As digitalisation accelerates the pace of change, speakers and delegates at this year’s Air Cargo Handling Logistics conference discuss what the air cargo sector will look like in the years to 2030. Will Waters reports
Digitalisation is the single factor expected to have the greatest transformative effect within the air freight sector over the next 10 years, followed by the effect of disruptors, and thirdly by legislation and security, according to speakers and delegates at this year’s Air Cargo Handling Logistics conference.
In a poll of senior executives attending the event, around 50% said they believe digitalisation would be the most important change factor, with around one quarter believing that disruption from new players such as e-commerce retail firms would be the second-most important factor, with legislation and security trailing well behind.
And these conclusions were broadly mirrored by a panel of experts discussing what the air cargo industry will look like in 2030, with Simon Meijer, executive VP for global logistics at Cargolux observing that if we want to predict the future, the most reliable indicator is the recent past, adding: “For me, the key thing is digitalisation, which will be the big enabler. But we need to make it happen. The people on the ground floor are willing to make it happen, but if we don’t give them the right equipment, it will not.”
Mark Albrecht, director of cargo logistics and expenditures at United Airlines, said the airline sector was in a much stronger position now than previously, when high fuel prices and intense competition had meant airlines had been perennially loss-making and cargo had been starved of investment, with any money available going into the airline passenger business. But with airline consolidation leading to much greater stability of major airlines’ finances and profitability, this had led to significant new investments in cargo, for example into new IT systems and the digitalisation of their ULD fleets. “We have just started scanning cargo on and off aircraft, for example – which sounds basic, but it is very important,” he noted. “We are looking at blockchain and we are talking to our partners about that.”
Because of the limited capacity of many key major metropolitan airports, “we are outgrowing our facilities right now, and looking at expanding or new facilities and at mechanisation to get more throughput there”.
The power of data
Alan Glen, VP for cargo development at Menzies Aviation, noted that “the pace of change is accelerating now”, highlighting what is happening with tracking of ULDs at the moment, which he believes is going to change things significantly and bring further realisations to air freight operators about the benefits of digitalisation.
“People will see the power of data,” he observed. “We have been limited because we have not been able to see the benefits. But if I don’t have to have a warehouse full of ULDs because I don’t have to be overstocked; I think we’re going to see things happening quickly.”
Because a lot of these kinds of functions in the industry are now outsourced, he believes this process of modernisation in areas such as ULD management and tracking “is able to happen much faster, driven by experts”.
Stewart Angus, divisional senior VP for international airport operations at Dnata,
agreed with Cargolux’s Meijer that “we – GHAs and airlines – have really underinvested in our product. If we compare ourselves with the automotive sector, for example, GHAs have never invested in R&D.
“But the tide is changing. We are catching up with what technology can do. We are working on ‘hololens’ technology, for example – which I think will be groundbreaking.
“We have gone through a period of cost focus, where everything is commoditised. Now we are hearing from airlines that ‘we want to differentiate ourselves, because then we can charge a premium; how can we do that?’
Not all airlines, but some.”
He continued: “If we look at successful companies like Amazon and Google, they think about what their customers may want years ahead. That is where we want to go.
“We just had a meeting with one customer airline where, rather than talking about immediate issues such as performance and pricing, we only talked about the future and where they want to be in 2030, and how we can help them to get there.”
Brendan Sullivan, head of e-commerce and cargo operations at the International Air Transport Association (IATA), commented: “What I have seen is a real change in the discussions between GHAs and airlines. We used to have lots of rather combative discussions, where it seemed that we were never going to get to an agreement, and what we ended up with was a compromise. But now, people are saying that new technology is really changing things fast, and if we do not get ready as an industry, we will struggle to gain from that.”
He continued: “And people are beginning to understand that by 2030-2035, the industry will be filled with Millennials and Generation Y people who will be filled with all kinds of new skills. The industry, therefore, needs to be ready to bring them on.
“But all these things mean we are now getting ready to implement things much faster now – in months, compared with what used to take years. For example, One Record, has six pilots taking place, in just a few months.”
Another example is smart ULDs. “We began talking about this five years ago, and we now have these out there working, generating data,” Sullivan says. “These are huge changes in our industry”
For Ludwig Hausmann, partner at McKinsey & Company, the question of how air freight will look in the future is best divided into two different parts: the demand side and the supply side.
On the demand side, he notes that the air freight sector remains volatile, with the mood of the industry varying accordingly to the demand cycle and is currently down because of the drop in volumes this year. But he says demand will come back, noting that “80-90% of what is transported by air cannot be pushed on to other transport modes”; and 3-D printing will not be a major factor that erodes volumes from air freight.
Meanwhile, e-commerce traffic will continue to rise all the way through to 2030, while some other kinds of traffic will go down; and there will be regional variations, such as intra-Asia traffic rising, while some other lanes will see decreases.
On the supply side, he questioned “whether the air freight sector can afford to be as fragmented as it is now”, when the integrators have consolidated into just three main players and have big economies of scale, and the big e-commerce players, Amazon and Alibaba, control around 50% of the e-commerce market.
He adds: “I don’t believe that in 2030 there will be so many cargo carriers marketing their products. That does not necessarily need to mean mergers and acquisitions, but there needs to be more of a consolidated sales structure, like we have seen in container shipping.”
On the technology side, he says the air freight sector is happy to use the buzzwords of digitalisation, but doesn’t necessarily fully understand their application within air freight. He highlights three different areas of digitalisation relevant to airfreight,: sales portals; end-to-end visibility, so the cargo can be located and its status monitored; and decision-support tools, for example Internet of Things and machine learning, “so we can do things better than humans can”.
He adds: “It is not that hard to find the right things to invest in.”
On whether the ambitions of Amazon will mean it will soon start to begin offering its air freight capacity to external third parties, he responds: “No, the air freight sector is not attractive enough (in terms of its margins). Also, the air freight capacity that Amazon offers is not that well suited to the general air freight market,” flown between often secondary cargo airports where Amazon may have a large consolidation facility, but which is not a particularly attractive air freight destination otherwise.
Hausmann added: “We have not seen them go intercontinental yet, and we have not seen them build up excess capacity.”
Sullivan commented: “That is our view as well. They are not building up excess capacity,” except for during short periods as they open a new facility or lane. In other sectors where Amazon has expanded to offer services to third parties, such as Amazon Web Services, those are high-margin businesses, Sullivan noted, adding: “They are a totally integrated business. But one thing that they are very focused on is their customers. We sometimes forget the end customer. In air cargo, we don’t meet the end customer. We focus instead on the next partner or customer.”
Angus says: “There is a lot of new technology coming in now. We have a new facility coming on and we have an aim to have no gatehouse. We need to move air cargo from having a 30-tonne truck arriving at a gatehouse, getting out his vehicle and handing over some paper, being told that he has to go to Door 7, getting back in his lorry and reversing it out and lining up for Door 7.”
He continued: “We are moving towards having a geofence maybe 5 miles out, telling him to go to Door 7, and when he gets to Door 7, the shipment is there for him.”
Panel moderator Chris Notter, currently an independent consultant working on several air freight projects, observed: “If you give these challenges to young people, they come up with these ideas straight away,” highlighting the need and benefit of integrating a younger generation of ‘digital natives’ into air freight organisations.
But he asks whether carriers will need to pay more in order to compensate their cargo handling partners for investing in these kinds of new digital solutions.
Cargolux’s Meijer responds: “If I order a pizza from Dominoes, we get all kinds of information about where your product is, and that is for a $12 item. We are investing heavily because the cost of (digital) investments have come down dramatically. Things that were expensive five years ago, now we can invest in these things that can give us transparency.”
Dnata’s Angus notes that it is difficult to know what kinds of challenges the sector will face in the future – nor things what technologies will be available that can help improve efficiencies. “We don’t know what we don’t know,” he says. “If we order a taxi now, we expect to know when it is coming, the type and colour of the car, the name of the driver.
“We as GHAs don’t really know our customers. But the e-commerce giants do know their customers; and that means they can control the logistics chain.”
One key question is whether and for how long the recent investments in air cargo and technology to modernise it will continue, in this current and any future downturn.
United’s Albrecht responds: “In the past, airlines were facing losses during previous downturns, but with the rationalisation, I think it (investment) will continue. But we are still not going to ‘build it and they will come’; there has to be a business case, for example cost reduction.”
Hausmann says that the new technology capabilities open up new business opportunities for the air cargo sector, potentially allowing participants to add value or move up the value chain, for example through the ability of technology to connect the various parts of the air logistics chain almost seamlessly in order to create virtual integrators. “Investments in new systems are not that expensive, and typically data-sharing is free,” he notes.
Notter asked panellists how often GSAs ask their customers what they want to achieve in the longer term, strategically, and how can the GSA help them to get there.
Menzies’ Alan Glen responds: “We are spending more time with customers than we have done for a long time. That is a trick that we have missed in the past, but we are getting to know our key customers.
“We are not quite yet there in terms of knowing the end customer, but we are gradually moving away from the operational pains towards what we can do as a partner.”
Asked how airport see their role in air cargo, Steven Polmans, head of cargo at Brussels Airport, responds: “It depends on the airport. We are not in this business for charity, but when I look at many airports around the world, too many of them have no idea how to make money out of cargo. That is something that we (as a sector) need to work on.”
Al Kalmbach, assistant VP for cargo business development at DFW International Airport, , commented: “We did a study a few years ago to look at the value that cargo generates within our region. We’ve taken a broader view of it, and we know that cargo generates around $30 billion for our region.”
This has encouraged the airport authority to make investments in its cargo business, leading to a number of recent initiatives to help attract cargo customers by improving its efficiency as a logistics base. “We have an RFP out for a cloud solution and will make a decision next month on that. We have recently invested in a number of facilities, for example a pharmaceutical handling facility, and we are working on an e-commerce clearance centre. So, we are engaged in looking for opportunities.”
Peter de Leeuw, head of real estate development at Vienna Airport, commented: “We also do a lot to help customers, for example by providing more space. But it is not easy for an airport to understand what is the value and the revenue from cargo. We feel that we do not get that information from the industry, for example from airlines and cargo handlers. For the airlines, how important is the cargo side to them? And if we get more cargo through the airport, what value does that bring?
“We are in discussion with the airlines about that; but I would like to know better – not just by reviewing our tenancy agreements and then building more buildings: maybe we need more intelligent processes. Therefore, we really need more information from the industry about how we as an airport can help to create better processes, and can we help stakeholders make more money?”
Stan Wraight, president and CEO of air freight and airport consultancy Strategic Aviation Solutions International (SASI), says that airports are now increasingly aware of the value and importance of cargo and are demanding more from potential new cargo operators at their airports, for example GHAs. He noted: “Our clients want to have a marketing tool for the airlines, and some are saying if you not going to be a valuable marketing tool for the airport, don’t even bother to reply to RFQs.” There was also a growing awareness among airlines that they cannot be profitable as passenger airlines unless they have cargo departments that made it make a significant contribution.
“Right now, cargo is becoming more and more important (for airlines and airports). Operating as an airline is going to get more and more expensive, so airports would like to hear from GSAs and airlines: how are you going to help be a marketing tool for the airport?”
For example, on the US West Coast, the passenger route managers are pressing the airports to provide better services on the ground and are aware that some of the cargo facilities are not adequate to handle the commerce. “They can’t move cargo in 72 hours, which is what companies like Alibaba want, and Amazon is moving towards. They want something to help them.”
However, a delegate from Frankfurt Airport said this was not something that is valid across the entire world.
Dnata’s Angus notes: “Cargo revenue is about 15% of an airlines’ revenue on average. How many airlines make more than 15% profit? Therefore, if we don’t provide the infrastructure for cargo, this becomes a problem.”
Polmans observes: “20 years ago, we were only focusing on the airlines, but now, 80% of what we do involves talking to people and looking at what happens outside of the airport, at what happens on the ground.” But he acknowledges that not all airports have this awareness.
“Now, 80% of what we do involves talking to people and looking at what happens outside of the airport, at what happens on the ground”
Bringing the discussion to a close, Notter asks each of the panellists their most urgent priority for the next three years.
Sullivan responds: “This is a business of partnership, and so therefore companies need to share their data.”
Dnata’s Angus says: “One issue we need to get a solution for is dangerous goods.”
Hausmann responds: “We need to get the time from landing to getting the cargo out of the door down from two days to 12 hours.“
And United’s Albrecht responds: “We need to improve partnerships between airlines and GHAs. We have moved forward a lot from the dark days when the procurement departments were just pushing suppliers down on price. But there is still more that we can do.”
Meijer notes: “We are investing heavily in digitalisation, and we expect our partners to do the same – because it will not work if we only do this by ourselves.“
Glen says: “Sharing the data is the key thing. There is so much power (in the data) and so much efficiency that we can bring. And with so many changes taking place internationally, for example protectionism, we need to have this data so that we can fly the cargo.”
In discussions with CAAS after the panel, Alan Glen from Menzies agreed that the issue about airports not fully understanding the value of cargo is a crucial one when it comes to airports making investment decisions and deciding on the use of space at their airport. He says that it is a topic that was discussed the previous day at a meeting of IATA’s Cargo Handling Consultative Council (ICHC, formerly COAG).
André Majeres, manager for cargo, mail and e-commerce operations and standards at the International Air Transport Association (IATA), agrees this question of whether airports fully understand the value of cargo is a crucial one, which was why he raised the question during the conference panel.
“What we did in the ICHC was agreed that a group of airlines and GHAs will pull together some data on the value of cargo.” The plan is to then bring this to the IATA airports committee and look at what more the association and its members can do to communicate the value of cargo to airports – because there are some that understand this value, like Liege and Brussels, but many that do not.
Majeres acknowledges that one powerful way of demonstrating the value of cargo for airports would be to present some positive case studies that demonstrate how focusing on building those airports’ cargo base can generate traffic and revenue – and help to build the local economy. He said it would be good to see forward-thinking airports such as Liege and Brussels taking part
On the question of making it a priority to cut handling of inputs from two days to 12 hours, he replied: “We have done some studies on this, which found that the GHA is are not where the bottleneck is; it is with customs.”
Given that customs can still be the bottleneck at airports, some question why the air freight sector has not lobbied harder to allow pre-clearance of air cargo, like the express operators have been able to for many years.
Sullivan commented: “Some countries are now looking at pre-clearing goods. It is done already with some kinds of cargo.“
However, Sullivan said one of the reasons the express operators have been able to agree pre-clearance of express shipments with customs authorities is because of the amount of data that the integrators can give customs – which includes information about the customer and the type of shipment, even including photos of each shipment – made possible because of the automated processes and systems that the integrators use. However, as more and more cargo comes in on e-air waybills, the idea of preclearance of heavy or general cargo becomes more feasible.