The air freight industry is seeking to find ways of staying competitive in a digitising world roiled by a persisting energy crisis, nagging slow-down in China, and unrest in the global shipping segment. This unpredictable world economy is the new normal, says VK Mathews, Executive Chairman, IBS Software Services, a Thiruvananthapuram-based software services provider for the transportation sector. Mathews shared with BusinessLine his insights on the key issues shaping the future of the global air cargo industry. Excerpts:

What do you think are the specific set of challenges that the air freight industry is faced with currently?

I would say the foremost challenge is dropping revenues and yields, despite a rise in volumes. There are a couple of business disruptors that we need to contend with.

The first is the emergence of non-traditional players such as Amazon PrimeAir, which has leased 40 Boeing 767s and is pumping $1.5 billion into an air cargo hub. Separately, drone delivery tests are underway in the US.

The second is the raft of alliances in ocean freight sector — as in the 2M Alliance, the Ocean Alliance, and THE Alliance. They represent 77 per cent of global shipping capacity, and are now looking to rationalise capacity, drive down costs and collaborate on routes.

What could be the impact of these alliances on the air freight industry?

Shipping is fundamental to logistics. If you look at international trade, 99 per cent by volume is carried by ships. As I said earlier, some of the larger players in the sector are merging, an eventuality forced on them by the global economic slowdown. The net result has been that price of carriage by air has gone down even as volumes are rising. For the world, air freight has become more affordable. It is not a bad thing either. The moot question is how do we gain a better share of the market, make more money, or stay competitive?

So, what is the possible way out for air freight companies?

There are three dimensions to possible solutions – product differentiation, internationalising of costs, and the digital option. Industry players must have the capability to create and sell air freight products in line with change in market/customer needs. Another way to go about it is extending market reach and coverage beyond the limits of one’s own route network. Companies need to ask themselves if they are in a position to automate processes to drive up operational efficiencies. Or collaborate/partner to drive economies of scale.

How can air freight companies stay competitive with respect to costs and prices?

The best way out is through ‘internationalising’ the costs. Everyone knows that revenues in the industry are global but costs hyper local; for instance, Lufthansa staff are paid in Germany in one currency and Emirates in Dubai in another. Can these costs be ‘internationalised’ with the help of technology?

Also, can they be ‘variablised’ during exigencies such as a terrorist act or outbreak of Zika or Ebola, which prevent freight from moving in or out? This requires one to be able to respond to market conditions over which one has no control.

Does adoption of cutting-edge technology be of any help here?

Indeed yes. In fact, there is a dire need for air freight companies to learn how to survive in an increasingly digitising world. Going forward, the capability of an enterprise will come from both the physical and digital assets. The enterprise value will gradually tilt more and more towards digital assets. So, it is not just any more a ‘business strategy’ that enterprises need to evolve, it is a ‘digital business strategy.’

Related Topics
comment COMMENT NOW