Advertisement

Blog

Big Shipping Offers Big Opportunties, Big Challenges

Behind every product on every shelf everywhere, there has been some mode or combination of modes of transportation involved. Whether it be hand carry, truck, cargo vessel, rail, or air, that product had to be moved from its place of origin to become accessible to the customer.

It is always a privilege to be able to look behind scenes to understand how things work, who the major players are, and even get a glimpse of the unsung heroes that keep everything moving forward in shipshape condition. Recently I had an opportunity to interview Ronald Kleijwegt, Hewlett-Packard's director of logistics for Europe, the Middle East, and Africa. Among other questions, I asked him to highlight some of the major trends in shipping over the past 10 years.

I was very surprised to hear that, due to rising and fluctuating oil prices and environmental concerns, these days superfreighters are actually steaming across the oceans at significantly slower speeds than before. This phenomenon in the shipping industry is appropriately called “slow steaming.” It used to take 25 days to ship goods from China to Europe, but that has now extended to 37 days. While slow steaming conserves fuel, it also extends lead times.

Given competitive time-to-market pressures, this seems to be a counterintuitive move for many businesses. But, on the plus side, some of these superfreighters can carry 20,000 twenty-foot containers. If a company consolidates shipments into larger lots, then efficiencies can be gained from single versus multiple crossings. In fact, according to Kleijwegt, since 2008, Asia-to-Europe shipping costs via ocean freight have gone down 50%. The global shipping numbers fall somewhere between 30% and 50%. Clearly, there is a cost advantage, but lead times are still a big issue.

HP incorporates these longer lead times into its planning. At the same time, the company is not content to accept the status quo . When HP needs a faster shipment, it takes advantage of another trend in the logistics business. As superfreighters have increased their capacities, dedicated air freight carrier numbers have steadily gone down. The airlines that handled many air shipments have shuttered their operations due to over capacity. As a result, commercial airlines have begun using excess capacity in the cargo hold, or belly, of the aircraft for overseas cargo. So, the next time you take your laptop to Europe, you might be sitting directly above 20,000 other laptops on their way to retail warehouses.

I asked Kleijwegt about HP's ratio of air freight to cargo vessel costs. He gave me an example from a decade ago. When HP used to ship monitors with cathode ray tubes (CRTs), it was 10 times more expensive than at present. However, even with the smaller and lighter devices popular today, air freight is six or seven times more expensive than ocean. That is a significant cost reduction. However, HP's air shipments are only scheduled for and prioritized by expedited lead time requirements and/or for specific commodity types.

HP also has been employing another solution that is setting the stage for yet another shipping trend. In a 2013 article published in The New York Times titled, “Hauling New Treasure Along the Silk Road” by Keith Bradsher, there was this news: “Hewlett-Packard, the Silicon Valley electronics company, has pioneered the revival of a route famous in the West since the Roman Empire.” Developed by HP, this is a 7,000-mile rail transport system that moves HP product from inland China factories to HP facilities in Europe.

As it turns out, rather than trucking products from inland factories to the ports of Shenzhen or Shanghai on the coast of China and then transferring cargo to oceangoing vessels sailing around India and through the Suez Canal, HP's TransEurAsia direct rail system cuts shipping time 30% — from 35 to 21 days. While the sea route is still about 25% cheaper than sending goods by train, the cost of the added time by sea is considerable.

Since 2011, 80 trains, 3,500 containers, and more than 8 million HP products have successfully made the 7,000-mile journey. I did use the term “trend,” and I realize one company does not make for an industry trend. As it turns out, other companies will be sharing the rail services. Kazakhstan, one of the stops along the rail route, announced that rail freight will grow to 7.5 million 40-foot containers by 2020, from just 2,500 transported from Western China to Europe last year. HP is already hosting workshops that will stimulate non-IT companies to use the rail services, increasing frequency of trains, and sharing commensurate costs.

One more major event happened in 2010. The state-run Chinese shipping company COSCO leased the port of Piraeus in Greece for $650 million. China views the port as a gateway to Europe. HP also sees the port's economic potential. The larger superfreighters can steam through the Suez Canal and go straight across the Mediterranean to this new HP hub. Now, HP can cut 10 days off the current ocean route. It can also take advantage of new overland distribution routes for goods destined for Eastern Europe, Russia, North Africa, Israel, Lebanon, Jordan, and other Eastern and Middle Eastern countries.

Other trends include electronic documents that decrease customs throughput times aided by processes like pre-registration for large companies that become known as trusted shippers and receivers. The government-issued certification reduces the number and nature of inspections, so customs can concentrate on the smaller, lesser, or unknown shippers that may be involved in nefarious activities.

After talking with Kleijwegt, I was amazed at the level of knowledge and effort required to keep pace or even set the pace for logistics improvements around the world. Companies like HP demonstrate that it is possible to optimize worldwide freight handling methods and procedures while reducing security risk and assuring that products will be available when needed.

This article originally appeared in the Avnet Velocity e-magazine, “Building a Defense to Counfound Counterfeiters.”

13 comments on “Big Shipping Offers Big Opportunties, Big Challenges

  1. SunitaT
    May 25, 2014

    Since we are talking about logistics, companies should know the demand and supply rates of the markets they supply to, and if synchronization between the first delivery of the goods and the probability of when the next shipment should be done based on the consumption rates in the market is done, and then slow steaming won't be a problem. The only problem is that most logistics are deviant from their original market statistics, the reason is because most companies do a sample probability on a population rather than individual shipment consumption.

  2. _hm
    May 25, 2014

    Another new idea is to make porduct in same continent near growth center or near consumer . This will provide good work opportunity to locals and will reduce unnecessary logistic.

  3. Himanshugupta
    May 26, 2014

    Manufacturing in the same continent cannot work because not all the product can be manufactured at one place due to various reasons including price. Today supply chain is very important for any manufacturing or consumer company. Most of the time a product makes 2-3 roundtrips from the manufacturing location to assembly to the final destination.

  4. Houngbo_Hospice
    May 26, 2014

    @Himanshugupta:

    “Manufacturing in the same continent cannot work because not all the product can be manufactured at one place due to various reasons including price.”

    This is possible at a continent level. For instance, many products intended for the european market can be manufactured in Europe as companies can get cheap labour in most eastern european countries.

  5. Houngbo_Hospice
    May 26, 2014

    @tirlapur:

    “The only problem is that most logistics are deviant from their original market statistics, the reason is because most companies do a sample probability on a population rather than individual shipment consumption.”

    Maybe the rational explanation is that forcasts don't always work the way the companies originally thought and they wiill have to adjust things accordingly.

  6. ITempire
    May 28, 2014

    Reducing the cost of transportation and timely availability of products is no doubt a serious matter for logistics department of any company. The process of slow steaming is good to maintain cost and transferring products from one place to another but it's time consuming and might create hurdles or delay delivery due to bad weather conditions which can effect company's goodwill.

  7. dalexander
    May 28, 2014

    @WaqasAltaf …http://ewent.vtt.fi/Deliverables/D1/W168.pdf here is an excellent paper discussing your very comment. There are some very surprising points made in this PDF. Shout out to _hm!

  8. ahdand
    May 28, 2014

    @Douglas: Thank you for sharing it mate. Combining the outcomes of both pages do provide loads of information. 

  9. Himanshugupta
    May 29, 2014

    @Hospice_Houngbo, i agree that now Eastern European labour is as cheap as available in China or Asia where most of the manufacturing companies are located but this was not the case 10-15 years ago when manufacturing moved to Asia. Today rising production cost is one of the major reason that companies are preferring to keep the manufacturing at local or nearby place. However, it is not easy to relocate all the manufacturing back as there are high setup costs and investments.

  10. itguyphil
    May 29, 2014

    My guess is that the replocation doesn't happen right away, as costs associated are high. But it will still happen most likely over time.

  11. ahdand
    May 30, 2014

    @pochale: Yes time is the important factor. Managing it properly is the key. Just because it needs to get evaluated you should not waste time. Should try to minimize it as much as possible. 

  12. Himanshugupta
    May 30, 2014

    With data storage getting cheaper and companies planning to invest in bigdata projects, the planning and forecasting of the product demand will improve and companies will find cheaper way of transportation. Thus shipping will probably see more traffic for trade flow.

  13. ahdand
    May 30, 2014

    @himanshugupta: True but to move forward with a pace itself you do need to have the proper tools and should have some investment as a backup to fund these developments. One thing we have to remember is that funding technology cannot be pre-budgeted. 

Leave a Reply

This site uses Akismet to reduce spam. Learn how your comment data is processed.