Covid-19 has accelerated digitalisation and our appreciation of its value. Those who understand that ‘information is power’ and react now to research, respond and invest can be ready, when supply and demand normalise, for a profitable post-Covid future, argues Stan Wraight, president and CEO of Strategic Aviation Solutions International
The pandemic has disrupted supply chains around the world. This event has created both challenges, especially for those who have been slow or unable to change, as well as significant opportunities. In a recent study published by the Council of Supply Chain Management Professionals, it was stated that “… while historically, it’s been costly for companies to develop and maintain an accurate map of their supply chain today, with the right partners, the process can be much more streamlined and efficient”. New logistics models offering innovative and cost-saving solutions being developed in Singapore and at Georgia Tech in the USA, for example, should be raising flags in strategists when it comes to the future direction of air logistics.
Transport companies don’t create markets; they serve them
Identifying those opportunities of new, and also leveraging existing, markets will be a key element of the future possibilities for stakeholders in air cargo logistics going forward. Will airlines, GSSAs, GHAs and airports now understand what “right partners” actually means? Those that do not comprehend and make those changes required in the short term to be competitive post Covid may prosper for a few more years, but we believe that those many household names that do not will disappear, as we have seen in the past year.
The markets we serve, the products we offer, and who are ‘we’?
Technology is at the forefront of post-Covid planning by beneficial cargo owners (BCOs) – the clients who ultimately own the product and, in most cases, make the decisions about logistics. They are demanding efficiency, transparency, speed and quality from their suppliers as they too struggle to survive. These shippers and consignees will not be willing to stand for inefficient solutions any longer when so many alternatives are available from e-commerce companies, mega forwarders on lanes where they are strong, and integrators. Forwarders know that prices charged to BCOs, the difference between buy and sell with airlines, can easily be found out with the internet; transparency and automation alone will force change.
For now, I will only focus on who the “we” are who can immediately benefit – no matter what the future holds – by highlighting a few unique selling points (USP) “we” have.
The airline advantage
Any airline operating modern wide-body capacity offer capacity the quickest and most secure capacity available globally. Nothing is faster between Asia and North America or Asia and Europe than a non-stop flight, in both directions. A modern wide-body has on average 10 lower deck pallets (LDP) as a minimum and, depending on route, seasonality, available payload, at least 15 metric tonnes to offer the market, and never less than 100 cubic meters of volume. To leverage that advantage, they must change their behaviour towards suppliers, especially on the ground, from one of cost reduction, to one of revenue enhancement at sustainable costs for both. Through available technological solutions, a very efficient and beneficial-for-all cost structure can be achieved; it is a proven fact. It can and has been done; we have called it for years in SASI the “virtual integrator” model and teach it in our training modules.
Ground handling operations: A mindset change
Delays and problems in GHA facilities are on the cusp of change, as airports more and more are realising that cargo has to move from a real estate transaction to a marketing tool. GHA activities must support airports in ensuring the profitability of the airlines that want to serve their airport. Developers at progressive airports will be told they will only be welcome if the GHA in the buildings (tenants) deliver capabilities that the airline clients will be demanding. More and more route development managers are now telling airports on international services that air cargo is critical for profitability. Typical when low-cost leisure passenger seats resume their downward spiral Post Covid will be that all sources of revenue must be considered core business. And nothing now or in the future offers more potential for airlines to increase profitability and succeed than air cargo for revenue enhancement and cost reduction. The mindset of airlines that cutting costs through stakeholders such as GHAs must stop and return to a menu of services costing approach.
Developing USPs
There has been much publicity for years now re pharma and e-commerce. A herd mentality towards commonality solutions which in the end will add nothing to the bottom line, but will massively increase costs, must stop. No BCO wants to hear how you will handle cargo that dwells in a warehouse; they want to hear how fast you can move it from aircraft to their waiting trucks – in minutes and hours, not days. Developing USPs will be the way to differentiate as a GHA, in meeting the demands that full transparency to all, speed and quality in product offering, will give in a sustainable future. GHAs have to secure their position as strategic partners to critical stakeholders, work with the airlines’ marketing people, and assist in every way possible in finding solutions to deliver the missing elements in a desired airline product
portfolio.
This will require a mindset change; the often-heard statement that “the airlines won’t pay for it” has to stop. Indeed, some will not; but those that do are the clients you must fight to secure, because they are the ones that are the future. If GHAs position themselves this way, they have the USP that airlines will embrace.
Airports: Positive examples
Many airports globally stand out for their appreciation of air cargo, how they have been working for years to position themselves as “freighter friendly” – especially in Europe, the Gulf and Asia. Driven by their own economic needs, but also to serve the economic needs of BCOs in their catchment area or country, they have adapted and invested. Just think about China for an export-driven economy; Liege and Leipzig in Europe for their own economic necessity; special facilities for products such as flower handling in Columbia, Ecuador and Kenya; and Rickenbacker in Ohio to serve the numerous distribution centres they have attracted over the years.
Yet major airports in the USA, Canada and increasingly Europe are either playing catchup, or in some cases really falling behind with regressive moves. Going forward, those airports that understand what must be done in cargo to support a resurgent passenger market post-Covid will see the growth.
Prior to Covid, especially on longer-haul international services, route development managers considering new routes have taken a strong interest in what the cargo market offers, what facilities offer for their cargo marketing objectives, and the contribution that can make on their operation. What type of aircraft? If wide-body, what gauge? If it’s not just seats anymore in decision-making, how can an airport show that the route can be sustainable? If for the next years, as the passenger market slowly recovers, you don’t need a B777 flying the Atlantic for 100 passengers, when a A321 Neo or 737 Max can do that job very profitably, can cargo make the difference?
Technology and the ‘virtual integrator’ product
Tying all the “we” elements together, in order to maximise revenues and for a great part substantially reduce costs, will be technology – in warehouses, in airport cargo community systems, and in inter-airport cooperation – to make a SASI-defined ‘Virtual integrator’ product portfolio possible for airlines.
Airlines must now step up and support all airports, GHAs and any other stakeholders who provide and support your objectives through technology. Trucking companies for RFS services, brokers and forwarders, GHAs and airports are examples of those who must be encouraged to step up. Everything surely has a cost, and through forging a better and more-transparent conversation between all parties, this can be minimised. GHA can save money through greater transparency in knowing what to expect, how to plan resources –most importantly staff; advance information is the greatest tool in planning. Reducing dwell time in warehouses so more cargo can in less space; and most of all, eliminating the need for large and expensive infrastructure in warehouses that technology could negate the need for, must be analysed.
The world is moving to the UN-recommended “single window” initiatives for all modes of transport. China is embarking on complete adoption of E-freight, which serves its belt and road initiatives. Fast containerised trains for cargo moving at 350 kms per hour are already developed, and the rail and infrastructure to support it between Asia and Europe is being built. If trains can move goods in 7 to 9 days from Asia to Europe with many of the air restrictions regarding DGR, etc., eliminated, why would you choose air freight?
The only market left will be the 24/48-hour segment, so all of the above has to be considered and thought through now in the boardrooms to be prepared.
Conclusion: The benefit of hindsight – and experience
Having the benefit of hindsight, I now know what we did wrong in the past, as well as having insight into the possibilities to correct those mistakes. 35 years ago, we as an industry gave away the express and small package market to integrators who understood the customer’s (BCO) needs, and how to organise around that. At the same time, though airline incompetence and market ignorance we, through IATA, gave away the rest of the possibilities to retain yield through pallet pricing and giving away customer relations – the only true source of information on the needs and demands so the customer (BCO) can succeed – to forwarders.
Imagine what that decision to go to pallet pricing, which was totally driven by reducing handling costs at airports, has done to intermediaries’ positive profit margins in the past years – at the expense of airlines’ ability to finance investments and support the high capital costs of running an airline. The forwarders seized the opportunity, and with full understanding of the BCO’s needs created the product they wanted: time-definite consolidations. The airlines’ ignorance and rush to common solutions through IATA, without understanding at all the ultimate client’s requirements, shot themselves in the foot. Now both parties have a common problem and must start to recognise that the relationship must change.
With few exceptions, meaning the mega forwarders, SME forwarders without the tools to compete and resources to invest in the technology needed cannot be counted on to survive, unless there is a mindset change in the forwarder-airline dialogue and what products can be offered. Who would have thought five years ago that Panalpina would no longer be a household name? In an interview with one of their senior managers before the sale, they were very clear: consolidations take too long, they are no longer competitive in the under-300 kilo market, and prices are so transparent they could no longer see any other solution. I see a future for these forwarders, especially the regional SMEs, if airlines give them the products they need.
Will the airlines and their critical partners, like airports, GHAs, GSSAs and IT companies, now understand the opportunity this presents, or again fall back into load factor, FTKs and cost-reduction modes so typical of the past?
Glass half full – or more
We at SASI do not see the glass as half empty; we are very positive and see it as half full – and even better than that, because we know airlines and airports that are starting to understand and react. But sadly, many are not, and that includes some of the biggest names in the industry. Many all-cargo carriers were near or close to bankruptcy serving the traditional market pre-Covid and only survived due to Covid charters that still pay better than twice cost. What will happen when things return to normal, whatever that may be?
Airports and industry associations are letting go of cargo professionals when they should be incentivising them to stay; GHAs are struggling due to pressures either from passenger handling revenue losses, clients stating they are suffering and you must share our pain, or private equity companies’ short-term thinking. GHA management have to engage now and react, educate and – although tough – invest. Solutions are available at variable cost, so the lack of cash flow is no excuse anymore.
The best will survive, and those that work on the premise that ‘information is power’ will invest in that, prepare, and be ready for the post-Covid future that can be a very profitable one for those who research, strategise, invest, and react now.
