“The core of our business is to shift the traditional retail process from selling goods to better services, including better logistics services”
SASI has developed over the years to a company where we focus mostly on strategy and positioning in air cargo logistics by steering our clients completely away form the siloes that in the past have been the biggest hurdle to profitability.
First in describing what we do, I hate the term “consultant” and never want to be in that basket as we focus on the broader picture in a way those typical consultants can ever do. “Advisors to the industry”, that’s the best we could ever come up with to describe the way we work with companies to achieve a profitable solution to their business cases.
The reason for the title above of our opinion “The core of our business is to shift the traditional retail process from selling goods to better services, including better logistics services” is because that comes from the mission statement of one of the largest e commerce companies in the world, and I doubt most people are even aware of it.
Through over 40 years of the broadest work experience possible in air cargo I can now safely say I now know what we did wrong as an industry, as well as having insight in the possibilities to correct those mistakes. One of my colleagues during a recent project with a major airline to redevelop their airport hub facilities to cope with logistics not just pallets, told the client “remember whatever you do now, you will have to live with it for 20 or 30 years so take the time to get it right.” Air cargo facility capabilities on the ground at airports will make or break an airport, airline or forwarder business case through 2019 and well into the 2020s.
Over the past 40 years airlines gave away the express and small package market to Integrators who understood the customer’s product needs, and how to organise around that. 30 years ago though airline incompetence we airlines, through IATA, gave away the rest of the possibilities to retain yield through pallet pricing and giving away customer relations (the only true source of information on needs and demands so the customer can succeed) to forwarders.
Imagine what that decision to go to pallet pricing, which was totally driven by reducing handling costs at airports, has done to intermediaries positive profit margins at the expense of airlines ability to finance investments and support the high capital costs of running an airline. We still have generic rule books for minimum charges and volume calculations based on B707 and DC8 aircraft of the 60s, which have no place in todays world! And without control of the airport handling and customer expectations we lost focus.
Today we see another revolution in global logistics driven by consumer expectations where airfreight is one of the major tools in shipper and consignee satisfaction, and that is e Commerce and all other verticals requiring speed, security, safety and most of all transparency. Will the airlines and their critical partners like Airports, GHA, GSSA and I.T. companies now understand the opportunity this presents, or again fall back into load factor, FTKs out dated rules, regulations and cost reduction modes so typical of the past?
SASI clients often ask what to expect from the future market and our advice is always to just look inward into their own organisations retail expectations, their own businesses expectations for that answer. Today everything is preferably the same or next day with transparency in all aspects of the purchasing process, and delivered as promised without delays and without problems.
If you expect that as a person, why would your business accept less when ordering parts, goods and services, or even your basic day-to-day needs? This new consumer demand cannot be achieved without airfreight and a recent U.S. business review highlighted that on the front page with the comment “Now Intel chips are competing with dog food to get space on a flight”
These realities and expectations are not anti forwarder statements, as they also struggle and look to scale in network and services to meet expectations. Its not anti integrator either as they also are struggling with B to C, extremely high costs and less than efficient hub systems to be competitive.
Nothing on earth is faster than scheduled airlines point to point (PTP) flight, nothing, but we have not learned enough as an industry to leverage that new demand and expectations unless we focus on ground logistics, not airplanes as the solution. I have said it before, and will repeat as an example there is nothing different between a United or Cathay B777 non-stop flight between Hong Kong and Chicago except what they do on the ground at both ends to leverage that advantage in speed and reliability. These are obvious facts re the need for enhanced capabilities on the ground, do airports and all the players in providing airport related services understand the importance of that?
Airports and all associated industries such as Ground Handling Agents (GHA), Forwarders and shippers / Consignees and airlines can benefit if the industry gets out of the silo approach of the past and understands what is now possible. Self-interest in these vital components (silos) has led to the broken system we have today. If we do not do something soon to enable what I call a “Virtual integrator” possibility in the scheduled air cargo business, airlines and the airports they serve in the future will be relegated to bit players serving only low yield and high volume business. Catering to verticals such as Pharma, which is the focus today, will not save the scheduled cargo business as it’s too small a niche. As an industry we have to become a major player in overall logistics.
The way forward
SASI is hard at work with our Global airport and facility developer clients to implement a “Data and Logistics” corridor concept. The clients have accepted this process as a strategic objective to work with, as they see this as the way forward.
1) Full data capabilities will have to be there, and that will mean systems that support APIs, and XML a.s.a.p. We need cargo community systems (CCS) that are plug and play at all airports, linking all support entities on airport and off airport including last mile service providers and authorities. There is not one CCS in North America, unbelievable!
2) GHA and property developers need to work harder in meeting what airports and airlines are demanding which is to build facilities that will attract and support the airlines who are there, or who want to be there, or do not bother bidding for access. Airline route development managers are telling airports that on average 20% of revenue on trans border flights is now coming from cargo. At the same time passenger yields are declining so awareness is definitely there of the potential. GHAs need the airline clients to forge a new relationship with them and confide and speak up on their business plans and product development objectives. Without that greater awareness how can they facilitate that strategy through the entire network. As it stands now GHA are increasing faced with requests for increased services, yet a “purchasing manager” approach is taken re pricing and length of contracts.
3) As an industry we must engage the major suppliers of Material Handling Systems (MHS and ASRS) that support e commerce and express shipments of less than 300 kilos, plus larger consignments as well in this strategy. These systems are expensive, but necessary at airports as the old school way of engineering facilities on airport was based on “dwell time” meaning ensuring space and systems could cope with peak demand for storage and for how long. Today the emphasis must change to how fast in minutes or hours can I move the cargo into and out of the airport facility. That will lead to common use “machine, cargo” interface developments and solutions we believe.
4) Airline CEO and CFOs have to realise that what they are seeing today regarding the increasing value of air cargo contribution to their bottom line and the ever lower fare passenger expectations at the same time is at a crossroad. I can guarantee you that on most long haul passenger flights cargo can produce a better result for the bottom line for airlines if they focus on a value based product portfolio that meets the
E Retailers needs. Yet not one airline revenue management system employed, or offered by I.T. companies takes this into account so they remain in total ignorance of the possibilities.
5) If airlines and airports still want to manage a multi billion dollar industry through averages created by industry associations like IATA, FIATA, Airports Council International (ACI), TIACA etc., then its now time that they step up their game and decide how they can help create this new world, not just for the benefit of their individual members behind closed doors with so many differing objectives. Nothing will work without a common cause to improve, who will lead this? This is my greatest concern.
Last would be linking this together to allow a “virtual integration” of services in the scheduled airline business where all parties in the chain will benefit. Ground capabilities in logistics are a first objective and a must to achieve. Airlines invest heavily in change at their home base, but any chain is only as strong as its weakest link, therefore they must actively support and lobby the airports they serve globally to improve and support their business plans and objectives, make your voice heard!
If we don’t do this Amazon and large Asian entities such as Cainiao, JD.com, SF express and the hundreds of others will continue to be forced to develop this capability in house in a closed loop environment, they will do it themselves as Integrators were forced to do 25 years ago with express. This will drive freighters to regional airports more and more and away from existing hubs; I know they would prefer to avoid this.
Amazon I am sure would have preferred to tap into an existing operators system in the USA if its service requirements could have been met, but that did not exist so they did it themselves. Domestic USA without borders is quite different and less complex than trans border and the e commerce world is global not regional.
The opportunity for us all is there will we miss the boat?
President and CEO
Strategic Aviation Solutions International
Published Cargo Airports And Services Magazine (CAAS)