Executives at leading manufacturers said air freight costs three to five times as much as ocean shipping. However, with demand improving and the festive-season outlook remaining robust across categories such as cars, appliances, apparel and fashion, companies have little choice but to ensure timely supplies, they said.
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“We have begun airlifting some components, otherwise the factories will have to stop festive production. Even if we are ready to pay higher ocean freight costs, availability of vessels is a challenge,” said Vikas Gupta, managing director (operations) of contract electronics manufacturer PG Electroplast.
The company, which manufactures for brands including Daikin, Haier, LG, Voltas and Whirlpool, is importing components such as chips, printed circuit boards and washing machine timers by air after shipping challenges extended lead times by 2–3 weeks. Its peer Bhagwati Products, which manufactures for Oppo, Vivo and Hisense among others, is also flying in memory chips. The company is doing so as prices have surged and availability has become inconsistent.
ET Bureau“Memory prices and availability have become so volatile, and with the disruption in ocean freight, deliveries are taking 30–40 days. We often need the product instantly, otherwise production will be hit. There is a business case for air freight in the case of small-volume and higher-priced products in the current scenario,” company director Rajesh Agarwal said.
The industry is using air freight extensively for the first time after the Covid-19 pandemic when companies were forced to adopt it amid severe global supply-chain disruptions.Also Read: India’s air cargo sector thrives in a world of tariffs
Contract manufacturers are passing on the higher freight costs fully or partially to their clients. Companies manufacturing in their own plants, however, may have to take a hit on margins as passing on the full increase in freight costs to customers could hurt sales at a time when demand has been recovering steadily, executives said.
But they prefer that to shutting assembly lines during the peak production period ahead of the festive season.
“It’s a Catch-22 situation,” said Woodland India managing director Harkirat Singh. “We initially passed on the higher freight cost, which tends to be much higher as air freight is charged on volume weight, but customers and partners like Amazon and Flipkart did not appreciate it. So, we have to absorb it…”
The footwear and apparel company is importing raw materials by air from Italy, China, Vietnam and South Korea.
Hyundai Motor India is working with its logistics partner to manage the disruption in sea freight as challenges related to freight and the Strait of Hormuz remain, managing director Tarun Garg said. “The order backlog is very strong,” he said, adding that retail momentum also remains strong.
INNOVATIVE ROUTES
A senior executive at an auto-component company said that with shipping routes remaining affected, logistics partners are finding innovative ways to ensure supplies reach manufacturers, including a mix of road and air transport. The recent reopening of Sharjah port may help improve supplies in the coming days, he said.
Abhay Rana, general manager (North India) at Greenwich Logistics, said both shipping and air-freight rates have increased since the start of the West Asia crisis, with some companies now opting for air freight to keep festive production on schedule. “Shipping rates since the crisis have risen five-fold, while air-freight rates have risen three-fold in this period,” he said.
However, companies have already raised prices by 5–20% across most product categories this year due to higher commodity and shipping costs. In cars, price increases have been around 2–4%. There is little room for them to pass on higher air freight costs to consumers.