GlobaIisation, technology driving new Supply Chains

ONGOING globalisation, led in part by new technologies which create new supply chains, will see continuing growth in the air cargo industry, says the man who built Emirates into the world’s largest air cargo carrier . . .

DUBAI — Ram Menen, who spearheaded Emirates’ cargo activities from the airline’s inauguration on October 21, 1985, through to his retirement in June, offers some parting words for the industry:

“Don’t live in the past (because) the past is history. Don’t try to manage today with what happened in the past. The future should determine what you do today, because the future will be a lot better than the past has been.”

And looking to the future, say five years hence? “Air cargo will be a growth industry because the economies will come back and globalisation is here to stay,” says Menen, who was one of Emirates’ longest-serving employees and Divisional Senior Vice President,  Cargo, when he retired.
“What will change is final assembly — where it is done. It may still be manufactured in Asia, but Europe will try to bring back some of the outsourced components, so will the US and other places. They will try to do final finishing off in the country of origin or the country of consumption.”He adds: “China is now starting to outsource, which is very interesting – for example, outsourcing through FoxConn, the manufacturer of Apple products, is going to the US. There is also outsourcing to Africa, so we are going to see more of this trend. That is part of globalisation.

“We also think air freight will be a continuing growth industry because it greatly influences the life cycles of products. Because of air freight, competition is more global, and as the economies recover, and the cost of capital begins to go up, interest rates will begin going up, you will need to recycle your capital more often – and air freight works extremely well in that environment.”

Menen is also excited by the advent of 3D manufacturing. “It is a long time away, but it is an amazing technology if you want certain replacement parts. In terms of mass production, at the moment it will not work. But the 3D printer in seven or eight years’ time will have become a household name, and it will create new supply chains for materials.”

He is also watching the development of Samsung OLED technology, which, he says, will “kill the tablet technology that we see today”.
“There are a number of things happening that are quite interesting. I can tell you in confidence that (in retirement) I will definitely be doing the ‘tech watch’.”

In retirement, Menen, who is 60, says he will spend a lot more time with family and friends.

“You would not believe,” he says, “just how much the family is neglected in this more-connected world.” Menen says he averaged 17-hour days with Emirates, seven days a week. “Now I am retiring – but I am not walking into the sunset. I am walking into a new sunrise. I’m leaving a strong team behind.”

EMIRATES runs its passenger and cargo operations under one umbrella, but cargo functions as an autonomous part of the company.
Cargo is an important part of the Emirates strategy, says Menen. Last year it accounted for 17.1 per cent of total Emirates revenue, a figure which had been as high as 21 per cent in years preceding 2008 and the global economic crisis — which impacted all cargo carriers.

Emirates first established an all-cargo division in a joint venture with KLM in 1994. The inaugural flight was a 747-200F routing through Amsterdam/Dubai, then Dubai/Singapore. In the year 2000, Emirates upgraded to the 747-400F and today has 10 freighters – eight 777s and two 747ERF aircraft. Emirates carries out its own 777 maintenance in Dubai – the 747s are leased, flown and maintained by TNT.
Menen says Dubai remains Emirates’ key hub for air cargo movements. “Rather than having one European hub and one Asian hub, we fragment and have multiple operations points.”

Of current trends, Menen says the total global air cargo market has shrunk marginally. “This year, we are seeing more of the same of last year. The world economy is in turmoil – it all depends on which way countries go.” He also worries that oil prices will not come down much, “and that means less consumer buying and less commerce”.

“Because of the EU situation, inbound cargo to Europe has been a struggle, he says, but at the same time European exports have been quite strong, and that has been some help.” He adds: “We have the advantage of the geo-centricity of our markets – we are much more evenly spread.” Menen says 54 per cent of Emirates’ SkyCargo revenue is earned east of Dubai.

He points to a change in cargo mix due to internet shopping, to the benefit of cargo integrators. “We’re in the heavyweight traditional cargo business, so we depend on where the economy goes,” says Menen. “By sector, car parts and perishables (including agriculture) are pretty big, also pharmaceuticals. Semi-conductors have been fairly stable, and these tend to be a barometer for economic activity.”

Of identifying new and emerging markets, Menen says: “Every person in the Emirates  SkyCargo team becomes our arms and ears and eyes on the ground, and that keeps us fairly current with what is going on. We like to keep our fingers on the pulse. That is one of the reasons for our success.

“It is more a case of market monitoring rather than research – the evolutionary process will define future markets, and in those, the old rules do not apply and the new rules are not written: the old fundamentals do not apply, and we have to try to work out what the new fundamentals are – whether what we are seeing is an aberration or the new norm.”

MENEN identifies rising fuel costs as a continuing challenge for the cargo sector, currently accounting for up to 60 per cent of total costs. “Overall, our company is looking at about 41 or 42 per cent for fuel costs, but fuel prices have been extremely high in the last 18 months – up by about 20 per cent, which is three or four times what it should be.

“It seems to be caused more by manipulation of prices. We have a better chance of picking the right numbers in Las Vegas than in forecasting where fuel prices are heading.”

The other unknown impacting the industry is currency fluctuation. “The European economy is in a complete mess, but the euro is trading quite strongly against the dollar. How do you make sense of it? How should you approach renewal of a major global contract? Do you need to build in hedges for fuel and currency?”

Emirates generally leaves fuel outside its contract parameters. “We have a fuel index that is published on the internet and we go with that situation,” he says. “There is a fuel surcharge based on the index.”

Menen says Emirates trades mostly in local currency “wherever it is and whatever the market”. “So sometimes we are caught out with, for example, the (British) pound going down. That is a risk we have to manage — the risk of doing business.”

He says Emirates advises clients in cross-border trade who are moving a lot of material to do their own sums.  “We might talk to them about where demand is going, where markets are likely to be. We bring in buyers and sellers and we work with departments of trade and chambers of commerce, but in the current environment it is very difficult where everything is so fluid – all we can say is to put the best foot forward.”
Of world cargo rankings, Menen says that Cathay Pacific overtook Korean Air about two years ago, and in 2012 Emirates overtook Cathay. “On the numbers I have seen, I think we are the largest – I am not including integrators, because they have a different business model.
(According to the latest World Airline Transport Statistics published by IATA, Emirates SkyCargo is now number one among major airlines for scheduled Freight Tonne Kilometres flown internationally.)

“At Emirates Sky Cargo, we will continue to grow, and we will continue to connect the dots on the map as we keep on looking at changes in trade links and in the market. “We always have a plan.”

Menen adds that pure freighter uplifts will continue to be supplementary to Emirates main passenger belly cargo product. Currently, he says, about 30 per cent of all cargo is carried by freighter, 70 per cent in passenger aircraft.

Menen was a founding member of the International Air Cargo Association, and became it first Vice Chairman in 1995-96. He chaired IATA’s cargo committee for four years, and says he will continue to support the industry in any way he can.

Emirates has named Nabil Sultan, whose career spans more than 20 years in commercial roles within Emirates, to succeed Ram. Sultan was most recently Senior Vice President for Revenue Optimisation and Distribution with Emirates.