Fast Forwarding

Globalization and security concerns are thrusting the air cargo industry into full throttle. From their unique perspective as both service provider and shipper, airfreight forwarders air their views about the growing challenges facing global businesses.

Globalization continues to amplify the challenges of supply chain synchronization as businesses look to source and manufacture product in Asia and other burgeoning markets.

As businesses extend their reach offshore to drive down production and labor overhead, however, their transportation costs inevitably increase. Rather than divest resources from their core business, stateside consignees and U.S. businesses abroad are increasingly contracting global transportation responsibilities to freight forwarders.

Cost, reliability, security, and speed are all major factors when businesses consider their global transportation options. In the airfreight industry, shippers are willing to sacrifice cost if they are assured cargo will arrive on time and secure, and they have complete visibility of its movement.

The responsibility placed on airfreight forwarders is considerable. For one, forwarders are charged with helping shippers and consignees balance the demands of sourcing product from off-shore markets and making sure it is properly transported and distributed at point of origin and final destination. This entails negotiating rates with airlines, preparing documentation, and consolidating shipments, as well as synchronizing pickup and delivery on both ends.

Unlike ocean shippers, who typically have more flexible lead times and margins for delivery, air cargo shippers operate within tight time parameters and therefore require an added level of service.

Labor strife, unforeseen natural disasters, and increased security provisions are obstacles for any global shipper, but in the air cargo industry even the slightest hiccup is problematic. Potential delays threaten to ripple much deeper into the supply chain because less time is available to manage exceptions.

“More than 70 percent of shippers indicate that a delay of one or two days in receiving anticipated shipments causes significant problems,” according to a 2003 survey by The International Logistics Quality Institute. “Although some air shipments are made in response to emergencies such as a need for critical spare parts, these situations represent only a fraction of shippers’ overall airfreight usage—less than 10 percent for more than half of all shippers.

“Most intercontinental airfreight shipments are regular product movements that require a high level of service in the everyday course of business. Taken together, these results portray a demanding customer base for intercontinental air freight, with high and consistent levels of on-time delivery routinely required to enable today’s sophisticated global supply chains to operate effectively,” the study finds.

Airfreight forwarders possess a unique perspective on the increasing challenges global companies face because they assume the role of both service provider—to shippers and consignees—and shipper—to airlines. To be successful, they must look at the supply chain with great objectivity.

Multimodal Synchronization

Given the breadth of global supply chains and the myriad options afforded shippers and consignees, businesses no longer look at transportation within silos, but rather as interdependent modes.

As such, third-party service providers that can coordinate multimodal solutions and help facilitate communication and visibility from supply to demand have found a captive audience. Airfreight forwarders are no different.

“Most forwarders today are multi-modal in nature, and offer a wide variety of transport options, time-defined services, speed-versus-cost trade-offs, and commodity-specific shipping methods,” says Jeff Massey, vice president of operations and security, Kintetsu World Express (USA) Inc., based in Jericho, N.Y.

The air component is only part of this equation. Shippers are looking at service providers that can handle and coordinate transportation to and from airports as well. Given current capacity and fuel concerns, the multimodal aspect is equally important in driving down costs.

“We offer more options for ocean and trucking due to cost savings from air cargo, especially with current security and fuel surcharges,” says Gerry Post, chief operating officer, Concert Group Logistics (CGL), a Downers Grove, Ill.-based transportation logistics provider.

Making sure that U.S. imports can be quickly and efficiently transshipped from an airport to its final destination is critical to maintaining supply chain fluidity and avoiding costly warehousing and fuel expenditures.

“Surface transportation’s impact on the U.S. time-definite market is significant. Trucking plays a key role in U.S. air imports and air exports,” says Rick Whitaker, vice president, U.S. Gateways and International Services for BAX Global, an Irvine, Calif.-based 3PL.

Over the past five years, for example, BAX Global has leveraged its intra-North America truck network to provide greater value to its airfreight customer base. Its surface freight solution offers time-definite, LTL delivery to any point in the United States and Canada.

“It has proven an extremely valuable, dependable, and cost-effective resource. It rounds out our multimodal capabilities,” adds Whitaker.

For other airfreight forwarders it’s a matter of giving shippers as much flexibility as possible, combining local and global modes—be it via ocean or air. Because ocean carriers have an abundance of capacity, which ultimately drives down costs, “ocean freight remains the staple of international transportation, and a mode with which we work closely,” says Kim Thorn, spokesperson for AIT Worldwide Logistics, a forwarder and 3PL based in Itasca, Ill.

Congestion and capacity constraints at U.S. ports, however, ultimately threaten timely redistribution of cargo inland, and have given shippers caution about sacrificing reliability and speed for cheaper transport costs.

Equally important is the ability to offer shippers another transportation option if the need arises, adds Thorn, especially as global businesses look to preempt potential supply chain disruptions.

When shippers feel the need for speed, they unanimously take to the air. “In light of challenges ocean freight can present to a just-in-time supply chain philosophy, shippers are relying more on air freight,” she says.

Enhancing the Value-Add

Aside from pooling transportation resources, forwarders are similarly expanding their service portfolios to enhance their value proposition. The line between forwarders, 3PLs, and even IT developers continues to blur as customer demands grow.

“The days of simple port-to-port, or point-to-point arrangements and movement of goods are essentially gone. Shippers expect their providers to bring a large menu of transportation and logistics services to the table, and to be able to execute each component reliably, seamlessly, and professionally,” notes Massey.

Whether it is expanding service options or offering customized solutions to meet specific shipper demands, forwarders are pushing the envelope of traditional expectations.

“AIT is always introducing new value-add components,” says Thorn. “Some of these features include pickup and delivery options—residential, lift-gate, appointment, and two-man—’white glove’ services for labor-intensive deliveries, asset recovery and debris removal services, domestic merge-in-transit services, and site survey assistance.”

Asset recovery and site selection may not be typical freight forwarding capabilities, but where there is a need, service providers are capitalizing on technology to customize solutions that enhance their value to customers.

CGL’s freight management system, PurpleNet, for example, enables shippers and consignees to capture, manage, and report real-time shipment information.

“Our technology offers substantial capabilities to provide specialized transaction reporting and tracking,” says CGL’s Post. In addition to enhancing cargo visibility throughout the supply chain and simplifying the required documentation for booking and dispatch, the technology also helps integrate information sharing and communication capabilities across an enterprise’s business network.

With air cargo shippers’ tight time constraints, these capabilities are critical to maintaining a fluid supply chain.

A similar trend is occurring among shippers looking to drive better compliance from vendors.

Flexing with Demand

“Shippers look to their providers to help with purchase order management and inbound vendor management,” says Thorn. “We work closely with shippers to ensure that their vendors are working in their best interest.

“Technology has been the driving force behind ensuring visibility between supply chain managers and their purchasing and sales teams because it enables forwarders to know what orders have shipped, and when.”

Ultimately, the ability to leverage technology with innovative processes enables freight forwarders to flex with the demands of their customers.

“Flexibility is critical to success; anyone can move cargo from point A to point B. It’s the creativity and additional services that are valuable to shippers,” says Mike Kearns, vice president of air product for GeoLogistics, a global freight management firm.

Safeer Skies

While reliability and cost may be the two most important bottom-line concerns for global airfreight shippers, security—or lack thereof—will ultimately have the greatest impact on the air cargo industry as a whole. Federal agencies including the Transportation Security Administration, The Department of Homeland Security, and Federal Aviation Administration have enacted legislation to help make air transportation safer.

“Forwarders are expected to fulfill stringent U.S. requirements, such as ‘known shipper’ regulations, and various rules pertaining to imports and exports, packaging, and declarations of content,” says AIT’s Thorn.

Still, shippers and consignees want to partner with forwarders that have a track record of conforming to federal policies as well as voluntary initiatives that help expedite and facilitate proper cargo inspection.

“Many forwarders comply with a number of industry and regulatory conventions—TAPA and C-TPAT, among others—aimed at making transportation systems safe and secure,” says BAX Global’s Whitaker. “In addition, BAX Global restricts access to cargo and terminal facilities, operates CCTV systems continuously, employs professional security personnel, trains all staff on security, and strictly controls the movement of goods to, from, and within airports and seaports.”

Operating a safe and secure supply chain also makes for good business, especially given the high value and sensitive nature of air cargo.

“As goods increase in value, security and loss prevention will become increasingly vital considering the trends of reduced inventories, precision production schedules, and global distribution of components and finished goods,” says Kintetsu’s Massey.

Ultimately, any failure as a result of theft or terrorism will have harsh repercussions up and down the supply chain. “Losses will not just be measured by street value or technology theft, but rather by production interruptions, missed deadlines, and compromised market opportunities,” Massey adds.

Tapping into Foreign Markets

Moving ahead, the growth of new global markets and continuing consolidation within the industry will shape the near-term direction of airfreight forwarders and their customers.

Global businesses are continually looking at the best locations to source and manufacture product. For some, it’s a matter of cost; for others, location is the cardinal rule. Regardless, shippers are leveraging their relationships with third-party logistics providers and forwarders to tap into these markets.

“With the enormous growth of Asia, expansion is occurring in both China and India, but Eastern Europe is also on the radar,” says GeoLogistics’ Kearns.

Many perceive China’s newly acquired WTO status as a major driver of future expansion initiatives, for both exports and imports.

“Major market expansion in the coming five years will occur primarily in China. Flights between China’s principal cities—Shanghai, Beijing, and Canton/Guangzhou—and the main cities of the United States, Canada, and Europe are being added with increasing frequency,” says Whitaker. “Although the flow of goods outbound from China is tremendous, it’s not simply one-way.”

Inbound volumes to China have grown sharply in the past few years.

“Barring irresolvable currency disputes, China is undoubtedly the world’s main growth market, both inbound and outbound,” he says.

“China and India will continue to grow not only for imports to the United States, but also for exports. And other countries in Southeast Asia will continue to attract manufacturing due to the low cost of labor,” adds Post.

Worldwide Opportunities

Still other freight forwarders recognize opportunities elsewhere in Asia and around the world.

“Vietnam could potentially see significant growth, within the scale of its population, as well as its production and consumption potential. Russia and Eastern European nations will benefit from expansion, at least within the European logistics network,” adds Massey.

Freight forwarders also expect additional growth in areas that present themselves as major distribution hubs, with easy and convenient access to these growing manufacturing markets.

“Certain areas of the world, such as Amsterdam, will gain momentum and increase their importance as regional distribution and consolidation points. Eastern Europe and South America are also areas where significant growth is expected,” says Thorn.

But as businesses expand globally, the air cargo industry will likely contract, as evidenced by the recent merger between Lufthansa and Swiss World Cargo. Where clear-cut synergies exist, businesses will take advantage of pooling their respective resources to be more competitive.

Industry contraction, however, could conceivably reduce the amount of available capacity and raise prices for air shippers.

“Consolidation can certainly have a tremendous impact on cargo space reductions and lane segment availability. But consolidation is a fact of life in a free enterprise economy,” says Thorn. “AIT’s model is to establish effective and mutually beneficial relationships with strategic partners across all lane segments.”

There may be severe ramifications for global supply chains if too much contraction occurs. “The overall health of the airline industry remains a concern to forwarders and many other industries,” says Massey. “Several major players contracting or collapsing could pose significant, costly problems for the global supply chain.”

Others are more optimistic. “An abundance of capacity still persists in the trans-Atlantic market and even if capacity had been removed, it would be difficult to measure the impact,” says Whitaker. “The Air France-KLM merger, for example, has produced some capacity rationalization but nothing problematic.”

Competing with the Big Boys

What’s next for airfreight forwarders? As large global, all-encompassing players and smaller niche providers compete for market share, they will divide the industry.

“The gap between large global forwarders and small forwarders will continue to widen through acquisition and mergers. This will put more pressure on mid-sized forwarders as they try to compete with the big boys. Small forwarders will continue to flourish by providing a high level of customer service, specialized services, and niche market solutions,” says Post.

As a response, shippers and manufacturers will outsource more elements of their business to forwarders, predicts Kearns. “They will put more responsibility for product finishing, packaging, and inventory controls, as well as the distribution of goods, on their logistics providers,” he says.

Most importantly, it will be the forwarder’s role as a true intermediary between shippers/consignees and carriers that will set the pace for future growth within the industry.

Success in managing global freight flows depends increasingly on leveraging concessions in capacity-challenged markets through give-and-take negotiations with global airlines.

Multi-national air shippers will do well to engage freight forwarders not just because of a robust global network but because forwarders have proven adept at managing airline relationships, negotiating trade-offs, synchronizing capacity purchases worldwide, and disciplining the components of their system to work as a team.

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