Picture credit: Euroavia
The speed and convenience of e-commerce makes it popular with consumers who have become used to selecting the items they want and the parcel turning up the next day if it was on Amazon Prime or within a few days even if it travelled halfway round the world.
At the Caspian Air Cargo Summit, Thomas Yu, Director, Global Hub Operations and Product Development at Cainiao Network, Sebastiaan Scholte, CEO of Kales Group and Jenny Zhao, Vice President Asia Pacific at Silk Way West Airlines delivered presentations during the session entitled E-commerce – Future Trends.
Cainiao Network is part of Alibaba Group, one of China’s most high-profile companies and a company which often gets namechecked as a disruptor.
Its founder, Jack Ma, is a high-profile figure who is widely recognised outside of China.
It was established in 2013 with its name roughly translating to rookies because the team were rookies and logistics was new to them at the time, explained Yu at the start of his presentation. Cainiao has the mission of providing a 24-hour delivery service in China and 72-hour delivery international services.
The mission was set by Jack Ma, with Yu admitting it will take time to achieve its international objectives.
To provide international connections, Cainiao is running 44 charter programmes with hubs at freighter-friendly Liege Airport in Belgium, Kuala Lumpur in Malaysia and it is preparing to open its hub in Hong Kong, which covers 280,000 square metres over 12 stories.
The volumes of e-commerce would be impossible to handle without warehouse automation, with Yu commenting, “For Cainiao, we handle around five million parcels every day. With five million pieces, can you still rely on people? Of course not, so automation of the warehouse is essential to support such high movement.”
Consumer demands are changing with them dictating when they want to receive their parcels, which is not always as quick as possible because they may be away.
Another noticeable change is the consumer-to-manufacturer supply chain model, with Yu highlighting Shein saying production is based on big data by looking at clicks and like rates guiding what they produce.
Operations need to be smart, with Yu saying that RFID readers means the cargo can provide updates such as saying when it has arrived, checked in and checked out without anyone needing to scan the package.
Yu said, “Scanning requires people, it takes time and costs money. We want everything to use RFID labels because that can scale down the people involved. If you scale down the people involved, you can get people to do the right things.”
We are entering a new era with new opportunities, said Yu, who urges companies to build their data capabilities and to think about making data meaningful.
He also said one or two products cannot accommodate all demands.
Yu says capabilities of solutions need to be studied because there are dynamics and changes in the market and saying you can only provide certain solutions is not good enough.
Yu ended his presentation saying, “We want to work together with all partners to excel from reliability, security and consistent service for cross-border deliveries in the new digital era. Win together.”
Cross-border traffic
Next on stage was Sebastiaan Scholte, CEO of Kales Group, which has a partnership with Cainiao commercialising idle capacity because e-commerce tends to travel in one direction.
The pandemic was a perfect storm, said Scholte, calling it a scissor effect of limited capacity and much higher demand, resulting in very high rates.
During the pandemic, people were financially secure because they were either working from home or on furlough so they had a lot of disposable income.
They could not spend it on leisure activities such as eating out or going on holiday so they spent money by shopping online.
Falling airfreight rates makes products cheaper, which means people are more likely to purchase the product.
Scholte quoted IATA figures saying that 80% of cross-border traffic travels by air and around 20% of air cargo is e-commerce, a number which will continue to grow.
Cross-border e-commerce is low-cost and lightweight with 84% weighing below 2kg, 40% is valued at less than €25 and 8% are returns.
Automation is key with robotic fulfilment centres and Scholte said it is essential due to labour shortages.
AI-driven supply chain management will help with Scholte saying AI can assist with predictability of flows and help consumers make better decisions, which can help reduce returns.
Bringing up supply chain resilience, Scholte said e-commerce companies are investing heavily in optimising inventory management.
The pre-pandemic strategy of saving money by keeping inventory low meant supply chains were not resilient during the pandemic.
Risk mitigation strategies means companies are looking at nearshoring and multi-sourcing and diversifying suppliers.
Alternatives to China include India and south east Asia with statistics Scholte quoted saying 1 in 20 iPhones are made in India and this could rise to 1 in 4 by 2025.
“India is really becoming a manufacturing powerhouse so I think from an air cargo perspective it is a market to watch and deploy capacity in the future,” said Scholte.
A major driver is rising labour costs in China as it is no longer the cheap manufacturing hub of the world as its economy grows.
This is not a bad thing, said Scholte, because it has become a much bigger consumption market.
Scholte shared numbers showing the value of e-commerce with data showing the e-commerce logistics market was worth $315 billion in 2022 and the biggest market for e-commerce sales.
According to data from eMarketer, e-commerce sales in China were nearly $2.8 trillion in 2021 followed by $843 billion for the US and $169 billion for the UK.
The UK is much bigger than its European rivals such as Germany, which was just over $100 billion, France was around $80 billion and sales in Spain were $37 billion.
The market is expected to register compound annual growth rate (CAGR) of 22% from 2023 and 2030 and there are predictions that 95% of all purchases will be through e-commerce by 2040, though Scholte was sceptical about that prediction.
Scholte urged the industry to be more positive, saying, “There is a lot of negativity about growth and a lot of people refer to the pandemic, which were great years for air cargo. I think the more we talk and think things will be more positive, it becomes a self-fulfilling prophecy.”
The big e-commerce players have been developing their own air networks and this is something to watch for the future.
Amazon has its own aircraft, Cainiao leases aircraft and Mercado Libre has freighter aircraft.
Scholte wondered how the market could look in five or ten years time, saying, “E-commerce companies normally would be consumers of air cargo capacity but in the last few years they have become in effect suppliers of capacity. How will this trend evolve, what will be the new players, will we have e-commerce platforms operating as airlines? Who knows.”
Chinese market matures
As Vice President Asia Pacific at Silk Way West Airlines, Jenny Zhao was present to give the audience insights into China’s e-commerce market.
China is the world’s biggest e-commerce market and has been growing rapidly in recent years, generating around 50% of the world’s transactions.
In 2022, the Gross Merchandise Value of e-commerce in China was $6.3 trillion, online retail sales continue to grow and remain the driving force for domestic demand.
Online retail sales were $2 trillion with fashion and beauty the top e-commerce product, followed by fast-moving consumer goods.
In China, the domestic platforms dominate the market with Alibaba’s Taobao and Tmall taking a 47% market share. Other major players are jd.com, Pinduoduo and the smaller platforms.
Popularity of a platform depends on the target market and the region of China.
Zhao said, “The driving forces of China’s e-commerce market were the large population and Covid-19 made more consumers go online. Effective high-speed internet and a 5G network enables digitalisation in China especially for mobile commerce. The widespread adoption of digital payment systems like AliPay and WeChat Pay, the development of AI and big data technology enables more precise demand forecasts and personalised consumer preference.”
After a period of rapid development, China’s cross-border e-commerce market has entered its mature period, said Zhao, with steady growth, increased integration of supply chain processes, more refined and localised operations, and new models such as the live-streaming market.
In 2022, the value of cross-border e-commerce in China was around $300 billion out of a global market worth over $750 billion.
Exports are worth $220 billion and imports are $80 billion. The top markets are the US, UK and Germany.
China has invested heavily in its logistics infrastructure and simplifying processes. Online shopping is increasingly popular in China and the middle class has increased buying power.
For China’s export markets, the cost of living is making online shopping more attractive.
Zhao said, “The boom of e-commerce in China has had a transformative effect on the air cargo sector. It has driven increased demand for efficient and reliable airfreight services, especially during the peak shopping events. Companies that adapt to the evolving needs of e-commerce are well-positioned to thrive in this dynamic market.”
This article was published in the February 2024 issue of Air Logistics International, click here to read the digital edition and click here to subscribe.