The day I went to prison…
A personal note on the antitrust investigations that rocked the air freight industry. The weather on ...
Digitisation of the air cargo industry will eat into the market share of traditional freight forwarders, according to two recent articles.
Consultancy McKinsey states in one article that by 2025, 15-20% of air freight shipments will be booked directly by the shipper with the airline.
Flexport, a freight forwarder, highlights in a blog that “airlines are poised to bring freight consolidation in-house”.
However, in my view, the reasoning in both articles is flawed and provides no real fundament for their claims.
The McKinsey article reasons that: “A fully digitised sales and customer-service experience… will allow carriers to disintermediate forwarders, pushing direct shipper-carrier bookings up to 15 to 20% …”.
The main omission in this logic is the operational factor. Neither airlines nor shippers have the global capabilities to perform, for example, the customs activities that are required to move freight from one part of the globe to the next. And I don’t see either building up these capabilities – and why would they? From the airlines’ perspective, it makes no sense to start competing with a client base that provides 80-85% of their revenue.
And anyway, looking at the industry today, I see no signals that either shippers or airlines are doing that. Both actors are focusing on their core capabilities; and customs clearance (just one of forwarders’ multiple roles) is not one of them.
Digitisation by the airline of its sales and customer service experience will, therefore, not disintermediate the air freight forwarder, given that the latter plays a far more crucial role than just making bookings and informing shippers where their freight is.
Meanwhile, the Flexport article says “…real-time dynamic pricing for air freight sold through digital marketplaces will allow airlines to consolidate freight at the plane-level….”. Let me explain why this is unlikely to happen, via a real world example.
KLM Cargo tried to achieve plane-level consolidation many years ago. To do so it used products with different transit times: one; three; and seven days. But a mismatch between this strategy and the available systems, processes and culture caused this initiative to fail.
An air freight forwarder would book a shipment for a seven-day transit time (at a reduced price, of course), as it knew that the shipment would move anyway within the next one-to-two days. Playing the consolidation game well was, and I believe still is, not part of an airline’s DNA. As such, any theoretical opportunities for consolidating at a plane level would be decimated by the daily operational realities faced by airlines.
The flaw in both articles is they underestimate the operational role of the freight forwarder – transport, consolidation and customs brokerage among other things – in today’s air cargo industry, and therefore overestimate airlines’ capabilities to provide more services to shippers.
Nor do they fathom the investment it would require to build such capabilities.
Digitisation of commercial processes is a key driver to make individual companies, and our industry as whole, more efficient. But to state that such improvements would lead to “disintermediation”, “disruption” or a “a generational shift” seems more like a cry for attention, than accurate foresight.