As the grip of global economic slowdown tightens, companies are increasingly moving their cargo from air to cheaper alternatives, such as sea, rail and road.
This shift is a clear indicator of how cost-cutting measures are shaping company supply chain policies in current times, which, in turn, is altering the business mix of logistics majors, such as DHL and FedEx, forcing them to innovate and improve offers on the ocean route.
“Our FedEx Trade Network is handling more traffic, mainly out of Asia, on the ocean. But some of the traffic has shifted from international priority into international deferred, and we're adjusting our network to handle that and handle it more profitably,” Mr David J. Bronczek, President and CEO, FedEx Express, said in a recent analyst call.
Rival DHL has the same story to share. “Due to cost pressures, our customers are transferring part of their business from air freight to ocean,” it says.
Panalpina, the Swiss logistics major, has projected zero per cent growth for air cargo industry in the first half of 2012, against four to five per cent for ocean freight.
Medical technology and pharmaceutical companies are, in particular, highly demanding clients for logistics firms, as they need to move sensitive cargo with stringent quality control requirements.
Even these firms are now deserting air for water. This has prompted supply chain firms to innovate devices to match client demands.
For instance, the global medical technology giant Siemens Healthcare, a major client of DHL’s, has shifted a significant chunk of its sensitive cargo movement from air to ocean between its plants in Germany and the US, says a case study shared with Business Line.
This led DHL’s innovation team to introduce a tracking device that provides real-time alerts through e-mails/SMS on temperature and location for its ocean shipments. The device has a battery life of 30 days.
By shifting their cargo from air to ocean, the company saves up to 90 cent, says DHL which designed this device to meet pharmaceutical customers’ requirement
As a result, companies with air freighters are finding the going tough. “A lot of companies that just have traditional freighters are finding it very difficult in the marketplace with high fuel costs and relatively low yields,” Mr Bronczek said.
Gati’s CEO, Mr Mahendra Agarwal, counted the company’s investment in freighters as one of the key reasons for it going through a difficult phase.
Now, Gati has significantly reduced its stake in the freighter business.
“In the domestic market, the modal shift (from air) is more to road than rail,” Mr Anil Gupta, Managing Director, Container Corporation of India, said.