News / Shift from 'just-in-time' to 'just-in-case' to avoid costly airfreight, says Flexport

Shippers should evaluate their inventory holding costs more carefully, if they want to lower their airfreight usage. 

Despite the current soft airfreight rates and a peak unlikely to fully take off, Flexport yesterday showed customers how to reduce their reliance on the mode. 

According to company data, 40% of airfreight is unplanned, and used due to “something going wrong”.

Some 20% is used for ecommerce – which now, of course in several countries including the US, no longer has a tariff-free advantage. And the 17% devoted to just-in-time deliveries is, in fact, said Flexport, “planned too late”. 

This matters, it said, because door-to-door rates for air can be up to 10 times higher than sea, while emissions are up to 68 times higher. 

Flexport president Sanne Manders advised: “Shift from just-in-time to just-in-case – a lot of products can be predicted more accurately and you can actually allow yourself to have a lot more in stock there.  

“What’s important here is to … define what your inventory strategy is per product. First of all, it’s important to define how you do your inventory replenishment.

“But the most important step here is ‘what is my safety stock?’ – ‘how many days do I want to have on hand in my fulfilment centre at every moment in time?’. And then do an assessment of what is actually the cost of it… there’s inventory holding costs there. How does it actually compare to my logistics costs and specifically air freight costs here?

“So you always want to be a little bit on the safe side. But there’s a good analysis here to go through and define, you know, what is my just-in-time versus just-in-case cost?” 

He also advised shippers to have fixed rules in place. 

“In the worst case [shippers] are paying for air freight when things are going wrong. [It’s best to] have very clear rules on when to use air freight … for the most critical time-sensitive components. And you have to track whether those rules are being followed or not,” explained Mr Manders. 

More cynical forwarders have questioned Flexport’s decision to help shippers cut airfreight costs – describing it as “turkeys voting for Christmas”.

Airfreight contributes between 30% and 45% of revenue for major forwarders: for example, at Kuehne + Nagel, some 30% of its revenue and nearly 30% of ebit; while estimates for DHL Global Forwarding suggest air accounts for more than 40% of ebit. As one ex-Flexporter wryly noted to The Loadstar this week: “That was part of a sentiment I always had when being there, that air freight is not necessarily a key aspect.” 

He added that a lot of forwarders were concerned about the market in Q4 and cost-cutting according, adding: “Everybody is cautious, and everybody is looking to what they can do to make sure results come in at a decent level.” 

Shippers have reportedly been more active in switching modes this year, as they work out how to handle tariffs and approach new tradelanes.

But Flexport warns shippers that airfreight is “addictive”. 

“The thing with air freight, is it’s pretty addictive,” said Mr Manders. “And every year you make your budget and you say, ‘I’m not going to use air freight’. And every time you say, ‘oh, I used a lot of air freight’.  

“It’s the same root causes, like planning, supply… So what are the tools at your disposal to improve your governance, and processes to make sure you can stick to your plan?  

“Number one, obviously, is visibility. Order management is the key to it, because it allows you to manage your supplier cargo-ready dates, get some production milestones; but it also gives you, directly from that moment, SKU level visibility, so you know what’s in the pipeline in terms of your products.” 

One reason for the timing of Flexport’s webinar could be the new technology it will release later this month: “a whole bunch of new tools for getting you better transit time visibility on each tradelane, down to the SKU level”, said CEO Ryan Petersen.