Cross-border e-commerce looks set to continue driving a renaissance in air freight, ‘a new normal’, with implications for those that carry, manage, and handle this key growing vertical, reports Stuart Todd
The sustained upturn in air freight markets during the last 15 months looks set to continue, with cross-border e-commerce expected to be the dominant factor again in 2018 in another very strong year for growth, according to major air freight forwarders.
Carriers and forwarders have highlighted the benefits of strong demand growth from e-commerce-related traffic for much of the past year, although the air freight sector felt the full force of the e-retail boom in the last quarter of 2017, described by one senior freight forwarding executive as “a watershed moment” for air cargo.
A sector that had been in the doldrums for most of the last decade now has a ‘new normal’ of tight capacity and a high level of rates, re-defining relationships between shippers, forwarders and airlines, notes Brian Bourke, VP for marketing at e-commerce freight forwarding specialist SEKO Logistics. Bourke says the e-commerce surge means air freight, for the first time in a long time, has seen a significant, consistent, and on-going surge in demand.
Online shopping bonanzas such as ‘Singles Day’ in China and ‘Black Friday’ and ‘Cyber Monday’ in the US and Europe, in November 2017 and the run-up to the holiday season that followed, have highlighted how significant e-commerce has become as a generator of sizeable volumes of international air freight, leading to some traditional or ‘heavy’ shipments being pushed aside through lack of capacity. Indeed, its volumes contributed to some significant capacity issues in the final quarter of 2017 due to shortages of both air uplift and in some cases airport cargo handling capacity.
But while e-commerce traffic in the past may have been associated particularly with a surge in the final quarter, Bourke says there is now relatively little seasonality for this sector − although it does still have an obvious peak in November and December. Following a lull at Chinese New Year, he expects the market to “go back to full force, with volumes increasing as the year progresses with a long tailing crescendo to the end of 2018”. He says this is “the new normal” for air freight, “with an end-of-year peak season stretching from October all the way up to Christmas Day”.
He says e-fulfilment shipments had significantly boosted volumes on major routes for air freight last year such as US-Europe, Europe-China, and less-known trades including Hong Kong-Australia and US-Australia in both directions and between Hong Kong and Africa. Routes to the Middle East, Dubai in particular, were also emerging.
“Cross-border e-commerce can thrive wherever there is the internet and discerning consumers ready to purchase goods online which can’t be found in their home market or can be sourced more cheaply elsewhere, even when transport costs are included,” he notes. “So there is tremendous potential for air freight to benefit.”
Panalpina’s global head of air freight, Lucas Kuehner, agrees that e-commerce traffic is no longer just a seasonal phenomenon for air freight, but a rapidly growing year-round business. The exact air freight volumes that come from air freight are difficult to measure, with the bulk of the traffic consolidated into general cargo.
“Unfortunately, there are no overall figures available that tell us exactly how much air cargo volume e-commerce currently accounts for,” Kuehner says. “But we are in close contact with carriers and we know roughly how much capacity they put aside for this business − and it’s already appreciable. Accommodating it into airborne trade flows week in, week out is one of the major challenges facing the industry today.”
Kuehner says e-fulfilment is not just about giants such as Amazon and Alibaba, with the online marketplace also the domain of a myriad of small-to-medium-sized (SME) firms. “Many of them have an e-commerce channel for their goods, so that is a potentially big driver of demand and an opportunity for us as we have a significant number of customers in this business category,” he notes.
“Why? Because moving e-commerce cargo at integrator or express rates for parcels is a no-go. The traditional forwarder acts as a consolidator who takes cost out of the supply chain, and as an air freight provider we see ourselves providing exactly that value in the e-commerce arena.”
In some senses, the requirements of e-commerce customers are similar to those of ‘normal’ general cargo customers: a need for fast, reliable transport. But their needs also differ in other ways with implications in terms of the physical handling and the way that this traffic goes to and through the airport.
DHL Global Forwarding (DGF)’s head of air freight, Ingo-Alexander Rahn, highlighted “a higher demand” among e-commerce customers for end-to-end solutions, incorporating pick-up, last-mile delivery and value-added services, and “for greater transparency from track and trace, including IT integration with retailers’ own platforms”. He said DGF was predominantly active in ‘first-mile’ and ‘middle-mile’ transport processes within e-commerce supply chains, bringing consolidated shipments to and between distribution and fulfilment centres.
“DHL Express is more likely to be involved in shipping non-consolidated items, usually on an end-to-end basis, but the typical express shipping process would see these items consolidated into containers for any air movements.”
The unit’s e-commerce strategy in the US has focused in part on a dedicated IT platform (FCM), for tracking and tracing global B2C ‘heavyweight’ business, using China as a trial market. It has also set up specialised programme to support Amazon’s Fulfillment by Amazon (FBA) customers, both in the US and abroad from cargo pick-up to delivery.
SEKO’s Bourke gives a succinct definition of e-commerce cross-border transport: “When it comes down to it, it’s just smart air freight” – ‘smart’ being a reference to the value-added services the forwarder provides, which include the end-to-end tracking of shipments.
“With a ULD of pharmaceuticals or a container of flowers, you are typically only shipping it to a single consignee. So the tracking of that container is really only concerned with one party,” he notes. “But when you are moving a ULD of consolidated e-commerce goods, it could be made up of 20, 30 or even 100 customer orders and it becomes incredibly important to ensure that they are not only scanned at the first and last mile, but also at intermediate stages − and that the end consumer sees these status updates as shipments move along and across the supply chain. While the forwarder’s client is the retailer, the real focus in e-commerce is the end-consumer.”
He says SEKO’s ‘omni-logistics team’ has developed technology that offers seamless end to-end tracking “which connect all of the pieces in the chain, whether it be us picking up the shipment and taking it to the airport, an airline partner flying the cargo, and a courier partner doing the final mile delivery”.
Bourke adds: “Tracking can either destroy or enhance the customer experience. If on the mark, it will keep the customer coming back, but if lacking there will be frustration and you will not see repeat sales. This becomes a core part of any retailer’s strategy in looking to expand, looking to engage and ship cross-border. The technology piece is incredibly important.”
Panalpina’s Kuehner emphasises that what e-shippers are really looking for is “a central service desk or control tower” to co-ordinate all the different players in the chain, which typically include customs, ground transport, and courier services at destination.
“And the co-ordination of all these different players makes e-commerce cargo ‘general cargo on steroids’!” he says.
He explained that once e-commerce shipments arrive at the ‘destination’ airport, speed is critical, “more so than for your typical general air cargo”.
A major benefit is airside access, which Panalpina enjoys at airports like Amsterdam and Luxembourg. “It enables us to retrieve the freight directly from the aircraft and take it straight to our facility, which saves a few hours (on transit times),” he notes. “This was very helpful during the very congested period at some European airports during peak demand at the end of last year.
“But what’s really different versus the normal heavy freight, from a handling point of view, is that the deconsolidation of the ULDs containing e-commerce freight and the pre-sorting into the different destination countries, takes place at the airport before shipments are fed into a courier or integrator network.”
Kuehner revealed that one value-added service that Panalpina provides for e-commerce traffic is customs clearance at article level or line-item level, as opposed to the whole consignment en bloc.
“This requires an elevated skill level from a categorisation perspective,’ he notes. “Customs declarations are something you have to get right, and that’s where we feel we can offer real value. It’s not just speed and the co-ordination of all the players but also the expertise in specific areas like this.”