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Online opportunity

Growth of e-commerce has accelerated considerably, presenting huge opportunities to an air cargo industry only now climbing out of a period of stagnation, says Kerry Reals
 

Air freight operators are increasingly entering contracts with major global e-retailers such as Amazon, a trend which is expected to continue as e-commerce maintains its upward trajectory. However, for the industry to truly take advantage of the opportunities presented by e-commerce, it must adapt and evolve rapidly to meet the relentlessly high expectations of this sector.


In a September white paper on e-commerce and air cargo, IATA pointed out that global internet retail sales have grown by more than 20% per year since 2005. The cross-border e-commerce market is a “key growth driver”, IATA says, with the Asia-Pacific to Europe market having grown by two-thirds between 2013 and 2015.


In his opening remarks at the World Air Cargo Symposium in March, IATA Director General Alexandre de Juniac spoke of “a time of cautious optimism” for the air cargo industry, and listed e-commerce as one of the reasons for this improved outlook.


“E-commerce, which depends heavily on air cargo, is growing at a double digit rate. The world continues to transform into a global cyberstore. Customers in the internet age are demanding almost immediate fulfilment of their orders,” said de Juniac.


Speed is key in e-commerce. Customers often expect next-day delivery and the ability to track packages in real time. This requires increased digitisation, simplified processes, greater collaboration and a good pinch of innovation from airlines, freight forwarders and ground handlers, IATA argues.


“Today and tomorrow’s e-commerce players expect innovation from their partners and, therefore, the complexity and out-of-date processes that are still in place in the logistics industry must evolve to meet their needs,” IATA notes in its white paper.


Alex Allen, Managing Director of the WCA eCommerce network, agrees that the rapid growth of e-commerce – which he says “has gained real traction in the last five years” – presents a huge opportunity for the air cargo industry.
“E-commerce is the biggest driver of change and growth in the transportation and logistics industry,” he says.


However, he questions whether the sector can adapt quickly enough to capitalise on this growth.


“E-commerce itself is going to provide unchallenged opportunities to all players in the field, provided that they have made, or are making, the necessary changes required in their own businesses to evolve and take advantage of presented opportunities,” Allen continues.


“The downside effect of this is that the majority of the air cargo industry tends to be very slow in embracing such dynamic changes.”


Another important step the air cargo industry will need to take to compete for its slice of the e-commerce pie is to reduce its costs, according to Alessandro Borgogna, a Partner specialising in aviation and aerospace at PwC’s Strategy& consultancy.


“Airlines need to restructure their cost base to become more competitive with other transporters serving the e-commerce sector,” says Borgogna, noting that the expense of transporting shipments by air means it is currently limited to high-value items.


“If airlines can reduce the unit cost of cargo transportation, they will be able to transport goods of lower value – the lower the unit cost, the more access they will have to low-value goods,” he says. “If I were an air cargo player, I would digitalise the value chain and reduce costs to a minimum to accept low-value cargo.”


Borgogna’s point is echoed by IATA in its white paper, which points out that cross-border e-commerce predominantly involves low cost and lightweight products.


“It is therefore relevant to revisit the business models of the air cargo players, pricing structures, chargeable principles and align border regulations impacting traditional airlines, integrators and postal operators to ensure fair competition and interoperable solutions,” says IATA.


Last year saw the announcement of two significant deals between online retail giant Amazon and air cargo operators. In March 2016, Air Transport Services Group (ATSG) announced that it had signed an agreement to operate an air cargo network to serve Amazon customers in the US. Two months later, Atlas Air Worldwide Holdings said that it had also entered into a similar long-term agreement to provide air cargo services to support Amazon’s customer deliveries. >>


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