Orient express

As consumer demands have become more diversified and personalized, mass production has taken a backseat to smaller production lots and faster delivery times. This trend toward manufacturing small, frequent batches, along with the resulting need for faster, door-to-door transportation, has fueled the development of the express industry since the 1980s.

This is true not only in North America and Europe but also—more recently—in China. By 2006, China's express freight market totaled close to 45 billion yuan and boasted a sustained annual growth rate of more than 20 percent. This level of growth is likely to continue because the volume of high-value, express delivery items is still increasing. Along with that growth has come greater demand for improved shipment security.

Meeting the increasing requirements for smaller, faster, and more secure shipments has been a challenge for shippers in China. Although the country's transportation infrastructure is improving under government initiatives to build more roads, railways, and seaports, conditions in many parts of the country are still below the desired standard. Moreover, rail is the preferred mode of transportation, but its typical shipping and handling practices are not compatible with the high level of service that customers increasingly require.

As this article will show, there is a way companies in China can achieve faster, more efficient delivery of small shipments by rail. The article will first examine the characteristics of railway logistics enterprises in China and identify the operational problems they face. Then, it applies containerization and unitization theories to propose the use of small containerized cargo units (SCCUs) and outlines some design principles of these units. Finally, the article verifies the feasibility of the proposal by examining a project in which a railroad express organization is successfully using an SCCU integrated transport system to support cold chain logistics for an international food manufacturer.

Rail express needs improvement
In most parts of the world, road and air are the main transportation modes for the express industry. That is also true in China's domestic express market, where global express companies are now doing business. But China's railroads also are taking on an important role, especially for long-distance transportation. This is due to the country's special geographic features and economic structure. For example, the average distance between provincial capitals is about 1,500 kilometers (930 miles). Imbalances in regional economic development and the uneven distribution of resources shape the flow of small shipments moving from east to west and from south to north, with the average shipment traveling about 1,250 kilometers (775 miles). In the long-distance lanes between coastal cities and the southwestern, northwestern, and northeastern regions of the country, small rail shipments share the express market with postal parcels and air cargo, with each taking nearly onethird of the market share.¹

More and more, logistics service enterprises are seeing demands from customers for fast and timely delivery of small-batch, multiple lot-size, and high-security shipments. In addition, a steady increase in the volume of high-value shipments requires that the cargoes be delivered to the destination in accordance with the customer's requirements for quantity, item type, and arrival time. These high-value shipments also have strict requirements for theft and damage prevention, as well as for protection from moisture, dust, and odors during transportation.

Railway logistics enterprises have made great efforts to develop express delivery services in China, but they have not been entirely successful. For one thing, when they provide door-to-door services, the handling operations take too much time. For another, the interchange with other modes of transportation is inefficient. And frequently, rail express shipments incur a high degree of loss and damage.

Figure 1 illustrates the typical operating procedure for door-to-door services offered by railway logistics enterprises. The process begins at the client's warehouse, where shipments are loaded onto a truck. Next, the shipments are transported to a consolidation center, where they are combined. Then they are delivered to the railway freight station and are shipped out by train. After arriving at the destination terminal, shipments are unloaded and reloaded onto a truck, and then are delivered to the local distribution center for holding and storage. From there, they are distributed to sales outlets by delivery trucks or vans.

There are two main problems with this process. The first is that it takes too much time. The shipments are loaded and unloaded at least eight times during transfers. At railway stations in China, cargoes are placed on pallets, which are then moved into boxcars by forklift trucks. The cargoes are then unloaded from the pallets and re-stacked inside the rail car, and the pallets are removed from the train. Thus, the pallets are used only as an auxiliary handling tool and not as part of a unitized piece of transportation equipment.² All of this creates a huge amount of repetitive work, and these inefficient procedures sometimes result in the work's not being completed on time, which leads to late deliveries.

The second major problem is that this procedure frequently results in damage to the goods. The reason is that most Chinese railway enterprises' operations still rely on manual labor and semi-mechanized handling. According to a 2005 report from the China Association of Warehouses and Storage, 72 percent of manufacturers using rail transportation for finished products incur a damage rate that is higher than that for deliveries by road or air.³

Unit loads make sense
The key to solving these problems is the unit-load device. In many other parts of the world, the benefits of unitization are well known. In China, however, not all businesses have recognized the importance of assembling shipments into unit loads so they can be easily and efficiently handled, stored, combined, and transported right from the beginning of the logistics process. Transformed into a single, containerized unit, they are ready for rapid deployment. Accordingly, unit loads facilitate door-to-door logistics services that can deliver shipments to their final destinations safely, accurately, quickly, and on time.

Thus, unit-load devices enable a logistics process that is based on the multimodal use of cargo units that protect goods from damage and loss during the various stages of coordinated transportation, including loading, unloading, storage, consolidation, warehousing, and distribution. This type of system can be called "integrated cargo-unit transportation."

As shown in Figure 2, the storage and packaging of cargo in pallet-sized containers, as well as the standardization and integration of the SCCU, are the logical solutions for fulfilling clients' demands for small-batch, high-security, and fast delivery service.

Design recommendations
The authors recommend that companies opting to design SCCU equipment comply with the following principles:

Design to withstand the transportation environment. Long-distance transportation in China can be tough on cargo because of repetitive loading and handling, damp climate or cold weather, excessive shaking due to poor railway and highway conditions, and so forth. A unit-load device should therefore be adaptable to different transportation environments. It should also be designed to effectively protect products from the negative effects of these conditions. In short, it must ensure that the cargo's quality is not compromised during the journey from the shipper to the end user.

Standardize dimensions. Standardization of unit-load equipment is fundamental to the mechanization and integration of transportation and logistics operations. It is also necessary for the rationalization and efficiency of logistics facilities and material handling systems, which must function efficiently in order for intermodal transportation to be effective.⁴

SCCUs may be attached to a pallet or they may be standalone units. In either case, the sizes of the SCCU and the pallet must be standardized and compatible with each other as well as with the dimensions of rail cars and truck chassis. Otherwise, the nonstandard, incompatible unit-load equipment will increase operational costs.

Because pallets are the most common type of small unitload equipment available, many countries and organizations around the world are promoting and implementing the International Standards Organization's (ISO) pallet standards.5 Therefore, containerized unit-load equipment should follow the ISO standards. (For more information, refer to the bulletin ISO Technical Committee 51: Pallets for unit load method of materials handling.)

The SCCU should have the same dimensions as standard pallets, with the 1,200 millimeter x 1,000 millimeter (48 inch x 40 inch) size designated as the preferred dimension. (China's national pallet standards, which are slightly different, are discussed below.)

Consider manufacturing and other costs. Because the SCCU links the whole logistics system, the design and construction of these units should take into account a systematic view of costs. The main factors to consider include material, capacity, weight, and the container's opening and closing mechanism. In addition, the cost of the container must be reasonable to justify the manufacturing expense and to promote widespread adoption. Furthermore, the equipment must be reusable to keep overall costs down and reduce the amount of consumable packaging materials.

Cold chain pilot project
If the experience of China Railway Express Co. Ltd. (CRE) is any indication, SCCUs offer considerable promise for enabling fast and efficient transportation of small rail shipments. A subsidiary of China's Ministry of Railways, CRE has developed an extensive rail transportation network and auxiliary highway networks. Its core businesses include parcel delivery, express shipment, and contract logistics. It recently launched a new cold chain logistics service that is based on its original package-delivery business.

The authors of this article participated in a project to develop that service for two companies, Mars China and Tiantan Biological. For this project, CRE designated railway baggage cars and package-express trains as the main means of transportation, along with road feeder services. The railroad also designed a small, cool-storage SCCU to carry Mars China's and Tiantan Biological's products. After conducting tests and observations, it was clear that the SCCU has made it possible for CRE to successfully provide long-distance, door-to-door refrigerated transportation for small, frequent shipments of high-value, temperature-sensitive products.

In the case of Mars China, the candy maker's shipments required controlled temperatures of between 0 and 20 degrees Celsius (32 to 68 degrees Fahrenheit). They also needed protection from moisture, dust, and odors as well as from theft and damage. To meet these requirements, CRE designed a palletized, refrigerated container that needed no internal power source.

For the container material, CRE chose lightweight, highstrength plastic that would minimize shipping weight but still be durable enough to withstand the rigors of transportation. The SCCU, equipped with cool-storage refrigeration slabs chilled to the necessary temperature, can maintain a constant temperature for 48 to 96 hours.

As mentioned earlier, containerized cargo units can be designed with either a detachable pallet or a built-in pallet that is an integral part of the container. CRE chose the latter design, which allows forklifts to move in and lift the SCCU quickly and easily. To prevent product loss during transportation and distribution, the container has a closure that includes a one-off, disposable lock with a registered serial number.

For compatibility with the ISO pallet standard, the SCCU measures 1,200 millimeters x 1,000 millimeters (48 inches x 40 inches), the same size as the pallets used by Mars China. In 2007, China designated 1,200 millimeters x 1,000 millimeters and 1,100 millimeters x 1,100 millimeters (44 inches x 44 inches) as the two standard pallet sizes, with 1,200 x 1,000 as the preferred standard.

The SCCU also meets height restrictions imposed by the doors on CRE's rail cars and package-express trains. As seen in Figure 3, the container is about 1,640 millimeters (65.6 inches) high, including the pallet, and has an internal volume of about 1,400 liters (364 gallons). The semi-active door configuration is designed to facilitate loading and reduce impact damage to the container.

SCCUs in action
Using the SCCU system, CRE was able to change its logistics service's operating procedures to the method shown in Figure 4. In this new procedure, cargoes are unloaded from pallets and are loaded into the SCCUs. The containers are then sealed to become a single, standard unit load. From that point on, the SCCU is handled entirely by forklift, and the cargo inside remains secured and in its original packing until it is delivered to the end user. The new procedure also employs single-layer stacking to improve speed and efficiency when loading and unloading the rail cars.

By every measure, integrated cargo-unit transportation has been a great success. Prior to using the SCCUs, Mars China had relied on trucks to deliver its chocolates from Beijing to Xinjiang province, on the far western border of the country. Shipments that measured greater than 9 cubic meters (318 cubic feet) were shipped directly to the city of Ürümqi—a journey of about nine days. Those measuring less than 9 cubic meters required two transfers, in Xi'an and Lanzhou, which lengthened the delivery time to about 14 days to Ürümqi and 14 to 18 days to surrounding areas.

With the introduction of CRE's SCCU model, transit times have been shortened to a remarkable degree. It now takes just four days for Mars China's shipments to reach Ürümqi and only four to six days for delivery to surrounding cities. Both the transit times and the time it takes to receive signed bills of lading from the consignees have been reduced by more than 50 percent.

The new system has resulted in other benefits as well. The use of SCCUs has shortened the average collection period and improved the receivables turnover ratio. That, in turn, has led to a better, more cooperative relationship between Mars and its distributors. Another of the SCCU's benefits is that it effectively protects products and reduces the risk of loss and damage. And of course, the new system has greatly increased consumer satisfaction.

For logistics service providers in China, the unit-load equipment offers additional benefits:

• The system improves operating efficiency and reduces labor requirements because it facilitates mechanization and automation.
• It minimizes waste in time and resources, and it makes cargo checking and transfers between service providers much simpler, easier, and more accurate.
• The containers support "green" logistics. They are reusable and returnable, and thus reduce the amount of consumable packaging materials used in transportation.

The authors believe that using SCCUs for rail transportation of small shipments would prove beneficial to many other types of products and companies. One factor that may prevent quick adoption is that the cost of custombuilt SCCUs, such as those used by CRE, is relatively high. However, those costs could come down somewhat if the equipment were mass-produced and were used in a more efficient transportation network.

Even if the costs remain higher than for other methods, the SCCU system of integrated transportation will still be attractive for express shipments that generate relatively high profits. Products that are suitable for this approach include items in short supply as well as high-value, fragile, temperature-sensitive, and vulnerable commodities. Some examples include medical and biochemical products, highend food products, and fashion apparel.

As more shippers seek to move small shipments in China's domestic market, the SCCU system is bound to gain in popularity. Indeed, if more logistics enterprises apply the integrated cargo-unit technique, they and their customers will soon find that these practical pieces of equipment will open up whole new markets for them in China.

Endnotes:
1. Jingliang Chen, "Thinking about Railway Express Business Development in China," Integrated Transportation, no. 2 (Beijing, 2006): 72-74
2. Qingyi Wu, "How to Establish China's Pallet-Sharing System," Logistics Technology and Application, no. 8 (Beijing, 2003): 1-4
3. Sixth China Logistics Market Supply and Demand Situation Investigation Report, China Association of Warehouses and Storage (Beijing, 2005)
4. Qingyi Wu, "Containerization and Unitization Technology Conspectus," Logistics Technology and Application, no. 1 (Beijing, 2007): 59-64
5. Marshall S. White, "Pallets Move the World: The Need for International Pallet Standards," ISO Bulletin (August 2000): 15-17

This article first appeared in the Quarter 2/2008 edition of CSCMP's Supply Chain Quarterly.

This story represents the type of analytical articles featured in the Quarterly. Readers can obtain a subscription by joining the Council of Supply Chain Management Professionals (whose annual membership includes a free subscription). Subscriptions are also available to non-members for $89 a year. For more information, visit www.SupplyChainQuarterly.com.