World Trade - February 2009 - (Page 38)

STRATEGY The APL England berthed at the Global Gateway South terminal at the Port of Los Angeles. OceanGuaranteed cargo from Asia is discharged at GGS and then distributed throughout the U.S. the U.S. West Coast by air costs about 10 times more than by ocean. In addition to this widening cost gap between the two transport modes, experts say that as much as 80% of intercontinental air cargo moves by air for time-deﬁnite reasons, and not for the lower transit time offered. To meet this time-deﬁnite need, ocean carriers are providing services that compete in time-deﬁniteness with the low end of air freight services. For example, Conway Freight and APL Logistics both recently introduced accelerated ocean-truck service. This new ocean LCL/domestic LTL service from China offers faster transit times and day-deﬁnite delivery at a lower cost than air freight, while potentially taking 10 to 20 days of variability out of the supply chain. This capability should have a large effect on inventory levels and product availability. These time-deﬁnite ocean services are meaningful to air freight users that import high value, short shelf-life products such as toys, electronics and fashion merchandise. The widening gap between the two modes of transport, accompanied by the new time-definite services offered by ocean carriers, has allowed ocean container freight to capture market share from air freight. Ocean freight has grown by 9.5%—more than double the growth in air cargo between 2000 and 2005. An extreme example of this mode shift from air to ocean is 2009 the exports of LCD displays and monitors moving out of Korea, which in the past were moved exclusively by air. Virtually all of these products are now shipped by ocean vessel. Domestically, ground transport is now competitive with air freight for up to 1,000 to 1,500 miles. LTL truckers are now offering two- to three-day time-deﬁnite service, which is adequate for many domestic shippers. While making a choice on transport, the sourcing strategist should consider the following questions: • What categories of goods are air-freighted most frequently? • What percentage of air freight is for time-deﬁnite reasons and what percentage is for transit time reduction? • Can the goods shipped by air freight for time-deﬁnite reasons be shipped by the newly offered timedeﬁnite ocean freight or ground services? • Can a portion of demand of goods that are regularly air freighted be near-shored and ground shipped? Distribution and manufacturing networks To deal with rising fuel costs, supply chain practitioners have still another lever they can push distribution and manufacturing. As fuel costs rise, distribution and manufacturing will become more decentralized. Supply chain executives will see the necessity in having more distribu- 38 WORLD TRADE FEBRUARY APL

Table of Contents Feed for the Digital Edition of World Trade - February 2009

World Trade - February 2009 Contents Taking Stock in America Confronting Corruption in Latin America Supply Chain Watch Tradewinds Where's the Goods? Where's the Money? Hope on the Horizon Managing Fleets in Turbulent Times The Impact of China's Economic Slowdown on U.S. Supply Chains The Fuel Volatile Supply Chain Getting the Most from On-the-Fly Transactions Managing Supply Chain Risk by Managing China Sourcing Capacity OECD Global Economic Outlook for 2009 'Natural' Agricultural Monopolies No More

World Trade - February 2009

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