As European manufacturing capacity gradually migrates to cheaper locations farther east, once-prominent producers such as Germany are filling the economic void by developing transportation, distribution, and logistics capabilities.
As a reflection of this shifting dynamic, Ernst & Young's Location Germany 2008: Germany and Europe—International Manager Assessment report touts Germany as the top investment destination in Western Europe.
Germany's strength, already underscored by its top ranking for infrastructure in the World Economic Forum's Global Competitiveness Report 2008, is further augmented by a diverse range of small to medium-sized logistics service providers, differentiated labor costs, a highly flexible labor force, and a robust commercial property market.
In terms of transportation and logistics infrastructure, the Port of Hamburg ranks eighth in the world in container volume and second in Europe to Rotterdam (9.9 million TEUs). In 2007 alone, container traffic at Hamburg rose 11.6 percent as a result of growing trade with Asia and Eastern Europe.
Importantly, the port's share of container traffic among northern European ports, including Rotterdam, Antwerp, and Bremen, increased to 26 percent from 22 percent one year earlier.
The airfreight sector shows equal promise. Frankfurt places eighth in the world and second in Europe, to Paris De Gaulle, with 2.2 million tons of cargo transported, a nearly two-percent increase over 2007, according to Airports Council International's 2007 report.
The country's favorable transportation and logistics capabilities expectedly reflect its foreign investment potential. One in four businesses surveyed in the report plan to invest in Germany, while more than one-third of those already investing in the country intend follow-up ventures.
Additionally, 30 percent of companies believe Germany has become an even more attractive investment location and 35 percent predict its attractiveness will increase in the coming years.
Businesses that aren't adequately stretching and fine-tuning their global muscles are likely to find themselves hamstrung, according to Waltham, Mass.-based management consultant PRTM's sixth-annual Global Supply Chain Trends Survey.
Businesses are losing flexibility due to rapid globalization and their inability to effectively manage lengthening supply lines, indicates the study, which polled more than 300 global manufacturing and service companies between December 2007 and February 2008.
One in two survey participants report they do not have the internal capabilities to adequately manage external partners. In spite of these challenges, however, more than 50 percent plan to move all manufacturing operations outside their home country by 2010.
In addition to inefficiently responding to global trends, businesses without scalability are also underperforming and failing to reach global goals. Ninety-six percent of participating companies are not fully achieving the planned benefits of globalization, the study reports.
Management costs prove to be the hardest to reduce, with only eight percent of respondents achieving success in this area. More than 40 percent of companies, however, report little benefit or see an increase in management costs.
"This is an indication of how difficult it is to globalize without having a solid operational strategy in place, and a tactical framework against which to execute," says Gordon Colborn, lead director for PRTM's UK business.
By 2010, the need for greater supply chain flexibility will overtake product quality and customer service as the major factor for improving supply chain strategy, the report predicts.
Two thousand years ago, the Silk Road was the epicenter of global commerce and trans-cultural diffusion. Asian and European traders traversed the Ancient Near East, over land and by sea, bringing China's silk and spice trades to markets as far afield as Mediterranean Europe.
The wild current of commerce rocked the cradle of civilization, consequently hastening and amplifying the exchange of information between East and West.
In our times, U.S. shippers have attempted to anticipate, tame, and redirect this free flow of information and trade across multiple geographic zones, operational silos, and transportation modes to more efficiently and economically match supply to demand.
But with capacity and congestion constraints threatening the efficacy of Pacific Rim shipping, and as low-cost manufacturing gradually penetrates deeper into Southeast Asia, the old Silk Road is evolving anew.
At the center of this emerging trade paradigm is a 19th-century relic as timeless as the Silk Road itself. While Egypt's Suez Canal has served as a primary corridor for Middle East trade over the past 100 years, and more recently tanker and container passage between Asia and Europe, its role in U.S. supply chains has been relatively inconsequential. Until now.
"As container volumes continue to grow and trade channels such as the Panama Canal become overburdened, shippers are struggling to eliminate variability from their supply chains," says Gene Seroka, vice president Middle East Region, for global service provider APL and APL Logistics.
"The Suez Canal is wider and less constrained than Panama so it is an excellent alternative for products moving to North American destinations via the East Coast."
In turn, the once inward-focused Suez Canal is growing by leaps and bounds to capitalize on shifting trade patterns. As U.S. import volumes drop and Asia-Europe shipping continues to swell, carriers are reallocating capacity to accommodate demand. In 2007, the waterway posted a 20-percent increase in revenue as prices rose and transits increased.
Importantly, the number of container ships journeying through the Suez grew 10.6 percent to 7,718 vessels, versus 6,974 in 2006. Since 2002, container ship transits have increased 70 percent.
Equally significant, U.S. East Coast container ports have seen considerable spikes in container throughput and are ramping up facility and infrastructure investments to handle expected growth. Savannah, by example, had a record year in 2007, handling more than 2.6 million TEUs—an increase of more than 20 percent over the previous year.
Nearly two-thirds of Asia-U.S. trade still arrives via the West Coast, but shipments have dropped about 30 percent in 2008, according to Gihan Rashad, marketing manager, GAC Egypt, a regional arm of the Dubai-based global logistics company.
Realizing this steady trade growth, the Suez Canal Authority is planning to provide incentives to lure more container ships to the area. Beyond that, U.S. shippers are eager to explore all-water transportation options that circumvent West Coast and even Panama Canal congestion and capacity constraints.
"More than 18,000 vessels crossed the Suez Canal last year compared to an annual average of 14,000 through the Panama Canal," says Rashad. "The Suez Canal can handle the biggest container ships carrying up to 14,000 TEUs, which is nearly 190,000 tons of manufactured cargo weight. This is almost triple the Panama Canal's current capacity."
While the Panama Canal Authority is in the midst of an expansion project to build a third set of locks (expected to be completed by 2015), growing interest in the Suez has created an investment boom with new container hub ports emerging throughout the Middle East.
"The Suez Canal Container Terminal was built in Portsaid, Egypt, at the northern tip of the Canal and plans to have a 5.1 million TEU capacity by 2011," adds Rashad. "APM Terminals (Denmark) operates 60 percent of the terminal. A series of free zone areas, including logistics and distribution centers, are planned to complement the terminal."
Additionally, Dubai Ports' acquisition of the Sokhna terminal at the southern entrance of the Canal heralds further expansion of the facility's capacity.
Meanwhile, U.S. ocean carriers and ports are duly making investments and inroads in the region as the pace of trade picks up.
In May 2007, APL debuted its Suez Express service from South Asia. The weekly service includes stops in Singapore, Colombo, New York, Charleston, Savannah, Norfolk, Jebel Ali, Port Kelang, and Singapore. Transit time from Singapore to New York is 21 days, and 24 and 25 days to Charleston and Savannah, respectively.
"Transport times to the East Coast through the Suez are considerably faster than if transiting the Panama Canal. The Suez Canal is also highly competitive with cargo crossing West Coast gateways," says Seroka.
He believes high-value cargo shippers can benefit most from the Suez gateway's increased dependability and capacity, which translate to shorter turnaround times.
"Reliable transit times through the Suez Canal can eliminate the uncertainty connected with shipments discharged at U.S. West Coast ports and transported cross-country via congested intermodal rail," Seroka observes.
As further testament to the Suez Canal's potential, APL, which has been serving the Middle East for more than three decades, recently restructured its footprint in the region, transitioning from agency to fully owned status in Saudi Arabia/Bahrain and Egypt.
"While we expect significant growth in our core container shipping business, we are particularly focused on extending APL Logistics' value-added supply chain services," Seroka reports. "The establishment of our own operation in Saudi Arabia earlier this year is indicative of this commitment."
Elsewhere stateside, the Georgia Ports Authority recently signed a memorandum of understanding with the Suez Canal Authority to jointly promote all-water shipping between the Asia/Indian Subcontinent and the Port of Savannah.
The agreement calls for concerted efforts to expand international trade by supporting market presences in the United States and Egypt and with common customers, as well as to stimulate the exchange of operations and IT information and expertise.
Last year alone, 67 percent of the port authority's total increase in trade, or an additional 296,989 TEUs, was largely a result of doubling its Suez services.
In light of soaring transportation costs, fresh interest in the Suez Canal and the opportunities presented to shippers eager to reroute Asian-origin shipments through a conceivably faster, more reliable, capacity-flush pipeline may yet give businesses further incentive to reconsider global supply networks. For Seroka, it's a foregone conclusion.
"The increased use of the Suez gateway has affected sourcing strategies because it offers more rapid access to fast-growing sourcing and destination markets such as South East Asia, South Asia, and the Middle East," he observes.
Only time will tell how this recent shift in transportation and sourcing strategy will impact long-term supply chain dynamics. But for the new Silk Road, and its modern-day merchants, time is on their side.