Peter Gerber: A pragmatist’s market view
30 / 04 / 2019
Is air cargo’s glass half empty or half full? Industry pundits can sample a heady statistical cocktail of declining global volumes and load factors in early 2019, mixed and shaken with US-China tariff tussles and Brexit bungling.
But what can we read from those statistics and are they truly indicative of a full-year decline?
There is no definitive ‘answer’, but businesses still need to make strategic plans. Historic traffic data and a close watch on geopolitical trends can provide useful guidance, but other factors may be in play.
As the global air cargo community gathered in Singapore for the World Cargo Symposium (WCS), Air Cargo News met with Peter Gerber, chief executive and chairman of the executive board of Lufthansa Cargo. What is his take on the full year 2019 and what are the strategic goals for the industry?
He says: “Everybody is asking how will this year end? But at the same time, as with all good questions, nobody knows or is really able to answer that question.
“Maybe some of this has to do with the mood of the industry. There are issues such as Brexit and the [US-China] trade war, but in general I think that the mood is worse than the real situation.
“When I talk to some of our big customers, and also to shippers, there is some optimism around and they perceive that the second half of this year may be quite positive. They state that customer demand is still around, but at the same time they are cautious, so it is a mix of psychologically motivated caution and the real possibilities for the business that they can see.”
Gerber knows that this optimism can change “if negative things happen”, citing a bad Brexit, worsening relations between the US and China, or if there is a conflict in some part of the world.
“But if none of this happens, I tend to believe that the second half of this year, coming to a peak in the last quarter, could be better than most people now expect.”
Summing up the psychology behind industry gainsayers, Gerber states: “There is no real reason other than that it has been so good for many years and now it has to be bad again, or something like that.”
Gerber believes that there is “a little more caution than rationally you could state” and this has to be kept in mind by the players in the airfreight industry: “We have to be even more flexible this year but also we should be optimistic about the future, and that means nobody should cancel or stall their investments for long-term growth.”
Some sections of the air cargo industry remain worried about the creeping menace of containerised seafreight, while Gerber does not view it as a fundamental threat even if it nibbles at the edges of air cargo tonnages.
“Seafreight is coming back, that is true, but all the other factors which drive the long-term growth of airfreight remain. People are still looking for the fastest mode of transport and there is economic growth in third-world countries, which means those people now have the possibility to consume.
“Nowadays, consumers don’t go to the nearest shop but are purchasing more and more online from anywhere in the world.”
Adds Gerber: “People are talking about recession, but from the numbers, it is pretty clear that we will see a worldwide growth of GDP at around 3%. If you take all those factors into account it means that there will also be growth in airfreight.
“We can talk about how much and whether it comes now or in six months, and we can always talk about competition and whether or not there is too much capacity in the market. There may be dips, difficulties and crises.
“All these are valid questions but the long-term factors and trends are still positive for air cargo, and that means there will be growth.
“We have to keep that in mind when we talk about investments in driving this industry forward. I see some really bold moves, particularly on the IT and digitisation side, but this requires investment and the industry needs to set standards.”
Gerber warns that the “worst thing” a company can do is to delay investment because of a fear of short-term crises and “then lose more years” in an industry that “really needs to modernise itself,” stating: “We have seen the long-term factors and we have to invest in our future.”
He continues: “This is the only way to satisfy customers. They see what big providers like Alibaba and Amazon are doing and they have experienced what is possible in this world.
“This is what the integrators can do and, in the end, this is what they also want from the normal air cargo industry, but at another price of course.”
For freight forwarders, the industry can be low margin, and as a result many of the smaller players in a highly fragmented sector do not see the benefit of investing in technology. How can this be overcome?
“It is not so easy but I think there are maybe two ways. The first is setting standards, and we have to be faster in doing this because then the smaller participants know how to adopt them, and secondly it is also less expensive to do so.”
The Lufthansa Cargo boss adds that history has shown that those players, in whatever industry, who wait too long will disappear.
“This is the biggest threat. Over a certain time you can refrain from investing and you can refrain from modern times and developments, but there is a day when you vanish. If you never invest into the future then you don’t have a future.”
The word disruptor was barely mentioned at the Singapore event, unlike at the Dallas WCS in 2018. That was probably in recognition that it is better to learn from Amazon and Alibaba rather than hoisting the white flag.
Certainly, the tone in Singapore was about innovation and capturing the right data at the right time in the right place to provide real air cargo shipment transparency.
Amazon already does that and has flexed its e-tailer delivery muscles in the US domestic overnight business, with an armada of leased B767 freighters from Atlas and ATSG.
Gerber advises the general cargo industry to keep a weather eye on intercontinental e-commerce business for signs of disruptor turbulence: “We have clearly to look at what our customers demand, that is key, and this should also push our investments and aims for standardisation and digitisation.
“This is what customers want, they want seamless transport, no customs issues and they want door-to-door opportunities.
“The only thing we can do at the moment is to explain why it is not possible.”
But Gerber believes that the air cargo industry can meet the challenge of e-commerce by listening to the customer: “We can provide these services and one way or the other we will do it.”
He also makes the point that Lufthansa Cargo deals with traditional freight forwarders and the emerging forwarders “of a different type” such as the cargo.one and freightos booking platforms, and time.matters, the express logistics provider owned by the Lufthansa group.
“There are more and more small and medium e-commerce providers looking at opportunities to transport their goods. We have to look closely at how the industry is changing. Otherwise we may not meet all the demands of our customers, and there will be more new channels where cargo is increasingly sold.”
The Singapore event heard a clarion call for the air cargo industry to not only invest in start-up companies but to embrace digitisation and apps by speeding up the adoption process of such technology.
That was clear from the — “it is not mission impossible” — message from Alexandre de Juniac, IATA’s director general and chief executive.
“I could not agree more,” says Gerber, who suggests that air cargo industry leaders keep stating this objective in public, to reinforce the message.
Gerber was interviewed the day before an IATA cargo committee meeting, bringing together the top cargo bosses from major airlines: “Again one of our biggest issues is standardisation, so we work tirelessly on this.
“It is not just Lufthansa doing this but also the other big players in the industry, and we all believe that we need a quicker setting of standards.”
Gerber praises IATA’s One Record project that aims to move beyond peer-to-peer sharing of information through the development of a centralised platform that can be accessed by all air cargo participants.
“It is the perfectly right answer in a digitised world, and what is pretty clear is that we need it more quickly and that we have to work on that, and we will.”
In a web-based world, the air cargo industry is moving towards cargo XML messaging, which offers a standard format across the industry, reduces the administrative burden and promotes Application Programming Interface (API). The latter allows applications to communicate with one another and for exchanging messages over the net.
Air cargo data is being shared today and the industry is meeting the challenges posed by e-commerce and the global trend where shippers want to experience the same ease of online shopping and tracking goods in their daily job.
Part of the perception problem among shippers and shoppers is that the hard work and numerous freight linkages behind global supply chains are invisible to the consumer.
The person placing an order online via a smartphone, for a next day delivery, is unaware of the complex logistics behind that simple finger touch on the screen.
Says Gerber: “It is one of the biggest problems and not only for air cargo. I’m on the board of the German Logistics Association, the biggest one in the world, and it is always the same, for all parts of the logistics chain, whether air, road or ocean.
“The logistics is never seen except when it doesn’t work, otherwise nobody knows.”