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Magazine Stories September Issue 2009
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Friday, 13 February 2009
A NEW global study of management best practices in the air cargo industry reveals distinctive differences between high and low performers among airlines and forwarders. The study also provides intriguing distinctions between those two links of the air cargo chain.
In any economic chill, it is a given that most businesses catch a cold and the weaker ones get a fever. But what are the characteristics of the companies that quickly shake off their ailments and what traits are typical of those that will still be aching long after the global economy recovers?
The study - by Seabury Cargo Advisory among air cargo professionals, most of them from airlines and freight forwarders - tracked five key management themes: Senior leadership, strategic planning, client focus, process management and resource management. Its aim was to identify management best practices that distinguish high-performing companies from laggards in the air cargo chain.
The key findings include:
Senior Leadership
Leadership teams of high-performing forwarders distinguish themselves from their low-performing counterparts by providing firmer direction and alignment. There is a striking difference in how the two groups deal with undesirable results. Of the high performers, 63 percent said such results were followed by sanctions; just 30 percent of low performers said so.
It is not uncommon for the salaries of forwarders and senior executives to vary by 40 percent — evidence that forwarders have the financial tools to substantially reward success.
Another key differentiator is the importance that leaders at high-performing forwarders give to staying in touch with all levels of the organisation.
Fully 68 percent of the top forwarders confirmed these efforts; by contrast, only 29 percent of the low performers did so.
Leaders at high-performing airlines do a superior job compared with their industry peers in responding to the economic slump. Close to 80 percent confirmed the use of well-prepared contingency plans compared with fewer than 40 per cent of the low performers.
Strategic Planning
Top-performing forwarders have a large lead over the low performers on how to use the best possible inputs for making strategic decisions. Whereas 88 percent verified they develop a realistic and objective picture of their own strengths and weaknesses, only 40 percent of the laggards said they made such moves.
Equally significant differences are found when comparing the efforts taken to make detailed analysis of the conduct of clients and suppliers. Only one-fifth of low performers take this seriously, while 69 percent of the high performers make it a priority.
Moreover, the leading forwarders understand that data is not about averages - it’s about gathering and dissecting enough rich data on their sectors to be able to spot important trends.
Not surprisingly, high-performing airlines easily outmanoeuvre low performers when it boils down to extracting maximum value from their clients.
Seemingly the largest differentiator is their superior focus on client profitability. Nearly four-fifths of the high performers have this factor top of mind in contrast to only 32 percent of the low performers. What’s remarkable, though, is that both high (28 percent) and low (16 percent) performers pay little attention to cancelling contracts with less profitable clients. Although this characteristic may be less relevant in weaker markets, it will represent a missed opportunity to increase margins as soon as capacity and demand come back in alignment.
For most airlines, cash is currently a scarce and closely monitored resource.
When asked for recent cash improvement actions, high and low performers gave very different answers. Firstly, high performers pay most attention to renegotiating supplier contracts (79 percent), while this was clearly far less important to low performers (43 percent). The highest-ranked source of additional cash for the weak airlines was the reduction of network and service levels (61 percent). By contrast, only 29 percent of high-performing airlines said they were making such cutbacks.
Currently, everyone in the air cargo chain is pushing backward — forwarders are looking for concessions from airlines, and airlines are pressuring their handling and trucking services for discounts and other breaks. However, most airlines typically still have at least one-year contracts, while forwarders are constantly renegotiating, often on a per-shipment basis. The consequence: Forwarders can cut costs faster than airlines can — in some cases to the point where they extract so much more value from the carriers that they pass along some of the savings as lower prices for shippers.
Trends
Asked to identify the industry trends that will be most important over the next three years, respondents overall pointed unequivocally to the credit crunch, with security issues and oil price volatility following suit. These trends merit attention because they influence how top and low performers alike will manage their companies over the next few years.
The survey found substantial differences in the ways that forwarders, airlines and integrators view trends that could affect the air cargo industry. A key concern for integrators and forwarders is the de-speeding of the supply chain. Apparently the possible drop in share of time-definite services compared with day-definite and the conceivable shift from air to ocean is not registering as a top priority for the airlines. For their part, integrators, with their large fleets of vehicles and aircraft, seem to be the most sensitive to the need to reduce their carbon footprint over the next few years.
Room for improvement
Today’s brutal economy is no place for the poorly prepared. Nor is the hyper-competitive world that will emerge after the economic slump is over.
Seabury set out to determine the characteristics that would comprise what it takes to be well prepared to weather today’s storm - and to thrive when the upturn comes.
The study’s findings hold much that will help the low performers. For underperforming airlines, there is clearly much room for improvement in the areas of strategy implementation and the alignment of service offerings with profit. Among forwarders, the low performers will need to strive for firmer leadership and more informed decision-making. There also are several insights that should urge the high performers to stay ahead on these managerial topics. High performing airlines could benefit by taking firmer actions against clients that do not deliver agreed volumes. Also, they should attempt to make more use of appropriately staffed program offices to facilitate large-scale implementations.
On the forwarding side, high performers should be careful with customising their processes to the point where complexity and costs will run too high.
What no study can do, though, is transmit all of the urgency necessary for action. That is where true leaders step up.
About the research
In April 2009, Seabury surveyed executives, senior managers and middle managers in the air cargo industry on management best practices. Through the respondents’ self-assessments, high and low performers were identified. The online survey drew responses from 373 cargo professionals, largely from airlines and freight forwarders in North America, Europe and Asia-Pacific.
