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Airfreight must find new playbook

By control on May 7, 2013

By John McCurry

The venerable playbook in the airfreight industry no longer works, and the new playbook involves doing things better while embracing information technology. That is the assertion of Brian Clancy, co-founder and managing director of Logistics Capital & Strategy, who offered his industry outlook to the CNS Partnership Conference on Monday.

“It’s not doom and gloom,” Clancy says. “It’s reality. If you can get a seat on the train, it’s going to be a good place to be. The industry will restructure itself in a way that is more efficient.”

Clancy predicts the start of an economic turnaround by the end of the year in North America with modest growth in 2014 and 2015.

Clancy believes airfreight will become more “hemispheric” with North-South routes replacing East-West routes.

“We will do more in our backyard. The East-West trade network is inverting,” he says.

These fundamental changes will have a significant effect on how shippers design their supply chains, Clancy says.

Growth will vary by shipper segment. Planned users and emergency users of airfreight have decidedly different futures, Clancy believes, with growth slowing for the former.

“It is the planned user segment that is changing their behavior, looking at what really has to fly,” he says.

Clancy says the idea that high-tech products have to fly no matter what is being challenged. Products are becoming more inexpensive to produce. There has been an unprecedented drop in global PC sales, Clancy says. In addition to prices declining, manufacturers are making more dense products, resulting in a decrease in cubic capacity. This is a resulting in a shift away from freighters.

“If you are in the belly business, this is good news,” Clancy says.

Emergency users of airfreight will become the bread and butter of the industry in the coming years. This includes spare parts and components for industries such as oil and gas.

“Natural resource extraction has to be supported by going to remote locations. This will continue to drive long-term profitability in the industry,” he says.

The U.S. military has historically been a huge user of airfreight – and that’s going away, according to Clancy.

“We are going through a fundamental transition that will have a ripple effect,” he says. “We have 20 percent too much freighter capacity. Over the next two to three years, there will be a fundamental reset and carriers will ask themselves, ‘Can I afford to play this game anymore?’”

All of these factors will have a significant effect on the type of planes that will be used in the years to come.

“All of these dynamics will have a huge impact on what planes we will see in the future,” Clancy says. “When you go from east to west to north to south, the freighter size will go down. The demand will be there and it will be profitable, but it will be a different market structure. There will be a need for all asset types, but the question will be in what quantities.”

Clancy says freighter airlines that have based their fleet strategies on low capital costs and cannot replace their fleets will be forced to exit the industry. He believes the military downturn will accelerate this process in 2014. He also notes that some of the larger players in this sector are well positioned and will always “have a seat at the table.”

Clancy advises industry participants to make these strategic investments:

  • Achieve deeper understanding of costs and prices to manage slow and volatile demand.
  • Embrace cloud-enabled IT cost deflation to automate processes to improve service while lowering costs.
  • Have simple service type mix to reduce costs and align offerings with changing shipper purchase patterns.
  • Increase share of wallet with most attractive customers. “It’s easier to do than acquiring your competitors’ customers,” he says.
  • Human resources will become even more strategic as highly variable compensation models risk talent flight in many forwarding companies.

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