FlyingTypers Logo
   Vol. 17 No. 9
Wednesday February 14, 2018

Disruptors & The New Paradigm

      It is interesting to see the reaction from various parts of the industry as disrupters come and present new concepts in improving the market place.
      There is a fear of the unknown that takes over and everybody huddles down to resist the changes taking place rather than adapting to the new environment and looking for opportunities. The airfreight industry has traditionally been lagging behind.
      At the same time, our ocean cousins have been far ahead in embracing the evolutionary process.
      All you have to do is look at how far air cargo has come in digitization during the last thirteen years since e-Freight was introduced as a concept.
      Some have evolved, but they are generally held back because the majority of players haven’t moved forward!
      Unfortunately, the lowest common denominator tends to act as a drag and slows the industry from moving forward.
      If you boil it all down, before we work on process improvements, we need to work on mindset change.
      The relationships between the various players have to change for better transparency of processes, without any fear of being pushed out of the equation.
      The traditional “making a buck off of each other” has to disappear.


New Approach To Shippers

      Our new approach must embrace charging for services rendered as the order of the day. Freight forwarders seem to be the most sensitive to the issue of being cut off if there is direct interaction between the carriers and the shippers.
      The fact remains that forwarders have nothing to worry about in the airline partnership as they perform essential services.


Airlines Need Forwarders

      The reality is that a carrier does not really have the infrastructure to deal with the forwarder function.
      Pure business logic says airline core competencies are in creating distribution networks, domestic as well as trans-continental cross borders with very capital-intensive assets, highly perishable capacity, and very thin margins.


Maintaining Distribution Networks

      Airlines, in my experience, would rather keep their eye on the ball and optimize their operations to create a very cost effective and efficient distribution network. Airlines tend to operate in one of the most regulated arenas and are very sensitive to economic downturns.
      This applies to all modes of transportation. Unlike their passenger colleagues, cargo tends to be directional and empty sectors can be a killer on their operating economics. Then, on top of that, all you need is one diversion because of weather or any other reason, and that can punch a big hole in the bottom-line.


No Set Up For Logistics

      So, for all the above, airlines are unlikely to focus on creating a logistics network.
      Put another way, the air cargo business partnership is far better off letting the experts manage their specialties.
      The story is the same on the shipper side.
      To take on the infrastructure to effectively manage logistics in the supply chain is an expensive option, so in most cases shippers are likely to keep out-sourcing their logistics needs.
      Forwarders are able to create economies of scale from which the shippers can benefit.


Integrators: A Horse of a Different Color

      Integrators are different and will remain different, as they tend to create a global system of efficient first and last mile networks, operating their own aircraft on high-density routes and using other carriers on low-density routes.
      Integrators are basically a hybrid operation.
      The downside is that their costs tend to be extremely high.
      Integrators tend to be extremely good when dealing with small packages, but face challenges when dealing with complex logistics requirements.


The Sting

      Integrators have created their own forwarding subsidiaries that operate more on an autonomous basis because of the incompatibility with process requirements for small parcel express operations.
      Other carrier’s benefit from their business. The integrators are not really a threat to the traditional airline operations as was feared in the late eighties and nineties.

Reality Check

      Activities in the e-tail within the e-commerce business have changed the consumer behavior. It is the fastest growing segment of the air cargo industry and will remain so for the foreseeable future. The key to being a successful player in this space lies in the efficiency of your last mile delivery (LMD) capability.
      This where the forwarders and, nowadays, even the integrators are struggling. Forwarders LMD tend to be job based and integrators, schedule based.


Looking For A Nice Niche

      The likes of Amazon Prime now require flexible LMD with very short delivery periods.
      This poses challenges for both entities and this is where smaller localized LMD operators tend to find a nice niche.
      Focus is on the success rate of first attempt delivery.
      As the express business transcends from B2B to more B2C, it brings challenges to the operators. 
      This is where even integrators are subcontracting more and more to local operators in support of their own infrastructure, thus boosting and creating more opportunities in the local industry.


Smart Boxes

      Enter the era of smart ideas and new technology in the form of remote collection smart boxes, which are also becoming more integrated into the fabric of LMD.


Shippers Through The Looking Glass

      Shippers can be viewed as partially responsible for slowdowns in the process.
      Think abut it.
      Shippers always complain about lack of transparency whilst they are best placed to create transparency for themselves and share it with all that need to know the full status. They hold the master record, so all service providers have to just push their piece of information to this master and if this information is then shared with all, it will help in creating better process efficiency. Shippers are also reluctant to remunerate the forwarder and look for extended credit periods.
      The fact remains that with growing and booming e-commerce activity, many shippers get paid before the consumer receives the goods. 
      Hopefully, the newer generation growing up in a ‘pay as you buy’ atmosphere will be helpful in creating better cash flow in the system, and service providers (read airlines & forwarders) will get paid fairly and quickly for the services rendered.


Crunch Time & Agents of Change

      Now, here is the crunch.
      If the air cargo industry thinks that it can continue to operate the way it has previously as it moves into the future, they might not see the future.
      Market place is now very common in every segment of the industry, be it hospitality, air travel, or shopping.
      Folks like Expedia, Kayak, etc. have changed the way these industries operate. Amazon and Alibaba have changed the way consumers behave.
      It is only a matter of time before major change happens in air cargo industry.
      Folks like Freightos are bringing the market place concept to the freight market. Flexport is driving the development of virtual forwarder.
      TAC (The Air Cargo) Index is bringing in fresh transparency in market rates/pricing. So, resisting the change is only postponing the inevitable.
      My view is spending more time adapting to the new environment will be more beneficial than resisting this change, which in a worse case scenario could lead to extinction.

Information, For Instance

      The new generation is now accustomed to instant information and services.
      They are not going to wait for days to get a rate quotation when it will be readily available in the likes of Freightos’ market place, which will give them one price for all the services they want within moments… and with a choice of service providers, probably with price comparisons.

Wake Up Call

      The industry should pay attention to the evolution of technologies, like 3-D printing, and geo-political aspects of on shoring and near shoring, which will change the way traditional supply chain operations work.
      The good news is that driven by the e-commerce activities, air cargo will continue to be a growing market.
      The new market place is going to create greater market access and volumes are likely to grow bigger as everyone will have access to the industry. Shipping goods will no longer be a cumbersome activity for Joe Blog.
      This in itself will be a great catalyst in growing the market place.
      So, it is time to deal with reality and join the evolutionary process.
Ram Menen

Ram Menen     Ram Menen, one of the original founding team of Emirates Airline, headed its cargo division since its inception in October 1985.
     With Ram Menen at the helm, the airline rose to become the largest international cargo airline in the world in 2012.
     Mr. Menen retired from Emirates in June 2013 as the Divisional Senior Vice President Cargo.
     Ram began his career in aviation in 1976 at Kuwait Airways later moving to British Airways to head its cargo operations in Kuwait.
     In 1984, he joined the Kuwaiti aviation group Alghanim Al Qutub Shipping Agencies, to set up and manage its airfreight-forwarding unit in Dubai.
     Trained as an engineer, he spearheaded the conceptualization and development of the LD-36 (AMF) type of ULD (Unit Load Device) which increased usable space on each lower deck pallet base by 33%. Ram also helped develop the cool dollies, which are extensively used at some airports to maintain the integrity of the cool chain on the ramp.
     Ram is a FCILT (Chartered Fellow of the Chartered Institute of Logistics & Transportation), as well as, FRAeS (Fellow of the Royal Aeronautical Society).
     He is one of the founding members of The International Air Cargo Association (TIACA), serving as Vice President in 1993 and 1994, and as President, CEO and Chairman of the Board in 1995 and 1996.
     Ram Menen has won every major award given by industry publications.
     Today, with his wife Malou, he splits his time between homes in Luxembourg and Kuala Lumpur.
     Their son Ram Menen Jr. continues in the family transportation tradition. Ram Jr. is currently employed by Wallenborn.
Publisher-Geoffrey Arend • Managing Editor-Flossie Arend •
Film Editor-Ralph Arend • Special Assignments-Sabiha Arend, Emily Arend • Advertising Sales-Judy Miller

fblogoSend comments and news to geoffrey@aircargonews.com
Opinions and comments expressed herein do not necessarily reflect the views of the publisher but remain solely those of the author(s).
Air Cargo News FlyingTypers reserves the right to edit all submissions for length and content. All photos and written material submitted to this publication become the property of All Cargo Media.
All Cargo Media, Publishers of Air Cargo News Digital and FlyingTypers. Copyright ©2018 ACM, Inc. All Rights Reserved.
More@ www.aircargonews.com

recycle100% Green