The next time I travel by air, I want to fly as a large box or as part of an immense container, and I want to be shipped via Lufthansa Air Cargo. After spending two days with Lufthansa Air Cargo c-suite executives, I am convinced that packages receive better treatment than people. Cargo requests are immediately addressed, routing is constantly monitored electronically, and the best routes and modes of transportation are promptly scheduled and checked for efficiency and effectiveness, plus senders have access to a real live human being 24/7.
Lufthansa Cargo AG is a German cargo airline owned by Lufthansa. It operates worldwide air freight and logistics services that are headquartered at Frankfurt Airport. In addition to planes dedicated to cargo, the company has access to cargo capacities of 350 passenger aircraft via the Lufthansa Group.
Vigilant C-Suite Executives
Lufthansa Cargo’s CEO, and Chairman of the Executive Board, Peter Gerber, has been directing Cargo since May 2014. His previous positions included membership on the Executive Board of Lufthansa Passenger Airlines where he directed Human Resource, IT & Services division.
Dr. Martin Schmitt, currently a Member of the Lufthansa Board Member in Finance and Human Resources with Lufthansa Cargo AG, has been part of Lufthansa since 1989. His career path includes Human Resources for Cabin Staff and membership on the Executive Board representing the Lufthansa Munich hub. As Head of Corporate HR Policy, he directed Group wide HR and Industrial Relations, the Lufthansa School of Business, university marketing and the trainee program.
Intermodal Options
When executives have to transport goods from the factory to businesses (b2b), or to consumers (b2c), the decision-making process is complex. Options for dispatching made-in-China t-shirts or Portuguese manufactured chairs to the USA, Europe of Asia include air, sea, or ground. If speed is a priority, air is likely to be the default selection; budget constraints will likely require transport by sea (if there is an ocean, or in some cases a river – available) or land (rail or truck).
When making air/sea/land decisions executive considerations also include:
• Fuel Costs: The price of fuel continues to influence air freight decisions. While most industry participants view the expense as a “cost of doing business” over which there is little control, energy represents almost 50 percent of the global expenses for air cargo.
• European and global economics: Declining consumer confidence weakens demand. As air freight is dependent upon consumer requests, weakening economies directly influence capacity and revenue stream.
• Nearshoring: There is a growing trend to bring US brand manufacturing back to Mexico and the US from China and other distant locations, leading to a mode shift from air to land and/or water transportation. An airfreight shipment from China to the US may cost $20,000 while it will cost only $7,000 from Mexico.
• Safety and security: Increasing regulations challenge airfreight carriers to operate efficiently. Costs associated with security today are 10 times more than in 2001. While the Global Air Cargo Advisory Group is making efforts to harmonize several aspects of international air freight, (including security regulations), it continues to be a large expense compounded by the complexity and evolution of technology and disparate country procedures and laws.
• Greener Skies and Carbon Footprint: Aviation is a fast-growing contributor to climate change. CO2 emissions from international flights account for approximately 1.5 percent of global CO2 emissions. With aviation traffic expected to increase 300 percent by 2050, (and as other sectors decarbonize), aviation could account for over one-fifth of the world’s total carbon budget by 2050.
• Technology: According to the Shippers’ Advisory Committee (SAC), air cargo partners want a safe, sustainable, profitable air cargo supply chain. It is estimated that US$5.7 trillion worth of goods are transported by air freight annually. A lack of communication and reluctance to adopt e-freight indicates a loss of quality, efficiency and transparency. Layers of subcontracting means that the shipper has lost control and there is a demand for a one-click airfreight product with smart monitoring. Currently there is a disparity between the priorities of shippers and what is delivered by air freight suppliers.
Response
Lufthansa Cargo moves 1.6 million tons of freight and mail around the world and generates approximately US$2 billion in annual revenues. It takes approximately 4,600 people to accomplish the movement of freight from airport to airport at 300 destinations in 100 countries. Lufthansa uses its own fleet of freighters, the bellies of passenger aircraft operated by the parent company as well as Austrian Airlines and Eurowings in addition to strategic partners and an extensive road feeder service network. Most of the business goes through the Frankfurt Airport hub
To address industry concerns, Lufthansa has developed an environmental management system that meets standards defined by ISO 14001. Certification began in Frankfurt in 2008 and then expanded globally. Lufthansa cargo has been ISO certified at all German stations since 2010 and achieved worldwide certification the end of 2015.
Lufthansa is also replacing aging aircraft with new, more fuel-efficient models and developing strategic alliances to reduce redundancy along routes. The cargo company has introduced the use of API technology (available in other industries) with the objective of cutting communication costs and minimizing pricing inaccuracies. CEO Gerber has stated that the company, “…will [have] continued modernization of the freighter fleet, [and] the digitalization of all paper-based processes…”
Strategic Alliances. New Roommates
In January 2017, Cathay Pacific Cargo moved into the Lufthansa Cargo Terminal and signed a cooperation agreement (JBA). Another new roommate for Lufthansa is Japan’s ANA. The new and intimate relationships mean that the airlines will be joining forces for planning, sales, IT and service expansion. Gerber highlighted the partnership with Japanese airline ANA Cargo: “The joint venture is a real advantage for our customers. They can already benefit from more flights and a denser network on routes from Japan to Europe.”
Product Diversification
Lufthansa has started MyAirCargo, a division that allows individuals to ship freight. Considered a niche product, it represents a new approach to cargo and is directed to people who want to ship products and personal items around the globe. Lufthansa uses its cargo aircraft to make the shipments and, depending on routing and products being shipped, provides door-2-door services. It will also handle custom formalities en route.
The service is currently available for pick up and door-to-door service to/from 26 countries and to/from airports in Germany and USA. It is likely that travelers will find the service useful for impulse buys while shopping around the world, or to move furniture and fixtures quickly for c-suite executives being reassigned to international operations. Peter Gerber, Lufthansa’s CEO defines the space in the market, “…between postal services and forwarders.”
Some organizations warn consumers to be watchful when using this type of service and suggest they should be mindful of what they are shipping. Just because the item is available for sale does not meet it is legal to bring out of one country and into another. People using the service should make sure that the “package” (i.e., antiques, endangered animals), does not violate international laws or violate endangered species and plants policies.
Time: Matters + time: matters airmates
Another Lufthansa – owned division focuses on urgent and complex transport services and operations 24/7. Consumers can place a shipment request online and receive a quote in under 60 seconds. The idea is to use analytics to find the optimal flight and the best courier from a database of 1000+ couriers in 46 countries. Couriers are trained to carry important and sensitive shipments for all industries. By personally accompanying the shipment and using available flight information for all airlines, the company maximizes speed and security.
For CEO Franz-Joseph Miller, the ability to have goods moved personally (especially for urgent and sensitive shipments), involves situations that include grounded aircraft, equipment failure or assembly line stoppage…episodes where every minute counts. The service is mission critical for farmers who need spare parts during harvest, soccer players who forget their customized shoes, or a patient waiting for a kidney. The company was awarded Top Logistics Provider in the Spare Parts category in December 2016 by CNH Industrial, one of the world’s largest producers of agricultural equipment. CEO Gerber finds that “…time:matters has established itself in recent years as the leading specialist for same day delivery and emergency logistics in Europe.”
Future of Air Cargo @ Lufthansa
CEO, Peter Gerber continues to be optimistic about the profitability of the Lufthansa Air Cargo division, and its role in global commerce. In an effort to stem losses in previous years, he is reducing staff, cutting and/or controlling costs, deferring cargo installation enlargement and enhancement, diversifying product options and creating strategic alliances with other airlines in order to increase channels of distribution without incurring additional infrastructure costs. Gerber believes, “We have a superb base in the Frankfurt Airport. Nowhere else on our continent are air cargo volumes higher than here in the heart of Europe. This is an opportunity we aim to and will exploit.”
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