Once every couple of years, The International Air Cargo Association (TIACA)forum is usually a pretty good place to take the industry's pulse. Yet, the latest meeting in Washington at the end of September was in many ways as significant for the issues it ducked as for those it discussed. Compared with the more fiery forums of the past, this one was sober, sensible, mature - and perhaps a little dull.
This is partly because some of the hot issues of the last decade have become the quiet orthodoxies of the new one. At Dubai in 1996, one of the inspired ideas was to invite representatives of shippers - the manufacturers, exporters and importers who are the ultimate customers of air freight. The guests stunned their audience with a withering attack on the service level provided by the traditional forwarder-airline model of air cargo, comparing it unfavourably with the performance guarantees of the global integrators - FedEx, UPS, DHL and TNT. The discussion nicely fed the paranoia of air cargo carriers, who at the time were certain the integrators were going to take away all their global business, as had effectively happened in the USA.
Four years on, a lot has changed. Dubai initiated - and the 1998 meeting in Paris consolidated - the creation of various forums and groups, notably the International Air Transport Association's interest group Cargo 2000, which have long since drummed into air cargo players the need for seamless door-to-door service, improved customer information and time-definite services with performance guarantees.
Changed product
It is now generally accepted that shippers need reliability, prompt notification of problems and a partnership between forwarders and carriers. Industry experts even agree that many shippers no longer regard price as the paramount factor, with most prepared to pay more for guaranteed service. Arguably, by acting on such realisations, astute forwarders and airlines could stem the threatened tide of the integrators. Whether they will, however, remains to be seen.
Such changes to orthodoxy left little to be said at the customer day, held during the latest forum. The leaders of the shipper attack in 1996 were once again centre stage - Peter Gatti, vice-president of the US shipper body, the National Industrial Transportation League (NITL), and Chris Welsh, head of the European Shipper's Council. But their message has changed radically.
Welsh noted that air cargo had moved on a lot since the "Dubai war of words", adding that he was "pleased to say that many shippers in the past few years have genuinely seen advances in service quality." Some US shippers even admitted there were areas in which they needed to improve their performance.
John Amos, chair of NITL's aviation committee, said shippers needed to raise their knowledge of technology in order to integrate IT better with carriers and forwarders. Thomas Bakin, logistics manager for Allegheny Teledyne, admitted that shippers needed to increase their understanding of airports and how they worked, as well as to lobby governments harder to give due weight to cargo traffic rights, night flights and airport infrastructure.
All this was worthy stuff. But it left unconsidered another of the contentious issues of 1996 exemplified in an acrimonious Dubai session entitled Whose customer is it anyway? The sides discussed whether or not airlines had the right to talk directly to shipping customers or if this should be the exclusive preserve of freight forwarders.
In particular, Jacques Ancher, then head of KLM Cargo, drew a lot of criticism in Dubai for suggesting that, with some customers, it was more appropriate for KLM to deal directly with the shipper (a common practice in sea freight, incidentally). This provoked near apoplexy from several forwarder chief executives who saw the practice as an attempt by KLM to steal their contacts. The debates on this topic were so heated that it has barely been raised in public since, which is curious, because it is as live an issue as ever.
A more modest if less forthcoming KLM Cargo is still dealing directly with shippers, as Ancher's successor, Michael Wisbrun, admitted in private meetings with journalists at the Washington Forum.
Wisbrun is at pains to point out that such deals are a tiny portion of KLM's business. They are largely confined to airport-to-airport activities and to the aerospace and hi-tech industries. An example is parts distribution for Boeing in Europe from inventory held at Schiphol. Anything beyond the airport is handled in tandem with a forwarder, Wisbrun explains, only KLM is now the "contracting party" instead of the forwarder.
This kid-glove approach to dealing directly with shippers does no more than bring KLM into line with other carriers, most of whom are happy to talk directly with the end customer if that is what the end customer wants. For example, since 1996 British Airways has built up a successful business working with UK supermarkets on the import of exotic fruit and vegetables.
To start with, BA offers the supermarkets guaranteed belly space on its extensive worldwide network. Then, upon arrival at Heathrow, it guarantees rapid customs and handling, working with a perishables logistics company at the airport to package and label the goods so they can then be collected and put right onto the shelf. Forwarders have no role in this chain, but why should they, given that this is not a business they are particularly keen to handle?
But Ancher's point was also a broader one and has subsequently proved to be quite visionary: that the traditional barriers between forwarder and airline, airport handler and airline, or even forwarder and express operator, were breaking down, and could no longer be regarded as sacred. The rise of the integrators themselves in the 1990s was evidence of this. After all, what is an integrator but a ground operator who is also an airline?
Virtual airlines?
Though it would be an exaggeration to call it a universal trend, air cargo is now full of such blurring of the boundaries, with more on the horizon. Multinational forwarder Panalpina has long operated its own virtual airline using the aircraft of Cargolux and other carriers. More recently, it has leased its own 747F from Atlas Air.
In 1999, all these operations were incorporated by Panalpina into SwissGlobalCargo, a joint venture with SAirLogistics, the cargo arm of Swissair parent SAirGroup. SwissGlobal's president and chief executive, Herbert Grissemann, now talks openly about his company being a virtual airline and admits that 50% of Panalpina's air cargo volumes travel on its services. The boundary between forwarder and airline, so jealously guarded at the Dubai Forum, has become indistinct.
And Panalpina's example is being followed. Danzas AEI - the world's largest forwarder since 1999 when Deutsche Post bought first Danzas and then AEI - and then merged the two - is now also developing its own worldwide freighter network. Thomas Christ, Danzas Intercontinental's vice-president for marketing and sales, reveals the company has committed to approximately 100 dedicated 747F charters across the Pacific for the winter season, and has plans to create its own freighter routes between Europe and the USA.
These expansionary moves are made necessary by the sheer scale of volumes the merged Danzas AEI handles. "Once you pass a certain level, you can't depend on passenger-driven airlines and airports any more: you are driven to find your own solutions," Christ says.
Indeed, Danzas already has one weekly Europe-USA route, using an A300F chartered from Turkish freighter operator MNG, between Hahn, Germany and Charlotte, North Carolina. Interestingly, this aircraft has been painted in Danzas colours, a step not even Panalpina has yet dared take. Christ insists that it was MNG that offered to make this gesture. But it is significant that Danzas did not refuse, as it perhaps signals the advent of forwarders acknowledging their status as virtual airlines. If this were not enough, the years since Dubai have also seen the Dutch Post Office buy TNT and Deutsche Post buy a 25% stake in DHL, which it plans to increase to 51%.
DP also has a rather mysterious alliance with Lufthansa Cargo, which itself discusses vertical integration more and more openly with forwarders, opening up the possibility of a super grouping of forwarder, carrier, integrator and post office. Meanwhile, FedEx has formed alliances with the US and French post offices aimed at strengthening its domestic delivery capabilities. For their part, most European post offices have their own air networks and are buying parcel companies in each other's markets.
Surely, no one could claim that the barriers between forwarder, airline, integrator and post office are as strong as they seemed to be in Dubai, but it is not yet clear if this heralds a new era for air cargo. Next time industry leaders meet, they should debate the implications. At the next TIACA meeting it may no longer be so much a question of whose customer? but whose future?
Source: Airline Business
