The freight division of the Zurich-based carrier has enjoyed a ramp-up of special products in the German market last year, and is happy about big leaps taken in the digitalization of processes. But whether Swiss WorldCargo’s business in Germany will continue to move upwards depends much on the market situation, which has become noticeably more cloudy.
Some speak of a temporary dip…
No, it’s not a flu. At least not yet. But the fact is that the German economy, Europe’s industrial and logistics powerhouse, is currently experiencing what would be described in medical terms as an “unpleasant cold”. This is evidenced by the latest economic forecast published in Berlin, which lowered the growth rate for 2019 to only 0.5 percent, down 1.3 percent from its estimate published last fall.
In this context, there are two different schools of thought: One the one hand, there are the optimists that speak of a short-term economic downturn that’s over before the turn of this year. Among them is Economy Minister Peter Altmaier who expects the gross domestic product (GDP) to average 1.5 percent in 2020, with the industry returning to buoyant performance in October or November.
Altmaier’s points: several key industrial sectors expect exports to keep growing, among them are the chemical and electrical industry, the healthcare and pharma sector and last but not least the e-commerce trade that’s driven by growing demand and which has proven to be resistant to most crises.
Thanks to substantial income increases enjoyed lately by a large number of employees, consumer demand keeps rising, keeping domestic production rates of consumables at remarkable levels.
…while others fear a longer phase of sluggish growth
In contrast to these rather positive anticipations, critics point out that Germany’s economic well-being is increasingly dependent on external factors, which are difficult to influence and counteracted by the Berlin government.
Tariffs on German-produced automobiles, as threatened by the Trump administration, will pose a threat and will cause a bitter setback for Europe’s leading automobile exporter, if imposed. Regardless of hard repercussions following Washington’s step if taken, and preventions announced by the EU Commission to prevent a transatlantic trade war, this will have a strong breaking effect particularly on the German economy. Statistics show how important the automotive sector is for the country: Automotive contributes roughly 8% of the nation’s GDP. Every 4th euro generated by the manufacturing industry stems from this sector, totaling more than 400 billion euros yearly.
Another sword of Damocles hanging over the economy is the impact of Brexit, should the UK finally leave the EU block in October. According to estimates, Brexit would cost German exporters between 82 to 84 billion euros per year.
Mélange of external and internal challenges
However, not only external threats plague the German industry but domestic woes, too. This, again, is best illustrated when taking a closer look at the automotive industry.
The once shining star has overslept technical innovations and is meanwhile lagging behind competitors in the USA and China that successfully pushed the development of efficient fuel cells powering electric cars ahead. And what shouldn’t be neglected: this can have negative psychological effects and dampen the mood, leading to increased ambiguity and uncertainty among wide sections of the population.
“The German industry, specifically automotive, is currently in a state of transition,” notes Jochen Leibfritz, Head of Cargo Central and Northern Europe at Swiss WorldCargo. “There are shortfalls, both politically and economically determined with a high macroeconomic weight. But similarly, there are a lot of industrial innovations presented almost daily by companies active in a wide range of fields.”
Considerable amount of innovations
As example for industrial strength and innovation that represents many others, Leibfritz mentions a chemical producer that has developed a new powder for coating cars. The electronics industry together with the pharmaceutical sector, chemistry, aircraft manufacturing and mechanical engineering are still running strong, and developing new products and business models that not only contribute substantially to prosperity and economic growth at home but drive demand for air transport, he holds. The same goes for new “green” products which experience a remarkable upswing.
And let’s not forget: The country’s logistics sector is one of the strongest worldwide, just confirmed by the World Bank in their “Logistics Performance Indicator 2018.” Regarding efficiency, Germany ranks first, followed by Sweden, Belgium, Austria, and Japan, the World Bank’s survey proves.
Air freight is facing a bright future
The key question is, what do all these very contrasting economic developments mentioned here, missing a clear trend, mean for the cargo industry in Germany? In the short term there will be a slump, stretching maybe into 2020, depending on global developments. But there won’t be any slowdown in the air transport of express products, valuables, pharma, urgently needed components, spare parts of the electronic, aviation, maritime, and machinery industry, among others. They will drive the business further now and in future upping demand for lower deck or main deck capacity, studies of the German Aviation Association (BDL) show.
Referring to the German market, the BDL predicts an average annual growth rate of 3.7 percent in the coming years. This will most likely continue with an upward trend, because global trade tends to increase rather than decrease, despite the current protectionist climate. For instance, 98 percent of all cell phones sold in Germany have arrived by air, while e-commerce grew 15.6 percent in average each consecutive year from 2008 on. Figures presented at an important industry event recently held in Berlin.
Where there is light, there is also shadow
Currently, Germany accounts for 29 percent of the air freight handled in Europe. This equaled 4.7 million tons processed in 2018, followed by the UK with 2.7 million tons. Having said this, price attractive special products outgrew and keep outgrowing cheaper rated general cargo volumes that tend to migrate to ocean and rail.
However, 50 percent of all exports and imports are processed at airports outside the country, predominantly in Liege, Amsterdam, Luxembourg and Paris CDG. Why? Because ground handling processes including security procedures at these places tend to be more user-friendly and faster compared to practices carried out at their German peers.
This is evidenced day after day in Frankfurt, Dusseldorf, Cologne and others, where bureaucratic procedures, cumbersome customs regulations, night flight bans (Rhine-Main) and the lack of ground handling personnel prevails. These are the key reasons why cargo carriers tend to increasingly land elsewhere, circumventing German soil. For fear of noise protests, and social unrest, local politicians usually refrain from clearing away these obstacles in order to offer the German aviation industry a level playing field with their competitors in the neighboring EU countries. A costly omission!
Swiss WorldCargo is leading the pack
Turning to Swiss WorldCargo, their tonnage in and out Germany grew marginally last year, gaining 0.5 percent. But more important than quantity are sales that went up 14 percent in a year-on-year comparison. A key success factor were special products, emphasizes Head of Cargo Germany Carolin Jaeckle Ramos. This segment increased 16%, accounting for 35% of total sales generated by the Zurich-based carrier in the German market.
“Talking about figures, we would like to highlight the development in active and passive pharmaceuticals; here sales rose by 28.6% compared to the previous year,” Ms Jaeckle Ramos stated. She went on to say: “In addition to the encouraging development in tonnage and turnover, we also want to highlight the progress made in digitization.”
The ePenetration was 11.8 percent in 2017 and increased to 55 percent by December 2018. Likewise, the number of online bookings increased from 26.6% to 38% by December 2018. A true success story made in Germany by Jochen Leibfritz, Carolin Jaeckle Ramos and their entire Swiss WorldCargo team.