The global air cargo industry must urgently transform itself to seize the opportunities of e-commerce in the face of competitive challenges from integrators and “disruptors” as yet another year of low growth and falling yields looms, IATA CEO Tony Tyler urged yesterday.
The air freight business has failed in recent years to modernise itself like the passenger business, continues to provide insufficient customer service and fails to market itself as a premium service, he told delegates at IATA’s 10th annual World Cargo Symposium (WCS) in Berlin.
“Compared to other modes of shipping, air cargo is a premium service. Yet shippers give the industry a satisfaction rating of only 7 out of 10 on average. That is not good enough. The industry must raise the service quality of air cargo and provide a more personalised customer service,” IATA’s Director General and CEO told senior industry executives and managers.
“The industry certainly cannot afford to miss the opportunities that e-commerce is opening up. The delivery models keep evolving. We now have click and ship, click and deliver and click and collect solutions. And just last week, Amazon announced plans to lease 20 freighters in a bid to secure more control over its supply chain,” he emphasised.
The stark words came as IATA issued new forecasts for 2016 indicating another tough year for the air cargo sector. After minimal volume growth of 1.9% last year, as the Chinese economic slowdown depressed demand, the airline association estimates that volume growth will improve to 3% in 2016.
But yields, which have contracted each year since 2012, will weaken by a further 5.5% this year under pressure from integrators, competing modes of transport (land and sea) and increased cargo capacity in the passenger fleet, IATA forecasts.
"Looking ahead to 2016, we see further mixed fortunes. Oil prices are predicted to stay relatively low and volumes will expand modestly again. But yields are likely to fall further,“ Tyler said.
“Air cargo continues to be a challenging environment for airlines to keep revenues ahead of costs. The business, however, generates enormous value. Over a third of goods traded internationally—measured by value—are delivered by air cargo. To do that profitably, the air cargo sector must bolster its key strengths of speed and flexibility with modern processes and improved quality. That means transformation,” Tyler commented.
The former Cathay Pacific executive questioned why cargo has not undergone the same thorough transformation process that has reinvigorated the passenger side of the business. “Developments like e-tickets, bar-coded boarding passes, airport self-check-in kiosks and inflight Wi-Fi have transformed the passenger experience. Is it a coincidence that after a decade of change, load factors are at record highs and airlines are finally rewarding their investors with adequate returns?
“We need similar breakthroughs on the cargo side of the business. There are lots of potential disruptors out there—data-sharing platforms, new market entrants, or e-commerce. The challenge is to stay a step ahead in satisfying customer expectations,” he said.
Paperless processes and customized services are critical to the sector’s future, according to IATA. The foundations are being built but challenges remain:
* The pace of adoption of the e-Air Waybill (e-AWB) must accelerate. As of the end of 2015, e-AWB penetration stood at 36%. To speed this up, the industry, through IATA, is engaging governments and airports to achieve targeted initiatives.
* There are still concerns over the quality of service for time- and temperature-controlled shipments, especially pharmaceuticals. Patient safety is a key concern and compliance certification programs (such as the CEIV Pharma initiative) are a step in the right direction. But the breadth of adoption must evolve quickly for shippers to have full confidence in the system.
In both of these examples, teamwork is the critical element, according to the airline association. “The value of air cargo is so great because it is a team effort. Only if the different participants in the air cargo value chain pull together behind a common vision will the industry thrive in the coming decades. If the air cargo business can stay focused on the customer, delivering a reliable, high-quality service at a competitive price, and build on the speed and flexibility for which air freight is renowned, then this business will not only survive but prosper,” Tyler said optimistically.
Meanwhile, the IATA chief also noted that teamwork will be critical in resolving issues around the shipping of lithium-ion batteries. In February 2016 the International Civil Aviation Organization (ICAO) temporarily banned shipments of lithium-ion batteries as cargo on passenger flights, pending the development of a fire-resistant packaging standard.
Some 400 million lithium-ion batteries are produced each week. Safety concerns arise from several areas: irregular manufacture, mislabeling and improper packing, including non-compliance with dangerous goods regulations and the IATA Lithium Battery Shipping Guidelines.
“Safety is the top priority. Banning lithium-ion batteries from air freight does not solve the issue of counterfeit or non-declared goods. The issue lies with the lack of enforcement of the regulations by governments. So it is essential that authorities redouble their efforts to enforce the regulations and close the loopholes that prevent prosecutions of serial offenders,” said Tyler.
In terms of business trends, the worldwide air freight industry has started 2016 with a “solid” increase of 2.7% in freight tonne kilometers (FTKs), according to IATA. However, the freight load factor “remains rooted near a six-year low, keeping intense pressure on cargo yields”, it noted.
In its latest quarterly cargo update, the airline association commented that “global growth continued to perform below its potential – new mediocre growth is now the new reality”.
Growth in FTKs had positive momentum since the second half of last year and into January of 2016 but “subdued expectations on export orders and poor performance of semi-conductor shipments point to downward pressure for air cargo growth in the short term”, IATA analysts wrote. Moreover, lower oil prices have brought freighter capacity out of storage, which can put further downward pressure on yields.
However, IATA added: “In the medium term, strong consumer confidence and lagged impact of lower oil prices leave room for cautious optimism.”
