Air Freight Costs Question

  • Posted: 22 October 2009 10:03 AM

    Apple management mentioned a few times in the conference call air freight costs were forecast to rise during the quarter (as justification for lowering GM forecasts for the 1 fiscal quarter).

    I suspect iMac shipping costs are the culprit for the lowered forecast. Production of the new iMacs will ramp to to meet anticipated demand for the second half of the quarter (when Christmas season spending kicks into high gear) and those iMacs will necessarily need to be air shipped to fill the channel.

    Anyone have a different take on the anticipated rise in shipping costs. Had it not been for an iMac refresh, there would be no need to rush product to market for the quarter and laptops are not usually a high-cost air freight item. Far more laptops can fit in the belly of a plane (weight and size) than iMacs.

         
  • Posted: 22 October 2009 10:38 AM #1

    To ship by sea or sea/air would have required 6-7 week earlier production schedules. There are numerous benefits to moving product from production line to end consumer in 2-3 days, even if it does result in higher logistics / air freight charges.

    For example: $2B less inventory in transit / in the wrong place; more time to complete development; ability to take in component supplies right up to Christmas; all the benefits of fast feedback for production. Ability to ship bulky iMac 27 preconfigured, to the door, and hence operate near zero inventory levels - no leftover pockets of inventory after the peak season, in the wrong place and built at a higher no-longer-current cost.

    It puts Apple in a place competitors cannot go, just as sell-generic-box-direct / assemble-it-to-order once did for Dell.

         
  • Posted: 22 October 2009 10:47 AM #2

    artman1033 - 22 October 2009 01:39 PM

    I think the iTablet comes out on Black Friday,  November 27th. (the day after Thanksgiving day,)

    Steve will still be digesting his Tofurkey. Can’t see it coming out without a major event, with demos and fan boy drooling.

         
  • Posted: 22 October 2009 10:50 AM #3

    For the competitors, it lets Apple “float like a butterfly, sting like bee”. By the time they react, the peak season is over, Apple has zero inventory in the channel and is ready to change direction again.

         
  • Posted: 22 October 2009 12:19 PM #4

    The NewYorkTimes has a blog entry to this:

    But it?s part of the peculiar magic around Apple that there?s always more curiosity about what the company does not announce than what it does. And none of these products, it seems to us, can account for one of the factors Apple gave yesterday in explaining its estimate of a falling gross margin for its upcoming quarter: an abnormal increase air freight costs.

         
  • Posted: 22 October 2009 01:13 PM #5

    ghobi - 22 October 2009 03:19 PM

    The NewYorkTimes has a blog entry to this:

    But it?s part of the peculiar magic around Apple that there?s always more curiosity about what the company does not announce than what it does. And none of these products, it seems to us, can account for one of the factors Apple gave yesterday in explaining its estimate of a falling gross margin for its upcoming quarter: an abnormal increase air freight costs.

    The new iMac is priced aggressively and costs per unit are usually higher at the start of a new product cycle.

    Also, the new MacBook is priced aggressively considering the refreshed components.

         
  • Posted: 22 October 2009 06:39 PM #6

    For this to make sense, it should be an existing product line with high grams per dollar, that already has a margin that can be impacted. That means it’s probably the iMac that experiences the big airfreight margin hit.

    But air freighting a 54 inch Apple TV would certainly do it!

         
  • Posted: 22 October 2009 08:40 PM #7

    I think, as others have posted, that the new Intel chios for the 27 inch iMacs are not expected to arrive in any timely way. in order to deliver machine to what will hopefully be a back log of orders, Apple will have to ship directly from China via air. With the Xmas buying season looming, Apple may have a hard time meeting the demand for those upper end models

         
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    Posted: 22 October 2009 11:23 PM #8

    willrob - 22 October 2009 11:40 PM

    I think, as others have posted, that the new Intel chios for the 27 inch iMacs are not expected to arrive in any timely way. in order to deliver machine to what will hopefully be a back log of orders, Apple will have to ship directly from China via air. With the Xmas buying season looming, Apple may have a hard time meeting the demand for those upper end models

    I agree.  If you look at past products.  They introduced Mac Book Air and it sold like hot cakes.  When they introduced the MacBook Pros the 17” and 15” were hard to get for a long time.  When they introduced the cheaper 3G everyone bought the more expensive 3Gs.  Same thing goes for 4 gig and 8 gig original models.  The more expensive models of their products do better when they firs come out.  I think the top end iMac is priced very aggressively for what it has to offer so it safe to say they will have a few hundred thousand to deliver in late Nov and early Dec by air.

    [ Edited: 22 October 2009 11:25 PM by omacvi ]      
  • Posted: 22 October 2009 11:41 PM #9

    Consider the genius behind this move. By refreshing the iMac line line, there’s no worries about a January refresh and buying patterns won’t be skewed as in years past. Remember Apple is dropping its high-profile support of the annual IDC expo.

    Not only is the new iMac a handsome update, it will sell very well this season due to the timing of the refresh. While iPhones and laptops aren’t an issue for airfreight, these larger and heavier models will drive up shipping costs in the quarter.

         
  • Posted: 23 October 2009 02:49 AM #10

    omacvi - 23 October 2009 02:23 AM
    willrob - 22 October 2009 11:40 PM

    I think, as others have posted, that the new Intel chios for the 27 inch iMacs are not expected to arrive in any timely way. in order to deliver machine to what will hopefully be a back log of orders, Apple will have to ship directly from China via air. With the Xmas buying season looming, Apple may have a hard time meeting the demand for those upper end models

    I agree.  If you look at past products.  They introduced Mac Book Air and it sold like hot cakes.  When they introduced the MacBook Pros the 17” and 15” were hard to get for a long time.  When they introduced the cheaper 3G everyone bought the more expensive 3Gs.  Same thing goes for 4 gig and 8 gig original models.  The more expensive models of their products do better when they firs come out.  I think the top end iMac is priced very aggressively for what it has to offer so it safe to say they will have a few hundred thousand to deliver in late Nov and early Dec by air.

    I too believe the high end iMacs will sell very well. This may not be relevant but I’ve noticed that since Tuesday, the number of iMac 24” machines for sale have spiked considerably on eBay Australia. Not sure about the other countries but could this be an indicator of upgraders jumping early. Maybe something to monitor.

         
  • Posted: 23 October 2009 12:09 PM #11

    MacOz - 23 October 2009 05:49 AM

    I too believe the high end iMacs will sell very well. This may not be relevant but I’ve noticed that since Tuesday, the number of iMac 24” machines for sale have spiked considerably on eBay Australia. Not sure about the other countries but could this be an indicator of upgraders jumping early. Maybe something to monitor.

    The release was a surprise in terms of timing. Prosumers and commercial artists may adopt this equipment quickly and those who might have postponed a purchase to wait on a January refresh have no reason to wait anymore. A side beneficiary of this release may be Adobe. The company may benefit from an increase in sales of CS4 as buyers upgrade their software with the purchase of a new Mac.

         
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    Posted: 23 October 2009 01:39 PM #12

    I may have already posted this, (I know I did at AAPL sanity already) but Im definitely going to upgrade my 2002 20” imac to the top of the line 27”

    I do a lot of photography and have thousands and thousands of photos to go through and edit but I have been putting it off due to the slow speed at which I could process the RAW files on my old machine…....I was thinking about just getting a decent monitor and using my 2 year old macbook but this release (along with the recent shareprice rise 8) ) clinched the deal for me.