European shippers fight to ensure new tax does not stifle green efforts

06 / 12 / 2018

Lobbying against a sustainability tax is already a moral minefield if you represent logistics providers, as you are by definition a polluter, but it becomes doubly so when you are representing the air cargo industry and therefore sitting on the smallest seat at the negotiating table.

Rogier Spoel, air cargo manager at the European Shippers’ Council (ESC), has the unenviable task of opposing a tax he believes would be particularly pernicious for airfreight because it could end up being based on an aircraft’s maximum take-off weight.

While he has some well-researched arguments, the main obstacle is not necessarily environmentally minded regulators but colleagues within his own industry, some of whom might be happy to see air cargo take on a larger share of the tax burden.

From a sustainability point of view, taxes may seem logical. “But what you have to understand is that [this proposal] tears up the aviation community,” Spoel says.

“I’m sitting there around the table and I agree, for instance, with [the airline] TUI, but TUI doesn’t want to have a tax on passengers, they want a tax on the aeroplanes,” he says. “From an aviation perspective, it’s really split.

“And then you have the hub carrier, so, in the Netherlands, KLM, which doesn’t want a tax at all, which I understand because I don’t want a tax,” he says, “but, left or right, [whatever happens] they [KLM] are going to be the major contributor.”

The right formula

While some airlines, such as KLM, remain opposed to any new aviation levy, Spoel contends that there is little chance of torpedoing the idea entirely. In which case, the only decision lobbyists such as himself can influence is the formula according to which it is applied.

This formula — designed at least in theory to reduce both emissions and noise — is as yet unclear, but a proposal based on maximum take-off weight is doing the rounds in the Netherlands, where Spoel also advises shippers’ association Evofenedex.

Other European Union (EU) member states are also working on similar levies. Taxes could theoretically remain national and therefore diverse, though the expectation is that this will all be pushed up to the European Commission. EU-wide legislation would at least help maintain a level playing field, Spoel says.

In the Netherlands, air cargo began lobbying late on this issue, he admits. If negotiations begin again from scratch in Brussels, there might be a second chance to put shippers’ concerns across.

Choosing maximum take-off weight as the basis for calculations is “wrong” because “you’ll hurt the air cargo industry, because they fly with the heavier planes”, Spoel says.

Air cargo handlers are constantly looking to optimise loads, meaning heavy take-off weights are the goal. The more efficiently that handlers work, therefore, the higher the tax bill.

The policy advisor underlines his point by way of example. The Boeing 747-8F, he says, makes less noise compared to the B747-400F work-horse and also produces around 16% fewer emissions.

But the B747-8F has a much higher maximum take-off weight. This means that these aircraft could be hit by a higher tax despite their green credentials.

In which case, where is the incentive to come up with more efficient designs? “If you tax the aeroplanes, you hurt innovation, and that’s something we do not want,” Spoel says.

A levy based on maximum take-off weight would also hinder aviation’s goal of competing with rail for passengers over shorter distances, although taxing air tickets would have a similar effect.

There has as yet been no reaction from regulators to the Council’s innovation argument, though the fact that the aviation industry is split is a big lobbying handicap.

Sustainable principle

If this doesn’t convince regulators, the plan is to take aim at the principle of a sustainability tax. Without ring-fencing, the tax would not actually achieve its aim of improving sustainability, it is claimed. Operators will fork out without seeing anything in return.

“It’s really difficult because you’re taking money out of the market, and it’s not being put into any form of stimulation such as bio-kerosine or other sustainability projects,” says Spoel.

“If you want to make aviation more sustainable, you also have to invest in it. Just pulling money out of the market, and putting it on the general budget — because that’s the plan right now — won’t make aviation more sustainable.”

If the Netherlands goes it alone with a national tax, Spoel fears the country will become less attractive for air cargo, particularly full freighters, which could move elsewhere.

“We will probably see a lot more truck movements in the Netherlands,” he predicts.

Rather than simply taxing operators, one way to reduce emissions would be to iron out the bizarre inefficiencies that litter the logistics chain.

Freight from the south of the Netherlands can be trucked to Amsterdam and then flown to Frankfurt, for example.

Nonsensical movements such as these are price-driven, often by freight forwarders looking for the ‘sharpest’ rate. There needs to be better alignment between carriers, forwarders and shippers, Spoel says.

The problem with Brexit

However, it is Brexit, not sustainability, that worries the Council’s members most. The UK’s impending departure from the EU is probably the organisations top priority, Spoel says.

Somewhat ironically, a hard or no-deal Brexit could be good for the environment. Multi-nationals are likely to shorten distribution chains as customs checks intensify, and fewer cross-Channel journeys mean lower emissions.

Importers and exporters, who are increasingly reaching out to their industry association for advice, have been told to divert cargo away from UK airports in order to reduce customs formalities and avoid any Brexit-related gridlock.

“If you’re scared that something’s going to happen, try and re-route in some way and, if you don’t need to be in the UK, avoid it,” is the advice. “Unless you have production or a distribution facility there I would try and avoid it. That would be the easiest way,” says Spoel.

Shippers are reportedly already planning to reduce UK exposure. One pharmaceutical company contacted Spoel to explain that its goods are manufactured in the UK, shipped to Germany for sanitisation and then sent back to the UK for distribution.

“Now they are thinking, we will produce it in the UK, ship it to Germany, sanitise it and then bring it to a different warehouse, in the Netherlands, to avoid having to go back and forth [across the English Channel],” says Spoel.

The ESC is advising air cargo members to avoid carriers with calls in the UK in the immediate post-Brexit period.

While utter chaos is still considered unlikely — Spoel estimates the chances of a hard Brexit to be just 10% — preparing for the worst-case scenario is the sensible thing to do.

Spoel is giving the same advice to the maritime industry in the Netherlands. Shippers with Dutch business should “try and avoid Felixstowe and go directly to Antwerp or Rotterdam or even Hamburg”.

Without a Brexit deal in the near future, Spoel believes shippers “will probably stop using Felixstowe” even if that means “more pressure and volumes in Antwerp, Rotterdam and Hamburg”. It is all about minimising potential damage.

In the aviation industry, the mutual recognition of aircraft safety certificates is the big Brexit issue.

Most people believe there will be a deal between the EU and the UK that allows mutual recognition to continue. “However, we are now six months from the UK’s EU departure and there is still no such deal,” Spoel says.

Challenging times

The coming sustainability tax and Brexit are not the only dark clouds perturbing lobbyists. Congestion, both on the roads and on the runway, remains a challenge, as does airport capacity and the continuing shortage of European truck drivers.

In a speech at September’s Air Cargo Handling conference in Brussels, Spoel predicted that full-freighter traffic could find itself pushed out of the major airports within ten years due to slot constraints.

While the cargo manager at Brussels airport talked this eventuality down, arguing that hubs will always opt for a healthy mix of cargo, other participants agreed with Spoel.

Air cargo will, in the coming years, become ever more reliant on belly capacity, one academic predicted.

The worldwide network of bellies is indeed one of the few assets traditional air cargo handlers can put to work in the inevitable fight against retail giants such as Amazon and Alibaba, whom many believe are itching to kick off the next wave of disruption.

Spoel recently met with Alibaba in Europe and was taken aback by its ambition. “[Alibaba] wants to expand, to get European products into China,” he says.

When he pointed out that European products are already shipped to China, the e-tailer retorted that it was eyeing new opportunities. For example, there is evidently a potential market for Dutch waffles.

“[Alibaba] said ‘We want to offer those to our Chinese customers.’ I said ‘You’re going to put a waffle in a package on an aeroplane?’ [Alibaba] said ‘Yes, we are.’ If you can have a business model based on that, well, that would be fine.”

The Netherlands is pitching to be a European hub for e-commerce, but Spoel wonders if this is a good idea.

While air cargo pallets might require two or three customs clearances, a pallet of packages can require 80. Can customs cope with the volume?

Digitalisation would help ease traffic flows, but attempts to digitalise customs in the EU have not been particularly successful.

Spreading the word

Spoel ended his conference speech with a call for better public relations. “We are not good enough at getting our message across,” he said, adding “We don’t tell the public what air cargo does for society.”

Journalists covering the transport industry are all too familiar with this sort of plea, which is made by lobbyists and executives from all the transport modes.

It is argued that consumers never wonder how it is possible to find avocados on the supermarket shelves all year round.

Should they not be made to marvel at the intricate logistics that enables fresh produce to be distributed across Europe within hours of it being harvested?

A publicity campaign of this type may indeed have an effect — short videos do exist on platforms such as YouTube — but before spending millions of euros, executives should ask themselves: what is the ultimate aim?

If the public learns how complex the logistics business is, will they be prepared to pay more for their produce, thereby enabling air cargo operators to raise their rates? That’s doubtful.

Logistics is, in the final analysis, an industry destined to remain in the shadows, largely misunderstood and unappreciated, like electricity.

Until, that is, something goes wrong. If and when supply chains break down, because of Brexit or another unknown factor, the public at large will all of a sudden become logistics experts, and lobbyists such as Spoel may well get their time in the sun.