Freight is getting slower. As reported earlier this week by The Loadstar, six Asia-Europe strings are now super-slow steaming. Or going slower than the 19th century tea clippers. It’s a win-win for shipping lines – absorbing capacity while cutting fuel costs. The average rotation of Far East to Northern Europe loops is now 10.5 weeks – in 2007 it was 8.2 weeks, according to Alphaliner.
The gap between sea freight and air freight is widening. Significantly. For shippers who don’t want inventory – and thus working capital – tied up for long periods, super-slow steaming isn’t always their first choice. Equally, they don’t want to pay top dollar for their goods to arrive in just two or three days. They want something in between.
There has always been a sentiment in the air freight industry that only certain sorts of shipper will consider the expensive, fast option. But in these strange times, where ships are slow and air freight less costly, shippers appear to be more open-minded. The Loadstar’s shipper readership, for example, shows an interesting trend. From mattress makers to farm feed suppliers, from pump manufacturers to sink brush designers, most say they are interested in all transport modes. Very few limit themselves just to sea freight.
Cas Pouderoyen, SVP global ocean freight at Agility, speaking at the TOC Container Supply Chain event earlier this year said: “Lots of businesses can’t live with a 40-day transit time, but can cope with 25 days.” Nike added that “super-slow steaming could be a problem for us.”
For the struggling air cargo industry, there surely must be an opportunity here. Of course, it has always been the emergency option for everyone. But a more constructive look at deferred cargo should be on the cards. One way to beat the integrators, perhaps?
And it’s possible. SBS Worldwide, working on contingency plans in case of an US east coast port strike, has struck a deal with airlines to deliver freight in 20, rather than 30-40 days, for a rate barely higher than the sea freight rate.
Carriers already offer it, but not as a product in itself. Dave Shepherd, head of global sales for IAG, told The Loadstar that British Airways does have a deferred service, trucking freight in the US, for example, to fill gaps in capacity. “Customers are always on the look-out for a lower cost option. Freight doesn’t need to go on the most direct route available, and we can offer competitive rates as we are filling up capacity that wouldn’t otherwise be full.” He explained that having freight waiting, to fill a gap when cargo doesn’t turn up as booked, can be very useful. “It gives extra flexibility, and the cost of losing the cargo when someone cancels their booking can be very high, so having more freight available mitigates that.”
Mr Shepherd added that the sea-air option has always been a useful way to cheapen and slow down air freight. But while air freight rates on Asia-Europe are currently so low, demand for sea-air has been negligible. “It doesn’t always suit the end customer, but they are certainly getting more used to a longer logistical cycle,” he said.
One supply chain manager at a chemicals company told The Loadstar: “In my opinion, this type of service would be useful for higher value/speciality materials but not viable for low value/commodity goods where all costs are more sensitive.”
But can carriers create – and afford – a more structured, defined product?
The mentality of carriers would need to change, says Stan Wraight, executive director for Strategic Aviation Systems Intl. He suggests setting up a product portfolio, managed on the basis of time, not flight bookings. “This is what integrators do. You have to reverse the current thinking of airlines – so that the closer to departure time it gets, the higher the price is, not the other way round.”
But Sean Smith, director southern region for Kerry Logistics, doesn’t believe the demand would be sufficiently strong – unless the rates were significantly lower. “It would come back to ‘what is the cost?’. If you offered a 20-day transit from Asia-Europe, the airlines would be pitching themselves against sea-air alternatives, which over the last few years have not been of great interest to many, especially the 18-20 day option. However, if there was a significant saving to be had, then it would be looked at for sure.”
But, he added, “most customers are still not too keen on their freight being handled in this way. It would be handled more times, and ultimately sitting on the tarmac on route.”
Which is where a ground handling partner could come in.
“One way would be to set up a revenue and yield management system, in co-operation with a major ground handling partner,” explained Mr Wraight. “Right now companies like Swissport and WFS cannot afford to store time-definite cargo in an airport location. It’s too expensive.”
But, he added: “Ideally, in a perfect world, forwarders, ground handlers and airlines would set this up in a cooperative venture – but that’s not going to happen, is it?”
Now there’s a challenge.