MOSCOW: October 05, 2016. Volga-Dnepr says the emerging markets in Eurasia are helping to solidify the consistent and steady growth of transport between countries that were previously less significant players in the air cargo industry.
The company says China is particularly important due to its overall size and appetite for large industrial projects and growing aerospace sector; Southeast Asia is also proving interesting due to resource exploration and construction along with similar offerings from the Middle East.
Georgy Sokolov, Regional Sales manager at Volga-Dnepr Airlines (right), says that "although the vast majority of our contracts are paid for from Europe and America, because that's where the majority of headquarters and decision-making of global corporations are concentrated, a very large number of flight routes go to or from emerging markets countries – Asia, Africa, South America."
And due to the growing interest in Eurasia market development, AirBridgeCargo Airlines (ABC), the Volga-Dnepr Group's sister airline, now complements its charter capabilites with a scheduled freighter network from Amsterdam, Basel, Frankfurt, Helsinki, Leipzig, Milan, Munich and Zaragoza via its Moscow hub to China, South Korea, Japan, Vietnam, Singapore and Cambodia.
The number of flights from developed countries to emerging markets have also increased recently, possibly due to the recovery in the developed coutries after the 2008 recession, says the company. China is also growing as it continues to migrate from a "cheap labor/consumer goods production economy" into a more multi-facated economy that is starting to claim its place in the heavy industry and aerospace sector.
For the company's charter business the market growth in Eurasia is quite volatile, it says. A large, completed project in one country could mean related growth in another.
A good example is a recente project in Papua New Guinea where after five years of planning and participating in the building of a new airport and runway in the southern highlands, the company then completed 88 An124-100 freighter flights over an intensive 103-day flying program to deliver 6,000 tonnes of critical and sensitive cargoes for a new ExxonMobil liquefied natural gas plant.
According to Volga Dnepr, if time-critical freight can be delivered without any heavy penalities or if projects are launched on or ahead of time, then the cost of transport is covered. Time saved and gained from faster onstream capability can always be directly or indirectly measured in monetary terms, the company argues.
Maintaining and building close relationships within the industry is also paramount; the ratio of deals differs by region and sector with end-user charterers and third parties. On the Russian/CIS market, Sokolov says the majority of business is done directly with end users, similarly to the U.S.; whereas markets in Europe or Japan are dominated by forwarders and brokers. Respect for culture unique business is the key to forming lasting relationships, he points out.
As a business, Volga Dnepr splits its capacity 50-60 percent between developing markets and 20-25 percent to emerging markets. The oil and gas (O&G) sector has proved to be a "tricky area" due to he price of oil with some major projects either cancelled or put on hold.
However because of the diverse nature of the business, the company says it is able to compensate for the decrease in O&G operations by developing other industries such as aerospace which now represents about 30 percent of its annual flying.
Volga-Dnepr says Iran is another huge potential area within Eurasia. It's a word on everyone's lips yet not much is actually in development so far, says Sokolov. Companies from Iran are now attending industry events that represent oil, gas, power and energy; there is definitely a suggestion of desire from their end to do business, he says. "However, time is a key obstacle with respect to getting things moving and more importantly, there needs to be a significant investment and a noticeable demand for services that the company can offer before the Iran market can open up."
Sokolov explains that while the general lack of airfreight industry growth can be attributed to overcapacity, any decline in the company's charter business has more to do with sluggish world trade and the knock-on effect of air-related project cargo, than too much of its particular outsize capacity.
Noting any pick-up in world trade should reverse this trend, he agrees this year has been less-than-stellar for the company overall - particularly in the O&G government sector. However, he adds, more revenue from the aerospace, power and energy sectors "have fortunately balanced out the current dip and the hunt for new and unique projects in less obvious industries and locations we expect will produce growth". Recent examples include flights to Antartica (left) and the logistics support mission for Solar Impulse 2 on its historic round-the-world flight.
With its unique capacity recently confirmed by its long-term contract with Boeing, Volga-Dnepr has little competition from other airlines for outsize and heavy-lift freight. As Sokolov says, the cost-benefit of air versus sea is more likely to be the decisive factor in what gets delivered where, and by when.
So its competitors are more likely to include Hansa Heavlift, Mammoet, SAL and Rickmers-Linie – depending on just how important is the delivery date.
However to spread the risk, the company has moved towards service customization with the development of a 'Cargo Supermarket' concept that provides engineering solutions for complex cargoes and end-to-end logistics.
Sokolov says the idea is designed to encourage closer cooperation with existing and new customers with more supply chain transparency for major corporations. The company hopes this will also encourage more direct communication with them.