E-commerce needs shared trust, responsibility across supply chain

The global air cargo market has been going through a significant phase of growth since the last peak season, primarily driven by e-commerce. With airborne e-commerce cargo operations still in nascent stages and increasing volumes, logistics and customs are demanding maturity and compliance powered by shared trust and responsibility from the industry.

In July 2024, the global air cargo market registered the eighth consecutive month of double-digit year-on-year growth, with overall levels reaching heights not seen since the record peaks of 2021.

According to the International Air Transport Association (IATA), total air cargo demand in July rose by 13 percent compared to July 2023 levels. With the peak season still to come, IATA’s Director General Willie Walsh thinks it is shaping up to be a very strong year for air cargo.

“The air cargo business continues to benefit from growth in global trade, booming e-commerce and capacity constraints on maritime shipping,” wrote Walsh in the July data release.

Certainly, e-commerce has played an important role in offering a significant growth phase to air cargo. E-commerce has been growing steadily for the last decade and the Covid-19 pandemic-induced online shopping has given a push.

“It depends where you are in the world. South America was growing a bit faster. We saw growth also in Europe. But the major player for this year has been China, but also the countries in Southeast Asia, the Philippines, Vietnam and Indonesia. They have been growing like crazy because a lot of manufacturing has been outsourced from China to these countries,” says Andre Majeres, Head of E-commerce and Cargo Operations at IATA.

Majeres believes that e-commerce is here to stay because of consumer addiction and habits of ordering online but he argues that the capacity is not enough.

“So they are trying to find every possible means, plane, road, train and sea to get the e-commerce goods to their destination. Some of them require speed and air transport is very well placed for that,” he added.

While e-commerce shipments mean increased revenue for airlines, freight forwarders and other stakeholders in the supply chain, it also comes with a lot of challenges.

For instance, Majeres explains that e-commerce is not a product in the air transport industry but a service level, requiring efficient supply chain management.

“E-commerce is not what we call a product in the air transport industry. It is not mail or live animals or pharmaceuticals, which are designated products. E-commerce is still general cargo or general mail, and if it contains some dangerous goods, for example, lithium batteries, then it will be declared as dangerous goods. E-commerce is just a way to ship it online. But then everyone thinks that there is something special about it,” he said.

“It is true that everyone can assign a service level. For example, I'm going to promise you that it will be delivered the next day. That's a service level. It has nothing to do with physical handling or loading. But I have to ensure that every step, every milestone in the supply chain will work effectively,” he added.

"E-commerce is not a product in the air transport industry but a service level, requiring efficient supply chain management.”
Andre Majeres, IATA

One of the primary challenges in cross-border airborne e-commerce is navigating the complex and varying customs regulations across different countries. Meanwhile, the demand for precise, real-time parcel-level data is increasing, driven by customs authorities' heightened focus on security and fraud prevention. For instance, the EU’s Import Control System 2 (ICS2) requires detailed electronic data for all goods entering the EU, which demands advanced digital infrastructure.

Luís Pimentel, Chief Executive Officer of Feeport (x7trade) points out that each country and customs in the European Union (EU) has its own set of rules, documentation requirements, and compliance standards, making it challenging to ensure smooth and efficient clearance.

“It's very different in each country,” he said. “Some countries and customs in the EU require more detailed data or have different requirements regarding HS codes or description of the goods. This is a struggle for the companies that want to export to the EU. As a technology provider, we help them to solve that.”

“x7Trade’s solutions are designed to tackle these challenges head-on by offering seamless integration with customs systems, ensuring compliance, and minimising delays,” he added.

Feeport is a Tallinn-based Estonian software company specialising in cross-border e-commerce customs compliance. x7trade, the first SaaS platform developed by Feeport, automates the submission of bulk low-value e-commerce declarations for goods imported into the EU from third countries, ensuring ICS2 compliance.

x7trade is currently integrated with customs authorities in Finland, Estonia, Lithuania, Latvia, Hungary, Romania, Greece, Netherlands, Poland, and, more recently, Slovakia. The company plans to integrate with customs authorities of all EU member states by the end of 2025.

Pimentel argues that x7trade makes the customs process simple by pre-validating the data before sending it to the customs and sharing the customs status across the supply chain.

“When our clients submit data to customs, they already avoid many problems by validating wrong fields, wrong data, and empty fields,” he said.

With peak season coming up, Pimentel opines that data sharing enabled by their platform can help exporters decide where to inject cargo. One of the trends he reported also was the direct injection of e-commerce shipments to each country even when e-commerce hubs are important.

“We are seeing more and more direct injection,” he said. “Because of the limitations of hub airports, the exporters are looking to do direct injection in each country. It is more efficient, fast and they can deliver to the buyer directly without any constraints,” he added.

Feeport will launch its new website (x7trade.com) during the upcoming EU Cross-Border E-commerce Forum scheduled for September 10 & 11, 2024 at Liege Airport, Belgium. Pimentel also views Liege as a strategic location for expansion, given its role as a major hub for cross-border e-commerce.

“There is concern that the mid-sized forwarders were going to be squeezed out of the contract market or the contracts that they had won't be honoured when capacity gets tight.”
Judah Levine, Freightos

One of the biggest challenges in the e-commerce supply chain is the ambiguity about who is responsible for what and it is evident in both the United States as well as Europe.

For instance, Robert Khachatryan, Chief Executive Officer of California-based freight forwarder Freight Right Global Logistics points out that there is a grey area in e-commerce movements regarding who is responsible and who takes liability in case of violations and contraband importation.

“In the United States, it's very ambiguous. For example, customs brokers carry a lot more responsibility in Europe than in the US,” he said.

Khachatryan compared how customs brokers share responsibility in Europe and the US and also noted that we're in a period of US customs reminding the parties who have what kind of responsibilities.

“In the US, brokers represent customs as much as they represent the importers. So you have to act on both parties' behalf. Customs outsources enforcement to brokers as well. In Europe, a customs broker is held responsible for what the importer declares,” he said.

Khachatryan noted that given the rapid growth of e-commerce, US customs is likely to increase enforcement through penalties on brokers first since they are the point where customs can apply pressure. Brokers will then push forwarders and others earlier in the supply chain to improve data accuracy and screening to reduce the brokers' exposure to penalties.

Meanwhile, talking about the affairs in Europe, Stefano Mauro, Policy Director, e-Logistics & Taxation, E-commerce Europe, says there should be a shared responsibility.

“We believe in shared responsibility. We should not overburden the shoulders of any one party. But in a shared responsibility loop, we should all communicate together,” he said.

He was talking in the context of grey areas of responsibility in the European Union. He added, “You should have someone submitting information about the e-commerce shipment and who shall that person be? Should it be the customs administration? Should it be the marketplace? In either case, there are problems.”

Ecommerce Europe is a not-for-profit association campaigning to ensure a level playing field for companies based in the EU selling goods and services online to consumers in Europe with new players from outside the EU who are targeting EU consumers.

The association raised questions about the commercial practices used by these new players and their compliance with the European Union legislation in the areas of consumer protection, product safety, counterfeiting, data protection, privacy, environmental and taxation legislation.

Mauro rejects physical checks of all e-commerce shipments as a solution and thinks random checks are already a stretch. He took the example of what happened in the United States and how it affected the country.

“Some people may have suggested that to avoid importing non-compliant goods, we should check them all. That is not possible at all, because it happened already in the US two months ago, and a couple of Chinese companies had five to 10 days of delivery delays. And because customs was checking each and every parcel, it turned out to be detrimental to the US system,” he said.

He thinks the customs reform should aim to share advanced data in a way that there is no need to check those goods.

“With customs declaration, you will know what is in the package, the materials, and whether forced labour was included. You should know everything even before entering the borders by submitting the electronic declaration,” he added.

“In the US, brokers represent customs as much as they represent the importers. So you have to act on both parties' behalf. Customs outsources enforcement to brokers as well.”
Robert Khachatryan, Freight Right Global Logistics

The growth of e-commerce also had a significant impact on the air cargo market at least in the short term. The increase in demand has elevated the freight rates in air, reduced the available capacity and made stakeholders revisit their contract strategies.

For instance, Judah Levine, Head of Research at Freightos, notes that the biggest challenge of e-commerce growth is for other segments. He reports that the air freight rates throughout the year have been at peak season levels and e-commerce players like Temu and Shein took more capacity which means traditional shippers and forwarders are finding it difficult to secure space and are paying more.

“There is concern that the mid-sized forwarders were going to be squeezed out of the contract market entirely or the contracts that they had won't be honoured when capacity gets tight,” he said.

Levine also reported that for most of the year, rates have been about $6 per kilo Asia to North America and $4 to Europe, which is like peak season levels.

“About a year ago, rates had gone down to $4 per kilo to North America and $3 to Europe, which is still fairly elevated. Normally to Europe, it would be under $1.50 or $2.50 to the US. That was the bottom of the market after they came down from the pandemic. But since then, rates started increasing during the early peak season last year, and there was some seasonality around the lunar new year,” he said.

“This year, air forwarders were trying to secure contracts earlier than usual because of the apprehension that later in the year it will be difficult to get space,” he added.

While it is time for the e-commerce supply chain to mature, build trust and share responsibility, what lies ahead is the fourth quarter, the traditional peak season.

Levine said, “The anticipation is that as we get to Q4, we're going to have an increase in demand from typical air cargo shippers as well as for e-commerce. So Q4 will see higher rates and a tougher time for forwarders to secure capacity.

Meanwhile, he also noted that carriers are adding capacity as well.

“Part of the problem is that the US and China haven't restored the number of daily flights that they had before the pandemic. During the pandemic, the US reduced the number of flights that carriers from China could fly weekly into the United States and vice versa. And part of that had continued because of the war in Ukraine,” he added.

“Some countries and customs in the EU require more detailed data or have different requirements. This is a struggle for the companies that want to export to the EU.
Luís Pimentel, Feeport

Meanwhile, Majeres, who also agrees with the projections for the peak season, wanted to look further into next year. He is not expecting any decrease in the demand even then.

“I wouldn't see any decrease for the unfortunate reason that we have too many geopolitical conflicts in this world right now. Flying over Russia and Iran is extremely complicated, if not forbidden. Going through the Red Sea, to get into the Mediterranean Sea and deliver into Europe on the maritime side is just not possible because of the conflict in the Middle East. So that means the costs of sea transport are high.”

The traditional peak seasons of air cargo are not already disturbed due to several factors. For instance, Amar More, Co-founder & Chief Executive Officer of Kale Logistics Solutions notes that holiday shopping is no longer confined to the traditional two-month window.

“Over the past 3-4 years, the season has expanded, starting as early as August or September. This extended 4-5 month period offers the air cargo industry a unique opportunity to prepare and optimise operations. As the peak season approaches, the U.S. is projected to see a 10% increase in e-commerce compared to last year,” he said.

As a technology provider, he points out that air cargo providers must adopt interlinked and inter-communicative platforms that seamlessly integrate with various e-commerce tools and channels to meet the demands of this busy season.

“These platforms should connect the shopping cart, website, mobile apps, social sales channels, marketplaces, retailers, payment systems, EDI and ERP systems, and any other applications or tools used to manage e-commerce businesses. Integration across these platforms ensures that data from each channel is synced in real-time, providing complete transparency throughout the fulfilment process,” he said.

“Additionally, investing in AI tools can significantly enhance operational efficiency by accurately forecasting demand and optimising inventory management. This not only reduces inventory costs but also ensures that air cargo providers are better equipped to handle the increased volume of shipments during the extended holiday season,” he added.

“We should not overburden the shoulders of any party. But in a shared responsibility loop, we should all communicate together.”
Stefano Mauro, Ecommerce Europe

Q4 poses a significant challenge for the global air cargo industry not just in terms of demand and supply but also regarding compliance and standards issues generated by e-commerce. Adopting technology and infusing shared trust and responsibility among stakeholders could be the answer.

This was originally published in the September 2024 issue of The STAT Trade Times.