Globalization and Logistics

Date: 2018-01-19
Browse times: 81

The textile factories that cluster along the roads on the outskirts of Nantong, in China’s Yangtze River Delta, came to the city mainly because of its proximity to the sea. It is only just inland from the vast port of Shanghai, the world’s busiest container port.

Plus, if a sudden trend in Europe or a change in North American weather suddenly alters demand for a factory’s products, the customer has the option of asking for a truckload to be rushed to Shanghai’s airport, put on an aircraft and flown to where it is needed.Globalization and Logistics

Meanwhile, hundreds of kilometres north-east of Nantong, a car component plant in Shenyang operated by BMW, the German car manufacturer, takes an entirely different approach to its supply chain. Every 24 hours, a train of containers arrives at the factory after a 23-day, 11,000km journey from a BMW plant in Leipzig.

The traffic to and from Nantong and Shenyang and the developed economies illustrates the range of solutions to the apparently simple question of how to knit together global supply chains.

The aftermath of last year’s Japanese earthquake and tsunami, as well as the world economic slowdown, have led many companies worldwide to rethink the mix of modes they use, in the hope of further reducing disruption. However, even for a single factory, no single mode is suitable all the time.

Nevertheless the central equation remains simple, according to Bruno Sidler, chief operating officer for Amsterdam-based Ceva Logistics. The value of some goods is so high that the lower costs from holding less inventory justify the considerable expense of putting them on an aircraft. Nearly all other long-distance movements go by sea.

If you look at the statistics, about 2 to 3 per cent of world trade is moved by air but it’s about 40 per cent of the value,” Mr Sidler says. “If the goods are expensive enough that the cost of capital is prohibitive of moving it by sea, it goes into the air.”

The history of the Leipzig to Shenyang train, operated by DB Shenker Rail, the rail logistics arm of Germany’s Deutsche Bahn, illustrates the trade-offs at the heart of companies’ decisions about transport modes.

The service’s appeal, says Alexander Hedderich, DB Schenker Rail’s chief executive, is that it is substantially cheaper than air freight but about twice as quick as to move the same goods by sea.

But the current service is DB’s second effort at offering a rail freight service between China and Europe. The previous, weekly service was called off six weeks after it started in 2010, when the competition suddenly became cheaper.

The costs of moving goods by sea plunged by 90 per cent in the wake of the financial crisis, prompting customers to re-evaluate the balance between rail’s shorter journey time and the now minuscule costs of moving goods by sea.

Rail freight is very vulnerable to this volatility,” Mr Hedderich says.

On top of the simple calculation about goods’ value and transport costs, however, unexpected time pressures are often a decisive factor in pushing companies to use air, says Alan Braithwaite, a logistics consultant.

Reliability can trump both cost and speed on occasion, however. Container shipping lines typically claim that customers prefer knowing precisely when their goods will arrive at a port to their arriving at the highest possible speed.

Many European long-distance freight movements also continue to be by more expensive road, rather than more cost-efficient rail.

Problems of co-ordination between national railway companies mean that small delays at borders could quickly turn into delays as long as 24 hours if network owners refused to make space in their timetables for trains arriving from a neighbouring country, explains Alain Thauvette, a senior DB Schenker executive.

For the moment, however, the overriding concern for many shippers may be the desire not to find themselves holding the excessive stock levels they had in October 2010 when worldwide demand for many goods collapsed.

That led many shippers half way through last year to cut back on air freight movements and let goods move by sea instead. A comparable falloff in sea freight volumes on the key Asia to Europe route took until October to appear.

Shippers are, however, regularly forced to turn to air freight providers to get some in-demand product or key component to their shops or manufacturing plants.

We’ve seen definitely an increase in emergency services,” Mr Sidler notes.

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