Mark Drusch. Source: Qatar Cargo
Qatar Airways Cargo is aiming to create efficiencies in the supply chain by tackling the issue of shipment overbooking, pushing for index-linked long-term contracts and integrating more data into its systems.
Speaking to Air Cargo News (ACN), Qatar Airways chief cargo officer Mark Drusch outlined the three initiatives that he hopes will drive efficiencies for its customers’ supply chains.
Firstly, the airline is hoping to combat the issue of overbooking of shipments by forwarders.
The airline will ask forwarders to confirm how much space they need 24 hours before departure and “like anything else” they will then need to pay for what they have secured even if the shipment comes up short.
Drusch, who began his current role in January, accepted that some customers are likely to complain about the move but added that it will drive efficiency and ultimately benefit the entire supply chain.
He explained: “If I cannot optimise my flight, I have to charge more for what is on my flight.
“If I am only able to use 80% capacity because a lot of people are not being candid about the amount of capacity they will put on, they are just holding it, then I have to charge more for that 80% because I still have 100% of the cost of flying the aircraft.”
Drusch added that airlines currently overbook flights to try and mitigate the issue of shipments coming up short, but this isn’t an ideal solution as it can result in cargo being rolled when all shipments do arrive.
“We will all benefit from it,” said Drusch. “The shippers benefit, the freight forwarders benefit and we airlines benefit because it is a more efficient use of the capacity.
“Everyone has a chance of putting on their products and we can price as though the full aircraft is being used, not 80% of the aircraft.”
He added that the move would also help reduce emissions by ensuring that all aircraft are fully utilised and help airlines manage capacity during peak season when space is tight.
Elsewhere, the airline is also continuing to promote the use of index-linked long-term contracts for general cargo to help manage pricing volatility and reduce the amount of time spent renegotiating deals when market rates change.
The carrier was one of the first to adopt index-linked contracts, where the rate paid periodically increases or decreases depending on the movement of pre-agreed price indices.
The indices used vary from trade lane to trade depending on the quality of data and the exact set-up of the index-linked contract is negotiated with each customer individually.
The contracts help mitigate risk by ensuring that both parties pay or receive the going market rate.
Currently, contracts are often renegotiated manually or can even break down if the contract price moves away from the spot market price.
This is particularly a problem when rates are highly volatile, as they have been over the past few years.
Another advantage of market indexation is to detach pricing from service during negotiations.
“We are now going to use index pricing for our long-term contracts so there isn’t constant re-negotiation when there are swings in the marketplace,” Drusch explained.
“It will make it much more efficient for everybody – it will make it more efficient for our clients because they will know, as things are moving, exactly what their new pricing will be.
“It will be very transparent and immediate. It is good for everybody. We all waste our time negotiating on both sides. The easiest way and best way to get things done is how things should be done.
“It is basic economics; we have to make things more efficient, and we have to take out inhibitors to efficiency so we can all produce a better product at a lower cost and continue to drive economic growth.”
If the use of index-linked contracts becomes widespread, it could even lead to the creation of a derivatives market that will allow forwarders and airlines to hedge against swings in the market.
Elsewhere, the carrier is also planning to utilise more data within its operational and commercial decision-making process.
“We are integrating on a weekly basis industry data so we understand the flows of markets and can better assign capacity and we can also better price.
“This means if markets are getting a little weaker, you can be a little less expensive and if they are peaking you can put a bit more capacity in.
“We are going to integrate that data so we have a much more dynamic and analytical approach to how we respond to what is an extraordinarily dynamic market.”
Drusch said that the move comes as the carrier has just launched a new PROS revenue management system.
Source: Qatar Cargo
Elsewhere, Drusch said he was cautiously optimistic for demand for the rest of the year following a strong April, traditionally one of the weaker months of the year.
He said the current growth levels are down to e-commerce demand, the strength of demand out of India and, to a lesser extent, modal shift related to the Red Sea shipping crisis.
Drusch pointed out that the world’s major economies were performing well and there was no sign of a weakening of e-commerce growth.
A US congressional report from last year estimated that e-commerce giants Shein and Temu are sending almost 600,000 packages per day to the US.
At present, Temu and Shein ship directly to consumers from production sites in China using airfreight.
However, these companies could potentially change their strategy to match the likes of Amazon, which uses container shipping to get goods to the US where they are held in warehouses before being distributed.
There are already some reports of them switching to sea-air solutions as they look for alternatives to pure airfreight.
Looking to the future, Drusch said that e-commerce distribution patterns may change, but the option to sell directly to consumers will open up new markets that will require airfreight in order to meet delivery timeline expectations.
Meanwhile, global distribution centres may emerge to meet the spread of production and global demand.
“The major e-commerce players’ expectation on e-commerce growth over the next 10 years is phenomenal,” he said.
“I find it hard to believe we are not going to get used to ordering something on our phones and then within 24 hours it arrives.”
Drusch said that forming close partnerships with other airlines was essential to capitalise on the growth of e-commerce as it allows the creation of a global network allowing partners to be relevant in all the major trade flows.
Digitalisation is also key to capitalise on the e-commerce phenomenon, he said.
ACN spoke to Drusch soon after Qatar Cargo had taken delivery of its latest Boeing 777-200 freighter – the last of the model the airline had on order – bringing its total cargo fleet to 28 aircraft.
Looking ahead, Qatar Airways should start receiving the new 777-8F in 2027 according to the original announcement made in 2022. Drusch is excited about the technological advancements the new aircraft will offer.
“We have a whole suite of things we are building with Boeing. That new aeroplane will be really cutting edge in terms of gathering and use of information.”
In total, Qatar Cargo has ordered 34 777-8Fs with 16 options.
Drusch said that the new model freighter will offer greater visibility on where cargo is located on the aircraft allowing more efficient use of capacity and the ability to easily prioritise certain shipments when required.
Boeing 777F deliveries get going as Qatar Cargo welcomes latest aircraft
