Cargo divisions of combination carriers and their cousins, the all-freighter airlines, always have wanted to do business directly with shippers. Whether expressing the idea subtly or aggressively, airlines always have wanted to eliminate or reduce the role of the freight forwarder intermediary to save on fees and control the relationship with the shipper.
Airlines generally have not been shy in attempting to circumvent the freight forwarder. They've opened their own sales outlets, set up toll-free numbers, and sent direct mail to shippers. In more recent times, they have used the conduit of the Internet for direct sales.
Too often, when a freight forwarder generated a new customer, airlines sought to redirect the cargo bookings to themselves, promising lower prices or other incentives to shoulder the intermediary out of the way.
Despite these efforts, freight forwarders remain dominant in the air cargo business. We generate about 65 percent of all domestic cargo traffic and 90 percent of international volume. These percentages have remained just about the same during the past generation despite all the technological and economic changes in our industry - attesting to the intrinsic value and merit of the air freight forwarder. We generated some US$35 billion in domestic sales and almost $65bn in international revenues last year, despite the infamous 9/11 terror attack during the third quarter which almost shut down international trade for weeks.
Why have the airlines, despite their efforts, failed to generate more direct sales? At the heart of this failure, I believe, is the difference between the airline-shipper relationship and the consolidator-shipper partnership.
The airline-shipper relationship is a cold one. Cargo divisions of the airlines generally are too far away from the customer. Cargo personnel are concentrated in relatively few, and the very largest cities. Often, jobs in cargo at the combination carriers are merely stepping stones to higher positions on the passenger side. To the freight forwarder, however, cargo is his only business. Freight forwarders, through their own offices and agents, are located in every nook and cranny of the US Target Logistics Services, for example, covers almost all of the nation from major gateways like New York, Miami, Los Angeles and Seattle to secondary and even tertiary cities like Columbus, OH and Tulsa, OK. The carriers' means of communication - mailing pieces, e-mails, unsolicited phone calls and promotional hype on their web sites, are impersonal.
In contrast, the freight forwarder-shipper relationship is a warm one. Forwarder personnel visit their customers, shake their hands, look them in the eye and share their shipping experiences and problems. It's a flesh-and-blood alliance where people know and understand each other.
No matter how ineffective their efforts, freight divisions of the airlines continue to spend scarce millions of dollars to generate direct sales. They continue to urge shippers to come directly to their web sites for better deals. They continue to make unsolicited calls and send unsolicited mailings. Yet, for all their efforts, airlines will continue to fall short in their goal of reducing the role of the freight forwarder.
Their direct sales efforts invariably have and will continue to come up short because, simply put, they cannot get close enough to the shipper. They can't be in Columbus, Tulsa, San Antonio, Greeneville, Spokane and every other town.
Airline cargo executives should study and learn the lessons from the disastrous miscalculations their passenger counterparts made. Seven years ago, the carriers cut travel agent commissions from ten to five percent. Two years ago, commissions were reduced to zero, effectively destroying travel agent incentives to sell airline tickets. The 30,000 travel agents, who like their cargo agent equivalents, are located in every corner of the US They were responsible for 85 percent of all passenger tickets sold. Why cut off 85 percent of your sales, particularly when airlines didn't pay a dime until the ticket was sold?
The supposedly glittering answer lay in technology in general and the Internet in particular. The airlines believed they could cut out the middleman, reduce costs and increase profitability by selling directly on the Internet via their own Orbitz, or use the new Internet-based independent travel companies like Expedia, Hotline, Priceline, Travelocity. Yes, these new electronic distribution systems did sell billions of dollars worth of tickets. There was a fatal flaw, however. Those billions of dollars did not translate into bottom line profitability. To remain competitive, the airlines had to slash fares far below the break-even point.
Airline cargo personnel should take heed of mistakes generated down the hall in the passenger division. Yes, new technology including accounting, management, marketing and communications systems, remain important. Progressive forwarders like Target have been in the forefront to advance and upgrade our IT skills.
But technology alone will not do the job. I believe it is the forwarder, developing personal, high-touch relationships with shippers who have made and will continue to make air freight a vital ingredient in our transportation mix. Without the forwarder, airlines are out in the cold, too far away, too remote to establish the kind of long-lasting business relationships we enjoy with shippers.
Chris Coppersmith is President & CEO of Target Logistics Services, a mid-sized airfreight forwarder based in Compton, California