By: René Graafland & Alex Klein
Mr. Grin, who as been actively involved with Aerius from the beginning, recently joined the Advisory Board. This, and the fact that Mr. Grin has a very interesting and responsible job at KLM-Cargo, were good reasons for us to interview him. Following the report of this interview that lasted for three and a half hours.
Name: Boubby Grin
Occupation: Director Strategy and Governance KLM Cargo
Education: HBS-B, two years of economics and several courses through KLM
Newspapers: Volkskrant and Financial Times
Magazine: Just about any work-related trade journal
Radio: Popular music and Jazz
TV: Hardly ever
Last book: ‘Nostromo’ by Joseph Conrad
Sports: Bicycling, cross-country skiing
You can wake me for: Rather not
Holiday: We enjoy going to our cottage in France
Best/worst flight: I don’t fly that much
Best airport: I like Stansted
Are you fascinated by aviation?
Although my family does not have a strong history in aviation, it is certainly not unknown to me. My father flew in the Dutch East Indies for a short while after World War II. We also went to many air shows. My work in aviation was not predestined, though. The fact that I was stationed in the air force when I served my term was all right, although not what I explicitly wished for. I was stationed at air traffic control, where I found out that there was little to do for a serving officer, because this job was mostly claimed by professionals. After asking for an education in which a serving officer could gain some experience, I ended up with the guided missiles. This still has to do with aviation, namely aerodynamics- and propulsionsystems. Serving here meant staying longer, though, to make up for lost time.
How did you get to work for KLM?
I sent out application forms to the standard companies, such as Shell, Unilever and KLM. My neighbour, who said cargo would become a booming business, advised me to show special interest in cargo at KLM, which I did. They were delighted with my dedication for strategic marketing for Cargo. I came to work with KLM at the Marketing division (1969), a big unsegmented division, marketing all KLM activities and there I was posted at the cargo account, primarily with the task to make commercial analyses.
In what year did KLM-Cargo lift off?
In 1969 there was no real Cargo-division at KLM, only the marketing part and some operational services, although air cargo was already in the KLM services since the 1920’s. Before WW II there was a strong rise in cargo operations, which collapsed during the war. Although Plesman and his associates firmly took up operations after the war, it was only in the early 1970’s that a real emphasis was placed on cargo, with its own parameters and economic drivers.
Yet KLM combines passengers and cargo in one plane?
At KLM passengers and cargo are combined. It does give problems however. For example, scheduling becomes more complex, often serving two different markets – a day market for most passengers and an afternoon c.q. night market for cargo – with one means of production. KLM wants to keep using this so called combi-concept, because the benefits still outweigh the organizational difficulties.
KLM does so unlike some chartered cargo carriers?
Yes, they are in a different market. KLM differentiates in functionality, we belong to a group of air networkers working with the hub and spoke system, but there are also many carriers working as air operators, especially at the cargo side. These carriers only produce a flight service when asked for and thus they avoid the organizational complexity associated with the combi-concept.
Were there any all-cargo carriers when KLM started its cargo operations, considering cargo wasn’t recognized as a separate market then?
Yes, when KLM started with cargo, all-cargo carriers already existed. There are two things we have to concentrate on. The fact that passengers and cargo (including mail) are different categories with different cargo characteristics, which are carried in one plane. There are two ways to deal with these differences, either you combine both categories in one plane and deal with the extra complexity; the economical advantage being lower costs per unit, or you can choose for two different fleets: the complexity problem is set aside, though economically this may have the disadvantage of higher costs per unit, simply because there is less opportunity to optimize the plane’s load. KLM chose to take the organizational disadvantages and started using the combi-concept, and thus chose for some problem-solving operations.
Knowledge is needed for this kind of operations.
True, we deliberately chose path this back in the late sixties, when the Boeing 747 was introduced, under guidance of our former CEO, Mr Pieter Bouw. Because of the 747s enormous size, combining passengers with cargo became an interesting option: The basis for the combi concept was laid. This concept does not only mean you fly Combi-aircraft, but the concept actually means to combine the passengers and cargo productions in one transport method: Even a full-passenger 747, with 400-450 seats, carries a cargo load of about 15 to 25 tonnes. In principle, we put cargo on all of our planes.
How many hours a day are they operational?
That very much depends on where they are being deployed. Wide bodies are in use for approximately 16 to 17 hours a day, not counting overhaul-time. They must fly to make money.
Isn’t that another advantage of the Combi concept, with the night ban on Schiphol? That you can move a lot of cargo during the daytime?
For the combis the night ban does not pose a real problem. Thinking of the huge pressure on Schiphol and therefore also on us, we managed to resolve this with relatively minor adaptations to the schedule. Other carriers that chose to operate in night production, often with noisier planes, are confronted more with this issue than we are.
How about the carriers that use the Quick Change concept, such as Lufthansa?
KLM also used this in the seventies, calling it the Rapid Change concept, but quit using it, because we want planes to fly on quickly. It can happen that external factors, like ATC, can delay the operation. Although the change in the aeroplane goes very fast it must be done twice a day, which could further frustrate operations. Besides that, the side-panels are not taken out of the plane, when it is shipping cargo. During these operations they have no importance and although measures are taken to prevent damage, it can happen that the cargo on a pallet sticks out and damages the interior panelling. During passenger operations the damages would leave a bad impression. Taking these disadvantages into account, KLM chose to discontinue her quick change operations, even though it has its charms.
What kind of market is there for the 737 and DC-9 sized planes?
A continental market. As cargo is becoming a real business, and much more a pipeline business as opposed to the passenger business, which has more point to point travel, it seems apparent that having a full grown continental hub and spoke network is at least as important as having intercontinental connections.
So these smaller planes can compete with ground transport?
Not with all ground transport, but gradually the increasing road congestion is becoming a bigger problem, think about France and the Alp-countries. The performance of railroad traffic is not improving. There are several infrastructural restrictions in the flow of cargo to our hinterland, that causes problems for some sorts of cargo. Then KLM decided to reintroduce what we had discontinued before – with pain in our hearts – namely European cargo aircraft. Though at the time it seemed they caused economical losses, strategically they are very important, otherwise you retreat from a large part of Europe, and lock yourself up in North-western Europe, where competition is very fierce. There are several ways to try and deal with this problem and we decided to fight it this way…
What about the smaller regional airports and cargo, like Maastricht Aachen Airport?
MAA has always been important for cargo and I hope they can keep that position. A certain degree of proximity to the market, even in a small country like The Netherlands, is desirable. But let’s not discriminate: The same holds for Rotterdam, Eindhoven, Twente and hopefully Eelde. I hope they remain available for cargo operations. It also gives the opportunity to divert some cargo activities.
Also at night?
Also at night, given that MAA and the other fields are not confronted with the same threat as Schiphol. But I can not foresee that, a lot of thinking needs to be done about what we decide for the future, also considering a possible Second National Airport.
Where would you like to have a Second National Airport?
Speaking only for cargo, our choice for a second airport would be abroad. We then place our operations closer to the market, not just a couple of kilometres away. That would be in accordance with our sub-hub strategy. At present our subhubs are Vienna, Skasca, Lyon, Manchester, Zaragoza, Bergamo. Some of them could became a second Cargo-Hub.
But they don’t have the advantage of a sea and airport combination, whereas Ijmuiden, for example, would have?
For KLM cargo this is not a decisive argument. For the Netherlands it is an argument of having a mainport at sea and one for aviation. It is a factor for the establishment of companies, not for the logistics provider.
In some magazines I read about the IATA plan ‘Cargo 2000.’ I understood KLM raised some questions concerning the contents of it. Doesn’t the plan have to do with Electronic Data Interchange?
That is the objective of the group. It is a collaboration of a group of airline companies, Cargo Media, and a group of forwarders, Cargo Lift, both of which were separately studying the possibilities of EDI application. Those two groups decided to co-operate, and initiated Cargo 2000. Normally, we would have joined, but the Memorandum of Understanding raised some critical questions. Although the improvement of the customer service level is one of its main aims, customers themselves were, and still are, excluded from membership. KLM Cargo has been customer-driven for some years now, and we believe that the only way to make it work, is to have customers participate. Besides, they are not an IATA group, but an IATA interest group, showing that IATA hasn’t fully committed itself either.
We talked about the knowledge needed for the Combi-concept. Just now we talked about the necessity of new strategic ways of thinking. What kind of students are you looking for in the next few years to stimulate the logistics industry, and KLM Cargo in the Netherlands? What do you look for in a student, or his field of study?
Well, in connection with what I just mentioned with Cargo 2000: I cannot so much describe it in terms of the curriculum one should follow, but I would strongly plea that – this industry being so introvert and having process-orientated features – we should open up to the market. I would suggest that if someone would write down a fully developed logistic curriculum in which the Netherlands could regain its position in logistics and distribution in the world, it would also contain subjects like International Law and Languages. We must find our way back to the market again, find out where we stand and where we want to be. For a while we have really been looking to the inside and at some point we efficiently started producing what we thought the customer wanted. Though we found some really neat solutions, we still realized at some point, that we had withdrawn ourselves too long and when we returned to the market we were lagging behind. Our clients had moved ahead: In their interactions with their own customers, they had already innovated the services they wanted us to perform. They are positioned in a cut-throat logistic market with concepts like just-in-time delivery and effective consumer response. Things are happening at the customer side of the market, the time of business re-engineering is gone by. Therefore we are looking for people who can sense the pulse of the market, instead of people who have the tendency to look inside, to the process.
This means that KLM must re-educate its current employees?
We do that constantly. KLM changed its organization from a functional pyramidal organization to a full-unit structure. We now have seven Business Units, all responsible for their own part in the operations and commerce, the so-called shop-factory model. One of their responsibilities is updating their employees so that they can find and keep their place in the world and in the market.
So the units have become internal customers of each other. Does this give any problems?
No, hopefully not. There is a small and simple package of ‘Trading Rules,’ that regulates the internal trade and relations between the units. We hope that we haven’t made any mistakes in these rules and some well-established consultancy firms have checked them, and found no mistakes whatsoever.
Do these rules apply for KLM as a whole?
No, just KLM Cargo. KLM has two large divisions, namely Passage and Cargo and within the Cargo division we chose to leave behind our traditional functional organization and switched over to a flat business unit structure. The Passage division still works with a functional organization.
It is odd that in one and the same company, despite the fact that it consists of two divisions, it works with different organizational structures? Then again, it may better apply to their activities?
Clearly it does, although I cannot speak for the Passage division, it does seem that way. Of course it is an extra task, but we are used to these complex tasks, just think of the combi-concept. This is similar to the combi-concept, having two divisions in one company in which one division chooses another organizational structure than the second. Still at the top it must be kept under control.
And all the same, the passengers are still put together with the cargo in the same plane?
Yes, but let me make this clear, an aeroplane doesn’t mean anything to us, we put cargo as easily on a boat or in a truck. We don’t own any aeroplanes nor will we ever. Ownership lies with KLM. As a matter of fact: Since October 1st, KLM Cargo has officially become a forwarder.
And no longer an airliner?
Well, we are a division of an airline company, but then again, catering is also a division and there they bake bread. We are freight people, specialized in accepting cargo and matching it with capacity. As it happens we are part of a company that has quite some capacity, making the match fairly easy and transparent. But looking at it functionally, we work more as a forwarder than as a carrier.
We don’t mind if people still see us as KLM, the airliner, but looking closely, we are more of a handling company, just like Aeroground and Avio Presto, and a forwarder.
I wonder, with my legal background: Do cargo operations have a code-sharing construction similar to that of passenger transport?
With your legal background, you should know that in the Warsaw Convention, basically the Bible for Aviation, a very important freedom has been kept for freight: the freedom of routing. For passenger transport such a freedom does not exist, making code-sharing agreements an interesting alternative.
Bilateral treaties create the opportunity to carry passengers between two states. The sixth freedom enables you to fly people from a third state to your state, and then carry them to the bilateral partner. When this is done with the same airline, this is called internal code-sharing. External code sharing would be if one part of the journey is done by a carrier other than your own.
This has given all kinds of aviation-related political difficulties, because in principle no freedom of routing exists for passengers. But it does for cargo. So for the cargo side of operations code-sharing is not so interesting.
It is however interesting when constructing networks out of single legs. If, for example, you would carry a cargo load from Northern Italy to Schiphol and from there on you have a large amount of carriers going into the world, this makes it possible to have transportation from Northern Italy to the rest of the world without causing problems in the bilateral agreements, simply because there is a freedom of routing.
The freedom was actually always there, but because cargo operations always played the supporting role in the whole flying operation, it never had the possibility to develop. The more one looks to the Cargo side of the operations, it turns out that this freedom exists and we can use it. In Passenger operations we are also looking for this freedom and this leads to alliances that, by way of code-sharing tie together networks. With cargo operations we could have done it earlier, but then again, at the cargo side it isn’t as apparent as in code-sharing with passengers. As a passenger you should always wonder if you aren’t cheated, by being flown by a lower quality carrier.
We had research done for the manifest “Give Cargo some Air” (Lucht voor Vracht), and it appeared that 23 to 25% of Dutch cargo was shipped through foreign airports. So cargo networking is already actively practised.Wherein then lies the difference between the scheduled and the chartered carriers?
There is a judicial differentiation to be made between scheduled, bilateral flights and the so called file and fly regime. For the latter permission is always needed from the destination airport for every flight. Many western and far eastern countries give you almost immediate permission, but still the request has to be made. Though charters, Cargolux and Martinair, for example, have built extensive networks between many countries. Despite the theoretical difference, in practice little differentiation is made. Business travellers book a flight just as easily with Martinair as with KLM.
There is a tendency that after 40 to 50 years differences in a sector start to fade. When this happens to a business, you have to be cautious.
Most cargo air transport services are offered by forwarders, not by airliners. The client does not care how the forwarder does his job, as long as his cargo is delivered is good fashion. The forwarder does so on his own account and liability.