Air freight reinvents itself once again
Airfreight industry players have spent years—if not decades—adapting to constantly changing market conditions. Between e-commerce, Amazon, global trade, and the march of technology, that's unlikely to change anytime soon.
By Gary Frantz
It seems like every decade since the airlines were deregulated in 1978, the airfreight industry, and the airfreight forwarders that have served as the industry's backbone, has reinvented itself.
The latter part of the 1990s and certainly the first two decades of the 2000s have seen perhaps the most dramatic evolution. During this time, the industry witnessed UPS expand from its traditional U.S. ground package service to launch its own airline and add forwarding, buy a less-than-truckload (LTL) carrier, expand into global operations, and offer integrated logistics; FedEx branch out from express air into ground parcel, the LTL business, international service, and contract logistics; growth in the outsourcing of logistics domestically and worldwide; and forwarders morphing from middle-players into third-party logistics service providers (3PLs) with a wider portfolio of capabilities.
Then there was the rise of Amazon, the birth and then explosive growth of online commerce, the emergence of longer and more complex supply chains as global trade expanded and interdependence increased, and a technological revolution in transportation and logistics unlike anything previously seen in the industry.
"When I came into the business 25 years ago, most of what we moved went by air—and 60% to 70% of it was domestic," recalls John Hill, president and chief commercial officer of Glen Mills, Pennsylvania-based Pilot Freight Services. That freight moved in the bellies of passenger airlines and with the integrated all-cargo carriers, such as the venerable Emery Air Freight, acquired by UPS in 2004, and Burlington Air Express, acquired by the logistics division of Germany's Deutsche Bahn in 2006.
Today, Hill says, maybe 5% of the shipments Pilot handles domestically move by air, with the rest staying on the road running in a package, ground forwarding, truckload, or Pilot's own ground network. Globally, some 85% of Pilot's shipments move via air, with the rest ocean.
The old airfreight forwarder model where you were the middleman who arranged a "full mile" transportation service and worked primarily with business and industrial customers? It's been mostly relegated to the dustbin of history along with Addressograph machines and rotary-dial telephones.
Like many airfreight forwarders who have evolved, Pilot still provides basic forwarding services, but today, it is broader-based, working with customers on a range of challenges: strategic transportation management, designing the optimal distribution network, and managing efficient warehousing and fulfillment operations. Pilot also provides "back of store" next-day last-mile delivery of heavier goods, such as furniture and appliances, into homes. And it has a variety of discrete, value-added logistics services that can be configured to address specific segments or unique needs of the customer's supply chain.
Hill's experience at Pilot isn't unique among airfreight forwarders. Changing markets, economics, technology, and customer expectations all require expanded capabilities and resources if forwarders are to stay abreast of the evolving needs of today's shippers. As a result, many progressive forwarders are figuring out how to reinvent themselves to compete and keep pace with a fast-changing business.
THE E-COMM JUGGERNAUT
As for what's driving all the change, much of it comes down to shifting consumer shopping patterns and delivery expectations. Like most segments of the transportation industry, air freight has been impacted by the explosive growth of e-commerce, "which is essentially reducing airfreight volumes," says Satish Jindel, president of Warrendale, Pennsylvania-based SJ Consulting Group, a transportation and logistics research firm that provides strategic consulting, industry insights, and analytical tools to shippers.
As Amazon and other online retailers have re-engineered supply chains, they've restructured their distribution footprints to feature more smaller warehouses in closer proximity to the end-consumer. That's caused a shift favoring smaller parcel/package shipments versus larger pallet-loads, and shorter length-of-haul—both of which negate the need for traditional airfreight consolidation services.
And while more parcel volume has been good for UPS and FedEx (and Amazon's own dedicated transportation operations), those smaller, more-frequent shipments traveling shorter distances, which defines e-commerce traffic, are going via ground services versus air—especially if it's 500 miles or less.
With consumers expecting virtually everything they order online to come with free next-day or, increasingly, same-day shipping, "sellers want to move [the freight] in the cheapest way, so many times that's going to be ground, not air," Jindel notes.
And then there is the elephant in the room, Amazon itself. What's been its impact on air freight and the forwarding market?
"Not so much of an impact on the average forwarder," says Bob Imbriani, executive vice president, international, for Flower Mound, Texas-based forwarder and 3PL Team Worldwide and a board member of the Airforwarders Association, a Washington, D.C.-based advocacy organization for the aircargo forwarding community.
For most airfreight forwarders, Amazon has not been a major customer, Imbriani says, although in many cases, forwarders are managing transportation and logistics for clients selling goods through Amazon or as an Amazon vendor. "Even with the explosion of e-commerce, there is still a considerable market for specialized heavy-weight cargo and even just general volumes of B2B [business-to-business] cargo," he says, such as managing ground services moving pallet-loads and truckload volumes between distribution centers. "But there is no question that if you look at the pie, the traditional slice available to forwarders is shrinking, going to full-service trucking, FedEx, or UPS, or becoming e-commerce traffic."
And that pie may continue to shrink as Amazon absorbs into its own domestic logistics and transportation network more and more bulk cargo moving from vendors to distribution centers as well as between DCs.
Even so, Imbriani emphasizes that as online commerce continues to grow and technology takes over more and more of the block and tackle of transportation management, Team Worldwide is keeping one key asset in place—the human touch. "We believe it is vitally important to have experienced, trained people, using [the latest] technologies to support service for the customer," he says.
"Technology can improve data, and streamline process and communication, but it doesn't replace people—it complements their abilities," Imbriani adds. "Their knowledge, insight, and skill have to be at the forefront; that's critical to resolving problems quickly and providing customized solutions."
REWRITING THE PLAYBOOK
Pilot Freight Services' Hill shares another perspective. "Amazon is looking to potentially disintermediate all the segments of their supply chain business," he says. "So instead of coming to a 3PL for the full-mile solution, [they're asking] 'What if you just did the linehaul or final mile?'"
His point is that supply chain service providers, in response to Amazon and others, are splitting out what once was a consolidated service into an à la carte menu of specific services from which the shipper can pick and choose.
For Pilot, says Hill, working with Amazon has been a game-changer. "It's been phenomenal; they've made us a better company, pushed us to achieve stretch goals ... to a degree we never thought we could do. Now, our overall offering for every customer is better because of how Amazon pushed us." Pilot supports Amazon DCs and vendors, doing the full door-to-door service including pickup, linehaul delivery, and last mile, as well as white-glove "inside the home" delivery and installation of big and bulky items.
Hill recalls the day when as an airfreight forwarder, your focus was the B2B decision-maker. "Now, everyone is a decision-maker; they relate to the delivery we make to their home, how we perform."
He shares a story of a recent sales call, where a retailer reached out to Pilot and asked for a meeting. "I asked them 'Why were we considered?' He told me 'You guys did an Amazon delivery to my house and did it better than everyone else. And that's why I'm talking to you now.'"
PASSENGER LINES GET IN ON THE ACT
Meanwhile, the aircargo divisions of passenger airlines also are upping their game and investing in technology to provide better visibility as well as more reliable delivery of freight that moves in the bellies of passenger jets. Delta Cargo, for example, has invested on several fronts. "It became clear that [customers] wanted complete transparency in the cargo shipment process," says Shawn Cole, vice president of Atlanta-based Delta Cargo. In response, Delta introduced Bluetooth ULD (unit load device) tracking for its containers in 2018, "which enhances our ability to manage our ULD fleet," he notes.
The company also has outfitted 86 warehouses with ULD Bluetooth readers, while 208 of its domestic customers also have readers. Out on the runway, Delta Cargo has readers at 51 airside ramps and has outfitted 13,974 of its ULD containers with tracking tags—all designed to increase the speed, reliability, and accuracy of shipment tracking.
It has also launched Delta Dash Door-to-Door, a unique same-day delivery service in partnership with Roadie, which operates a crowdsourced network of on-demand, same-day delivery drivers across the U.S. Roadie's "on the way" model sources drivers in their own vehicles who are already headed to a delivery point.
Cole says that "Dash Door-to-Door was created for time-critical shipments in industries including medical, manufacturing, automotive, and industrial parts" that need reliable, expedited aircargo service. Under the program, Dash Door-to-Door pairs TSA-approved Roadie drivers with scheduled aircargo service. Delta Cargo provides the "belly freight" air linehaul capacity, while Roadie does the first- and last-mile transport, principally on a same-day basis. It's an integrated service currently available from Atlanta to over 55 cities in the U.S.
POISED FOR A REBOUND?
What does the future have in store for air freight?
From a macroeconomic standpoint, at least, the picture is brightening. After a year of contraction in 2019, the worldwide aircargo market is poised again for growth, albeit modest, according to the International Air Transport Association (IATA), a Montreal-based airline trade group. "Freight traffic fell 3% [to 61.2 million metric tons], while yields declined 5%" in 2019, says Andrew Matters, IATA's deputy chief economist. Matters notes that IATA's expectations are for a small recovery in demand in 2020, with traffic forecast to grow 2%. However, IATA also projects that cargo yields, coming off a slide of 5% in 2019, will decline another 3% in 2020, stabilizing at around $101.2 billion.
The past year saw air freight suffer from "the effects of the trade war between the U.S. and China, the deterioration in global trade, and a broad-based slowing in economic growth," Matters says. "While airlines have been reducing capacity growth in response ... it's clear that there exists an overcapacity situation for air cargo."
On the bright side, Matters says that "looking to 2020, world trade growth is expected to rebound to 3.3% from 0.9% in 2019, as election year pressures in the U.S. contribute to reduced trade tensions."
Brandon Fried, executive director of the Airforwarders Association, also believes things are looking up. While 2019 was a difficult year, "I'm more optimistic [about 2020] for a couple of reasons," he says.
Fried believes that "the tariff thing" between the U.S. and China will be resolved. "Trump is up for re-election, and he'll want to get some points on the board beforehand." Also, as offshore sourcing and manufacturing has shifted from China to other countries in Southeast Asia, "those countries are providing avenues of opportunity for airfreight forwarders," he says.
In fact, Fried sees a number of market opportunities opening up for forwarders. He cites as examples the market for specialized services, such as cold-chain, pharmaceuticals and perishables, and project cargo, all of which could be "a shot in the arm" for forwarders, who excel at freight with special handling or expediting needs.
Other opportunities are emerging thanks to the likes of Amazon, FedEx, UPS, and other operators breathing life into once-shuttered civilian/military airports. Those include Ohio's Wilmington Air Park, where in June last year, Amazon Air started daily dedicated flights with Amazon-logoed aircraft; and Rickenbacker International Airport in Columbus, Ohio, which has been reborn as a thriving international aircargo hub. Airlines serving Rickenbacker include AirBridgeCargo, Asiana Cargo, Cargolux, Cathay Pacific Cargo, China Airlines, Emirates SkyCargo, and Etihad Cargo, all offering weekly scheduled service for U.S. importers and exporters. "Freight forwarders are co-loading on these flights," Fried says.
And lastly, with Amazon spinning up its own fleet of aircraft, that could present an interesting capacity opportunity for forwarders. "If Amazon has 100 airplanes a year from now, chances are they may have some empty [backhaul] space" that could be offered to forwarders, Fried says.
Which could indeed be another interesting development for a business that's once again adapting to new realities. Through it all, some things are everlasting. "We get paid to move boxes for a living," Fried says, adding "One common thread is that we are atypical. Forwarders do everything. There is no such word as 'no'—or 'fail'—in our vocabulary."
About the Author
Gary Frantz is a veteran communications executive with more than 30 years of experience in the transportation and logistics industries. He's served as communications director and strategic media relations counselor for companies including XPO Logistics, Con-way, Menlo Logistics, GT Nexus, Circle International Group, and Consolidated Freightways. Gary is currently principal of GNF Communications LLC, a consultancy providing freelance writing, editorial and media strategy services. He's a proud graduate of the Journalism program at California State University–Chico.
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