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Air Cargo As A Dedicated Science
-DJ Ghosh, President, American Friendship World Air Cargo Corporation

Like a grown up child that has lived for too long under the same roof as his parents, it is now evident that air cargo operators have stayed for too long under the umbrellas of their passenger counterpart and now they have to grow up as a separate entity, feels DJ Ghosh.

As the dedicated air cargo business evolves and grows, a new science must emerge to cater to this new and emerging industry. Like a child who has grown into an adult, achieved financial independence from his parents, and acquired a new circle of friends, air cargo businesses must stand on their own two feet; forge independent relationships with their customers and suppliers, different from their passenger brethren. And while a significant portion of global air cargo is still carried in the bellies of passenger aircraft, dedicated freighter aircraft and freighter operators are here to stay.

DJ Ghosh pic
Each new day, and each frayed cord from the passenger business will propel air cargo operators towards creating their own independent platform and in the process a whole new dedicated science on how this emerging business should be run. We believe that this new identity brings significant opportunity and the need for a greater degree of specialisation. All the major suppliers to the airline business will now need to specially tailor their products to suit the needs of dedicated cargo airline operators.
Air cargo value proposition is very important in this reference. Any value proposition should be based on researching every aspect of the cargo airline business, to create new benchmarks on how this business should be run. The industry needs to create a body of knowledge and intelligence to turn air cargo into a dedicated and profitable science, separate from the passenger business.

As a start, we need to work with each of the following types of partners and principles towards achieving this objective: airline customers, long-term contracts, aircraft manufacturing, aircraft financing, dedicated cargo airports, airline investors, air cargo shippers/ freight forwarders, MROs and part suppliers and last but not the least the application of information technology. I will address these issues one by one.

The industry should steadfastly promote the business case for all airlines, integrators, freight forwarders and government agencies to “outsource” the operation of their cargo aircraft to specialised freighter aircraft operators. If we talk about long-term contracts, then to encourage stability, innovation and eventually cost savings, we need to move towards very long-term cargo airline contracts, of 10-12 years or more. Large shippers need to drive this move to long-term thinking, and encourage their forwarder partners to do the same. Short-term thinking, manifested in short-term contracts, has been the curse of this industry.
air cargo pic
The new identity of dedicated air cargo business
will grow as a significant opportunity

Aircraft manufacturers are another very important issue in this regard. We need to work towards moving 100 per cent of all cargo on new and converted dedicated cargo aircraft, away from passenger aircraft, thus ensuring the long-term viability of the freighter business and ensuring the safety of passengers. Eventually, passenger aircraft need to be re-configured for passengers and their bags only and not for freight. All freight should move only on specialised freighters. The industry needs to partner with banks and leasing companies to help create “Spe-
cial Cargo Aircraft Related Financing Structures” (SCARFS), distinct from passenger aircraft financing, to lower financing costs for new and used freighter aircraft, thereby creating a new market for their products in the global air cargo market. Financiers need to recognise that if long-term contracts are in place for freight operators, their revenue model will be much more stable than that of passenger operators which depend more heavily on daily market-based pricing, assisted by revenue management systems.

In addition, air cargo needs to rapidly migrate from higher-cost hub airports to lower-cost dedicated cargo airports with dedicated facilities for cargo operators and freight forwarders. In the long run, all air cargo should move through dedicated cargo airports. Large shippers and forwarders need to make this happen. Also, the air cargo industry needs to work with Wall Street research analysts to spruce up its very shoddy investment image. Working with these analysts, we need to create a separate set of metrics and a distinct investment class for the air cargo business. We hope that this transparency will create a path for venture capital, private wealth and institutional money to enter the air cargo business.

Air cargo shippers/freight forwarders are another important factor that affects the sector significantly. We need to carefully study the dynamics of each type of air cargo product and air cargo customer, and promote specialisation, branding and product differentiation in the transportation of each product category.

At the same time, the industry needs to specialize in seamless “end to end” temperature controlled global transportation solutions, to cater to both the growing perishables and pharmaceuticals markets. Additionally, to drive new efficiencies in our business we must work with both MROs and parts-suppliers under long-term agreements to lower the costs of maintaining and increasing the reliability of our aircraft. And as I said earlier at every stage of our business, we must incorporate the latest information technology into our offerings to streamline and optimise all processes across the supply chain.
air cargo pic
RENOVATING ITSELF: Air cargo needs to migrate
from higher-cost hub airports to lower-cost dedicated
cargo airports with exclusive operations for cargo
operators and freight forwarders.

© 2011 American Friendship World Air Cargo Corporation. All Rights Reserved.