A 1-percent increase in a country's air cargo connectivity with the rest of the world is associated with a 6.3-percent increase in total trade by value. That statistic comes from a report issued today by the International Air Transport Association (IATA). The study is the first to quantify the impact that improved air cargo IT connections can have on world trade growth.
The IATA-commissioned study, conducted by consultancy Developing Trade Consultants, could give renewed impetus to efforts by the international airfreight industry to improve the speed and consistency of data exchanges. One of the industry's biggest challenges has been to wean itself off of paper documentation and make greater use of digital platforms. In 2006, the group began an industrywide initiative called "e-freight" to replace paper with the electronic exchange of data and messages. The next year, it began laying the groundwork for an e-air waybill, which would replace the paper air waybill with an electronic data interchange (EDI)-based digital agreement between an airline and a freight forwarder tendering the goods.
By the end of 2016, e-air waybills will be used on 56 percent of what IATA classifies as "legally feasible trade lanes," the group forecast.
Only 1 percent of global trade tonnage moves by air. However, air transports 35 percent of world trade's value, equivalent to US$5.6 trillion a year, according to IATA. Many high-value international goods move by air because the mode's swift transit times are necessary to get expensive products to market as fast as possible. But the lack of connectivity between supply chain stakeholders can slow down the end-delivery cycle, neutralizing air's natural time-in-transit benefits.
"We now have quantitative evidence of the important link between air cargo connectivity and trade competitiveness. It is in the economic interest for governments to promote and implement policies for the efficient facilitation of air cargo," Brian Pearce, IATA's chief economist, said in a statement.
Air shipping can be important in supporting what the researchers call "Global Value Chains" (GVC), which has become a relatively new model in global trade. Rather than centralizing all product-development and manufacturing tasks in one location, companies can perform individual and narrowly defined tasks in different countries. The efforts are then combined into a network of trade and investment links to provide the finished products. The World Trade Organization (WTO) estimates that almost half of global trade now takes place within a GVC framework, according to the consultancy.
"Cross-border movements of component parts are a key element of the business model. These components are often relatively small, but high value. This characteristic makes them well suited to air transport," the researchers wrote. Air freight's speed and reliability "enable GVC participants to keep inventories low, and rapidly bring together components for final assembly," they wrote.
A 1-percentage-point increase in the connectivity is associated with a 2.9-percentage-point increase in GVC participation, according to the report.
In a related development, IATA reported today that October airfreight volumes rose 8.2 percent year over year, the fastest growth rate in 18 months. Freight capacity, measured in available freight ton kilometers (AFTKs), increased 3.6 percent over the same period, one of those rare instances when demand has dramatically exceeded supply.
Though IATA traditionally takes a dour view of airfreight's prospects, its new Director-General and CEO, Alexandre de Juniac, waxed almost ecstatic when compared to the downbeat verbiage from his predecessor, Tony Tyler. "It remains to be seen how long this growth trend will endure after the year-end peak period, and we still face headwinds from weak global trade. But there are some encouraging signs. The peak has been stronger than expected. And purchasing managers are reporting a pickup in new export orders. So we will enter 2017 propelled by some much-needed positive momentum," de Juniac said in a statement.
The Aug. 31 bankruptcy of South Korean liner firm Hanjin Shipping Co. may have led to some modal shift to air cargo in October, de Juniac said. He added that there might have been some "last-minute reliance" on air transport as businesses planning for the holiday season may have exercised undue caution in their ordering patterns earlier in the year.
However, air cargo may benefit from such secular trends as growth in cross-border e-commerce and pharmaceutical flows, de Juniac said. This should light a fire under airfreight providers to accelerate the shift to digital platforms so they can accommodate a potential surge in time-critical traffic, he said.
Whether it is e-commerce or the trade in pharmaceuticals, shippers are demanding more than current paper processes can support. The shift to e-freight is more critical than ever," de Juniac said.
Jason Kra kicked off his presentation at the Council of Supply Chain Management Professionals (CSCMP) EDGE Conference on Tuesday morning with a question: “How do we use data in assessing what countries we should be investing in for future supply chain decisions?” As president of Li & Fung where he oversees the supply chain solutions company’s wholesale and distribution business in the U.S., Kra understands that many companies are looking for ways to assess risk in their supply chains and diversify their operations beyond China. To properly assess risk, however, you need quality data and a decision model, he said.
In January 2024, in addition to his full-time job, Kra joined American University’s Kogod School of Business as an adjunct professor of the school’s master’s program where he decided to find some answers to his above question about data.
For his research, he created the following situation: “How can data be used to assess the attractiveness of scalable apparel-producing countries for planning based on stability and predictability, and what factors should be considered in the decision-making process to de-risk country diversification decisions?”
Since diversification and resilience have been hot topics in the supply chain space since the U.S.’s 2017 trade war with China, Kra sought to find a way to apply a scientific method to assess supply chain risk. He specifically wanted to answer the following questions:
1.Which methodology is most appropriate to investigate when selecting a country to produce apparel in based on weighted criteria?
2.What criteria should be used to evaluate a production country’s suitability for scalable manufacturing as a future investment?
3.What are the weights (relative importance) of each criterion?
4.How can this methodology be utilized to assess the suitability of production countries for scalable apparel manufacturing and to create a country ranking?
5.Will the criteria and methodology apply to other industries?
After creating a list of criteria and weight rankings based on importance, Kra reached out to 70 senior managers with 20+ years of experience and C-suite executives to get their feedback. What he found was a big difference in criteria/weight rankings between the C-suite and senior managers.
“That huge gap is a good area for future research,” said Kra. “If you don’t have alignment between your C-suite and your senior managers who are doing a lot of the execution, you’re never going to achieve the goals you set as a company.”
With the research results, Kra created a decision model for country selection that can be applied to any industry and customized based on a company’s unique needs. That model includes discussing the data findings, creating a list of diversification countries, and finally, looking at future trends to factor in (like exponential technology, speed, types of supply chains and geopolitics, and sustainability).
After showcasing his research data to the EDGE audience, Kra ended his presentation by sharing some key takeaways from his research:
China diversification strategies alone are not enough. The world will continue to be volatile and disruptive. Country and region diversification is the only protection.
Managers need to balance trade-offs between what is optimal and what is acceptable regarding supply chain decisions. Decision-makers need to find the best country at the lowest price, with the most dependability.
There is a disconnect or misalignment between C-suite executives and senior managers who execute the strategy. So further education and alignment is critical.
Data-driven decision-making for your company/industry: This can be done for any industry—the data is customizable, and there are many “free” sources you can access to put together regional and country data. Utilizing data helps eliminate path dependency (for example, relying on a lean or just-in-time inventory) and keeps executives and managers aligned.
“Look at the business you envision in the future,” said Kra, “and make that your model for today.”
Turning around a failing warehouse operation demands a similar methodology to how emergency room doctors triage troubled patients at the hospital, a speaker said today in a session at the Council of Supply Chain Management Professionals (CSCMP)’s EDGE Conference in Nashville.
There are many reasons that a warehouse might start to miss its targets, such as a sudden volume increase or a new IT system implementation gone wrong, said Adri McCaskill, general manager for iPlan’s Warehouse Management business unit. But whatever the cause, the basic rescue strategy is the same: “Just like medicine, you do triage,” she said. “The most life-threatening problem we try to solve first. And only then, once we’ve stopped the bleeding, we can move on.”
In McCaskill’s comparison, just as a doctor might have to break some ribs through energetic CPR to get a patient’s heart beating again, a failing warehouse might need to recover by “breaking some ribs” in a business sense, such as making management changes or stock write-downs.
Once the business has made some stopgap solutions to “stop the bleeding,” it can proceed to a disciplined recovery, she said. And to reach their final goal, managers can use the classic tools of people, process, and technology to improve what she called the three most important key performance indicators (KPIs): on time in full (OTIF), inventory accuracy, and staff turnover.
CSCMP EDGE attendees gathered Tuesday afternoon for an update and outlook on the truckload (TL) market, which is on the upswing following the longest down cycle in recorded history. Kevin Adamik of RXO (formerly Coyote Logistics), offered an overview of truckload market cycles, highlighting major trends from the recent freight recession and providing an update on where the TL cycle is now.
EDGE 2024, sponsored by the Council of Supply Chain Management Professionals (CSCMP), is taking place this week in Nashville.
Citing data from the Coyote Curve index (which measures year-over-year changes in spot market rates) and other sources, Adamik outlined the dynamics of the TL market. He explained that the last cycle—which lasted from about 2019 to 2024—was longer than the typical three to four-year market cycle, marked by volatile conditions spurred by the Covid-19 pandemic. That cycle is behind us now, he said, adding that the market has reached equilibrium and is headed toward an inflationary environment.
Adamik also told attendees that he expects the new TL cycle to be marked by far less volatility, with a return to more typical conditions. And he offered a slate of supply and demand trends to note as the industry moves into the new cycle.
Supply trends include:
Carrier operating authorities are declining;
Employment in the trucking industry is declining;
Private fleets have expanded, but the expansion has stopped;
Truckload orders are falling.
Demand trends include:
Consumer spending is stable, but is still more service-centric and less goods-intensive;
After a steep decline, imports are on the rise;
Freight volumes have been sluggish but are showing signs of life.
CSCMP EDGE runs through Wednesday, October 2, at Nashville’s Gaylord Opryland Hotel & Resort.
The relationship between shippers and third-party logistics services providers (3PLs) is at the core of successful supply chain management—so getting that relationship right is vital. A panel of industry experts from both sides of the aisle weighed in on what it takes to create strong 3PL/shipper partnerships on day two of the CSCMP EDGE conference, being held this week in Nashville.
Trust, empathy, and transparency ranked high on the list of key elements required for success in all aspects of the partnership, but there are some specifics for each step of the journey. The panel recommended a handful of actions that should take place early on, including:
Establish relationships.
For 3PLs, understand and get to the heart of the shipper’s data.
Also for 3PLs: Understand the shipper’s reason for outsourcing to a 3PL, along with the shipper’s ultimate goals.
Understand company cultures and be sure they align.
Nurture long-term relationships with good communication.
For shippers, be transparent so that the 3PL fully understands your business.
And there are also some “non-negotiables” when it comes to managing the relationship:
3PLs must demonstrate their commitment to engaging with the shipper’s personnel.
3PLs must also demonstrate their commitment to process discipline, continuous improvement, and innovation.
Shippers should ensure that they understand the 3PL’s demonstrated implementation capabilities—ask to visit established clients.
Trust—which takes longer to establish than both sides may expect.
EDGE 2024 is sponsored by the Council of Supply Chain Management Professionals (CSCMP) and runs through Wednesday, October 2, at the Gaylord Opryland Resort & Convention Center in Nashville.
While the Council of Supply Chain Management Professionals' 2024 EDGE Conference & Exhibition is coming to a close on Wednesday, October 2, in Nashville, Tennessee, mark your calendars for next year's premier supply chain event.
The 2025 conference will take place in National Harbor, Maryland. To register for next year's event—and take advantage of an early-bird discount of $600**—visit https://www.cscmpedge.org/website/62261/edge-2025/.
**EDGE EARLY BIRD Terms & Conditions: Promotion is for the EDGE 2025 conference in National Harbor, Maryland. Offer valid for Premier and Basic Members only. Offer excludes Student, Young Professional, Educator, and Corporate registration types. Offer limited to one per customer. Offer is not retroactive and may not be combined with other offers. Offer is nontransferable and may not be resold. Valid through October 31, 2024.