Long before the dramatic rise in fuel prices began capturing news headlines and putting downward pressure on the transportation industry as a whole, the air cargo sector has been feeling the pinch. Although some trade lanes were obviously performing well, domestic air cargo was contracting and other transportation modes, particularly truck and even ocean in some instances, were making inroads into existing business.

Furthermore, ongoing consolidation was eliminating a growing number of airfreight forwarders and the large integrators were getting larger still.

The sharp escalation in fuel prices over the past year has made a challenging business climate even more difficult, while legislation mandating 100 percent screening of air cargo has prompted even seasoned executives to wonder when they’ll see a break in the clouds.

Brandon Fried, executive director of the Washington, D.C.-based Airforwarder Association (www.airforwarder.org) is candid about the challenges facing the sector, but believes the long-term outlook is positive.

“Rising fuel costs are a big game-changer,” he acknowledges. “Some economists had predicted that once gas reached $4.23 a gallon that would be the tipping point.” Certainly, there’s plenty of anecdotal evidence to support this claim as businesses and consumers alike have already begun to alter their fuel consumption.

“We’ve been able to pass along fuel surcharges to customers for a while now,” explains Fried. However, it’s unlikely that shippers will ever see a return to ‘old’ prices. “The fuel situation is not specific to the U.S., it’s a worldwide problem,” he says. “I think it’s just hitting us particularly hard because we’re used to such inexpensive fuel prices.”

Although Fried believes higher fuel prices are here to stay, other changes he believes are more short-lived.

“I heard Fred Smith of FedEx say recently that he’s seeing not only a reduction in revenues, but also a downgrade in service levels. He said FedEx’s business model was changing, and that the focus was less on express shipping and more on trucking.”

“I’ve been in the industry 27 years, and I’ve seen situations like this before where people say, ‘We’ve lost the next-day model, it’s not going to work anymore,’ because demand isn’t there. Then, all of a sudden there’s an upsurge in business and you can’t get space on planes anymore.”

“There’s no denying that the just-in-time strategy is a centerpiece of global supply chains today,” he asserts. “When we come out of this, the express delivery services will definitely come back into play.”

In the meantime, another change that will undeniably have more permanency is the federal mandate for 100 percent screening of air cargo. The 9/11 Commission Act of 2007 mandates 50 percent screening at the piece level by February 2009 and 100 percent by August 2010.

“Many people don’t fully understand what ‘piece level’ means,” cautions Fried. “Pallets and ULVs are going to have to be disassembled and the pieces laid out on the floor, or wherever, as each box will need to go through a screening level.” So, not only is this a compliance and technology issue, “it’s also a real estate issue,” he adds.

To meet the requirements of the 9/11 Act, the Transportation Security Administration (TSA) has launched the Certified Cargo Screening Program (CCSP), a voluntary program that allows certified manufacturers, exporters, and forwarders to screen air cargo before it is shipped. Currently, air carriers themselves perform most of the cargo screening. However, the CCSP is intending to shift the screening burden further up the supply chain to manufacturing and freight forwarding facilities, or to a Certified Cargo Screening Facility (CCSF). To become a CCSF, a facility (forwarder, 3PL, or warehouse) must apply to the TSA and meet a stringent set of security measures.

“But, if a forwarder, for instance, wants to be a CCSF, they’ll have to purchase the proper screening equipment and basically shoulder all the costs,” explains Fried. “That’s a big sticking point right now because this mandate remains unfunded; there are no funds available for the forwarding community to buy this equipment.”

According to Fried, “We’ve developed a legislative strategy that we hope will result in some form of appropriations. I don’t know how successful we’ll be, but we’re developing a coalition right now.”

Not only are industry executives concerned about the costs involved with 100 percent screening, it seems the technology is lacking too.

“Some say there’s equipment on the market today that can screen pallets efficiently, but when I talk to the TSA, they say we’re probably 3 to 5 years out from having that capability,” says Fried.

Nonetheless, there are some promising developments, which appear likely to make it to the marketplace in a shorter time frame.

One company, FreightScan (www.freightscancargo.com) recently debuted a 3D imaging system, CargoVizion™, for cargo screening that can screen 12” x 12” boxes up to fully loaded skids and pallets for ‘threat objects.’ The company’s CEO and founder, Andre Johnson, said that following the CNS Partnership Conference where the system was unveiled, two domestic carriers stepped forward to become test sites for the pilot screening program.

“It is our intention to have CargoVision™ on the TSA’s ‘Qualified Product List’ by the end of 2008, and the strong support we have received from the industry only confirms the need for a screening solution that is also a business solution,” he noted.

The unit is designed for an overhead mount to free up warehouse floor space and facilities workflow and uses non-radiation imaging technology to enhance safety.

As an alternative to high-tech equipment, the TSA is also relying on specially trained canine teams to assist in the cargo screening effort. The dogs are a flexible and mobile tool, according to TSA officials, and can screen a hangar-full of cargo in minutes compared to the hours it would take to manually pass cargo through an X-ray machine.

Forwarders find their niche

The financial impact of the 100 percent cargo screening mandate combined with the other challenges on the horizon are undoubtedly weighing heavily on the air cargo sector. But surprisingly, some companies are thriving, especially the small- and medium-sized forwarders.

“The forwarder who finds a niche and markets it extensively will always be successful because his response times are often better than the integrators,” says Fried. “The integrators will always have their place, there’s no doubt about it. But what about the shipper who can’t fit into the integrator’s model? I believe the smaller forwarder is always going to win when it comes to responsiveness, no matter what, because he treasures his client. For example, when I was a forwarder, I delivered on Christmas Day. If a customer wanted certain packing and palletization, I would customize my service for them. When it comes to integrators, it’s transportation for the masses. But, there are a lot of companies that think outside the box and they need a forwarder to do that as well.”

Jay Bellin, managing director of Mainfreight San Francisco (www.mainfreightsfo.com), formally Target Logistics, couldn’t agree more. Not only does customization play a key role in the company’s success, equally important is the focus on customer service, which for many companies exists more in theory than in practice.

“When we first meet with a potential customer, we go in with a notepad and pencil,” says Bellin, “not a presentation.” One of the forwarder’s core values is exceeding customer expectations. According to Bellin, the formula is comprised of meeting timing requirements, providing ease of use and error-free service, and lastly, creating high value for the price that’s paid. A willingness to customize a service, remain highly flexible and execute rapidly goes with the territory.

“We’re extremely sensitive to our customers’ market conditions and we tailor our services to create a supply chain that provides them with a competitive advantage,” he emphasizes. At the same time, Bellin points out that employee satisfaction is tied into customer satisfaction.

“We built a great Order & Inventory Management system, but it’s our highly motivated employees that are driven to direct the tools to exceed our customers’ expectations.” Bellin says that the company recognizes the direct link between employee satisfaction and customer satisfaction and they have built their compensation and financial incentive model precisely on that principle. “We use incident reporting and customer satisfaction surveys, conducted by neutral third-party professionals, to tie-in employee compensation directly to overall customer satisfaction. In addition to customer satisfaction, our supervisory staff is also compensated on the measurement of employee satisfaction.”

As an example of how the company was able to customize a solution for a customer, Bellin explains, “One of our customers builds surgical instruments and they require us to deliver the instruments directly to a waiting team of surgeons. The instrument is then retrieved the next day and staged in one of our warehouses for the next demonstration surgery. We realized that a simple tracking system was not going to give them a competitive advantage. Instead, we customized our Web-based interface and gave them a virtual command center management tool, with complete visibility to hundreds of instruments staged in warehouses across the globe.” Furthermore, in an effort to satisfy their distributors, Mainfreight San Francisco also added an incident management system, which allows their customer’s sales representative to document any positive or negative issue associated with the delivery or transportation of their instrument. The tickets are reviewed to identify trends and feed into their continuous improvement model.

“Another customer requires delivery of their vending machines to supermarkets and other retail locations. Our drivers deliver the machines with tools in hand. They mount, install and/or assemble on-site, while every step is documented in our Web-based interface.” Once again, they customized the online tracking system and included a retail store management tab where their customer service personnel and their customer’s planners collaborate online, setting up installs and removals, days, weeks and months ahead of the actual movement.

Although the current market conditions are making it tougher for the air cargo industry in general, those such as Mainfreight San Francisco who understand the value of providing a personal touch, customized solutions, and rapid response will continue to excel no matter the challenges. wt