New times, new rules: How the pandemic redefined the carrier-forwarder relationship

With airfreight rates high and cargo capacity limited, cargo carriers and freight forwarders must work together to adapt to pandemic-spurred market changes and shifts, adapting how they communicate and collaborating to reach mutually beneficial terms. Limited capacity and the breakdown of contracting between forwarders and carriers are ongoing issues for which the airfreight industry needs solutions. Switzerland-based CEVA Logistics in April launched its “Skycapacity” program , which guarantees air cargo capacity through its own passenger and full freighter aircraft network. While the decision to sign carrier contracts and launch Skycapacity was a “gamble,” Peter Penseel, chief operating officer of airfreight at CEVA Logistics, said it was the right choice for the forwarder. “To make sure that we can deliver the services that we are selling to our customers, we need to have more [of] what we call [our] own-controlled capacity,” Penseel told Air Cargo World . “There is already an uptick on request of capacity, so I think [it was] the end of Q3 last year when we made the decision, from a corporate point of view, to sign contracts with some of the carriers to have dedicated full freighters operating for CEVA – I think we were spot on.” With solutions like Skycapacity, carriers and freight forwarders have navigated the volatile airfreight market amid COVID-19 in innovative ways that have resulted in additional capacity accommodations, flexibility regarding block space negotiations, and changes in communication caused by the rise of digitalization within the industry, ultimately redefining the carrier-forwarder relationship. New times dictate new rules The airfreight industry has heard increased concerns from forwarders about forming long-term capacity commitments in the currently volatile market, and forwarders are more cautious about block space agreement negotiations with airlines. “If airlines … are coming with terms and conditions, they also know it is a seller’s market at the moment,” said Penseel. “So, the risk probably is bigger on the freight forwarder side than it ever was on the other side.” Pricing indices are a potential method of reducing risk in block space agreement and short- and long-term contracting. In November 2020, U.K.-based freight information provider Baltic Exchange partnered with Hong Kong-based air cargo pricing publisher TAC Index to launch weekly air freight indices that reflect transacted rates from key hubs, including London, Frankfurt and Hong Kong, according to a Baltic Exchange release. While index-based rates are relatively new to the industry, some carriers are looking to adopt this method of pricing, depending on client and market needs. For instance, Alexey Zotov, head of sales at AirBridgeCargo Airlines, part of the Moscow-based Volga-Dnepr Group, noted that each of its contracts utilizes different pricing policies and, depending on the format, may use index-based contracting or fixed prices. “New times, I will say, dictate new rules,” said Zotov. “At the moment we can see that and evaluate many possible terms of calculation on the customer request. For example, we offer … cargo transportation agreements, long-term charter deals … special rights agreements, or [we] can develop other non-standard forms of long-term, mid-term partnerships with the customers according to their needs.” Aside from block space agreement negotiations, forwarders have been adjusting strategies around obtaining capacity on the spot market. “I think the forwarders have learned out of this pandemic as well, in terms of hedging themselves, especially on the spot market, that they have some kind of hedge that they’re not faced with ever-increasing rates at the end of the day,” Richard Forson, chief executive at Cargolux, told Air Cargo World. “ I’m sure there’s an adaptation of their business plan — or their strategies going forward — that if the market like this ever arises again, that they’ve properly prepared.” Air Canada’s Matthieu Casey, senior director of cargo global sales and revenue optimization, told Air Cargo World that the lack of predictability regarding airfreight transport has been the biggest change for the forwarding and shipper community. This has encouraged additional efforts from forwarders to ensure full compliance and planning for optimal space utilization, which has also proved beneficial to carriers. For Air Canada Cargo, block space agreement negotiations have depended on the type of business and trade lane, and Casey noted that the airline has been accommodating to forwarders by enforcing a collaborative environment to figure out what type of offering suits each situation best. As a result, Air Canada Cargo has offered an array of different options to forwarders that cater to the market demands and needs, said Casey. The pandemic “has actually strengthened things because we’ve been forced into a situation where we really work together to make everything work extremely well,” said Casey. Going into chartered territories The pandemic decline in passenger aviation dramatically reduced the transport of belly cargo using passenger flights, causing capacity issues and forcing carriers and shippers to pivot cargo operations in a variety of ways. Along with the operation of passenger freighters to meet cargo demand, charters have been utilized more extensively by freight forwarders and cargo carriers. Charters not only created additional capacity, but also helped relieve possible tensions, strengthening the relationship between carriers and forwarders. “If anything, the current situation [and] the current issues with the limited capacities strengthened our relationship, and the true symbiotic relationship that forwarders and carriers have,” said Casey. “So, our solution-focused discussions were really at the forefront and have remained a key factor in ensuring that capacity.” Air Canada Cargo launched both single and scheduled cargo-only charter flights for customers depending on both customer and trade lane demand, a significant shift considering the carrier had never offered cargo-only charter agreements prior to the pandemic, said Casey. “We at Air Canada Cargo had never done charters for cargo purposes only so, in our case, it’s definitely an interesting shift and a new line of business,” said Casey. Moscow-based airline holding company Volga-Dnepr Group also began offering both long-term and regular charters through its subsidiary carriers AirBridgeCargo and ATRAN Airlines to strengthen the carrier-forwarder relationship by providing additional capacity options. “We introduced [a] new product within Volga-Dnepr Group, which are long-term, regular charters … as well as schedule and charter operations,” said Zotov. “Last year, we have seen that this introduction [has] been appreciated by the customers on a global scale and enables uninterrupted supply chain and stable operations for all their stakeholders.” The use of passenger freighters has also helped increase capacity availability, and although passenger freighters also require higher air freight rates to keep operations economically viable for cargo-only service, charter negotiations remain relatively the same because both options offer needed capacity, according to Penseel during this month’s Air Cargo World webinar on commercial shifts in cargo booking. However, money is always the first discussion when negotiating, whether complaints are due to high rates or low rates, and shippers regularly defend the suggested capacity and the rate, said Penseel. Era of digitalization Another contribution to the changing relationship between carrier and forwarder has been the increasing digitalization of the airfreight industry, which has shifted communication and methods of securing capacity. While the technology has been on the horizon for quite some time, airfreight carriers and forwarders have embraced digital booking of airfreight capacity, especially in the past year. Considering the competitive booking landscape due to the drop in available capacity, e-booking comes at a perfect time, and many airlines have joined platforms like WebCargo and cargo.one. For Volga-Dnepr Group, the adoption of digital booking services has helped achieve positive results for both business and customer convenience. The group’s subsidiary carrier, AirBridgeCargo, joined digital platform cargo.one in 2020 and caters to regular business as well as charters. In addition to securing capacity, the adoption of digital booking allows the company to decrease staff workload and concentrate on the client service level for customers, Zotov said. Aside from offering real-time capacity and quotes, Zotov further noted that the adoption of digital booking platforms has also helped small- and medium-sized forwarders to more easily access airline capacity, which adds to the forwarder's company development and also benefits the market. Digital booking has also changed the way carriers and forwarders communicate. A process traditionally accompanied by many phone calls and a large paper trail can now be accomplished with the click of a button. Air Canada Cargo also recently partnered with Germany-based cargo.one to launch e-booking capabilities in April, in addition to having its own cargo e-portal service that directly connects Air Canada Cargo to its key customers, said Casey. Panelists at Air Cargo World’s June webinar on commercial shifts in cargo booking said they expect the shift toward digitalization will continue even after the pandemic. Asok Kumar, head of airfreight for the Americas region at DB Schenker, noted that the success of digital booking would most likely accelerate its use within the industry. “When people try to book digitally, [if] they don’t get access to capacity because the capacity is not there, they can move on,” said Kumar during the panel. “When the environment returns to a more normal one … there’s more ample capacity, so people who go on to a digital platform and start to book will probably have more success.” Despite the changes that have taken place since the onset of the pandemic, there is hope that certain aspects of the carrier-forwarder relationship will return to pre-pandemic traditions. “In pre-COVID, for fixing the contracts condition, we usually just shake hands,” said Zotov. “But right now, you can just … click the mouse. I personally do hope that with [our] industry extra efforts, we [can] come back to this handshake.”

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