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For Airfreight, Digitalization Remains A Long, Hard, But Necessary Slog

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For Airfreight, Digitalization Remains A Long, Hard, But Necessary Slog

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Keynoting his group's World Cargo Symposium today in Singapore, Alexandre de Juniac, CEO and director-general of the International Air Transport Association (IATA), called on the global airfreight industry to accelerate the digitalization of day-to-day processes and to move away from a reliance on paper documentation and communications.

The same plea could have been made two, four, seven or 12 years ago. In fact, nearly all of de Juniac's predecessors have issued similar exhortations since 1997, when the industry launched an initiative called "Cargo 2000" to standardize, via electronic data interchange (EDI), processes to foster real-time visibility of all air shipments from the purchase order through to final delivery. That the head of the world's leading airline trade association still needs to act as the coxswain shouting "stroke" at the rowers reflects airfreight's enduring paradox – an industry built around speed of delivery that moves about $6.4 trillion annually in world trade (or 35 percent of its total value) still struggles with the protocols and technology needed to give shippers optimal 21st-century solutions.

The irony is that the macro trends influencing airfreight demand are as bullish as they've ever been. Cross-border e-commerce is expanding at a double-digit annual pace, creating enormous opportunities for the only mode capable of bridging thousands of miles in a matter of hours. Emerging continents such as Africa, which have very few shopping malls but whose citizens all seemingly have mobile phones, are fertile territories for airfreight deliveries. Global value chains, in which products are sourced and assembled in different locations, can succeed only with a strong airfreight network. As more of the global populace moves into the middle class, they will demand the type of high-value products – edible or otherwise – that require air shipping to get those products to them.

There has been progress in moving toward automation. The electronic airbill program, launched in 2007, followed the broad strokes of IATA's "e-freight" initiative, begun the year before, to replace paper with the digital exchange of data and messages between freight forwarders and airlines. As of January 2019, 60.2 percent of the transactions were conducted electronically, according to IATA data. That is an eight-percentage point increase over February 2018 levels. Perhaps more important, the volume of digital transactions climbed to more than 907,000 in January from 723,000 13 months ago. Yet it should be noted that in mid-2013, IATA said it hoped to be at 100 percent digital penetration by the end of 2015.

In the spring of 2013, IATA unveiled a multilateral e-airbill regime enabling a forwarder to sign one master agreement that would cover all IATA-member airlines, which today number 290. The idea behind the program was to streamline the cumbersome and often-redundant bilateral compliance process. Brandon Fried, executive director of the Air Forwarders Association, said a number of large forwarders have acted on the initiative, while most smaller forwarders have not. The gap between large and small is a microcosm of a larger problem, according to Fried. Forwarders with resources can avail themselves of the tools of progress. By contrast, smaller companies with shallow pockets say the costs of compliance are too great to offset the benefits. "No forwarders should be left behind," he said.

Fried noted that most transportation management system software providers now embed customer and carrier EDI capabilities into their forwarder management products. Carriers are beginning to provide automated proof of deliveries, and more government agencies in nations around the world now accept electronic documents, Fried said.

Several factors could explain the slow adoption of e-bill protocols, according to Fried. One is the use of disparate automation platforms unable to easily communicate. Another is insufficient investment. A third is a lack of initiative on the part of one or both parties. Government regulations that require data targeting for security purposes will make it essential to digitize airbill information for security and trade compliance, Fried said.

 In addition, millennial consumers demand less paper and are accustomed to automation not only in their airfreight transactions but throughout their lives. "Forwarders and their airline partners who ignore this trend do so at their peril as automation will be essential to compete in the future," he said.

The goal established 13 years ago by the e-freight program was to cut delivery cycle times by 24 hours and eliminate nearly 8,000 tons of paper documents per year. Historical factoids abound to illustrate the mode's challenges. The typical consignment booked by a forwarder and shipped in the belly of a passenger airplane takes five to six days to reach its consignee, though it takes less than a day to fly it to the destination market. The remaining time is often spent sitting in customs waiting for processing and clearance, or hung up in the web that also includes ground handlers, customs brokers, truckers and importers. The time that a shipment languishes on the ground nullifies the benefits of air shipping for which a shipper often pays a dear premium.

Then there's the paper. According to an enduring factoid from IATA, each international air shipment required 30 or more paper documents to process and submit. Swedish telecommunications provider Ericsson, a big airfreight user at the time, caused a stir in 2013 when it said its annual required paper documentation could fill a Boeing 747.

In his remarks today, IATA's de Juniac said that process modernization will be critical to "efficiently meet the doubling of demand expected over the next two decades." Changes are already being demanded by customers of the industry's two most promising growth markets – e-commerce and the transport of time- and temperature-sensitive goods such as pharmaceuticals and perishables, he noted.

 Another area of needed improvement lies in upgrading airfreight facilities, he said. "The e-commerce world is looking for fully automated high-rack warehouses, with autonomous green vehicles navigating through the facility, and employees equipped with artificial intelligence and augmented reality tools," he said. The average cargo warehouse "is an impressive sight. But there is a huge gap to fill," said de Juniac.

 The freight that moves in the bellies of passenger airplanes has been likened to the bar at a restaurant. It can't generate all of the restaurant's revenue, but it rakes in a goodly amount of profit. That's because the aircraft needs to fly anyway, and the bulk of the revenue, and cost, is derived from passenger services. Yet unlike all-cargo carriers such as FedEx Corp. (NYSE: FDX), UPS Inc. (NYSE: UPS) and DHL Express, airline cargo departments play second-fiddle to the demands, schedules and, most importantly, the safety of travelers. That will never change.

 "It's exceptionally tough to drive change in a global industry with a huge number of stakeholders, and where safety is top priority," de Juniac sai. "But it is not mission impossible. I challenge stakeholders to find ways to drive critical change at the speed our customers expect."

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