Panalpina: Staying in control
27 / 04 / 2015
Panalpina has always been a forwarder with a difference. It wetleases an Atlas B747-8F and is involved in some interesting market sectors – supplying oil rigs off the west coast of Africa for example.
But with the winds of change blowing through the air cargo market, is that approach still valid?There was certainly no major cause for concern in its 2014 results, which show a four per cent rise in airfreight volumes and seven per cent in sea freight. In both cases that was ahead of the market, but only slightly in airfreight and somewhat more in seafreight.
Lucas Kuehner, Panalpina’s global head of airfreight, admits that the bigger rise in seafreight is partly due to a modal shift among customers. “But the rate of change is slowing down now,” he says.
One exception to this last remark, interestingly, is healthcare, where he notes “a significant push” to move more temperature-controlled cargo by sea. At a time when more and more airlines are investing in their coolchain products, this is not good news.
“Yes, it will be interesting to see if they all manage to get a return on their investments,” says Kuehner. “The point we always make to airline partners is that while they may have invested a lot, the customer is still looking for a good price. Pharmaceutical companies are not prepared to pay an outrageous margin just because you have built a new facility.
”Despite the shift, Panalpina has seen growing airfreight business in healthcare by winning new business and getting new lanes from existing customers. Other strong sectors have included automotive, as well as transpacific traffic as cargo shifted from sea to air to get around the US west coast port dispute.
But he cautions airlines about getting too used to this transpacific surge. “It is important to remember that modal shift can go either way. “It will be interesting when things cool down to see what the underlying strength of the market is. I think perhaps there is over-optimism at present.
”Caution would also be wise when contemplating the oil and gas market. Panalpina is a big player in this sector, supplying clients not just in Africa but also Central Asia and other places. It charters an MD-11F each week to fly to Pointe Noire in the Republic of Congo, from where its own barge takes outsize cargo to oil rigs off the coast of Angola.
However, new business for oil and gas clients could be harder to come by if the oil price stays low. “We are hearing from our customers that they expect a slowdown in new projects, but the key for us is to demonstrate that we provide a different service than the commodity providers,” Kuehner says.
Oil and gas customers are also expecting the cut in oil prices to translate into lower freight rates, and they are not alone in this. As a forwarder, Panalpina often gets caught in the middle here.
“In many cases the fuel surcharge has received part of the base rate into it, so it is not really a fuel surcharge anymore,” says Kuehner. “The huge change in fuel prices has exposed this.
Carriers and shippers have different methodologies, and we have to be intermediaries and try not to get squeezed.”
Not surprisingly he is supportive of those carriers who have opted for all-in rates.
Panalpina probably has more insight into the problems of airlines than most, because it has its own in-house freight airline – its “controlled network”.
Until recently this included two B747-8Fs wetleased from Atlas but in mid-February one went back to the lessor.
Is that a sign that the controlled network is being reduced? Far from it, insists Kuehner. In fact, the second B747-8F was replaced with a series of scheduled Atlas charters which broadly involve the same amount of flying hours.
The core of the network – a four times a week flight from Luxembourg to Huntsville, Alabama – dubbed Dixie Jet and due to celebrate its 25th anniversary in September this year – remains unaffected by the changes, operated by the remaining leased B747-8F. Two of these weekly flights go on to Mexico City and Guadalajara before returning to Luxembourg, some via London Stansted.
The other B747-8F used to operate a round the world service, linking Luxembourg, Hong Kong and Huntsville.
Instead Panalpina now has a charter flight from Hong Kong and Huntsville, and one from Huntsville down to Viracopos (Sao Paulo, Brazil). Both flights are twice weekly with B747-400Fs.
Kuehner says it would have been impossible to build Viracopos into a round the world schedule, and that the new arrangement also means that Panalpina does not have to worry about filling the aircraft northbound from Brazil. Atlas is only too happy to do this, while Panalpina gets a less than 40 hour transit time from Hong Kong to Brazil, which Kuehner reckons is the best in the market.
Panalpina also no longer has to worry about filling a Luxembourg to Hong Kong leg, as it had to in the round the world flight days. But it does still have its own freighter capacity to China in the shape of a twice weekly B747-8F flight operated by Silk Way from Luxembourg to Shanghai, with a useful stop for oil and gas cargo in Baku.
Direct capacity of this kind is what gives Panalpina an advantage in the market, but isn’t the rise in belly capacity making it easier to get commercial lift? Kuehner’s reply is threefold – that belly capacity does not always fly where Panalpina wants to go; that in any case 85 per cent of its cargo goes on third party lift with only 15 per cent on the controlled network (a percentage that has remained fairly const-ant); and lastly that the key word is “control”.
“It is not just what happens in the air, but on the ground. “With our controlled network, we are the carrier so we have a direct relationship with the ground services. Cargo is handled according to our standard operating procedures, and we have our supervisors on the shop floor.
“If we see a temperature excursion, we can physically intervene. This is a service no ground handler working for a third party airline can provide, and this is what our customers value.
”Panalpina also decides what goes on its controlled flights – which cargo gets bumped or which is prioritised. For pharmaceutical traffic, it sets the hold temperature on the freighter itself.
“With other airlines standard operating procedures (SOP) have to be applied, which can sometimes require very detailed negotiations,” Kuehner says.
For this reason it has every intention of sticking with its controlled network, and on top of that it has what Kuehner describes as “a very special relationship, a shared culture” with Cargolux. The carrier operates scheduled charters for Panalpina on the transatlantic leg, but they work closely in other ways.
The controlled network has allowed Panalpina to take strides in e-freight as well. Back in November 2013 it operated its first entirely paperless flight – not just e-air waybills but all the shipper documents – from Luxembourg to Huntsville.
Now all its controlled flights are paperless, apart from the one to Brazil.
In all, Panalpina moves 36 per cent of shipments paperless and hopes to push that figure up rapidly. The key, says Kuehner, who is also chair of TIACA’s subcommittee for e-commerce and quality, is coordination between all the relevant parties on each route. For third party lift this has to be done lane by lane. On the controlled network, it is just that much easier.