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30 Apr, 2020 / BY Daniella Baldock

The impact of COVID-19 air freight restrictions on the EMS supply chain

EMS-supply-chain-air-freight-COVID-19Reliable air transport links are crucial in ensuring the efficient functioning of pretty much every business, with international air cargo playing an especially important role in supporting the global electronics manufacturing supply chain.

While historically around 40% of freight has been transported via cargo flights, not everyone is aware that the vast majority (around 60%) has typically been shifted via passenger flights.

Pre the global coronavirus pandemic for example, pretty much every commercial flight would have carried some proportion of freight, with airlines generating anything from five to ten percent of their total revenue from the hauling of commercial cargo.

In the past few months however there have been several significant developments as a direct result of COVID-19 that have particular relevance both for the stability of the international air transport industry and for the efficiency of the electronics manufacturing supply chain:

  1. The combination of travel restrictions and the widespread closure of factories in China resulted in a significant drop in manufacturing production in what is acknowledged as one of the world's largest air cargo markets.
  2. Global export orders were recorded as being at an all-time low, with the global Purchasing Managers Index (PMI) experiencing a state of contraction and all major trading nations reporting a reduction in orders.
  3. The enforcement of government travel restrictions saw airline passenger operations reaching a virtual standstill, leading to a sharp reduction in cargo capacity.

Earlier this month (April 2020) the International Air Transport Association's (IATA's) Chief Economist Brian Pearce reported that there had been a 70% reduction in the number of worldwide flights at the start of Q2.

And with passenger air travel having now all but ground to a halt in the midst of the current pandemic, the cost of cargo flights has dramatically increased.

The impact for UK electronics manufacturers is two-fold. There has been a noticeable increase in transit times, which is having a disruptive effect on the supply chain in general, and there have also been substantial cost implications as electronic component suppliers are forced to pass on a proportion of the increased air freight charges directly to their customers.

While some shipments are still managing to meet their advised transit times, many electronics manufacturing services (EMS) providers are reporting that there has been a noticeable increase in delays of the transport of air freighted parts.

Urgent shipments, for example, which would usually be guaranteed for overnight delivery, or at the very least in one to two days, are now taking anything from four to ten days to arrive.

The timeframe for long haul freight meanwhile, is now in the region of fourteen to eighteen days - in contrast to the usual four to seven days.

With the lack of availability of passenger flights, and increased reliance on more expensive cargo flights, many suppliers of electronic components are adding a temporary freight surcharge to both their backlog and new orders.

An increasing number of suppliers are also extending their frozen window for cancellations and re-schedules, which means customers are advised to review their backlog and to confirm it is correct and fixed for at least the next three months.

 

International air cargo plays a vital role in supporting global supply chains and the capacity to connect cities and countries by air is especially important in ensuring the ongoing health of international trade, investment and the global supply chain.

With the COVID-19 situation continuing to evolve on a daily basis, it is especially vital that electronics manufacturing purchasing departments keep their customers informed by providing regular updates, advising of any negative impacts and nipping any potential issues in the bud.

JJS Manufacturing is maintaining daily contact with all sources of reliable information and is also taking extended transit times into consideration when placing all new orders.

Please feel free to contact our procurement team directly if you have any specific requirements or need further information or support.

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