June 2008 | News | Global Logistics

Global Logistics

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Moving forward with Switzerland's much-anticipated Alpine tunnel project, AlpTransit Gotthard and the Transtec Gotthard Consortium recently finalized a contract for building the railway infrastructure of the Gotthard Base Tunnel.

The contract is for installation of railway infrastructure systems for the Gotthard Base Tunnel, which involves equipping two single-track tunnels, each 35 miles in length, as well as nearly seven miles of over-ground lines to the north and south, all to the point where they connect with the existing railway network.

The Gotthard Base Tunnel, expected to be commercially operable by 2017, will be the longest tunnel in the world, surpassing the current record holder, the Seikan Tunnel in Japan.

Upon completion, capacity through Gotthard is expected to increase from 150 freight trains per day to more than 200 trains; and with less severe elevation gradients, trains will be able to haul double their current tonnage.

As manufacturing across the Western hemisphere forcefully moves eastward—to Eastern Europe and Asia, in particular—the United Kingdom has experienced a slight increase in projected factory production, according to data released by the UK Office for National Statistics.

Figures show that manufacturing output rose 0.4 percent, better than the original 0.1 percent forecast.

This information confirms survey findings carried out by the Manufacturing Advisory Service (MAS) South East, which recently reported that more than 70 percent of the region's manufacturers feel confident about the future.

It may also be a further indication that rising transportation costs and product quality concerns are compelling some companies to reconsider offshoring strategies.

"UK manufacturers realize they cannot compete with low-cost regions on low-value goods—but they are winning through innovation, quality, and adopting the best available tools and techniques to enhance productivity," says David Caddle, principal specialist at MAS South East.

Still, manufacturers continue to express concern over the issue of future skills shortages—more than 35 percent of MAS survey respondents believe that the skills gap could have a negative impact on future productivity.

"Despite concerns around a number of issues—including the global credit crunch and rising energy and commodity prices—the survey shows that the manufacturing community remains positive about its future," Caddle adds.

Taking a Bite Out of Supply Chain Crime

As companies expand globally, outsource business operations, and add new IT systems they become more vulnerable to fraud, according to a report from Kroll, a New York-based risk consulting company.

Large companies have become "extended enterprises," and as a consequence are more vulnerable to an array of frauds ranging from simple theft and the misrepresentation of inventory to counterfeiting and piracy.

"Fraud thrives on complexity and companies are facing fraud from the beginning of the supply chain, in every factor: raw materials, production, and delivery," says Richard Abbey, a London-based managing director at Kroll.

"Today's supply chains are a multi-faceted, complex web of relationships and processes that often spans a number of continents as companies grow larger and more global in scope."

While companies work to secure their supply chains, thieves are working just as hard to exploit vulnerabilities. Cargo theft, for instance, is estimated to be a $12-billion problem in the United States alone, according to the International Cargo Security Council.

Unfortunately, thieves don't always prey on companies from the outside. Internal theft throughout the supply chain is a major risk as well.

Kroll has identified the following red flags to possible internal fraud:

  • Abnormal selection of vendors: When a single individual selects service providers, related, controllable, or illicit players may be chosen.
  • Payments outside the normal accounts system: Be warned if payments are hand-delivered, approved manually, or not accompanied by a proof of delivery.
  • Unusual payment patterns: Falsified invoices rarely follow the same patterns as those from honest suppliers. Watch for an increase in payments to one vendor, a high volume of transactions falling under audit thresholds, or multiple invoices on the same day.
  • Rates paid are out of line with the company's standing in the market: It is difficult for a carrier that earns a fair profit to distribute part of its revenues in kickbacks or illicit payments, so their charges may be higher.
Qualifying Quality Concerns

Recurring product and material recalls from China and other low-cost labor countries may have buyers rethinking their global sourcing choices.

Consequently, supply chain partners need to act quickly to improve the quality and transparency of their operations, according to a new study, The Quality Imperative: Averting a Crisis for Suppliers in Developing Countries, by Industry Directions, a Boston-based market research firm.

When and where labor costs are low, some companies assume they can just throw people at quality assurance problems, the report indicates.

As companies in emerging economies grow rapidly, however, their costs, complexity, competition, and rate of change also rise. Adding skilled employees cannot fix the quality threat, and may even exacerbate it.

Employees with no standard guidance may jeopardize a supplier's ability to comply with government safety and environmental regulations such as Restriction of Hazardous Substances (RoHS) and Waste Electrical and Electronic Equipment (WEEE) directives.

Suppliers, therefore, need to build in quality and manufacturing execution systems, particularly those with integrated quality functionality that can support such efforts.

Spiraling fuel prices, shippers unwilling to accept higher costs, and fears of an economic slowdown are gathering force at the grass-roots level in Europe's motor freight industry.

As a result, many small and medium carriers find themselves pushed to the limit as they absorb costs they can't support, according to a European Road Freight 2008 study by UK-based market reserach firm Transport Intelligence (TI).

Market leaders, however, continue to invest heavily, largely through significant mergers and acquisition activity, but with patchy profitability. Kuehne + Nagel, Schenker, and DSV have been among the most aggressive, building scale and networks across the region.

"The European road freight market is becoming more challenging for all operators struggling to pass on cost increases to their customers.

The major European players, however, especially those with strength in fast- growing Central and Eastern Europe (CEE), are at a distinct advantage. Scale is definitely key to success—and even survival—under current market conditions," observes John Manners-Bell, TI's chief analyst.

CEE countries will see the highest growth over the next five years, with the motor freight industry growing as much as 26 percent in Slovakia, according to the report. This is a result of a vibrant supply side, huge investment in production by Western manufacturers, and increasing domestic demand.

By comparison, pan-European growth is expected to rise 6.6 percent over the same period.

In turn, the international motor freight market will significantly outstrip its domestic counterpart, benefiting from the trend toward extended cross-border supply chains that feature more freight moving longer distances, especially in and out of CEE countries.

This sector will grow at an annual average rate of 9.8 percent over the next five years, the report forecasts.

Global trade growth is expected to slow to a six-year low of 4.5 percent this year but China has overtaken the United States as the world's second largest exporter, the World Trade Organization (WTO) reports.

Heavily influenced by the turmoil in financial markets and sharp economic slowdown in leading Western economies, global merchandise trade is forecast to rise by 4.5 percent this year vs. last year's 5.5 percent.

But the WTO warns that a stronger slowdown in global economic growth could cut trade sharply, to significantly less than the projected 4.5-percent level.

WTO economists are also skeptical about how long developing countries that have spearheaded global growth can maintain a strong pace in the face of sluggish demand in major developed markets and rising inflationary pressures.

In 2007, buoyed by strong performances in dynamic emerging economies such as China, India, Brazil, and Russia, world merchandise trade in value terms increased by 15 percent to $13.6 trillion.

Meanwhile, trade in commercial services, boosted by big increases in transport and travel services, grew by 18 percent to $3.3 trillion last year, the WTO says.

Another stellar performance by China, which recorded a 26-percent rise in merchandise exports to $1.2 trillion, enabled the country to surge ahead of the United States as the world's second biggest exporter to Germany.

The United Kingdom's decline in recorded exports of three percent to $436 billion, associated with fraudulent VAT declarations, pushed it to eighth place behind Italy.

On the plus side, the United Kingdom retained its position as the world's second-largest commercial services exporter (after the United States) by registering a 17-percent increase to $263 billion.

While the technology market has shown signs of slowing growth in many parts of the world, IT spending in Asia continues its torrid pace, according to a recent study by IHL Group, a Franklin, Tenn.-headquartered global research and advisory firm that serves retailers and retail technology vendors.

As a corollary to growing middle-class demographics, increasing consumer demand, and new opportunities for U.S. businesses to market and sell product, India and China are investing heavily in retail IT infrastructure, driving high double-digit growth in point-of-sale (POS) terminals and other technologies such as radio-frequency identification.

"Both home-grown retailers and global retailers entering the market are driving the increased IT spend," says Greg Buzek, president of IHL Group.

"Marks & Spencer's investment in Reliance, an Indian retailer, and concerted efforts by retailers such as Wal-Mart and Carrefour to expand in the region are helping to increase the overall investment in POS and other technologies."

For the first time, POS terminal shipments to China have increased beyond those of the region's traditional retail juggernaut, Japan. As road and other infrastructure investments increase across the region, IT outlay will continue to expand throughout Asia.

Among other findings from IHL Group's 2008 Asia/Pacific POS Terminal Market study:

  • POS terminal shipments to China increased 19 percent in 2007 and should post similarly high double-digit growth in 2008.
  • The influx of nearly 800,000 foreign visitors to the 2008 Beijing Olympic Games will be a major test of China's retail infrastructure.
  • Microsoft Windows shipments dominate POS deliveries to the region; however, counterfeit versions in many countries remain a challenge.
  • Linux enjoys strong growth opportunities, particularly in China, where it is the central government's operating system of choice.

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