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Getting a hi-tech fix

Hi-tech supply chains are shifting as manufacturers look for cheaper labour and consumer demand moves east. As the industry gears up for more product launches, Ian Putzger discovers how air freight is affected

To say that the hi-tech industry and its supply chain requirements are in flux would be an understatement. The sector is going through several fundamental shifts that are re-shaping the role of air freight and how logistics providers approach this segment. Ten years ago it seemed to make perfect sense to base a start-up freighter operator at an airport in the Pearl River Delta in China in order to feast on the output of the world’s largest production base for electronics looking for lift to North America and Europe. If anybody were to adopt this approach today, they would be in for a rude awakening.


To begin with, the production base is shifting away from the Pearl River Delta and the area around Shanghai. The markets are also in transition, with growth more pronounced in emerging regions. The products have changed dramatically, and with them the maths for filling a plane. Moreover, air freight is no longer the default mode it was a decade ago.


The migration of manufacturing to China’s interior has picked up frantic momentum, as more and more companies flee from rising costs and labour shortages along the country’s eastern seaboard. According to one report, Foxconn has moved over 80% of its factory jobs from Dongguan in Guangdong to Zhengzhou.


However, not everybody is beating a path to China’s interior. Some are looking to other parts of Asia. “We are seeing a reduction in overall production in China compared to, say, three years ago, with manufacturers gradually moving their production from the coastal region to the western region of China (Chengdu, Chongqing and Zhengzhou), and also out of China to cheaper places in south-east Asia such as Vietnam and Indonesia,” reports Vincent Wong, head of airfreight, customer operations support, Asia Pacific at DHL Global Forwarding.


In June of this year DHL held its third annual global technology conference, which harnessed input from around 250 experts from the sector. One of the key findings was that Asia’s importance for the industry as both a manufacturing location and a consumer market is growing.


While demand is languishing in North America and Europe, producers are seeing growth in other parts of the world. A study on changes in the supply chain, which was sponsored by UPS and published last year, found that electronics manufacturers were expecting greater demand for their output in emerging markets such as India, the Middle East, Africa, South America and parts of the Asia-Pacific region. This trend works in favour of logistics providers that have global capabilities, the study’s authors concluded.


Similarly, the Asia-Pacific Hi-Tech Supply Chain Industry Survey published in June by eyefortransport, looks at demand trends from the vantage point of hi-tech manufacturers and retailers, based on input from 230 executives from the Asia-Pacific region. It indicates that China, notably the eastern part of the country, is replacing Singapore as the biggest location of respondents’ customers. Historically strong markets like Singapore, Taiwan and Japan are losing ground to the likes of Thailand and eastern China. How long China’s reign will last is another matter. Within the next five years many respondents in this study expect India to overtake China as the area with the largest increase in consumer demand.


Not only are the origin and destination points for hi-tech cargo no longer the same, the products themselves have undergone a serious transformation, shrinking alarmingly in size and weight. “The big servers that we used to ship have turned into smaller units,” remarks Shawn McWhorter, president for the Americas of Nippon Cargo Airlines (NCA).


Microsoft Windows is no longer the world’s leading operating system. It has been left in the dust by Android, which runs tablets and smartphones, points out Dirk Steiger, managing director of Frankfurt-based air freight research and consulting firm Aviainform.


DHL estimates that about 60% of hardware growth this year will be from tablets and smartphones. “A notebook is about two to four times as big as a tablet, and a smartphone has even less volume. You can imagine the impact on the volume that you load on a plane,” says Steiger. >>

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