Air Cargo facing turbulent times
The rise of integrators has led to players in the traditional air cargo supply chain facing turbulent times and there is a need to analyse the various factors that have led to a shift in the core dynamics of air freight. Lionel Alva
Jamais Cascio, writer and futurist, states that resilience is all about being able to overcome the unexpected. Sustainability is about survival. The goal of resilience is to thrive.
In the beginning, the world and universe was forged in chaos. And while the conditions on a primordial earth were ideal for the first life-forms to appear; any organism that did not adapt to its surroundings had to perish. Nature did not discriminate.
Much like that of life, organisations too must adapt to an ever-changing and dynamic business environment. In this context, the traditional air cargo market has been steadily losing market share to integrators like DHL, UPS, FedEx and TNT. Aircraft-operating companies in the airfreight sector break down into two basic groups: the airlines, and the integrated carriers such as UPS, FedEx and DHL.
The general route for airlines to market their freight transportation services is via the airport to airport link to freight forwarders. Integrators, in contrast, market their logistics solutions directly to shippers, offering an integrated transportation chain with door-to-door service. Integrators thus act both as forwarders and as carriers. They often have their own trucking and aircraft fleet and provide all the handling services themselves.
The rise of integrators has introduced new areas of competition for traditional air cargo players such as price, speed and efficiency for air cargo players whence earlier they would compete merely on size and routes.
While certain niche segments like perishables are not affected by the growth of integrators, this may well change in the near future.
"So far, integrators have not really penetrated the perishables market. They only provide space, acting as an airline in a transactional mode. That may well change if they start providing end-to-end solutions as they do for general cargo. Presently, Panalpina with its in-house charter network is geared up to truly act as an integrator in terms of end-to-end solutions for perishables. Perishables by their very nature are time and temperature sensitive and with our unique and global set-up we can ensure that they make it from origin to destination in optimum condition, thereby maximizing shelf life and preserving quality of the products.” observes Colin Wells, global head specialty vertical perishables at Panalpina.
Despite economic recovery driving higher freight volumes worldwide, the two groups' current financial status couldn't be more different. Presently, with economic recovery and the advent of e-commerce there has been a great degree of emphasis on the role of integrators. Making the case for integrators; Frank Appel, CEO, Deutsche Post DHL, highlights, “In the aftermath of the financial crisis, globalisation has increasingly come under pressure and international trade negotiations face growing resistance. In this environment of uncertainty, the DHL Global Connectedness Index offers a comprehensive, fact-based understanding of globalisation and demonstrates the huge potential for countries to further increase their connectedness. I am convinced that a prosperous world needs more, not less integration.”
Certain development like the acquisition of TNT Express by FedEx has also put the integrated express market in the limelight. The European Commission vice president in charge of competition policy Joaquín Almunia says, “The small package delivery sector is of strategic importance for various other industries in Europe. The proposed acquisition could in particular reduce competition for the provision of the fastest express delivery services, to the detriment of direct customers and ultimately of European consumers. The Commission needs to make sure that customers continue to have access to these services at competitive conditions.”
Here it must be noted that critical factors delineating the shift in market share is due to airlines espousing a variety based position in general. In this market positioning, the attention is focused on the delivery of one service in the broader supply chain. Integrators have created disruption by way of positioning themselves in a manner that takes into account the end-customer needs.
Ergo, one of the key advantages that integrators have over traditional air cargo players is that they can offer a business-to-consumer solution with a one rate door-to-door solution.
Even so, despite these challenges, the air cargo sector also seems to be rising to the challenge. The key to traditional air cargo adapting is digitisation. The implementation of the e-airway bill is only the first step as a lack of paper documentation would go a long way towards reducing errors and enhancing productivity.
There is a still a need to break down complex service level agreements that can circumvent the air cargo industry’s goals for greater efficiency. Since many service level agreements are overtly complex.
Apart from these factors, in certain markets like Asia, airlines still have an advantage over integrators when it comes to e-commerce. Where the business for airlines is expected to come from postal organisations which are in a position to benefit from the B2C market in a way that the integrators cannot.
However, recent developments like Amazon sourcing up to 60 Boeing 767 freighters as it looks to launch its own air freight operations may send the air freight industry into a tizzy.
“Despite some of the wider difficulties facing a number of traditional air charter industries around the world, the Middle East – and the UAE in particular – remains a vibrant market in which to offer creative airfreight solutions to a wide sector client base. More than ever, and as our industry peers have also recognised, charter companies must step up to the plate and provide added value services to their clients,” asserts Stuart Smith, global business development manager for Air Partner Freight.
One of the biggest advantages that air cargo has over the integrators is its flexibility but there is a need for a greater level of collaboration among players in a highly fragmented market to achieve the same degree of productivity. The nature of competition today is a test for survival and air cargo must evolve.