CEOs Discuss When to Ship the Same Product by Air and Sea

When Henry Wadsworth Longfellow wrote his famous line, “One if by land, and two if by sea,” in Paul Revere’s Ride, air travel had not been invented. These days, when exporters are considering shipping options overseas, land, of course, is not an option, but air and sea are. And this can lead to an important question: When does it make sense to ship by air, and when does it make sense to ship by sea?

According to Catherine Petersen, president of C.J. Petersen & Associates in St. Paul, Minnesota, if an exporter has a long-term relationship with a foreign company, such as a distributor, it will probably make arrangements to ship most products by sea, except in emergency situations, in which case it may need to ship its freight by air.

However, such a decision isn’t always in the hands of the exporter, Petersen notes. In some cases, especially for small to medium-sized exporters, the customer will choose the routing by identifying the forwarder, which will then make arrangements for the transportation. “As a result, some exporters will have no idea how their products are going to move until after the fact,” she states.

In some situations, though, they may know in advance, based on the size of the shipment. For example, if it is a less-than-container load (LTL) shipment, the exporter can assume it will probably go into an air freight consolidation. “If it is a full container load shipment, though, the exporter can assume it will probably go by sea, and they can then package, load and secure it accordingly,” Petersen says.

For exporters that do have the opportunity to make the decision, shipping the same product by air in some instances and by sea in other instances is very common, according to Sheila Hewitt vice president of international for Frisco, Texas-based Transplace. “However, it can be quite the dilemma, depending on the product line and the sensitivity,” she says. “The first thing we do is try to understand the objectives of the customer, the timeline and the type of product.”

CEVA Logistics of Houston, Texas, is another company that helps exporters assess options. “Our clients think of it in terms of ‘total landed cost,’” states Kim Wertheimer, senior vice president, industrial sector. “Freight cost is a key component. However, there may also be inventory costs, and cost of lost sales if you don’t have what your customers need when they need it.”

So when does it make sense to ship by air instead of by sea? It depends on the situation. In some instances, air freight is virtually required (reactive shipping). In others, it is optional, part of a strategic initiative (proactive shipping).

When It May be Necessary

Reactive Shipping

One common reason for air shipping is if a customer is in a critical situation, where expediting is necessary. “For example, there may be a component that is an important part of a production line, and the production line would have to be shut down if the component doesn’t arrive in time,” points out Transplace’s Hewitt. In such a situation, air is more costly than sea. However, it actually ends up being less expensive than the cost of shutting down the production line due to delayed delivery.

A second common reason is that a company may be behind in product production, and would thus be late in a delivery to a customer. “If it is a case where they want to make an investment in that customer relationship, build trust and build a reputation of reliability, they may be willing to bear the extra cost of air freight, even if it is a low-value product,” observes Hewitt. In some cases, the cost of the air freight may be more than the value of the product itself, but it is still worth the cost in the long term.

One company willing to commit to air freight to meet customer needs is Huhtamaki North America of De Soto, Kansas, a manufacturer of consumer goods packaging, tableware, cups, folding cartons, containers, carriers, trays and service ware for the food-service industry and retail markets. The company’s portfolio includes Chinet, the leading brand of premium disposable tableware. “What we normally ship overseas are paper food containers, molded fiber and plastic food containers,” says Dave Batt, logistics coordinator. “There are instances where we ship by air in an expedited situation, where ocean transportation would take too long.”

A third commohn reason relates to an unexpected surge in demand for product. “An event may occur that spikes demand for a product which has normally been shipped by ocean,” says CEVA’s Wertheimer. “However, in order to capture that market, you may need to expedite the product by air.”

Finally, unexpected events, such as weather, can determine shipping options. “For example, after a volcano eruption in Europe last year, a lot of airports were shut down, so even expedited air freight shipments ended up being late,” says Transplace’s Hewitt.

When it May be Optional

Proactive Shipping

One common strategic—rather than reactive—reason for shipping by air rather than sea is when an exporter is shipping higher-value products where time is critical, and the value of the product is ultimately the value of the inventory, which could be offset by the air freight premium. “For example, with technology products, there is usually a higher price for a product at introduction,” notes Wertheimer. Over time, the price is reduced as newer technology is introduced. As a result, a company may ship a product by air early in its life cycle, and then by sea later on.

A second, and related, reason may be when the exporter takes total landed cost of high-value products, such as electronics, into account. “Here, it usually makes sense to choose air,” states Transplace’s Hewitt.

An exporter may also ship by air may be if it has products that are sensitive to theft or damage, which, of course, can include electronics. Air may also be preferable during product launches, where you want to get products on the shelf quickly and tie in some type of marketing or promotion activity. “The replenishment can then be by sea,” adds Wertheimer.

“We normally ship by sea,” reports Huhtamaki’s Batt. “One reason that we might ship by air, though, is if we have a new product roll-out situation where we want to get prototypes and samples in front of our customers to make sure that everything is correct. Then, once they approve them, we will make regular container-load shipments by sea.”

A final consideration for shipping by air may relate to the amount of product being shipped. “For example, it is less expensive and faster to ship a full-container shipment of product by ocean than a less-than-container shipment,” Wertheimer points out. “Not only are less-than-container shipments slower, but in some cases, the fixed costs or minimum costs on a less-than-container shipment may be more than the cost of shipping it by air.”