air cargo Archives - Logistics Viewpoints

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

Logistics Trends | By Steve Banker • 09/26/2016

I 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.

Guest Commentary: Easing the Burden of Air Cargo Security Compliance and Reporting

Cloud/Software-as-a-Service | By Cindy Yamamoto • 03/03/2011

While governments around the world have become increasingly vigilant about air cargo security and compliance, freight forwarders and air carriers have always understood that these are critical areas of concern. Increased demands in terms of visibility and reporting requirements have led to far more complex processes and, without the right technologies and tools in place, these processes can become alarmingly inefficient.

Today, freight forwarders are grappling with a number of process challenges as they strive to meet the performance metrics that their customers demand. Many lack real-time visibility into the status of their cargo shipments. Further, since their customers are the owners of the underlying supply chain data, freight forwarders face challenges in accessing, filing and amending regulatory filings in a timely manner that is consistent with the important confidentiality concerns of regulators and the customer. This is further complicated by the fact that freight forwarders can carry an administrative cost burden of between $2 and $9 a shipment associated with filing critical documents, which means any errors, omissions or delays can become costly.

Gaining the insight needed to enable these processes requires a highly sophisticated, complex and costly infrastructure. Historically, for most air cargo operations, the technology was simply too far out of reach to consider. Today, however, there are a wide variety of on-demand logistics management solutions that are becoming a driving force in bringing this level of technology sophistication to freight forwarders at an affordable and manageable cost.

The Importance of Security

Concerns around safety and security add additional complexity to traditional transportation process challenges. It is critical in today’s security-conscious world to know what is happening with all shipments at all times in all locations. That means having up-to-the-minute information on what is in a shipment, who is handling the cargo, where it is coming from and where it is going (among other details). Traceability is not a simple task, especially when one considers that freight forwarders must constantly adapt to meet changing shipper requirements and scheduling disruptions. Global sourcing for products and logistics services makes it even more challenging for freight forwarders to keep up with the regulatory compliance and security mandates that their customers expect.

Simple Steps to Addressing Complex Challenges – Example Forwarder/Carrier Workflow

Given the complexity and changing regulatory landscape, the air cargo industry is looking to automate the multi-party logistics processes with initiatives such as e-Freight. The growing demand for efficient and timely document processing have made it all too clear that disjointed paper and electronic filing processes simply will not meet the security and compliance requirements of the future. With on-demand logistics management solutions, freight forwarders and their carrier providers have a growing number of options to communicate electronically for everything from pricing and booking to tracking shipment status. The following workflow illustrates how automating a portion of the process can dramatically streamline the exchange of information, thereby reducing manual processes and increasing data quality.

Once freight is received at the forwarder’s facility, the Master and House bills are entered into the appropriate systems. The Air Waybill (AWB) is then printed and the cargo dispatched for delivery to the air carrier’s terminal. At the same time the forwarder’s on-demand logistics system transmits the same Electronic AWB message electronically and that AWB is delivered in real-time to the designated air carrier’s host cargo system – all of which can be done before the freight leaves the forwarder’s office or actually arrives at the air carrier’s terminal freight dock.
For US-origin international shipments, the Automated Export System (AES) message to Census for export shipments or the AMS message for import shipments to US Customs can be sent directly to the agency or to the air carrier. This allows the forwarder to meet the filing requirements for Customs authorities and the air carriers electronically. When the freight arrives at the air carrier’s cargo terminal, airline employees do not have to enter all of the Air Waybill data, since the information was already electronically captured in the air carrier’s system. Staff only need to verify a few items (e.g., pieces and weight) when they accept the cargo, thus reducing data entry errors and costly discrepancies.
When the cargo departs, the air carrier’s host system will begin to send out status update messages automatically to the forwarder, electronically updating their internal tracking systems. The forwarder only needs to call when exceptions are noted in their systems. This saves a significant amount of time and greatly enhances productivity.
Linking to on-demand transportation management services for managing the first and last mile of delivery significantly increase efficiencies associated with the end-to-end shipment. These services enable forwarders and air carriers to electronically tender loads to truckers, receive status messages on the movement of the loads, and process and audit freight invoices against their contracted rates. This can deliver even more productivity and optimization enhancements.

Through the electronic business document exchange capabilities that power these solutions, global shipment visibility, and ultimately, improved performance management are attainable. Automation can also increase documentation accuracy by as much as 30% by reducing the need for paper and re-keying of data. Delivery precision is possible with reporting and alert messaging functionality. Achieving what was previously viewed as costly investments in such areas as cargo yield management and load optimization are within reach by layering business intelligence reporting into the process.

Getting Started

Tapping into on-demand resources is a relatively straightforward process. Rather than paying up front capital costs for the hardware and software required to develop and implement an in-house infrastructure, on-demand solution subscribers usually pay a lower monthly fee on a per use basis in addition to relatively nominal set-up costs.

The bottom line is that on-demand logistics management solutions provide an affordable and highly effective way for freight forwarders to address the increasing challenges of moving cargo across borders while ensuring customer satisfaction. By simply embracing the features and functionality offered in these solutions, business processes can be streamlined; communications between business partners can be more easily shared; and efficiently meeting security initiatives designed to make the world of air cargo safer is more attainable for the freight forwarding community.

Cindy Yamamoto is Senior Vice President, Product Strategy at Descartes. She has over 25 years of experience in international business, including product management, financial supply chain management, business development, marketing, operational management and customer service. Prior to joining Descartes, Cindy held senior positions with OOCL, a leading global ocean carrier, and BillingZone, a technology company offering financial solutions for automating invoice receipt and payments.

Volcano Disrupts European Supply Chains

Supply Chain Risk Management | By Steve Banker • 04/22/2010

I’ve been waiting to hear how supply chains have been disrupted by the Icelandic volcano that is spewing massive amounts of ash into the atmosphere. For those of you have been in a cave over the past week or so, it turns out that the ash makes it dangerous to fly. As a result, most airports in Europe have been closed for several days and air cargo has been grounded. Only in the past few days have some flights resumed.

An article in the Financial Times (“Pressure grows on supply chains”) noted the following:

Air freight accounts for a tiny amount of world trade by weight – about 0.5 per cent for the UK. But the disruption has highlighted how it plays a vital role in supplying key, high-value components to many manufacturers. In spite of its tiny volume, it accounts for 25 per cent of UK trade by value.

Among the carmakers, BMW and Nissan said they plan to suspend some production this week because of disruption to supplies. Audi said it might have to cancel shifts because of missing parts.

Although all three mainly use suppliers based near their factories and use road and sea for most deliveries, they depend on air freight for a small number of high-value electronic components. Nissan, for example, said it might have to halt production of its Cube, Murano SUV and Rogue crossover models because it lacked supplies of a critical sensor made in Ireland.

Remo Eigenmann, head of air freight for Damco, the logistics arm of Denmark’s AP Moller-Maersk, said the situation had been exacerbated by a fall since the economic downturn in prices to use air cargo. That had made customers who would previously have used other modes or a mixture of air freight and sea freight switch entirely to air freight.

It doesn’t surprise me that the distribution of electronics components has been affected. They are high value, low weight goods.

According to a Boston Globe article, the distribution of high-value fresh produce has also been affected.

Kenya has thrown away 10 million flowers—mostly roses—since the volcano eruption. Asparagus, broccoli and green beans meant for European dinner tables are being fed to Kenyan cattle because storage facilities are filled to capacity… Kenya exports 1,000 tons a day of produce and flowers—including roses, carnations and lilies…

Again, this is not too surprising. High value, perishable goods are often routed through Amsterdam in a hub and spoke delivery chain.

What did surprise me was not reading anything about the pharmaceutical supply chain being impacted. My understanding is that virtually all drugs pass through either Puerto Rico or (more to the point) Ireland for some form of valued-added packaging or manufacturing. This is done to reduce the taxes paid on these products. The disruption of the pharma supply chain has not yet been reported on.

I called Chris Jones, Executive Vice President at Descartes Systems Group, a Logistics Viewpoints sponsor and ARC client, to get his insights. Descartes is a leading provider of solutions for air freight forwarders.

Chris agreed, in addition to electronic components and high value perishables, pharmaceuticals and fine chemicals are industries that heavily make use of air cargo.

I asked Chris about whether it would take longer to unwind these problems for air cargo than for passengers. Chris explained that some cargo flies in the bottom of passenger flights, while other goods are transported on planes devoted to cargo. The economic recession has led air carriers to mothball passenger planes. This has led to almost all passenger flights being full. This means the planes are heavier, so there is less capacity to carry freight. The mothballed planes cannot be brought back into service quickly. Consequently, there is little ability for passenger flights to carry more cargo.

Our conversation then turned to supply chain risk management. To what extent might contingency planning have allowed companies to avert or mitigate the deleterious effects of this continent-wide disruption to air travel? My view is that for the perishable supply chain, other modes are just not practical, although it might lead to producers taking out more insurance in the future.

Chris agreed that contingency planning around air disruptions is much more difficult to plan for than for other modes of transportation. He viewed this kind of a continent-wide crisis as being a once in a hundred years, or even rarer, kind of event. In such a situation, adding inventory buffers or buying insurance might not make financial sense. He did think that this crisis could serve as impetus for European companies to increase the level at which they source regionally or engage in near-shore sourcing.

I’d be interested in your views on this crisis. What other implications have not been reported on in the press? What impact has this crisis had on your supply chains? Feel free to email me at sbanker@arcweb.com or post a comment.

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