FACTORS INFLUENCING FORWARDERS’ CHOICE OF AIR CARGO TERMINALS

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1. INTRODUCTION

With the stiff competition in the air cargo industry in Taiwan, air cargo terminal operators at the Taoyuan International Airport (TIA) need to adjust their business strategies depending on the changing logistics demands and the competitive environment if they want to maintain or improve market share. At present, competition in the export air cargo business at the TIA is cut-throat. There are a number of problems that challenge the air cargo business, one of which is the limited growth in the volume of air cargoes imported and exported by Taiwan. As the overall economy of Taiwan changes, air cargo terminal operators likewise face the important issue of adjusting their relevant services in time to meet clients' demands and to respond to growing competition.

With regard to importation, through the TIA, the cargoes are usually handled by subsidiaries of the conglomerate to which the airliner belongs. For example, the transship cargoes carried by China Airlines and its partners are mostly handled by the Taiwan Air Cargo Terminal Co., Ltd. (TACT). Similarly, the cargoes carried by EVA Airways and its partners are handled by Evergreen Air Cargo Services Corp. (EGAC). A different system is observed with regard to exportation, however. Most export goods are taken care of by air cargo forwarders, which select their favored air cargo terminals. The objective of this paper is to determine the factors influencing forwarders' choice of air cargo terminals and to help the air cargo terminal operators obtain competitive advantage.

2. LITERATURE REVIEW

The different factors that influence air cargo forwarders' choice of terminals for their transactions are based on a comprehensive review of the literature and discussions. Included in the sources of data are journals, technical reports, books, and statistics published by the Civil Aeronautics Administration of Taiwan.

2.1 Literature Review

There are only a limited number of papers focused on the management and strategies of air cargo terminals. Lillie and Sparks (1993) discussed air cargo forwarders' choice of airliners. Schwartz (1998) investigated the challenges faced by air cargo forwarders under the global logistics concept. Zhang and Zhang (2002) discussed in their two studies the issue of deregulation and liberalization in the air cargo industry. Lee and Lee (2003) studied the development strategy of making Incheon International Airport the center of regional operations and economy. The study made by Zhang (2003) concluded that there are two major factors considered by shippers using air transport in their choice of terminal, and these are speedy delivery and low damage rates. Accordingly, the other factors influencing the competitive advantages of air cargo terminals are geographical location, cost, and transport time. While discussing the competitive advantages of Hong Kong Airport when it was being developed into an international air cargo hub, the factors considered have been expanded to seven: geographical location, cost, transport time, infrastructure, customs efficiency, multimodal transport, and air transport policy. The above-mentioned studies did not sufficiently touch on the business strategies that air cargo terminals should adopt to gain competitive advantage.

2.2 Air Cargo Terminal Operators in Taoyuan Airport

Taoyuan International Airport has four air cargo terminals, namely, Taiwan Air Cargo Terminal (TACT), Evergreen Air Cargo Services Corporation (EGAC), Farglory Air Cargo Terminal, and Ever Terminal Co., Ltd. The annual throughput of air cargo terminals in previous years was falling below the expected volume, thus generating serious competition among operators.

Meanwhile, two air cargo terminals, TACT and EGAC, which are sister companies of airline operators and handle most import cargoes. With regard to the export business, the advantages enjoyed by terminal operators that have ties with airline operators are not as apparent as in the import business. For example, in February 2008, the market shares of Farglory and Ever Terminal, which do not have ties with airline operators, were much higher than those of the other two. EGAC, supported by EVA Air and its partners, handled around 3,000 tons of export cargoes, equivalent to only one-third of the cargoes handled by its major competitors.

3. RESEARCH DESIGN

3.1. Questionnaire Design Procedure

This study obtained pertinent data by administering survey questionnaires. At the first stage, all factors relevant to this study were collected, while irrelevant ones were disregarded. The pre-test questionnaires that included preliminary factors were distributed to senior managers to help the author select the factors to be used in this study [1] .

Based on the results obtained from the pre-test questionnaires, there were nine factors that had to be disregarded. The reliability of the preliminary factors was analyzed based on the AHP structure. After examining the reliability of the factors at the hierarchical dimension, they were further summarized into three dimensions in layer 2, namely, corporate resource, business management, and service quality and working environment. These dimensions are compared in pairs to determine their relevance.

In conclusion, nine factors in layer 3 have been chosen from the pre-test questionnaires. These factors are the following:

(1.1) Location and geographical position: whether the terminal is located within the airport boundary;

(1.2) Corporate image and vision: whether the terminal has positive corporate image and vision to attract potential customers;

(2.1) Flexible billing: whether the managers charge clients at a lower lump sum price or could offer more discounts to clients;

(2.2) Storage and logistics management efficiency: what is the level of efficiency of the operations undertaken in the terminal;

(2.3) Customs efficiency: whether inspection of the cargoes by custom officers could be done quickly and even with a short notice of arrival.

(3.1) Customized service: whether the terminal could provide extra services requested by forwarders and cargo owners;

(3.2) Efficiency and quality of export operations: whether the export cargoes are handled efficiently and received at the airport of discharge in good condition;

(3.3) Storage system and equipment: whether the terminal is equipped with modern and well-functioning storage system;

(3.4) Warehouse working environment: whether the working environment of the warehouse is pleasant, clean, and safe.

The total reliability coefficients (Cronbach's alpha) of the aforementioned questions are all above 0.6 (as shown in Table 1); hence, they are quite reliable.

Table 1 Structure of AHP Analysis and Reliability Coefficients

Layer One

Layer Two

Layer Three

Factors considered

1. Corporate Resource

1.1 Location and geographical position

Cronbach's alpha

0.8831

1.2 Corporate image and vision

Cronbach's alpha

0.6616

2. Business Management

2.1 Flexible billing

Cronbach's alpha

0.6545

2.2 Storage and logistics management efficiency

Cronbach's alpha

0.8834

2.3 Customs clearance efficiency

Cronbach's alpha

0.7221

3. Service quality and Working environment

3.1 Customized services

Cronbach's alpha

0.7841

3.2 Efficiency and quality of export operations

Cronbach's alpha

0.8778

3.3 Storage system and equipment

Cronbach's alpha

0.6101

3.4 Warehouse working environment

Cronbach's alpha

0.8824

Cronbach's alpha of total factors

0.9644

4. STATISTICAL ANALYSIS

4.1. Questionnaire Recovery

A total of 59 questionnaires were retrieved out of the 63 questionnaires distributed, indicating a total recovery rate of 94%. There were 38 valid and 21 invalid questionnaires, indicating a valid sample recovery rate of 64%.

For the managers of air cargo terminals, a total of 29 questionnaires were collected out of the 33 questionnaires distributed, indicating a recovery rate of 88%. From the 29 retrieved questionnaires, 19 were valid and 10 were invalid, with a valid questionnaire recovery rate of 66%.

For the managers of air cargo forwarders, 30 questionnaires were distributed, and all were collected successfully, representing 100% recovery rate; however, from the retrieved questionnaires, 19 were valid and 11 were invalid, hence, the valid questionnaire recovery rate is 63%. The details of these are presented in Table 2.

Table 2 Summary of Number of Recovered Questionnaires

Term

Questionnaires distributed (copy)

Questionnaires collected (copy)

Recovery rate (%)

Valid questionnaires (copy)

Terminal Operators

33

29

88

19

Forwarders

30

30

100

19

Total

63

59

94

38

4.2 Results of the AHP Analysis

4.2.1 Comprehensive Analysis

Table 3 shows that air cargo terminal operators' perception differs from that of air cargo forwarders. However, it can be concluded from the data that both believe that the "efficiency and quality of export operations" is the most important factor. This item of service is the major requirement demanded by air cargo forwarders, and air cargo terminal operators exert effort to meet such requirement.

Air cargo terminal operators believe that the second most important factor is "storage and management efficiency", while air cargo forwarders believe it is "location and geographical position" of the company. Air cargo terminal operators believe that better management of "storage and logistics" could effectively attract export business. On the contrary, air cargo forwarders consider the "location and geographical position" of air cargo terminals as even more important. This means that if the terminal is not located within the airport boundry, the potential risks and transport time due to shipping distance will increase, reducing the interest of forwarders to select this terminal.

Air cargo terminal operators believe that the third most important factor is "efficiency of customs clearance." In practice, the interactive relationship between air cargo managers and customs officers stationed in the terminal would seriously influence the efficiency of customs clearance. If a bad relationship exists between terminal managers and customs officers, the customs officers will check the cargoes only after they have accumulated in order to save time and effort in going to places where the cargoes and documents need to be inspected. This will seriously reduce the efficiency of customs clearance. On the other hand, if a good relationship exists between the two, customs officers will check the cargoes as they arrive and without waiting for cargoes to accumulate. This will shorten the time required to get a customs clearance.

However, cargo forwarders believe that the "customized services" provided by air cargo terminal operators are more important. Generally speaking, the customized services required by forwarders from terminal operators entail additional charges, and cargo forwarders always expect the terminal to provide such extra services for free. From the viewpoint of terminal operators, the demand for "customized service", which varies by cargoes and forwarders, require additional operational cost and time, thus adversely affecting profit. This explains why "customized service" ranked 8th in the factors considered by terminal operators as most important in gaining market share.

Under the pressure of declining of air cargo volume at the Taoyuan International Airport, "strategy of differentiation" should be considered to strengthen the competitiveness of the terminal. The terminal operators could assign more facilities and personnel to meet the demand for various "customized services". By introducing "customized services", the terminal operators will be able to attract forwarders more easily.

Table 3 Comparison between Terminal Operators and Forwarders

Second layer

Evaluation criterion

Overall weight

Difference

Terminal operators

Sequence

Forwarder

Sequence

Company resources

Location and

Geographical position

0.1098

4

0.2308

2

2

Company image

and prospect

0.0777

5

0.0674

6

1

Operation and management

Flexible billing

0.0665

6

0.0520

8

2

Storage and

logistics management efficiency

0.2032

2

0.0571

7

5

Customs clearance efficiency

0.1761

3

0.1063

4

1

Service quality and

working environment

Customized service

0.0506

8

0.1157

3

5

Efficiency and quality of export operations

0.2185

1

0.2519

1

0

Storage system and equipment

0.0552

7

0.0800

5

2

Working environment of the warehouse

0.0424

9

0.0386

9

0

5. CONCLUSION

Air cargo terminals at the Taoyuan International Airport have evolved from being passive actors during the period of economic monopoly in 1972 to being active players in a free market, and from having only one public air cargo terminal to having four private air cargo terminals at present. To attract more clients, however, they must provide the services that meet the demands of forwarders.

The findings of this research show that air cargo terminal operators value three factors that will affect cargo forwarders' choice of terminal: (1) operation efficiency and quality of export cargo, (2) storage and logistics management efficiency, and (3) customs clearance efficiency. On the other hand, air cargo forwarders believe that the top three factors relevant in choosing terminals are as follows: (1) operation efficiency and quality of export cargo, (2) location and geographical position, and (3) customized services. The findings of this research are almost similar to those of the study conducted by Zhang (2003), which said the major factors considered by shippers in choosing terminals are speedy delivery and low damage rates. According to the findings of this research, together with the findings of Zhang, "operation efficiency and quality of export cargo" are the major concerns of shippers and forwarders in Hong Kong or Taoyuan.

To find the reasons behind the differences between the perceptions of terminal operators and forwarders, senior managers were interviewed. The results showed that the differences were caused by varying interests and pressures. Terminal operators must maintain efficient and cost-effective operations. The results of the questionnaire analysis reflect their major concerns. However, air cargo forwarders expect customized service for cargo owners and convenience for their businesses. Given the gap, the challenge faced by terminal operators in order to attract forwarders is "how to provide "customized services" at reasonable cost". Since 2008, under the pressure of declining air cargo volume at the Taoyuan International Airport, some of the terminal operators have become more responsive to the demands of forwarders, such as "customized service". For instance, several medium-sized air-conditioned warehouses were built by Farglory for the storage of manufacturing machines to be used in Hsinchu Science Park.

Four air cargo terminals at the Taoyuan International Airport are competing tightly for export cargoes. Air cargo terminal operators suffer not only from limited growth in the volume of export cargoes in Taiwan, but also from the fact that supply is higher than demand. For the purpose of gaining competitive advantage, terminal operators could use the findings of this study to attract more clients. This study chooses the Taoyuan International Airport as target and analyzes the factors that influence the choice of terminal by cargo forwarders. For a better understanding of the perceptions related to the choice of air cargo terminals, it is recommend that future studies should cover major airports in Asia and compare results with those of the current study.

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