Global Trade Increasing, But Supply Chains Face Risk

“On-shoring,” localization, Trump’s tariffs, Brexit—pay attention to the media, and it’s all too easy to imagine that global trade is contracting.

In fact, of course, it’s doing anything but contracting, as World Trade Organisation statistics make clear. In 2019, for instance, global trade growth of four percent is expected, well above the three percent annual growth rate typical of the early years of the decade.

But if global trade remains in robust health, the same can’t be said for global supply chains. Earthquakes, tsunamis, floods, volcanic eruptions, hurricanes - all repeatedly take their toll. Global warming or not, weather scientists say extreme weather events are becoming more common. Hurricane Harvey, for instance,the 2017 storm that devastated the Caribbean together with parts of the south-eastern United States, was followed just a year later by 2018’s Hurricane Florence, yet another so-called “storm of a lifetime.”

Man-made supply chain risk is just as prevalent. Strikes, wars, port and road congestion, civil unrest, piracy: for importers and exporters alike, far-away events have an unhappy knack for leaving warehouse shelves unfilled and production lines stopped. The result: disappointed customers, frustrated suppliers and a hit to earnings.

What to do about these various risks? Once, the question didn’t arise. Adverse events simply had to be coped with, generally through such means as holding extra inventory or double-sourcing. Neither option is cost-free, of course. So too with “near-shoring” and localization, both of them conscious trade-offs between shorter (and therefore less risky) supply chains and the foregone economies of scale and access to low-cost labor markets.

Businesses today, though, have other options. Some of the world’s very largest companies have invested in dedicated supply chain risk “control towers,” providing them with end-to-end visibility of goods in transit. Car maker BMW, to choose another example, goes further and harnesses real-time data from a variety of publicly-available sources, super-imposing it on a global map of suppliers’ factories, ports and other supply chain-related infrastructure. Like a number of other manufacturers, it acknowledges that the 2011 Japanese earthquake and tsunami served as a wake-up call, highlighting a lack of visibility into its supply chains.

What of other businesses, though? Undeniably, most of the world’s importers and exporters are much smaller and would struggle to fund initiatives of this nature. Are they to be disenfranchised when it comes to risk reduction?

The good news: no - at least not for those businesses prepared to invest in buying-in supply chain risk reduction as a service, from one of a number of emerging specialist supply chain risk intelligence providers. Leveraging a variety of proprietary and publicly-available data sources and intelligence feeds, they provide unprecedented real-time visibility into businesses’ supply chains and the real-time risks that they face. Increasingly, too, such providers are adding artificial intelligence and machine learning to their armories, providing clients with forward-looking predictive abilities, as well.

The bottom line: global supply chains aren’t without risk, but the correct response is to take steps to mitigate that risk, rather than stepping back from global trade.

Omera Khan is a Professor of Supply Chain Management at Royal Holloway University of London (UK) and Executive Strategy Advisor for Risk Intelligence. 
 

The opinions expressed herein are the author's and not necessarily those of The Maritime Executive.

Glowing end of year report for buoyant Lufthansa Cargo

A COMBINATION of factors helped Lufthansa Cargo achieve the second-best results in its history last year – earning €2.7bn in revenue and a profit of €268m (adjusted EBIT) writes Thelma Etim.

Improved yield management, job cuts and a reduction in administration costs all contributed to the Frankfurt-based cargo carrier’s impressive financial results, reveals Dr Martin Schmidt (pictured below, right), chief financial officer (CFO) and labour director at Lufthansa Cargo.

“We achieved the second-best result of our history,” Schmidt proudly declares. “€268m is just a fantastic figure. I have to admit I did not expect that.”

Glowing end of year report for buoyant Lufthansa Cargo

Dr Martin Schmidt, chief financial officer and labour director at Lufthansa Cargo

The main reason behind the exceptional result – “this figure is a very good result for a company this size and the business we are in” – is improved yield, he reveals. “Total revenue rose by eight per cent when you compare the two years. But this result has to do with yield development – and not with the volumes – which rose a bit but not significantly. Our yield management strategy last year was to maximise yields and not to maximise volumes.”

Year-on-year revenue was up by €189m and profits by €5m. In comparison to 2017, revenue was seven per cent higher, whilst yield per transported tonne of air cargo was up by seven per cent. The volume of goods carried increased slightly by one per cent overall. Cargo capacity offered rose by 5.3 per cent, which reduced the load factor slightly to 65.9 per cent (-3.2 percentage points), details the company.

Glowing end of year report for buoyant Lufthansa Cargo

Graphics courtesy of Lufthansa Cargo

Changes in international accounting standards, in particular regarding the overhaul of engines, also contributed to the carrier’s final result. “Formerly, the overhaul of engines were [classed] as a technical cost, but now they have to be written-off over a four- or five-year term and that means we have some kind of flattening of the cost and this has an effect on the yearly result depending on the amount of engines,” explains Schmidt.

Lufthansa Cargo has also been engaged in seismic cost-cutting strategies for both staff and administration over a two and a half-year period. Management positions have been reduced by one third and up to 800 people have lost their jobs, mainly through early retirement and redundancy, reveals the chief financial officer.

As a result, the airline has reduced its annual administration costs by €80m by utilising 170 measures to cut waste in processes within the business, says Schmidt.

Regarding its fleet, the German carrier has added four new aircraft after purchasing two B777 freighters and leasing two aircraft from Aerologic. Of the 12 MD-11s it owns, two have now been sold.

Peter Gerber, chief executive and chairman of the executive board at Lufthansa Cargo

Meanwhile, Lufthansa Cargo continues to grow its network, reveals Peter Gerber (pictured, right), chief executive and chairman of the executive board. “We also manage the [bellyhold cargo] for Brussels Airlines now and this means our African footprint has grown considerably. We also get rollovers on the passenger side, which means we a get a brand new A350 with more attractive freight capacity than the old A340.”

Lufthansa Cargo also plans to spend €400 million on refurbishing its Frankfurt cargo centre in pre-planned stages.

The only black spot on the company’s glowing horizon is the spectre of intensified trade wars. Gerber admits the airline fears “the world will fall back into an area of protectionism and conflict”.

“This is the single biggest fear we have. This would heavily affect our business. We are in constant talks to all politicians and to the public to show what benefits globalisation brings and what drawbacks it would have to fall back in those dark times of protectionism,” he exclaims.

“It is our job to be in constant talks on a high political level, within Germany, of course, and with Europe but also with other countries.”

Gerber reveals short-term uncertainty is difficult because it may jeopardise the need for long-term action. “This means we do not have a clear view of 2019 because of this uncertainty because nearly everybody feels uncertain, so everybody is cautious and then business slows down.”

The chief executive notes that the air cargo market is shrinking somewhat with the ‘big boom’ of the last two years clearly coming to an end in December last year. “For the moment, we see a softer market. This is typical of our industry – it is a kind of roller coaster. [That’s why] we have to remain very flexible,” he asserts.

“For example, we do not know what the China/US trade conflict will produce. We clearly have to wait and see how things develop.”

 

Maersk to Test Biofuel on Its Triple E Vessel

Danish shipping giant Maersk has partnered up with members of the Dutch Sustainable Growth Coalition (DSGC) in the world’s largest maritime biofuel pilot project.

Using up to 20% sustainable second-generation biofuels on a large triple-E ocean vessel, the pilot would see the ship sail 25.000 nautical miles from Rotterdam to Shanghai and back on biofuel blends alone, a world’s first at this scale, saving 1,5 million kilograms CO2 and 20.000 kilograms of sulphur. The voyage will take place between March and June 2019.

The DSGC members, including FrieslandCampina, Heineken, Philips, DSM, Shell and Unilever, initiated and sponsor the pilot. Shell, acts as the fuel supplier for the pilot, and Maersk plays the role as operating partner.

“This pilot testing biofuel on a cross ocean shipping lane, marks an important step. However, many more innovations are urgently needed. These can only be successfully developed, tested and implemented in industry collaborations like this,” Jan Peter Balkenende, Chair of the DSGC, said.

“To reach our net zero CO2 target by 2050, in the next 10 years we need big breakthroughs. Maersk cannot do this alone. That is why this collaboration with DSGC and its members is such an important step in identifying and bringing low carbon solutions to life,” Søren Toft, Chief Operating Officer A.P. Moller – Maersk, said.

“We welcome others to join in our efforts, as this journey is just beginning,” Toft added.

Shipping accounts for 90% of transported goods and 3% of total global CO2-emissions, and is set to rise to 15% by 2050 if left unchecked. The parties explained that the CO2 savings of this journey alone equate to the annual CO2 emitted by over 200 households in a year or 12 million kilometers travelled in an average car.

 

Volga-Dnepr in helicopter switch over project

Volga-Dnepr An124 loading a helicopter

Volga-Dnepr and forwarder Panalpina have transported two helicopters from opposite sides of the globe on behalf of multinational infrastructure firm Babcock.

The project saw Volga-Dnepr deliver two AugustaWestland AW139 helicopters from the UK to their new home in Melbourne, Australia, and transfer two Sikorsky S-92 in the opposite direction from Darwin, Australia, to Aberdeen in Scotland.

Working in partnership with Panalpina, Volga-Dnepr utilised one of its Antonov 124-100 ramp-loading freighters for the connections between the UK-Australia-UK, an aircraft capable of accommodating up to 12 helicopters in its cargo hold depending on their size and weight.

Due to airport specification requirements, Glasgow Prestwick was chosen as the UK point of departure for the AW139 helicopters as well as for the arrival of the S-92’s.

In the first stage of the project, two 5.5 ton, 16.7 m long AugustaWestland AW139 helicopters – safely wrapped and with dismounted blades – were delivered by road from Aberdeen to Prestwick, where Volga-Dnepr’s team of experts oversaw the precise loading process into the An-124-100 using only the aircraft’s ramp.

After unloading in Melbourne, the Antonov 124 departed to Darwin, where the two 7-ton S-92 helicopters were ready for loading ahead of their journey to join up with Babcock’s business unit in Aberdeen.

This second flight was performed at the lower altitude of 8,000 m to maintain the cargo hold pressure level requested by the customer. All dismounted parts were delivered together with the helicopters.

 

Port of Rotterdam’s Container Volumes Continue to Grow

Port of Rotterdam saw its total throughput drop by 0.4% in the first three quarters of 2018, compared to the same period a year earlier.

Container volumes continued to grow at a markedly higher pace than the first nine months of 2017, even recording a new all-time high in August. Wet and dry bulk, however, showed a decline in volume, although LNG and biomass were two positive outliers within these product segments.

A total of 350 million tonnes of cargo was handled in the port of Rotterdam, representing a decrease of 1.5 million tonnes compared to last year. The port said it expects to make up some of the difference in the fourth quarter, so that the throughput recorded for 2018 in its entirety “will be more or less equal to that of 2017.”

“The underlying shift in throughput figures that was observed in preceding quarters is continuing as expected. I am happy to see that the healthy growth in the Containers segment – one of the Port Authority’s spearheads – shows no signs of slowing down,” Allard Castelein, CEO of the Port of Rotterdam Authority, said.

In 2018, container throughput increased by 5.7%, resulting in a total volume of 10,780,204 TEU. The strongest increase was recorded in the first seven months, with August 2018 setting a new record with 136,500 tonnes.

Additionally, the volume of LNG handled in Rotterdam continued to grow “at an impressive pace.” September 2018 was a record month, with a total throughput of close to 0.8 million tonnes.

The rise was mainly the outcome of the on-going intake of LNG transported by small carrier vessels to Rotterdam from the Yamal peninsula in Russia.

Total dry bulk throughput fell by 7.3% compared to the first three quarters of 2017. The strongest decrease could be observed in the agribulk and iron ore segments, the port informed.

 

AirBridgeCargo maintains Cargo iQ standards

AirBridgeCargo Airlines (ABC) has passed its second audit to confirm compliance with Cargo iQ standards, following a two-day inspection of operations in Moscow, Russia.

The airline was measured against a series of KPIs to guarantee its services conform to the highest industry quality standards and are visible and transparent to all Cargo iQ members and supply chain stakeholders.

The audit was carried out by SGS on behalf of Cargo iQ, alongside a dedicated ABC team, confirmed no single non-conformances and a 99% compliance rating.

Sergey Lazarev, general director of ABC says: “Being an active member of Cargo iQ, we feel that its transparency and visibility is the only solution for further development of the cargo industry, with understandable actions taken by all members of supply chains and a clear data-sharing approach to achieve the standards described in the Master Operating Plan.”

Laura Rodriguez, manager implementation and quality assurance for Cargo iQ says: “We designed the audit process to be as neutral as possible, which is why we outsourced the audit execution to SGS. We plan to have all our membership audited and hopefully certified by the end of 2019.”

 

Port of Durban Container Volumes Surge in 2018

South Africa’s Port of Durban has recorded an increase in container, liquid bulk and dry bulk volumes in 2018, Transnet National Ports Authority (TNPA) data shows.

Container volumes in the Port of Durban increased by 9.5% to 2.95 million TEUs for the year ending December 31, 2018, compared to 2.69 million TEUs handled in 2017. Of this, container imports grew by 10% in 2018 and exports by 17%.

The figures are the highest volumes handled by the port in the last seven years, TNPA said.

Dry bulk volumes were up by 5.8%, driven mainly by dry bulk exports while imports remained fairly stable. The biggest growth in imports was seen from rice and associated products, wheat, malt, fertiliser products, coal and coke, while maize, sugar and chrome ore exports also bolstered dry bulk volumes.

Liquid bulk volumes grew 3.1%, mainly due to demand factors as well as South Africa being a net importer of crude.

The port also witnessed a growth in its automotive throughput with imports rising by 4% and exports by more than 15% year-on-year excluding transhipment and coastwise cargo. The Port of Durban handled a total of just over 487,000 units in 2018 which is the highest since 2013 when a throughput of 503,000 units was recorded.

Breakbulk volumes in 2018 were relatively on par with 2017 volumes.

“The Port of Durban continues to work with terminal operators and other stakeholders to ensure improvements in terminal productivity levels for quicker ship turnaround times,” Port of Durban Acting Port Manager, Nokuzola Nkowane, said.

 

Emirates adds flights to Cairo, expands network reach

Today, Dubai-based Emirates said it will add four additional weekly flights between Dubai (DXB) and Cairo (CAI).

The new flights will be operated by a 777-300ER and will offer an additional 160 tonnes of belly cargo capacity per week to and from CAI. Currently, 800 tonnes of cargo capacity is available through the carrier’s existing flights on the same route.

The four new flights will operate on Monday, Wednesday, Thursday and Saturday, and will increase Emirates’ total weekly flights serving CAI to 25. The additional DXB-CAI flight, EK 921, will depart from DXB at 12:00 and will arrive at CAI at 14:15; the return flight, EK 922, will leave CAI at 16:15 and will arrive at DXB at 21:35.

The move demonstrates a continuation of Emirates’ efforts to enhance its connectivity to cities in Asia, the Americas and Australia, including Beijing (PEK), Bangkok (BKK), Hong Kong (HKG), Sydney (SYD), Shanghai (PVG), New Delhi (DEL), Mumbai (BOM), New York (JFK) and Washington D.C. (DCA).

The carrier most recently signed a memorandum of understanding with the Ho Chi Minh City government’s trade agency, launched a new route to  Bogotá (BOG) and adjusted its strategy for flights between DXB and Kabul International Airport (KBL), as reported by our sister site, Air Cargo World.

Emirates SkyCargo also reported a 4 percent increase in its 2018 traffic to 2.6 million tonnes of cargo, which may have been supported by its 2018 network expansions to Maastricht (MST), Santiago (SCL), Stansted (STN) and Edinburgh (EDI) airports.

Of this tonnage, the carrier reported that it transported more than 35,750 tonnes to and from CAI in 2018 – 19,750 tonnes were exports and 16,000 tonnes were imports. Close to 90 percent of the commodities exported from CAI were fruits and vegetables, which are supported by Emirates’ cool-chain facilities at CAI and across its network.

Ultimately, the four new routes will contribute to the carrier’s efforts to grow its cargo volumes into 2019, while, for CAI, the new flights will aid in boosting the airport’s cargo volumes against regional competitors in Dubai (DXB, DWC) and Istanbul (ISL, IST).