Customer expectations are changing in the modern market and air cargo must keep up with demand

Air cargo is predicated on speed. It is the sector’s unique selling point, an unambiguous advantage over its maritime counterpart. But customers do not always receive the benefit of that speed.

While there have been some small improvements in shipment times in recent years, it still takes a package the best part of a week from pick-up to drop-off.

At the same time, consumer behavior has changed and continues to evolve.

Events such as Singles Day in China and Black Friday and Cyber Monday in Europe and the United States have taken e-commerce to a new level.

The 2016 five-day period from Thanksgiving to Cyber Monday in the United States produced $12.8 billion in online sales

In this brave new world, delivery times are measured in hours. It may well be minutes soon enough.

Air cargo must improve to cater to this modern market. If established air cargo carriers cannot pick up the pace, new entrants are waiting in the wings to make those delivery times a reality.

Online spending

As popular as e-commerce seems today, online retailing represented just 7.4% of total retail sales in 2016, according to Invesp. But by 2018, it will be 8.8% with the extraordinary growth curve set to continue. One forecast has $4 trillion being spent online by 2020, close to 15% of total retail sales.

Singles Day revenue in China in 2016 reached a mammoth $17.8 billion compared with $14.3 billion the previous year.

The 2016 five-day period from Thanksgiving to Cyber Monday in the United States produced $12.8 billion in online sales while the United Kingdom topped £1 billion in online spending for its Black Friday 
event alone.

But perhaps the most telling statistic is that 70% of online sales has an international component, be it buying a product from a different country or buying a product that has an international production line.

The immediacy of the buying opportunity is reflected in expected delivery times 

That’s good news for air cargo, the obvious way to get goods and components across borders, quickly and safely. Trade is no longer about finished goods, producing in one country, shipping to another. Rather, countries now specialize in specific areas and components, a process made easier by increasing trade facilitation.

What is more, buying online is a 24/7, “always on” lifestyle. It’s not surprising, therefore, that mobile sales are increasing.

In the Christmas season just gone, Amazon—which together with eBay and Alibaba dominates the online retail sector—reports that 72% of its billion-plus orders through Amazon Prime came from a mobile device. It is estimated that an even larger percentage of China’s Singles Day purchases were done on the phone.

The immediacy of the buying opportunity is reflected in expected delivery times. Amazon Prime has some 50 million members in the United States and the $99 fee gets every member a two-day delivery schedule.

Last mile

To deal with these heightened expectation levels, Amazon has entered the air cargo sector. It has 40 aircraft on wet lease. Prime Air uses crew, maintenance, and insurance from Lessors Atlas Air and ATSG. Sean Cassidy, Prime Air’s Director for Strategic Partnerships describes the airline as a “future delivery system.”

“The beauty of it is it gives the customer choice,” he notes. “So, we innovate and provide choices and [the customer] decides which 
to select.”

In addition to this US-centric operation, Amazon continues to operate a limited European air cargo service originally set up with ASL Airlines France to deal with the Christmas 2015 rush.

A couple of patents filed by Amazon reveal how fundamentally different the air cargo sector could be in the future

Still early days, it would appear that Amazon is setting up a direct, overnight network for Prime Air as opposed to the more traditional multi-leg cargo schedule.

Amazon spokesperson, Kelly Cheeseman, says the company is looking to “supplement” cargo capacity rather than replace it, but there is no doubting the scale of the company’s commitment.

The move into transportation also extends into the so-called “last mile” delivery. A couple of patents filed by Amazon reveal how fundamentally different the air cargo sector could be in the future.

Dubbed the “flying warehouse” but known by Amazon as an Airborne Fulfilment Center, these giant airships would be flown close to a source of anticipated demand, such as a major sporting or entertainment event. Drones would then fly down to deliver souvenirs and the like.

The idea has the significant advantage of reducing drone flying time, as one of the major obstacles of this much-heralded last mile device is the size of battery required for any meaningful flying distance.

The second patent—for a self-driving delivery truck—seems prosaic in comparison. Customers would be able to access the vehicle and their particular package through a unique PIN number.

Instant gratification

Glyn Hughes, IATA’s Head of Cargo, believes the emergence of new players like Amazon is a positive step for the air cargo sector. “It shows that a company like Amazon thinks air cargo will continue to be important to fast delivery and new consumer trends,” he says. “And competition should always be welcomed. It makes everybody more efficient.”

The trick for established cargo carriers, he adds, is to understand where and how they want to compete. The consumer’s need for instant gratification is accelerating. What they buy today, they expect to be delivered tomorrow—even if the goods are coming from the other side of the world.

"On top of that, processes must cope with the new dynamic of thousands of goods having thousands of different recipients delivered in myriad innovative ways. Air cargo must learn how to interface with each of them.

“There is a long way to go,” accepts Hughes. “It has been said that today’s air cargo paperwork would be fairly familiar to 16th century Dutch merchants. But initiatives are underway that will have a substantial impact on 
the industry.”

New mindset

The industry’s multi-faceted strategy calls not only for improvements in speed, but improvements in quality too, with real time tracking and data accuracy high on the agenda. Speedy implementation is vital if air cargo is to catch up with the Amazons of this world.

e-AWB will reduce shipment acceptance times, facilitate regulatory compliance, and enhance data accuracy

E-freight is the cornerstone of future endeavor, which in turn is built on the implementation of the electronic air waybill (e-AWB), a paperless contract of carriage between the freight forwarder and the airline. By the end of 2016, adoption of the e-AWB neared 50% and the target for end 2017 is 62%. Implementation rates among big forwarders and leading carriers on major trade lanes far exceeds the industry average, clearly demonstrating the value of synchronizing 
supply chains.

To assist, IATA has launched the e-AWB360 initiative to fast-track penetration at major airports and there is also the e-AWB Link tool which will help small and medium-sized freight forwarders, as well as an implementation playbook.

Hughes points out that the e-AWB will “reduce shipment acceptance times, facilitate regulatory compliance, and enhance data accuracy—all of which will improve the competitiveness and speed of air cargo.”

Although e-freight implementation will then need to proceed on a document-by-document and case-by-case basis due to highly idiosyncratic local operating conditions, perhaps the key point is that the industry mindset is changing as a younger, digitally-oriented generation comes to the fore in the sector. “It is an open door to greater efficiency,” believes Hughes.

Digitalization will also play a major role in other aspects of air cargo, including quality and reliability

It will certainly be crucial to another customer requirement; package visibility. The ability to know exactly where a package is throughout the entire journey is a modern day “must-have” and air cargo needs to replicate this ability.

Electronic documents are more easily archived and retrieved, enabling track and trace functionality and the real-time visibility of the shipment.

Digitalization will also play a major role in other aspects of air cargo, including quality and reliability. Systems being able to auto-populate will ensure data consistency and cut out delays cause by inaccurate entries.

Comprehensive and accurate digital information also allows operational analytics and dynamically measured key performance indicators.

Cargo iQ, the successor of the Cargo 2000 project, is a not-for-profit membership group supported by IATA, comprising some 80 major airlines, freight forwarders, ground-handling agents, trucking companies and IT solution providers globally.​

Cargo iQ members have developed a system of shipment planning and performance monitoring for air cargo based on common business processes and milestones. Measuring in this manner will enable targets to be met and exceeded, constantly raising the bar in air cargo performance.

We are only just beginning that journey but we are travelling quickly and we know where we want to go

And electronic data should also make regulatory compliance easier. Greater ratification of the Montreal Convention 1999 (MC99)—a legal precursor for electronic cargo processes—is essential in this regard. The IATA board target for 2017 is to get six of the remaining top 20 largest States to ratify MC99.

New paradigm

Digitalization is now the norm. Ensuring it suffuses the entire air cargo value chain is an absolute necessity for an industry centered on speed that must evolve to meet the increasingly sophisticated demands of a new breed of customers, and compete with the next generation of industry players.

Air cargo must find its place in the new paradigm and react to the requirements of new customers and new partners. That alone requires drastic change.

“The opportunity for air cargo is immense,” Hughes sums up. “Apart from e-commerce, it is the best way to safely transport perishables, pharmaceuticals, and other time-sensitive or precious goods.

“To seize that opportunity means a seismic shift in mindset and processes. We are only just beginning that journey but we are travelling quickly and we know where we want 
to go.”

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