QUESTIONS&ANSWERS Wake up carriers and make a stand A Anand Medepalli, JDA


nand Medepalli – vice president of freight transportation for JDA Software’s Pricing and Revenue Management Group on how cargo carriers need to wake up and realise that forwarders are exploiting them, but they only have themselves to blame.


ACW: In your blog you say carriers need to stop relying on electronic products, such as iPhones. Can you explain?


Medepalli: That is actually only one of two strategies I advocate to a long-term problem. Carriers are removed from the shipper with forwarders making the


business opaque, so carriers do not know whose cargo they are carrying. Instead of telling carriers their shipment comes from Apple, forwarders only tell them it is electronics goods. Now, if the carrier knew that it was Apple’s iPhone 5, would the carrier give the same rate it did to everyone else? If they knew it was a ‘must go’ shipment, probably the most valuable shipment they’ll be carrying, they would charge accordingly.


ACW: Isn’t that a little unfair?


Medepalli: Yes and no. The forwarders do it to Apple. They can go to the shipper, tell them


the airline is charging whatever price and add a mark up. They are able to do value selling, which the carriers cannot do. What carriers should be doing is sitting with the forwarders, and even their own sales team, and saying: “We think you’re going to be doing this amount of business with us, so we’ll plan accordingly. If this is not accurate, it’s in your interest to tell us now so that our customer delivery is not affected. Share that information with me.” That dialogue is actually very common in the manufacturing world; it is formalised. It is called collaboration across the supply chain.


ACW: So the current situation actually benefits the forwarder?


Medepalli: They are definitely at an advantage over the carrier and the shipper. Forwarders know very well that if they are a consistent customer of a given carrier they can command a premium with that carrier for better rates and service, but they do not play ball with the carriers. If a forwarder books a shipment with a cargo carrier, for say one tonne, there is no guarantee he will even show up or that he will turn up with exactly that amount. Knowing that, and you have three tonnes available, do you as a carrier only sell three tonnes or you sell two and a half or four? There should be penalties and that needs a mental shift. In the past, it was that people wanted to [issue penalties] but that the ‘green-screen’ systems just were not able to deal with dynamic pricing. That excuse is not there anymore. They have to make a change in their thinking by recognising their own ability to predict the future, recognise the old way of doing things with rate and allocation contracts is no longer a valid business model and have the confidence to do it. The cargo carriers have the most to lose with the status quo. They are the most asset- intensive part of the supply chain, their margins are always razor thin and their yields are going down. They have to hold their customers accountable for the contracts they sign.


ACW: And what about the shippers?


Medepalli: Absolutely, airlines should have direct contact with the end shippers. I wholeheartedly support that, but not as a means to displace forwarders, because I do not


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want carriers to get into all the value-added services that forwarders do, such as customs and documentation. If carriers are able to establish agreements with some key shippers, then the forwarders, in the middle, will be able to negotiate with the shipper over their value-added services. Only then will everyone be in a win-win situation. That is my dream, that is my wish.


ACW: What will the industry look like in the future then?


Medepalli: “The industry is on a cusp. I know of one cargo carrier that is already walking away from this way of thinking and moving towards dynamic pricing. Airlines are the most passive part of the supply chain, but they carry the heaviest asset base. They will definitely become a more aggressive dynamic player. As well as the confidence to


make the changes, it requires sophisticated forecasting, which is both a science and an art. Many cargo companies have no formal forecasting capability, either basing it on what they did last week and what their sales team tells them. Now, I’m not knocking that,


it is a forecast, but it’s not sophisticated. Even if they do have a more sophisticated system they are usually not tuned enough for the cargo market, especially nowadays with the business being so volatile. People cannot sit back and say that the data available last year can be used to forecast the same period this year. That would be very difficult. In absence of that, you are leaving everything to chance, intuition and gut. There have actually been sections of the business that have been remarkably steady. If you have a software solution that factors those in and can still adapt to market changes very quickly, and by collaborating with your other stakeholders, an airline can improve its forecasting accuracy. A 10 percent increase in forecast accuracy can actually add about one percent improvement to revenues.


Anand has worked within the industry since 1997 and worked at American Airlines, then moved to the banking industry, before returning to aviation at JDA. His blog can be found at http:// blog.jda.com/author/ anand_medepalli/


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