Date: Tuesday, November 7th, 2023
Source: AirCargo News
The air cargo industry may face increased competition from the maritime, road and rail sectors as changes take place that shorten the distances within supply chains.
Speaking about ‘Strategic priorities for post-pandemic supply chains’ at the transport logistic and air cargo Southeast Asia in Singapore, supply chain specialist Mark Miller said global supply chains and trade flows will be diversified and reconfigured and this could mean airfreight is less necessary than other transport modes.
Geographical shifts in production result in more regional logistics, Miller explained. Regional supply chains mean shorter distances and there may be “less intercontinental movements”.
He said: “I could see a situation where the transit time difference in a regional supply chain, the difference between airfreight and seafreight is a matter of a few days whereas in a global supply chain it’s a matter of a few weeks.
“So if it’s a regional supply chain we can see some airfreight migrate into seafreight.”
He added that ground transportation may also be used more in regional supply chains, depending on the countries and terrain involved.
“Ground transportation networks really come into play in regional supply chains for road and rail freight.”
However, he noted intercontinental supply chains will continue to grow, supporting the need for airfreight, although he said growth may not be as strong as previously.
Air Cargo News asked Miller what airfreight companies can do to safeguard their business following decreased demand after the post Covid boom, and with the potential impact of changing supply chains and the shift of business back to seafreight.
The air cargo industry should focus on meeting demand from customers for whom speed is critical, he said.
“This is not going to be a massive everything starts going on the ocean again, although what we’re seeing at the moment is the container shipping lines are desperate for cargo and premium rates because they are really suffering after three years of a global multi-hundred billion dollar party.
“If we think about our region here (Southeast Asia), airfreight is going to be three days and seafreight’s going to be four or five days, so what would be the decision-making criteria for taking it off a plane and putting it on a ship if it’s only one or two days.
“I think the opportunities are to look at the specific areas of airfreight which really demand airfreight – and its speed, in temperature control, door to door, time definite, and the aftermarket in critical sectors that really need rapid, time definite solutions so I would suggest that’s an area to concentrate on to develop those capabilities.”
Additionally, he stated that e-commerce is boosting cross-border trade and logistics business: “Logistics becomes the new retail as e-commerce becomes the new normal.”
More broadly speaking, Miller said businesses should support supply chain diversification with three strategic priorities: resilience, sustainability and digitalisation.
Building resilience is part of the “great supply chain reset”, he said. The industry will witness diversification and reconfiguration of supply chains, with parts being relocated.
Featured in this movement will be “friend shoring” and “allied sourcing” which is based on using counties with similar values, and not necessarily the lowest cost economy.
Some companies are moving sourcing and production closer to the end market, which reduces the risk of supply chain disruption, Miller said.
This follows the disruption of global supply chains by three ‘Black Swan’ events; the Covid pandemic beginning in early 2020, the Suez Canal ship blockage in March 2021 and the start of the Ukraine war in February last year, while lately the Israel conflict has also been added to the logistics landscape.
Miller said the impact on cargo flows, such as delays, demonstrates that “global supply chain ecosystems are so interconnected in the modern world they have these profound interdependencies and they are only as strong as their weakest link. And those weakest links have been brutally exposed”.
He noted that geopolitical unrest is also a factor in the current supply chain disruption, such as the most recent iteration of the US-China trade dispute with “no end in sight”.
He said in Asia specifically there are uncertainties about China’s economy, and imports and exports in the country have both struggled for growth.
However, there are also lots of trade agreements spanning the continent due to superpowers vying for attention, influence and power, which means that the economies in Asia are “torn about their allegiances”.
When looking at changing supply chains, companies can potentially model business on three supply chain strategies, explained Miller.
Firstly, China Plus where some production is located out of the country. Vietnam has been a beneficiary of this, noted Miller.
Production can also be moved near or in the consumption market – known as nearshoring and reshoring.
The third strategy is “In China, for China” which is selling made-in-China products in China.
Miller said companies are thinking about the cost and availability of labour, with Vietnam, Thailand, Malaysia and Indonesia offering competitive options in Asia, while Mexico is being utilised for the US market.
Business tactics to protect and strengthen the supply chain include improving the weakest link in the supply chain, preparing ahead for what might come next, working on process optimisation and productivity, and considering what is the cost of doing nothing.