And reinvent it has, taking a bold step in embracing e-commerce full on, to the extent of even taking a page or two out of the integrator’s play book. The AF-KL-MP group’s recent unveiling to air cargo journalists of its brand spanking new €22 million HubExpress facility at Paris Charles De Gaulle Airport (CDG) in late May, clearly indicates the group still firmly believes in cargo, but just not the ‘old school’ version. While the carrier had insisted over a year ago in a press briefing in Amsterdam that it was redefining its cargo division to focus on higher yield products such as express and pharma, there has been little to show in the intervening period.
“This investment proves we attach a big importance to this activity and we strongly believe in the development of the express and postal business and this facility and that is why we have achieved a certain investment and dedicated so much energy to it,” said Air France Cargo EVP, Alain Malka. He adds that with AF-KLM’s extensive network with 450 daily flights through CDG alone, the new express offering “allows us to connect all over the world with multiple opportunities every day.”
The new express hub features an ITdriven, state-of-the-art sorting facility typical of the integrators’ setups, but virtually unheard of until now amongst the traditional mainline cargo carriers.
The other page the carrier has torn from the integrators’ book, is airport-to-door delivery of express shipments anywhere in the world, which is offered on top of its airport-to-airport service.
This is accomplished utilising contract partners who do the clearance and ‘last mile’ delivery virtually anywhere in the world, according to Béatrice Delpuech, VP Express and Postal Solutions at Air France-KLM Cargo. In France this would be GeoPost but “in some places we are using DHL, or UPS, or FedEx or in the Middle East its Aramex and Bolloré in Africa – because those are the best for those areas,” she said.
E-commerce growth
The driving force behind all of this is of course the game changing business of e-commerce, which according to Eelco van Asch, Air France KLM Martinair Cargo’s senior VP sales and distribution, is still in its infancy internationally.
Domestically it’s well established in a number of countries, but on a global, cross-border basis e-commerce has really only just begun, he says, pointing to projected cross-border e-commerce sales growth of 192 per cent between now and 2018 from nearly US$105 billion to $307 billion, of which Asia will lead the growth.
And so, while postal air mail bags used to be full of letters, it’s all packages now, the end product of two key facets of the Internet: Email (which killed letter writing) and the rise of global online shopping. Interestingly enough, the movement of these goods brings together some unlikely bedfellows within the same mailbag, says van Asch.
Integrators, postal corporations, forwarding agents, mainline carriers and more recently, new players emerging from the ‘disruptive’ aspect of e-commerce, are all involved as traditional players adapt their strengths and weaknesses and new players carve out new modalities. “Now we also get new interesting players in the market because e-commerce is shaking out many of the industries and it might bring something different to the logistics sector,” observes van Asch adding that the search for new modalities means “we see new parties coming up”.
This is clearly the space that AFKL- MP aims to leverage through its new express hub. “The idea is really to continue to work very intensively with integrators because they have always needed a little bit more capacity then what they have, so we are very close to the four big guys, so UPS with their Cologne hub are using us massively and with FedEx being in CDG is also a big partner for import and export and DHL is moving business from Asia to South America and into various places in Europe for transit business,” Delpuech says.
Aside from the integrators, she points to the courier companies as also being key customers, as too are postal companies “and of course being a carrier doing cargo for a long time our big customer is the forwarder who also needs an express product in order to bring their own solutions to their customer.”
Airport-to-door
But the airport-to-door aspect of the business brings up an interesting paradox. For deliveries airport-to-door within Europe this seemingly pits the express partners of HubExpress up against one segment in particular of their own customers – the integrators. “From the origin of the idea SoDExl lies on the combination of the air network created via Air France KLM and the ground network operated by GeoPost,” says Balbi. And it’s no secret he adds, that GeoPost is not going to buy aircraft to operate themselves, nor is Air France KLM going to invest in a ground network. “But if you combine together for less cost, you can offer the same thing as integrator – so yes indeed we are in competition with them, but we all need each other and if they cannot be as global as they want to be in some places there is still some room to operate some final delivery,” he says.
Crucially, as Delpuech explains, “with FedEx we have a different kind of partnership, so either they buy line haul through quotation from us, or we are using FedEx for airport-to-door or they are using us airport-to-door.”
The air-to-air and air-to-ground express sorting facility was developed with partners SoDExl (Society of International Express Development) and GeoPost (a holding of the French Le Groupe La Poste). Financing was split in equal thirds – SoDExl, GeoPost and bank financing. SoDExl itself is a company jointly owned by Air France (65 per cent) and GeoPost (35 per cent).
Hub upgrade
Although the group already had an express hub, although a far cry from the new high tech HubExpress, but after 20 years of operations it was in dire need of an upgrade. Add to that the fact it was located in the Cargo Village in the western portion of the airport some 45 minutes from the passenger aircraft stands and increasingly so as new airport development occurs in the eastern portion, and a new location was crucial. The existing hub will be stripped of its equipment and used to expand the carrier’s Express Supermarket, which serves alliance partners, forwarders, integrators and other customers. Any express DG cargo will also be handled through this facility.
Although not directly facing the apron, the new facility is only 5-15 minutes from the passenger aircraft parking stands with the express cargo trucked to the facility. As SoDExl CEO Jérôme Balbi put it, “we want to compete against Frankfurt and London in competition for transit shipments in Europe, but also Dubai and probably later Istanbul because we have strong competitors rising in front of us and really the goal is to save the time on the ground meaning that if we take six hours on the ground to transit shipment from one aircraft to another, it’s already the time you need to fly to Dubai.”
“We cannot fight against Emirates capacity and we cannot fight, as a European country, against the working regulations that might be easier in some other parts of the world. But the point on which we can compete, is technology and IT systems,” Balbi says.
“Behind the big sorter is a very big IT system and this whole system is controlled by it,” he said going on to explain that via the IT system, when a parcel enters the express system the next available flight and all subsequent connections are immediately calculated to make sure it will connect with the flights. “So for instance a parcel collected into Hong Kong at say 8PM in the evening can catch the 11PM flight to CDG, arrive at 6AM, connect to anywhere in Europe and we can deliver before noon – that’s quite a performance.”
Preferred gateway
Aiming to be the preferred gateway into Europe for express cargo, Balbi added: “We want to invoke the widest range of solutions possible for the customer. So from China, or from Australia flying into Europe if the customer wants to deliver everywhere in Europe of course we offer the possibility to go through the air, but we also want to offer a solution through road for the last European leg because it can be cheaper.
“And also because we are able to do the customs clearance in France, CDG is a global entry point for all of Europe so that’s very important for us to get all the solutions possible to the customer and we can customise the solution for their needs.”
Eight injection points feed a 300-metre long parcel sorter that includes constant monitoring through a minimum of four compulsory bar code scan points and the extensive IT system also gives customers full visibility of their shipments.
The packages are automatically sorted into one of 41 container stands, 10 bulk stands and 19 standby stands at a rate of 6,000 parcels per hour. The system, designed and built by Fives Cinetics, can handle individual packages or postal bags weighing up to 32kg with maximum dimensions 130 x 90 x 80 cm.
According to customer service manager Valérie Vaity, 60-70 per cent of the volumes are handled in the mornings with 6am marking the arrival of intercontinental flights, 9am seeing the European flights arriving and by 10am the intercontinental and European flights departing again.
Schiphol & SkyTeam
Although declining to specify a time frame, Graeber says a similar facility will be built at KLM’s hub at Schiphol, likely when the cargo facilities there are expanded sometime in the near future. He added that the current facilities there do cater to express functions but not with the same capabilities of the new CDG facility.
“The airport-to-airport remains the same, but now with the new facility at CDG we have more capability to have all kinds of interfacing ground networks. I think it’s an inspiring example for Schiphol given the need to reinvest in the new cargo building there. So the basic classical airline network service is the same, but here we go a step further and I think it’s a great improvement,” Graeber said.
The facility will eventually be opened up for use by fellow SkyTeam Cargo alliance members, although he noted the original business case was premised solely around AF KLM Martinair. He also noted that it’s more complex to connect these the SkyTeam member airline systems than what the AF KLM Martinair group is doing with its own systems, but that SkyTeam has an existing system used on the passenger side, or ‘data pipe’ as he refers to it, that will be tested to see if its compatible for express cargo purposes. “Later this year we will start by testing more intensive interlining of packages because the real added value of course is not to handle it in some warehouse, but to make the connections at the network points,” Graeber said.
He also singled out Korean Airlines as a carrier with “a very interesting network in Asia” that might make a good starting point for express cooperation. And, for some years now AF-KLM has been handling China Post air mail volumes from China Southern and the rapid rise of e-commerce in China could fuel a new source of cooperation.
Alitalia partnership
Graeber also confirmed the announcement by Alitalia of their intention to sever the partnership agreement with Air France KLM that was formed in 2009 and is not set to expire until January 2017. “Part of the partnership agreement,” Graeber said, “was a very important cooperation in the cargo sphere which we in the past years, quite successfully took charge commercially of all the belly space of Alitalia Cargo.”
Acknowledging that it was “very big news” to AF-KLM, “but for the remainder we will continue servicing this contract, marketing these bellies, without any change and for me two years in cargo terms is a long time from now – almost close to eternity.”
Road to profitability
Referencing the financial results which he described as “awful,” Graeber affirmed that the cargo division of the group will return to profitability by 2017, aided by not just divestments but investments in such as the IT systems and the express hub.
“What I like about the cargo business is that it’s not merely a conceptual business but it’s also very pragmatic business. Cargo for Air France KLM being one of the largest global networks in the world is and always will be a key activity – you can never make profitable a long haul network as we have today if you’re not very successful in cargo,” he says.
And to be successful Graeber cites three key elements: The first has to do with the assets like aircraft – ensuring the right capability and the right-sizing – but also facilities on the ground like the new express hub. Secondly, it’s about systems and ongoing investment in IT and thirdly, it’s about people, he said.
“I still believe that being successful in the cargo business also has to do with people that really understand what cargo is about. You cannot fully automate. You cannot fully centralise that in a call centre – in the end you still need people on the ground.”
“I’m still very confident that the heritage, history and expertise that we have not only here at the centre at Charles de Gaulle, but also at Schiphol and also in many markets around the world will enable us to be successful. But this is not given and as they normally say, ‘success in the past is not a guarantee for success in the future’. That means only if we adapt very strongly in the three areas I mentioned will we be able to remain successful.”
As for other investments Graeber added that the cargo division is “proud after eight or nine years of investment,” that it has, as of April, started operating its new IT solution by Accenture. The new system, with which the HubExpress system is also integrated, enables the inventory of Air France KLM Martinair flights worldwide, to be accessible to the group’s customer service and for its customers all in one system, and “that is a huge step coming from a more segmented system with different solutions of the different parts,” says Graeber.
