Air Freight, Not as Competitive as it Could or Should Be

aviation logisticsI recently read the book Aviation Logistics: The Dynamic Partnership of Air Freight and the Supply Chain.  It got me thinking; air freight is not as competitive as it could or should be.

How important is air cargo compared to other modes?

In terms of weight, air trade represents a mere 1.7 per cent of containerized traffic. But in terms of value it is roughly 35 percent!

What ships via air?

The high value of some shipments, and their vulnerability to theft and counterfeiting, explain why high value goods ship air. But it is not just valuable goods that go via air. Perishable goods, critical spare parts, and fast product lifecycle goods also tend to ship air.

How is air cargo faring in comparison to other modes?

Poorly, particularly in comparison to Ocean. Roughly 400,000 tons have been lost to ocean each year since 2000.

What explains the modal shift?

The increasing pressure to engage in sustainable logistics is one driver. Air shipments generate the most C02 per pound shipped, ocean the least.

But the perishable food segment is also increasingly being taken away by ocean. Controlled atmosphere containers (CAC) allow fruit and vegetables to be shipped by ships. “Fruits and vegetables, from the moment of harvest, start to consume oxygen and produce carbon dioxide and ethylene gas.  In any form of container they will release moisture and generate heat.  These factors cause the produce to deteriorate, which in turns cuts the shelf life.  However, with the use of CAC, which include devices for delaying these processes, a much bigger proportion of perishable produce can travel by sea.”

But partially the shift to other modes is self-inflicted. Air is not as fast as it could, or should be. “The average time taken to move goods by air – six to seven days – has remained the same for 40 years.” And yet the actual flying time is usually less than a day.

Why so poor?

There are many actors in this supply chain. Shippers, freight forwarders, passenger airlines that fly air freight providers, ground handling companies (the third parties that load and unload planes), inbound and outbound trucking, customs brokers, and customs authorities. All participants in this chain must forego manual document processing and move to electronic processing in order for the industry to reach its goal of chopping two days off the current process time.  Yet, electronic air waybills (eAWB) have only been adopted by 12 percent of the industry.

Interestingly, not all segments of the industry perform so badly. “Integrated” carriers – DHL, FedEx, TNT, and UPS – who own assets and have people at all links of this value chain, and thus have a seamless flow of information across this chain, can and do perform much better. Although more expensive, it is not surprising that they have become the preferred suppliers for JIT manufacturing and critical spare parts.

Why has adoption been so poor?

Scott Sangster, a Vice President at Descartes, wrote a good article explaining this. Scott’s key point is that on “the carrier side, the benefits of the eAWB are clear— airlines need the information to populate security filings and to streamline a high volume of air freight shipments. On the forwarder side, the advantages are less defined. Forwarders must have business value to make the transition.”

Descartes does offer eAWB solution that makes it less onerous for forwarders to submit digital airway bill information while providing some value-added capabilities to enhance the benefits of eAWB for forwarders.

In Aviation Logistics, the point is made that ground handling companies also don’t have the same motivation to adopt eAWBs as do the carriers. So, something similar needs to what Descartes has done for forwarders needs to be developed for the other players in this value chain.

Are there other headwinds for the industry?

“The industry is asset-rich and requires massive investments in aircraft and infrastructure.” Good news for shippers, but bad news for the industry, is the looming capacity glut. A significant percentage of air cargo moves in the bellies of passenger planes. As larger planes came on the market, Boeing 747s and Airbus 3-300s – more goods could be transported in passenger jets. And passenger airlines need to continue to invest in new planes to keep their passengers. “A recent study shows over 2,400 wide-body aircraft on order.” And the older planes which are retired from passenger service, are likely to be sold to dedicated air freight providers and repurposed to move freight. In short, the industry is “facing at least a decade” where cargo capacity is likely to exceed demand.

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