The Continuing Evolution of Air Cargo Logistics Challenges
In my first issue of this blog, I noted that change is constant and identified a number of disruptions to the traditional post-WWII air cargo model. This time I want to explore some of the disruptions and focus on their impact on the traditional model. Before we jump into this discussion, let’s briefly define the traditional model. So, remember to keep your seat belt on as turbulence can occur at any time during the flight.
Air cargo has been part of aviation since the beginning. It really started to grow after World War II when a surplus of aircraft, pilots and other people demobilized from the air forces and sought out trading opportunities. The initial model was simply to acquire one or more aircraft, obtain an air operator certificate, market and sell the new service, acquire business and transport goods between airports.
It was a simple operating model that took advantage of transit speed as the main separator from other modes. Freight forwarders quickly entered the market to move their customers’ products and became the primary sales force for fledgling and legacy airlines. This model continued, with some minor modifications, for about two decades, until a new business model emerged: the integrator.
In the 1970s and 1980s, integrators, led by Federal Express and quickly joined by TNT, CF Air Freight, Burlington Air Express, DHL, Emery Worldwide, Purolator Courier and UPS changed the landscape and especially the interface between shippers and air carriers. .
Unlike the traditional model, fully integrated door-to-door service and time-based products were an integral part of it. Direct sales to customers and the use of simplified forms for domestic and international shipments have replaced multi-part forms.
The simplicity of a one-stop-shop approach and the provision of a single point of contact and traceability have opened the industry up to small shippers. These elements have pushed traditional air carriers and their freight forwarding partners to modify their systems to deal with these new challengers. A number of all-cargo airlines have been acquired by the integrators; the largest acquisition being FedEx’s purchase of Flying Tiger Lines and all associated traffic rights Flying Tiger had, particularly on transpacific routes. The integrator landscape has changed as larger companies have acquired smaller ones.
The 1980s and 1990s saw another challenge to the traditional business model when Panalpina initially contracted with Cargolux to operate dedicated freighters on selected routes to handle their cargo. These services, characterized by the “Dixie Express” Luxembourg – Huntsville, Alabama service, offered the freight forwarder a dedicated source of transportation for high-value shipments.
Meanwhile, major freight forwarders have purchased a dedicated lift to ensure air cargo access for their customers who might otherwise face the challenges of finding space on airlines facing capacity constraints dictated by passenger-centric decisions. These services typically connected smaller airports where tailored product offerings could be implemented. They also challenged small and medium-sized freight forwarders by marketing their own lift as a unique selling point to attract business, especially high-value verticals such as automotive and aerospace at the time.
The early 2000s saw two disruptive forces.
The China-Russia-Europe rail services not only provided a faster alternative to the sea option for shipments, but also a cheaper option for air freight. These services have also spurred the use of digital systems and processes to facilitate the movement of shipments across international borders.
Waybills and electronic documents are accepted and used on new Silk Road offerings and used by customs and other government authorities to quickly and efficiently assess, inspect and clear shipments in a short time. By the end of 2021, more than 50,000 trains, typically comprising 100 containers, have transported a wide variety of goods from China to destinations across Europe and back since the service’s inception.
The same decade saw the emergence of e-commerce platforms such as Alibaba, Amazon, JD.com, SF Express, etc. These services, which are driven by business-to-consumer (B2C) and business-to-business (B2B) transactions. , have evolved from online sales and ordering platforms to integrated platforms that now integrate first-mile, liner and last-mile transportation systems, as well as shipment management and processing.
Companies rely on information about their customers to design systems. This same information is used to plan and manage services that deliver products in less than two hours. E-commerce platforms have disrupted the apple cart by collecting and processing massive amounts of data. Another key advantage of these e-commerce mega-operators is the complete internal control of financial transactions throughout.
At airports, open access digital systems, known as Airport Cargo Community Systems (ACCS), have evolved from a platform where shipment information is available to later stages that include information and facilitate commercial transactions between companies. ACCS networks are linked by Digital Logistics Corridors (DLCs). These DLCs connect ACCS stakeholders and provide fully transparent end-to-end monitoring of every shipment.
More recently, shipping carriers such as Maersk, CMA-CGM and MSC have massively entered the air cargo industry, disrupting the traditional air cargo market like integrators did 40 years ago.
Maersk, which had an airline, is expanding its fleet, reach and business model to become a true multimodal service provider for all modes. CMA-CGM recently made a strategic investment in the Air France-KLM group by giving it a seat on the board of directors. MSC and Lufthansa take control of the new Alitalia, ITA. Klaus Michael Kuehne of Kuehne and Nagel and majority shareholder of Hapag Lloyd has acquired a major position in the Lufthansa Group. Shipping carriers are taking advantage of recent strong profits to provide air cargo services, as their direct customers have demanded, in addition to ocean, rail and trucking services to their thousands of beneficial owners of cargo (BCOs).
The combination of these developments has presented a series of challenges for traditional ways of doing business. They introduced new ways to:
• Identify and reach customers through direct contact to find out what services are needed and provide them.
• Provide alternatives for Beneficial Cargo Owners to route their shipments through new distribution channels and not just competing freight forwarders.
• Leverage data to create new services, distribution channels, give full transparency to BCOs, manage capacity and operations to ensure speed, transparency, quality and compliance issued are addressed before even talking about price , and
• Provide platforms where all stakeholders in increasingly complex supply chain networks can enter, access, use and analyze shipment data in customer supply chains.
The constant questioning of standards stimulates innovation, the latest developments show that large logistics companies accept it and invest. The challenges of traditional air cargo models are enormous and those that do not change will quickly become irrelevant. Companies that refuse to see this risk will not be able to meet BCO expectations for anything other than low-income non-punctual air freight. The benefit to BCOs of new service offerings and capabilities of airlines and related service providers in time-defined multimodal offerings will drive the evolution of new services and systems. New services and systems will become common and mandatory to address the critical elements that contribute to resilient operations and the long-term sustainability of the industry.