Surprisingly, while overall international freight forwarding grew by 3.2% to $63.2 billion in 2012, ocean freight saw large growth (11.5%) while air freight experienced significant decline (4.2%). This disparity can largely be attributed to companies increasing visibility into their supply chain and no longer needing to rely on air transport, which was traditionally the more reliable yet costly method.
Reliance on air transport was highly common in the late 1990s, when many companies had frequent breakdowns in their supply chains. Without useful intelligence and visibility, companies worried that ocean shipments would not arrive in time and therefore sprung for costly air modes. Today, companies have visibility and transparency, resulting in supply chain management systems that are more stable and reliable.
“Cost of course, is always a consideration, but with the greater visibility we have today, the ability to know where your inventory is at any given time and when it’s going to get where you need it, [companies] feel more comfortable planning for extra time on the ocean, rather than paying a premium for rush shipments,” said Andrew Wigdahl, Senior Product Manager at Amber Road.
Based on this shift in shipping preferences, air and ocean carriers have adopted contrasting strategic focuses to increase volumes and profitability. Air freight forwarders have begun to focus on higher-margin commodities, such as pharmaceuticals and other temperature-controlled goods. Meanwhile, ocean freight forwarders are expanding their less-than-container load (LCL) offerings, which provide reduced shipping costs, increased flexibility, and improved transit times over full-container-load (FCL) services.
Despite the overall freight forwarding market predicted to grow by 6.8% between 2013 and 2016, pressures to reduce costs and increase visibility will most likely lead to the ocean freight market continuing to develop faster than the air sector.
For more information, please read this World Trade 100 article.
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This post was published on November 15, 2013 and updated on April 7, 2017.
