Getting the transport right
Thursday, 29 March 2012
Anand Medepalli believes air freight can stake a claim as the freight option most suited to the modern supply chain
However, it is important for businesses to estimate the total landed cost (TLC) before making any transport decisions.
Although ground shipping is cheaper, it could be that other areas of the transport process drive costs up. For example, the costs of warehousing, or of lost sales due to slow delivery, could cancel out potential savings, thus making air freight a more cost-effective option.
For the automotive industry in particular – where parts and vehicles generally require a large amount of space – it’s vital such considerations are made.
By taking TLC into account, businesses can get a far better insight into exactly how much transport will eventually cost them. While other modes may be cheaper per square metre of haulage space, it could be that air transit offers a more direct route – therefore saving on further costs. It’s this overall, end-to-end view that businesses need in order to make the best transport decisions.
Utilising air cargo transpor at short notice is advantageous for customers that are able to transport goods within hours of getting an order. However, this speed makes it very difficult for air cargo carriers to anticipate demand and ensure they have planned their capacity efficiently.
With 50% of air cargo being carried in passenger flight bellies, air cargo companies often work under severe constraints and don’t have a clear picture of their demand/supply situation until the last minute. This can lead to cargo space being either under-utilised or overbooked.
Air cargo companies often do not have the flexible pricing models in place to make last minute changes that will see them make maximum revenue without driving away business. For example, if a demand surge for a US-manufactured product occurs in the UK, air freight companies should be the perfect choice, as they can transport items quickly enough to take immediate advantage of the boom. However, if their pricing is set so high that no company can afford to use them, they’ll lose out. It’s all about finding the balance between capitalising on demand, and providing good service to customers.
The only way air freight will prove itself a viable transport option is by ensuring carriers set pricing and plan capacity based on accurate estimates of demand based on competitor influences and historical data. These forecasts can be further improved through proactive collaboration, both internally and, in some cases, externally with customers.
Technology is no longer the barrier. It is possible for air cargo carriers to better optimise capacity, guarantee service levels and reduce prices when demand is low, and therefore attract customers which previously may have deemed air cargo too costly.
In the current environment, speed is everything and with improved forecasting, pricing and capacity planning, air cargo has the opportunity to stake its claim as the freight option most suited to the modern supply chain.
Anand Medepalli is Industry Head of Freight Transportation at JDA Software