“…to make cultural diversity an asset rather than a roadblock”

Interviewer: Nearly one year ago, United Airlines and Germany’s Lufthansa Cargo launched their long-awaited transatlantic partnership. Since May 2018 both carriers jointly manage sales and booking of standard and express shipments on routes between Europe and the US. Can you summarize the first year and has the cooperation proved itself? Could you imagine further partnerships like this with other carriers?

Jan Krems: We celebrated the one-year anniversary of our cargo joint venture with Lufthansa on May 3, and it was a year of great expectations realized. The size and scope of this venture favored a phased implementation, so we deployed the Joint Venture in a number of stages throughout 2018. The venture now provides customers greater flexibility and speed on more than 1,500 route options. The next milestone is the launch of Phase 5, which will add more cities in Eastern Europe to the geographic scope of our joint venture.

I believe the cooperation has proven itself in the benefits it has delivered to our customers: increased options, quicker connections and faster transport times on a wider U.S.-Europe network. On a personal level, I’m very pleased by how well our people and teams work together and like each other: over 1,000 colleagues from the two partners have cooperated to produce the Joint Venture (JV) benefits. This success and friendship is not an accident: it happened because we all committed to be flexible and open-minded, and to make cultural diversity an asset rather than a roadblock.

United’s first cargo joint venture, with ANA, is nearing its third anniversary. The UA-ANA cargo  cooperation began in July 2016 with eastbound service from Japan to the U.S. and Canada, with  westbound routes added in February 2018. Eastbound routes from Japan to Mexico were added in May 2018, so now the UA-ANA cargo JV network includes 377 nonstop flights a week to 16 destinations, plus additional flight and truck connections. The planned next step for the UA-ANA cargo joint venture is the addition of Singapore to our JV network.

Based on the successes we’ve had, we remain interested in exploring the idea of cargo partnerships in other regions. But we would need to find a partner whose network strength, services and people would blend well with ours – just as we have found with Lufthansa and ANA.  

United Cargo and cargo-partner are connected by a close and long-standing partnership too. How do you see the cooperation between the two companies – and how is working with a mid-sized logistics provider such as us different from working with the “big players” in the industry?

At United Cargo, the size of the logistic partner doesn’t matter to us – what’s more important is the type of relationship the company wants to build. Our aim has always been to build relationships of mutual benefit built on trust – sharing with our partners an eagerness to listen and a passion for contributing to the other’s success. Of course, no matter how much tonnage the partner ships, we know that deserve their business we need to keep a relentless focus on delivering consistent, high-quality service at all our locations worldwide. 
Our passion and purpose is to build and preserve the type of relationships of mutual benefit that endure over the long haul. We’re lucky enough to have several of these longtime friends at United Cargo – cargo-partner prominent among them – and we treasure each one!

United is a classical belly carrier and stands in competition with pure cargo carriers. How do you rate this situation and would you see it in United´s case as an advantage, hence the fact that the main revenue streams come from the passenger side? (Otherwise all strategic decisions are based on the passenger business leaving comparatively little flexibility.)

Like most of the choices we all make in business or in life, there are advantages and disadvantages. A benefit of being a belly carrier, along with the cost and revenue aspects you referenced, is we are able to provide customers more frequent departures to more destinations than the customarily targeted markets of freighters. At United, we are able offer customers the cargo capacity of world’s most comprehensive route network –  4,800 flights a day to 353 airports across five continents, operated by a fleet of more than 770 aircraft, including over 180 widebodies.
But, as you also noted, passenger carrier network decisions are not primarily based on cargo demand, so freighter carriers will continue to find markets they can effectively serve. Much of their success depends on how quick and agile they are in responding to changes in the marketplace. Timing the schedule correctly and matching the aircraft to the demand are key – and those crucial decisions are generally out of the hands of belly carriers. That’s another of those upside/downside combinations! 

In the area of passenger transport, the airfreight industry has undergone a transformation in the past decade: Flight status updates in real time, modern online booking systems, self-check-in, high transparency for passengers and the elimination of paper tickets and related processes. On the other hand, the air freight industry is said to lag behind when it comes to digitalization, still relying on printed air waybills and the like. How high would you rank the need for innovation?

I think it’s absolutely essential that the air cargo industry raise our game in the area of innovation. The best example of the potential benefits of digitalization, and the risks of not innovating our processes, is the rapid expansion of e-commerce. I’ve read that by 2020, e-commerce transport is expected to annually exceed 100 billion parcels worth 4.8 trillion in value. The positive thing for air cargo is that customers want these goods fast, so air is the best choice and competition from slower transport modes is lessened. 

Carriers with hub-and-spoke networks like United’s already have the route structure, capacity, operations and expertise to link manufacturing centers and consumers in both established and developing regions. But the challenge facing the industry is these customers also expect end-to-end tracking and visibility, disruption alerts, expedited clearance and highly predictable delivery times. This means that digitization, along with technology innovation and investment, is a must for carriers who want to maximize their benefit from the e-Commerce boom. 

One of United Cargo’s top priorities for 2019 is our digital transformation strategy, which is designed to enhance all our digital channels and our customers’ experience with them. The fundamental question we want to answer is: how can we combine what we currently do best with new creative uses of technology and process enhancements to generate effective, and cost-competitive, transport solutions for e-commerce and the rest of our product suite? 

The airfreight industry’s success is largely reliant on the fast transport of goods, and no sea vessel in the world could compete with this advantage. However, this unique advantage of delivering urgent goods to a specific place in the world within a short amount of time – to prevent a production standstill, for instance – may find its end with the increasing progress of 3D print technology. Some observers are even talking about the end of airfreight – what’s your take on this exciting development? 

There’s no doubt that 3D printing is an intriguing technology, with the potential – and that’s the key word – to have a major impact on many industries including air freight. Like any technology whose use and application is in the early stages of development, it will have an effect; but what we can’t say with any certainty is how much or when. As I consider the volumes and the commodities United Cargo carries today, and which of these have the potential to be 3D-printed in the near future, I don’t expect a major impact on air freight volumes anytime soon.

Beside 3D print, everyone seems to be talking about goods transport with the aid of drones these days. Do you see these small cousins of the airfreight industry as a potential mean of transport for the first or last mile? When do you expect that this will become a realistic option?

The uncertainty I expressed about the impact of 3D printing also applies to drones. Again, it’s a development with a potential for great impact, but with this option there is the additional concern of how the regulatory environment will impact their expansion. Right now we have a limited number of drones carrying packages, and much of their use in is remote areas. But what must be considered are the safety and security implications of thousands of delivery drones flying around urban areas. It’s a little like when automobiles were first invented, and there were only a few chugging around scaring the horses. As the number of cars expanded, the associated regulations grew as well. There were a lot of obstacles to overcome, and a lot of time passed, before we reached the point where millions of folks are now driving around safely every day. 

Speaking of trends and challenges in airfreight – what are the most important ones of today and what will they be tomorrow? And, looking ahead to ‘the day after tomorrow’ – where do you see airfreight in, say, 20 years? Will there be any special challenges for all-cargo carriers?

We’ve already discussed one of the major trends – the growth of e-commerce and the opportunities and challenges it presents to air freight. Not only e-commerce customers, but increasingly business-to-business customers as well, are seeking a fully-digitized sales and customer service experience in booking and tracking. Self-service options and paperless processes are no longer an option but becoming a necessity. 

I believe air freight will continue to grow in the next 20 years, because I believe in this industry and its people! I also believe the market fundamentals of our industry are positive. Trade growth is highest in commodities more likely to be transported by air – like pharmaceuticals, time-sensitive perishables, computers and consumer electronics. It’s reasonable to expect this trend to continue as the middle class and consumption-driven economies expand in developing regions.

There is always room for improvement in our industry, and change and innovation doesn’t always come as quickly as we would wish. But we’ve learned in recent years that, as long as we’re not challenged by unanticipated regulatory or political headwinds, air cargo is in a very favorable position to benefit from the expansion of world trade. 

China is currently boosting its efforts in regard to the „new silk road“: The expansion of the rail corridor through Central Asia and Russia is impressive by merit of its speed alone. Could rail transport lead to a redistribution of global commodity flows between sea and air freight in some areas?

We are always aware of the challenges posed by other modes, and this is one that looks to have some advantages from a cost perspective. It is still uncertain how much of a threat “The New Silk Road” will pose to air freight – the long-term viability of the business model is unknown. For the most part, however, we believe our customers will still appreciate, and be willing to pay a premium for, the benefits that air freight provides: greater speed, safety, security and control. 

Thank you for the interview.