Where We Went Wrong – Part 1: The e-commerce revolution

Here’s an open secret: physical “brick and mortar” shops are closing as multitudes of shoppers flock to online retail sites, such as Amazon and Alibaba. In the stores that still remain, many of the consumers are “just looking,” but will make their purchases later on the web.

Unlike general air cargo, which will likely clock a modest 3 to 4 percent growth rate for 2016, global e-commerce is booming. At last year’s Cargo Facts Asia conference in Hong Kong, Steven Li, director of strategic partnerships for Alibaba’s Cainiao logistics network, said that “one-third of the US$3 trillion global e-commerce market is cross-border trade, which is growing faster than domestic sales.” While Li admitted that e-commerce has driven more demand for airfreight, he warned that the industry will not benefit fully until it “recognizes the need to change.” What drives e-commerce boils down to “fast, transparent, easy and dependable,” he added. No one gets around these basics.

Yet here we are, in 2017, with the air cargo industry scratching its collective head, still trying to figure out how to catch up to this new digital age that’s passing us by. Where did we go wrong?

It’s not as if we weren’t warned. For years, “e-tailers” have repeatedly voiced their concerns about transparency and reliability. They have opened up global shopping to anyone with a computer or smartphone. By changing the distribution channels, they unlocked whole new markets, providing the world with new levels of availability and comfort. Understandably, they cannot – and will not – have their growth frustrated by below-par logistics.

On the passenger side, this online mentality was taken seriously from the start. Every airline jumped on the web more than a decade ago, enabling customers to buy tickets, book hotels, rent cars, choose insurance, etc. – all online and completely transparent. Now, every airline passenger division has an e-commerce department.

Rather than sticking with the old airfreight model of “push logistics” – moving goods from concentrated production locations to markets – the integrators embraced a “pull logistics” approach, similar to the passenger sector, in which consumers trawl the web for whatever they require, even if it’s from the other side of the world, drop it in their digital shopping cart and leave it to Amazon, Alibaba and others to get it to them by the next day or two.

The general cargo industry, meanwhile, still favors the more economical tactic of bundling and consolidating shipments, which set it off on the hunt for lower unit costs, which led to freighters, which, in turn, called for geographical concentration on fewer consolidation gateways. But this is getting farther away from door-to-door delivery, not closer. Though outdated and largely ineffective from a user perspective, export-oriented budgets and price-capacity air cargo deals persist, while key investments in the speed of aircraft are not fully leveraged. Hence, airlines and forwarders are collectively missing out in initiating collaborative solutions.

Cargo – especially during the last peak season – is growing at a healthy pace, but it’s not guaranteed to remain a service of scheduled airlines or forwarders. Airfreight is, by far, the fastest service for cargo shipments, but it is also the most expensive. Despite this vulnerability, airlines aren’t fully embracing the possibilities that strategic alliances and open dialogue with ground handlers and IT service providers can bring.

At some point, if the status quo holds, major e-commerce companies may decide there is no other solution than to develop their own logistics systems – in fact, both Amazon and Alibaba have already moved in this direction. Their basic business may be order consolidation, but their IT prowess and financial resources will allow them to extend their controls from beginning to end. There is no lack of logistics services with which they can subcontract, but there is a critical consideration of whether it is wise to rely on carriers that seem unable to streamline their operations and keep up with today’s innovations.

The challenge, therefore, lies not with e-commerce itself – the marketing of goods via the web – but with the raised expectations of today’s clients, which now demand time-sensitive, door-to-door service. The logistics industry, particularly the airline/forwarder combination in its “open system arrangement,” has some work to do in order to better meet these new e-commerce logistics requirements.

This is the first in a special ACW series about the need for changes in the international cargo industry. Part 2, found in the April 2017 issue, examines the carrier/forwarder relationship, and how transparency will be the only way the industry can survive.

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

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