By Kevin Zweier | VP, Transportation
Earlier this month, I read an interesting short article explaining that Apple is dominating air cargo capacity out of Asia to supply western markets with its newest iPhone 6. There is no consensus on the sales forecast for Apple’s newest device, but most analysts are predicting 60-80 million units in the first batch.
Through the new handsets’ opening weekend alone, Apple sold more than 10 million combined iPhone 6 and 6 Plus units, topping the 9 million iPhone 5s and 5c handsets the company sold during their debut weekend in 2013. That will definitely consume a great deal of air cargo capacity.
But don’t panic — the sky isn’t falling.
When you look at history, it can seem pretty grim to shippers. Apple really did interrupt the air transportation market in 1998 with the launch of its iMac and again in 2001 when iPods hit the market. But that was then and this is now, and the market has evolved and competitors have wised up.
And 1998 was a long time ago. Google was still in development and Shawn Fanning hadn’t even dreamed up Napster yet. With eye catching colors and compact design, Apple’s iMac became an early darling of the tech boom. It was also the first major product launched by Apple following the return of Steve Jobs, who rarely did anything in an expected manner. In a move indicative of his innovation, Jobs booked all available air capacity to move iMacs through its supply chain at a time when ocean was the preferred transportation mode for computers. Apple caught the logistics world by surprise.
This was repeated in 2001 during the launch of iPod, which was an even bigger success. The small size of the iPod made it a perfect candidate for air transportation and Apple once again took a great deal of air cargo capacity to ship the product to market.
It’s understandable that some eyebrows could raise each time Apple ships a new product with a history like that, but I think that serious disruption to air transportation is unlikely for two main reasons:
- There is no more element of surprise.
Shippers were caught off guard when Apple came up from behind to launch the wildly successful iMac, and then again when a solid state music player took the market by storm. Every player in the electronics industry watches Apple carefully now, especially since the iPhone was introduced in 2007. Yearly releases from the company are anticipated and competing supply chains can be planned around them. Any competitor that is caught off guard by Apple shipments driven by a new product release nowadays simply isn’t paying enough attention to its industry. - Air cargo capacity isn’t as scarce as it used to be.
Overall air cargo volumes have remained relatively stagnant since 2010, experiencing mild growth. For example, air freight grew 1.4% in 2013, but the growth in capacity was larger than growth in cargo. There are plenty of airplanes sitting parked that could be brought online if there was a need for increased capacity. It would be exceedingly difficult for a single company to purchase all available air capacity in 2014 the way Apple did in 1998.
This is not to say that Apple can’t and doesn’t affect the cost of air freight. Certainly, large demands on capacity cause short-term spikes in transportation rates. This can be problematic for regular air shippers because unlike truckload and ocean contracts that typically last a year, air contracts can be as short as quarterly. That’s reactive enough for rates to accurately reflect what is happening in the market at the moment.
Shippers that would like to avoid these short-term spikes in air transportation rates can map out and plan their supply chains to consider anticipated capacity demands. Most of these crunches can be forecasted well in advance by planners and shipments can be scheduled around them to take advantage of more normalized rates.
When shipping times can not be realistically altered, advanced planning provides shippers adequate time to lock up capacity themselves earlier in the process and prevent being shutout. Good relationships with freight forwarders come in handy during these times and though they may inflict higher surcharges during peak periods, freight is unlikely to get turned down for shippers that planned ahead or maintain a steady book of business.
Another option that makes sense for smaller shippers that may not be able to get the attention of forwarders during tight capacity times is to frontload inventory ahead of peak transportation rates. This was seen recently in the ocean market as many shippers elected to move product to the U.S. market before an anticipated strike among West Coast longshoremen took hold. Smart shippers are constantly evaluating the best time to transport freight and work it into their supply chain planning.
While Apple is launching what could be the company’s most successful product yet, the company’s ability to paralyze air cargo capacity for its competitors is likely behind it. Even though capacity interruption is no longer a realistic concern, disruption to some degree is a certainty and supply chain planners are wise to plan accordingly.
If you would like to talk about transportation modes and timing that make the most sense for your supply chain, contact us at Chainalytics, connect with me on LinkedIn, or continue the discussion on the Supply Chain Intelligence Network™ group.
Kevin Zweier leads Chainalytics’ Global Transportation practice. Kevin manages the delivery of consulting services related to transportation procurement, fleet modeling, and systems and operational assessments.
