Factors affecting the efficiency of air cargo transportation in Russia

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St. Petersburg University

Graduate School of Management

Master in Management Program

Factors affecting the efficiency of air cargo transportation in Russia

Master's Thesis by the 2^nd year student

Arkadiy Yurkanskiy

Research advisor: Associate Professor,

Dr. Axel T. Schulte

St. Petersburg

2016



Заявление о самостоятельном характере выполнения выпускной квалификационной работы

Я, Юрканский Аркадий, студент второго курса магистратуры направления «Менеджмент», заявляю, что в моей магистерской диссертации на тему « Факторы, влияющие на эффективность воздушных грузоперевозок в России», представленной в службу обеспечения программ магистратуры для последующей передачи в государственную аттестационную комиссию для публичной защиты, не содержится элементов плагиата.

Все прямые заимствования из печатных и электронных источников, а также из защищенных ранее выпускных квалификационных работ, кандидатских и докторских диссертаций имеют соответствующие ссылки.

Мне известно содержание п. 9.7.1 Правил обучения по основным образовательным программам высшего и среднего профессионального образования в СПбГУ о том, что «ВКР выполняется индивидуально каждым студентом под руководством назначенного ему научного руководителя», и п. 51 Устава федерального государственного бюджетного образовательного учреждения высшего образования «Санкт-Петербургский государственный университет» о том, что «студент подлежит отчислению из Санкт-Петербургского университета за представление курсовой или выпускной квалификационной работы, выполненной другим лицом (лицами)».

(Подпись студента)

26.05.16 (Дата)



Statement about the independent character of the master thesis

I, Arkadiy Yurkanskiy, second year master student, program «Management», state that my master thesis on the topic « Factors affecting the efficiency of air cargo transportation in Russia », which is presented to the Master Office to be submitted to the Official Defense Committee for the public defense, does not contain any elements of plagiarism.

All direct borrowings from printed and electronic sources, as well as from master theses, PhD and doctorate theses which were defended earlier, have appropriate references.

I am aware that according to paragraph 9.7.1. of Guidelines for instruction in major curriculum programs of higher and secondary professional education at St. Petersburg University «A master thesis must be completed by each of the degree candidates individually under the supervision of his or her advisor», and according to paragraph 51 of Charter of the Federal State Institution of Higher Education Saint-Petersburg State University «a student can be expelled from St. Petersburg University for submitting of the course or graduation qualification work developed by other person (persons)».

(Student's signature)

26.05.16 (Date)



Аннотация

В данной магистерской диссертации представлен анализ воздушных грузоперевозок в России, обзор научной литературы и исследований на тему воздушных грузоперевозок и сравнение теоретических концепций с практическими проблемами грузоперевозчиков. Цель работы заключается в выявлении факторов, влияющих на эффективность воздушных грузоперевозок в России, проблем и трендов на рынке. Данные были получены при помощи анкетного опроса и двух структурированных интервью. Практическое исследование выявило, что воздушные грузоперевозки в России во многом зависят от пассажирских, так же грузоперевозчики считают, что основными факторами, влияющими на эффективность, являются общая экономическая ситуация и повышение сборов на терминальную обработку. Стратегия снижения издержек и сохранения места на рынке является приоритетной для большинства компаний, и они не видят других путей для развития. Данная магистерская диссертация может послужить основой для кросс-региональных исследований рынков воздушных грузоперевозок среди развивающихся стран.

Ключевые слова: воздушные грузоперевозки; факторы эффективности; проблемы и тренды.



Abstract

This master thesis presents the analysis of air cargo transportation market in Russia, reviews the literature on air cargo operations and compares theoretical studies with the practical problems of cargo carriers and forwarders. The goal of the study is to identify factors affecting the efficiency of air cargo transportation in Russia, challenges and trends of the Russian market. Data obtained using a questionnaire survey and two-structured interviews revealed that cargo operations are closely connected to passenger transportation in Russia, cargo forwarders consider overall economic conditions and increased terminal handling fees as their major challenges and do not see any ways for improvement. Cost-cutting strategy and therefore keeping a position in the market are the main trends of operators in the market. This master thesis could be used as a basis for cross-regional studies of emerging markets related to air cargo transportation in order to identify similarities and patterns of freight shipment structure of emerging markets.

Keywords: air cargo transportation; efficiency factors; challenges and trends.



Table of contents

Аннотация

Abstract

Introduction

Chapter 1. Air cargo transportation and operations: theory and global practices

1.1 Conceptual framework of air cargo transportation structure

1.2 Modern practices in airfreight management

1.3 Russia-specific practices and research gap

Chapter 2. Research design and methodology

Chapter 3. Efficiency factors of air cargo transportation in Russia

3.1 Findings

3.2 Discussion

3.3 Contribution, limitations and future research

Conclusion

List of references



Introduction

Research area lies in the field of air cargo transportation. Key topics that underlie the understanding of this phenomenon are problems of airlines and freight forwarders, general underdevelopment of transportation logistics in Russia. Main research question that it is stated in the thesis is “What are the factors affecting the efficiency of air transportation industry in Russia?” The goal of the thesis is to identify key features of air cargo transportation market in Russia. In order to achieve this goal and answer the research question there will be a combination of quantitative and qualitative data collection methods, both secondary and primary data. There is going to be comparison of the results of the empirical study with modern practices and other researches in order to achieve maximum validity of the results. The stages of the research are the following:

· Analysis of scientific articles, reports and empirical studies

· A survey amongst freight carriers and forwarders in Russia

· Two structured interviews with freight forwarders

This literature review involves sources from EBSCO, Elsevier and JSTOR databases. For the search, the following key words were used: “air transportation”, “air cargo” and “Russia”, “logistics”, “supply chain”.

This particular subject of research might be relevant for the following reasons. Air cargo plays a crucial role in Russian economy because of countries territory and lack of roads. Logistical issues and geographical location of several regions force business to choose air over other means of transport. Economic crisis also has to be taken into account, especially in terms of its impact on the industry and challenges that it has created. Understanding the trends, where the whole industry is going is a crucial in terms of improving the current state of events.

Many of the existing studies in this area were focusing on one particular territory or region, mainly the United States of America. However, there is a strong need to study air cargo transportation in emerging markets, extend the geographical scope in 3PL research, particularly to support practitioners as they expand import and export operations in other countries. Initial literature review demonstrated that this topic still has a room for future research and it is hard to do an empirical study in 3PL market, mostly due to its complexity. It also suggests that it would be reasonable to implement more theoretical studies, using various methods of data collection. Moreover, research specifically on Russian market seems to be even more underdeveloped.

Due to complexity of the data collection process and problems that the research in Russia faces when it is needed to implement an empirical study, the focus of this particular paper would be more general. Many researchers face obstacle related to low response rates. There has been a number of studies focusing on Asian countries, however almost nothing related to air cargo transportation in Russia. Therefore, the objective of this master thesis is to bridge this gap, by making a more general market study, using different methods of data collection.



Chapter 1. Air cargo transportation and operations: theory and global practices

1.1 Conceptual framework of air cargo transportation structure

The following part presents the overview on airfreight operations and transportation on a global scale in order to identify crucial attributes and characteristics of this industry. In addition, the objective is to find some practical issues that correlate with the theoretical background in this area of research.

According to Feng et al. 2015, air transportation is a driving force of the world economy. This is the main idea that could be easily found in any research or study on this topic. No researcher seems to undermine the importance of future development of this industry. “The air cargo market has doubled in volume every 10 years since 1970, and this trend is expected to continue over the next 20 years with an annual average growth rate of over 6 %” (Chang et al., 2007, 555). Much of this growth has come from the integrated sector and the `big 4' operators UPS, DHL, FedEx, and TNT. (Boeing, 2004). “Based on the cargo capacity of the main airlines in the US, Europe, and the Asia-Pacific region between 1995 and 2004 (as published on their respective websites), the airfreight volume has grown, on average, 50% faster than the air passenger volume in the past decade.” (Wong et al., 2009, 361)

Airfreight forwarder is a third-party logistics providers, that has air cargo services as its main business. Today in case a company wants to decide what airfreight forwarder to choose, it probably should use the following set of criteria: infrastructural and informational abilities, equipment and fleet, distributional reach and route network. The majority of third-party logistics company provide services and solutions for the entire supply chain not only simple transportation. (Yang et al., 2010) For this reason, the market is quite different from other markets and has more complexity. (Petersen, 2007)

There are many companies that are involved in transporting air cargo from one point to another; however, they can be classified into three main groups: airlines, freight forwarders and integrated providers. The majority of airlines (especially internationally) are combination carriers that carry both cargo and passengers. Air cargo can be shipped in freight airplanes and in passenger aircrafts (almost 60 % of air cargo worldwide). The market structure is such that in order for the airline to operate it must have connections with freight forwarders and agents who act as an intermediary with customers. (Belavina & Girotra, 2012) Normally airlines do not accept orders directly from customers, however in some cases an airline can serve as a forwarder as well. Integrated companies provide solution for the entire supply chain and are responsible for delivering goods from the origin to destination, working directly with customers and getting round the usual role of freight forwarders. The integration of air and ground services became a competitive advantage of integrated operators because a large number of manufacturing companies have the urge to manage and control international distribution networks and supply chains. This situation has been an accelerator of division of cargo services into different groups (see Fig. 1). At the bottom stage, there are traditional cargo forwarders in which the forwarder is an intermediary between the customer and the carrier, responsible for transportation on ground, customs regulations and booking a space for the carrier. (Bowen & Leinbach, 2004)

Figure 1. Freight services.

Source: Bowen & Leinbach, 2004

Airfreight transportation has a connection with passenger transportation, obviously, because both services employs aircraft as core mean of transport. Feng et al. 2015 in their study of different publications have identified several differences between two above-mentioned types. Airfreight transportation has a higher unpredictability level than passenger transportation in terms of capacity availability. Essentially, cargo forwarders have higher volatilities when dealing with capacity management. (Feng et al., 2015; Mongeau & Bes, 2003)

The reason for this is that usually customers of cargo shippers have to make a booking way ahead of the delivery date, whereas passengers can book their ticket couple of hours before the flight. Therefore, passenger airlines have more flexibility. (Wadud, 2013) “Cargo capacity forecasting is significantly more complex than passenger aircraft capacity forecasting. While the capacity of a passenger aircraft is fixed by its number of seats, cargo capacity depends on the container types used, which are further specified by multiple dimensions. For instance, the capacity may be enough in terms of volume but not in terms of weight when a heavy cargo arrives. Multiple dimensions are a key feature of freight, which render both complexity and uncertainty to airfreight capacity management.” (Feng et al., 2015, 323)

The same as passenger transportation, airfreight operations contain both indirect and direct costs. Direct cost is a spending related to buying or renting the airplane and necessary facilities, as in combination with the service charges. Indirect cost is a spending connected with management expenses and ground handling services. Moreover, operation costs also include variable and fixed costs. FC that do not depend on the distance contain spending on takin off and landing, security, and ground operations. On the contrary, variable costs (i.e. the cost of fuel), depend on the distance of the flight. (Chao & Hsu, 2013; Guimera et al., 2005)

D. Wenzel in his article for Nord/LB makes a general review of airfreight market. Due to specifics of this type of transportation, in comparison with other types, it is considered as a more value-adding type. It is also more frequently used for transportation of items that are more valuable and items that have to be delivered in a shorter period. Therefore, it is only logical that from the demand side, customer are willing to pay more to use air shipment. “The air cargo market is highly fragmented with fierce competition and excess capacity. The generally low switching costs for end customers intensify competition among the carriers. As a result, prices for air freight set rather supply oriented than cost-covering.” (Wenzel D., 2015, 3) From the 3PL providers point of view there is a significant difference in demand in different parts of the world. For this reason, there is a problem of proper usage of airplane capacity. “The air cargo market is heavily concentrated and around 70% of the global freighter fleet is used by the top 20 air cargo carriers.” (Wenzel D., 2015, 3)

Zou et al. 2013 acknowledges that the increase in freight volumes establishes a need for airlines that work with cargo as well to have appropriate and efficient revenue management schemes in order to minimize their losses. With regard to passenger transportation, such schemes are quite common and widespread and have been used for almost two decades. In fact, most of the methods were applied for freight management and therefore cargo operations are still highly dependent on ground rules of passenger schemes of revenue control. It is probably not a question of debate that airfreight is not the same as passenger operations; for example, shippers' booking patterns, capacity allocation uncertainty, demand forecasting and therefore passenger revenue management schemes should not be unadvisedly applied to the air cargo sector. (Zou et al., 2013)

Besides market researches, there has been a conceptual study by Becker and Wald (2010) on airfreight revenue management. In this, article authors focus on the main challenges of revenue management (ACRM) and establish some ways of addressing them. Authors claim that passenger revenue management schemes should not be unadvisedly applied to the air cargo sector. Authors mention three main challenges in their paper: “complexities, trade-offs and organization. Capacity offer for the transportation is not a constant figure; moreover, it is a variable that depends on many others factors (i.e. amount of fuel).” (Becker & Wald, 2010, 180)

The networks are becoming more complex and number of transportation routes is extending, so sea and train shipment has also be taken into account. (Derigs et al., 2009) From the demand prospective, authors acknowledge unequal trade lanes as an important complexity issue. It means that a particular shipment at a booking stage can range from zero to over tendering. Trade-offs are important problem of ACRM in terms of creating a mismatch of goals inside Revenue Management and how this goals correlate to the targets of other department. For example, utilization is a top priority for ACRM but usually is not so important for sales department. The same thing exists for profitability that is again much more important for RM than sales. (Becker & Wald, 2010)

The last complexity that authors mention is organization. Becker and Wald suggest that ACRM integration in the organizational system is de-centralized. It, basically, means that revenue management can reach its goals on a local but not a global scale. In the last part of the article, authors discuss ways of managing the challenges. In order to deal with complexities companies have to use “IT integration and data quality” and “forecasting and optimization/decision support methods”. Reliable data and forecasts from all the dimension has to be applied in this case. In addition, from the supply side efficient workflow is important. In other words, live tracking of item fluctuations and adjusting the capacity according to the changes. In terms of organizational issues, authors suggest the target of ACRM should go in line with goals of other departments. Sales and revenue management should also be measured against profitability, utilization and revenue” and coincide with corporate targets of the firm. (Becker & Wald, 2010)

In general, there has been only a number of studies related to air freight RM questions. Kasilingam, 1996 established the main differences between passenger revenue management and freight revenue management. Very often passenger aircrafts carry cargo as well, so the amount of cargo depends on the type of the plane, number of passengers on board and how much luggage they have. “Therefore, air cargo capacity is stochastic in nature, and the uncertainty makes capacity allocation decisions more complex.” (Becker and Nadja, 2007, 176). One more important aspect of cargo that it is different to passengers is multi-dimensional structure of cargo capacity (weight, volume, and position in the aircraft cargo hold), flexibility in routing and path selection, and the cargo assignment request before the general sales. (Li et al., 2012)

In terms of costs and financing airfreight security, there is a difference in opinions. This is mainly because no one really has the intention to overspend. To begin with, governments are obviously under severe budget constraints. Although, operators will argue that they are not able to guaranty the integrity of their cargo when it goes further in the supply chain to be bundled for shipping. In addition, the vast majority of small forwarders do not possess the required amounts of money to make necessary investments in security. On the other hand, each large integrated operator often spends over 50 million euros a year on security. Ground handlers and airline companies claim that they already spend the cost of maintaining and controlling quality certification. Because the independent validator issue remains unclear (who certifies the validator, which are the standards, the price, etc.), the reaction of the different stakeholders is very uncertain. (Domingues et al., 2014)

Speaking about the costs of freight transportation by aircrafts it is important to mention ground handling costs. The activities that are related to freight handling are integrated or act as an integral part of airfreight supply chain. Apart from freight handling, such chain has different stages hat depend on various actors involved in it. The so-called freight-forwarder is extremely important in the chain: it is responsible for door-to-door shipment of items from the point of sending to the point of receiving. Freight-forwarder plays a role of an agent in the relationship with air carrier, usually the airline and reserves a spot for a particular shipment, quite often together with other orders. (Janic, 2015)

The handling of air freight usually is divided to three following activities:

· Warehouse handling: collecting of freight for export flows, distribution of freight among the forwarding agents for import flows, building up and breaking down of pallets in the handling warehouse.

· Ramp transport: transportation of freight from the warehouse to the aircraft and vice versa

· Ramp handling: loading and unloading the aircraft (Burghouwt et al. 2014)

Changing the topic back to security, all experts agreed that 100% screening is not feasible, and therefore a risk-based approach is in order. This is consistent with both political strategic goals for strengthening air cargo security and the recommended policy package for the basis of a risk-based approach that proactively adapts security procedures to threat and risk levels. This, in turn, relates directly to the need of one harmonized air cargo security regulatory framework. (Macбrio et al., 2012).

The next conceptual practice related to cargo shipment is intermodality. Intermodality is a feature of a transportation network in which more than one types of transport are used in order to organize a door-to-door delivery. Moreover, multimodality can be a characteristic of to what extent the transportation network is integrated. In that sense, higher level of intermodality results in higher integration and interconnection amongst modes and a more effective transportation network in general. (Reyes et al., 2013)

Intermodal cargo transportation service includes a number of integrated cargo players. The first one is called a Freight Forwarder, which is a company that operates with different agents in order to use every party involved fully, and enhance the overall efficiency of the transportation network. Those companies are extremely important in terms of generating synergies, which increase the total effectiveness and decrease unnecessary activities. Therefore, it is possible to say that the overall productivity is more than just a simple adding up the result every single player in the market. Speaking about multimodal transport, it is made of various single and non-integrated transport operations and thus, the overall productivity is just a result of the simple adding up of different independent transportation operations. (Azzam et al., 2013)

Calling upon the freight forwarders, it should be noted that they all are not equally skilled. Different freight forwarders follow different processes of intermodal cargo transportation services and as such, they are likely to obtain different performances from the same set of dual systems. The air transport industry is going through a paradigm shift, due to the disintegration of the concept of modal superiority of the sector (Macбrio, 2011).

Typically regarded as independent nodes of the transport network airports benefit from a monopolistic market positioning, which allows them to keep their attractiveness even if they don't have a connection to the overall transport network. However, this reality is changing significantly and nowadays the interaction between transport modes is more intensive than what it was in the past, which has led to the concept of transport integration, co-modality and intermodality. Airports are no longer exceptions, being now important multi-modal interchanges and central nodes in the network. (Reyes et al., 2013)

Air- and land-based connectivity is a necessary condition for the success of airports and the development of an airport city and other similar concepts. Although not all airports have embraced the concept of airport city, they all have been affected by the liberalization and deregulation phenomena and consequently, have changed their business model. The following picture depicts the evolution of airport business models over the last few decades. (Allroggen & Malina, 2014) Over time, airports have reduced their dependency on the aviation business and progressively increased the amount of non-aviation activity (such as: retailing, conference centers, amusement parks, business centers, etc.), in particular in the landside of the airport (from over 95% in the 1970s down to 30% currently). Thus, current airport business models are based on the generation of traffic, showing that the profitability of airports does not necessarily depend on the quantity of passengers, but rather the number of people that use the airport for any reason (for example, as a transfer between land-based modes of transport). (Macбrio, 2011).

Nowadays, an airport's economic development depends largely on the capacity to induce air- and land-based traffic to feed their non-aviation business. Consequently, in the current context fundamental conditions for the success of airports include (air- and land-based) connectivity, integration with the modal transport networks or the existence of co-modal services. (Lehner, 2013) The advance of high-speed railroads (HSR) brought major change to the dynamics of competition and cooperation with air transport. Until that moment, air transport ruled was undoubtedly the preferred mode of transport for longer distances; however, the situation completely changed with the construction of the first HSR routes. The reductions on the transport time on well-known rail routes can go up to 65%. Such reductions in time changed the transport paradigm and many passengers shifted from air to rail transport. (Reyes et al., 2013)

Another key aspect of freight transportation and logistics in general is sustainable practices. Referring to the past and current small- and medium sized enterprises (SMEs) practices and their endeavors to engage into airfreight supply chain and airfreight network, a set of implications can be drawn to facilitate future-oriented directions of SMEs. The central clue is a need to decide where to compete and how to compete, it is an external view. On the one hand, SMEs need to clarify their strategic position in the supply chain and strategic focus. On the other hand, there is a deficit in internal capabilities, trust built up, management skills, team building, understanding of business etc. Again, when recalling the duality of markets and resources. Hence, combination of both perspectives is needed. (Beifert et al., 2013)

The present research argues that SMEs involved into the air cargo forwarding or handling services as well as regional airports as the airfreight operations have to intensify collaboration partners with large and globally operating enterprises in the air cargo industry. This enables the small businesses, first, a better relationship positioning in the supply chain, since large airfreight forwarders as the first-tier logistics providers have focused on delivering multiple performance based on their competences. In this sense, SMEs could focus on the specific competences and offer differentiated services, thus meeting qualitative requirements of their customers. Through specific and differentiated services SMEs and regional airports are capable to gain a strategic position on the niche air cargo market, which is not fully penetrated by large air cargo forwarders and handling enterprises. In this regard, they could place more focus on building competences in the field of warehousing, airfreight handling and transportation. (Beifert et al., 2013)

1.2 Modern practices in airfreight management

Apart from conceptual studies, there has been a few empirical studies that are worth mentioning in this literature review. These studies in the majority are focusing on some rather narrow aspects of the research area. The following studies were conducted from the point of view of supply, 3PL companies.

Swan (2011) has analyzed market structure of air transportation industry and has come to the following conclusions. First of all the cost structure of cargo shipment market differs from production. “Transportation as a product cannot be stored for later sale as an inventory of finished automobiles might be stored. A transportation firm that has assembled the resources to transport goods must actually have something to transport before it can produce.” (Swan, 2011, 97) In terms of supply-demand structure, researcher has concluded that the total demand for cargo shipping does not depend on a price in the short tеrm. Therefore, economies of scale lead to circumstances that the lower number of 3PL providers might result in “lower cost service”. This situation occurs due to the fact, that this kind of service has a significant amount of “fixed and semifixed costs”. (Swan, 2011)

Ashenbaum, Arnold & Rabinovich (2005) acknowledge that there has been many studies in third party logistics and there were many attempts to evaluate the level of usage. Although, based on their literature review of publications about logistics, these studies have seldom been applied to research in logistics. The goal was to get an understanding of how third-party logistics (3PL) operations have changed over the time. In this case, the researchers focused on the market of United States of America. “Third-party logistics usage cannot be studied in a laboratory, so multiple studies in different settings and with different samples are appropriate to accumulate data on this phenomenon.” (Ashenbaum et al., 2005, 43) As a research tool, authors used meta-analysis in order to create an overview of previous studies in this area. They were trying to evaluate existing studies based on impression of peer researches and compare different publications using “subjective criteria”. (Ashenbaum et al., 2005)

Ashenbaum, Arnold & Rabinovich were looking at growth rates in 3PL and as a basis for their analysis, they compared two studies by Robert Lieb and John Langley, Jr. To the sake of my own research, in describing their findings the focus will be only on transportation. Therefore, it is important to say that transportation outsourcing in US from 1996 to 2004 has been growing at 5-8 % per year, which again proves the fact that logistics market has been growing not only for the past several years. For this reason, the general lack of research in 3PL and its irrelevance, especially in air cargo, seems questionable at least. (Paleari et al., 2010)

Ashenbaum et al. focused on US market of third-party logistics. Jankiewicz & Huderek-Glapska (2015) have researched the European market of air transport after the influence of liberalization. The focus of study was on changes that happened after the liberalization of air transportation market in Central and Eastern Europe. In addition, authors tried to compare both markets in terms of development. These finding are important in terms research in Russia, since it is an emerging market. Researchers established that population change plays a big role in shaping air transportation market. “Using econometric tools, the paper also attempted to identify any similarities and differences with regard to the impact of socio-economic factors on the activities of air transport sectors. The analysis also provided insight on the way some key factors that shape air transport markets work in emerging markets. Air transport has a high sensitivity to cyclical fluctuations (the influence of GDP and employment levels). The economic situation, including labor market conditions, also had great importance for development paths.” (Jankiewicz & Huderek-Glapska, 2015, 53)

Gardiner and Ison (2008) in their international survey of airports established key factors that are taken into account by cargo airline when choosing the airport for their operations. According to different predictions the number of cargo airplanes will tripled in the nearest 10 year, “many of which will be for the non-integrated sector, suggests that these carriers will be heavily involved in locating new services in the future”. (Gardiner & Ison, 2008, 57) In the study, authors also used three interviews with the airlines.

In the end of the research, Gardiner and Ison obtained factors that according to them have an influence “on the geography of non-integrated cargo airlines”. “These factors can either positively contribute to an airline's decision by attracting them to an airport, or they can contribute negatively by dissuading or preventing airlines from operating to a particular airport.” (Gardiner & Ison, 2008, 58) The name of the paper assumes that respondents had to be from different parts of the world, in other words international. The objective of the interviews was to gain a more in-depth perception of the results of the questionnaire. Therefore, the airlines interviewed were from Europe, the United States and Asia. Among two airport that participated in the study, one was European and one from the US. As a result, Gardiner and Ison, using above-mentioned methods of data collection, “identified 15 factors which can influence the location decision of a non-integrated cargo airline.” (Gardiner & Ison, 2008, 59) The list of the key factors turned out to be narrower than 25-factor list that was represented in the original questionnaire. In addition, it is worth mentioning that authors categorized these factors as Push and Pull. The list of the findings is presented below (see Figure 2). (Gardiner & Ison, 2008)



Figure 2. Push and pull factors.

Source: Gardiner and Ison, 2008

The study of Starkie (2002) claims that the market segment and the availability of other airports in the proximity affect the market position of the airport. Usually, the competition amongst and airport market power are examined in the papers according to passenger transportation. In the scope of airfreight, airport competition was not a popular topic amongst researchers. However, as airfreight transportation is a relatively independent business, airport competition in terms of freight can be relatively strong, especially in Europe, where main airports are often located within a few hours of driving from each other. Thus, a system of criteria that cargo companies use for choosing the airports is necessary for both governments and airports to make those airports attractive for cargo airlines and, by all means, increase economic activity. (Starkie, 2002)

Kupfer et al. 2016 in their article discuss the choice process that airlines use when deciding the airport and its location for their cargo operations. In this process, airlines consider a set of different factors, which officials and airports do not necessarily are able to affect. Although, the state is in position to influence the growth of the industries affected by air transportation in order to create a more attractive area for freight operations. In addition, governments can provide a stable regulatory environment for the airlines as well as a framework for nighttime flights, which make a region more attractive to airlines. It is true because airports are crucial part of the economy in terms of value-adding activities and attractive and competitive airports are important, especially from a government's perspective. (Kupfer et al., 2016)

The authors of the article also implemented an empirical study in order to evaluate the compromises that airlines make when choosing between different airports. They collected stated choice data from 26 airlines and used this data as input for various logit models. The results showed that, within the scope of the research, the presence of passenger operations is not a significant factor in the airport choice for scheduled cargo operations. This conclusion does not depend on whether the airline is an all-cargo airline or combination carrier. Moreover, to some extent, it contradicts with previous studies that were described above by Gardiner and Ison, 2008, in which passenger operations turned out to be important for combination carriers. (Kupfer et al., 2016)

A first reason for this difference between the studies can be found in the different scope. While Gardiner and Ison (2008) look at the airport choices worldwide, Kupfer et al. 2016 only focus on airport choices in Europe, where cargo is often transferred to trucks for the last stretch instead of being transferred to another aircraft. Second, study of Kupfer only covers freighter operations, which are by nature less related to passenger operations than the transport of air cargo in passenger aircraft. Third, it is not uncommon for experimental studies to yield opposite results than observational studies. (Lordan et al., 2014)

Gardiner and Ison were looking at non-integrated sector of cargo airline. However, in a different research authors investigated possibilities of collaborative activities. Ankersmit, Rezaei & Tavasszy (2014) researched horizontal air transport collaboration. In their study, collaboration is defined as a joint activity of at least two or three freight forwarders. The difference between collaborative and non-collaborative situation is represented below (see Figure 3 and Figure 4). The study was based “on a selective flow of air cargo transport of three forwarding companies and one air cargo handler” that operate at a Schiphol airport in Amsterdam. Authors suggest that the objective of such collaboration is to justify its usefulness from a point of view of single 3PL provider's transport. For this reason “the most important differences of combined and single transport are quantified using the following KPIs gathered from a dozen forwarding companies at Schiphol:

· amount of transport movements

· amount of cargo processed

· transport costs per kilo

· average throughput time of shipments” (Ankersmit, Rezaei & Tavasszy, 2014, 175-176)

Figure 3. Non-collaborative transport situation

Source: Ankersmit, Rezaei & Tavasszy, 2014

Figure 4. Collaborative transport situation

Source: Ankersmit, Rezaei & Tavasszy, 2014



Ankersmit, Rezaei & Tavasszy (2014) used both qualitative and quantitative methods of data collection (interviews and data sampling). In order to establish the opportunities for collaboration, authors used simulation method. As a result, they implemented a case study at Schiphol Airport and established that there are significant indicators that in the nearest future it will be hard for single companies to operate in air cargo market. The market has opportunities for combination carriers and horizontal collaboration that involves transportation of a number of forwarders at main freight airports. Although it is worth mentioning that seasonality should be taken into account when we are taking about collaboration. This happens due to the fact, that different types of cargo have certain fluctuations in demand during the year. Therefore, “the primary focus should be on collaborating when it involves cargo of a more general nature that is not affected as much by seasonality.” (Ankersmit et al., 2014, 177)

After implementing the simulation, authors concluded that collaborative activities could be beneficial for single cargo shippers. There is a higher number of individual shipments at a particular time, higher frequency picking up and deliveries for smaller forwarding companies without an increase in transport costs. Average throughput time of shipments for all collaborating companies is increased as well. Researchers mention that collaboration significantly decreases transportation costs for all the parties involved in the delivery chain. Moreover, collaboration results in more efficient use of resources and decreases the average load factor of individual forwarder transport fleet. (Ankersmit et al., 2014)

Chao et al. 2013 in their study provided a market segmentation of airline cargo transport according to service requirements of airfreight forwarders. Research was aimed at identifying the factors that influence cargo carriers and forwarders choice of the airline, by doing so authors tried to explore the problem of market segmentation. Authors used questionnaire as a Data collection method and cluster analysis for market segmentation. The questionnaire was designed according to suggestions in previous publications of different authors and interview with 10 experts in the research area, regarding service attributes of airfreight companies in Taiwan. (Chao et al., 2013)

“The sample of airfreight forwarders was selected from the list of registered members of the Association of Air Freight Forwarding and Logistics in Taiwan. The researchers have identified 36 service attributes. A number of service attributes in the end were established as significant to the respondents. These attributes are “cargo safety, freight rate, cargo tracing and tracking, flight punctuality, and ease of getting cabin space”. (Chao et al., 2013, 1678)

Subsequently, Chao, Lirn & Shang used factor analysis to split 36 service attributes of airline cargo transportation to smaller sets of factors. They were able to identify significant patterns and group their results into factors. The airfreight forwarder respondents were separated into different market segments using cluster analysis. Authors acknowledged that “a large sample would ensure greater validity of the findings in reflecting the actual situation”. As a result, six crucial service attributes, three market segments were identified: “professional service-oriented, empathy-oriented, and express service oriented airfreight forwarders.” (Chao et al., 2013, 1678-1680)

Above mentioned articles were focusing on the supply side of the market, however there is a number of studies that had demand estimation as an objective. Totamane, Dasgupta & Rao in their paper tried to develop a model for air cargo demand forecasting. Big airplanes, such as passenger aircrafts, freight aircrafts, and charter aircrafts, are mainly involved in airfreight transportation. In terms of passenger transportation, freight supply and distribution depends on passenger flight schedules, which are organized according to passenger flows, thus the demand does not consist of passengers alone, and freight aircrafts are a crucial part of airfreight transportation. (Totamane et al., 2014)

In the result of the simulation that was implemented for different air carriers, authors concluded that their model was able to estimate demand with significant accuracy. In this model, they used some “generic predictors, such as time-varying functions, holidays, weekends, and so on.” Obtained results help to increase average cargo load factors by 9-12 %. Although, the model can be improved by using a bigger number of predictors and region-specific factors. (Totamane et al., 2014)

May et al. (2014) study was based on the Virgin Atlantic Cargo's case. The main problem of the company was that inside the supply chain the necessary capacity was hard to predict. This is actually more of a whole industry problem than a specific company's problem. Freight forwarders do not pay for unutilized capacity previously reserved, the actual flight capacity of each flight is not precisely known until immediately prior to departure. The goal of the study was to optimize the KPIs (Key Performance Indicators) that were provided by Virgin Atlantic Cargo. Authors implemented Fuzzy multi-criteria decision-making tool in order to prioritize the KPIs. They mention the fact that network optimization is the most important KPI in this case. Other outcome-based KPIs of critical importance are optimizing density and overbooking. (May et al. 2014) It is possible to say based on research of May et al. (2014) that using KPIs and prioritizing them is a feasible solution for improvement in supply chain management.

Amaruchkul et al. (2011) provided another solution, which can improve SCM. Their study was focusing on air-cargo capacity contracts. In the paper, authors discuss the current situation in the service chain. Usually, airlines and cargo shippers have an agreement for using aircrafts, because cargo shippers do not have their own air fleet. Therefore, they “purchase bulk cargo capacity by contracting with airlines”. When shipping is done across boarder, airlines usually offer additional services for carriers, for example, customs paperwork. The question of the study was how a freight forwarder should choose allotments and financial terms of its contract. “Carriers (airlines) use medium-term contracts to allot bulk cargo capacity to forwarders who deliver consolidated loads for each flight in the contractual period (season). Carriers also sell capacity to direct-ship customers on each flight.” (Amaruchkul et al., 2011, 35-36)

As a result of the study, researchers “propose contracts in which the forwarder pays a lump sum in exchange for a guaranteed capacity allotment and receives a refund for each unit of unused capacity according to a pre-announced refund rate.” (Amaruchkul et al. 2007, 465) In this case, it is rather important to acknowledge that researchers only studied the case when cargo forwarder did not have its own aircraft. To help airlines deal with the imbalance in the demand for different routes, they proposed the tying capacity allocation mechanism. The mechanism enables airlines to use the leverage provided by a scarce resource to foreclose sales in, and thereby monopolize, an underutilized one. Airlines make the leverage work by excluding some forwarders from partial business temporarily and making the selected partners collaborate through good and bad conditions by rewarding them with scarcer resources. Airlines gain in terms of profitability by adjusting the resource allocation structure in light of resource utilization efficiency; that is, the enclosed forwarders have lower resource unitization efficiency from the selected forwarders. The effectiveness of the proposed mechanism has been validated with a case study. Both overall tonnage and revenue have recorded significant improvement. (Amaruchkul et al., 2011)

One of the most promising opportunities in terms of air transportation services that might be suitable for SMEs or entrepreneurship is a so-called “Flying Truck” concept or Road Feeder Service (RFS), which would enable providing differentiated, specialized qualitative services. In fact, the pure airfreight-forwarding sector implies very high investments for the buying, leasing, maintaining, etc. of the machinery park, i.e. aircrafts. It will be rather a provocative assumption that SMEs may possess the required financial resources to start / enter pure airfreight operations. (Hall, 2011)

However, according to the secondary research data gained by the Baltic Air Cargo project, among ca. 18 companies that offer airfreight transport services in Germany only few possess real aircrafts. The whole fleet of majority of airfreight forwarders consists of normal trucks only and the majority of these transport companies that have been successfully operating on the air cargo transport market are regarded as SMEs. And that were not the huge investments in the “hard-ware” infrastructure, i.e. aircrafts that allowed them to enter airfreight forwarding business, but rather strategically conceptual and “soft” changes. Rather small and medium transport companies with a “fleet” ranging from 10 to 30 ordinary trucks qualified themselves for air cargo transport business. According to the results of the “Baltic.AirCargo.Net”, the importance of the RFS is constantly growing nowadays, e.g. in 2012 the relative volume of air cargo transported by “flying trucks” in the biggest air cargo hub in the Baltic Sea Region - Copenhagen Airport is ca. 35% from the total cargo volume. (Siren et al., 2013)

The definition of “flying trucks” is scheduled trucks operating between two airports only, on behalf of an air carrier. Trucks are operating under a flight number and the cargo is moved under same conditions as normal air cargo and the liability is in accordance with the Montreal Convention. (Ou et al., 2010) In other words, “flying truck” operates as a normal truck between to airports (departure from an airport security zone - and arrival to another airport security zone only) on so-called Air Waybill (AWB) or air consignment. The same as a real air carrier, a “flying truck” might have several route numbers or flight numbers if it is transporting freight from more than one airline. The flying trucks are treated and handled exactly in the same way like real aircrafts, i.e. the “flying trucks” possess herewith exactly the same insurance as if the goods were transported by aircraft and on route number, they are fulfilling all custom and security regulations set by the relevant authorities as if the goods were really flying by air. The cargo transported by “flying trucks” is a real air cargo that must have fulfilled all required security and transport norms that apply to air cargo. (Grandjot et al., 2007)