StWraight Talking, part 2: 'What you do now, you will live with for 20 or 30 years'

The integrators ate the airlines' lunch © Colicaranica

In the second of a four-part series, Stan Wraight, president of air cargo consultancy SASI, takes off the gloves to explain how airports, airlines and handlers can benefit from new thinking, reclaim revenues and modernise an outdated industry to their own benefit

One of my colleagues, during a recent SASI project with a major airline to redevelop its airport hub facilities to cope with next-gen logistics and not just pallets, told the client: “Remember, whatever you do now, you will have to live with for 20 or 30 years – so take the time to get it right.”

It was related to the air cargo facility and data capabilities at the carrier’s main cargo terminal.

This renewed understanding of cargo has raised the awareness that all facilities now should be a marketing tool to attract airlines and other stakeholders’ business, not treated as real estate transactions with developers and forgotten. It is no longer in the airports’ economic interest to do that.

Over the past 40 years, the airlines gave away the express and small package market to integrators  – which understood the customers’ product needs. The airlines did not react; in fact, they allowed it to happen again, as the herd mentality of “common solutions” negated the visions of entrepreneurs within the airlines.

And 30 years ago, though incompetence and a belief that common policy was the way forward, airlines, via IATA, gave away the chance to retain yield through pallet pricing, which encouraged and promoted forwarder consolidation products: the greatest source of revenue for forwarders ever gifted by IATA.

At the same time, airlines gave away to forwarders all the information flow with the beneficial cargo owners (BCOs), contact that was needed to understand what products they wanted for air logistics, and how the airline could play its part. Be it express, leveraging direct cargo capacity available when flying with high reliability between major cities, or be it volume-related lower yield needs, without information, the products were no longer relevant.

With the advent of consolidation, forwarders ceased to be agents. Yet we still talk of “retaliation” as an industry – while e-commerce giants take away traditional sources of income for all. If asset owners seek to leverage massive investments without up-to-date commercial intelligence, we are again doomed to miss the opportunity e-commerce brings.

If e-commerce has not opened eyes, then what will it take?

Imagine what the decision to go to pallet pricing, driven by IATA looking at reducing handling costs at airports, has done to forwarders’ positive profit margins – at the expense of airlines’ ability to finance investments and support the high capital costs of running an airline? We are still publishing generic rule books for minimum charges and volume calculations based on B707 and DC8 aircraft of the 60s, which have no place in today’s world.

Airlines continue to organise their sales forces based on export flight accountability, not product portfolio marketing and BCOs. Yet more than 80% of the BCOs are consignees, not shippers, and the e-retailers’ benchmark is consignee satisfaction to ensure client retention and repeat sales.

The consignee makes decisions, and the airlines don’t talk to them or shippers out of fear of retaliation. Small and medium-sized forwarders do not have the resources to handle the demands of data system costs and operational capability, and scope beyond their home market. Does this make any sense today?

Airlines without control of the airport handling, data transparency throughout and simple-to-use dashboards through API, coupled with a full knowledge of customer needs for products, have lost focus. The consequence is a massive negative effect on all dependent stakeholders, and that will continue unless a new business model is adopted by all within their own disciplines.

You cannot build a viable business case for your airline, airport or handling business without knowing what modern logistics demands today – I repeat, speed, transparency, quality and only then price. (Price means the lowest unit cost possible for the product demands you are asked to deliver.)

Will the airlines and their critical partners now understand the opportunity this presents, or again fall back into load factors, FTKs, out-dated rules, regulations and cost reduction modes so typical of the past?

To be continued…The first article is here.