On September 19, 2014, customers who had pre-ordered new iPhone 6 and iPhone 6 Plus smart phones began to receive their orders at the same time that new iPhone 6's began arriving in stores. The goal was immediate order fulfillment and the logistics used to speed the goods to market was air freight.
In one instance, 195,000 iPhone 6 and 6 Plus pre-orders were flown from China to Alaska in a Boeing 747, and were then transported from Alaska to Chicago, according to one report. “Yep, that's what I do. I fly stuff,” said the pilot. “Privileged to be a small part of the Apple supply chain. Just landed a 747 full of iPhone 6's in Anchorage. Another crew will take the airplane on to Chicago. It'll be on the ground at O'Hare about 9 a.m. September 15. I gave it a little extra gas coming over the Pacific, just to get them here a little quicker.”
There are few industries more volatile than consumer electronics, where demand can go through the roof overnight when a product or a new version of a product is released. When the consumer market is North America and a majority of the manufacturing is occurring in Asia, companies are placed into positions where they have to consider air cargo over slower moving ocean freight so they can get goods to market in time.
The problem is that moving goods by air is expensive. In a 2012 Airbus report, the average value for each kilogram transported by air was $127, compared to a cost of $1.10 per kilogram for cargo transported across the ocean by ship. Fuel costs eased considerably in late 2014, but there is no long-term guarantee that they will stay that way—so those in rapid speed to market industries like electronics are continuing to utilize alternate transportation modes to reduce a reliance on air cargo when it comes to shipping from offshore manufacturing facilities to consumer markets on distant continents.
“They have reconfigured their supply chains to where up to 70% of their goods are transported by ocean, and air cargo is reserved only for emergency situations,” said Jannie Davel, senior vice president of Air Freight for DHL Global Forwarding, Americas. “What we saw was a mode shift from air to ocean, driven by changes in the market.”
The move has also been transformative for those working in the supply chains of electronics companies.
To successfully facilitate an intermodal approach to shipping goods with the bulk of those goods moving by slower, more economical ocean cargo, firms have to be spot-on with their predictive analytics so they can accurately assess and meet consumer demand. They also need contingency approaches standing in the wings that can invoke air cargo when ocean freight just can't get the goods to market on time—along with logistics systems that can re-plan and re-plot to accommodate these adjustments.
In some cases, companies have also reevaluated their distribution and inventory storage points, opting to near-source their goods in locations that are more proximate to major concentrations of consumers. “If you think back over the last 10 to 20 years, it was commonplace for these manufacturers to go to Asia for their goods,” Davel said. “Now, they are sourcing their goods and components from locations that are at closer ranges—such as Mexico and Costa Rica, if the manufacturer is in North America. New trade agreements are also shifting business to areas where it wasn't conducted before.”
The bottom line is that goods need to be moved at the right velocity to meet consumer demand. This can no longer happen in product delivery and cost strategies unless these four tools and methodologies are brought in to facilitate the process:
- Implementation of consumer demand analytics that can be predictive based upon past market performance and other, more recent consumer buying behaviors;
- An intermodal transportation strategy that bulk-ships most goods by ocean freight to obtain best cost, but that also tickets up to one-third of shipments via air cargo to speed goods to market when demand exceeds estimates;
- Active employment of cost analytics that not only gauge the raw cost of shipping goods, but the risk of missed revenue opportunities because enough goods are not in the right markets at the right time. When companies use these types of balanced cost algorithms, they often find cases where airfreight is the “best” bargain because of the additional revenues that can be captured by getting to market quickly.
- More near sourcing of finished goods to prime consumer locations to enable agile and rapid delivery of goods to market.
Let us know how your organization makes multimodal work in the comments section below.