DHL Supply Chain and Global Forwarding were once again top of the pile in 2016 – even in the face of a down turn in air cargo traffic of 1.3% year on year. The confirmation of yet another great year for DHL came in figures released by consultant Armstrong & Associates, whose annual top 25 Global Freight Forwarders list is based on estimates by the firm’s analysts and reported figures – and represents a useful overview of the state of the industry for airfreight forwarders.
Maintaining their positions
So what does the list tell us about the current state of air freight? The top four air freight forwarders from the 2015 list all kept their positions, with DHL Global Forwarding, Kuehne+Nagel (K+N), DB Schenker and UPS topping the list. The picture in 2016 for DHL Global Forwarding was an interesting one, as the figures revealed that the company has maintained top spot despite experiencing contrasting trends within the market. The company were operating in an environment that saw airfreight volumes actually go down year on year in 2016 to 2m tonnes, but they also ultimately felt the benefit of a big surge in airfreight demand right across the industry in the fourth quarter of the year, with demand going up by 5.7% to 578,000 tonnes.
Demand is up
The figures from Armstrong & Associates also suggest that the top 25 airfreight forwarders might actually be pulling away from the rest of the pack. Overall demand for air freight in the industry went up by around 2% in 2016 – yet for the top 25, demand went up 5.6% year on year, hitting 14.5m metric tons.
While the picture in terms of demand is a bright one, the numbers around revenues are less encouraging. Air and ocean freight rate pressure, currency fluctuations and lower fuel surcharges all contributed to a drop in overall revenues of 8.8% to $172bn – compared to 2015 levels.
The pressure is on
Ignazio Coraci comments: “The increasing demand we’re seeing reported is encouraging, but the decrease in overall revenues for the leading freight forwarders last year is indicative of the pressures that the whole industry is feeling.”
The news from Asian markets shows once again that the industry – in that region at least – has got off to a very positive start to the year. New figures were recently released by the Association of Asia Pacific Airlines (AAPA) and reveal that the region’s airlines are still enjoying the robust growth in international air cargo demand that has been sustained over the first five months of 2017.
Capacity is up
Measured in freight tonne kilometres (FTK), growth was up 12.2% compared to May last year. And with freight capacity across the region going up by 4.3%, the average international freight load factor also rose quite considerably – up 4.7% to 65.6%.
These figures come on the back of a strong start to the year for the air cargo industry in Asia, which has already seen an impressive 10.5% surge in international air cargo demand through to May.
A better outlook for the global economy
So what are the reasons behind this encouraging trend? And does the longer term outlook seem as positive as the current figures suggest? Andrew Herdman, AAPA Director General, hints that it does – but is also keen to add a number of caveats.
“The ongoing pick-up in the global economy, accompanied by increased consumer and investment spending has provided a boost to both international air passenger and air cargo markets. Asian carriers are major players in the global air cargo market, and continue to benefit from the upswing in trade growth.
A challenging environment
“The outlook for both air passenger and air cargo markets remains positive, supported by broad-based expansion across sectors. However, airline profitability remains constrained by competitive yield pressures and higher operating costs. Fuel prices, in particular, have risen by 38% to average US$53 per barrel during the first five months of the year. Given the still challenging operating environment, airlines remain focused on disciplined cost management efforts throughout the business, whilst pursuing further growth opportunities.”
Focus on the basics
Ignazio Coraci comments: “Although the figures out of the Asian markets are encouraging and fit into the wider picture of a more positive global economy, it’s important that as an industry we remain focused on getting the basics right. The growth will only remain sustainable if we put customer needs at the heart of our operations and invest in the technology required to be agile enough to meet their expectations.”
Our industry celebrated a quiet yet potentially very important milestone recently: in April, Electronic Air Waybill (e-AWB) penetration finally passed 50%. Figures released by IATA suggest that the industry processed more than 730,000 of the digital documents – up 1.3% on March’s figures. There’s still a way to go to hit IATA’s target of 62%, but the achievement is still a significant one.
A paperless future
Before we look at why, it’s worth looking again at the context around the introduction of the Electronic Air Waybill (e-AWB). The electronic documentation effectively replaces its paper counterpart – the Air Waybill (AWB) – which is essentially the contract of carriage agreed between the shipper and the airline. Changing the documentation is a key part of IATA’s industry-wide e-freight programme – which aims to make the entire transportation process for air cargo paperless. The idea is to do this through both regulatory and technological routes – and it’s fair to say that IATA has been extensively pushing the use of e-AWB recently.
When you consider that a single shipment can generate 30 different paper documents, clearly removing paper from this particular part of the process is critical and goes a long way towards achieving IATA’s 100 per cent e-freight vision. Other targets for IATA include eliminating paper document use from customs processes, as well as other transport paperwork and commercial or special cargo documentation.
An impressive start
A number of airlines and freight forwarders had particular cause to celebrate in April – both Kenya Airways and Flydubai used e-AWBs to process all of their air waybills, while Cathay Pacific and Delta Air Lines were not far behind, with 80.5 and 74.7% respectively. And it wasn’t just the airlines – freight forwarders Expeditors processed 69.4% of waybills electronically, while Hellmann Worldwide and Schenker were on 67.9% and 62.5%.
Something to build on
Ignazio Coraci comments: “The industry has made slow but steady progress on reducing the amount of paper created in our processes. It’s now vitally important that we build on this positive start to ensure that the entire system, end-to-end, becomes paperless.”
The air cargo industry has unfinished business when it comes to digitisation and the modernisation of its processes. That at least was the message from the International Air Transport Association’s (IATA) Director General and CEO, Alexandre de Juniac when he spoke at the IATA 73rd Annual General Meeting.
Time to move on
“Air cargo processes are stuck in another century. To ensure that air cargo is ready to benefit from the we need a major overhaul of industry processes,” he said. “The time is right for change. After several years of virtually no growth, air cargo demand is starting to pick up. We are also seeing new business opportunities with internet commerce and the global distribution of time and temperature sensitive cargo, especially pharmaceutical products.”
The message then is clear – digitisation is essential in order to keep up with the rapidly transforming demands of customers, who expect a supply chain that is efficient, flexible and effective. A more customer-centric approach will see the development of an air cargo industry that will also be more responsive, with intelligent systems that are able to self-monitor, alert people in real time and respond to any changes in the delivery process.
The end for forwarders?
De Juniac’s vision is an exciting one then – and although it lays down a serious challenge to the industry to change, it seems to paint a picture of an air cargo industry that will thrive if it makes the investment in the necessary technology. But what are the implications of increased digitisation for freight forwarders? A recent article by McKinsey suggested that by 2025, 15 to 20% of air freight shipments will be booked directly by the shipper with the airline. Meanwhile one of those freight forwarders who may be looking at a potential drop off in work due to digitisation – Flexport – suggested in another article that “airlines are poised to bring freight consolidation in-house”. So does digitisation mean the end of the need for specialist freight forwarders?
An unlikely scenario
Not so fast, suggests Niall van de Wouw in the Loadstar. “Neither airlines nor shippers have the global capabilities to perform, for example, the customs activities that are required to move freight from one part of the globe to the next,” he says. “And I don’t see either building up these capabilities – and why would they? From the airlines’ perspective, it makes no sense to start competing with a client base that provides 80-85% of their revenue.”
Ignazio Coraci comments: “The advantages of digitising and modernising our industry far outweigh any potential threats to individual operators within the industry. Any failure to move with the times – and to offer the kind of service customers now expect – is a far greater threat to everyone’s revenue streams than the latest technology.”
The future of the air cargo industry will depend on our ability to listen to customers – and to then apply the insights we gain to create systems and processes that put their needs at the heart of the way we all work. That was the main focus of a speech made by Alexandre de Juniac, Director General and CEO of the International Air Transport Association (IATA) when he spoke at this year’s 11th World Cargo Symposium in Abu Dhabi.
Mr de Juniac made the comments on the back of a positive start to the year for air cargo markets around the world – which has seen growth on the up after a number of years of stagnation. However it is clear that much of this growth has happened despite – rather than because of – the systems that the industry uses. This needs to change, says Mr de Juniac – with the focus falling on two key areas where real progress can be made – firstly introducing simple, modern electronic processes, and secondly looking at how our businesses can quickly and flexibly meet specific customer needs.
Time to listen
“Listening to the customer has never been more important,” he says. “The positive forces currently supporting growth are good news. But our customers are telling us that they expect more. Complicated and convoluted paper-based processes that are basically unchanged from the 16th century are still being used in air cargo today. Our customers pay a premium to ship by air and they rightly expect modern processes and high quality services.”
“Shippers today want responsive services based on intelligent systems able to self-monitor, send real-time alerts and respond to deviation. Technologically speaking, this is totally possible. The key to this and other innovations is using data efficiently and effectively. Finding solutions to unfulfilled (or even unrealized) expectations creates value for customers. And that propels a business forward.
Time to work smarter
Ignazio Coraci comments: “Technology offers so many potential solutions to problems that are currently detrimental to the experience that air cargo customers are having. Much of this technology already exists – or will do very soon – and it’s absolutely critical that as an industry we doing everything we can to embrace this and improve the service we provide.”
Growth in air cargo demand is often a sign of better economic times to come – as companies focus on restocking their inventories quickly. So, the recent news that air freight markets around the world are reporting increased demand in April 2017 is certainly welcome, although the picture isn’t completely positive.
Demand is up
But back to those figures – according to the International Air Transport Association (IATA), demand rose for air cargo rose by 8.5% in April this year. The report explained that while this figure is down from the 13.4% year-on-year growth that we saw in March this year, it’s much better than the average annual growth rate of 3.5% that we’ve experienced as an industry over the past five years. However the report from IATA also said that growth in freight capacity, measured in available freight tonne kilometers (AFTKs), slowed to 3.9% in April 2017.
A positive start
Despite this, it seems that the overall state of the industry is in reasonable shape, and the good numbers continue to build on an already positive start to the year. Every region – with the exception of Latin America – has seen year-on-year increases in demand so far this year. This has been driven in particular by the very healthy freight volume figures seen in Asia-Pacific – which has expanded by 8.4% in April 2017 compared to the same period in 2016. Capacity in the Asia-Pacific region has also increased by 3.7%.
More work needed
The report from IATA sounded a note of caution however. They have suggested that there is still plenty of work to do in the air cargo industry if it going to turn these encouraging figures into a sustained upturn.
Seize the moment
Ignazio Coraci comments: “While the growth rates we’re seeing are very encouraging, we really need to make sure that we take this opportunity as an industry to look again at our processes. Modernisation is key here – let’s make sure that we use the growth and progress that we’re seeing at the moment in air cargo markets worldwide as a catalyst for change across the industry.”
Amazon is nothing if not ambitious. The online retail giant has made great strides in recent years into new business areas – spreading its influence and using its huge leverage to build new revenue streams in areas as diverse as fashion, loans, drone technology, physical shops and groceries. And when Amazon brings its influence to bear on a particular industry, the existing companies operating in that area need to take notice. So, is air cargo and logistics next on the Amazon wish list? And if so, how should the rest of the industry respond?
Amazon’s recent moves in China, which reports suggest include developments in its air forwarding operation, certainly have interesting implications for the rest of us in the air cargo industry. While the extent of Amazon’s new investments are not yet clear – for example whether this freight forwarding offering is actually the start of a process that will end with Amazon ultimately flying its own air cargo between the US and China – it can certainly be seen as a sign of the US giant’s growing ambitions in this area.
A striking trend
Amazon has been growing its influence over its logistics operations in recent years. It has recently invested heavily in facilities in the US, with a new centralised air cargo hub at Cincinnati/Northern Kentucky Airport costing around $1.5bn. Amazon will base a proposed fleet of 40 aircraft at the hub and the huge investment fits with a growing pattern of Amazon’s increasing interest in air cargo, logistics and forwarding.
A challenge for the industry
Ignazio Coraci comments: “Amazon’s investments in freight forwarding services in Asia and its plans for Cincinnati/Northern Kentucky Airport are ambitious, as you’d expect from a company known for its innovation and readiness to push into new areas. However these initial moves suggest that long haul air freight isn’t their immediate focus – rather it may be that they’re looking to save on domestic deliveries. Whether this changes in the future is hard to predict – but it’s a challenge that the whole industry must be ready for.”