Breaking the global logjam

May 3, 2005
Every company wants to know the secret of going global, and yet global trade itself is widely seen as an inefficient process. According to a recent study

Aberdeen Group (, nearly one quarter of large companies report having problems with 10% of their shipments and 13% have problems with one in five shipments.

And technology doesn't seem to be helping much, as 63% of the companies surveyed report they manage their global trade process using paper and spreadsheets. In fact, many companies are paying brokers and forwarders to re-key data into disconnected systems — often multiple times during a shipment's journey.

"Ninety-one percent of companies report the cost savings they expected from going global aren't necessarily appearing," notes Beth Enslow, vice president of enterprise research for Aberdeen Group (see chart below).

Those savings are being eroded by unexpected supply chain costs — whether expediting costs or capacity problems that preclude using the lowest cost carrier or customs fines or documentation charges because of misdocumentation, the companies surveyed had trouble passing through the full benefit of offshore sourcing.

Looking at the companies with the best performance, Aberdeen was able to determine they were achieving improvements by building more flexibility into their logistics network.

"Rather than creating the absolute lowest cost fixed network," says Enslow, "they're looking to trade some of the cost aspects for more agility and more points of flexibility. This is enabling them to manage inprocess and in-transit inventory much more aggressively."

How are they doing it? For one thing, they reroute goods to alternate ports to avoid congestion — port shopping, in other words. Some companies are moving goods in bond to inland bonded warehouses. Others are switching the U.S. domestic transport leg from rail to truck. Some are able to divert product directly to the store or consumption point directly from the deconsolidator.

When Logistics Today talked to Hu Huang, director of international logistics and customs compliance for Kichler Lighting (, she commented on her own experience with congested ports and poor rail service. Huang says productivity at U.S. West Coast ports lags its Asian counterparts, in part because labor has blocked the adoption of technology. She estimates Asian ports are two or three times more efficient.

Getting containers off the ships is only part of the problem. Limited space and lack of capacity to move the containers off the port hamper efficiency. Huang comments that 30% of the truckers left the industry because they could not pass fuel costs on to ocean carriers.

Using rail to get out of the port hasn't been attractive either. The problems the Union Pacific railroad has had were exacerbated by heavy rains and landslides that disrupted its rail network for weeks. This put added pressure on the Burlington Northern Santa Fe.

Switching ports was one option, and Huang says she quickly diverted containers to Tacoma, Seattle, Oakland and Vancouver. "We try to avoid Los Angeles and Long Beach," she explains.

Huang has also redirected some containers for her East Hartford, Conn., operation to the East Coast using all-water routes. The problem there, she says, is the CSX railroad. The Ports of New York/New Jersey are promoting themselves, saying they have capacity, but they don't recognize their problem is the CSX, observes Huang.

John Hafferty, vice president Europe and Asia for UPS Supply Chain Solutions (, says he also explored alternatives during the West Coast port shutdown a couple of years ago, but there were few available. Mexico, he believes, was not prepared in part because of limitations on rail service.

Another tactic some companies are using, according to the Aberdeen study, is to hold more inventory at the supplier in Asia or to drop ship from an Asian consolidator directly to the customer. Load configuration at origin is a developing technique, says Hafferty. U.S. importers arrange to have containers loaded to match the customer delivery and then track those containers through the port, deconsolidation and to destination.

Pressures driving shippers to improve their global trade process

Lead times inhibit ability to respond to market demands 62%
Product cost savings eroded by unanticipated supply chain costs 52%
Compliance and documentation errors cause delays and fines 33%
Slower cash flow/more financial costs than expected 28%
Global security requirements and threats 26%
Source: Aberdeen Group

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