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  October 15th, 2018 | Written by

Shippers and airlines—an evolving relationship

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  • Technology providers can promote the direct relationship between air carriers and shippers.
  • Airlines have traditionally eschewed dealing with shippers, even larger ones.
  • Shippers of high-value products may see airlines coming directly after them for business.

The question of how shippers should approach air cargo carriers is a complex one, for a number of reasons. Airlines have traditionally eschewed dealing with shippers, even larger ones, to say nothing of those that won’t offer them much business—opting instead to deal almost exclusively with airfreight forwarders and consolidators.

“Customer acquisition at scale is a messy process,” said Zvi Schreiber, CEO of Freightos, an online freight platform. “Customer management can be expensive and hands-on, especially in an error-prone industry like freight.”

But that situation is changing, thanks to increased competition from ocean transportation options and the advent of digital technologies that make it easier for carriers to connect directly with shippers. Shippers of high-value products like pharmaceuticals and other life-science cargoes, especially, may see airlines coming directly after them for business.

Whether a smaller shipper should deal with one or more forwarders or with air cargo carriers directly will depend also on the extent to which a shipper owns and manages its transportation processes. Online retailers, especially, are increasingly relying on air to speed deliveries to their customers. Many of the big ones are also taking ownership of their transportation and logistics, a lesson that should be considered by the up and comers. Outsourcing those functions to one or more forwarders may a good idea, depending on the shipper, but many forwarders are still technology challenged and don’t move at the pace expected in twenty-first century commerce.

That brings us to technology—and why is altering shipper/carrier relationships. The growth in online platforms have created greater transparency in the logistics space—including air cargo—and could make direct relationships between shippers and air carriers more feasible.

The air cargo industry has posted some impressive numbers of late, including a nine-percent growth in global demand last year. But a tight airfreight supply/demand picture continues to push rates up, which is giving shippers pause. Air cargo has appealed to shippers of high-value products like pharmaceuticals, electronics, machinery, and produce, but higher airfreight rates have galvanized an emerging ocean option for pharmaceuticals and other perishables. That competition has interested airlines in developing more direct relationships with shippers.

For large online retailers like Zulily, transportation and logistics have emerged as core competencies. Given the desire of customers to receive their orders quickly, the company often employs airfreight for items that originate overseas.

“We fly our international inbound product,” said Rudy Landram, the company’s vice president for transportation and vendor operations. “and have established automated processes that assist U.S. customs to approve our freight to its destination quickly.”

Zulily’s ownership of freight processes, fulfillment, and deliveries means it stands in a relationship with its vendors similar to that of a third-party logistics provider. And one thing Zulily has in common with leading 3PLs is a bias toward building proprietary systems to manage supply chains, systems that allows the company to be nimble and flexible.

Cutting-edge freight forwarders have taken to deploying systems like Zulily that are proprietary and designed to enhance the customer experience. Flexport, a full-service ocean and air freight forwarder, has deployed a digital platform developed in the last few years to incorporate the latest data analytics and decision support features of modern software. Systems like those provided by Flexport want to shake up airfreight forwarding, while maintaining the status quo of having shippers deal with airlines through forwarders.

“The last holiday season saw a big impact on airfreight with growth in e-commerce and customer expectations for speedy deliveries,” said Stuart Leung, vice president for operations and logistics at Flexport. “Amazon has set high expectations and everyone is trying to catch up.”

Some new technology, such as that offered by Freightos, aims to shake things up even further by changing the cost/benefit equation of user acquisition and encouraging airlines to expand direct sales to small and midsize companies. “We expect to see more carriers using digital channels to sell directly to shippers, even to small shippers,” said Schreiber.

“The new breed of digital freight forwarders ply wares similar to traditional freight forwarders but use technology stacks designed and built bottom-up with the aim to better serve customers,” Schreiber added. “The combination of customer service and automated process means that companies like Flexport are taking enterprise forwarders head-on.”

But the digital forwarders face significant hurdles ahead. “They compete with larger forwarders that leverage volume for lower carrier prices, making it harder to win on price,” said Schreiber. “In addition, as traditional forwarders and carriers steadily digitalize, the competitive edge provided by tech may be eroded.”

Trade is a rapidly evolving business, and, especially for those companies making their initial foray into e-commerce, 3PLs are often the ones that are able to provide quick and flexible solutions. The latest developments could turn some business models on their heads. It’s hard to say what the future holds, but one thing is certain: shippers and their service providers had better stay on their toes.