Speaking to Payload Asia CHEP’s president Ludwig Bertsch, noted the dichotomy that the troubled market presents: “The downturn in cargo traffic has had an effect on everyone, including us, and it was sad to see one of our valued customers, Air Cargo Germany, go into chapter 11. Nevertheless we managed to grow our topline year-on-year by nearly 50 per cent, mainly due to the diverse range of services which has helped us to continue our growth story even in a difficult climate.”
Certainly the drive by all industry participants, most sharply by the carriers, to strip costs out of their business has driven business in CHEP’s direction. But at the same time there is less cargo expansion which means less demand for ULDs – again the dichotomy.
And while Bertsch subscribes to IATA’s predictions that the air cargo sector will see some further improvements during 2013, albeit modest in nature, along with easing oil prices which will also help drive cargo traffic, he emphasises that carriers will still need to remain focused on cost cutting. “Airlines will need to continue to implement more efficient processes as part of their cost-cutting measures and the move to outsourcing non-core activities to specialised suppliers will also continue.”
Cost-cutting is king
This, as Bertsch notes, is clearly good news for companies like CHEP, as it expects outsourcing to become even more important over the coming year or so. “Interest in outsourcing ULD management, and especially ULD pooling, has never been greater, with more and more of the large global carriers investigating this opportunity,” he says.
And certainly the business case – with fuel accounting for around 40 per cent of global expenses of cargo carriers – is not hard to make. “They need to look for creative solutions to reduce the impact of fuel cost on their cash flow,” he says, adding: “Carrying empty ULDs from one airport to another for repositioning or repair, is a very expensive activity.”
He cites the statistics that on average, every one kg of extra weight represents an annual cost of around US$190 in fuel cost, in addition to the social cost of carbon emission of at least US$35 per annum.
“Airlines can quickly accumulate several hundreds of thousands of dollars of costs due to inefficient asset utilisation that can be avoided or significantly reduced in a ULD pool, where repositioning is kept to a minimum and ULDs are repaired where damage occurs. Pooling saves money and protects our environment,” Bertsch says. Indeed the advantages of opting for outsourcing are seemingly compelling.
On average, according to Bertsch, CHEP can demonstrate savings in key cost areas of between 15-20 per cent when choosing to outsource ULD management, compared with airlines managing it in-house.
“In CHEP’s ULD pooling model we buy the airline’s entire ULD fleet, providing the airline with a significant capital injection amounting to several million US$ (for a larger airline), and then integrate these ULDs into our global pool. Our pooling customers no longer need to worry about capital expenditure for their ULD fleet as we buy new containers, pallets and pallet nets for replacement and growth. Our customers pay a monthly all-inclusive fee per ULD and they can flexibly change their stock needs according to the season, aircraft fleet and network requirements.”
Additionally he says, the guaranteed availability of ULDs when and where they are needed also ensures extra revenue opportunities, repair and maintenance is no longer a concern, and there is the obvious fuel savings from no longer needing to reposition empty or damaged ULDs. And of course the drive for lighter weight ULDs, while a goal of many carriers, is often beyond their budget particularly in tight times as these.
“CHEP can offer this transition thanks to the financial strength of our parent company Brambles, and many of our customers, including the likes of Air Canada, Brussels Airlines, AirAsia X and Corsair, have converted to a lightweight ULD fleet with tangible benefits.”
Market strategy
As for the company’s strategy going forward, Bertsch says that from a geographic perspective CHEP will continue to consolidate its position in Europe and continue expansion in the Americas. “However a lot of our energies will be focused on the Asia-Pacific region, as we see this as one of the key markets for us moving forward,” he says, acknowledging that CHEP’s pooling customer base is more EMEA- and UScentric. “We see the Asian carriers being very forward-thinking and willing to look at outsourcing and we expect to see some major names making this move over the coming year. Some of CHEP Aerospace Solutions’ existing customers with their hubs in the Asian market include Cathay Pacific, Singapore Airlines, Jet Airways, Air Asia X and Jetstar Japan. In addition to this, many more of CHEP’s aviation customers fly into Asia on a daily basis, including Qantas, Air New Zealand, Air Canada, SAS, Gulf Air, American Airlines, United, and Virgin, to name a few.” Bertsch adds that the downturn has also presented repair and maintenance opportunities. “This is reflected in the number of new customer wins we have secured this year and the growth we expect to see continue for us.” Indeed, dove-tailing with this activity is a recent partnership with market leading provider of secure cold chain solutions, Envirotainer. This will see CHEP’s high quality standard for container maintenance, repair and handling performed consistently all over the world for Envirotainer’s inventory of ULDs including new hubs in Atlanta, Amsterdam, Vienna and Singapore.
