Customer focus: Drivers of change

posted on 3rd April 2018

The acceleration of product recall is one factor that has led to an increase in demand for air freight from the automotive sector, writes  Megan Ramsay

Patterns of demand for air freight between Germany and South Africa from the automotive market illustrate some wider trends and issues affecting this important vertical in Europe, Africa and globally.

​At this year’s Air Cargo Africa conference, Roland Weil, vice president for cargo sales at German airport operator Fraport, told a panel discussion on the automotive market in the context of trade between Germany and South Africa that in terms of imports into South Africa, Germany is second after China. The automotive sector represents South Africa’s biggest import from Germany and its second-biggest export to the European country. And Frankfurt and the surrounding region are of particular significance in this sector, Weil claimed: in 2016, for instance, there was an 8.5% year-on-year increase in traffic between Frankfurt and Johannesburg, with 35,000 tonnes being moved on the route.

​But the full picture is more complex. Andries Botha, senior manager for strategic planning for Toyota South Africa Motors, observed: “The South African vehicle market is under severe pressure. It’s been shrinking over the last few years – but there are opportunities in a number of economies in Africa.

​“The parts market, however, is growing – as people keep their vehicles longer, they require more maintenance and they are installing OEM (original equipment manufacturer) parts because other parts don’t last.”

​The main reason for choosing air freight over sea freight, of course, is speed. If parts are needed urgently, then there is no other option. A major consideration in day-to-day operations, though, is cost.

​Botha explained: “It costs 10 times as much to move something by air as opposed to sea, so we restrict air freight to 5% and only use it as a last resort. Our problem is that we make a promise to the end client and we have to deliver on time. If we pay for a service, we need the lead-time promise kept. If a sea freight shipment is a day late, that’s one day out of 70 and we can catch up. But if an air freight delivery is a day late, that’s one day out of seven.”

​Anchen Genlloud, head of automotive for Southern Africa at logistics company Kuehne + Nagel, commented that having a vehicle off the road can be costly to the end client, making ad hoc air freight an essential option sometimes.

“Planning comes into the decision – a ‘C’ class service can hang on, but for ‘A’ or ‘B’ service or urgent shipments, we need daily flights to get things into the factory quickly,” she said.

Driver of change

The panel agreed that there seems to be a modal shift from sea freight to air freight because of the number of ocean carriers that have gone under of late. On top of that, Botha cited the acceleration of product recall as a driver of change in the motor industry, noting: “There’s more effort up front now to identify problems early and deal with them quickly – so there’s lots of pressure on us to move parts by air.”

​Some items have to be moved by sea though, such as batteries for hybrid cars, although these vehicles are not being strongly adopted in the South African market.

Choke points

While air freight is speedier than ocean shipping, it does have its choke points. Truck waiting times, Customs procedures, paper documentation and the use of different IT and communication platforms all slow the process down, Botha outlined.

​Giuseppe Tarantini, regional general manager cargo Europe at South African Airways Cargo, said that getting a shipment from Frankfurt to Johannesburg takes less than 36 hours, including security. But airports can be slow: for instance, there may be congestion on the way from Cargo City Süd to North terminal at Frankfurt. In addition: “Flights can be weight-restricted or volume-restricted – it depends on the route and the aircraft. Usually we run out of space way before we run out of payload.”

​The problem of capacity can be particularly acute on some occasions such as during severe weather conditions that cause widespread damage to vehicles. In such instances, Genlloud pointed out: “All OEMS are in the same boat. If they are all reordering at the same time, then there can be limited capacity to fly components in. This can result in a bidding war to secure space.”

​And the balance of supply and demand also has its effects on the airlines, of course. As carriers try to sustain a 365-day service, they must contend with fluctuating cargo volumes as well as unsteady passenger numbers, which affect the load factor and available space. Small markets can be especially prone to the effects of low passenger demand and consequent low belly capacity. Furthermore, OEMs’ volume forecasts can change drastically at very short notice, making the forwarder’s job difficult too, so communication is vital.

Summing up, Botha reiterated that from the OEM’s perspective, inventory management that relies on ocean shipping schedules covers the day-to-day running of the operation at minimal cost, while the decision to use air freight is inevitably unpredictable because this more expensive and faster option is reserved for emergencies.