Word Up Bill Boesch
 During
my 50 years in the air cargo logistics industry I have learned one thing:
the air cargo industry is like one of those super rubber balls that defy
the laws of physics. When it falls, it bounces up higher than it was before.
And those downturns follow Darwin’s theory of survival of the fittest.
The best run companies survive and help to restore an even stronger industry.
As we all know, the air cargo and passenger
markets have been a challenge in the last few years, even though the conflicts
in Iraq and Afghanistan have produced record amounts of air cargo. I can
easily argue that these conflicts were a boom to strengthen the air cargo
industry and they were also partly responsible for the lower commercial
air cargo and passenger revenues.
So why am I mentioning the air passenger
business in an air cargo article? It is because the one thing that is
crystal clear to me is that the air cargo market is demanding lower rates,
high quality, and a customer friendly system to monitor the movement of
their cargo. And in many cases the lowest rate is considered the best
value, and that is the belly space of the large passenger aircraft. This
will put considerable strain on freighter profitability of the non-integrators
and in turn the systems with the lowest cost will rule the day.
As the passenger carriers expand and invest
in their highly profitable cargo business, there will be more available
cargo lift in the passenger fleet bellies with improved, customer friendly,
quality measuring systems rendering freighters to be used primarily in
the niche markets of unusable size cargo and destinations. When I was
at American Airlines I proved that 14 lbs. of cargo equaled the profitability
of one passenger, so more cargo on the passenger aircraft will give higher
profits to the carriers that invest in cargo, and that is the name of
the game.
Today I think the economics of the airline
industry are starting to stabilize. The industry is now growing at a relatively
healthy pace and is strong enough with the consolidations to respond to
fluctuations in the economy. I believe the future will see a reasonably
healthy commercial airline industry that acts as a contributor to the
global economy in a way that is helpful.
What will be the driving force that will
determine market leaders? In the past it was the added volume that pure
large freighters gave to the carriers, and the airlines with the most
freighter lift had the largest market share. But, I believe those days
are over, and available large passenger aircraft belly capacity and systems
that manage quality will rule the day.
Where does that leave the forwarders? The
airlines and the forwarders in many cases had a love/hate relationship.
Many airlines needed the forwarders who consolidated shipments for them,
thereby lowering their handling and billing costs, and the forwarders
had professional global sales forces and systems that promoted strong
customer loyalty. But the airlines had continuous pressure put on them
by the forwarders to lower rates, as the forwarder marketplace is also
highly competitive.
Are forwarders still necessary with airlines
having developed a system to deal directly with the shippers? Just look
at what automated ticketing and bookings systems did to the travel agents’
business: will there be a similar result with the forwarders in the air
cargo business?
What should the forwarders do to maintain
their position in the air cargo business? Just like in the airline industry,
there has been consolidation in their highly competitive market, so we
now see global mega forwarders. And, the integrators have taught us that
a reliable, total, end-to-end logistics system is the key to success.
It is also true that it would be difficult for the forwarders to become
airlines even though a few have tried. The bilateral, the certificates,
and the cost of flying aircraft would be an extremely difficult challenge
for them. Airlines have also tried to become forwarders and that has mostly
failed. I would not waste my time attempting things that failed. I would
look at a strong partnership between a single forwarder and a single airline.
I would create a holding company that would buy the total belly capacity
of the airline and have the forwarder be the sales force, with the cargo
handler thereby reducing the airlines’ costs. Airlines are already
outsourcing many former airline employee functions. Would it work? I think
so.
Now there is one area that I still need
to mention: low-cost air freighters competing in the market that need
faster timing than ocean and land transportation can provide, but which
cannot afford the cost of moving their material on aircraft. That is where
the new technology in airships are going, and I see them succeeding if
they can actually develop such a transportation vehicle that can reliably
operate long distances over weather patterns and get the government authorities
and the route rights to operate.
I know that my thinking will cause controversy,
but that is healthy for our industry.
Bill Boesch
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