“2018 has been a record year for Cargolux”

Interviewer: After years of volatile financial figures, Cargolux’ turnover and profit have recently shown a clear upward trend. Especially the strong business in Asia has made a very positive impact recently. Can you already draw conclusions for 2018, and what are Cargolux’ plans for 2019?

Chris Nielen: 2018 has been a record year for Cargolux. We witnessed a strong first half, in continuity with the market trend since the end of 2016. The second half of the year already showed weakening demand, due in part to the looming trade wars and geopolitical situation. For the peak season, all the indicators were pretty positive and the outcome was satisfactory, although not comparable to the two previous peak periods (2016 and 2017). Economic analysts have predicted a global economic slowdown for 2019 so we must remain cautious and flexible in order to anticipate and meet market demands.

Cargolux will continue to invest in technology and digital innovation and has undertaken several large-scale projects to modernize and improve its systems and procedures. In 2019 our fleet will be increased with two additional 747-400 ERF planes. These two additional aircraft will provide additional, flexible capacity in order to respond to fluctuating market demands and will bring our fleet to a total of thirty 747F.

In 2014, Cargolux entered into cooperation with the Chinese HNCA, who acquired a 35% stake in the company. Since then, the so-called ‘Air Silk Road’ between Zhengzhou and Luxemburg has been strongly expanded and is gaining importance. Cargolux and HNCA also founded a joint venture (Henan Cargo Airlines) together. What is the purpose of this joint venture and are there further development plans in regard to the ‘Air Silk Road’?

Since the beginning of their partnership, Cargolux and its Chinese shareholder have established a trustworthy relationship that enables them to build on each other’s strengths and further tighten commercial bonds. Both parties have agreed to establish a dual hub (Luxembourg and Zhengzhou) strategy which feeds into the framework of a global Air Silk Road. The Zhengzhou-Luxembourg international air cargo route officially opened in June 2014. Early on, there was just one cargo flight per week, but that increased to six flights per week by the end of 2014, and to 16 by 2017.

Zhengzhou is the starting point for the Air Silk Road. Zhengzhou Airport is one of China’s eight major air transport hubs, with an air cargo throughput of 500,000 t in 2017, making Zhengzhou the leading cargo airport in Central China. Luxembourg, at the other end of the Air Silk Road, lies at the heart of Europe, sharing borders with Germany, France, and Belgium. With a central position and a vast network of Road Feeder Services, the Grand-Duchy is in a prime location to serve all major European financial centers and the broader European region.

The establishment of a joint venture, Henan Cargo Airlines, was part of the shareholder agreement between Cargolux and its shareholder HNCA. The aim of this future endeavor is to offer a broader range of flights in the Asia Pacific region, to complement Cargolux’s current services in the area. Coupling HNCA’s local knowledge and Cargolux’s extensive experience in the air freight sector, this joint venture would offer the tailored service CV’s customers have come to expect as well as a regionally coherent approach. The details of the joint venture have not yet been finalized but both parties are confident that the enterprise will prove an interesting addition to the company’s current services. 

In 2017, almost 40% of Cargolux’ profits came from the Asia-Pacific region. In light of current trade conflicts, do you see a risk of being a victim of contradictory political interests?  Is there a risk that these developments could cause harm to Cargolux’ strong business in Asia in the long run?

It is correct that we have a strong presence in the Asia-Pacific region with both flights back and forth to Europe and Trans-Pacific routings. The current difficult political circumstances are not in the interest of global trade and could have an impact on trade in the long run. We are noticing that due to these conflicts the production of certain goods is moved from one country to another, however, this is still within the Asia-Pacific region. In the last two years we as Cargolux have diversified our business model. From mainly offering a scheduled network we are now also offering ACMI (“Aircraft, Crew, Maintenance and Insurance”) and Charter services. This diversification helps us to spread our risks.

China is currently expanding its endeavors in connection with the ‘New Silk Road’: The expansion of the rail corridor through Central Asia and Russia is impressive and has seen massive growth thanks to the compromise it can offer between transport duration and costs. Could rail transport lead to a redistribution of global goods flows in some areas?

The expansion of the rail corridor is only partly leading to a modal shift, however, the shift is mainly from sea to rail. Goods moved by air are usually of a higher value than the goods transported by ship or rail. Furthermore, everything shipped by air is done in a highly secure environment which is completely different when goods are shipped by rail. Another example is e-commerce. These days, if we order something online, the expectation is that the goods are delivered the next day or even the same day. Within the whole e-commerce logistical process, air freight is vital in order to provide speed to market.

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

Transport via drones is currently a niche product for small loads, i.e. packages, not freight – even though new types of drones are slowly going up in capability. This is excellent for remote regions, for example vaccine distribution in Africa. The regulatory environment is not yet fully in place and economics generally still favor ground transport for first/last mile (economies of scale). Therefore it is difficult to estimate when this will become an option for wide spread usage.

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?

The current trend, which is a challenge in itself, is the digitalization within our industry. In the last 2 years we have seen a nice tail wind provided by e-commerce which helped our industry tremendously. This is something we expect to continue in the coming few years. Looking ahead in 20 years is something different. What will be the development of 3D printing and UAVs? Will there be a re-deployment of supply chains, including near shoring? One thing is for sure, in the coming 20 years the airfreight industry will see much more change than in the past 20 years.

Prior to your current employment, you were in a leading position for a belly carrier. What new challenges did you face after you switched to pure cargo carrier Cargolux?

Working in a pure cargo environment has a completely different dimension than working for a belly carrier. The main revenue stream from a belly carrier comes from the passenger side, so all strategic decisions are based on the passenger business. At a pure cargo carrier it’s all about air cargo and you control your own destiny. This is exciting and challenging at the same time as belly capacity has the advantage of having a large proportion of aircraft operating costs allocated to passenger activities i.e. crew, aircraft, landing fees etc. Freighter operators absorb the entire cost of flying, and this is the main challenge: making sure we operate profitable in a highly competitive market, knowing that some of our competitors have completely different cost levels. At Cargolux we need to ensure that we offer the right products which add value to our customers. We do this by offering main deck capacity, nose load capabilities, guaranteed capacity and different products tailor-made for industries like pharma, automotive and oil & gas. 

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

Cargolux and cargo-partner have been working together closely for many years. The basis of our long-standing partnership is common respect, trust and the willingness from both sides to make our cooperation successful. From a global perspective we jointly agree on annual goals and objectives which we follow up on closely throughout the year. Within this process communication is vital. Compared with some of the other players in the market, cargo-partner has fewer layers in terms of management structure. This makes it easier to communicate and as a consequence makes it easier for both sides to do business. We are able to act faster and ensure that when opportunities arise we jointly capitalize them.

Cargolox is known industry-wide as an expert in live animal transport. This applies not only to the well-known racehorses, but also to more uncommon projects: Most recently, you reported about the spectacular transport of two Beluga wales from a Chinese ocean park to a wildlife sanctuary in Iceland. Where does Cargolux’ interest in this unusual field stem from, and how do you ensure reliable veterinary care during these transports? In contrast, are there any animal transports which you would refuse to handle?

Cargolux is one of the industry leaders when it comes to animal transportation, a special product – CV alive – was designed to ensure best practices are upheld when it comes to animal well-being during the flight. Dedicated teams of experts are in charge of these very special commodities and all risks are assessed and potential issues anticipated to ensure a seamless trip for the animals. The state-of-the-art fleet, composed of purpose-built 747s, allows for a temperature-controlled environment throughout the flight. Cargolux today has strict animal welfare standards, in which the company is committed to transporting wildlife exclusively for the preservation of species or to bring them back to their natural habitat. It is this expertise and work ethic that led Sea Life Trust and their partner Whale and Dolphin Conservation to contact Cargolux ahead of the move.

As part of its Live Animal transportation policy, the airline operates in full compliance with the IATA Live Animal Regulations (LAR) and the Convention on International Trade in Endangered Species (CITES). Cargolux also has a growing list of items that it refuses to carry, on any of its network routes, for ethical reasons.