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.
Congestion on U.S. highways is costing the trucking industry big, according to research from the American Transportation Research Institute (ATRI), released today.
The group found that traffic congestion on U.S. highways added $108.8 billion in costs to the trucking industry in 2022, a record high. The information comes from ATRI’s Cost of Congestion study, which is part of the organization’s ongoing highway performance measurement research.
Total hours of congestion fell slightly compared to 2021 due to softening freight market conditions, but the cost of operating a truck increased at a much higher rate, according to the research. As a result, the overall cost of congestion increased by 15% year-over-year—a level equivalent to more than 430,000 commercial truck drivers sitting idle for one work year and an average cost of $7,588 for every registered combination truck.
The analysis also identified metropolitan delays and related impacts, showing that the top 10 most-congested states each experienced added costs of more than $8 billion. That list was led by Texas, at $9.17 billion in added costs; California, at $8.77 billion; and Florida, $8.44 billion. Rounding out the top 10 list were New York, Georgia, New Jersey, Illinois, Pennsylvania, Louisiana, and Tennessee. Combined, the top 10 states account for more than half of the trucking industry’s congestion costs nationwide—52%, according to the research.
The metro areas with the highest congestion costs include New York City, $6.68 billion; Miami, $3.2 billion; and Chicago, $3.14 billion.
ATRI’s analysis also found that the trucking industry wasted more than 6.4 billion gallons of diesel fuel in 2022 due to congestion, resulting in additional fuel costs of $32.1 billion.
ATRI used a combination of data sources, including its truck GPS database and Operational Costs study benchmarks, to calculate the impacts of trucking delays on major U.S. roadways.
There’s a photo from 1971 that John Kent, professor of supply chain management at the University of Arkansas, likes to show. It’s of a shaggy-haired 18-year-old named Glenn Cowan grinning at three-time world table tennis champion Zhuang Zedong, while holding a silk tapestry Zhuang had just given him. Cowan was a member of the U.S. table tennis team who participated in the 1971 World Table Tennis Championships in Nagoya, Japan. Story has it that one morning, he overslept and missed his bus to the tournament and had to hitch a ride with the Chinese national team and met and connected with Zhuang.
Cowan and Zhuang’s interaction led to an invitation for the U.S. team to visit China. At the time, the two countries were just beginning to emerge from a 20-year period of decidedly frosty relations, strict travel bans, and trade restrictions. The highly publicized trip signaled a willingness on both sides to renew relations and launched the term “pingpong diplomacy.”
Kent, who is a senior fellow at the George H. W. Bush Foundation for U.S.-China Relations, believes the photograph is a good reminder that some 50-odd years ago, the economies of the United States and China were not as tightly interwoven as they are today. At the time, the Nixon administration was looking to form closer political and economic ties between the two countries in hopes of reducing chances of future conflict (and to weaken alliances among Communist countries).
The signals coming out of Washington and Beijing are now, of course, much different than they were in the early 1970s. Instead of advocating for better relations, political rhetoric focuses on the need for the U.S. to “decouple” from China. Both Republicans and Democrats have warned that the U.S. economy is too dependent on goods manufactured in China. They see this dependency as a threat to economic strength, American jobs, supply chain resiliency, and national security.
Supply chain professionals, however, know that extricating ourselves from our reliance on Chinese manufacturing is easier said than done. Many pundits push for a “China + 1” strategy, where companies diversify their manufacturing and sourcing options beyond China. But in reality, that “plus one” is often a Chinese company operating in a different country or a non-Chinese manufacturer that is still heavily dependent on material or subcomponents made in China.
This is the problem when supply chain decisions are made on a global scale without input from supply chain professionals. In an article in the Arkansas Democrat-Gazette, Kent argues that, “The discussions on supply chains mainly take place between government officials who typically bring many other competing issues and agendas to the table. Corporate entities—the individuals and companies directly impacted by supply chains—tend to be under-represented in the conversation.”
Kent is a proponent of what he calls “supply chain diplomacy,” where experts from academia and industry from the U.S. and China work collaboratively to create better, more efficient global supply chains. Take, for example, the “Peace Beans” project that Kent is involved with. This project, jointly formed by Zhejiang University and the Bush China Foundation, proposes balancing supply chains by exporting soybeans from Arkansas to tofu producers in China’s Yunnan province, and, in return, importing coffee beans grown in Yunnan to coffee roasters in Arkansas. Kent believes the operation could even use the same transportation equipment.
The benefits of working collaboratively—instead of continuing to build friction in the supply chain through tariffs and adversarial relationships—are numerous, according to Kent and his colleagues. They believe it would be much better if the two major world economies worked together on issues like global inflation, climate change, and artificial intelligence.
And such relations could play a significant role in strengthening world peace, particularly in light of ongoing tensions over Taiwan. Because, as Kent writes, “The 19th-century idea that ‘When goods don’t cross borders, soldiers will’ is as true today as ever. Perhaps more so.”
Hyster-Yale Materials Handling today announced its plans to fulfill the domestic manufacturing requirements of the Build America, Buy America (BABA) Act for certain portions of its lineup of forklift trucks and container handling equipment.
That means the Greenville, North Carolina-based company now plans to expand its existing American manufacturing with a targeted set of high-capacity models, including electric options, that align with the needs of infrastructure projects subject to BABA requirements. The company’s plans include determining the optimal production location in the United States, strategically expanding sourcing agreements to meet local material requirements, and further developing electric power options for high-capacity equipment.
As a part of the 2021 Infrastructure Investment and Jobs Act, the BABA Act aims to increase the use of American-made materials in federally funded infrastructure projects across the U.S., Hyster-Yale says. It was enacted as part of a broader effort to boost domestic manufacturing and economic growth, and mandates that federal dollars allocated to infrastructure – such as roads, bridges, ports and public transit systems – must prioritize materials produced in the USA, including critical items like steel, iron and various construction materials.
Hyster-Yale’s footprint in the U.S. is spread across 10 locations, including three manufacturing facilities.
“Our leadership is fully invested in meeting the needs of businesses that require BABA-compliant material handling solutions,” Tony Salgado, Hyster-Yale’s chief operating officer, said in a release. “We are working to partner with our key domestic suppliers, as well as identifying how best to leverage our own American manufacturing footprint to deliver a competitive solution for our customers and stakeholders. But beyond mere compliance, and in line with the many areas of our business where we are evolving to better support our customers, our commitment remains steadfast. We are dedicated to delivering industry-leading standards in design, durability and performance — qualities that have become synonymous with our brands worldwide and that our customers have come to rely on and expect.”
In a separate move, the U.S. Environmental Protection Agency (EPA) also gave its approval for the state to advance its Heavy-Duty Omnibus Rule, which is crafted to significantly reduce smog-forming nitrogen oxide (NOx) emissions from new heavy-duty, diesel-powered trucks.
Both rules are intended to deliver health benefits to California citizens affected by vehicle pollution, according to the environmental group Earthjustice. If the state gets federal approval for the final steps to become law, the rules mean that cars on the road in California will largely be zero-emissions a generation from now in the 2050s, accounting for the average vehicle lifespan of vehicles with internal combustion engine (ICE) power sold before that 2035 date.
“This might read like checking a bureaucratic box, but EPA’s approval is a critical step forward in protecting our lungs from pollution and our wallets from the expenses of combustion fuels,” Paul Cort, director of Earthjustice’s Right To Zero campaign, said in a release. “The gradual shift in car sales to zero-emissions models will cut smog and household costs while growing California’s clean energy workforce. Cutting truck pollution will help clear our skies of smog. EPA should now approve the remaining authorization requests from California to allow the state to clean its air and protect its residents.”
However, the truck drivers' industry group Owner-Operator Independent Drivers Association (OOIDA) pushed back against the federal decision allowing the Omnibus Low-NOx rule to advance. "The Omnibus Low-NOx waiver for California calls into question the policymaking process under the Biden administration's EPA. Purposefully injecting uncertainty into a $588 billion American industry is bad for our economy and makes no meaningful progress towards purported environmental goals," (OOIDA) President Todd Spencer said in a release. "EPA's credibility outside of radical environmental circles would have been better served by working with regulated industries rather than ramming through last-minute special interest favors. We look forward to working with the Trump administration's EPA in good faith towards achievable environmental outcomes.”
Editor's note:This article was revised on December 18 to add reaction from OOIDA.
A Canadian startup that provides AI-powered logistics solutions has gained $5.5 million in seed funding to support its concept of creating a digital platform for global trade, according to Toronto-based Starboard.
The round was led by Eclipse, with participation from previous backers Garuda Ventures and Everywhere Ventures. The firm says it will use its new backing to expand its engineering team in Toronto and accelerate its AI-driven product development to simplify supply chain complexities.
According to Starboard, the logistics industry is under immense pressure to adapt to the growing complexity of global trade, which has hit recent hurdles such as the strike at U.S. east and gulf coast ports. That situation calls for innovative solutions to streamline operations and reduce costs for operators.
As a potential solution, Starboard offers its flagship product, which it defines as an AI-based transportation management system (TMS) and rate management system that helps mid-sized freight forwarders operate more efficiently and win more business. More broadly, Starboard says it is building the virtual infrastructure for global trade, allowing freight companies to leverage AI and machine learning to optimize operations such as processing shipments in real time, reconciling invoices, and following up on payments.
"This investment is a pivotal step in our mission to unlock the power of AI for our customers," said Sumeet Trehan, Co-Founder and CEO of Starboard. "Global trade has long been plagued by inefficiencies that drive up costs and reduce competitiveness. Our platform is designed to empower SMB freight forwarders—the backbone of more than $20 trillion in global trade and $1 trillion in logistics spend—with the tools they need to thrive in this complex ecosystem."