March 11, 2014
‘Argentina needs urgent reform of air transport legislation’
Argentina, the world’s eighth largest nation, badly needs to develop its air transport system to foster trade and lower costs in a highly-competitive sector that has only tight profit margins, an expert says.
"Due to its geographical location it is a last-destination country in terms of air traffic, except in cases of transpolar flights. This leads exports from and imports into Argentina to have a freight cost that impacts the final price. This, in turn, makes it imperative to profit from any competitive advantage offered by some transport means," Hernán Adrián Gómez, a Buenos Aires University and Postgraduate Lecturer in Water and Air Navigation Law says.
"The country should develop air transport and integrate it with other means, particularly railroads. As an example, Chilean boutique wineries place their wines in market shelves all over the world thanks to a strategic air cargo policy. Their fruit can reach London markets in 36 hours," Argentina’s representative before the Ibero-American Institute of Aeronautic and Space Law and Commercial Aviation tells the Herald in an interview. "For some products, air transport has significant advantages vis-à-vis marine cargo. Argentina has started to profit from some of these modalities, but there is still a long way to go."
The ordinary citizen often has the perception that air cargo has little to do with him/her. Is that so?
The relationship between trade and transport is substantial and indivisible and fully impacts our daily lives. We have come a long way since the first recorded mail flight, in 1911, in British India, to the present. It is worth noting that in Argentina there was an early development of the activity by writer Antoine de Saint Exupéry.
We would discover the importance of air cargo by just realizing the huge amount of user goods or consumption items that surround us and that have been transported on an aircraft. From a newspaper we read in the morning, to the microsystems of our mobile phones and from fruit or wine, to a technical book. Suffice to highlight that, currently, more than 80 percent of products traded via e-commerce are air-borne. Air transport suits the worldwide low-volume, and fast-delivery shipments.
Which are the parties involved in the industry?
If we could illustrate each party participating in the business with a link, according to the classical doctrine of economics, we would see that the air transport chain as highly complex. There are, among other parties, airports, airlines, station managers, cargo operators, ground handling staff, shippers, cargo agents, consignors, consignees, consolidators, freight forwarders and other agencies. They are joined by various controlling bodies such as the customs, airport security police, health authorities, or the Arms National Registry.
How is cargo instrumented from the legal point of view?
The air carriage contract may be intended to transport people and things from one place to another, whether those things be goods, baggage and mail. The cargo contract is implemented through the airwaybill (AWB).
How do you define an airwaybill?
It is a document made out by or on behalf of the shipper that evidences the contract between the shipper and the carrier/s for the carriage of goods over routes of the carrier/s. The cargo may be transported in the same holds of aircraft carrying passengers as is notably the case of postal transport or in specific wide-body freight aircraft.
What are the main characteristics of that modality?
The reglamentarism, typical of aeronautical and maritime industry, is particularly present in the air freight sector. For each type of goods transported there are international and regional public regulations, and private regulations of each airline. Specific procedures may also be observed for storage and stowage within the aircraft. Nothing should be left to contingencies, and not only to optimize the service offered by the carrier, but to comply with the highest standards of safety. For example, the Dangerous Goods Regulations (DGR) transport protocols are totally different from the Live Animals and Perishables Board Transport protocols, or those for infectious substances or lithium batteries.
Moreover, the air cargo industry is a highly technical and specialized business with a minimal profit margin and, therefore, there is very little room for error.
What are the competitive advantages of air transport?
In general, we could say that the goods transported by air have, among others, some of the following characteristics: they are small, have a medium or a high added value, can be highly dangerous and/or perishable — from fruits to medicines. They often are products whose supply must be permanent and/or be essential inputs for the production of goods.
Naturally, the transportation of large volumes continues to be done mainly by ship. In 2013 the global marine cargo capacity was 17 million TEUs on the basis of full-container vessels designed to optimize costs and attract products that — until a year ago — were carried exclusively by air such as those of high technology. Air containers and pallets are much smaller than ship ones. For example, those of a Boeing 747F barely exceed 15 cubic metres.
Air capacity has a marked flexibility due to the large number of aircraft options on the market. Besides, air transport is the safest one due to the low rate of hazard , which results in reduced insurance premiums.
Punctuality and speed are perhaps the more noteworthy competitive advantages because you can place a cargo to and from anywhere in the world within 24 hours.
Air cargo companies’ strategic alliances or traditional alliances like SkyTeam, Oneworld and Star Alliance have optimized their network or partner airlines.
Inter-modality is taking over the air cargo market. There are three types of flows: long-haul intercontinental traffic; feeder traffic between secondary platforms and hubs; and regional regular traffic in shared holds. The first kind of transport usually has an inter-modal phase with the ship, while the second and the third one have inter-modal phases with trains and trucks. From June 2012 to June 2013, the international air cargo growth slowed to 68.5 million tons, as the sector felt the negative impact of increased fuel prices.
What is the state of the air cargo services industry today?
In Argentina we find that electronic and technological products and spare parts for industrial use are mostly imported. Meanwhile, premium red meat, fish, industrial products, medicines and fruits, particularly lemons from the province of Tucumán, are exported. The exports of blueberries concentrate as from next October.
The main destinations and cargo origin are the US, with its hub in Miami, and Europe. This shows the potential of the industry in the face of a huge number of captive markets. Taking the general parameters of 2012, while LAN Cargo leads the export sector with a 17.9 percent market share, the company lost comfort regarding previous years as American Airlines reached 11.6 percent and Aerolíneas Argentinas 7.7 percent. With regard to imports, LAN Cargo has a 22.9 percent market share, followed by American Airlines with 8.2 percent, and Dutch Martinair coming in third. The economic downturn has impacted the air cargo market globally. It has been only in July 2013 that the market managed to post its first growth in three years — an increase of 1.2 percent over the previous year — and has since been growing slowly.
Is there a difference in treatment between imported and exported cargo?
An imported cargo is more expensive because it remains in storage an average of 9 days. The air cargo export is stimulated by most states via incentives, as reflected in more direct service circuits. Besides, export tariffs establish a three-day franchise free of storage costs.
What is the development of the industry sector in the country?
In Argentina, Aeropuertos Argentina 2000 concessionaire is by far the leader in air cargo terminals. The most important terminals are those of Ezeiza international airport, Buenos Aires City Jorge Newbery local airport, Córdoba, Mendoza, and Mar del Plata. In 2011 there was a remarkable local market increase, with Ezeiza growing more than 20 percent to around 230,000 tons.
What are Argentina’s public challenges to increase air cargo?
A state may encourage capital investment to renew or purchase suitable and competitive aircraft fleets for this type of transport. It would be good to draw public policies that allow the public parties in the sector to specialize technically, and foster policies to facilitate and enhance air cargo. Training of public and private management mid-ranks is crucial for the consolidation and growth of the sector. This requires the development of airport infrastructure through the creation and expansion of existing cargo terminals.
There are also academic challenges. Logistics at university programmes are still a pending matter. Universities should have high-academic levels to, for example, offer training in logistics. This is necessary to avoid tactical and strategic mistakes due to the lack of know-how, to reduce operating costs, and to attain an efficient planning to define the needs of shippers.
Another challenge is to build an aircraft-rail inter-modality for certain types of traffic, and to develop the Argentine railway system to optimize costs. Besides, railways are environmentally friendly.
Is the air cargo legal framework up to date in Argentina?
In terms of national legislation, the Argentine Aeronautical Code dates from 1967 and, as a consequence, it is imperative to reform it.
The latest reform bill was drawn by Professor Griselda Capaldo (interviewed by the Herald on August 26) but unfortunately it never reached Parliamentary status. It would be good a congressional debate in the next legislative period because it is a highly valuable scientific work.
At an international level, Argentina approved and ratified the Montreal Convention for the Unification of Certain Rules for International Carriage by Air, which created a liability system.
Finally, what are the challenges for the private sector?
At present, the air cargo industry is based on printed processes involving up to 30 different paper documents, something that leads to an unacceptable increase in the time and cost of transport.
In view of this, at the behest of the Canada-based International Air Transport Association (IATA) a new E-AirWayBill Multilateral Agreement was adopted.
This accord establishes a single-standard contract that airlines and cargo agents sign only once with IATA, to start making an electronic airwaybill (e-AWB) with all the other companies that take part in the contract.
This e-freight project aims to improve the efficiency and competitiveness of the air cargo sector, eliminating paper documentation in the commercial chain, and simplifying the process through electronic messages. Today, in the Americas, only Canada, Mexico, Colombia and Chile have adopted this system. In the case of Argentina there are isolated parties testing it, such as flag-carrier company Aerolíneas Argentinas. It is important to train all parties so that the sector consolidates and grows in our country.