This article originally appeared on Kambr Media – check out this link and more for the latest news on the intersection of commercial aviation and tech.
“We realized that air cargo load factors based on weight utilization now paint a misleading picture of how full flights really are.”
As we previously documented the world of air cargo revenue management is complex, including many additional variables not present in passenger revenue management.
This complexity is ever so present when looking at revenue figures. According to WorldACD, December 2019’s worldwide air cargo chargeable weight fell 1.7 percent year on year (YoY) while 2019 full-year dollar revenues dropped 11.7 percent YoY, with trade wars and other socio-political factors contributing to the dip in revenue.
In order to get a better handle on these complexities and learn about what else is happening in the air cargo industry, we caught up with Niall Van De Wouw, managing director and co-founder of CLIVE.
Kambr Media: Can you briefly tell us about your background and how CLIVE came to be?
Niall Van De Wouw: I am the managing director of CLIVE. I co-founded CLIVE in 2011 with the aim to deliver humanized technology to the air cargo domain, which I found to be missing from my previous experiences in air cargo. Previously I worked at Seabury Cargo Advisory, Jeppesen (a Boeing subsidiary) and KLM Cargo. I have close to 25 years of experience in the air cargo domain, which started with building cargo pallets during my university days. I get energized from connecting field and HQ departments and am always on the look-out for ways to improve “things”.
Where is CLIVE’s place within today’s air cargo market?
We provide technology and data services for the air cargo industry.
Commercial decision making in air cargo is complex. And even more so, when confronted with volatile markets, fragmented processes, legacy technology and scattered information.
At CLIVE, we believe that order and simplicity are the best response to this complexity. That is why we build applications that are just as intuitive to use as consumer apps. We call that humanized technology.
Our Performance and Consol apps support airlines and forwarders respectively, with managing their allocations. The Selfie app provides a fresh perspective on the most recent air cargo trends.
You speak of the complexity of air cargo, what are some of the biggest challenges the industry is faced with?
Where do you want me to start? For example – roughly 50 percent of the provided capacity has very little reference to the actual demand; it is a by-product of the passenger services provided by the airlines. And as overall air cargo demand is very price inelastic it is very difficult to stimulate demand on an industry level. Mix that with a pretty consolidated and competitive B2B environment and you have an interesting mix of dynamics.
Clive recently published findings about discrepancies when reporting on air cargo load factor. Can you explain these discrepancies and recommend how air cargo load factor should be measured?
We realized that air cargo load factors based on weight utilization now paint a misleading picture of how full flights really are. This is caused by the methodology used. Traditionally, the amount of cargo flown in kilos is divided by the level of cargo capacity in kilos.
But, the reality for the vast majority of widebody and freighter flights is that it’s the cargo capacity in cubic meters which is the limiting factor, not the cargo capacity in kilos.
Consequently, existing load factors based only on weight, underestimate how full planes really are, and thus give a distorted picture of how the industry really is performing.
The fact that flights nearly always ‘cube out’ before they ‘weigh out’ is a result of the aircraft’s higher capacity density (available kilos per cubic meter) than the average density of the goods moved by air.
Looking ahead it is very likely that this discrepancy in capacity density and cargo density will further increase. On the capacity side, we have new planes entering the market which can lift more kilos of cargo per cubic meter than ever before. And, on the cargo side, the surge in e-commerce traffic will further decrease the average density of the cargo flown.
Our analyses show that the real utilization of air cargo capacity on a global level is 35 percent higher than the traditional indicator suggests.
Aside from load factor, what are other important metrics you would recommend to gauge the success of air cargo revenue management?
Another important yardstick is the margin per cubic meter – as with the capacity and load factor perspectives it is important to take the volume into account. This metric does run the risk of treating shipments as a stand-alone transaction which is not really the case – as airlines will be dealing with the same customers over and over again. So, a relationship perspective is also warranted – a key metric for that would be to see how the client’s share develops over time.
How much of what is happening on the passenger side of commercial aviation impacts the air cargo process?
As I mentioned earlier, 50 percent of the air cargo capacity is a byproduct from the passenger services. Air cargo has very little weight on the airline’s network decisions. As a result, capacity is put in to place where there is no cargo demand and the other way around. Recently, the growth in passenger numbers outpaced that of cargo. The additional capacity, for which there was little extra air cargo demand, created a downward pressure on air cargo prices.
Sometimes air cargo carriers can get faced with challenging cargo (live animals, chemicals, etc.). Do you have any unique stories from your time in the industry?
Many years ago, I developed a special service to move concept cars around the world. These are cars in their early development stage which need to be kept under wraps until they were officially launched at a show. Did you know that some of these cars on display are actually made of clay? So, we had to move one of the cars from the US to Germany under wraps while making sure that it was not exposed to too high temperatures as this would make the clay crack!
Looking at things such as emerging technologies (software and aircraft) and growing e-commerce numbers, what do you imagine the future of air cargo to look like?
Besides the actual handling of the goods – which I foresee to remain a pretty manual process due to the nature of the commodities being shipped there are ample opportunities to further automate/streamline the operational, back-office and commercial processes. I do believe we have only scratched the surface in these areas.