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Logistics Complexity Stresses Shippers, Says Drewry

Logistics Complexity Stresses Shippers, Says Drewry
Logistics Manager

Drewry, the leading independent global maritime advisory and research organisation, is reporting on how additional sourcing countries, mergers and acquisitions of organisations and operational problems result in increased complexity and stress for logistics management and ocean transport sourcing tasks.

According to Drewry, for professionals tasked with managing and procuring international logistics at large manufacturers and retailers, life has changed a lot in the past five years and will continue to become more challenging.

One example is Andy Gillespie, director of global logistics at Ansell, a global healthcare company moving products around the world.
In the past four years, Ansell has acquired Korean glove manufacturer Midas, BarrierSafe Solutions International, Comasec and Hércules Equipamentos de Proteção and added many new sourcing sourcing countries.

“We have added Bangladesh and India and our biggest new country (for supplies) is Vietnam,” US-based Gillespie said, while on a business trip in India. Ansell’s number of shipping lanes has jumped from about 500 port pairs four or five years to 800 now.

Not only is his company’s international logistics network much more complex than before, but managing product flows is becoming more variable due to the blanked sailings of ocean carriers, Gillespie noted.

It has been widely reported that many companies have shifted their sourcing or their production from China to South East Asia, Eastern Europe or Central America. Figure 1 below shows that, when ranked by growth in manufacturing over the period 2010-14, China was only the 23rd fastest-growing producer (in percentage terms), behind small competitors Vietnam (12% growth), Trinidad (also 12%), Lebanon (20%) and others. As dominant China’s industrial growth slows down, smaller new rivals expand.

25 countries with the fastest manufacturing CAGR 2010-14

Fig17

Based on contribution of manufacturing to GDP (current US$) Source: World Bank

In the wider context, manufacturing’s contribution to world GDP is shrinking as services’ share has grown. Data from the World Bank shows that manufacturing’s share of world GDP has fallen from 19% in 2000 to 16% in 2014 (Figure 2). Since 2010, manufacturing’s annual growth rate has slowed further to 3.7%.

For logistics professionals, getting to know how to move products to and from the new manufacturing hot spots such as Vietnam has become necessary, as container volumes both to and from Vietnam have increased in double-digits for the past three years.

 Structure of world GDP (current US$), 2000 v 2014 (% of total)

Source: World Bank

Source: World Bank

Vietnam container exports, imports to/from Europe, 2012-15 (‘000 teu)

Fig35

Source: Drewry Maritime Research (www.drewry.co.uk), derived from CTS.

Another topical complication for shippers is the instability and unpredictability of carrier alliances, not forgetting the increased focus on minimising inventory cost when making transport decisions, which adds another new level of complexity.

But as scale and complexity increased for logistics department, staffing levels have not.

When working for exporters and importers, Drewry has also found that logistics departments now operate with only a handful of logistics management experts at the headquarters, sometimes backed up by one or two more people working for central procurement. Some 20 years ago, a shipping department at a large multinational like Dupont had 30 members of staff.

However, for exporters or importers shipping more than 10,000 teu a year, it is not uncommon to manage product flows on hundreds of lanes and to use 20 or more service providers. At the time of running annual requests for tenders, the resulting volume of data to handle is huge.

To bring speed and efficiency to ocean transport sourcing events, Drewry has introduced eSourcing Ocean Freight Solution ™ (eSOFS).

The new service is designed to cope with the rapidly changing container shipping landscape, including shifting alliances, terminal performance and rate volatility. “We found that BCOs are facing so many complexities in their bids for carrier contracts on several hundred trade lanes that it takes over three months to negotiate a contract,” said Philip Damas, director of Drewry Supply Chain Advisors. “Using our process they can get that time down to 45 days.”

Faced with increasingly complex, data-intensive product flows and budgetary constraints, ocean transport logistics managers within multinational retailers and manufacturers have been seeking a more streamlined and holistic approach to event management.

For example, Drewry’s eSOFS™ can compare bid tender scenarios by taking into account different transit times and different levels of carrier reliability and their impact on inventory costs. To learn more and talk to our consultants please contact us at supplychains@drewry.co.uk.

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