Using a combination of sea and air cargo in trying balance the competing interests of cost and transit time for higher-value goods is an established, if niche, segment of international freight movements.
Going back to the 1980s when Japanese electronics makers sought to circumvent limited air freight capacity out of Japan, the practice has matured and, according to some, is gaining traction. Emirates, the largest air freight carrier of sea-air cargo, derives some 20 percent of its cargo volume from sea volumes transshipped to air at its Dubai hub, said Brian Clancy, managing director of Logistics Capital & Strategy.
The reasons for the growing interest in sea-air movements — and international 3PLs’ expanded marketing of sea-air solutions — reflect a number of trends: weak revenue growth forcing consumer product shippers to focus more intensively on supply chain costs, lower margins on consumer electronics as retail prices fall, and shippers hedging against higher oil prices that drive up the cost of air freight.
Sea-air “is coming back into vogue, but for different reasons” than in the past, Clancy said. “In the past, air freight rates were sky high because of regulatory constraints, or bilateral regimes. Now the story is not so much air freight regulatory issues, but a hedge against rising oil prices and rising air freight prices relative to other modes, and, simultaneously, it’s a way for high-tech manufacturers to have a more cost-effective supply chain option for all these products that were new 20 years ago and could afford premium air freight, but which are now all mature products and need a cheaper way to get to market.”
Combining sea and air goes back at least 30 years to when Japanese forwarders were able to accelerate transit times from Japan to Europe by transshipping through Seattle, where aircraft inbound from Europe to the U.S. or Mexico were repositioned in order to capture the Japanese product as backhaul freight headed to Europe.
“What the Japanese freight forwarders did a long time ago was figure out how to get stuff into Europe in a cost-effective basis,” using backhaul capacity, Clancy said.
At the same time, electronics makers in Singapore and Malaysia were doing the same thing through Dubai, the origins of what has become a major sea-air hub for Asia-Europe freight. “None of this is new; it’s been going on for a long time,” he said.
What is new is the rationale behind growing interest in sea-air movements. Part of the story is falling retail prices of goods traditionally shipped by air freight, Clancy said. “When you look at all product that goes by air freight, unit prices at Best Buy and other retailers are getting cheaper and cheaper and cheaper, so you hear that high-tech companies are contemplating more use of ocean options, and by definition they are also looking at sea-air,” he said.
At the same time, 3PLs see an opportunity to sell sea-air options as part of a larger value proposition to shippers, helping them eliminate waste in their supply chains. In his speech at the JOC TPM Asia Conference last October in Shenzhen, Damco CEO Rolf Habben-Jansen discussed inefficiencies arising out of a pure air freight supply chain when cargo arrives prior to when it’s needed — a wasteful scenario he said Damco sees frequently.
“There are quite a lot of cases where you see that goods are shipped earlier or faster than is necessary, and that tends to result in waste,” Habben-Jansen said. “You get a clogged up supply chain at a destination, or (the cargo is) left in a port picking up demurrage and detention — you see a lot of that.”
A solution, as Damco sees it, is embodied in a concept it calls Dynamic Flow Control, where goods are flowed through the supply chain at a pace commensurate with when it’s needed at destination, with flexibility in terms of changing modes en route. This is in contrast to the shipment being entirely determined on the basis of the original purchase order, which often links shipping dates to when manufacturing is completed rather than when the goods are needed at destination.
Achieving that flexibility often means utilizing sea-air routing options, which, for example, would achieve an Asia-Europe transit time of 17 days via Dubai versus 30 to 35 days via an ocean-only transit, he said.
In other words, sea-air is a way to be tactical and opportunistic in seeking transportation efficiencies. But while it offers flexibility, using sea-air options requires an ongoing commitment to that mode, Clancy said, since the handoff can be complicated operationally.
“To do sea-air correctly, you have to work out the operational challenges in the transfer,” he said. “The challenge is, you can’t chase air freight rates all the time; you want to keep your skill set exercised all the time and not falling into atrophy.”