E-commerce powering demand for air cargo industry Greg Knowler, Europe Editor | Jan 08, 2018 1:04PM EST The benefits for airlines: a return to freight profitability not seen in seven years. Photo...

E-commerce powering demand for air cargo industry

Greg Knowler, Europe Editor | Jan 08, 2018 1:04PM EST

The benefits for airlines: a return to freight profitability not seen in seven years. Photo credit: Shutterstock.

Strengthening economies, e-commerce, and restocking are the three factors responsible for a global trade environment that saw air cargo demand outpacing supply by more than six percentage points for all four quarters of 2017.

The benefits for airlines have been a return to freight profitability not seen in seven years. Sebastiaan Scholte, chairman of The International Air Cargo Association, said airline load factors and yields have improved and air cargo revenue in 2017 rose by 15 percent compared with the previous year. Revenue is expected to grow by an additional nine percent in 2018.

But even as airlines pass around the champagne, their customers have been left scrambling for space and forced to accept record high freight rates, with the slow end-of-year period bringing little respite.

According to Manel Galindo, CEO of Freightos WebCargo, “China-Europe rates will stay high. Even where there is some flexibility, rates will stay in the $7 to $10/kg band for several more weeks yet. The current backlog probably won’t fully clear before the lead up to the Chinese New Year close down starts.”

China’s ports handle the greatest share of the world’s containerized exports — Shanghai’s container throughput in 2017 was greater than 40 million TEU — but the country also accounts for one-third of all global air cargo exports, so sky high rates will affect huge numbers of shippers sourcing products or components in the country.

It is not only high rates that are being forced on shippers. The steadily growing cargo volume, air and ocean, has come after a protracted period of weak demand, excess capacity, and deep cost cuts, leading to congestion at ports, roads, and airports, delaying shipments and adding to costs.

“Rates of relative labor-intensive ground handlers and transport companies have been squeezed over many years, forcing these companies to cut to the bone, which has resulted in a capacity shortage in many airports over the last six months,” Scholte said.

Shippers routing cargo through airports in Asia and Europe faced lengthy delays throughout the peak season as rising volume overpowered ground handlers and fast growing leisure travel quickly used up available airport slots, forcing some freighters to shift to secondary hubs. Amsterdam Schiphol was the worst-affected airport in Europe.

The pressure on Frankfurt, and other hubs in Europe, will not go away. The International Air Transport Association (IATA) has predicted that rapidly rising passenger and cargo demand could see hundreds of airports reaching capacity in the next 10 years, with most of the Europe gateways among these.

IATA also expects air cargo volume in 2017 to be 9 percent greater than the tonnage carried in 2016, and there has not been the freighter or belly capacity available on major routes to handle the demand.

Although airline customers face space constraints because of this imbalance, Scholte felt it was a positive development for the air cargo industry. “The balance between capacity and demand is leading to higher rates, which is needed to be able to attract the labor force to handle the growing volumes,” he said. “The positive aspect of a relatively global open market economy is that, at the right price, the increasing demand will cause the capacity to catch up.”

For the next few months, cross border e-commerce is expected to continue pushing demand ahead of supply, with China leading the way. Simon Wong, CEO of logistics provider U-Freight Group, said the exponential growth of e-commerce was behind new trade patterns, such as the growth in direct business-to-customer (B2C) and even consumer-to-consumer transactions.

“In our development of e-commerce logistics solutions, we are continually trying to address the key issues stemming from increasing volumes of mainly B2C e-commerce shipments and the time sensitivity thereof, which pose unique challenges to all e-commerce stakeholders under the current conditions,” he said.

But Wong said e-commerce was also presenting challenges to governments and businesses alike in terms of trade facilitation, safety, and security, society protection, and accurate and efficient collection of duties and taxes.

To address this cross-border issue, the World Customs Organization’s (WCO's) Policy Commission adopted the Luxor Resolution in December that outlines the guiding principles for cross-border e-commerce. It is aimed at helping customs and other government agencies to understand, coordinate, and better respond to the current and emerging challenges.

The WCO said e-commerce has become a game changer in the international trade arena. “One may argue that it is just another form of trade, but we need to keep pace with the changes it brings to the trade environment, and provide innovative solutions to deal with them,” the organization noted.

“Efficiency of clearance and delivery of low value and small parcels is especially crucial. To manage e-commerce transactions, customs administrations need to engage with all relevant stakeholders with a view to collectively defining the appropriate approach to adopt both from a trade facilitation and enforcement perspective.”

Your assignment is to answer the following questions in a comprehensive paper.

1. Develop a process flow map that illustrates a better primary logistics flow of products and shows how improvements can be made in global air freight. You can use one airport as the example for this part of the assignment. You must use Microsoft Visio for your process flow diagrams and submit the “vsd” file.

1. Describe in detail the structural problems that hinder logistics operations for global air freight.
2. Describe how firms can improve the functioning of global air freight given the rise in e-commerce.
3. Describe how either FedEx, UPS, or DHL can position themselves for the future. This is likely to include inbound and outbound transportation, cold chain, logistics service strategy, inventory management, obsolescence issues, waste and disposal, marketing material support, and other relevant issues.
4. Analyze potential financial impacts of the problems mentioned in your paper and explain how those financial impacts might be optimized.

Students will be expected to complete their projects in assigned groups. Students should be prepared to present their papers if asked. Papers written for other classes are not acceptable.

Do not copy material from the Internet without citing the source. If more than seven words in a row are found to be copied from an Internet or other source without citation, the student will receive a grade of “F” for both the project and the term. This assignment should be original work.

The term project will be evaluated on the following criteria.

Project-Based Learning Rubric

This project is due no later than noon, Friday, April 12.