If you travel, you know that airlines all over the world are teaming up in various alliances to offer passengers more services to more destinations. They do this through a procedure known as "code sharing," which allows one airline to put its passengers on partner airlines' flights. In essence, the airlines are able to act as each other's agents and coordinate their information systems so they can book seats on each other's flights.

Carriers join passenger alliances so they can offer "seamless" service worldwide without the risks and costs of creating their own global networks. For both passengers and airlines, alliances appear to be an attractive proposition. But can these same principles be extended to the cargo side of the business?

The airlines say yes, and indeed several already are deeply involved in such projects. What's more, these agreements are likely to become more common over the next few years. But not everyone is happy about that prospect. Some observers worry that problems with shipment visibility and cargo handling will develop as more parties get involved in the process.

Until recently, airline alliances had largely consisted of bilateral arrangements, such as the agreements between Northwest Airlines and KLM Royal Dutch Airlines, United Airlines and Lufthansa, and Delta Airlines and Air France. These deals began with passenger services and later expanded to include cargo.

Recently, multilateral agreements have begun to take hold. One example is the SkyTeam Cargo Alliance, which includes Aeroméxico Cargo (operating under the brand name "Aeromexpress"), Air France Cargo, CSA Czech Airlines, Delta Air Logistics, and Korean Air Cargo. SkyTeam was launched as a passenger agreement in June of last year; a cargo version was announced just three months later.

SkyTeam says it offers cargo customers a combined fleet of more than 1,000 aircraft making 6,800 daily flights to 100 countries as well as a network of 12 major cargo hubs. No single airline could create such a network, says Jennifer Young, director–alliances and international for Delta Air Logistics. Creating a global system is not just a matter of adding more destinations, she notes. One carrier may contribute expertise in express freight, for example, while another has more experience in freighter aircraft operations. "We're each bringing unique things to this alliance," she says. "It's a blending of our strengths."

A similar alliance between Lufthansa Cargo, Scandinavian Airline System (SAS), and Singapore Airlines has the working name of "New Global Cargo." The three-way partnership makes it possible for each airline to fulfill all of its customers' needs, says Howard Jones, director, cargo for SAS North America. "In Scandinavia, the Baltics, and Eastern Europe, we are very, very strong. In those particular areas we can complement [the other airlines'] services," he says. "[But] we cannot serve all of [our customers'] requirements to the whole of the world by ourselves."

Coordination among alliance partners in some cases is so close that shippers might wonder why the carriers continue to maintain separate identities. SkyTeam, for example, will align its operations, services, customer-relationship strategies, and sales activities, enabling customers to receive the same level of service from a single point of contact, according to a representative for Korean Air Cargo.

Members are consolidating some warehouse operations, too. At the moment, SkyTeam Cargo members are sharing warehouses in 19 locations worldwide, he says. For instance, Korean Air moved into Air France's huge new cargo facility at Paris's Charles de Gaulle Airport in December. Later this spring, Air France Cargo, Aeromexpress, and Czech Airlines will move into Korean Air Cargo's new 20-acre cargo terminal at John F. Kennedy International Airport in New York. The $102 million facility, which can handle up to 200,000 tons of cargo annually, has the ability to load and unload three 747-400 aircraft simultaneously.

The alliance also is standardizing its products so customers can expect identical service levels from all member carriers. These products, originally developed by Air France, include "Equation," an express service for urgent shipments; "Dimension," a standard airport-to-airport service; "Cohesion," a customized logistics service for Just-in-Time shippers; and "Variation," for perishable, high-value, and other products requiring special handling.

New Global Cargo also is working on a joint product, but it is still under development. "We all have time-definite products," says Jones, "so it is logical for us to work together to give the customer a standard, time-definite product."

The New Global Cargo carriers are focusing on how best to implement such plans, Jones says. They have formed business integration teams in the areas of express and time-definite products, sales, administration, and information technology. The goal of this project is to ensure a smooth, efficient, and cost-effective transition to unified operations without disrupting service for external and internal customers.

The integration process will be costly, but the carriers believe the benefits of airline alliances will outweigh the costs. However, the airlines' biggest customers, the international airfreight forwarders, say that although they see potential benefits for their shipper customers, they are taking a cautious approach.

"If they work, alliances can be a good thing for freight forwarders. They enable a forwarder to basically deal with one carrier with access almost anywhere in the world—in theory," says David Wirsing, executive director of the Airforwarders Association in Washington, D.C. "In practice, we don't see a whole lot of alliances that are truly seamless from the cargo standpoint."

One area of concern is visibility of a shipment as it passes through several hands. "We've made a big investment in being able to connect to our customers via EDI (electronic data interchange) or the Internet, so visibility when we're using air carriers is critical," says Mike Zolnierowicz, president of Nippon Express subsidiary NEX Global Logistics. "Generally the airlines use different (IT) platforms, and when that's the case, the accuracy of the information is not very good."

The airlines respond that systems integration is a priority for them. New Global Cargo is devoting considerable resources to that area, Jones notes. And Young reports that Delta has a new information system that is compatible with those of its SkyTeam partners.

Another worry is cargo handling. The more hands involved, the more opportunities there are for errors. "If a shipment arrives incomplete or is not on the appointed flight, it can be very difficult to clear customs," Zolnierowicz says. "Alliance partners have to get that part right."

Forwarders also question how airline alliances will affect rates. Zolnierowicz, who has worked for an airline that participates in a cargo alliance, says there are pressures that can make the required "selflessness" difficult for alliance members. "Sometimes the market offers less [compensation] to the combination of carriers than it would to each of those carriers standing alone," he observes. In addition, market rates and capacity sharing might be attractive during slow times, but what happens during peak seasons when each carrier could fill aircraft on its own?

Wirsing says alliances can be problematic when forwarders have negotiated specific pricing and service arrangements on behalf of shippers. "I believe I've gotten the best contract with one carrier, but because it's involved in an alliance, the cargo now will move via a partner carrier. Does that mean I still get the special rate and the specific service or, by virtue of the fact that it's an alliance, will I lose that?"

If those problems can be resolved, airline alliances will be good for shippers and forwarders, Zolnierowicz believes. "Overall, the concept offers a benefit in terms of service we can provide to our customers. But the prices have to be right, the handling has to be right, and the ... visibility of the shipments has to be there all the way through." Adds Wirsing: "In concept, it is good for the industry, but more work needs to be done ... [W]e would want to have the opportunity to continue dialogue with the carriers to make sure that the forwarders' interests are attended to."

The number of airline alliances is likely to grow, given the increasing demand for seamless, global service. But will the cargo alliances of the future look the same as they do now?

Some observers see the alliance-building as simply a precursor to eventual mergers. Both Jones and Young, though, believe that a different alliance structure is in the wings.

Young points to a newly approved export sales joint venture between Delta and Air France as an example of things to come. The carriers will form a new company; sales personnel who work for that company will market both carriers' networks as a single offering. "We're quite keen about the joint venture as an ideal business model ... What we are designing is a structure that will be independent of each airline," she says. "The booking and capacity decisions will be based on what will be the ideal outcome for the customer rather than what airline the shipment will fly on."

The joint venture is a "building block for what we want to do with the alliance as a whole," Young continues. "If you're going to move into areas like joint aircraft purchases and building warehouses together, these larger investment opportunities bring up issues of financing."

That's been on the minds of New Global Cargo executives, too. Rumors abound that Lufthansa Cargo will buy SAS Cargo, which has been reformulated as a separate company. But Jones says that the spin-off is intended to position the alliance partners so that they will legally be able to invest in each other in the future. "Lots of companies have what they call alliances, but what's stronger than anything is monetary exchanges between companies. A lot of the alliances in the past have failed [because there was nothing binding them together]," he says. "This is an attempt to form a long-lasting relationship."