This week, cargo veteran, Andrey Andreev joins CargoForwarder Global as a guest author, with his impressions gathered during a recent trip through Germany, Belgium, and Italy. He met with aviation experts, e-traders, producers and suppliers, resulting in an intensive exchange and update of industrial information. His observations, documented here, provide plenty of food for thought.
Freight forwarders are facing tough times
The most lingering impression is that e-commerce has well advanced in surpassing general cargo as the most important commodity in air freight. This applies particularly to routes from the APAC region to the U.S. and EU. During the cargo conference in Liège in SEP24, some carriers advised that up to 80% of their capacity out of APAC, is filled with e-commerce. This has gravely changed transport chains, as carriers are increasingly tending to collaborate directly with leading e-commerce suppliers and their logistics operators by inking capacity purchase agreements. The consequence: Traditional freight forwarders are becoming sidelined.
New trend
One Chinese cargo carrier has even launched bidding tenders for block space agreements (BSA), thus guaranteeing customers long-term transport capacity. A step that has resulted in rates exceeding USD 6,00 per kg. Until now, these tariffs were only valid in the event of urgent ad hoc cargo transport during peak seasons, and not for year-round business. And there is also a stunning new trend: some carriers offer discounts of 5-10% for direct deals with shippers, in this way kicking out forwarding agents.
Airlines increasingly tend to view e-commerce players as ‘capacity utilizers’ with no need for services offered by forwarders. However, experts hold that this is a short-sighted policy aimed at achieving favorable rates. Meanwhile, there is a visible trend to converge the activities of e-commerce actors and airlines, with carriers aiming at becoming an integral part of the e-trade, spurred by securing high volumes and benefiting from profit-sharing accords. This trend might even accelerate in future.
Reselling capacity to e-traders
Nevertheless, against all odds, forwarding agents still play a pivotal role in the air-freight landscape. Some e-commerce platforms prefer to cooperate with forwarders, utilizing their infrastructure and service offerings. This can mainly be seen in the U.S, and most EU countries. In other cases, forwarders play a financial middleman role by simply reselling capacity to e-commerce marketplaces.
Ground Handling Agents are facing the biggest challenge, since most e-commerce actors rely on thru-units (BUP or build-up units) that simply need to be picked up and loaded on board a carrier without many ground handling activities. This way, e-commerce players remain in control of supply chains. The bitter consequence for those who do not adjust their processes and adapt to the new reality, is that they will lose their traditional bread and butter handling business, step by step. E-traders explain that they wish to exercise their own control, supported by a sorting infrastructure which classic GHAs cannot offer. Those handlers who do not adjust and adapt to the new e-commerce norms, will be burdened with high infrastructural and personnel costs, and are at risk of being left behind.
Faced with this constrained situation, Ground Handling Agents have started to impose strange surcharges (for example – direct delivery fees), which are normally part of the rates charged by forwarding agents. It is an attempt to survive but with low prospects of success.
Air-air patterns may change
Looking at the Middle East, the GCC members’ future infrastructural plans are opulent. Dubai, Abu Dhabi, and Saudi Arabia, to name just three, aim to offer the industry ample warehouse capacity supported by AI implementation. This might change the classic air-air pattern to combined ocean-air transport, driving logistics costs for e-commerce further down. Once consumer habits can be precisely predicted, the flow of air freight will plummet. This is because up to 80% of orders will already be available in stock, which is predominantly shipped by ocean carriers.
Another irritating factor at present is that EU exports are down the drain. There has been always an imbalance between the volumes, but the gap is rapidly growing. Frederic Horst, Managing Director of the Trade and Transport Group recently posted some data on LinkedIn, showing that exports ex EU are decreasing. One of the reasons behind this is that the long-time industrial engine of Europe has lost its leading role in the automotive sector. As a result, the suppliers of automotive parts are also suffering, leading to a decrease in cargo volumes. Due to the constant overcapacity on eastbound routes caused by poor demand, in some cases the rate level cannot even cover the handling costs any longer.
Some rays of hope
In contrast, the goods new is that perishables, AVI and, to a certain degree, pharmaceuticals remain stable and continue to grow. However, it cannot be excluded that they will embark on the e-commerce avenue sooner or later, provided air carriers and their partners can secure an uninterrupted cool chain from warehouse to warehouse.
To round the observations off, it can be said that the global air freight market is going through a remarkable transformation phase. It is leading to significant changes that most industrial stakeholders are facing and will have to adapt to – better sooner than later. The commodities carried the ‘old school way’ will continuously shrink. Those who survive will be players that are agile, flexible, innovative and courageous, and whose employees act as a team driven by a hands-on mentality.
Andrey Andreev
