Management of Air Cargo - Essay Example

Management of Air Cargo The air cargo industry is an essential element of the cargo industry forming the backbone of foreign trade. Ever since the theory of competitive advantage has come into perspective and has been pursued relentlessly by the developing world, all countries in the world have tried to focus on expertly producing and selling cost efficient goods the cargo industry has been increasing both in terms of numbers of business firms indulging in freight and customs clearance activities and in terms of sophistication and kinds of goods for freight. Many innovations have been made in the air cargo industry. For many the IATA live animal transportation regulations may come as a surprise but cargo carriers such as Emirates SkyCargo adhere to these policies to transports animals such as horses and pets from one location to another in a comfortable environment with a friendly staff to take care of their needs . Further examples are that Emirates Sky Cargo introduced a special layering to keep ice frozen over long durations, while SkyTeam introduced a special package for transporting medical aids that have special shipment needs. Such innovations indicate that the industry is moving towards providing more consumer focused solutions to its customers in order to increase the efficiency and the efficacy of the transportation processes. The air cargo industry which had humble beginning in the 1950s has now grown to be a multimillion dollar industry which has many players involved including airlines, forwarding and clearing agents along with the businesses that indulge in foreign trade. But the trend that has taken over the Cargo world and is expected to revolutionize the way cargo is transported via air is the e-freight system proposed by International Air Transporters Association (IATA). According to the IATA website, the association defines the e-freight program as: IATA e-freight is an industry-wide program that aims to reduce the use of paper documents in the airfreight supply chain by moving to a simpler, paper free, electronic environment. It involves among others: airlines, shippers, freight forwarders, ground handling agents, and customs authorities. (International Air Transporters Association Website, 2009) For perspective: Each air cargo shipment carries with it as many as 30 paper documents – enough to fill 80 Boeing 747 freighters every year. IATA e-freight replaces 13 of these documents with electronic messages. That will increase to 16 in 2009, and 20 in 2010. (International Air Transporters Association Website, 2009) Thus the program is designed to reduce the paperwork carried out by all the players involved in air cargo and is being actively pursued and promoted by IATA for adoption by all airlines. The program’s usage is expected to increase to 81% of all air cargo being conducted as air freight by the year 2010. The target, though tough is seemingly achievable as IATA has already surpassed its goals of having 14 locations implementing the program as it has enrolled nearly 18 locations and 25 airports to go ‘live’ with the program. (International Air Transporters Association Website, 2009). As the program is implemented it is being faced with many criticisms particularly in terms of demanding investment when fuel prices are rising and the aviation industry faces a series of mergers and acquisitions among several closures as the economic condition worsen. The rising concerns about rising pollution and contamination levels have put the aviation industry in quandary for a long time now as they are considered to be one of the larger environmental pollutants. This is especially true of the airlines running on oil as fuel and discharging the harmful elements into air. The program comes in view of the international focus of reducing harm to the environment and making business processes less polluting. In this regard, the aviation industry has long been considered to be one of the major contributors causing ozone damage owing to the fuel ejections in the upper atmosphere by airplanes. Thus this program is a timely introduction where not only pollution is reduced as it will reduce paper wastage by 7,800 tons in the air cargo industry. Therefore, the e-freight system will reduce paper wastage and in turn contribute less towards environmental damage by having fewer trees cut down leading to lesser soil erosion and increasing sea levels. Along with being environment friendly, e-freight will also save the industry costs ranging between $ 3.1 billion to $4.9 billion per annum depending, of course, on the degree to which the program has been adopted. This includes the costs reduced in terms of paper and manual freight tracking and retrieving costs among others. The cost cuts will come in time when many industries are laying off workers to break even and are reducing business operations and decreasing hierarchy levels so that costs may be met. (International Air Transporters Association Website, 2009) Many more advantages of this program have been touted by proponents and among these are benefits such as the expediting of cargo transfers by twenty-four hours. This is a significant decrease in shipment time especially in export-oriented businesses where time is a crucial element and deadlines have to be met. The e-freight system if adopted initially by cargo airlines will give them a competitive edge as consumers will prefer faster, reliable and cheaper services to others. F adopted by an alliance of air cargo firms, this will yield cost efficiencies on even the most extensive of routes. Fortunately, this speediness does not come at the cost of reduced service quality. In fact, quite the opposite is true where there will be an increase in efficiency of services provided by reducing the human errors that could cause mistakes in manual entry by operators. As the documents will be electronically available at all locations, the shipment will be easy to track and chances of damages via loss of goods will be minimized. Further increasing the program’s efficiency is the fact that the processes will become transparent as there will be lesser people involved as intermediaries and the cost benefits will also accrue to the customers who have to pay exorbitant sums in terms of bribes to customers officials in some countries where corruption is rife. Even though the apparent advantages of the e-freight program are many and in recent times the program has become more popular and many airlines and countries are interested in adopting e-freight, the solution is not as simple as computerizing airlines cargo divisions. The process of converting to e-freight will require the cooperation of freight forwarders, clearing agents, customs handling agents and all those who are involved in the cargo supply chain. This coupled with the fact that there air Cargo requires 30 paper documents and for those paper based documents to be eliminated, systems will need to be reengineered so that the document processing becomes easier and less time consuming. This was the reason why IATA, when it started promoting e-freight in 2005 wasn’t able to gain the cooperation of many airlines. The fact that airlines can’t actually initiate freight shipments and it is the forwarders who need to comply that the program was not popular initially. According to an article by Peter Conway: Steen Otterstrøm, project manager for SAS Cargo, points out it is freight forwarders who have to make the effort to create and send the electronic messages. This requires them to have different processes for e-freight shipments. (Conway, 2009) There are further drawbacks in this program that make adaptation more time consuming and tedious than is visible on surface. The advantage of having a paperless process comes with the drawback of having to design elaborate electronic programs that redesign the way that freight is shipped. In order for the documents and information to be provided electronically it is not enough that the document be scanned and sent across. Scanned documents have a large file size which makes transmission across electronic medium difficult. Further these cannot be sorted or broken down and analyzed and the information in them cannot be aligned to other programs which need similar information to work on because computers cannot recognize the document as separate characters and cannot basically read the document. More so, the existing staff needs to be trained to use and operate these systems as technology renders manual process as distinct from the electronic processes. Thus this involves initial investment in infrastructure in terms of computers and other electronic devices such as modems and data cables along with the investment in training employees to work o new systems. This too might pose a risk as some senior employees may not be wanting or open to change and by thrusting an advanced system upon them the airlines and forwarding agents might risk losing their experienced management. Another problem that is being posed by some countries is that they are continuing to demand certificates of origin in their actual form and refuse to accept any other document in its lieu. Therefore IATA is trying to work with these governments and is going to start a campaign to make these countries understand the importance of eliminating paper documents and streamlining all documents and requirements so that the process are uniform and efficient. This will not be an easy task as many countries, as a means of constraining imports and creating informal, unofficial barriers to imports increase the legalities in importing so that the transfer of goods is automatically restricted. On the other hand if IATA is able to convince governments to change their requirements, many more documents are there that will need to be restructured. Among the list of documents that will change form are: The air waybill, [the list includes] flight and house manifests, import and export goods declarations, and customs release documents. (Conway, 2009) However, many airlines that have adopted the system have already started providing documents as per the requirements of IATA which shows their interest in the e-freight system that promises to make their business processes smoother. In terms of the cost cutting advantages, e-freight systems, it is argued will require initial investment which many airlines in these times might be short of. But some are still adamant that they cannot afford to slow down the implementation of the program as the faster they adopt it, the faster will they be able to reduce expenditures and improve systems to boost economic activity in their industry. In the words of Dave Brooks: "If you believe that a substantial amount of cost can be taken out of air freight, and if you believe that taking out paper would make air freight more competitive, then you have to prioritize it," (Conway, 2009). More specifically, in terms of particular airlines and the like supporting the program are Air Canada and Swiss WorldCargo. Air Canada is already encouraging its customers to provide them electronic information so that the will be able to adapt easily to the program. Furthermore, WorldCargo has introduced, Swiss Worx’, a customized version of the end-to-end IT cargo management system which has been put in place along with other modern cargo management systems which are the key to the gain in momentum of the e-freight program. (Mercator’s first customer of ‘Swiss Worx’, 2009) Thus the trends indicate that the airlines are ready to migrate to the e-freight systems despite all the constraints posed to them by various players in the industry. In terms of implementing the e-freight program, IATA has introduced another program by the name of Cargo 2000. Cargo 2000 works by aiming to improve the quality if air cargo and ensures that that the route maps have no quality loopholes. The program has reduced the number of processes involved in air freight by 50%. According to an article on the World Cargo Events website: The quality program is being implemented in three distinct phases. Phase 1 for airport-to-airport movements manages shipment planning & tracking at master airwaybill level. Once a booking is made, a plan is automatically created with a series of checkpoints against which the transportation of every air cargo shipment is managed and measured. This enables the system to alert Cargo 2000 members to any exceptions to the plan, allowing them to respond pro-actively to fulfil their customers’ expectations. Phase 2 is responsible for shipment planning and tracking at house airwaybill level and provides interactive monitoring of the door-to-door movement while the third phase manages shipment planning and tracking at individual piece level plus document tracking. (Cargo 2000 hits a million, 2008). The program will serve as a supplement to the e-freight program and help in navigating quality issues and concerns along with providing service improvements and a more consumer-friendly approach. The program is said to be the cornerstone for e-freight as once this is applied the application of the e-freight systems becomes more expedient. With more and more airlines wanting to join in the program, the popularity of this program is increasing and it will be in a short span of time that the cargo industry will have completed a revolution that has till now best served its customers interests. Conclusion Keeping in mind the constant innovations that the air cargo industry has gone through in recent times and the new cargo management systems that have been introduced time and again, e-freight is one trend that has gone beyond all others. Ever since its launch in 2005, the program has been increasingly implemented by airlines across the world. Being aligned with the UN’s e-customs initiatives, the program has been developed by IATA keeping in mind industry and consumer’s business needs. IATA has been constantly working at the e-freight program ever since it started popularizing it at al forums and as a result of the constant innovations, IATA has been successful in winning over many alliances and cargo handlers so that the current status indicates, in god measure the developments that have taken place and the aims that IATA has yet to fulfill in time. The current status of the system is such that the standards of operations, the business processes and relevant documents including manuals and drafts along with the IATA e-freight Handbook, which is a comprehensive guide to IATA e-freight, have been published and are available online. This handbook will serve as a bible for firms wishing to undertake the program. Moreover, 13 documents have been replaced by electronic messaging standards to reduce the paperwork involved in electronic freighting and many firms keen on adapting quickly to the new program have already started complying with these developments. IATA had aimed to have at least 14 live locations, but has exceeded its own target when now 25 airports at 18 locations have already adopted the e-freight system including Hong Kong, Australia, Mauritius, Netherlands, New Zealand, Norway, Singapore, Spain, South Korea, Sweden, Luxembourg, Canada, Denmark, Dubai, France, Germany, UK and USA. Although these countries are the developed ones and many major traders such as China and India have yet to adapt the system the management at IATA is confident that these countries too will follow suite. (Conway, 2009) Having India and Chine out of the loop for too long might make the air cargo industry suffer as the economic recession seeks alleviation from the Asia region which has not suffered as much from the financial crisis that the west has. And this in turn will affect the trade patterns. However, as the management is confident of their involvement in the near future and is actively seeking to expand its network, this should not prove to be a matter of concern, least of all to IATA e-freight as it aims to include at least 5 domestic markets in the network by 2010. To further ease matters, a Message Improvement Program, has been launched to further improve the tracking systems that work on the basis of electronic messages and electronic data transfer, the message improvement program will improve the speed and quality of data transfer so that sending cargo becomes easier than it was before when all systems were manual and many documents wee needed before a single article could be exported or imported. In order to have a harmonized system, vendors have been aligned to support the objectives and vision of e-freight, its pilots and the message improvement initiatives. Already, 18,000 e-freight shipments have been carried out since the project launch and more will be carried out at an increasing rate as IATA aims to have e-freight adopted by most of the industry which implies a target of 81% of all international airfreight to be carried out as e-freight. (International Air Transporters Association Website, 2009) These trends indicate that the modest target of 44 live airports at 23 IATA e-freight live locations by end 2009 will be achievable as firms become increasingly familiar with the advantages it has delivered to the firms having adopted the program. Moreover, IATA aims to increase the number of documents replaced from 13 to 16 by the end of the year 2009 and to 20 by 2010 in order to move another step forward in implementing this system. (International Air Transporters Association Website, 2009) In terms of the uptake of the e-freight systems many airlines have adopted it and are touting it in their press campaigns in terms of gaining better media mileage and to be viewed as innovative airlines that are modernizing with changing times. For example Emirates SkyCargo, has become the first e-freight-compliant in the Middle East and already it has carried out more than 1,000 e-freight shipments. Emirates is now considered to be the leading carrier in the world in terms of the number of e-freight consignments carried each week. According to the Emirates management: Ram Menen, Divisional Senior Vice President Cargo for Emirates said: "The launch of IATA e-freight in Dubai takes us into a new, more efficient era for air cargo. Emirates has been one of the key supporters of this initiative, as we see clear benefits in having paper-free operations efficiency and direct contribution to the bottom line. IATA e-freight is a revolution for a $55 billion business that generates 12 per cent of airline revenues and has broad implications for e-trade and the global economy. (Gulf News Website, 2008) " The reasons for success of e-freight are many. This is because this is one aspect of air cargo no one has yet looked at in detail and analyzed in terms of viability. Furthermore this is the only cognizant, concerted effort towards simplifying shipments as there have been initiatives taken in this regards, but by players who only form part of the picture and are not as important to the cargo industry as are the airlines and forwarding agents. For example many international traders are pushing for the electronic filing of customs documents in order to reduce the manual work which takes ages to complete and is tedious and mundane in nature. This will provide employees with time to think strategically and add value to products and services offerings. Moreover, more and more countries are resorting to more advanced electronic requirements for security reasons as terrorism becomes more rampant. This in turn has increased the need for firms to provide electronic information in line with their requirements which is in effect a starting step towards a paperless environment. Further to this the uptake and adaption of the e-freight program has met such resounding support from various quarters as working towards a paperless society not only increases the speed and efficiency with which the processes work but also the ease with which customers are able to send and track shipments and make payments for them. To summarize, even though the industry is in a crisis, the advantages such as the environment friendliness of the system, its aim to reduce costs substantially and the fact that it will increase the speed and efficiency of the process over ride the disadvantages of the initial investment which is bound to be recovered in a short time and the disadvantage of retraining the workforce, which will need to be done if any firm has to stay in tune with the times. According to a website article from Air Cargo News: The industry is in crisis. Record fuel prices and sagging demand growth will drive an industry loss of US$2.3 billion during 2008. We need to simplify and modernize our business. 100 per cent e-ticketing was an important step forward. E-freight is another. It will deliver much needed efficiency and $1.2 billion in cost savings while responding to shippers’ demands for improved reliability and more speed. (IATA announces new e-freight winners, 2008) References (2009, February). Retrieved February 2009, from International Air Transporters Association Website: http://www.iata.org/pressroom/facts_figures/fact_sheets/e-freight.htm Air France-KLM set to go e-freight. (2007, December). Retrieved February 2009, from World Air Cargo events: http://www.worldaircargoevents.com/news_detail.aspx?footer=0&news_id=691 Cargo 2000 hits a million. (2008, August). Retrieved February 2009, from World Air cargo: http://www.worldaircargoevents.com/news_detail.aspx?footer=0&news_id=413 Conway, P. (2009, January). Airline Business. Retrieved February 2009, from E-freight gains momentum : http://www.flightglobal.com/articles/2009/01/20/321268/e-freight-gains-momentum.html Gulf News Website. (2008, November). Dubai first in Middle East to launch IATA e-freight. Retrieved February 2009, from Gulf News Website: http://www.gulfnews.com/BUSINESS/Aviation/10257128.html IATA announces new e-freight winners. (2008, June). Retrieved February 2009, from Air Cargo News Website: http://www.worldaircargoevents.com/news_detail.aspx?footer=1&news_id=354 Mercator’s first customer of ‘Swiss Worx’. (2009, January). Retrieved February 2009, from Wold Air Cargo Events: http://www.worldaircargoevents.com/news_detail.aspx?footer=0&news_id=744 Case Study: SkyTeam Cargo Four international carriers, namely, Delta Air, Air France, Korean Air and AeroMexico extended their partnership to form an air cargo alliance - SkyTeam Cargo in September 2000. By the year 2005, the partner airlines had grown from four to eight members including Northwest Airlines Cargo, which is considered to the world’s 4th largest airlines. Today, the partners have increased to eleven with the addition of Aeroflot, KLM Royal Dutch Airlines, China Southern, Alitalia, Continental, and CSA Czech Airlines. Though the journey was not a smooth one, SkyTeam Cargo is considered one of the largest air cargo alliances worldwide covering all major trade routes in the world at present. Since the initial phase when it was formed, SkyTeam Cargo has expanded from 411 to 728 routes and covers 149 countries having started with 100 countries. (About SkyTeam Cargo) SkyTeam Cargo was formed with a view to service clients with the competitive edge and expertise of a large, combined sales force from the different partner airlines. Furthermore, it provided customers with the ease of a reservation and service center providing cargo solutions under one roof and an extensive network of destinations. SkyTeam Cargo has been operational for nearly a decade and in that while it has focused on cooperation within the member airlines to better its product and service offerings. As a result of the collaborative efforts of the alliance, SkyTeam Cargo has indulged in continuous improvement. In October 2002, a year after its formation, SkyTeam Cargo introduced ‘Equation, Cohesion, Variation and Dimension’, a program developed to expand the network of the alliance and to provide consumer-centric services. Then in the year 2003, SkyTeam came through with yet another improvement in it operations, it re-launched its website: www.skyteamcargo.com with a view to enhance and improve its carrier tracking and retrieving schedules, a modern, hi-tech product section, and key functions that provided for easier and speedier access. Yet another milestone in innovation was achieved when the alliance introduced ‘Variation Pharma’: a cargo service for shipping medical and pharmaceutical products in 2005. More recently, SkyTeam Cargo won the award for the Best Air Freight Alliance in the Asian Freight & Supply Chain Awards held in Macau in April 2007. With the recent economic downturn affecting every aspect of business and industry, the aviation and air cargo industry is no such exception. According to Oneworld Managing Partner John McCulloch: Airlines typically look to alliance leverage for cost-savings when times are tough, but often prefer to go it alone during an industry upswing since acting collectively can slow decision-making. (Schofield, Wall, & Flottau, 2008) Even though this is the ideal case scenario, the recent trends, according to Transport Weekly, a cargo magazine, indicate that: Underhanded competition between supposed allies is likely to doom airfreight alliances such as WOW Cargo Alliance and SkyTeam Cargo. (Transport Weekly, 2008) Thus airlines within alliances are covertly competing against each other an engaging in competition rather than agreeing on joint efforts. This could be due to the fact that the economic recession and decreasing consumer demand has them fighting for market share as individual companies rather than an alliance. Further with rising fuel costs, some alliances such as Oneworld are considering joint fuel purchase agreements, while SkyTeam, not viewing any advantages in colluding to buy fuel, which could only overwhelm suppliers with the quantity, is considering expanding its network of members to gain further joint advantages in terms of better and more extensive networks. Moreover, it is considering SkyTeam branding on less than one percent of the fleet for its member airlines to promote the SkyTeam image. (Schofield, Wall, & Flottau, 2008) In an alliance such as SkyTeam Cargo, core expertise might not be shared by members as they might consider it as their competitive edge. However what can be done in order to minimize disharmony and feelings of distrust among members is that more routes should be developed in liaison with all the airlines that are extensive and cover routes that reflect the export/import trends in the world. For example, California’s agricultural exports are expected to rise: A new report analyzing international air cargo transport trends outlines several reasons to expect growth in California airborne agricultural exports. (Steve Olson, 2008) Given the problems with the aviation industry and SkyTeam’s measures in light of these issues, focusing on marketing and expanding alliances might not be the ideal solution for the long term. This is because in crucial times as the alliance spreads, more and more airlines will have a say in the running and organization if the alliance and will lead to discord among members on how to tackle with an issue when all members are thinking in terms of maximizing gains to themselves and their organizations. Thus SkyTeam should focus on consumer market research and analyze the import/export data from all the countries it serves to better understand rising trends and cope with the ever changing, dynamic air Cargo industry. References About SkyTeam Cargo. (n.d.). Retrieved February 2009, from SkyTeam cargo: http://www.skyteamcargo.com/en/about/ About SkyTeam Cargo. (n.d.). Retrieved February 2009, from SkyTeam cargo: http://www.skyteamcargo.com/en/about/history.htm Schofield, A., Wall, R., & Flottau, J. (2008, Jun). Oneworld, SkyTeam Target Different Strategies To Help Members. Retrieved February 2009, from Aviation Week: http://www.aviationweek.com/aw/generic/story_channel.jsp?channel=comm&id=news/ALLIex.xml Steve Olson. (2008, May). Report tracks air cargo trends, trials. Retrieved February 2009, from Fresno State News: http://www.fresnostatenews.com/2007/11/aircargo.htm The SkyTeam Alliance. (2009). Retrieved February 2009, from Delta Airlines: http://www.delta.com/planning_reservations/plan_flight/flight_partners/skyteam_alliance/index.jsp Transport Weekly. (2008, February). Alliance Expected to Die. Retrieved February 2009, from Transport Weekly: http://www.transportweekly.com/pages/print_article/?articles_id=49541&lng=en Read More