Global Logistics-August 2008

Logistics service providers are no strangers to handling mission-critical projects. So when natural disasters strike, they serve an important role helping first responders and humanitarian relief agencies bring food and supplies to those in need.

They may also bank some valuable experience for helping commercial shippers manage their own supply chain adversities.

Cyclone Nargis, which brought considerable devastation when it made landfall in Myanmar in May, has also brought logistics emergency teams (LETs) together to contribute their resources and expertise in managing the ongoing relief effort.

As part of the United Nation’s (UN) first-ever deployment of this unique public-private partnership, leading transportation and logistics companies such as Agility, TNT, and UPS are supporting the World Food Program (WFP)-led “Global Logistics Cluster” to manage supply chain efforts on the ground in Myanmar and in the critical staging area at Bangkok’s Don Muang airport.

During the initial planning phase, LET experts worked in concert with humanitarian logisticians to provide transportation, warehousing, and customs clearance support consultation. Utilizing corporate local knowledge and relationships for the UN’s benefit is central to the LET model.

“In the face of such devastation, regional and local business leaders are very interested in supporting the humanitarian operation, but there’s often no mechanism to locate and engage them quickly,” says Mariam Al Foudery, vice president, corporate social responsibility for Agility.

“Because each LET company has a strong local background and network, we are able to provide the bridge to connect humanitarian and commercial networks.”


Agility, TNT, and UPS are also collaboratively managing a 65,000-square-foot warehouse in Bangkok to store and redistribute food and supplies to critical areas.

With the restoration of Myanmar’s Yangon airport, LET staff are also allocating resources there to help local organizations expand warehousing operations and capacity to receive and deliver stockpiled provisions coming in from Thailand.

“Corporate logistics specialists can integrate with humanitarian logistics specialists in warehouse operations to leverage the best of both commercial and humanitarian systems,” adds Ludo Oelrich, director of the TNT/WFP partnership. “When we share practices and standards, we increase the speed and efficiency of aid distribution.

“And when corporations provide additional hands to support these operations, we also allow the UN staff to focus on their critical direct relief work.”

Shifting global trade dynamics are gradually changing the way foreign enterprises and Mexico’s government manage maquiladora manufacturing facilities, according to Mexico’s Maquiladoras—Climbing the Ladder of Success, a research report from Prologis, a global distribution and facilities owner and developer.

Historically, Mexico has been an attractive location for foreign manufacturing and warehouse operations because of its low-cost labor, proximity to the United States, large pool of university-trained engineers, intellectual property rights, tax incentives, and time zone proximity to many North American companies.

During the past 15 years, the maquiladoras’ role has been redefined several times—first, when the North American Free Trade Agreement (NAFTA) took effect in 1994; later, when China joined the World Trade Organization (WTO) in 2001; and later still, when Mexico enacted major tax reforms in 2007.

As U.S. interests in near-shore manufacturing take hold and as Southeast Asian markets compete for low-cost sourcing business, Mexico’s maquilas are sidestepping potential threats to its export market, according to the report.

Moving up the value-added ladder and producing more customized, higher-priced goods, the country is attracting high-value industries including aerospace, custom-ordered electronics, and pharmaceuticals.

Looking ahead, Mexico’s rapidly changing maquiladora sector will continue to fuel the country’s economic growth, the Prologis study predicts. Government efforts to invest in cross-border and in-country infrastructure and enact tax and fiscal reforms will only expand the country’s expectations for foreign-owned manufacturing facilities.

Fighting Inflationary Price Fixes

Three macro-economic trends are creating troubling domino effects for global supply chains, reports a new study from New York-based Marsh Inc.’s Supply Chain Risk Management practice.

Higher oil prices, combined with rising food and commodity costs, are creating significant upward pricing pressures as companies and their suppliers struggle to adjust to the global credit crunch.

To counter these negative influences and prevent unanticipated supply chain delays and disruptions, Marsh offers three red flags for businesses:

1. Beware of labor unrest. Companies with operations or contract manufacturing in developing nations are at risk for labor unrest and rising production costs, which can be triggered by food price volatility and inflation. In 2007 and 2008, high food prices led to demonstrations and strikes in Mexico, India, Italy, Indonesia, and Egypt. As a result, government actions such as export blockades are becoming common.

2. Beware of fuel prices triggering logistics delays. In 2008, truck driver demonstrations over high fuel costs created temporary transportation slowdowns and stoppages across many parts of Europe, including France, England, Spain, and Portugal.

3. Beware of supplier bankruptcies. As banks tighten global credit lines, suppliers face rising operational costs due to fuel, raw materials, and labor price increases. This has caused a spike in bankruptcies among financially strapped transportation carriers and suppliers. To offset these pricing pressures, some suppliers may delay or only partially order raw materials, skimp on quality, delay hiring or facility expansions, and be less dependable when supply chain disruptions occur.