Dell heads for the water as just-in-time goes out of fashion

For airlines one of the sweetest aspects of the surge in traffic since the autumn of 2009 has been the fact that it brought a reversal of a painful trend that had dogged them for years - the modal shift of cargo from air to ocean.

With maritime container capacity tight, shippers and forwarders suddenly had to revert to air freight to get their traffic to market on time. Goods that usually went by ocean vessel had to be moved by air, forwarders reported.

However, there are signs that the pendulum may be swinging back to a shift to transportation by ocean vessel. Arguably, the starkest signal has come from Dell Computer, a company that had built its business model on a just-in-time delivery concept based on the use of air cargo.

The US$60 billion Fortune 500 company, the world's second-largest computer maker, already indicated some time ago that its traditional model needed revamping when company founder Michael Dell took over the reins again and added retail outlets to the firm's selling strategy.

Lately, signals have built up that this approach is on the rise, and with it a greater interest in moving product by ocean vessel when possible.

Dell has refrained from official confirmation of this trend, but company spokespeople have gone as far as confirming that modes other than air are very much in the picture. If a customer does not put heavy emphasis on speed of delivery or customisation, Dell will use a supply chain that is best suited to its needs.

In an earnings call with securities analysts in February, Dell chief financial officer Brian Gladden stated that the company would "limit the number of configuration choices and move more of our products to a low-touch, foxed configuration [ocean] ship model". The word "ocean'' was added by Dell in a transcript of the earnings call.

On May 19, Dell unveiled its "Streak" tablet computer, which competes head-on with Apple's iPad. Rather than launch the product through its traditional sales channel, Dell is making it first available through a number of retail outlets in the UK, an approach that is not predicated on the use of air freight beyond the launch phase of the new product.

In early May, Singapore-based logistics and supply chain management company YCH Group opened a warehouse in the Chennai Special Economic Zone in India, with Dell and its local suppliers as major customers, yet another signal that inventory is playing a larger role in Dell's supply chain strategy today.

A recent analysis of modal shifts by the Seabury Group confirmed that a migration of cargo from air to ocean transportation has undermined air cargo growth for years.

Seabury found that air cargo's share of containerised international trade fell from 2.8 percent to 1.8 in terms of weight between 2000 and 2008.

As one of the factors behind the trend, the authors identified a number of goods traditionally moved by air that went by ocean vessel instead, such as laptop computers and flat-screen TVs. Without modal shift, annual air cargo growth would have been 1.5 percent higher, the authors concluded. US imports and intra-Asian traffic showed the biggest shifts, according to Seabury.

The erosion of rates and fuel prices in 2009, coupled with the steep drop in cargo volume, reversed the trend and put some commodities that had been shipped by container vessel back in the air, but this is expected to turn around again before long, Saebury's analysts concluded.

With the erstwhile poster boy for an air freight-based just-in-time model embracing ships and trucks more than ever before, the signs are not too auspicious for air carriers.
(Source:www.cargonewsasia.com)