Admittedly, this is a very provocative headline, but justified by the outcome of a survey initiated by CHAMP Cargosystems. It concludes that the traditional revenue/cost scheme in air freight has had its day. The company’s point: Shipment data, reflecting the business of their 20 top clients, evidence a clear trend: “the number of air waybills rises steeply while the weight of consignments flown aboard aircraft shrinks continuously on a global scale,” CHAMP helmsman, Arnaud Lambert, explains in a bilateral talk with CargoForwarder Global.
“It’s the economy, stupid!” A famous phrase exclaimed by James Carville in 1992 in his role as key strategist for Bill Clinton’s electoral campaign and echoed by the latter U.S. president time and time again. When it comes to the global air freight business, i.e. in comparison placed on a much lower level, the testimony today would probably be: “It’s e-commerce, stupid!” “This particular business sector grows phenomenally, doubling in size every five years, at least in key markets such as North America, Europe, Asia and intra-Asia,” CHAMP CEO, Arnaud Lambert, states. Hence, the number of air waybills shoot up while FTKs go south. This is evidenced in data tabled by CHAMP. They show a 4.5% decrease in FTK in a September 2018 to 2019 monthly comparison, while the number of AWBs shot up by a remarkable 8 percent during the same period.
More costs, lower margins
CHAMP speaks of a growing and accelerating gap between weight/volumes and number of AWBs issued. So, if shipments tend to weigh less, cargo carriers will have a mounting problem because their costs are linked to air waybills, leading to higher number of pieces transported causing more expenditure but less profits at the same time. Simultaneously, the financial gap is widened by additional but indispensable expenses for artificial intelligence, digitalization, updated IT systems, robotics, rising labor costs and similar spending.
Is the revenue/cost model in danger?
Survival is at stake
To wrap CHAMP’s findings up: trapped between the antagonism of FTK decrease and AWB increase, cargo carriers are facing a severe structural problem that could jeopardize their survival in the medium term if they do not take a strategic U-turn. In this respect, Mr Lambert speaks of a “creeping erosion process” of their income base.
New billing scheme is required
He doesn’t claim to have found the philosopher’s stone to show the industry prospective ways of escaping the financial misery that is looming indicated by available data. “I don’t have a one-size-fits-all solution,” he admits. But carriers should develop a new charging model based on a correlation between the many different services they provide (and usually do not get paid for), the often superb product quality offered to their customers, the changing market conditions influencing their revenues and the adverse effects of the FTK evolution that tends to be pushed further down by the fast growing e-commerce business.
Ironically, maybe budget airlines such as Ryanair, Southwest and the other similar low-cost actors could show cargo carriers a way out of the financial impasse. They charge money for every extra service offered their passengers even if it is marginal stuff, leading to low fares but high yields at the end of the day.
The outcome of CHAMP’s data analysis is a bold fact, no more and no less. However, the survey’s results are highly explosive and should make cargo managers’ heads spin, giving them plenty food for thought.
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