Written by Sara Hales, featured in Freight & Trade Alliance (FTA) Across Borders Magazine - Edition 1, 2022
Unprecedented impacts to global shipping and aviation have heavily impacted supply chains both into and out of Australia.
Air freight costs into Australia have increased by 2.5 to 6 times pre COVID rates (varies by trade lane). Sea freight costs have also increased significantly, reliability and timeliness issues are also posing significant risk for numerous supply chains.
At AVISTRA we have noted an increase in the average value of air exports – driven by a reduction in lower yield product travelling on air (as a proportion of the overall air freight task). This change is likely driven by the interaction of increased air freight rates and a low level of resilience to freight cost increases when considering what constitutes a globally competitive price for many of our exported primary industry products.
While the world moves on from COVID (hopefully), geopolitical conflict threatens to continue to complicate supply chains, and increase base costs such as fuel.
As shippers deal with significant cost increases, reduced capacity and fractured continuity of service globally, various multi modal and bi modal solutions have evolved to offer a blend of cost and reliability that meets the critical operational needs of many businesses.
Multi- (or bi-) modal service offerings, using a mix of sea and air, for example, offer a solution that costs less than air, and offers greater reliability and more timeliness of delivery than sea.
For shippers who need to transport product across the world for the right price, in a reasonably timely and reliable manner, this is a good potential solution.
For Northern Australia, this presents an opportunity.
Darwin International Airport (DIA) engaged AVISTRA to develop an air freight strategy in 2021. As we together explored the opportunity for Darwin, and the cargo task into and out of the top end, we observed opportunities around latent capacity southbound out of Darwin, on both air and road. The typical supply chain either enters Australia, or starts, at the major cities on the east coast. Hundreds of trucks operate north bound to Darwin every month. Many return south empty.
In terms of air freight capacity, on the express freighter network and loose hold domestic airline capacity, a similar phenomenon exists. The northbound leg is the revenue leg. Southbound, significant under utilisation of capacity exists.
At about the time we thought about this we had a conversation with an aircraft operator looking to gain some efficiencies on the operation of a freighter aircraft from the northern hemisphere into Australia. In terms of asset utilisation, the option of turning the aircraft at Darwin was attractive. Turning the aircraft at Darwin could mean the aircraft could be deployed on two round trips in 24 hours rather than one, more fully unlocking the revenue earning potential of the aircraft, and also unlocking some efficiencies around crew operations including removing the need to have crew positioned in Australia, on the particular sector being considered.
At the time, we were also thinking about issues with international crew being able to enter and leave Australia, and it occurred to us that crew flying from Singapore (for example) to Darwin return would possibly not even have to enter Australia at all, and that a dispensation might be available in order to permit this and preserve supply chains.
While we have moved on somewhat from the challenges around crew quarantine posed by COVID-19, we are still in a much-changed logistics environment.
Today, AVISTRA, DIA and other airline and freight forwarder industry partners are exploring a bi- modal import solution via Darwin International Airport. We’ve modelled significantly reduced flying time (obviously, Darwin is much closer to Asia than Sydney or Melbourne), and a resulting significant reduction in airline operating cost. We also speculate about gained fleet and crew efficiencies from the shorter sector.
Working with local trucking company, Shaws Darwin Transport, and with air freight export road transport provider, Wymap, we mapped an end-to-end logistics solution flying into Darwin, then by road to Brisbane, Sydney and Melbourne, and offering an estimated 30% reduction in freight cost when compared to direct air freight services.
Of course, it’s a little slower, however, is more reliable than shipping, and 30% is a significant and attractive cost saving in an industry that will often quibble over cents.
And, around Christmas time, when retail stock matters and air freight capacity is heavily competed – this low-cost way of getting urgently needed stock into the country also offers an opportunity to add inbound capacity to Australia at a fraction of the cost of the previous paradigm.
Of course, the other benefit is reduced emissions, which as major companies move towards Scope 3 reporting may become more important as a selling point for any logistics solution.
DIA and AVISTRA will continue to explore this concept with interested airline, forwarder and shipper parties, with some conversations maturing quickly. The f lip side, particularly around the peak period, is that Darwin offers a strong trade of export mangoes and melons as a backload to the northern hemisphere.
Allan Woo, Aviation Development Manager, Airport Development Group (who own DIA) said “Darwin is perfectly situated to serve as a hub for freight and passenger services between Australia and key Asian markets.
Our infrastructure and freight facilities, including purpose-built cold storage and vapour heat treatment facility, offer airlines convenient, efficient, and cost-effective connections.”
We’re hoping that by thinking out-side the box we can unlock efficiencies in latent demand to offer a multi modal import solution for Australia that is cheaper than direct air, creates capacity where it is most needed, is faster and more reliable than sea transport.
There is a genuine opportunity to reposition northern airports like Darwin as an import port. Doing this effectively can help unlock airfreight capacity to more fully support the development of their export potential, while helping to solve challenging problems for Australia’s importers and freight and logistics community.
The freight and logistics industry will innovate in response to current constraints and challenges. This is just one example of industry innovation creating new freight products which speak to the shippers’ combined needs of reliability, timeliness, affordability, and availability of capacity.
DIA and AVISTRA welcome contact from any potentially interested parties. Contact AVISTRA in the first instance.