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ISTANBUL: The future direction of, and involvement in, shipping by air will depend on the rise of middle class spending in developing countries and what type of supply-side company is going to meet their service requirements.

Brian Clancy PhotoSpeaking at TIACA's Executive Summit in Istanbul on April 24, Brian Clancy (left) a founder of aviation consulting company MergeGlobal and now a partner in Logistics Capital & Strategy, echoed the observation of FedEx chairman Fred Smith who told IATA's Cargo Conference in March: "The future ain't what it used to be".

Both men seem to think the golden age of airport-to-airport cargo shipping and its associated business infrastructure is all but over for some types of players.

Clancy told conference attendees that the supply-side is facing four major challenges in a post-Great Recession era: slow growing episodic demand; a declining length of haul; rising shipment density and a shift to what he describes as "hybrid inventory strategies" prompted by shipment consolidation and modal shift.

So by 2018 who will be the winners? Clancy comes to a similar conclusion as Smith: "The integrators are in a better strategic position relative to forwarders and will further improve their market position in intercontinental small package, divert the highest yield emergency air freight shipments away from airlines, and re-capture downgraded air freight demand with their vast ground package and LTL networks in North America and Europe."

Forwarders, meanwhile, "will manage modal substitution of planned air freight users by re-capturing pallet-sized shipments as LCL sea freight or consolidated FCL shipments. Net revenue margins per kilo will likely drift down forcing [them] to explore new initiatives to reduce unit costs."

Clancy reassured his largely airport-to-airport sector audience by suggestemiratesing non-integrated airlines operating belly capacity will always have what he euphemistically describes as "pricing flexibility" due to the passenger revenue contribution to operating costs. At the same time operators of fuel-efficient B777/B787 passenger aircraft will benefit from increased cargo payload per departed seat; and those airlines that can afford next generation freighters will gain from an industry with fewer competitors.

So potentially good news for airlines like AirFrance-KLM, the Lufthansa Cargo Group, Emirates or even Cargolux but not so good for "freighter airlines, including ACMI carriers, that have based their fleet strategies on low capital cost used aircraft and cannot afford to replace their fleets. [They] will be forced to exit the industry – [and the] military downturn will accelerate this process in 2014," he says.

Clancy thinks the survivors in this new era will need to achieve a deeper understanding of costs and prices to manage slow and volatile demand; embrace cloud-enabled IT cost reduction while simplifying their service offerings to anticipate changing shipper requirements; and increase "share of wallet" with their best customers rather than trying to acquire new customers from their competitors.

Finally, in a reminder that not much has really changed in the past 25 years apart from lower margins, Clancy told his audience that "human resources becomes even more strategic as highly variable compensation models risk talent flight in many forwarding companies."

Or, in an echo of that immortal catchphrase from Burlington Air Express: "People, not planes, deliver".

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