In an era where fast fashion has become the ultimate business model, brands and retailers are trying to find the right balance between speed and cost. The big win: having the right product, in the right place at the right time. Something that is a lot easier said than done, especially when price is a key factor.
Increasingly, buyers are experimenting with combinations of sea-air or sea-rail to gain some speed while managing shipping costs.
“We see companies trying to save money on shipping, but often the cargo didn’t arrive on time,” said Chas Deller from Drewry Supply Chain Management, at the recent JOC European Shipping Conference in Hamburg, Germany. He explained that both buyer and forwarder should be looking at how shippers can deliver on value instead of simply looking at freight rates.
Make it Faster, Make it Cheaper
For luxury goods, where price is not a key factor, it’s air freight all the way. “Our clients expect three-day delivery – one day from warehouse to the airport, one day in transit over the ocean, and the last day getting from the airport to the retailer,” said Fabio Nocentini, Executive Vice President at Savino del Bene.
Mass market to mid-tier retailers want the delivery speed, however with bigger volumes and thinner margins, it usually comes down to ocean freight. Although there are faster ships now, transit times still tack on about two weeks to deliveries, as opposed to two days (or less) for air.
Ocean freight rates have been kept at rock bottom levels due to an over capacity of vessels, leading to a loss of $3 billion this year. However, the collapse of Korea’s Hanjin lines greatly reduced available capacity and rates are expected to rise.
“Up till now, most brands and retailers have not found good, affordable alternatives to ocean freight for the bulk of their shipments. Instead, they are looking to reduce lead times by working with suppliers who can offer faster turnaround times,” said Jane Singer, Director and Head of Market Intelligence at Inside Fashion, speaking at the JOC conference.
More buying offices are aware that paying extra for faster transportation could result in greater savings, in terms of lower inventories, and the ability to be more responsive to what’s actually selling, however few have been able to come up with an equation for calculating the exact savings. Thus, most continue to ship goods the same way that they always have.
Planning for Shorter Lead Times
“Some European companies are implementing a ‘hybrid’ solution where the first or ‘test’ orders are sourced closer to the home market, and then replenishment orders are sourced in Asia.”
Others are starting to experiment with the China-Eurasia Rail. Adoption of this option is still very small because of concerns about the security of the goods in transit, weather problems along the route and the general political risk of a railway that snakes through up to six different countries before reaching its destination in Europe.
“We are also starting to see retailers and brands implementing more sophisticated back-end systems to better manage their supply chains, such as Weave,” said Ms. Singer. “The challenge for many companies is that no one can afford to slow down in order to install a new system and get the employees trained up to use it. So it’s like a highway that has a lot of potholes. You complain about it, but when a lane is closed in order to do the necessary road work, it creates traffic jams and that makes things even worse – at least in the short term.”
For most brands and retailers, the solutions that get the highest level of adoption are those where a third-party service provider is able to take over some subset of the supply chain and manage it for the brand, either by taking over that link in the supply chain (i.e. outsourcing certain functions) or by working extremely closely with the brand and developing customized solutions that address the brand’s specific challenges and goals.