Logistics shortcuts trim costs for trader

May 8, 2009
| By Pete Daly |
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Logistics is one of the most expensive and challenging investments world traders make, which is why it was a special focus at World Trade Week.

"In a world where everybody's looking at every dime, the supply chain becomes a very good part to look at" for cost reductions, according to Kevin Wilson, a Michigan district sales manager for Seattle-based Expeditors International of Washington Inc., a major third-party logistics provider to industry all over the United States.

Shipping by any means requires increasingly expensive fossil fuels, and maintaining and staffing warehouse space is not cheap. Then there are the costs of creating and maintaining the inventory that is in transit from the point of production to the customer.

Wilson, one of the speakers at the World Trade Week conference on Logistics-Strategic Level, said there is a drastic reduction in prices for transoceanic shipping, mainly because "people aren't shipping."

In fact, the drop in transoceanic shipping in the last two quarters is practically historic, according to some members of the industry.

In the first quarter of 2009, the drop in volume at Matson Navigation "has no modern parallel," said W. Allen Doane, chairman and CEO of Alexander & Baldwin, a holding company that owns Matson. The shipping company's China volume was down 18 percent compared to the same period last year.

Shipping companies around the world are experiencing a slowdown due to the drop in industrial output in the last two quarters. The head of Cosco Pacific, a Chinese container shipping company, said last week that the "terminal and container leasing industries are in a difficult situation, which is highly likely to last for the full year."

Morgan Stanley predicted global container traffic may be down 3 percent this year.

Wilson said the drop in demand for international shipping has reduced prices for American industry, but at the same time, some companies are downsizing staff, and in some cases, are involving executives directly with day-to-day shipping decisions.

"Were talking to different people now," when in contact with customers, said Wilson.

Logistics experts can play a bigger role now with these customers by also serving as the cost-containment experts in that process. Wilson said these trends have changed the role of the third-party global logistics providers to one of closer collaboration with the shipper. Where the third-party logistics provider formerly offered more of a tactics focus, "now we’re more of a strategic part of the customers' supply chain."

Also driving that trend is a new U.S. government regulation affecting transoceanic shipping that took effect earlier this year and is adding to the work and stress level in the shipping process at many U.S. companies.

The U.S. Department of Homeland Security has introduced the Import Security Filing rule, intended to identify ocean cargo that may pose a security threat before it is loaded onboard a vessel bound for the United States. Called the "10+2" requirement, it forces American companies to report in detail to the federal government what they will be shipping to America 24 hours before the shipment is loaded on the vessel.

That means the corporate staff assigned to shipping departments in the U.S. "need a lot more information related to that order" from its overseas supply chain, said Wilson.

Other presenters at the logistics section of the World Trade Week conference included representatives of Steelcase, who talked about that company's changes in its trucking throughout the U.S. and Canada.

Like transoceanic shipping, there is also an oversupply of trucks in the U.S. without enough full loads for them. One year ago, the cost of diesel fuel was a constant threat to trucking prices, but now shippers can shop around and buy contracts at lower prices, according to Joe Verbraska of Steelcase.

Now, "it's a buyers' market, as well," similar to transoceanic shipping, he said.

"We don't know how long it will last," he added.

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