Fukashi Sakamoto, CEO Nippon Cargo Airlines (NCA), says the airline’s innovative approach makes him optimistic about the future. Tony Concil reports
How is the business doing?
We had a surprisingly tough start to 2016. But from September things started to look up. That continued into 2017, boosted by strong January performance coinciding with Chinese New Year. Demand in February, however, has given us some questions about how strong the recovery will be.
The strength in cargo markets is fairly broad. In terms of markets, we are seeing both Europe and the United States performing well.
There were also four items or trends which contributed to stronger performance.
We are in a better position now than at any point in recent memory
The first was the launch of new smartphones, which gave an intense boost as products needed to get to the market.
The second was the bankruptcy of Hanjin Shipping, which saw shippers resorting to air because there simply was not enough shipping capacity to meet demand.
The third was demand created by new technology steppers used in the manufacture of semi-conductors, which needed to get to market fast.
And finally, 2016 was a good year for the automobile industry in North America and Europe, and we benefited from the need to ship parts used in the manufacturing process.
On the capacity side, we also saw improvements in market conditions. I won’t say that capacity perfectly matches demand. But the gap is closing and the situation is becoming more rational.
We are at an optimistic point in the cycle. There will be ups and downs. But we are in a better position now than at any point in recent memory.
Are you bullish on the market for time and temperature sensitive goods or for e-commerce?
Yes. In fact, we are investing to develop cost-efficient products for both.
The main innovation is a container that we call “Cubo”. Cubo’s size improves space efficiency—eight can be loaded together on a main deck pallet in two layers. And it’s foldable, so that it can be shipped back easily when not in use.
With the help of Cubo, we are experimenting with allowing forwarders to have customers bring their shipments directly to us for packing
For time and temperature sensitive shipments, we have developed a heat insulating liner for Cubo that can keep the inner temperature between 2-8°C for up to 48 hours. And we are looking at extending that to 72 hours to cover door-to-door shipping times.
The flexibility to link up to four together is great for e-commerce where we need to deal with lots of small packages.
With the help of Cubo, we are experimenting with allowing forwarders to have customers bring their shipments directly to us for packing.
This eliminates a step in the current process where the packing takes place at the forwarders warehouse before coming to us.
As an all-cargo carrier, what is the e-commerce opportunity?
Traditionally, manufactures shipped in a B2B environment with forwarders doing the booking.
With e-commerce, manufacturers are dealing more directly with the express business.
If you look at the annual reports of the big express players, their small package business is growing about 10% annually, reflecting this growing market segment.
We are exploring the possibility to set up a dedicated e-commerce platform for China
Our business chance comes from express carriers needing extra capacity to handle the growing volumes.
We can fulfill that with high quality on-time operations with transshipments to their networks. China is the focus of a lot of inbound e-commerce traffic.
We are exploring the possibility to set up a dedicated e-commerce platform for China. This could be another big business opportunity, but it will take some time to develop.
Are we doing enough to promote e-freight?
The full e-freight vision is beneficial for us. But, it will take a lot of time and effort to get there. And until we get there, we will be carrying two business processes—paper and digital—which essentially doubles the workload.
There are a few issues that we need to tackle. First, the authorities are not fully on board. Many require paper documents—for safety, origin of goods, and other declarations. And some countries, even if we use an e-AWB, the authorities require a printout to be stamped.
For Japan, I see the way forward as step-by-step in partnership with our customers
On the industry side, we have not yet reached a perfect level of standardization. Airlines are not unified in the information that they ask from forwarders. Similarly, forwarders are not fully aligned in what they ask from airlines.
We are making progress. The industry ended 2016 with 48.9% global e-AWB penetration, with Japan at 28.6%.
As critical mass develops in the volumes of shipments handled with electronic documentation, we will see adoption accelerate.
I admire the strong efforts of airlines like Cathay Pacific, Korean Air, and Emirates with their customers. For Japan, I see the way forward as step-by-step in partnership with our customers.
You have an interesting new partnership with Atlas Air?
The strategic partnership with Atlas Air allows us to see how our business can develop when flying under US traffic rights.
A second motivation for the partnership is the very efficient and flexible operations of Atlas Air.
I am really looking forward to what we learn by working with Atlas Air
They have a really impressive management system that provides great insight on the business—particularly costs.
And, with short notice, they can even change the destination of a flight. We don’t have that flexibility in our business. I am really looking forward to what we learn by working with them.
Was it easy to change the registration of an aircraft?
It was surprisingly and unnecessarily difficult. Japan, Europe, and the United States all have great aviation safety records. But JCAB, EASA and the FAA—the respective safety agencies—all have different requirements for aircraft registration and the safety regime behind them.
If we could have a global license plate for aircraft with standardized regulation it would give us tremendous flexibility
It is an area ripe for harmonization and mutual recognition of standards. If we could have a global license plate for aircraft with standardized regulation it would give us tremendous flexibility in how we manage the assets of our business. It would be a great project for IATA.
What is your relationship with your parent company, NYK? You are both in the same business, although they use ships. Are they a competitor?
I don’t see them as a competitor; there are lots of synergies. For example, we share some back-office work and do joint corporate responsibility activities. We have also learned a lot from them about Safety Management Systems.
Probably the biggest value that is created by our relationship is the ability to invest in making our business more competitive.
NYK has substantial research and development resources. These have helped us in the development of some special services, including Cubo.
Are we doing enough as an industry on lithium batteries?
The industry’s quick reaction to the Samsung Galaxy Note 7 problems last year shows how important it is to work together. When lithium batteries were banned from passenger aircraft, they shifted to all-cargo aircraft.
We are happy for the business, but checking the shipments has put a huge burden on our resources. We are finding lots of anomalies with mislabeled or mispackaged shipments.
There is a huge task ahead of us to educate shippers. We are doing that as a company. IATA is also helping to raise awareness.
I would like to see IATA become even more proactive. The market is hungry for training and IATA is the expert.
The industry has lost an aircraft because of improperly shipped lithium batteries. We cannot forget that
Another area of concern is post. Their customers are not professional shippers. They are not doing enough to check. So, we find all kinds of anomalies in postal shipments. We need an industry effort to work with our postal partners.
There are two other areas that we are exploring. The first is the development of fire-resistant equipment. And the second is finding ways to contractually bind customers with agreements to follow the dangerous goods regulations, and to allow us to inspect their shipping facilities to verify this.
The industry has lost an aircraft because of improperly shipped lithium batteries. We cannot forget that.
We must do all that we can, as individual companies and as a united industry, to make sure that does not happen again. Safety is the top priority.
How do you feel about liberalization in the cargo industry?
If we are going to go for liberalization, I would like it to be complete and without compromise. That was my experience in the sea shipping industry, which is totally liberalized.
Safety is well regulated with global standards. But there are no route rights or restrictions on vessels, capital or labor.
It would be naïve to think that liberalization will be an easy discussion with China
Inevitably, air cargo will evolve in the same direction. Commercial restrictions will be removed.
It’s important that we don’t get stuck in a halfway house where some areas are liberalized and others are not. That will not be an easy journey.
The United States is where deregulation and open skies originated. But even there we see resistance on ownership issues. And it would be naïve to think that liberalization will be an easy discussion with China.
What’s it like to be the CEO of a cargo airline?
Being the CEO of an airline is a tough job. You need to keep revenues ahead of costs in an environment of extremely strong suppliers. There are two manufacturers of large planes. There are three major players in the engine market.
And we have very little choice on which airports to use when serving a market. An airline needs to make a profit by taking in more revenues than we spend in costs. With so little choice among suppliers, that is a very difficult challenge.
As a CEO, you also need to challenge conventional ways of thinking
And then, if you are running a cargo airline, you have the added challenge of the available capacity not being a direct function of market demand. Airlines are no longer in a market share race for the cargo business.
But the expansion of the widebody passenger fleet has automatically brought large amounts of cargo capacity into the market—independent of what cargo demand might be out there. And for many combination-airlines, the operation cost is covered by passenger’s revenue, so the cargo revenue becomes a bonus.
As a CEO, you also need to challenge conventional ways of thinking. For example, I challenged my team to think of airlines as potential customers rather than competitors. Why? Combination-airlines have shrunk or eliminated their freighter fleets but they are still active in the market.
So, when demand exceeds what they can handle in the bellies of passenger aircraft, we can help. Our airline customer base has grown to ten partner carriers and I can see it expanding further.
What’s the most interesting cargo that you have handled?
It is always a source of pride to think of the valuable social contribution that air cargo makes. While this is part of our everyday activities, it is particularly evident in the response to disasters.
We are part of the Airlink network. We should be really proud of the vital role air cargo plays when helping communities that have been struck by disaster.
What’s more interesting—shipping or flying?
For sure, both are challenging. For me, the aviation world is a fresh start.
Not many people have had the opportunity to work with both ships and planes
I really enjoy working with the 800-strong team at NCA. I also enjoyed the challenge of working in the shipping area.
Not many people have had the opportunity to work with both ships and planes. And I can say that the opportunity to go on business trips using the upper deck of a freighter is a very special experience.
I often joke with my friends that it is a bit like having your own Air Force One. It is different from flying commercially—no entertainment or service. But it is very comfortable.