"A lot of companies with fairly sophisticated supply chain designs are beginning to use air cargo as a competitive advantage as opposed to just viewing it as a cost," says Ed Feitzinger, Senior Vice President, Sales and Marketing, Menlo Worldwide. Although air cargo has traditionally been viewed as a (costly) backup plan for supply chains that relied on ocean transportation, it's not just crisis situations that drive global manufacturers to incorporate air cargo into their logistics strategies.
"If you're the tax person in the company, you're looking at places like Costa Rica, Puerto Rico, Singapore, and Ireland for tremendous income tax savings. Meanwhile, the procurement person is looking at China, or even Vietnam, the Philippines, and Eastern Europe," says Feitzinger.
In fact, it's not only transportation costs that are shaping decisions about where to manufacture and source product. Indeed, the amount of money that can be saved by taking advantage of certain tax incentives can often times outweigh other costs associated with global supply chains, including transportation. And, while companies that retain tax experts tend to be those that are large multinationals, even smaller firms are discovering the benefits of searching out tax incentives when it comes to deciding where to establish manufacturing operations.
Getting some 'lift' for the supply chain
One of Menlo Worldwide's clients, a medical products manufacturer, turned to air freight in a crisis, but ended up incorporating air into their overall supply chain strategy. The company manufactures surgical needles in Ireland, and has moved them by ocean carrier to North America for years. When the SARS scare first emerged, the manufacturer was forced to use air freight to quickly supply hospitals around the world with needles. Although the crisis has abated, the manufacturer has continued to move its product by air instead of ocean freight.
Another client had a rather convoluted supply chain for its apparel manufacturing operations. Raw material was sourced in the U.K., then shipped to the U.S. where pieces were cut, and finally sent to Mexico for sewing of the finished garment. Not only did Menlo Worldwide help streamline the air cargo transportation component of the supply chain, they also eliminated the number of distribution centers and forwarders who were involved in the operation.
Shippers are turning to companies such as Menlo Worldwide not only for their air cargo and logistics expertise, but for their IT products as well. Similar to ocean carriers who offer logistics divisions, traditional air freight forwarders have evolved into companies whose products and services, including software for analyzing landed cost, are tailored to meet the needs of global manufacturers and complex supply chains.
More than ever, time is of the essence
Air cargo is also saving the day for shippers and manufacturers who are under increased pressure to get product to store shelves. Take for instance computer video games. Roughly half of the sales are made within three days of a game's release, and 70 percent are tallied within the first week. Consumer electronics and seasonal apparel are also items that need to move quickly and have a limited shelf life. Air freight is simply the only option in these circumstances.
Swiss WorldCargo's latest product offering, Swiss Argus, also appeals to customers whose shipments require the utmost in timeliness, security, and reliability.
According to Bernd Maresch, General Manager, Marketing & PR, high-fashion designers fit this profile. "Theft protection is a concern for these shippers," he says. If clothing destined for a show in Paris or Milan is stolen at the entry point, the results can be disastrous for the designer. The same applies for other cargo such as new movie releases, currency, and gold.
Then there are customers whose idea of a crisis may not fit the norm. Swiss WorldCargo recently flew a Ferrari from Frankfurt to Miami for a gentleman who had "forgotten" the car in Europe.
A supply chain strategy that calls for bypassing the distribution center is also becoming more widespread. Shipping product directly from the manufacturing facility to the retail store not only saves time, but handling and operational costs too, which offsets the extra money it costs to move product by air.
Some shippers use a DC bypass strategy only during peak shipping seasons, while others' DC bypass strategy utilizes a combination of air and ocean transportation. UPS launched its Trade Direct Ocean service offering in 2002, pre-packaging and pre-labeling boxes in Asia where they were put in ocean containers and shipped to Miami, Long Beach, and New York-New Jersey and then moved through the UPS network. BAX Global, FedEx, and other major players have introduced similar programs.
The progressively shorter time-to-market framework that many shippers are working within has made American Airlines' Expeditefs product more attractive, especially for those shippers who are looking for the fastest connection possible with a guaranteed commitment, says Spencer Dickinson, Managing Director of Cargo Marketing, American Airlines.
He sees other developments in global supply chains that are helping to fuel the air cargo industry. "We continue to see a transition to a world marketplace. Granted, the term 'globalization' has been used ad infinitum, but our business continues to see goods and products that are being sourced in one location and require movement to another location, and that doesn't necessarily mean just imports into the U.S."
Dickinson agrees that tax incentives and lower labor costs are sometimes the reason for shifting supply chains and sourcing to various locations around the world, but there are other reasons for the growing emergence of multi-laned supply chains. "Quotas, for instance, are causing a sourcing migration around the world, particularly to places like the Far East and the Indian subcontinent."
The burgeoning perishables market is another driver behind shippers' increasing dependence on air cargo. "During April and the Easter season, the movement of flowers throughout our system was very heavy," reports Dickinson. The number of growers continues to expand in places such as California, Europe (notably Holland), and South America, and the number of buyers is likewise on the rise. "We're moving a lot of flowers not only within and into the U.S., but elsewhere around the world."
The dynamics of the world marketplace is reflected in the shipment of food products too, says Dickinson. "California's grape season (in May) was also very big this year." The carrier moved a lot of product outbound from the U.S. to high consumption markets, like Europe.
According to Menlo's Ed Feitzinger, "air-by-design" rather than "air in time of crisis" is really helping to build business. So too is the push by CFOs who are always on the lookout for ways to avoid inventory, and who see air freight as a natural solution.
Bringing home more bacon
While the variety and complexity of global supply chains keeps on growing throughout the world, it's a given that the two-way trade between the U.S. and China remains one of the strongest. The downside, though, is the occasional capacity crunch, be it for air or ocean shipments. However, a recently concluded aviation pact between the two countries is generating a lot of excitement for its promise to allow more carriers to serve the lucrative trade lane.
Specifically, the pact will more than double the number of U.S. airlines that can service the route, increase total weekly flights between China and the U.S. from 108 to 498 over the next six years, and allow U.S. cargo carriers to establish hubs in China. Presently, only UPS, FedEx, United Airlines, and Northwest Airlines are able to serve China. The new pact will allow the United States to appoint one more cargo carrier later this year and one new carrier, either passenger or cargo, in four of the next six years.
Meanwhile, the air cargo industry, like so many others, remains in the midst of consolidation and M&A activity. Part of the reason is due to customer demands, which require that companies provide extensive geographical reach and a robust suite of products and services. Niche carriers have their place, but the larger carriers and logistics providers are clearly dominating the industry.
Air cargo has more than once saved the bacon. Now it's beginning to save the global supply chain.
Sidebar: Air Freight Is Fastest Growing Segment Of U.S. Cargo Economy
Air freight has been the fastest growing segment of the American cargo industry according to a new report released in July by the U.S. Department of Transportation's Bureau of Transportation Statistics. The report, entitled "Freight Shipments in America," shows that the total value of air freight moved in the United States doubled from 1993 to 2002 and now totals $2.7 billion a day, growth that was faster than any other segment of the cargo industry.
"Cargo is one of the fastest growing segments of the U.S. economy," said Secretary of Transportation Norman Y. Mineta. "Now we know exactly how much transportation is literally moving the American economy every day."
The overall cargo industry has seen tremendous growth over the past decade. Between 1993 and 2002, the total amount of freight transported in America grew 18 percent to 16 billion tons, while the total value of that freight grew 45 percent to $10.5 trillion. The news was even better for movers of smaller parcels. There was a 56 percent increase in the value of under-500-pound shipments from 1993 to 2002.
The report presents the latest information on freight movements in the United States. Based on a comprehensive survey, it describes the freight American businesses transported in 2002 and relates these shipments to trends in the U.S. economy. The report also freight trends by form of transportation, type of commodity, distance shipped and shipment size.
To view a copy of Freight Shipments in America, or for more information about the new study, visit the Department's Bureau of Transportation Statistics web site, www.bts.gov.
