As discussion about the economic challenges in airfreight continues, many have wondered about the industry’s future viability. Recent information from the International Air Transport Association paints an unsettling picture for the months ahead.
IATA reports that cargo profitability has come under downward pressure in the third quarter of 2012; the previously detected minor economic improvement has stalled in the wake of surging oil prices. Despite some stabilization brought about by an expansion in world trade, the growth momentum in trade volumes is slowing, and business confidence has declined in recent months.
China, long considered the driver of economic expansion, has lost momentum; demand drivers, primarily in the U.S. and Europe, continue to weaken. This has contributed to declining aircraft utilization and downward pressure on rates. The sky ahead seems bleak for those depending on airfreight as their sole means of revenue.
But the news is not completely bad. While China is experiencing a softening of demand for its low-cost products, Latin America is showing an increase. Air cargo traffic in Latin America last year grew at an annual rate of 5.5 percent, the second-fastest worldwide regional pace, second only to the 8.2-percent growth rate in the Middle East. The Latin American activity may be driven by a shift in manufacturing from China to Mexico. Wage inflation in China has also contributed to this change.
This improvement in Latin America is attracting airlift from around the world. Several Middle Eastern carriers now serve the region. There has also been a shift in products passing through the U.S. from Asia to Brazil. Increased competition from European carriers has resulted in cargo transiting through Europe on its way to Latin America, reducing volumes at U.S. gateways. Many are growing concerned that this increased airlift will shortly exceed current Latin American productivity levels.
Maybe it is time for an analysis of why the air cargo business previously experienced so much success. Understanding this important history is perhaps the key to predicting when the industry will recover and what we can do to hasten its arrival.
We all know the obvious drivers that have traditionally fueled demand. These include medical emergencies, factory line parts failures, and perishability and new product roll outs. But at a time when we hear a lot about “mode shift” (code speak for cheaper), perhaps it’s time to remind our customers and ourselves that transportation cost is but one element in mode selection.
Questions regarding turn-on receivables, the carrying cost of goods in transit, inventory costs and customer satisfaction all play roles, too. Many of us find these benefits far harder to measure, sure, but they are real nonetheless.
So what are some of the concrete steps a forwarder can take to ensure that clients see them as more than just a commodity?
- Understand what keeps your customer up at night. Once you understand their challenges and concerns, you can begin to fashion solutions tailored to their needs.
- When all other things are equal, price reigns supreme. Zap! You’ve been commoditized. Don’t allow yourself to fall into that trap.
- Fully embrace modern technology. If you turn on your fax or copy machine during the day, you’re not there yet.
- Your airlines and ground carriers are not lackeys who will bow to your every command. Without them, you’re out of business. Forge partnerships of mutual respect and trust, and they will jump through hoops to see that your promises to your customers are fulfilled.
- Don’t fall into the trap of thinking of yourself as a point-to-point transportation company. Frankly, they’re a dime a dozen. Remember, you’re selling solutions now. Multi-modal assembly/distribution services, order fulfillment, returns, fabrication — all these things add to the value of your service and forge a closer bond with your customer than simple transactional transportation.
- Today, we live in a maze of government regulations. Become an educational resource for your customers, and you are sure to build a bond.
Forwarders, always seen as the orchestra conductors of shipping, need to continue the tradition of creative problem-solving. Selling solutions, not price, is a challenge in any service business. Are we up to it?
— Brandon Fried is the executive director of the U.S. Airforwarders Association