The Allplane Podcast #62: the world of air cargo, with Zvi Schreiber (Freightos)
Zvi Schreiber is a serial entrepreneur and founder of Freightos a digital platform that facilitates the booking of air cargo shipments.
The idea for Freightos came up a few years ago when Zvi was managing a hardware firm that had to ship stuff from Asia to Europe and America and realized then that the process was far from smooth.
When it comes to digitalization, the air cargo industry has lagged behind its passenger-carrying counterpart and this is precisely what Freightos and its Webcargo unit have set to fix.
But besides this inspiring tale of disruption and entrepreneurship, we also talk more generally about the air freight industry, because this is an area of aviation that doesn’t usually enjoy much public visibility.
What are the processes involved in air cargo? Who are the different counterparties involved?
And, very importantly, what have been the effects of covid and war in air logistics? Can air freight alleviate somehow the current strain that global supply chains are experiencing?
Tune in for some great insights about the world of air cargo!
Download this episode from:
Apple Podcasts / iTunes, Spotify, Google Podcasts or Stitcher
Things we talk about in this episode:
Zvi’s entrepreneurial background
Why did Zvi start FreightOS
What is FreightOS?
Why the air cargo industry is not yet very digitalized?
How does the air cargo industry operate?
How is involved in the air cargo value chain?
Why supply chains are strained at the moment
What effect do covid and war have on the air cargo market
Why did the air cargo industry grow during the covid pandemic
What next for Freightos and for the digitalization of the air cargo industry
Resources:
Sabre and Amadeus, the two booking platforms (for passengers) that Zvi compares Freightos & Webcargo to)
Cargolux, the air cargo specialist that Zvi mentions
Podcast Music: Five Armies by Kevin MacLeod
Link: https://incompetech.filmmusic.io/song/3762-five-armies
License: http://creativecommons.org/licenses/by/4.0/
Interview Transcript
(please note that, although we strive to make it as close as possible to the original recording, the transcript may not be 100% accurate)
Hello and welcome to the Allplane podcast!
Here with the people that are redefining the future of commercial aviation…and as usual, before I introduce today’s guest, the usual reminder that you can find all the previous episodes of this podcast as well as many other aviation stories on the Allplane website: that’s allplane.tv - allplane.tv
Today we touch upon a topic that has been making headlines lately and actually is, in some ways, a source of concern because the world is going through a period of strained supply chains
For this episode of the podcast we welcome Zvi Schreiber, founder and CEO of Freightos, a digital platform for air cargo.
So we are going to have a look at the world of freight, a segment of the aviation industry that doesn’t get nearly as much attention as the passenger side of things
How does the value chain work in air cargo? Who are the operators that get involved?
How are Covid and war affecting the air cargo supply chains?
We will talk about all this and much more with Zvi, a serial entrepreneur that is now disrupting the world of air cargo through its digital ventures!
Hello Zvi, how are you?
Good. Miquel. Great to be here.
Great to speak with you again. I'm very happy to have you here on the podcast because you are an expert in an area that I know very little about. And I think that's going to be a great opportunity to learn a lot about air cargo and air freight, which is, well, a segment of the industry. It has grown a lot in the last couple of years because of, well, basically the pandemic many airlines had to switch to cargo. And it's been a very hot area of aviation. And you know, it's an area that doesn't have as much visibility because it kind of happens behind the scenes. You are the founder and CEO of Freightos, which is a digital platform for this segment of the industry. First of all, let me ask you, like every guest to introduce yourself and your professional background and how you got into air freight.
I am Zvi Schreiber, originally from London, but I've lived most of my life in Jerusalem. I've got a software background, a PhD in computer science, and I started my career as a software engineer. But for many years, I've been an entrepreneur, mainly building software companies. But for two years in 2010 2011, I was CEO of a hardware company called Lighttech as it happens. I was able to sell that after a couple of years. But we were making power supplies in China and shipping them by ocean and by air from China to Europe, from China to America. And so during those two years, I learned all about the shipping and air cargo industries. And I was kind of shocked to discover how old fashioned they are. And so right after I sold that business in 2012, exactly 10 years ago, I started with the idea of being like booking.com for international friends to make international shipping, ocean and air as easy as international passenger travel. That's the vision of Freightos
if I understand correctly, you've been growing like crazy this last couple of years. I don't know if that's more connected to the fact that many airlines have looked at cargo as a sort of a way to basically continue operating when it was not possible for passengers to fly, but also because of the whole situation right now with supply chains that seem to be very strained. We can cover these in more detail now. But what do you think it's the main driver here for all these growing interest in cargo in air cargo?
Funnily enough, I think that it was clear that air cargo was finally ready for a digital revolution even before COVID. Now COVID Absolutely brought extra focus for a few reasons. One reason is what you said, that pre COVID for many airlines, cargo was only five or 10% of their revenue. During COVID, the passenger revenue dropped off dramatically and cargo became an important part of their revenue. So definitely cargo got more attention in the last two years. Additionally, the old fashioned way of selling air cargo was that you had an Excel with your winter schedule and your winter price and sell with your summer schedule and summer price and it was very inflexible, it was only updated twice a year. That is completely crazy during COVID. When the schedules and the situation is changing every day, flights are getting canceled and reinstated and passenger planes are getting converted to cargo planes. So things are changing very rapidly. So without a doubt, COVID created an extra need for a digital revolution. Having said that, the air cargo industry was going that way. Anyway, So in 2018, we connected to Lufthansa as the first major airline to have any kind of API, any kind of electronic real time connection for booking. In 2019 they were joined by IAG, which was you know, British Airways and Iberia, and also by Air France KLM. So we already had three major airlines before COVID, who had a digital connection for instant booking. And then in 2020, we already had plans for a few more airlines even before anyone knew about COVID So the digital revolution, that had already started, was going to happen in 2020 anyway, and then of course with COVID it took on extra urgency, for sure.
Having reached this point, I just wanted to walk back a little bit because I guess many people in the audience including myself are not too familiar with the way that their cargo industry operates. So very briefly, can you summarize how is the value chain in air cargo I mean, who are the main counterparties we have air cargo operators that are specialized companies like Cargolux and Volga-Dnepr, for example, which are pure cargo operators and you have let's say the regular airlines that fly people but also they fly cargo as well either they have specialized units on aircraft or they fly it in the in the belly of passenger aircraft. And then you have the freight forwarders, then obviously you have the industry, the people that are shipping and the people that are receiving the cargo…who else is involved in this business? How does it normally work? Let's say I'm in some industry that wants to ship something to the other side of the world. What would be the process here and who would get involved in the different steps? I mean, I know it can be quite complex. So just to give an a, like a basic idea of how this works?
Sure, well, let's start from the beginning. So if you buy something in a shop in Barcelona or in New York City, 90% chance, a huge part of the goods that we buy are imported. Pre COVID about $19 trillion worth of goods were imported and exported across borders each year, during COVID that's actually gone up so it's even higher so it's a huge part of the world economy. The majority of those goods go by ocean, which is a lot cheaper but a lot slower a few percent go by air but a lot of the most valuable goods go by air so by value about 30% of goods are going by air not ocean by volume, it's much less maybe maybe 10% or so, I don't remember exactly, are going by air versus ocean the total spend on air cargo a year is about $65 billion that's not including the small packages not including FedEx, UPS DHL, the small packages, which is a separate industry..but about $65 billion spent each year on air cargo again more during COVID
Question What what sort of cargo makes more sense to ship by air compared to shipping by by ship? Obviously things that need to move fast, I guess like some special foods and stuff like that, maybe medicines, vaccines…now we have seen what else would make sense to ship by air.
Yeah, so there's three main categories I would say things which are very valuable and small: diamonds, iPhones, which are really quite small and worth $1,000 or something. Jewelry and then things which are perishable, like you said, such as tuna for sushi or flowers or things which can't last for a month in the ocean. Some types of food sometimes and the third category is anything unexpected so even toys will normally go by ocean but if suddenly there's a shortage and the shelf is empty because some toys are popular or the fashions change, then it will go by it will go of course by air. If a car breaks down and there's a rare part missing or an aircraft breaks down or a ship breaks down and there's a piece missing and it's urgent and it will go by air so anything which is urgent and unexpected will go by another interesting category of course is fast fashion. And I believe you're in Spain so of course I'm familiar with the Inditex or Zara which is its most famous brand. And they change their fashion so quickly that a huge amount of Zara's clothes are going by air.
Oh, interesting. I would have never guessed that. You know, I thought clothing was one of the things was 100% Sure it was going by ship…
It makes you think that, but for fast fashion…because they want a new fashion in the shops within three weeks…
Yeah. Sorry. I interrupted you earlier. You were explaining the supply chain and the value chain in air cargo.
Yeah, so those are the things that go by air about $65 billion spent a year. About half of that is going on passenger flights on the lower deck of passenger flights, especially passenger flights in wide bodied aircraft with two aisles. 787, 747s…wide body aircraft have a significant amount of cargo capacity on the lower deck. So about half of cargo is going on passenger aircraft and about half is going on freighter aircraft which are either specialist airlines like you mentioned Cargolux, but also some passenger airlines like Lufthansa or Qatar Airways are operating freighters as well.
But let's say you have different players in this. So, you have obviously the shipper. So if you're someone shipping…what would be the way to go? You would go to a freight forwarder…The freight forwarder is a bit like a travel agent, but for cargo. And he will do all the arrangements for you. So he would find an operator able to to carry your cargo, he would negotiate the terms or find the prices or whatever the conditions and then it would be up to the freight forwarder, I guess, to basically make the arrangements with an operator that has been selected. And then what happens at the other end? Is it also the freight forwarder that is taking care of the delivery to the final destination or there's some other intermediary as well once it lands a destination?
Yeah. Okay, great question. So, yes, if I'm an importer or an exporter, you're quite right. I'll normally go to a freight forwarder. It's a big industry, there are about 100,000 freight borders in the world, they all have travel agents. But it's more complicated because when passengers walk onto the plane themselves and walk off the plane themselves, when you're sending cargo, the forwarder has to make sure it gets to the airport and gets on the plane and gets off the plane, gets through customs and gets to the destination. So they have to pull the whole thing together.
And they would take care of, let's say, the last mile and the first mile as well? So, the transportation to and from the airport, from the exact original destination to the final destination, that would be up to the freight forwarder as well?
Yeah, exactly. So if you want to import some some goods by, let's say, from China to Spain, you'll go to a freight forwarder in Spain, they will normally then go to a different freight forwarder in China, who can take care of the first mile, they'll take care of the last mile. One of them normally at the origin, the freight forwarder in China will normally go to the airline or in the Chinese market, they'll often go to a master loader. So they'll often be in Europe, this wouldn't necessarily be the case. But in China, there's normally an extra layer or two of master loaders between the freight forwarder and the airline. And that's right the freight forwarder in Spain, with the help of the freight forwarder in in China will make sure that they booked space on an airline and that they get it so first mile, get it on the plane, get it off the plane, get it through the customs, pay the duties and get it to your warehouse or to your shop.
And does it make any difference to arrange a cargo shipment with, let's say, a regular airline that flies passengers as well or with a specialized cargo operator is just a difference of what's available at each time?
The same. Yeah, because even if you go to Iberia, you're going to go to the cargo division, you're not going to speak to them about passengers, so they have a team to deal with cargo. So it will be similar whether it's going on a passenger plane or a freighter plane, but depending on the country, there may be some differences in security. For example, in some countries, the cargo has to be x rayed if it's going on a passenger plane, but it's less sensitive. If it's going on a freighter.
You mentioned that this is a market. It hasn't been that much digitalized. What's the reason? Because for example, the airline industry was one of the first industries to adopt online bookings when no one was shopping online, you could already book a flight on an airline website, for example, it seems that is not the case with air cargo. What are the reasons for that lag in adoption of technology?
The only reason I can find is what you said before that: airlines were more focused on passengers, and therefore the priority for IT projects was always passengers not cargo. But now that's starting to change much. It took much longer than for passengers. Finally, in the last two to three years, we've got many, many airlines, we've got a digital connection where we can get instant pricing and place bookings on Freightos. Many years ago, we acquired a company called Webcargo, in Barcelona, and our webcargo division has become the leading platform which connects freight forwarders to the airlines. So webcargo is like the Amadeus or the Sabre of international air cargo. And it's grown, as you mentioned kindly in the beginning, it's grown like 100x In the last two years. So we've grown, we now have more than 30 Airlines, we have now 3000 freight forwarders using it. And it's growing very, very rapidly. So the exciting thing is it took a long time for air cargo to go digital. But when it did in the last two years, the adoption was very, very fast.
So with Freightos, what people can do is basically find quotes. So if you want to ship something, you basically bring together supply and demand and provide pricing. It's a way for the different operators in this market to transact in an easy, transparent, convenient way…
Yeah, so we end up having two platforms. So Freightos.com is a public site. It's a bit like booking.com, where any importer or exporter can go and get prices and book. And that connects really the importer and exporter to the freight forwarder. And then webcargo is a platform which connects which is a bit more like, for those who know, Sabre or Amadeus in passenger travel. So that's the platform which is for the professional freight forwarder to connect to all of the airlines and also starting with the ocean liners as well.
And it's available only for professionals. So you have only professionals?
Yeah, you need to be a freight forwarder to register on the site.
And then you can request quotes. For example, can you give us an example of what someone using their platform would be doing in order to get some pricing and what happens next? I mean, once you get some quotes, what's the next step in this process?
Yeah, I mean, it's quite simple the freight forwarder will start with cargo. Let's say they want to send 300 kilos from Barcelona airport to Chicago O'Hare Airport. So they will search on webcargo, they'll see price quotes from many airlines and also many options. They may say that, you know, they can send the funds through Frankfurt on Monday or Lufthansa through Brussels on Tuesday, or, you know, British Airways through London or Qatar Airways through Doha…see? many options, different days, different prices.
So just a booking, just like you would do with a booking a ticket to fly on a holiday, for example? you you would go to a search engine or one of these online travel agencies and and then book…want to fly from point A to point B, and they give you all the different options. So if you want to go from Barcelona to Chicago, they will on that date, and that time, and BA can fly you there for that price, etc, etc. And then you get I guess different routings, different conditions as well.
Yeah, exactly. And, you know, normally for cargo, there's actually more options. Because if you want to fly from Boston to New York, you probably much prefer to get a direct flight. You certainly don't want to stop in Helsinki for 12 hours or in Doha or in Tel Aviv. But if you're sending cargo, you might not mind. So there's many more options, you know, so often when you're sending cargo, you want to back quickly, but you don't mind if it stops for a few hours. So, you're going to look at Finnair, at Turkish through Istanbul, you're going to look at Qatar Airways through Doha, you might look at allow through Tel Aviv options, which you wouldn't consider as a passenger, but are quite practical for sending cargo.
And then you get these options. What's the next step as an operator that you would follow?
Oh, well, then you press the Book button. And, then you're the freight forwarder. So then you've got to be booked on the flight, then you will arrange a truck to go and do the first mile, pick up the goods and take it to the airport and put it on the check in.
And then that will be done also on the platform. That would be separate?
Yeah, we also have separate platforms for trucking rates in the US, for example, but generally the freight forwarder would arrange the first mile offline using their relationship with a local trucking company.
And your business model is based on a commission on that transaction or a set fee for transaction. How does it work?
Yes, we get a certain fee from the airlines, which depending on the circumstances could be a flat or a percentage. The freight forwarders can use the basic booking platform for free, although we have a lot of extra tools which have a subscription. So some of the many of the freight forwarders choose to also pay us a subscription for extra features.
So a subscription would give you access to using the platform.
Well, you can use a freight forwarder can use the platform for free for booking. Yeah, but if they want to use extra features, for example, build the quote for their clients or their other features for the freight forwarders. Which cost money.
Okay, understood. You've been working with quite a few airlines, right? I mean, you mentioned 30 operators, something like that.
Yes. This is a market.
You mentioned it, it's adopting digitalization quickly, are we getting to a point where everything is going to be digital at some point soon? Or what? Where are we now in this adoption curve?
Yeah, I think yes, I think you know, we have many of the biggest airlines. Just yesterday, we were proud to announce that American Airlines is joining our platform. Okay. We already have many big airlines, Lufthansa, Air France KLM. IAG Group, which includes British Airways, Qatar, Turkish, Etihad, delta. So we already have, you know, Finnair, I'm not remembering all of them off the top of my head. So apologies to the airlines, I didn't mention, but we have quite a few big carriers who already represent about 40% of the world market. So I hope by the end of this year, we'll be above 50%. And so that's already you know, once 50% is digitized, you can say this is a digital market and then maybe we'll take one or two more years for everyone else to join.
And right now, in the wall, there is a problem with supply chains: scarcity, some products, some industries cannot get their inputs on time. Why is this happening? I mean, and it is air cargo somehow to blame or it can be actually the opposite. Can air cargo be something that raises up to the challenge and helps alleviate some of these problems.
Yeah, I mean, the reason for the supply chain problems is not cargo. The primary reason is that people are buying more stuff, especially Americans. So during COVID People started spending less money on restaurants and travel, and they started spending more time at home and spending more money on gadgets and furniture and clothes for the home. So the main reason for the supply chain crisis is that consumer spending on goods suddenly jumped up by as much as 20%. And the whole network was not prepared for that. There's the ships, the ports, the containers, the trucks, nobody was ready for a 20% jump. That's the primary reason. Now air cargo has some extra problems. But remember that the vast majority of the goods are going by ocean. But air cargo added some extra problems, because during COVID, a lot of passenger flights were canceled. And so that reduced the capacity of air cargo. And so that's added a little bit to the problem. But that's not the main reason.
So is there not a problem with, let's say, the supply of means of transportation as well, because of all the COVID restrictions in some key areas of the world. I'm thinking like China, Hong Kong, areas that move lots of merchandise, now have very strict lock downs and stuff like that. I don't know if that up to what point has affected the supply chains?
Yeah, no, I mean, right now the ports in China and Hong Kong are working as normally, the airports and the seaports are working as normal, although the number of passenger flights is down. There have also been times where certain ports got closed or partially closed because of COVID outbreaks. The airport in Shanghai was partially closed for a while because of the COVID. Outbreak. But many know many, that's not the main reason the ports are working as normal in almost every case, and China is manufacturing more or less as normal. They don't have a lockdown, they have a lot of restrictions on traveling outside of China, or even restrictions traveling between regions sometimes, but you know, basically, the factories are working and the ports are working. And the main reason for the supply chain problems is more demand.
And we went from pandemic to war. So how does this current conflict in Ukraine and Russia and particularly the closure of air spaces in this huge area that straddles basically Europe and Asia is something that is already affecting cargo operations? Or have you noticed any changes in the way that companies and shippers operate along these routes?
Yes, I mean, the tragic war in Ukraine does have an impact also on air cargo. First of all, there was some capacity in Russian airlines, particularly average cargo as a Russian cargo airline, and Aeroflot, so they have a little bit of cargo. And they're now very limited in how much they can fly, certainly to the west. So that's a little bit of capacity, which is taken out of the market. There's also an issue with the biggest freighter airlines of the world, the Antonovs…the biggest one was destroyed. And quite often those are maintained in Ukraine. So there could be an issue with keeping the Antonovs flying. So there's that issue. And then also for the Western airlines, they can't fly over Russian AirSpace, that's not a huge impact, but it does make some flights a little bit longer. And then finally, of course, the price of fuel has increased a lot, which is big, which will definitely impact the cost of the costs.
Because what are the main routes for air cargo? Are there specific corridors that stand out? We have all seen those, those maps of shipping lanes where they're very clearly some very well defined corridors. I don't know if that's the same case for air cargo. There are some lanes and corridors that stand out from the rest.
Yeah, I mean, it's what you would guess. I mean, there was air cargo going around the world, but a lot of it is originating in Asia, China, Hong Kong, Southeast Asia. So that's where a lot of the factories are. So the routes from China and from south, to a lesser extent from Southeast Asia to the west, to Europe to North America. Those are some of the biggest routes. Yeah.
Well, I think we got a pretty good overview of how the market is at the moment. What do you anticipate could be next, the near future and the medium term future, for air cargo? I'm talking about the industry as a whole, other specific trends that we should be looking at or some macro drivers of the industry that deserve attention?
I think ecommerce is a clear macro driver, people are buying more stuff online. And related to that is the fact that product cycles are getting quicker. So people we talked about fast fashion, electronics, of course changed very quickly. So I think without a doubt that's driving more goods into the air when people need to change the specifications. goods the fashion of goods very, very fast, then air cargo becomes an important factor.
For people that want to learn more about Freightos and web cargo, any resources, any social media channels, websites, etc, you would lead them to
Both of our websites or resources sections. So if you look Freightos.com or wecargo.com, they both have resource sections, links to the press videos. And of course, we're in all the normal social media as being that we're business to business. We have a particular emphasis on LinkedIn. I post articles on LinkedIn quite often, but we're in the other social media as well.
So you personally or as a company?
Yeah, mostly us. But occasionally personally as well.
Very good. So I'm gonna add all those links to the show notes so that people can get easy access to them. And yeah, thank you so much for this overview. I think, as we mentioned, with the supply chains taking the center stage, I'm sure we're gonna hear a lot more about the air cargo market in the near future. Thank you so much for your time today!
Thanks! It was a fun conversation.