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A moment of truth: Digital technology and the transformation of the air cargo industry

By - Umair Ansari | 16 Nov 2020

The air cargo industry has suffered from decades without technological evolution, primarily due to two reasons –

  • Intermediaries like freight forwarders had no incentive to invest in technology, as transparency in pricing and real time availability of data would have sounded the death knell for them
  • For cargo airlines and carriers, investing in user experience was never a priority due to the inherently B2B nature of the industry

But, the last few years have turned out to be a roller coaster for the air cargo industry, due to the sudden boom in cargo-tech. startups, that are threatening to democratize both pricing and real time availability of information – the two levers around which this entire industry has been able to survive.

In addition, Amazon Prime’s promise of next day delivery has left the entire cargo industry playing a game of catch up. With disruption at their doors, it is a wake-up call for the dinosaurs of the air cargo industry to adapt or die.

Air cargo value chain and the need for digital technologies

The air cargo ecosystem is both fragmented and complex, with many stakeholders involved along the value chain: shippers, carriers, customs, freight forwarders, integrators, airlines, and end customers to name a few. Digitalization serves as the perfect opportunity to improve communication and cooperation within this complex value chain – driving both cost efficiency and service excellence.

Challenges faced by the air cargo industry

The fundamental challenges that the air cargo industry has been facing are the usage of outdated technology, poor data and limited information sharing. These challenges have had a cascading effect on the entire ecosystem leading to poor financial performance of carriers, creating unnecessary complexity across the supply chain and driving up costs for customers. Given below are some of the specific problems that have been plaguing the industry for decades.

  1. Outdated customer touch points and a lack of an omni-channel user experience
  2. Revenue leakage due to underutilization of capacity
  3. Inability to harness data and predict real time demand
  4. Over reliance on paper based processes (over 50% of global air trade currently happens through paper based transactions)
  5. Inability to track cargo consignments in real time once outside the carrier network
  6. Lack of integration throughout the supply chain leading to higher costs and lower efficiency

Interestingly, most of the problems above originate in the monolithic, legacy IT systems being used by individual carriers. These systems tend to operate in silos, slowing down reaction times and putting their users at a competitive disadvantage.

Digitalization playbook for CIO’s of the air cargo industry

It is time for CIO’s from the air cargo industry to rewrite the rules of doing business – putting the customer at the center of everything they do and democratizing data across the entire value chain. The key to a successful digital transformation strategy is to start out small and then add complexity to it. A big bang approach to reinvent a trillion dollar industry is neither feasible nor recommended. As a CIO driving the digitalization in this industry, here are a few key technology initiatives to undertake

  1. Mobile first approach to drive user engagement
  2. Adoption of API over EDI
  3. Moving data to the cloud to enable faster processing and real time availability of information
  4. Usage of IoT to drive speed and accuracy in cargo handling and asset management
  5. Leveraging big data to optimize revenue and operations
  6. Adoption of automation to drive efficiency in back office functions
  7. Usage of programmed robots to handle warehousing operations
  8. Developing a single digital platform to offer all customer services – a one-stop shop for customers to enquire, engage and transact

As CIOs go about executing the transformation program above, their focus should be on implementing measured change: engaging widely with all stakeholders, piloting at every step, and rolling out initiatives in phases. This is to ensure that a digitally starved industry like air cargo responds well to the changes above.

Air cargo 2.0 – Creating the future of air cargo today

Adopting digital technologies would not be enough. Players in the air cargo industry need to continually innovate, and raise the bar for customer experience and operational excellence. Given below are a few of the innovations which are changing the way the air cargo industry works

  1. Block chain based cargo networks – AirAsia’s logistics arm Teleport has launched a blockchain-based air cargo network called Freightchain. Freightchain enables shippers and freight forwarders to view the airline network and make bookings in real-time. The solution uses a bidding process, allowing shippers to opt for the cheapest plan or the fastest route to transport their cargo. The bids are validated using blockchain
  2. Autonomous transport and trailers –The Frankfurt airport is planning a “smart air cargo trailer” (SAT) which will be supported by autonomous short-haul semitrailer trucks. SAT will be controlled automatically using a cloud-based platform
  3. Leveraging drones for warehouse inventory management – Dnata Dubai recently tested a new application of drone technology for inventory management in its facilities at the Dubai World Central airport (DWC). In the tests, remote-controlled drones were guided to fly up and scan the barcodes of cargo on shelves in Dnata’s warehouses using a conventional barcode scanner attached to the drone. When a barcode is scanned, the data is uploaded into the company’s warehouse management system for processing
  4. Vision Picking smart glasses – DHL has successfully completed its global augmented reality pilot and is expanding its “Vision Picking” smart glasses solution to more warehouses around the world. The smart glasses provide visual displays of order picking instructions along with information on where items are located and where they need to be placed on a cart, freeing pickers’ hands from paper instructions and allowing them to work more efficiently and comfortably.
  5. Computer vision – DHL is also exploring the usage of deep learning based computer vision algorithms for at least two use cases, including fraud detection and optimizing the loading of planes and trucks. Some customers try to defraud DHL by reusing shipping labels, which could be automatically detected using cameras connected to fraud-detection algorithms. Similarly, computer vision could boost DHL’s capability to detect the size of packages so they can be stacked better.

Role of the partner ecosystem in embracing digital transformation

According to Gartner, 4 out of 5 digital transformation initiatives fail to attain their desired goals. For a successful digital transformation project in any industry, one needs a strong and experienced partner ecosystem in place. A partner ecosystem consists of mainly three pillars:

Development platform – A development platform is the foundation on which you build your application. It determines whether you can scale your application as your business grows or remain stuck with limited capabilities

Technology providers – Technology providers include hardware vendors, independent software vendors (ISVs), OEM vendors, SaaS vendors, etc. The role of technology providers in the ecosystem is to provide technological capabilities along each step of building the solution. If chosen well, it has the potential to enable a feature rich application

Implementation partners – The platform and technology alone cannot function without the presence of the last pillar – implementation partners. Implementation partners are system integrators (SIs) who have expertise in building solutions. Out of these three pillars, implementation partners constitute the most important pillar, which will determine the outcome of your digital transformation. They are the ones who combine technology expertise with domain understanding to drive solutions for your business problems

Conclusion

It is clear that if traditional players in the air cargo industry continue to persist with a business as usual approach, they will continue to lose competitiveness and value in the ecosystem. To stay ahead in the game, it is just not enough for them to embrace digital transformation, but they need to reinvent their business model as well – a 360 degree shift in their value proposition from being just providers of air cargo services, to being providers of convenience to their customers.

The digital transformation roadmap for players in the air cargo industry will differ widely depending on their positioning in the value chain, and their future strategies. However, irrespective of what their specific ambitions are, all stakeholders in the air cargo industry should adopt a common goal – leveraging technology to reaffirm the competitiveness of air cargo over other modes of freight transportation, all of which are more advanced in their digital transformation.

We at ValueLabs can help air cargo operators modernize and transform their legacy business into next-gen, digitally relevant customer offerings. With over two decades of expertise in technology and an understanding of the cargo domain, we are appropriately positioned to help our clients reimagine their future.

References:

ledgerinsights.com/blockchain-air-cargo-air-asia-freightchain/
aircargoworld.com/news/top-5-ground-handling-innovations-streamlining-scattered-operations/2/
supplychaindigital.com/logistics/dhls-innovation-center-driving-digitalisation-and-sustainability

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