What shippers really want: Airfreight’s true customers speak out

Airport codes BCN and BQN are strikingly similar at first glance. But to a Spanish pharmaceutical manufacturer in Barcelona, located thousands of miles from a misdirected shipment of temperature-sensitive components languishing in a warehouse in Puerto Rico, that one letter represents millions of dollars per day.

This scenario, and others like it, are all still too familiar. Just ask Bernhard Baertschi, head of export for Switzerland-headquartered Bioforce AG. “Normally we use ocean, and never have any problems,” he said. But when his company switched to air to get an urgent shipment to Australia, “the pallet was completely destroyed and lopsided.”

With each such debacle, the airfreight industry reinforced its reputation as a costly and unreliable option – despite providing the rapid connectivity that underpinned the modern economy. Industry veterans would swap stories of seafood simmering on landing strips and, eventually, folks started to believe the aphorism that, “if you have to fly it, you’ve already made a mistake.

But in 2017, airfreight is undergoing a paradigm shift, of sorts, and the overwhelming sentiment throughout the supply chain is a willingness to cooperate, in order to realize airfreight’s potential and maximize its value proposition.

The industry also understands that companies that fight change will sink. From freight forwarders to carriers and ground handlers, “companies understand that it is better to be part of this “new future” than to fight it,” said Robert Mellin, engagement lead at Ericsson Industry & Society.

Along with seven other representatives of multinational shippers that make up TIACA’s Shippers’ Advisory Committee (SAC), Mellin has published a call to action, urging the airfreight industry to embrace the possibilities of technology and change. “Shippers want predictable, reliable, secure and sustainable distribution for their cargo,” the position paper states. The SAC intends to provide the roadmap.

The committee sets out to “spark debate on how to innovate, be it adopting new processes, or adopting new technology.” But, the reliably high billing of innovation panels at airfreight conferences, and the persistence of the theme in industry discourse, suggest that realizing these goals in a fractured and often recalcitrant industry won’t be easy.

Where it all went wrong (and right)

In December 1944, when Franklin Roosevelt signed the Chicago Convention, outlining the basic rules for civil aviation, its signatories saw international civil aviation as a bridge between nations. Over 70 years later, the airfreight industry has facilitated wealth creation and trade in ways that Roosevelt and his peers could never have imagined. Delivering high-value components and parts to manufacturing sites around the world in a matter of hours has allowed companies to truly globalize their operations, ushering in the neoliberal model that defines our modern world.

Global manufacturers continued to expand their operations, and with the rise of the internet, their supply chains became increasingly complex. For time-sensitive industries like electronics and pharmaceuticals, that meant tying up increasing amounts of their assets in transit, where they were unable to generate value.

Airfreight was the solution to this costly conundrum, but as shippers adopted more sophisticated processes and technology, airfreight started to lag. For shipments of temperature-sensitive pharma products and multimillion-dollar electronics, that lack of control was no longer acceptable.

Air cargo’s fragmentation also caused problems. Shippers would hand their cargo off to feeder trucks, which released the cargo to a laundry list of forwarders, ground handlers, border agents and carriers. Each link guarded their data, and air cargo became a black box.

An average air cargo supply chain shipment requires approximately 21 documents, sent 40 times, in 20 steps, according to research by Ericsson.

High costs are driven by inefficiencies that are caused by lack of information sharing, said Sebastiaan Scholte, CEO of Jan de Rijk Logistics. “The shippers are right to complain that the air cargo supply chain is not as efficient as the integrator supply chain.”

“From 2011 to 2015, a greater part of our cargo was transferred to road, boat, and rail,” Mellin said. “We had to set up regional distribution centers and make other internal changes to our supply chains, but we made enormous savings.”

“Air cargo is working in an old mode,” said Baertschi, who is also a member of the SAC. “The business must be reinvented.” Baertschi stressed that door-to-door solutions must be offered, despite the fact that the industry is fragmented, and that lack of transparency remains a problem. The air cargo industry, he concluded, “is too complex, too expensive and needs to be leaner, like an integrator.”

What’s next?

Those integrators that Baertschi refers to have a unique advantage, and one that shippers pay a premium for – they own all the components of the supply chains, from vehicles to warehousing, and that’s just not feasible for most specialized companies in the business. That also means that, by controlling the data from A to Z, integrators communicate seamlessly at every transfer point (and most of the way in between).

But, forwarders aren’t going anywhere. According to Brandon Fried, executive director of the U.S. Airforwarders Association, they fill a market demand that nobody else can. “Forwarders work in a world of hands-on expertise,” Fried said. “They solve complex problems.”

That logic certainly applies to the rest of the air cargo supply chain that isn’t called UPS, FedEx or DHL. That’s where the CAS comes into the picture. “If you ship one kilogram with the integrators, you get door-to-door in a few days,” Mellin said. Freight forwarders generally take at least twice this time and often longer, raising the question, “Why?” Mellin contends that, unlike the integrators, forwarders don’t own their own assets and, thus, don’t control the information from end-to-end.

The industry has responded across the board, with forwarders and carriers making digitization a strategy. Individual players are stepping up their game, but all it takes is one weak link, and the whole model falls apart.

That digitization response translates into satisfied customers. Alex Nieuvpoort, order-to-delivery director for Sandvik Machining Solutions, said that his company “does not have problems with handling of its [air] shipments.” That said, he encouraged the industry to pay more attention to “customer demand and requirements.”

The solution, it seems, is to get the rest of the industry to act more like the integrators, at least when it comes to visibility and data sharing. “That requires airlines to view their offering as an end-to-end solution,” Nieuvpoort said. “More and more airfreight is moving to belly-load on pax flights. This is used as a filler and not viewed as a ‘product’ by the airline. There are too many parties involved that are not connected enough to get a product to its final destination in a transparent way. Since other modes of transports offer better transparency, the airfreight industry might continue to lose ground.”

What change looks like

There’s some debate as to what steps the air cargo supply chain must take to align its standards with the industries it serves. “We all fall into the trap of treating technology as a savior,” said Fried, who reiterated that this didn’t negate that “shippers are entitled to in-transit visibility.”

Technology providers are eager to peddle their wares to the industry, and many of these solutions are promising. But even the most advanced products require a component of old-fashioned interpersonal cooperation – another dynamic that the CAS is eager to promote. A lot of time is spent waiting on shipments, but it can be just as costly if it arrives too early.

Despite its promise, electronic air waybills (e-AWBs) have failed to meet the adoption goals IATA has set for the air cargo industry. That is, in part because, despite being ‘digital,’ the format is not ‘digitized,’ meaning that it’s still just a digital document, and one that’s expensive to implement. That’s not to say that e-AWB couldn’t be integrated into a larger platform, but progress is slow, and the industry needs to move faster.

One technological development that’s garnering attention, and already being tested in airfreight, is blockchain technology – a type of decentralized ledger of previous electronics transactions that are recorded automatically and can never be changed or hacked into. According to The Economist, blockchain “lets people who have no particular confidence in each other collaborate without having to go through a neutral central authority. Simply put, it is a machine for creating trust.”

In airfreight, blockchain is a mechanism that allows forwarders and carriers, for example, to reliably share only the data they want, and only with authorized parties that have the keys to access the data. Because it is encrypted, blockchain technology is as secure (or more) as any other electronic communication currently in use.

“The best thing would be to have an open-source system,” Scholte said. For global companies that navigate airports on multiple continents, advanced technology is useful only insofar as it is compatible with the software that everyone else is using.

The underwhelming adoption rates for e-AWB suggest that there won’t ever be one industry standard. Ericsson responded with a solution that responds to “how the world looks like today,” according to Mellin. “Think about it like a library – you know the title of the book and the author, then you just need to know what library and what shelf, and then you can find it. The internet gives us this ability.”

Considering the constraints of extant legacy systems, integration technology, data sharing, privacy rules, data storing regulations, numerous information standards across multi-mode transports, and business rules, the team at Ericsson decided to “find a solution using what we have today, yet opening a path to the future.”

Hasse Römer, lead engagement for new industries, logistics CGIS industry and society at Ericsson, is working on a uniform resource identifier that looks at three simple components. The identifier, known as a “global unique identifier,” or GUI, is stored online in the logistics backbone.

The proposed solution consists of three parts: 1) the logistics object identifier from a company; 2) the company issuing the identifier; and 3) the uniform resource identifiers that point where more details regarding the logistics object identifier can be reached.

From there, authorized parties can use standard internet protocols such as ReST – “representational state transfer” – to identify the company that issued the shipment, and request and update information about the logistics object.

Römer saw this as a way to account for multiple standards, “as well as different levels within the logistics hierarchy – be it an airplane, a container, a pallet, or a box on the pallet.”

With the right access codes, this allows for complete visibility and accountability at the cost of a mobile device.

 

People still matter

On the human side of the equation, shippers and the logistics companies they work with agree that industry cooperation will go a long way in improving supply chains. But in this regard, shippers argue, airfreight companies need to do a better job of networking with other modes of transportation. Glyn Hughes, IATA’s global head of cargo, said that if the maritime, rail, road and aviation transport industries want to serve their respective customers, “to the absolute optimum level of service, then we have to recognize that there are almost no commodities that are going to have a single mode of transport.”

The Trade and Cargo Facilitation Association is an incipient organization that addresses this intermodal communication breakdown, bringing stakeholders together to address issues, such as low yields and ICT adoption rates. Another promising multimodal EU managed forum is the Digital Transportation and Logistics Forum.

However, air-cargo industry presence is currently low in these associations. Perhaps it’s time to change that?

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