Q&A: Matt Castle, VP of Global Forwarding Products & Services at C.H. Robinson

Like all modes of freight transportation, especially these days, change is constant. And that is apparent in the air freight sector. Logistics Management Group News Editor Jeff Berman recently caught up with Matt Castle, VP of Global Forwarding Products & Services at C.H. Robinson, to get an inside glimpse of the current state of the market. A transcript of their conversation is below. 

Logistics Management (LM): what are the biggest differences in the air cargo sector now compared to a year ago in terms of things like market conditions and demand etc?

Matt Castle: Certainly when I look at 2018 compared to 2017 it is a situation that has been building since the fourth quarter of 2016, which is really the story around demand. Demand continues to be extremely strong and really driving the shape of the market today. It is hard to specifically think about demand without obviously bringing capacity into the equation. That is the other story in that capacity does take a little bit of a back seat to the demand story, because that is, to me, at the forefront of what we are dealing with here. Capacity has become relatively stable. There was a period for a number of years where capacity was, of course, outpacing demand, and that was really the result of two key elements. One was a lot of older aircraft being replaced by new aircraft, which has more efficiency and consistency through the cargo capacity. And for a number of years we had middle aged carriers ramping up and bringing on a tremendous amount of capacity, both passenger and cargo. Both of those have somewhat subsided. While we anticipate a little bit of growth on the capacity side, it is nothing compared to the pace at which demand has continued to grow.

LM: When we view demand, what do you see as the big drivers? Is it an improving economy, coupled with heightened expectations from consumers ordering online?

Castle: Consumer demand is at the forefront, I think, and just our appetite for consumption of goods, whether it is high tech, fashion, and other things across the board that continue to play a very big part in driving that forward. E-commerce has taken on a few different definitions. How I would categorize it is that people have higher expectations to have their orders in their hands much more quickly than in the past. It is less about going to the store than it is opening the door and seeing packages at the doorstep. That has absolutely increased the pace at which we are seeing product move, and air freight has been a big component to that that. Another thing is when you see the big product launches out there, whether a new iPhone or an Xbox, these events, while isolated, have a very big impact on the market, and you start to stack up a multitude of those and it has a compounding effect in the market. That is apparent in the shipping [volume] data that is out there.

LM: What is your take on the impact of digitization in the air freight sector as a way of helping to make things more predictable? What are the pros and cons of that for carriers and shippers?

Castle: I think of it through the idea of how the industry gets more efficient from a productivity standpoint. There have been critiques in the past that the industry is slow moving on this front or cumbersome or this is this comfort level of doing things the way it has always been done. I think consumer demand, or customers, have been driving it in the past on a few levels. One is market-demand pricing and everyone trying to manage costs, which brings another level of pressure in how we need to navigate the market and need to think of it through our own operations. The other outcome of that is what we have started to categorically talk about is customers looking for more predictive visibility. Going back 20 years ago, customers were OK with working within a 45-day window. There was then pressure to more towards a much more transparent and interactive level of visibility where you could pull up a purchase order and get a a little bit better [glimpse] of where that freight may be, such as on the water or rails or in the air or any combination of that. Customer expectations have moved towards wanting to understand how a variety of different events could impact their transit times.

LM: How does CHRW handle that as an air freight forwarder?

Castle: We have a technology called Navisphere Vision, which provides visibility for products in transit, whether it is ocean or air, and we overlay weather conditions and other factors that may influence the ETA or the outcome of a particular shipment. Customers are now asking us what they need to do to think about that from a planning perspective and what can they do to a product that may be impacted? That is really where digitization is having an impact. The challenge that comes out of that is if you move to a more transparent environment, then you are still trying to connect a very complex network of information and data and really on a global basis. The basis for many countries is not what we are accustomed to in the U.S., and that is where some of this gets a little bit more challenging and trickier. You need to think about playing to the lowest common denominator as you think about some of these technologies in terms of how to really interpret them.   

LM: Looking at peak season, in past years, at times, there have been reports of missed delivery windows and delays, due to high volumes, weather, and other factors, too. What is being done to smooth things out in an effort to make things more predictable and less chaotic?

Castle: From a customer perspective, we are heeding the call. So much of that goes into what type of planning that can be done now. Not every customer has the ability to forecast plans 6-to-9 months out. We spend a fair amount of time right now talking to customers about the risks, as well as talking through and understanding the drivers in their supply chain. It is not just the pinnacle movements; it is working those conversations back up to understand what creates that demand. It has to do with what is going on out on the street, manufacturing contracts that need to be signed, and taking it up another level in that planning process to be sure we are understanding and covering any possibilities we can to put that customer into a more proactive situation. Generally speaking, if you are just reacting to peak, there is obviously a way in which you can get product moved, but it ultimately comes at a cost.  That is where we are focused on a better planning process where we can in those situations. There is no longer the luxury of when peak was maybe a bit soft and capacity was a bit more fluid, you did not have to worry about it as much as you do in today’s environment. There were multiple situations last year where carriers make commitments and honor relationships but, regardless of price, capacity may not be available until sometime next week. From our own internal standpoint, we have done some of the same type of planning with our own aggregated customer base, and we are making some very conscious decisions around certain trade lanes and regions where are actively [finalizing] our capacity agreement. We will have a certain percentage of contractual capacity to help support our customer through some of those challenging times.

LM: Is air cargo consolidation taking on more importance as a viable option for air cargo shippers?

Castle: Yes, I think so. Some of that goes back into the whole planning that we go through with customers. The market itself is driven by consolidation, and that is what drives market pricing at the end of the day. Instead of mixing dense and volumetric cargo, you are trying to mix cubic capacity and weight restrictions. That plays a big part in the industry itself from a costing standpoint, but I think that when we do deep dives in our customers’ supply chains, if they are moving freight every day there is a cost to receive that freight every day. In a lane like Hong Kong to Chicago, where a shipper is dropping freight every day there is no real rhyme or reason as to how that gets moved. On the other end, you are receiving freight daily as well, and there is a cost in doing that. That leads to thinking about leveraging how to do it twice a week so that from a receiving standpoint there are maybe some added efficiencies coming out of it. There are a lot of different avenues in how we assess the impact, or power, of consolidation. Sometimes it is not always in airport-to-airport moves exactly.

LM: With e-commerce growing at such a rapid clip, on-time delivery is more important than ever, it seems. That said, what has been the subsequent impact on the air cargo sector? 

Castle: It has been an interesting evolution, and the story has yet to be completely written. A few years back with the initial emergence of e-commerce, the volumes that came out of that were [solid] and got people very excited. Volume has grown at such a rapid pace over the last year, and it definitely compounded the marketing and capacity situation and put a lot of stress on the system. What I am starting to see through many carrier conversations is somewhat of a pushback as it relates to e-commerce…it encompasses a lot of different parties pulling off  that type of execution. Everybody was very aggressive to go after market share in that space, and I don’t know if the financials from a logistics standpoint are completely adding up. There is a lot of chatter out there from different providers…about how the industry continues to embrace those opportunities, mostly from a pricing standpoint. I don’t see how it will not bring a higher level of costs to what is being asked to deliver in today’s market share. It will ultimately bring a higher level of costs, as there is a lot of volume that moves in that sector and it is multimodal, exclusive of the final mile…and it will get tricky as everyone tries to size up how to get their margins for the services they are providing.