Comparative Benefit of Routing Goods through Air

Presented by : Group 11 : EPGDIB ( VSAT ) 11-12 Amrita Tripathy-07 Abhishek Jain - 02 Nilesh Kothari - 41 Aloke Sharma - 04

Concept of Emery-SRI Report

In 1960, Emery Air Freight commissioned the Stanford Research Institute to study the method by which a carrier can identify potential users of air freight.
The study stated that the air freight has come virtually eliminated the distance factor for obtaining items from suppliers and providing products to customers The mind-set to use the transportation with lowest rate was changed. The report was based on interviews with many users of air freight and then placed them into categories according to the users rationale for choosing the air cargo mode. Some of the advantages of Air freight : Downtime Reduction by speedy delivery Speed delivery on products or services seeking wider markets from a fixed facility.

Concept of Emery-SRI Report- Contd..

To cut inventory and storage costs (while improving service) where the market is untested, and demand undetermined. To cut inventory and storage costs (while improving service) where the market is untested, and demand undetermined. To take advantage of superior conditions of carriage where higher insurance cost applies in other transport. To take advantage of superior conditions of carriage where premium handling, difficult co-ordination or documentation prevails in other transport. To take advantage of superior conditions of carriage where duty at destination is assessed on gross weight.

Discussion Points
1. The advantages of air transportation with respect to: Inventory
Helps to cut the storage costs by reducing the inventories . Help cutting inventory and storage costs (while improving service) where lower levels of inventory reduce servicing requirements. Providing reliable and timely deliveries from suppliers, allowing firms to operate an efficient 'just-in time' production process and reducing the need to hold expensive inventories.

The advantages of air transportation with respect to: Material Handling

Specialized in transportation of high value-to-weight products. High value-toweight ratios imply a relatively light transportation cost burden and high inventory costs if goods are long in transit Air cargo is today used in transport of perishable goods. Highly perishable goods incur a significant decrease in product value with any delay. Perishable products such as meat, cheese, vegetables, fruit and fresh flowers have a short live and airfreight mean fast shipment and delivery to an overseas buyer. Live animals and fish are also regularly air freighted. New economy products such as microelectronics, pharmaceuticals, aerospace components, medical devices, and other high value-to-weight products account for close to three-fourths of international air cargo by value Emergency deliveries for unanticipated shortages, and products requiring the security of increased attention.

The advantages of air transportation with respect to: Packaging

The insurance that an exporter or a person sending packages through air freight has to pay is generally lower compared to sending items through land or sea freight due to the fact that lesser time is needed for transportation thus resulting in lower insurance premiums. Because of the relative smooth ride and small degree in handling of airfreight means that goods require lighter packing than that needed for goods being transported by sea. The cost of materials, time and labor generally required in the packing process is reduced. Clothing for example, is often air freighted on clothes hangers in an aircraft container, and fresh fruit in the boxes in which it will eventually be sold. Seeing that heavy packing is unnecessary, the weight of the consignment is reduced and thus the transport costs will be lower.

The advantages of air transportation with respect to: Transportation

Air transport is the fastest mode of transport and therefore suitable carriage of goods over a long distance requiring less time. There is no substitute for air transport when the transport of goods is required urgently. Air transport provides comfortable, efficient and quick transport service. It is regarded as best mode of transport for transporting perishable goods. Air transport does not give emphasis on construction of tracks like railways. As no capital investment in surface track is needed, it is a less costly mode of transport. Air transport is regarded as the only means of transport in those areas which are not easily accessible to other modes of transport. It is therefore accessible to all areas regardless the obstruction of land. Aircrafts travels to any place without any natural obstacles or barriers. Because the custom formalities are compiled very quickly. It avoids delay in obtaining clearance. It plays a significant role in the national defense of the country because modern wars are conducted with the help of aero planes. Airways has a upper hand a destroying the enemy in a short period.

The advantages of air transportation with respect to: Market coverage

Air shipments have virtually eliminated distance as a factor in obtaining many items from suppliers and providing products to customers which has helped the airline industry in penetrating the suppliers as well as consumers market. To speed delivery on products or services seeking wider markets from a fixed facility. E.g., A U.S. firm decided to buy European-built equipment after the manufacturer guaranteed that repair and replacement parts would be shipped by air. Where the market is untested, and demand undetermined, it helps in cutting inventory and storage costs (while improving service) thus helps in penetration of the new markets

The advantages of air transportation with respect to: Customer Satisfaction

Customers' expectations was exceeded by ensuring quality and excellence in every aspect of the business. Complete global logistics services, multi-modal transportation, and customs brokerage for the customers were some of the ways by which customer satisfaction. Delivering the flights within time helps to boost the business process. People traveling are given different amenities in flight which helps in increased satisfaction.

Discussion Point 2: The mathematical representation of Total Cost Approach of Emery SRI report
The total cost approach is the most flexible method for comparing competing investment projects. Assume a shipment worth $10,000 at a time when interest rates are 12 percent. Interest charges run $3.28 per day. If the buyer paid upon delivery, and transit time could be cut from 20 to two days, the seller would save about $60.

Discussion Point 3: The report was drawn up in 1960s, have we experienced any further advantage of air transportation by the 21st century
Aviation has dramatically transformed society over the past 100 years. The economic and social benefits throughout the world have been immense in shrinking the planet with the efficient and fast transportation of people and goods.

The growth of air traffic over the past 50 years has been spectacular, and will continue in the future, particularly in the growing markets of the Far East.
Aviation has massively multiplied and facilitated business and leisure opportunities, cultural exchanges and the development of international institutions and political relationships. The Air Transport System will continue to offer significant benefits to society, both for business travel and for leisure and personal travel.

With the Internet and e-technology, passengers now do everything for themselves (book tickets, choose their seats, etc.).Intermediaries have literally disappeared.

Discussion Point 4: What are shortcomings of air transportation, how to make good this shortcomings?
In spite of many advantages air transport has a number of disadvantages. These disadvantages are:

I. Risky:
Air transport is the most risky form of transport because a minor accident may put a substantial loss to the goods, passengers and the crew. The chances of accidents are greater in comparison to other modes of transport. Nearly all shipments moving internationally are insured. Terms of sale determine at which point the responsibility for insurance coverage passes from the seller to the buyer. Sometimes the sellers firm or the buyers firm has a blanket policy that covers owned goods at any site or while in transit. If not, one must determine that the shipment is adequately covered.

Discussion Point 4: What are shortcomings of air transportation, how to make good this shortcomings?
Very Costly:
Air transport is regarded as the costliest mode of transport. The operating cost of aero-planes are higher and it involves a great deal of expenditure on the construction of aerodromes and aircraft. Because of this reason the fare of air transport very high. Contracts may be entered into with airlines for movements of groups of people. Firms with large volumes of travel may have outside travel agencies assign certain personnel to serve their specific needs only The firm can have its own travel agency as a subsidiary Shippers who wish to transport their commodities must have high-value goods they can sell at high prices to cover their transportation costs.

Discussion Point 4: What are shortcomings of air transportation, how to make good this shortcomings?
Small Carrying Capacity: The aircrafts have small carrying capacity and therefore these are not suitable for carrying bulky and cheaper goods. The load capacity cannot be increased as in case of rails or ships. Thus for bulk items which needs to be shipped urgently, are charged with Specific Commodity Rates- apply to unusually high-volume products. This rate is similar to a bulk-discounted rate. Unreliable: Most of the air transport are uncertain and the unreliable because these are controlled by weather condition. It is seriously affected by adverse weather conditions. Fog, snow and heavy rain weather may cause cancellation of some flights. Weather conditions can be looked in advance before planning to transport. Since the high value items are usually transferred, they are usually taken care to be transferred at the earliest.

Discussion Point 4: What are shortcomings of air transportation, how to make good this shortcomings?
Huge Investment: Air transport requires huge investment for construction and maintenance of aerodromes. It also requires trained, experienced and skilled personnel which involves a substantial investment. Because airlines can only land at airports, an alternate mode of transportation must be utilized to bring the product to the final destination (such as trucks). Cost of Service: Freight rates have considerably less profit potential than passenger fares. Volume of Traffic helps determine max revenue that can be earned from a specific commodity. Directionality: Freight traffic is all on-way. Historically, more domestic air freight is moved in a general west and/or southbound direction. Therefore, shipments moved in a generally north and/or east direction are given a slightly cheaper rate to encourage flow of traffic, and maximize aircraft efficiency.

Discussion Point 5 :The present cargo mix moving through air and its cost compare with sea transportation.
International air cargo, consists of various segments . Air freight wasand ismore dependable than ocean freight in the sense that there was less variability in days early or late on either end. Air freight permits the seller (especially multinationals) to keep fewer inventories in fewer locations by responding relatively quickly to market demands from central repositories of stock or even from the production line itself. Fewer inventories means less space requirement in the warehouse. While through sea transportation, due to some what less response cost is beared due to stock building, warehouse requirement and additional port charges Affiliates of multinational companies and customers tend to keep lower safety stocks in the field as well when the supply source consistently, reliably, and quickly resupplies their needs. Due to this, production cost is reduced since the additional stock need not be build up due to timely information. Field inventories have freight, duties, and markups attached to them, and therefore are more costly. In addition ,there is reduced overall investment in brick, mortar, receivables and inventory in air transport than sea transport.

The present cargo mix moving through air and its cost compare with sea transportation-Contd..
The effects of motion and stress are minimized compared to ocean transport. Salt water and condensation damage is less likely. That means less protective packaging is required in air transport than sea transport.

Expensive crating and boxing costs can be minimized, although not eliminated since air freight is less rigorous than sea freight.
Sending by sea keeps transportation costs low but at the expense of high warehousing and inventory carrying costs. Air shipments cause higher transportation costs but result in lower warehousing and inventory carrying costs. The basic objective is to meet the customers delivery requirements at lowest costs. The decision, shipping by air or sea, involves a trade-off between reduced transit time by air versus the higher cost to ship. Globalization-companies producing time-sensitive goods who wish to compete overseas have no choice but to ship their commodities via air cargo. Goods such as magazines, fashion items, and fresh fish are time-sensitive goods that cannot wait to be delivered over seas on cargo ships.

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