Why Indian electronics, automobile makers are turning to air freight
What's the story
Indian electronics and automobile manufacturers are increasingly turning to air freight for transporting raw materials and components. This comes as a response to shipping delays and congestion caused by the ongoing West Asia crisis, which has made sea freight unreliable. Despite the significantly higher costs of air freight, three to five times that of ocean shipping, the companies are prioritizing timely supplies over cost efficiency.
Cost implications
Availability of vessels remains a challenge
The rising demand and positive festive-season outlook across sectors like automobiles, consumer durables, apparel, and fashion have left companies with no option but to ensure timely supplies.
Vikas Gupta, MD (operations) of contract electronics manufacturer PG Electroplast, said they have started airlifting some components to avoid halting festive production.
He added that even if they're willing to pay higher ocean freight costs, the availability of vessels remains a challenge.
Cost absorption
Companies are absorbing the higher freight costs
Despite the high freight costs, companies are absorbing some of these expenses to avoid affecting their sales recovery.
Woodland India MD Harkirat Singh said they initially passed on the higher freight cost but had to absorb it later as customers and partners like Amazon and Flipkart did not appreciate this move.
The company is now airlifting raw materials from Italy, China, Vietnam, and South Korea.
Innovative solutions
Logistics partners are coming up with innovative solutions
With shipping routes still affected, logistics partners are coming up with innovative solutions to ensure supplies reach manufacturers. This includes a combination of road and air transport.
The recent reopening of Sharjah port could also improve supplies in the coming days.
Abhay Rana, GM (North India) at Greenwich Logistics, said both shipping and air-freight rates have increased since the start of the West Asia crisis.
Price adjustments
Price hikes across product categories
Companies have hiked prices by 5-20% across most product categories this year due to higher commodity and shipping costs. In the case of automobiles, price hikes have been between 2-4%. This leaves little room for companies to pass on additional air freight costs to consumers.