Moderating the session, Glyn Hughes, global head of cargo at the International Air Transport Association (IATA) kicked off the discussion by noting that at the TIACA forum a couple of months earlier it was mentioned by one industry analyst that the rise of 3D printing could impact air cargo by as much as 20 per cent once it fully develops.
Jim Edgar, regional director, market analysis at Boeing Commercial Airplanes, highlighted that while the manufacturer has invested heavily in 3D printing as part of their outsourcing, the originator of the 20 per cent figure had cautioned that the technology was still, “quite a work in progress”. Edgar also cautioned the industry not to take extreme positions and get too caught up and overly enamoured with these technological developments which are still very much embryonic, but on the other hand, he advised it isn’t wise to dismiss them either.
“It’s like anything in this industry we need to make sure we stay abreast of the developments, try to understand them and continually analyse and make an effort to be engaged, but by the same token, make sure we put it in perspective.”
Agreeing with Edgar’s point Andrew Herdman, director general of the Association of Asia Pacific Airlines (AAPA) said he was much more Challenges and opportunities in air cargo concerned about a particular macro issue, that being the dematerialisation of the world economy into services. “Air cargo is about physical shipments, but we live in a world where miniaturisation is continually shrinking products and where services are growing faster than goods.” He cited the example of music, newspapers and books which are now electronic and increasingly don’t have a physical presence.
In terms of manufacturing change, Herdman noted that technologies change all the time, but more striking in recent years has been the geographical shape of where production is done – onshoring, near-shoring and the fact that consumers are shifting as well. “Just as the Americans are talking about bringing production back to Mexico or the United States, consumers are growing in numbers along with the purchasing power in Asia.”
Manufacturers have to think in terms of where the customer is going to be, he said. “The biggest shift in globalisation of production is in fact a reflection of the fact that over the last several decades transportation has become very efficient and very cost effective and that has facilitated globalisation of supply chains. I don’t see that changing, I see most global supply chains still staying global and I still see a big, big role for transportation underpinning that, of which air cargo is a part.”
Hughes, while noting a wide-spread sentiment in the industry of the need to do things differently asked whether, looking at a model going forward, “do we then need to look at other supply chains, take the same approach that will really lock us in the transport mode of choice as it were?”
Part of the industry’s bid to ‘reinvent’ itself revolves around efforts to further the penetration of e-freight and the current focus on the e-AWB, which participants noted is finally gaining traction. Another key focus, albeit much larger in scope, is the call made by Hughes’ predecessor Des Vertannes, to cut 48 hours from the end-to-end air cargo supply chain.
But importantly, Hughes noted, “it’s not necessarily about 48 hours. It’s about the process that you go through, it’s about the collaboration and integration. We need to integrate information, integrate processes and that can only come about through effective collaboration to achieve the potential for reducing 48 hours – but it’s more about creating a more efficient, optimised supply chain.” Not only does this include delivering as promised, but providing transparency and visibility as well.
For IBS’ vice president & head of airline cargo services business, Mathew Baby, the issue is really quality assurance from the customer’s point of view and process feedback from the operator’s point view. On this note Herdman highlighted the example of the integrators who decided over a decade ago that providing visibility through track and trace for time-definite service was going to be expensive but that they would find the customers willing to pay a premium to get that level of service.
“Over the last decade they’ve driven down the cost of providing that level of service. We are adopting late, costs are not the impediment now, the coordination of the different players and change management process is still the big challenge. We’ve got a complex industry of global players, multiple governments, conflicting rules, regulations and standards and we need to solve those problems by focusing on, ‘what is it the shipper community wants?’ – we need to deliver that,” he said, adding that “we’re getting there but it’s been a torturous process.
“I used to believe that there are certain goods that will never go by air and there are certain goods that always go by air and that was largely due to value and time sensitivity. What I’ve only learn more recently is that, that is true, but of the goods that are canvassed to go by air, most of it goes by other modes.
We know from technology products, first shipment by air and then shift to sea. Fashion goods the same thing.
Emergency top-ups when you misjudge the pull-through by retail and so on. “It’s a miracle there is anything left over for air because we’re less than 20 per cent of the tonnage and if ever the intermodal shift got serious we disappear and the ocean people would hardly notice the blip,” warned Herdman.
But on a reassuring note, Edgar assured that Boeing believes steadfastly in all its studies that there is a core demand for air cargo. “And that doesn’t mean we rest on our laurels and say, ‘well happy days are here again,’ but there are certain commodities in certain needs that our mode is the only one that can satisfy. And our job is to expand it 10 per cent,” he added.
He cited a Boeing study that looked at the tonnage for the top 20 commodities over the last 15 years in the transpacific market and interestingly the study found that the percentage of air versus maritime varied very, very little. The smallest penetration was 1.5 per cent and the greatest over that entire 15 year period was 2.7 per cent.
“I think it’s remarkable if you take a step back and look through all the political, economic, natural disaster turmoil over the last five years we grew 1.7 per cent on average. So considering the environment that we have been in, it’s actually remarkable that we remain stable – but again, that’s not to say we’re in fine shape.”
But Edgar says he detects “a tremendous sense of urgency among the players – all the different segments working together talking together making progress on various initiatives so I’m encouraged that the industry is getting it and we’ve got to make progress and we’ve got to do this collaboratively.
And I think there’s been significant moves in that direction but we’re a long way from the finish line,” Edgar said. He describes it as an opportunity and “hopefully we’re at the beginning of an inflection point in making changes in a call to action.”
Hughes added that with slow steaming on the ocean side, a lot of inventory is actually being tied up in ships for 21 to 28 days and while the cost of capital is still at all-time lows, when interest rates rise in the cost of the capital is going to rise. “So maybe the dynamic changes again and when people see freight tied up for 28 days at sea and maybe another 5 to 10 days going through the ports than another few days or weeks through land-based distribution.” This may cause them to re-evaluate the economics and efficiencies air cargo can bring to their supply chains, he added.
Herdman noted another key factor: Airfreight gets a push when there are positive surprises on GDP, or positive surprises on retail pull-through. “We haven’t had those and while we still have growth and commodity demand, it’s at a predictable level so the ‘slow supply chain’ can handle it.”
Herdman is confident that with a lot of Asian economies growing at five, six and even seven per cent – all commonplace numbers in Asia he notes – this air cargo demand will return.
These are still growth markets which is why the perception of the global economy is very different depending on where in the world you are, he said.
“If you’re based in Asia with these sorts of growth rates we’re told by the rest of the world China is slowing down and it’s going to be bad news for the global economy. And in Asia we’re still seeing these growth rates and we can live with this continuing for a long time and it’s a positive viewpoint,” he highlighted.
Similarly, Phau Hui Hoon senior manager cargo & logistics, at the Changi Airport Group noted there are opportunities despite the threats and challenges that the industry is facing. “It’s about looking for the markets that will continue to drive the growth and looking around for new markets and opportunities,” she said, urging the industry not to be distracted by some of the ‘big name’ markets and to think markets like Southeast Asia, as the next region for further growth.
For IBS’ Baby, a key focus should be on enabling technology in order to offer customers differentiated services – “services that can actually improve the industry and create more opportunities for the partners within the industry.”
And in a somewhat rare ending for an industry conference, Hughes concluded on an inspirational note saying: “Everyone in this room should leave the room proud of what we’re involved in – the people in this room as part of the wider community, keep the industry ticking and this industry keeps the world ticking. So we all play our part and I think we all need to effectively express that more openly because it is a great industry to be involved in.”
