Despite the huge fluctuations in the ocean market, air freight is still a more challenging market from a logistics management perspective, according to one leading 3PL.
    Forwarders and logistics companies have been vocal in recent months about the huge costs associated with managing the peaks and troughs of container movements by sea, but GAC Regional Manager, Freight Sales, Peter Orange told FlyingTypers that the pricing system imposed by airlines was also a major issue for freight solutions providers.
    “Airfreight is harder to manage from the point of view that airlines are and remain export-driven and focused, with control at the point of pricing and capacity at the origin, whereas many markets are inbound consignee-controlled,” he said. “This anomaly means that we cannot negotiate with airlines at destination in a way that we wish to.
    “Shipping lines on the other hand are well-versed in this and have adapted quite well to the market situation today. Overall pricing has become more stable with surcharges now being rolled back into freight costs and ‘all-in’ pricing being offered again.
    “The ideal situation is for airlines to learn from shipping lines on how, and at which point, to control their pricing and capacity.”
    A number of forwarders/3PLs have reported pressure on air freight forwarding margins over the last 12 months due to falling oil prices and major customers engaging in aggressive tendering. Orange said the move by airlines towards ‘all-in’ pricing—following in the footsteps of their shipping peers—was helping stabilize the market.
    “All-in pricing is easier and in fact more transparent to manage,” he said. “The tenders and RFQs that we have been involved in over the past few years have demanded that we sometimes take, considerably sizeable commercial risks by offering ‘all-in’ pricing, or alternatively, fixed surcharges for fuel, etc.
    “Margins are always hard to come by in our business, and being able to consolidate business volumes on key trade lanes is the ideal way of maintaining margins.
    “Freight itself is a commoditized product, and GAC strives to offer additional value to the customer with services provided at origin and destination. Warehousing services, such as milk runs from suppliers’ and buyers’ consolidations, are being offered to customers as part of the solutions in their supply chains.”
    GAC recently expanded its logistics network in the U.S. with the opening of four new offices in Atlanta, Detroit, Chicago, and Los Angeles. As a mature and established market, Orange said the U.S. presented its own set of challenges. “We are building upon our existing foothold in the oil and gas sector, as well as global capabilities, to expand our reach in the automotive, FMCG, fashion, and pharmaceutical sectors,” he explained. “We also have the support of our existing clients who want to continue working with GAC.
    “We can also better control services and pricing with our own teams on the ground and set and establish relationships directly with carriers, which will give us more transparency on costs and services.  We offer new air and ocean freight services from the U.S. to Asia and Europe in particular.”
    According to Orange, the main challenge facing forwarders in the air freight market at present is a more stringent regulatory environment and compliance requirements. “GAC and our customers take a serious view on this and ensure such rules and regulations are being followed,” he said.
    “However, in some markets, there will always be players who are looking to take short cuts, and this affects the level playing field.
    “GAC has to walk away from certain business at times and whilst this means a loss of opportunity, it is the right way and it is the way we have chosen to operate our business, and it is also the way our customers want us to be.”
    Orange said that predicting where rates improvements and demand growth would come from in the air freight business, even in the short-term, was always a difficult task. “It is difficult to predict months ahead, not to mention years ahead, which is an even tougher call,” he explained. “The world is now changing at a rapid pace. A year ago, no one would have thought that oil would be at $50 a barrel, or predicted the effects of the price drop.
    “There will always be a demand for air freight, and as manufacturing becomes more high tech and companies are looking at lean manufacturing and reduced levels of inventory, air freight will play an even more important role.
    “Intra-Asia freight will become more and more important, as we see the development of the ASEAN and other free trade groups, including Trans Pacific Partnerships, getting off the ground. The member countries will naturally want to do more business with each other in the same way the European Union does today. It will take time, however: the EU took over 60 years to get to where they are today!”
SkyKing

What makes an airport “great” for cargo?
     I guess it depends on who you are and where you are in the logistics chain because the playing field changes considerably if the focus is transfer activity versus origin and destination, or belly cargo versus freighter.
     It also changes if the traffic is domestic or international. But for argument’s sake, let’s take a classic gateway with a balanced mix of all of the above.
     Here are my top ten criteria for a world-class cargo operation. (Top ten lists are interesting because they are always wide open for debate).

1. A balanced flow of cargo that fills bellies and provides strong backhaul opportunities.
2. A realistic airport cost structure that includes fuel flowage fees, landing (or take-off) fees, and facility and ground leasing costs.
3. A choice of experienced cargo handlers.
4. Modern facilities sized and configured to facilitate and expedite handling, sortation, transfer, and clearance.
5. Adjacent aircraft apron for freighter parking. The apron should have appropriate wing tip spacing and a set back from the building that will enable the easy and safe movement of equipment.
6. A 150’ deep truck apron that will allow for maneuvering and easy parking. An adjunct to this would be additional space for truck queuing.
7. A Customs operation with available staff that is equipped for electronic clearance on a 24-hour-a-day basis.
8. The absence of a curfew and any other restrictive operating conditions.
9. A quality roadway system that provides easy access and egress to the facilities and from the airport to the regional highways.
10. An airport management philosophy that integrates regional economic development with the air cargo community in a working partnership.   

    There are other factors that are important to success such as a regional labor force and of course a strong business infrastructure of brokers, forwarders, truckers, and a range of other key partners.
     And while this addresses a “gateway” there are hundreds of airports with very different operating parameters and business objectives.
     The common thread is to look at what the specific market needs and understand what is necessary to deliver it.
     It might be interesting to hear from readers if they have other criteria or to establish a separate “top ten” from a forwarder, carrier, and airport perspective. Identifying and prioritizing the overlaps could prove helpful. 
Dan Muscatello

Mr. Muscatello is Landrum & Brown’s Managing Director of Cargo and Logistics. He is a forward-thinking airport and air cargo executive with more than 30 years of experience, in both the public and private sectors. He has been a development strategist for both the business and physical facility planning of air cargo complexes, and the integration of ancillary and supporting logistics services that make them operationally and financially feasible. Mr. Muscatello comments on various topics of unique common interest are a regular feature of FlyingTypers.

     The place to be if you are in New York City on October 22 is at the JFK Air Cargo Monthly Luncheon at Hilton JFK Airport. From 11:45 AM - 2:00 PM the tariff for a drink, lunch, and a speech is $45. Vice President Cargo Americas at Cathay Pacific Airways Frederick Ruggiero will talk about current air cargo market conditions.
http://www.jfkaircargo.org/ or Contact: laura.cascino@delta.com
Geoffrey

     Wowser! It’s just like working inside some kind of Bauhaus masterpiece! Marking an historic first, flight attendants stand in stark contrast inside a Finnair Airbus A350 XWB as it arrived in Hamburg, Germany, this week on October 11, 2015.
    Expansive, beautiful, and sure to quicken pulses wherever it flies, AY collected this beauty from manufacturer Airbus in Toulouse a few days ago and as of next week will fly it between Helsinki and various Asian cities.
Geoffrey