PROJECT RUNWAY: Airfreight Forwarders Model New Service Collections
Traditional forwarders stay in fashion by strutting their stuff online and designing an expanded portfolio of supply chain services.
Digital disrupters have upended shopping, travel planning, and financial services. Is the airfreight forwarding market next? Indeed, what shippers often call “tech forwarders,” because they offer online access to freight forwarding services, are having an impact on the industry. However, instead of traditional freight forwarders becoming extinct, many are boosting their digital capabilities, while also expanding the range of supply chain services they offer.
“Airfreight forwarders saw they were behind in technology and in being accessible online,” says Nick Bailey, head of research with Transport Intelligence, which provides market research to the global logistics sector. At the same time, they view these as capabilities they can gain back, he adds.
Role of Online Services
Moreover, while they make forwarding services more accessible online, few airfreight forwarding platforms actually transport goods or guarantee on-time delivery. “They offer an easier user interface,” Bailey says. “But, can this provide a sustainable advantage?”
Some say yes. They view the role digital airfreight forwarders play as similar to the services provided by travel-booking sites that act as a liaison between the service providers—in this case, the air carriers—and the customers, Bailey says.
And, online-only forwarders may find a niche within the small business market. Smaller companies tend to have less complicated shipments, and few can dedicate much manpower to their shipping functions. An online platform may be all they need.
Another potential role for online platforms is helping transportation providers optimize their networks, says Cathy Roberson, founder and head analyst with Logistics Trends & Insights LLC in Atlanta. For instance, a cargo plane moving items from Atlanta to Chicago might use a platform to search for backhaul cargo it can transport on the return trip.
Yet even as airfreight forwarding solutions become more automated, a need for people will remain, especially during emergencies. “Say a shipping line goes bankrupt,” Roberson says. “An online platform won’t help find alternative solutions.”
Moreover, not all links within most global supply chains are digital, says Matt Castle, vice president of global forwarding products and services with C.H. Robinson, a provider of multimodal transportation services and third-party logistics based in Eden Prairie, Minnesota. “Where they’re not, some level of manual interaction is needed,” he says.
To compete in today’s market, freight forwarders have to offer more than just transportation functions. “They need to offer other supply chain solutions,” says Steven Joiner, senior lecturer in marketing, logistics and operations management at the University of North Texas.
To that end, many forwarders provide data and analytic capabilities that help shippers build sustainable supply chains. Airfreight forwarders can work with shippers to develop solutions that allow them to move goods efficiently and at a lower overall cost.
Rising trade tensions, such as the recent imposition of tariffs on everything from live eels to aromatic salts traveling from China to the United States, will ripple throughout the air cargo industry. They may prompt more shippers to use airfreight forwarders as consultants, Roberson says.
In contrast, an entirely digital relationship often becomes very transactional, Castle says. A shipper requests space and the solution finds it. The solution is unable to assess and improve the shipper’s overall supply chain.
Many traditional forwarders also are applying technology to streamline the forwarding process, by automating traditionally manual processes, such as booking and tracking shipments. They’re also using technology to provide greater visibility to shipments.
AI in the Air
Some airfreight forwarders are experimenting with artificial intelligence (AI), Bailey says. For instance, they’re using AI to help with demand planning and to predict restocking cycles. Others are deploying AI to read customer emails and identify the most important information.
Forwarders are “asserting that this is a technology that will really see them achieve business process efficiency gains over the next couple of years,” Bailey writes in a report titled The Changing Role of Forwarders.
Many in the airfreight industry also are keeping an eye on blockchain. However, it’s not currently clear how blockchain can be used to create value within airfreight transportation, Bailey says.
Working with Forwarders
How can shippers most effectively work with airfreight forwarders? To start, ongoing planning and open communication are critical in gaining access to air capacity, Castle says, adding that he recognizes shippers often use air freight when supply chains are inadvertently disrupted. That can render the notion of “planning” a luxury. Even so, “hours and days can make a difference in the solutions we can design,” he says.
“Be more mode-agnostic,” Roberson suggests. Often a combination of transportation modes can provide an efficient, cost-effective transportation solution. Of course, combining transportation modes also requires solid supply chain planning.
At the same time, consider the trade-off between the cost of air freight and the cost to carry inventory, says Seock-Jin Hong, Ph.D., assistant professor at the University of North Texas. To be sure, air freight is expensive. However, if it allows a company to cut inventory carrying costs, that may have a greater impact on its bottom line than lowering transportation expenses. “Reduce not just transportation costs, but total supply chain costs,” he says.
Air Freight Stays In Style
Air freight continues to grow, but at a slower pace than it recently has. Freight volumes are trending up at a 4-percent annualized rate, reports the International Air Transport Association (IATA), helped by strong consumer confidence and an ongoing upturn in the global investment cycle.
“This is well below the double-digit rates of 2016 and 2017 but is still faster than the average pace over the past decade,” IATA says.
“There are a lot of things to be positive about,” notes David Oxley, IATA senior economist. “However, it’s not as positive as it was 18 months ago.”
The inventory restocking cycle, which drove airfreight growth in 2016 and 2017, has largely concluded. In addition, manufacturing firms’ export order books have weakened, IATA says. Traditionally, growth in airfreight demand has correlated to changes in manufacturing, Oxley adds. The growth of cross-border e-commerce shipments, many of which travel via air freight, only partially offsets these changes, Oxley says.