Executive Briefings

On the Road to Success - by Air

Air transit is by far the fastest and most direct form of delivery, allowing businesses to make last-minute logistics decisions and fulfill urgent orders. As such, it is estimated that such eleventh-hour shipments account for roughly 50 percent of the freight shipped by air.  On the other hand, it can be perceived as the most expensive, and this stops many companies from utilising airfreight - instead, they use the likes of trucks or container ships, which are a slower, but at first glance, a far cheaper option.

However, whilst airfreight seems more expensive, it is important for manufacturers and suppliers to estimate the total landed cost (TLC) before making any transportation decisions. Although ground shipping is cheaper, it could be that other areas of the transportation process drive costs up. For example, the costs of warehousing or of lost sales due to slow delivery, could cancel out potential savings and thus make airfreight the more cost-effective option. In the automotive industry, for instance, where components can be quite expensive and customers unwilling to tolerate long delays, it is vital that such considerations are made.

By taking into account TLC, businesses can get a far better insight and an end-to-end view into exactly how much transportation will eventually cost them. Today, the impact of globalisation and growing pressures to retain customers and keep the competition at bay means every decision has to be taken in the context of overall business profitability - no decision is an island anymore.

Carrier conundrum

It's not only manufacturers and suppliers that face airfreight challenges. Utilising air cargo transportation at short notice is advantageous for customers who are able to receive goods within hours of placing an order. However, this very requirement for speed and the last-minute nature of airfreight transportation makes it very difficult for air cargo carriers to anticipate demand and ensure they have planned their capacity efficiently.  Across the business world, planning cycles have shrunk and now demand significant agility from the air cargo carriers. Without a clear picture of their demand/supply situation until the last minute, carriers find that space is being either under-utilised or, at the other extreme, overbooked. The automotive industry for instance is rarely one that can "squeeze" into space at the last minute so it's vital carriers gain an understanding of demand early, map it to their capacity and more importantly be agile with their pricing policies.

To illustrate the point, if a demand surge for a U.S.-manufactured product occurs in the UK, airfreight companies should be the perfect choice as they are able to transport items quickly. However, if the carrier had no way to anticipate such demand and had no agile processes in place to react to such demand, it would have no consistent ability to attract such shipments. Even if it did, if the service isn't offered at a price the end-consumer is willing to pay, then the company will be forced to give up on a significant profit opportunity. Carriers which are able to find the balance between capitalising on demand and providing good service to customers at the right price and at the right time are the ones that end up being successful.

Making airfreight a viable option

There is no doubt that ground transportation or ocean shipping would, per pallet, give air cargo carriers a run for their money.  On the other hand, so long as shippers need to transport goods urgently or have to transport valuable shipments, airfreight will continue to be relevant.  Air cargo carriers can make airfreight a continued viable option for shippers through fast and reliable service - but speed alone will not assure success. To do this air cargo carriers have to better anticipate demand, plan capacity to meet that demand, guarantee service levels and offer compelling pricing commensurate with the value provided. In the current environment, speed is extremely valuable and the opportunity is there for air cargo to stake a claim as the freight option most suited to the modern supply chain.

Source: JDA Software

Air transit is by far the fastest and most direct form of delivery, allowing businesses to make last-minute logistics decisions and fulfill urgent orders. As such, it is estimated that such eleventh-hour shipments account for roughly 50 percent of the freight shipped by air.  On the other hand, it can be perceived as the most expensive, and this stops many companies from utilising airfreight - instead, they use the likes of trucks or container ships, which are a slower, but at first glance, a far cheaper option.

However, whilst airfreight seems more expensive, it is important for manufacturers and suppliers to estimate the total landed cost (TLC) before making any transportation decisions. Although ground shipping is cheaper, it could be that other areas of the transportation process drive costs up. For example, the costs of warehousing or of lost sales due to slow delivery, could cancel out potential savings and thus make airfreight the more cost-effective option. In the automotive industry, for instance, where components can be quite expensive and customers unwilling to tolerate long delays, it is vital that such considerations are made.

By taking into account TLC, businesses can get a far better insight and an end-to-end view into exactly how much transportation will eventually cost them. Today, the impact of globalisation and growing pressures to retain customers and keep the competition at bay means every decision has to be taken in the context of overall business profitability - no decision is an island anymore.

Carrier conundrum

It's not only manufacturers and suppliers that face airfreight challenges. Utilising air cargo transportation at short notice is advantageous for customers who are able to receive goods within hours of placing an order. However, this very requirement for speed and the last-minute nature of airfreight transportation makes it very difficult for air cargo carriers to anticipate demand and ensure they have planned their capacity efficiently.  Across the business world, planning cycles have shrunk and now demand significant agility from the air cargo carriers. Without a clear picture of their demand/supply situation until the last minute, carriers find that space is being either under-utilised or, at the other extreme, overbooked. The automotive industry for instance is rarely one that can "squeeze" into space at the last minute so it's vital carriers gain an understanding of demand early, map it to their capacity and more importantly be agile with their pricing policies.

To illustrate the point, if a demand surge for a U.S.-manufactured product occurs in the UK, airfreight companies should be the perfect choice as they are able to transport items quickly. However, if the carrier had no way to anticipate such demand and had no agile processes in place to react to such demand, it would have no consistent ability to attract such shipments. Even if it did, if the service isn't offered at a price the end-consumer is willing to pay, then the company will be forced to give up on a significant profit opportunity. Carriers which are able to find the balance between capitalising on demand and providing good service to customers at the right price and at the right time are the ones that end up being successful.

Making airfreight a viable option

There is no doubt that ground transportation or ocean shipping would, per pallet, give air cargo carriers a run for their money.  On the other hand, so long as shippers need to transport goods urgently or have to transport valuable shipments, airfreight will continue to be relevant.  Air cargo carriers can make airfreight a continued viable option for shippers through fast and reliable service - but speed alone will not assure success. To do this air cargo carriers have to better anticipate demand, plan capacity to meet that demand, guarantee service levels and offer compelling pricing commensurate with the value provided. In the current environment, speed is extremely valuable and the opportunity is there for air cargo to stake a claim as the freight option most suited to the modern supply chain.

Source: JDA Software