The surge in e-commerce has brought about a predominantly positive effect on air freight forwarders. Air cargo plays a vital role in generating up to 35% of an airline’s revenue, and within that, e-commerce shipments constitute approximately 22% of the total air cargo volume. E-commerce made its initial impact on the industry back in 2015 when the big online retailers began pursuing same-day deliveries for their domestic customers and 72-hour deliveries for international customers. Since then, the operational model has undergone significant evolution, with e-commerce giants increasingly utilizing freighters to transport their shipments. Prior to the pandemic, it was estimated by IATA that e-commerce shipments accounted for approximately 15% of the total volume in the air freight shipping industry. However, with the onset of the pandemic, this figure has experienced an exponential surge.
In this article, we will explore the profound influence of the remarkable growth in e-commerce sales on the air freight shipping industry.
The challenges and opportunities for air freight forwarders after the e-commerce boom
The expansion of the e-commerce sector
Over the past decade, the volume of air freight parcels has more than doubled, driven by the surge in online shopping trends. This has exerted pressure on air freight forwarders for both domestic and international parcel delivery services. Naturally, the air cargo industry has emerged as the preferred solution for e-commerce companies due to its unparalleled speed in transporting shipments. Additionally, the e-commerce market has brought about increased transparency in logistical operations, offering consumers information on delivery status, shipping options, inventory status, and more. As a result, air freight forwarders are adapting to these new market realities, striving to provide digitized end-to-end services tailored for e-commerce customers. Key considerations in this endeavour include offering affordable shipping prices, comprehensive shipment tracking, and prioritizing high-priority cargoes.
Changing customer expectations
E-commerce has brought about not only a transformation in logistical operations but also a significant impact on customer expectations. One crucial aspect that has gained prominence in recent times is environmental sustainability. The majority of e-commerce customers, particularly the younger generation, tend to choose companies that have embraced green logistics practices. Sustainability has become a top concern for these customers. Thus, meeting customer expectations today goes beyond timely shipment delivery. Addressing this challenge requires a collaborative effort aimed at enhancing overall operational efficiency.
To this end, the air freight industry is striving to adopt new digital processes and adhere to operational standards to drive effectiveness and expand business volume. The initial step toward digitization should focus on streamlining and digitizing operations, including the improvement of customer relationships.
How the air freight sector is making the most of the e-commerce boom
In response to the e-commerce boom, there has been a notable increase in collaboration announcements among airports, air freight agents, shippers, and carriers, all aiming to capitalize on this trend.
According to Martin Drew, Senior VP of Etihad Cargo, the freight division of Etihad Airways based in the UAE, the COVID-19 pandemic has triggered a shift in consumer behaviour. There has been a remarkable global surge in online shopping and cross-border e-commerce trade. IATA highlights that the fashion and retail sectors, encompassing footwear, apparel, and consumer electronics, account for over 52% of all online shopping. However, there is an expectation of future diversification, as e-commerce companies are beginning to expand their offerings to include commodities such as pharmaceuticals, fresh produce, and live animals via online channels.
In September 2021, FedEx Express launched FedEx International Connect Plus (FICP), an e-commerce shipping service that guarantees speed and affordability. FICP currently operates in the Asia Pacific, Middle East, and Africa (AMEA) region. Leading container shipping company AP Moller-Maersk is also venturing into the e-commerce logistics business. They have acquired Visible SCM, a US-based B2C logistics company specializing in parcel delivery, and are in the process of acquiring Europe Holding BV, a B2C logistics company based in the Netherlands. DHL is likewise strengthening its freighter operations through acquisitions to support its e-commerce activities.
Adapting to the changing needs of the shipping industry
Adapting to the changing needs of shippers and society is crucial for air freight forwarders, and innovation plays a vital role in this transformation. The rise of e-commerce has not only revolutionized logistics but also altered consumer expectations. Online businesses and marketplaces are primarily driven by young shoppers who have the power to compare services and switch providers with a single click if their expectations are not met. To meet these evolving demands, the entire supply chain must undergo a comprehensive transformation.
However, customer expectations today extend beyond the swift and transparent delivery of e-commerce products. Society has become increasingly environmentally conscious, perceiving e-commerce as a source of CO2 emissions and waste. Some companies have taken steps to adapt by implementing green logistics practices, ensuring a more sustainable supply chain. This trend towards sustainability remains prominent even amid the COVID-19 pandemic, and it is expected to continue in the foreseeable future.
To achieve efficiency in our daily operations, a collective effort is required to transform the supply chain with a customer-centric approach. The air cargo industry must embrace the current and future needs of our e-commerce partners. This entails adopting new technologies and adhering to operational standards to meet customer requirements in an agile and scalable manner. Accelerating digitalization is of utmost importance if the air cargo supply chain aims to seize online retail volumes while driving operational efficiency and sustainability.
An action plan for the air cargo industry
IATA has devised an action plan to effectively respond to market demands and the following key areas are the focus:
- Enhanced Security: Ensuring robust security measures for all types of shipments, including air cargo, parcels, and airmail.
- Fair Practices and Simplified Processes: Introducing fair practices to expedite transaction processes and simplify shipment procedures through constantly updated systems.
- Automation for Transparency: Implementing automation technologies to enhance transparency and provide customers with improved visibility throughout the shipment process.
- Collaboration with E-commerce Companies: Collaborating with leading e-commerce companies to educate them on air freight safety procedures, fostering a mutually beneficial relationship.
- New Business Models: Establishing innovative business models that facilitate comprehensive integration and adapt to the evolving needs of the industry.
- Effective Communication and Collaboration: Enhancing communication and collaboration among all stakeholders involved in the shipment process to ensure smooth operations and customer satisfaction.
According to a report from Transport Intelligence, the international e-commerce logistics market is projected to grow at a compound annual growth rate (CAGR) of 10.65% until 2026. IATA estimates the current value of the e-commerce market at $5 trillion, highlighting its status as one of the fastest-growing industries worldwide. Consequently, it is crucial for small and mid-sized air freight forwarders to invest in automation and streamline their operations to maximize revenue in this thriving market.