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Shift in Transport from Airfreight to Ocean Freight

There is a news brief in the International Herald Tribune dated April 9, 2008 which announced the posting of a “144 percent rise in second-half net profit to $17. 7 million, from $7. 23 million a year earlier” by Singamas Container Holdings, the second ranked shipping container maker in the world (Anonymous 16). Such an increase could only be a result of increased sales of shipping containers. Increased sales mean greater demand and this demand can only come from carriers who are experiencing a boom in cargo volume.

This surge in demand is hardly surprising given that shippers and buyers are now feeling the consequences of higher fuel costs and the depreciation of the US dollar. Airlines have been offsetting the oil price increases by adjusting their fuel surcharges. It is now common to see surcharges higher than the airfreight rate. Costs of shipping via air had started to become prohibitive. Moreover, inflation is quickly rising in the developing countries with food and energy costs soaring to all-time highs.

Up to early 2004, average prices for these imports from the developing countries had been falling gradually, but in February 2008 it shot up to 5. 6 percent. As well, with the lowered value of the dollar against the local currency, the cost of production has likewise become higher. These costs are being passed along to the buyers of which half of them are American companies. With these factors, higher prices for American imports seem inevitable. It has, thus, become essential to look into alternative means to mitigate these costs.

Since raw materials and production costs cannot be fully controlled, then perhaps savings can be had from changing the mode of transportation. Hence, we now see importers and exporters who have traditionally shipped via air starting to move their freight through ocean mode of transport. While these would mean increased transit time and a less time-definite cargo arrival, buyers and manufacturers have started to adjust their timetables and inventory accordingly. Continental Automotive had begun since last year to move their manufacturing materials from Germany to Asia using ocean transport.

Even the sensitive yet dense cargo of Hitachi Global is exporting from their Asia-based parts suppliers using refrigerated containers or reefers. It must be noted that shipping lines have also been passing on the cost of fuel to the shippers with their Fuel Adjustment Factor. Shipping via sea has more uncontrollable factors which vessels are sensitive to such as rough weather. There are also less direct sailings compared to direct flights into Asia given that most ports cannot accommodate the huge cargo ships from Europe and America and must meet further delays in the transshipment port as cargo is transferred to the feeder vessels.

These can lead to departure or arrival delays. In spite of all these, it remains that the cost of shipping is still cut to almost half compared to the cost of shipping by air. To make this change in transport mode successful, this can only be accomplished with the effective joint planning of the Sales, Purchasing and Logistics group of the company.

Work Cited

Anonymous, “Container Maker Doubles Net,” International Herald Tribune 09 April 2008: 16.

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