ACW Europe Supplement 28th April 2022

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EUROPE SUPPLEMENT

ACW Europe Supplement is sponsored by

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Your guide to the latest developments in the international airfreight industry

BEATING THE COVID - 19 BLUES

AN INDUSTRY IN FLUX AS IT RECOVERS

A CONVERSATION WITH ECS GROUP 28th April 22

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19/04/2022 11:07

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BEATING THE COVID-19 BLUES The last COVID-19 variant, Omicron, seems to have blown its way through the European population, defeated in many ways by the widespread use of vaccines and social distancing. This has allowed a small but significant improvement in passenger numbers and hence belly-hold capacity as air traffic resumed its upward trajectory in February. However, industry observers fear a mixed outlook now lies ahead.

In its air traffic report for February 2022, European airport trade body ACI EUROPE shows that after two months during which the recovery stalled due to the COVID-19 Omicron wave, passenger traffic resumed an upward trajectory in February. Accordingly, compared to pre-pandemic (2019) levels, passenger volumes across the European airport network stood at -39% during the month, up from -45.7% in January.

Olivier Jankovec, director general of ACI EUROPE commented: “Improvements to passenger traffic in February reflected the fact that states started to ease restrictions as the Omicron wave subsided, both at local level and those relating to travel. Since then, most restrictions to intra-European travel have been lifted and more external markets are opening up - meaning the traffic recovery has gathered steam.

The outlook for the Easter holidays and into the summer months is strong, but staff shortages, high traffic peaks and capacity issues are starting to put strain on operations and to impact quality. Above all, there is no escaping the fact that the war in Ukraine has devastated the country’s airports and that it also comes with significant downside risks for European air traffic.”

EU+ market improving Using data reported against pre-pandemic (2019) corresponding periods, airports in the EU saw passenger traffic recovering to -42.4% during February, up from -51.1% in the previous month. The performance gap between national markets remained significant, mostly due to the lack of alignment on both the extent and timing of the easing of Omicron-related restrictions, but also increasing competitive dynamics.

Airports in Portugal (-23.7%), Spain (-26.8%), Luxembourg (-27.7%), Croatia (-28.9%) and Ireland (-33.8%) posted the best performance.

Conversely, those in Slovenia (-63.9%), Germany (-59.6%), Sweden (-59%), Finland (-57.5%) and the Czech Republic (-55.4%) registered the largest declines.

In the rest of Europe, passenger volumes were at -20.6% in February, up from -23.8% in January. Airports in Uzbekistan (+52.7%), Albania (+21.9%) and Kosovo (+13%) clearly stood out, while those in Russia (0%) had just completed their full recovery while airports in Turkey (-27.3%) and Georgia (-29%) posted similar results, while those in Belar-

us kept being heavily impacted (-59.3%) by EU sanctions.

Majors still underperforming The majors (Top 5 European airports) saw passenger traffic at -43% in February, up from -48.5% in January. Istanbul (-26.6%) remained the busiest European airport, followed by Paris-CDG (-42.3%), Madrid-Barajas Adolfo Suarez (-30.7%), London-Heathrow (-47.8%) and Amsterdam-Schiphol (-45.1%).

The permanence of severe travel restrictions on many intercontinental markets - in particular Asia - also weighed on other large hubs: Munich (-61.5%), Helsinki (-60.2%), Frankfurt (-53.4%) and Zurich (-51.8%).

Meanwhile, those hubs relying predominantly on the Americas such as Dublin (-33.9%) and Lisbon (-25.4%) benefitted from the restart of the transatlantic market.

“The outlook for the Easter holidays and into the summer months is strong”

Outperforming With passenger traffic at -28.6% in February compared to –38% in January, smaller regional airports posted the best performance amongst the different segments of the airport industry.

More generally, the ability of LCCs to quickly redeploy capacity and the fact that the recovery remains largely driven by leisure and VFR (Visiting friends and relatives) demand saw selected regional and smaller capital airports significantly outperform the European average including: Batumi (+38.1%), Oradea (+12.7%), Ajaccio (-3.5%), Palermo (-7.4%), Antwerp (-10.1%), Lanzarote (-10.6%) Tenerife-South (-13.9%), Charleroi (-14.5%), Montpellier (-14.6%), Bergamo (-15.8%), Zagreb (-17.9%), Krakow (-23.2%), Antalya (-27.0%), Nice (-26.3%) and Budapest (-36.2%).

Freight and movements Freight traffic across the European airport network also improved significantly in February at +10.6%, up from -8.6% in January. Aircraft movements stood at -32.8% in February compared to -42.1% in the preceding month.

During February, airports welcoming more than 25 million passengers per year (Group 1), airports welcoming between 10 and 25 million passengers (Group 2), airports welcoming between 5 and 10 million passengers (Group 3) and airports welcoming less than 5 million passengers per year (Group 4) reported an average decline of passenger traffic compared to 2019 by -42.9%, -38.1%, -29.5% and -28.6% respectively.

With many markets now opening up and demand for airfreighted products likely to rise, the industry in Europe will not overlook the opportunities for recovery. From road feeder services (RFS) to new warehousing capacity to filled-up belly-holds, this is now that chance to imagine that things can only get better for airfreight in Europe.

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EUROPE

AN INDUSTRY IN FLUX AS IT RECOVERS

“Yields are still high, demand is relatively flat but with reduced capacity it appears that demand is high”

Mixed prospects Attley’s overview is that there are mixed prospects for airfreight on the continent. He says: “Yields are still high, demand is relatively flat but with reduced capacity it appears that’s demand is high. The UK is still adjusting to its post-BREXIT position as well and this has affected business intra EU also.

“With network capacities reduced on widebody long-haul carriers and a lack of freighters available on a regular basis, demand for e-Commerce is obviously high but costs of transportation and import rule changes, VAT and Duty have made many of the cheaper goods online not commercially viable. Post Offices who carry most of the world’s e-Commerce have struggled to find capacity.”

On 19 April, HAE Group launched its new Italian company. Attley says: “Italy is a great market for manufactured goods, pharma and perishables and we believe our combination of GSSA and Solutions products will do well there.

“Most of our EU business is export driven and we support network partners on their inbound aircraft, often chartering or taking capacity back to Asia or to the US on a BSA basis.

“We are growing our frontline sales activity and our network support team is also growing,” he says.

The industry is evolving in Europe, he considers: “We think our industry is in evolution, we have learned to work less face-to-face and more online. Different skills are required for these new roles. Inflationary pressures are also building so technology will be key to how we and industry players develop. This is also a focus for us.

“Technology attracts millennials, we are also in a highly regulated industry with Aviation Security and DG etc, so there are a range of technical disciplines that can be learnt and certification awarded.

This seems to appeal to millennials which is positive. Yes all business should be ‘female friendly’. We have a diverse team with many female

colleagues I find our industry welcoming to everyone, there are very few barriers to entry for the right people who are enthusiastic about what we do.

“I do think the industry in Europe has to future-proof itself, work on cost-reduction, technology and ways to improve service. I also think we need to collaborate more to re-engineer the way some of our companies operate. Our ‘workflow’ as we call it is something we spend a lot of time on.”

La dolce vita Meanwhile, HAE Group has opened its latest office - in Milan, Italy at the start of April. In addition the company welcomes Maurizio Picco (above) as country manager to head up its new team.

Maurizio has a wealth of experience in major tradelanes to and from and within Italy including China, Japan and Latin America. Both HAE GSSA and HAE Solutions brands will be represented by the Milan-based team.

Neville Karai, CEO HAE Group commented: “All our team welcome Maurizio to HAE, his experience, drive and enthusiasm for our GSSA+ and Solutions products means we look forward to his leadership in the vital EU market of Italy. We also know he will enjoy his time with us.”

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Airfreight’s recovery in Europe over the near-future is not going to be a sprint. It is definitely a “marathon”. That is the opinion of Blake Attley, regional director, UK & Ireland for HAE Group.

He says: “With wide-body long-haul passenger services still not returned to their former levels EU-US and EU-AP trade lanes are still challenging but stable. EU-South America and EU-Africa are slowly opening up but costs of operation are high for carriers for fuel due to the Ukrainian situation and demand is uncertain.

“It is definitely a marathon, as ‘speed bumps’ such as regional Covid19 out breaks in China have made services to and from Asia less stable.”

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ONE OUT OF THREE TONNES

“European cargo is set for a recovery from the Covid-19 pandemic over time”

The importance of Europe as a source and destination for traffic for Qatar Airways is measured in one simple statistic. One out of every three tonnes of cargo on the Middle Eastern carrier has either originated in or is destined for Europe.

Guillaume Halleux, chief officer cargo at Qatar Airways spells it out. He says: Europe is important for Qatar Airways Cargo both in terms of import and export cargo. The network’s share of total tonnage to and from Europe represents 35% of the total volumes moved and is evenly spread between inbound and outbound volumes.”

In general, his attitude towards prospects for airfreight in Europe going forward is positive. He says: “The outlook for airfreight in Europe is looking good, with market demand outpacing capacity overall, and we envisage it will stay like this for a considerable time to come. Our focus is to serve our customers in the best possible way and we keep gaining new business segments by being more digital, customer-focused and developing our product offering.

“A real concern for the future development of airfreight in Europe is the congested infrastructure at airports, the manpower shortages in the whole supply chain and the lack of sufficient and qualitative handling capacity. Our industry has shown to be of vital importance for the world economy in difficult times such as the Covid-19 pandemic. Airports, local authorities and related stakeholders should ensure that the right infrastructure is set in place to allow for future growth.”

Marathon effort European cargo is set for a recovery from the Covid-19 pandemic over time. However, the length of time is uncertain. It will hardly be a sprint, considers Halleux. He says: “We consider this a marathon since the pandemic is still impacting the global supply chain and it will take considerable time to go back to a full pre-Covid-19 situation. The most recent lockdowns in China and the ongoing high level of global infections indicate that Covid-19 is here to stay for a longer period of time.

“We have an extensive network in Europe with freighter and belly-hold flights to 45 destinations. We don’t operate scheduled flights in the Baltics and Iceland, however, since we have an extensive trucking network in Europe, cargo from these countries is transported by road feeder services (trucking) or via our interline partners into our Nordic Region / European hubs.

Currently, there are no plans to open flights to the Baltics and

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Iceland.

“We also have a strong fleet of 33 freighters at our disposal for any ad hoc charter requirements to and from Europe.”

In the strategic countries, the carrier has its own offices from where it offers both commercial and operational activities (9 countries), complemented by GSAs that sell Qatar Airways Cargo services in 29 countries in total. On top of that, it has dedicated operations offices in 10 stations to support its local freighter footprint in Almaty, Basel, Budapest, Ostend, Prague and London Stansted as well as the operation of its main European freighter hubs in Luxembourg, Liege, Maastricht and Zaragoza.

According to Halleux, Europe provides a wide range of airfreight types and cargoes. He says: “We carry different types of cargo like lives horses, pets, cattle, zoo animals, Covid related shipments, race cars, MRI scanners and a wide variety of fresh and perishable products like salmon, vegetables, fruits as well as a whole range of pharmaceutical products and dangerous goods.

“The annual export tonnage from Europe is 600,000 tonnes.

In terms of daily flight movements on which we book cargo, our busiest station would be London Heathrow airport, but regarding largest cargo throughput, it would be our hub in Luxembourg. We currently operate flights from 45 online stations in Europe.”

The airline operates Road Feeder Services in Europe in what Halleux describes as an “extensive scheduled RFS network and trucks on an ad hoc basis as well. We feed and de-feed cargo to and from our main hubs and have RFS services to and from offline points in Europe to our 45 online stations. Additionally, we offer direct pick-ups and direct deliveries to and from our customer’s warehouses to our hubs to improve transit times whenever this is required.”

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CARGO HAS ALWAYS BEEN IMPORTANT TO AFKLMP Marloes van Laake, vice president area Europe at Air France KLM Martinair Cargo (AFKLMP) considers that the continent’s recovery from the pandemic we have all endured will not be a quick rebound for the carrier.

She says: “The pandemic resulted in an unprecedented drop in passenger traffic. At the same time, the demand for air cargo has continued to be there throughout the pandemic. After the first wave of Covid-19, international air cargo traffic has been recovering and rising month over month up until Q1 2022 included.

“IATA and CPB data shows that international air cargo traffic was back to pre-Covid-19 levels in 2021 and up between 5-10% versus 2019. Hence, a marathon would be a better description than a sprint.

At Air France KLM Martinair Cargo, we continuously adapted our flight schedules throughout the pandemic and rebuilt our cargo network where we could in order to get supply chains up and running again.

We created air bridges with partners and even converted passenger aircraft with cargo in cabin to fully optimise the capacity we could offer.”

Impacts on staffing The pandemic has had a devastating and unprecedented impact on the airline industry. Where the financial results of most airlines, including the Air France-KLM Group, have come under enormous pressure since the start of the pandemic, the impact has not been the same across all businesses active in the industry. Especially businesses operating in the air cargo industry, without dependency on passenger business, have been thriving since mid 2019.

Van Laake says: “The Air France-KLM Group has gone through tremendous transformation and restructuring efforts since the start of the Covid-19 crisis to recover as soon as possible. I do not believe we can generalise this for the entire industry, as the impact on airlines has been different from freight forwarding agents for instance.

“Globally, in the industry, we have seen that staff absenteeism has been higher due to the impact of Covid-19 and reduced staff levels. Apart from this, we have seen that due to changing Covid-19 restrictions our network required continuous adaptations. Naturally, the coronavirus crisis also had a huge impact on our employees personally. We are therefore extremely proud of them and grateful for the fantastic loyal commitment to our company and our customers during this difficult period.

“It is partly thanks to this that we were nominated in four different categories for the Air Cargo Week World Air Cargo Awards this year.”

E-commerce effects E-commerce is generally accepted to have received a major kickstart during the pandemic as people were locked down around the world.

Will this surge continue and if so, what might be the implications for AFKLMP’s European freight operations?

Van Laake says: “E-commerce has indeed boomed since the start of the pandemic and we have been able to offer air freight solutions via our mail, express but also general cargo solutions. Our unique sorter capabilities at both of our hubs at Amsterdam Airport Schiphol and Paris Charles de Gaulle, combined with one of the biggest networks of destinations makes that we are very interesting for all e-commerce players as well as integrators to move goods. Our long-haul

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flights (belly capacity and full freighter main deck capacity) cover approximately 950 weekly frequencies this summer to more than 115 different destinations. Air France-KLM Cargo is a member of SkyTeam Cargo offering an even larger network coverage.”

In some circles, it is claimed that the pandemic opened airline management’s eyes to the importance of airfreight. Was this the case at AFKLMP or had freight always had an importance?

Van Laake says: “Cargo has always been one of our three main businesses within the Air France-KLM Group with a very important contribution to the result of the group.

The pandemic has of course strengthened this with the share of cargo revenues in the group growing.

However, belief in the cargo business, including a relevant freighter fleet next to our passenger aircraft, has been part of our core strategy for many years and years to come.”

Passenger services are recovering strongly the past months and, although the crisis in Ukraine and Russia has meant yet another challenging impact on the airline industry, the outlook is positive with traffic resuming. Capacity should be back at 2019 levels latest by 2024.

On the road AFKLMP’s road feeder service (RFS) is crucial to allow the operation presence worldwide and ensuring optimal connections to and from both its hubs CDG and AMS. In Europe it has trucking services to/ from 86 unique destinations.

B en elu x , France, Germany and Great Britain are the main regions for Air France KLM Martinair Cargo.

The balance import versus export differs a bit though.

Looking at Europe, its top five export countries are: France, the Netherlands, Germany, Italy and Great Britain. On the import side

SUPPLEMENT the Netherlands is by far the largest (nearly 50% of manifested AWBs in chargeable weight), followed by France, Germany, Great Britain and Belgium. In sum, a very large footprint in Europe served via two main hubs CDG and SPL. The airline’s footprint is less strong in the Balkan region and towards islands like Iceland and Malta. However, it is proud to be a leading carrier in Europe.

Brexit, Covid-19 and Ukraine are all hovering over Europe at the moment. Which of these will prove more difficult for airfreight in the future?

Van Laake says: “Three very challenging themes and realities impacting AFKLMP and the air cargo industry today. Most difficult today and with an uncertain impact would be the situation in Ukraine. Uncertainty on the duration of the crisis, the concern for safety of our staff and GSAs in the regions as well as the impact on flight operations is large.

“The impact on overflying rights and thus on flight schedules and operating costs to China, Japan and Korea (where AFKLMP has a strong footprint) is impactful and leading to an even larger demand-supply imbalance. The sanctions of authorities furthermore affect our operations

worldwide. Not to forget the potential impact of accessibility to natural resources, energy sources, fuel prices. But also indirect effects of changes anticipated in companies’ choices for production locations, logistics solutions. In sum, a large challenge for our group.”

Post-pandemic, AFKLMP’s network has recovered to a large extent and we are approaching pre-Covid-19 figures in terms of destinations (115) and weekly frequencies (950). Apart from its worldwide network, it is very proud of the leading role it has taken in digitising services and promoting sustainability in our industry.

AFKLMP has been nominated for four awards in the ACW World Air Cargo Awards 2022: Air Cargo Industry Customer Care, Air Cargo Industry Achievement, Air Cargo Industry Marketing & Promotional Campaign and Cargo Airline of the Year.

For the third time running, Air France KLM Cargo has been awarded IATA CEIV Pharma certification for both airlines and their Amsterdam and CDG hubs. The IATA renewal provides pharma companies a trusted path for the transportation of temperature-controlled and time-sensitive products.

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A CONVERSATION WITH ECS GROUP ACW was in conversation with Adrien Thominet, chairman and Robert Van De Weg, chief commercial officer of ECS Group.

According to Thominet, Europe accounts for almost half of the GSA’s business. He says: “ECS Group operates in 23 European countries, which represents a share of about 45%.

Europe is therefore important for us, we are leaders in very strong countries such as France, Italy, Spain and the Nordics.”

Recovery will be visible in the European airfreight industry, albeit not very quickly.

Thominet says: “For us, it is more like a marathon. We think it will take two to three years for a full recovery even if some sectors are more particularly accelerated like digital or some trade lane like transatlantic, while e-commerce continues to play an important role in the market.”

Van De Weg adds: “Looking at yields and charter demands, airfreight has been booming over the last few years. In that sense the airfreight market has already been very strong ex-Europe. As capacity slowly returns, this may lead to a slow reduction in yields, which may again bring some shippers back to airfreight that had left due to the high rate environment. This may have a positive impact on volumes.”

merce, importance of providing more tailor-made solutions.

In fact, we see these changes as an opportunity to make our business even better. This is the reason for our Augmented GSA strategy.

Van De Weg points out that European exports are varied: fish from the Nordics, aeronautics, automotive, pharmaceuticals, machinery, perishables, cosmetics and luxury goods of course with France and Italy in the lead.

He says that, in certain countries, it is getting harder to attract staff. The main reason is that there is a tight labour market in general in combination with strong airfreight activity. Thominet points out that, in view of this challenge, ECS Group is implementing a total overhaul of its approach with their staff.

Thominet says: “We aspire to train young people and make them adhere to the company’s project, by giving them the opportunity to evolve within our offices around the world but also in their position in order to allow them to have a global vision of our business and expertise.”

He is confident that Europe remains vital to ECS Group. He says: “The Netherlands, France, Spain and Germany are very active as well as Italy and Scandinavia. The contribution of the offices in eastern Europe is not negligible either.

“We have a strong confidence in the European market, which

Covid-challenges Has Covid-19 changed airfreight in Europe forever or will changes just be temporary? Van De Weg considers: “The airfreight market is more than ever accustomed to sudden shifts in rates. Whereas rates used to be steady and typically reducing year over year, the market’s DNA has changed in that it is now used to these shocks between supply and demand and knows how to cope with them.

Thominet adds: “No change is definite, but some trends are likely to continue: d i g i t is at i o n shift, impor tance of cargo, e-com-

Adrien Thominet Chairman

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Robert Van De Weg Chief Commercial Officer is reinforced by the increase in the number of commercial airlines that we observe there.

“Europe is traditionally a strong market. It has, moreover, managed to get through the crisis. It remains today a very strong market in terms of imports and exports and a key region for the future of e-commerce with players like Alibaba or Amazon for example who are expanding there. Thus, yes, we as well as our clients have confidence in this European market.”

Van De Weg adds: “The Ukrainian crisis will have a lasting effect on inflation, which will have a dampening effect.

That said, the need for innovation, especially with regard to the energy transition, will again stimulate airfreight and Europe has a strong industrial base which will again stimulate exports.

“The most important thing is that Europe has always been a balanced market in terms of exports and imports. This makes it a stable and (most of the time) profitable environment for airlines. It is a mature, organised market with many key players.”

Thominet concludes: “Europe is at a turning point in terms of transformation with regard to digital tools and sustainability touch which is becoming more and more central: although not as advanced as the Anglo-Saxons, these topics are beginning to be taken up.”

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THE DOCTOR WILL SEE YOU NOW UPS Healthcare expands pharma cold chain capabilities in Hungary Global logistics provider UPS is set to expand its cold chain capabilities in Hungary and Germany, having recently completed several significant investments in Hungary, including adding 13,000 sq m of new dedicated healthcare space at its hub near Budapest.

The Central European location is convenient to serve a large number of adjoining markets and countries. The additional warehouse space is complemented by a growing fleet of temperature-controlled vehicles which serve 32 countries in Central and Eastern Europe, as well as the launch of UPS Premier, a new service that prioritises and tracks critical shipments to within three metres of their location anywhere in UPS’s global network.

As part of this aggressive global expansion strategy, UPS Healthcare has recently completed several significant investments in Hungary to offer customers faster shipping times and greater flexibility as they look to grow their businesses in existing and new markets.

These investments include the addition of warehousing space to its hub near Budapest. Housing multiple validated temperature-controlled environments for a variety of temperature-sensitive medicines and biologics, this expansion means that UPS Healthcare’s campus has 37,000 sq m of dedicated healthcare space in the country.

“Biologics, specialty pharmaceuticals and personalised medicine demand precise, temperature-controlled logistics to get patient-critical products where they need to be. Sitting at the heart of some of the fastest growing healthcare markets in the world, we’re expanding our network and quality services in Central and Eastern Europe for our customers to support their growth and success now and in the years to come,” said Fredrik Jansson, managing director, Central and Eastern Europe, UPS Healthcare Europe.

UPS Healthcare has also made major investments in Hungary’s key export markets, creating a dedicated network of facilities throughout Central and Eastern Europe. This includes the first dedicated Healthcare facility in Ostrava, the Czech Republic, and a new 17,000 sq m facility at the Healthcare campus in Blonie, Poland.

German investment UPS Healthcare is also opening its first-ever dedicated healthcare facility in Giessen, Germany, early next year. The 24,680 sq m GMP and GDP compliant space will house over 30,000 pallet positions capable of supporting temperature-controlled storage of healthcare products from 2C to 8C, 15C to 25C, and up to -20C degrees.

The global market for biologic therapeutic drugs is set to increase from $285.5 billion in 2020 to $421.8 billion by 2025.

UPS Healthcare’s global network has delivered well over one billion vaccines to over 110 countries, including millions across Central and Eastern Europe, with 99.9% on-time delivery. UPS Healthcare also recently announced it is working with global biotech company Novavax to distribute and deliver its newly authorised COVID-19 vaccine worldwide, including to the European Union, with initial doses being shipped in the last month.

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