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Will airlines miss the e-commerce revenue stream, asks IATA

THE GLOBAL e-commerce juggernaut is creating a split two-tier system between those airfreight businesses that are well-prepared to grab a healthy slice of the booming market — and those which are clearly not.

E-commerce can no longer be dismissed by airfreight companies simply as ‘not traditional air cargo’, especially in the middle of a pandemic where people are being forced to lock themselves in their homes and order goods on their computers.

The global air cargo landscape is changing rapidly experts agree, especially as data released in January by The International Air Transport Association (IATA), shows that global air cargo demand returned to January 2019 pre-COVID-19 levels for the first time since the onset of the global health crisis. The latest January demand also showed strong month-to-month growth over December 2020 levels, the association notes.

Global air cargo demand, measured in cargo-tonne-kilometres (CTKs), was up by 1.1 per cent compared to January 2019 and up by three per cent compared to December 2020. All regions saw month-on-month improvement in airfreight demand, with North America and Africa the strongest performers.

Amongst the multiple factors spearheading this improving scenario, including the mass COVID-19 vaccine immunisation programmes currently underway worldwide, is a significant change in customer behaviour, such as a push for improved supply chain sustainability and reliability — factors which will transform air cargo and e-commerce attitudes in the future, outlines an IATA research paper entitled: ‘E-commerce Strategies for Air Cargo Airlines’.

“With so many changing trends in motion, air cargo needs to work on re-building its industry now,” the report warns. “Adapting their strategies to capitalise on e-commerce is critical for the re-start,” it urges.

“Now even traditional ‘bricks and mortar’ businesses are shifting to digitalisation, including their supply chains. One year after the beginning of the pandemic, consumers’ behavioural change towards online retail is [well] established, with shoppers more often choosing the convenience and often the necessity of online purchases,” the paper underscores.

E-commerce purchasing reached 18 per cent of the world’s total retail sales last year, four points higher than predicted, the association notes — and a 2020 report conducted by global business data platform Statista shows that China is clearly number one in this segment and will stay in the lead through to 2025. “A shift in purchasing power from the USA and Europe to China and south-east Asia has begun, fuelled by the growing number of Asian consumers gaining access to e-commerce due to growing purchasing power and internet penetration, especially on mobile devices,” it observes.

The market’s largest segment is currently fashion items — traditional air cargo products — with a forecasted volume value of US$429,685million this year, the business data platform finds.

Some airfreight businesses have already made strategic operational manoeuvres to carve out a share of this hitherto untapped e-commerce revenue stream. Take for example, giant Switzerland-based freight forwarder Kuehne +Nagel, which closed pandemic 2020 with a record operating result. The company’s contract logistics division achieved market share gains in e-commerce, pharmaceuticals and healthcare shipments, resulting in the business unit’s net turnover reaching CHF (Swiss Francs) 4.9billion and earnings before interest and tax (EBIT) of CHF 80million. K + N’s air logistics division performed well, with net turnover for the business unit up by 11.6 per cent to CHF 5.2billion and EBIT up by 53.5 per cent to CHF 505million.

Nevertheless, in February, the forwarder announced its acquisition of Apex International Corporation — one of Asia’s biggest freight forwarders — with an eye on the exponential growth of its e-commerce sales across the region. The takeover of Apex, which generates an annual turnover of more than CHF 2.1 billion and handles approximately 750,000 tonnes of air and sea freight volumes of 190,000 TEU, is the largest acquisition in K + N’s history.

Dr Joerg Wolle, chairman of the board of directors of Kuehne + Nagel International, says that with Asia being the world’s fastest growing economic region, the announcement of the acquisition of Apex Logistics in February 2021, is undoubtedly a significant milestone. “The board of directors looks forward to the year 2021 with confidence,” he quietly says.

Elsewhere, ECS Group, a French general sales and services agent (GSSA) is another airfreight business with an eye on the changing market, with the company introducing a new specialist e-commerce/postal service called GSA Mail Solutions which is designed to bridge the gap between airlines and mail operators with regards to mail and e-commerce transportation.

Adrien Thominet, chief executive of ECS Group, believes that helping airlines to tap into this traffic on their destinations and accompanying them on new routes, offers new revenue streams. “Our expertise in managing these flows along with the digital solutions we offer — customised EDI solutions in particular — also makes it possible to maximise capacities and guarantee parcel traceability,” he says.

“We speak the same language of airlines and postal operators, so we are the perfect intermediary,” Thominet insists. “With GSA Mail Solutions, postal operators have access to our entire network of airlines without having to go through endless steps. “We therefore offer them an unprecedented increase in efficiency, because via a single point of contact — GSA Mail Solutions — they have access to a multitude of airfreight solutions to route their postal flows wherever they need them,” he stresses.

Increased e-commerce shipments are also in the calculations of US plane-maker Boeing’s latest biennial World Air Cargo Forecast which indicated there will be a demand for 2,430 freighter units over the next two decades, including 930 new production models and 1,500 converted passenger aircraft. That demand will be driven by increased e-commerce shipments, along with urgent transportation of life-saving medical supplies, the company stated last November.

Nevertheless, airline association IATA points out that, if they are to fully take advantage of this flourishing segment, airlines must tackle a number of important internal pain-points identified in a collaborative research study with PricewaterhouseCoopers (PwC),

They include:

  • Unstandardised services and pricing, leading to inflated pricing and consumer confusion;
  • High international prices;
  • Lack of products tailored for e-commerce, increasing cost and time;
  • Insufficient service levels in fulfilment;
  • Low visibility of status for courier, express, and parcel (CEP) and e-commerce businesses;
  • Slow pricing processes, reduced rate competition;
  • Inflated costs of forwarding due to excessive labour; and
  • Poor visibility, disconnections in track-and-trace mechanisms and reverse logistics.

“As the air cargo industry adapts to e-tailers’ needs, dedicated products and a new focus on processes are critical if airlines want to capture e-commerce volumes,” the association insists. “Industry stakeholders must prioritise the digitalisation of their air cargo operations. This will be the main game-changer if they are going to keep up with online retailers,” it adds.

IATA has identified some key transformation strategies for carriers to capture e-commerce volumes. Depending on the degree to which they wish to enter the market, they will have to adopt one or more them, it says. Carriers should invest in and develop bespoke products and services for this segment, and then integrate their operations into the e-tailers’ activities and reassess their possibilities to re-purpose their fleet from passenger to cargo — at least temporarily.

Airlines must also support transparency, by digitally integrating with their business partners, which includes the integration of data flows between airlines and other parties involved in shipment processes. They also need to assess and develop multimodal forwarding platforms and provide transparency for consumers.

The transformation of border processes to ensure smooth Customs clearances is also required, including compliance with common standards to reduce the time necessary for border controls. Expanding digital integration to Customs authorities — “over which e-commerce companies have little to no influence” — will further enhance a seamless and efficient process.

Overall, to reduce processing times, carriers must optimise their air, border and Customs operations processes and forensically analyse how they handle cargo and mail shipments. “They should consider adding new value-added services to increase convenience, as well as adapt their processes to provide the visibility that their customers require, both at airline and at airport levels,” the research shows.

The association also underscores: “As e-commerce becomes one of the leading new volume sources for air cargo, we are starting to see examples today of airlines capitalising on the online market’s opportunities.

“Several airlines are moving towards integrating their first and last-mile solutions for e-commerce under one brand. Creating and supporting start-ups to develop door-to-door specific products is the solution some of them developed, whilst others are integrating e-commerce marketplaces’ platforms and creating digital tools for bookings and pricing,” the airline body observes.

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This story first appeared on aircargoeye.com on 10 March, 2021

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Thelma Etim

Thelma Etim

I am the editor of air cargo industry news website aircargoeye.com, an alternative news and comment outlet for the global airfreight business.