Increasing consumer trend to get products on-demand fast
The economic rebound from Covid shutdowns has been remarkable on several fronts related to global shipping and supply chain management. Foremost is the meteoric rise in container shipping rates as well as capacity dislocations.
Be it vessel wait times at destination ports, Suez Canal blockage from the Evergain, or the latest delay crunch caused by the temporary closure of the Port of Yantian in May 2021, increased stresses on global supply chains are the new normal. Ocean container rates have quadrupled from 2019 levels on many shipping routes critical to manufacturing enterprises and consumer re-supply efforts, thereby manifesting through price inflation of end user products. As of late, container rates when measured in dollars per kilogram of product shipped, are narrowing the spread between ocean cargo and air cargo significantly.
The difference however to your business, is the speed at which you can replenish your inventories for manufacturing and subsequent product sales. Ocean freight is becoming increasingly less efficient from a ‘time to market’ perspective and the relative cost of inventory carry before the products are monetized and revenue captured. Air cargo volumes as a result of this inefficiency in competing ocean cargo, have shown a remarkable surge. Cargo-Tonne-Kilometer (CTKs) grew 12% compared to 2019 levels and are now 5% above the pre-pandemic peak load factor set in August 2018.
With the ever narrowing delta between the costs of air cargo vs. ocean cargo becoming monthly news headlines it seems, air cargo is quickly becoming the default choice for time sensitive products to move around the globe. It will be interesting to observe the various dynamics going forward with the increasing strain on global supply chains as well as the offsetting air cargo capacity increase through normalization of intercontinental commercial air traffic belly cargo.
A complex and challenging shipping environment to be sure, though not one that cannot be overcome through proper logistics planning with a sharp eye toward risk mitigation of your products not arriving to your customer on time.
Author: John Zapel, COO of Kaizen
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