Disrupted Air Freight from Volcano Crisis Continues to Affect Supply Chains

Here and there, stories are starting to emerge showing how air freight disruptions from the Iceland ash cloud are affecting global supply chains.

As explained in the Financial Times last week:

Air freight accounts for a tiny amount of world trade by weight about 0.5 per cent for the UK. But the disruption has highlighted how it plays a vital role in supplying key, high-value components to many manufacturers. In spite of its tiny volume, it accounts for 25 per cent of UK trade by value.

Disruptions to the supply of high-value, light-weight components means auto and electronics manufacturers may be the most susceptible to headaches over the next few weeks. For some, the timing couldn't be worse because right now inventories are low, and they're only just starting to recoup from the recession.

According to Supplier Business.com:

Most OEMs have managed to avoid stopping production, but there has been a price to pay with specific problems at the supplier level, particularly between tier two and tier ones, such as electronic components sourced from Asia to Europe. Because of this, BMW had to stop production at three plants in Germany, due to a shortage of interior and electronic parts. But it wasn't just electronic parts that hurt BMW. Their US plant in South Carolina also suffered a reduction in output due to a lack of transmissions from Germany. Nissan's Oppama plant in Japan was also affected by a shortage of air pressure sensors from Ireland.

Ford has also had to temporarily shutter two plants this week due to a parts shortage.

In his post at LogisticsViewpoints, Steve Banker offers some interesting insights regarding how pharmaceutical supply chains may be affected. After all, as Banker points out, pharma makes heavy use of air freight. We haven't heard much about disruptions in this sector, though, and I'm curious to learn how pharma is coping. Were there contingency plans in place?

As for the airlines industry, yesterday the International Air Transport Association said that the ash crisis has led to the cancellation of 100,000 flights and cost the world's airlines an estimated $1.7 billion. Naturally, US airlines fared better than their European counterparts, losing "only" $100 million in revenue related to the crisis, so far. Some analysts think US airlines could actually benefit somewhat as vacationers shy away from Europe this summer and opt for domestic travel instead.

TAGS: Finance
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