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Interesting comments from a forwarder recently. Rarely shy of speaking out, your average forwarder generally staunchly defends his industry’s actions. But this particular one admitted he feels the forwarding industry should take on a lot of the blame for the pitiful margins the airlines make.
It was in response to (the now-bumped) Air France KLM’s M Pierre-Henri Gourgeon, who rather shocked everyone by suggesting that the carrier no longer wanted to do cargo – a mistranslation apparently. What he actually meant was that the carrier wanted to make some money out of cargo. Fair enough. An innovative concept, you may say.
And that’s what the forwarder said. Fair enough. Why shouldn’t the airlines make some money? Why should the forwarders always give them rotten deals? He lays the blame at the door of education. “Our industry hasn’t traditionally attracted the top people. And they have never really understood costs, and that has meant margins are a good 5 to 10% lower than they should be.”
He reckons that as the industry begins to attract better qualified people, it will be less about the hard sell, and more about the realities of what it actually costs to own and operate a very expensive asset. “Better people will realise that we are not calculating the real costs.”
(This, inevitably, comes down to attracting the right people. And the way to do that? To make sure logistics becomes more of a household word. To make the business of freight easy for the world to grasp, and to attract all those university leavers for a career in logistics. UPS has done a reasonable job of it. But once again, I turn to Maersk. The Danish carrier now wants its name to be known by every household, every shipper, for direct bookings. They want booking a container to be as easy as booking a flight. The new integrators of the sea freight world…more on that another day.)
Others – of course – disagree that the airlines’ misery is the forwarders’ fault. (Few forwarders agree with each other.) They blame the airlines. “So why do carriers give me a price, and then tell me later it won’t secure me any space?” asks another. “I’d put it all back on to the carriers. They are the ones who take the price up and down the whole time. I understand the need for competitive pricing, but most of all it needs to be consistent – and it isn’t.”
He does make the point that with such a wide variety of business models in the air freight sector, from the belly to freighter to charter, the market is likely to be quite inconsistent.
But he also adds, rather cynically: “They all do this. Every airline has at one point puffed its chest and said ‘enough is enough’. It never lasts. In the end, they’d rather fill an empty belly and gain a little revenue than let it fly empty. And they always come round to that.”
And so the cycle goes on…
The question is, can anybody break it?
Comment on this article
Alex Lennane
November 08, 2011 at 11:41 amFrom: Anon:
I have been in this industry for longer than most – and I still see very little evidence that carriers actually know what their net costs are.
Often local managers are judged on the gross revenue contribution from cargo per flight – so they just need any number to make up the total revenue performance.
In fact some carriers even still measure uplift in tonnage, not even revenue, which has always struck me as rather meaningless. As a consequence loads of traffic is actually carried at a loss.
By the time you deduct handling costs at origin and destination, fuel burn, commissions, accounting admin etc., there is very little left for profit, often none.
This is even worse when it comes to interlining where carriers are hit by provisos and minimums which often make the shipment completely uneconomical to carry.
I would say Forwarders on the whole have a much better handle on this than airlines. Forwarders need to be much more aware of costs – otherwise they will not survive for long.
High yields are clearly out there – just look at what the integrators charge. But then they do provide a complete end-to-end product which is what customers want.
Why deal with 3 or 4 suppliers in a supply chain when you can deal with just one, and have a more or less guaranteed service. Yes, at a high cost but look at the profits of Fedex.
No wonder that most carriers are resigned to carrying cargo on behalf of the integrators. A surprisingly large amount of cargo is carried by combination carriers for the integrators.
Of course to the integrator’s customer that is not visible they will make sure of that.