The Ever Changing Automotive Supply Chain

Supply Chain

The global automotive industry is undergoing big changes. Emerging markets, customer preferences and technology are all playing a huge role in this transformation and its effects will result in redesigning of supply chains. As the automobile industry transforms, competition will increase and from unlikely businesses such as Google and Apple along with niche automobile manufacturers such as Tesla and startup company, Faraday Future. It is likely as competition increases, consolidation and joint ventures will follow as the Detroit 3 – GM, Ford and Fiat Chrysler, seek to maintain their leading roles within the industry.

 

Emerging Markets

According to the International Organization of Motor Vehicle Manufacturers (OICA), worldwide motor vehicle production increased 1.1% from 2014 to 2015 with the biggest year-over-year percentage gains reported in Africa, up 16.1%. In fact, J.D. Power & Associates note that automobile manufacturers typically build facilities in or near markets where they sell vehicles and as a means to increase efficiency, lower costs and customize offerings to local preferences. As such, J.D. Power observed that a shift occurred around 2010 in which emerging markets led by China, India, Brazil and East Europe accounted for slightly more than half of the vehicles sold worldwide. This trend has continued as middle class levels expand allowing for more consumer consumption and demand.

 

Customer Preferences

Brand loyalty has little meaning for many of today’s customers. Instead, social responsibility and a ‘green environment’ are increasing in importance as well as safety and lifestyle changes. According to a recent Deloitte survey, the Gen Y demographic group are more willing not to own an automobile if amenities and services are within walking distance. In addition, if this group does purchase automobiles, a majority indicated a preference for those automobiles with alternative engines – and yes; Gen Y’s are willing to pay for alternative engines.

 

Technology

Perhaps one of the fastest changes occurring within the automotive industry is the implementation of technology. According to AlixPartners, over the past decade, there has been a shift from traditional, hardware-centric in-vehicle infotainment and communication systems to software based connectivity solutions. The Connected Car Forum expects that by 2025 every new car will be connected in multiple ways including embedded, tethered or smartphone integration.

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Your Air Freight Questions Answered–The Operations Edition (Part 2)

Your Air Freight Questions Answered – The Operations Edition

air freight When you’ve been in the air freight business as long as we have (Established 1977 – thank you very much) you encounter nearly every scenario possible where it comes to moving goods by air. We once saw an air freight shipment of a mast for a sail boat that was so long it had to be loaded by popping out the cockpit windows, sliding in the mast and then securing it for flight. The question most asked after hearing that story is “how did they fly the plane with open cockpit windows?”. They didn’t. The windows were removed for loading, then put back in so that the plane could actually fly. The point is that for every air freight scenario that comes up, we get a lot of questions. Many of them are good ones, and so we’ve chosen some of the better ones, the ones that actually relate to problems our shippers have or that they struggle to understand. Our most recent post of air freight questions focused on air freight economics and pricing. This time we’re answering questions about air freight operations that have an effect on your shipments:

Q: Why is it so hard to just “get another carrier” or “change airlines” when a shipment gets delayed or stuck?

A: This is a great question and we get a lot of calls from shippers who say “another forwarder got my freight delayed in Hong Kong, which is such a big airport, but now they can’t move it onwards. Can’t you just switch it to another airline?”.
The answer is “no” and there are some very logical reasons for it. To begin with, it’s important to realize that general cargo, unlike “self loading cargo” a/k/a passengers, can’t simply walk over to a ticket counter, present documents and a credit card and be transferred to a new airline. Despite being a highly dynamic product, air freight is built on some fairly rigid processes and as a result once a shipment begins its journey under an airway bill assigned to a specific freight forwarder, no one can control that shipment except the airline and freight forwarder who issued it. The ground handling companies who actually move the cargo at airports work exclusively for the airlines; the pricing of the shipment is strictly between the forwarder and the airline; and while the cargo is in transit it stays in secured, bonded areas where no one can reach it other than the ground handlers. That secure and bonded status extends to the legal status of the goods in transit as well, meaning no local forwarder or alternate airline can step in and take over the goods per local customs and international trade procedures. The best example we give customers is to think of cargo as passenger baggage. Once it misses a connection in London, there may be countless other flights available, but the airline who checked in the baggage is the one who has to get it to final destination. Even if another carrier is used, this can only be arranged and controlled by the initial airline with whom the baggage/cargo was checked in. This same constraint, however, becomes a way for us to add value to our clients air freight spend. By using our “direct or faster” approach to air freight, we at Crescent Air Freight rely primarily on direct flights for the transit of our customer’s goods. Our logic is simple here as we believe fewer stops, transfers and layovers eliminate the potential for delays, damages or misrouted goods. We take delays especially seriously since our customers are paying for speed when they choose air and very often every single transit day matters. So, while we might get a cheaper rate flying from New York to London via Frankfurt, we also know that we’re adding on 2-3 days of extra transit time and very few of our customers want this. Then comes the “…or faster” consideration. There are many instances when no direct flight option exists, or very often an indirect carrier will have more flights into a specific city or country than a direct carrier offers. This is very common for some extremely important markets like Africa, Central Asia and the Indian Subcontinent. Cargo destined for countries in these regions often arrives at destination faster when flown on an indirect carrier via Amsterdam, Brussels, Dubai, Frankfurt or Paris.

It sounds simple, but this is an important calculation that every freight forwarder needs to make when choosing how to route a shipment. The key consideration always should be: “what’s the best value for the money a client spends?

Q:  Why do air freight forwarders focus so much on cargo dimensions

A: We get this one so often, and despite answering it for customers repeatedly, they still express irritation over it. Let’s get a couple of things clarified about this matter up front:

a. The vast majority of aircraft in the world are passenger aircraft. According to Boeing’s “Current Market Outlook 2013-2032” approximately 2,300 of those planes are large and medium wide body jets which have the capacity to carry large cargo loads (you can think of this is cargo built onto pallets – whereas narrow body jets are better suited to small packages and hand loaded cargo)

b. On wide body passenger aircraft, freight cannot exceed 64 inches in height. If a piece of cargo is 64.25 inches in height it will collide with the passenger deck. So, here’s your first problem. The height of cargo is critical in determining what aircraft is to be used and since there’s a greater supply of passenger aircraft than freighter aircraft, simple economics dictates that you will likely pay more if your cargo can’t fit on a passenger flight.

c. Then there’s the matter of limited capacity on a plane. Most airline pallets are 20’ long. If cargo exceeds 20’ in length it overlaps the pallet and potentially makes the entire neighboring pallet unusable. This costs airlines money as they cannot access capacity in a cargo hold that is already short on space.

d. Even if your cargo doesn’t overhang, there’s still a significant penalty for having cargo that doesn’t allow the airline to maximize the tonnage capacity of their aircraft. This is a concept known as density and it implies that the airline loses money for transporting goods that weigh less than the aircraft cargo’s payload but occupy the same amount of space.

e. The density calculation most relevant to air cargo is that of volume:

(Length x Width x Height) x # of Pieces = volume weight in pounds
166

Or

(Length x Width x Height) x # of Pieces = volume weight in kilograms
366

The airline calculates air freight charges on the higher of the volume weight or the gross weight. This is a standard industry convention and really isn’t negotiable, so don’t think that your freight forwarder is playing tricks on you. As a shipper you should be well aware of the density or lack thereof of your cargo. Shippers of goods like telecommunications equipment, networking gear, plastic goods, and automotive accessories are especially likely to pay for volume. Meanwhile shippers of cheese, metal, lumber, and liquids never really have to worry about volume as their cargo is far too dense.
So, the answer to these question is an economic one. Knowing your dimensions can make a tremendous difference in your air freight costs which ultimately impacts profitability.

There’s a good deal more than just “buying” and “selling” that goes into an air freight shipment. As far as operations are concerned, a client’s orders to “just get it there” require a lot of planning and expertise. Having four decades of experience makes Crescent Air Freight uniquely well suited to understanding the complexities that come with international logistics and to creating solutions that make the process easy and cost effective for our clients. We look forward to your questions and comments, and best of all, you don’t have to be a customer to ask a question. Just send a Tweet @CrescentAF or email us at cargo@crescent1.com and we’ll be happy to answer your questions any time.