The air freight industry is refocusing its efforts to cut 48 hours from averagetransit times, focusing on transforming its processes so that it can meet the needs of
specific traffic that will particularly benefit from increased speed rather than an overall averagetime improvement.In March, the International Air Transport Association (IATA) issued a call to the air freightsector to cut the average end-to-end transit time by up to 48 hours by the end of thedecade. Currently, the average end-to-end time for air freight consignments is around 6-7days, a figure that has not improved since the 1960s.
However, IATA’s new global head of cargo, Glyn Hughes, this week revealed a redefinition of theobjectives, describing the 48-hour reduction in transit times as “a consequential benefit ofindustry transformation”.
He said many of air cargo’s traditional markets had been disappearing as technology has evolved,citing a recent study of IATA and research group Seabury which indicated that the transport offashion goods, of laptops, and even of perishables was decreasing within the air cargo space.
“We have two options: we can either idly sit by and watch and see what other cargo we lose,whether it is modal shift as the price differential becoming so significant that ocean becomesattractive, or innovation within those other modes accelerating to the point where they arepresenting a value proposition that is more attractive than air freight,” said Hughes.
“As an industry I believe that we need to be cognisant of the potential possibilities to losethe business, and that should be the driving point for the transformation within.”
Regarding ‘near-shoring’, he referred to a survey produced by consultants Alix Partners in whichthey talked to major US manufacturers, identifying that around one third of them were either in theprocess of, or are anticipating in the next two to three years, looking at near-shoring, driven byfactors such as the differential in cost production getting closer, speed to market, transportationcomplexity, “or perhaps also because of protectionist measures – these are all factors that arecausing people to consider more near-shoring”, said Hughes.
“We also know that there are more innovations when it comes to surface transportation. If youlook at Hewlett-Packard, all of its laptops are now going from Asia to Europe via railway, comingthrough to Europe on what I believe is a 17-day journey versus the 28-day ocean journey, versus thefive, six or seven days by air. For the price differential, in that case, they are saying it isbetter for the value of the asset to get it on the train.
“So we know that these processes and innovations of production are occurring, so we need to dothings differently.”
He said IATA’s latest five-year air cargo forecast shows a compound annual growth rate for airfreight of 4.1% for the next five years. “In order to deliver this kind of growth, we have to makesome structural changes – because if we just sit back and hope that the growth will return as itdid pre-2009, we are fooling ourselves,” Hughes insisted.
He said 15 or 20 years ago, the vast majority of what was going by air was high-value, but itwas not as sensitive as some of the freight that is being transported today. “Today air freight ismuch more susceptible to, for example, time and temperature incursions. So the demands of theshippers, the demands of the customers are becoming more sophisticated.
“There is also a greater expectation that quality needs to become the first and foremost in thesupply chain.” He said the air freight sector’s Cargo 2000 programme had an important role in thequality process. “So we think that air cargo really must transform in order to survive here in thenew markets.”
In order to help the air freight sector to transform, IATA has developed a work programme, whichwould require a phased approach. He said IATA would be launching a global shipper survey in thenext few months, similar to one it undertook four years ago, “to try to get as much input as we canto help with both this project and others prior to the association’s World Cargo Symposium inMarch.
“What we then expect as a result of that is we need to look at how we work as individualcomponents within the supply chain. We will be doing a study that will be looking at the variouspain points – a complete forensic assessment of the supply chain, from point of production to pointof consumption – and identify where in the supply chain we can focus on as an industry and makesome improvements.
“We need to make sure that the fragmented supply chain – fragmented in the sense that we havemultiple parties within that supply chain – is actually leveraged to be a strength and not aweakness. I think we will have to be honest with ourselves that the components don’t seamlesslywork together, and therefore as an industry I would say that this is a weak point when we are notactually integrating process or integrating data.
“If we can actually integrate the various components – and that means also the information aswell as the process in terms of how we handle freight – we can actually develop what we believe isan increasingly enhanced industry through specialisation driven by expertise of the variouscomponents stakeholders.
“And I think this is where we really have the future of the industry, to leverage thatspecialisation, and so we can put in the most complex supply chain solutions serving the mostcomplex, sophisticated customer needs.”
IATA insisted it was not downgrading that 48-hour target as a midterm aim. “That is still verymuch a mid-term aim – a 2020 aim – but for this year, we are focusing on these points,” saidHughes.
“We did not want this to become a finger-pointing exercise, i.e. ‘you are leaving the freighthere for 48 hours’; ‘it is your fault that is it is six not four days’. And then the shippersaying: ‘We are happy with a six-day service; we don’t necessarily want a four-day service – itfits’.
“So we are not trying to say as an industry everything must be 48 hours quicker. It is moreabout saying that if we optimise, then we have the ability as an industry, if a shipper and if theforwarder and the airline, for example, or the commodity or product or solution that somebody wantsrequires an accelerated transport, then if we have optimised as an industry we can satisfy thatparticular demand.
“The six days that has often been quoted is an average. If we get to that optimisation point,then if somebody wishes to accelerate through, then they can derive the benefits as a consequenceof optimisation.”
Responding to a question from CEP-Research, Hughes insisted that this was not a watering down ofIATA’s original intentions when it announced its ‘48-hour challenge’. He commented: “If we justfocus on the 48 hours, I would actually go the other way and say that the 48 hours could be quiteeasy to achieve. We didn’t want people to just focus on taking hours out and not then actually lookat what is the real win, which is the structural transformation.
“So, in other words, you could almost achieve the 48 hours without the transformation. And wewould rather suggest that the industry needs to transform so that the 48 hours or even become 72hours – or whatever, but it is coming out of a much more optimised supply chain.”
He said it was more about getting genuine integration of processes and information – and aco-operative air logistics chain – “rather than a discussion about each individual component saying‘I can offer nine hours; I can cut off three hours’, and we add it up and we get the same supplychain as we have got now, just with 48 hours less transit time.”
He acknowledged that this may not necessarily get Hewlett-Packard back, if they have configuredtheir supply chain so that 17 days by train works for them – or other commodities if they shiftfrom a demand-led to a stock-led logistics model – particularly in the current environment wherethe costs of capital are at historic lows.
“Perhaps as interest rates go up going forward, that cost of capital again will enter theequation again. Consumption – the global economic environment is still shaky, so in other words wedon’t have a situation where consumers – apart from the latest iPhone 6 or Samsung Galaxy – arebanging on the door to get the latest commodities,” said Hughes.
“The replacement cycle for laptops and other gadgets is not to the extent now that those guysare suffering from taking the slower distribution process. But the cost of air cargo is stillcoming down – because air cargo has done a tremendous job of passing on some of the efficienciesgained as have the passenger airline market.
“If we can continue to pass on those efficiency gains, and we can continue to optimise, if wecan accelerate the end-to-end process flow, at least it starts the discussion within theprocurement and transportation managers within these big shippers. But, there is one aspect that ismissing there – as an industry we also need to be reminding them regularly ‘don’t forget air cargo’.
“Right now, air cargo transports 1% of world trade volumes, but that means you’ve gotpotentially 99% of the market to go after. It is unrealistic to think we can get the commoditiesmarket, but there is still an opportunity there if we get the right product and if we get the rightvalue proposition, to get more market share,” he concluded.
