The future of air cargo distribution: Customers, products and sales channels

As part of our client work and research, Cargo Facts Consulting is often tasked with developing a view on fundamental commercial strategy questions surrounding customer mix, product portfolio, business model and type of distribution network. With the pandemic hopefully mainly behind us, it is worth thinking about how the air cargo business will evolve in the coming years. During the past month we have had conversations with a large number of executives working within airlines, express companies, general sales and service agents (GSSAs), and the broader industry to collect their views on how the business is likely to change. As most of the executives spoke on the condition of anonymity, we will refrain from quoting any individuals but instead seek to synthesize and highlight the opinions expressed. Our team is grateful for the time our sources took to share their insights and vision. Changing carrier models Traditionally, the air cargo industry has focused on a rather simple distribution model of selling capacity to freight forwarders who, in turn, sell capacity to shippers. Airlines took the capacity risk and forwarders made the margins. Some attempts were made to cut out forwarders and shift from a wholesale to more of a retail model by dealing directly with shippers, but for the most part this was unsuccessful and led to little more than some tripartite deals and transparency. The traditional airline-forwarder-shipper relationships have remained largely intact. Recent developments, such as shipping lines CMA CGM and Maersk acquiring 777Fs, or logistics companies such as Geodis committing to their own aircraft , are interesting but do not signal a shift in the market, in our view. These days, operators do what they must to access capacity. In a bid to achieve higher unit yields, some of the smarter carriers have shifted away from selling capacity to selling products by catering to certain time requirements or commodity groups, such as pharmaceuticals, live animals, valuable shipments or perishables. Airlines have also gotten smarter in terms of managing pricing and access to capacity. Of course, with current airfreight rates , anyone with capacity is finally able to make good money, although a few somehow still manage to lose, even in the current ultra-high-yield environment. Continuing product development will be key, and focus on products is a consistent theme across all the top cargo carriers, the big GSA groups and the smarter regional ones. A number of airlines have sought to get into niche segments not occupied by their forwarder customers. A recent example is Delta’s Dash Door-to-Door product in collaboration with Roadie, which is now part of UPS. However, after its pre-pandemic launch, Delta hasn’t said much about it. Airlines like Copa have developed and run a successful courier product over a longer period, and Time Matters by Lufthansa Cargo is a successful time-critical logistics provider. These days, everyone is interested in being part of the e-commerce boom. Examples of airline-driven startups in this segment include: heyworld by Lufthansa Cargo, We World Express by Turkish Airlines Cargo, and Rivo by Air Canada . However, e-commerce distribution is a low margin door-to-door business that is not well suited to airlines with airport-to-airport networks. View the recently published e-commerce outlook for our take on what this type of growth means for the air logistics business. With cross-border e-commerce accounting for about 18% of air cargo moving through express, air freight and postal networks, it is an area where there is more potential for product development, but the sector is no panacea for the air cargo business. The future of cargo sales In terms of actual distribution, airlines have focused on two channels: own sales and sales via GSSAs. Around a quarter of airline sales are transacted via GSSAs, which tend to be either part of one of the large global groups, such as ECS, World Freight Company or Global GSA, or else part of a regional group or individual company. The use of GSSAs varies between carrier business model and geography. All-cargo carriers tend to be more focused on insourcing their distribution, while combination carriers rely more on GSSAs. This is due in part to combination carriers’ more dispersed networks, smaller shipment sizes as well as a different sense of what it means to be profitable. Carriers for whom cargo is a side business are more likely to outsource their cargo capacity sales. This includes smaller combination carriers, low-cost carriers, express companies — for the cargo sales portion of their business, e-commerce platforms and consolidators. And the mix of in-house versus outsourced functions can change over time, with fast-growing airlines opting for third parties in an initial phase to facilitate revenues, increasing control and oversight as they mature. Several carriers CFC contacted found that a hybrid model — whereby revenue management, product development and sales in key markets is done by the carrier and other functions are provided by third parties — works well. Within the own sales and third-party sales channels, the mode of sales and booking varies. Booking can be by the traditional face-to-face method; by phone and fax; digitally through own websites or via interfaces; and on fast-growing tech platforms like CargoAI , Cargo.One or WebCargo . This is where we see the biggest potential for wholesale change to the way the air cargo business is conducted. Several companies told CFC that digitalization will fundamentally change the nature of air cargo distribution in the next three to five years, with some executives saying that 80% of capacity could be transacted via digital channels. This would give smaller shippers more direct access to capacity and services and allow them to bypass traditional channels.

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