During the COVID-19 pandemic, many airlines seized the opportunity to reassess their networks. With much of their staff grounded and the bulk of cargo consisting of vaccines and personal protective equipment (PPE), the aviation industry faced unprecedented challenges in the supply chain.
Typically, cargo routes operating on a point-to-point basis are not profitable. For most commercial airlines, the primary revenue streams come from passengers and their baggage, with cargo serving as an additional source of income. However, the pandemic prompted airlines to scrutinise their operations more closely, identifying loss-making areas and potential improvements, mirroring the introspective measures taken across various industries.
In the post-pandemic landscape, numerous airlines adjusted their schedules and reduced flight frequencies to restore profitability. This period of reflection and restructuring was not unique to aviation but was a widespread phenomenon across all sectors.
“To have the most efficient, high-performance supply chains you need effective partnering and collaboration, and, therefore, you need partners who are willing to act in that way as well,” Steve Healy, CEO of COREX Logistics, explained.
“Ultimately, it must be fostered by the customer, whoever the shipper is, and they have to foster that culture for partners, whether it’s the airline, the logistics provider or the packaging provider.
“It is about collaborating, investing time and effort into relationships, which is what you need to do if you want that truly high-performing supply chain. It could be a case of information sharing or data sharing, so you can continue to refine the chain, and if every organisation wants the greatest level of return, they must invest and commit, so the partners don’t feel exposed.”
New approach
Currently, direct flights to Russia are scarce, and shipments to Ukraine require routing through Poland with subsequent road transport across the border. The geopolitical climate and sanctions have complicated exports to certain countries, such as Russia, necessitating special permits for dual-use items—goods that can serve both civilian and military purposes.
The industry is increasingly seeing indirect routing and alternatives to commercial airlines using a mix of integrator services along with commercial and having to consider utilising a mix of modes.
“Taking the situation in Ukraine as an example, there is the need now to ship into a different country and then use temperature-controlled road freight potentially, especially when transporting pharma payloads, to ensure the shipment reaches its destination intact and safe for patients,” Healy highlighted.
“Businesses are having to potentially consider changing their method, instead of doing it on a Just In Time basis where you are shipping to order. They may well need to consider shipping in bulk and therefore establishing a depot or warehousing operation within the country.
“It could change your logistics model from a just-in-time demand led to a more traditional model, shipping larger quantities and then holding stock in the country of final distribution. However, this approach brings cost implications and the need to set up additional suppliers.”
Market movements
The post-pandemic era also saw a dramatic rise in inflation, driven significantly by soaring crude oil and general energy prices. The geopolitical tensions between Russia and Ukraine, a crucial supplier of oil and gas, exacerbated this situation, leading to a sharp increase in airfreight rates.
With reduced flight capacity, airlines were compelled to hike their rates to maintain profitability, a move further necessitated by the rising energy costs. This double whammy of reduced capacity and higher energy prices caused a substantial surge in airfreight pricing, impacting supply chains and ultimately raising costs across the board.
“If you’re an airline that keeps scheduling flights to that region, you need to know what type of cargo can come out on the return flight. You can have customers who want to ship containers into a region, but you are left with a huge cost to export those containers back out from the region, as once it leaves the airport you must officially import it, which can be problematic,” Healy explained.
“From a pharma and clinical perspective, Latin America is a key emerging market inbound for clinical and commercial pharma. There is a growing demand for North American and Western medicines because of the growth of the middle classes in populations like Brazil. There is a lot of pharma and clinical products going in but very little coming out.
“The continent of Africa is the final frontier, you have South Africa, which is a market on its own and then there is sub-Sahara Africa, where a lot of inbound airfreight will go via France, whereas North Africa is still very much served by Europe.
“Africa is a complex picture for anyone to solve and the infrastructure is very underdeveloped and the regulatory knowledge there is still developing, it is a challenging region of the world. That would be where collaboration will be key if you want to put patients first.”