If your import program's in need of a big fix, the answer might be to lose the slippery selling agent and bring in your own hired guns to manage inland transportation.
If you import goods from China, trouble's your business. You already know about the dismal realities of doing business in the shadowy Middle Kingdom. Bad roads, buying chains that are as opaque as a dirty window, language barriers and red tape make for more twists and turns than the plot of a Raymond Chandler thriller.
What you might not know is that your company could be getting taken for a ride. Most importers have only a hazy idea of what exactly they're paying for or even who's manufacturing it. They just know it turns up and it's cheap, so they don't ask too many questions. But if they nosed around a little, they'd quickly abandon any illusions of lean and efficient supply lines moving their goods from China's interior to the ports, says Bengt Henriksen, president of Quality Logistics Inc., a third-party logistics service provider based in San Carlos, Calif. Instead they'd likely be forced to confront the reality of a well-greased chain of players, all eager for a chance to line their own pockets.
Not that this is anything new. Over the years, all but a few of the most sophisticated companies have decided that when it comes to doing business in China, it's easier to stand for a certain amount of squeeze than to try to make their own arrangements. Importers typically buy their Chinese-made goods from selling agents, and the buying contracts they sign usually incorporate trade terms that make the seller responsible for getting the goods to an international port—Incoterms such as Free on Board (FOB). But there are several problems with that. Truckloads of stuff turn up from a mysterious interior at unpredictable times, and often errors in orders aren't detected until the cargo hits an unstuffing facility on the U.S. side. Another problem is that costs aren't broken out—it's impossible to tell how much the buyer is paying for the actual item … and how much for transportation and middlemen.
Likely as not, it's a lot of dough. Middlemen, which Henriksen says are a particularly Chinese phenomenon in trade (though they may not wear fedoras), have set themselves up with a pretty good racket. In recent years, a few buyers have ventured inside China to find the actual factories and figure out how their cargo gets to port, Henriksen reports. What they've found is that there are four, five, six layers of middlemen, he says, each one adding 20 to 30 percent to the cost.
But making direct contact with factories is often as complex as figuring out who killed whom in The Big Sleep. "A guy walks into a hotel in Shanghai and he's instantly identified as, say, a fireworks buyer. Then he's going to be mobbed by selling agents offering to show him their factories. And the one thing you can guarantee is that it's not the guy's factory," Henriksen warns. "If it was his factory, he wouldn't be hanging out in a hotel waiting to present himself that way." That is to say, importers should be wary of sellers, who are often as shadowy as a weeping widow in Sam Spade's reception room.
But it's worth playing gumshoe and making a few inquiries. By cutting down on middlemen and separating out transportation costs, importers can save huge sums. Henriksen reckons that simply dealing direct with the factory, not even haggling over Incoterms, can save between $600 and $3,000 per container. "Every supply chain is different," he says, "but the savings often add up to more than the total freight!"
Farewell, my middleman?
However, Henriksen doesn't recommend cutting out the middleman entirely. "You have to either use a [U.S.-based] third-party firm that will sort this out for you, or else develop a relationship with a buying agent that will accept a reasonable commission and whose workings are reasonably transparent," advises Henriksen. "But you have to live and let live in China. You have to give them something. If you're cutting 90 percent of the cost, then you don't mind."
Sounds simple, right? After all, contracting for inland transportation should hold few mysteries for the experienced logistics professional. In fact, Henriksen has managed to get a bit of a buzz going in the last few years, making his case for taking control of inbound cargo at presentations like the one he delivered with Andy Rosener, director of international logistics at Hasbro Toys, at a Journal of Commerce TransPacific shippers' conference in March 2002. (Hasbro presented itself as a poster child for the movement to take control of inventory further up the supply chain.)
Yet those shippers who flock to Henriksen's talks have been slower to act than an arthritic night watchman. Tradecard, an electronic trade documentation services firm that handles huge volumes of import contracts for U.S. buyers dealing with Asia, reports that only 10 to 20 percent of contracts are on an ex-factory or non-FOB/CIF basis. That means that 80 to 90 percent of the time, shippers are letting the seller (or selling agent) control the freight up until it reaches the port.
Why are shippers so reluctant to take charge? Henriksen says the trouble usually lies within the importer's own organization. Typically, the traffic or logistics people in a large company are fully aware of how much the company could save by seizing control over the buying process, but the merchandising folks, who don't want to mess with existing relationships or products, don't want to hear about it. "So you have an internal battle between the people responsible for costs—the logistics people—and the people responsible for the product. And they don't want the logistics people to interfere," he laments. "In some companies— for example, Nike—the people at the very top see what needs to be done and will immediately go after the savings and make sure everyone coordinates and works together. But with other companies—no."
Beautiful friendships
But there's more to it than the Fat Man in marketing's reluctance to ruin a beautiful friendship. Cutting buying and transportation costs often means taking charge of the arrangements for inland transport in China. And that, as anyone involved in the logistics business locally can tell you, can be more complicated than piecing together a torn-up ransom note in the dark.
"The problem is that China is not really an integrated market in any sense or form," says Paul Clifford, managing partner for China at Mercer Management Consulting's office in Beijing. "China grew up in the '50s and '60s as regional markets with their own sources and homegrown logistics networks. When you start getting beyond one region and try transporting across many regions, it gets troublesome."
Even Wal-Mart, which will spend $15 billion in China this year and whose whole business model is built around logistics efficiency, is finding it challenging, Clifford says. "They have to outsource a lot of trucking, for instance, and even they find it very difficult to operate across provinces. The regulations mean you have to have a license to transport across borders load by load," he continues. "Of course there are local transport and freight forwarding companies that specialize in that, but they also have a history of being quite local. They're formed of smaller branches that put together a nationwide service by passing the product on to the next branch, but it's not a seamless, reliable service."
Then, of course, there are the roads, which have more holes in them than a drugged-up heiress's alibi. The further inland you go—where labor is cheaper and many new factories are springing up—the worse the infrastructure gets. The roads are not the half of it. Buyers also have to wrestle with decisions like which port to use. Tradecard president Kurt Cavano says the ports in the Pearl River Delta, such as Yantian, Guangzhou, Shenzen, Zhuhai and Shantou, have been giving Hong Kong a run for its money in recent years, siphoning off some of the larger port's business. But all that means is that buyers now have to weigh one relatively undeveloped port against another, or against trucking over the border to Hong Kong.
Mum's the word
Despite the difficulties, some U.S. importers have taken charge of their inbound freight, changing their Incoterms and/or port of export. But they've gone very quiet about it. Even trailblazers like IKEA, the Swedish furniture giant that publicly announced in 2002 it had moved all imports from China to FCA terms ("free carrier"—i.e., handed over to the buyer's carrier, often inland), have clammed up, declining to be interviewed on the subject. Industry commentators say this is because the ability to fine-tune shipping arrangements from China gives them an important edge over the competition.
"It's definitely a competitive advantage, giving you better assurances that the right product will be shipped when you want it shipped," says Maureen Saul, who's been helping U.S. importers consolidate and ship inventory from China for 15 years, most recently as vice president of logistics and marketing for United States Consolidation Services in Paramus, N.J. (now a subsidiary of the U.K. third-party logistics firm Exel).
"We do still see a fair number of selling agents, especially for U.S. companies that don't have offices in China," Saul says. She says companies are looking for transparency not only to save money, but to fulfill the increasingly strict security- related regulations about knowing who packed what and where. "If you go to ex-works terms, you have to know where the factory is, so that helps address the visibility problem," she says. "Customers want more transparency, and the security concern is a big part of that. People are engaging in vendor management programs and vendor certification. This makes it easier."
Overall, it seems even the largest shippers need a little help from an experienced third party when it comes to unraveling the mysteries of moving goods in China. IKEA, for example, makes heavy use of Maersk Logistics. Exel, Nippon Express, Panalpina, Schenker, APL Logistics and TNT Logistics are all active in the region, often working in partnership with the state-owned logistics firm, Sinotrans.
Henriksen's firm, Quality Logistics, also prides itself on knowing its way around China. "When I talk about this at meetings and conferences, I get an overwhelming reaction from importers from all walks, who say they want to know more. But then I explain that you have to delegate it. I can do lots of things for you but you have to let go," Henriksen says. "Our type of logistics service is to unbundle the transportation costs for our clients. [O]ur clients are so busy selling the products that they leave it to us to manage logistics, giving us a free hand to immediately go after the savings on their behalf." Basically, he tells 'em, if you need help, you just whistle. You know how to whistle, don't ya?
Sometimes, all you need is the right partner to solve your logistics problems.
In 2021, global paint supplier Sherwin Williams faced driver and hazardous material (hazmat) capacity constraints: There simply weren’t enough hazmat drivers available in its fleet to maintain the company’s 90% fleet utilization rate expectations for key partner store deliveries while also meeting growing demand for service. Those challenges threatened to become even more acute in the future, as a competing paint supply company began to scale back its operations in the Pacific Northwest, leaving Sherwin Williams with an opportunity to fill the gap.
The paint supplier needed a logistics partner that could help it overcome the shortage of hazmat drivers while also helping to manage its West Coast trailer pools, out-of-region runs, and ad-hoc freight. It also needed a solution that would meet quarterly and annual fleet budgets.
SCALING UP
Enter ITS Logistics, a third-party logistics service provider (3PL) that offers supply chain solutions for drayage, network transportation, distribution, and fulfillment across North America. ITS proposed a combined owned-asset and asset-light approach that would provide Sherwin Williams with the equivalent of 21 additional drivers. The 3PL would leverage its carrier network to overcome the shortage of hazmat capacity while also certifying its own drivers via a three-month process. Further, ITS would help manage Sherwin Williams’ trailer pools and coordinate carriers, providing the paint company with a single point of contact for transportation.
The project would address cost concerns as well: “ITS Logistics aligned its solution with Sherwin Williams’ budgetary cadence and offered a quarterly business review to align on price structure, adding a level of transparency and trust to the relationship,” according to a case study the partners released earlier this year.
The companies soon sealed the deal and launched the program.
Not long after that, Sherwin Williams began to feel the effects of the anticipated challenges in the Pacific Northwest—but the company was prepared. When the competing paint supply company shuttered its operations, causing demand for Sherwin Williams’ products to spike, ITS injected a blend of owned trailers and carrier power to alleviate equipment challenges, cover all locations and regions, and help the paint supplier scale to meet volume.
CLOSING THE GAPS
The project has helped Sherwin Williams rapidly scale its capacity, meet fleet utilization requirements, manage trailer pools, coordinate carriers, and flex to meet spikes in regional demand.
And the results speak for themselves.
“ITS integrating themselves into our fleet was instrumental in helping increase our outbound volume by 18.4 million pounds [year over year] in the last seven months of 2023,” said Ted Taxon, regional transportation manager at Sherwin Williams, in the case study. “This equated to approximately 460 truckloads of extra freight, a large portion of which ITS [handled] on an ad-hoc basis with no operational constraints or quality issues.”
The partnership also helped Sherwin Williams maintain a 90% fleet utilization rate with big box retailers—an increase from less than 70% prior to the partnership’s launch.
Robots are revolutionizing factories, warehouses, and distribution centers (DCs) around the world, thanks largely to heavy investments in the technology between 2019 and 2021. And although investment has slowed since then, the long-term outlook calls for steady growth over the next four years. According to data from research and consulting firm Interact Analysis, revenues from shipments of industrial robots are forecast to grow nearly 4% per year, on average, between 2024 and 2028 (see Exhibit 1).
EXHIBIT 1: Market forecast for industrial robots - revenuesInteract Analysis
Material handling is among the top applications for all those robots, accounting for one-third of overall robot market revenues in 2023, according to the research. That puts warehouses and DCs on the cutting edge of robotic innovation, with projects that are helping companies reduce costs, optimize labor, and improve productivity throughout their facilities. Here’s a look at two recent projects that demonstrate the kinds of gains companies have achieved by investing in robotic equipment.
FASTER, MORE ACCURATE CYCLE COUNTS
When leaders at MSI Surfaces wanted to get a better handle on their vast inventory of flooring, countertops, tile, and hardscape materials, they turned to warehouse inventory drone provider Corvus Robotics. The seven-year-old company offers a warehouse drone system, called Corvus One, that can be installed and deployed quickly—in what MSI leaders describe as a “plug and play” process. Corvus Robotics’ drones are fully autonomous—they require no external infrastructure, such as beacons or stickers for positioning and navigation, and no human operators. Essentially, all you need is the drone and a landing pad, and you’re in business.
The drones use computer vision and generative AI (artificial intelligence) to “understand” their environment, flying autonomously in both very narrow aisles—passageways as narrow as 50 inches—and in very wide aisles. The Corvus One system relies on obstacle detection to operate safely in warehouses and uses barcode scanning technology to count inventory; the advanced system can read any barcode symbol in any orientation placed anywhere on the front of a carton or pallet.
The system was the perfect answer to the inventory challenges MSI was facing. Its annual physical inventory counts required two to four dedicated warehouse associates, who would manually scan inventory to determine the amount of stock on hand. The process was both time-consuming and error-prone, and often led to inaccuracies. And it created a chain reaction of issues and problems. Fulfillment speed is one example: Lost or misplaced inventory would delay customer deliveries, resulting in dissatisfaction, returns, and unmet expectations. Productivity was also an issue: Workers were often pulled from fulfillment tasks to locate material, slowing overall operations.
MSI Surfaces began using the Corvus One system in 2021, deploying a small number of drones for daily inventory counts at its 300,000-square-foot distribution center (DC) in Orange, California. It quickly scaled up, adding more drones in Orange and expanding the system to three other DCs: in Houston; Savannah, Georgia; and Edison, New Jersey. The company plans to add more drones to the existing sites and expand the system to some of its smaller DCs as well, according to Corvus Robotics spokesperson Andrew Burer.
Those expansion plans are based on solid results: MSI’s inventory accuracy was about 80% prior to the drone implementation, but it quickly jumped to the high 90s—ultimately reaching 99%—after the company initiated the daily drone counts, according to Burer.
“We actually had an incident early on where one of the forklift drivers ran into the landing pad, rendering it inoperable for about a week while the Corvus team fixed it,” Burer recalls. “When we restarted the system, we noticed MSI’s inventory accuracy had dropped down to the 80s. But after flights resumed, accuracy quickly improved back to near perfect.” He adds that such collisions are rare as Corvus mounts landing pads high off the floor to avoid impacts but that accidents can still happen.
Overall, the system has helped speed warehouse operations in two key ways: First, the accuracy improvement means that associates no longer waste time searching for missing material in the warehouse. And second, the associates who used to conduct the physical inventory counts have been reallocated to picking and replenishment—creating a more efficient, and optimized, workforce.
A SAFER, MORE EFFICIENT WAREHOUSE
Robot maker Boston Dynamics is well-known for its Stretch and Spot industrial robots, both of which are at work in warehouses and DCs around the world. Earlier this year, Stretch made its debut in Europe, teaming up with Spot at a fulfillment center run by German retail company Otto Group. The deployment marks the first time Stretch and Spot are being used together—in a partnership designed to improve Otto Group’s warehousing operations by increasing efficiency and making warehouse work safer and more attractive to workers.
The partnership is part of a two-year project in which Boston Dynamics will deploy dozens of its warehouse robots in Otto Group’s European DCs. The first location is a fulfillment site operated by Hermes, the company’s parcel delivery subsidiary, in Haldensleben, Germany—a facility that handles as many as 40,000 cartons of goods on peak days.
At the site, Stretch—which is a mobile case-handling robot—autonomously unloads ocean containers and trailers, using its advanced perception system to pick and place boxes onto a telescoping conveyor inside the container or trailer. Spot—a quadruped robot—helps with predictive maintenance by collecting thermal data and performing acoustic and visual detection tasks throughout the facility to reduce unplanned downtime and energy costs. One of Spot’s jobs is to detect air leaks in the facility’s warehouse automation systems; future duties may include conveyor vibration detection, according to leaders at Otto Group.
Both Stretch and Spot will help the Haldensleben facility run more efficiently, especially during fall peak season when volume increases and work intensifies. The addition of Stretch addresses safety and comfort issues as well: Trailer unloading—a process that entails repeatedly lifting and moving heavy boxes inside a trailer, which can be dark, dirty, cold, and/or hot, depending on the weather—tends to be unappealing to workers. Along with reducing the amount of labor required, automating these tasks will have the added benefit for European facilities of helping them comply with EU (European Union) regulations limiting the amount of time workers can spend in those conditions.
Essentially, the robots are making life easier on the warehouse floor and for the company at large.
“Stretch is going to have a ton of benefits for customers here in the EU,” Andrew Brueckner, of Boston Dynamics, said in a recent case study on the project.
The trucking industry faces a range of challenges these days, particularly when it comes to load planning—a resource-intensive task that often results in suboptimal decisions, unnecessary empty miles, late deliveries, and inefficient asset utilization. What’s more, delays in decision-making due to a lack of real-time insights can hinder operational efficiency, making cost management a constant struggle.
Truckload carrier Paper Transport Inc. (PTI) experienced this firsthand when the company sought to expand its over the-road (OTR), intermodal, and brokerage offerings to include dedicated fleet services for high-volume shippers—adding a layer of complexity to the business. The additional personnel required for such a move would be extremely costly, leading PTI to investigate technology solutions that could help close the gap.
Enter Freight Science and its intelligent decision-recommendation and automation platform.
PTI implemented Freight Science’s artificial intelligence (AI)-driven load planning optimization solution earlier this year, giving the carrier a high-tech advantage as it launched the new service.
“As PTI tried to diversify … we found that we needed a technological solution that would allow us to process [information] faster,” explains Jared Stedl, chief commercial officer for PTI, emphasizing the high volume of outbound shipments and unique freight characteristics of its targeted dedicated-fleet customers.
The Freight Science platform allowed PTI to apply its signature high-quality service to those needs, all while handling the daily challenges of managing drivers and navigating route disruptions.
STREAMLINING PROCESSES
Dedicated fleets face challenges that evolve from day to day and minute to minute, including truck breakdowns, drivers calling in sick, and rescheduled appointment times. PTI needed a tool that allowed for a real-time view of the fleet, ultimately enabling its team to adjust truck and driver allocation to meet those challenges.
The Freight Science solution filled the bill. The platform uses advanced analytics and algorithms to give carriers better visibility into operations while automating the decision-making process. By combining streaming data, a carrier’s transportation management system (TMS), machine learning, and decision science, the solution allows carriers to deploy their fleets more efficiently while accurately forecasting future needs, according to Freight Science.
In PTI’s case, Freight Science’s software integrates with the carrier’s TMS, real-time electronic logging device (ELD) data, and other external data, feeding an AI model that generates an optimized load plan for the planner.
“We’re an integrated data analytics company for trucking companies,” explains Matt Foster, Freight Science’s president and CEO. “We’re talking about AI.”
The benefits of the real-time data are difficult to overstate.
“We’ve been able to execute in the toughest of situations because we’ve got real, live data on how long each event is actually going to take and a system to aid and even automate the decision-making process,” says Chad Borley, PTI’s operations manager. “From what traffic patterns we are battling in the morning and evening with rush hour and things like that, to the impact of additional miles to a route, or even location-specific dwell times, it’s been a huge differentiator for us.”
REALIZING RESULTS
A case in point: the collapse of Baltimore’s Francis Scott Key Bridge in March. PTI was scheduled to go live with a new dedicated account in the area just days after the collapse, which would mean rerouting and the potential for longer transit times. Instead of recalculating based on assumptions or latent data, PTI was able to reroute freight based on real-time information and analytics to give the customer timely updates.
“With the bridge going out, that changed our ability to make as many turns a day as the customer would expect,” Stedl explains. “But one of the things Freight Science could do [was to] quickly [assess] how much of an impact that traffic would have [and] what the turns [would] be based on what’s happening on the ground.
“So we were able to go back to the customer and readjust expectations in a real way that made sense, using data. Now expectations can be reset¾we’re not asking for forgiveness when there’s no reason for it.”
The system’s advanced algorithms make load planning more cost-effective and scalable as well. The platform allows PTI to monitor trucks, trailers, and driver hours in real time, recommending additional loads with remaining driver hours that would otherwise be wasted.
And they’re doing it all with much less. Stedl says tasks that used to require five people and hours of work can now be accomplished by one person in mere minutes, improving productivity and profitability while reducing labor and operational costs.
Terms of the deal were not disclosed, but Aptean said the move will add new capabilities to its warehouse management and supply chain management offerings for manufacturers, wholesalers, distributors, retailers, and 3PLs. Aptean currently provides enterprise resource planning (ERP), transportation management systems (TMS), and product lifecycle management (PLM) platforms.
Founded in 1980 and headquartered in Durham, U.K., Indigo Software provides software designed for mid-market organizations, giving users real-time visibility and management from the initial receipt of stock all the way through to final dispatch of the finished product. That enables organizations to optimize an array of warehouse operations including receiving, storage, picking, packing, and shipping, the firm says.
Specific sectors served by Indigo Software include the food and beverage, fashion and apparel, fast moving consumer goods, automotive, manufacturing, 3PL, chemicals, and wholesale / distribution verticals.
Schneider says its FreightPower platform now offers owner-operators significantly more access to Schneider’s range of freight options. That can help drivers to generate revenue and strengthen their business through: increased access to freight, high drop and hook rates of over 95% of loads, and a trip planning feature that calculates road miles.
“Collaborating with owner-operators is an important component in the success of our business and the reliable service we can provide customers, which is why the network has grown tremendously in the last 25 years,” Schneider Senior Vice President and General Manager of Truckload and Mexico John Bozec said in a release. "We want to invest in tools that support owner-operators in running and growing their businesses. With Schneider FreightPower, they gain access to better load management, increasing their productivity and revenue potential.”