Cargo airlines losing out to ocean container carriers

More companies are shipping their products by sea instead of by air in a shift that is seen as a permanent trend by industry executives

PUBLISHED : Tuesday, 23 October, 2012, 12:00am
UPDATED : Tuesday, 23 October, 2012, 4:19am

Airlines have permanently lost out to ocean container lines as box carriers grab an increasing share of the freight that was previously moved by air, according to logistics and cargo executives.

Alfred Hofmann, the senior vice-president for sea freight in the Asia-Pacific at logistics giant Kuehne+Nagel, said the structural shift was permanent. "It's a trend that can't stop," he said.

Hofmann's views were supported by Charles Wellins, a senior vice-president of supply chain solutions at Ceva Logistics, who said there was a growing shift to ocean freight by cargo owners who had a historic reliance on airfreight.

Nick Rhodes, the director of Cathay Pacific Cargo, tended to agree with the prognosis. "Those guys are the experts as they see both sides of the logistics business," he said. "I suspect they are right and that much of the shift to sea is permanent. Only time will tell. Our loads are definitely down but it is hard to say how much is due to less production, more competition or modal shift. A bit of each, I suspect."

Hofmann said the pharmaceutical industry and manufacturers of temperature-controlled products were at the "forefront of change" from airfreight to sea freight. He pointed out that high-technology electronic manufacturers aimed "to convert over 50 per cent of notebook shipments to ocean".

"Some major players are above that mark," Hofmann added, without naming names.

"Tablets go by ocean after the first wave by air," he told about 600 shipping, logistics and manufacturing executives at last week's Journal of Commerce TPM conference in Shenzhen.

The International Air Transport Association, a lobby group of about 240 airlines, said Asia-Pacific airlines were the most exposed to weak cargo demand because the region's carriers had 40 per cent of the global cargo market.

The association said cargo demand was down 6.6 per cent in the eight months to August, compared with the same period last year.

Hi-tech industries began moving shipments from air to ocean about three years ago. At the time, cargo airlines such as Cathay Pacific Airways were unsure if it signalled a short-term trend in response to the poor economic conditions or a structural shift.

Both Hofmann and Wellins said it was a structural issue. Hofmann added that the economic downturn sparked by the collapse in bank liquidity and trade caused by the Lehman Brothers downfall caused manufacturers to re-examine their supply chains.

Pointing to the cost differential, moving 10 tonnes of cargo by sea from Shanghai to Los Angeles was slightly more than 5 per cent of the cost of moving the same cargo by air - US$2,600 versus US$46,000.

Container line Matson said the transit time to ship a container from Shanghai to Los Angeles was 10 days, compared with four days by air, depending how much cargo owners paid to transport their freight.

Logistics firm DB Schenker said shipping freight by sea from Shanghai to Hamburg would take 28 days, compared with four to six days by air.

Hofmann said sea transport would be considerable cheaper, US$2,200 to ship 10 tonnes by sea against US$33,500 by air.

But there are also challenges in shifting freight shipments from air to ocean.

Hofmann said there needed to be better planning between manufacturers, logistics operators and shipping lines to achieve more reliable transit times and a reduction in overall lead time in shipping product.

He added that cargo owners could achieve a reduction in costs by better inventory control and improved cash flow.