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Will COVID-19’s Impact Permanently Change Air Freight Sourcing?

October 19, 2020

author:
David Siedt

The COVID-19 pandemic has affected global supply chains in countless ways, but it appears that the category of air cargo transportation has been particularly impacted. Dramatic drops in air cargo capacity continue to be a significant constraint due to the ongoing decline in commercial flights since Q1 2020. According to weekly flight data from Statista, for the week starting October 5, 2020, the number of scheduled flights globally was down by 46% compared to the same week in 2019. And Accenture, in its weekly updates to the industry, has reported that global air cargo capacity is down 22% year on year.

As a result, contracted rates previously negotiated with airlines through annual RFPs are often discarded, leaving many buyers to rely on spot bidding with carriers to meet demand. Compounding the challenge is the reduction of flight connections beyond major hubs, which increases the need to source ground transportation.

Reactive spot bidding has long been part of Procurement’s mix, because even in a “normal” year, unpredictable or misforecasted supply chain disruptions or demand changes inevitably arise. But this year, buyers are finding themselves in the position of spot bidding more routinely than ever before, requiring a new approach to the way they secure movement of their goods globally.

Lots of Spots? Bring on the Bots...

A key problem with spot bidding is that it tends to be a very inefficient exercise to do at scale and emphasizes a quick award decision to reduce risk to supply flow and the business. It’s also not uncommon that these bids are negotiated “offline,” outside of a formal e-sourcing process, and that even when data is collected, it’s purely rate focused. At scale, this becomes time-consuming for the buyers and it’s not good for managing and tracking spend.

Such challenges present a clear opportunity for automation solutions, which make it easier to handle an increased quantity and pace of bidding events without placing additional burden on the workforce and taking them off of higher-value projects that are better suited for human reasoning and strategic evaluation. 

Keelvar today is helping customers navigate those challenges with our intelligent Air Freight Sourcing Bot. The bot takes on the workload of many detailed tasks associated with those events, including: determining invited carriers; collecting and validating bid data from carriers; conducting rate card, zonal rate and alternative airport lookups; sending reminder messages; optimizing and evaluating scenarios that weigh cost and non-cost objectives; generating award recommendations; updating rate cards; notifying winning and losing bidders; and more.

The results? 

  • Efficiency and Productivity: Customers can more efficiently execute a greater number of smaller-scale and urgent air transport bidding events by offloading up to 90% of the detailed event tasks to Keelvar’s automation.
  • Competition and Savings: The automation features improve the potential for savings  by collecting and analyzing bids beyond just fixed-rate data (such as scaling rates, CO2 emissions, equipment/vessel type, penalties, etc.) and also by allowing more carriers to be invited to bid, thus increasing competition without increasing the buyer’s workload.
  • Decision Quality and Responsiveness: The buyers arrive at quality award decisions faster, shortening the time to react and satisfactorily support business operations.
  • Traceability: All of the negotiations and spends are tracked and recorded, supporting traceability and future forecasting with a more complete picture of spend under management.

Enabling a ‘New Normal’...

The interesting longer-term question that remains unanswered (for now) is: How will these pandemic-driven air freight sourcing changes affect procurement when capacity returns? As buyers and carriers alike get accustomed to the practice of increased spot bidding to move freight globally, will that mean a longer-term shift away from the status quo of conducting large annual RFPs towards smaller, more agile/just-in-time sourcing strategies?

One of the reasons teams historically did not conduct sourcing events with greater frequency and with smaller, more focused spend, is because of a concern for how this would impact the buying team’s workload and priorities -- not to mention the suppliers and carriers seeking an efficient way to bid on the business. Leveraging volume to negotiate for the best deal has been the status quo. Meanwhile, the trend among carriers has been to push for more flexibility on rates throughout the year vs. being locked into an annual contracted rate.  

Keelvar’s Sourcing Automation gives real-world proof that yes, given the current pandemic-induced market conditions, the technology solutions do indeed exist to help global shippers overcome the obstacles and efficiently keep their freight moving. Those combined benefits of air freight sourcing automation are real and compelling -- and need not be limited to just reactive spot bidding events. 

As we all echo the phrase “the new normal,” time will tell if these new sourcing practices backed by the right automation technology will lead to a transformation of air freight sourcing practices for the long haul. At Keelvar, we believe it’s the next leg in the journey.

See a demo of Keelvar in action for Air Freight sourcing optimization and sourcing automation - or other spend categories. Sign up here.

David Siedt is a pre-sales engineer at Keelvar, with over 14 years of industry experience serving hundreds of fortune 500 companies with their strategic sourcing initiatives.

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