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Smarter – Not More – Regulations Are the Key to Managing Threats While Encouraging Air Cargo Profitability

Regulatory challenges have long been felt in the air cargo industry, with overzealous rules and laws hampering profitability and a maze of varying standards throughout the world complicating communication and compliance. Yet the call today is for smarter regulations – not necessarily stricter or more prevalent.

In 2014, according to IATA, airlines transported 51.3 million metric tons of goods, representing more than 35 percent of global trade by value – equivalent to $6.8 trillion worth of goods a year, or $18.6 billion every day. And air cargo business pulls in an average of 9 percent airline revenues – twice that of first-class revenues.

This demonstrates the weight of the air cargo industry. And regulations designed to protect may very well lead to increased costs for cargo operators and departments, driving down overall profitability and pushing shippers to choose faster and more cost-effective ship or rail options.

According to the World Trade Organization, 112 new trade-restrictive measures were enacted by G20 governments between November 2013 and May 2014. And increased protectionism seeks to keep jobs on or near shore, reducing the need for freight. As such, IATA and other regulatory bodies are championing smarter regulations. The goal is to encourage regulators worldwide to consider specific principles that would solve salient issues without putting an undue burden on air cargo.

One example of a recent regulatory push is the transport of lithium batteries. The tendency to apply draconian regulations could make it more difficult for shippers to transport the materials, and more difficult for operators to comply. If so, the threat of competition from alternative carriers looms large.

IATA principles apply to two areas: policy design, and process. When it comes to policy design, the agency recommends that policies should:

  • Be consistent with existing rules and practices applicable to regulated activities. There should be no overlaps or contradictions between governments, and policies should be predictable and applied responsibly, with clear oversight and without discrimination
  • Be used only when needed, and applied in proportion with the issues to which it applies to ensure compliance costs remain reasonable
  • Have specific and well defined objectives that apply directly to the problems it’s identified
  • Offer flexibility to regulated parties
  • Be applied fairly, without discrimination
  • Be clear, well communicated, and include plenty of time for those affected to comply

For process, IATA recommends that regulations should:

  • Be based on sound evidence and available alternatives to ensure the most appropriate solution for the case
  • Completely and accurately assess the full impact on those the regulations applies to
  • Be drafted objectively and transparently, and involve all those affected
  • Reduce the burden of compliance and allow for regular review and modification as necessary
  • Include clear procedures for responding to adjudications and apples and revising regulation

In addition, an industry-wide effort is needed to ensure that regulations are being monitored and, where appropriate, responded to. “A comprehensive structural transformation is necessary if air cargo is to have a profitable, sustainable future,” says Glyn Hughes, IATA global head of cargo. Hughes would like to see air cargo grow to a $100 billion a year industry – and believes that it can.

“Air cargo is not just about moving boxes from A to B,” concludes Hughes. “It’s much more than that. It’s about keeping the global economy going, about saving lives with critical vaccines and healthcare products and supporting emerging economies. We need to be proud of the role air cargo plays as a premium service.”

Carriers may also find relief by turning to an IT solution that can streamline the air freight process by pre-screening, rather than subjecting all goods to rigorous screening, regardless of their contents (thereby increasing cost and lengthening shipping time). Overall, more accurate, timelier, and more complete shipment data can go a long way toward ensuring that smarter regulations succeed.