Category Archives: Logistics

Some Ideas for Reducing Transport Costs from Rising Fuel Prices from Supply Chain Digest

A recent piece over on Supply Chain Digest had some ideas for reducing transport costs given rising fuel prices from strategic, tactical, and operational viewpoints that is worth a review by anyone moving product from point A to point B. While most of the suggestions will be top of mind for most transportation managers, I’m sure there will be a few that are overlooked and worth remembering. Some of the more valuable ideas were:

Strategic

  • tradeoff inventory for transportation as low cost warehousing at TL (truckload) may be cheaper than JIT (just-in-time) at LTL (less-than-truckload)
  • centralize transportation planning
  • invest in a network optimization tool

Tactical

  • reduce packaging to minimal levels when shipping air
  • plug in rail/intermodal options into the TMS
  • manage inbound and outbound freight

Operational

  • optimize pallets and trailer cubes
  • insure shippers are compliant with the routing guide
  • avoid expedited shipping unless its a true emergency

Where is Global Trade’s Groove?

A recent headline over on the World Trade Magazine site that asked whether or not global trade still has its groove got my attention because, even though the global economy tanked from 2008 to 2010, a lot of leading companies are focussed on accelerating the development of Global Business Services centers (which was one of the foci of the recent Hackett Group Best Practices conference) in order to take advantage of lower labour rates in other parts of the world. Plus, I haven’t seen any drop in services outsourcing to India or product manufacturing outsourcing to China. And there has been a resurgence in interest (though not necessarily much in the way of action yet) in moving or creating new manufacturing locations in Mexico and Brazil by US (and even European) companies. So while Global Trade may not have grown as fast as we were predicting back in 2008 before the global recession, it does not appear to have taken any backwards steps by any stretch of the imagination.

Nevertheless, it’s always good to check the pulse. The article addressed the question from a risk, optimism, and emerging market viewpoint.

Risk
The eruption of Eyjafjallajokull in Iceland, the disaster in Japan, and the political upheavals in Egypt, Libya, Bahrain, Algeria, and even Albania are placing risk front and center in the Supply Management landscape. Plus, the consistently high price of oil, which could go even higher due to the instability of oil-exporting countries, puts global sourcing of certain goods at risk as the cost of transportation could soon make some global buys unaffordable. In addition, as more of the household budget goes towards fuel, consumers will have to spend less on unnecessary consumer goods. Then we have price increases across certain categories of raw materials as countries like China implement quotas on rare earth metals and create global supply constraints.

Optimism
The article has an interesting quote from Carlos Rice, Vice President of Supply Chain Services for Crowley Logistics who says that we’ve seen an upturn in the economy recently and we are watching the emergence of new markets — not only in India and greater China — but closer to home in Central and South America. What is happening with Brazil’s economy today is almost unprecedented. So, we see lots of opportunities not just east-to-west, but also north-to-south as well. Plus, there has been continuous growth in the trans-Pacific and Asia-to-Europe markets for some logistics carriers, balance is returning to many global trade lanes, and some carriers are seeing up to 20% growth in logistics to emerging markets that are creating a consistent demand for commodities. The expectation is that container trade will be at upper single-digit growth as a whole.

Emerging Markets
Adrian Gonzalez, director of Logistics Viewpoints, notes that the traditional economic powers like the U.S., Japan, China, and Germany are all looking at other developing areas as opportunities for future growth and you see these countries starting out first as sources of low-cost labor in much the same way as China began its development. Then you see the development of a middle class that begins buying products. And we have the situation where countries like China and India are now able to grow and thrive independently of richer countries. In fact, the World Bank states that developing economies were responsible for 45% of world growth in 2010.

So what’s the projected return on equity (ROE) for those invested in global trade? According to Paul Bingham, economics practice leader at Wilbur Smith Associates, barring another unexpected calamity, the [logistics] industry anticipates a slow yet steady global economic recovery. Right now, about 20% of what comanies manufacture is consumed in other parts of the world. Carlos Rice expects that this number will grow to 80% in the next 10 years or so. I personally think this is a bit ambitous with the high price of fuel, but don’t doubt that it will continue to rise as multi-nationals find new low-cost locales to produce in and new markets to sell it. I think the big difference is that there will be more near-sourcing from neighboring countries, or at least countries on the same continent, than there will be global sourcing from locations halfway around the world. What do you think?

Cargo Costs Getting You Down? Go Fly a Kite!

It takes a lot of fuel to carry a (post/new) Panamax vessel across the ocean and the 3,001 to 14,500 TEU (twenty-foot equivalent units) of cargo they contain. Even though they might be more fuel efficient than air transport, and account for 90% of international trade, they’re still a very dirty mode of transportation. A single contain ship can emit more chemicals than 50 Million cars and the ocean shipping industry as a whole, which is mostly unregulated from a clean-air standpoint, emits 6,000 times the emissions of every single automobile on the planet. (Source)

That’s why I was thrilled to see this article over on Industry Week on how “Cargill is Flying a Kite to Reduce Fuel Consumption”. According to the article, Cargill is in the process of installing a 320 square meter computer-controlled kite on an ocean cargo ship that will function 100 to 420 meters above the ship and generate enough propulsion under ideal sailing conditions to reduce fuel consumption by 35%. Working with German-based SkySails, Cargill plans to have the kite based propulsion up and running by 2012. Given that Cargill alone transports more than 185 Million metric tons of cargo a year, this will have a significant impact on its carbon footprint.

Advantages of Home Country Sourcing

In some industries, the US is now a low-cost country due to high transit costs, rising low-cost country labor costs, and high productivity when compared to certain low-cost and emerging economies. As a result, it is not only making sense to pull manufacturing back from China to Mexico for many North American operations, but to also pull manufacturing back to the US. Why is this? In a nutshell:

  • Lower Freight Costs
    With oil rices back to $100 a barrel and rising again, the cost of ocean freight is climbing again, transportation and logistics providers are slapping fuel surcharges on your invoices again, and air is out of the question for anything but high-value, high-density, short life-span goods (like laptops and smartphones).
  • High Speed-to-Market Times
    Insetad of waiting an averge of 3 weeks for the container ship to come in, you’re generally at most 3 days, by road, to get your product from your DC to your most remote store or customer location.
  • Lower Inventory Times
    No need to have product in intermediate warehouses waiting for enough product to fill a TEU or to carry a month (or more) worth of safety stock in the event that an ocean shipment is lost or a supplier misses a ship date.
  • Time Zone Advantages
    Follow-the-sun might be good for service operations, but it’s not good for managers who have to quote production in multiple time zones, work twelve hours a day, and never get enough sleep.
  • Lower Labor Costs per Unit
    A modern factory with a significant amount of automation and highly skilled workers can produce more units per worker hour than an off-shore factory that is only patially automated and run by poorly educated low-skilled workers. So even though the workes might be making 15 – 25 an hour compared to the 3 – 5 an hour, US, that you’d be paying a foreign worker, if they can crank out 5 – 10 times as many units per worker hour, it’s actually cheaper to produce at home. And in many US small towns hit hard by the recessions in recent years, labour really isn’t that expensive to begin with — and loyalty is higher than bustling India industrial centers where your workers leave as soon as a job across the street where they can get 5% more opens up.
  • No Culture Clashes
    If an organization has a low CQ (cultural quotient), working with offshore teams can be a challenge and overall efficiency can be low, and if the organization is not selling its products and services abroad, it’s sometimes not worth the effort to manuacture offshore.
  • Low-Cost Factory Repair
    If the product is complex or requires specialized machinery to repair, that is typically only available on a factory floor, and the factory is half a world away, chances are that a faulty product is just going to end up in the trash and increase overall costs. But if the product can be cheaply shipped back to the factory, chances are it will get repaired or refurbished, and losses will be minimized.

Your Global Supply Chain is Getting More Dangerous By the Day

As per this recent blog post over on the Supply Chain Management Review on how escalation in piracy places supply chain under pressure, ocean piracy has it an all time-high with 142 attacks worldwide in the first three months of of 2011. Yikes!

The International Maritime Bureau ( IMB ) has been tracking piracy worldwide since 1991 and the number of attacks in the first three months of this year are higher than any number ever recorded. To be precise, there were 142 attacks that resulted in 45 vessels being fired upon, 45 boardings, 18 hijackings, 344 hostages, and 6 kidnappings.

If the trend continues, energy AND insurance prices are going to go through the roof, or, in this case, the stern.