It must be a year of action for all air cargo stakeholders if the sector is to improve its value proposition, writes Graham Newton
Air cargo markets have been stagnant for the past few years as the global economic downturn took hold and provoked further speculation about a modal shift.
There are signs of an upturn with a 1.4% expansion in global freight tonne kilometres in 2013 compared with 2012. And Des Vertannes, IATA Head of Cargo, says business confidence is returning.
“We have had some positive news recently,” he says. “The launch of two new games consoles before Christmas made a significant difference to volumes out of Asia, for example. It was a very welcome lift.”
But to truly improve the value proposition, 2014 must build on the small signs of recovery and be a transformational year for the sector.
“To really reverse the stagnation we have seen in the past few years we need to address specific issues and the more general challenges of maritime competition, on-shoring, and trade barriers,” says Vertannes. “The next 12 months are absolutely crucial if air cargo is to tackle the many challenges ahead and return to profitability. We must pick up the pace of change.”
Mobilizing the validators
One major call to action in 2014 is to ensure ACC3 enjoys a smooth implementation. The European Union (EU) regulation coming into force on 1 July 2014 requires cargo or mail destined for the EU to comply with European security regulations. This means it must be 100% screened or originate from an independently validated station.
A spokesperson for Air France-KLM-Martinair Cargo notes the deadline is actually earlier considering the validator has 30 days to write the report after onsite verification and final approval will take some time after that. “The aviation security measures laid down in the EU ACC3 legislation have been around for two years now but to achieve the necessary verification by an independent validator does require a considerable logistical effort to get it done on time,” says the spokesperson. “This has a cost considering the network operated by the group.”
ACC3 was proposed in 2012 and it was assumed that countries would initiate programs to ensure station validation. But by the end of 2012 no EU independent validators had been accredited.
To assist in moving the project forward, IATA set up the Center of Excellence for Independent Validators (CEIV). This has been endorsed by 12 EU member states and has successfully trained over 70 independent validators to date. CEIV is helping airlines handle the 700 or so station audits that need to be completed by the deadline and will also ease the pressure of dealing with nearly 3,000 station audits in the years ahead (a validation lasts five years).
Awareness workshops and a five-day workshop specifically for airlines to help them understand the audit requirements have supported the CEIV effort.
“IATA is continuing to communicate the urgency of the situation,” says Vertannes.
“It is working closely with regulators and will assist air carriers to meet their ACC3 obligations by providing information, pre-assessment tools, and expert advice. It will be hard work but we can meet this deadline.”
Working in unison
ACC3 is not the only cargo security issue looming on the horizon. The US Air Cargo Advance Screening (ACAS) program is expected to move into its rulemaking phase in the second quarter of the year. ACAS has its equivalent in Europe (PRECISE) and Canada (PACT). If the industry is not to inject further complexities in its processes an acceptable regulation in the United States is a must—as is ensuring that all three programs are harmonized and mutually recognized.
There is every reason to be hopeful on the latter point as the United States already has agreements in place with both Europe and Canada that recognize the respective cargo security programs.
As for ACAS, a lot of work has been done to perfect data transmission standards with the Customs and Border Protection agency. Efficient data transmission is essential to ensuring 100% screening works efficiently and the rulemaking expected later in 2014 should reflect the collaboration to date.
Aside from the EU and Canada, it is likely there will be copycat legislation in other parts of the world so the adherence to accepted standards and a paperless environment will be vital.
Meanwhile, dangerous goods is another topic that has hit the headlines and must be successfully addressed in 2014. An industry solution will protect what has become a vital revenue stream given the presence of lithium batteries in so many of the shipments particular to air cargo, such as hi-tech equipment.
“This has become a major issue in recent years and there is a push to embargo lithium metal batteries,” Vertannes notes. “But it must be emphasised that there is absolutely no risk as long as the goods are properly declared and packaged.” IATA is working with ICAO to improve guidance materials.
Getting ready for change
Working on these specific challenges will generate momentum for the air cargo industry and this will need to be carried through to the overall transformational agenda if the value proposition is to be improved.
“The reliability of air cargo is coming under increasing shipper scrutiny,” says Vertannes. “The need to drive innovation and shorten transit times has never been greater. IATA and stakeholders are looking to ensure that Cargo 2000 will adopt the measures that ensure quality throughout the entire shipper-consignee transaction. Airlines have come to appreciate the high value proposition that a paperless environment can deliver. This is also acknowledged by the freight forwarder and ground handling communities.”
Despite a widespread acceptance of the need for change, a true paperless environment remains challenging. The electronic air waybill (e-AWB) project fell short of its target for 2013. Being the third year of stagnant demand, investment dollars have been hard to come by for cargo carriers. Understandably, the next dollar of revenue or the next dollar of saving has dominated the agenda and re-engineering the business has been put on the backburner.
“Technology is changing exponentially and is surpassing our imagination,” says Gautam Mandal, Commercial Manager, Cargo Flash Infotech. “The current generation is playing with Google Glasses and smartphones that are faster than our PCs were a few years back, while 4G LTE is promising us bandwidths over 100 MBPS on mobile devices. Why is it then that our industry is still afraid of embracing the technology and complete e-freight seems such a distant reality?” Mandal suggests it is not because of non-availability of expertise but rather because of the lack of standardisation. The same documents can look very different in different parts of the world and operating standards in the supply chain vary from country to country.
It’s not only airlines that haven’t been ready for the change, however. Custom agencies have likewise been slow to adapt to new processes. And other members of the supply chain have been exposed by the lack of standards in common use.
“It is important that stakeholders, along with customs, find the right mechanisms and IT protocols to help accelerate the adoption of the e-AWB,” says Vertannes.
Despite the difficulties there has been no backtracking. New e-AWB targets are in place: 22% by the end of 2014, 45% by the end of 2015 and 80% by the end of 2016. There is growing optimism that these targets will be achieved because of the collaboration taking place amid broad industry unity. This unity is being strengthened by the work of the Global Air Cargo Advisory Group (GACAG) and closer relations between IATA and the International Federation of Freight Forwarder Associations (FIATA). There has been positive progress in the Cargo Agency Modernisation Program to further these relations.
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The e-AWB may be the main component of the switch to e-freight but it isn’t the only one. Countries must look to the broader commercial environment for e-freight to be successful. The speediest and most effective way to do this is through the 1999 Montreal Convention (MC99).
The last ICAO Assembly urged all of its 191 members to sign MC99, another positive step that hints at 2014 being a year of unprecedented change. In 2013, India and China successfully piloted e-freight out of Delhi and Shanghai respectively. In the case of India it is particularly significant that customs now provides 24/7 coverage at all their key metro airports. There is every hope that these incredibly important markets will be e-freight compliant in the near future. In 2014, attention is turning to Brazil and Russia as well as smaller markets such as Sri Lanka and Vietnam, both of which are vital network nodes for emerging markets. GACAG is supporting these developments by asking the appropriate members (in this case FIATA and GSF) to work on the digitization of related commercial documents.
Each of the many initiatives in air cargo will be vital. Challenges still remain. The economic recovery is far from secure in the West with interest rates looking set to remain low. Fuel prices continue to hint at a possible spike and capacity is flooding the market from the bellyhold of newly arriving passenger aircraft keeping yields low.
“We’re not out of the slump yet,” admits Vertannes. “Amid continuing challenges, only by accelerating the transformation of the sector will cargo carriers have a chance of reversing the trend and returning to profitability. We must improve the efficiency, and speed-up the transit times, of air cargo and we must do it quickly.”