Air Freight demand in 2017

It's a multi million dollar answer. Can you or anyone else forecast what would happen to the air freight industry in 2017? 

 No one has got it right this far. 

However, the social and economic conditions surrounding global markets should be able to give us some idea about what might happen. 

Anyone who has access to artificial neural network and machine learning type demand forecasting will get it right. 

Following comments are my personal views and it has no bearing on my profession . I write these blogs to share knowledge and learn something from feed back that I get . 

In my view, the geo political situation has a major bearing on the air freight demand and how 2017 will shape up. If we look at the tangible results of the financial markets , we could derive some idea of the market demand. The US dollar is strengthening and a large amount of funds released on the back of Quantitative Easing (QE) will flow back to USA . All money parked in bonds , properties will follow this trend. The currencies in Asia mainly in China, Malaysia, Singapore, Korea are going to feel the pressure . This trend of cash out flow from Asia to USA will depreciate the Asian currencies . The reaction expected from the Asia central banks would be to increase the lending rates, and take measure to manage the depreciation. Overall the depreciated currency will make Asian products more affordable and the demand in USA will be stronger as a stronger dollar will increase retail spending . 

The Strongest geopolitical event in 2017 has been the US election and the presidency. The information out in the media suggests that US is leaning more towards protectionist policy to improve the US economy. Republicans have had more influence on the domestic policies to protect the US economy than democrats . Perhaps this is the confidence that some people have because they are influenced by the political sentiments . The cancellation of TPP agreement will bring back the demand to China and India as TPP countries will not have the price advantages . 

The Indian sub continent region has been fairly peaceful with India leading the charge on "made in India" policy to increase investment and promote Indian products. Bangladesh has been winning more apparel production as the Chinese and Vietnam factories are losing the battle due to higher costs. Sri Lanka has been in the new with more aggressive moves to position herself as a regional hub for ISC region and it seems like there is a lot of progress with new Free Trade agreements falling in her lap from Singapore , Malaysia and many other countries .

China is building a 15,000 sq km free zone in the South aiming for India's demand and Africa . This could improve the air freight import demand to the country and if EU gives back the GSP++ , this will drive the high quality apparel production that Sri Lanka is famous for .

The Middle East region has been the most affected . Regional security , low price of fuel and weakening demand in EURO and also the European demand has put breaks on some of the development . Some Economies like the UAE has done well to stabilize the financials and offer confidence. Probably for the first time, in certain countries in the middle east, we saw bonds being issued to draw funds to the country. The government spending which stimulates most of the markets in the middle east has slowed down. Cost of living has gone up that drives more expenses for the companies to operate. In the past one year ,the worst effect has been on Turkey due to the proxy war that's happening in Syria . Turkey has been a strong back yard supplier to the middle east , Mediterranean and even Europe . Security concerns and depreciating currencies will displace the demand for Turkish products and biggest beneficiaries would be India and China . 

In summary , We could see the some light at the end of the tunnel on a strong recovery of US demand for products and Asian products being cheaper for the Western world. Considering that politics take time to influence any change, a 'quick win' might come for air freight from Asia to US demand being stronger .This could influence other markets positively,drive the air freight rates up and improve the load factors .

If you look back the tactical part of forecasting , the last two to three months of air freight demand in China / Hong Kong was a surprise to me .

This confirms something that I have always believed in. That is the world is changing to a more dynamic demand and supply variations and that could give spikes of high and low demand . The Airlines have to adjust to these trends otherwise they could join the Hanjin Club.

The last quarter air freight rates to USA reached HKD100 . The HKG carriers have seen more and more medium sized forwarders and postal services demand for BSA than the big boys . In this season of BSA discussions , I have seen the demand for BSA discussions improve and the market is expecting HKD2-3 rate hike to US and Europe and about 1-2 HKD higher for the Middle East, ISC and Australia . The demand for E-commerce is growing in double digits and most postal services have seen a huge growth on demand for mail and smaller parcels .

The Airlines should expect more growth in e-commerce demand. In one of my mentor's words ,"even my grandmother could have predicted it" . 

The Fuel prices are going to stay around USD50 in my personal opinion. If the OPEC and Non-OPEC countries have reached an agreement , then 1.2 million barrels per day cut in production should drive the oil demand. This will also influence the air freight rates as it will add pressure. A good example would be, the Civil Aviation Dept in HKG, who withdrew the FSC, could think about bringing it back.

The other sentiment on Ocean freight rates will also be an influence to the air freight demand . The Hanjin issue has finally been a wake up call to all the Ocean freight sales executives and pricing desk managers that if they don't do something about the yield , they could lose their jobs overnight . New Alliances getting formed in the Ocean world will displace the old deals they had for bigger customers and NVOs . 

I may be wrong by a million dollars, but these market scenarios are telling me that we could expect a better air freight demand in 2017 than 2016. I think that will help all stake holders in the industry to sustain the services , products and even jobs , so that we do not end up with the Hanjin after party. 

I hope you all could share with me what do you think about the air freight demand . 

Merger and Acquisition practical notes

I think the next few years are going to be the time when small companies will fall prey to bigger and richer hunters in the supply chain world. The current economic conditions are testing each and every logistics or freight forwarder in the business. The companies who have a stronger P&L and adoptability to the market condition will survive , while others will fall prey to the bigger and stronger.
There is no text book written or there is no single concept which is proven as the best practise for Merger and Acquisition (M&A) in our logistics and supply chain industry . But it's a much debated topic among many experienced companies who have done many M&As . Through out my career , I have seen many M&As , big and small. Some of them have been a great buy and others were left to a name board only . I cannot find any reason to disagree with the methods that were applied to do these M&As ,but the results have been negative and positive .
If we really think about a M&A , we need to ask ourselves , why a company wants to sell and why another company wants to buy . In most cases , I have seen that these two questions are not understood by both parties in a M&A . if we try to spend time to understand the seller's intentions and buyer's intentions , it will open a path for a smooth merger . The positive M&As that I have seen have always had this question answered and I also saw both parties working towards the same goal .
In my personal opinion , buying a company is not a very difficult situation . if you have the right people who understand the business , doing the due diligence and if you have the sharpest financial team analysing the results , then it is not too difficult to agree on an enterprise value and discuss the prices . But I think the difficult part is merging the two organisations and achieving the objectives .
When we talk about M&A , on the one hand we have seen some companies who were bought ,being left alone to do their business . On the other hand , some companies which were bought , and were merged immediately .

I personally think , the 'whether to merge or leave alone' strategy comes with the understanding of the first question . The intentions of the buyer and seller . In most cases the upper hand is with the company who buys another . There are two principles that every buyer should think about . Are you buying a company to expand your footprint ? if the answer is yes , then merge the company immediately, even if you have to go through a restructuring process ,and even if that's painful to the company and its employees . Delaying  this will lose good people and business . 
Are you buying a company to benefit from the business of the seller's company ? if the answer is yes , then give them the needed financial support and network support but leave them to do their business . Do not try to merge them as that was not your intention . 

In summary , it's all about how much do you understand the buyer's intentions and seller's intentions . 
We have seen billions of dollars lost during so many mergers and acquisitions in the past 10 years which we can name them . I have personally experienced M&A on the buyer's side and seller's side where I have seen both scenarios of final result  .

Has rail from China to Europe , taken away the sea-air traffic via Dubai?

I have started to rebuild the sea-air product with new concepts . Its is true that Dubai as a hub has lost almost 40% of the sea-air volumes . Its could be even more . The main reason for this is, the consumer  products available in the market and changing buying habits of the end customers . Everything boils down to cost and lead time .
I could see several reasons for the slow down of sea-air via Dubai . One is for sure the slow steaming adopted by the shipping lines which extends the transit time . From Hong Kong to Jebel Ali , it used ot be 11 days . Now its 12-13 days , sometimes even more days are consumed. The only ocean line (which I dont want to mention the name ) who used to offer a good sea-air service on the ocean leg, has also lost its motivation to keep the commitment on transit times . On the other hand , the retailers have changed the way they hold inventory . Less inventory in shops drive more air if the market picks up. But where have we seen the market picking up in recent days .

The latest buzz is everyone is rushing to do rail freight from China to Europe via Siberian route . China has its ambitions to control the freight from China to Europe , therefore pouring billions to develop this mode of transport . However in my opinion , a very dependable , capacity full filled product is at least 5 years away. I have often argued with people who says , rail is better than sea-air . I agree to a point that it stops at a theoretical point , but not go in to practicality . The reasons are simple . Today there are 3 train hubs in China , Suzhou , west China and North China . The trains line up the cargo at the western China to be carried on to Europe . A 40feet container could cost from a shanghai factory to a distribution centre in France aprox USD 8000 . Its far below the sea-air rates that are available in the market. The maximum length of this train until it reached the European rail standards if only 800 meters . Just calculate and see how many 40 feet containers can you carry every 2 days to Europe . aprox 45-48 containers a train ? I agree that its viable right now as the market is so low and there is no demand . But no one hopes this export market from China to Europe will stay like this for ever . When the market picks up , can everyone get space on a train that carries 45 containers ? think about the demand and supply ? I conclude this point of argument by admitting that rail from China to Europe is a good progress and a great achievement . However its not yet ready to take away the sea-air product via Dubai and other hubs . Once the rail products reach multiple journeys a day to europe and perhaps double stacking the containers , then yet , it could be a good alternative . Not until then .

One the other hand , people who believe in multimodal products like me , will always educate the customers about the benefits of sea-air , air-air and air-sea products . There is no limit to the way you can move freight on multimodal methods as long as you can be creative and knows how to ensure the product works .

I sincerely hope that Dubai government will take measures to speed up the sea-air transshipment process and reduce costs , allowing the freight forwarders to bring in more transshipment cargo to Dubai. Simplifying the process on how Dubai cooperates with Sharjah in terms of transshipment customs , open many possibilities . can UAE government influence the shipping lines to improve the transit time and ensure there is a dependable Ocean capacity and lead time guarantee to jebel Ali ? this could improve the transit times .

Times have come to be innovative in how you do sea-air products .

join my twitter for more news on sea-air : @chamindag1 

other article to read 

http://www.globallogisticsmedia.com/articles/view/sustainable-logistics-find-the-right-mode-of-transport-which-emits-the-lowest-carbon-emissions

http://www.globallogisticsmedia.com/articles/view/a-story-untold

http://chamindagu.blogspot.hk/2014/10/dubai-as-hub-for-sea-air-product.html

Dubai as a hub for Sea-Air product

Its been 7 months since I started to live in the place where I once involved in creating the sea-air products for many companies and customers. I thought it would be wonderful to live in Dubai and still promote the sea-air product. Its still the case , however when you are close to the operation, you tend to see things more microscopic than macro level. I am a firm believer in the multi modal product. I think people who use this product are real out-of-the-box thinking supply chain managers. 

The sea-air product has not evolved so much from the history of 2-3 decades . The good old companies who are doing sea-air have done the same. I felt like after creating BAX Global and Schenker sea-air product when I was in Shanghai , followed by Kerry Logistics and Agility, few new kids in the industry have taken things aggressively to see the benefits of sea-air.I like that as it has spread the word around. However is there anyone doing anything to explore better options , innovative ways of producing the next generation sea-air product ? no I guess . 

The consumer world has drifted far away from the good old supply chain habits . When we had 2-3 seasons of peak demand , now it has become 3-5 with sharp spikes of demand. carriers and providers alike , cannot plan anything as the market is so dynamic . Rates have fallen resulting in low volumes of sea-air. How do you revive the sea-air market and demand ? thats the difference between  people who lead the product innovations and people who follow other's effort and success .

I have been a bit taken back by the developments in Dubai , specially with the changes of transshipment process. I am not too sure if Dubai government is consciously making things difficult for sea-air transhipments or someone is not thinking far enough on the after effects of their decisions . The recent decisions to increase the Terminal Handling Charges (THC) at DXB airport and restrictions of customs clearance process for mix loaded containers for sea-air , are like Dubai saying "we dont want sea-air anymore".But if you look at the GDP contribution of transshipments and supply chain activities for Dubai , it represents a double digit number . Isn't that good enough to protect this product ? Dubai policy makers need to seriously think what to do and how to improve Dubai as a capacity and cost leadership in the multi modal transport industry. Since the rates from Asia to Europe and US have fallen , Dubai government should take measures to reduce cost and offer seamless transshipment processes for sea-air in order to protect and sustain the volumes. Otherwise the lack of options will deter sea-air customers to look for options like rail from Asia to Europe which is happening now. 

Sea-air is becoming commoditised due to lack of innovation. For some companies who have started to do sea-air by copying other's success is considering reducing rates, is the only innovation. thats pathetic and destroying the market for a good sea-air option. 

I have always predicted the next best sea-air hub is Colombo, Sri Lanka. Thats not because I am Sri Lankan but it makes a lot of sense when you look at lead time compression . But unfortunately , the country does not have a strategy and not interested in one either . 

let me give you an idea in my next blog about the specific changes in Dubai in terms or cost increases and processes becoming complicated . I need to find time to write too. thanks /Chaminda Gunasekera , follow me on Twitter #ChamindaG1 or LinkedIn.

How to be creative in supply chain solutions

Being creative is a very unstructured discussion. Each person can be creative in his/her own way. In the supply chain industry , being creative is priceless . Creativity in solutions comes from knowing all products and options like a carpenter's tool kit . Also its essential that one has the ability to understand the problem , break it down to small parts and then find alternatives .

supply chain solution design needs a broader mind and ability to understand and relate to customer issues. The task becomes easier when you have been exposed to different products and different markets. For a person venturing in to supply chain solution design , thinking out of the box and believing in creation of new products ,is very important .

Analytical skills will be the last skill to develop .