Up and down: the air cargo market is a very dynamic one with almost day-to-day changes

Luc Diebold: “One of the key drivers of success in the floral air cargo market is cold chain logistics.”

In this exclusive interview, Air France KLM Martinair Cargo’s newly appointed global head of Perishable Logistics, Mr Luc Diebold, shares his knowledge of more than 20 years of experience in the air cargo market and highlights the issues the company faces.

After a competitive search process, Air France KLM Martinair Cargo has chosen internal candidate Luc Diebold as its new global head of Perishable Logistics, effective 1 October 2024.

Based in Paris, France, French-speaking Diebold succeeds Predrag Mladenovic, who has transitioned into a new role in the company.

Diebold, a 40-year-old Frenchman, also fluent in German and English, joined Air France KLM Martinair Cargo in 2000 when Air France appointed him as a sales representative in Germany. He then went on to hold a variety of managerial and executive positions in Frankfurt, Bucharest and Point-à-Pître (Guadeloupe).

Luc Diebold has more than 20 years of experience in the air cargo market under his belt.

FCI Magazine: It is often said that the freight forwarding industry is both a barometer and an engine of the global economy. Rocky waters? Turbulence-causing air pockets or smooth sailing? How would you describe the current state of the air cargo market?

Luc Diebold: “There is a lot going on right now on the geopolitical level, and that has a big impact on the air cargo market. Our costs are increasing towards Asia due to the war in Ukraine. On the other hand, the Red Sea crisis impacting shipping freight has increased the demand for air freight. I would say that the air cargo market is very dynamic, with almost day-to-day changes. Overall, the outlook looks good. According to IATA, total air cargo demand, measured in cargo tonne-kilometres (CTKs), is rising from January to July 2024 in comparison with the same year-over-year period. This is good news. We also know that the cargo business is cyclical, and there can be a slowdown over a period, but the long-term outlook is rather good.”

Market equilibrium, more demand than supply, or just the opposite?

“It depends on the market in which you’re operating. We see that from certain origins, the demand for capacity is much higher than we can offer as carriers; in others, some extra cargo would be favourable for all parties. For example, exports of flowers from East Africa to Europe have increased by 15 per cent compared to the previous year, while air freight capacity has remained relatively constant, leading to price increases of 10-20 per cent. For Air France KLM, the capacity also depends on the passenger traffic, and the dynamic can be different from that of our cargo business. Especially in Fresh, we must deal with producing and consuming countries, and this creates an imbalance between outbound and inbound flights.”

Narrowing it down to flower-related logistics, what ‘flower routes’ is most of the growth happening on, and where is it stalling?

“Cut flower production continues to grow in Colombia and Ecuador year-over-year, while in Kenya and Ethiopia, the situation is more stable production-wise. In each country, farms are becoming more professional, which boosts production. In Africa, Kenya is more Netherlands-oriented, and Ethiopia is more Belgium-oriented. Growth is particularly strong on routes between Kenya and the Netherlands, accounting for about 40 per cent of flower exports. KLM/ Martinair is offering top connections and products for this market.”

AFKLMP Cargo has made changes in its Full Freighter network, decreasing its presence in South America to only Bogotá and adding a new rotation to Dubai and Hong Kong to meet the demand from that area into Europe and the Americas.

How do global socio-economic conditions impact the air cargo business?

“Conflicts such as those happening in Ukraine have disrupted supply chains, leading to freight cost increases of 30-50 per cent. Inflation has also forced some companies to reduce their import volumes, thus impacting air transport.”

Exporters pay between €1.60 and €7 per kilo, depending on the destination. It is safe to say that anticipation is building among Dutch flower exporters as you unveil the new winter rates. More recently, rates have decreased a little. How will prices look like this coming winter, and why?

“Although recently down by five per cent, increased demand for flowers during the holiday season could restore prices. We are entering the peak season, and AF KL MP Cargo will offer a price that is competitive with the market and reflects our cool chain capabilities from our flower stations to Europe. We want to offer a premium solution for our customers in terms of handling and transportation to deliver extra value to the customer. For example, we have recently made changes in our Bogotá warehouse to improve handling and storage of flowers to enhance the shelf life of flowers.”

Air France KLM Martinair Cargo is working with winter tariffs (when there are more weighty flowers, such as tulips and irises) and summer tariffs (more volume but less heavy flowers). Is it too far-fetched to state that this is among the unique selling points, as other carriers do not work with this?

“We adapt our offer each season according to customer demand. This is a necessary balance for maintaining a relevant offer and building long-term relationships with our customers. Customer demand is a crucial part of the equation, but it’s only part. Fuel costs, products (especially the type of goods being shipped), and competition are setting prices up and down. We are not much different from other carriers in that respect.”

Historically, Ecuador, Kenya, Colombia and the Netherlands are the company’s four major flower routes. Cut rose powerhouse Ethiopia does not appear in this ranking. Why is that?

“We focus on quality; therefore, the direct route is a key asset. Ethiopia is not showing up as one of our major flower routes mostly because the path to Ethiopia is via NBO (Jomo Kenyatta International Airport). This market AMS-NBO is already constrained and very dynamic. From Ecuador, Kenya and Colombia, we have direct flights into Amsterdam, our main flower hub. As flowers require swift handling, the perfect way for transportation is without any stops in between and as little trucking as possible.”

A few years ago, you predicted growth in China. How has that worked out?

“China has always been a complex market, especially in the afterlife of Covid-19. Lately, we have seen the border opening again and exports growing. China’s cargo market is still on a growing curve. Looking at the flower market, the anticipated growth in China has partially materialised, with flower imports increasing by 20 per cent between 2021 and 2022. However, the market has become highly competitive with the rise of local producers. So yes, there was growth, maybe less than expected back in time, but it is still ongoing.”

Back then, you also mentioned the USA as a potential growth market. Do you feel that flower shipments between Kenya and the USA truly took off?

“The USA remains the biggest market for flowers in the world, and we have seen significant growth in the last three years. However, regulatory challenges persist in accessing this market. The demand for flowers is still increasing, so we expect more flowers to go in that direction. As far as growth out of Kenya, the main market for Kenyan flowers continues to be Europe. The additional volumes going to the USA will mostly come from South America, whereas Kenya will increase volumes into Europe.”

Speaking of the USA, more recently, the USA’s Transportation Security Administration (TSA), in association with US customs, has announced much stricter rules regarding air cargo shipments. How significant is the floral route between the NL and the USA, and how does it impact floral shipments?

“The trade lane between the Netherlands and the United States accounts for about 25 per cent of flower exports. The new TSA rules should not lead to delays in flower deliveries. This would affect flower quality and would increase transport costs. In our offering and during booking we already require a lot of info about the nature of the goods to serve our customers in the best possible way. I think we’re quite far from preparing for these changes, and I expect little to be done on our side. Regarding regulation, a lot of responsibility goes to the forwarder to use the right documents and provide the right information. If we all put in the necessary effort to adhere to these new regulations, everything should be good to proceed.”

We are entering the peak season, and AF KL MP Cargo will offer a price that is competitive with the market and reflects our cool chain capabilities from our flower stations to Europe.

LAN (now renamed LATAM), Atlas and Cargolux were among your biggest competitors five years ago. How do you differentiate yourself in an extremely competitive market?

“Our vision is to become a sustainable airfreight leader and deliver best-in-class customer service. What we mean by this is providing quality in terms of performance, handling, and reliability and that when something goes wrong, we are there for you to fix it. Flying from A to B is the minimum service we offer, but we see that we can make a difference for our customers when something goes sideways. We have also recently introduced a PLUS service level for extra priority and maximum peace of mind for the customer. The next thing we do is optimise our handling procedures to prevent flowers from (self) heating and limit the exposure to ethylene. We see our efforts paying off and hope the customer, shipper and consignee recognise this.”

Arguably causing the biggest disruption in flower-related air cargo are carriers from the Middle East, such as Qatar Airways and Emirates. Simply put, their aeroplanes are refuelled nearly for free while these companies enjoy strong state-backed support. What are your thoughts?

“It’s true that Gulf carriers have set foot in the major flower markets as well as the passenger activity where I come from. Where there’s business is competition, and competition is good for everybody to increase the overall quality and service for the customer. Having said that, it is also important that competition remains fair; therefore, state regulations and support should apply to all. This is not the case, and I observe big differences between European and Gulf carriers. There are things we can influence, some we cannot. My role is to ensure we offer the customer a good service and price. In every market we’re operating, we look at our capabilities, service, and the quality we can deliver. We have a unique product with a unique network to offer to our customers, and that is more important than any other competitor.”

Air France KLM Martinair Cargo has forged a strong relationship with FlowerWatch, a company specialising in cold chain quality assurance for cut flowers. It developed a benchmark for air-freighted flowers, which the company touts as “time-temperature exposure.” Simply put, it’s the number of hours needed to transport a shipment of cut flowers multiplied by the average temperature (in centigrade) during the journey. For example, if it takes 250 hours to ship flowers from the time of harvest to the retailer, and the average temperature is four degrees Celsius, that’s 1,000-degree hours. But if the average temperature is two degrees Celsius, that’s 500-degree hours. Would you say that since its inception more than 10 years ago, the benchmark has become a globally accepted standard, and how important is the tool for your business?

“We see more and more focus on temperature and cool chain performance, and I think that the FlowerWatch metric is a good tool for this. Flowerwatch has done internal audits, and we have improved our operations thanks to them. It’s clear and gives a good indication of the performance from farm to warehouse. The standard is there for flowers from Kenya and some importers here in the Netherlands and Germany. It is less known in South America, but we work with several customers and exporters to use this metric as an analysis and improvement tool. So, I would say it’s important for us and during our customer dialogue.”

In realising the perfect time-temperature exposure, it is vital to reduce transportation time; Air France KLM Martinair Cargo allows pre-built up pallets to be delivered three to four hours before departure, whereas, with competitors, this can be 10 hours before departure, impacting degree hours and as such product quality. So, cheaper competitors eventually can come with a cost, am I right?

“By allowing pre-built pallets to arrive 3 to 4 hours before departure in AMS, KLM reduces effective transport time, which improves flower quality. Studies show that each hour of reduced transport time can enhance the perceived quality of flowers by ten per cent. We focus on our capabilities and are looking for improvements in how we handle our cargo.”

It is no secret that flying, whether passenger or cargo, is under huge societal and political challenge. Airlifting flowers is no different. How do you help flower growers/exporters to minimise their carbon footprint?

“What’s particularly exciting is the collaboration we’re fostering with our customers and partners to shrink our carbon footprint further. Sustainable Aviation Fuel (SAF) is a game changer, as it can potentially reduce CO emissions by up to 80 per cent over its lifecycle compared to traditional jet fuel. However, we recognise that SAF comes at a premium price, which is why it’s vital for us to work closely with everyone in the value chain—producers, exporters, importers, supermarkets, airport authorities, etc.

“Our Cargo SAF programme allows shippers and forwarders to contribute to SAF usage. Through customer contributions, we can procure additional SAF, which gets blended into the fuel systems at various airports. Although the specific shipment funded by the customer may not directly utilise the SAF due to logistical constraints, the overall system benefits, allowing other flights to depart with SAF, thus contributing to reduced aviation emissions.

“To ensure transparency and credibility in our claims, AFKLMP Cargo undergoes annual audits by an independent third party, verifying that the claimed CO2 reductions correspond to the SAF certificates we deliver to the customer who paid for it.”

Speaking of political pressure. In provoking a debate, Schiphol Airport bluntly painted a landscape where all air cargo businesses would be forced to cease operations. What’s your say in this debate?

“We stay in close contact with Schiphol Airport on this sensitive topic. We have a plan in which we reduce noise and emissions and where we can have the same number of flights. We presented this to the government and to Schiphol to show how it could be done without harming the Netherlands as a trade partner and Schiphol as a major cargo and passage hub. We must work together on this topic and find a sustainable solution for all parties. So, we are very active and involved in this debate and do everything to come to the best possible solution for all parties.”

Exporters mention that one of your biggest USPs is your incredibly large network of destinations. Since the pandemic, your company has made a huge stride forward in a timely announcement of which destinations will be added and cancelled. Can you shed light on this for the coming winter season?

“Indeed, the combined network of AF, KL, and MP is a true asset for our customers. Even if we depend on the Pax network, we like to be open and transparent to our customers, so we discuss opportunities early on. For our passenger flights, we’ll continue to service every part of the world, just like our summer network. We’ve made a change in our Full Freighter network. We decreased our presence in South America to only Bogotá and added a new rotation to Dubai and Hong Kong to meet the demand from that area into Europe and the Americas.”

Sustainability is key for Air France KLM Martinair Cargo, aligning with the company’s broader goal of becoming a net zero company. EU regulations might build up faster than you can write off and replace your cargo fleet. How big is the challenge?

“It’s a big challenge, and sustainability is a key pillar in the strategy of the group and the cargo division. There are challenges ahead, and we are committed to meeting our targets. We have planned the renewal of the fleet both for passengers and our full freighters. We are one of the frontrunners in the use of SAF. End of September, Air France-KLM ramped up its SAF offtake agreement with TotalEnergies, which will supply up to 1.5 million tons of more sustainable aviation fuel over a ten-year period.”

Looking to the future, what would you say are the key drivers of success in the floral air cargo market?

“The main one is cold chain logistics. If we can improve this from the farm to the final consumer, we can deliver even better flowers. A second one is improving the ease of doing business. This can be done by unified box sizes, digitalisation, technological integration, and partnerships in the supply chain. I am convinced that success in the floral air cargo market depends on a combination of advanced logistics, operational efficiency, and strong customer focus. We also need to adapt to market dynamics, anticipate market needs and focus on our sustainability efforts to reduce our CO2 emission footprint.”

This article was first published in the November 2024 issue of FloraCulture International.