As seen in the first column in this series (February 2017), the emergence of e-commerce exposed how the air cargo industry is little match for new consumer logistics demands, which mandate transparency in pricing, speed and quality. The product offered by scheduled airlines, featuring interchangeable capacity and forwarding services in its industry model, should have provided enough flexibility to meet and match such challenges. It did not.
Today, we are still disjointed due to old-school thinking. Are we to be relegated to only serving the low-yield volumes in the air cargo business and potentially miss a US$3 billion – and still growing – e-commerce market? We missed out on what the integrators captured in the 1990s. We cannot allow that to happen again.
In the second installment of this series (April 2017), we revealed how there are inconsistencies in the airline industry’s cooperative model that should have been cleared a long time ago. Structural overcapacity is one of them, and it’s not rocket science to deduce that this will depress yields – the “volume” part of our business. Unless the fine balance of trust and transparency in the existing forwarder and airline model changes, we will miss the “value” part as well – the higher-yielding new business. Two reasons why balance has not yet been restored are the existence of far too many parties involved – all with their own interests to serve – and a pervasive attitude that the e-commerce problem can be remedied easily with technology.
But the fact is, e-commerce service demands are simply not being addressed properly by the scheduled airline logistics chain. There are basically two courses of direction to go:
Course One: Do it the old way and try to get everyone around tables and reorganize every bit of the industry.
Course Two: Forget about what came before and how that came to pass, and to start fresh, with a tabula rasa.
Course One has a wide spectrum to cover, but at least it already has structures in place, in the form of associations, such as IATA and TIACA. To stay focused, the industry needs a blueprint that is shared among all. The “closed-loop, integrator-style” approach is a natural one, as virtually the entire industry has tried acting as integrators, save for one important difference: We never fully closed the loop due to an overwhelming mistrust among the players.
By working from the top down, the trick is to not categorize in terms of parties – i.e. airlines, forwarders, airports, ground-handling agents (GHAs), etc. – but in terms of tasks and responsibilities to make a new system work, such as e-commerce, customer retention, customs, security, last-mile services or track-and-trace systems. In today’s digital retail environment, it is about the logic of “anything, anywhere in three days or less,” not about who wields power in the world of air cargo. Parties that monopolize tasks and hide information have been part of the problem that upset the balance in the first place.
Instead, we need to cooperate on areas where the total scheduled cargo chain comes together. A network of cargo communities, for instance, that talks to each other seamlessly could provide a platform of integration. Airports, general sales and service agents, GHAs, road-feeder services and last-mile service providers could coordinate such platforms with a dashboard of dedicated plug-ins for each service provided. These dashboards can allow every shipper or consignee to see the airlines’ product portfolios in a clear and transparent way.
This arduous task requires engagement of all parties and advocacy by TIACA, which would have to form revised committees focused on the world’s new reality of customer expectations. Perhaps airline alliances, currently holding the short end of the capacity-stick, could invite a logical complement of local forwarders and others to join their alliances.
Considering what the above entails, Course Two raises the question: Why not go one step further and organize as a scheduled cargo industry into a virtual integrator model? Certainly, by now, with the rise of airlines like Amazon’s Prime Air, the writing is on the wall that if we don’t do something radical, then scheduled airlines, major airports and forwarders will be bypassed out of necessity, because they cannot meet the service demands of e-commerce.
Regardless of which path we take, the challenge for scheduled airlines and all associated logistics service providers is to end our confrontational history. Airports, GHAs, airlines and customs can and must work together if they want to be relevant in the fastest growing retail segments. Customers want this, research proves this, experience shows this, and those who ignore the writing on the way will do so at their peril.