The sea-air connection

The sea-air connection

During the 1980s, Seattle's airport and seaport did a thriving business by providing connections for Asian cargo that moved by ship across the Pacific then by air to Europe. Air-cargo operators such as Cargolux and Martinair used the sea-air concept to combine the speed of airfreight with the lower costs of ocean.

Today the volume of sea-air traffic moving on this route is a trickle compared with those earlier days. Martinair, which once filled 80 percent of its eastbound space from Seattle with sea-air shipments, says that during the last decade that figure has dropped to between 10 and 15 percent. As airfreight rates from Asia to Europe declined, so did the viability of the Pacific route. Shippers now find it almost as cheap to use airfreight all the way.

However, Seattle and other trade gateways on the West Coast could be poised for a revival of sea-air business, but of a different nature. This time it would involve U.S.-bound cargo, according to John Martin, principal of Martin Associates, a Lancaster, Pa. logistics consulting firm. Instead of transferring maritime imports to trains or trucks for North American delivery, importers can gain advantages by covering the final leg of the journey by air, for example by inducting packages prepared in Asia into the UPS or FedEx network, he suggests.

Sea-air shipments such as these would be boosted by shippers' growing interest in routings that bypass U.S. distribution centers by sending at least part of their inventory directly from the ocean import gateway to U.S. stores. The use of "DC bypass," which helps companies reduce warehouse labor, real estate and operations costs, has increased with advances in technology for tracking and tracing and greater sophistication of consolidation activities in Asia. It also reduces overall transit time and inventory cycles for the still-small body of merchandise that can qualify for such routings, for example, goods shipped pursuant to a specific sales promotion.

But Martin said using sea-air shipments in DC bypass routings can also make sense for companies such as those that specialize in online or catalog sales. "This could work well for catalog companies or firms with Internet sales," he said. "There it makes sense to bring the goods in by water but land them close to an airport for distribution."

Seaports with nearby airports, such as Oakland, Seattle or Portland, Ore., are strong candidates for such operations. "This really adds to the quiver of marketing tools for a port," he said.

BAX Global, the Irvine, Calif.-based third-party logistics provider, has begun moving some traffic using sea-air routings. Two years ago it launched a service in which consolidated ocean import shipments are broken down upon arrival in the U.S. and moved to their destination by air or surface transportation, depending on the required transit time.

The service was developed chiefly for imports moving across the Pacific by air, but BAX - which has petitioned the Federal Maritime Commission for permission to sign confidential ocean contracts - has also handled some maritime traffic this way, partly as a backstop for manufacturers who miss their deadlines. "If something goes wrong with the timing, they have two choices - cancel the order or fly the goods," said Jack Finholm, BAX's vice president of ocean development. "We offer a third choice. Instead of the 40-day and the seven-day windows, you can have 20 days."

Although BAX has not actively marketed this service, its use is increasing, Finholm said. "We have offered it to clients on a one-off basis, but recently we've offered it quite regularly," he said. Customers interested in bypassing distribution centers have been very interested, he added.

In the case of UPS, the company started its Trade Direct Ocean service in 2002, in which boxes pre-packaged and pre-labeled in Asia are shipped via ocean container into the ports of Miami, Long Beach and New York-New Jersey and then de-vanned and inducted into the UPS network at that point, said Stephen Boggs, a spokesman for UPS Supply Chain Solutions. The service, which has been growing, is sold in part as a DC-bypass strategy, he said.

The U.S. sea-air strategy is a twist on a well-established practice in Asia. In a frequent scenario, cargo moving from Asia to North America is shipped on feeder vessels from China to South Korea and from there by air to the U.S. Steve Akre, chairman of forwarder OIA Global Logistics of Portland, Ore., uses the sea-air option as a buffer against tight air-cargo capacity from China. OIA, which handles traffic for Nike, routinely places product on vessels from northern China to South Korea, where it is loaded on planes headed for North America or Europe

Akre said he has found airfreight capacity to be more consistently accessible in South Korea than in China. "Sometimes there isn't enough capacity by air or ocean from China," he said. "Korea is a viable option. It's so close."

Sea-air traffic on this route originates chiefly in northern China, but it can come from as far south as Shanghai. It is loaded in ocean containers and moved by ferry to Incheon, a small port near Seoul's international airport. Every week more than 24 ferries arrive from northern China, each bringing passengers as well as 100 to 160 TEUs of cargo, said J.W. Kim, president of Pax Global Cargo, an airfreight-handling company that manages the sea-air program of Korean carrier Asiana Airlines. The containers move in-bond to the airport within two or three hours, and their cargo is transferred to pallets and then loaded on aircraft.

South Korea is not the only gateway for sea-air traffic originating in China. Taiwanese airlines EVA Air and China Airlines, which are prohibited from flying directly into China, have developed sea-air programs from the mainland's coastal provinces via the Taiwanese ports of Kaohsiung and Keelung, with road transfer to the airport at Taipei. That cargo usually leaves China from the ports of Xiamen and Shanghai. Some traffic from southern China is moved by barge to Hong Kong to catch planes to North America and Europe.

Transit times to the U.S. via Seoul are two to three days from Shandong province and Tianjin and Dalian, and about four days from Shanghai, Kim said. EVA's standard transit time from Shanghai or Xiamen is three to five days from the vessel's departure time, but it may take a week during the peak season, said Solomon Lin, deputy senior vice president of the cargo management department, corporate planning division of EVA Air.

With the longer transit times, rates are lower than those for direct flights from China. Akre said the difference usually is 10 to 15 percent, but that it can be significantly more, depending on seasonal fluctuations in demand and available capacity. Peter Rose, chief executive of Seattle-based forwarder Expeditors International of Washington Inc., said sea-air rates can be as much as one-third lower than rates for direct air shipments.

This makes the service particularly attractive to shippers of commodities such as apparel and footwear. EVA's sea-air service carries mostly garments and general merchandise, but during the peak season it attracts a sizeable volumes of computer parts and electronic items.

For some operators, the sea-air option with a relay in South Korea comes into play only when direct air capacity is tight. "We hardly use it. It's a valve for overflow," said Andrew Jillings, vice president for Northeast Asia of BAX Global.

But some customers, such as Nike, use sea-air regularly, not only when direct air capacity out of China is tight. "We move our footwear, and also a substantial amount of apparel, from Incheon to the United States and Europe," Akre said. In the past Nike also used the sea-air mode for westbound shipments from the U.S. to Asia. Dave Hill, Nike's manager of manufacturing planning and logistics, said the company once flew air soles for its footwear from Portland to South Korea and then shipped them to production facilities in China. But Nike shifted to direct air service to China when Air China introduced freighter service from Portland two years ago.

Other operators are less sanguine about sea-air, although they use it from time to time. Morrison Express, the largest forwarder in Taiwan, moves less than 5 percent of its tonnage between China and the U.S. by sea-air from Xiamen via South Korea, and less than 2 percent via Kaohsiung, said Tom Post, director of global sales. "When you count all the handling charges from port to airport, the savings are very little, if any," especially if the shipments are delayed, Post said. The additional handling also increases the possibility of pilferage, damage or loss, he added.

But Akre said he is convinced that the sea-air concept will continue to grow. "With the removal of quotas coming up in 2005, there will be so much production of apparel," he said. "Where is the overflow going to be carried? Electronics makers can pay more for airfreight space to get their product to market. For apparel and footwear, sea-air remains a good option."