Where We Went Wrong – Part 2: A matter of trust, urgency, transparency

bulb_480The e-commerce revolution has, obviously, created great opportunities for the traditional air cargo industry, but it has also created challenges. It has exposed problems that were often hinted at in the past, but which, in an era when demand growth seemed never-ending, were never adequately addressed.

Historically, carriers invested heavily in freighter aircraft to provide quality point-to-point capacity as the fastest (and most-expensive) option in the chain. But, by leaving the marketing of this asset to their forwarding partners, airlines now appear to be left holding the short end of the stick, margin-wise.

Part 1 of this series (February 2017, Air Cargo World) outlined how e-commerce transformed retail markets and upended the logistics business. This month, we look at the carrier/forwarder relationship and how it has fallen into disrepair.

In the early days of aviation, when the patterns from seafreight were transposed onto air transport, the arrangement made sense: Airlines did the flying, and forwarders did the marketing. But this is not the age of clipper ships, and this original arrangement has since blurred considerably. Large forwarders now control their own aircraft. The marketplace is flooded with space brokers, GSAs and consolidators. And shippers have begun running their own logistics operations.

The big integrators, FedEx, UPS and DHL, saw this change coming, and went their own way, finding rapid success by controlling every part of the logistics chain, from door to door. But the traditional carrier/forwarder system is a cooperative, and, to work, demands that the partners pool their respective strengths – with capacity interchangeable among carriers, and services interchangeable among forwarders.

There is nothing fundamentally wrong with this arrangement, as long as a balance is maintained. It works as long as both parties, carriers and forwarders, offer sufficient flexibility to meet customers’ logistics requirements. But that flexibility seems to have disappeared in the face of the e-commerce revolution. Today, to take advantage of the opportunities arising from that revolution, air capacity needs to be molded into route- and time-specific products, with value-added aspects introduced where needed. And the providers of air cargo capacity must understand that if they fail to adapt, shippers will turn to other, less expensive modes of transport.

But acceptance of this need to adapt has been slow, and many carriers and forwarders seem to be stuck in the 1960s, perpetuating processes that are decades out of date, while all sorts of new parties are taking the initiative.

As a result, the carrier/forwarder relationship operates well below its full potential when it comes to dealing with the shift of retail from the old world of brick and mortar to the new world of e-commerce. It is bad enough that it fails to cope with new logistics demands; it is far worse when its absolute requirement of transparency and trust – the cementing forces of the system – crumbles from within. Once the cracks appear, the relationship can fall apart quickly.

Unless airlines and forwarders jointly work out how to stimulate new demand, meet customers’ absolute need for transparency in pricing, and provide track-and-trace capabilities, yields will continue to deteriorate beyond today’s already unsustainable levels.

Obviously, it is time for a transition, but how will that play out?

This is the second in a special Air Cargo World series of articles about the need for changes in the international air cargo industry.

Stan Wraight is president of Strategic Aircargo Solutions (SASI), a Canadian firm that provides consulting and management services for international trade organizations and global logistics companies.

 

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