Keeping cargo up in the air: Maintaining resilience of the supply network

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COVID-19 has globally impacted the air cargo trade more profoundly than any other recent crisis. While there have been restrictions on the commercial passenger airlines, cargo flights continue to be in operations and remains the lifeline for the aviation industry. Though the cargo carrying capacities were impacted on account of non-availability of belly capacity on passenger aircrafts, freighter operations played a critical role. Therefore, experts say air cargo will be a critical area of resiliency for airlines and airports for the foreseeable future, considering the management makes it a strategic priority.

Ritika Arora Bhola

According to International Air Cargo Transport Association (IATA), cargo revenues will reach $110.8 billion in 2020 from $102.4 billion in 2019. As a portion of industry revenues, cargo will contribute approximately 26 per cent, up from 12 per cent in 2019. As the situation is expected to get back to normalcy in 2021, the contribution of passenger revenue is expected to rise. But the share of air cargo is expected to be higher, all thanks to the responsiveness air cargo services have attracted during the pandemic.

“Cargo has always been a strong revenue stream for airlines and airports. The pandemic situation has tilted the balance towards cargo for now because majority of international commercial airlines remain grounded, with travel bans still in effect in several countries, but goods are still being transported around the world via freighters,” says Narayanankutty Karayangal, Senior Director– Airfreight, DHL Global Forwarding India.

However, revenue stream from cargo alone may not be able to sustain the kind of infrastructure that is in existence in the airports or investments made into airlines and passenger aircraft. “Commercial flights are a main source of airfreight capacity, accounting for more than half of the world’s airfreight movement. They will continue to play a large role in the global air industry in the future,” Karayangal says.

“During pre-COVID times, most of the cargo moved in the belly of the passenger flights. With the reduction of this capacity, there is a huge opportunity as there is void in the supply and high demands to cater to,” says William Boulter, Chief Commercial Officer, IndiGo Cargo. “For example, we see more Indian pharmaceutical companies shipping essential medicines to many countries, and there is a decent demand for Indian fresh fruits and vegetables in the international markets.”

“There is sustained demand for medical supplies, food, essential goods, and electronics driven by work from home, online education. These factors are driving the growth of air cargo business,” says Gopal R, Global VP- Supply Chain & Logistics Practice, Frost & Sullivan.

“The implementation of risk mitigation strategies among companies will boost the sustained volumes via air cargo as compared to other modes of freight. In effect, cargo will become a key source of revenues for the air cargo value chain participants like airports, airlines, ground handlers, forwarders, and logistics service providers,” adds Gopal.

Growth opportunities amid COVID-19

Karayangal specifies that the ‘Need’ to increasingly ship life science products, chemicals, medical devices, and PPE has been the main growth driver. “Going forward, we need to be prepared for connecting the world with vaccines to fight the end war against the pandemic. We will see more of healthcare systems and infrastructure opening up in the hinterlands, thus, delivering freight to these smaller towns directly will become a common feature.”

“Innovative packaging solutions to retain temperature-controlled transportation beyond the current available solutions will be needed, while introducing ‘Track and Trace’ tools for shipments will ensure the integrity of products is maintained, especially those that are high-value and highly sensitive,” Karayangal says. “One can also expect upgrading of technological products to advocate contactless operations and more of face and voice recognition modes, which will require sensitive handling with white gloved services.”

“Despite COVID -19 pandemic adversely impacting the sector it has brought in new opportunities for innovation, building efficiencies and collaboration amongst all stakeholders. This includes scope for process enhancements through automation, effective use of technology and digitalisation, workforce skilling, etc.” says Sanjiv Edward, Chief Commercial Officer, DIAL. “Digitised solutions have played an important role in reducing the human contact and bringing efficiencies. For instance, Delhi Airport launched India’s first QR coded e-gate pass system for delivery of imports cargo. We have also used part of its cargo terminal’s export cargo zone to temporarily store import cargo, thus creating more space with due permission from Customs and CISF.”

“The fact now is that air cargo service providers are looking for the expansion opportunities in the cross-border e-commerce,while airports are upgrading cargo handling capacities to be able to leverage emerging opportunities,” says Gopal. “The main growth driver is the e-commerce activity triggered by the pandemic. This e-commerce pattern in most countries will exist post the pandemic and is expected to lead to innovation in air cargo, fulfilment, and delivery services.”

Maintaining stability in the future

The air cargo stakeholders are quite optimistic about the future and believe that the industry would achieve the same levels of business/cargo capacity by Q4 2021, along with new emerging megatrends, paving way for the industry to bolster and be future ready.

Digitalisation, has taken the lead. From MSMEs to MNCs, every business organisation has adopted news ways to work in a contactless, digital environment.

Regional airports are gaining prominence. Experts predict rise in cargo flow from smaller airports across countries. As air cargo continues to dominate; e-commerce and cross-border trade is another area which is providing glimmer of hope and attracting stakeholders worldwide.

Karayangal assures that in the foreseeable future passenger traffic will continue to be limited. “With organisations and people adapting to working from home, the number of business travellers could get reduced. Tourist traffic too will take a while to pick up once again. Maybe combination aircrafts would make a comeback with partitions in the main hold area between passenger seats and cargo.”

Besides, Karayangal believes, with people no more needing to work in mega cities, smaller towns and airports could get increasing prominence. “If so, the dynamics of cargo flow to and from smaller airports will present a new opportunity, mainly to align with passenger flow. And lastly, such a fluid situation could well lead to aircraft configurations with freighters emerging as the major aircrafts in the cargo world.”

Edward jots down some of the key highlights for the upcoming years.

  • Air Cargo to continue as a key business driver in aviation– While air passengers operations are picking up gradually, air cargo is expected to continue to be the key driver and keep playing its pivotal role, more so with freighter operations complementing belly capacity till the time passenger operations are back to normal.
  • Massive Digital Transformation and Innovation– The entire air cargo supply chain has started focussing aggressively towards digitisation and taking innovative approach of cargo handling process, message exchange system, logistics solutions for end-to-end visibility, etc. to continue survive.
  • Special cargo movement– There has been major surge of essential/medical supplies all across the global supply chain and will continue to be so. However, with the development of vaccines for coronavirus, there will be the need for enhanced air cargo connections across the globe.
  • Skilling up of workforce under digital environment– With new innovations, automation and optimisation helping in processes integration, focus on skill development of the workforce would be required to meet the requirements of new working norms.

Additionally, Edward says, various initiatives taken by the Government of India like ‘Make in India’ and ‘Make for World’ will certainly transform the country’s economy, and air cargo supply chain will play an integral role in facilitating this.

Exploring a broader perspective, Gopal R highlights some of the emerging pattern of change likely to impact how air cargo sector would operate and sustain:

  • Significance of freighters versus belly cargo– a paradigm shift in market dynamics.
  • E-commerce opportunity in markets like Africa, Asia, Latin America, Middle East, in addition to existing large and developed markets.
  • Telemedicine and remote diagnostics and treatment leading to new air cargo opportunities.
  • Healthcare industry rationalisation, in terms of supplies to government and private hospital networks as well as treatment, offers capacity and space for air cargo.
  • Integration of air cargo with transportation network connectivity. For example, BRI and GCC rail network – Oman – Saudi Road Connectivity – Transhipment Hubs.
  • Collaboration with freight management and road feeder services providers- Etihad Cargo – MICCO.
  • Post-pandemic intra-regional trade growth leading to air cargo shifts along key trade lanes as well as emerging lanes.
  • New regional hubs and development of fulfilment infrastructure.
  • Renewed strategies of countries in demand generation and growth.
  • Development of niche maintenance hubs for transport, aviation, as well as industrial equipment, to offset new sales.

Organising efforts to keep supply chains running

Despite massive losses, the airlines and airports worldwide remain operational and continue to transport essential commodities and pharmaceuticals worldwide. From converting passenger aircraft into cargo freighters, executing 100 per cent e–transactions to supporting/motivating each other, the air cargo industry has done it all and put up a united front to combat the crisis. Now, the potential optimism has come back with airlines resuming passenger operations both nationally and internationally, as experts believe cargo will continue to dominate.

“In this unpredictable environment, we must focus on the changing market dynamics and how we can support our end customers, by continuously building tailor-made solutions which help make their lives easier and help in their efforts to build a successful business,” says Boulter.

With a similar viewpoint, Edward says, “Conversion of passenger aircrafts to carry cargo, adoption of technological solutions, and various safety measures across the cargo value chain has helped the industry serve the air cargo movement requirements seamlessly.”

“As an industry, we need to focus more on building air capacities, digitisation and use of innovative methods and technologies in a collaborative manner to meet the evolving requirements,” adds Edward.

At present, air cargo services across regions and countries are at different maturity levels and leveraging opportunities amid the crisis to develop and utilise their service offerings. While doing that, they not only gained a competitive advantage but also developed expertise in handling specific product segments and were also able to further develop the value chain of the logistics services industry.

Globally, this is a key issue that air cargo professionals globally need to keep an eye on to develop competency, sustain the current volumes in a post-pandemic scenario, and stand out.

Taking a cue from the above, Karayangal says, “The fundamentals of air cargo need to be examined, as being the main mode for achieving speed and direct reach. Eliminating wasteful expenses in the cargo carrying processes is critical, including the speed at which customs clearance process for imports is done from a door-to-door perspective.”

“There are areas which could be worked upon, such as improved packaging to optimise the volume of cargo being carried in an airline and examine ways to eliminate or reduce the need to stage and handle freight at different transhipment points,” he adds.

Karayangal suggests that there could be a reduction in the holding period of cargo at airports. “A rethink on the inventory managed models of manufacturing as against carrying just in time goods, and maybe even de-commoditise capacity to service capability.”

He continues, “Technology is a significant tool and its implementation can help reduce costs by avoiding the need to carry documents and enabling the timely visibility of shipment status. As a unified front, airlines could even think of having common trucking agents from gateways to smaller airports, facilitating the optimisation of cost reduction.”

Acknowledging the same, Gopal says, business continuity planning should be aimed at ensuring employee well-being along with improved operational efficiency.

“In addition to that, cargo fleet conversion at the optimal level for right product varieties, belly capacity utilisation and maximisation, along with adopting emerging technology trends for maximum price realisation and profitability will help in decision-making, draw up schedules, manage space and transportation, and also provide real-time alerts based on analytics, and data insights.”

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