Research Report: how to deal with the normalization of cross-border air cargo epidemic, and logistics players such as rookies establish "end-to-end" capabilities

The following article is from Roland Berger management consulting, by Roland Berger

Recently, Roland Berger, a world-renowned strategic consulting company, released the white paper on China's cross border air cargo (2022) (hereinafter referred to as the white paper). The white paper believes that in order to respond to customers' one-stop service needs, logistics organizations will continue to give full play to their advantages in resource integration and further strengthen the full link control ability by relying on self construction, acquisition and merger. As a rising star in the field of air cargo, rookie can provide "end-to-end, door-to-door" full link logistics solutions through accumulation and innovation in recent years, and cover different goods such as cross-border e-commerce, medical materials, overweight and oversized goods. It is expected to become a global leader in the era of digital intelligence shipping.

From 2019 to now, China's cross-border air cargo market has experienced three stages: moderate growth, turbulence adjustment and order reconstruction. At the beginning of 2022, black swan events occurred frequently, and the air transport industry, as a trade link, faced unprecedented challenges, while emerging topics such as intelligence and low-carbon also needed to be promoted by all parties in the industry.

01




Flight encryption of international freight routes



Further optimization of timeliness and experience

The white paper mentioned that in the past three years, the investment in all cargo aircraft, the increase in the proportion of Chartered aircraft, and the establishment of end-to-end capabilities by multiple players have driven the continuous shortening of the overall cross-border air cargo timeliness and the improvement of service quality.

For example, rookies make up for the shortage of transportation resources by organizing charter flights and flights in the direction of the Americas, and provide transportation services for oversized and overweight goods in the direction of the Americas; With Atlas and Qatar Cargo Airlines, it has jointly opened the China America special line, connecting Hong Kong, China, Sao Paulo, Brazil, Santiago de Chile and other places. The charter flights from rookies to Latin America have been increased to 8 flights a week. Combined with the construction of logistics facilities in Latin America, cross-border parcels have been shortened from 40-50 days in the past to the fastest delivery of 12 days.

Recently, rookie opened the first Xiamen Los Angeles e-commerce express, with a load of 40 tons per flight. It flies every Tuesday and Saturday night, and arrives in Los Angeles, the United States, in the evening of the same day, providing cross-border e-commerce with a 24-hour overseas logistics experience of "rapid pick-up".

In addition, this year, rookie air cargo added a number of charter flights from Hangzhou and Shenzhen to Southeast Asia. At present, rookie has opened 10 direct air flights from Hangzhou to Kuala Lumpur and Singapore every week, and added all cargo wide body aircraft with higher cargo capacity. The number of rookie flights to Southeast Asia increased by 20% over the same period last year, and the cargo capacity increased by 25%.

For the South Asian market, rookie provides daraz with 13 China Pakistan cargo flights every week and 8 cargo flights from China Bangladesh every week. The overall logistics timeliness of the platform is optimized by 20%-25%, which can be up to 2 days faster than before.

02




Policy acceleration and multi-party promotion



Smart and green will become the key to development

Under the repeated epidemic, air cargo needs to accelerate the process of intellectualization and reduce the dependence on labor. As an important cornerstone to promote intellectualization, electronic waybills, combined with the "14th five year plan for the special development of aviation logistics", put forward the policy support that the penetration rate will reach 80% in 2025, and it is expected that the penetration rate will increase significantly in 2022.

The intelligence of cross-border air cargo industry cannot be separated from the digitization of air cargo terminals, distribution centers and other nodes.

Take ehub in Liege, Belgium, the largest intelligent logistics hub in Europe as an example. The overall planning covers an area of about 220000 square meters, of which nearly 120000 square meters are warehouses. The intelligent cargo station can accelerate the rapid transfer of import and export goods between the airside and landside of the airport. Lemo PDA, RFID and other technologies in the warehouse can improve the efficiency of operations in the warehouse and realize intelligent tracking of packages. The digital customs clearance system can make orders, payments Online logistics and other raw data to speed up overseas customs clearance.

The white paper believes that in the short term, the air cargo emission reduction measures will still focus on monitoring and accounting, supplemented by the aviation department and the airport, actively promote the implementation of green pilot projects such as sustainable aviation fuel, electric aircraft, electric shuttle vehicles, etc. In the long run, the implementation of the 3060 dual carbon strategy and the breakthrough of technological iteration may promote significant progress in carbon emission reduction.




03




Continuous logistics infrastructure construction



Create an "end-to-end" full link solution

The white paper believes that in the future, as cross-border players continue to overweight the air transport market, or achieve a "land, sea and air" integrated transportation plan, or expand cross-border full chain service capabilities, or open up business flow to logistics closed loop, the overall supply chain logistics quality is expected to improve; On the other hand, the probability of new players entering the game will increase the supply of all cargo aircraft, driving the supply of transport capacity to be more sufficient and flexible.

Relying on the steady growth of its own cargo demand, rookies master the route resources of high-quality cargo planes in Europe and America, which can realize multimodal transportation including air transportation, sea transportation, road and railway, and provide market scarce transportation capacity and return resources for open sales.

At present, rookie has six ehubs in the world, providing global trade participants with "end-to-end, door-to-door" full link logistics solutions, including international express delivery, international supply chain, international freight and other services, and providing global cross-border businesses with "5 dollars 10 days" and other logistics products with extreme cost performance. At present, this product has covered 20 countries around the world, such as Spain, France, the Netherlands and so on, Help more businesses send money to the world with a cup of coffee. In the fourth quarter of 2021, the average daily cross-border parcels of Cainiao international exceeded 5million.



04




Original Roland Berger Report



1、 Introduction



At the beginning of 2022, the Russian Ukrainian conflict, the outbreak of Omicron and other black swan events occurred frequently, and the air transport industry, as a trade link, faced unprecedented challenges. And emerging topics such as intelligence and low-carbon also need to be jointly promoted by all parties in the industry.



In this context, Roland Berger released the white paper on cross border air cargo in China (2022), established a cross-border air cargo navigator, took the helm, and comprehensively interpreted the market development trend, with a view to helping players in the industry better grasp development opportunities.

（1） China's cross-border air cargo "Navigator" released

1. China cross border air cargo Navigator - core parameters

Compared with the basic cargo volume and price monitoring, Roland Berger selected seven important navigator parameters based on three dimensions to comprehensively assess the development trend of China's cross-border air cargo, including:

                                                                 Figure 1: navigator parameters



2. China's cross-border air cargo Navigator - influencing factors the navigator also summarizes the important influencing factors of core parameters from the three aspects of demand, supply and the black swan event.

                                                  Figure 2: influencing factors of navigator parameters



2、 Historical review based on cross-border air cargo Navigator (2019-2021)

（1） Overall review

From 2019 to 2021, China's cross-border air cargo market has experienced three stages: moderate growth, turbulence adjustment and order reconstruction: at the beginning of 19 years, despite the fluctuations brought by the Sino US trade war, air cargo as a whole is still booming; In the past 20 years, due to the outbreak of the epidemic, the supply chain was suspended and international flights were blown, which made the supply and demand of air cargo seriously inverted and adjusted in turbulence; In the past 21 years, after adjustment, the market has entered the reconstruction of the new order, the demand for foreign trade has recovered steadily, and transportation capacity supply measures have been introduced one after another. The market has shown a warming trend.

                                     Figure 3: historical review of China's cross-border air cargo market



1. Review of the core parameters of the Navigator (2019-2021)

                                              Figure 4: historical review - Navigator parameters review

                                                     Figure 5: navigator parameter history review

Volume of goods: in 20 years, driven by the export of epidemic prevention materials, the foreign trade demand increased further in 21 years: in 19-20 years, the export demand of epidemic prevention materials strongly drove the export volume. In 20-21 years, foreign countries have not yet fully resumed work. With the recovery of productivity in China, coupled with the high shipping prices, the freight volume has increased.

In the larger direction, the North American direction is affected by the trade war and the COVID-19, and the volume of goods from 18 to 21 shows a V-shaped trend; Driven by the export of medical equipment and epidemic prevention materials, the volume of goods in Europe has increased rapidly; The direction of Asia fell slightly in 20 years due to the suspension of supply chain, while demand rebounded in 21 years.

Among the relatively small routes, Russia, which is dominated by cross-border e-commerce exports, is growing rapidly, and the Middle East and South America are also experiencing rapid growth due to e-commerce driven and increased transportation capacity.

                                          Figure 6: change of air cargo volume in shunting direction

Price: it fluctuates with the light and peak seasons, and has remained high since the outbreak of covid-19: the COVID-19 and insufficient supply of transport capacity have inverted supply and demand, driving up the fluctuation of air freight rates. The epidemic broke out in 20 years, and the short-term supply of transportation capacity led to a surge in prices; The resumption of work and production in 21 years and the overflow of shipping brought about a rebound in demand, and the price remained high.

Figure 7: typical directional freight rates in the air transport market

Timeliness: the end-to-end timeliness is gradually improved, and the speed of niche routes is significantly increased: before the epidemic, the end-to-end timeliness is steadily increased, among which the speed of niche routes is significantly increased. After the epidemic, the instability of timeliness increased, but it was alleviated by the increase of transport capacity investment and model innovation.

                                            Figure 8: end to end airlift aging for typical directions

The whole cargo aircraft is continuously put into operation to improve the timeliness, reliability and flexibility; The increase in the proportion of charter flights will drive the proportion of direct flights and the improvement of connection efficiency; The establishment of end-to-end capabilities by multiple players drives the continuous shortening of the overall effectiveness.

Case - all cargo aircraft Investment: in 2021, Air China Cargo added a Chongqing Chicago all cargo aircraft route according to market demand, and continuously increased passenger to cargo flights in Frankfurt, Los Angeles, London, Dubai and other places, ensuring the supply of transport capacity and the stability of the supply chain for foreign trade in Central and Western China.




Case - charter flights: rookie organizes charter flights and flights to the Americas, and provides transportation services for oversized and overweight goods from South America; With Atlas and Qatar Cargo Airlines, it has jointly opened the China America special line, connecting Hong Kong, China, Sao Paulo, Brazil, Santiago de Chile and other places.




Case - end to end: rookies build their own at key nodes, such as air cargo terminals, distribution centers, terminal distribution, etc., have deployed six ehubs around the world, and built nine overseas distribution centers, providing international express delivery, international supply chain and international freight services for Global trade participants, and providing logistics products with extreme cost performance such as "5 dollars 10 days" for global cross-border sellers.

                                                                   Figure 9: time effect factors

Proper delivery rate: with the improvement of the efficiency of node facilities, the end-to-end control ability is strengthened, and the proper delivery rate is steadily improved: the automation level of node facilities is improved, and the cargo handling operation specifications are optimized; At the same time, logistics organizations have opened up end-to-end links through mergers and acquisitions, self construction and other ways, and the proper investment rate has been steadily improved.

Product richness: before the epidemic, products became richer with the increase of transportation capacity supply; After the epidemic, the proportion of transportation capacity economic products decreased: before the epidemic, sufficient transportation capacity provided products with different timeliness and price. After the epidemic, the insufficient supply of transportation capacity led to a reduction in the proportion of economic products based on warehouse consolidation.

Figure 10: example and structure of air transport products

Intellectualization: various parties have steadily promoted the intellectualization process, but there is still room to catch up: because electronic waybills can significantly reduce costs and increase efficiency, and it is the basis of intellectualization such as full logistics visibility and node unmanned operation, China is actively promoting electronic waybills. At present, the penetration rate of electronic waybill of the three major cargo airports reaches 30-45%. The unification of standards and system connection of freight forwarders, airlines and customs is an important factor to promote electronic waybills.

Figure 11: electronic waybill penetration

In addition, the intelligent process of airlines and node facilities has also been steadily advancing. Relying on digital empowerment, lean management and customer service, the airport is committed to improving the intelligent level of node facilities.

Case: Taking the Cainiao lieri ehub as an example, the intelligent Cargo Station accelerates the transfer of import and export goods at the airport, and the technologies such as Lemo, PDA and RFID in the warehouse improve the operation efficiency and realize intelligent tracking, while the digital customs clearance system makes the original data online and accelerates overseas customs clearance.

Greening: the greening of China's air cargo is still in its infancy: carbon emission reduction, as a recent hot spot, has also attracted attention in the aviation industry. All parties of China's air cargo are actively promoting the monitoring of emission levels, and no rigid emission reduction targets have been planned. China and Europe are relatively ahead in the process of carbon emission reduction due to stricter policies and obvious needs of shippers.

3、 Future prospects of China's cross-border air cargo market

1. Recent outlook for 2022 - influencing factors

At the beginning of 22 years, black swan incidents occurred frequently, and the cross-border air cargo market experienced another cold spring. Demand, supply and the trend of the black swan event will affect the future development of air cargo.

Figure 12: recent Outlook - Summary of influencing factors - economic and trade base - the initial emergence of the anti globalization trend. The official entry into force of RCEP has boosted the close intra Asian trade: the global economy is developing at a low speed, and trade protection in some directions is emerging. The loosening of tariffs between China and the United States may promote the volume of goods between China and the United States; RCEP is expected to steadily increase the volume of goods in Asia and improve the efficiency of customs clearance. Trade pattern - the growth of air transportation driven by cross-border e-commerce is expected to slow down: the growth rate of China's cross-border e-commerce has fallen, the rise of overseas warehouse mode is more conducive to shipping, and the growth of air transportation driven by cross-border e-commerce is expected to slow down.

Figure 13: proportion of cross-border e-commerce volume and future forecast

Trunk line capacity - the scale increment of all cargo aircraft fleet is slow, and the increase of flights is the core of Capacity Guarantee: in the short term, the increase of the number of all cargo aircraft is limited, and the increase of flight flights drives the growth of transport capacity supply. The number of all cargo aircraft in summer and autumn of civil aviation in 22 years increased by 15% year-on-year.

Trunk line capacity - the new regulations on changing passengers to goods restrict cabin loading, with limited short-term capacity impact, and there is a long-term possibility of tightening: China has strictly restricted the application for changing passengers to goods since 22 years, the European Union is expected to stop the issuance of the license for changing passengers to goods in the middle of 22 years, the temporary release of changing passengers to goods is expected to slow down, the short-term freight rate is expected to rise, and the long-term impact needs attention.

Node facilities - Comprehensive hubs and freight professional hubs go hand in hand to improve transport capacity support: Tianjin, Chongqing and other comprehensive hubs continue to improve the construction of cargo terminal facilities; Ezhou Huahu airport has been put into operation for 22 years, steadily promoting the construction of professional freight hub and boosting the improvement of freight support capacity.

Competition and cooperation mode - chartered flights have become the normalized solution for the replenishment of transport capacity in 22 years: at the beginning of 22, the turbulent situation deepened and the supply and demand were unstable, and chartered flights were still the normalized solution for the replenishment of transport capacity.

Competition and cooperation mode - cross border players enter the market to increase market vitality and transport capacity supply: it is expected that cross-border players will continue to overweight the air transport market, or realize the "sea, land and air" comprehensive transportation scheme, or expand the whole chain service capacity, or open up the business flow to the logistics closed loop, and the logistics quality is expected to be improved.

Competition and cooperation mode - M & A integration continues, and the head logistics organizations gradually build "end-to-end" capabilities: freight forwarder integration is the general trend. Large freight forwarders build full category and full route service capabilities through mergers and acquisitions, stabilize transportation capacity positions, and boost logistics quality. At the same time, logistics organizations will continue to give full play to their advantages in resource integration, strengthen the control ability of the whole link and build a one-stop service ability by relying on self construction, acquisition and M & A.

Case: as a rising star in the field of air cargo, through accumulation and innovation in recent years, rookies have been able to provide "end-to-end, door-to-door" full link logistics solutions, covering cross-border e-commerce, pharmaceutical materials, overweight and oversized goods and other different goods. It is expected to become a global leader in the era of digital intelligence shipping.

Normalization of the epidemic: it has been more than two years since the outbreak of covid-19, and the world has entered the stage of normalization and control of the epidemic. Focusing on China, despite the repeated risks of the epidemic, the impact on air cargo has eased compared with the beginning of the 22nd. In the short term, Omicron has limited production capacity, but it is expected to rebound with the recovery of the epidemic; The management and control measures lead to insufficient transportation capacity and higher freight rates in Shanghai; The ground treatment capacity decreases, and the aging instability increases. In the long run, the epidemic has put forward higher requirements for the stability of the supply chain, forcing logistics parties to improve goods disinfection and sterilization, cargo volume prediction, transportation capacity guarantee, etc.

Regional conflict - the Russia Ukraine war continued to stalemate, which had a great impact on the air cargo market: the Russia Ukraine war started in February, 22, and is still in a multi-party game state at present.

Figure 14: historical review and future prediction of the war between Russia and Ukraine

The war between Russia and Ukraine had a great impact on all indicators of the air transport market in 22 years:

Cargo volume: the closure and no flight of the airspace led to the shortage of transportation capacity in the central European direction and the decline of cargo volume; Structural changes in the direction and types of goods between China and Russia, and increased fluctuations in cargo volume





Freight rate: the rise in crude oil prices, route detours and tight transport capacity all promote the short-term rise in air transport prices





Timeliness: the impact of no flight and lack of transport capacity has led to the increase of timeliness instability in the central European and other directions

Figure 15: the impact of the Russia Ukraine war on the direction of central Europe and China Russia

2. Prediction of navigator parameters in 2022

In the first half of 2022, air cargo broke the metastable state again, and reconstruction and repair will be the main theme in the second half of the year.

                                   Figure 16: near term outlook - Navigator parameter prediction

Figure 17: near term outlook - Navigator parameters predicted by direction

Volume: increased volatility and differentiation: the resumption of overseas work at the beginning of 22 and the outbreak of the black swan incident intensified the volume volatility. The differentiation of each direction is obvious, and the demand base of North America is stable, with small growth potential; The European direction is subject to the conflict between Russia and Ukraine, and there is a risk of decline in cargo volume.

Freight rate: fluctuate throughout the year and maintain a high level: the black swan incident once again caused a shortage of transportation capacity, and the rise in crude oil prices led to a surge in freight rates. It is expected that the fluctuation throughout the year will remain high.

Timeliness: overall improvement, stability in doubt: with the improvement of infrastructure and the opening of end-to-end links, the timeliness is improved as a whole, but due to the influence of black swan, the short-term stability is insufficient.

Proper delivery rate: get through the checkpoints and steadily improve: with the head players' control over the core checkpoints such as the customs clearance of the end journey strengthened, the proper delivery rate was steadily improved, but the process was relatively slow due to the limitations of local logistics conditions.

Product richness: general transportation led and gradually enriched: at the beginning of the year 22, the supply of transportation capacity fluctuated, and the freight rate jumped sharply, which affected the economic products with warehouse consolidation as the core. It is expected that general transportation products will still be the mainstream in the year 22.

Intellectualization: Policy acceleration and multi-party promotion: the epidemic will promote the intellectualization process and reduce the dependence on manpower. At the same time, the special development plan for aviation logistics in the 14th five year plan supports the development of electronic waybills, and the penetration rate is expected to continue to increase in 22 years.

Greening: from point to area, long-term improvement: in the short term, air cargo emission reduction is still based on monitoring and accounting. In the long run, the implementation of 3060 dual carbon strategy and technological breakthroughs may promote significant progress in carbon emission reduction.

4、 Enlightenment: don't cover your eyes with floating clouds. Look at the long-term scenery

summary

After the first half of the complicated situation, the market seems to have begun to accept the balance breaking and order reconstruction in the fog of vuca. With the continuous improvement of the right to speak, Chinese shippers have gradually changed to service sensitivity, and their requirements for the reliability and depth of logistics services have increased significantly. The cross-border logistics market is gradually "breaking through the clouds to see the sun". How can logistics players find their true colors in the floating clouds and stand out from the competition, and how can shippers balance the quality and cost of the supply chain? The following targeted measures are for all parties' reference. (for details, please click "read the original text" to get the full version of the white paper)

Capacity provider

>Continue to optimize the fleet structure and attach importance to the introduction of all cargo aircraft

>Fully tap growth dividends and pay attention to specific opportunities

>Actively improve the level of digital intelligence, break through barriers and align standards

>Pre planned emission reduction measures, pilot projects to promote technology implementation

Node facility provider

>Upgrade and improve node facilities to prevent input and improve efficiency

>Pay attention to high potential products and scientifically establish operation strategies

Integrated logistics provider and planner

>Define the target market and seize the high diving track

>Focus on customers and improve service quality

Cargo owner

>Increasing supply risks and building a diversified and alternative supply network

>The market is changing rapidly, and the comprehensive transportation capacity plan of sea, land and air is formulated