New Ocean Service Will Compete With Air

Sept. 19, 2006
"Our target market here is what I would term the air freight downgrade," says Bill Villalon, vice president of development for APL Logistics. He's describing

"Our target market here is what I would term the air freight downgrade," says Bill Villalon, vice president of development for APL Logistics. He's describing a new day-definite ocean service from China that APL Logistics launched jointly with Con-way Freight. The OceanGuaranteed service offers port-to-door, day-definite, guaranteed delivery for less-than-containerload (LCL) shipments from Hong Kong, Shenzhen or Shanghai.

APL Logistics handles the in-country shipment management in China, including scheduling, booking, documentation, regulatory notification, staging and consolidation of shipments. It then tenders the shipment to APL Liner for ocean carriage.

Con-way Freight handles deconsolidation in Los Angeles and delivery through its less-than-truckload (LTL) network.

The two companies began discussions of the service nearly a year ago, examining issues such as linking information systems to allow rapid updates and track and trace capability. "We've integrated both of our IT systems," explains Dave McClimon, president of Con-way Freight. At the time a bill of lading is issued the shipment also gets a Con-way label and pro number. Customers can track through either system, he continues, since the shipment already has a domestic pro number.

"We've had a guaranteed service since 1999 in the Con-way Freight LTL structure," McClimon points out. "So guaranteeing the movement of freight is nothing new for us. If we don't make the day-definite delivery schedule, the customer gets a 20% reduction in those freight charges against that published day-definite delivery standard." He goes on to explain that the 20% applies to total freight charges, both the ocean and domestic motor carrier portions, without regard for where the failure may have occurred. "The customer is quoted a through rate from the Container Freight Station in China to the [consignee's] door in the U.S. on a ZIP Code basis," says APL Logistics' Villalon. "It's a single, all-inclusive rate, and the guarantee applies against that rate. So, there's no sorting out, even amongst ourselves. The understanding between the parties is, we're in this together and we're not looking at where the fault lies as far as any type of settlement."

Having said, essentially, that the service will provide a single line of responsibility from the shipper's perspective, both Villalon and McClimon point out their two companies are very process oriented and will analyze missed shipments from an operations perspective.

Through its own internal research and additional work done by financial and strategic consultant MergeGlobal Inc., APL Logistics determined a need for a service positioned between air freight and ocean offering a higher service level for smaller shipments at a lower price. OceanGuaranteed pricing is set in kilograms to allow easier comparison with air freight, Villalon points out.

"Clearly part of the 'secret sauce' is the fact that APL Logistics' sister company APL Liner, which is providing the ocean carriage, can control what is lastonfirst-off. The terminal piece is obviously key." This allows APL Logistics to have a "late gate" in Asia and make sure that container is, if not the last, among the last on from a stowage perspective and then is first off, he continues.

"As vessel sizes increase, the dwell — the interval between first off and last off — is growing," Villalon explains. "As a matter of fact, as these vessels get larger, depending on where you're going, the first container off the vessel could arrive at destination inland a couple of thousand miles away before the last one comes off. So the ability to identify and have preferential handling and stowage is critical to this process."

Villalon and McClimon suggest benefits including reduced inventory—especially safety stocks—and lower transportation costs. "I think what customers are looking for is something beyond a 'binary' offering," says Villalon.

Another factor Villalon identifies is security. Many shippers, he says, may have been prevented from using traditional LCL services because of their concern over their freight being co-mingled with shippers who are not certified under the Customs-Trade Partnership Against Terrorism (C-TPAT). The chain of custody from the APL Logistics freight consolidation center in China to the consignee's dock is essentially a closed loop between APL Logistics, APL liner services, and Con-way Freight.

Expansion plans for the service focus first on Asia. Villalon says APL Logistics will look at adding more origins throughout Asia as the service develops. It will continue to use the Port of Los Angeles and Villalon feels confident the service and capacity in Los Angeles can support that expansion without the need to introduce new ports. He doesn't rule out service in other trades, however.

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