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Supply Chain Issues Continue

We know of the supply chain disruptions and the impact they have on the economy. We see grocery stores with bare shelves, inflation rising with scarce goods and even impacts on payment disputes among trading partners. At the same time, we see economies around the globe opening up and hitting growth numbers not seen in decades. For instance, the US saw a  booming economy with a growth rate of 5.7% for 2021 –  but will we see an end to the supply chain issues in 2022 or even in 2023?

Let us be honest, Covid will not be going away. As countries roll-out vaccinations to their population, you will see more countries roll back mask mandates and allow economies to get even stronger. However, the effect of all that positive news is more stress on already fragile supply chains. More people out and about traveling, shopping and dining out mean more consumer demand. 2022 will be a year where things will improve slightly at the end of the year but the supply chain disruptions will move into 2023. And we cannot forget that we have no idea whether there will be another Covid variant that may have an impact. This undoubtedly leads to uncertainty, especially in 2022.

Ports continue to suffer from delays. For some ports, like the Port of Long Beach, there can be a waiting time as long as 6 weeks. These delays further intensify the supply chain issue. Interestingly, this has led to some retailers beginning to hoard and use excess warehousing capacity. Again, this is a short-term issue but it further demonstrates the reality of current supply chain issues.

Of course, all of this has exacerbated inflation. Costs have rocketed for every mode of transportation in the supply chain. According to Bloomberg, there was an increase in trucking cost of 18.3%, a rise of 29% in ocean freight costs as of January of last year, and the cost of shipping by rail had the biggest growth in 12 months ever. Finally, inflation, according to Bloomberg, was the “highest in a decade.”

All of the existing economic factors, combined with other external issues, continue to support air cargo growth. However, supply chain disruptions were slowing growth because of labor shortages, quarantined employees, and shortages in warehousing at some airports. Moreover, the issues with processing delays because of the end of the year activities further drove cost increases for air shipping. Given the current conditions, these costs will likely be passed onto their customers.

We will continue to keep an eye on the supply chain issues and the impact on air cargo, but it’s very unlikely we will see significant improvements in 2022 – which means 2023 will be even more interesting.

Zoned Out

Sticking with a Superbowl theme I want to talk about zones, not end zones, but ground delivery zones. UPS, USPS, and FedEx each have their respective zone maps, and there is a direct correlation between zone and price, “How much to ship to zone 8?”  The next correlation is time, “How long will it take to reach zone 8?”  This factor directly impacts customer experience and by extension sales and consumer loyalty.

In the current industry state, all retailers are programmed to operate within the constraints of the zone models dictated by the carriers.  The available solutions to address these constraints include setting up multiple distribution centers or using warehouse and fulfillment partners.  These solutions can be costly and complex to implement but do help retailers optimize shipping costs and enhance customer experience.

At the 2022 NRF and Manifest tradeshows, I was able to view a huge variety of services, technologies, and people trying to change this approach. According to the Wall Street Journal, “Supply-chain technology startups raised $24.3 billion in venture funding in the first three quarters of 2021” We all know retailers and manufacturers want cheaper and faster, with greater transparency. So, my biggest question is, how do we start?

When I joined SmartKargo in October of 2021 I wrote a post about how excited I was to join the team.  Since then my excitement has grown exponentially.  When we power the e-commerce delivery engines of our partners like Volaris and Indigo, we disrupt the status quo. By empowering airlines to transport e-commerce packages on their airplanes and existing flights, we can provide retailers with an innovative solution. We can get a package from New York City to Los Angeles much faster than moving a ground package from zone 2 to zone 8 for far, far, far greater value.

For an innovative retailer, they can truly differentiate their delivery as part of their brand by moving their product further distances at greater speed and exceeding the expectations of their customer. And do it while getting far more value – because the airplane is already heading in that direction, in some cases, 3-4 times a day, this allows us to offer a cost-competitive with a ground rate.

Looking at innovative solutions like SmartKargo can help your bottom line and enhance your customer experience. You just need to worry a little less about the zones and think about faster time, greater distance, and higher value –all of which we need a little bit more of today.

 

Air Transportation Optimism Prospers

There is truly a reason to be optimistic – In case you had not seen UPS had a great quarter.

They beat expectations and beat FedEx and UPS with 97% on time deliveries over the holidays. The one thing I took away is, there are still great opportunities in the logistics market. Whether you are an air cargo company, airline, or e-commerce delivery – the opportunity is great, and the window is now.

There are still supply chain issues as the globe navigates Omicron and the pandemic. And we will continue to see these issues throughout 2022. We will see divergent changes in the globe. China has been in lockdown to stop the spread of Covid. Other Countries are beginning to move forward and dropping pandemic safety measures like Sweden. This will further open the opportunity for air travel as we get back to pre-pandemic travel levels. This will open further opportunities for airlines and extend into e-commerce specific revenue.

Air cargo is benefiting from the continuing supply chain issues.  The challenges at many of the global ports provide an opportunity for Air cargo companies to take advantage of the congestion and Omicron supply chain disruptions.  According to the International Air Transport Association (IATA), demand for air cargo rose by 7.9% in 2021 (compared to 2019) and is on track to grow by another 13.2% during the coming year.

We will see global e-commerce sales reach $5 trillion in 2022 and $6 trillion by 2024. And countries like Mexico, India, and Brazil are seeing significant growth rates of over 20%. This is an organic opportunity in many of these countries. Airlines do not need to worry about affecting their current partnerships, utilizing their excess space in the bellies of planes can drive a new revenue stream by using e-commerce delivery.

All of us in airlines and air cargo should all be optimistic. We see logistics providers generating great returns and utilizing technology to make the companies more profitable. Countries will open from the pandemic throughout the year and begin to look at air travel for family visits and vacations. The supply chain disruptions will continue to provide opportunities for air cargo and e-commerce. Although countries are opening, they will be opening at a different rate will means air transportation may be the best option in 2022.

The Need for Speed

I am a movie fan, and when I heard that the next Top Gun is coming out, I was reminded of the scene with one of the film’s most famous quotes, “I feel the need for speed, the need for speed.” Now, this sentiment is completely relevant to today’s e-commerce customers. E-commerce companies are in a constant balancing act. The e-commerce market is huge, growing fast, and is expected to be a $6 trillion market by 2025. Retailers want to ensure they are paying the lowest cost to get a package from point A to point B, while their customers want ASAP service, As-soon-as-Possible. Current consumer expectations for delivery are next day or at the absolute minimum, two days for delivery, even with known constraints of ground transportation in many countries.

Given the growth and adoption of e-commerce and the speed of change due to Covid across the globe, the expectations of e-commerce customers are to get their packages fast. It is becoming the norm across the globe, with expectations growing fast in countries like Mexico, Canada, and Brazil. Moreover, e-commerce is growing far faster in other countries, compared to the US. According to eMarketer, India, Brazil, Russia, Argentina, and Mexico all grew over 20% in retail e-commerce sales in 2021. And these countries will continue their double-digit sales growth.

However, many of these countries are vast lands and, unlike the US and Western Europe, do not have well-established ground transportation networks. In addition, many countries have terrain that makes ground delivery difficult in certain geographical areas. This creates limitations for the e-commerce company, and more importantly, extends these limitations to your customer. As a result, many companies choose air transport – considered a pricey option for many retailers. And recent studies have shown that many customers are not willing to pay extra for a faster delivery option. So, are you left with giving your business to the ‘Amazons’ of the world with their own logistics and global contracts with carriers like DHL, FedEx, etc.?

This is where new partners in e-commerce shipping and delivery such as Azul, Wideroe, Indigo, Volaris, and Air Canada can help. These well-known passenger air carriers can deliver at great distances. because they are heading there every day with scheduled service. And SmartKargo powers its e-commerce solutions with advanced technology that streamlines the shipment journey from the online transaction to the end customer. As an example, Indigo already has flights to and from Mumbai Guwahati and they can easily deliver e-commerce packages to and from the area. Since Guwahati is a difficult terrain to navigate, air transport provides a natural advantage. All of the partners mentioned have the air advantage and can provide next-day air delivery, at near-ground rates. These partners are experts in air travel and have the security and the innovative technology to ensure your package gets there at the right time and at the right price, all to the delight of your customer.

Air Cargo Strong growth in 2022

Air Cargo was the hero in many ways in 2021. It was able to deliver Covid vaccines globally and provide food for those countries in need, while also ensuring that e-commerce shipments made it to their destination – even while other modes were mired in bottlenecks. The airline industry was adaptable and continued to evolve in 2021 to meet the needs of commerce during a world health crisis. 2022 should be even better for the Air Cargo industry.

Overall, worldwide air cargo traffic is expected to be approximately 69.3 million metric tons in 2022. This growth is fueled by the expectation of robust e-commerce and more planes in the air this year. Moreover, airlines will continue to utilize the passenger-to-freighter (PTF) model as a continuing trend to generate additional revenue, at least until the EASA and FAA deadline for the preighter usage ends in July.

The global supply chain bottleneck will continue into 2022. We still have issues with cargo ships and containers which weigh heavily on global commerce. This is a great opportunity for air cargo to promote and provide additional capacity at a premium price in the first half of 2022. The second half of 2022 will see an abatement in the bottleneck as manufacturing increases, inflation eases and people come back into the workforce.

The Omicron Covid mutation is front of mind with most industries. Unfortunately, it is highly contagious, and it will spike after the holidays. It has already impacted air travel; however, with milder symptoms. If we do not see any major mutations, it is expected to be a short-term issue allowing air travel to continue to move toward 2019 levels. This is something I know we all have our fingers crossed for in 2022.

The pandemic forced or accelerated changes to the Cargo industry that were already moving, but at a slow pace. The digital transformation of airlines has hastened as well as the adoption of consistent standards for the cargo industry. This is key as the air cargo industry continues to shift to a view focused on the rewards of e-commerce shipping and delivery – from a view centered on purely containerized and palletized freight.

The opportunity ahead for air cargo is tremendous. There will be rate and volume increases in standard cargo as well as e-commerce packages. 2022 will be a year where passenger airlines will continue to increase flights, as many of us want to get away to travel the world again. Those extra flights are opportunities for airlines looking to continue to grow their volumes and their cargo revenues every year.

Taking E-Commerce to the Skies

E-Commerce requires a different way of thinking about air cargo. Yet, while a change in mindset is never the easiest thing to come by in our industry, there really is no better time than now for airlines and air cargo carriers to start playing a significant role in e-commerce transport.

On Tuesday, November 16, I was fortunate to moderate a panel at the Dubai Airshow on the state of e-commerce as it relates to the ever-evolving air cargo industry. I was joined on the stage by Teddy Zebitz, CEO of Saudia Cargo, and Abhishek Shah, Co-Founder, and CEO of RSA National. The insights provided by these two gentlemen were invaluable, and they offered the audience with essential perspectives for industry experts and leaders considering e-commerce air cargo for the first time.

One of the highlights of our discussion was the astounding rates at which e-commerce continues to grow. It is anticipated that between January 2019 and December 2021, there will be close to a 45.8% increase in e-commerce as a percentage of all global retail sales.

While some of this is a natural outcome of the global pandemic and some imposed shifts in consumer behavior, we are seeing compelling trends indicating that the migration to e-commerce is permanent and will be resilient far beyond the initial impacts of the pandemic.

In our conversation, we explored the many facets of e-commerce and air cargo, particularly how it can lead to significant revenue across the value chain. We discussed how collaboration and data must go hand-in-hand and how critical it is for airlines to examine their approach with that of air cargo. Moreover, we see how businesses may be approaching e-commerce via their own business, partnerships, or others.

With the need for millions of e-commerce packages to be transported every day, airlines are poised to reimagine air cargo with the right technology. The demand is at an all-time peak right now, and airlines have the upper hand when it comes to getting e-commerce packages from destination to destination quickly and efficiently.

We all agreed that with the right technology, data sharing, and collaboration, airlines would capitalize on this tremendous global opportunity.

Observations – The ALTA Airline Leaders Forum

Earlier this week, I attended the 2021 ALTA Airlines Leaders Forum in Bogotá, Columbia. Our company was pleased to be a Prime Sponsor of this premier Latin American airline event. Over the three-day event, I met with key leaders from over 50 Latin American airlines, ALTA, IATA, the financial services industry, and had the privilege to meet and listen to the President of Columbia, Mr. Iván Duque.

One of our successful clients, Azul Brazilian Airlines, was represented by their exemplary CEO, John Rogerdson. Mr. Rogerdson was on a panel that discussed the role of air cargo during the global pandemic. This panel, moderated by IATA’s Peter Cerda, VP Americas, consisted of Mr. Rogerdson, Andrés Bianchi, CEO LATAM Cargo; Gabriel Oliva, CEO Cargo & Courier, Avianca; and Andreea Pal, CEO Fraport. Mr. Rogerdson and his peers reflected upon the changes in infrastructure, public policies, connectivity, security, and logistics over the past 23 months since the earliest days of the pandemic. The insights of this panel were representative of our experience across the board with other clients of SmartKargo.

As discussed at the ALTA Airlines Leaders Forum, air cargo has played an integral role during the pandemic. Air cargo is critical for speedy shipments of necessary medical supplies like vaccines and personal protective equipment (PPE). Airlines have the singular ability to transport cargo across long distances same-day—something desperately needed for temperature-sensitive vaccines and other medicines.

Finding ROI through Air Cargo + E-Commerce

In essence, the changes and progress made in air cargo over the past nearly two years are leading indicators for exciting developments forecast across the industry for the next 3-5 years. There is substantial revenue potential for airlines in the air cargo space from not only vaccine and PPE distribution but also e-commerce as consumers turn more and more to online shopping.

From personal experience here at SmartKargo, we also know that the pandemic has been a massive boon for retailers across Latin America but also in the delivery of e-commerce products that needed to be delivered quickly to people who had to stay home more often. This overall shift in consumer behavior is reflected in a surge of e-commerce growth for Latin America. In some countries, the growth in online eCommerce has reached and surpassed ~70% last year!

Latin American E-Commerce Surge

According to Americas Market Intelligence, e-commerce growth throughout Latin America is expected to be in an impressive range between 21% growth and 42% growth by 2024. Brazil, home of our client Azul Brazilian Airlines, is expected to see a 30% growth in e-commerce by 2024 and Peru, a staggering 42% growth rate. The adoption rate of mobile devices across the region continues to propel e-commerce across the region. AMI predicts that 75% of all e-commerce purchases will be made via mobile device by 2024 in Latin America. Even better for airlines is that 14% of all e-commerce transactions made in Latin America will be cross-border. Our airline clients like Azul Brazilian Airlines have demonstrated that e-commerce is a promising path forward for the air cargo space, particularly in a high-growth market like Latin America.

It was a pleasure being a part of the 2021 ALTA Airlines Leaders Forum in Bogotá, Columbia. To all of my industry colleagues present at the conference, it was great to discuss the future of airlines in Latin America and, particularly, the exciting times ahead for air cargo and logistics with e-commerce.

 

 

How Do We Anticipate the Future of Air Cargo?

While Q4 will bring unique challenges to the air cargo industry due to ongoing issues with the global supply chain, we remain confident that the strong growth we’ve seen over the past two years will only continue in the coming years. August 2021 numbers showed promising growth of global demand over pre-pandemic August 2019 numbers. Global demand for air cargo is up 7.7% measured in cargo tonne-kilometers (CTKs) which is 3% higher than the long-term average growth rate of 4.7%.

In a few weeks, our team will be in Dubai for the Dubai Airshow discussing the future of air cargo, and I will be highlighting SmartKargo’s significant learnings and points of view in this space. My presentation will examine how airlines can devise new strategies to adapt to the future of cargo by figuring out their role as they manage the supply chain and focusing on the things that make them most successful and profitable.

There has never been a more critical time to consider investing in a technology partner in the air cargo space. To prepare for tomorrow’s demands, airlines will need to establish means to get ahead. We maintain that to do that, airlines will need to embrace cutting-edge technology, enabling them to create new business models that are forward-looking and anticipatory. In essence, leverage technology to enforce what they want to do to grow revenue and make the most of the organic global growth, we’ve seen over the past 24 months.

And with that, airlines are now able to do one of several things with their air cargo business: keep their existing model, own part of the logistics supply chain, outsource the supply chain entirely, or conversely, own 100% of the supply chain. All can be made available to today’s airline. Airlines should not feel completely bound to their old way of operating with cargo and e-commerce. Depending on which model they choose, airlines will be able to decide how much control they want over their supply chain as they adapt to the future of air cargo. And with those decisions a corresponding revenue.

What we have seen with our partners is that there are a few key models that airlines can follow to generate critically important revenue from air cargo right now: palletized cargo, a combination of palletized and e-commerce cargo, and, most profitably, fully implemented e-commerce cargo. There is an incredible opportunity in the air for airlines who embrace e-commerce air cargo transport. Our team estimates that global airlines’ annual potential e-commerce revenue is upwards of $648.3 billion alone.

If you are searching for higher ROI with your air cargo, we suggest looking at e-commerce. The average package is smaller (2-4 kilograms) and is more profitable on a per kilogram basis than purely palletized cargo. E-Commerce packages can fit into the underutilized belly space of most narrow-body and wide-body passenger planes, and retailers can take advantage of an airline’s pre-existing flights and fleet.

While we don’t profess to have every answer of what will happen in the next few years of air cargo, one thing is certain. There is room for e-commerce, and for airlines that choose to embrace owning more of the supply chain and optimizing the trends just described, ROI will follow.

Chaos the Fuel of Innovation

Disruption causes chaos and chaos is what logistics is in today. Some may say chaos is too extreme term, but it is the right term. We see container ships waiting 4 weeks plus to dock and a shortage in those same containers. We are seeing restrictions on e-commerce package shipments around the world and rising costs. E-commerce is in double digit growth across the globe. We all know much of this is a result of the pandemic, but it did not trigger these, it simply accelerated the changes in the market.

Where there is chaos there is great opportunity. There are VC firms that are now focusing only on logistics investments and more on the way. The overall supply chain VC investment topped $50 Billion in 2020 and is on track to exceed that number in 2021. These innovative companies are looking to disrupt the logistics market and drive revenue for airlines, ground transportation, shipping containers and a variety of new logistics services.

So, what does a person do who wants to join in the innovation and disruption; join SmartKargo.  Many of my colleagues were surprised at my decision to leave a company that I had been a part of for 18 years. UPS is 114 years old and a leader in what it does. It has processes and viewpoints that will continue to capitalize on that expertise and the future will look very similar to the past. I realized that I had done what I could do at UPS and that remaining, did not promise to actively anticipate in innovation and disruption in the logistics area. I was looking for something innovative and visionary, and SmartKargo is a leading cloud provider of logistics solutions that extend markets and enhance revenue growth for global airlines and ecommerce companies.

Global e-commerce sales accelerate from an estimated $5 trillion sales globally this year to a projected $6.4 trillion in 2024. This is the key for me to join SmartKargo – We utilize the existing space in airlines planes to ship e-commerce packages from cart to the door. This market is exploding and when I saw the pioneering solution, I knew this was the place for me. When we see companies like Azul and what they have been able to accomplish with the SmartKargo solution and transforming into a leading cargo company in Brazil. There are so many more companies in India, Canada, Norway, and the US that are driving more revenues from e-commerce than they ever envisioned.

My decision to leave my career of 18 years involved significant risk. But I wasn’t happy with the status quo and knew I would not achieve my personal goals if I remained. The only way to get where I wanted was to do something different, to try a new way, a different way. That’s where the industry is today.  If you don’t adapt and seek out new and innovative ways of achieving your goals, you may get left behind. I am on the right track but if you doubt me I would argue that when Sunday morning news programs like GPS on CNN begin show news on logistics and supply chain chaos it is a great time to join a company that is helping airlines and ground shippers increase their revenue and drive innovation.

It’s Time to Capitalize on E-Commerce

The Dubai Air Show is coming up in a few weeks, and on November 16th, I will be moderating an exciting panel entitled “How to Capitalize on E-Commerce.” Panelists featured are Mohsen Ahmad, the CEO of Logistics for Dubai South; Abhishek Shah, Co-Founder and CEO of RSA National; and Marc Houalla, Executive Director, Paris-Charles de Gaulle Airport Managing Director, Groupe ADP. SmartKargo has been at the forefront of helping airlines figure out how to capitalize on the impressive e-commerce surge over the past few years. We know this panel will undoubtedly provide informative insights into how innovative approaches to air cargo can change the face of e-commerce delivery.

From our experience at SmartKargo, the explosive e-commerce growth we’ve seen over the past two years is both global and organic, and its spike came from the most unusual and unfortunate of sources: the global pandemic. It goes without saying that COVID-19 has impacted the entire world, and it has changed the way people view commerce transactions and engage with retailers.

The pandemic has driven a dramatic change in consumer behavior with respect to e-commerce. More than ever before, early 2020 prompted a stark need for consumers to get products into their homes and workplaces more safely—which almost always translated to much less use of brick-and-mortar retail stores. Despite more retailers re-opening their physical stores in 2021, the rise of e-commerce continues, and the opportunity for airlines to ship e-commerce packages has never been better. Here is a fact we like to share often: e-commerce growth sales are projected to grow globally at a CAGR of 6.4%, from an estimated $5 trillion this year to a projected $6.4 trillion by 2025.

We know that for airlines to capitalize on this impressive CAGR, they will have to think differently about their passenger-to-cargo relationships. With passenger revenue still underperforming relative to 2019 pre-pandemic levels, airlines need to create additional revenue. The profitability of e-commerce packages is a significant component of not only offsetting but increasing revenue. On a per-kilogram basis, e-commerce air cargo is by far the most profitable type of air cargo. By increasing air cargo through e-commerce package delivery (averaging between 2-4 kilograms each package), airlines can increase revenue now, when it’s needed the most.

Right now, as we start the fourth quarter, we need to think differently about the future. We need to think of air cargo as a demand-pull to get the most out of organic growth. Airlines already have a great deal of information about their passengers. Passenger information is rich in data points, and it will inform an airline’s foray into e-commerce. Here’s our message to our airline partners: your passengers are also e-commerce buyers. You already know their behaviors in one area in which you specialize. E-Commerce air cargo is simply a fantastic extension of that body of knowledge.

I am looking forward to our panel with these three industry experts as we discuss these and other opportunities in the exciting world of e-commerce. We will update our readers after the event to share highlights to partners and supporters who cannot attend the Dubai AirShow event. In the meantime, we hope that these exciting trends help you to consider breaking with the norm. There is much innovation happening right now in our space, and the time to act is now.

Cargo: The Unspoken Hero of the Air

From November 14-18, 2021, SmartKargo’s CEO Milind Tavshikar and I will be attending the Dubai Airshow with the key leadership team members. We will be joining industry leaders from across the world as we contemplate and anticipate the future of air cargo. We are thrilled to be a part of this vital air cargo and global air traffic management event.

In a preview of what we’ll be discussing, we will highlight all the remarkable developments in technology in this space. I’ll be leading a panel on how to capitalize on e-commerce through the innovative use of air cargo with representatives from Dubai South, RSA National, and Group ADP. Milind will be speaking on various topics, including ways to adapt to the future of cargo and build a resilient cargo ecosystem.

Air Cargo Continues its Growth Trajectory Despite Pandemic

According to IATA, the July 2021 global air cargo demand was up 8.6% relative to 2019 as measured in cargo tonne-kilometers (CTKs). They also assert that current economic conditions support air cargo growth. Willie Walsh, IATA’s Director General, stated, “July was another solid month for global air cargo demand. Economic Conditions indicate that the strong growth trend will continue into the peak year-end demand period.”

Here at SmartKargo, we solidly believe the future of air cargo has incredible upside potential, and e-commerce parcel delivery on both narrow-body and wide-body planes will be a great source of currently untapped revenue for airlines worldwide. Pre-pandemic, there were approximately 38.9 million total global flights across domestic and international airlines. Due to the pandemic, the number of flights significantly decreased. However, we anticipate that with the acceleration of vaccinated passengers going back to air travel in 2022 and a substantial rise in e-commerce, those numbers will slowly continue their hastening back to pre-pandemic levels.

E-Commerce Revenue Potential by the Numbers

Because airlines can use existing fleets, current flight patterns, and already established security and warehousing, airlines are poised to tap into this great source of recurring revenue that will add to both top and bottom-line revenue.

Using our estimates based on existing partner outcomes, we anticipate that flights should resume to their pre-pandemic levels by 2022, and, assuming fifty percent of their fleet is comprised of narrow-body planes, there is a global opportunity of $649.3 billion in potential e-commerce revenue on an annualized basis for airlines.

We like to refer to this revenue growth potential as an “opportunity in the air.” As we have already begun to see with our current airline partners in Norway, Mexico, Canada, and India, the future of air cargo for e-commerce is one a burgeoning revenue driver and that has the potential to make up for weaker business travel and passenger sales on traditional passenger airlines due to large-scale events like the global pandemic we are currently facing. We have found a way to capture additional revenue—and that future, we believe, is e-commerce air cargo.

What I learned at the Airline Strategy Awards

The Airline Strategy Awards held in London yesterday, on September 27, provided me with the good fortune to spend quality time with colleagues in the industry as we recognized outstanding leaders in air cargo leadership. Nominees were reviewed against key criteria, including network strategy, business performance, and innovative thinking during the pandemic crisis. We were so excited to sponsor the first-ever cargo award and even happier to present it to Ethiopian Airlines Cargo.

As I reflected on the past couple of years since we last met in the fall of 2019, it occurred to me that so much has changed in the industry—particularly in our air cargo space. The pandemic truly changed the world we live in, both from a societal to a business industry standpoint. We have been impressed with how adaptive airlines have been during this crisis while facing their biggest headwinds, possibly ever.

In 2020 alone, the global airline industry had to stave off a loss of $391 billion in revenue. To recapture some of that revenue loss, passenger airlines across the world had to come up with alternative strategies to make up for very low passenger volume. Many turned to implement an incremental air cargo strategy on passenger flights (both on wide-body and narrow-body planes) as a source of supplemental revenue.

Inspirational Vaccine Distribution through Air Cargo

Once there were approved vaccines beginning December 2020 for COVID-19, many in our industry stepped up quickly to aid those worldwide by distributing critical vaccines. Air cargo space was available due to lower passenger levels on passenger planes, and airlines used that vital space to get vaccines to needed locations. However, because of the nature of the vaccines (temperature-sensitive, etc.), it was a logistical feat to get these vaccines where they needed to be.

According to a study from DHL and McKinsey, at least 10 billion doses are needed worldwide (conservatively)—which would require 15,000 flights. The winner of today’s award for air cargo, Ethiopian Airlines, played an instrumental role in the distribution of vaccines in Africa. In addition, SPICEJET of India, Azul Brazilian Airlines, and many, many others are playing critical roles in transporting vaccine consignments in their regions. We attribute much success of increased vaccination distribution to the innovative solutions in logistics provided by the airline and air cargo industries.

Global Demand for Air Cargo is Approaching Double-Digit Growth

Overall, the growth trends for air cargo are improving rapidly. According to IATA, global demand increased 9.4% between May 2019 and May 2021 as measured in cargo tonne kilometers (CTKs). This incredible growth is approaching double-digits this year relative to pre-pandemic levels, and we are excited about the prospects for airlines around the world as they explore new ways to capture revenue through air cargo.

Air Cargo Solutions for E-Commerce

While the pandemic has wrought seemingly endless havoc to society in the past two years, there is one very bright spot as it pertains to the air cargo space. In addition to vaccine distribution, we are also seeing passenger and cargo airlines enhance their revenue through e-commerce parcel delivery.

E-Commerce sales are expected to grow globally at a CAGR of 6.4%, from an estimated $5 trillion in 2021 to a projected $6.4 trillion in 2024. The explosive expansion of global e-commerce presents a markedly optimistic opportunity for the air cargo industry. Airlines can now optimize unused belly space in their existing wide-body or narrow-body planes to ship these smaller e-commerce parcels—typically between 2-4 kilograms in weight.

The CAGR forecast from 2021-2025 globally is a 6.29% growth rate, promising news for airlines looking to embrace the e-commerce cargo shipping phenomena. As more and more global nations adopt e-commerce shopping habits, we expect these international e-commerce growth rates to be a substantial upcoming opportunity in cargo air transport in the coming years.

Using our estimates based on existing client outcomes, we anticipate that, should flight resume to their pre-pandemic levels by 2022, and, assuming fifty percent of their fleet is comprised of narrow-body planes, there is a global opportunity of up to $649.3 billion in potential e-commerce revenue on an annualized basis.

Again, we wish to congratulate Ethiopian Airlines on their outstanding achievement of earning the Air-Cargo Leadership Award 2021. Their immense and meaningful contributions to their region through providing critical vaccines to identified areas in Africa were critically significant in the global fight against COVID-19. As with all of our current airline partners, all of which operate in the air cargo space, we have much to be grateful for as we begin to look forward to 2022 and beyond.

 

The Classic Demand-Supply Curve is in Play

I was reading an article about the latest announcement by FedEx to raise rates in 2022. We all know e-commerce shipments are rising in volumes by the day, and the 3PLs will have trouble meeting the demand during the upcoming holidays. Most of us were hoping, with the vaccines, that the world would see a move to pre-pandemic activities, but that has not been the case. However, there are several factors driving the rise in 3PL costs, and there are corresponding opportunities for other players.

One of the key cost inputs is labor, and many industries are facing a shortage of labor. But last-mile has faced a unique issue. The availability of labor, especially drivers who can run the last mile, has dropped due to a variety of industries such as food delivery, pharma delivery, office supply delivery, wine delivery, and more trying to engage with any available delivery resource or service. This increased competition for resources is fierce in the labor market.

As a result, an opportunity exists for existing transportation suppliers like FedEx to take full advantage of the current scenario by increasing the prices of their products, as recently announced. This scenario will keep happening until either the demand for e-commerce shipping decreases (unlikely) or the supply of drivers increases, which is somewhat unlikely given the tight labor market and lucrative other options for an unorganized workforce. Companies like FedEx will take the opportunity to increase profit margins at the cost of the buyer. It’s a no-brainer.

Now, there is an opportunity for other players operating in adjacent spaces to enter the market, charge an attractive price, and offer comparable or better service levels. Airlines have been carrying commercial cargo for decades and now have an opportunity to use innovative technology solutions like SmartKargo to become a meaningful player in the express logistics industry. With SmartKargo, an airline can transform itself into an express logistics player in a  matter of months. Airlines already have the capacity and have flights into many cities–again, it’s a no-brainer.

There is profit to be made in an industry always looking for extra dollars. When companies like FedEx and UPS (who also announced rate increases late last year) can raise prices and demand keeps going up—the time is right to take advantage of the opportunity and drive new revenue. We have already seen this work for Azul in Brazil and many other airlines in India, Mexico, Europe, and North America. Airlines have a great opportunity in front of them!

 

 

There are 109 days until Christmas

I live about 350 miles from my mother, and last year, I got my Christmas present from my mom (a robe – a true mom gift) about three days late. Now I am a big boy, and I certainly understand the impacts of the pandemic and the issues challenging e-commerce in 2020. Unfortunately, we may be in for more of the same this holiday season, and I hate to say it, maybe even in 2022.

In 2021 we have seen so many logistics impacts. These include ocean shipping accidents, container shortages, employee shortages, and raw material shortages, just to name a few. When we add in the Delta variant, this is also hitting airlines who were just starting to see volumes increase. Moreover, the delta variant has made the need for masking and limiting exposure to very public places across the globe. Subsequently, we do not see a reduction in e-commerce many had predicted for this year, but instead, increases in demand for both e-commerce products and e-commerce shipping.

During the holiday 2021 season, the estimate tells that “7.2 million more packages will need to be shipped each day this holiday season than the system can handle.” Many logistics services will work weekend deliveries, but this will not be able to make up for the excess demand. E-commerce companies cannot afford to have their shipments delivered late or not at all during the holiday season, as one bad experience ruins their opportunities for future sales.

Airlines can drive more new revenue with Air Cargo. We know there will be a shortfall in passenger traffic in 2021 and beyond. And e-commerce is expected to grow at around 6.5% CAGR globally. There is a tremendous revenue opportunity here for airlines. One of our phenomenal airline customers, Azul, has driven new revenue with its expansion into e-commerce air cargo. And the results are impressive. Azul has an overall 20% Market share in air cargo in Brazil with a 60% market share in air cargo e-commerce distribution. And they are growing at a pace of 8%-10% per month.

Plato said, “Necessity is the mother of invention.” In today’s world, Airlines can be innovative and drive additional revenues with air cargo. E-commerce will only grow. And with more business meetings moving and staying online, airline business travel is likely to diminish. That makes e-commerce a tremendous opportunity that is also extremely important for airlines. So, help out my mom and make sure her favorite son gets his gift on time.

Revenue vs. Sustainability for Air Cargo?

Is increasing Revenue and Sustainability Diametrically Juxtaposed?

According to IATA, air transport is responsible for as little as 2% of global carbon emissions as of 2020. That said, there is a concerted effort across the industry to reduce net carbon emissions by an additional 50% by the year 2050. 

The past several years have resulted in significant strides toward the 2050 goal. We have witnessed the airline industry’s near-universal desire to decrease its global environmental footprint through some of the following: increased fuel economy (with some even using biofuels), reducing weight on planes, and making flight schedules more efficient. 

However, the juxtaposition of these sustainability efforts is that airlines still need to be profitable to their shareholders, deliver passengers and cargo on time, and keep expanding their domestic and international routes to satisfy growing demand. We maintain that one method in which airlines can increase sustainability efforts while still increasing revenue is through the delivery of smaller e-commerce packages.

E-Commerce packages are, on average, 2-4kg in weight—much lighter and more flexible to transport than their heavier cargo pallet counterparts. The capability of these e-commerce packages to fit on existing flights adds no significant amount of weight making the method of air cargo transport much more sustainable than traditional cargo pallets. There is no need to add to an airline’s fleet to adopt the delivery of e-commerce packages. Instead, using SmartKargo’s e-commerce platform, airlines can use their existing fleet and schedules to deliver packages domestically, and in some cases, globally in as little as a few hours.  

In addition, most airlines today take advantage of more fuel-efficient planes, and we expect this trend to continue as technology advances across the industry. These smaller packages, coupled with fuel-efficient planes, can provide the airline industry with some significant steps toward future sustainability—all while increasing the bottom-line revenue so needed by the airlines.

The one-two punch

There’s no doubt, the dynamics in air cargo are changing. And while many will say they have heard this before, most agree that the Airline Industry has been changed permanently by the pandemic. In light of this, many airlines are looking to create additional revenue streams to mitigate losses expected to continue into the foreseeable future.

And while the traditional airline cargo business model has typically focused almost exclusively on the middle mile in the logistics chain — moving freight in containers and pallets on wide-body aircraft for the world’s freight forwarders — there is now a new opportunity to develop an e-commerce business line to run alongside the traditional model. The concept is akin to the one used in boxing, where a jab with the left hand is followed by a hard blow with the right. Known as the ‘one-two punch’. Airlines not only can but are, building enormous new revenue streams by adding that second business line, with e-commerce package transport. By implementing proven technology and processes, SmartKargo is helping airlines set up an e-commerce business line quickly to build a powerful new revenue engine that complements the traditional business.

We all know that the shipments driven by online purchases are usually around 1-10 kilograms in weight and earn notably higher rates per kilogram. The integrators have been doing this for years. But what is new is the kind of technology that they spent billions on, decades ago, is now easily accessible and adaptable for airlines. Airlines already own the primary assets (planes, routes, infrastructure, warehousing, and more) needed to run a successful e-commerce logistics business. The smaller package size facilitates bulk-loading and transport in domestic narrow-body aircraft, filling cargo space that very often is underutilized. Airlines have been loading small packages in domestic aircraft this way for years, but now, the technology and processes exist to bring it all together quickly to automate the process from the online transaction to drive large volumes to the airline.

To put this in context, as an easy example, let’s say a typical narrow-body plane uses approximately 30% of its 3,000 kilos belly space for passenger bags leaving roughly 70%, or about 2,000 kilos, of available space for e-commerce cargo packages per flight. By filling this underutilized capacity with packages, across the narrow-body fleet, the cargo contribution to total airline revenues will be substantially increased. And domestic flights are not subject to the cross-border restrictions that have restricted international flights during the pandemic. The question becomes, what is the most efficient revenue-generating model to fill that 70% capacity on domestic narrow-body flights? The answer lies with the efficient air transport of e-commerce packages.

Breaking it down a bit further, the SmartKargo e-commerce solution facilitates the essential essence of e-commerce shipping. Speed and convenience for the customer from the online transaction to their door. Many retailers need what the airlines offer to compete successfully against the likes of Amazon and the retail giants who are already doing customer service well. SmartKargo brings our deep experience and know-how in air cargo, technology, and e-commerce to establish a world-class solution. Our experts work with the airline and retailers to establish Service Level Agreements (SLAs) and rates for transport. The technology is then implemented to automate the process from the retailer’s online transaction to the airline, and then to the delivery network for ground transportation to the customer’s door. This transaction-driven model automates the process as governed by the SLAs, technology parameters, and EDI-messaging between partners.

By leveraging its powerful assets, the airline gains control of the entire e-commerce logistics process to capture high volumes at much higher rates per kilogram vs general cargo rates. The technology connections make operations seamless and fully transparent between partners to the transaction. Mobile apps make it simple for each member of the shipment chain to check on the shipment journey at each milestone. And revenue growth has defied expectations for airlines that have adopted this e-commerce business model.

With a projected $6.4 trillion in e-commerce revenue expected by 2025, there is no doubt that revenue growth can come with this process for building an e-commerce business line. In doing so, airlines are empowered to grow their cargo business more significantly, increasing their revenue contribution to the airline by double-digits.

Logistics is a Team effort

In the e-commerce delivery logistics chain, collaboration and partnering are just as important as technology. The focus on the end customer is the primary focus and their satisfaction is really what should drive the relationships. If we take a step back and acknowledge the collaboration that has to occur to make a customer happy – it is amazing. And, all of the parts of the eco-system need to work together to make sure the customer journey does not end with a Christmas gift getting there on December 26th.

E-commerce retailers always worry about their brand. They worry about their brand because they know a late delivery will be blamed on them, not the other partners. This has tremendous importance for them in two ways – as repeat customers are the most profitable ones and in a very outspoken social media world, bad reviews hurt your brand immediately. And in a world where the customer expects their packages to arrive fast – fast can mean two days, the next day, and in some cases, the same day.

So, think about the last leg of the customer journey. Assuming that the product is not returned, the last leg is the delivery segment. Making sure that the e-commerce package gets there at the time it was promised is paramount. A delighted customer will shop again at the site. This important process requires collaboration and agreement by all partners – from the retailer to the first-mile delivery company, the airline and last-mile delivery company, to the customers’ door. All are foundational to getting the delivery right. This seamless collaboration requires an advanced, but simple, technology solution.

The piece that solidifies the chain of foundational partnerships, from the online site to the customer’s door, is seamless technology. It is the adhesive that allows for the successful collaboration of partners. Think about your own e-commerce experiences. I am sure you like to see where the package is in its journey, from origination with the retailer through to the delivery, with a picture of it at your front door. This can happen with the automated processes established between partners. And will full transparency, instant data via mobile applications, and established agreements and SLA’s driving processes behind the scenes, it can be managed by all partners quite efficiently.

By focusing on the promise to the end customer, the technology drives the processes and the partnerships become easy, driven by technology integrations with APIs and EDI messaging. The growth of e-commerce has created great opportunities for airlines and ground logistics to drive more revenue. And that revenue is generated via a great e-commerce logistics value chain.

Has covid permanently affected airlines?

Has covid permanently affected airlines? 

It is a very scary question and one that will not be answered completely for a few years. In the short term as countries enact their vaccination programs and enable their economies to open there will be a “sugar high” for domestic leisure and even some business air travel. Many believe that we will recover by 2024, but will air travel in 2024 get back to 2019 levels? 

We, business people, are far more optimistic than pessimistic. We all believed that travel in 2022 would be closer to 2019 levels than 2020. However, that has not been the case. International travel will be delayed in getting back to “normal” and many countries like Japan, due to covid variants, will be struggling over the next year. 

There are several other factors that airlines will be facing over the next few years. 

The first is the debt levels. Many of the airlines are burdened with a debt load that will substantially affect new investments and innovations. According to McKinsey, debt could be as large as $1.1 trillion by 2024. Another factor will be future government regulation. If governments make it too onerous to travel, many travelers will choose other options. Moreover, are travelers fearful of traveling on planes, for fears of new infections? As we have seen here in the United States there have been many instances of “issues” on flights around the requirement for masks.  

We have seen that in many of the countries doing better with the pandemic, there has been a bounce-back in air travel. That has certainly been the case with leisure travel but will it also be the case with business travelers? Airlines are hoping that there will soon be widespread fatigue with video conferencing. Again, there is fatigue, and we will see a tremendous rebound domestically for business travel. Will 2024 snap back to 2019 levels? – That question will remain open. Many companies will get their teams on the road to see their customers and prospects in person, but many organizations will not likely go back to 100% business travel, since it means adding far more to the cost of sales. 

Not all is negative, as there are tailwinds for us all to get out there and see the world again. Delta just announced a profit, the first since the pandemic started, and saw a rebound in business travel as well. As airlines get their planes back in the air, there is a fantastic opportunity that has resulted from the pandemic. The remarkable growth in e-commerce, as a result of the pandemic, has created an astonishing opportunity for airlines to generate additional revenue with low investment and tremendous ROI. By utilizing the belly space for e-commerce packages, airlines have a new way to grow revenues, be innovative and reduce debt through e-commerce package shipping.

There are many open questions as the airline industry deals with the pandemic. And not many of us believe it will be like it was in 2019 soon. Hope always springs eternal but we business people not only need to be optimistic but data-driven. Changes are coming, and with any change comes opportunities. It will be the airlines that are adaptable to change that will thrive and survive.  

A Catalyst for Change

The term “catalyst” is thrown around in business almost as much as “transformation.” In case you forgot from early chemistry classes, a catalyst is “an agent that provokes or speeds significant change or action.” Now, I know what you are going to say; the pandemic has been something of a catalyst for the Airline cargo industry. Well, actually, it simply sped up the global growth of e-commerce. As a result, e-commerce grew across all regions of the globe at over 20% last year and looks like there is no going back.

E-commerce growth has become a catalyst for growth and transformation, and those airlines that embrace this opportunity will flourish. That sounds like a hyperbolic statement but it may hold the truth that is key to the world’s airlines over the next 5 years. Global e-commerce is projected to grow 28% over the next three years from $5 trillion to $6.4 trillion by 2024. That sounds like a market that should get airlines’ attention. What is even more amazing is that most of the e-commerce packages are 2 kilos-to-4 kilos and can sit easily in existing belly space on airlines, regardless of size or aircraft type. While many organizations fail at transformations, a focus on e-commerce can address many of the issues that often lead to failure in business transformations. 

According to a McKinsey article about why so many transformations fail, there are 10 common weaknesses that emerge as culprits that hinder success. Now, I do not want to address all of them here, but utilizing e-commerce as your catalyst for change can be an easy antidote to transformation failure. All 10 are important to address, but if we look at a few of them you can see how airlines focusing on e-commerce are changing their company and generating a robust new source of revenue. 

The first and most important of these skills is alignment. Focusing on e-commerce forces alignment throughout your organization as well as in relationships with ground crews and logistics partners. Skill sets are another issue that often arises because workers do not have the new skills that are often required for transformative ways of doing things. This is an overriding reason to use a company that has the developed skills and experience required to build new processes and practices that create success, working alongside your teams. At SmartKargo, not only are we a complete e-commerce logistics platform but also have dedicated subject matter experts in all facets of e-commerce logistics. Finally, focusing on growth is key to being successful. There are tremendous growth opportunities globally for e-commerce as stated earlier. Moreover, many e-commerce sellers are competing with Amazon, at the glass. The option of using Amazon fulfillment services (FBA) to achieve speedy shipping of their products does not sit well with them. These shippers are looking for good alternatives that will differentiate their brand.     

For an airline looking to kick-start a transformation and kindle more revenue, e-commerce can provide an easy start, with a partner like SmartKargo. By providing a platform and expertise for change, your airline can connect with the e-commerce ecosystem. Your airline provides the differentiation needed for e-commerce companies to compete with Amazon. And it indisputably aligns your organization and the KPIs to meet aggressive revenue projections. In the process, airlines create a robust new revenue engine that can efficiently transform their organization. Many airlines are using this catalyst now to drive new revenue. After taking off on the e-commerce journey, they find that delivering on the promise of new revenues can happen quickly.

Economic Impact of Air Cargo

Great technology, Air Cargo, and logistics have been my business passion for some time. Trade is a phenomenal business and is the economic bedrock of the global economy. And I must say that the air cargo industry outdid itself over the past 2 years. And the Air Cargo market is estimated to be a $145.2 billion industry by 2027. But that being said, one should always assess the market they are in as well as future growth trends.

Currently, the Air cargo market has some fascinating stats. According to IATA, approximately 100,000 planes take off, 20 million parcels are sent, and $18.6 billion in cargo shipped within 24 hours period. The multiplier effect of air cargo is undeniable. The ecosystem for air cargo includes governments, freight forwarders, ground handling, technology firms, mechanics, security and so many others.  The estimate from IATA is that there are over 68 million people employed to support the aviation industry worldwide.

We understand that the covid pandemic nearly destroyed passenger airline travel over the past year and a half. We all know the reason why, but this prompted many airlines to shift more emphasis to their cargo business— converting passenger jets to cargo-only transportation to ensure revenue was being generated. Many airlines large and small have taken advantage of this trend. Additionally, the impact can be seen by the expansion of many airports to ensure more cargo capacity. In cities like Chicago, Philadelphia, Pittsburgh and so many others, airports are working to be sure they are ready to accommodate more cargo. Recently, Santo Domingo Airport in Latin America broke a monthly cargo record—and there will be even more airports setting new records. The local communities are aware of the multiplier effect that the air cargo industry provides their geographic area.

Then there is the simple proof of how so many of the airlines across the globe used their airlines and logistics expertise to support the people within their various markets. Many of the world’s airlines, including most of our customers, delivered vaccines to many, many people in local, regional, and international markets—a huge impact on restoring economic activity.

Air cargo is poised for great opportunities. The market is expanding and this is impacting the world. Given the tremendous growth in e-commerce globally, intersecting with the growth in air freight, there is no reason why air cargo cannot far exceed its current economic impact. This is especially true when you see the growth in customer expectations and demand for next-day package delivery. Air cargo is an exceptional, growing part of the overall global economy and a great place to have a career.