Upgrading Egypt's inadequate cargo facilities is key to developing the export sector. Amira Ibrahim reports The same problem seems to peak every year, starting in November and lasting until the end of the harvest season for winter and spring produce. Sparks fly between exporters of agricultural goods and the authorities in the airport cargo section over persistent export inadequacies. Every year exporters complain that airlines have inadequate cargo capacity, that flight schedules do not suit their delivery and that continuous price hikes cut into their profits. This year, the Agricultural Products Council (APC), a government body affiliated to the Ministry of Trade and Industry, threatened private and government air freight carriers with establishing a new cargo carrier in order to safeguard the interests of exporters. "This would certainly help exporters avoid regular flight delays and the shortage of cargo capacity on passenger flights," said APC Chairman Osama Kheireddin. APC is responsible for solving producers and exporters' problems, particularly those involving the aviation authorities. "The regular air freight problems faced by producers and exporters of agricultural products are detrimental to the development of exports from Egypt to Europe. If we cannot solve those problems we may lose our share in the European market altogether and our plans to increase the value of agricultural exports to $1 billion during the next two years will fail," said Khaireddien. The lion's share of the cargo business is controlled by EgyptAir Cargo. EgyptAir Cargo, one of EgyptAir's seven divisions, operates two Airbus 300-B4 cargo aircraft in the European market and transports about half of the air-freight in Egypt. EgyptAir Cargo Chairman Major General Assaad Darwish, in an interview with Al-Ahram Weekly, explained that his company's business is concentrated in four main airports. "We have two stations in London, at Heathrow and Stansted airports, one in Belgium at Ostend airport and the fourth at Hahn airport in Germany. The company also has considerable cargo contracts in the Arab Peninsula that are managed through two stations, one in the United Arab Emirates at Al-Sharjah airport and the other in Jeddah in Saudi Arabia," Darwish said. Being a sister company of the national carrier, EgyptAir Cargo effectively controls the cargo space of the airline that operates a huge network of 58 international routes. "Our total capacity is estimated at 200 tonnes per day. At peak seasons, we hire aircraft from private companies to meet urgent increases that sometimes exceed 400 tonnes per day," Darwish said. He added that the company is planning to expand its fleet by 2006. "We are negotiating with international operators to buy two or three cargo planes which will enter service within 20 months." According to Darwish, EgyptAir Cargo currently controls 50 per cent of the air freight business. By 2006, when the fleet is enlarged, its share will climb to 75 per cent. Darwish explained that the company has already completed a number of agreements to exchange ground and cargo services with various Arab air freight carriers, including Emirates, Saudi Airlines and Royal Jordanian. Through those agreements, EgyptAir Cargo can transfer goods and products to destinations in addition to its scheduled flights. He also indicated that EgyptAir has reached an agreement with DAS Air Cargo, an African carrier, to use EgyptAir's available cargo capacity on passenger aircraft flying Arab routes. "Similar agreements are being discussed in present with China Southern Airline which will soon begin regular flights from Shanghai and Beijing to Cairo. We have also started discussions with Lufthansa Cargo to exchange services in order to benefit from its strong network in the Far East and so that it may also benefit from our distinguished network in Africa," Darwish said. He said that the cargo business relies mainly on agricultural and horticultural exports, explaining that the nature of these products makes them difficult to manage. "We sometimes rent planes, book empty legs and wait to receive the shipment. Due to delays in the harvest collecting process, scheduled flights are cancelled and exporters blame us," he said, refuting accusations by exporters that his company is inflexible. "I would only ask them to specify one incident where we did not fulfil a commitment. It has never happened," Darwish said. Exporters speaking on condition of anonymity argue that the national carrier has received $160 million in government assistance over the past two years to make life easier for exporters, but has not delivered. Darwish adamantly disagrees. "They are twisting the facts. Exporters used to pay $760 per tonne of air freight, an amount which they claimed to be adding to their losses. The Ministry of Foreign Trade [which was recently merged with the Ministry of Industry to create the Ministry of Trade and Industry] offered to pay $220 for each tonne on behalf of the exporters and they pay the remaining $540. But [exporters] did not like that," Darwish said. He indicated that the government usually pays the carrier in local currency, but not immediately. "We usually wait for routine financial procedures to be completed before receiving our dues. However, I believe exporters would prefer if they receive these subsidies directly," he said. Darwish also criticised exporters' tendency to contract foreign cargo companies through brokers at very cheap prices, instead of utilising Egyptian companies. In addition to the national carrier, two other private airlines have established considerable cargo businesses in the Egyptian market, Memphis Air and Tri Star. But, according to Memphis Air chairman, Hamdi Eisa, the cargo business needs new laws, not new air freight carriers. "We need laws that are more flexible and liberal to permit hiring aircraft from foreign companies at any time, even if they are not operating in the country," Eisa said. "The business could substantially benefit if it used the capacity of regional carriers without restrictions. Through brokers we can exchange capacities and get better deals," Eisa said. Business experts say Egyptian cargo planes transfer products to Europe and return empty. On the other hand carriers operating from Lebanon and Saudi Arabia fly empty to Europe and bring back imports. Egyptian exporters could take advantage of this situation if the authorities would allow the Saudi and Lebanese planes to pick up Egyptian exports on their way to Europe. Renting cargo space from foreign cargo carriers was permitted in the past, but Egyptian aviation authorities recently added restrictions to stop these activities. The authorities argued they were protecting the Egyptian economy and its employees against foreign competition. "When the aviation sector faces unfair competition, it threatens the jobs of hundreds of employees," said Major General Saleh Moussa, head of the Egyptian Aviation Authority. "It is not a question of protecting Egyptian companies or the national carrier. For example, we called on foreign and private airlines to operate regular flights to 14 destinations that EgyptAir withdrew from, but received no offers. We also welcomed foreign cargo carriers to invest in Egyptian airports," Moussa said. "The problem [with cargo] is that exporters obtain many privileges from the government. When the government offered to pay nearly 35 per cent of air freight costs to encourage their business, exporters did not want to pay the remaining 65 per cent. They used brokers to hire empty capacity on foreign carriers' return flights at prices that are 70 to 75 per cent cheaper," he said. "Some 65 per cent of Egypt's cargo business last year was transferred by foreign carriers. This is truly serious considering the capacity of national and private carriers," Moussa said. Memphis Air chairman, Hamdi Eisa, agreed with Moussa on the issue. "Exporters used to threaten to establish new air freight carriers, to obtain more profits at the expense of current cargo carriers. They want someone to pay the cost while they reap all the profits. I wish they would go ahead and establish their own carrier and see if they can operate a successful business with such irresponsible attitudes," he said. On one hand, exporters accuse cargo carriers of exaggerating freight prices, while carriers blame aviation authorities for the continual fee increases at airports. "Aviation authorities increase the fees and service prices and we have to pay or we would not be permitted to use the airport. Moreover, they want us to pay in hard currency which adds to our problems," said Eisa. Moussa rejects the argument: "Cargo carrier planes are serviced at Egyptian airports and pay either in local or hard currency, but service companies and airports buy their facilities and equipment in hard currency. When the local currency lost 30 per cent of its value against the US dollar last year, prices went up. So we asked cargo carriers to pay in hard currency just to obtain the actual value of the service," he said. Exporters also complain that six months ago aviation authorities banned them from using any Egyptian airports except Cairo International Airport. The move was implemented for security reasons but exporters claim that transferring agricultural goods from Upper Egypt by rail or road adds costs and wastes precious time. They also argue that facilities at Cairo International are inadequate. Two months ago, aviation authorities reached an agreement with the World Bank to fund development projects of Egyptian airports and air navigation facilities. The projects focus on Cairo and Sharm El-Sheikh international airports. According to Ibrahim Manna, head of the Holding Company for Airports, the World Bank agreed to fund technical studies to improve airport performance. "This included studying the air freight business and cargo movement through Egypt. We have been working with a Japanese aviation consultant company which completed a study which concluded that we have abilities in the field of air freight that exceed what we have on ground. It also showed that our share of the international market can be increased due to Egypt's strategic location," he said. Manna added that the World Bank used the study to determine the appropriate funding for air freight developing projects. The Horticultural Exports Improvement Association (HEIA) and the affiliated Exporters Union recently completed the first phase of a warehouse near Cairo International Airport that is equipped with hi-tech equipment and has a capacity of 160 tonnes every six hours. "The government offered space in the warehouse for a very cheap price to help exporters and encourage the national carrier's business," said Hassan Mohamed Hassan, chairman of the Cairo International Airport Company. "The warehouse together with the new cargo village, currently under construction, will help turn the airport into a main hub for the cargo business in the Middle East," said Hassan. HEIA chairman, Bahieddin El- Baroudi, explained that the warehouse has been working at full capacity since its inauguration six months ago. "This achievement exceeded our expectations and promises continued success when the project is completed," he said. "The warehouse capacity will expand by the end of this year to reach 300 tonnes every six hours. A third phase will be carried out later and completed by April 2005 to double the capacity to 600 tonnes every six hours," Darwish said. The warehouse is managed by EgyptAir Cargo under a five-year contract for LE150,000 a year. "We take responsibility for every detail related to exporting shipments," Darwish said. He indicated that the agreement provided 110 jobs, mostly to existing EgyptAir staff. The company has an estimated 25,000 employees divided among the seven sister companies and suffers from a serious over- staffing problem. Four months ago HEIA reached an agreement with Lufthansa Cargo to aid in developing and upgrading the warehouse. Under a five-year contract, Lufthansa Cargo will design an operation manual and software for the main computer system to maximise efficiency. "The new software will also establish a complete database of horticulture exports," said Baroudi. Lufthansa Cargo has increased its contribution to Egypt's air freight business over the last few years through investments in Egyptian airports. Peter Jensen, Lufthansa Cargo chairman, visited Egypt in early June to inspect the warehouse and discuss a joint investment venture with Cairo Aviation at Al- Alamein Airport. Cairo Aviation, a member of KATO Investment Group that works mainly in the field of aerospace technologies, operates three TU204-120 passenger aircraft and two TU204-120 cargo aircraft. In 1999, the KATO Investment Group agreed to build a mammoth facility to help exporters of fruits, vegetables, fish and flowers. "The aim was to combine required services in one place to facilitate the exporting process," Cairo Aviation chairman, Ibrahim Kamel, said. "The International Export Centre covers 42,000 square miles and is divided into two main sections, an administrative compound and a warehouse compound. The centre expanded its business in 2001 by becoming a bonded warehouse," he said. "Working closely with Lufthansa Cargo, the export centre underwent a successful transformation 2002. It began handling Lufthansa Cargo and Qatar Airways' total inbound and outbound cargo," Kamel said. According to Kamel, several projects near the airport are currently being considered, including a tax free zone, an environmentally friendly industrial park and an organic agricultural farm. Advantages of Investment in Mutual Funds The National Bank of Egypt is the first bank to establish mutual funds in Egypt. 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