Rico Auto's $4.3m airfreight bill exposes cost of supply failures

Rico Auto Industries paid ₹400m ($4.3m) in emergency airfreight after ocean transit times to the US roughly doubled, leaving the Indian components maker scrambling to keep BMW and Toyota production lines running. The disclosure, made on last week's earnings call, is the sharpest measure yet of how supply-chain failures convert directly into air-cargo cost.

Chairman and CEO Arvind Kapur said shipments that normally took five to six weeks were taking 10 to 11 weeks, and sometimes 12. "We could not stop the lines of the customer," he said. "We paid a very heavy price."

What went wrong at Rico Auto?

Rico increased production and moved volume to airfreight while rebuilding its ocean pipeline and warehouse stocks. The problems centred on new iron components, whose weight compounded the cost of flying them.

Management admitted the disruption was only part of the story. "Could we have done better? Yes, we could. We should have been more agile," Kapur said.

The company sought contributions toward the extra airfreight spend from customers, and one has already agreed to participate. Rico did not identify the customer or disclose the amount. It expects emergency air shipments to cease after this month as ocean deliveries replenish stocks.

The stakes are high. Siemens' True Cost of Downtime 2024 report put the cost of an hour of unplanned downtime at a large automotive plant at $2.3m.

Chapman Freeborn's Isidro Nuñez Oñate said last month that 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. "Suddenly, the whole plant is at a standstill, with costs continuing to rise for every hour production remains inactive."

What does this change for electronics shippers?

Netgear offers a parallel case. On its 4 November earnings call, CEO CJ Prober blamed increased airfreight use — triggered by a poorly executed factory transition at a manufacturing partner that constrained enterprise switches and some consumer routers — among the factors behind a sequential decline in enterprise margins, though margins stayed higher year on year.

Netgear is discussing "appropriate commercial remedies" with the manufacturer and transferring some products to other suppliers. It did not say whether those remedies would cover freight costs.

The company's experience also shows the limits of buying speed. Its CFO said planned airfreight spending came in lower than anticipated because the expected production ramp failed to materialise. Netgear still forecasts around 150 basis points of consolidated gross-margin pressure in the fourth quarter, driven mainly by rising memory costs and transportation tied to production recovery.

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

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

Why does urgent capacity cost so much?

The emergency premium reflects how little capacity is left uncommitted when an urgent shipment reaches the market. DSV's Achim Martinka, speaking at TIACA's Air Cargo Forum in Miami, explained the mechanism: "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 cost. Xeneta's Niall van de Wouw said forwarders can offer shippers 12-month deals, "but given the market conditions, they would have to bake-in so much uncertainty the price becomes uncompetitive."

JTD Advisory founder David Kerr advises tender buyers to focus on capacity rather than headline rate. He urges buyers to "buy capacity, not rate" and to "write fuel clauses against jet, not crude", warning that falling crude prices may not translate into lower jet fuel costs.

Xeneta's baseline expects airfreight rates to decline overall in 2027, with some reliability-driven cargo returning to ocean once schedules improve sustainably — most likely from the second quarter. That recovery remains conditional: Far East to North Europe ocean schedule reliability was still around 10% in October.

For manufacturers with immediate customer commitments, the prospect of cheaper freight next year offers no protection against the cost of recovering a missed deadline today.