Investment in innovation from traditional players has been relatively modest compared with incoming tech disruptors. But it’s not all about technology, reports Tom Willis.
The air freight sector is often accused of not keeping up with the times and showing a lack of innovation. And many statements about the air freight sector are broadly as true today as they were at any time in the past few decades, highlighted Dirk-Maarten Molenaar, partner and managing director of Boston Consulting Group at a panel discussion at this year’s CNS Partnership Conference in Orlando, Florida.
But that doesn’t tell the whole picture, Molenaar argued as chair of a panel discussion on the Shipper’s Perspective of the Supply Chain, which featured two shippers and two freight forwarding and express representatives.
“If you look at the value chain of air cargo, of course you can see new players like Flexport, Uber, Amazon and Alibaba,” he noted. “But even [with] the traditional players in cargo airlines, there are interesting moves.”
To identify what is going to happen next, Molenaar said one thing his organisation tries to do is to “follow the money” − via analysis of the research and development investments made by key players. “The new players actually do elevate a significantly higher proportion of their revenues into research and development,” he observed. “If you look at a player like Amazon, that’s a huge number that’s going to be very hard to compete with. Traditional players make investments, but as you look at what is really being invested into research and development and innovation, the numbers are low.”
Nevertheless, as he opened a discussion about technology’s place in the supply chain, Molenaar said he firmly believes air freight is capable of innovating.
Offering a customer perspective, Blake Bowlin, global category procurement manager at Caterpillar Inc., emphasised the importance of the total door-to-door delivery, transparency, and communication. “If you look at the quality of the supply chain, it’s hit and miss to some respect from the air freight perspective,” he noted. “Airport-to-airport works pretty well, but there is a struggle communicating between the origin and the destination.”
Craig Pettit, director of international operations and compliance at Bridgestone Americas Tire Operations, agreed, also stressing the whole door-to-door movement. He highlighted the complexity in overall end-to-end air freight chains and the multiple hand-overs between each of the elements of that chain. “One of the supply chain goals at Bridgestone is simplicity − to eliminate hand-offs,” Petit commented. “We want one supplier who can handle it all. We would rather have one valued partner that we can go to and trust.”
He sees no difference between the end customer’s needs for emergency shipments and regular air freight movements. “Air, for us, is typically a crisis situation when we’re moving something,” Pettit explained. “We have test products coming in that we need tested and marketed quickly, or we are using air to jump over an ocean shipment.”
Michael Mullen, executive director at the Express Association of America, said the organisation’s members FedEx, DHL and UPS participate in a wide field of supply chains, not just express delivery, moving heavy freight by land, air and sea. But he was keen mainly to talk about the e-commerce supply chain, “because that’s where explosive growth is presenting challenges to both the public and private sectors”.
Mullen noted: “The global e-commerce boom is particularly changing the game for small and medium-sized enterprises, and their success depends on the vibrancy of what could be called an ecosystem of services. This has five elements: search engines; retail websites for buyers; online marketplaces for entrepreneurs to sell; financial services providers; and express delivery services. Ideally, these services have to combine to form an endless end-to-end experience for someone who is purchasing something online for it to be successful.”
Trade facilitation is also critical to ensuring that this ecosystem is not delayed or disrupted at the border, said Mullen, highlighting robust implementation of the recent World Trade Organisation facilitation agreement, which came into force in February, as one key opportunity for improvement. “This agreement includes an excellent set of basic trade facilitation measures, which would improve the border clearance process significantly for a large number of countries,” he noted.
Brandon Fried, executive director at the Airforwarders Association, said: “From our perspective, automation is very important. We have roughly 300 members of all different sizes, from intergalactic members to small ones too. Everyone, to some extent, is investing significantly into technology.
“We want to provide to the shipper as seamless an experience as possible. We think that the shipper is entitled to as much transparency as possible [and] we need common messaging standards; they are important. We applaud initiatives like Cargo iQ.”
NOT TECHNICAL NEANDERTHALS
Fried continued: “Make no mistake about it, we are a freight forwarding industry but we are not technical Neanderthals. We are making significant investments right now. I’m concerned about the fact that we are investing so much money and resources when less than 2% of shipments go astray.
“In addition to tech, I want to see us working on what’s holding up and slowing down the movement of boxes, like airport congestion. Why are there trucks being held up? From the regulatory aspect of things, there are more regulations that are coming about over and over again, for example.” He questioned the current known shipper rules, which he said were “really slowing down cargo”.
The panel members agreed that investment in transparency while maintaining speed was a key aim.
Pettit said Bridgestone was working on the visibility of the supply chain from end to end, to “understand where we are spending our money, how long our transit times are, and why we do certain things. But it does go back to technology; if you don’t have [technology], you can’t capture the end-to-end data to understand your supply chain – to see where it’s bogging down or where it’s speeding up.”
This visibility project will keep the company busy for months and will include “deep analysis to understand who you are and the partnerships in specific areas; if they are weak and strong. [The partners] are an extension of us,” Petit observed.
But elsewhere, pharmaceuticals and the growth of the pharma industry are other hot topics that concern shippers. Mullen commented: “Over the next two years, there is a pretty good consensus on the major issues the express industry needs to focus on. One of the major ones that we are working on very hard is improving border clearance processes for products that are regulated by government agencies other than customs and border protection.”
He noted that the private sector has had more experience working with customers and the border agency than the public sector agencies have. Thus, he noted, “we are working very closely with the Food and Drug Administration (FDA) to get them to adopt a more facilitated policy for them to allow rapid clearance of products with a long history of strong compliance. Getting the FDA to improve is very important to the express industry because the industry is making a lot of investment in the rapid transportation of specialised healthcare products – these kinds of things demand just-in-time delivery.”
Mullen continued: “The key to success is getting the FDA and a number of other government agencies to understand that trade facilitation is now part of their mission and they are partners in just about everybody’s supply chain.”
AUTOMATED COMMERCIAL ENVIRONMENT
Mullen pointed towards the US government’s Automated Commercial Environment (ACE) initiative as a good example of regulation moving forward. He said it would be “the technical backbone for the US government for clearing shipments in and out of the country. Agencies will be required to use this.” Ultimately, Mullen noted, the main goal of ACE is “government-wide automatic clearance pre-arrival with more information, more accurate information”.
The discussion overall highlighted several specific areas of importance to shippers in which improvements or attention are needed: technology; digitalising cargo movements; visibility and transparency; achieving quick and safe border and customs clearances; and the growing markets of pharma logistics and e-commerce.
But things are moving forward, Fried insisted. “Forwarders are making strides – no freight forwarder, as our member, does not have a remote ordering strategy for their customers,” he noted. “We have a lot of members who are heavily investing into technology. [There will be] tremendous strides in the next two years.”
However, he added: “It’s really important to understand it’s not all about technology. It is a tool to support our business,” and having a backup plan is as essential as having a technological infrastructure in the first place. In conclusion, Fried also stressed the importance of “communication; constant human interaction: understanding what we need and what they need and making sure that communication line is open all the time.”