The past is NOT prologue

The title of this issue of my blog is a play on the words spoken by Antonio in The Tempest written by William Shakespeare. Shakespeare’s character was saying that what had happened before was only a preparation for the next stage. That statement has been interpreted as what has previously occurred provides a foundation for the next stage.

I don’t agree that what has occurred in the past necessarily prepares us the next stage of our personal life or business relationship. In the last issue of this blog, I addressed the many changes and disruptions that the worldwide air cargo logistics industry has faced since the end of World War II.

Like many people around the world, I have emerged from a long slumber and joined the millions who have taken to the skies for work and pleasure. Over the summer of 2022 I logged over 61,000 miles and visited three continents.

The experiences confirmed the need to move away from the old ways of doing business. Specifically, transactional based on a buyer-vendor business relationship MUST be replaced with a PARTNERSHIP model. While the latter provides for great deal of flexibility, it does NOT contribute to an environment which promotes strategic thinking and investment and continuous improvement.

As an example, a multi-year contract that includes a 90-day cancellation provision is in fact a 90-day contract. What businessman would make a long-term investment in equipment, facilities or staff training, if they run the risk that the underlying contract could be cancelled within 90 days? What bank will lend money if their client could lose a portion of their revenues within 90 days? The answer to both questions – NONE!

So, why does the airline industry continue to employ such contracts, particularly with critical partners? The answer to this question can range from – ‘we only focus on lowering cost’, ‘we need to be as flexible as possible’, or ‘that is way it has always been’…the last response is a cop out! In an environment where change is constant and varied, why does the industry employ contracting processes that presume there is little change.

In my last issue of the blog, I noted that one of the challenges to traditional ways of doing business was leveraging data to:

1) Create new services and distribution channels,

2) Provide complete transparency to beneficial cargo owners, and

3) Manage capacity and operations to ensure speed, transparency, quality, and compliance issued are addressed before ever talking price.

I am not saying that negotiating a reasonable charge is not part of the process. What I am saying is that it should not guide the contracting process and be the sole measure of contract compliance.

For example, let’s look at the airline-ground handler relationship. The efficient and safe handling of an airline’s critical asset and its revenue traffic is of paramount importance. The stability, consistency, transparency of operations, and compliance with contractual and regulatory requirements must be the basis of selecting, contracting and coordinating operations.

These four elements must be agreed to before charges are even negotiated. Addressing the four operational elements should be undertaken in a thoughtful manner with a long-term perspective. The return on any investment, whether they be physical assets or staff, is not short-term. Thus, why is a focus on short-term cost-based transactions the prime negotiating driver?

A multilateral partnership which is mandated by the airport operator and brings together the ground handler, the airline(s) and the property developer can leverage the strengths of each partner to build a stable, sustainable and resilient platform. That platform can spin off many benefits including the creation of a unique selling point for all parties and the associated marketing messages to attract beneficial cargo owners.

A partnership approach is based on mutual respect and a long-term commitment. Through a process that highlights the value of an agreement that is not cost and/or time based, necessary investments by both parties can be reasonably made to ensure that the required level of service is provided. The selection, negotiation, and contract management steps must be based on open and candid communication between the parties. Too many times, the communication process ends soon after the contract is signed. As issues arise, the operating managers who are ‘given’ the contract, have little leeway to address issues.

Changing from a highly flexible, transaction-based contract to a longer-term business arrangement requires a different business mindset. While it not without challenges, this is the basis for an increasing number of business relationships in which both parties are committed to continuous improvement, sustainable, and resilient operations. These contracts reflect the simple fact that loners’ usually lose while partners support each other and overcome the continuous disruptions which every industry faces.
In conclusion, a long-term, based on mutual respect partnership approach is recommended over a short-term, transaction-based contract. The former provides an environment in which the required investments can be made, and issues resolved without fear of the Damocles sword being loosed through a 30-day cancellation provision.

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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