Moving Goods in a Slower Economy

How shippers and ports are adapting to the economy — moving faster and smarter
By Tony Seideman

In the last two decades, the global transportation industry has undergone an unprecedented transformation as inventories have shriveled and planet-spanning communication networks have enabled businesses to trade warehouses full of goods for sophisticated communications systems and highly disciplined logistics strategies.

Now all these systems are under unprecedented stress as the vast pipelines that were designed with unceasing growth in mind deal with volumes that are shrinking instead of growing.

Feeling the Squeeze
“Everybody’s being squeezed,” says John Martin, president of Martin Associates Inc., a Lancaster, PA-based maritime consultancy.
“Industry-wide volume was off about 8 percent through October of 2008. The total could be closer to 10 percent when year-end numbers are tabulated,” says Mike Zampa, director of corporate communications for Oakland, CA-based American President Lines. There are projections that 2009 could see even more dramatic declines.

Although forecasts vary, APL is optimistic. Zampa says, although his numbers are not as dramatic as some being quoted, they still see further decline on the way.

“The World Bank projects a 2 percent drop in global trade this year. At the least, we expect weak containerized trade demand through the first half of 2009. There may be modest pick-up later in the year,” he says.

The drops are a huge shift for a business that has assumed trade growth would be virtually endless for the foreseeable future.

New Opportunities
One of the most important results of the downturn could be that it provides a competitive advantage to companies that are truly committed to Just-in-Time and lean manufacturing strategies.

Advanced transportation systems and strategies will work if companies stay dedicated to them, says Robert Martichenko, CEO of LeanCor LLC, Florence, KY. Two of the primary characteristics of lean manufacturing are velocity and leveled flow — moving less inventory more frequently.

“We work with companies that are embracing lean. And what we’re seeing with those that are truly dedicated to it is a recognition that, in a bad economy, business is about cash flow. The question is, ‘Do you have the cash flow to make payroll,’ and inventory sucks cash like crazy,” Martichenko says.

Replace Inventory with Speed and Reliability
Carriers who understand the changes that are occurring have the opportunities to stabilize business and potentially catch new customers because the criteria that shape shipper choices have shifted, Zampa says.

“We’ve seen shippers reduce inventory to better manage expense. As a result, they’re more interested in premium transportation services that deliver the greatest reliability and supply chain velocity. When you’re operating with less safety stock, speed and reliability are essential for inventory replenishment,” Zampa says.

All this sounds wonderful. Yet the reality is not as simple.

Where to Stockpile
In the past, there was plenty of slack in the system. Product stashed in warehouses gave companies room to maneuver if demand suddenly dropped. This helped buffer economic downturns. Now, overstocked store shelves or declines in product demand translate into virtually instant factory shutdowns.

“There’s no cushion in the system,” Martin says. “Either you’re moving at full speed or nothing is moving at all because you can’t just slow it down and stockpile it, so that exacerbates the economic downturn, especially from the port’s standpoint.”

“From the seaport standpoint it’s an immediate shutdown, because there’s no place to stockpile,” Martin says. “Instead of a gradual shutdown, your import of parts just stops, because they’re just all operating just in time without any room for stockpiling, and if you do need to stockpile, then you have increased costs because you have no offsite storage.”

Maritime and port officials say the situation is proving difficult but not traumatic. In some cases, impromptu slack is being created in the system. At the Port of Long Beach, hundreds of acres that were dedicated to future facilities expansion projects are now being used to park huge inventories of unsold cars.

Supply Chain Collaboration
Although Long Beach may be clogged, Los Angeles is not. As the economy has slowed, so has the number of ships coming into the port and the volume of cargo they carry, says spokeswoman Theresa Adams-Lopez. With fewer goods coming in overall, there’s no backup at the port, she adds.

Carriers echo this point. “Reduced volumes have resulted in very fluid marine terminals at our West Coast locations. There is no crowding, no congestion — cargo is moving freely,” Zampa says. This is working to the advantage of shippers, many of whom are responding to the situation by cutting back on their order volumes while upping the quality of the services they purchase.

As challenging conditions continue, a key tool, available to anyone who is moving significant volumes of goods, is cooperation, according to Martichenko. “One of the things we’re talking about with customers right now is supply chain collaboration,” he says. “Companies that have the same shipping lanes; companies that have the same supplier profiles and customer profiles can work together.”

What’s essential, Martichenko says, is to not get emotional about the difficulties. “You have to take a real engineering approach to the transportation and engineering function.” Though cutting back might seem sensible, it’s not rational, especially when crucial expertise is sacrificed.

Martichenko says consistency is key. “A lean supply chain is about fixed frequency, variable quantity.” Those who think “logistics engineering,” and work with the numbers will do far better than those who shoot from the hip and simply start slashing costs.

In This Issue

New Items

Time for the Tough to Get Going

Supply Chain
Real Estate Responds to Supply Chain Shifts

Taking Your Ship to an IP Environment

Compliance Corner: SOPs, the Foundation of Trade Compliance

New Applications for RFID

Features
Gateway at a Glance ­� Canada

Moving Goods in a Slower Economy

Ports & infrastructure
National Gateway — a Public-Private Partnership in Progress

California River Ports

Port Products
Clean Air Equipment

Commentary
Contract Negotiations Approaching

Who, What, Where, When

Final Say