Digital forwarder predicts airlines will bring cargo consolidation in-house
19 / 06 / 2017
Airlines will soon be able to bring cargo consolidation in-house rather than rely on freight forwarders to perform the function, according to Flexport.
The digital forwarder’s chief executive, Ryan Petersen, said that at the moment freight forwarders carry out the consolidation function because it allows them to make a margin on space purchased from the airlines and filling it at a mark-up with cargo from multiple customers.
Airlines, meanwhile, are able to reduce the risk of empty flights by selling the space to forwarders to then try and fill.
However, Petersen believes this could all soon change with the continued digitisation of supply chain functions.
“The advent of real-time dynamic pricing for air freight sold through digital marketplaces will allow airlines to consolidate freight at the plane-level instead of the pallet-level,” he said in a blog post.
“Until now, consolidators have been necessary because they provide human beings on the ground to sort, weigh, and consolidate cargo as it’s coming in.
“However, the growing presence of online airfreight marketplaces will enable airlines to raise and lower prices for different types of freight algorithmically, moving toward an ideal consolidation for every flight.
“Planning the consolidations with web-based software will give them visibility into cargo that is weeks away from reaching the consolidation point.
“The resulting predictability will eliminate all of today’s scrambling to mix-and-match boxes on a pallet: airlines can take whatever freight a customer offers, and then instantly lower the price for complementary freight or raise the price for incompatible freight.”
He said that airlines were already investing in the technological infrastructure to make this transition, highlighting that the passenger side of the business already has “world class yield optimisation programmes”.
Petersen said the move would benefit shippers as they would have greater visibility over pricing and airlines would gain margin currently held by forwarders.
“While the rise of real-time dynamic pricing and automated booking systems will certainly cut into the forwarders traditional profit pools, it also creates opportunities for modern technology-driven freight forwarders.
“Rather than performing cargo consolidations by eye in a warehouse, new forwarders approach to structured data lets them do mix and match across time and space.
“They can automatically identify all the cargo coming into our network and dynamically route it to the airline in the region currently paying the most for cargo with those characteristics.”
Petersen expects to see traditional freight forwarders launch digital spin offs, rather than try to adapt their current business set up as this was unlikely to go well.
He pointed out that Damco and DHL had already achieved in launching digital forwarding brands.
Petersen also said this could lead to shippers and airlines working more closely, as they do in ocean shipping.
“Most big ocean shippers maintain direct contracts with the ocean carriers, and their global freight forwarding partner will act as coordinating layer, performing functions like planning, routing, scheduling, booking, tracking, and exception management.”
The blog post is likely to be met with scepticism from the industry. In the past traditional freight forwarders have questioned what would happen when something goes wrong – who would be there to fix the problem when using a digital forwarder.
Meanwhile, airlines are fearful of doing anything that could upset their customers, largely traditional freight forwarders, and often point out the important role that the middlemen play in creating and maintaining air cargo supply chains.