Global Logistics—October 2006

Global Transportation Providers is Bigger Better

Despite the billions of dollars spent on supply chain mergers recently, shippers don’t necessarily think bigger is better when it comes to global transportation, finds a new survey of logistics executives from 52 global firms such as Bayer, Honda, and Pfizer.

Many shippers feel one provider—regardless of size—cannot offer effective global transportation service coverage, according to the Unisys Global Shippers’ Survey 2006.

Indeed, 70 percent of respondents do not plan to move to a "one-stop shop" strategy, and instead prefer to work with multiple transportation providers to ensure quality service and competitive pricing. Many shippers are opting to use multiple niche transportation providers that offer flexible and dependable service in a limited area, the report shows.

"Shippers do not want to put all their transportation ‘eggs’ in one basket. They value diversity and the contribution of specialists," says Christopher Shawdon, vice president and partner, logistics solutions, Unisys.

Respondents also display a bias against large providers when it comes to technology systems, calling them "less flexible" and "less user-friendly" than small players’ solutions. The downside with small transportation providers, however, is they lack the IT resources of large providers, respondents say. Overall, respondents seek technology that is proactive rather than reactive.

"Shippers don’t want detailed status information on each shipment but rather exception reporting and a focus on time of arrival," explains Shawdon.

The survey also recounts shipper preferences on topics including freight forwarders, RFID, supply chain security, and government regulations.

Here are some highlights:

  • Seventy-four percent of respondents say reduced costs would drive them to use air freight more frequently.
  • The use of freight forwarders varies greatly by mode. Fifty-four percent of respondents use freight forwarders to transport ocean shipments, while 99 percent utilize freight forwarding services for airfreight shipments.
  • Only 1 percent of respondents’ shipments are currently transported with RFID tags; they expect that to increase to 8 percent in 2007, and 25 percent by 2009. Respondents say pressure to use RFID comes from two sources—customers (38 percent) and internal stakeholders (37 percent).
  • Respondents desire real-time information concerning shipments’ estimated time of arrival (ETA) over other data points (see chart). They rank ETA at 4.7 on a five-point scale, followed by location of shipped item (3.7), mode/carrier a shipment is on (3.3), pedigree/chain of custody (3.2), and physical state (2.4).

India From the Inside

Most logisticians today are familiar with India’s growing reputation as a source of global manufacturing, sourcing, and logistics prowess. Some experts even feel India may rival China in the coming years as the top region for foreign sourcing and exporting.

Inbound Logistics gets an update on the region from an India insider, Alok Handa, regional manager for SEKO India, New Delhi.

SEKO, a global freight forwarder, has had a presence in India since July 2005, and is currently in the midst of an expansion in the region. In addition to its existing offices in New Delhi, Mumbai, Ludhina, Jaipur, and Combitore, SEKO India is planning facilities in Mundra, Ahemdabad, Jodhpur, Amritsar, and other major cities.

AH: India’s economy is growing at a rate of 8 percent per year, plus it offers a skilled, highly educated, English-speaking workforce at cheap prices. Government policies to support the business community—giving companies rebates in taxes and duties, and allowing foreign direct investments, for instance—are also a welcome development.

These investments are a big reason why manufacturers, retailers, and other companies are making or sourcing goods here, and/or exporting products from India around the world. In addition, India’s international trade is growing 35 percent per annum, and its logistics industry is producing good volumes and revenue.

IL: What changes within India have led to this growth?

AH: The country’s vastly improved IT and telecom infrastructure, along with the addition of numerous multinational businesses locating in India, has created a growing demand for international business. In addition, an increasing level of disposable income and a dynamic retail sector provide healthy and growing demand for goods within India.

AH: Shippers are now in locations spread out across India, and they are taking advantage of low-cost sourcing and manufacturing, mainly for export business. SEKO India, for example, is targeting small and mid-size businesses in textiles, handicraft, auto parts, stones, agricultural products, sanitary wares, and leather items.

AH: As far as sourcing, India is divided according to commodities; therefore companies should study the areas properly before sourcing goods. Textile and garments, for example, are inexpensive in the south around Delhi, while brass handicraft sourcing is mostly done in Moradabad, in northern India.

Because labor is quite cheap here, companies must negotiate labor prices properly. It is also smart to be aware of delivery time and penalty clauses in contracts. Many Indian companies are family-owned businesses—they are afraid of losing business, so they are often very particular about their commitments.

Also, although more than 90 percent of business in India is open to foreign investors, some large companies are still restricted to Indian nationals. Working with businesses that do not require a local partner gives foreign companies much more control.

AH: I agree with the APL executive’s statement to some extent. Indian ports are not world-class, and we have some infrastructure issues related to road transportation. The Indian government, however, is investing large amounts of money in infrastructure to overcome these issues. Also, the port situation is improving, with new ports such as Mundra, Pipavav, and Vizag being introduced recently.

AH: China continues to have a few problems with intellectual property (IP) protection. Because of that, some companies, including Hewlett-Packard and Acer, have withdrawn research and development from China.

Intellectual property laws do exist, but China has various conflicts between its governmental hierarchy levels (province, city and nation) and Chinese companies. Some individuals exploit them, compromising intellectual property for western and even Chinese companies.

India is stronger on IP protection and has a more developed legal system with more predictable outcomes. As a result, India is often a better choice for projects with a large IP component.

It is important to note, however, that the economic success of India and China are often dependent upon each other.

Gateway To The Middle East

Giving weight to the hunch that Dubai is poised to become a global supply chain hotspot, some leading logistics companies recently leased warehousing and contract logistics facilities in Dubai Logistics City (DLC), part of Dubai World Central, a large logistics and air cargo center being developed in Jebel Ali, Dubai, United Arab Emirates.

Express operator Aramex, and logistics service providers Kuehne + Nagel and Panalpina, are among the companies lending some star power to DLC’s list of tennants, which also includes more than 85 regional and international companies. By 2008, DLC developers expect more than 6 million square meters of land will be leased.

"Our investment in Dubai Logistics City confirms that we recognize Dubai as the gateway to and from the Middle East. At this strategic hub, we will be able to provide sophisticated, integrated logistics solutions across the Middle East as well as Sub Asia and Africa," says Werner Kleymann, regional manager, Middle East for Kuehne + Nagel, which is leasing 52,000 square meters in DLC’s contract logistics area.

DLC was part of the now-completed first phase of development for Dubai World Central. Phase two, which will boast the world’s largest airport, Dubai World Central International, is now underway.

Global Security Wake-up Call

Though she’s best known for presenting CSCMP’s annual State of Logistics Report, supply chain consultant Rosalyn Wilson is no stranger to the transportation security realm.

Wilson is co-author of a recently released book, Securing Global Transportation Networks, which advocates a "total security management" approach to protecting the supply chain. Wilson shares her insight with Inbound Logistics.

RW: On any given day in the United States, approximately 8 million truckloads of freight are moved across four million miles of highway; 1.5 million railcars traverse more than 170,000 miles of track; 2,400 flights pass through 400 airports; and roughly 325 seaports transfer more than 25,000 containers.

This translates to more than $1.4 trillion worth of goods and 9 million cargo containers entering the United States alone; global figures are exponentially higher. Each of these movements represents an opportunity for something to go wrong.

The beneficial effects of globalization, lower costs, and higher efficiency in the supply chain has had the unintended consequence of weakening the system’s capacity to withstand man-made and natural anomalies. Terrorism, political upheaval, and other large-scale disruptive events happen more frequently, and have a more significant impact than in the past.

Each part of the supply chain is ever more dependent on another—even a small disruption at one point can have a cascading effect leading to the risk of a catastrophic system failure. It is becoming increasingly important to have transparent knowledge of all the links in the supply chain and to proactively enhance the resiliency of those links.

Recent events such as Hurricane Katrina demonstrate the vulnerabilities in our interdependent global economies and underscore the need for enterprises to invest in resiliency and security.

RW: Total Security Management (TSM) focuses on security in the broad sense by integrating security and resiliency initiatives into the decisionmaking processes for everything from vendor and third-party logistics provider selection, to offshore sourcing and warehouse location decisions.

It provides a broad-based framework for developing and implementing comprehensive risk and security best practices throughout a firm’s entire value chain. TSM is a value-creation model that demonstrates the potential for investment in new and secure business practices to enhance the value of the organization.

Implementing TSM enables firms to secure fixed assets such as manufacturing plants, warehouses, trucks, and ports; secure assets in transit; protect human capital; and enhance their brand name and goodwill. These security initiatives are quantifiably more effective and more comprehensive than those of their competitors, and they can expect to be rewarded accordingly in the marketplace.

RW: The biggest challenge is the lack of a focused approach to the problem. Our global transportation networks cannot be secured by a top-down, one-size-fits-all approach. Each individual company needs to evaluate the security of its value chain and the risks it faces. Companies need to analyze those risks and make informed decisions as to their appropriate level of security.

RW: The question is not are we doing enough, but rather are we doing the appropriate things? The key to securing our global transportation network lies in the initiatives of the private sector and the measures it takes individually and collectively to ensure the links in individual supply chains. The government is certainly a partner in this effort, but should not be directing the decisionmaking for an individual firm.

RW: Shippers can begin by applying the framework outlined in TSM to their own value chains. This approach requires a commitment from the entire business—from the management team to individual workers. Shippers need to take a proactive look at their partners in their value chain and their partners’ partners, and so on.

The supply chain is only as strong as its weakest link and all links in the chain need to take responsibility for security.

Leave a Reply

Your email address will not be published. Required fields are marked *