The continuous evolution of air cargo logistics challenges

In my first issue of this blog, I noted that change is constant, and identified a number of disruptions to the traditional model of air cargo post World War II. This time I want to explore some of the disruptions and focus on their impact on the traditional model. Before embarking on this discussion, let’s briefly define the traditional model. So, remember to keep your seatbelt on as turbulence may occur at any time during the flight.

Air cargo has been part of aviation from the beginning. It really started growing after WWII when a surplus of planes, pilots and others demobilized from air forces and sought out commercial opportunities. The initial model was simply a matter of acquiring one or more airplanes, obtaining an air operator certificate, marketing and selling the new service, acquiring business and flying cargoes between airports.

It was a simple operating model that took advantage of the speed of transit as the primary separator from other modes. Freight forwarders quickly entered the market to shift their customers’ products, and became the primary sales force for both fledgling and legacy airlines. That model continued, with some minor changes for some two decades, until the emergence of a new business model – the integrator.

In the 1970s and 1980s, the integrators, led by Federal Express and quickly joined by TNT, CF Air Freight, Burlington Air Express, DHL, Emery Worldwide, Purolator Courier and UPS changed the landscape and most importantly the interface between shippers and the air carriers.

Unlike the traditional model, door-to-door, fully integrated service and products based on time definite was an integral part. Direct sales to customers and the use of simplified forms for domestic and international shipments replaced multi-part forms.

The simplicity of a one-stop-shop approach and the provision of a single point of contact and traceability opened up the industry to smaller shippers. These elements challenged the traditional air carriers, and their freight forwarder partners to change their systems to meet these new challengers. A number of the all-cargo airlines were acquired by the integrators; the largest acquisition being FedEx’s purchase of Flying Tiger Lines and all the associate traffic rights that Flying Tiger had, especially on the trans-pacific routes. The landscape of the integrators changed as the larger companies acquired the smaller ones.

The 1980s and 1990s saw another challenge to the traditional business model as Panalpina contracted with Cargolux initially to operate dedicated freighters on selected routes to handle their cargo. These services, characterized by the Luxembourg – Huntsville, Alabama “Dixie Express“ service provided the freight forwarder with a dedicated source of lift for high-value shipments.

Meanwhile, major freight forwarders purchased dedicated lift to ensure access to air cargo lift for their customers who otherwise might be faced with the challenges of finding space on airlines that face capacity constraints dictated by passenger-focused decisions. These services typically connected smaller airports where bespoke product offerings could be implemented. They also challenged the small- and medium-sized freight forwarders by marketing their own lift as a unique selling point to attract business, in particular high value verticals such as automotive and aerospace at the time.

The early 2000s have seen two disruptive forces.

The China-Russia-Europe rail services have not only provided a faster alternative to the seaborne option for shipments, but also a lower cost option for air cargo. These services have also spurred the employment of digital systems and processes to facilitate the movement of shipments across international borders.

Electronic waybills and documents are accepted and used on the new Silk Road offerings and used by customs and other government authorities to quickly and efficiently assess, inspect and clear shipments with little delay. As of late 2021, more than 50,000 trains, typically comprising 100 containers, have moved a wide variety of goods from China to locations throughout Europe and back since the service inception.

The same decade has seen the emergence of e-commerce platforms including Alibaba, Amazon, JD.com, SF Express etc. These services, which are driven by business-to-consumer (B2C) and business-to-business (B2B) transactions, have evolved from online sales and ordering platforms to integrated platforms that now incorporate first-mile, linehaul, and last-mile transport systems along with shipment handling and processing.

The companies rely on information about their customers to design systems. That same information is used to plan and manage the services that deliver products in as little as two hours. The e-commerce platforms have upset the apple cart through the collection and processing of massive amounts of data. Another key core benefit to these mega e-commerce carriers is complete internal control of the financial transactions throughout.

On airport open-access digital systems, known as airport cargo community systems (ACCS), have evolved from a platform on which shipment information is available to subsequent stages that include additional information and facilitate business transactions between companies. Networks of ACCS are being linked through digital logistics corridors (DLC). These DLCs tie together the stakeholders of the ACCSs and provide end-to-end, fully transparent oversight of each shipment.

Most recently, ocean carriers including Maersk, CMA-CGM, and MSC have entered the air cargo industry in a huge way, disrupting the traditional air cargo market as the integrators did 40 years ago.

Maersk, which has had an airline, is expanding its fleet, scope and business model to become a true multi-modal service provider for all modes. CMA-CGM recently made a strategic investment in the Air France-KLM group, giving it a seat on the board. MSC and Lufthansa are making a move to control the new Alitalia, ITA. Klaus Michael Kuehne of Kuehne and Nagel and a major shareholder in Hapag Lloyd has purchased a major position in the Lufthansa Group. The ocean carriers are leveraging the recent significant profits to provide air cargo services, as their direct clients have demanded, in addition to marine, rail and road haulage services to their thousands of beneficial cargo owners (BCO).

The combination of these developments has been a series of challenges to the traditional ways of doing business. They have introduced new ways to:

• Identify and reach customers by direct contact to know what services are needed and supply them.
• Provide alternatives for beneficial cargo owners to move their shipments through new distribution channels not just competitive forwarders.
• Leverage data to create new services, distribution channels, give complete transparency to BCOs, manage capacity and operations to ensure speed, transparency, quality, and compliance issued are addressed before ever talking price, and
• Provide platforms on which all of the stakeholders in the increasingly complex supply chain webs can enter, access and employ, and analyze shipment data across clients’ supply chains.
• Constant challenges to norms stimulate innovation, the latest developments show that major logistics companies accept that and are investing. The challenges to the traditional air cargo models are enormous and those that don’t change will quickly become irrelevant. The companies that refuse to see that risk will not be capable of meeting expectations of BCOs for anything but low revenue non time specific air cargo. The benefit to the BCOs of the new service offerings and capabilities of the airlines and related service providers in time definite multi modal offerings will lead to new services and systems evolving. The new services and systems will become common and mandatory in addressing critical elements which contribute to resilient operations and long-term sustainability of the industry.

Charles H.W. Edwards, B.A., M.Sc., MBA, has over 50 years in the transportation, distribution and logistics industry. Edwards is a vice president of SASI World and a professor of the practice at the University of North Carolina at Chapel Hill in the Department of City and Regional Planning. He is a Scholar Fellow of Sigma Chi Mu Tau (Supply Chain) honor society. He began his career as a truck driver in Toronto. Since then, Edwards has worked in international freight forwarding in Canada and the UAE, numerous sectors of the airline industry, aviation design and manufacturing in Germany and the United States, ocean freight, rail management, economic development, and logistics education. Edwards can be contacted at [email protected].

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