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Economic malaise tempers outlook of shippers.

Shippers of air cargo are hopeful but realistic about the prospects for an industry rebound in 2014. That's the gist of opinions offered by readers responding to an Air Cargo World survey. Sustained improvement depends on the growth of the U.S. economy, they say. Global challenges include too much capacity and lack of infrastructure in some areas of the world.

Some shippers say they are shifting to oceanfreight while others say they will keep the same mix or even increase their airfreight shipments. The comments of these shippers, who represent manufacturers in North America, Europe and Asia, offer a look at how companies approach decisions related to airfreight.

Here is the panel of nine shippers for our virtual roundtable:

* Lars J.T. Droog, supply chain manager, EMA for Tosoh Europe B.V., a regional office for Tosoh Corp., a Tokyo-based chemical manufacturer.

* KSTS Vera Prasad, associate director, international logistics and supply chain management for Dr. Reddy's Laboratories, a generic pharmaceutical manufacturer in Hyderabad, India.

* Yuji Shimono, managing director, Japan for Smiths Heimann a division of Smiths Detection, a security technologies firm in Urayasu, Chiba, Japan.

* PJ. Moffett, director of global logistics and customs compliance for Quality One Wireless, an importer of cellular phones and wireless products based in Hauppauge, N.Y

* Fred Savage, manager, corporate logistics & distribution, KBA North America, the Dallas-based U.S. headquarters for Germany-based KBA Group, a manufacturer of commercial and newspaper web presses.

* Bob Scribner, director, global logistics and trade compliance at Fairchild Semiconductor, a semiconductor manufacturer in South Portland, Maine.

* Peter Scheerhoorn, distribution manager for Nucletron, a Veenendaal, Netherlands-based division of Elekta, a manufacturer of radiotherapy equipment.

* Nicholas Lam, operations manager for Converse at the company's Singapore location.

* Walid Khoury, managing partner at ALS Logistics Solutions, a manufacturer of material handling systems based in Dubai.

How do you feel about the airfreight industry going into 2014?

Droog: The overall feeling is a bit sad, but I do hope that the airfreight industry as a whole will pick up. When the economy will accelerate, shippers will definitely need air capacity. Big threat for the full freighters is the increased cargo capacity of the modern passenger aircraft (e.g. B777).

Prasad: It is going to be tough, but everyone needs to have their own strategy and path.

Shimono: As the U.S. economy recovers, the total volume of airfreight moving out of Asia Pacific region will increase over the previous year. However, a recent trend of airfreight shows growth to be minimal, and we do not expect a big increase in volume. It will be more or less recovering the decreases the industry experienced in last couple of years.

Moffett: Mixed emotions. We're always looking to get off of airfreight considering our product margins are so tight. However, oceanfreight still hurts us in our time to market. I will also be looking for new deferred services from the Pac Rim to the East Coast to try and shave a few dollars.

Savage: As a purchaser of these services, I particularly don't feel great about the upcoming year as I see the industry taking a hit in the reduction of capacity and increasing rates. This, however, will not alter my shipping plans as I have to depend on this type of service but cannot always pass any additional cost on to my customers, thus reducing my bottom line proportionately.

Scribner: I see the airfreight industry more or less aligned with the global economy with a strong tie to U.S. and China's economic health. That being said, the behavior of the industry is not easily predictable either. Moving into 2014, I suspect we'll see similar things as early 2013: reactions to no/slow growth will be tightened up supply with static pricing and larger, more sophisticated players will be investing in more customer-focused services in the B2B technologies.

Scheerhoorn: It is my belief that based on the economical situation, it will become tougher for airlines to survive. Still, they have the possibility to earn money if they deliver products to the market that truly emphasize the speed from "at-airport drop-off until from airport collection." Teaming up with brokers/agents to provide a lean supply chain and eliminate costs and upgrade to airspeed will make a difference and keep competition of other modalities out.

Lam: 2014 indicates to us that there is a slowdown, i.e. only key materials and required products will be airfreighted. Planners are putting place reviews of requirements as well as restrictions on when airfreight is used in order to optimize the dollar earned.

Khoury: I believe that we are expecting a growth of around 6 percent from the previous year.

Do you anticipate increasing your air shipments in 2014?

Droog: Within our organization, I already see an increase in the number of air shipments. Main reasons are 1) higher (unexpected) demand and 2) increase in number of sample orders. Hopefully, the sample orders will lead to purchase orders, which are needed urgently.

Prasad: On paper, this is a big no, but in reality and with difficult supply chains, we might end up doing more than anticipated air shipments.

Shimono: No. We have a new manufacturing site set up last year in Malaysia where it is close to a growing market of Asia Pacific

Moffett: I expect our air shipments to remain the same.

Savage: Yes, I can foresee an increase of 5-7 percent because of the unwillingness of my customers and my company wanting to carry any unnecessary inventory, thus it requires that I import spontaneously to meet the demand for replacement parts when needed, and this will again add to my cost of doing business.

Scribner: No, I do not see an increase in air shipments. Likely it will move in the other direction, but not due to unhappiness or cost of airfreight but rather related to some supply chain decisions around warehouse locations.

Scheerhoorn: Yes, I do. I see however a tendency that capacity is reduced (on certain routes) and the capability and willingness of airlines to transport "dangerous" products is declining. Not for all airlines, of course, but when it seems to become difficult, the easy way out is non-acceptance of the shipment or, worse, a complete embargo by the airline.

Lam: No for now. The only reason we would see any increases will be contributed by any major deficiencies on supply of natural raw materials causing delays in manufacturing.

Khoury: Prices for air transportation are much lower than before and with Africa opening its airspace, we are expecting steady growth for the years to come.

What do you see as the biggest issues facing the airfreight industry?

Droog: The diversity of the local, regional, global security measures will increase costs and will increase the risk on delays in the supply chain and risk on damage due to additional handling (needed for the security checks not applicable for security checks done with dogs).

Prasad: The space constraint, demand vs. supply gap and the price for that gap one has to pay. There has to be a level playing field.

Shimono: The erosion of freight charges caused by overcapacity in practically every market. I believe it is a perennial challenge for the industry.

Moffett: I see regulation on shipments with batteries being a major hurdle. Lithium ion batteries power so many items. There are conflicting views on hazmat or non-hazmat categorizing of these items.

Savage: Too many providers with capacity, so I think there will be a shrinking of capacity and an increase in the cost of importing/exporting throughout the system. I hope not, but there is only so much freight and too many service providers, so ultimately you have to have a cleansing of the system, and that will allow planes to fly with maximum cargo and reduce the overhead of the carriers, but the elimination of competition will allow for increase rates.

Scribner: Too far behind in the IT world. Not enough visibility and communication tools. Airfreight industry needs to get closer to a lights-out style of oversight. I do not like spending so much people resources chasing shipments, documents, clearances, etc.

This activity needs to be online and transparent everywhere.

Scheerhoorn: Several issues, but as we ship a niche product (radioactive sources for medical use) these issues are not interesting for the broad public.

Lam: Ability to standardize [electronic data interchange] connectivity amongst providers. Providers today offer EDI linkup, but they are not riding on a standard platform. We tried to implement across three major sources for us, however, none was successful as each required customized EDI connectivity.

Khoury: Most airports' infrastructure are not modernized enough to cope with the growth. Travelling to the sub-continent will prove this. We are recently witnessing changes in this region and more investments made into infrastructure.

What are your primary considerations when deciding how to ship your products?

Droog: Service (urgency), costs and limitations with respect to carriage of dangerous goods.

Prasad: What is at the destination and its projected sales, the stock in transit and the stock at the manufacturing facility.

Shimono: The delivery time requirement of our products to the end users.

Moffett: Time to market, plus cost plus how many do we "risk" ship in advance.

Savage: We normally look for the closest airport to our customer that has POE availability throughout the weekend and then we look at price. Service is the primary driver behind our decision whether to ship via air or sea, along with some other variables such as size of shipment and customer need timelines.

Scribner: (1) Quality of service (deliver what you promise), (2) cost and (3) ease of doing business.

Scheerhoorn: Reliability, speed (including handling and transfer) to ensure that what we promise our patients is also delivered on time, every time.

Lam: Profit, time, place, need, marketability, global events.

Khoury: The most important is the airline base and the hub through which they are flying to.

Do you plan to shift any shipments from airfreight to oceanfreight?

Droog: No, the majority of our shipments are already shipped as ocean freight. Some of our chemicals are not allowed to be transported by air and for the commodity goods, airfreight is just too expensive

Prasad: Yes, a lot of products are being moved to the double category of being readied to be shipped both by air and sea at the same time, their packing configurations is being changed and a lot of harmonization is being done to this effect.

Shimono: We obviously try to avoid shipping our products by air as much as possible.

We use airfreight only when necessary to meet our delivery commitment to the end users.

Moffett: We plan on using our West Coast distribution hub for oceanfreight from the Pac Rim. It keeps the cost down as well as the transit times down.

Savage: No, we do not plan to shift any shipments because of the time requirements of our products and our customer timelines, which change daily, and oceanfreight will not work for 90-plus percent of our shipments.

Scribner: No.

Scheerhoorn: No, oceanfreight is no option for the radioactive sources. Shipment of these has to be done in a short timeframe. For other types of products, such as large equipment, we could consider it depending on the final destination.

Lam: Yes, as much as 75 percent of current airfreight is the target. We analyzed that as much as 75 percent of airfreight today can be replaced by a better-planned oceanfreight scheduling.

Khoury: Depending on the availability of flights or ships and delivery to clients, we cannot decide which shipment can be shifted yet. Most probably, we would shift from oceanfreight to airfreight.

By John W. McCurry
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Title Annotation:feature focus: Shippers
Comment:Economic malaise tempers outlook of shippers.(feature focus: Shippers)
Author:McCurry, John W.
Publication:Air Cargo World, International ed.
Article Type:Cover story
Date:Nov 1, 2013
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