Logistics in China

As logistics professionals we typically deal with China significantly more than most other professions. China has been, and will continue to be, one of the most important traders in the world. Therefore, it is of utmost importance that we make sure that our communications run smoothly in order to secure the most efficient logistics processes. “How difficult can that be?” – you might be asking. Good communications with China are not difficult, considering that there are thousands of emails and calls daily between the West and China. However, there are key factors that are important to understand about the Chinese culture, so we can make the most out of our communications and relationships.

 

china-logistics

First of all, we have to understand that there is a big difference in the thinking structure of our Eastern stakeholders and us – the Westerners. There are studies about dialectical thinking, which explain those differences in thinking structures. A particular study by Nisbett in The Geography of Thought, states that the dialectical thinking for Westerners involves having a contradiction resolution as the goal, while for the Chinese the goal is to use contradiction to understand the relation among situations or things, and to integrate oppositions.  As an example in the Western world, we typically view contracts in a much more rigid light, whereas in China for many a contract is seen as just as the beginning of a business partnership and subject to interpretation.

 

Also when communicating in English always work to keep communications simple and effective and not assume that everyone is 100% fluent. The most important recommendation is to keep your messages structured, and use bullet points and lists. Instead of three questions in a paragraph, send three paragraphs, and mark each one as an item.  Then, it becomes easier for everyone to read and to answer each question. It is a simple way to start but an effective one.

 

It is also highly recommended that if you are going to partner with businesses in China that you schedule regular in person visits (at least quarterly) to vendors and 3PL providers in China. As with all business there is never a substitute for in person meetings to build relationships and ensuring adherence and adoption of policies.

 

Logistics in China is only going to continue to grow in importance. Over the next 10 years as we begin to see China’s economy shift away from manufacturing and into a service based economy, a growing upwardly mobile middle class will create countless opportunities for those specializing in supply chain management and logistics.

Opening of the Panama Canal Expansion

The Panama Canal Expansion is a project that has been long awaited not just by Panama, but all the shipping related parties in the world. The expansion creates new alternatives for traffic in the Canal and provides two times the former capacity of the waterway. Before completion of the expansion project and opening on June 26, 2016, the locks could only handle vessels that carried up to 5,000 TEUs. Today the canal is able to receive Post-Panamax vessels, which can carry up to 14,000 TEUs. This opens up significant new opportunities for the shipping world.

Panama-Canal-Expansion

The work on this project has been extensive. The Panama Canal expansion started in September 2007 with an estimated cost of $5.4 billion. This project to expand the 102 year old canal has taken almost 100 years, and more than 40,000 workers to make it possible. The Expansion involved the following set of components:

1. New Locks – the construction of two lock complexes, enabling a third lane of traffic

2. Pacific Access Channel (PAC4) – a 6.1 km –long cannel excavation for a canal for the new Pacific locks, bypassing the Miraflores Lake

3. Dredging of the navigational channels along the waterway

4. Water supply improvement – raising the maximum operational level of the Gatun Lake by 45 cm, to improve the water supply and draft of the Canal.

The Panama Canal Expansion has also influenced the economic activities of other countries. US ports as an example have been investing millions of dollars to upgrade their facilities, in order to be able to keep up with the expected increase of trade with the coming of the neo-Panamax ships. Ports in New York, New Jersey, South Carolina, Texas, and Georgia all reportedly have projects in the works.

The United States was in charge of the original canal construction completed in 1914, and was also responsible for the control of the waterway until 1999 when control of the canal was given back to Panama.

The Panama Canal expansion is based on research conducted over 6 years and involved around 100 studies on market demand, technical engineering aspects, economic feasibility, environmental impact, and other aspects. It has been a complex project, which was as well wracked by delays, engineering glitches, cost overruns, and labor strikes. Nevertheless, the expansion is expected to a notable growth driver for Panama’s economy and will have a major impact on global trade and supply chain management. Estimates by the Boston Consulting Group see as much as 10% of container traffic from East Asia and the US shifting from West Coast to East Coast ports by the year 2020. [Read more…]

Crowdsourced Logistics

The sharing economy and peer-to-peer network services open a completely new mental model. Old service industries can be reshaped with new data and mobile technology. One of those is the postal service. A service operating since the 18th century in many countries now experiences a boom in parcel delivery. A growing trend of internet purchases make sure that parcel deliverers flourish the last 5 to 10 years. But what if we just removed all those distribution centers? It’s just another object going from A to B in a society where there are already so many forms of transportation, movements of persons, cars and people searching for some extra job and cash. A networking platform such as AirBnB or Uber could easily connect a seller with the purchaser.
crowdsourced logistics
Traditionally a store has a distribution center and, within it, a fulfillment service of order pickers putting goods into packages, which will be taken by truck to a parcel service distribution center. The network of delivery addresses covered are huge, and the costs are shared by all of us. The business model is mainly driven on economy of scale and efficiency.

The two requirements needed for the current delivery logistics is a fulfilment service or location and a central distribution point. In case the goods are decentralized, or in the store itself, then a peer-to-peer system can be beneficial. Currently an ordered good or parcel from a store around the corner will travel hundreds of miles in order to be delivered at your door the next day. Which is not efficient at all. Wouldn’t it be easier if you can continue to do the shopping, and a neighbor can drive to the store and pick up your parcel? The only requirements here are: a marketplace function and deliverers who are on time.

Crowdsourced Logistics is born! Average citizens, and small entrepreneurs deliver parcels during their normal daily commute. The platform is a peer-to-peer app on your smartphone. This idea of a sharing economy offers even new possibilities. Same day delivery is now within reach. Parcels which normally would be picked up to be transferred to a distribution center have the ability to reach the customer instantly and for a competitive price.

Several companies start experimenting with these kind of new logistic solutions. The most notable is Amazon with their Amazon Flex Program. Also Start-ups as Uber Rush, Instacart, and Parcify in Belgium, and known logistic giants as DHL with the MyWays app in Sweden. Now the initiatives are there, only the legal and logistical implications need to be figured out.

The Finish Line Inc. WMS Snafu

Finish Line Inc. the athletic retailer recently reported that they will be closing 25% of its stores after a deep quarterly loss due to a botched upgrade of its WMS.

This is a cautionary tale that no one wants to hear, but it can become a reality when a rigorous software vendor selection process coupled with detailed planning, configuration and implementation of warehouse management systems is not taken FinishLine-WMS

The Finish Line estimates the issue with their warehouse management and fulfillment system cost it $32 million in lost sales and led to a sales decline of 9.8 percent during October and November. They also incurred approximately $5 million of incremental IT and shipping costs trying to fix the problem.

“In October, we began experiencing issues flowing fresh inventory into our stores as well as fulfilling online orders as the new system was unable to process freight at volumes necessary to support our sales plans,” said The Finish Line Chairman and CEO Glenn Lyon.

Shipments from warehouses to stores plunged 25 % compared with the same period a year earlier. As a result, the amount of new merchandise on store shelves was about $41 million, or 14 percent less, on average throughout the quarter compared with a year earlier.

When selecting a warehouse managment system a thorough vetting process is critical. Also to ensure a successful implementation make sure you have team members with WMS experience or have logistics consultants to help you through the process and invest in the proper training. There are plenty of trusted logistics software companies out in the market but being sure to find the right solution to properly meet your specific needs and that can be used effectively by your staff is critical.

Top Logistics Companies of 2017

Logistics Management recently posted the top logistics companies of 2017 as provided by the ever trusted Armstrong and Associates.

While it has been shaping up to be a stable year in terms of continued mergers and acquisitions and creation of massive multi-national logistics providers; there are already rumors starting of Home Depot looking to acquire XPO logistics

2017 Rank Third-party logistics provider (3PL) Headquarters Square feet, 2017 (millions) Number of Warehouses (2017)
1 DHL Supply Chain North America (Exel) Westerville, Ohio 119 673
2 XPO Logistics Greenwich, Conn. 81.6 392
3 Ryder Supply Chain Solutions Miami, Fla. 43.7 246
4 GEODIS North America (OHL) Brentwood, Tenn. 38.2 150
5 Americold Atlanta, Ga. 38 145
6 FedEx Supply Chain Cranberry Township, Pa. 34.5 129
7 NFI Logistics Cherry Hill, N.J. 33.5 100
8 Kenco Logistic Services LLC (KLS) Chattanooga, Tenn. 28 90
9 Lineage Logistics Irvine, Calif. 26 114
10 DB Schenker Logistics Americas Freeport, N.Y. 23.7 91

A Thanksgiving Logistics Story

A short and simple story about the logistics process undergone by a turkey fryer in time for the Thanksgiving holiday:

Thanksgiving is quickly approaching and all I want is a deep fried turkey, a beer or two and a day celebrating with friends and family. Besides beer, I need two ingredients: turkey and a deep fryer. My local department store sells a turkey deep fryer for $69, and it looks sufficient.

thanksgiving-logistics

After purchasing the fryer I look at the bottom of the package. It reads:  “Beijing, China”. As we all know, Beijing is the industrial garden of the world, but it doesn’t have a port. My turkey fryer was, after it was finished in the factory, transported 120 miles over land, by truck to the nearest port of Tianjin. In Tianjin my fryer was probably put with many other products in one container, with as a final destination: Boston. In Tianjin, my container is loaded on top of a container vessel by a giant crane. This container vessel, is a called a feeder, and relatively a small one, in the container vessel family.

My fryer leaves from Tianjin to Shanghai, the main port of China for international shipping. It’s a 1,000 (land) miles journey. When arrived, the container is put together with all other containers on a bigger container vessel of the type New Panamax. This type of ship can contain up to 15,000 containers, and has a maximum length of 366 meters. One meter extra is not allowed, otherwise it won’t fit through the (new) Panama Canal. It is exactly 9335 miles to the Panama Canal. Although you would maybe expect that my turkey fryer would go through the Panama Canal, something else happened. The container is offloaded in the port of Balboa, right next to the Pacific entrance on the Canal.

The container is then put on a train, and railed to the Atlantic side of Panama. In the harbour of Colón, the container is put on a smaller container vessel most likely carrying only containers for North America. The container ship now heads straight north for the next 2200 miles to arrive in the big port of Newark, New Jersey. After a trip of almost 13.000 miles my turkey deep fryer will be delivered by truck from Newark to Boston, offloaded in a warehouse, and distributed to the department store. What a trip, and it takes only 3 weeks. I feel incredibly rich that something comes from so far to give me and my family a wonderful thanksgiving dinner.

Now I’ll fire up the deeper fryer, drop in the turkey, and if you don’t mind, open my well-deserved beer. Happy Thanksgiving from your friends at Logistics List!

Ecommerce: Logistics & 3PL Trends for 2016

With the ascendance of Amazon, major Ecommerce players and changing consumer/B2B purchasing behavior; the logistics landscape is forever changing

According to a recent study by ComScore 78% of of the US population purchased an item online last year and that is only expected to increase. And with the rapid expansion of same day delivery and even delivery within 1-3 hours, ecommerce is changing what logistics is capable of, while opening up major opportunities both for manufacturers, marketers and 3PL companies to better connect with their clients.ecommerce logistics 2016

Today on average e-commerce accounts for 11.85% of North American 3PLs’ revenue, according to the 2016 3PL Study. The CEOs of the leading 3PL companies project that in the next year this will increase to more than 20% of overall revenue with the continued focus and importance on next day delivery and the partnering with 3PL’s for last mile delivery. At the same time a growing share of last mile service is also starting to be taken over by the “sharing economy” with initiatives such as Amazon Flex and companies like Uber getting into the delivery space.

Another major area of growth noted in the study is international e-commerce. For example European ecommerce accounted for around 5% or North American 3PL revenue, but is projected to grow to 9 percent in the next three years. The APAC region will also continue to explode in the coming years as well. (China’s current economic woes notwithstanding)

There is a tendency to see the biggest opportunity being having the opportunity to partner with Amazon. That said longer term, ecommerce companies are looking to build out their global supply chains outside of Amazon and move to direct to consumer models. Especially in these formative years, 3PLs will play a major role in helping companies expand in their international market coverage

What are the keys to ecommerce success for logistics companies moving forward? An increased focus on providing innovative order fulfillment services, keeping up to date with the nimblest logistics software and providing reliable, disciplined same day delivery services.

It is an interesting time to be in the logistics industry for sure!

The Self Driving Truck

A recent thought provoking article by Scott Santens on Self Driving trucks brings some interesting projections and thoughts on the future of the trucking industry.

Today, Truck Driving is the most common job in the United States having overtaken secretaries and manufacturing jobs over the last 30+ years due to trucking being immune from the two of the biggest trends affecting U.S. jobs: globalization and automation.

Truck driving is just about the last job in the country to provide a solid middle class salary after the notable volume of manufacturing jobs were sent overseas.

Self Driving Truck impact on trucking

The boom in ecommerce and the need for more efficient, reliable shipping across nearly all industries B2B and B2C will continue to lead to a further surge in the need for trucking services.

The trucking industry projects to see 21% more trucking jobs by 2020 while continuing to be plagued with a shortage of drivers.

Enter the self driving truck.

The article suggests that self driving trucks will decimate local economies and lead to countless unemployed truckers.

It is fair to say that self driving trucks will become a reality and will change the role of truck drivers on some level. But will it ever be possible for a semi truck to operate completely autonomously without the need for the truck driver?

If a truck breaks down, has a software malfunction, or gets into an accident how is the freight retreived, secured and taken off the road when it is between distribution centers?

When the self driving truck becomes ubiquitous what will it mean to be a truck driver?

For one the massive network of CDL training schools will need to evolve from training traditional truck driving to including management, troubleshooting and overriding of the self driving software.

The cost of self driving trucks will also likely be significantly higher than a traditional semi truck at least in the beginning which will likely notably change the economics of commercial truck leasing

Lastly what does this mean for the Owner-Operator. With about 350,000 Owner-Operators in the US according to estimates this is a significant factor in the trucking industry. Will the self driving truck lead to logistics companies relying less on owner operators because they will be able to hire less skilled labor to sit in trucks while computers do the work? Will it make it easier for Owner Operators to expand their small business and hire their own employees?

In the case of the self driving truck there are more questions than answers, but it is clear that it will not be a simple transition and while the technology will be disruptive, will it ever allow logistics companies to hire less skilled labor to sit along for the ride or will the operation of this software and the driving of the truck when it matters lead to higher salaries for truck drivers?

3PL Industry Growth 2015

For years industry insiders have predicted that the logistics sector is on the brink of commoditization, relegating 3PL companies to mainly short-term contracts for execution based services at the lowest price. While this is a trend happening in many industries and certainly the logistics industry is seeing some of this, the reality is more complex. Drastic shifts in the business landscape and technology have led more companies than ever to outsource their logistics activities and the services and expectations of logistics service providers in warehousing, trucking, and integrated providers have never been higher.

According to recent estimates by Armstrong and Associates, the cost of logistics services accounts for 8.5% of United States GDP, 9.2% for Europe, 11% of South America and more than 17% for Greater China.

Third Party Logistics revenue is estimated to increase 6.4% from 2013-2016.

The biggest industries projected to be key drivers of this growth:

  • Industrial- 10.6%
  • Healthcare – 8.9%
  • Technology – 8.6%
  • Foods/Grocery – 8.2%

With the dynamic nature of logistics and the increasing needs of organizations to manage their supply chains, the 3PL industry seems poised to continue its expansion.

The Difference Between a Freight Forwarder & Customs Broker

Like all specialties in logistics there are often blurred lines between disciplines but there are key differences between Freight Forwarders and Customs Brokers that are important to understand.

Photo by Glyn Lowe

Photo by Glyn Lowe

Freight Forwarders focus on the movement of cargo from one country to another by either sea or air serving as a middleman between the shipping lines and air freight companies helping the importer/exporter to book space and to receive and load cargo. Freight forwarders also specialize in advising importers/exporters on freight costs, port charges, consular fees, costs of special documentation, insurance costs, and handling fees.

Customs Brokers on the other hand traditionally serve as agents of the importers/exporters providing their expertise in the clearance or “clearing” of goods through international customs checkpoints. As you can imagine customs clearance is a very technical and high regulated activity focusing on the entry and admissibility of merchandise; its classification and valuation; the payment of duties, taxes, or other charges assessed; or the refund, rebate, or drawback thereof.

It’s also important to understand that there are also firms which offer both freight forwarding and customs brokerage services. In these cases, these firms will typically have completely separate team/departments handling these activities due to the differences in the skill sets and expertise needed.