DC Velocity - September 2009

enroute AIR FREIGHT

Consolidators’ business, Keeling says. Those bookings represent 12 percent of its traffic, more than double the levels at the start of 2009.

Another factor slowing the growth of air freight is the proliferation of sophisticated forecasting tools that allow businesses to order, ship, warehouse, and distribute with longer lead times while still meeting their customers’ fulfillment requirements. Through better inventory planning, companies can now divert more shipments to sea freight and use air only for the most urgent deliveries.

Consider the example of Pacific Sunwear, a maker of trendy apparel geared to the teenage and young adult markets. The company typically used air freight to ensure that the latest styles were always in front of its fickle and impatient customer base. However, it has cut its air ship-

ping by 35 percent, according to Alex Albertini, director of logistics and trade compliance.

“We are only moving by air those products that we have a guaranteed sale for without a markdown,” Albertini told attendees at the Eye For Transport third-party logistics summit in June.

A third factor is the mix of fuel-price volatility, tougher security laws, and a general fear of supply chain disruptions that is pushing businesses to consider nearshoring—a regionalization of manufacturing and distribution. As the distance shrinks between the various supply chain points, air freight’s value proposition becomes less relevant.

Dell Inc., long a proponent of the intercontinental inventory and shipping model, is “looking harder at regionalizing our sourcing than we have in the past,” said John

Lebowitz, director, global trade management, at the Council of Supply Chain Management Professionals’ annual “State of Logistics” conference in June. Lebowitz added that his company is “doing a much better job” of managing its manufacturing, inventory, and production flows to take advantage of modes other than air. “We are definitely looking at diversifying our transportation options,” he said.

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Will air freight fully recover?

Many fret about globalization and its impact on intercontinental supply chains. But the air-freight business has proved itself to be a resilient animal, and it’s a safe bet that businesses that continue to scour the globe for low-cost sourcing options will still turn to air to whisk their goods to far-flung markets.

Some air-freight markets, of course, will do better than others. Traffic in the intra-Asia region, where production and consumption are expected to remain strong for years to come, will grow by 8. 1 percent annually through 2027, according to Boeing’s biennial cargo forecast. That will significantly outpace the predicted 5. 4 percent baseline global growth rate.

Clancy of MergeGlobal says air-freight demand will gradually recover as companies replenish depleted inventory and the continued compression of product life cycles drives demand for fast delivery. He doesn’t see the global market returning to 2007 levels—the last full pre-recession year—until 2012. IATA Chief Economist Brian Pearce, too, says that even if traffic rebounds along with the global economy, it will take several years to return to the industry’s historical growth rates.

Keeling, though, believes air freight is in “permanent decline.” He contends that the improvement in speed and reliability of competing ocean services will raise the bar to heights that the air sector can’t fly over.

“At one time, if you booked a shipment by ocean originating in St. Louis and bound for Wellington, New Zealand, the importer would budget 90 days for the cargo to reach its customer,” he says. “Now you have daily ship calls from Shanghai to Los Angeles, and the all-water transit times are 12 days. How does air compete with that?” ;