In 2021, IATA estimates cargo will represent some 30% of total revenues, a significant increase from the usual 12% average. And the good times will continue to roll. This year, cargo tonne kilometers (CTK) will grow more than 13% over 2020 levels and carriers will increase their share of cross-border trade. In other words, air cargo is growing faster than other modes of transport.
Moreover, IATA business confidence surveys of cargo heads reveal plenty of optimism for the year ahead.
There are a number of reasons for such positivity, including the continuing distribution of vaccines and medical equipment, and the need to facilitate the strong rebound in global trade.
But perhaps the brightest star on the horizon is e-commerce.
Growing strongly pre-crisis, lockdowns across the world have only served to accelerate people’s penchant for buying goods online. Even major markets like the United States and China have moved at least a couple of years ahead of schedule.
Worldwide, e-commerce is valued at about $5 trillion in 2021. Approximately 80% of cross-border e-commerce is transported by air, which represents more than 20% of global e-commerce value.
But realizing the full potential of e-commerce requires significant changes.
“E-commerce is digital by nature,” explains Brendan Sullivan, IATA’s Head of E-Commerce and Cargo Operations. “Air cargo must match that and more. We need multimodal digital interoperability.”
Digitization in the sector has been happening slowly but surely. But e-commerce’s extraordinary growth rate has increased the pressure to pick up the pace.
On the plus side, air cargo’s recent success has made investment possible. “Airlines appreciate the impact cargo is having on the bottom line,” says Sullivan. “I think airline CEOs and CFOs will make money available for digitization projects because the return on investment looks promising.”
But, as air cargo looks to serve e-commerce markets, a number of pain points have become clear. As part of a research study with PwC, IATA identified several issues, including unstandardized services and pricing, which ultimately leads to consumer confusion.
“There is a lack of products tailored for e-commerce, increasing cost and time, insufficient service levels in fulfillment, and inflated costs for forwarding,” accepts Sullivan. “Poor visibility due to disconnections in track and trace mechanisms is also a concern.”
Focus on services
But the problems can be overcome. A focus on e-commerce products and services to build market share is essential. As passenger traffic remains suppressed, it may be possible to temporarily repurpose an airline fleet for cargo service, as seen with the current “preighter” situation for example. Longer term as more passenger traffic comes on board the capacity will need to be closely monitored to properly serve e-commerce customers.
Digital integration with business partners is also a must. This includes the integration of data flows between airlines and other parties involved in shipment processes. All parties need to assess and develop multimodal forwarding platforms and provide transparency for consumers.
“Airlines also need to ensure smooth customs clearance,” suggests Sullivan. “Compliance with common standards, such as trusted traders' initiatives, will help and could reduce the time necessary for border controls. Where possible, digital integration with customs authorities, should be considered as this will further enhance a seamless and efficient physical operation.”
Digitization also helps sustainability. There is just more money in e-commerce but many more users. And all surveys point to those users wanting sustainable packaging and carbon neutral delivery where possible.
The changes would allow air cargo to deal with the current capacity crisis and provide the visibility that customers require. Most importantly, the greater the level of digitization, the stronger the resilience should another shock occur.
“Robust air cargo will be built on digitization and focus on risk management and quality control,” says Sullivan. “Limited capacity has led to a higher value being attached to cargo and that raises the bar for quality control.”
“Any solution air cargo carriers implement must have sustainability at its core,” says Sullivan. That is another reason why digitization is key. The industry must work together and reduce waste.
E-commerce insists that goods must get from A to B quickly and the sector can’t do that with paperwork. ONE Record, an IATA initiative that improves data sharing, has seen excellent take up from airlines and there are a number of pilots taking place.
“Air cargo carriers should act today if they want to stay relevant in this digital shift,” Sullivan adds. “First and last-mile solutions for e-commerce must be integrated under one brand. Positioning your company as an industry leader in innovation will bring success, revenue, and sustainability to your business.”