Airline cargo executives could have hardly asked for a better start to 2015. The ongoing labour dispute at US West Coast ports ensnared vessels and cargo, prompting shippers and their agents to take increasingly desperate efforts to untangle their shipments from the congested marine sector and fly them to destinations in North America. The surge in demand quickly overwhelmed scheduled capacity and launched an armada of charter flights. Not only Asian and US airlines filled their planes to the rafters – at premium rates – but Canadian and European carriers also found their lift in hot demand from shippers looking for routes to North America.
By late April the frenzy had run its course and demand for airfreight was on a course of steady decline, with yields sinking ever lower in subsequent months to wipe out the gains that airlines had chalked up in the first few months of the year.
When demand was at its peak Canada’s largest freighter operator had its hands full. For Cargojet the contract to provide linehaul to Canada Post and Purolator Courier within Canada went into effect.
“We successfully transitioned the business over in April and then spent the next three months making sure that we performed well. A lot had changed since the RFP, which took one-and-a-half years, so we had to right-size the operation,” says Jamie Porteous, executive vice president of sales and service.
The massive fleet expansion that Cargojet undertook to accommodate the mail contract has given the carrier plenty of capacity to fill outside that deal. A major focus has been charter business, which has doubled every year since 2008, according to Porteous. Having freighters stationed at various points across Canada gives the carrier greater flexibility to respond quickly to charter opportunities, he says. Contract flying for other companies-such as a weekly transatlantic freighter run between New York and Warsaw for Lot Polish Airlines-has been another avenue to boost the utilisation of the fleet.
Airlines have been battling not only in terms of competing for cargo that grows slower than the available capacity but also with a high degree of volatility. “It is becoming harder and harder to project tonnage and revenues, harder and harder to forecast from one day to the next,” comments Joe Lawrence, president of general sales agent Airline Services International.
Despite the worsening market conditions new international freighter operations took off. KF Aerospace mounted scheduled flights from Toronto via Moncton to Brussels and Air China inserted Edmonton into a freighter run from Dallas to its home market.
Ron Buschman, managing director of Aerodyne Cargo Services, is baffled by the new arrival in Alberta. “What do Air China know that I don’t know?” he asks. The energy sector, the main engine of airfreight demand growth in Alberta, is facing a grim prospect. “Some folks in the oil industry reckon the downturn could last through 2016,” he says.
Lise-Marie Turpin, vice president of cargo at Air Canada, comments that the new services are more a case of freighter operators looking for markets that help them boost their load factors rather than a sign of market strength.
Despite the weaker economy, imports from Europe and Asia have fared reasonably well, according to her. On the export side, some pundits predicted growth fuelled by the low loonie. There have been some signs of strengthening exports, but “it is not going gangbusters, “not to the level we would see from the US on a similar drop in the US dollar”,” remarks Brian Pedersen, vice president, airfreight at Kuehne + Nagel.
The exchange rate with the US currency has also prompted suggestions that shippers and forwarders south of the border might funnel their exports through Canada to take advantage of lower costs, as happened during the 1990s.
“There are conversations that are ongoing, but there is an awful lot of capacity out of the US. Those rates are so low that they negate the advantage a forwarder would have from going north,” comments Turpin.
“I don’t think gateway strategy should be determined by exchange rates only,” says Pedersen. “What happens when the Canadian dollar comes back? Our gateway infrastructure is not built like a tent that you pull up and just move elsewhere.”
Bellyhold capacity to international markets is set to rise. Air Canada’s lift is on course to almost double between 2013 and 2017, as the airline is taking delivery of Boeing 787 Dreamliners. They offer significantly higher payload capability than the older B767-300s they replace. On the Vancouver-Shanghai sector, one of Air Canada’s first routes to see the 787, the plane has been a game changer, according to Turpin.
The 787s not only offer more lift capacity and larger doors than the 767s, their range also enables them to open new routes, such as Toronto-Dubai or Toronto-Delhi, that Air Canada was due to start in November, with good expectations on the cargo side.
The 767s continue to haul freight for Air Canada Cargo, as they are shifted to the airline’s Rouge subsidiary.
Much of Air Canada’s work this year has been on the ground. In the summer it unveiled an online booking tool that allows established customers to complete a booking and receive an air waybill number (AWB) in less than two minutes. They can also view the status of all their current shipments, fill out an e-AWB, add to the house AWB, edit a shipment or print a document pouch. According to Turpin, this has been well received.
Currently efforts are underway at the carrier to improve visibility further by the deployment of RFID, which was recently launched on the route from Montreal to Frankfurt and will subsequently be rolled out in major stations across Air Canada’s network (in smaller stations shipments will continue to be scanned). Turpin calls it “the beginning of a new era in terms of tracking”.
The airline was among the first carriers to switch their pricing mechanism this year, replacing the combination of base rate and itemised surcharges with an all-inclusive rate. Most forwarders have welcomed this move but are facing a stretch of dealing with two different regimes. In light of experiences with antitrust legislation airlines are wary of moving in a way that could be interpreted as a concerted action, and some prefer to keep surcharges separate, as these are outside the commissions paid to general service agents and other vendors.
The struggle with ongoing yield erosion caused by overcapacity has prompted more and more airlines to target more high yielding traffic that needs special service elements. First and foremost there has been the medical and pharmaceutical sector, which requires tight temperature control for its cargo. Moreover, pharmaceuticals can easily absorb higher transportation prices than commodities with narrower margins.
Air Canada is currently working on improving its offering in this sector, Turpin says.
For Kuehne + Nagel growth in recent years in the airfreight segment has come mostly from three sectors – perishables, pharmaceuticals and the retail industry. These have continued strong in 2015, Pedersen says, adding that he hopes and intends to extend this into 2016.
Capabilities to handle special cargoes have also been an important design element in the establishment of a new cargo terminal at Hamilton International Airport. The $12 million facility that opened for business this summer has 5,000 sq ft with ambient control to handle temperature-sensitive cargo.
The focus is on a range of cargo that is high in value and requires express services, says Lincoln Garraway, the airport’s director of cargo development.
Cargojet is the anchor tenant, taking nearly half of the space in the new terminal. For the airline it has brought great improvement in operational efficiency, according to Porteous.
The airline’s historical core business – hauling overnight traffic for the express industry on trunk routes across Canada – has gone strong, he reports. He attributes this to the rise of e-commerce. Customer forecasts point to a busy peak season in the domestic market, he adds.
The overall outlook for the air cargo business in Canada in the coming year remains less bright. Turpin reckons that 2016 will be “another very challenging year” bringing much volatility
“The 2016 financial outlook for Canada is not the greatest. That probably limits your chances to get new business, so you need to get more market share if you want to gain,” reflects Pedersen.