Recently there has been an increase in air capacity, along with a decline in air freight demand. Andrew Coldrey, Vice President, Oceania at C.H. Robinson is urging organisations to take advantage of this situation and consider a hybrid model when it comes to moving freight.
C.H.Robinson figures have revealed that there has been an increase of 2.7 per cent in air freight capacity, while at the same time demand has decreased by 4.7 per cent. This presents a rare opportunity for importers and exporters to look at their current logistics choices and consider using air freight when moving goods.
With this disparity, there has never been a better time to compare different transport modes and the current situation presents an opportunity to review and revise logistics practices for the most efficient and cost-effective results.
Usually, carriers are good at matching demand to capacity. But sometimes with air cargo this can shift, as passenger numbers go up then there is also added freight capacity even if the demand isn’t there. This is largely what is happening at the moment.
Busting the myths
There are a number of different situations and sectors where air freight can present cost-saving opportunities. Take fashion logistics for example. In this industry, you have to be the first to market; if you’re not there first, the opportunity is gone and your competitor has made the sale.
On the one hand, you may look at air freight and think this is slightly more expensive than road, rail or sea, but if you’re not first to market then you may not sell the product at all, costing you considerably more in the long run.
Additionally, with the current economic environment, there is a feeling of caution. Generally, this leads to a more conservative approach to inventory management. With that in mind, it’s commercially beneficial to be able to make as late a decision as possible, when it comes to stock control. Air freight allows you to do this, being able to have the stock you want where you want it.
There is also added benefits with regards to Australia’s unique geography. We have a large geographical space and transporting goods around domestically can be expensive. If you bring in a large quantity of goods into one place and distribute it from one spot all over the country, then that transport potentially becomes very expensive.
One of the benefits of air, when the market comes down and is more competitive, is that you can make a late decision based on demand. You can send your cargo direct to Brisbane, Perth or Adelaide to avoid the high cost of domestic transport.
Review your strategy and be agile
In supply chain and logistics, it is always important to be agile. With so many variables, including many global issues that are out of our control; the “set and forget” model just won’t do anymore.
I urge organisations to review their strategy regularly, to tinker with it accordingly and to take everything into account. It’s not just the initial cost of moving the goods. You have to think about domestic costs, speed to market; there are so many variables that should come into your decision.
People have this mindset that air freight is expensive, but just like passenger airfares, costs can vary enormously. If you want to fly first class in peak season, you will pay the maximum amount for that service. But you can fly with a budget airline, book well in advance and it will cost significantly less. We have to consider this mindset when we look at logistics. There are different levels of service.
It’s also a good idea to look at a mixture of different modes depending on your need. You might do something like air freight to Singapore and then use sea down to Australia or New Zealand. Many different combinations could work.
There has also been a change in the rate structure with air freight. Before it was a tiered rate structure, so the more you bought the cheaper it was. But now when capacity is down we can offer flat pricing so lower rate shipments can actually get the same rate as a higher volume shipment, if the availability is there.
Many people still have fixed mentalities when it comes to air freight so in order to capitalise on the opportunities, it’s important to be open to change.
Access to emerging markets
The flexibility that air freight offers also provides a number benefits for organisations looking to enter emerging markets. When you’re looking to enter an emerging market, like Eastern Europe, Latin America or China for example, you might not have the infrastructure in place or much demand at first.
If you don’t know the market yet, you may use a platform like Alibaba as an introduction before setting up any physical presence, but you don’t want to send a large amount of inventory if you don’t know how your product will be received.
This is where air freight comes in, you can start off small and only send what you need. Then if your product does well, you can replenish it quickly. This can be a great tool to get a large range to market in small quantities and test what works. Rather than sending huge container loads at a time.
Technology enabling smarter decisions
The need for a high level of visibility becomes even more crucial when you need to make later decisions. The better visibility you have, the better decisions you can make.
You also can’t mix and match different modes if you don’t have a clear picture on where your product is and when. If you don’t know where things are then you are less reactive to the market.
The more visibility you have the more agile you can be and that’s when we start to move into tools like predictive analytics.
If we as an industry can predict the impact of things like typhoons and hurricane seasons, then we can predict the impact they may have on our supply chains.
At C.H. Robinson we are investing heavily in this kind of technology. We recently announced an investment of $1 billion USD in technology over the next five years, doubling our previous investment of $1 billion USD in the last 10 years.
This is our largest investment ever in innovation, advanced technologies and talent and we think it will shape the future of the logistics eco system.
We currently have 28 data scientists working in this space in-house, with this set to grow over the next five years. We are excited about the opportunities that this kind of technology can bring for our customers and the industry at large.