Is innovation in air cargo a distinct possibility or just talk? – Link2Portal

Anand Medepalli
Vice President of Freight Transportation at
JDA Software
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Post date: Friday, 20th September 2013

I recently hosted a panel discussion during TIACA’s 2013 Executive Summit and Annual General Meeting that was titled Essential Innovation During the Downturn.  The panel included Robert Mellin, head of distribution logistics at Ericsson, Kenji Hashimoto, president of American Airlines Cargo and Howard Jones, president of Network Cargo Systems.

It was a lively discussion that brought up many questions and interesting topics but in this article I have expanded on the two the key issues that I believe provided most food for thought during the show.

1. Collaboration between shippers, forwarders and carriers

Robert Mellin gave a speech that outlined the latest trends affecting logistics and his expectations from the air cargo industry. He explained that with shippers becoming more cost and carbon conscious; natural disruptions such as the Icelandic volcano occurrence, and the increase in manufacturing trends towards re-shoring, being armed with better planning processes and tools has allowed Ericsson to increased its reliance on sea and surface transportation significantly.

Robert highlighted that Ericsson uses air cargo for only 20%of their logistics needs, mainly to cater to emergency shipments. And if it can be called good news, he speculated that it will probably not go below the 20% mark. The most significant comment Robert made was that carriers, forwarders and shippers all need to innovate together and increase the collaboration between themselves. He challenged forwarders to grant shippers more access to carriers, emphasising the need for jointly optimised processes across all cargo transportation methods to create a win-win-win scenario for all.

In this internet age, the shipper is the main driver of logistics and not the 3PLs or forwarders. Forwarders and carriers must listen to what the shipper wants and if Robert is to be believed, what the shipper wants is an integrated service with cargo delivery options to choose from. If the carriers knew what to expect from the shipper, then they can plan their rates and service levels with more information than is currently available. In return, the shipper knows upfront what they are getting in terms of service and rates through one voice, unlike today; Robert is not sure how much of what he hears comes from the forwarder and how much is from the carrier.

To bring about this innovative change to business, shippers like Ericsson can and should do more than just call upon the industry; they must insist that freight forwarders bring carriers to the table with an integrated solution created by partners working together to solve the shipper’s problem. As end customers they have the power to do this.

Carriers on their part should take the risk to tell forwarders that they would not do business with them unless they are seen as equal partners and are given transparency into the shippers’ needs. After all, they are the ones with significant risks invested in the supply chain. And they should take confidence in the fact that while they only have 20% of volumes, according to Robert they have 70% of Ericsson’s logistics spend. That gives them leverage to ensure a seat at the table.

With pressure from both sides, I believe that forwarders will start the required collaboration with carriers and work with them to understand how best to offer a jointly optimised solution to the shipper.

2. The snail pace of e-freight adoption

Everyone knows that innovation is hard in this industry. Look no further than the e-freight initiative launched by the industry in 2006. IATA is justifiably happy that the target of achieving 20% e-AWBs by the end 2013 has begun to look achievable for the first time. But if you consider that this represents only a 20% success rate after seven years of launching, it doesn’t appear all that brilliant.

Now there are reasons for this; it is a global goal and there are still many countries where even reliable electricity is still a problem and the e-AWB target is the last thing on their mind. But even the developed world is lagging behind and this is concerning to many innovators in the industry, especially since they see their passenger divisions and indeed other industries around them move in the e-commerce world at a much faster pace.

Almost every carrier I spoke to at the conference blamed forwarders for not stepping up. In fact, there was even talk of forwarders losing air freight business if they don’t adopt e-freight soon. At my plenary session, Kenji Hashimoto of American Airlines Cargo made the point that e-freight adoption requires significant investment and this cost could be a reason for the small to medium-sized forwarders to not step up to the plate.

Against that Robert made the point that if you stacked up all the paper documents Ericsson uses each year to accompany their shipments, it will fill up an entire 747! This is a significant frustration to shippers like Ericsson since they demand solutions that create a reduced carbon footprint, not to mention less fuel costs.

The big forwarders are already on their path to e-freight and if not, can surely afford to invest in the required IT systems to enable it. But for the small and medium-sized businesses, one option would be to invest in community platform solutions from providers such as CHAMP Cargo systems. A different solution to this problem perhaps lies with the carriers.

Almost every carrier is investing in a new and modern IT platform. What if, as part of this investment, carriers create a secure community portal for the forwarder community upon which the forwarder is able to participate in e-freight and collaborate with the carrier in return for a reasonable per AWB charge? Carriers stand to gain significantly from this investment because they would then have a collaborative platform with the forwarders, not to mention the move to e-freight by all the parties.

Forwarders stand to gain from this as it simplifies their move to e-freight with no capital costs; they can negotiate the per-AWB charge with the carrier. Yes, data security and privacy issues for both parties need to be ironed out but since the platform is restricted to transactions and information relevant to both parties, these should be solvable. And forwarders refusing to participate in such a portal should definitely lose the air freight business and this way, the industry can cajole all parties to invest in this significant innovation.

The two topics above generated a significant number of passionate conversations during the conference and the industry captains seem keen to change the way they do business. I think they sense a perfect storm – the shippers’ views align with theirs and together they can put sufficient pressure on the forwarders to make the required changes.

The simple truth is that these two innovations are easily achievable; technology is no longer the barrier – just the mind-set is. Just achieving these goals in the developed world as a first step would still be a significant step forward. If the passion during the conference is any indication then perhaps change is in the air!