ACW Middle East Supplement May 22

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MIDDLE EAST SUPPLEMENT

ACW Middle East Supplement is sponsored by

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MIDDLE EAST SUPPLEMENT

Your guide to the latest developments in the international airfreight industry

THE MIDDLE EAST: A CENTURY AS AN AIRFREIGHT PIVOT

A MATURE MARKET FOR AFKLMP CARGO

QATAR AIRWAYS CARGO’S FIVE YEAR VISION 6th June 22

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THE MIDDLE EAST: A CENTURY AS AN AIRFREIGHT PIVOT “the oil in this region is the greatest single prize in all history.”

ment obtaining the concession, the British government pressed an existing British oil company, Burmah Oil, to open its cheque-book and give D’Arcy the financial assistance he needed.

In the following years, oil was discovered in a great many places in the Middle East: the Arabian Peninsula, beneath the Caspian Sea, beneath what would become the nations of Iraq, Kuwait, the UAE and others. In 1944, a prominent petroleum geologist named Everette DeGolyer reported to the US government that he was certain the Middle East nations were sitting atop at least 25 billion barrels of crude oil, at least 5 billion of which were in Saudi Arabia. Not reported at that time was his unofficial estimates of up to 300 billion barrels of oil—a third of which he thought underlay the Kingdom. In a report to the State Department, DeGolyer’s team commented that “the oil in this region is the greatest single prize in all history.”

While oil can never be a cargo on an aircraft, the support industries, drilling companies, research and development and oil industry-related equipment that grew up immediately became a key traffic to and from and within the region. To this day, the oil and gas industry remains a key traffic to and from the region.

A century later Throughout the 20th and into the 21st century oil and gas has remained a key driver of the region’s economic power and success.

While some in the main oil-producing countries are looking towards a post-oil economic order, oil and gas operations continue to remain key to the region’s prosperity.

Petro-dollars have cleared flowed one way and another into the carriers and air freight industry based in the region. If not directly, wealth created by drilling and refining oil is very much in the business ecosystem. This has been manifested in the support offered by the governments in the region in terms of infrastructure to

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When the first commercial airlines sought routes between Europe and Asia a century ago, the very limited range of the early airliners meant that long journeys had to be taken in stages. Non-stop was a term only available for the shortest of flights. Aircraft had to land to refuel while passengers would refuel in an airport’s restaurant.

For what would now be described as long-haul flights, passengers might even have been put up in hotels overnight.

Naturally volumes of cargo before the Second World War were low but becoming established. Postal authorities had been quick to realise the business case for air mail traffic so aircraft routinely carried volumes of letters and packages with a small traffic of valuable cargo.

The role of the Middle East as a significant staging post between Europe and Asia and East Africa started not when the first aircraft connected East and West, not even when the Wright brothers were born in 1871 and 1867. It had been the opening of the Suez Canal in 1869 that highlighted the pivotal location of the region.

The route through the canal shaved weeks off shipping times between East and West. Like aircraft, ships would often refuel at Aden before or after traversing the canal.

Those who point to the geographical location of the Middle East as its sole claim to fame in air cargo operations overlook another key advantage the region offers – oil.

Since antiquity, natural petroleum seeps were known. Bubbling to the surface, this strange black liquid could be used for a variety of purposes. Oil seeps had been found for thousands of years in Persia, now Iran.

In 1901, British businessman William D’Arcy convinced the Persian government to award him a concession for oil exploration, extraction, and sales in exchange for £20,000 and 16% of profits over the next 60 years. On the verge of bankruptcy four years later, he was forced to liquidate his holdings. To avoid a foreign govern-

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“Despite the existence of worldwide bans on their movement elsewhere, at the present moment, Russian aircraft can still fly to and from the Middle East” 4

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MIDDLE EAST

generate air cargo growth.

As we approach summer 2022, airfreight in the Middle East must take on some mixed challenges that could not have been foreseen only a year ago.

The most recent report from the International Air Transport Association (IATA) on airfreight reflects on two developments that may trigger a downturn in airfreight activity through and to and from the region.

With the Omicron wave spreading in China, a direct impact has been lower manufacturing activity in Asia due to the variant. Equally hit will be imports into China and the major Asian economies by air.

At the same time, airlines in the Middle East have experienced subdued demand and constrained capacity created by the conflict in Ukraine. Some airlines are now carrying cargo through Middle Eastern hubs diverted from direct East-West services that have to avoid Russian airspace.

Since Russia closed its airspace to airlines from dozens of countries at the end of February, in response to sanctions levied for its invasion of Ukraine, about 400 flights per month that had previously been routed over the country are being forced to take a wider berth, according to Flightradar24. Some of these flights will now transit over the region.

However, IATA considers Middle Eastern carriers experienced a 9.7% year-on-year decrease in cargo volumes in March. The significant benefits from traffic being redirected to avoid flying over Russia that were predicted failed to materialise. This is likely due to subdued demand overall. Capacity was up 5.3% compared to March 2021.

Despite the existence of worldwide bans on their movement elsewhere, at the present moment, Russian aircraft can still fly to and from the Middle East. The region has strong economic ties to Russia so a ban on the country’s planes in its airspace is unlikely. Air cargo destined

for Russia must be moved on an Aeroflot flight, or similar regional airline such as Qatar Airways or Emirates, or other airline still allowed into Russia.

Airfreight linked to the Middle East accounts for some 13% of global airfreight, according to IATA figures. At the same time, the region reflects the greater pressures on the global industry, according to Willie Walsh, IATA’s Director General.

“Air cargo markets mirror global economic developments. In March, the trading environment took a turn for the worse. The combination of war in Ukraine and the spread of the Omicron variant in Asia have led to rising energy costs, exacerbated supply chain disruptions, and fed inflationary pressure. As a result, compared to a year ago, there are fewer goods being shipped—including by air. Peace in Ukraine and a shift in China’s COVID-19 policy would do much to ease the industry’s headwinds. As neither appears likely in the short-term, we can expect growing challenges for air cargo just as passenger markets are accelerating their recovery,” said Walsh.

The first airports in the region were often former dusty air force fields with only the minimum of facilities and personnel while antiquated aircraft were propeller-driven. Now, some of the world’s most stunning warehousing and airfreight infrastructure stun the visitor. Hundreds of millions of dollars have been poured into investments for some of the world’s most sophisticated and advanced cool chain, pharmaceutical, general cargo and special cargo terminals.

Mirroring the billions of dollars invested in the carriers based in the region at the same time, one hundred years after the first glued together wooden and fabric propeller aircraft, landed on a bumpy air field, the region is home to 21st century airfreight activity of which its players can be justly proud.

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MIDDLE EAST REMAINS A PULL FO

“What may be the norm in European countries or in the USA is definitely not the norm here”

HAE Group may be based in the UK but that does not dim its enthusiasm for the region and its airfreight sector. Andy Watson, regional director, UAE, Kenya & Egypt considers what the region brings the group’s wider business activity.

Watson says: “The Middle East has been and continues to be a major strength for the HAE group. As well as representing key carriers in the region, our Middle East team also provide our global network with an HAE solutions hub to feed into Africa, the GCC and South East Asia. We also plan to expand our footprint in the ME when opportunities arise.”

Watson knows that the Middle East markets, like everywhere else, have been volatile over the last couple of years. HAE Group has been lucky to work with freighter operators who have introduced capacity where passenger carriers have reduced.

He says: “Even during the depths of the pandemic, the cargo business continued somewhat normally and we saw not only increases due to the pandemic but also how our carrier partners relied on us to generate some much needed revenue. We are lucky to have created a loyal customer base and we repaid that loyalty over the past couple of years with enabling their business to continue through our represented carriers. The region is still growing and developing, HAE are increasing our investment in the region and expect to open more new offices in 2022 as we have with Egypt and Kenya over the past couple of years.

our airline partners through any potential issues and ensure that their services are seamless. This is very important to our carrier partners but also for ourselves as we are an extension of the carrier. We want carriers to be associated with top quality services in the region, and we ensure that the carriers and our clients’ requirements are met.

Competitive region The Middle East will always be competitive due the amount of capacity in the region with some of the world’s largest carriers being based here. HAE Group has helped partner airlines compete with its speed of quote and its investments in technology, Watson notes.

“Our QMS – Quote Management System allows us to quote for our carriers quicker than the various portals and add the human element to continue the relationship with the customer. For many of our carriers we can also automate the booking speeding up the transaction. Our airlines see this as giving them an edge in what will soon again become a highly competitive market place as capacity returns. Competition is always fierce in the ME and we welcome it!”

Turning to running their operations in the region, issues relating to hiring and retaining staff remain to the fore for Watson.

He says: “There are always difficulties recruiting in the region with sponsorship, residency and visa requirements. However, we have a great team, continue to hire and want to grow the team we have in ability and by empowering them. Our staff retention since we set up in the region would be in excess of 90%.

We try to include all staff in our decision-making and planning which allows them to develop.

“Carriers who want to operate in the Middle East region need to fully understand that it is different than any other region and I think that’s what makes working in the region so exciting and diverse. What may be the norm in European countries or in the USA is definitely not the norm here. For example, in most countries within the GCC there is only really one handling option in each country, in some maybe two.

“With our wealth of experience in the region we can guide

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Positive prospects Watson is of the opinion that the Middle East and North Africa region will be the next phase of growth. HAE Group is involved with a number of exciting projects, including e-commerce projects in the region which the group have extensive experience with. He says: “We have seen significant growth in our infrastructure in the region over the past five years and we see this continuing. Product specialisation with Pharma, sea-air and perishable trade lanes are all growth areas for HAE Group and the Middle East.

The last months of this year, Q3 and Q4 in 2022, are very important and exciting for HAE Group in the region. They expect to open in at least two or three locations before the industry steps into 2023.

He says: “I think we are looking seriously at Africa which is controlled from the ME region. The success we have seen in Egypt and Nairobi, and how we link those locations in the Middle East, have given us a taste of the success we can have linking more countries to the region. There are inherent links between East, North and Central Africa to the Middle East region. Whilst

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L FOR HAE GROUP we are still very aware of the instability in the Levant region, that has also been a key driver for our business for many years and we have looked in the past in establishing more bases there.

“Recently our regional vice president has relocated back to Europe to take the experience in the region to carriers globally. We believe we have a unique offering for airlines partners in the region, and we need to get the message to airlines either operating currently or considering operations that HAE can help their business thrive in the Middle East and Africa.

“Between the HQ and the Middle East there is consistent cross-utilisation of resources. This is in tandem with our offshore sales and operations team in Kenya that support our operations globally mean we have the bandwidth to grow in a cost competitive posi-

tion. We like to sell locally and operate globally!

The region evolves As the Middle East region evolves and develops, HAE Group is seeing more and more need for creativity. Whilst competition is very aggressive in the region, companies like HAE Group have to stand out to potential airline clients and customers.

“They have a lot of options, but through our continuous drive to improve what we do for both airlines and clients,” says Watson, “we will ensure growth going forward. As capacity returns to the market this agility will make the market more competitive but with a combination of our GSSA and Solutions services, we are well placed to take advantage new opportunities.”

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A MATURE AND IMPORTANT MARKET FOR AFKLMP CARGO The Middle East is an important pivotal region for AFKLMP in its global network linking East and West. Philippe van Meir, director Middle East and Southern Asia at AFKLMP Cargo, is in no doubt as to its importance.

As van Meir comments: “We see that the node in the Middle East is getting more and more important. Capacity from the Far East is highly constrained and therefore customers are looking for alternatives. This alternative can be either via Air-Air or Sea-Air via one of the Middle East gateways. Of course, Dubai plays the most important role with the Ports of Jebel Ali. We are able to have daily connections to both our hubs from the Middle East, thereby connecting us to our worldwide network.”

AFKLMP Cargo serves some of the most important airports in the region, notes van Meir.

KLM serves Dubai International Airport, King Fahd International Airport Dammam, King Khalid International Airport Riyadh, Muscat International Airport, Kuwait International Airport and Bahrain International Airport.

Air France serves Dubai daily. In the winter season, the carrier doubles its daily frequency to Dubai as well as services to Muscat, Bandaranaike International Colombo Airport and Malé International Airport in the Maldives.

Perishables and pharma Origin and Destination traffic to and from the Middle East are as important to AFKLMP as is transit cargo from the airlines’ stations.

Van Meir says: “It is all Middle East-driven into the Middle East with a high percentage of perishables and pharma. Exiting the region, cargo is predominately in transit from Bangladesh/Sri Lanka/Pakistan and the Far East. The transit cargo normally comes into the Middle East first as Sea-Air or Air-Air. While Oil & Gas-related cargo is very important to the supply chain in the region, van Meir considers this traffic not so important to the airfreight logistics in the region.

Great competition In van Meir’s opinion the airfreight business in the region can be described as “very competitive” but of a healthy nature. As he pointed out: “Imports will always remain and need to be flown into the Middle East. From an export perspective, the Middle East offers an alternative which is more competitive (to direct air uplift) with a longer throughput time. The decision has to be made by the customer between:

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“From an export perspective, the Middle East offers an alternative which is more competitive (to direct air uplift) with a longer throughput time”

a) direct uplift with high price; b) via Middle East (Air-Air or Sea-Air) with slightly longer throughput time and a more competitive rate; or c) sea freight with the longest throughput time.”

Van Meir is confident of the opportunities the region offers to AFKLMP Cargo. In his opinion: “The services offered via the Middle East, especially Dubai, are very mature and reliable. Furthermore, capacity can only grow as passenger demand grows.”

Green flying in the region Van Meir is keen to highlight AFKLMP’s efforts to green the global aviation supply chain and to note how successful it has been in the region.

Stressing the point he commented: “I would also like to mention the success of our Sustainable Aviation Fuel (SAF) programme among our Middle East/Southern Asia customers. Since the start of the programme already five of our customers have invested and committed to the programme (Hellmann Middle East South Asia, Aramex Middle East, Globelink UAE, Expo Airline Management Sri Lanka and Freightcare Bangladesh).”

“We see that the node in the Middle East is getting more and more important.”

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GUILLAUME’S FIVEYEAR VISION FOR 2027

“Our DNA will remain the same. These values bond us together as a team to perform and serve our customers better”

While famous British author Charles Dickens may never have seen an aircraft, he did leave one of the most famous opening lines in literature in his novel The Tale of Two Cities. Describing a period of time as the “best of times, the worst of times,” he neatly summed up what the air freight supply chain has experienced over the last two years.

Guillaume Halleux, chief officer cargo at Qatar Airways is a positive man, keen to put the last two years for himself and his Middle Eastern carrier behind him. His positivity comes across when he considers the next five years for the company.

In his view: “The outlook is positive. We expect growth to continue.

Whilst five years is a long horizon and there are predictions of possible recession, our strength, at Qatar Airways, is in adapting to the changing landscape of the market. The next years are crucial for us as we lay the foundations to receive the first of our 50 Boeing 777-8 freighters.”

He is excited to consider the size the airline cargo operation might become in five years time.

As he says: “We expect our second cargo warehouse in Doha to be fully operational by 2027. It is expected to utilise technology wherever possible in the warehouse operations to drive efficiency and scalability.

“Our goal in the coming years is to incorporate technology usage in our operational requirements to smooth the peak and off-peak cycles of staff resourcing needs.

“One thing is certain; we invest in our people, especially in training and upskilling capabilities as industry requirements constantly evolve and new technology is adopted in the business.

“Our DNA will remain the same. These values bond us together as a team to perform and serve our customers better. The digitalisation wave is here and we cannot ignore it.

“At Qatar Airways Cargo, we see this wave as an opportunity to improve our product and service offerings. We are not only focusing on digitising manual processes, but are also striving to innovate the way we engage with our customers.”

Lessons from passenger operations In Halleux’s view the adoption of technology for air cargo is behind that of their airline passenger colleagues. This does, however, provide the platform to learn from their failures and successes. At Qatar Airways Cargo, there is strong support across the group for the cargo’s endeavours to become the first choice as an air cargo carrier.

Keeping everyone in the picture Halleux said: “We have just

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launched our internal 5-Year roadmap, VISION 2027, aimed at bringing our best talents together to jointly craft the organisation of tomorrow.

“The roadmap has been conceived by listening to our staff, customers and partners. We understand the challenges faced by the respective parties and seek to drive efficiency in delivery.”

Market developments Halleux looked at the market developments, potential growth and likely new business, both inside and outside the region, to find what he sees as the future for Qatar Airways Cargo.

In his opinion: “Demand remains strong in the near term. In the medium to longer term, Asia and Africa are two regions which could

SUPPLEMENT potentially offer higher growth. Qatar Airways Cargo is well positioned to tap this opportunity, both from a location standpoint and for the number of flights connecting these cities and other parts of the world.

“AI is an opportunity to leapfrog the way we do business today. Nevertheless, the air cargo industry has many processes and touchpoints which are still manual and have not yet been digitised..

“With our VISION 2027 roadmap, our first phase is to ensure our internal processes are streamlined and the right tools are in place for the right tasks. This is the guiding principle for Qatar Airways Cargo.

“Our goal is to ensure that staff are equipped with the very best tools to give our customers the very best service.”

Pandemic legacy Five years hence, does Halleux consider there may be any legacy from the pandemic overhanging the sector? As he says: “The pandemic has created a new normal for the industry. We went through the blockade in 2017 and then COVID-19 came. One of our 6 DNAs, Resilient by Nature, will definitely be with us throughout. It reaffirms our value as a team to ride through the waves of challenges and hopefully we come out stronger each time.

“When 2027 arrives we hope to be closer to our VISION. By building in all directions and offering a simple service, we plan for Qatar Airways Cargo to become the first choice as air cargo provider to connect global communities.”

Halleux notes: “By serving global communities, big or small, urban or remote, traditional industry or frontier markets, wherever the opportunity arises, we want to be the bridge that brings them together.”

Editor:

James Graham

Director of Operations:

Kim Smith

International Sales Director:

Rosa Bellanca

Finance Manager:

Rachel Burns

Video Director:

Michael Sales

Design & Production Manager: Alex Brown Website Consultant:

Tim Brocklehurst

Directors: Norman Bamford • William Carr • Dawn Jolley

The views and opinions expressed in this publication are not necessarily those of the publishers. Whilst every care is taken, the publishers cannot be held legally responsible for any errors in articles or advertisements. No part of this publication may be reproduced, stored in a retrieval system or transmitted in any form or by electronic, mechanical, photographic or other means without the prior consent of the publishers. USA: The publishers shall not be liable for losses, claims, damages or expenses arising out of or attributed to the contents of Air Cargo Week, insofar as they are based on information, presentations, reports or data that have been publicly I N T E R N AT I O N A L disseminated, furnished or otherwise communicated to Air Cargo Week.

AZURA

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