In January, John Peyton Burnett is set to roll out the beta version of his TAC Index, the air cargo market’s first rating index. American Shipper first reported on the product in July 2014. While the web-based tool, which utilizes data provided by forwarders, will initially only offer information on routes from Hong Kong to the United States and Europe, Burnett promises that more pairings will follow.
One of his targets for the index is, of course, air cargo shippers. In order to encourage early adopters in the shipping community, he is freezing the subscription cost of the program, promising rates for those who sign up within a limited window will never be increased even as new tools are added to the system.
“Our objective is to supply indices on the top 50 trade lanes by revenue,” he said, explaining that shippers will eventually get a holistic view of the air cargo market. “It gives them a good overview of how the market is developing without actively having to seek that information through their service providers. In addition, we hope to develop air cargo hedging tools further down the line similar to fuel and currency hedging products.”
Of course, the success of the index relies not only on subscribers but also forwarder-provided data. Burnett doesn’t seem worried about not getting enough information to fuel the index; he said that while his team will work hard to gather data from every forwarder, the modeling techniques behind the index will still work well with around 30 percent of the market.
“For example, let’s say on a route the largest data provider has a market share of 10 percent. If we, as an index, have six-seven similarly weighted providers that represent 30 percent market share, then our data has greater weight than the single largest market participant on that lane,” he said. “Shippers can then use this index number as a reference point when negotiating with their service providers.”
Burnett said a number of forwarders are currently “sitting on the fence,” but other data providers have been pleased with the model. One forwarder referenced the benefits his clients will receive from the index, saying it will also help solve internal debates within the forwarder’s own firm. Each participant will be able to use the index free of charge, a significant incentive for participation.
Initial skepticism from the forwarding community is the main reason an air
freight index doesn’t currently exist, he said. In the past, companies have been very hesitant to supply the data needed for the index.
“Given that a new generation of forwarding professionals has grown up with greater exposure to data centric solutions, they are comfortable making decisions based on data rather than solely on personal relationships as in the past,” he said.
After the initial 2014 announcement of the index, Burnett faced growing technological roadblocks while trying to get the index off the ground. He said establishing the first few data connections with forwarders took about a month, but the timeline for new forwarder connections quickly ballooned due to the variety of operating systems used in the forwarding community and the necessity for custom data-delivery interfaces.
“We have subsequently gained more experience; connecting with new data providers quicker and easier than before,” he said. “Whilst going through this data delivery automation process we also started receiving feedback from the data providers asking for additional functionality. This extra functionality has now been incorporated into the system.”
The index is, indeed, moving in the right direction. In October, Burnett started publishing live indices showing the type of information that would be available in the full product. That first bit of data centered on fuel surcharges, showing TAC Index-generated fuel surcharge information from January 2014 to September 2015, compared to Cathay Pacific’s fuel surcharges and the normalized cost of jet fuel from the U.S. Gulf Coast.
While the index is modeled after the Shanghai Containerized Freight Index, Burnett said he believes his TAC Index will be able to offer a better idea of global freight flows. As far as competition, he doesn’t see anyone emerging to challenge what his team has built.
“We have no direct competition in so far that our product is built to be used both by the air cargo industry and the financial services industry with a view to creating new hedging instruments,” he said. “We would say it would be extremely challenging for a competitor to access the expertise in the various fields required to develop such a product. Remember, we have been years in development and a lot of IP has been acquired as a result.”
Ross, a former American Shipper editor, writes about air transport and freight issues. He can be reached by email at jonhross@gmail.com.
