Paper farewell

Air cargo is being offered another chance for fundamental change with the removal of all paper documents promising improved efficiency and huge savings

Once again the air cargo industry is the subject of a bold initiative to haul it into the 21st century. One of the five planks of IATA’s Simplifying the Business initiative, the project that has been dubbed “e-freight”, aims to remove all paper documents from air cargo by 2010.

Aleks Popovich, IATA’s global head of cargo since April, estimates the initiative could save as much as $1.2 billion of costs a year – equivalent to 3% of total industry revenue assuming the $40 billion estimate of total annual air freight revenues is correct.

But will this initiative deliver the goods, or will it run into the sand as so many other modernising initiatives in air freight have done before? Can it really deliver bold change or will it become just another talking shop?

Another IATA-sponsored initiative – Cargo 2000, aiming to harmonise processes between airlines and their freight forwarder customers – passed a significant milestone in June when it published its first performance data. Thirteen carriers revealed “flown as planned” cargo figures of between 65% and 100%. Further measures, including “delivered as expected” and booking quality data for forwarders are due early next year.

Worthy as this is, the fact that it has taken Cargo 2000 nine years to get to this limited stage, and that only one of its 25 members has yet managed to implement stage two of its three-stage programme, hardly suggests an industry rushing to change.

Intended to streamline processes in the conventional air cargo chain of forwarder and airline, Cargo 2000 was to be the new millennium’s answer to the success of integrators – the door-to-door express operators such as FedEx and UPS. Members say it is now finally starting to deliver, but all agree it has taken far too long.

The e-freight initiative is deliberately trying to be different. For one thing, it started with only a small group of “early adopter” carriers – British Airways, Cargolux, Emirates, FedEx, Lufthansa and Singapore Airlines – although they were soon joined by a select group of major freight forwarders.

Since then the pace has been brisk. Participants have been thrashing out the proposed paperless system in almost weekly meetings in recent months, and preparing for trials that will take place next year. The core adopters are committed to implement this paperless system on at least major trade lanes by December 2007.

The group has also tried to learn from the mistakes of Cargo 2000. One such error, says Henrik Ambak, vice-president of IT for Cargolux, is that e-freight has started with a discussion of business needs, rather than getting carried away by what technology is available. “Cargo 2000 was a good idea, but it lost its way at the beginning,” he says. “This time we are making sure we think it through properly.”

New way forward

And e-freight is trying to avoid reinventing the wheel. Popovich acknowledges that Cargo 2000 did “good work on end-to-end business processes” and this is being reused in e-freight, along with work done by carriers and by a former IATA paperless transport initiative. “The key word is alignment,” he says. “It is a case of knitting together what has been done and finding a new way forward.”

The group still faces some considerable challenges, however. Removing paper documents from cargo is nothing like as simple as replacing passenger tickets with e-tickets. Popovich and his team have identified a total of 38 documents that may accompany an air cargo shipment. Of these, 17 are critical during the actual journey – a problem with them may stop a shipment. All need to be tackled in the first phase of e-freight.

Examples of the critical documents include master and house air waybills, packing lists, customs release documents, flight manifests and shipper’s letters of instruction. Non-critical documents include fumigation certificates, letters of credit, invoices and export quota certificates.

Many of these documents are required for customs clearance, a fact that amounts to perhaps the biggest hurdle e-freight faces. To be successful, the initiative must get on board not only airlines and freight forwarders, but also the world’s customs authorities.

This, all observers agree, is a key challenge. “It is very hard to get everyone to agree on an intergovernmental level,” observes Christopher Shawdon, vice-president of logistics solutions for Unisys, which as a technology provider takes a keen interest in air cargo modernisation. “You are talking about lots of different national regimes, with different priorities. The integrators have managed to get special customs regimes for express parcels, so it can be done, but it certainly won’t be easy.”

Popovich’s answer to all this is once again to target a group of early-adopter customs authorities to get a model up and running, with the hope that other customs bodies will then see the benefits and copy it. In all, e-freight is currently talking to 17 customs organisations, including those of Canada, Dubai, Germany, Hong Kong, Japan, Malaysia, the Netherlands, Singapore, the UK and the USA about participating in the 2006 trials.

In addition, Popovich says the group has been able to draw on a data model drawn up by the World Customs Organisation which recommends how information should be collected electronically for the clearance of shipments across the modes – air, land and sea. This is critical, as only 3-4% of transactions carried out by customs are for air freight shipments. Any paperless system designed for air freight must therefore not preclude extension to other modes in due course.

Getting customs to co-operate is not the only challenge that must be cleared up before trials can take place, however. Another is the question of how will data be transmitted between very different carrier, forwarder and customs systems.

Ultimately, Popovich sees the use of XML (extendable mark-up language, an internet protocol) as the solution here, but he is realistic enough to realise that this is a long way from being feasible. Instead, e-freight participants are likely to continue to use older electronic data interchange standards such as Cargo IMP and EDIFACT, which remain common in the air freight industry. Popovich therefore originally proposed some kind of common data exchange to collect, translate and transmit data between participants.

Few things are as likely to get airline cargo managers and freight forwarders upset. Both sides still vividly remember the controversy of Cargo 2000 when a common data management platform was proposed. This nearly scuppered the initiative altogether. Objectors said it would be putting all eggs in one basket and would lead to a monopoly provider that had no incentive to develop or update the system. They also feared having to scrap their legacy IT systems.

Instead, the preference among carriers seems to be for the same kind of fix that was devised for Cargo 2000, which agreed to define the functions and communications protocols for the common data management platform, and then let carriers and forwarders choose their own IT company to provide the service. Ron Mathison, director and general manager of cargo for Cathay Pacific, thinks these solutions could form the basis of paperless transactions as well.

Security angle

Robert Frei, head of corporate development for freight forwarder Panalpina, thinks participants should be allowed to choose their own solution, and adds a modern security angle to the argument: “Given today’s security situation, do you think governments would support having the entire information of global air freight on a single system?”

Other airlines still seem to favour a common platform. “It needs to be something cross-industry to work,” says Gareth Kirkwood, managing director of British Airways World Cargo. “It won’t work by cutting it into parts and letting private enterprise come up with strategies you have to join together.”

Popovich takes a neutral stance, insisting that the common data exchange idea is still an option, and pointing to CASS, the IATA payments settlement system for cargo as a possible model. But he says other options are being considered, including some participants using a common system, and others making their own provision.

Either way, a decision will be needed soon: solutions providers were being asked for their views in October, with a request for proposals due in November and a decision at the end of the month.

Beyond this, there are other questions for e-freight. Should it involve shippers, the ultimate end customers, who in fact originate most of the documents concerned? If so how? And how far should it work with other organisations attempting to define common data standards in the supply chain for other modes, such as Bolero, a paperless trading solution for ocean freight, or RosettaNet, a shipper’s organisation looking at data standards?

Popovich says there have been informal contacts with such bodies, but trying too hard to harmonise with such bodies might slow down e-freight, whereas ignoring them could ultimately put it on the wrong side of an emerging global standard.

Challenging inertia

One last challenge for e-freight could be inertia, which has hampered previous change initiatives. Ambak says that one problem for Cargo 2000 was a disconnect between the way the initiative was perceived at head office and on the ground. “In the head office it seemed like a good idea, but the people on the frontline, doing business every day, were not involved and were reluctant to adopt it,” he says.

E-booking is an area where this attitude is still apparent. “The main restraint is traditional practices,” admits Demetrios Zoppos, of air freight e-booking platform GF-X, which links 27 carriers and 30 forwarders, when explaining why the platform is only getting around 30% of the bookings it could get from its members.

“We have users we have never talked to, or promoted the system to, who do all their bookings on GF-X, and others we have talked to 100 times who still don’t,” Zoppos says. “They fear that if they use the system it will cost them their jobs or that service to the customer is picking up the phone. The problem is no longer the technology – we have proved that works. It is now a question of change management.”

Levels of e-booking for some carriers still remain low, too. At American Airlines, president of cargo Dave Brooks admits he is disappointed to get just 20% of bookings electronically. British Airways, which is involved in the Champions Initiative of GF-X, and is trying to get major hubs and major forwarders using the system, nevertheless admits that its e-booking levels are only about 5%.

This is despite the fact there are the same drivers to adopting e-booking in air cargo as in the passenger business. “We have had to reduce staff as part of our austerity drive, and part of that was to get employees and customers off the phone and get them to work electronically,” says Brooks. At Cargolux, Ambak agrees that rising fuel prices and falling yields mean “these days we only discuss what is needed: the rest must be cut away.”

So why are e-booking levels not better? One case which deserves closer scrutiny is Northwest Airlines, which uses the Unisys-backed CPS portal and now gets 70-80% of its bookings online.

Jim Friedel, president of cargo at Northwest, says it has achieved this by sheer focus on the issue. This has included analysing who does and does not e-book and getting the sales force to target those who do not. “It generally takes three to five conversations to get them to use it fully. They do not convert to it 100% after the first conversation,” he notes.

Carrier commitment

Although Northwest is a CPS customer, Zoppos says this attitude applies to ­GF-X carriers as well. “Some have penetration of up to 90% in some locations. The biggest factor is commitment on the part of the carrier: if they put effort into, we see tremendous growth. If everyone did their best in each location, our average penetration would go up massively.”

The age of forwarding staff may also be a factor. It is notable that Asian carriers such as Cathay Pacific, Korean Air and Malaysian Airlines report e-booking uptakes in more than 90% of their home markets, although system-wide figures are often lower. Their dominance of these markets may be a factor, but Lufthansa Cargo, notes that staff in these markets tend to be in their late 20s, much younger than reservations or sales staff in Europe or the USA. “That makes them more ready to try new technology,” suggests the carrier.

E-booking reward

Asian carriers also seem to be more prepared to use sticks as well as carrots. Malaysian Airlines, for example, promises to reply to e-booking requests in 20 minutes, but to phone bookings only by the following day. Carriers in Europe and the USA have generally avoided such incentives or disincentives.

E-freight might need a similarly stern approach to make it work, and it could also require one last factor that is in somewhat short supply in the aviation industry at the moment – a willingness to invest now for future benefits.

Ambak reckons that the savings from e-freight will not be immediate, and that it will cost Cargolux money in the early stages. “But we are looking for service improvements – eliminating shipments waiting for documents – and in the long run, that will bring benefits,” he says

Mathison of Cathay Pacific agrees, saying that the initial stage, where paperless and paper process will have to run side by side, could add to costs. But he thinks that paperless working and e-booking are the only way to achieve the “step change in productivity” that air freight needs to counter rising costs and falling yields.

Ultimately, one thing that might help cargo managers is the fact that, unlike other cargo initiatives, this one is part of a wider IATA initiative. Popovich certainly believes that this will have a key impact.

“For the first time ever, e-freight has a mandate from the IATA board of governors – that is, not cargo managers, but airline chief executives,” he says. “Once you get to the point where the will is there, progress can be very rapid.”

PETER CONWAY/LONDON

Source: Airline Business