Premium Services Grow in Asian Trades

June 1, 2008
Collaboration among logistics service providers helps synchronize global supply chains.

Already an asset-based third party with over 24 million square feet of warehouse space worldwide, APL Logistics turned to partners and strategic vendors to launch innovative ocean freight services in the Asia trades.

OceanGuaranteed, a time-definite, less-than-containerload (LCL) service launched out of China and serving the US destination market has been operating for over a year, and growth has been tremendous, according to Bill Villalon, vice president of land transportation and product development for APL Logistics. A recently launched full containerload (FCL) service is also off to a good start. On-time performance for OceanGuaranteed is over 98% and the new full-container service is running at 100% on time.

“The key to delivering the precision goes to having asset players involved and being able to control the vessel stowage and discharge,” says Villalon. On the vessel side, APL Logistics, part of the NOL Group, relies on its sister companies to perform many of the core functions for the line-haul move from Asia to the US. On land, the LCL service relies on a partnership with Con-way. The FCL operation employs strategic vendors Schneider National and Werner Enterprises.

Time-definite ocean transport may sound like an oxymoron, but APL Logistics has made it work by collaborating with other service providers. “The landside piece is important, as well as having partners who can deliver and have assets available” says Villalon. “It takes systems and processes,” he continues. “We can tell our partners at least 10 to 14 days in advance where we need trucks and teams, so there are economies in telling them where demand will be and also in telling them where the loads are going so they can plan those days forward and do the load planning for the empty ‘box’ they’ll have for the return to the West Coast.”

Those links are important, says Villalon, because running synchronized supply chains requires the service to be time- or day-definite. The services are positioned to compete with air freight and, admits Villalon, at least anecdotally, shippers indicate a major reason for using air freight services are speed and reliability. Ocean service can’t change its speed to match air, but it can compete on reliability, and that’s where APL Logistics targeted its effort.

A major challenge in international moves is the pricing model. Ocean carriers price in cubic meters, air carriers price in kilograms and US motor carriers use class rates and cents per hundredweight, explains Villalon. APL Logistics needed a model that was highly transparent and allowed easy comparison among the modes. It adopted the same method as the mode it chose to compete with —pricing in kilograms.

Most network designs are based on a domestic sourcing model, says Villalon, and shippers are accustomed to a number of choices that don’t exist in international trade. It’s pretty much ocean or air, he notes. With air priced at between eight times and 10 times the ocean rates, APL Logistics saw an opportunity for new price/service points. APL’s goal was a branded, differentiated product that reflected high quality and service, marketed to the beneficial owner of the cargo and providing the reliability those shippers and their customers wanted on ocean moves.

Nearly as soon as it premiered the LCL product, APL Logistics was getting questions about a full containerload product. Once it had the service in place, APL Logistics saw some of the expected groups using it: high value, apparel, electronics and automotive components. But, says Villalon, they were a little surprised when other “weight” cargo shippers started using the service for products like books and printed materials. “We’ve seen multiple container bookings or two, three or four containers at a time,” says Villalon. That’s 30,000 to 40,000 kg. or more. Those are large air shipments, Villalon explains. “In peak season it can be difficult for a forwarder or air carrier to respond to that type of demand short of an air charter.”

Putting together the capacity for an air charter and filling it can take a weak in peak season. The forwarder might have to consolidate multiple loads for a charter or use multiple carriers, says Villalon. He points out that a 747-400 freighter can haul 115,000 kg. “We can take that and guarantee the booking today,” he adds.

Two other, more strategic factors come into play, according to Villalon. One is sustainability and carbon emissions. “There’s no standard way of calculating this,” he says, but an ocean/truck combination will contribute a fraction of the carbon emissions of a comparable air shipment. “We believe that over time this will become an increasingly important feature. In the last six months, we are getting requests for information and requests for proposals asking about carbon footprint and what programs we have in place.”

Another driver, says Villalon, is the fact that inventories are are very low levels. Everyone is being cautious not to build up inventory, he explains. “They’re increasingly cost conscious, and any uptick in demand in the second half of the year will drive very strong demand for [time-definite transport services].” It’s not a panacea, he cautions, but it is one more tool in international shipping that supports a different price/service point that previously did not exist. “We treat it as more tools in the toolbox.”

Balancing cost, service and reliability in support of synchronized global supply chains has required careful consideration and close cooperation among a number of logistics service providers who first had to work out issues around people, process and technology to make the complex appear simple and, probably more important, do it consistently. APL Logistics may have defined an opportunity, but there’s already a buzz among competitors, and YRC Worldwide has already moved into this space.

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