With fuel prices on the rise and logistics costs under intense scrutiny, some shippers are rethinking how they get their orders from the proverbial point A to point B. Most notable, perhaps, is a trend that's bringing shipments that traditionally have moved by air back down to earth—or more accurately, down to sea level.
The idea that shippers would shift cargo from air to ocean transportation might seem surprising, given the difference in service speed. But a number of companies are finding that new, enhanced ocean shipping services—including time-definite services—can save them money while still meeting their delivery needs.
For evidence of this trend, you need only compare the respective growth rates for ocean shipping and air freight, says David Hoppin of the consulting firm MergeGlobal. Worldwide ocean import tonnage has grown faster than air import tonnage since 2004, he notes. And in Asia, ocean import tonnage has grown faster than air import tonnage since 2003.
Bill Villalon, vice president of global contract logistics and product development for APL Logistics, reports that over the last several years, ocean freight capacity has risen two to three times faster than air-freight capacity has. "That alone indicates some kind of modal shift," he says.
That shift hasn't gone unnoticed by the airlines. In an address to the International Air Transport Association (IATA) 2007 Cargo Symposium in Mexico, IATA Director General and CEO Giovanni Bisignani identified the loss of business to ocean shipping as one of three trends that the air-cargo industry should watch closely. "Ocean container shipping is becoming more competitive and taking business away," he said.
Bisignani reported that containerized ocean freight grew by 9.5 percent from 2000 to 2005, more than double the growth rate for air cargo. IATA believes that this trend will continue, he added. The group forecasts that air-freight volumes will grow by 5.3 percent annually until 2010, while ocean freight will increase by 7.2 percent per year. "New containerships are faster and cheaper to operate," Bisignani said, "and 2006 ocean container freight rates were 20 percent in real terms below 2000 levels. Air-freight rates were only 8 percent lower. And ocean freight capacity is growing at 12 percent a year, so we can expect more intense price competition."
The most obvious cause for this shift is rising fuel costs. As fuel prices soared, the traditional gap between ocean and air rates—quite pronounced to begin with—widened even further, says Villalon. That's when some companies that were shipping by air started to take a serious look at ocean. Fujitsu Computer Systems Corp., for example, is now shipping portions of its large orders by ocean instead of air—a move that has led to significant savings. (For more on Fujitsu's strategy, see "fast, furious, and flexible" on page 49.)
The pendulum swings
But fuel costs aren't the only factor behind the modal shift. Another appears to be the emergence of new, enhanced ocean services that are getting a warm reception from shippers eager for an alternative that's cheaper than air and faster than standard ocean service.
One such service is Matson Navigation Co.'s China-Long Beach Express program, in which Matson has teamed up with truckload specialist J.B. Hunt Transport Services to offer time-definite inland delivery of full containerload shipments from Shanghai and Ningbo, China, to the United States. Another is the OceanGuaranteed service launched last year by APL Logistics and lessthan-truckload carrier Con-way Freight. OceanGuaranteed provides day-definite, guaranteed service for less-than-containerload shipments from seven points in Asia to the United States. These shipments are the last ones loaded at the ports of origin in Hong Kong, China, Japan, South Korea, Singapore, and Taiwan, and they are the first unloaded when the vessels arrive at Los Angeles. The shipments then move via Con-way's timedefinite trucking service to their final destinations.
APL decided to offer time-definite services because it saw a market among shippers who were using air cargo more for reliability than for speed, Villalon says. "Customers told us, 'I could probably live with shipments arriving within 18 to 20 days, but there's nothing out there that can deliver in [exactly] 18 days. … If I need something date-certain and time-definite, I have to ship it by air, and then it gets there in five to six days, and I have to hold it for two weeks in storage,'" he says.
Time-definite ocean services are most likely to appeal to companies that import products like apparel, electronics, and toys that have a high unit value and a short shelf life. One such shipper is Urban Outfitters, a retailer of clothes, accessories, and housewares for the young urban crowd. The company is using the OceanGuaranteed service, particularly to move shipments headed for its Trenton, S.C., distribution center, which supports both its wholesale and its direct-to-consumer online businesses. The company tested the waters with Web-direct purchase orders for shoes last Christmas. Shoes were chosen for the pilot because they are bulky but relatively light, and the cost to ship them by air would have been prohibitive. The savings in both time and money were considerable: The shoes arrived at the DC from the Far East in 18 days instead of four weeks, at a quarter of the price of air freight. Urban Outfitters has since stepped up its use of OceanGuaranteed for other products. To date, it has used it for about 100 purchase orders.
But cost is only part of the story. Hoppin believes that the modal shift may be partly a matter of shippers' returning to a mode they temporarily abandoned a few years ago. "As the ocean industry recovered somewhat from the delays and congestion that emerged in 2004," he says, "many of the companies that had upgraded to air moved back down to ocean."
But one lesson shippers learned in 2004 could send the pendulum swinging back toward air. Shippers realized how vulnerable they were to supply chain disruptions, says Hoppin. As a result, some decided to become less "lean" and returned to the practice of holding safety stocks. The competitive pressures that caused companies to go lean still exist, however, and they could well decide to start cutting back on inventory. That will increase the risk of inventory emergencies, such as stock-outs—forcing shippers to use a premium mode of transport like air freight.
The number of container ships waiting outside U.S. East and Gulf Coast ports has swelled from just three vessels on Sunday to 54 on Thursday as a dockworker strike has swiftly halted bustling container traffic at some of the nation’s business facilities, according to analysis by Everstream Analytics.
As of Thursday morning, the two ports with the biggest traffic jams are Savannah (15 ships) and New York (14), followed by single-digit numbers at Mobile, Charleston, Houston, Philadelphia, Norfolk, Baltimore, and Miami, Everstream said.
The impact of that clogged flow of goods will depend on how long the strike lasts, analysts with Moody’s said. The firm’s Moody’s Analytics division estimates the strike will cause a daily hit to the U.S. economy of at least $500 million in the coming days. But that impact will jump to $2 billion per day if the strike persists for several weeks.
The immediate cost of the strike can be seen in rising surcharges and rerouting delays, which can be absorbed by most enterprise-scale companies but hit small and medium-sized businesses particularly hard, a report from Container xChange says.
“The timing of this strike is especially challenging as we are in our traditional peak season. While many pulled forward shipments earlier this year to mitigate risks, stockpiled inventories will only cushion businesses for so long. If the strike continues for an extended period, we could see significant strain on container availability and shipping schedules,” Christian Roeloffs, cofounder and CEO of Container xChange, said in a release.
“For small and medium-sized container traders, this could result in skyrocketing logistics costs and delays, making it harder to secure containers. The longer the disruption lasts, the more difficult it will be for these businesses to keep pace with market demands,” Roeloffs said.
The British logistics robot vendor Dexory this week said it has raised $80 million in venture funding to support an expansion of its artificial intelligence (AI) powered features, grow its global team, and accelerate the deployment of its autonomous robots.
A “significant focus” continues to be on expanding across the U.S. market, where Dexory is live with customers in seven states and last month opened a U.S. headquarters in Nashville. The Series B will also enhance development and production facilities at its UK headquarters, the firm said.
The “series B” funding round was led by DTCP, with participation from Latitude Ventures, Wave-X and Bootstrap Europe, along with existing investors Atomico, Lakestar, Capnamic, and several angels from the logistics industry. With the close of the round, Dexory has now raised $120 million over the past three years.
Dexory says its product, DexoryView, provides real-time visibility across warehouses of any size through its autonomous mobile robots and AI. The rolling bots use sensor and image data and continuous data collection to perform rapid warehouse scans and create digital twins of warehouse spaces, allowing for optimized performance and future scenario simulations.
Originally announced in September, the move will allow Deutsche Bahn to “fully focus on restructuring the rail infrastructure in Germany and providing climate-friendly passenger and freight transport operations in Germany and Europe,” Werner Gatzer, Chairman of the DB Supervisory Board, said in a release.
For its purchase price, DSV gains an organization with around 72,700 employees at over 1,850 locations. The new owner says it plans to investment around one billion euros in coming years to promote additional growth in German operations. Together, DSV and Schenker will have a combined workforce of approximately 147,000 employees in more than 90 countries, earning pro forma revenue of approximately $43.3 billion (based on 2023 numbers), DSV said.
After removing that unit, Deutsche Bahn retains its core business called the “Systemverbund Bahn,” which includes passenger transport activities in Germany, rail freight activities, operational service units, and railroad infrastructure companies. The DB Group, headquartered in Berlin, employs around 340,000 people.
“We have set clear goals to structurally modernize Deutsche Bahn in the areas of infrastructure, operations and profitability and focus on the core business. The proceeds from the sale will significantly reduce DB’s debt and thus make an important contribution to the financial stability of the DB Group. At the same time, DB Schenker will gain a strong strategic owner in DSV,” Deutsche Bahn CEO Richard Lutz said in a release.
Transportation industry veteran Anne Reinke will become president & CEO of trade group the Intermodal Association of North America (IANA) at the end of the year, stepping into the position from her previous post leading third party logistics (3PL) trade group the Transportation Intermediaries Association (TIA), both organizations said today.
Meanwhile, TIA today announced that insider Christopher Burroughs would fill Reinke’s shoes as president & CEO. Burroughs has been with TIA for 13 years, most recently as its vice president of Government Affairs for the past six years, during which time he oversaw all legislative and regulatory efforts before Congress and the federal agencies.
Before her four years leading TIA, Reinke spent two years as Deputy Assistant Secretary with the U.S. Department of Transportation and 16 years with CSX Corporation.
As the hours tick down toward a “seemingly imminent” strike by East Coast and Gulf Coast dockworkers, experts are warning that the impacts of that move would mushroom well-beyond the actual strike locations, causing prevalent shipping delays, container ship congestion, port congestion on West coast ports, and stranded freight.
However, a strike now seems “nearly unavoidable,” as no bargaining sessions are scheduled prior to the September 30 contract expiration between the International Longshoremen’s Association (ILA) and the U.S. Maritime Alliance (USMX) in their negotiations over wages and automation, according to the transportation law firm Scopelitis, Garvin, Light, Hanson & Feary.
The facilities affected would include some 45,000 port workers at 36 locations, including high-volume U.S. ports from Boston, New York / New Jersey, and Norfolk, to Savannah and Charleston, and down to New Orleans and Houston. With such widespread geography, a strike would likely lead to congestion from diverted traffic, as well as knock-on effects include the potential risk of increased freight rates and costly charges such as demurrage, detention, per diem, and dwell time fees on containers that may be slowed due to the congestion, according to an analysis by another transportation and logistics sector law firm, Benesch.
The weight of those combined blows means that many companies are already planning ways to minimize damage and recover quickly from the event. According to Scopelitis’ advice, mitigation measures could include: preparing for congestion on West coast ports, taking advantage of intermodal ground transportation where possible, looking for alternatives including air transport when necessary for urgent delivery, delaying shipping from East and Gulf coast ports until after the strike, and budgeting for increased freight and container fees.
Additional advice on softening the blow of a potential coastwide strike came from John Donigian, senior director of supply chain strategy at Moody’s. In a statement, he named six supply chain strategies for companies to consider: expedite certain shipments, reallocate existing inventory strategically, lock in alternative capacity with trucking and rail providers , communicate transparently with stakeholders to set realistic expectations for delivery timelines, shift sourcing to regional suppliers if possible, and utilize drop shipping to maintain sales.