The Internet Paradox

Opportunities for airports in the wild wired world


Air cargo tonnage is expected to increase because of lower input costs for — and product prices charged by — producers. This will result from cost savings realized by B2B e-commerce, including streamlined transaction processing and reverse-auction buying. These savings will justify time convenience prices charged to — and costs paid by — consumers for air cargo transport. (8) In other words, lower costs for producers will be reflected in lower prices to consumers, and this will encourage the use of air transport for order fulfilment. (As noted, the most viable e-commerce models are those that focus on price and convenience.) In effect, the B2B market will drive the success of e-commerce.

Increased air cargo activity will also allow more optimum capacity utilization by air carriers, which in turn will stimulate all-cargo airline growth and reduce transportation costs as air cargo service providers achieve economies of scale. As e-commerce grows and greater efficiencies are realized from investments in technological infrastructure, producer costs — and consumer prices — will decrease. These savings can then be transferred to other value-enhancing propositions for consumers, such as obtaining time and place convenience. It is at this juncture that airports, as logistics hubs, will assume significantly greater importance.

A logical consequence of this reasoning is that large dedicated-use warehouses, and possibly manufacturing facilities, will be built at airports for certain high-value/low-weight-bulk items. Examples of these types of goods include generic pharmaceuticals and microprocessors. As in most commodities-based industries where consolidation occurs, certain producers will relocate their storage and/or manufacturing facilities in close proximity to their logistics hub in order to gain greater supply chain efficiencies. In essence, the front end of the supply chain will shift to the airport.

The possibility of this happening follows logically from the fundamental insights gained by examining the paradox presented by the Internet. Value can be extracted from "nothing" by realizing that "nothing" has value. That "nothing", as this essay has argued, is the information component of the information technology revolution. When this information is used to make market exchanges more efficient by eliminating asymmetries, thus doing away with physical world middlemen and the chimera of differentiated commodities (branding), value is not so much created as it is reallocated among those in the supply chain. (9)

To compete effectively in this new landscape, producers must focus on their core business, improving the quality of their products and services while at the same time becoming more cost efficient. At the other end of the supply chain, consumers will have significantly improved information about product price and quality. The supply chain's new virtual intermediaries (B2B exchanges, shopbots and portals) will become cyberspace "brands" on the basis of their reputation for providing quality information for decision-makers in the supply chain. In this context, warehouse and transportation providers will become increasingly important, as value is reallocated from physical world intermediaries to: (a) consumers, (b) virtual infomediaries and (c) providers of logistical services.

The Wild Wired World . . .

The growth of e-commerce presents a unique opportunity for airports to become significant players in the management of the global supply chain. As a result of technology-produced efficiencies in the processes that move things from those who "make" to those who "take," the supply chain will:

  • Collapse, as intermediaries such as brokers, agents and other physical world middlemen are eliminated; (10)
  • Become more concentrated as a result of producers consolidating to gain economics of scale;
  • Dis-integrate, as companies focus on their core competencies. (11)

This will increase the "value proposition" for both producers and consumers. If airports can recognize these developments in their external environment and act strategically to gain first-mover advantages (12) they can reap the rewards. These rewards include new business development opportunities as well as increased revenues resulting from the movement of air cargo, including landing fees, land rents and concession agreements. (13)

The figure below summarizes the arguments presented in this article and provides a conceptual map for assessing the impact of the Internet on both commercial exchange and airport opportunities.

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