No serious slowdown of air freight in the region

The express air freight industry has been severely affected by the global economic meltdown due to a drop in consumption levels. Hamdi Osman, FedEx Senior Vice-President of the Middle East, Indian Subcontinent and Africa tells Emirates Business how FedEx operations in the region will be able to weather the current storm.

What has been the performance of FedEx in this region during this crisis?

In this part of the world, especially the Middle East, Indian Subcontinent and Africa, the effect has not been as severe as every where else say Europe, the United States and Asia. Of the three regions, India is the one that was affected the most.

The performance in the Middle East has not changed much and there is no serious slowdown, the same applies to Africa. However, we have seen some significant reduction in the inbound business, and this is not only for FedEx, but the entire industry. Prior to this crisis, the industry has been averaging growth of 12 per cent yearly for inbound express freight. So far inbound growth is at five per cent. Outbound was about 18 per cent, now its about 7-8 per cent according to experts. It is a significant reduction, but still better than in other regions where growth is either flat or negative.

Does that give an indication that demand in the region has dropped?

Express air freight activity is still very much alive and we are still maintaining our customers. However, the volume of shipments has dropped due to the credit crunch. Consumer spending has fallen and people are holding onto their cash due to an uncertain future. But overall, this region is still doing well. And I have always been an advocate for this region because it’s young, the infrastructure is new and there is growth in all sectors. The demand will remain high compared to the mature markets because of a high number of youth and middle class.

FedEx Corp has announced cost cutting measures that include job cuts and salary cuts, will the same measures be implemented in this region?

I don’t rule anything out at this moment, but we have been adopting good policies and have been watching our productivity. I have been one of the most cautious in terms of how to weather what we are going through at the moment. The decisions we took about eighteen months ago are helping us today.

We don’t hire for the sake of hiring. Every spending we make is exact to what is required. Our investment is always in people and that is paying off now because in good and bad times, the only thing that will stand by you is your people, from the sales person to the carriers who meet the customers every day. So we have not talked of any lay offs in this region or any pay cuts. I don’t think it is mandatory because the region has been growing and our people have been there to help us through this growth.

Are you implying that the other regions have not been cautious?

The other regions have been more severely affected than we have been and that is why they have to take equally severe measures to address the situation.

And if you look at those measure, they are aimed at reducing salaries of top executives, not all employees and also reducing spending and costs. This is a good sign for the company, rather than use equipment that may not be needed because the volume is less, you can take out exactly the quantity you don’t need at the time without affecting business, and that is what we are doing.

With reduction in business, will your budget for this year be affected?

No our budget will not be affected, but the business could be affected if the economy turns the wrong way. At the moment the economy is still sound, but given the global situation, we have to learn quickly to be lean and mean. That will help us to overcome any stumbling blocks ahead of us.

We see the future more than others in many ways. It doesn’t matter how bad we will be hit as long as we know how to be flexible enough, and this is something we have taught all our managers and staff. New business has to come in as business goes away from the others. It doesn’t matter whether it is good or bad time, peace or war time, transportation is the spine cord of every economy and FedEx is right in the centre of that because we have the size and scope, the people, airplanes and the technology.

What are your plans for expansion in this region?

We have been expanding in India for the past year or two. We have opened up locations in the UAE to support customers about seven months ago off Sheikh Zayed Road. We have two locations in Sharjah. We have another location in Abu Dhabi to meet with the demand and also help us lessen the impact of traffic jam on our business. We rely on two modes of air transport, first is our own airplanes and second is passenger aircraft. We rely on partners such as Emirates, Etihad, Gulf Air, Saudi airlines, Air Arabia, Air France, British Airways, Kenya Airways and Ethiopian Airlines.

Weekly, we have 12 FedEx flights a week into the region and 19 flights into India. In this region we have Dubai, Mumbai and Delhi as our main hubs. We will be expanding our scope in these hubs.

When will your operations at Al Maktoum International Airport start?

We do have a plan, we have been one of the master case study companies, one of the original four who did the study with the original company and one of the few integrators committed to the project.

However, there has been no solution yet on the connectivity between Dubai International Airport and the new airport. Until a decision has been made we can not do anything. We are talking to authorities about it, we are waiting to see what the final resolution will be, because we depend heavily on our feeder network in the Middle East and we depend on airlines, so there is need for speed and efficiency. The minute we move to the new airport, if there is no tunnel or train to expressly move goods between the two airports, it becomes a problem.

Have your freight rates gone down as jet fuel prices dropped?

Of course they have gone down, not only for FedEx but for most operators as well. This is based on a fuel index formula and if the rates will adjust according to the movements on the fuel index. At the moment rates have been going down.

Freight rates, especially for bulk shipping at sea have gone down by about 80 per cent, does this present a threat to your business?

We can not disregard it, however our business is one that has to be there, especially for customers who are interested in express service. Our model is based on speed and reliability, unlike sea freight which takes long. But some clients do not want to wait that long given their supply chain model. So we fill that gap.

What does the future hold for the express air freight industry in this region given the current economic crisis?

The express air freight industry has been growing about 22 per cent in this region and we have all benefited from this growth in the past three to four years.

Most players budgeted for 18 per cent growth in 2008 but it dropped down to single digit numbers and this will have a hit on the bottom line. But in our business, the heavier the weight, the more money is made, so profitability depends on how much weight one has shipped. In good and bad times, we make sure we have to bring new business and this drives us. There is a lot of more creative ideas right now. Our industry will continue to be alive because we are in everyone’s business. If you look around our regions, the demand for transportation of goods by any mode will not dip, nothing can stand still because of the economy. Because of the many development projects here, we will be the first to recover in when the economy rebounds.

Do you see any players in the region closing business due to the situation?

I don’t see any major players in this industry closing down; only smaller players will be affected. In this situation, only the fittest will survive. Today, customers are slowing down in their payments and shipping volumes have reduced, so those who can sustain business are those who are strongly established.

So size and scope and year of experience will play a major role and also the ability to manage things in crisis.