logistics innovation. This transformation—which is in line with our call last year for a cut in average shipment times of up to 48 hours by 2020—will help to recapture market share, drive high-value shipments to air transport, and help to restructure the industry so that revenues and margins both strengthen. I would like to explore four particular elements of this transformation and its implications for customers:
- The transition to paperless freight
- The development of harmonized standards, training and procedures for the handling of pharmaceutical and other temperature-sensitive goods
- The challenge of dangerous goods and in particular lithium batteries
- The modernization of the airline-forwarder relationship
The transition to paperless air cargo
We live in a digital century. Yet air cargo still operates with procedures from an analogue age. Few would disagree that moving from paper to electronic processes will open up countless efficiencies and opportunities for improved service delivery. But unfortunately, while the spirit has been willing, the practical implementation has been weak. Much of this has been due to the fragmented, multi-layered nature of the industry. The struggle to adopt the e-Air Waybill (e-AWB), demonstrated that even though airlines have the lion’s share of the responsibility for driving implementation, a partnership of the entire supply chain is required in order to make progress. 2014, though, was a breakthrough year, with e-AWB penetration reaching 24.9%, and continuing to progress at a pace that is now three to four times that of just a year ago.
This is an achievement to be celebrated. The old adage ‘success has many parents’ is certainly true in this case. It has been the result of close cooperation between airlines, freight forwarders, shippers, handling agents, and also customs authorities. As Mr. Mikuriya commented, regulatory support for e-freight is higher than ever, as shown by the growing number of routes now open around the world. Particularly noteworthy is that this very city of Shanghai, one of the world’s largest cargo hubs, has been fully open for e-AWB since November 2014. This is just one example of why we believe adoption is now set for take-off. We want to reach 45% use by the end of this year.
Going paperless is not just about replacing paper with electronic. It is about improving and streamlining processes on the ground, and we are now seeing this realized in a growing number of places around the world. Only when we build a fully digital process can we, as an industry, deliver the level of service, performance and transparency our customers expect from us.
We still have work to do to help businesses transition and we are committed to continue to develop the standards and to provide the tools needed to support it. But the big difference has been the change in mentality. There is now acceptance that this is the way forward. And it means that we can now look ahead and plan for the wider adoption of e-Freight and the digitization of the rest of the air cargo documents through a collaborative industry approach.
Harmonized handling of pharmaceutical goods
The growth in demand to ship pharmaceutical products has been one of the defining trends of our business in recent years. Pharma logistics is a $60 billion market that has been a boon for air freight, compensating for the decline in other goods that had previously been shipped by air. But as we all know, this is a business with big demands. And those demands are increasingly coming not just from customers, but from regulators.
Our industry faces a twin-track challenge. In addition to their usual expectations for reliability and speed, customers need adequate facilities and handling procedures that guarantee a constant temperature range, and the absolute integrity of the package. And regulators have proposed or implemented a vast array of requirements with which the industry must comply. If these challenges are not overcome, air cargo risks losing the opportunity presented by this huge market. For let’s be in no doubt, our modal competitors are working hard to win this business.
To help foster air cargo’s competitiveness in this growing industry, IATA has developed a new initiative: the Centre of Excellence for Independent Validation in Pharmaceutical Logistics. Mercifully we have shortened this to CEIV Pharma. Many of you will be familiar with the CEIV Cargo Security program which we created to help the industry remain compliant with the requirements of the EU ACC3 security regulation. CEIV Pharma builds on and extends this concept.
CEIV pharma assesses and validates cool-chain processes and provides training to guarantee that they comply with all applicable standards and regulatory requirements. Already, we have a number of organizations working to achieve CEIV certification. Most notably, in December last year Brussels Airport undertook to coordinate 12 businesses operating at the airport to achieve CEIV certification. We hope this will be just the first of a wide network of certified companies and trade lanes, independently assessed to be compliant with international regulations.
The benefit of the CEIV certification for all organizations that achieve it will be to install trust and confidence with shippers that facilities, systems and qualified people are in place to handle and transport their sensitive goods appropriately. When combined with the Facility Capabilities Matrix that IATA is developing to catalogue and benchmark standard operational capabilities, it will give customers the visibility they need to be sure the integrity of their products will be maintained until they reach the customer.
This exciting development will certainly be of interest to many in this room and I urge you to attend the tracks where this will be further explored, to visit the stand in the exhibition area, and if you have any questions, to approach any IATA member of staff for more information.
Improving the handling of dangerous goods
I would now like to move to discussing the safe handling of dangerous goods. This remains the number one priority of the air cargo industry. Nothing comes before ensuring the safety of our passengers and crew. The ICAO Dangerous Goods Panel does excellent work keeping ahead of potential threats and challenges, and the IATA Dangerous Goods Regulations ensure that airlines and the wider industry are able to take the practical steps to secure their shipments appropriately. So the challenge is not that our regulations are inadequate. The challenge is to ensure that the regulations are understood and followed by shippers across the world.
The rise of e-commerce and the ability of small businesses to export to a global audience has created a significant new market of shippers who are not necessarily familiar with the rules on shipping dangerous goods. And in particular, it is lithium batteries that give us cause for concern. The safe transportation of lithium batteries by air is a global challenge, but it is important to note that China is a major source of lithium battery production. We need to work hard with all stakeholders in China to tackle this crucial issue.
In my last address to this forum two years ago I said we needed to improve training and communication and work closely with ICAO and regulators around the world. I am pleased to say that progress has been made on these aims.
For example, to support the growth of awareness and knowledge-sharing on this issue in China, IATA has released the new Lithium Battery Shipping Guidelines in Chinese. This document is designed to guide shippers and manufacturers step by step through the shipping process. With these guidelines and other awareness work by the Universal Postal Union and ICAO, the industry is making real progress in bringing stakeholders on board. But safety isn’t something that only happens at the airport or on board the aircraft - it is a shared responsibility. Above all, regulators need to step up and not assume that airlines will do the job for them. Regulators are the key to having regulations followed. The industry is doing what it can, but without oversight, surveillance and where necessary enforcement, compliance at the source of the shipment will be limited. Disappointingly, we are seeing some willful non-compliance in the area of lithium batteries. For example, there is a supplier on Ali Baba claiming they will re-label 300 Watt hour batteries as 100 Watt hour, and even ship them via the standard postal service. We are pressing regulators and the e-commerce sites to be more diligent in making sellers aware of regulations and, as importantly, taking action to address non-compliance.
Modernizing the Airline-Forwarder Relationship
Finally, I would like to explore developments on modernizing the airline-forwarder relationship. For some time, we have been looking with FIATA at how to move the outdated system which regarded the Forwarder as the agent of the airline to a much more equitable and mutually-beneficial arrangement. I won’t go into the nitty-gritty of the discussions here, but I would like to outline six key principles which we are following as we move forward.
- First, we accept that the current Agency Program does not reflect the evolved business relationship between airlines and freight forwarders, which is now predominantly that of customer-supplier with forwarders’ purchasing capacity on behalf of their shipping clients.
- Second, the industry standards and those required for program endorsement should be based on the critical requirements of the modern air cargo industry and should be applicable to all parties.
- Third, governance of an industry-based program should be based on a “by the industry for the industry” principle, so airline and forwarders should jointly manage the program
- Fourth, governance should be simplified. In other words we should reduce the proliferation of industry groups and instead focus on key regional requirements built around a global framework
- Fifth, open and transparent program management is essential
- Sixth, industry settlement solutions such as CASS remain a pivotal component of the program.
I recognize that those of you seeking more concrete examples of change will be expecting more detail. This will be coming very soon. In the meantime I hope that the principles I have outlined will serve to reassure you that we are sincere in our desire for change, and that we have the best interests of the entire industry at heart.
Before I conclude I would like to take a moment to express my gratitude and appreciation to our former Global Head of Cargo, Des Vertannes who retired from IATA since we last got together at WCS 8 and who has joined us today to experience WCS from the audience perspective. In his four years at IATA Des brought fresh focus and renewed vigor within the cargo department and laid much of the foundations which are today bearing fruit. And I’m pleased to say he also mentored Glyn Hughes, who has made a great job of stepping into his shoes.
It is well known that I am a cargo optimist. My own background in the airline business has given me a close interest in cargo issues and I never forget what an important business area it is for many airlines. I will admit that for an air cargo optimist the last few years have been very difficult. My belief in the prospects for this industry, however, is undimmed. The reasons for that are not because the latest economic data say trade is expanding or because fuel costs are falling or tariff barriers may be taken down. It is because the industry is really starting to act strategically and plan for the future. Wherever you look, whether it is the implementation of the e-AWB, the investment in cold-chain facilities, or the determination to expand trade lanes and take on new markets, there is a new confidence about air cargo.
This week is a chance to share these examples of innovation and apply them to our customers’ evolving needs. I am quite sure that the conclusions will power a new wave of service improvements. We have talked in the past of cargo being at a crossroads, but I believe that is no longer the case. Air cargo has chosen to go down the road of transformation and there is no going back. I am excited about the future for this industry. There is a long haul ahead to recapture lost revenues, but in the years to come, I think people will look back on this period and say, “this was when the nettle was grasped.”
I wish you all a fulfilling and valuable Symposium.
Thank you very much.