The air cargo supply chain is, by definition, a high velocity supply chain. For shippers that move their products by air, lead times are critical and speed is of the essence; they are willing to pay significant premiums for it over other modes of transportation.

Characteristics of cargo that has a “need for speed” include: high value items for which security is imperative and transportation costs relatively small, exports with short lead times, “Just-in-Time” manufacturing components, critical replacement parts, perishables, shipments with unique timing requirements and circumstances (e.g. human remains, life saving material), and goods that simply need regular, reliable arrival times over long distances. Industry segments that ship high volumes of goods by passenger aircraft are often specific to regions of the country. For example, complex, expensive machined parts for oil drilling are frequently shipped from Houston; fresh fish from the Northwestern US. Also, global high tech industries such as pharmaceuticals, computer parts, printers, semi-conductors, and other electronics often depend on air shipments to move large volumes of product by both freight and passenger aircraft.

For some products, the use of slower, less predictable modes of transport can be offset by carrying more inventories held in different nodes of the supply chain to compensate for longer lead times. The trade off is the cost of carrying this inventory, and the potential impact on customer service levels. Trucking is typically the most viable alternative to shipping by air. Depending on the distances involved, express trucking services can compete on speed of delivery and cost. Obviously this is not an option when longer distances or transcontinental shipping is required.

To maintain competitiveness, it is imperative that the air cargo industry find solutions to minimize the added costs and processing time required by complying with the 9/11 Act mandate for 100% screening.

Uncertainty: challenge and opportunity

The enemy of speed and security in the supply chain is uncertainty. Demand uncertainty is so substantial in most supply chain environments that if it is not adequately addressed, it can severely degrade anticipated performance in terms of unit cost, speed, quality, and responsiveness.

Close collaboration with supply chain partners can minimize the impact of uncertainty by better anticipating demand and identifying security exposures, and planning mitigation strategies accordingly. Collaborative relationships that focus on reducing the uncertainty in operating environments by employing improved information systems and business processes will result in more efficient, secure supply chain performance. However, these collaborative arrangements by themselves cannot compensate for fundamentally flawed and operationally ineffective manufacturing, distribution and logistics environments. Well conceived and designed systems, security procedures and protocols are required.

Those CCSP participants including air cargo shippers, freight forwarders and air carriers who manage uncertainty best will gain competitive advantage; those who do not participate, or fail to manage uncertainty well, are at greater risk for failure and vulnerability to security threats.

High velocity supply chains and high security supply chains have much in common; it can be argued that you cannot have one without the other. Both depend on visibility to minimize uncertainty - the ability to know where things are, when, and where they are going next. High velocity supply chains are based upon repeatable, consistent processes to eliminate uncertainty through end-to-end efficiency and speed. Fortuitously, secure chains of custody are based upon repeatable, consistent processes to eliminate uncertainty through end-to-end traceability and uniquely identifiable, readily detectable and verifiable cargo integrity.

The Applicable “Laws of Supply Chain Physics” ⁽¹⁾

The 1^st Law of Supply Chain Physics is “Local Optimization = Global Disharmony”. Supply chain partners acting independently and in their own self-interest will destabilize and slow down the air cargo supply chain system, increasing overall costs and vulnerability to security threats. Lack of standards and clumsy, inconsistent hand-offs among supply chain partners exposes the supply chain to a multitude of threats. Global coordination and collaboration are required to expedite the flow of commerce and maintain supply chain integrity.

The 2^nd Law of Supply Chain Physics is Little’s Law, (L = ? W): “The average amount of inventory in a system is equal to the product of the demand rate and the average time a unit is in the system”. The penalty for lack of speed is higher inventories and lower customer service levels; the costs of this are quantifiable and vary from case to case. Most CCSP cost estimates focus on facilities, operations and screening technology. The hidden cost of screening air cargo without an efficient, collaborative supply chain is far greater. Impeding the flow of commerce will lead to inventory build ups and reductions in customer service that will have serious, far-reaching economic consequences.

According to Professor David Menachof of the Cass Business School, City University, London: “Using 2010 estimates of the value of air cargo shipments, an average one day delay for half of all shipments will result in an industry-wide inventory carrying cost of $537million for just US domestic shipments. If international air cargo shipments are included [not yet subject to a deadline], this cost to the supply chain increases to $1billion . . . Much of the reasons for the costs are the need for the supply chain to absorb the extra inventory needed to maintain on-time delivery . . . Note that these costs will occur even if freight is shifted from air to road transport which might end up being faster than the “delayed air shipment” but slower than the original air shipment transit time.” ⁽²⁾

As noted above, supply chain performance and security are closely linked; hence, we propose the Supply Chain Security Corollary to Little’s Law: “The longer inventory is held in the system, the more vulnerable it is to tampering, contamination, terrorism and theft”. Said another way, the faster inventory moves through the system, the lower is the exposure to, and costs from, tampering, theft and security risks.

The 5^th Law of Supply Chain Physics is “Collaboration and efficient supply chain design reduce uncertainty, increase velocity (and security), and improve operational and financial performance”. The active participation of shippers, industry associations and the air cargo community, working closely with the TSA and international regulatory bodies to develop effective standards, protocols, procedures and technologies, is prerequisite to securing the global supply chain. Further, given inefficiencies in the current air cargo system, advanced system design and optimization techniques, together with closer coordination at local, regional, national and international levels, can effectively negate the impact of enhanced security measures and expedite the flow of commerce.