When To Choose Air Freight Over Ocean Freight
You have suppliers in Asia or Europe or some other far off land, and you now need to decide on your mode of transportation for your inbound freight. It’s easy, right? Ocean freight is the obvious answer since it’s cheapest, right? Not so fast.
According to DHL, ocean freight demand is expected to grow by 4% annually for at least the next several years, so ocean freight can be an excellent mode of transportation and can save a boatload — no pun intended — of money on transportation.
However, there are a few circumstances under which the choice may not be so obvious. Let’s explore those circumstances.
Electronic or Perishable Items
Electronic components or other items that could be susceptible to a high-heat environment in salty air. Those shiny new circuit boards that will revolutionize your product might not be so shiny when they arrive if they’ve been sitting in a hot, salty container for over a month.
Short Shelf Life Items
Items that have a limited shelf life that would be largely consumed by the time the ocean freight arrived. You don’t want perishable items stuck in a sea container for six weeks if the shelf life is only twelve weeks.
Short Term Demand
If your demand lead time is shorter than the lead time for your ocean freight. Let’s say your agreed-upon lead time with your customer is 12 weeks. You have a supplier in Taiwan with a 6-week lead time for production. With a 4- to 5-week transit time from the port of Taipei to an east coast port in the US, you will have almost completely consumed your lead time already, and we haven’t taken into account the pre-carriage that could take days or weeks, the on-carriage that could also take days or weeks, delays of several days that you may experience with ocean freight, and of course your own production lead time. Air freight is a necessity, in this case, provided you are not carrying adequate inventory to support this need.
Freight In Transit
Expensive items can tie up an extensive amount of capital. If you use ocean freight, you may have 6 - 12 weeks worth of inventory somewhere in transit. Using air freight could mean a matter of only days in transit. Although air freight would cost more per piece or per kilogram or per foot, you would have more liquidity and better cashflow. Slow moving inventory -- whether finished goods or raw material -- can be a balance sheet and cash killer.
Risk of Delays
Another downside to using ocean freight is when Less Than Container Load — LCL — is used. This is similar to LTL in the trucking business. When the sea container arrives at the destination port, it must be unloaded from the container vessel and then trucked or railed to a de-consolidation facility. At that point, the freight is unloaded from the container and then moved to another transportation mode for delivery to the customer. Instead of the de-consolidation facility, the container could also be brought around to the different final destinations — on a milk run — and unloaded of the respective freight at each location.
Regardless of the method of final delivery, this takes much longer than delivering a full container to one destination. This can sometimes take many days for the freight to be de-consolidated and then delivered.
Another risk with ocean freight is that it can become hung up at the port, hung up at a rail terminal (if using intermodal transportation), or otherwise stuck in transit.
Bringing It All Together
Determining which mode of transportation you need to use for your freight arriving from overseas can sometimes be very complicated. Is your priority to save money? It may be cheaper per piece to use ocean freight, but you will then have more capital tied up in inventory in transit. Is your priority an expedient delivery? It may be quicker to use air freight, but that can quickly eat away at your margin.
A professional that specializes in supply chain and logistics analysis can help you to develop a model to identify the best mode of transportation for each commodity that you procure from overseas. Contact us to discuss your difficulties and how we can help to smooth the operation.
Brad Couvillon, CPIM, CSCP
Lean Six Sigma Black Belt
Founder, Titanium Consulting, LLC