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Home | Update | Latest Issue | Gallery | FR Profile | Datafiles | FR 1/97 LUFTHANSA CARGO LAUNCHES NEW LOGISTICS STRATEGY by Heiko Reuter Wilhelm Althen, head of Lufthansa Cargo, has a job of the unpleasant kind: To lead Lufthansa's freight department into the profit zone, permanently. This will require him to restructure the entire Cargo AG, which is not an easy mission, even for a long-time Lufthansa employee. In 1995, the first year of operating as an independent company, Lufthansa Cargo managed to generate profits of DM 20 million - beginner's success which would have even been higher without currency losses. Still, for 1996 Althen does not dare to talk about profits: The conditions on the worldwide freight market have drastically tightened up within a year's time, revealing the neglects of the past years. In the first months of 1996, the Lufthansa freight flyers have accumulated losses of DM 66 million. Offers and sold freight-ton-kilometers have increased, but the turnover decreased. Worldwide overcapacities put pressure on prices, 60 percent rebates on prices published are common, and the average earnings are dropping in free fall. The economic slump in Germany is part of the problem. However, Althen believes that these problems don't just effect Lufthansa Cargo: "Everybody else is also flying in the red numbers." The freight markets are characterized by fights for each ton of cargo. Carriers are operating under enormous cost pressure. When in the period from July to October prices for kerosene exploded by 50 percent, Lufthansa Cargo reacted by charging a fuel surcharge of 15 Pfennig per kilogram of freight. All other carriers were forced to do the same. Althen is already announcing further rounds in the price fight. Beginning in spring, cargo customers are supposed to pay seven to ten percent more. A second rise is planned for autumn of 1997. Althen's calculations are based on the expectation that none of the carriers will be able to afford the price dumping and he thinks that the price level will stabilize. At least the economical general set-up of the cargo business gives reason for optimism. Boeing, in its newest cargo market outlook, expects a 6,6 percent annual increase of the cargo air traffic, as compared to 5,1 percent in the passenger business. The globalization of the economies is generating an increasing demand for cargo services. Many high-tech products are sent with continuously decreasing life-spans to the consumers. High-value electronic utilities, such as computers and handies, are technologically outdated often only months or weeks after they were sold. The speed in which the products can be brought to the customers is often decicive - a big chance for the air cargo carriers. The development is changing the entire branch: "The fast eats the slow, and not the big the small" is Althen's vision of the future. The Lufthansa Cargo chief is convinced that the carrier must improve the quality of its service if Lufthansa wants to keep its position as the market leader. The company's organization has to be improved, too. Althen knows that "we are not in a position to profitably sell our product". He continues, saying that the freight business has not been more than an appendage of the passenger business: "We were the underdogs." This is to be stopped now. The Cargo AG will be restructured and will be oriented to become "the leading logistics service company of the global air freight market". The standards, procedures and flows will be evaluated; new technologies will be introduced. The entire organization is to become faster and more efficient. Bar-code and chip technology are to render the piles of paper superfluous that are currently generated during data transfer. To the outside, this restructuring is called optimization of the integrated transport chain. The customer not only expects his freight to be carried flawless in the air, but also a door-to-door service. Integrators, such as UPS or Federal Express, are exemplary for Wilhelm Althen's plans: "The carriers, which are operating in the passenger transport business as well as in forwarding freight and are offering their customers an integrated service, have successfully operated on the market in the past years. The reason is that they are working with an integrated logistics chain and not like forwarding or airlines that are offering a combined service package which is more or less good combined." Lufthansa Cargo must work in closer cooperation with the service companies involved in order to realize the plans of setting up a more efficient transport and logistics flow. Moreover, the freight fliers want to offer new products with a time guarantee - however, without interfering directly with the business of the integrators and their overnight express services. Still, the Lufthansa Cargo chief is convinced that it should be possible to offer New York - Singapore in 36 hours and give the sender a time guarantee for his freight. Lufthansa Cargo is investing approximately DM 200 million in the new Super-Cargo System of the future. According to the guidelines which were set by the concern management, the freight business must operate profitably again in 1998. Wilhelm Althen is optimistic about achieving this goal. If he were not to succeed, his days as head of Lufthansa Cargo will probably be numbered. From page 22 of FLUG REVUE 1/97 Home | Update | Latest Issue | Gallery | FR Profile | Datafiles | FR 1/97 Copyright 1996 by Motor-Presse Stuttgart. All rights reserved. Last updated December 11, 1996