WCS17: How air cargo can fight back to profitability

16 / 03 / 2017

  • Rothschild Global Advisory senior adviser Carl-Stefan Neumann

Air cargo can improve profitability levels by encouraging adherence to contracts, offering transparent pricing, developing joint global solutions, moving to a modern commerce business model and creating carrier partnerships.

Speakers at an IATA World Cargo Symposium session on air cargo profitability largely agreed that capacity was set to continue to grow ahead of the market, although higher fuel prices could help limit supply increases, and therefore cargo carriers needed to adopt new strategies to improve takings, rather than hope for an improvement in load factors.

Rothschild Global Advisory senior adviser Carl-Stefan Neumann outlined three ways that he felt could improve profits.

Firstly he suggested that cargo carriers needed to improve adherence to contracts to try and encourage cargo to fly as booked and to allow them to seek recompense if it failed to do so.

He suggested one way to do this would be to create an air cargo exchange, similar to the New York Shipping Exchange, an online portal that offers a standardised freight contract and allows carriers to provide shippers and forwarders with space availability, price and on-time performance.

Contracts on the exchange specify volume, departure date, place of receipt, destination and fixed “all-in” prices.

The contracts are fully enforceable with penalties for non-fulfilment and can be re-sold if the carrier, shipper or forwarder cannot fulfil their obligation.

Although the shipping exchange is in its infancy, Neumann said it had increased shipping rates by around $250 per container by removing rate erosion.

On the shipper side it had helped generate savings by improving supply chain stability and reliability.

Adopting the position of an antagonist in a later panel debate, Seabury Group vice president Ryan Keyrouse pointed out that the air cargo industry relied on supply chain disruption as a source of demand, therefore making it hard to provide the predictability required for contract adherence.

Neumann himself admitted there could be some resistance to the idea from shippers and forwarders because they may worry that the balance between supply chain stability improvement and increased prices may not be in their favour.

Neumann’s next suggestion was that the air cargo industry should become more transparent by developing an industry owned booking platform, which would also help combat the threat of online price aggregators.

This would allow the founding members to gain critical mass, to create superior value capture.

However, in a later discussion it was pointed out that it could be difficult to get carriers to agree on one standard system – as they each have their own – and that the back office automation of carriers was slow.

Finally, Neumann suggested that carriers should come together to develop joint global solutions.

This would provide customers with a one-stop shop for all needs and geographies, a more simple ‘plug and play’ service, improved tracking and better cost effectiveness.

However, European Shippers’ Council secretary general Nik Delmeire said that shipping lines’ global alliances had been a disaster for shippers.

He said that they had resulted in lower freight rates, which in turn led to the bankruptcy of Hanjin, and then major service disruption. Since adjusting after Hanjin’s failure, freight rates have dramatically increased and there has been space shortages on certain routes.

He did however advocate triparty discussions between forwarders, carriers and shippers to look at ways to improve supply chains.

MABKargo senior vice president revenue management and network planning Xianqin Wallace said that to improve profitability carriers should move to a modern commerce business model.

This meant allowing customers to be in control instead of the company, using algorithms and machine planning for selling decisions rather than gut feelings, offer frictionless omni-channel experiences, dynamic transparent pricing and finally personalised offers instead of standard products.