The air cargo industry is staring at a tidal wave
Here follows a short conversation between retail giant Amazon and IATA, as imagined by Alex Labonne, chief technology officer at Hermes Cargo Management Systems.
Amazon: “Given that we do pretty well at warehousing, it’s only logical for us to think about moving into ground handling”.
IATA: “You’ve got to use our SITA system, and there are other things…”
Amazon: “Nah, we don’t want to do that.”
IATA: “You must, otherwise you won’t be able to…”
Amazon [interrupting]: “You know what, I’ll use my own airline as well. I’ll use my own protocol, all the way. You guys do whatever it is you do, and we’ll do what we want to do.”
At which point the conversation ends, Amazon walks out, and, in Mr Labonne’s words, “they smash it”, meaning they put anyone who competes with them out of business.
Welcome to the near future.
If industries now rise and fall according to how successfully they collect and manipulate data, air cargo is in trouble.
Despite predictions of volume growth and reassurances that 3D printing will not bring an end to world trade, there was a sense of foreboding among attendees at the Air Cargo Handling conference in Zaventem, on the outskirts of Brussels.
A wave of technological disruption is racing in from the horizon, and companies still operating as if this were the 1990s are set to be swept away.
Data - or rather, good data - is already what separates the profitable from the also-rans. If you can capture enough of it, and if you know how to analyse it, you can squeeze out that extra few percentage points of efficiency from your logistics chain: the 10% that makes the difference between profit and loss.
Alastair Band, who came to Belgium in a search of applications for blockchain technology, talked about Amazon and its plan to ship the goods you haven’t even thought about ordering yet to your nearest distribution centre. If the data predicts that you will buy face-cream this month, because you buy it every other month, then why not have a pot ready and waiting, just a few minutes from your front door?
While the likes of Amazon and China’s Alibaba ramp up their robotics-controlled warehouses, some legacy air cargo handlers still rely on old-fashioned brawn to prepare pallets for loading. Worse still: many are drowning in paper documents.
The amount of paper produced in 2018 by the air cargo industry is an embarrassment, conference panellists agreed. Agents routinely throw away reams at the end of every working day because their customers, believing that everything has been digitalised, don’t bother to pick it up.
‘Digitalisation’ for some in the industry means scanning a paper document and sending it as an email attachment, which would be laughable if it were not for the fact that some haven’t even got this far.
The fact that industry bodies are talking today of developing a worldwide barcode standard says it all. “Come on guys,” commented one attendee. “Bar codes are technology from 20 or 30 years ago, and we’re still scratching our heads asking how we can implement it.”
“Amazon and Alibaba are not waiting,” warned Céline Hourcade, head of cargo transformation at IATA. “The market is susceptible to being shaken up by new entrants.”
Everyone in Zaventem recognised that modernisation was well overdue. There was talk of “making cargo talk” with microchips that could theoretically also measure temperature and any damage-causing shocks. The buzzwords were all there: new facilities must be “future-proof”; drones and artificial intelligence will carve out a niche. All agreed on the need to move on from tracking consignments to individual parcels so as to latch onto the e-commerce wave and compete with the integrators.
But there was the inescapable impression that the old-fashioned ways of doing business, the ways that still predominate, mean the industry of today may not be up to the task. “We come to conferences like this, discuss initiatives and then go home and do nothing,” lamented Hendrik Leyssens, head of operations at Cargo Swissport International.
‘Doing nothing’ has not been ruinous for the past 30 years, but in it could now be fatal.
To start with, those who do nothing are unlikely to profit from the growth in e-commerce. This new business is benefitting integrators rather than traditional handlers, conferences attendees heard.
Legacy companies must “wake up” to the fact that integrators are eating into their heavy cargo business, said Hans Van Shaik, sales manager at Saco Airport Equipment. “E-commerce growth is tremendous,” he said. “Consignments are increasing in weight and integrators are handling 100 kg, 150 kg packages.”
Handlers cannot compete with the integrators’ ability to both keep track of individual items and move them fast.
“It’s going to go worldwide,” Van Shaik (who, let us remember, has equipment to sell) warned. At integrator hubs in Brussels and Liege there are now 300 to 400 workstations, while at Leipzig there are 700, he said. There’s not much difference between shipping a package and shipping a pallet. “If you can do it for parcels, then why not for pallets?” he asked. The slide on the wall behind him showed a piano, which typically weighs 200 kg, being shipped by an express carrier.
Given that e-commerce is supposed to make up for the small drop in volumes that will be lost to 3D printing – estimated to amount to between 2% and 5% of total volumes, mostly furniture - traditional handlers are on the losing side of this equation.
And that’s before the second wave of disruption hits.
Amazon’s fleet of 40 freighters was brought up in almost every conversation during the coffee breaks. When Amazon and Alibaba realise that they can improve their margins by using their own ground handlers, an era will come to an end.
Part of the problem is scale. Handlers without sizeable cashflow don’t have the financial clout to invest in robotics, it was reported. Ludwig Hausmann, a partner at McKinsey & Company, pointed out that Google makes more profit on its own than the entire air cargo industry.
That said, the chief executives of profitable companies have been guilty of complacency.
“Cargo protagonists could have done a whole lot of things, but no-one wants to pay for it,” said Labonne. “The standards are low and not good enough, especially the heavy standards. If people want to survive the Amazon or the Alibaba, they have to invest. The fragmentation is a lot of the time in people’s minds.”
Attempts by IATA and others to encourage the spread of technology with top-down standards are doomed to failure because that’s not how technology propagates, says Labonne. Trying to pick a winning standard, much like attempts to predict which hardware or software will be used in the next five to ten years, is futile. “Have we heard this before?” asks Labonne. “We have heard it forever. Everyone’s going to have the same laptop, the same desktop”. Every two years comes the latest trend, and the predictions are soon forgotten and recast.
“Things don’t evolve that way,” Labonne continues. “For me, interfaces are always between two protagonists. That’s fragmented, but that’s the way the world is. Believe you me, Amazon systems are not that standardised, not that uniform. That’s how Amazon managed to grow so quickly.
“They weren’t too fussed about a uniform support. What they were fussed about is that when they had interfaces, they were tested. If somebody broke something, it was known.” Tolerant systems, rather than rigid standards, allow for patching and growth. “You have to be stringent with what you send and tolerant with what you receive, it’s called Postel’s Law,” says Labonne, quoting one of the guiding principles of data interchange over the internet.
“In terms of interfaces, we all speak different languages, we all operate differently. When you try to string [a new standard] across the world, you’re chasing windmills. You’ll be the Don Coyote swinging at windmills. Half the people will use it and the other half won’t” because the other half simply don’t want to.
Cargo intermediaries should instead make their interfaces public and allow others to link up without any top-down imposition. “It’s an organic system, and that’s how things grow,” says Labonne. “This is how Alibaba and Amazon have grown.” Attempts to force transport onto one single standard are “irrelevant”. It’s the equivalent of carving principles on stone tablets, he says.
Given that few in the industry are prepared to take the coming threat seriously, and given that it will soon be too late, the best hope for legacy players might be to become food for predators. “If the Amazon wave happens, the race will be about who is going to be bought,” says Labonne. “I think everyone has to invest a bit more. That to me is the biggest issue.”
While the fatalistic mind set seemed to have taken hold among many conference attendees, it was not universal. “It isn’t going to happen,” said Sebastiaan Scholte, chairman of The International Air Cargo Association (TIACA) and ceo of Jan De Rijk Logistics. “Alibaba can’t compete with the belly network,” Scholte said. He then pondered, and added: “Anyway, this industry needs disrupting.”
The worldwide network of belly capacity would indeed be difficult for the giant retailers to recreate quickly, unless drones become commonplace. This argument would suggest however that handlers could well be pushed onto minor, secondary routes as the Alibaba et al set up shop.
The problem, in essence, is that the fragmented air cargo industry suffers from low levels of trust. “We have to stop keeping data to ourselves,” was the recurring conference refrain.
The advantages of sharing data were laid out. The automobile industry has managed to reduce the cycle for producing new models from seven years to two through collaboration.
While some attendees were wringing their hands ahead of what could be an apocalypse, others have been spurred to action.
Citing Amazon’s fleet investment as one of the triggers, the Brussels airport air cargo community has with the financial support of the Flemish Government over the last two years worked hard to “demolish the silos” between the various players in the logistics chain. Via a not-for-profit umbrella organisation, 142 cargo community members have pooled their training and lobbying efforts. Their jointly-created applications for slot booking and customs clearance have brought about efficiencies, bringing down clearance times in particular. Members lend their experts to the many community steering committees, while youngsters are encouraged to bond, literally, at speed-dating evenings.
Zaventem did witness some inspired thinking. Why not combine baggage handling with express parcels under the arrivals lounge, one member of the audience asked? But the airports themselves were seen as a brake on innovation. Airport owners are often unsympathetic to the needs of the air cargo industry. Given that passengers and duty free bring in more profit, will handlers inevitably be pushed further and further from the runway?
Will full freighters be forced to operate exclusively from secondary airports? Should airports be publicly owned so as to reflect the interests of all users, not just the most profitable sectors? Can airport designers be lobbied before they lay down their plans?
To get to the root cause of what now afflicts air cargo, it may be necessary to go back to the drawing board. But if that’s just not feasible, handlers will have to make do with the latest iteration of track-and-trace systems (such as the one being put together by pharmaceutical handlers).
The parting image was one of a circular firing squad made up of handlers shouting “share your data” at each other. Or else.
