The Changing Map of the World's Trade Routes

Dec. 1, 2008
There is a definite eastward current for global commerce. With the emergence of China and its Asian neighbors as major players in manufacturing, there

There is a definite eastward current for global commerce. With the emergence of China and its Asian neighbors as major players in manufacturing, there has begun a corresponding shift to the east of focus and assets by the world's primary carriers of commerce.

For example, in late October FedEx Express broke ground on a new Hub at Cologne to serve as its largest German gateway. Although the carrier has a major facility at Frankfurt, the new hub, scheduled for completion in 2010, is aimed at providing additional express delivery services for Central and Eastern Europe. When DHL opened its super-hub at Leipzig/Halle in late May, one of the major drivers in its location was improved access to Eastern Europe and Asia.

Within the Middle East, DHL Danzas AEI Emirates opened the largest multi-purpose logistics facility in the Middle East at Dubai's Jebel Ali Free Zone in early November. Reason for the location is its access to Europe, Africa and Asia, as well as the fast developing Indian subcontinent.

With the relative vigor of trade between the US and Asia and the continuing growth of intra-Asian air freight movements, major US express delivery providers are growing their Eastern presence. For example, for UPS, much of its Asian package export volume comes from southeast China and Hong Kong. More than half of its intra-Asian business is with China, Hong Kong, Japan, Korea and Taiwan. As a result, the carrier has begun construction of a new air hub at China's Shenzhen International Airport.

Expected to open in 2010, the new facility will replace the UPS hub at the former Clark Air Base in the Philippines. It will be the carrier's primary transit hub in Asia. Reflecting on the strength of the airport as a force in the world's evolving trade map, Dr. Huang Qi, president of Shenzhen Airport notes that it, “offers a well established air network that connects 18 countries and 34 cities worldwide with 139 air lanes.”

Originally scheduled for opening by the end of this month, the start of operations at its new Asia-Pacific Hub at China's Guangzhou Baiyun International Airport has been moved to the first half of next year. The new hub will replace the carrier's present hub in Subic Bay. The slight delay is to provide FedEx with the necessary time to fully test all systems and processes at the facility, as well as to work closely with the Guangzhou authorities to ensure all necessary approvals are in place.

Air carriers are adapting their schedules and routes to take advantage of now emerging freight opportunities even as they pull back from some destinations that don't offer as much business. For example Delta Air Lines will begin new international routes beginning next summer that add cargo capacity for the carrier. Among the destinations are a number in Africa, greater Europe, the Middle East and Asia. American Airlines has expanded its eastern coverage with the addition of daily Boeing 767-300 service from New York to Barcelona and another to Milan. The airline also has a new cargo service to Moscow from Chicago's O'Hare International Airport

Withdrawing from the domestic US air freight market and maintaining its status as a major international carrier, DHL is partnering with Polar Air Cargo on flights from the US to Asian destinations to upgrade its Time Definite product. DHL Express has a Block Space Agreement with Polar that guarantees access to six Polar Air Cargo Boeing 747-400Fs that serve key destinations in both Asia and the US. As part of the partnership, DHL will use Polar Air's scheduled weekday flights from Los Angeles, Wilmington, and New York via Anchorage to Hong Kong, Shanghai, Seoul and Tokyo. There is extended weekend scheduling with flights to Honolulu, Sydney, Sharjah and Leipzig.

DHL is also boosting its intra-regional air coverage in Asia by increasing the frequency of its dedicated Air Hong Kong flights from five to six times per week, a boost of 45 tons of cargo per week. Air Hong Kong is a 60/40 joint venture between Cathay Pacific and DHL. Routes covered are from Hong Kong to Nagoya, Taipei, Seoul and Singapore.

As with other modes, air carriers are increasingly turning attention to Central and South America. A case in point is Lufthansa Cargo that currently serves Buenos Aires and São Paulo with its own freight fleet as well as with belly cargo on passenger flights to São Paulo, Caracas and Buenos Aires. It has now contracted with World Airways to increase its cargo commerce between Frankfurt, Germany and Curitiba, Brazil. For the twice a week round trips, World will be operating a Boeing 747-400 freighter.

Russia is developing new trade lanes. Volga-Dnepr Group launched its AirBridgeCargo Airlines (ABC) in 2002. It has developed into a fully independent all cargo airline with a network covering China, Europe, Japan and Russia. Most recently it launched non-stop services to Moscow from Shanghai and Hong Kong. ABC is the first carrier to connect the two destinations with Moscow by scheduled freighter service. From Moscow, the carrier offers onward connections to Amsterdam, Frankfurt and Luxembourg.

Because of the volume of freight moved by ship, ocean carriers have been busy in withdrawing ships from service as demand has lessened and changing the ports on which they call in response to a weakening economy. Earlier this year, for example, the world's largest shipping lines — Maersk, Mediterranean Shipping and CMA CGM — joined in a vessel-sharing agreement that allowed the carriers to eliminate four of their trans-Pacific services that competed with each other, replacing them with three on which they shared space.

Based on continually deteriorating economic conditions and the success of the early joint venture Maersk and CMA CGM will share two pendulum services in the Asia-North America trade. To begin next May, one service using the Suez Canal will link the US East Coast and Pacific Northwest with Asia. The other will use the Panama Canal to link the US East Coast with Korea and China.

CMA CGM has formed a partnership, as well, with Hapag-Lloyd and Hamburg-Sud to beef up its coverage between Northern Europe, the Caribbean and West Coast of South America. On its own, the shipping line has begun a weekly service that links the East Coast of South America with Northern Europe with connections to the Middle East and Africa.

Increased interest in growing Latin American trade comes from Japan's K-Line that will be launching an Asia-East Coast of South America service in June 2009. As with other carriers, K-Line operated the service in partnership; this with Pacific International Lines (PIL). Each company will deploy five Panamax-size vessels.

A current partnership between PIL and Mitsui O.S.K. Lines offering service between Asia and South America's East Coast will be dissolved in January 2009, with Mitsui then operating a new independent service in its place.

Maintaining a focus on Asia, APL is making significant changes in its global services network in response to harsh economic realities. For example, the carrier has reduced capacity within its Asia-Europe trade lanes by nearly 25%. As part of the reshuffling, APL is also reducing capacity in its transpacific routing by 20%. At the same time, the carrier is adjusting its intra-Asian coverage to be more in tune with shipping customer demands.

Asian trade with the US and Latin America are not the only regions experiencing service adjustments. In mid-October, the CKYH Alliance — Coscon, K-Line, Yang Ming and Hanjin Shipping — suspended its All Water East Coast Central Loop and reduced overall capacity in the route by 18.5%. Among other moves, those in the alliance suspended service in Asia-East Mediterranean service. Capacity between the US and Europe has been reduced by 18%. Early next year CKYH will terminate service connecting the Mediterranean, Asia and the US. While this will cut some 13-15% of its total capacity in the lanes, the carriers will substitute already existing service for those being ended.

Shifts in the movement of freight from one point on the globe to another are not limited to air and ocean. Operating to meet changing shipper requirements while preserving and maximizing assets touches all modes. As conditions dictate they all shift with the currents.

Air Cargo Traffic to Grow — Long Term

Despite current economic conditions, in its updated industry forecast, Boeing Co. sees the world's air cargo growth expanding at a 5.8% rate annually to 2027, with the Asian market to lead all global traffic routes. The biennial World Air Cargo Forecast is regarded as being greatly authoritative.

“World GDP is projected to average just higher than 3% during the next 20 years. Asian production fundamentals — including abundant raw materials and low-cost labor — remain solid, and China will remain a source of strong economic growth with substantial industrialization and related investment,” says Randy Tinseth, vice president, Marketing, Boeing Commercial Airplanes.

Boeing expects that not only will Asian needs to move air cargo require the most new airplanes, the value of those deliveries will also be the world's highest. At the same time, and for the first time, the value of Europe's airplane market will be equal to that of North America.

Projected growth in Southwest Asia is already having an influence in investments in airplanes and infrastructure for what Boeing calls, “one-stop-to-anywhere” airlines in the Middle East. Hope is held out for the currently suffering US domestic air freight market that the manufacturer expects to return to “strong growth in time.” Although the European market has been growing at a rapid pace, Boeing expects that to moderate a bit over time.

Specifically in Asia, “China will continue to be the fastest-growing aviation center in the world,” continues Tinseth, “requiring 41% of the entire Asia-Pacific region airplane demand. This makes China the largest market outside of the US for new commercial airplanes.”

Sourcing is Moving Away from Asia, Closer to the US

The 15th Annual 3PL Provider CEO Perspective study uncovers evidence of a reversal in some global sourcing due to climbing expenses for labor, concern over Asian governmental regulations and shipping costs rising.

Conducted by Robert Lieb, Ph.D., Professor of Supply Chain Management at Northeastern University under the sponsorship of Penske Logistics, each year's research results are described as providing, “insight into the near-term direction of the logistics industry, and serve as a benchmark for supply chain professionals around the world.” This year's study incorporates the insights of 20 CEOs in North America, 10 in Europe and 9 in the Asian-Pacific region.

The observation that more “near sourcing” is underway is based on insights from 11 North American executives who see some of their customers shifting manufacturing operations back from Asia to North or Central America. A movement by some customers to bring operations from Asia to Eastern Europe was reported by 20% of European CEOs. In the Asian-Pacific area, a third of CEOs claim that customers have shifted manufacturing away from the area.

Survey results were drawn from responses of CEOs who completed them in summer this year. Participating companies include Cardinal Logistics, Caterpillar Logistics Services, CEVA, DSC Logistics, DHL Exel Supply Chain, Genco, Kuehne & Nagel Logistics, Landstar, Menlo Logistics, NYK Logistics, Panalpina, Penske Logistics, Pittsburgh Logistics, Ryder, Schenker, Schneider Logistics,, UPS Supply Chain Solutions, UTi, Wincanton and YRC Logistics. All told, these companies generate some $60 billion in revenue.

Making History Moving Freight by Rail from Asia to Europe

While most goods move today by air and water from Asia to Europe, the first shipment of Fujitsu Siemens Computers (FSC) via rail marks what DB Schenker says will be regular service to begin after Chinese New Year in February 2009. Mazda is transporting vehicles from Japan to Russia by rail, as well.

DB Schenker is calling the service the Trans Eurasia Express. At the outset it will move two container trains weekly between China and Germany in less than 20 days. The first FSC shipment moved 10,000 kilometers by rail in 18 days. Moving through China and Mongolia, when the shipment reached the Russian border it followed the Trans-Siberian Railway to Moscow, then across Belarus and Poland on to Hamburg.

The Trans-Siberian Railroad is being used by Mazda Motor Corp. to bring vehicles from its Hiroshima or Hofu assembly plants to Zarubino — near Vladivostok in Russia — then over the 9,300-kilometer rail route on to Moscow. Delivery time to Moscow is ten days. Mazda is the first manufacturer of automobiles to regularly use such rail for its transportation. Movement will be handled on dedicated block trains of 30 railcars.