The air freight sector’s remarkable upturn in fortunes could soon be coming to an end, according to one leading market analyst. But while the current supply-demand balance could be threatened by new capacity, digitalization of the sector will create new opportunities.
     Patrik Berglund, CEO of Xeneta, a benchmarking and market intelligence platform, believes that although forecasters such as McKinsey have predicted air cargo volumes will rise by 3 percent on average through to 2025, problems are now brewing for air freight stakeholders.

Downward Pricing

     He said that with carriers lining up to buy freighter aircraft, and bellyhold capacity expanding in line with passenger operations, carriers would soon face downward pricing pressure that could negate volume gains. “We think supply could quite rapidly catch up with demand, so there will be a pricing correction, probably during 2018,” he added.
     “Our customers have reported that they mainly choose air over ocean, for example, because of the obvious advantage of speed, especially when supply chain kinks emerge. So, my take is that how the ocean market performs in terms of reliability with the various alliances now operating will have a strong bearing on air cargo demand.”

New Rate Service

     Xeneta launched its new benchmarking rate service for air cargo at the end of last year, expanding from its ocean freight benchmarking business. ‘Beta’ testing is ongoing with customers and the full product is due to go live in June.
     Berglund believes more and more transactions will inevitably be digitalized and this will transform the industry.
     “The air cargo industry is facing serious disruption through digitalization which will change the way the industry operates as a whole,” he added.
     “New technologies can provide invaluable resources to an industry, but their disruptive nature can make it hard for some companies to adapt, whether it be due to cost constraints or the challenge of implementation.”

New Entrants Challenge

     Carriers and forwarders, he said, had been slow to understand the threat posed by new entrants.           “As other sectors of the freight industry have turned towards digitalization as a means of serving their customers, air freight has been the last holdout against disruptive technologies with many still relying, like in the ocean shipping sector, on a never-ending stream of phone calls and emails to book and manage shipments,” he added.
     But pressure to digitalize will continue to grow, not least because new entrants are targeting market niches in the air freight value chain, or offering products to incumbents with similar—or better—service standards but lower prices.
     “Given that most systems are turning towards automation for increased efficiency, it follows that the air freight industry must also go digital,” said Berglund.
     “As forwarders learn to utilize new technologies, they’ll be able to make their teams more efficient while building longer and stronger business relationships, which in turn increases their chances of growing their bottom line.”

Understanding The Obstacles

     Quoting a recent McKinsey report, he said that when customers do use online channels to find forwarders and to book and manage their shipments, they faced multiple obstacles, “for example, only 60 percent of carriers and forwarders offer online registration.”
     And, he added, the number now providing online quotes was lower than 60 percent. “These breakpoints explain why so many start-ups—and some investors—see huge potential in disrupting the freight-forwarding business.”

Marrying Technologies

     With shippers demanding better services, more competitive prices, and easy and convenient access to shipment information, companies that succeed will be those best able to marry the best of traditional forwarding services to new technology. “As new technologies become widely accessible to all companies and forwarders throughout the industry, it’s the extra mile given to customer service that becomes a differentiator for companies who are trying to compete in a market with extremely tight margins and even tighter competition,” he said.
     “Digital booking is a prime example of where air freight is woefully behind the rest of the shipping and logistics industry. For customers that don’t use electronic data interchange, booking freight online is not simple.
     “Companies that have made the process easier for their customers have gained market share over forwarders that aren’t utilizing the new technology. This helps to highlight the growing interest in digitalization and shows a potential market for new businesses, business models, and technologies.”

Outdated Practices

     Berglund also argued that air freight procurement now faced the same level of volatility and complexity as the container shipping industry.
     “Archaic practices and dated processes coupled with exhaustive tendering periods leads to inefficiency,” he added. “This has given birth to the development of air and ocean cargo benchmark and market intelligence platforms like ours and other market indices.”

It Ain’t Easy

     But although new technology can improve customer interactions and back-end functions, 3PLs looking to upgrade systems do not face easy decisions, not least when deciding whether to build or buy a marketplace or partner with an emerging one.
     Berglund also said forwarders should guard against losing the qualities that differentiate them from their competitors as they modernize. “By complementing that strength with digital freight technologies, logistics companies will have a better chance of standing out,” he added.
     He also argued that 100 percent digital air freight forwarding companies would find it tough to succeed.
     “In many cases I’d argue that freight forwarding for any mode of transport can’t go fully digital without any physical footprint,” he explained.
     “It’s not possible to offer the same level of service otherwise.”

Time Is On My Side

     “We must not forget that legacy players have been in the game for a significant amount of time.
     “They are in a strong position to fully pivot and adopt the latest innovations.
     “And they have the capital to spend on resources for development, implementation, and training.
     “Nonetheless, we are in good company with tech start-ups who are changing the game and who bring a fresh look into the industry.
     “More competition and innovation needs to continue to happen in the market.”
SkyKing