Innovation in Air Cargo: A Distinct Possibility or Just Talk?

I hosted a session during TIACA’s 2013 Executive Summit and Annual General Meeting held in Dallas/Fort Worth, TX, USA April 16 – 18. The session was titled “Essential innovation during the downturn” and featured Robert Mellin, Head of Distribution Logistics at Ericsson, Kenji Hashimoto, President of American Airlines Cargo and Howard Jones, President of Network Cargo Systems as the panelists  It was a very lively discussion with many questions and topics, two of which caught my attention and imagination!

1. Collaboration between shippers, forwarders and carriers

Robert Mellin gave a keynote speech before the plenary that outlined the latest trends affecting logistics and his expectations from the air cargo industry. With shippers becoming more cost and carbon conscious, with disruptions such as the Icelandic volcano, with the increase in manufacturing “re-shoring,” armed with better planning processes and tools, Ericsson has increased its reliance on sea and surface transportation significantly. In fact, Robert bluntly told the audience that Ericsson uses air cargo for only 20 percent of their logistics needs to cater to emergency shipments, and if it can be called good news, Robert did speculate that it will probably not go below the 20 percent mark. But perhaps the most significant comment Robert made was that carriers, forwarders and shippers all need to innovate together and increase the collaboration between all parties. He challenged the forwarders to grant the shippers more access to the carriers and went on to emphasize the need for jointly optimized processes across all players and create a win-win-win scenario for all.

Those of you who read my blog know that this is something I have been advocating for a while. In this internet age, the shipper is the main driver of logistics and not the 3PLs or forwarders. Forwarders and carriers better listen to what the shipper wants and if Robert is to be believed, what the shipper wants is an integrated service and 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 and in return, the shipper knows upfront what they are getting in terms of service and rates with one voice, unlike today where Robert says he is not sure how much of what he hears is from the forwarder and how much is from the carrier.

To bring about this innovative change to business, I believe shippers like Ericsson can and should do more than just call upon the industry; they must insist that the forwarders bring the carriers to the table and that they need an integrated solution created by partners working together to solve the shipper’s problem. As end customers they absolutely have the power to do so. 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 percent of volumes, according to Robert they have 70 percent of Ericsson’s logistics spend. That gives them leverage to ensure a seat at the table.

With pressure from both sides, I believe the forwarders will start the required collaboration with carriers and work with them to understand how best to offer a jointly optimized 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 percent e-AWBs by the end 2013 has begun to look achievable for the first time, but if you consider that represents only a 20 percent 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 the 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 Cargosystems. 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.

These two topics generated 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!

What do you think?

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