20 / 09 / 2012
ULD pooling has been slow to take off in the air cargo industry, but it is a common enough concept in other industries, as is shown by the success of CHEP, whose blue wooden pallets (more than 300 million of them worldwide) are a familiar sight worldwide. The company also manages specialist containers for industries such as food retailing, automotive and chemicals.
In September 2010 CHEP’s parent, Brambles Industries of Australia, added Unitpool, the passenger and cargo ULD pooling business, to that portfolio. Originally created by Swissair, it was later owned by private equity interests under the chairmanship of Ludwig Bertsch. He stayed on as president of the new entity, now known as CHEP Aerospace Solutions.
Ownership by Brambles has given the pooling business access to considerable expertise in asset management, IT and back office systems, and to the financial resources of a large and successful company.
The last of these factors is particularly important. When a pooling company wins a new airline customer, it must either purchase the carrier’s existing ULD stock, or buy new containers to service that customer. That requires an upfront investment, which will only be paid back over a number of years. That, says Bertsch, is something that Brambles understands.
Another requirement for a truly effective ULD pool is to have a global repair capability. With containers damaged on average between 1.5 to 2.5 times a year in cargo use, and pallets 0.5 times a year, repair accounts for around 45 per cent of the pool’s costs.
As Bertsch points out, it makes sense to insource that cost, and it also makes sense not to bring ULDs back to a central hub for repair, something that airlines typically have to do. “Flying damaged containers home not only wastes fuel, but they take up room at airports while they are waiting for a space on an aircraft, and they mean the carrier has to have a larger buffer stock than would otherwise be necessary,” he says.
Unitpool did have local repair options pre-merger, but these relied largely on subcontractors. With
financial backing of Brambles it has been able to increase this considerably, acquiring JMI Aerospace of New Zealand and the container repair business of ULD manufacturer Driessen.
That has given it 25 of its own repair stations globally, including a strong US network, a comprehensive network in Australia and New Zealand, four stations in Europe and four in Asia. At 25 other locations it still uses sub-contractors, but these now use the CHEP repair manual and the company’s own IT system, thus in effect operating like wholly-owned stations.
Repair is in fact a growing business for CHEP Aerospace Solutions. Since November last year it has been offering a repair service to carriers not in its pooling system, and it already has a healthy client list including Singapore Airlines, United Airlines, Virgin Atlantic, Qantas, Air New Zealand and Cathay Pacific. American Airlines and Qatar Airways have just signed five-year repair contracts, both adding significant volumes of business.
Another new business area is short term leasing – providing ULDs to airlines to cope with a temporary shortage, perhaps only for a week or so. The network of repair stations supports this business. “Fifty repair stations mean 50 storage locations, so we have assets available around the world,” Bertsch says. Air France, Turkish Airlines, Tam and South African Airlines have all taken advantage of this service.
The pooling business itself has also seen a flurry of new business in recent months. Prior to acquisition by Brambles its biggest customer was Cargolux, with other clients including AirBridgeCargo, Polet, Gulf Air, National Air Cargo, Air Transat of Canada and various European leisure airlines.
In recent months that roster has been boosted by SAS in March, Air Pacific of Fiji in May, Air Cargo Germany in June and Air Canada in August. Taken together these will bring CHEP’s stock to 55,000 containers, double what it was when it was acquired by Brambles, with standard PMC air cargo pallet numbers up to 33,000.
Bertsch is particularly pleased with the Air Canada win, both because the carrier is part of the Star Alliance, and because it did extensive research comparing the CHEP model with keeping it in-house and with rival product offerings. He would clearly like to see more carriers making such a study, as the true costs of ULDs are often spread across several airline departments, making them hard for a carrier to compare.
“Usually repairs are done by the maintenance department of the airline, if it is insourced, or if they are done by a third party they are on the local hub budget,” says Bertsch. “Investment in new containers is often bundled with the cost of aircraft purchase, and there are all the little activities, such as stock counting by station staff, that go unnoticed.”
Because of all these factors, Bertsch says that CHEP no longer makes straight offers to airlines. Instead, it asks to send one of its staff to do a three-four day assessment of airline processes. “Brambles is very strong on the concept of the Six Sigma concept of continuous improvement,” says Bertsch. “Our head of operations is a black belt in it, and we have two other black belts in the organisation. We go into a carrier, simulate stock levels, look at their repair costs, and at the end present a proposal. If they don’t go for our service, then they get three to four days of consultancy for free.”
Such calculations are even more complicated for major carriers, which is perhaps why they have so far proved resistant to the pooling model. But the fact that many are now using CHEP for their container repair gives Bertsch hope. “It is an opportunity for them to learn what kind of set-up we have, and how we can reduce costs,” he says. “We certainly hope that once we have built up our credibility with these carriers they will look at the other services we offer.”
Big new customers also require careful calculations on the part of CHEP. If it makes a wrong estimate of the likely repair ratio for the carrier’s containers it could end up making a substantial loss. The company also has to consider how well the new client will mesh with its existing network, but that can have advantages for the carrier too.
Bertsch makes no secret of the fact that he would love to land a large Asian carrier, for example, as this would complement the work CHEP already does for Air AsiaX, a pooling customer since 2008. “It would give us big synergies, and the new airline would also get big synergies,” he says. “Where a new client complements our existing pool well, we can easily reduce stock by 20-25 per cent.”
As well as cheaper and more efficient repairs, no need to carry buffer stock, and the conversion of ULDs from a fixed to a variable cost (if traffic falls in a downturn, airlines can pay for fewer containers), pooling also removes the burden of capital expenditure from carriers.
That is particularly relevant at present when containers made from lightweight materials are taking over from traditional aluminium. Bertsch says many carriers want to switch to lightweights, with their lower fuel costs, but are unable to spare the capital to buy them.
While it is still testing available lightweights before making a final choice of product – access to a sophisticated testing facility in Florida being yet another benefit of being part of Brambles – Bertsch says lightweights are now a “no brainer”, and that all future container purchases by CHEP will be of this type. Existing aluminium containers will be used for shorter haul leisure airlines, for whom the extra fuel burn is not such an issue, with many others being junked.