April 2013 | News | Global Logistics

Global Logistics—April 2013

Tags: Global Logistics

Freight train on Trans-Siberian Line

Russia plans to invest $8 billion to upgrade its Far Eastern rail network.

Russia Rushes to Develop Trans-Siberian Rail Line

Things are heating up in the Orient—and Russia, for once, is lighting a spark. The country is in a favorable position as domestic consumption continues to grow, Europe struggles, and Asia's economies grow apace.

Spanning two continents, Russia has long sought to develop and expand infrastructure across Siberia to connect the world's foremost trading partners. Now the government is backing up that ambition with $8 billion to upgrade its Far Eastern rail network.

The state railway monopoly will receive national pension and welfare funds to develop its Baikal-Amur Mainline (BAM) and Trans-Siberian routes by 2017, according to Prime Minister Dmitry Medvedev. The 2,686-mile BAM line crosses Siberia and Russia's Far East to the north of the 5,772-mile Trans-Siberian line, which has connected Moscow to the Pacific port of Vladivostok since 1916.

The government will also seek money from private investment and by increasing tariffs and issuing Russian Railways bonds. The railroad estimates the total cost of revamping the two routes by 2020 will approach $29.5 billion. By comparison, in 2010, Russian Railways invested about $390 million in its Far Eastern network.

Also reinforcing the government's commitment to this project's success is talk of privatizing Russian Railways—which operates 53,000 miles of track across the country—to help spur progress.

Russia ships half its exports to Europe but, prompted by the region's debt crisis, is aiming to double the share going to the Asia-Pacific region, which currently accounts for one quarter of total volume. In 2011, 18 million tons of freight was ferried along the BAM and Trans-Siberian routes. By 2020, that figure is expected to jump to 64 million tons.

It's not only Russia that plans on expanding use of the Trans-Siberian rail network to connect Europe with Asia and provide shippers a more time-definite option. In 2010, German rail carrier Deutsche Bahn and the Chinese Ministry of Railways signed a memorandum of understanding to strengthen rail freight links between China and Europe.

More recently, CEVA announced in March 2013 that it was launching a new China-to-Europe railway service that connects Suzhou with the Netherlands. The transit time for the entire journey is approximately 28 days, covering a 6,835-mile northern route across Russia.

London Calling

The new $2.2-billion London Gateway container port in Essex, England, will be a game changer by providing quicker access to southeast England, according to DP World, which is backing the project.

An adjacent logistics park will facilitate prompt dispatch to destinations including London. Currently, containers that come into Felixstowe, England's largest port, are ferried to warehouses in the Midlands before they are dispatched around the United Kingdom.

The first phase of the London Gateway project, which is being built 20 miles down the River Thames from London, will open later in 2013 and accommodate 3.5 million containers annually, providing healthy competition for the London market.

2012 U.S. Ocean Imports, by Port

The Port of Los Angeles saw more import traffic in 2012 than any other U.S. port, while Tacoma and Houston experienced notable increases over previous years.

Source: Zepol Corporation

Asia, Europe Remain Shipping Super Powers

Asia and Europe are equally important as markets for global shipping, and London is the industry's leading financial center, according to Norton Rose, an international law firm based in London.

The two historically linked trading powers were each ranked as the leading market by 39 percent of respondents to Norton Rose's recent survey of more than 1,000 people in the shipping, aviation, and rail industries. Forty percent cite London as best able to meet the industry's financing needs, compared to 15 percent for New York and 13 percent for Singapore.

Reflecting the heavy toll global economic recession has had on the shipping community, 42 percent of respondents name financial constraint as the most important change to their business since 2010, leading 26 percent to consider using structured finance, and 23 percent to use or consider private equity for the first time, according to the report.

"In line with the development of China and India as economic powers, Asia has been the most buoyant shipping market for a number of years," says Philip Roche, co-head of shipping at Norton Rose. "While London—and to some extent New York—remain key financial and legal service centers for the shipping industry, Singapore has successfully positioned itself as an increasingly important legal and financial center for shipping, and this trend will no doubt continue."

Brazil's Soybean Grind

The 2012 U.S. Midwest drought had a marked impact on domestic grain production, opening the door for foreign competitors such as Brazil to capture global market share.

But despite expectations of a record 2013 soybean crop, farmers are confronted with a sobering reality: Brazil's transport problems are stifling production.

The country's soybean harvest has a long window due to wide-ranging planting dates in various parts of the country. But delays in Brazil's rain-soaked west-central states and drought-stricken southern states, and a faster-paced yield for the top producing state of Parana, means farmers are harvesting at the same time—which exacerbates weaknesses in Brazil's transportation network.

Growers fear that a bottleneck is likely to occur, as there are too few trucks and insufficient trains to transport the crop from fields to co-ops or ports for export. While farmers have been investing in new equipment to add capacity, the Brazilian government implemented a new law limiting the number of hours truck drivers can spend on the road. Also, leftover corn from last year's harvest is being shipped at the same time, further sapping capacity.

The expectation of more rain only complicates the "growing problem" as it will delay other harvests and the planting of a second corn crop, which could reduce this year's yield.

European Businesses Collaborate Around Sustainability

Lack of standardization has become a major obstacle for the global sustainability cause. Without best practices and benchmarks for supply chain partners to share and perform against, widespread change is difficult. So it's worth noting when manufacturers and retailers collaborate on sustainability initiatives.

Nestlé, Sainsbury's, and The Co-operative Group—the United Kingdom's largest mutual retail business owned by more than six million consumers—vow to improve the environmental performance of some products in accordance with Product Sustainability Forum (PSF) research.

An initial assessment of the environmental impact of grocery products, published by the Waste and Resources Action Program on behalf of the PSF, identified 50 grocery products with the greatest environmental impact. The production and sale of these products—including bread, potatoes, bananas, and milk—contribute as much as 33 percent to household consumption of greenhouse gases (GHG), says the report.

As a result of the study, the Co-operative, Nestlé, and Sainsbury's will pilot "pathfinder" projects intended to shrink the supply chain footprint of products with the most GHG emissions, waste, and water, energy, and resource use.

The Co-operative will work across its fresh potato value chain to prevent waste and eliminate GHG emissions; Nestlé will collaborate with its principal milk supplier in the UK; and Sainsbury's will focus on the environmental impacts of its meat, fish, poultry, and produce.

Ford Floats Sea Transport For India Car Movements

In a likely indictment of India's transportation infrastructure failures, as well as an indication of what auto manufacturers need to consider to keep supply lines fluid and transit times consistent, Ford Motor Company is exploring the possibility of shipping cars via water from its Chennai factory to the western part of India.

The automaker is building a new factory in Gujarat that will be operational in 2014, and says moving vehicles via ships is more efficient than navigating India's notoriously congested roadways. The move is also indicative of how much automotive companies depend on truck transport to move vehicles in India.

"Almost 99 percent of all cars in India today are transported through the road network; this is not efficient," says Stephen Harley, executive director, global material planning and logistics, Ford.

"In the United States, the most predominant mode of transport is rail. In Europe, it's the inland water system," he adds. "Even in emerging nations such as China and Brazil, other modes are being developed. We need that in India, too."

India currently ranks high in terms of logistics costs compared to other countries. Logistics and transportation accounts for almost 13 percent of the gross domestic product, mainly due to shipper reliance on the road network. The global average is eight percent.

"The lack of clean, congestion-free ports and multi-modal transportation options limits India's possibilities compared to other countries, such as Brazil," Harley says. "Somebody is paying for this inefficiency, and customers are bearing part of the cost."