Fredrik Wildtgrube: Growing demand for air freight is having an unprecedented impact on speed
Earlier this year at the IATA World Cargo Symposium in Dallas, we discussed future trends and how we’ve seen the airfreight industry evolve during the past years. Traditional airmail is decreasing, standard airfreight is stagnant and express airfreight and e-commerce is booming.
It’s safe to say that industries that have previously moved items by air are still doing so, but that the air cargo market is growing significantly. And the growing demand for air freight services is having a tremendous impact on speed. The new lead-time target for international e-Commerce shipments is now set to 3 days, from order penetration point to door delivery. Quite impressive.
The supply chain solution in which these e-Commerce products move is also changing shape. There are fewer distribution centers, fewer middlemen and more direct shipments. This means that original origin and destination pairs will generally stay the same; but that they just go direct to the recipient with no intermediate parties. In other words, it will always be more of a direct air freight service to promote speed, less consolidation to promote cost.
This is a major shift. During the past decades the industry has made great efforts to make air cargo cheaper – now it’s time to make it faster. Again, a significant and important development in focus.
Hardcopy Air Waybills pose a challenge for the rising demand for speed
Almost 50% all cargo globally is still moving on hardcopy Air Waybills. The industry is facing a serious challenge to manage the speed requirements because the value-chain is highly fragmented and not likely to change soon.
On top of that, during approximately 80% of the total air freight transportation lead-time, cargo is not moving, it’s waiting. Either being stored or just simply being identified – at least it’s not moving.
This is also a clear indication that the value chain is sub-optimized throughout the journey. Clearly there are some benefit for some stakeholders with this standing around, but the most important question is what’s the value to the shipper and consignee of goods standing around?
Shippers not willing to sacrifice speed for a lower cost
When interpreting the latest developments in our industry, it’s very evident that demands are shifting and low cost is not wanted at the expense of speed.
As already mentioned, we have a fragmented value-chain, many different IT systems, may data formats and still many hardcopy documents. These examples and many more are providing a toxic cocktail which prevents products moving faster throughout the air cargo supply chains and it does not give answers to the current demands for express air freight and e-Commerce.
During the past years the air cargo industry has been exposed to a lot of talk about digital tools and data quality. Some of the topics are being infected by inflation, in other words, a lot of discussion around new tools and services but very little common direction and purpose.
A valid question, given that cargo has moved on hardcopy papers before – but why change?
To answer that question, let’s start by asking another one. Can we, should we, go all digital supply chain or is there another option?
Cargo is not digital, that much is clear. Air cargo products are very much physical, very tangible. (Note, there are also fully digital supply chains, where everything is run digitally. Such as buying software online, everything from commercial transaction and delivery happens digitally).
This already answers the first question. Cargo is physical so we cannot go all digital, but information can and should go all digital. We already concluded that our air cargo value chain is highly fragmented, promoting some very deep silos for our industry, possibly creating the scenario where the physical product is in one place and the information, even possibly corrupted or wrong, is someplace else.
Now what do we believe happens when product and information are in separate locations? Answer: the shipment will not move, or it will at least slow it down.
We can already in this case say that the supply chains described above are not suitable for expediated air cargo or e-Commerce. This can be followed by another question, what is the cure, or how can the industry silos be taken down?
The company that understands digital is already miles ahead
Many of us are familiar with the 7 R’s of logistics. Right – product, place, price, customer, condition, time and quantity (seven of them). We all know that they are quite elementary, but imperative for logistics success. To succeed as a contributor in the supply chain one needs information. No physical movement can take place without the right data and documentation. To achieve physical movement faster information must support it.
Artificial intelligence was a catalyst for this by asking, why data, why data quality, why digital? The answer is that digital processing of information is faster and digital can be copied and transmitted to the other side of the world in a matter of seconds.
The world of logistics is full of change and fluidity; shipments may change in size and shape right up until the day of departure. Therefore, it is imperative that information is moving quicker than the freight itself and to the right place and in the right format.
Just as with the 7 R’s of logistics, we could call this the 7 R’s of logistics information. The right information, right place, right price (of information distribution), right stakeholder (to manage the information), right format and right time.
By looking at the above list, it’s clear that to speed up the air cargo supply chain it’s not enough to send emails and call it digital. Information must hit all stakeholders in the chain, from shop floor to office, from planning to execution in the right format and prior to freight arrival.
I think that it’s safe to say that all supply chains utilizing digital tools are not necessarily fast, but all fast supply chains use digital tools. In other words, the stakeholders who want to follow the global market trend and provide faster air cargo services must not fight digital tools and they need to be supported and encouraged. In many ways it’s the missing link to gain E2E speed, quality and continual improvement in an outdated industry.
A clear challenge will be all the legacy and truly outdated systems in our industry that are not equipped to manage data in the way its required. To support the change, we should make the case that leading with data is much easier, because there’s less guesswork involved and there’s much more time to prepare and adapt with digital.
In other words, it’s safe to say that there is a special place for digital in the future of logistics and customer experience. The stakeholder who is aware of this is already ahead of the game.