Rico Auto's $4.3m airfreight bill shows what supply failures cost shippers

Rico Auto Industries paid ₹400m ($4.3m) in airfreight after ocean transit times to the US nearly doubled, chairman and CEO Arvind Kapur told investors last week — and the Indian component maker is not alone in paying for emergency lift.

Kapur said shipments that normally took five to six weeks now run 10 to 11, sometimes stretching to 12. The delays, combined with problems launching new components, left Rico without enough inventory to feed programmes serving BMW and Toyota. Stopping the line was not an option.

"We could not stop the lines of the customer," Kapur said. "We paid a very heavy price."

The heavy part was literal. Problems concentrated in new iron components, and their weight compounded the cost of flying them. Rico boosted output to supply customers by air while rebuilding its ocean pipeline and warehouse stocks, and it expects the emergency shipments to stop after this month as ocean deliveries replenish inventory.

Could Rico have avoided the bill?

Partly, management conceded. "Could we have done better? Yes, we could. We should have been more agile," Kapur said. The company has sought contributions from customers towards the extra airfreight spend, and one has already agreed to participate — though Rico did not name the customer or the amount.

The alternative to premium freight is worse. Siemens' True Cost of Downtime 2024 report puts an hour of unplanned downtime at a large automotive plant at $2.3m.

Chapman Freeborn's Isidro Nuñez Oñate laid out the mechanism last month: urgent freight requests stem from planning errors, defective components or transport disruption. "Car plants run like clockwork, so it takes very little to throw everything off," he said. "If the truck delivering parts for step four breaks down, or every windscreen needed for step ten turns out to be defective, the cars cannot move forward. Suddenly, the whole plant is at a standstill, with costs continuing to rise for every hour production remains inactive."

What does this mean for the electronics shippers?

Netgear and Logitech show the same pattern with different causes. Netgear said a poorly executed factory transition by a manufacturing partner constrained supplies of enterprise switches and some consumer routers. On its 4 November earnings call, CEO CJ Prober cited increased airfreight use among factors behind a sequential decline in enterprise margins — though those margins stayed higher year on year.

Netgear is discussing "appropriate commercial remedies" with the manufacturer and moving some products to other suppliers, without specifying whether that covers freight costs. It also hit the limits of buying speed: its CFO said planned airfreight spending came in below expectations because the anticipated production ramp never materialised. The company forecasts roughly 150 basis points of consolidated gross-margin pressure in Q4, driven mainly by rising memory costs and transportation tied to production recovery.

Logitech faces a harder deadline — Christmas. Its October earnings call included an allowance for 30-40 basis points of gross margin pressure from premium expedited airfreight in the December quarter, to mitigate supply disruption and keep products on shelves for holiday demand.

Commercial Vehicle Group, meanwhile, reported premium freight and overtime costs as production volumes climbed, while recovering higher freight, commodity and tariff costs from customers continued to lag the spend.

Why does ad hoc capacity cost so much?

Because most of the aircraft is already sold. As DSV's Achim Martinka explained at TIACA's Air Cargo Forum in Miami: "Usually, our contracts are already signed for six or 12 months with the airlines. So everything which comes on a spontaneous, ad hoc basis will be even more expensive than the base load already on the aircraft."

Buying longer-term protection carries its own price. "Forwarders can, of course, offer shippers 12-month deals, but given the market conditions, they would have to bake-in so much uncertainty the price becomes uncompetitive," said Xeneta's Niall van de Wouw.

JTD Advisory founder David Kerr's advice for tender season: "buy capacity, not rate" and "write fuel clauses against jet, not crude" — falling crude prices may not translate into cheaper jet fuel.

Xeneta expects airfreight rates to decline overall in 2027, and some reliability-driven air cargo to shift back to ocean from the second quarter. But Far East–North Europe schedule reliability was still around 10% in October. For manufacturers with customer commitments now, cheaper freight next year offers no protection against the cost of a missed deadline today.