Pulling in the same direction
Almost 60 people attended the Cool Chain Association (CCA) Perishables Air Cargo Supply Chain event, held in Miami on 18 and 19 May 2015. Coming together from locations in North and South America, Europe, the Middle East and Asia, they all shared a common goal: improving quality in this sensitive supply chain. The event included a networking dinner at the Havana 1957 restaurant and a site visit to Centurion’s facilities at Miami airport.
CCA chairman Sebastiaan Scholte opened the conference by highlighting the need for transparency and standards. Jim Edgar of Boeing then gave the first presentation, which focused on industry trends. Global air cargo traffic has averaged 5.3% growth per year, which sounds good but is actually quite slow. The past six quarters, however, are very positive, and large freighter utilisation levels are on the up (partly boosted by the port strike in the US). Overall, the air cargo market share of 171.5 billion international FTKs is divided between Asia (40%), Europe (26.1%), the Middle East (14.8%), North America (14.3%), Latin America (3.1%) and Africa (1.7%). About 1% of the reported world trade tonnage is carried by air cargo – but that volume equals about 35% of the total value of goods transported.
Sea freight is the most important competitor for air freight, but the container ship market is a volatile business with its own challenges. Players in that market are aggressively trying to grow their market share in perishables, but because of the length of the shipping journey, it is good for air cargo when interest rates go up again.
According to Boeing, freighter aircraft provide a competitive advantage over ocean shipping. Without freighters there would only be 48% of the market capacity available. The advantages of freighter services are important: cargo focus, control and synergy with lower-hold, capacity, handling location and ramp proximity, reliability and predictability. There currently is an overcapacity situation, but Boeing’s order book suggests that this will change.
Zooming in on the key perishable markets, the three key market flows are: Latin America–North America; Latin America–Europe; and Africa–Europe. Obviously, the higher value products drive air shipment of perishables (meat products, fish, vegetables and pharmaceuticals).
Latin America–North America air cargo volumes are unevenly distributed with flowers and fish being the largest perishable categories. Latin America–Europe shipments far exceed Europe–Latin America shipments, with flowers dominating but fish also being important. Africa–Europe is the third big market for air trade; five African countries represent two-thirds of the business: South Africa, Egypt, Kenya, Nigeria and Ethiopia. Also here, flowers and fish are the two most important categories. Modal shift is a big issue o this lane, but specifics depend on distance as well as product types.
It is expected that the world air cargo market will grow 4.7% per year through 2033, with the Asia market continuing to lead this industry growth. The three largest markets with significant perishables content will grow slightly above trend over the next 20 years, and standardisation and certification will be the key to further market volume and modal share expansion.
Pier Curci of Cargolux pointed out the solid improvements and continued growth of the perishables market and the fact that 14% of products carried by air are perishable. Cargolux carries a number of sensitive commodities, including healthcare products, live animals, dangerous goods and perishables, he said.
As seasonality is a major challenge, it is important to be able to react to high demand periods. For that purpose, Cargolux has now developed the ability to create specific temperature zones in its aircraft. It also works with a refrigerated stacker system, which requires no storage on the tarmac. However, some key challenges remain, especially product variables, quality (tracking, reporting, claims) and seasonality. Industry standardisation and challenges around inconsistencies in temperature requirements, investment in facilities, and balance of cost and quality remain important too.
Jim Bellinder of United Airlines (UA) offered a different perspective as a belly carrier. Capacity management is a major challenge as demand is highly seasonal. As an example, he cited the current cherry business, where 50% is an unexpected no-show. Passengers and their bags have priority and inconsistency makes allotments and planning more difficult. Other challenges UA has to deal with include the range of different aircraft in the fleet, various conditions at different facilities and distances to ramps. Because perishables are susceptible to no-shows, claims are more frequent, leading Bellinder to conclude that “cargo space on a departing aircraft is more perishable than the cargo”.
Ariaen Zimmerman presented another view on behalf of Saudi Airlines. He stated that airlines have turned into providers of commoditised infrastructural services, most of whose costs are associated with fixed assets – making it hard to make money. In Saudi Arabia, the temperature is obviously a challenge during most of the year, but it is also difficult to obtain dry ice there. Saudi Airlines makes a bold promise, saying “We ensure that your cargo will be kept constantly fresh throughout the entire process”, and Zimmerman explained how the airline organises its perishable special cargo through preplanning arrangements with concerned parties, special temperature-controlled refrigerators and freezers. Certification levels the playing field, allowing the airline to turn its investments into a tangible product for the final customer.
Jaime Alvarez from Copa Airlines, meanwhile, presented that carrier’s innovative development out of Panama, flying with B737 narrow body aircraft to São Paulo and other cities. He claimed that narrow body is probably the most efficient way of flying in this market. It provides greater range and Copa is setting up facilities where these do not yet exist.
Alvarez considered the cost effectiveness of freighter vs belly and wide body vs narrow body operations, posing the question, “Who can do it faster and for less?” Pilferage and damage control are important, because a narrow body requires more handling, so Copa tries to minimise double handling, to be right the first time, be creative and invest in solutions – and the airline runs a zero-tolerance culture. As an example of innovation, it is using pre-cooled cold carts (leaving cargo to cool on the carts) and rollers (no throwing). The next step is to implement mobile X-ray at the end of the rollers.
The forwarder’s perspective
On behalf of CEVA Logistics, Juan Carlos Serna showed that during the past 10 years, the perishable business is enjoying an above-average demand growth where especially food commodities saw strong growth from 2005 to 2014. The majority of perishable goods transported by air freight are foods (more than 75%) whereas non-foods (such as flowers) only comprise 22%. Some 5.8% of the total growth in the perishable market is to be found in Latin America.
The majority of Latin American perishable exports are still destined for North America, but other routes are picking up. The perishable business from Latin America still faces challenges and needs to prove its value – and even though the perishable business has grown strongly in the past, it has also lost significant volumes to ocean freight. Still, according to industry experts, modal shift is expected to impact other industries (like automotive, electronics, machinery, semiconductors, fashion or pharmaceuticals) more than perishables in the future, as time is of the essence for perishables.
A shift from maindeck to belly operation is changing the way perishables are transported by air freight. Forecasts still expect strong growth for perishable business from Latin American countries, but a key challenge for perishables is infrastructure. However, huge investments have been made in the past five years and an important question is how to get a return on all that investment.
New infrastructure now exists and it is a key success factor is to optimise the end-to-end supply chain of perishables and to leverage and benefit from expertise developed in other vertical industries. Synchronisation of processes and sharing of information are key to focus on value creation, and visibility and transparency across the whole supply chain are important.
Finally, Lucas Kuehner from Panalpina stated, “You’re only as good as your last shipment” and that there is a serious risk of reputational damage in the cool chain sector. The company considers investing in training and certification important, as well as subcontractor management to understand if the airline is really in control.
In a brief side step on pharmaceuticals, Kuehner pointed out that documenting is key, and Panalpina uses loggers that measure temperature and shock. But even then, it is essential to understand how reliable these devices are. For instance, one customer sent 33 loggers in the same box where two showed temperature excursions and the other 31 did not. Biopharmaceutical products are much more challenging and this is the fastest-growing segment within the pharma sector.
Once again, Latin America–North America was highlighted as the biggest air trade flow for perishables while Africa–Europe and the East–West trade lanes are important. The pharmaceuticals tonnage of 409,000 is only a fraction of the total volumes of perishables (2.2 million tons) – but the yield and value of pharma are much higher. Interestingly, the US as the largest export market is declining, while India and China are growing year on year at 11% (2013-2014) and 7% respectively.
In terms of challenges in the cool chain, Kuehner compared perishables and pharmaceuticals and concluded that both face largely the same difficulties; in terms of handling processes, there is not a lot of difference between perishables and pharma, but obviously there are huge differences in terms of security and financial risk.
Manny Fernandez from Flagler Global Logistics and Paul Herman from DuPont brought a joint presentation on technology breakthroughs for the transportation of asparagus. Fernandez explained the refrigerated infrastructure and fumigation capabilities of Flagler and how it manages the complete flow from farm to retail distribution centre. Providing fumigation chambers, five different temperature zones, repacking capabilities and a patented produce cold fumigation process, Flagler provides a key advantage as this special process captures all the fumigant at the end, in order to filter and reuse it.
Herman showed how DuPont’s Tyvek Air Cargo Covers protect perishables that are most at risk during cool chain breaks. The most important cause of temperature excursions is not the ambient temperature but radiation from the sun, so reflection is the most important feature, not insulation.
To show this is not all just theory, Fernandez presented an example process of green asparagus from northern Peru, flown from Lima to Miami where they are fumigated. Three pallets were tracked for temperature, humidity and quality and it was concluded that the fumigation method improved shelf life by seven days. In the process, the thermal blankets were also tested. During the flight the product gives off a lot of humidity, which the blanket reduced. Using the Tyvek covers increased shelf life at the distribution centre by three days, allowing retailers to sell the products for another four days.
Posted on June 2, 2015
by Edwin Kalischnig