- THE MAGAZINE
- INFO CENTER
That growth will come largely from the retail sector they believe. "It's the lowest hanging fruit," says Christopher Prey, Vice President, Business Development, P&O Nedlloyd Logistics, North America. The retail industry has long been interested in logistics, explains Prey, who says the high-value commodities associated with retail translates to a need for more sophisticated logistics and increased visibility. "This contrasts to the industrial sector, for example, which deals in raw materials, chemicals," and doesn't require the same timeliness as consumer goods.
Retailers and the large importers who supply them are also at the center of attention for APL Logistics, where they have been for years. Rick Moradian, Vice President International Logistics, says the company was created nearly 30 years ago in Asia. "The genesis of our logistics activities was merely managing the product flow from documentation," he says, recounting logistics' formative years. Back then, the "original pioneers of international sourcing-the companies who had just begun to source in Asia, particularly in the '70s-were looking for an organization like ourselves who had an ocean transportation network in that region." The group was comprised mostly of retailers, notably garment manufacturers, who were seeking lower labor costs in places like Japan and Hong Kong.
Within the retail sector, APL Logistics has a concentration of shippers who deal in high-tech consumer goods like computers and TVs, says Moradian "This vertical requires a different kind of logistics and supply chain network. High-tech retailers require precise supply chain flow with complete visibility that feeds a VMI (vendor managed inventory) model. On the contrary, most of the 'soft goods,' or general merchandise, is not purchased in a VMI environment; they're purchased at the origin and shipped and managed from the origin to the destination D/C (distribution center)."
Another vertical that APL Logistics works with is the automotive sector, which is also highly sophisticated. "Automotive logistics is very much driven by just-in-time product flows and concepts. The auto industry has been very meticulous in terms of managing its inventory flow and being able to synchronize its inventory flow directly to the production line-a lean manufacturing and lean logistics perspective. It's not inconceivable to measure automotive level inventory product flow in hours or a handful of days, as opposed to the months you may see in some retail sectors." Moradian says handling these customers requires "a different type of discipline, different type of system structure, and a different supply chain network to support their business."
The 'built-in' advantageWhat gives ocean carriers' logistics divisions a competitive edge? According to Moradian, "having an asset-based sister company really opens the door." To put it bluntly, "Asset is king whenever demand exceeds supply." That's the reality in the marketplace now, he says, and that imbalance is expected to remain for the foreseeable future. "Clients are eager to partner with organizations that not only have control over the overall information and product flow, but also the asset utilization. The control assures them that their product is not going to be left behind at some port somewhere due to peak season requirements or because of a lack of space." This also means the shipper is "not at the mercy of a freight forwarder who has to use multiple carriers and is not in full control of the product flow."
The ocean carriers should be able to capitalize on this advantage for a while. The challenges brought about by "demand exceeding supply will remain for the next two to three years," says Moradian. Likewise, "The sourcing shift is still so strong into some of these Asian countries-China, Vietnam, and now India-that the demand for ocean transportation will exceed supply and equipment capabilities, as well as the capabilities of other modes of transportation, such as rail, trucks, and port facilities, to be able to handle product flow in a seamless manner. Our customers are concerned about that."
He continues, "As we become more like inventory managers as opposed to transportation or logistics managers, it's our goal to not add to the client's inventory. Instead, we want to create a greater reliance on information flow and to be able to manage [the supply chain] that way. We're dealing with our customers in a more intimate way today. We're becoming advisors. We're helping them build confidence so that they can minimize their inventory flow and trust that product will get to the destination on time."
The importance that IT plays in advancing supply chain efficiencies and visibility cannot be overstated; and carriers claim this is another area in which they have an edge. Carriers have invested millions in IT in the past few years just to maintain their own operations. It makes sense for them to make the information and systems available to customers now. Ravi Ramakrishnan, Vice President of Applications Development at APL Logistics, stated recently: "If your core processes are IT driven, you are ready to externalize these solutions to meet your customers' supply chain needs." The economy of scale enjoyed by carriers also means they can provide IT at a very competitive cost to customers.
Keeping up with customer demandsAPL Logistics' growth strategy mirrors the multifaceted demands found in the global marketplace. Not only are they increasing their geographical presence, but they're also introducing new value-added services and improved IT solutions. "We're already in 54 countries around the world, including most of the emerging countries that are on our clients' radar screens, whether it's China, Vietnam, the African continent, or Turkey."
Greater flexibility is also necessary for keeping up with the client, says Moradian. "Most of our shippers are becoming more sophisticated and they're putting a lot of emphasis on inventory flow. Therefore, they rely on their supply chain providers to make sure the organization can bring continuity of supply and continuity of flow. We have a number of clients who will change routing, who will change distribution, who will change demand requirements while the product is on the water. Clients are working on a very dynamic routing model. They're constantly in tune with their forecasts and making adjustments as the product nears the destination." This is another reason the asset-based organizations have an advantage, reminds Moradian.
Indeed, "there was a time when you had to try and convince people that spending money on their supply chain was worthwhile," says Christopher Prey. "But, it's not a hard sell today. One big retailer went so far to say recently that they really don't even see themselves as a merchandiser, but rather a supply chain. It's true, if you look at a lot of companies today, it's just one big supply chain. It's all about getting product from one place to another at an efficient and reasonable cost-that's how you compete. That's also why the logistics market appears so much bigger today. The customers have always been out there, it's just that they haven't always been buyers of logistics services."