Global Logistics—January 2013
As part of a government-backed trial program testing the efficacy of longer trailers, United Kingdom-based grocery chain Tesco has taken delivery of 25 new 51-foot Gray & Adams refrigerated units. The company will use the new trailers to deliver store inventory from regional distribution centers. Each trailer can carry 51 cages (UK shipping units), six more than a standard 45-foot trailer.
"That represents a 13-percent increase in productivity, so the potential benefits of fewer vehicle movements and lower emissions are obvious," says Cliff Smith, Tesco’s fleet engineering manager. "But we’ve only just put these trailers on the road, so we still have work to do in terms of driver training and risk assessment at the delivery points before we come to any firm conclusions about the longer trailers."
The initiative is part of Tesco’s F-Plan—fuller cages, fuller trucks, fewer miles, and fuel economy. Tesco has taken 111 million miles off the road over the past five years, saving 157,000 tons of CO2 emissions in the process.
While e-commerce growth is rapidly changing the U.S. distribution landscape, it is having a similar impact on China’s industrial real estate market, according to Los Angeles-based global corporate real estate service company DTZ.
China is set to overtake the United States as the largest e-commerce market in the world by 2015, driven by rising domestic consumption, a fragmented retail market, and an expanding number of Internet users—which is expected to surpass 700 million people by that time.
A growing e-commerce consumer base will challenge Chinese companies to find more efficient ways to deliver product. Limited infrastructure, lack of warehouse space, and a shortage of last-mile delivery expertise make it difficult for e-businesses to provide efficient services in lower-tier cities and inland areas, according to the report. The government’s recent decision to allow FedEx and UPS license to offer parcel delivery service in select Chinese cities reflects this emerging need.
The scarcity of suitable land and infrastructure is also a concern. Modern logistics facilities account for just two percent of the total space in China. The majority of properties comprise middle- and low-end facilities, mostly converted from factories with inadequate height, insufficient loading docks, and restricted vehicle accessibility.
The lack of supply also contributes to higher rentals in the first-tier markets, with logistics rents rising by 85 percent in some districts of Shanghai during the past year. The higher rentals prompted many e-commerce companies to relocate their warehouses to lower-cost regions, the report says, which raises other issues such as rural transportation accessibility and efficiency.
Despite a downturn in the global economy, the Middle East’s transportation and logistics sector was expected to grow to $35 billion in 2012. This growth is largely driven by Gulf Cooperation Council countries substantially investing in infrastructure development and achieving significant economic growth in recent years. The United Arab Emirates (UAE) alone expects logistics revenue to approach $9 billion.
These growth predictions were part of the focus of senior Jebel Ali Free Zone (Jafza) officials attending the Annual Logistics Strategic Customer Forum, organized for key stakeholders involved in logistics and trade in the region.
While traditionally strong markets in the Americas, Europe, and Asia struggle, and freight flows among those regions dry up, emerging global locations present new trade opportunities for the Middle East, especially given its location and reputation as a cargo crossroads.
"The growth of the transport and logistics sector is closely connected to the economic cycle," says Ibrahim Mohamed Al Janahi, deputy CEO of Jafza. "When economic activity picks up, demand for transport and logistics services also picks up.
"That’s why recession affects the transport and logistics sector immediately," he says. "A decline in air and sea cargo volumes in recession-affected regions reflects the state of the economy along those trade routes.
"The demand for transport and logistics services also explains the development of new trade corridors to support Intra-Asian trade and other regions such as Africa and Latin America—or in the case of the Middle East, opportunities between Jafza and other countries in the region," he adds.
U.S. imports for November 2012 dropped significantly for West Coast ports due mostly to labor strikes. Other U.S. ports saw an increase in market share for that month, as shipments were diverted from Pacific ports.
Source: Zepol Corporation
Japan’s culture and economy faced an onslaught of challenges in the aftermath of its 1989 economic bubble burst—with the 2011 earthquake and tsunami, and continuing speculation about the country’s aging population raising the most recent concerns. Industry has always been domestically driven, preferring the insularity of vertically integrated corporations—much like the country’s real and perceived geo-political isolationism following World War II.
While Japan has shared relatively positive trade relations with the United States and neighboring Korea and China, its recent move to explore hidden investment opportunities in Pakistan spells a new wave of outward expansion to combat global competition and changing demographics.
A Japanese business delegation visited the politically volatile country to investigate industries—notably automotive—where it can inject investment. Pakistan is an emerging manufacturing location and ideal stepping stone to distribute vehicles into a growing Central Asian consumer market.
"Pakistan is blessed with wonderful ports, and Gwadar is the best due to its location," says Daisuke Hiratsuka, vice chairman of the Japan External Trade Organization, a non-profit trade and investment promotion agency working under the aegis of the Japanese government. "If the Pakistani government makes efforts to link its land routes to neighboring countries, then we may soon export our automobiles from Pakistan to other Central Asian states."
While Hiratsuka acknowledges the Pakistani government needs to address some of its investment policies for long-term planning, and the country’s lack of technological infrastructure presents some obstacles, the potential to manufacture and source automobile parts and develop supply chain capabilities there is worth the risk. Pakistan’s own development as a manufacturing and logistics location will only benefit from the presence of Japanese industry. And Hiratsuka is optimistic that other industries, such as retail and electronics, will eventually follow automotive.
"We need only one Japanese investor to enter the Pakistani market; the rest will follow for sure," he concludes.
Nine global freight forwarding groups are coming together as founding members of the Elite Association of Logistic Networks. The new association will represent independent freight forwarders by engaging with and participating alongside major global industry associations, regulators, and government agencies.
The initiative was created, in part, as a response to fears within the global community that a growing number of rogue networks are sullying the reputation of bona-fide, high-quality logistics networks operating around the world.
"Almost daily, new networks are appearing that do not have the same ideals and standards that Elite member networks embrace," according to an Elite Association press release. "Many of these networks operate using dubious practices, provide poor quality services, offer unsubstantiated benefits, lack proper financial backing, fail to implement membership vetting procedures, and are generally unable to fulfill their stated obligations to their membership.
"This not only damages the reputation of logistic networks as a whole, but also creates such confusion among freight forwarders, shippers, and the logistics supply chain," says Elite.
The nine founding members of the Elite network are: Global Logistics Network, Global Project Logistics Network, Lognet Global, Project Cargo Network, Time Critical Logistics Alliance, Universal Freight Organization, WCA Family of Logistics Networks, WCA Projects Network, and Worldwide Partners Alliance.
As testament to South America’s expanding consumer base, Fujifilm Corporation established a direct-sales subsidiary in Colombia, and a logistics base in Panama, to accelerate the expansion of its digital camera business. Both companies will commence business in 2013.
Fujifilm has been gradually building direct-sales infrastructure in countries such as Ukraine, South Korea, Indonesia, Vietnam, South Africa, and Turkey to reinforce its business base in those regions. Latin America is next to fall in line.
Colombia is enjoying steady economic growth of approximately five percent annually since 2010 due to social and economic stability that is stimulating private-sector investments. Fujifilm has been selling digital cameras through a local distributor, but will now switch to the direct-sales system.
The company is establishing its logistics base in Panama, a geographical center of the region with an edge in logistics costs and transport convenience. Fujifilm aims to shorten the delivery time to sales organizations in Latin American countries, reducing inventory and transportation costs.
One country might share another’s labor pain if a new global alliance covering workers across the aeronautical supply chain gathers more support.
The Components to Carriers initiative—led by the London-based International Transport Workers’ Federation (ITF), and its recently founded partner IndustriALL Global Union in Copenhagen—will provide unions with the opportunity to share best practices, foster solidarity action, and develop joint strategies to help build union power. It will also enable activists to map union strength in strategic locations, and collect intelligence on global corporations and supply chain shifts.
Representatives of the ITF’s ground staff committee and civil aviation section, and IndustriALL’s aerospace section, recognize the potential of connecting groups of workers across the aeronautical industry. They are leading the Components to Carriers program through a joint ITF/IndustriALL working group.
The alliance will involve unionists representing a range of specific areas—from aircraft manufacturing and logistics, to maintenance, repair, and overhaul operations.
"Connections between unions representing different types of workers are vital if we want to influence the global supply chain," says ITF coordinator Ingo Marowsky. "It’s important that we understand the big picture and get ahead of the game."
Middle-class tastes are expanding China’s intra-Asia trade connections. Growing exports of Thai fruit, for example, are creating new opportunities for logistics providers along overland routes between the two countries, helping to improve roads and develop much-needed cold chain infrastructure, according to a recent Bangkok Post article.
Reflecting China’s expanding middle class, per-capita fruit consumption is estimated at 329 pounds per year, twice the global average. While the country is a top fruit grower, it relies on imports to meet demand. Import tariffs on fruits and vegetables have been eliminated under the China-ASEAN Free Trade Agreement. As a consequence, Thailand now accounts for nearly 50 percent of tropical fruit imports such as mangosteen, durian, longan, and bananas.
More telling, the increase in overland trade is helping to establish a more sophisticated transportation corridor. A memorandum of understanding signed last year between China and Thailand on the general administration of inspection and quarantine procedures has reduced transshipment times. Pre-inspected fruits transported from Thailand can pass through Laos and move directly to the border-crossing in Mohan, China, without being reloaded onto Lao trucks, which helps reduce handling costs.
While transportation costs are still relatively high, shippers can deliver door-to-door in two days versus longer, but cheaper, sea freight and inland water transport options that are less suitable for perishable cargo. A longer-term objective is to mesh inland water and overland transport networks so that shippers can gain greater economy without compromising product integrity. That will require further investment in cold chain warehouses, distribution centers, and specialized logistics services that reduce inventories, transit times, and logistics costs at intermodal exchanges and border-crossing points. To date, those resources are lacking.
The growth in perishables trade between China and Thailand also requires a level of transportation and logistics expertise that still remains nebulous in parts of Asia. Companies need qualified, integrated service providers that can facilitate customs clearance, handling, and transportation. These activities are currently fragmented among smaller local operators, reducing efficiency and increasing the risk of product spoilage.
India’s rail freight industry has long been perceived as both a problem and solution for the country’s well-publicized transportation failings—especially in terms of linking transport hubs to emerging industrial centers. The government-controlled railway system, which has seen freight and passenger traffic, as well as revenue, increase during the past year, is now raising rates to subsidize more investment.
Indian Railways has not raised freight prices in 12 years, despite annual losses incurred by its passenger operations. The railroad’s mandate to increase rates on certain commodities such as iron, steel, coal, coke, and cement by about four percent, and offset higher wages and fuel costs, has been criticized by some as an attack on the welfare state—and a move that is likely to spark inflationary fears. Others see it as a tactic by transportation officials to show potential investors they mean business.
Indian Railways signed multiple memorandums of understanding in 2012 to collaborate with industry on projects expected to drive economic growth. In December 2012, for example, the railroad partnered with a company to set up a forged wheel factory that not only supports the railroad but also industrial growth in the country. Officials contend the agreement serves as further incentive to invest in railway infrastructure and to increase line capacity from mines, plants, and ports.
The government is still trying to fund and execute a plan that was laid out in 2006 to build a network of six dedicated freight corridors throughout the country to alleviate congestion and expedite rail freight movements. To date, the initiative has been beset by political and bureaucratic wrangling, scope creep, and cost overruns.
Despite weak economic growth and decreasing freight volumes across all modes, Canada’s transportation and logistics industry revenue was expected to increase 30 percent through 2012, according to a Conference Board of Canada and the Business Development Bank of Canada assessment. This figure stands in stark contrast to other industries—retail, food service, and wholesale trade—largely suppressed by continuing global economic attrition.
A weak economic outlook and cautious consumers will leave many Canadian sectors with no significant growth in 2013, warns their Canadian Industrial Profile paper. Transportation and warehousing are the rare exceptions, with price increases and cost control practices driving strong profit growth going forward.
"Canada is not immune to the economic uncertainty that has weakened global demand for goods and services," says Michael Burt, director, industrial economic trends, the Conference Board of Canada. "Modest employment growth is limiting Canadians’ income gains. Consumer confidence remains weak, and household debt continues to mount—all of which dampen shoppers’ willingness to spend on retail items, food and drink, dining out, and travel."
The latest example of a foreign-owned entity aligning its fortunes with a piece of U.S. transportation real estate is France-based steamship line CMA CGM, which purchased a stake in the Port of Long Beach. The move is expected to boost port revenues by $70 million over the next five years.
It wasn’t long ago that public outcry reached a fever pitch after United Arab Emirates-owned Dubai Ports World (DP World) acquired British-owned ports operator Peninsular and Oriental Steam Navigation Company (P&O), which had controlling stakes in six U.S. East Coast ports. DP World eventually divested that part of the business. The latest move by CMA CGM, the world’s third-largest container shipping line, triggered little more than a ripple outside the port community. But it is emblematic of a wider trend within the global ocean freight industry as companies look to align their businesses with new ports.
Port operator China Merchants Holdings is buying a 23.5-percent stake in the Port of Djibouti, located at a critical trading nexus between Northeast Africa and the Arabian Peninsula. China Merchants also partnered with Chinese steamship line COSCO and Hong Kong-based China Shipping Terminal Development to buy a 30-percent stake in Taiwan’s Kao Ming Terminal in Kaohsiung. Elsewhere, the Shanghai International Port Group (SIPG) acquired a 25-percent share in the A.P. Moller-Maersk-owned Zeebrugge Port Company, the largest coal gas transit port and liquefied gas import hub in Europe.
At Long Beach, CMA CGM will become a partner in the lease and operations of Pier J, a 256-acre terminal. The move guarantees that the company’s ships will call exclusively at the Port of Long Beach when using the San Pedro Bay gateway.
Pier J is home to the Pacific Container Terminal. With a water depth of about 50 feet, and 17 post-Panamax gantry cranes, it is capable of servicing the new generation of large containerships.