Air cargo industry at crossroads: Embrace digitalization or continueto lag behind
Air cargo traffic is an important global health economic indicator. But despite its significance, it’s still struggling to implement, evolve and embrace the digital age.
There are new players creating a niche in the ever competitive freight marketplace. How will they fare? Is the industry caught up unprepared in the growing digitalization and e-commerce trends? What is the way forward?
Air Cargo Update had an exclusive interview with Ram Menen, the former stalwart of Emirates SkyCargo widely credited for the company’s ascension as the top freight carrier in the world. Read on this expert’s valuable insights on some of the most pressing issues affecting the industry.
How has the air freight industry transformed over the past few years?
The evolution of the airfreight industry has been painfully slow when compared to what is happening in the rest of the industries in the world. While the entire world is digitized in many ways, we can see that the air cargo industry is struggling to implement e-Freight fully.
Though, the industry has come a long way, apart from the larger and more evolved multinationals, the broker mentality still exists among forwarders, which is an impediment to progress. Shipper/forwarder/carrier relationships have not fully evolved to take advantage of technology.
Having said that, there are new players like Flexport with their virtual forwarder concept and Freightos, with their vision to create a freight market place. They are creating disruption in the industry and leading the change. Freight forwarding is caught between getting digitized and growth in e-commerce industry.
Amazon, Alibaba and now Google, with its investment in JD.com, are all moving into and will dominate the air cargo world in the future. They have also got the integrators, who are more attuned to the e-commerce business, in a dilemma with their requirement for very short and flexi LMD (last mile delivery) requirement.
This has created a new breed of local LMD companies who are now in a better niche to provide services to both, the integrators and e-commerce business. This is an opportunity for the freight forwarding industry if they are able to quickly acquire the skills needed. The main challenge is that the forwarders LMD is job based, whereas integrators are schedule based. E-commerce industry is looking for a hybrid solution.
Air cargo industry is at crossroads at the moment and its ability to learn and participate in a digitized market place will be key to their growth as well as survival. Going forward, the growth in traditional air cargo is likely to slow in low single digits with the advent of in-shoring/near-shoring activities as well as mass scale 3-D printing while the e-commerce business is likely to be growing in double digits (in percentage terms) for the foreseeable future. The good news is that e-commerce traffic tends to be year-round but the bad news for the carriers is that it tends to be low-density cargo which is getting more and more price sensitive.
Where real transformation has taken place is on the operations side where there is more awareness of trans-portation requirements for different verticals like perishables, pharma, fashion, goods, etc. The progress in temperature controlled transportation has been quite remarkable. Specialty transport/logistics has done a lot of good to improve the quality of service in the air cargo industry.
Do you think the industry has become more aligned compared to before?
There has been a lot more alignment in the industry. There is more focus on seamless integration of services across the supply chain operations. However, more needs to be achieved in data integration and creating better transparency. Blockchain now provides a better opportunity to create better security of data and help allay the paranoia and allow for better data sharing. Though security process aspects have been more refined, common standards with customized variation would go a long way in reducing hurdles and make it more cost efficient.
Has globalization and marketing brought better cost efficiencies?
Globalized production and markets have definitely brought in a lot of cost efficiency. However, years of optimizing costs by optimized and efficient supply chain operations are now under threat because of the looming trade conflict/war instigated by USA.
Hopefully, this is a temporary challenge the world is going through. Local manufacturing and marketing will never be able to efficiently compete with globalized production where costs are optimized to produce the best overall costs by optimizing sourcing of raw materials/components and production in most cost efficient places. Globalized production and markets benefit from the economies of scale. The world is more connected and, hopefully, globalization is here to stay.
What can the government do to boost the air freight industry?
The government’s role has to be that of a facilitator of trade and commerce which will benefit its own economy.
The role should be that of a gardener to create and maintain a fertile enviro-nment and framework to encourage healthy growth.
How important are digitalization and e-commerce for the industry?
It is digitization that has created such a mass market so quickly for the likes of e-tailers like Amazon.com, Alibaba and many others. Digitalization accelerates the processes from placing an order to have it delivered at the shortest possible time. It also allows trade to transcend across borders seamlessly. It also brings in efficiencies in inventory management and creates visibility of supply and demand. Those who don’t digitize will become extinct within a few years.
Do you think digitalization and the trucking industry in India has come of age or still has a long way to go?
Though digitization brings in a lot of internal efficiencies, it is the movement of relevant data across the whole supply chain that brings in the real value to shippers and consumers. I am not too close to the trucking industry in India, however, from what I can see is that there has been a lot of electronic platforms that are coming up which can optimize truck utilization and there by bringing better costs efficiencies that can add value to the overall chain.
The Indian trucking industry still has got to go a long way to be able to perform like their counterparts in other more developed economies. A lot of the setback for this industry in India is still rampant bureaucratic processes the operators have to go thru. Further digitization on the part of the regulators will have a positive impact.
Do you think digitalization can permeate the fragmented logistics industry in India?
Digitalization can definitely bring together fragmented activities together in any business. Reduction of human intervention, especially in India, can make the processes very efficient and responsive adding better transactional efficiencies.
Do you think the introduction of mobile solutions, including GPS enabled longitude-latitude coordinates in fleet management, will revolutionize things and provide end-to-end visibility besides convenience in business?
Apps, GPS, etc., are today’s available tools that speed up transactions and also open up new markets for remote areas worldwide.
Geofencing facilitates quick and efficient access to areas where no proper addresses exist. It also allows people to track their shipments in real time.
Carriers as well as consumers benefit from this technology.
Ram Menen is a familiar name in the international air cargo industry thanks to his vision and unparalleled dedication at Emirates that helped transform it to become the world’s largest international cargo carrier.
After nearly 40 years in the air freight industry, Menen retired in June of 2013 as the divisional senior vice president cargo at Emirates SkyCargo. He was one of the original founding team of Emirates Airline and headed its cargo division since inception in October 1985.
An engineer from India, Menen began his career in aviation in 1976 at Kuwait Airways. He later moved to British Airways to head its cargo operations in Kuwait.
In 1984, he joined the Kuwaiti aviation group Alghanim Al Qutub Shipping Agencies, to set up and manage its airfreight-forwarding unit in Dubai. In 1985, Emirates then just starting, tapped him to lead its cargo division.
Under his leadership, Emirates spearheaded the conceptualisation and development of the LD-36 (AMF) type of ULD (Unit Load Device) which increased usable space on each lower deck pallet base by 33 percent. He also helped develop the cool dollies, extensively used at some airports to maintain the integrity of the cool chain on the ramp in hot climate.
Menen is also credited as one of the founding members of The International Air Cargo Association (TIACA), the international trade body representing the logistics and air freight sectors. He served as TIACA’s Vice President in 1993 and 1994 and as President, CEO and Chairman of the Board in 1995 and 1996, respectively. He continues to be involved with TIACA as a member of the Chairman’s Council.
He was also very active in IATA (International Air Transport Authority) and chaired the IATA Cargo Committee between 2008-2012. He also served as Vice President of CILT/UAE Chapter between 2008-2013.
Throughout his career in the air freight industry, Menen received numerous local and international awards.
In one of his interviews, Menen described his career in the industry “as an amazing ride” and “blessings one rarely gets.”