Breaking the Size Barrier in Global Logistics
The last three years have brought a whirlwind of activity to global sourcing, which eliminated many traditional manufacturing jobs in the United States. The Bureau of Labor Statistics estimates that the manufacturing workforce in the United States shrank by two million production jobs between 2000 and 2003. Headlines appear weekly with news of more outsourcing to Asian companies.
Global sourcing is boosting the attractiveness of coastal and border communities for manufacturing production. Two announcements in 2003 demonstrate how dramatically the location landscape has changed:
- DaimlerChrysler announced that Savannah would become the next site for assembly of the Mercedes Sprinter cargo van (a project since cancelled).
- Toyota announced that San Antonio would become the site for its new truck assembly operation.
A decade ago neither of these locations, far from a geographic base of suppliers, would have been serious contenders for either project. Yet all six final contenders for these two projects were port cities or global trade hubs, not manufacturing centers. Connections to global suppliers are becoming more important in site selection than locations in inland industrial centers.
Production sharing operations—assembly plants using foreign components—in the United States have been constrained by the dimensions of the standard 40-foot-long by 8-foot-square ocean container. In businesses where components fit nicely on standard pallets, such as electronics, auto parts, and many forms of machinery, these dimensions are not a barrier. The world's base of suppliers for these industries, even in inland locations, is accessible through a sophisticated piggyback and highway terminal network.
The volume of container traffic moving through East and West Coast ports, exceeding 16 million containers each year, has become so large that logistics-dependent assemblers anywhere in the United States can rely on weekly scheduled service from Asia, Europe, or Latin America by dozens of carriers.
Boeing's Logistics Challenge
This year's announcement of Boeing's 7E7 project has opened production sharing to industries that have been constrained by the dimensions of the standard ocean container. Boeing will contract with suppliers in both Europe and Asia to fabricate major subassemblies, including wings, fuselage pieces, stabilizers, and other "oversize" aircraft parts. Published estimates suggest that the majority of content for the 7E7 will originate in Japan, Italy, Australia and Canada.
Some of the 7E7 components measure 20 feet square by 140 feet in length, which presents a logistics challenge to shippers, both for ocean and inland movements. How does a logistics manager handle the inbound shipments when components won't fit in the standard ocean container? How can that manager find all-water routes from both Asia and Europe that accommodate oversize components? Does the company fabricate components in sizes that fit the standard 8- foot by 40-foot container and budget for additional assembly costs? Or is there a better way?
Taimerica recently conducted an analysis for an inland state that was competing for the Boeing 7E7 project. We recommended a viable, but undiscovered, scheduled service option for moving oversize components. The answer consists of the world's fleet of car carriers and Roll-on/Roll-off (Ro/Ro) vessels.
Norwegian carriers such as Wallenius Wilhelmsen and HUAL, and Japanese carriers such as K-Line, among others, offer scheduled all- water delivery of large components from Northern Europe, the Mediterranean, South America, and Asia to major Atlantic, Pacific, and Gulf ports, which have few scheduled all-water container services from either Asia or Europe. The car carrier fleet offers the opportunity to assemble oversize components from Europe, Asia, and South America in a wide variety of ports along the Gulf, East and West Coasts of the United States.
Car carriers often haul yachts from Europe that are equal in size to Boeing's largest assemblies (20-foot by 20-foot by 140-foot). Wallenius Wilhelmsen, for instance, recently completed a movement of windmill blades from Brazil to Galveston that measured more than 34 meters (113 feet) in length. Oversize components are a significant cargo for these carriers, who have begun to court this business. One industry observer notes that oversize components are approaching 10 percent of the revenue for car carriers in the Europe-to-East Coast trade.
Look for two trends to continue in 2004:
- The range of companies engaged in production sharing will expand beyond those who rely on standard ocean containers.
- Port locations will continue to grow in importance as sites for production sharing operations.
The Boeing 7E7 location decision underscores these trends. Of the four finalists Boeing evaluated, all were located adjacent to deepwater ports on the Pacific (Everett, Wash.), Gulf (Mobile) and Atlantic coasts (Kinston, N.C. and Charleston, S.C.).
Look for the job of logistics manager to become even more strategic to the corporate mission in 2004.