This story first appeared in the Special Issue 2020 edition of CSCMP’s Supply Chain Quarterly, a journal of thought leadership for the supply chain management profession and a sister publication to AGiLE Business Media’s DC Velocity.
If you had to pick only one word to describe the airfreight industry in 2020, “fragile” would be a good choice.
Air freight’s interdependency on passenger flights to move freight means that it has faced opposing demand shocks this year. Passenger demand plummeted as nations closed their borders and airlines grounded hundreds of aircraft. At the same time, demand for time-critical personal protective equipment (PPE) for first responders surged.
Overall demand for air cargo declined by 20% in June, but capacity dropped by 34%.1 The result was drastic price increases for cargos that absolutely had to move, such as medical supplies to combat the pandemic. The monthly TAC Airfreight Rate Index (Figure 1) reported a 45% increase in May over the previous 5-year high, which occurred prior to 2019 tariff implementations. Anecdotally, a few of my clients reported rates in excess of $10/kg on individual shipments from China to the United States. I’d be surprised if this weren’t reflective of a broader trend.
[Figure 1] TAC Index monthly airfreight rates
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Replacing these aircraft are more modern widebodies, like the 787 and A350 XWB. While the order book remains several years deep, airlines have cancelled over 800 orders for 2020 through June, or roughly 15% of Boeing’s total logbook. Almost 90% of the aircraft deliveries this year, however, have been widebody models. Depending on the configuration, the passenger and cargo capacities of the new planes are similar to the aircraft they are replacing. The impact on capacity in the market, however, will depend on the level of acceleration of retirements relative to new deliveries.
Meanwhile the pandemic disruption has impacted key airfreight routes throughout the globe. Shippers have reported circuitous routing for their shipments through new gateways. This has introduced longer transit times, both due to longer routes themselves and due to delays related to clearance of cargo passing through new customs jurisdictions. The shutdown of passenger flights has temporarily made Anchorage, Alaska, the world’s busiest cargo airport, rising from sixth to first place on the Air Cargo News’ “Top 20 Cargo Airports” list.
Another change worth noting is a general awakening to the value of resiliency in the design of a global supply chain. This will impact the use of air freight in several ways in the near term. First, the strategic importance of air freight as a safety valve has been proven during the first half of 2020. Few shippers with a global footprint will risk going without a robust air contingency capability in place. Second, Kearney’s 2020 U.S. Reshoring Index report, “Trade War Spurs Sharp Reversal in 2019 Reshoring Index, Foreshadowing COVID-19 Test of Supply Chain Resilience,” found a renewed focus on reshoring away from China to other low-cost countries (LCC), principally Vietnam. Because Vietnam has much slower ocean transit times than China (Maersk publishes a 22-day transit time to Los Angeles, California, versus 11-day service from Shanghai), the air option will be increasingly important contingency for Vietnam-manufactured goods.2
One trend that remains on pace is the adoption of digital freight platforms for bookings. After a short blip down during the peak of COVID-19 airfreight demand, Freightos’ Webcargo marketplace saw e-booking orders grow by over 700% in June 2020 with up to 15% of global airfreight capacity available on digital marketplaces.3 The principal features that made e-booking attractive before COVID-19, namely the convenience and transparency into rate and capacity, have even stronger appeal in a constrained market. Similar to other types of e-commerce platforms, digital airfreight marketplaces have reached a level of adoption in 2020 that was not expected to be achieved until years from now.
Volatility ahead
Given all the change and disruption happening in the industry, the big question on shippers’ minds is when we will get back to some semblance of normalcy. Many shippers have postponed airfreight negotiations with their forwarders, and many of our clients are asking us when they should follow through with their annual air tenders.
The short answer is we’re unlikely to see stabilization through the end of the year. COVID-19 continues to spread across much of the U.S., and many Americans will be reluctant to fly anytime soon. Both of these issues will factor into passenger demand and the reintroduction of widebody belly space into the market. The International Air Transport Association’s (IATA’s) own forecast is that passenger volumes will not return to 2019 levels until 2024.
If that’s the case, then we can expect quite a bit more volatility ahead. Shippers—recognizing the need for air freight as an expensive (but necessary) lever to enhance the resiliency of their global network—will need to be nimble to deploy it at a reasonable cost. However, the adoption of tools like digital marketplaces can provide more transparency to enable better decision making. Even the largest users of air freight are facing the same issues, so those shippers that make the best of the current situation will be those leveraging all the tools available.
Supply chain planning (SCP) leaders working on transformation efforts are focused on two major high-impact technology trends, including composite AI and supply chain data governance, according to a study from Gartner, Inc.
"SCP leaders are in the process of developing transformation roadmaps that will prioritize delivering on advanced decision intelligence and automated decision making," Eva Dawkins, Director Analyst in Gartner’s Supply Chain practice, said in a release. "Composite AI, which is the combined application of different AI techniques to improve learning efficiency, will drive the optimization and automation of many planning activities at scale, while supply chain data governance is the foundational key for digital transformation.”
Their pursuit of those roadmaps is often complicated by frequent disruptions and the rapid pace of technological innovation. But Gartner says those leaders can accelerate the realized value of technology investments by facilitating a shift from IT-led to business-led digital leadership, with SCP leaders taking ownership of multidisciplinary teams to advance business operations, channels and products.
“A sound data governance strategy supports advanced technologies, such as composite AI, while also facilitating collaboration throughout the supply chain technology ecosystem,” said Dawkins. “Without attention to data governance, SCP leaders will likely struggle to achieve their expected ROI on key technology investments.”
The British logistics robot vendor Dexory this week said it has raised $80 million in venture funding to support an expansion of its artificial intelligence (AI) powered features, grow its global team, and accelerate the deployment of its autonomous robots.
A “significant focus” continues to be on expanding across the U.S. market, where Dexory is live with customers in seven states and last month opened a U.S. headquarters in Nashville. The Series B will also enhance development and production facilities at its UK headquarters, the firm said.
The “series B” funding round was led by DTCP, with participation from Latitude Ventures, Wave-X and Bootstrap Europe, along with existing investors Atomico, Lakestar, Capnamic, and several angels from the logistics industry. With the close of the round, Dexory has now raised $120 million over the past three years.
Dexory says its product, DexoryView, provides real-time visibility across warehouses of any size through its autonomous mobile robots and AI. The rolling bots use sensor and image data and continuous data collection to perform rapid warehouse scans and create digital twins of warehouse spaces, allowing for optimized performance and future scenario simulations.
Originally announced in September, the move will allow Deutsche Bahn to “fully focus on restructuring the rail infrastructure in Germany and providing climate-friendly passenger and freight transport operations in Germany and Europe,” Werner Gatzer, Chairman of the DB Supervisory Board, said in a release.
For its purchase price, DSV gains an organization with around 72,700 employees at over 1,850 locations. The new owner says it plans to investment around one billion euros in coming years to promote additional growth in German operations. Together, DSV and Schenker will have a combined workforce of approximately 147,000 employees in more than 90 countries, earning pro forma revenue of approximately $43.3 billion (based on 2023 numbers), DSV said.
After removing that unit, Deutsche Bahn retains its core business called the “Systemverbund Bahn,” which includes passenger transport activities in Germany, rail freight activities, operational service units, and railroad infrastructure companies. The DB Group, headquartered in Berlin, employs around 340,000 people.
“We have set clear goals to structurally modernize Deutsche Bahn in the areas of infrastructure, operations and profitability and focus on the core business. The proceeds from the sale will significantly reduce DB’s debt and thus make an important contribution to the financial stability of the DB Group. At the same time, DB Schenker will gain a strong strategic owner in DSV,” Deutsche Bahn CEO Richard Lutz said in a release.
Transportation industry veteran Anne Reinke will become president & CEO of trade group the Intermodal Association of North America (IANA) at the end of the year, stepping into the position from her previous post leading third party logistics (3PL) trade group the Transportation Intermediaries Association (TIA), both organizations said today.
Meanwhile, TIA today announced that insider Christopher Burroughs would fill Reinke’s shoes as president & CEO. Burroughs has been with TIA for 13 years, most recently as its vice president of Government Affairs for the past six years, during which time he oversaw all legislative and regulatory efforts before Congress and the federal agencies.
Before her four years leading TIA, Reinke spent two years as Deputy Assistant Secretary with the U.S. Department of Transportation and 16 years with CSX Corporation.
Serious inland flooding and widespread power outages are likely to sweep across Florida and other Southeast states in coming days with the arrival of Hurricane Helene, which is now predicted to make landfall Thursday evening along Florida’s northwest coast as a major hurricane, according to the National Oceanic and Atmospheric Administration (NOAA).
While the most catastrophic landfall impact is expected in the sparsely-population Big Bend area of Florida, it’s not only sea-front cities that are at risk. Since Helene is an “unusually large storm,” its flooding, rainfall, and high winds won’t be limited only to the Gulf Coast, but are expected to travel hundreds of miles inland, the weather service said. Heavy rainfall is expected to begin in the region even before the storm comes ashore, and the wet conditions will continue to move northward into the southern Appalachians region through Friday, dumping storm total rainfall amounts of up to 18 inches. Specifically, the major flood risk includes the urban areas around Tallahassee, metro Atlanta, and western North Carolina.
In addition to its human toll, the storm could exert serious business impacts, according to the supply chain mapping and monitoring firm Resilinc. Those will be largely triggered by significant flooding, which could halt oil operations, force mandatory evacuations, restrict ports, and disrupt air traffic.
While the storm’s track is currently forecast to miss the critical ports of Miami and New Orleans, it could still hurt operations throughout the Southeast agricultural belt, which produces products like soybeans, cotton, peanuts, corn, and tobacco, according to Everstream Analytics.
That widespread footprint could also hinder supply chain and logistics flows along stretches of interstate highways I-10 and I-75 and on regional rail lines operated by Norfolk Southern and CSX. And Hurricane Helene could also likely impact business operations by unleashing power outages, deep flooding, and wind damage in northern Florida portions of Georgia, Everstream Analytics said.
Before the storm had even touched Florida soil, recovery efforts were already being launched by humanitarian aid group the American Logistics Aid Network (ALAN). In a statement on Wednesday, the group said it is urging residents in the storm's path across the Southeast to heed evacuation notices and safety advisories, and reminding members of the logistics community that their post-storm help could be needed soon. The group will continue to update its Disaster Micro-Site with Hurricane Helene resources and with requests for donated logistics assistance, most of which will start arriving within 24 to 72 hours after the storm’s initial landfall, ALAN said.