This commentary appeared in the print edition of the Jan. 6, 2020, Journal of Commerce Annual Review and Outlook.
Tim Cook, the CEO of Apple, is famously a supply chain professional. This is not happenstance. Like Apple products, supply chains have evolved into sophisticated systems that, from the outside, seem to just plain work.
Supporting modern supply chains is air cargo, a key asset for agile supply chains and a mode responsible for moving over 34 percent of global volume by value.
While air cargo drives modern supply chains, the underlying infrastructure is outdated. Specifically, the distribution of air cargo service, from capacity management and pricing to booking, has avoided digitization at an enormous cost. Urgent shipments can take 10 days, with days burned coordinating pricing and capacity. Intermediaries add markups and delays. And a lack of real-time capacity data prevents efficient matching of supply and demand.
This stands in contrast to the upper deck on the same planes. While digitization drove passenger load factors from 70 percent in 2000 to 81 percent today, freight load factors dropped from 79 percent to under 50 percent, according to IATA. Opaque, manual communications are a key factor.
From this gloomy backdrop emerges digital air cargo (DAC), a trend envisioning real-time bidirectional communication of rates, capacity, and e-bookings across airlines, GSAs, forwarders, and shippers. Automated capacity management opens the door for GSAs, forwarders, and shippers themselves to price and book shipments in real time.
It’s not easy. DAC demands rethinking long-standing models, such as replacing static pricing with dynamic pricing, adopting mutually binding agreements, and giving shippers flight-specific bookings. It also requires sophisticated technical capabilities. But the end result is a very real transformation.
This is not a pipe dream. Pilots running right now at Freightos and WebCargo show that DAC can radically lower prices, improve transit times and reliability, and expand the market. Ultimately DAC should knock a few dollars off of the price of Mr. Cook’s iPhones.