Game Changers: Three airfreight executives who are shaping the industry’s future

Sebastiaan Scholte: Viewing logistics from above and below

Before taking over as CEO of Netherlands-based global logistics firm Jan de Rijk Logistics (JDR) in 2010, Sebastiaan Schulte held sev­eral positions in the airfreight world, including five years at Aeromexpress (the cargo division of Aeromexico and Mexicana airlines) and eight years at Cargolux Airlines.

Today, through Jan de Rijk’s road feeder service (RFS), Scholte over­sees the movements of more than 900 trucks on the road, 600 of which are owned by JDR. The company also of­fers around 115,000 square meters of warehousing capacity as well as inter­modal rail services.

To make such a shift in perspective, a little culture shock can be expected. “It’s a lot easier to plan the movements of 20 planes in the air than 900 trucks on the ground,” Scholte says. But in many ways, he says it feels like he never truly left airfreight. “Around 40 percent of our business is re­lated to RFS for the airlines, so in that sense we are still ‘in the air.’ It represents the backbone of overall operations.”

With a wealth of experience from the air carrier and RFS sides, Scholte has a unique point of view on the industry, from the ground level on up to 39,000 feet. “The big difference, however, is since JDR is very diversified in its services, ranging from retail, pharma, tobacco, airlines, high tech, intermodal, retail to fresh produce, I get the chance to learn a lot from different industries.”

Scholte has also gained additional insight into the lucrative pharmaceuti­cal transportation sector by serving as chairman of the Cool Chain Associa­tion. Today, as he nears the end of his three-year term at CCA, he sees a promising future for JDR as it delves deeper into the healthcare supply chain.

At the start of 2014, Scholte spear­headed Jan de Rijk’s decision to purchase the Benelux-based pa­tient home delivery service of bio­medical giant Baxter International. He sees outsourcing arrangements such as these, along with an in­crease in home-based nursing care, as a way for hospitals across Europe to cut costs and reduce shipping times. “Why deliver healthcare products to a warehouse or a hospital when you can send them directly to the patient? The logistics of homecare will become more important, since patients will spend less time at the hospital.”

Regarding the current IATA goal of shaving two days off the average six-day shipping time for air cargo, Scholte says this would be an admirable achievement, and one that can benefit everyone in the supply chain. “The air­line has a contractual relationship with the forwarder and the handling agent. RFS firms have a contractual relation­ship with the airline, and so does the handling agent,” he explains. “We all operationally interact, but do not have the contractual means to enforce cer­tain service levels.”

We should cooperate to make the pie bigger, and then later on compete to slice up the bigger pie.

For their part, RFS firms can play a significant role by reducing transit times. JDR truck drivers, he adds, spent an average of 20,000 man-hours last year just sitting in traffic.

But speed may not be the only fac­tor that shippers care about. “We have seen a modal shift with a lot of com­modities, not only due to cost reasons but also because of reliability issues,” he says.

One solution Scholte advocates is greater “transparency and clarity” of the supply chain via advanced IT. For instance, JDR uses “geo-fencing” tech­nology to provide more accurate esti­mates of arrival times. When a truck gets within a pre-determined distance of a destination, an automatic email or text message is sent to the shipper to let them know their cargo’s progress.

“If the information is shared openly amongst all players in the air cargo supply chain, we all will be able to op­timize our results,” he says. “We should cooperate to make the pie bigger, and then later on compete to slice up the bigger pie.”

Whether on the ground or in the air, airfreight and RFS operations need to optimize load factors, yields and asset utilization by being flexible, Scholte says. “Products are getting smaller, so the value density is increasing. There­fore many products become more suit­able to be transported by bellies rather than freighters.”

As for the future, Scholte says JDR plans to expand its intermodal ser­vices. Over the last three years, the company has arranged for dedicated cargo trains to connect Amsterdam’s Schiphol Airport to Malpensa Airport in Milan, Italy, in 36 hours. JDR plans on adding third dedicated train to Italy within the next three years, “which may mean that we will expand beyond Europe,” Scholte says.

Aside from uncontrollable fac­tors, such oil-price volatility and the ripple effects from other world crises, Scholte expects a “modestly positive” outlook for 2015. “Obviously there are still challenges. As a logistics service provider we can only survive if we can react flexibly and in an agile way to market changes. The technology is there but the will to change is not always there.”

Tim Scharwath: The dynamics of change

Switzerland-based forwarder and lo­gistics services provider Kuehne + Nagel has enjoyed a successful 2014, with earnings up 8.6 percent through September. This has been buoyed by improved results in airfreight, where Executive Vice President Tim Scharwath has success­fully navigated the company through a gauntlet of challenges to achieve im­pressive results.

The rebound in airfreight volume in 2014, with about 4 percent growth, came as a pleasant surprise to Schar­wath. “That was not foreseen last year because last year was flat and the two years before that were negative – a declining market,” he told Air Cargo World. “From what I hear and see, the market will grow in the same manner in 2015, around 4 percent. But you never know.”

Scharwath, also a member of K+N’s management board, believes overca­pacity will continue to be the industry’s biggest challenge – one with no end in sight as the industry continues its move to aircraft with larger bellies, and as Middle East-based airlines continue their fleet expansion. “As long as we have overcapacity at such an amount, we will have an issue,” he says.

Scharwath supports the call for a 48-hour reduction in airfreight transit time issued by former IATA head of cargo Des Vertannes. “It takes much too long to get a shipment from door to door or airport to airport, depend­ing on what the customer ordered,” he says.

Scharwath says that without a pa­perless system in place, it will be diffi­cult for the supply chain to move much quicker. He said that because of the industry’s downturn in recent years, companies have been hesitant to invest in infrastructure.

“It’s a hen or egg discussion. The en­tire industry is suffering from the over­capacity we have. The cost is too much if companies are not making enough money. What we do is plan every ship­ment on a door-to-door or door-to-airport or airport-to-airport basis. We measure every day based on the Cargo 2000 methodology.”

As for modal shift, Scharwath believes anything that can be shipped by ocean is already going that route and there will be little shift in the future. While there has been some testing in South America and Africa regarding develop­ment of containers for ocean shipping of flowers, he doesn’t believe there will be a big movement in this direction.

“For modal shift in perishables, you have to separate the types. For ex­ample, with fish, anything which is fro­zen is using seafreight already, so there won’t be much more movement,” he explains. “Anything fresh is more or less flown. This is true with produce such as cucumbers, peppers and tomatoes. It is important to look at shelf life.”

Likewise, Scharwath says the modal shift with pharmaceuticals has already happened. Most consumer pharmaceu­ticals, which have a longer shelf life, are shipped by ocean. Higher-value phar­maceuticals, particularly those based on biotechnology and having tempera­ture-control requirements, go by air.

Scharwath is confident that pharma growth will continue at a nice clip for the foreseeable future. He believes companies like K+N that can meet the increasingly stringent governmental regulations for handling temperature-sensitive products will maintain an advantage. “We want to differentiate ourselves from our competition because we can do more than just ship medicine from A to B. Kuehne + Nagel has a global network with specialists.”

Another hot top­ic is the issue of fuel surcharges, which Scharwath says should be abandoned. “The surcharges have somehow become an income source for airlines,” he says. “Our cus­tomers are a bit annoyed, if that’s the right word, because they cannot man­age costs. The all-in rate would provide more transparency. Surcharges some­times are a third or a quarter of the en­tire costs of the airfreight shipment.”

Scharwath, born in Cologne, Germany, has spent his entire career with K+N since graduating from the University of Hamburg in 1992. “People trust you here. I was a branch manager at 33 and had 150 people reporting to me,” he said. “What I enjoy about the airfreight part is the dynamics of the business. …You have to see things coming and you have to react quickly.”

Akira Okada: Moving forward at ANA Cargo

It’s been a busy year of expansion plans for Tokyo-based All Nippon Air­ways (ANA), Japan’s largest airline. The man at the center of the action in 2014 has been game-changer Akira Okada, president of the ANA Cargo Inc. division and member of the ANA board of directors. He is also the presi­dent of Japan’s Board of International Air Freight Carriers.

Okada, an ANA veteran who has been with the airline since 1979, was part of the executive team that devel­oped the cargo hub on the island of Okinawa, the southernmost island in Japan’s archipelago. From there, ANA Cargo has focused much of its effort on short- to medium-haul flights to Asian cities, catering to the high demand for fresh produce, live animals, and other perishable commodities – products that Okada said are “appreciated as the so-called ‘Japan Quality.’” Because most of these cities, such as Hong Kong, Singapore, Shanghai and Seoul, are less than a four-hour flight from Okinawa’s Naha Airport, ANA Cargo’s flights can provide overnight service for shippers.

On the other side of the globe, ANA Cargo recently earned EU approval to form a joint-venture with Lufthansa Cargo AG, which will establish a stronger airfreight link between Europe and Japan. Beginning in early 2015, the two carriers will coordinate ship­ments from Japan to Europe; by mid-2015, the joint venture will expand to include flights from Europe to Japan. Likely hubs will include Narita and Nagoya in Japan and Dusseldorf and Frank­furt in Germany.

“ANA Cargo and Lufthansa Cargo will act as a single com­pany” to collaborate on route plans, prices, sales and handling on all routes between Japan and Europe, said Okada in an inter­view with Air Cargo World. “Since we are building a network center­ing on Asia, our operations will not change drastically due to this partnership.”

After five years of operating at its Okinawa hub and developing economies of scale, Okada also said ANA Cargo is planning a “second stage” that will involve expanding its freight logistics business and establish­ing deeper connections to other parts of Asia. “Until now, we have proceeded with expansion of express cargo in Shanghai, Taiwan, and Hong Kong in combination with OCS [Overseas Cou­rier Service], a part of ANA group, and Yamato Transport Co., Ltd. We would like to make an effort to offer this kind of service to more cities.”

Currently, most ANA Cargo flights operate in a simple hub-and-spoke configuration, in which flights from the Naha hub fly out-and-back to a single destination. However, the car­rier is considering changes. Although he could not provide specifics on the new South Asian routes, Okada said they are expected to begin in 2015 and will likely include India, to tap into the growing South Asian demand for car parts and electronic components. He also said that in addition to the cur­rent hub-and-spoke operation, ANA Cargo will consider creating triangular routes. “For example, we fly an aircraft from Okinawa to City A, then from City A to City B, and return from City B to Okinawa.”

“We are the only Japanese combi­nation carrier holding passenger and freighter aircraft,” he said. “On the ba­sis of a well-developed network of pas­senger flights, we will set cargo flight routes where demand for air-cargo service is highest.”

ANA Cargo currently operates ten 767-300Fs – three production units and seven Boeing-converted -300BCFs. By 2016, the carrier expects to add two more 767 freight­ers, but Okada said the company has not yet decided whether these new aircraft will be production freighters or conversions.