Podcast: Modern Logistics’ Koga on international expansion

Jeff Lee
Hello and welcome to this episode of cargo facts connect, the podcast of cargo facts, the newsletter of record for the air cargo and freighter aircraft industries for over 40 years. I’m Jeff Lee, editor of cargo facts and it’s Friday, the twelfth of January. As always, a new year brings with it new operators with new freighter types. And joining me this week is Cristiano Koga, CEO of Modern Logistics, which is set to become the next 737-800 freighter operator in Brazil as it executes plans to expand outside the country.

Jeff Lee
Hi Cristiano. First of all, happy New Year to you. How’s it been for you since you joined the company in May.

Cristiano Koga
Thank you very much Jeff, for having me today. It’s always a pleasure to talk with you and your audience a very well qualified audience across the globe. Since I joined modern logistics back in May, it’s been a very outstanding journey for me and also for my my team members across the organization. The first thing that I had the opportunity to to do alongside the team was to refresh a redefine our mission, our vision and our corporate values. It’s an important it doesn’t matter if you have a very nice strategy if you don’t have a very strong values to guide you and the rest of of the team during this journey and the values I mean like accountability, sense of urgency, proactivity, innovation and some other values that we behave and that we leave every day at modern logistics. So after that I have invested a lot of time in redefining the long term strategy for the organization. We called modern speed, which means that we want to become a integrated logistics platform with a lot of technology imbedded into our solutions. When the very strong pillars like aviation, uh, ground as well as supply chain. But those pillars are very well supported by people, technology and safety, right? So in the last months I have invested a lot of time in developing that in also communicating back to the organization, but also to our key stake holders like you. But also with our key vendors, customers, regulators and everybody that is in the model logistics ecosystem. So that has been the journey. And alongside that, Jeff, we had the peak season, the peak season was a very important period of the year for us and for our customers and from different sectors. Automotive, high tech, ecommerce and also pharmaceuticals. So we help them succeed during the most important part of the year, which was the season right peak season alongside the Christmas season. So that’s what I’ve been investing my time in the last month since I joined the company.

Jeff Lee
Right. So would you say the Brazilian market has been experiencing the the same kind of challenges and headwinds that other markets around the world have been experiencing and you know related to that what what do you think is in store for 2024?

Cristiano Koga
So Brazil has suffered in the last four or five years since COVID hit in different aspects of the the macro, but as well as in some specific sectors. But the good news is that the forecast for the growth for Brazil last year was around 3.5% on the GDP. If you compare to the average of the global GDP growth was above the average of the developed markets, which is a good news and one of the reasons why Brazil came in very, very strong out of the pandemic was the control of the inflation. Inflation has hit many different countries in many different parts of the world, and the Central Bank has started to rise interest rates since the beginning. So it helped control inflation, which also promoted a much better growth in the overall economy. So last year was a very strong year for the country and I can also mention some of the sectors that you know were very, very important to that specific growth was the agriculture #1, but also the industrial sector in different different fronts like the automotive like the industrial but also the online sales. So the online sales that ecommerce has grown double digit since pandemic, so that house also helped Brazil perform very well as a country.

Jeff Lee
Now, I think you know we’ve both been looking forward to this for a while, but you’ll you’ll 1st 7378 hundred BCF obviously arrived in Brazil in October. And I know you’ve been you and the company have been busy with getting that ready and the and the certification and everything. So what’s the latest on that and when do you expect to be able to put this aircraft into service?

Cristiano Koga
Firstly, we are very, very excited at modern logistics on the arrivals of the new aircraft because it’s been a it’s been part of our long term strategy to keep investing in the business like fleet, right and then modernization of the modern logistics fleet is a key milestone for our company. In the last years to your previous point, so the first aircraft arrived back in October and we’ve been on track on their certification of this new equipment to fly, not only in Brazil but also across Latin America, including the United States.

Jeff Lee
Right.

Cristiano Koga
So we are in the final process with the regulator ANAC and we expect if everything goes well in the in the next three to four weeks, we expect to have the final certification by the beginning of February before Carnival season in Brazil, which is a very important milestone for us because we expect also the volumes to grow after the summer time vacation which is taking place now in Brazil and and that starts after the second half of February. So by that time, we expect to have the new aircraft already flying around Brazil, but also doing some international routes as part of our plan.

Jeff Lee
Right. Are you able to to tease some of these international plans?

Cristiano Koga
Absolutely, absolutely. So as part of our long term strategy, speed is to expand and diversify across the country. So we’re in the process of flying to some countries in South America like Colombia, Chile, Argentina, Uruguay, but also we in the process of flying to the United States, which is also very important market for the region in many aspects, not only from a volume perspective, but also from a diversification in from different needs to fly inbound from the United States into a South America.

Jeff Lee
Yeah.

Cristiano Koga
So these plans are very solid. We are, you know, tracking on a daily basis all the key milestones and and and timeline to make sure that we have all the capabilities in place to fly internationally once we have the final certification.

Jeff Lee
And what’s, yeah, you were just talking about the capabilities there, what other investments have you had to make outside of Brazil to get ready for these international operations?

Cristiano Koga
There are a couple of them that I I can tell you. The first one is about adjusting the aircraft to fly to these different countries from a regulatory perspective, you need some technical equipment inside those aircrafts to allow them to fly internationally. That’s #1, #2 to work on the licenses with the local regulators like FAA like ANAC, but also the correspondents of ANAC in Colombia, Chile, Argentina and Uruguay to make sure that we have all the requirements and the licenses to operate in those countries, not only on a Charter basis, right on a dedicated charter basis, but also on regular flights, also training, which is a very important aspect of our business to train our, prove our pilots to fly in and out those specific countries. So we have, you know, a very solid timeline to make sure that all these key milestones are achieved to make sure that we are ready to go once we have the aircraft certified.

Jeff Lee
So you’re only planning to fly internationally with the 800 right? Your other, you have three other classics. Those will stay within Brazil?

Cristiano Koga
At the beginning, yes. but because the NGs are much more modern from a technology perspective but on the range, on the payload as well as the range. So the NG’s will be focused more on the cross border flights, but also classics can be used in the in the short hauls. For example, Uruguay and Argentina, for instance, we can fly classics, but the NGS are much more effective for international flights and we’re gonna dedicate that fleet primarily, you know, to the international routes and the classics, not only to the domestic, but also charters, right that we have on a regular basis.

Jeff Lee
Speaking of the classics, do you, what’s the latest plan for those? I know you’ll be operating both the 800 alongside the classics for a while, but do you have any updates on on the plans for those as well as you know potentially more 8 hundreds?

Cristiano Koga
So at this point in time, we have the the two 800 signed and committed. The first one has already arrived. The second one is plan to arrive in the next months.
So these are the new ones and you still have the classic. So at this point in time, we expect and we are planning to keep those aircrafts flying in the classics because for a market like Brazil where you have, you know, big volumes in certain locations or certain cities, the classics makes more sense from a cost perspective. So we don’t have plans to return classics at this point in time. Actually we return just one that was part of the initial plan and we’re keeping, you know, the two and G’s and the two classics are flying to compose our overall network.

Jeff Lee
You talked about the investments outside of Brazil, but let’s just return to Brazil for a minute. I know you currently have a market share of around 27%.

Cristiano Koga
Right.

Jeff Lee
I think it is, uh, with all these growth plans in mind, what’s what sort of number are you looking at when when you think about the market share then you want modern to occupy?

Cristiano Koga
So this 27 28% market share is more focused on the domestic at this point, but we expect to have a double digit market share overseas as well. We have very ambitious and aggressive plans to go overseas with our new aircraft into keep investing in those sectors that we believe value our value proposition, so to speak. But we plan to have at least double digit in via a relevant player in each of these markets that I have mentioned to you, Colombia, Chile, Argentina, ruai, but also the cross border us mainly in South Florida. And we believe that we can achieve that because we have the right quipment, the right technology, the right people and the right strategy in place to achieve those those goals.

Jeff Lee
Good. I mean, yeah, it sounds like you have a lot of work ahead of you this year, but a a lot of exciting plans as well. And we definitely look forward to covering those and seeing your 2nd 800 arrive, but in the meantime, thank you so much for your time and good luck with with all the growth that you have planned.

Cristiano Koga
Again, thank you very much, Jeff. It’s been a a pleasure to talk with you and your audience and we expect to give you more a good news in the months to come and hope to have a a great year. You as well. And let’s let’s stay in touch. Thank you.

Jeff Lee
Thank you. We’ll hopefully see you in Panama for cargo facts LATAM in May.

Cristiano Koga
Absolutely. I’ll be there.

Jeff Lee
Great. Thanks Cristiano.

Cristiano Koga
Thank you very much.

Jeff Lee
That was Cristiano Koga, chief executive of Modern Logistics. And that’s all the time we have today. For more coverage of the freighter aircraft market, visit cargo facts.com. Thank you very much for tuning in, and join us again next time.