With rapid global growth, GSSA model slow to take hold in U.S.

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The U.S. air cargo sector has been slow to adopt the use of general sales agencies (GSAs) and general service and sales agencies (GSSAs) compared to Europe and Asia. However, the market is getting larger with some firms going the acquisition route and others growing organically.

Jens Tubbesing, CEO of Airline Network Services (ANS), which operates solely in the U.S., says the last few years have proven challenging.

“Rates go down and margins go down, and that generally reduces your income levels,” Tubbesing says. “The rate decline has been pretty solid for the past 18 to 24 months. Companies need to have a diversified carrier portfolio to make the best out of a difficult situation.”

The ongoing capacity glut is another challenge.

“You have a combination of new and more efficient aircraft entering the market and airlines aggressively adding routes and lanes,” Tubbesing says. “That’s happening everywhere in the world, but certainly in North America. There are also more seasonal carriers coming in, and you don’t have demand that comes close to it.”

Tubbesing says the GSSA model has always been slightly different in the U.S. and not as developed overall as in Europe. He says costs are higher compared to parts of Europe.

“The model is certainly evolving, but are we at the European stage? No. The infrastructure in the U.S. needs to be significantly greater,” he says. “Carriers are looking for national partners, not just a regional partner. Changes are coming, but in general, the model here has always been slightly different because you traditionally have fewer flights.”

The economic challenges notwithstanding, Tubbesing says he feels good about the second half of 2014.

“I am actually cautiously optimistic. The first quarter was good, and rate levels were competitive. There has been an uptick in certain parts of the economy. This year will certainly be an improvement over last year.”

ANS operates at airports in 11 U.S. cities, including Seattle, where there is much anticipation about a banner cherry season in the Pacific Northwest.

“We do quite a bit of perishable business,” Tubbesing says. “The season is fairly short, but it’s a highly intensive season. During those couple of months [June and July], it’s all hands on deck. They are predicting a record season.”

ECS, which is one of the largest GSSA firms globally, has chosen to grow organically in the U.S. It operates at seven U.S. locations and is looking to expand in the country later this year, says Shaun Hawkett, sales director for ECS in the U.S.

“The U.S. has seen a lot of ma-and-pa-type GSAs, which some of ECS’ competition has stepped into the U.S. market and purchased,” Hawkett says. “We have a slightly different philosophy, and that is to grow organically in the U.S. and have our own offices. “

ECS, which established itself in the U.S. nine years ago, now operates seven offices in the U.S. and employs 56, about 10 percent of its global workforce. Its U.S. headquarters is in Miami. It represents 13 carriers of various sizes in the U.S. Globally, it operates in 21 countries with 4,300 customers.

“For us, the U.S. is a huge market obviously, and it’s one where we see opportunities, not only for the bigger carriers, but also for the medium and small carriers looking for total representation and transparency,” Hawkett says. “We have seen some growth here in the last six months with our current portfolio of carriers and some new ones which we have added.”

The GSSA business has also had to deal with industry consolidation, both with forwarders and airlines.

“That has been a concern, but I think we have come out the other side with that,” Hawkett says. “The world has gotten smaller, but certainly in terms of Africa, the Far East and the U.S., there have been some huge opportunities over the last two to three years. In terms of the negative, yields are under still under great strain. There are no two ways about it.”

Hawkett has a positive outlook for the second half of 2014.

“We bring the French attitude of being an eternal optimist regarding what happens in the market,” Hawkett says. “There is freight out there, and it’s a matter of how you look after it and what you do with it.”

In terms of products being shipped, Hawkett says ECS clients have seen recent growth in perishable, pharmaceuticals and machinery parts.

“We see Africa as a strong growth area with a mix of everything. We’ve seen big growth in Europe over the past nine months,” he says.

Hawkett notes that ECS is keeping a watchful eye on developments in Ukraine since Ukraine International Airlines is one of its new customers.

Some firms in the business consider themselves to be general sales agencies (GSAs) only. Others go for the full general service and sales agencies (GSSAs) description and there are some who are both, depending on the locations. Stephen Dawkins, chief operating officer for UK-based Air Logistics Group, says more airlines are now looking at organizations where the second “S” is important.

“The service bit is absolutely critical,” Dawkins says.

GSSAs handle more than 20 percent of the world’s cargo business, but Dawkins says the figure in the U.S. is probably less than 5 percent.

“The U.S. is in an infancy role in the U.S. because it’s so big,” Dawkins says. “We’ve been in the U.S. for 11 years, and it’s a challenge because the margins are very slim.”

Air Logistics Group operates in seven U.S. locations. Dawkins says the market in the U.S. for air exports has declined each of the past three years. While the airlines are seeing growth, it’s being overshadowed by new capacity arriving in the marketplace, he says.

Air Logistics Group has been growing largely through acquisitions over the past few years. Dawkins says the company has seven deals ready to close over the next several months, two of which are in the U.S., two in Europe and three in Asia.

“The expectation from our shareholders in 2012 was that we would double our business within four years, and you can only do that with acquisitions,” Dawkins says. “We normally do about five per year.”

Dawkins says Air Logistics Group has invested heavily in IT over the last eight years to create one global platform.

“You have to become a worldwide player to give an airline what it needs.”

Dawkins believes the GSSA model will grow significantly around the world over the next several years.

“We anticipate in the next five years that the outsourcing part will grow from 20 percent to 35 percent,” he says. “It’s a natural progression.”

Dawkins says ongoing shifts in the global economy will change the direction of airfreight.

“The world economy is coming out of the recession,” he says. “The wealth is changing and the money, the consumable revenue is in China. The people with money are in China, India and South America. Those countries are spending money on regional scenarios in double digits. They want products made in the U.S., U.K. or Japan. There are huge amounts of capacity flying into India and to South America. The Middle Eastern carriers are flying in there. All these markets are now becoming available for retailers to sell products to. The world has completely changed, and airfreight is absolutely an integral part of that.”

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