Global Logistics—December 2009

Electronics Manufacturing Switches Current

Outsourcing manufacturing to China remains a viable strategy for many global companies. But the country’s developing economy, expanding consumer base, rising labor costs—and increasing global competition—has some industries reconsidering where they source product.

Labor costs, total landed costs, and insourcing by original equipment manufacturers (OEMs) are slowing the migration of high-tech production to China, suggests a recent report by Charlie Barnhart & Associates, a Kihei, Hawaii-based global electronics manufacturing think tank.

"The rising cost of labor in the most popular destination for electronics manufacturing outsourcing has resulted in other countries—notably Mexico, India, and Vietnam—becoming more cost competitive," says Eric Miscoll, principal, Charlie Barnhart & Associates. "Mexico should benefit from this trend, especially for goods destined for the U.S. market."

Electronics manufacturers are also becoming more proactive in considering the total landed logistics costs of shipping product longer distances. They are now evaluating labor along with transportation, inventory, and other metrics.

"A significant, yet still minor, industry trend is that some OEMs are returning to a degree of ‘self-build,’" adds Miscoll. "Most OEMs maintained in-house manufacturing capabilities, even while outsourcing a majority of their printed circuit board assembly, which is the primary service of the electronic manufacturing services industry."

Charlie Barnhart & Associates doesn’t expect the global outsourcing pendulum to swing back until 2012. By then, companies will likely be exploring low-cost countries such as India, Vietnam, Ukraine, Tunisia, and Macedonia.

Brussells Airlines Sprouts In Africa

Lufthansa subsidiary Brussells Airlines has found an unlikely growth market in an otherwise turbulent air cargo industry. The Belgian air carrier’s freight business from Europe into Africa is showing steady progress compared to other international markets. In October 2009, the company recorded the second-highest monthly volume of cargo and mail traffic in its history.

Partnering with European Cargo Services (ECS), a French sales and services agent, allowed the carrier to generate 1,155 tons of southbound traffic—a 97-percent load factor—narrowly missing the previous highest monthly volume of 1,194 tons in October 2008. ECS sells belly hold cargo capacity on Brussels Airlines’ Airbus A330-300 flights to 14 markets across Africa.

"Compared to other continents, Africa has been less affected by the economic crisis," says Guy Hardy, head of cargo sales for Brussells Airlines. "We expect final revenue for 2009—a year of damage control for the air cargo industry—to be close to 2008 results."

As soon as Brussells sees signs of a sustained economic recovery in 2010, it will explore bringing additional capacity into the African network by either opening new destinations or increasing frequencies on existing routes.

Hitching a Ride on the Green Train

Stobart Group’s new intermodal service between Valencia, Spain and Dagenham, England isn’t your garden variety. The weekly offering, operated in concert with German rail carrier DB Schenker, provides a low carbon alternative for retailers and consumers sourcing fresh Spanish greens and other produce.

The service, which covers 1,100 miles, offers a novel approach to transporting perishable shipments in a more sustainable manner.

"This service offers supermarkets and consumers a quicker and much lower carbon alternative than importing fresh fruit and vegetables from Spain by road," says Andrew Tinkler, CEO of Stobart Group. "We will start the new service with one train per week, but plan to develop this into a daily service, increasing the efficiencies and environmental benefits by a factor of five."

Stobart is also exploring opportunities to extend the train service from the current terminal in Dagenham to its multi-modal facility at Widnes, which is an ideal hub for distribution throughout the UK heartland.

"An extension of the train to this facility would take more trucks off Britain’s crowded road network and increase the total carbon savings for the transport of oranges, lemons, and other Spanish fruit and vegetables," Tinkler says.

"At Widnes, we also have extensive chilled warehouse and distribution facilities, adding further synergies as part of our multimodal logistics offering to Stobart customers," he adds.

South Africa Struggles With Sustainability

While many countries and businesses around the world are debating the merits of climate change policies, and taking measured approaches to implementing green best practices, others haven’t even approached the table. Failing to apply and comply with green supply chain best practices can stress economic growth and recovery, a reality that is unfolding in South Africa.

More than 40 percent of surveyed companies in South Africa are not implementing environmentally sustainable business strategies—potentially jeopardizing their own long-term sustainability, notes a recent study exploring cross-industry sustainability efforts.

The Supply Chain Intelligence Report (SCIR) 2009, conducted by Terranova Research, an England-based market research company, surveyed more than 200 senior company officials across all major industries in South Africa (see sidebar below).

Terranova’s research reports that 41.3 percent of participating companies have no plans to incorporate metrics that measure their impact on the environment. The key performance indicators (KPIs) listed in the survey include energy consumption and carbon emissions from supply chain operations; water consumption from manufacturing operations; infrastructure simplification; and reverse logistics.

Green non-compliance hampers the country’s competitiveness on a global scale, the study suggests. South African companies manufacturing products for export will find it increasingly difficult to escape international pressure—particularly from the United States and Europe—to monitor and report on their operations’ environmental impact.

"The unwillingness of more than 40 percent of South African companies taking part in this survey to adopt new and important environmental KPIs is alarming, particularly in light of the country’s precarious energy situation," observes Graham Terry, head of the Office of the Executive President at the South African Institute of Chartered Accountants.

South African companies that want to get ahead of the competition and position themselves for long-term growth urgently need to start thinking green and developing sustainable approaches to sourcing and supply chain management, adds Terry.

"The competitive realities of the current economic environment demand that companies proactively manage new customer needs and expectations, as well as increasing environmental regulations," he notes.

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