The changes and innovations in progress in the supply chain depend very heavily on technology, but there are other influences at work that are forcing the supply chain operators to rethink their methods. Supplies to industrial
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manufacturers or perishable distributors continue to demand better and cheaper transport services but the retail business is showing some significant changes. A visit to an average high street in a European or US town reveals an increase in shop closures, endless reducedprice sales and people looking but not buying. Stan Wraight points out below a worldwide trend that explains much of this and how it impacts the air logistics market.
E-commerce and air cargo – where are the airlines going wrong?
Global ecommerce is growing at a rate no one could have predicted, and the effects on traditional air cargo can be devastating if airlines cannot react.
Daily we read about high street shops closing, as traditional retailers face up to the fact that their highcost real estate showrooms are drawing fewer and fewer actual consumers, but more and more ‘just looking’ clients checking out goods they will eventually order online. ‘Bricks and mortar’ are just too expensive in this competitive environment. Ecommerce is dominated by two entities: the global post offices that look upon this as ‘God sent’, and integrators which, in their typical entrepreneurial manner, have jumped quickly to place products in the marketplace. But where does that leave scheduled airlines?
The problem is that there is very little that airlines can do unless they take control of the ground operations, and with all the outsourcing that has happened in the past years, that leaves very little room for manoeuvre. The solution seems to be that ground handling companies and airlines are going to have to come together as never before to find a collaborative solution or risk being completely left behind. Put as simply as possible, traditional air freight just cannot compete in a market that is dominated by individual shipments that average just 500 grams in weight. Airlines are locked into an antiquated system negotiated decades ago that looks upon these shipments as either subject to airline minimum charges as dictated by the IATA system, or food for consolidators with all the builtin delays and loss of control that entails.
Is there a better way? I believe there is, but time is running out for the airlines if they want to have any say in how this traffic moves in the future.
The key to this is for the airlines to recognize that it’s not what happens in the air that will dictate success, it’s all about ground handling and their ability to finally sit down and enter into discussions with Ground Handling Companies about something other than price.
US online retail sales are up 15 per cent since 2014, and are expected to hit US$370 billion by the end of 2017. Europe has overtaken the United Kingdom as the biggest online shoppers in the world with ecommerce becoming a market worth over US$300 billion by 2017. And everyone knows the story of Asia and the rise of companies such as Alibaba.com. This is an ecommerce platform for small businesses, connecting millions of buyers and suppliers around the world. No matter the size of business, it can find the right manufacturer, exporter or wholesaler to suit sourcing needs – a global community of businesstobusiness professionals. Amazon, eBay and many others have transformed the distribution business.
Technological advancements and changes in consumer behaviour have created an unprecedented opportunity for these new ecommerce companies.
This is especially true with millennials (those born after 1980 is the standard definition), who will make up the majority of online consumers in the coming years. Unlike physical retail stores, ecommerce companies are much more capitalefficient because they don’t require brick and mortar stores and have a direct distribution channel to their end customers. Retail high street shops are closing everywhere, and these were the ultimate clients of traditional air cargo. In the air cargo logistics chain, wholesalers, distributors and retailers are most at risk of losing out to factorycontrolled ecommerce. And needless to say, these are the traditional clients of the majority of forwarders and scheduled airlines.
Let’s look at some of the factors that drive ecommerce companies and consumers to choose a particular mode of transport, and what can happen if traditional players in today’s air cargo logistics chain do not change their ways.
Price
Postal mail is certainly the obvious choice for doortodoor delivery when price and ease of use are the leading factors. There are very low minimum charges in postal mail, and large volume shippers can negotiate contract rates that mitigate these minimums. This is particularly important for lowvalue items that consumers order online.
Integrators have ecommerce solutions for most major manufacturers and also for companies that specialize in ecommerce such as Alibaba and Amazon. Companies such as Apple through Apple.com will ship your next iPhone directly from the manufacturing plant to your door using either FedEx or UPS and, to make it all as simple as possible, shipping is included in the price of the phone.
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Time in transit
Postal authorities around the world are seeking creative solutions, and increasing their product offering, as they have seen ecommerce as the replacement for their once very lucrative first class and airmail services. Yet inherent in any system is the fact that they are not in control once the parcels leave their facility.
Integrators have this deficiency of control completely solved and have done so for years with their integrated systems. These give them maximum flexibility in designing a product for ecommerce, but this comes at a cost way above that of the postal authorities in most cases. Customs and shipments either refused or undelivered are an issue. For international shipments this can be a huge problem in consumers’ choice of modes, and this is where the integrators have an advantage.