Lufthansa Cargo is discussing possible co-operation with Amazon and Alibaba as it views e-commerce as a potential new business opportunity to compensate for the prolonged downturn in traditional air freight markets.
E-commerce is among the “new customer segments” the German operator is looking to “open up” as part of an “adjusted” strategy it is pursuing under the CARGO eVOLUTION name. The news follows comments by Atlas Air last month that it, too, sees e-commerce as a key growth business in the future.
“We are talking to representatives of the e-commerce industry to evaluate future cooperation. However, there is no intention to do any business without the freight forwarders. Rather, we are looking forward to generate additional business and to mandate forwarders with it,” a company spokesman told CEP-Research. “We want to give ourselves access to new customer groups and are focusing on introducing new services and products.”
The spokesman declined to comment in further detail on the discussions with Amazon and Alibaba. But the focus is likely to be on block space agreements or dedicated fleet agreements, Amazon being one major online retailer keen to secure additional transportation capacity as it seeks to adapt its logistics chain with the growing demand from customers for shorter delivery schedules.
Observers say it is little wonder major cargo airlines such as Lufthansa Cargo are looking to gain a foothold in the booming e-commerce segment as a transport provider given the poor market conditions which have affected their core business for some time now.
The International Air Transport Association's (IATA) latest monthly traffic bulletin, issued earlier this week, showed that demand measured in freight tonne kilometres (FTKs) slowed in May with growth falling to 0.9% year-on-year.
The Geneva-based trade body also underlined that there was little respite on the capacity front either. “Admittedly, annual growth in available freight tonne kilometres (AFTKs) eased to 4.9% year-on-year in May – the slowest pace since March 2015. But this looks to be a blip, and industry-wide freight capacity has continued to trend upwards strongly. All told, the industry-wide freight load factor dropped to 41.9% in May – a record low for the month and 1.7 percentage points lower than in May 2015. This is continuing to exert intense pressure on freight yields and revenues,” it said.
Air cargo traffic stagnation and significant over-capacity has led to rates falling by 15-20% compared to a year ago, putting pressure on the major carriers to rethink their strategies and consider diversifying from their core business in heavy freight transportation into strong growth areas such as e-commerce where they can take on the role of airport-to-airport transport provider.
Returning to Amazon, in recent months the company has signed agreements with US cargo carriers Atlas Air and ATSG aimed at putting a dedicated fleet of 40 B767 freighters at the e-commerce giant's disposal within the next two years, giving it substantial in-house air capacity and even more potential to switch volumes away from UPS and FedEx.
Amazon's discussions with Lufthansa Cargo will doubtless fuel speculation that it is eyeing a similar deal to serve European markets.
At an investor-analyst event last month, Atlas Air identified e-commerce as a key element in a “new era of significant business growth and development” for the US cargo airline and where the strategic long-term relationship with Amazon – “a transformational deal in a fast-growing market segment” – would play an important part.
Bill Flynn, Atlas Air's President and CEO, underscored that the e-commerce market had grown by more than 20% last year significantly surpassing the growth rates in international express and traditional air freight. A compound annual growth rate (CAGR) of more than 22% is forecast for e-commerce between 2015 and 2018 having recorded a CAGR of almost 25% between 2011 and 2014, he noted.
Atlas Air's Executive Vice President and Chief Commercial Officer, Michael Steen, underlined that e-commerce had very low penetration in global markets and relied predominantly on air transportation and freighters. “E-commerce is pressuring supply chains to deliver faster. To capture online market share, it has become necessary for retailers to plan for fast and convenient delivery. Traditional supply chains must adjust to support the changing retail marketplace,” he said.
He added that Atlas Air was well-positioned to deliver value to the e-commerce market where customers required tailored solutions. “Atlas provides a controlled air network with a wide range of freighters and global scale to operate domestic and international networks.”
