This article originally appeared in the May/June, 2018 issue of PARCEL.
Traditional and digital worlds are colliding as commerce between B2C, C2C, and B2B blur. This collision is straining supply chains around the world as consumers and businesses alike are demanding end-to-end visibility, tracking and tracing, and faster delivery. No mode of transport is immune. We’ve all read about struggles small parcel providers have had as they adjust to rising ground volumes, and the air market is now feeling the heat as cross-border e-commerce takes off.
Several years ago, the air freight market was negatively impacted by low rates and excess capacity, often only utilized primarily for high-valued or just-in-time goods. However, in the past couple of years, new life has been breathed into the air cargo industry as global economic conditions have improved and cross-border e-commerce has been embraced. Market research firm Forrester anticipates cross-border e-commerce to grow at an annual rate of 17% between 2017 and 2022, with sales reaching $627 billion.
According to the International Air Transport Association (IATA), 2017 global air freight volumes grew nine percent, the highest year-over-year increase since 2010. With the increasing demand, capacity and rates are now at a premium and have pushed up rates as changes in trade patterns, such as direct business-to-consumer and consumer-to-consumer transactions, gain traction. In addition, cross-border e-commerce has presented challenges in terms of safety, security, accurate and efficient collection of duties, and taxes. As the air freight market reacts to changing requirements and needs, IATA has issued a directive to the air freight market to proactively seek collaborative solutions to address not only the increased volumes but also solutions for end-to-end visibility, faster service, and reasonable costs for e-commerce customers.
To address capacity concerns, logistics providers are chartering flights while express and other air cargo providers are ordering planes to update and expand fleets. However, for those providers that have airplanes ordered, they can’t arrive soon enough. For example, UPS has caught flak from its pilot union for using too many third-party cargo airlines to meet its freight demands. Under a contract with the Independent Pilots Association, UPS Airlines is allowed to subcontract flights for 45 days each calendar year outside of its peak season. According to UPS, it is adding 35 jets to its fleet over the next four years, including nine in 2018. UPS notes, “By 2022, we will be adding more than nine million pounds of cargo capacity to our global network of more than 580 owned and leased aircraft." But, the question now is, how is the company planning for current volumes versus the year 2022?
Meanwhile, additional airlines are adding capacity as fast as possible. Atlas Air has sourced six 747-400Fs on operating leases since late 2017, ANA has recently placed an order for two Boeing 777F freighters, and Amazon took delivery of its 30th plane.
While capacity is tight, having enough pilots is becoming a problem. Both UPS and FedEx have introduced programs for new pilots. FedEx, for example, launched Purple Runway – A FedEx Pathways Program. FedEx Express, along with its feeder operators at Mountain Air Cargo and Empire Airlines, will offer programs to promote student interest in aviation careers at selected colleges and universities, beginning with Delta State University.
In 2017, UPS and Ameriflight launched the UPS/Ameriflight Gateway Program to get pilots the hours and skills required to operate UPS Airlines’ larger aircraft.
Indeed, e-commerce will continue to be a main-growth driver for air freight. IATA anticipates a 4.5% increase in global air freight volumes this year. However, rates are also expected to remain high and capacity will continue to be an issue. Are there options? Of course there are. Logistics providers, air cargo providers, and express providers all are introducing new solutions. Understanding all of them is key to success in the cross-border e-commerce race.
John Haber, Founder and CEO, Spend Management Experts, can be reached at solutions@spendmgmt.com.
