a Story untoldby From the Top on 2011-05-16 12:08:19
Has the industry seen the potential of sea-air product ?
I met Dr.Ghanem Al Hajri,Director General of Sharjah Airport in 2004 with an introduction from a close friend of mine. A very unassuming and a humble personality , who had a doctorate in sea-air product. Dr.Ghanem has contributed a lot to UAE’s emergence as the largest sea-air hub in the world . Yet humble , he described me how sea-air product was born in the world even before most of us even started our careers.(Dr.Ghanem Ali has authored a booked on sea-air transport which presents an in depth analysis of the product) The birth of sea-air product in UAE started due to cheaper jet fuel prices in 1980s.
When the Asian and European carriers started flying freighter air crafts between Europe and Asia .They needed a technical stop in between to fuel the aircrafts and UAE was the best option with a free port environment. The UAE capitalized on the British influence they has on opening the economy and allowed the airlines to have open passage for technical stops .
During the low demand seasons , the freighters not only stopped for jet fuel but tapped in to the cargo that transshipped via Dubai ports. It was export capacity infusion for origin markets like Indian Sub continent and North,South Asia . One of the first origin to adopt this method of transport was Hong Kong.
The product with 15-17days transit time from origin port to a destination airport was beating the transit times by far compared to Ocean and created cost saving capacity compared to Air. I personally think the growth of sea-air product was not only driven by the demand but also by the facilities that UAE government gave to the shippers. Until few years ago, UAE was one of the fastest ports in the world which facilitated transshipments at a un parallel speed. The bonded transfers still happen in leas than 12 hours in UAE.
The initial stages of thisproduct was patronized by the Fashion and Apparel industry that flourished in South East Asia and Hong Kong. The value of the fashion products could not afford to be on air freight all the time. Other products like electronics did not go on this mode of transport as it could afford to be on air freight . The capacity creation by sea-air product helped the low value exports from Asia to reach its markets with the lowest cost on transport faster than Ocean Freight. Closer to two decades , sea-air product was offering its low cost options to the fashion and apparel industry and with a handful of electronic and general goods. The early adaptation of sea-air product was mainly by some of the large fashion brands in Germany.
Regions like Central Europe and Nordics where the first markets to see the benefits of Sea-Air product. Operating this product were a very few companies who created a niche and the product was very profitable . I assume the early stages of this product gave as much as 30-40% net revenue to its operators. The companies who operated this product did well to keep it low profile so they did not invite competition.
I salute APL for giving a back bone to this product by offering a seamless service on Ocean freight which helped the sea-air product to maintain an uninterrupted service via UAE. Many other carriers have tried, failed and tried again but up to this day , I have not seen competition to the main carrier APL.
The competition brew in late 90s and in early 2000 when a few global companies adopted this product as a main stream product to created differentiation to their customers. Since then it has picked up so well by a limited number of supply chain companies. Others have this product in the brochures only. The companies who have a serious sea-air product ,will always give autonomy of operations to a separate product team who can independently operate seaair product . Sea-air product can always operate successfully if its not the step child of Ocean freight or Air freight .
I am trying to unfold the history of this product as much as I know to narrate this article to show the uncharted products and industries in the world today. In the present world of air freight , electronics are becoming the majority users of air freight as it could afford to pay higher charges than other commoditised retail goods like fashion. However in the past 5 years , I have seen the pressure on electronics products to move from all-Air freight to other modes of slower and cost saving modes of transport .
This is happening due to these electronics products are reaching its product life cycle and becoming commodities in its own domain. However most electronics manufacturers have tried a desperate attempt not to move their products to Ocean freight. Some have adopted Ocean freight very well as a strategy or by the downward pressure on gross margins.
Some have reached half way. There are many more electronics and industrial product going via sea-air at present day than a decade ago. The adaptation to this product is also pushed forward by the competition that supply chain companies have faced to stay afloat with t he product and volumes. Some Supply chain companies have fought for the same old customers to gain market share and some have ventured out to create inroads to new industries and commodities. I personally appreciate the companies who have created new demand on this product than a price was on sea-air.
Although we talk about sea-air product assuming its a popular product , its operated by a handful of companies who are serious about sea-air . I get a moral boost ever time I see a new product joining the sea-air product and start to appreciate the cost savings and successfully managing the lead times. Its shows al of us that sea-air product has not reached its optimum value in the supply chain. Not many manufacturers and forwarders have experienced the product as a must-have product in their supply chain.
Some customers have shared their bad experiences on sea-air and I attribute these negative experience to the supply chain companies who have operated sea-air product only to satisfy a customer but not to do justice to the product by operating it right. There are many customers and industries who are interested in Sea-Air product today as they face the price tipping point of their product life cycle.
I have seen many EMS , Industrial and even mobile companies who have shown , operated and continue the sea-air product as a
permanent mode of transport. I had the pleasure of introducing sea-air to a world famous LCD manufacture in 2006 where it was embraced as a great success . Today I foresee the digital camera , printers and even mobile industries gearing up to use sea-air products as they no longer can use air freight as their margins subsides.
Recently I had a very interesting conversation with a factory senior manager of a world famous mobile brand . They have conquered the smart phone and middle level mobile products but they have lost market share on the lower priced , high volume mobile phones in the world market. When we discussed the benefits of the sea-air product , he was pleasantly surprised on how the company could use the seaairproduct to keep the cost of the mobile under 30USD a unit on whole sale prices.
As I attempt to take this product to the next generation, I foresee that education of this product is vital for the growth of this product. Educating the customers and potential users of this product needs to be professional and also in details. Users of this product have traditionally used Ocean freight and Air freight and they are comfortable with these operations. However a multi model transport option has not always been a comfort zone. Another reason to grow this product is the green logistics in supply chain where many companies have not realized the potential of saving carbon emissions as much as 30-40% compared to Air freight .
I can foresee that sea-air product will become a main stream product in supply chain companies not only it saves cost compared to direct air freight but it also has the potential to offset any carbon emission tax that will be levied against the corporate companies in Western World.
By Chaminda Gunasekera