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Airfreight must remodel, IATA urges

By control on December 12, 2012

The airfreight business model has not changed in decades, and is failing to adapt to new and innovative forms of competition, IATA claims. Glyn Hughes, IATA’s director of cargo distribution, believes the industry must reshape itself to get back in touch with the changing market around it.

The high number of interfaces involved has made airfreight highly complex. This came at a cost, and brought the risk of fatal delay, Hughes said during IATA’s Media Day today in Geneva. “If airfreight wants to position itself as [part of] a fast, efficient supply chain, it needs to address these complexities,” he said.

Air transportation costs have halved in real terms over the last 40 years, but the industry has passed all the savings on to customers and therefore has been unable to update its systems and processes.

One reason for the slow take-up of IATA’s e-freight initiative, which aims to take the paperwork out of the air transport process but hasn’t achieved its expected goals, was lack of commitment by cash-strapped operators.

“As an industry there isn’t the capacity to invest,” Hughes said. “We’re having to demonstrate the benefits up front. We have to join the queue–and go up the queue–to get the investment from carriers.”

Among many challenges to the industry is the growing trend for people to shop online. Only 12 percent of the public now shop exclusively in “bricks-and-mortar” stores. This trend, and the increasing number of airline passengers from emerging economies “self-shipping” by flying with large quantities of goods for onward sale at home, means the industry must consider offering new types of services, Hughes said. “Our solutions must align with consumer demands. We have to redefine our relationship with freight forwarders so we have the right bedrock.”

IATA has belatedly realized it needs to revolutionize the “agency model,” its longstanding legal framework established back in the day when freight forwarders acted as agents for airlines and sold a standard tariff on a commission basis. Forwarders now work on behalf of the shipper but the IATA program has not kept up to date with this, Hughes acknowledged.

The new legal relationship between airlines and forwarders must be partnership-based and must evolve to address a B-to-C (business to consumer) and even a C-to-C (consumer to consumer) world, he said.

IATA has worked through every component of the existing agency program with forwarders’ organization FIATA. The IATA board last week formally endorsed a new approach, as FIATA had already done at its World Congress in Los Angeles in September. IATA is now set to adopt new resolutions paving the way for a more market-based relationship with forwarders at a member conference next year, ready for rollout in early 2014.

In further recognition that its historic regulations and standards are no longer appropriate to today’s airfreight environment, IATA is separating regulations for handling of time- and temperature-sensitive healthcare products from the perishables regulations in which they are currently embedded. New stand-alone regulations will be introduced from the end of December, the Geneva meeting was told.

Meanwhile, hazardous cargo regulations are to be introduced in 2013 to ensure safe carriage of lithium batteries. Dave Brennan, IATA’s assistant director for cargo safety standards, said that such batteries had caused fires on board aircraft, killing crews in two instances.

The batteries have become so ubiquitous that manufacturers of products such as smart gas and electricity meters now find themselves carrying dangerous goods, perhaps without even realizing it.

Brennan said tougher rules would lead to more accurate declarations and give flight crews better information on what they are carrying, allowing them to react more quickly if incidents occur.

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