How great is the threat from disruption to the traditional air freight model? Megan Ramsay reports
Speculation has mounted in the last few years and months about the sustainability of the traditional air freight and wider freight forwarding model and its vulnerability to disruption from new technology or tech-powered players. The classic model for the transport of goods links the customer with various modes of transport via a forwarding agent responsible for organising the movement of items from origin to destination. This process does increasingly show signs of being potentially disrupted by online start-ups who are aiming to ‘cut out the middle man’, although their impact has been minimal so far. So, what does the future look like for today’s forwarders, and will many of them even exist in 10 years’ time – at least in their current form?
Jonathan Clark, regional director for Africa at carrier Cargolux, divides the traditional forwarding community into three categories: small forwarders that are adaptable to change and usually serve niche markets; multinationals like Schenker that offer a complete supply chain from inventory to storage to booking to delivery; and medium-sized forwarders, who he believes face the biggest risk – focusing neither on a niche market nor on the total supply chain, their position is precarious, Clark noted in a panel debate at this year’s Air Cargo Africa conference.
The rise of e-commerce has certainly led to some interesting developments that threaten or promise to profoundly change the freight transport market. Online retailer Amazon, for example, is among a number of players that has begun experimenting with using drones for domestic deliveries. The first Prime Air delivery within the US took place in December 2016 and took 13 minutes “from click to delivery”, the company claims. And there are various other examples, although the closest to demonstrating commercial viability have been deployed in niche sectors, notably the delivery or urgent medical shipments to difficult to access locations in areas with low population densities.
In response to the increasing competition from e-commerce and the integrators that serve that market, there are forwarders in the traditional cargo arena who now offer e-commerce platforms, whether on a business-to-business or business-to-consumer basis. “If you don’t change you will die,” says David Logan, CEO of the South African Association of Freight Forwarders. “You have to go niche if you are a small or medium-sized forwarder. You need to establish an e-commerce platform,” he adds.
Of course, the survival of the fittest is a theory that can be applied to every business, points out Vineet Malhotra, director of IT provider Kale Logistics Solutions. Evolution necessarily involves specialisation and he believes that IT “could be the backbone for further specialisation – which may be needed as the market changes”.
IT, and technology in general, offers the chance for greater transparency, improved efficiency, and perhaps less fragmentation across the air freight industry. Given the multitude of small and medium-sized forwarders, small shipments, different governmental organisations, documentation and other actors in the chain, good communication is essential. IT needs to connect all parties – right down to the smallest player involved, says Malhotra. Even the smallest forwarder needs to have an IT-enabled service and platform in order to do business successfully now and in the future.
Still, asks Marcel Fujike, SVP for air logistics products and services at forwarder Kuehne + Nagel, is all the talk about disruptors just hype? “Shippers believe these start-ups can reduce cost – they are smarter and cheaper. How will they change the game? Or will they die down?” he asks.
Fujike goes on to explain: “There are various types of start-ups. The majority are simply price comparison tools. Then you have virtual forwarders like Flexport. You also have consolidation start-ups, who work to get better rates for the small guys. Finally, you have the start-ups that focus on facilitation of document handling and payment.” It is unclear which of these, if any, will make a big impact and which will disappear, he says.
Malhotra points out that each start-up exists because it addresses a gap. “Unless they are more horizontal, they will fail from within,” he says. “Can they connect the entire chain and improve visibility? If so, they would transform the market.”
He makes the distinction between Amazon offering last-mile delivery to support its own business as opposed to offering that service as a business in itself. So, could the former evolve into the latter? “The first mile, last mile and consolidation are done, but they don’t do the actual main transport,” he says. “Logically, this is the next step for them to do.”
And there are signs of this already happening, Amazon watchers note.
One strength of the start-ups is their adaptability. A company that started out offering last-mile delivery on the back of the e-commerce boom might still be flourishing today if it was wise enough to change tack a little when that boom slowed. But Fujike does not see these disruptors as an immediate threat for forwarders like Kuehne + Nagel. “They have good ideas, but they lack execution and global reach,” he says. “They’re often focused on a niche market, not the big picture,” he adds, echoing Malhotra’s point.
Given that niche focus, some argue that start-ups may pose more of a threat to smaller forwarders, who will have to work harder to compete. But it may be that there will continue to be a role for existing and new players. Georges Biwer, vice president of EMEA for Russian carrier AirBridgeCargo Airlines, considers: “The small guys still exist because they are dynamic and flexible, and they work together in associations. All newcomers have a role – they challenge the system; they innovate; they stimulate.”
The impetus for change ultimately comes from end customers, whose increasing demands for speed, reliability and transparency are driving shippers to realign their supply chains. Logan wonders whether forwarders ought not to imitate the models of the start-ups in order to ensure they can compete.
Forwarders, however, add value through their expert knowledge of the industry – rates, airlines, airports, routes… They are the “architects of transport”, he says, borrowing a phrase from FIATA (the International Federation of Freight Forwarders Associations), and as such they will continue to hold an important place in the supply chain as time goes on.
In fact, Biwer believes that forwarders will play a more important role in the future than they do now. “Airlines can’t take over the role of forwarder – they’re asset-driven, and they don’t have the manpower,” he notes. “There will be more synergies between forwarders and airlines in future to cope with new ways of doing business such as e-commerce.”
In conclusion, Ozen remarks: “It’s all about creating value and this will become more intense. Those who create value for the shipper – or even the consumer – will survive. Shippers will always need a strong partner to run their logistics.”