Developments in the solutions available offer stakeholders the opportunity to improve the speed, efficiency, transparency, simplicity, accuracy and costs not just of payments but of cargo release and operations, along and other benefits to the broader air freight digitalisation landscape, reports Will Waters
Initiatives to digitalise air logistics processes have belatedly been moving forward on a number of different fronts, with various developments accelerating during the past two years in response to changes including greater remote working, attempts to minimise physical contact points, rapid growth in e-commerce logistics, along with maturing technology and its levels of acceptance.
This includes progress in the digitalisation of payments and reconciliations across the freight transport sector, with digital payment specialist PayCargo reporting a 250% increase in 2021 alone in the value of freight-related payments it processed. And on the air freight side, there has been improvements in the solutions available that offer the wider air freight market the opportunity to improve the speed, efficiency, transparency, simplicity, accuracy and cost of payments, along with other benefits to the broader air freight digitalisation landscape.
One example has evolved from a partnership between Delta Cargo and PayCargo that began in 2019. Delta recognised the benefits of the solutions available at that time via payment portal models – for example to improve the efficiencies and costs involved in payments and speed up the release of cargo – but wanted a more integrated experience that removed the still considerable manual intervention required. For example, a payment processed and approved via the online portal triggered an email to the airline’s operations team – but that still required individuals in facilities to log onto the system or to a central email box.
The first part of the integrated service, developed between Delta Cargo and PayCargo, launched in July 2020, with 186 payers using this integrated solution within that first month, including major customers such as CH Robinson, Ceva, DHL, DB Schenker, FedEx, K+N, UPS, Agility, DSV, and Flexport.
Market was ready
PayCargo’s COO Juan Dieppa says that experience demonstrated that “the market was really ready for this”.
Under paper-based payment models, a freight forwarder working with the airline would get a notice of an inbound shipment that needs to pay import service fees. While some customers may have a credit facility with an airline, those that do not would have to confirm internally that they needed to pay this, request that a cheque (check) is written, which then needs to be rushed across to the airline in order for the cargo to be released.
With a standard online payment portal, that forwarder would go into the portal system, approve the payment, and a notice goes out to the carrier that this payment has been approved.
“From the forwarder’s side, they know they can immediately pick up the cargo if it’s same-day release, or the next day; there’s this certainty,” Dieppa notes. “Plus, they have immediate visibility across their (global) network.”
And with an integrated solution, the forwarder only needs to enter the air waybill (AWB) number through an API to pull the details of the transaction. As soon as that payment is approved, it now – through the API – also reflects directly into the airline’s operational system.
“So, the person working in the shed does not have to look into multiple systems or look for an email,” says Dieppa. “It really speeds up the whole process, takes away a lot of manual interventions, and also makes sure that the data and the payment quality is much higher, because you’re taking away all these human elements.”
Another problem this solved was the elimination of paper cheques entirely from the process, which were the most popular payment method to clear freight on the US inbound side. Delta says the paper payment system meant freight was sitting around, it was delaying customers from picking up their freight, and it wasn’t the best customer experience.
Moving to a real-time digital payment solution was “a win-win” that really solved a problem on the import payment side. And about five months after implementation of the digital solution, Delta eliminated paper-based methods used to pay the import and storage fees for US inbound shipments.
Dieppa highlights that there are also environmental improvements. Under a paper-based system, if a truck driver arrives to collect cargo but finds the payment amount was incorrect for some reason, that truck driver then had to leave the location to figure out the problem, and the delivery is not picked up. Dieppa says that by making payment processes “a lot quicker, simpler and more transparent”, wasted truck driver time and vehicle emissions are significantly cut, “helping companies to drive sustainability”.
Delta highlights that those old types of payment errors can also cause issues to snowball, because if the cheque is wrong and you don’t resolve that immediately or same day, storage starts to accrue for the freight sitting in the warehouse, and the amount continues to change on a daily basis. In contrast, the airline no longer has those types of issues now with the digital solution. Other benefits include an improved customer experience and improved cashflow, with the carrier receiving payment much more rapidly, plus “improved revenue integrity” and faster transit times.
Another potential advantage to a carrier comes if the payment intermediary guarantees the money to the vendor immediately or the next day, before they have actually received the money, offering payers various different options – including credit via a third-party or affiliated credit provider.
Dieppa says Delta’s “strategic approach” has enabled the development of a solution that is now potentially available more widely to the market. Delta, meanwhile, sees a number of advantages of being a pioneer in the development of this solution, with benefits including first-mover advantage from an improved customer experience – both internal and external customers. Two major future opportunity areas include seeing this continue to grow from a fee utilisation perspective with customers and enabling small and medium-sized customers to do business with the carrier more easily.
Charging for late return of ULDs
But one unexpected additional user case also emerged during the pandemic during a period of intense cargo congestion that caused containers to become a huge issue for the industry. “People were holding on to them, using them as storage modules, and they ended up all over the place,” notes Dieppa.
Delta, like other carriers, already had agreements in place with customers that can take equipment off airport premises that there would be a charge for delayed returns. Linking a digital payment system with a carrier’s ability to digitally track its ULD enabled that process to charge for late equipment returns to be more seamless, to enable the payment of those fees if they do get incurred.
Dieppa says this ULD solution was also an industry first, noting: “And we’ve now got a lot of interest out of the marketplace. So, there are many different opportunities like this.
“We’ve already implemented this with another carrier, and there are others wanting the solution,” Dieppa notes. “We’ve got the big ULD providers who are leasing out the ULDs looking at this and speaking to us at a global level. Plus, there are associations that are very interested in seeing how can we bring this efficiency for all of their members. And it’s spilling over into the ocean side a bit, too.”
Both agree that as the partnership continues to grow, more use cases will continue to reveal themselves.
Dieppa notes: “One of the things that’s changed for us is who we consider to be a vendor and who we consider to be a payer. When PayCargo started, the division of clients was very clear. Your payers were the beneficial cargo owners, the brokers, as well as the freight forwarders. The vendors on the maritime side were the ports and the ocean carriers. Then we brought on air, where you have the same group of payers, and your vendors were the ground handlers and the airlines.
Clients become vendor and payer
“With Covid, all those lines got grey and muddy”, because people were stuck at home and couldn’t process payments how they had previously. For example, a major forwarder that was paying Delta via PayCargo needed a new way to process payments it was receiving from other co-loading forwarders.
“And airlines that were previously only a vendor wanting to make payments to trucking companies” – at the same time simplifying all the different invoicing processes from multiple trucking companies into “one process, one payment, one big reconciliation for them; and it becomes very cost efficient,” says Dieppa.
“So, every single stakeholder I now consider a potential customer as both a vendor and a payer. And this becomes very interesting, because if you are typically a payer in our system, our model is that we charge a fee per transaction to the payers; vendors don’t pay anything.
“If a payer now becomes a vendor also in our system, where they had costs for those transactions taking place, now they’re getting it free as a vendor; so, the cost of doing business becomes really efficient.”
Forwarders pushing the initiative
Dieppa says some are surprised that forwarders would be willing to pay a fee per transaction. “But it’s the forwarders that invariably push hard to use the system, because within the old processes, it was really expensive – not only the cheque, but the whole process; all the time and all the people and the poor customer service and up-and-down-the-line issues that you have.
“And they’re getting better customer service; they are getting their cargo released really quickly. And they’ve got transparency: a lot of the time, head offices had to wait for the end of the month to get visibility in what’s taking place. They can see immediately what’s happening, at the station level, what’s being paid.”
And the system also allows companies to put controls in place, such as “who can create a transaction; who can approve it; what amounts can they pay”, explains Dieppa.
The multiple potential benefits mean digital payment can become more of a critical piece of a company’s business – especially if it is multimodal, so the customer has a standard process across all modes, Dieppa observes.
Opportunity to innovate
And he believes these kinds of digital payment solutions and the lessons learned during their development offer an opportunity to accelerate other aspects of air freight digitalisation.
“There are challenges, if you look at the broader industry and transformation,” he notes. “Trust is a big issue; we are still in an environment where a lot of people do not want to share data. And we’re getting to a place now where it’s critical that data is shared a lot more transparently for all stakeholders across the value chain.
“It’s that Amazon experience that you have as an individual; those sorts of things need to be taking place within our industry. Right now, certain stakeholders doing certain portions of the process can have visibility, but then it gets cut off and the next group cannot see. So, having seamless access to data; and you need trust, obviously, for that.”
Cost of sharing data
But Dieppa says it’s also crucial that this data can be shared “at a cost that makes sense. Right now, it’s really expensive for each data element to be sent from an airline to a forwarder. There are only two or three parties out there that control it and they charge significant fees. And for the forwarders, it’s even worse. So, finding solutions that can help address this is critical.”
Associations like IATA, which is working on the ONE Record standard for data sharing, have an important role to play in this area.
Dieppa also believes that the high profile and priority that air freight has achieved during the pandemic means “there’s an opportunity to drive transformation within the air cargo industry – and I think it’s going to close within the next year to 18 months. My fear is that once business gets back to normal, which we all want, cargo is not going to have that priority it has today.”
Dieppa stresses that what’s essential to encourage change and implementation is “developing solutions that benefit not just the vendor, but that there is the same significant value for the payer. It has to be adding value to both sides.”
He concludes: “And the other thing is to make it cost effective to adopt and use. That’s part of the success – blowing that barrier to entry.”
Conclusion: Wider digitalisation improvements
What’s apparent from this case study of a digital payment partnership is that, like many examples within digitalisation more broadly – within logistics and across the business and consumer world – there are often positive unforeseen consequences that only become apparent after a digitalisation initiative or partnership is implemented. In this case, one example is the ULD tracking and payment tie-in that was not anticipated when either the individual ULD tracking or the payment digitalisation initiatives were, respectively, initiated. With Bluetooth-based ULD tracking increasingly being implemented by carriers and major cargo handlers, that’s a potential further gain for other players in the market.
And just as payment digitalisation may be principally initiated to streamline or rationalise payment processes, or speed up cargo releases and transit times, or improve transparency and costs, there are other potential or knock-on benefits, including better customer service, more-efficient facility usage, and improved driver and vehicle utilisation, which in turn bring sustainability benefits.
One of the barriers to digitalisation in the past within air freight has sometimes been a reluctance among some freight forwarders to participate, especially if that participation comes at a cost. And so, the apparent eagerness among forwarders to implement this aspect of air freight digitalisation is a positive sign that seems likely to stimulate its further spread across the market and its multiple stakeholders, with the consequent benefits – foreseen and unforeseen.