Air cargo ensures cross-border e-commerce has more room to grow

In a July 2022 research report on global e-commerce, the financial services giant Morgan Stanley wrote, "Over the long term, the e-commerce market has plenty of room to grow and could increase from $3.3 trillion today to $5.4 trillion in 2026."

It also notes that global e-commerce rose from 15 percent of total retail sales in 2019 to 21 percent in 2021. "It now sits at an estimated 22 percent of sales," it reads.

The report points out logistics as an important factor along with mobile device ownership and marketplace expansion as essential elements aiding this growth.

The type of growth is not only expected in new regions but also where online shopping is already popular and logistics is a key enabler.

The report gives an example of South Korea.

"Thanks to well-developed payments and logistics infrastructure, online sales already account for 37 percent of all retail activity. But the growth there isn't done. E-commerce in South Korea could increase to 45 percent in the next five years, driven by food delivery and same-day options."

Thus logistics will be a key decider that will make or break e-commerce growth. And when it comes to cross-border e-commerce, air cargo is one mode that nobody can ignore.

In 2021, the global body of airlines The International Air Transport Association (IATA) in its e-commerce monitor noted that 18 percent of air cargo is e-commerce and it expects the share to increase due to changes in consumer behaviour.

To prove that e-commerce is here to stay and that air cargo will attract more customers, Roger Samways, VP, commercial for American Airlines Cargo, also cited recent IATA numbers. "An IATA study (E-commerce monitor March 2021) documented that 80 percent of cross-border e-commerce traffic was transported by air," he said.

"Air cargo is well equipped to support the expansion of e-commerce with global networks, flexible capacity, and the drive toward digitization across the industry – which will further improve operational performance and shipment visibility throughout the transit," he added.

As the e-commerce segment continues to grow globally, strategic partnerships, technology, equipment, and infrastructure that can provide visibility, flexibility and speed at every step of the journey are likely to dominate the air cargo space.

"Our e-commerce product continues to evolve as we ship orders for e-tailers and logistic companies that look for speed as their top priority."
Matthieu Casey, Air Canada Cargo

Airlines tap into e-commerce growth

Regarding the demand for e-commerce witnessed in American Airlines, Samways said, "We are seeing e-commerce growth spanning the breadth of our network, both in terms of significant cross-border demand on our long-haul flights, as well as within our domestic network. A lot of e-commerce is small in size and lightweight, and our narrowbody aircraft are well-suited to handle these kinds of smaller parcels."

To leverage the e-commerce opportunity, IATA also recommended airlines adopt at least five strategies and the first one was: 'Focus on e-commerce products & services to build market share.'

In line with this, in March 2021, Air Canada Cargo launched an e-commerce delivery division called Rivo and in July 2022 signed a multicity agreement with the on-demand last-mile delivery company Trexity. Trying to tap into these cargo opportunities, the airline will be operating a fleet of seven cargo planes by the first quarter of 2023 that include five converted and two production freighters.

Matthieu Casey, managing director – commercial, at Air Canada Cargo, expressed his excitement about the opportunities presented by e-commerce.

"We feel that we are in a perfect position to utilize our existing network and frequency of flights to move goods faster than just about any other carrier, including our ability to deliver same-day service across the country or internationally in some cases, rather than the traditional overnight service," he said.

While commenting that the growth pattern of this service is terrific, Casey noted that e-tailers and forwarders alike are keen to have more options.

"Our e-commerce product continues to evolve as we ship orders for e-tailers and logistic companies that look for speed as their top priority. We have hundreds of flights across Canada every day and are taking advantage of the power of our narrow-body network and fleet," he added.

As e-commerce capabilities grow and evolve, Vera Marzoug Bassi, manager of United Cargo Distribution Technology foresees that more and more shipments will move by air. "This puts a vast amount of pressure on carriers to scale quickly and effectively to capitalize on those opportunities," Bassi said.

"We are not competing with our competitors for the share of the same pie but we believe that the pie itself can become five times bigger."
Olivier Houri, SmartKargo

Collaborations are key

With a growing pressure to deliver to consumers in shorter timelines, the industry is expecting to have new-in-market third parties partnering with companies to supplement their internal teams.

Casey points out the need to have partnerships and collaborations for smoother e-commerce logistics.

"This is an area where companies are improving their technology and partnerships to support their businesses through seasonal peaks and valleys. Integrations with multi-carrier platforms or building in-house platforms to enhance visibility and access to different service offerings with multiple carriers allow e-commerce companies to be flexible and to pivot their business needs as needed."

He gave the example of how API integrations facilitate end-to-end visibility which is a core element of e-commerce logistics.

"This allows multiple players to serve different legs in the journey and reduces the need to have a single carrier manage the shipment from end to end. We see this frequently with logistic companies that import and clear goods and leverage our domestic network for the middle mile as well as the final mile," he reported.

Casey warned that to stay relevant, the airfreight industry must remain focused "on the flow of information through multiple systems within the supply chain, through digitization and automation of processes, customs clearance requirements specific to different countries, and emerging buyer markets."

A prime example of collaboration is the air cargo tech company SmartKargo which captures e-commerce demand and movement right from the source, goes to the end consumer and helps airfreight capacity to be optimised.

Olivier Houri, EVP, and chief revenue officer, SmartKargo, noted that his company is among the very few who understood the e-commerce opportunity very early on and helped airlines to leverage that with available capacity thus registering great growth since it started its cloud-based technology solution ten years ago.

While speaking exclusively to The STAT Trade Times at this year's Air Cargo India 2022 held in June 2022, he said, "Traditionally, there was a tremendous amount of cargo capacity that was wasted because airlines never focused on generating revenue from those. The Covid-19 pandemic changed everything as the industry faced severe capacity shortage," he said.

"SmartKargo's e-commerce solution helps airlines to create a new business model. We are already integrated with 400 e-commerce sites. We help airlines to capture demand at the place of origin. We not only help them to bring those shipments to air but also help airlines to integrate with the first-mile and last-mile third-party service providers including trucking companies and distributors to bring this solution from the shipper's distribution centre to consumers' door," he added.

"Air cargo is well equipped to support the expansion of e-commerce with global networks, flexible capacity, and the drive toward digitization across the industry."
Roger Samways, American Airlines Cargo

Safety & digitalisation: the way forward

An important change that happened in the air cargo industry due to the demand for this level of collaboration is the adoption of new technologies and particularly digitalisation. The industry has taken giant leaps to ramp up its digital operations to be able to keep up with this shift and that is likely to continue.

United Cargo's Bassi underlines how phone and email-based sales are slowly becoming a thing of the past thanks to digitalization. "E-commerce and digitization have very positively impacted many processes, including pricing, up-to-the-minute tracking, and instant quote generation. What was once primarily phone- and email-based sales are now shifting to majority online sales through self-service channels," she says.

"Similarly, one of the biggest opportunities is better communication with all the stakeholders involved in a shipment digitally. We are seeing a big shift in data transparency between all stakeholders with IATA's One Record initiative. Given this, carriers and all those involved in the supply chain will be working on providing this visibility for a single shipment," she added.

Tech shields amidst changing consumer demands

Meanwhile, Bassi thinks that it is critical for internal processes and external-facing technologies to be flexible enough to move as and when needed because e-commerce, technology, and consumer needs will always keep evolving.

"We've been witness to a big shift in air cargo over the past several years, with more and more airlines and freight forwarders expanding their technology offerings to keep up with consumer demands and the shipping expectations," she said.

Houri noted that SmartKargo was born on the cloud and is a flexible and cost-effective e-commerce solution for air cargo.

"We don't have a single server. Everything is cloud-based. All of our capabilities, development, and production environment are on the cloud. We have partnered with the Microsoft Azure platform. This means lower cost, flexibility, scalability, security, and reliability. When our competitors take it up to six to 12 months and sometimes two years to deploy the solution, we do it in just 28 days." he said.

Safety is still paramount

Casey noted that safety in the air cargo industry is paramount and investment in screening equipment is a must to mitigate any security and safety concerns from a technology perspective.

"Carriers need to evaluate their platforms and ensure that scanning and package tracking are on the roadmap for their business. Handling small packages at airports is another area where carriers continue to make advancements in equipment and processes. E-commerce can fit in just about any aircraft type. As an example, the bulk holds on aircraft as well as non-containerized aircraft work well, as pieces range from 1 to 5 pounds, on average," he said.

Samways noted that security plays a critical role as with all air cargo shipments. "We are exploring and utilizing various screening methods, including new x-ray technology and K9s, to allow for more agile screening capabilities for certain kinds of shipments. We're working closely with the USPS on improved measures and rules to identify and prevent dangerous goods from travelling when they shouldn't," he said.

Bassi points out that there is growing competition in this space. "United Cargo can offer our customers the cargo capacity of the world's more comprehensive route network. But equally, as important, we have established, long-term relationships with our customers. As an industry, we must also make sure that we are collaborating successfully with these organisations to educate them on safety procedures and security practices within the cargo industry" she said.

Competition & innovation are key to modernization

Casey believes that the future is heavily focused on "technology, equipment, and infrastructure that are being set up to handle e-commerce goods properly and ensure visibility at every step of the journey."

"In addition, partnerships are being formed to support the growth of this market segment where companies leverage each others' strengths to play in this space," he added.

Casey also said, "At Air Canada Cargo, we understand the long game and are focused on ensuring that we have the right partnerships, infrastructure, processes, and industry collaboration that enables and helps support this growing area of our partners, customers, and indeed our economy."

Meanwhile, Bassi noted that if players in the air cargo industry wanted to stay competitive, it's important to understand that digitization within their systems and processes is not optional.

"With the advent of ONE Record, eAWB, growing eCommerce demands, and direct connect capabilities via APIs, United Cargo is working hard to mobilize teams to meet these exciting demands, continually following market trends and examining newly built platforms through beta testing. We are putting our customer and our customer's customer at the centre of what we do," she said.

Samways looks at the positive side of competition as it encourages innovation and product developments that better serve and modernize the industry.

"At American, we are well down the path of our modernization journey, having replaced our entire operating system with a new platform which is allowing us to implement new booking solutions, connect directly with customers, increase shipment visibility both internally and externally, evolve our product offering and, ultimately enabling us to better serve our customers as their needs change," he said.

"It's hard to predict the future, but all the signs point to the e-commerce segment continuing to grow. We are preparing for this by looking at our product suite to make sure we are supporting these kinds of shipments as best we can, and expanding our booking capabilities across multiple channels to make it easier for customers to do business with us," Samways added.

While talking about SmartKargo's competition for tech solutions, Houri noted that they are not competing with their competitors for the share of the same pie but he believes that the pie itself can become five times bigger.

"We have an approach in which we partner with our clients to help them capture new revenue opportunities and grow their revenue. Our business model is revenue-based, not cost-based. We share the revenue. So if our clients could generate more revenue, we make money and everybody is happy," he said.

This was originally published in the October 2022 issue of The STAT Trade Times.