Post Date : April 9, 2020
Air freight is losing its takers. The ongoing pandemic has resulted in many short term changes in the dynamics of the logistics and supply chain industry. With a turbulent start to the year, the Apparel Industry has seen shifts within its system, one of them being a shift towards sea freight over air freight. We explore the reasons governing this trend in the wake of the ongoing pandemic.
An unprecedented start to the year has made 2020 an exceptional year for retailers. The Apparel Industry has witnessed a series of changes at the start of the year. With the lockdown and restrictions imposed everywhere around, there are reports of a marked transition towards sea freight to cope with the regulations.
The situation is particularly stark for fashion retail. Clothing companies initially vouched for expensive airfreight to move goods out of China which could not have moved out before the curfew restrictions kicked in. However, by the end of March, the companies took a turn. They cancelled more than 60% of air freight shipments. For some shipments, they would have paid a whopping five times the previous year’s price on the spot market.
There was a sudden shift towards sea freight. So, the goods that had not yet been cleared by the export customs, were transferred to sea freight although the charges were double the usual price on the spot market.
What was the reason for such an increasingly marked shift? The answer was, “The slower, the better”. This motto held true for the bookings, because container ships from Asia are now used as “floating warehouses”.
The fact that there have been rapid and unprecedented shits towards using seafreight was found out by evaluating the supply chains of at least a hundred apparel brands and their supply chain partners. This data was analysed by SCM experts using Setlog’s supply chain management software OSCA, dated March 23rd.
The report stated that many companies attempted to stop orders at the last minute. When this was no longer possible, the logistics experts split the deliveries into urgent airfreight shipments for e-commerce orders and inexpensive sea freight shipments that can take a longer time to arrive.
Reasons for choosing sea freight over air freight:
Nature of business:
Fashion Industry is deemed as a discretionary business. In times of emergency, it does not fall into essential items. One of the reasons why the apparel industry is shifting towards sea freight is because the fashion retail stores are currently not in business. Hence, the delays can be understandable. The costs resulting from the transition of transport mode from air to sea are now only a fifth. For transporting clothing,the charges depend on loading capacity, product and volume.
All in all, the delay in delivery from China has worsened compared to the last analysis done by Setlog on the second week of March. If at first the deliveries were delayed by 20 days than planned, now it has crossed beyond 25.
Empty containers in China:
Industry experts fear that the pandemic will continue to affect the supply chains of the fashion industry for a long time to come. There are reports that full containers are still stuck in some Chinese ports. In addition, according to the German Logistics Association, around six million empty containers lie vacant in China alone, which are only gradually entering the system because ships are full. It may take months for normalcy to return.
Volatility in air freight rates
Air freight rates are “extremely volatile”. This volatility has hit the peak ever since the lockdown was imposed, which created the problem of capacity for air cargo.
On one hand, due to the cancelled passenger flights, there is a lack of belly capacities in the planes flying from Asia to Europe. On the other hand, air freight cancellations in the consumer goods sector are now freeing up cargo space again. According to reports, companies that work with their factories, suppliers and purchasing offices directly on a central supply chain platform have an advantage in rapidly changing situations.
This is how time delays in raw materials, production changes and transport can be communicated quickly between all partners including forwarding agents.
Will this trend continue?
It is too early to predict whether this trend is here to stay, or if it is a temporary measure. The marked shift towards sea freight due to the unprecedented conditions has certainly gripped the Apparel industry. But it is still too early to note if this transition is a temporary measure or will it be relieved once the lockdown is lifted. For now, it can only be said that the fashion and apparel industry will surely witness unexpected dynamics once the curbs are lifted.