The weighing game — Exporter Magazine

Air cargo from New Zealand can arrive in Sydney overnight compared to the ten days it takes by sea.But only 0.4 percent of New Zealand’s total international movements are carried by air according to the Government’s National Freight Demand Study (September 2008).The cost is easily four to five times greater by air than by sea, say freight forwarders. And passenger baggage, mail, and then perishables take precedence in the cargo holds.So why fly?It’s a weighing game.Weight is more expensive than volume in airfreight (the opposite for sea freight) and is critical to securing space in a plane, explains Warren Pengelly, director of Pengelly’s Group of Companies.The rule of thumb in comparing air versus sea carriage is that, by air, 167kg of product fills a cubic metre, compared to one tonne per cubic metre for sea freight. But airfreight pricing is based more on weight than volume. So six cubic metres of feathers could be charged at the 167kg rate by air, but at six cubic metres space by sea. And airfreight could possibly be cheaper – depending on the distance to destination, Pengelly says.And while some consignmentsmight seem too heavy to be economical, they generally arrive in better condition than by ship due to less handling.On planes most goods are packed on aluminium pallets or into airline containers (‘cans’ up to about three metres long) and rolled on ball bearings, making loading easy and less likely to damage goods than on ships, Pengelly says. Loose cargo shares the bulk hold with mail.Destination also affects an exporter’s ability to airfreight: more airlines fly to the bigger markets and more often than to smaller markets, which affects the size of planes and, in turn, the cargo dimensions and types they carry.Most aircraft flying in and out of New Zealand are passenger planes but Qantas and Singapore Airlines fly freighters, which carry heavier and more odd-shaped cargo.Pengelly says “We have our favourite airlines – it comes down to our best deal. Most customers choose by price.”An example of pricing is 20 tonnes of steel being airfreighted to Sydney. It would cost about $16,000, compared with $1500 if it travelled in a ship’s container. Potato chips are lightweight – therefore cheaper to send by air, despite being bulky.In a recent large air shipment Pengelly’s sent 40 tonnes for a product launch to the US because the exporter’s production had run behind schedule. The freight charge totalled about $200,000, whereas two container loads by sea would have cost less than $10,000.However, for small parcels sent door-to-door to China, the US or anywhere, a courier company will do it fine and possibly cheaper thana freight forwarder, Pengelly says.

Charges

A quote is important so exporters can weigh up their shipping options. Airfreight charges are quoted in New Zealand dollars but shipping is usually in US dollars.Airlines charge a basic TACT (The Air Cargo Tariff) rate determined by the International Air Transport Association to which each adds surcharges such as for fuel, security and currency adjustment.These charges change infrequently compared to shipping charges, freight forwarders say.Airfreight manager/director at GVI Logistics Ltd, Graham Bruce, says destination charges at overseas airports can be less than at seaports, particularly on smaller shipments.Pricing levels may also depend on the degree of competition into a particular market, the type of commodity being flown and its value. And airlines usually review their rates around their schedule changes, often in March and October, Bruce says.Other important, interlinked airline factors are the reliability of its service, whether the cargo moves point-to-point or indirectly with stopovers, the airline’s ground-handling capabilities and where the cargo is stored in transit, he says.

Freight forwarders

Freight forwarders arrange airfreighting, not the airlines themselves, says Ivo D’Silva, cargo sales manager for New Zealand at MCH Cargo Australia Pty Ltd. The company represents seven airlines: Malaysia Airlines, Delta Airlines (America’s biggest in New Zealand), Turkish Airlines, Air Mauritius, Air New Guinea, Vietnam Airlines andAir Astana based in Kazakhstan.“Freight forwarders ask what we can give them regarding quantities, commodities, frequencies,” he says. “We discuss the best offer we can make; they shop around. We tryto make our airlines the firstchoice carrier!”Planes can carry the main types of cargo that ships do: general cargo, perishables and dangerous goods such as inflammables, as well aslive animals.“Use airfreight to save time, for value for money (the exporter’s customer will get the goods faster and probably pay faster), and for consistency (planes leave frequently and predictably),” advises D’Silva.Air New Zealand Cargo carries freight on all the international and domestic airlines that operate onthe Air New Zealand network.“Although the ‘face value’ of airfreight can appear very expensive, when a business looks at the ‘total cost of ownership’, the ‘Just in Time’ airfreight model can often be extremely cost effective, as it releases cashflow, can create production efficiencies, reduce loss and damage, and save storage and inventory holding costs, etcetera,” says Air New Zealand Cargo general manager Rick Nelson. “This is particularly the case where exporters are using LCL [Less than a Container Load] rather than FCL [Full Container Load] sea freight services.”The speed of travel (and price) can also vary. For example, the airline’s ‘Go Priority’ service delivers a faster and more guaranteed airport-to-airport service than ‘Go Express’ and in turn ‘Go General’.Pallets provide a little more flexibility than cans in loading and stacking but the choice of ‘unit loading device’ largely depends on the quantity and nature of goods.

Mix ‘n match

DHL Express New Zealand offers a full range of [freight] services including flying a dedicated plane to Australia – which provides five rotations a week. It leaves Auckland at 8pm, arrives in Sydney at 9pm local time, connecting to domestic transport, and is back in Auckland at 4am.National operations manager Alan Barnett says the benefits of airfreight include that it’s affordable, reliable and fast, and provides a high level of security. In the past there has been a misconception that a package has to be small to be sent by airfreight.Multiple transport options include guaranteed delivery times for pre-9am or pre-12pm, a committed delivery standard by end of day, or day-definite for varied timeframes.A mixture of air and sea freight can work for exporters, even for perishables, says the general manager of International Cargo Express Ltd, Peter Furlong. For example, an apple exporter might airfreight the first pickings to market while shipping the bulk of consignments by sea more affordably. At the end of the day some types of goods (for example, that need a static chill temperature) or small volumes cannot share space in a 20-foot shipping container to the desired destination. So air is the only choice.Airfreight bookings can be made up to around four hours before a plane departs – although clearly the more notice the less risk. Final drop-off times at the airport for loading are generally three hours before departure for a known exporter (or 1.5 hours for express service), and six for a casual shipper.“It’s much more expensive, but it comes down to access to the kilograms and cubic metres [space]in the timeframe you want,” Furlong says.

Key takeaways

After timing, weight is key in choosing between air and sea freight.Passenger baggage and mail get preference over cargo.Communicate with your freight forwarder to avoid documentation mistakes and gain early airline bookings and best deals.‘Priority/express’ airline services provide guaranteed delivery and later drop-off times than cheaper services.A mix of sea freight and airfreight works for some products.

CASE STUDY 1:

Instant gratification for online shoppersNew Zealand design-driven children’s wear brand Pumpkin Patch will export close to 400,000 parcels for online sales this year, mostly to Australia, but also to the UK, US and Ireland.“There is just no way we could compete with other online operators in those markets if we used sea freight,” says Pumpkin Patch chief executive Neil Cowie. “Speedy and accurate delivery to customers is critical.”Most of Pumpkin Patch’s orders are picked and packed within 24 hours of placing the order and on the DHL plane to Australia that night. The delivery is completed within 24 to 48 hours to most destinations, from point of arrival in Australia.“The majority of product sold via the Australian [Pumpkin Patch] stores is sea freighted direct from the country of supply. This is particularly the case at the start of each season when switching over from, say, winter to summer clothes.”During the season Pumpkin Patch replenishes its stores from its Auckland-based distribution centre using airfreight direct to the main centres of Australia.“Obviously economics comes into it but airfreight still gives us the best overall solution for our business. The actual freight cost isonly one component of the total supply chain cost,” says Cowie. “While airfreight is more expensive than sea freight, having our main distribution centre holding replenishment stock in Auckland is more cost effective than having it in Australia. The cost of not having the right product in the right store at the right time can be very significant,” he adds.

CASE STUDY 2

The now, now industryThe limited vase life of cut flowers makes airfreighting an imperative for Flying Fresh International Ltd that ‘buys fresh and flies fresh’ on behalf of growers.Even by air, peony roses that last about a week are sent on ice, arriving in New York 48 hours after departure, says general manager Stephen Arnet.Customers tend to be other wholesalers in about 20 markets, mainly the US, Japan and Europe.“With a wedding or a show you might get an order on Monday and they want them on Friday. We don’t have big lead-times. The pressure can be extremeat times.”Located in the Southern Hemisphere means, for example, when the Dutch season winds down, New Zealand’s season is coming on.The company’s office is in the same building as its exclusive freight agent, so Arnet can inspect the blooms for biosecurity requirements and quality before loading.He has his favourite airlines: the ones with the right number of flights to his markets and whose people look after his company with good freight rates.It’s essential to book ahead, but even so there can be problems. Sometimes a plane is so full transit is necessary in the general cargo hold rather than containers or pellets, increasing risk to the flowers’ condition.About twice a year the cargo gets bumped off altogether or partially, requiring new paperwork. Strong winds affect flight times; planes are taken out of action for mechanical work. In fact, every week a flight would be delayed and every few months, one would be cancelled,Arnet says.“Airlines worldwide have tight clauses, meaning their liability (per kilogram) is very limited in such circumstances.”

But in summary he says, “Yes it’s expensive to airfreight but most New Zealand flowers are high value and relatively high-priced, more exclusive varieties.”

Publishing Information

Magazine Issue 

Exporter magazine July/August 2012 Issue 24