After five months of testing, Global Freight Exchange (GF-X), the online trading platform for air cargo capacity, went live on 30 September, although its founders say it was taking live bookings from its 17 trial participants as far back as August. The launch was deliberately low key to avoid raising industry expectations. "It could be years before you see the full effect of GF-X," says co-founder and co-chief executive David Ravech.
In September, the original nine airlines and eight forwarders that have been trialling the system since May were free to expand its use from the agreed test routes to their entire networks. Presumably they were also required to stump up fairly substantial subscription fees. GF-X is free at the point of use, but charges its members a monthly fee based on the size of expected usage. GF-X management is tight-lipped about the levels of such fees, leaving the air cargo industry to amuse itself with wild estimates.
New members were also allowed to join on 30 September. Two airlines - Lufthansa Cargo and China Airlines - and three forwarders - Schenker, UTI and Geodis - stepped up. At least one of these is no big surprise: Lufthansa bought a 10% stake in GF-X in May and, despite not being one of the formal trial participants, has been working closely with it behind the scenes ever since.
So far, so good. But there was bad news too. Trial participants Korean Air and Emery Worldwide decided not to continue as members. A Kremlin-like silence descended on the reasons for their departure. Was it the system itself? The price GF-X demanded? GF-X referred reporters to the companies themselves, but the companies said they were bound by confidentiality clauses.
Emery did eventually release a terse statement which said: "We do not feel the system will provide Emery with any productivity improvements, service improvements or develop new revenue opportunities at its present stage of development. As a result, we do not consider the financial investment required to continue to be warranted."
The statement went on, rather ambiguously: "We do believe there is a place in the future for an Internet marketplace to support the transportation community and we will continue to evaluate potential providers as well as track the development at GF-X."
Backing still strong
So where does this leave GF-X? In many ways, solidly on track. Its staff have spent the year travelling the world, testing out the system at user level, and listening to suggestions for improvements. An impressive list of carriers, including American Airlines, British Airways, Cargolux, Continental, DHL Aviation, Japan Airlines and Swisscargo, have decided to remain members after taking part in the trials.
So too have a Who's Who of top forwarders - Danzas, EGL, Exel, Fritz Companies, Kühne & Nagel, Panalpina and Yusen. Two of those - Panalpina and Deutsche Post, parent of Danzas - have also taken shares in GF-X, as have BA and Swisscargo.
But the real question will be the extent to which the front-line staff in member companies use the system in the coming months. GF-X was deliberately kept free at the point of use to ensure booking and reservations staff used it liberally, but they will do so only if the system is easier than traditional methods such as phone or fax.
On the face of it, it should be. GF-X allows forwarders to obtain multiple quotes at the touch of a button, and to offer lower or higher prices for capacity with equal ease. Airlines, meanwhile, can set up the system to work automatically according to various parameters, acting like a revenue management system for their cargo capacity.
Air freight has something of a history as a technology-shy business, however (it is still arguing about barcoding, for example), and some sources suggest that the reason Emery pulled out was that its staff missed the personal contact of phoning for quotes. One point made was that the tone of voice might convey crucial negotiating information, and that once you get through to the carrier, negotiations can proceed more quickly on the phone. It was also felt that GF-X did not give due weight to Emery's standing as a major customer.
Concerns have also been expressed by the remaining members. In October, Cargolux marketing director, Alexander Hunter, admitted there had been sharply differing opinions within the airline about whether it should remain a member once the trials ended. "There were staff who loved the system and others who urged us not to continue with it," he says.
Early sales have been "below expectations", with forwarders apparently reluctant to put bookings through the system. However, Hunter qualifies all this by saying it would be wrong to focus too much on such early glitches. "GF-X is really professional, and it is the only exchange exclusively targeting air carriers and forwarders," he says. "We are learning a lot and are still excited about the future."
One thing that Cargolux, along with several other airlines and forwarders, is looking forward to is the second of two upgrades planned by GF-X - a module to enable forwarders to manage their block space contracts with carriers. Planned for April, this will include sophisticated comparison tools for forwarders to enable them to make the best use of their myriad deals with various carriers. "For example, if you have a shipment in Berlin, is it better to truck it to Frankfurt to use your allocation on Lufthansa, or to send it via Schiphol?" says Ravech. But he admits that software for such calculations is proving complex to develop.
Performance guarantees
GF-X's first major upgrade was due to be unveiled in December, giving the system the ability to identify time-definite products or other services with performance guarantees. As far back as May, Lufthansa said it would not use GF-X until this function was in place.
In August, Ravech predicted that the upgrade would produce a rash of new performance-guaranteed and other niche products, boosting airline yields. "Previously, airlines could not launch such products without a lot of marketing and promotion," he says. "GF-X will enable them to test new product ideas on a few target forwarders in the same way supermarkets test new products in a few stores."
As with other aspects of GF-X, the next year or so will determine the accuracy of this prediction. So far, GF-X has been cagey about revealing any figures on the amount of traffic it is handling, but sooner or later it will have to come clean. Despite its impressive list of members and investors, it still has to win over a lot of prominent fence-sitters if it is to become the main air cargo capacity trading platform it aspires to be.
A list of non-members is enough to demonstrate that fact. Why no Singapore Airlines? Why no Cathay Pacific or Air France? All three are serious top 10 cargo players, as is KLM, a carrier noted for its innovative approach to cargo. Its executive vice-president cargo, Michael Wisbrun, ducks questions on GF-X by saying it is "experimenting with various dot.coms" but will get involved with one only if a customer specifically asks it to.
There is also United Airlines, which in May formed an alliance with LogTech, a truck portal that was hoping to expand into air freight, only to see it come unstuck in September. Will it now join GF-X? It has made no move so far.
There is also evidence that forwarders, while prepared to give GF-X a try, are busy working on their own solutions to link directly to carriers. A case in point is EGL, the US forwarder that completed a merger with global forwarder Circle International in September.
Circle was already a GF-X trial partner and EGL decided to continue participation after the merger. But Elijio Serrano, EGL's chief finance officer, who also oversees its IT strategy, says that although it is "still evaluating various platforms", its main focus at present is on devising its own web links with carriers. "In the US, for example, we are the largest supplier of cargo to four of the seven largest airlines," says Serrano. "With that kind of leverage, we can work directly with them to further automate and integrate our joint systems."
If other forwarders share such thinking, GF-X could struggle to achieve critical mass. On the other hand, it can comfort itself with the knowledge that it is still the only platform addressing capacity trading between forwarders and airlines, and that it has prominent industry backers.
Ravech dismisses any doubts by pointing out that new technology always meets some initial resistance. "It is an S-curve," he says, referring to the classic trend line for new technologies. "Usage builds slowly at first, and then it suddenly takes off." GF-X and its investors hope so.
Source: Airline Business
