Which comes first, capacity or market? Is air cargo capacity put in place to serve an existing need, or by becoming available can it create a whole new type of demand? Colin MacDonald, chairman ofClearwater Seafoods Inc, clearly thinks the latter is the case in his home market of Halifax, Nova Scotia.
Clearwater was founded in 1976 by MacDonald and John Risley, as a retail operation selling lobsters. But the duo quickly realised that the local market was a very seasonal one.
“There was a lot of demand from May to August, possibly into September, because lobsters were mainly consumed at the beach, or on special occasions,” recalls MacDonald. “But there was not enough demand to keep us busy for the rest of the year.”
The usual solution for Canadian lobster producers was to sell into the US market, but the big distributors had all the buying power and could negotiate rock bottom prices.
So Clearwater turned its eyes instead to Europe, focusing on smaller customers who might buy only five or six boxes of lobsters at a time, but would pay for a fresh, quality product. The company suddenly found it could make much better money shipping such small consignments direct to the end customer.
The concept worked and, in the 1980s, Clearwater started to develop customers in Japan, and went on to have its own offices there, as well as in China and in Belgium, Germany and the UK. It was able to ship its goods thanks to the cooperation of airlines such as KLM, Sabena and Lufthansa, and so expanded from lobsters into scallops, coldwater shrimps, turbot and clams.
A success story, then, not just for Clearwater but for the Nova Scotia seafood industry in general. Mac- Donald admits that the latter has grown tremendously since the mid 1970s, with the Canadian lobster catch alone rising from 25 million pounds then to 120 million today.
But he reckons that growth could have been much more had seafood producers not had to cope with limited airfreight capacity out of Halifax. Faced with a small choice of widebodied service and uncompetitive freight rates, he says exporters often have to truck their product to Montreal, Boston or JFK, where it is then bought at lower rates by the large distributors.
He lays the blame for this capacity shortage on what he sees as a restrictive approach to air traffic rights by the Canadian government. “They let some foreign carriers in, but they are always thinking about how they can protect Air Canada,” he says, describing the national carrier as ‘passenger-focused’ and ‘only dabbling in air cargo’.
His view is that governments need to think not just about the passenger business when awarding air traffic rights, but should also look at how cargo can stimulate the economy. “We need to open up our airports with open skies policies and let local industry develop with the help of more daring and opportunity-focused carriers,” MacDonald says.
He also says airports need to lower their fees, their rents and their handling costs, which at cur-rent levels discourage cargo airlines. “They’re trying to extract the same level of cost from cargo carriers as from passenger carriers, but that’s not sustainable,” he insists.
MacDonald is critical too, of the belly cargo pricing policies of some airlines. With Air Canada Cargo run as a profit centre, he says, it charges rates that are too high for the market. “It could carry goods at lower rates in order to encourage exports,” he says.
“If they just measured the incremental costs of cargo – the extra fuel and the few extra people needed – then their pricing could be a lot more competitive. As it is, they put a full ticket price on cargo, which is short-sighted, and then shut out foreign carriers because they are afraid of losing passenger business.”
Belly cargo is particularly important for Clearwater, given that its most lucrative market is sending small shipments direct to the customer. MacDonald says that is much more of a belly cargo business model than a full freighter one.
Given the lack of belly capacity into Halifax, Clearwater serves its customers by trucking consignments to a facility in Louisville, Kentucky, from where they are fed into the UPS system for delivery overnight to customers mainly in the USA, but also in Europe and Asia.
It would clearly be better to be able to fly the lobsters direct from Halifax, but capacity here is effectively limited to Air Canada, with other carriers being mostly small feeder services to other parts of Canada or the USA.
The issue here is the stress that lobsters are put under when transported live. While they can survive out of water in 1-2 degree temperatures, this only really works for two to three days. Beyond that, the quality of the product starts to markedly suffer.
MacDonald compares them to fruit or flowers. “If a cut flower has a shelf life of two weeks, and it takes a week to get to the end customer, then they have only one week of life left. But if you can get it to the end customer overnight, the flowers would be good for two weeks.
“So with new web solutions where you can order direct from the nursery, and it only cuts the flowers when you place the order and then ships them direct, the customer can get a better product, and the nursery gets a better price because they are cutting out the distributor.
“It is the same with lobsters. If it takes 60 hours to get to the customers, they probably only have a day left to sell them. I would like to be able to get the product to the customer in 12 hours.”
MacDonald says that although the UPS solution via Louisville works for Clear-water, “I am speaking here for the industry as a whole. As a company we have built our way around these problems, but not every company can do this. If we had the right capacity the industry could grow a lot more.”
Clearwater has also put a lot of effort into educating airlines and ground handlers in how to best handle lobster shipments. It offers an hour-long instructional course, which it calls ‘The Lobster University’. Bad practice tackled by the course includes leaving boxes out in the heat, and the dangers of jolting the boxes. “Lobsters have to be handled like eggs,” MacDonald says. “If you bounce them around, you crack their shells and they bleed.”
On the need to avoid exposing the boxes to heat, he says that ‘no matter how good the insulation on the box, exposure to the sun will raise its temperature, and that causes the metabolism of the lobsters to increase at a great rate. If they can’t then get enough oxygen, they then get highly stressed.”
One day all of this might become academic. MacDonald reveals that research is going on into ways of transmitting live lobsters by sea freight.
The idea would be to create conditions that enable lobsters to live comfortably inside a cargo container for as long as two-to-three weeks, but currently there are considerable challenges to overcome.
If there was ever a breakthrough on this front, then airfreight might become a lot less vital for lobster producers. Until then, however, it is the only game in town.
And, meanwhile, there’s a big opportunity for an entrepreneurial airline serving Halifax, Nova Scotia.
If only they – and the Canadian government – can first recognise and then seize it.
Posted on October 20, 2013
by Edwin Kalischnig