ACW Middle East Cargo Supplement 28th September 21

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MIDDLE EAST CARGO SUPPLEMENT

ACW Middle East Cargo Supplement is sponsored by

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MIDDLE EAST CARGO SUPPLEMENT

Your guide to the latest developments in the international airfreight industry

MIDDLE EAST MARKET OUTLOOK

The most appropriate choice for airfreight

QUIET CONFIDENCE

Entrepreneurs recognise the potential of the air cargo market 28th September 21

HAE GROUP: MIDDLE EAST REMAINS A KEY TRANSIT POINT

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MIDDLE EAST MARKET OUTLOOK: QUIET CONFIDENCE US plane-maker Boeing has an eloquent turn of phrase in its Commercial Market Outlook 2020–2039 as to the prospects for the airfreight market in the Middle East.

“At the historical crossroads of civilisation connecting Europe, Africa and Asia, the Middle East and its airlines will remain a critical hub of cargo throughout this 20-year outlook,’ says the outlook. “In the last two decades, several Middle Eastern carriers have rapidly grown and successfully leveraged their geographical position to connect rapidly growing Asian economies to more mature markets in Europe.”

Boeing’s eloquence is reflected in the hard facts contained in figures released the International Air Transport Association (IATA) in August 2021 looking at the global airfreight industry, including the Middle East region, in blighted 2020.

IATA says “Airfreight was the bright spot in air transport for 2020, as the market adapted to keep goods moving - including vaccines, personal protective equipment (PPE) and vital medical supplies - despite the massive drop in capacity from the bellies of passenger aircraft.”

The figures show that Industry-wide available cargo tonne-kilometres (ACTKs) fell 21.4% year-on-year in 2020. This led to a capacity crunch, with the industry-wide cargo load factor up 7.0 percentage points to 53.8%. This is the highest value in the IATA series started in 1990. At the end of the year, industry-wide cargo tonne-kilometres (CTKs) had returned close to pre-crisis values. However, the yearly decline in cargo demand (CTKs) was still the largest since the global financial crisis in 2009, at a sizeable 9.7% year-on-year in 2020.

bi-based Aramex, a leading global provider of comprehensive logistics and transportation solutions, and Germany-based DB Schenker have signed a strategic Memorandum of Understanding (MoU) with the aim to drive forward synergistic opportunities in supply chain solutions across multiple critical industries to and from Abu Dhabi and the wider region. DB Schenker will be able to expand its presence more comprehensively in Abu Dhabi, a strategic and growing trade and logistics hub in the MEA region.

Commenting on the MoU, Othman Aljeda, CEO of Aramex, said: “Our alliance will enable Aramex to become a stronger, more competitive player in the airfreight forwarding services in Abu Dhabi and other core markets. While we are working on the partnership agreement and will update the market in due course on our final agreement, on behalf of the Aramex team, I look forward to working alongside the DB Schenker team.”

Traditionally Aramex’s freight forwarding business was largely focused on the cyclical Oil & Gas (O&G) sector. While the company will continue to serve this important sector, the energy industry has witnessed lower levels of activities in recent years, which inevitably had a knock-on effect on Aramex’s freight forwarding business. However, in 2020 the healthcare, pharmaceuticals and FMCG segment helped offset some of the weakness from O&G. Going forward, the company will continue to strengthen its freight forwarding capabilities through strategic partnerships, investment in technologies and hiring and upskilling the necessary talent.

Two out of five

Come together

The IATA rankings of the top five airlines ranked by scheduled cargo tonne-kilometres (CTKs) flown contain two Middle East carriers.

IATA has called on governments in the Middle East to develop restart plans to safely re-link their citizens, businesses and economies to global markets when the COVID-19 epidemiological situation permits.

IATA also called for regional coordination to ensure that the plans can be efficiently implemented and urged governments to remain vigilant about the industry’s financial situation.

“Re-establishing air connectivity will energise the economic recovery from COVID-19. With millions of jobs at risk from the prolonged shutdown, not a day should be lost once the epidemiological situation enables a re-opening. Restarting safely after a year or more in lockdown will need careful preparations. It is critical that governments are talking to each other so that all parties are aligned and ready for a restart,” said Kamil Al Awadhi, IATA regional vice president for Africa and the Middle East.

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Federal Express (19.7 billion) United Parcel Service (14.4 billion) Qatar Airways (13.7 billion) Emirates (9.6 billion) Cathay Pacific Airways (8.1 billion)

This is against a background that sees carriers based in the Middle East post a 17.1% increase in their international air cargo volumes in June 2021 against June 2019, boosted by strong performance on the ME-Asia and ME-Nth Am trade lanes.

Confidence Typical of the positive outlook many have for the region, Abu Dha-

“A financially viable air transport sector will be needed to energise the recovery”

Financial relief The financial trauma of the COVID-19 crisis continues. In 2020 Middle East airlines posted losses of $71 billion in 2020; a loss of $68.47 for each passenger flown. With traffic at less than 20% of 2019 levels, the

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SUPPLEMENT resolved. Governments that have provided relief will need to be prepared for more. And governments that have not yet stepped-up must recognize the growing risks to their economies as the crisis drags on,” said Al Awadhi.

At the same time, air cargo was a relative bright spot for Middle East carriers, cargo volumes only dropped 10%. However, this was not enough to offset the losses from the passenger side of the business.

Middle East airlines lost $7.1bn Connectivity fell by 60% at the low point of the crisis. Before the crisis there were 1,060 unique international routes at the low point of the crisis there was 440. And the density of those connections has become much thinner. Job losses could grow to 1.7 million in Middle East in aviation and related industries.

Dark clouds

cash burn continues even with severe cost-cutting.

Airlines in the region received $4.8 billion in government aid in 2020.

Most of this support ($4.1 billion) was distributed through direct cash injections. Despite this several airlines in the Middle East remain at risk of bankruptcy or business administration.

“A financially viable air transport sector will be needed to energise the recovery. Government relief for airlines has avoided massive failures that would jeopardize a restart. This has not been uniform across the region. With no clear timeline to recovery the situation is far from

At the start of the year, IATA welcomed the resumption of air connectivity between key nations in the Middle East after the signing of the ‘solidarity and stability’ agreement that will see Saudi Arabia, Bahrain, United Arab Emirates and Egypt open their air, land and sea borders with Qatar. The agreement paved the way for commercial airlines to resume regional connectivity - which will shorten flight times and provide essential air links to businesses across the region.

In a blog post, Dr Andreas Haggman, emerging risks research manager at Willis Towers Watson, a leading global advisory, broking and solutions company reminds that there remain conflicts in Afghanistan, Libya, Syria, Ukraine and Yemen, while territorial disputes in the South China Sea continue. In addition, while North Korean missile tests seem to have abated following the June 2018 summit between then-US president Donald Trump and Kim Jong-un, the airspace around North Korea is subject to restrictions. This means that carriers operating out of the Middle East, linking Europe with South East Asia and Australia, can be particularly affected by these danger areas.

ENTREPRENEURS RECOGNISE THE POTENTIAL OF THE AIR CARGO MARKET

“The first 737-400SF has already operated on routes intra-Saudi Arabia as well as the UAE, Iraq, Afghanistan, India and Somalia”

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Global cargo GSA Air One Aviation expects to have three Boeing 737 freighters operating under its expertise by the end of 2021, including two based in the Middle East.

In June, Air One Aviation signed a global cargo general sales agency agreement with Saudi-based private jet operator Aviation Horizon to market its first-ever freighter capacity using a newly-converted Boeing 737-400SF offering 18,500 kilos of cargo capacity over 11 ULD positions. The successful launch of the all-cargo service is expected to be supported by the arrival of a second 737 freighter in the Aviation Horizon fleet in the coming months.

Given the high demand for this type of aircraft in various regions, Air One Aviation expects to market a third 737F later this year, expanding its reach to the European markets, based on its discussions with multiple operators.

Guneet Mirchandani, chairman of Air One Aviation, (pictured) says the first 737-400SF has already operated on routes intra-Saudi Arabia as well as the UAE, Iraq, Afghanistan, India and Somalia.

As expected, regional ecommerce shipments are proving to be particularly well-suited to the Sharjah-based 737 freighter’s capabilities and range. Air One Aviation has also generated full loads of general

cargo, perishables and livestock since the first aircraft entered the commercial market.

“As soon as we began marketing the first 737-400SF, we received our first bookings for ad hoc charters and, as the aircraft demonstrates its reliability, we are now starting to discuss longer-term contracts with customers in the Middle East region. This is a perfect aircraft for freight forwarders and charter brokers serving high volume ecommerce lanes and it has already generated a lot of interest.

Adding a second and then a third 737F will ensure we provide the capacity, frequencies and back-up required to support these types of high frequency operations. In the meantime, the ad hoc sector is giving us regular opportunities to show what the aircraft is capable of and has enabled us to make a very strong start with an aircraft in this capacity range,” Mirchandani said.

Air One Aviation is also exploring hub-and-spoke opportunities to connect Aviation Horizon’s regional 737-400 all-cargo operations in the Middle East with the 747 feeder services from Hong Kong and China to Europe operated by another of its global GSA clients, AEROTRANSCARGO. Paul Bennett, CEO of Air One Aviation, added: “The freighter market is especially dynamic right now due to high demand for all-cargo capacity as a consequence of the pandemic. This includes both the impact of less bellyhold capacity but also the rapid growth of ecommerce business and the need to meet consumers’ quick delivery expectations. Aviation Horizon is a good example of an entrepreneurial aviation company which has recognised the potential of the cargo market and, by partnering with us, has been able to gain immediate revenue benefits because of our knowledge and international client base of freight forwarders, logistics providers and brokers. We expect to see more global GSA opportunities coming from new entrants into the market that can see what we are achieving with clients like AEROTRANSCARGO and Aviation Horizon and we welcome these discussions.”

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THE MOST APPROPRIATE C to become a global logistics hub.

“With Qatar Airways Cargo being a major cargo player in the region along with the logistical infrastructure put in place to cater the increased demand for airfreight, the region will maintain its position as a key hub.”

Strategic location The State of Qatar’s strategic location in the Gulf, combined with efficient hub connections, make Doha an ideal choice for airfreight to and from manufacturing centres in Asia and consumers in the United States, Europe, Middle East and Africa. Transit cargo constitutes over 85% of the volumes flown on Qatar Airways’ flights and freighters.

He says: “Qatar’s location at the crossroads between East and West gives us a distinct advantage over our competitors in other regions.

From our state-of-the-art fully automated cargo hub at Hamad International Airport in Doha, we reach approximately 80% of the world’s population within six hours, which means we are strategically located within the world’s key trade markets.”

Future growth

Guillaume Halleux, chief officer cargo, Qatar Airways traces the importance of freight to the region over millennia According to Halleux, from the establishment of the Silk Road connecting China and the Far East with Middle East and Europe to the modern era, the Middle East region has played the role of a hub and its central geographical position makes it an undeniable transit point for the transport of goods.

He acknowledges: “The region’s strategic location combined with efficient hub connections to the manufacturing centres of Asia and consumers in Europe, Americas and Africa makes us the most appropriate choice for airfreight.

“At the air cargo terminal, we are currently handling 2.3 million

Intra-regional competition

“We have come a long way from number 19 in 2009 to being the number 1 cargo carrier” tonnes annually with a number of workarounds at Hamad International Airport. This is higher than the actual cargo capacity that the airport was designed to handle, which is 1.4 million tonnes. To support the anticipated future growth, the Cargo Terminal 2 project is underway, which will boost the combined cargo capacity of both terminals to 4.6 million tonnes. We are also working on the development of a cargo bridging facility for import and export cargo in the State of Qatar. Investments and developments in all the different sectors including air cargo will support the country’s vision and determination

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Airfreight in the region is expected by Halleux to grow further in the next ten years for a range of reasons.

1. Diversification of the economies in the countries in this region.

The development of free trade zones in the region will serve as key enablers that will help in the economic development and will push exports from the region.

2. The population will grow creating a demand for increased supply of perishables and other types of cargo.

3. The region is strategically located at the crossroads of East and West. In the coming years, the Middle East will also be a transit hub from Asia to Africa which will trigger additional trade flows.

4. We have seen that during the pandemic, ecommerce shipments surged massively, this is expected to grow even faster in the coming years than over the past decade.

5. The regions carriers are already investing in facilities, infrastructure, digitalisation, sustainability and fleet to fulfil the objectives of the national vision.

He adds: “With most of the economies within the Gulf region still dependant on the oil & gas sector, the demand for the transport of oil rigs and associated equipments from certain countries in the Middle East is still present to date, mainly for repair and return purposes.

However, this trend will most probably see a decline in the coming future with some countries already transitioning and diversifying their economies into a more sustainable and environmental model.”

There is no competition from rail for intra regional airfreight says Halleux as this sector is not yet developed within the region; however road is an alternative for certain types of cargo. With the current quarantine restrictions in place for the transfer of cargo by road, airfreight is still the preferred choice for customers as it provides fast and secure transport of their goods along with required temperature control, especially for products such as perishables, live animals and DGR.” The global and regional airfreight industry outlook remains positive for the next twelve months. He says: “Although we were faced with innumerable challenges during the pandemic especially during the initial months, we still continued to operate our flights to support our customers and ensure continuity of global trade. Cargo never stopped flying. With the continuing movement of e-commerce goods, vital aid, food, pharmaceuticals and now vaccines, air cargo will be essential in the years ahead.

“We are seeing airlines rebuild their passengers’ network, even in Qatar Airways, we now operate to more than 140 belly-hold destinations, so the added belly capacity is definitely welcome. However, the coming months are still uncertain given the risk posed by the Delta variant. However, being resilient, agile and innovative, we have navigated successfully through the past challenges. The uncertainty has not faded, but 2020 has definitely made us resilient and stronger to deal with this year’s unique challenges.”

The market adaptability and the interconnected nature of the Middle East has always been a strength factor for the region. From the impact of COVID-19 on trade, to geopolitical challenges, to the

SUPPLEMENT

E CHOICE FOR AIRFREIGHT *as of September 2021 (subject to change)

Western Europe

Amsterdam Basel Brussels Frankfurt Liège London (LHR) London (STN) Luxembourg Maastricht Madrid Milan Ostend Paris Zaragoza

Chicago New York

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Nordics Evenes Oslo

Prague Almaty

Budapest

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Guadalajara Mexico City Panama Bogotá

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Nagoya

Karachi New Delhi Guangzhou Shanghai Ahmedabad Dhaka Hanoi Xiamen Hong Kong Hyderabad Yangon Muscat Macau Mumbai Phnom Penh Bengaluru Bangkok Chennai Ho Chi Minh City Kuala Lumpur Singapore

Campinas

Freighters PS: Nagoya and Panama are Tech Stops

within the region makes it one of the most dynamic regions for airfreight.

On top of the global/macro-economic factors undeniably impacting the flows of goods from the region, there are also geopolitical factors that should be taken into consideration, and which defines to a certain extent how the business evolves within the markets and how the flows are diverted/consolidated in certain hubs within the Middle East. Flight restrictions among the Middle Eastern countries related to COVID-19 are dynamic factors that are pushing the carriers to continuously come up with innovative solutions and adapt its network to counter the effects on air cargo.

“While the ratio of import to export for the Middle East is around 4:1, the export of perishables, personal effects as well as Oil & Gas shipments have continued to be present in the market. However due to the pandemic, given the notable shift from retail to online, we have definitely seen a surge in e-Commerce movements and we are also transporting large shipments of COVID19 vaccines,’ concludes Halleux.

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changes of customer needs and their adaptability to digitalisation in the airfreight industry, Qatar Airways Cargo has been resilient at each step. Resiliency and adaptability are key traits that helped the airline in its revival and growth during the COVID-19 pandemic last year and enabled it to move forward despite the enormous challenges.

“We have come a long way from number 19 in 2009 to being the number 1 cargo carrier,” he says. “Qatar Airways Cargo has always been at the forefront of industry, investing and using state-of-the art facilities and aircrafts, leading in digitalisation initiatives with its partners, with the customer at the core of its strategy. ‘Moved by people’ is our tagline and that is the DNA of who we are – an obsession for perfection.

Being a leader in the industry and maintaining the airline’s position since 2019 does not happen without having the right teams in place, Halleux considers. “We are proud to be able to attract the best and diverse talent in the industry and we are continuously adapting our HR policy based on understanding the needs of our employees, personalised performance reviews and opportunities of evolution within the Group. Due to this, our attrition rate has remained low. Reinforced by the QTalent programme, we are able to attract the best talent of tomorrow, and train them to become the leaders of the future.

“Our QTalent programme is a world-class graduate development experience. Through the programme, graduates gain a well-rounded cargo business and leadership experience which sets them up for success as future leaders in Qatar Airways. The programme provides multiple opportunities and exposure through rotations and projects within the core areas of the cargo business such as operations, sales and network planning, revenue management, pricing and others.

“We utilise freighters, passenger freighters and belly-hold cargo flights in the region, operating to 20 destinations in the region with more than 230 weekly frequencies and more than 3,000 weekly tonnes each way, transporting all types of cargo.

“The Middle East market is mainly considered as an import market; however, the inte rco nn e c te d nature of the countries

“We are proud to be able to attract the best and diverse talent in the industry”

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MIDDLE EAST BY NUMBERS WorldACD provides market data on air cargo. Its information is based on primary sources and covers all countries in the world. Thanks to the indispensable support of many airlines across the globe, it has been able to build a data service which – according to clients - ranks among the top market intelligence services in air cargo.

They have kindly supplied the latest information they have on

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the region for this supplement. WorldACD considers the following countries make up the Middle East region for the purposes of their statistics (in alphabetical order): • Bahrain • Iran • Iraq • Israel • Jordan • Kuwait • Lebanon • Oman • Qatar • Saudi Arabia • Syria • UAE • Yemen

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HAE GROUP: MIDDLE EAST REMAINS A KEY TRANSIT POINT

For Peter Kerins, vice president Middle East and Africa, HAE Group, the location of Gulf Co-operation Council (GCC) countries over the years has made them obvious international aviation hubs positioned between the major economies of the East and the West and some other surprising connections.

He says: “Given the central location of the ME Hubs, particularly the UAE, we easily connect between Europe, Asia and Africa. It is not just East and West, it’s South also. It is also multimodal, Air to Air, Sea-Air, Road-Air and Road-Sea. There is significant regional fulfilment also. As a consequence, it has been and will continue to be a key transit point for our group.”

The UK-based HAE Group have been heavily vested in the ME region for many years.

“It gives us key outlets into the region, but also Africa which is one of our fastest growing locations. From the Middle East HQ, we control all activity for HAE in the ME & Africa but also provide essential support on our global Solution services.”

The organisation’s headquarters the Middle East and Africa is based in Dubai, UAE. “We support and manage both our Middle East and African offices through there. In both Middle East and African markets, it is essential to find locations where there is an ease of access and friendly business environment. We are working on a number of new initiatives including Egypt and further expansion in Africa.”

HAE is always looking to support value added carriers where it can make a difference.

“In addition,’ he says, “we are evolving our products so that they continue to remain relevant in the new market place where a GSSA+ is required. We believe this is what makes the HAE Group unique. For example the latest version of our self built ‘QMS’ web portal will be rolled out to our forwarding customers shortly for them to get an even quicker quoting service than before.”

Pandemic impacts “We think COVID-19 will have a long lasting effect globally, and the Middle East markets are not immune from these effects. Capacity on carriers is believed to be back and between 40-60 %, based on the individual markets, from pre-COVID-19 levels. In addition volumes are lower through the region since COVID-19 struck. Capacity recovery is is hard to estimate, we have learned that flexibility and creativity is key.

“We have decided to fast track our expansion of the digital systems we have at our disposal so that our customers and airline partners can react quicker to their opportunities.”

Oil change The region’s 20th century dependence on Oil and Gas is going. Has HAE Group noticed this in the cargo it is involved with moving to and from the region?

“The oil and gas business has been consistent and an integral part of the cargo business in the region for many years. We don’t see major

changes, but with the introduction of technology on all sectors of business, we have adapted our business in line with the demands from our customers. Speed of movement, particularly with downed rigs, machinery and so on is vital, but speed of information is equally important to our clients. This is what we have devised with our own bespoke IT that meets those demands.”

Road freight has always been an essential part of the regional infrastructure. Over the past 18 months, this has been hampered by border closures, differing procedures for various countries.

He says: “In order to access some GCC countries from the UAE, you would need to transit Saudi Arabia, so when their border closed it not only cut off road networks to Saudi, but beyond to Bahrain, Qatar, Kuwait and others. This has been a testing time for road freight. Whilst rail isn’t developed completely in this region, due to the complications on crossing borders, we do see this changing in years to come.

With rail projects in Saudi Arabia, the UAE and so on, there is a sense of optimism that this may become a vital outlet for cargo in the years to come.”

Uncommon market Even though the GCC has trade agreements in place, it is still not one common market. There are various requirements based on each individual country. This makes it quite unique. He says: “With our level of experience in the region, we know the capabilities and possibilities of shipping within the region, which allows us to confidently offer premium services to our customers. Also with the growth of the Middle East carriers and their networks there is fierce competition.

“We are always surprised, but our long standing working relationships in this region continues to find entrepreneurial spirit in the GCC/African regions. Genuine hard working people who want to do business “We always remain open to new ideas. The GCC for us is still an aggressively developing market place. What we have brought to both our airline clients and customers by way of innovation is always welcomed. Whilst some markets are still a little traditional such as the Sea/Air market, there is still plenty of scope for development which will enhance the local markets.”

The region’s market is a little different when it comes to workforce.

“Due to labour sponsorship requirement and visa rules, we have been lucky enough to have a very minimal turnover in staff. We provide an inclusive working environment and our staff welcome this. The region will have the same, although the last 18 months or so have seen some turnover within the region. COVID-19 did have a major impact but there is more optimism now appearing in the market with jobs returning,” says Kerins.

HAE will continue to invest in the region: the availability of highly trained staff, the working environment and the location allow HAE Group to ensure that its ME/GCC office remains the key link for its global offices in the GCC and African regions.

“We do feel the region and industry moving more and more to digitalisation which we welcome,” concludes Kerins.

“We think COVID19 will have a long lasting effect globally, and the Middle East markets are not immune from these effects”

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