Friday comment: why now's the time for air freight to fight back
The air cargo industry is at a tipping point. It has a choice to make. ...
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Shippers have lambasted the air freight industry for failing to engage with their ultimate customers. One large manufacturer, which spends about $450 million on air freight each year out of a total transport budget of some $2.8 billion, told The Loadstar: “We have never had an airline knock on our door. All they do is complain. We would like to deal with them directly, and I simply don’t understand why we can’t.”
Speaking under anonymity for internal company policy reasons, the director of global transport continued: “In a company as big as ours we have large and guaranteed volumes. We scratch our heads as to why the airlines are so reluctant to deal with us.
“Our company offers a guarantee to our customers that they can have spare parts within 48 hours, anywhere in the world, often in remote regions. To do that we need a rock solid distribution system. We want the same predictability as the cold chain pharmaceutical shippers, a next-day air service. We are a good, steady customer, we do a lot of blocked space agreements – but we want some transparency and simplicity from the airlines in rate structures. And we will pay a premium for predictability.”
Speaking on the fringes of the Council of Supply Chain Management Professionals’ annual conference in Atlanta, the shipper noted that he found passenger carriers to be far more reliable than the integrators. “We’ve no problem with all-cargo carriers, but we shy away from small parcel flyers – they will bump you. The integrators – and we have tried all of them – sometimes leave our parts behind. We find that passenger carriers have very good reliability – and we don’t see that at times from the integrators.”
As air freight has found its market share increasingly eroded by shipping lines, the director noted that the lines were simply better at forming relationships. “The ocean carriers gives us direct access,” he said. “They work directly with us to help provide door-to-door solutions, and they are aggressive in forming relationships with us.”
The shipper said he had no interest in cutting out forwarders, and that he maintains strong ties with a handful of multinationals. ”We don’t want to displace the forwarders. We need them. But now we are asking forwarders to inform us about which air carriers they use, and we want a say in that.”
He said that forwarders often don’t have the time or resources to keep him informed about the airlines. “They are trying to manage their BSAs [Block Space Agreements], but sometimes I don’t think they look aggressively enough at the low cost options available. I’d like them to treat my money as if it were their own business.”
Complexities in managing diverse fuel surcharges, which airlines all deal with differently, is one of the biggest headaches for shippers, he said. “It is difficult to manage a tonne of different surcharges. And we discovered that some 7% of our bills had errors in them. In the corporate world, no one wants to hear that fuel surcharges, which account for 20% of our transport costs, are volatilities that you can’t control. It turns transport into a commodity service. If the fuel bill goes up, then for us, just getting the goods from A to B is not really enough. We want to see more from that.”
Speaking at the Tiaca air cargo forum, Delta CEO Richard Anderson had explained his company’s decision to buy an oil refinery was to give the airline more control over its fuel costs. “Oil is 40% of our cost structure,” he said. “We can’t tell ourselves that we can’t control that. We treat 100% of our costs as controllable.”
But is any element of that control passed on to the customer?
The shipper responds: “He is going to control his costs, he’s got to make a profit from a more efficient environment. Good for him. We want the airlines to be healthy. We want market-based rates. But we don’t want to see airlines making money out of our fuel costs – that should come from the freight rate. We want to get bad behaviour out of the marketplace. We are just trying to get some simplicity into the process.
He added: “For us the rate is secondary to service – clearly, they have to be competitive, but we don’t necessarily want the lowest cost provider. We are willing to pay a 5% to 10% premium.”
Another major shipper, attending the Tiaca event, told The Loadstar that he had come to see if he could forge better relations with the airlines. “We don’t seem to have enough dealings with them, and I want to know them better.”
The director of transport summed up his message to the airlines: “Come and see us. You are not aggressive enough. Get off your arses and come and talk to us.”
He added: “I am not down on the airlines – I don’t know why they don’t come, perhaps there is something I don’t understand about their business. So we need some transparency, so we can understand each other’s businesses.”
The airlines’ reluctance to talk to their customers may stem in part from the disastrous 1990s affair of a European carrier that wanted to engage with shippers directly. But nearly 20 years later, it is clearly time to move on. The shipping lines certainly have.
Comment on this article
Peter Walter
October 04, 2012 at 11:38 amI would have thought the answer is quite obvious (why airlines will not deal with shippers) 1. Forwarders control 99 percent of the market 2. Carriers have tried and failed to by pass forwarders numerous times. 3. The vast majority of airlines are not able to offer all the add on services an average shippers will need.4. Any carrier brave enough to by pass forwarders will be instantly penalized.
5. For most carriers air cargo is not core business
Alex Lennane
October 04, 2012 at 12:06 pmBut there is no question of bypassing the forwarders. This is simply about forming relationships between shipper and carrier – not the booking itself.
David Woodward
October 04, 2012 at 2:56 pmWe applaud the sentiment of this Shipper and would dearly liked to be involved in more direct relationships with the ultimate customer , as long as it is done on a tripartheid basis with the shippers chosen Forwarder. Where we are included in such relationships it has been very successful and resulted in better understanding and a smoother flow of business. The reason they are not more common is mainly down to a resource issue in finding the ultimate customer (volume of Exporters to Forwarders) combined with lack of invitations from the Shippers/Forwarders. The Shippers needs to reach out to the airlines and invite them to sit down with their Forwarder , it really is beneficial for all parties !
Ed Kerwin
October 04, 2012 at 6:40 pmThe air cargo industry has evolved over the last 30 years driven by a relentless effort to reduce fixed costs. As an airline sales rep 30 years ago, I called on shippers directly. The call was positioned as a relationship call and did not try to usurp the role of the forwarder. The real purpose was to try and keep the business if the shipper changed forwarders. Forwarders, who are non-asset based companies, were always wary of other companies calling on “their customers”. Ultimately, the cost to the airline of making that sales call exceeded its percieved value and they were eliminated. As Peter mentioned there was a time when airlines tried to adopt a similar stance to the ocean carriers. However, I believe that it was the cost that ultimately had the biggest influence. Now airlines don’t even call on the forwarders as much, they have outsourced that to GSA companies. This again in an effort to align costs with volume and revenue. It would take a significant change in now to reverse this trend.
Raemdonck Eric
October 09, 2012 at 1:53 pmIn addition to getting the job done, logistics is about relationships where the shipper calls the shots. I can’t see what prevents this shipper from including air carriers in his process when it is done to obtain greater transparency and more predictable costs. On the other hand there are plenty of commercial events where he can meet carriers. He can also get involved in industry working groups where shippers advice is always welcome and there are challenges galore…
Mukesh Mudholkar
October 11, 2012 at 10:30 amWhenever an airline tries to reach out to the shipper, even as a tripartate engagement, the forwarder clearly spells out the terms of engagement which leaves out any discussion on the rates. The incentives / discounts offered by airlines do not always get passed on to the shipper. There is no transparency. The airlines need to focus on maintaining their load/revenue factors, however they cannot discuss this openly with the shipper.
massimo
October 14, 2012 at 5:56 amDear all,
shippers that want to deal directly with the airlines are more than welcome. Always have been.
Airlines are open to it, but let us also consider why a direct agreement is difficult to reach:
1) Airlines generally provide airport to airport transportation: only few shippers are able to manage all the operational portion of the chain before and beyond those points (road feeder, custom clearance, delivery transportation,etc.)
2) Few shippers are aware of the massive requirements in terms of palletisation, dangerous goods regulations and safety of cargo (forwarders, at least in principle, do)
3) Documentation, paperwork provided and utilized from the shipper, is often not in line with what an airline requires. (Also, the issue of an AWB, if IATA certified, may still be a constraint.)
Nevertheless, I am certain that a direct liaise with the shipper is the only way to benefit from those costs savings that airlines have performed for years, that were passed only to the freight forwarders, but the shippers needs to prepare themselves from a regulatory standpoint.
In short, I think BOTH parties need to move on in order to meet, not only the airlines.