The new air cargo frontier
12 / 07 / 2013
EVER SINCE the modern industrial economy was created it has tended to be Europeans and Americans who have been the consumers, while the rest of the world has supplied the raw materials and, more recently in Asia, done the manufacturing too.
But now all over the world new consumer markets are springing up. The growing middle classes in such countries as China and India are well-documented, but as the experience of forwarder ART Logistics is showing, the phenomenon is now spreading to such places as Kazakhstan and Mongolia.
That is opening up new opportunities for airfreight and for logistics companies who can navigate the particular challenges of these markets.
ART was set up in 2005 to ship goods from Europe to Kazahkstan. Its headquarters was initially in Zurich, and in 2009 it opened its first office in the European Union, in Lithuania. The company then set up a less-than-truckload road service to connect central Europe with Kazakhstan.
In 2011 the company added a German office, and launched a rail container service to Central Asia and on to Mongolia. Evgeniy Reznikov (main picture), ART’s business development director, says this has been attracting strong eastbound demand from global forwarders.
In 2010 a Hong Kong office opened and, in 2012, that became the forwarder’s headquarters. Reznikov, who is now based there, says there were a number of reasons for this decision, but a key one is that he reckons Hong Kong is now the best centre from which to develop the business, and the best place to attract the talented personnel the company requires.
A major focus of the company is, naturally, project logistics for the oil and gas industry, initially supporting the oil industry in Kazahkstan and Uzbekistan but, since early 2012, coal and other mining activity in Mongolia has been added. The for-warder also brings medical and telecoms shipments into Kazakhstan.
Recently it has also seen a rapid take-off in demand for luxury goods – particularly fashion items – in Kazakhstan. “It is really booming,” says Aliya Mussina, ART’s airfreight general manager, who is based in Almaty, Kazakhstan’s largest city. “This business has doubled in the last five years.”
In particular, premium fashion brands such as Dior, Louis Vuitton, Gucci, Armani and Dolce & Gabbana, are now opening their own stores in Kazakhstan, creating demand for a whole new type of logistics. Previously, Mussina notes, local retailers might have brought fashion items in their own hand luggage or as parcels, but the dedicated stores now require shipments in much larger quantities – maybe 500 items at a time.
This requires a logistics partner that can handle such consignments within demanding service parameters, and for ART that has meant developing a completely new way of working with local Customs authorities. Mussina says ART and Customs have been ‘learning tog-ether’ how to handle such shipments.
She adds: “Though the procedures for hand-ling these shipments already existed, they were never used – and Customs had no experience of them. So we had to work with Customs to develop new ways of working. Since a small mistake in the Customs declaration can hold up the shipment for a week, we now prepare all the documents in advance. We can now clear shipments in a single day, and offer the customer a guarantee of two days.”
One example of the learning curve that both ART and the Kazakh authorities had to go through involved the regulations for such materials as crocodile and python skins, used in some handbags. CITES – the Convention on Trade in Endangered Species – lays down the rules for this trade, and most countries in the world are party to it.
But Mussina says the Kazakh ministry of agriculture had little experience in implementing it until the luxury goods traffic started. Working with the authorities in this way is essential for success in markets such as Kazakhstan, she says.
Naturally, most of the movement of such high-end luxury goods is by air. Kazakhstan is fortunate here in being a stopping-off point for various freighter operators on the way from Europe to Asia. Mussina says that Lufthansa Cargo, Air France-KLM, Cargolux and Etihad (via Abu Dhabi) are all key players in the market. For the most part, she says, finding space is not a problem, except sometimes during the end of year peak.
Once the goods are cleared in Kazakhstan, ART has to then organise secure transport to the customer’s premises. Here too the forwarder is something of a pioneer, as Mussina says bullet-proof trucks and secure transport for items such as jewellery – another product in growing demand – is a business still in its infancy in the country.
“Not many companies can supply this kind of service, as there was not much demand for it before. So we have worked out a special scheme with a partner to provide this service.”
While high fashion items tend to come from Europe, ART also brings in electronic and other manufactured goods from Asia – particularly China, Korea and Japan. In general, Mussina thinks demand for goods of this type can only grow as Kazakhstan’s middle class gets bigger and richer, as oil wealth trickles down through the economy.
Reznikov points out that GDP per capita in the country has already risen 15 fold –from US$700 to $11,000 – since 1994, and it is estimated to reach $15,000 by 2016.
“It is now at a similar level in terms of its retail growth to Russia of five or 10 years ago,” he says. “Retail growth is going exponential. In the next few years there is going to be strong demand for foreign brands, because people in Kazakhstan are keen to have the original article.”
Growth could also spread to neighbouring countries, but Mussina reckons that only Azerbaijan, another oil-rich country, is likely to experience the same transformation in the short term. Further down the line, Kyrgyzstan and Uzbekistan are also possibilities but, in the former country, political instability remains a barrier to development.
Meanwhile from his Hong Kong base, Reznikov notes that Mongolia is also showing great potential. Louis Vuitton has opened a shop here too and, as well as the rail service mentioned above, ART has a less-than-truckload service to Ulan Bator, making an incredible 9000- kilometre trip from Lithuania in 13 days.
Add into this up to five days to truck from the various corners of Europe and ART can offer a highly competitive 18-day land transit time from Europe to Mongolia.
Airfreight would be an even better solution for high value goods, of course, but Reznikov says a barrier here is the lack of direct cargo flights. Instead, goods are currently flown on freighters from Europe to China, and then face protracted waits for belly cargo connections on narrowbodied airliners to Mongolia, often being bumped in favour of passenger luggage when flights are full. For this reason it can take seven-to-10 days to fly goods from Australia or Europe.
Set against this, ART’s less-than-truckload solution is an attractive one, but Reznikov does not rule out the possibility of charter flights from Europe in the future. “We are not quite there yet, but it is something that is giving us food for thought. It is an area we are looking at for future development,” he says.