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transportation had long ago been eclipsed by less-expen-sive ground services that promised precise delivery times to
cost-conscious shippers. The same pattern, Smith reckons,
is playing out abroad. Shippers and beneficial cargo owners (BCOs) coping with the uneven post-Great Recession
recovery and a quadrupling of jet fuel prices over the last
decade have stepped up efforts to cut international transportation costs by shifting some of their air shipments
to cheaper sea freight. Liner companies are obliging with
ever-larger vessels that offer shippers and BCOs unprecedented economies of scale and cost savings.
The modal conversion has been encouraged by historically low global interest rates that have minimized the
cost of carrying inventory that spends weeks on the water,
Smith said in his remarks.
BETTER SERVICE ON THE SEA
Meanwhile, shipping lines have followed the lead of truckers in the U.S. and Europe, and have come to market with
faster, more efficient, and more reliable delivery services.
This is tailor made for practitioners that want to incorporate more time-definite schedules using ocean services.
Smith said the push by liners to slow their steaming
speeds, a step taken to conserve
bunker fuel and reduce carbon
emissions, has been a boon to
customers because improved
ship- and goods-monitoring
technologies enable them to
deliver goods at “precisely the
right time.”
Liner companies are also
looking to pick off perishable commodities that have tra-
ditionally moved via air transport because of their short
shelf lives. In late January, Danish giant Maersk Line, the
world’s largest container line, said that by the second half
of 2014, it plans to equip refrigerated containers with an
air cleaning system that eliminates mold, bacteria, fungus,
and chemicals from the atmosphere and extends the life of
cut flowers and fresh produce. By preserving the quality of
these products over ocean voyages, Maersk says it hopes
to underprice air and grab market share in both segments.
According to Smith, today’s global shipping game has
three players but only two chairs. One goes to the express
services such as FedEx, UPS, and DHL Express, which
support fast-cycle shipments of high-value goods through
integrated air-truck networks along with in-house information systems and customs brokerage operations. The
other goes to the ship lines aiming at the price-sensitive,
heavier-weighted portion of the market.
Left standing is the legacy airport-to-airport model
populated by airlines and their freight forwarder or agent
partners. Unlike the so-called integrated carriers, these
companies operate disparate air and ground networks as
well as separate information technology (IT) systems and
operational processes. These siloed operations have come
to be perceived as too slow and inefficient for the fast-cycle
crowd. At the same time, they are priced too high for the
folks that can tolerate the slower pace of sea freight.
In his remarks, Smith trotted out data showing that air
express and ocean services compounded their revenue by 6
percent a year from 2004 to 2012. The traditional airfreight
sector, by contrast, showed only 1 percent compounded
annual growth during that period.
IATA, for its part, is mindful of the trends. At the Los
Angeles event, Des Vertannes, the group’s global head of
cargo, called on providers to slash 48 hours from their
end-to-end transit times by 2020 through an increased use
of digital platforms and through more streamlined processes. According to IATA, it takes six to seven days for an
airfreighted product to reach its destination, even though
it takes less than a day to fly it there. Cutting the delivery
window by 30 to 40 percent will increase the industry’s
relevance to its customers, which is currently on shaky
ground, Vertannes said.
Ted Braun, an industry veteran and today a technology
consultant to aircargo companies, says those objectives,
while laudable, do little to improve transit times and only
divert attention away from the
crisis of weak demand perpetually plaguing the business. “The
real burning problem [is] that
there isn’t enough economic activity globally to resuscitate air cargo,” Braun says.
Vertannes’ directives “distract
folks from focusing on what
IATA can’t address, much less solve,” he adds.
A HOST OF CHALLENGES
Besides soft demand, the profitability of the traditional
model will be impacted by the growing supply of capacity
in the lower decks, or bellies, of wide-bodied passenger
planes. Belly capacity worldwide will increase by 4. 4 percent over the next six months, according to the Seabury
report. What’s more, belly space will account for about 70
percent of the cargo capacity to enter the global market
over the next five years, Seabury says. Freighter capacity
will constitute the balance.
Overall cargo capacity has outpaced demand for seven
of the past eight years, according to Seabury. The trend is
likely to continue, pressuring carrier revenue and margins,
according to the firm. In response, carriers have begun
parking the older and bigger workhorse freighters like the
Boeing 747-400—a wonder plane in its heyday—that are
no longer suited for the world air freight lives in. Freighters’
high operating costs, persistent overcapacity, and the abundance of cheaply priced below-deck lift could make freighters extinct save for use by the express carriers, some believe.
