Are low air cargo rates affecting this mixed transport mode opportunity?
By Jon Ross
The rise of just-in-time shipping and the fleeting taste of the fashion industry have led many high-end clothing shippers to embrace a multimodal sea-air solution for shipping garments from Asia to the United States.
Shipping clothes by ocean vessel to a halfway point and then flying the garments on cargo planes to their final destination has been growing in popularity since the idea was first introduced in the early 1990s.
But according to freight forwarders worldwide, current air freight rates on some lanes and the abundance of capacity may have led shippers to reconsider their mixed-modal allegiances; choosing pure air freight when shipping has, in some cases, become as cost effective as the sea-air mix is now a viable option.
While this current development is surely just a short diversion from the growing popularity of sea-air, a few industry insiders saw their multimodal activity dwindle in 2012.
Ultimately, though, for shippers in the fashion industry, a sea-air mix is a proven solution that is here to stay, and forwarders like Expeditors International, APL Logistics, DHL and Damco continue to field new sea-air business from interested fashion clients.
At Expeditors, lanes into the United States from North China and Southeast Asia are busy with sea-air garment activity throughout the year; fashion cycles are no longer limited to four seasonal wardrobe releases. While Asia is the primary origin for the majority of these shipments, India also has been emerging as a key player in the garment industry.
For the first three quarters of 2012, Expeditors officials said they were very satisfied with sea-air’s performance. The service shined particularly well in light of sluggish 2012 activity, but the forwarder doesn’t see any increase ahead for 2013. Sea-air, however, may help stabilize much of the volatility happening in the current shipping market.
“Market ebbs and flows may necessitate multimodal solutions being built into the logistics cycle. However, stronger multimodal volumes may be triggered by spikes in air freight costs — primarily from Asia to the Americas,” an Expeditors official said. “Sea-air is a specialized product that is readily adaptable to disruptions in the usual global transportation order. Given our past experience, we are very optimistic about the prospects of our sea-air product, in both the short and the long term.”
Expeditors has seen a steady trend toward sea-air since 2006, though it has been offering the service for more than a decade. Around 30 percent of the company’s total business comes from clients in the apparel, footwear and accessories fields, with a portion of this activity reserved for sea-air moves. The biggest customers for sea-air service, according to Expeditors, are mid-priced fashion brands.
Fashion shippers that use Expeditors’ sea-air programs not only save money, but also ensure their shipments get to their distribution points neither too fast nor too late. Specifically timed deliveries are necessary to the retail industry and may be a main reason that even though air freight is cheaper right now, some shippers still see sea-air as a perfect transportation solution.
“Another trigger for the use of a sea-air service can be shortages in airline cargo capacity from a particular origin,” the Expeditors official said. “To avoid long delays, split shipments and high freight rates, shippers will move the cargo as an FCL (full containerload) move to a gateway where sufficient airline lift is available.”
An air-ocean shipment really isn’t that much more complicated than a pure ocean or air move, according to Serge Tripet, global sea-air manager at Damco, which counts Chico’s, H&M, Adidas, Nike and ecco among its sea-air clients.
Cargo destined for the U.S. East Coast and points around the world begins its journey in Southeast Asia or China via an ocean vessel, transiting to an air hub transshipment point. The goods are then re-palletized for air travel, moving under a single document from origin to destination. The multimodal document covers all transportation modes. With small variances between shippers, including routing points and pricing calculations, this is how the vast majority of sea-air shipments move.
Tripet estimates at Damco, mixing modes traditionally represents a savings of 30 percent to 45 percent in air freight rates, while getting to the destination 20 percent to 40 percent faster than pure ocean shipping. Also with the slow-steaming of ships in the current market, it may be better for some shippers to fall back on air transport at some point in the freight’s journey. In addition to monetary gains, sea-air also cuts down on a shipper’s carbon footprint.
There are challenges, however, and Tripet pointed to weight discrepancies between the origin and the transit point and the on-time performance of ocean carriers as potential issues. Adding another transit point in the supply chain can also be worrisome for some shippers who are concerned about theft of high-value goods.
Tripet said increasing sea-air demand is coming in 2013, after a 2012 where demand steadily increased every month. He said the most potential for growth will come from the Asia-to-Brazil lane; in this case, goods would be carried by vessel to Los Angeles, trucked to Miami and flown down to South America. Even with these prospects, it’s hard to be completely optimistic after sea-air’s rough recent history.
“We have seen a decrease in multimodal demand over the last two years due to the extremely low and competitive direct air freight rates out of Asia to Europe,” he said. “The multimodal product had difficulties competing with the situation.”
Mattias Praetorius, head of Panalpina’s fashion vertical, agrees that sea-air has been pinched a bit lately. Cheap air capacity, and the trend toward taking air cargo out of the skies and onto the water, has made the picture a bit complex.
“Sea-air right now is not as high as it should be because the air freight rates are actually at quite a low level,” he said. “So it does not make sense always to take it sea-air because you get it quicker to market with pure air freight, and it is also, of course, cheap right now in comparison.”
The quicker transit times shippers see with pure air freight might be a bit too fast and could lead to increased inventory levels. Striking a balance between cost savings and time is key for fashion shippers, which account for about 7 percent of the company’s revenues.
“You always have to put costs in comparison with lead times,” Praetorius said. “Quite a few fashion retailers have a large number of seasons per year; you have those who even have 20 to 25 seasons a year. Of course, it puts an extra demand on deliverance and how you replenish in your stores. You need a good combination of different transport modes to actually balance cost and transport times for delivery.”
Panalpina routes sea-air goods through gateways in Dubai — the traditional routing point for most shippers sending goods from Asia to Europe — South Korea and, for goods that are destined for Latin America, the United States.
To alleviate his customer’s security concerns, Praetorius ships goods using Panalpina’s own-controlled network, which ensures that they have control over the entire process, including the transit point. Typical transits between ocean and air, according to a company spokesman, is one and a half days for dedicated sea-air boxes and three days for less-than-containerload boxes.
Integrating a sea-air service into a retailer’s supply chain, instead of using it as a last-minute fix for products that need to get to their destination faster than ocean shipping, is a primary concern. Sea-air can be used if a shipper misses a required sailing, but it makes more sense to build the sea-air program into the supply chain, according to Gene Ota, director of product management for international freight services at APL Logistics. He also pointed out that using all air because of the cheap cost of capacity could actually hurt the retailer’s supply chain, so preparing for sea-air use is a smart move.
“Using multimodal transport is important for retailers to make sure that shipments get there just in time rather than having inventory sit there at any one distribution center or sitting at the manufacturer’s facility because that’s taking up valuable space as well,” he said. “As soon as the shipments are ready, they send them out, and sea-air allows them that extra buffer.”
APL’s sea-air activity in the United States concerns middle- to upper-tier retailers located in the Northeast. These retailers are driven by time to market and motivated to get their goods on the shelves exactly when they need to be there.
“When they’re doing these rollouts and those things need to get on the shelves, if they miss a couple of days or even a week or two delay by ocean, then that’s a lot of revenue that they’re missing out on,” he said. “Consistency is key.”
Sea-air activity is down at forwarder IJS Global, which only does a small portion of sea-air into JFK International Airport in New York. Bob Weber, the company’s director of sales and marketing in Asia, said rate levels for sea-air moves were about the same as air freight in 2012.
“Sea-air was not the most popular product in 2012,” Weber explained. “The air freight rates going into Europe for the air freight product for the past 12 months were so low that sea-air wasn’t even that competitive. The rates were on such a low level that sea-air was not even an option.”
DHL Global Forwarding recently added eight new sea-air destinations in Africa, bringing its sea-air network on the continent to 26 destinations that can link up with more than 40 Asian destinations. These Asia-Africa shipments will be sent by ocean to Dubai and flown on pre-booked air cargo flights to Africa.
Growth of this service for DHL will come from Africa, South America and business on the Asia-to-Europe lane, according to Nicklas Schlingensiepen, DHL’s Asia-Pacific head of air freight operations and compliance. DHL pegs its sea-air offering at 30 percent to 50 percent faster than ocean shipping with a 60 percent savings over pure air freight.
DHL doesn’t conduct a lot of sea-air into the United States, instead using it as a piece of the puzzle when clothing is routed to Latin America. Though the forwarder assists fashion shippers at all levels, Schlingensiepen said the highest-tier retailers are a bit wary of sea-air because of security concerns. For him, the main complexity regarding sea-air is calculating a combined cost — converting a cubic-meter price for ocean carriage and a kilogram charge for air freight.
Schlingensiepen works to develop these fashion customers into long-time users of sea-air options. This, he thinks, is better for their overall supply chain, adding that the solution makes sense when shippers are going into Africa and South America. In these regions, transit times might be a bit longer and air freight rates are, on the whole, much higher. Ports in Africa have also been vulnerable to congestion and other problems, he said.
“We try very much to help our customers understand that developing a long-term supply chain perspective that has multimodal built into it so that it’s not so much a jump into sea-air, but it’s a standard part of it,” he said.
Ultimately, whether air freight rates are driving down interest in sea-air or not, it’s difficult to predict trends in this demand-driven business, Schlingensiepen said. He agreed that the wide disparity between supply and demand of air capacity last year led to a decline in spot rates, but these rates will change, and sea-air is a suitable way to meet this volatility.
Adaptability also helps when developments like near-shoring and China’s “Go West” policy threaten to play tricks on supply chains. Staying ahead of the curve is important for all shippers, but for those to stay relevant in the ever-changing fashion industry, sea-air shipping seems like a must.
“The market for sea-air has changed a bit, but sea-air as a multimodal offering in itself is very healthy, and we’re still seeing a lot of good interest from our customer base,” he said. “The world moves extremely fast nowadays; sea-air is a very good way to stay flexible.”