Global Logistics – Inbound Logistics https://www.inboundlogistics.com Tue, 26 Mar 2024 19:16:33 +0000 en-US hourly 1 https://wordpress.org/?v=6.5.2 https://www.inboundlogistics.com/wp-content/uploads/cropped-favicon-32x32.png Global Logistics – Inbound Logistics https://www.inboundlogistics.com 32 32 Global Logistics: Key Trends and Takeaways https://www.inboundlogistics.com/articles/global-logistics-key-trends-and-takeaways/ Tue, 26 Mar 2024 09:31:45 +0000 https://www.inboundlogistics.com/?post_type=articles&p=39960 Cross-border tensions, environmental concerns, advancing technology, and related worries about cybersecurity are among the forces shaping today’s global supply chain and logistics operations. Moreover, a return to normal—say, the years before the pandemic—appears unlikely.

Every year lately, “a big unknown” has impacted supply chains, says Leo Qvarnström, director, Sea-Air Logistics and air sustainability, North America with Kuehne+Nagel, a provider of logistics services. Recent examples include the war in Ukraine, the ecommerce boom, and the current conflict in the Red Sea.

The acronym VUCA, which has its roots in the military and stands for volatility, uncertainty, complexity, and ambiguity, is now being used to describe the world of commerce, says Tom Goldsby, executive director of the Global Supply Chain Institute at the University of Tennessee, Knoxville. Supply chain and logistics professionals can gain an edge by understanding the trends and shifts contributing to the current global logistics environment.

Geopolitical Upheaval

In addition to exacting a human cost, conflict impacts supply chain and logistics operations. For instance, Red Sea attacks are forcing more shipments around the horn of Africa, lengthening cycle times and driving up fuel costs and carbon emissions, says Ted Stank, co-executive director, with Tom Goldsby, of the Global Supply Chain Institute.

Between November 2023 and February 2024, container leasing rates on the China-to-U.S. trade route more than doubled, finds Container Xchange, an online container logistics platform.

Challenges in the Red Sea will even indirectly impact shippers whose cargo doesn’t travel this route, says Robin Knopf, global head of Sea-Air Logistics with Kuehne+Nagel. The reason? As carriers move to avoid the Red Sea, they create disruptions or container shortages along other routes, he adds.

Other trade lanes are also at risk, says the Boston Consulting Group (BCG). One is the Strait of Hormuz, which accounts for 20 to 30% of oil trade. If Iran is drawn into the conflict in the Middle East, vessels navigating this strait could be at risk.

Another lane, the Strait of Malaca, accounts for 30% of global trade. An ongoing dispute between China and several members of the Association of Southeast Asian Nations (ASEAN) over an area in the South China Sea may impact this strait, BCG says.

Along with rising transit costs, it’s likely that confirming bookings will be more difficult by summer 2024. “Companies will need to plan longer lead times for getting goods to their final destinations,” says Christa Pitts, co-CEO with The Lumistella Company, the firm behind Elf on the Shelf.

China Plus One

To offset rising labor and other costs in China, many companies are employing a “China + One” strategy. “Firms are reducing their concentration in China and adding capacity in Southeast Asia, India, and Mexico,” says Marc Gilbert, managing director and senior partner with BCG.

Countries in Southeast Asia, for instance, currently supply multiple regions of the world, including China and North America, Gilbert says. In India, leadership has taken steps to address corruption and enhanced the country’s ability to move goods around, he adds.

Nearshoring/Reshoring

More North American companies also are looking to locate operations closer to home. In early 2023, Mexico replaced China as the United States’ top trading partner, benefiting from its geographic proximity, strong manufacturing-based economy, skilled workers, and free-trade pacts, reports research firm MSCI.

Along with Mexico, all of Latin America offers strong potential for nearshoring, says Rick Jordon, senior managing director with FTI Consulting. Many companies will still need to rely on supply networks based in Asia. However, as Latin American companies implement new technology, it’s possible they’ll leapfrog ahead of their Asian counterparts.

Regionalization

A major gateway for global cargo shipments, the Oakland Seaport in Northern California serves a local market of more than 14.5 million consumers and 50% of the U.S. population by rail.

Interest in regional supply chains is growing. The idea is to “move away from thinking that we have one manufacturing hub for the whole world,” Stank says. Instead, companies can set up regional supply chains, which tend to be more agile, to support their major markets. If operations are disrupted in one area, other locations can compensate.

Artificial Intelligence

“The biggest impact to the global supply chain will continue to be the use of artificial intelligence (AI),” Pitts says. Among other benefits, AI allows supply chains to maximize efficiency in ways that hadn’t been possible previously, such as maximizing space utilization on a container or a pallet.

“AI allows companies to work smarter,” she adds.

Given ongoing disruptions, supply chain transparency and visibility to the sources of goods will factor in planning. “AI can enhance that power,” says Melinda McLaughlin, global head of research with logistics real estate company Prologis.

One company employing AI in the supply chain is Good360 is a nonprofit that distributes product donations through its network of 100,000+ vetted nonprofit partners.

The company is trying to use AI to help determine if it can efficiently move products where they’re needed after an event occurs, says CEO Romaine Seguin.

For example, Seguin has been working with a donor to determine how Good360 can help in areas impacted by wildfires. “We’re bringing in AI technology for mapping weather and identifying how much damage is in an area and what’s needed, such as water or hygiene products,” she says.

Cybersecurity

As supply chains digitalize, the risk of cyber attacks increases. “It’s the flip side of the digitalization and automation coin,” Stank says. Some chief information officers are even throttling back supply chain initiatives because of cybersecurity concerns, he adds.

A criminal may act as a carrier, broker, or even a customer to break into a system and then try to hijack freight or access customer or employee data. “Any system is open to attack,” warns Nathan Johnson, founder and CEO of transportation consultancy GLCS.

Sustainability

While it’s difficult to pin a single weather event on climate change, the drought at the Panama Canal is capturing the attention of supply chain experts. Drought cycles used to occur once every five years, but now are happening every three years, said Ricaurte Vásquez Morales, administrator of the Panama Canal, in a statement.

Another sign of the emphasis on sustainability is the European Commission’s Carbon Border Adjustment Mechanism. CBAM, which will be phased in between 2023 and 2026, is intended to fairly price the carbon emitted during the production of carbon intensive goods entering the EU.

CBAM will initially apply to some goods whose production is carbon intensive and at most risk of carbon leakage, such as cement, iron, and steel; additional goods will be added.

Navigating Evolving Global Logistics

As global logistics evolves, here’s how shippers can adjust.

Strengthen Agility
Resilience remains essential, but it doesn’t mean trying to create bulletproof supply chains. “There is no such thing as being bulletproof,” says Goldsby of the University of Tennessee. Instead, resilience should take the form of agility, or developing options before they’re needed. Plasticity, or the ability to make rapid structural changes, such as sourcing in new locations, is also necessary, he says.

Understand Geopolitics
Supply chain leaders today need to understand a range of subjects, including geopolitics, economics, and cybersecurity, Goldsby says. “They have to be global citizens and understand that what takes place in, say, Indonesia could very much influence their supply chains and business,” he adds.

Create a Task Force
More than three-quarters of respondents to BDO’s Global Risk Landscape 2023 indicated that the risk landscape is shaped more by connections between risks than individual risk factors. Addressing these connections requires a company-wide focus.

Assemble an enterprise-wide task force to take a control tower view of the supply chain, advises Tony Nuzio, founder and chief executive officer with ICC Logistics Services Inc. It should be cross-functional and include employees from all levels. Employees on the ground might be best suited to identify, for instance, suppliers that are critical to production, even if the company purchases relatively small amounts from them. Task force members can run scenarios and assess how prepared the company is for them, he adds.

Beef Up Cybersecurity
Nearly three-quarters of cyber incidents include a human element, such as an employee clicking a phishing link, according to Infosec, a cyber security training company. Employee education is key to preventing attacks.

“All it takes is one person in the organization to click on something they shouldn’t, and then the entire company is exposed,” says Nathan Johnson from consultancy GLCS. Another essential safeguard is multifactor authentication, or requiring users to present two pieces, or factors, that show their identity before they can access a system.

Find Partners or Platforms
The very largest companies may have the resources they’ll need to manage the evolving global logistics environment by themselves. Many other organizations will need to work with partners and/or platforms to achieve the benefits of scale, says Prologis’ McLaughlin.

Global Trade Management Solutions

Technology tools can help shippers tackle the challenges of global logistics operations. Here are a few of the many available solutions.

Descartes: Datamyne™ is a searchable trade database that provides real-time access to import and export information from customs authorities and trade ministries across 230 markets.

e2open: Features on e2open’s global trade management software include due diligence screening, the ability to automate export compliance and import management, as well as a database of government trade regulations.

ImportKey: The AI-driven algorithm leverages global and U.S. import and export data, as well as U.S. customs data and records, to identify top products, sellers, and buyers for given time periods.

Oracle Global Trade Management: This solution allows companies of any size and in all geographies to centrally manage global trade operations and to optimize, automate, and monitor cross-border transactions from a unified trade and transportation platform.

PartnerLinQ: This supply chain platform integrates with more than 70 TMS, WMS, and ERP systems using industry best practices, common workflows, and data structures.

SAP Global Trade Services: This platform integrates trade services across the entire enterprise and automates and streamlines trade processes.

Trademo: This solution connects billions of supply chain data points and leverages software to provide organizations visibility into their global supply chain networks.

Zonos: The platform provides a range of cross-border solutions, like Landed Cost, which offers the ability to show guaranteed duty, tax, and carrier fee calculations on all orders.

]]> Cross-border tensions, environmental concerns, advancing technology, and related worries about cybersecurity are among the forces shaping today’s global supply chain and logistics operations. Moreover, a return to normal—say, the years before the pandemic—appears unlikely.

Every year lately, “a big unknown” has impacted supply chains, says Leo Qvarnström, director, Sea-Air Logistics and air sustainability, North America with Kuehne+Nagel, a provider of logistics services. Recent examples include the war in Ukraine, the ecommerce boom, and the current conflict in the Red Sea.

The acronym VUCA, which has its roots in the military and stands for volatility, uncertainty, complexity, and ambiguity, is now being used to describe the world of commerce, says Tom Goldsby, executive director of the Global Supply Chain Institute at the University of Tennessee, Knoxville. Supply chain and logistics professionals can gain an edge by understanding the trends and shifts contributing to the current global logistics environment.

Geopolitical Upheaval

In addition to exacting a human cost, conflict impacts supply chain and logistics operations. For instance, Red Sea attacks are forcing more shipments around the horn of Africa, lengthening cycle times and driving up fuel costs and carbon emissions, says Ted Stank, co-executive director, with Tom Goldsby, of the Global Supply Chain Institute.

Between November 2023 and February 2024, container leasing rates on the China-to-U.S. trade route more than doubled, finds Container Xchange, an online container logistics platform.

Challenges in the Red Sea will even indirectly impact shippers whose cargo doesn’t travel this route, says Robin Knopf, global head of Sea-Air Logistics with Kuehne+Nagel. The reason? As carriers move to avoid the Red Sea, they create disruptions or container shortages along other routes, he adds.

Other trade lanes are also at risk, says the Boston Consulting Group (BCG). One is the Strait of Hormuz, which accounts for 20 to 30% of oil trade. If Iran is drawn into the conflict in the Middle East, vessels navigating this strait could be at risk.

Another lane, the Strait of Malaca, accounts for 30% of global trade. An ongoing dispute between China and several members of the Association of Southeast Asian Nations (ASEAN) over an area in the South China Sea may impact this strait, BCG says.

Along with rising transit costs, it’s likely that confirming bookings will be more difficult by summer 2024. “Companies will need to plan longer lead times for getting goods to their final destinations,” says Christa Pitts, co-CEO with The Lumistella Company, the firm behind Elf on the Shelf.

China Plus One

To offset rising labor and other costs in China, many companies are employing a “China + One” strategy. “Firms are reducing their concentration in China and adding capacity in Southeast Asia, India, and Mexico,” says Marc Gilbert, managing director and senior partner with BCG.

Countries in Southeast Asia, for instance, currently supply multiple regions of the world, including China and North America, Gilbert says. In India, leadership has taken steps to address corruption and enhanced the country’s ability to move goods around, he adds.

Nearshoring/Reshoring

More North American companies also are looking to locate operations closer to home. In early 2023, Mexico replaced China as the United States’ top trading partner, benefiting from its geographic proximity, strong manufacturing-based economy, skilled workers, and free-trade pacts, reports research firm MSCI.

Along with Mexico, all of Latin America offers strong potential for nearshoring, says Rick Jordon, senior managing director with FTI Consulting. Many companies will still need to rely on supply networks based in Asia. However, as Latin American companies implement new technology, it’s possible they’ll leapfrog ahead of their Asian counterparts.

Regionalization

A major gateway for global cargo shipments, the Oakland Seaport in Northern California serves a local market of more than 14.5 million consumers and 50% of the U.S. population by rail.

Interest in regional supply chains is growing. The idea is to “move away from thinking that we have one manufacturing hub for the whole world,” Stank says. Instead, companies can set up regional supply chains, which tend to be more agile, to support their major markets. If operations are disrupted in one area, other locations can compensate.

Artificial Intelligence

“The biggest impact to the global supply chain will continue to be the use of artificial intelligence (AI),” Pitts says. Among other benefits, AI allows supply chains to maximize efficiency in ways that hadn’t been possible previously, such as maximizing space utilization on a container or a pallet.

“AI allows companies to work smarter,” she adds.

Given ongoing disruptions, supply chain transparency and visibility to the sources of goods will factor in planning. “AI can enhance that power,” says Melinda McLaughlin, global head of research with logistics real estate company Prologis.

One company employing AI in the supply chain is Good360 is a nonprofit that distributes product donations through its network of 100,000+ vetted nonprofit partners.

The company is trying to use AI to help determine if it can efficiently move products where they’re needed after an event occurs, says CEO Romaine Seguin.

For example, Seguin has been working with a donor to determine how Good360 can help in areas impacted by wildfires. “We’re bringing in AI technology for mapping weather and identifying how much damage is in an area and what’s needed, such as water or hygiene products,” she says.

Cybersecurity

As supply chains digitalize, the risk of cyber attacks increases. “It’s the flip side of the digitalization and automation coin,” Stank says. Some chief information officers are even throttling back supply chain initiatives because of cybersecurity concerns, he adds.

A criminal may act as a carrier, broker, or even a customer to break into a system and then try to hijack freight or access customer or employee data. “Any system is open to attack,” warns Nathan Johnson, founder and CEO of transportation consultancy GLCS.

Sustainability

While it’s difficult to pin a single weather event on climate change, the drought at the Panama Canal is capturing the attention of supply chain experts. Drought cycles used to occur once every five years, but now are happening every three years, said Ricaurte Vásquez Morales, administrator of the Panama Canal, in a statement.

Another sign of the emphasis on sustainability is the European Commission’s Carbon Border Adjustment Mechanism. CBAM, which will be phased in between 2023 and 2026, is intended to fairly price the carbon emitted during the production of carbon intensive goods entering the EU.

CBAM will initially apply to some goods whose production is carbon intensive and at most risk of carbon leakage, such as cement, iron, and steel; additional goods will be added.

Navigating Evolving Global Logistics

As global logistics evolves, here’s how shippers can adjust.

Strengthen Agility
Resilience remains essential, but it doesn’t mean trying to create bulletproof supply chains. “There is no such thing as being bulletproof,” says Goldsby of the University of Tennessee. Instead, resilience should take the form of agility, or developing options before they’re needed. Plasticity, or the ability to make rapid structural changes, such as sourcing in new locations, is also necessary, he says.

Understand Geopolitics
Supply chain leaders today need to understand a range of subjects, including geopolitics, economics, and cybersecurity, Goldsby says. “They have to be global citizens and understand that what takes place in, say, Indonesia could very much influence their supply chains and business,” he adds.

Create a Task Force
More than three-quarters of respondents to BDO’s Global Risk Landscape 2023 indicated that the risk landscape is shaped more by connections between risks than individual risk factors. Addressing these connections requires a company-wide focus.

Assemble an enterprise-wide task force to take a control tower view of the supply chain, advises Tony Nuzio, founder and chief executive officer with ICC Logistics Services Inc. It should be cross-functional and include employees from all levels. Employees on the ground might be best suited to identify, for instance, suppliers that are critical to production, even if the company purchases relatively small amounts from them. Task force members can run scenarios and assess how prepared the company is for them, he adds.

Beef Up Cybersecurity
Nearly three-quarters of cyber incidents include a human element, such as an employee clicking a phishing link, according to Infosec, a cyber security training company. Employee education is key to preventing attacks.

“All it takes is one person in the organization to click on something they shouldn’t, and then the entire company is exposed,” says Nathan Johnson from consultancy GLCS. Another essential safeguard is multifactor authentication, or requiring users to present two pieces, or factors, that show their identity before they can access a system.

Find Partners or Platforms
The very largest companies may have the resources they’ll need to manage the evolving global logistics environment by themselves. Many other organizations will need to work with partners and/or platforms to achieve the benefits of scale, says Prologis’ McLaughlin.

Global Trade Management Solutions

Technology tools can help shippers tackle the challenges of global logistics operations. Here are a few of the many available solutions.

Descartes: Datamyne™ is a searchable trade database that provides real-time access to import and export information from customs authorities and trade ministries across 230 markets.

e2open: Features on e2open’s global trade management software include due diligence screening, the ability to automate export compliance and import management, as well as a database of government trade regulations.

ImportKey: The AI-driven algorithm leverages global and U.S. import and export data, as well as U.S. customs data and records, to identify top products, sellers, and buyers for given time periods.

Oracle Global Trade Management: This solution allows companies of any size and in all geographies to centrally manage global trade operations and to optimize, automate, and monitor cross-border transactions from a unified trade and transportation platform.

PartnerLinQ: This supply chain platform integrates with more than 70 TMS, WMS, and ERP systems using industry best practices, common workflows, and data structures.

SAP Global Trade Services: This platform integrates trade services across the entire enterprise and automates and streamlines trade processes.

Trademo: This solution connects billions of supply chain data points and leverages software to provide organizations visibility into their global supply chain networks.

Zonos: The platform provides a range of cross-border solutions, like Landed Cost, which offers the ability to show guaranteed duty, tax, and carrier fee calculations on all orders.

]]> The New Global Supply Chain: The Domino Effect of Geopolitical Tensions between China and the United States https://www.inboundlogistics.com/articles/the-new-global-supply-chain-the-domino-effect-of-geopolitical-tensions-between-china-and-the-united-states/ Fri, 27 Oct 2023 20:27:13 +0000 https://www.inboundlogistics.com/?post_type=articles&p=38378 In the past year, geopolitical tensions between the United States and China have drastically increased, totally shifting global supply chains and how they have been operating for the past decade.

The interest in diversifying options for sourcing parts and materials outside of China has grown significantly; however, the United States and other countries are not yet equipped to pick up the capacity. 

This new manufacturing reality is forcing companies around the world to diversify their supply chains to mitigate disruptions, reduce risk, and increase supply continuity. With geopolitical issues at the root of the problem, we’re experiencing a domino effect on our supply chains.

Below I outline how we got here, where things currently stand, and how companies can best move forward.  

United States and China Geopolitical Issues Intensify

In the past few years, friction between the United States and China has risen. We’ve watched tensions flare as China refused to condemn Russia for the war and humanitarian crisis in Ukraine, and China conducted live-fire drills following the U.S. House Speaker visit to Taiwan in August 2022.

The United States then introduced strict restrictions on exports of U.S.-made chips, followed by President Biden’s first official meeting with China’s leader Xi Jinping taking place in November 2022. 

In early September 2023, U.S. Commerce Secretary Gina Raimondo met with Chinese officials to strengthen U.S .business relations with Beijing while also imposing some of the toughest Chinese trade restrictions in years.

Citing national security as the reason behind the export control, Raimondo reinforced that the United States will not be selling sophisticated chips to China for China’s military use. Despite a positive outlook from this meeting, companies know that tensions are still high, and overreliance on China creates concentrated risk while its own economy is struggling and exports continue to drop.

The Rise of Artificial Intelligence and Chip Shortages

On top of concerns regarding business in China, we’re currently seeing a new surge in the need for computer chips, which U.S. companies have traditionally sourced from China.

Popular tools like ChatGPT call for high-powered graphics processing units (GPUs) to deploy and integrate advanced generative AI models. However, few U.S. companies manufacture GPUs, and leading providers like NVIDIA are working hard to keep up with the current demand and avoid another chip shortage that has the potential to hinder AI innovation and progress. 

By investing in chip manufacturing and requiring federally funded infrastructure to source materials and products from the United States, the United States is taking a positive step in securing its vulnerable chip supply chain. However, this does not mean we’re prepared for a full shift to all manufacturing being “made in America.” 

U.S. Manufacturing Labor Gap 

It has become clear the United States does not yet have the labor and talent necessary to drastically expand our manufacturing capabilities. Just take the Taiwan Semiconductor Manufacturing Co. (TSMC) as an example.

The company announced at the end of 2022 that it would be opening a new factory in Arizona. Come August of 2023 TSMC delayed opening due to a shortage of skilled U.S. workers and is now looking to obtain visas for as many as 500 Taiwanese workers to fill the talent gaps. 

The clear manufacturing and labor gap in the United States is forcing companies to shift their supplier base elsewhere.

A new report presented at the Federal Reserve Bank of Kansas City’s annual conference in August shows a decrease in U.S. imports from China with a corresponding increase in U.S. imports from Vietnam and Mexico between 2017 and 2022.

At the same time to reduce the impact of these changes, Chinese firms have increased their exports and foreign investments in areas like Vietnam and Mexico as well. With this new dynamic, it’s clear Chinese and American supply chains will always be intertwined in some capacity. 

Operating within the New Global Supply Chain 

The end goal for companies shouldn’t be to avoid business with China altogether but rather to diversify their supplier base to increase resilience. The pandemic shed light on the severe concentration risk the United States was facing by over-relying on China for most goods, services, parts, and raw materials.

The heightened geopolitical risks between the United States and China right now are only encouraging companies to de-risk their supply chain footprint and source from around the world if they haven’t already. 

To make this transition, companies need to empower their supply chain and procurement teams with the proper tools powered by advanced technology. Too many teams still rely on outdated, time-consuming manual processes in spreadsheets or traditional tools when it comes to managing supply dynamics, leading to a lack of visibility throughout their supply chains.

By utilizing the advanced technologies available today with AI and automation to contextualize data and operate in real time, procurement teams gain insights to make better, smarter decisions regarding who and where they source from at scale.

While we can’t predict how geopolitical tensions will continue to develop in the immediate or distant future, companies can boost their resiliency and diversify their supply base to ensure they are prepared to navigate any disruptions and maintain a competitive edge.

]]> In the past year, geopolitical tensions between the United States and China have drastically increased, totally shifting global supply chains and how they have been operating for the past decade.

The interest in diversifying options for sourcing parts and materials outside of China has grown significantly; however, the United States and other countries are not yet equipped to pick up the capacity. 

This new manufacturing reality is forcing companies around the world to diversify their supply chains to mitigate disruptions, reduce risk, and increase supply continuity. With geopolitical issues at the root of the problem, we’re experiencing a domino effect on our supply chains.

Below I outline how we got here, where things currently stand, and how companies can best move forward.  

United States and China Geopolitical Issues Intensify

In the past few years, friction between the United States and China has risen. We’ve watched tensions flare as China refused to condemn Russia for the war and humanitarian crisis in Ukraine, and China conducted live-fire drills following the U.S. House Speaker visit to Taiwan in August 2022.

The United States then introduced strict restrictions on exports of U.S.-made chips, followed by President Biden’s first official meeting with China’s leader Xi Jinping taking place in November 2022. 

In early September 2023, U.S. Commerce Secretary Gina Raimondo met with Chinese officials to strengthen U.S .business relations with Beijing while also imposing some of the toughest Chinese trade restrictions in years.

Citing national security as the reason behind the export control, Raimondo reinforced that the United States will not be selling sophisticated chips to China for China’s military use. Despite a positive outlook from this meeting, companies know that tensions are still high, and overreliance on China creates concentrated risk while its own economy is struggling and exports continue to drop.

The Rise of Artificial Intelligence and Chip Shortages

On top of concerns regarding business in China, we’re currently seeing a new surge in the need for computer chips, which U.S. companies have traditionally sourced from China.

Popular tools like ChatGPT call for high-powered graphics processing units (GPUs) to deploy and integrate advanced generative AI models. However, few U.S. companies manufacture GPUs, and leading providers like NVIDIA are working hard to keep up with the current demand and avoid another chip shortage that has the potential to hinder AI innovation and progress. 

By investing in chip manufacturing and requiring federally funded infrastructure to source materials and products from the United States, the United States is taking a positive step in securing its vulnerable chip supply chain. However, this does not mean we’re prepared for a full shift to all manufacturing being “made in America.” 

U.S. Manufacturing Labor Gap 

It has become clear the United States does not yet have the labor and talent necessary to drastically expand our manufacturing capabilities. Just take the Taiwan Semiconductor Manufacturing Co. (TSMC) as an example.

The company announced at the end of 2022 that it would be opening a new factory in Arizona. Come August of 2023 TSMC delayed opening due to a shortage of skilled U.S. workers and is now looking to obtain visas for as many as 500 Taiwanese workers to fill the talent gaps. 

The clear manufacturing and labor gap in the United States is forcing companies to shift their supplier base elsewhere.

A new report presented at the Federal Reserve Bank of Kansas City’s annual conference in August shows a decrease in U.S. imports from China with a corresponding increase in U.S. imports from Vietnam and Mexico between 2017 and 2022.

At the same time to reduce the impact of these changes, Chinese firms have increased their exports and foreign investments in areas like Vietnam and Mexico as well. With this new dynamic, it’s clear Chinese and American supply chains will always be intertwined in some capacity. 

Operating within the New Global Supply Chain 

The end goal for companies shouldn’t be to avoid business with China altogether but rather to diversify their supplier base to increase resilience. The pandemic shed light on the severe concentration risk the United States was facing by over-relying on China for most goods, services, parts, and raw materials.

The heightened geopolitical risks between the United States and China right now are only encouraging companies to de-risk their supply chain footprint and source from around the world if they haven’t already. 

To make this transition, companies need to empower their supply chain and procurement teams with the proper tools powered by advanced technology. Too many teams still rely on outdated, time-consuming manual processes in spreadsheets or traditional tools when it comes to managing supply dynamics, leading to a lack of visibility throughout their supply chains.

By utilizing the advanced technologies available today with AI and automation to contextualize data and operate in real time, procurement teams gain insights to make better, smarter decisions regarding who and where they source from at scale.

While we can’t predict how geopolitical tensions will continue to develop in the immediate or distant future, companies can boost their resiliency and diversify their supply base to ensure they are prepared to navigate any disruptions and maintain a competitive edge.

]]> Taking a Fresh Look at Brazil’s Transportation Sector https://www.inboundlogistics.com/articles/taking-a-fresh-look-at-the-transportation-sector-in-brazil/ https://www.inboundlogistics.com/articles/taking-a-fresh-look-at-the-transportation-sector-in-brazil/#respond Wed, 02 Feb 2022 15:53:25 +0000 https://inboundlogisti.wpengine.com/articles/taking-a-fresh-look-at-the-transportation-sector-in-brazil/ International investors may have had hesitation about moving into new markets amid the myriad changes of the past year. However, as the economy continues to rebound, many are taking a fresh look at one emerging market in particular: Brazil.

Indeed, the Brazilian government has been working to establish new regulations that open doors for foreign investors—from tax and administrative reforms to startup growth initiatives and the overarching privatization of industry sectors in the country. Ultimately, these initiatives have cut the cost of doing business in Brazil by USD $77.3 billion, with expectations to hit USD $1 trillion in 2022.

Brazil is also continuing to introduce a series of attractive new projects and concessions for investors, whether that means developing new runways at airports, expanding national parks, or bringing sanitation and clean water to every Brazilian. These projects will bring jobs, technology, and trade to the country.

Some of the most compelling examples of change and positive momentum in Brazil are in the transportation sector specifically. Consider that between 2019 and 2021—during the pandemic—Brazil auctioned 29 leased terminals, 34 airports, 5 highways, and 6 railways, totaling USD $13.26 billion in investments. Here are three key highlights foreign investors should be aware of when considering transportation investments in Brazil:

Ports

Over the past several years, Brazil has pushed to privatize many projects previously held by the government to stimulate competition and reduce bureaucracy in the transportation sector. Ports are a key area of focus for Brazil right now—in fact, over the coming year, 18 projects will be presented to foreign investors, including terminal leases, concessions, and privatizations.

The largest upcoming port auction will be the Port of Santos. Throughout 2022, investors will have the opportunity to bid on several different terminals at the Santos port—such as the lease of an existing terminal for the handling of fertilizers and sulfates, as well as construction of a new terminal for the export of grains and sugar—expected to draw a total of USD $1.56 billion into Brazil.

Railways

Railways are key to expanding Brazil’s agricultural frontier, which is already a strength for the country on the global stage. Just consider that more than 70% of the Mato Grosso harvest is transported through the Santos and Paranagua ports—more than 2,000 km away from where it is grown.

However, the new Ferrogrão Railroad will change this by connecting the gain-producing region of Midwest Brazil to the nearby Port of Miritiuba—enabling agricultural exports to be more easily and efficiently shipped around the world. In total, this railroad alone is expected to drive capital expenditures (CapEx) of USD $1.68 billion in investments.

Of course, important railway projects like these are supported by Brazilian government’s continued efforts to drive investment. For example, Brazil’s recent Liberalization Act has attracted USD $20 billion in new railway lines.

Highways

The Brazilian government has also started restructuring the investment process in the highway sector, helping to promote better risk sharing and a stronger incentive framework. This new concession design will also privatize highways previously held by the federal government, opening up 30,000 km of highway for private investment.

One project in this sector that has many foreign investors excited is the Integrated Highway of Paraná. This 3,328-km-long highway is one of the largest concessions deals in Brazil, and is expected to generate investments around USD $8.68 billion after being auctioned in Q2 2022.

Transportation is just one sector in Brazil that is ripe for investment—yet these opportunities alone truly illustrate the depth of Brazil’s pipeline. Amid positive government reforms, the conditions for doing business in Brazil have never been more attractive, making Brazil a win-win for foreign investors considering new markets.

]]> International investors may have had hesitation about moving into new markets amid the myriad changes of the past year. However, as the economy continues to rebound, many are taking a fresh look at one emerging market in particular: Brazil.

Indeed, the Brazilian government has been working to establish new regulations that open doors for foreign investors—from tax and administrative reforms to startup growth initiatives and the overarching privatization of industry sectors in the country. Ultimately, these initiatives have cut the cost of doing business in Brazil by USD $77.3 billion, with expectations to hit USD $1 trillion in 2022.

Brazil is also continuing to introduce a series of attractive new projects and concessions for investors, whether that means developing new runways at airports, expanding national parks, or bringing sanitation and clean water to every Brazilian. These projects will bring jobs, technology, and trade to the country.

Some of the most compelling examples of change and positive momentum in Brazil are in the transportation sector specifically. Consider that between 2019 and 2021—during the pandemic—Brazil auctioned 29 leased terminals, 34 airports, 5 highways, and 6 railways, totaling USD $13.26 billion in investments. Here are three key highlights foreign investors should be aware of when considering transportation investments in Brazil:

Ports

Over the past several years, Brazil has pushed to privatize many projects previously held by the government to stimulate competition and reduce bureaucracy in the transportation sector. Ports are a key area of focus for Brazil right now—in fact, over the coming year, 18 projects will be presented to foreign investors, including terminal leases, concessions, and privatizations.

The largest upcoming port auction will be the Port of Santos. Throughout 2022, investors will have the opportunity to bid on several different terminals at the Santos port—such as the lease of an existing terminal for the handling of fertilizers and sulfates, as well as construction of a new terminal for the export of grains and sugar—expected to draw a total of USD $1.56 billion into Brazil.

Railways

Railways are key to expanding Brazil’s agricultural frontier, which is already a strength for the country on the global stage. Just consider that more than 70% of the Mato Grosso harvest is transported through the Santos and Paranagua ports—more than 2,000 km away from where it is grown.

However, the new Ferrogrão Railroad will change this by connecting the gain-producing region of Midwest Brazil to the nearby Port of Miritiuba—enabling agricultural exports to be more easily and efficiently shipped around the world. In total, this railroad alone is expected to drive capital expenditures (CapEx) of USD $1.68 billion in investments.

Of course, important railway projects like these are supported by Brazilian government’s continued efforts to drive investment. For example, Brazil’s recent Liberalization Act has attracted USD $20 billion in new railway lines.

Highways

The Brazilian government has also started restructuring the investment process in the highway sector, helping to promote better risk sharing and a stronger incentive framework. This new concession design will also privatize highways previously held by the federal government, opening up 30,000 km of highway for private investment.

One project in this sector that has many foreign investors excited is the Integrated Highway of Paraná. This 3,328-km-long highway is one of the largest concessions deals in Brazil, and is expected to generate investments around USD $8.68 billion after being auctioned in Q2 2022.

Transportation is just one sector in Brazil that is ripe for investment—yet these opportunities alone truly illustrate the depth of Brazil’s pipeline. Amid positive government reforms, the conditions for doing business in Brazil have never been more attractive, making Brazil a win-win for foreign investors considering new markets.

]]> https://www.inboundlogistics.com/articles/taking-a-fresh-look-at-the-transportation-sector-in-brazil/feed/ 0 How Manufacturers Can Navigate Global Supply Chain Upheaval https://www.inboundlogistics.com/articles/how-manufacturers-can-navigate-global-supply-chain-upheaval/ Tue, 01 Feb 2022 15:18:06 +0000 https://inboundlogisti.wpengine.com/articles/how-manufacturers-can-navigate-global-supply-chain-upheaval/ Supply chains have been teetering on the brink of downfall for many years from issues such as labor shortages, and the pandemic has only highlighted this problem further. When lockdowns started around the world, many empty shipping containers remained where they were. However, in early summer 2021, many countries loosened restrictions around COVID, unleashing pent-up consumer demand.

Global lead times are now stretching six to nine months out. In the U.S. Census Small Business Pulse survey, held from May 31 to June 6, 2021, 36% of businesses reported delays with domestic suppliers. The problem is exacerbated further due to manufacturers seeing their workforce diminish rapidly and failing to rebuild it to full strength. Additionally, raw materials are taking a lot longer to reach manufacturers, and they are also becoming more expensive, particularly in the electronics industry.

If manufacturers need to make better use of what raw materials they do have, then gathering and analyzing real-time data from sensors on production lines can significantly reduce how much raw material is necessary to get products out the door. This can additionally decrease reliance on the global supply chain if products can be made from existing inventory.

Not only do advanced analytics reduce the supply of materials needed for a factory, but also help to find alternative vendors for materials that are in short supply. Let’s take a closer look at the key impact that these industry 4.0 technologies can have in easing the burden on the global supply chain.

Reducing scrap to better utilize raw materials

To stop the overproduction of scrap and allow more time to be spent on improving the uptime on the production line, manufacturers should rely on intelligent manufacturing. With factories having limited capacity at the moment, they need all the help they can get—smart sensors can track data and produce real-time analysis, allowing workers to identify issues such as poor quality and scrap earlier so the restricted raw materials are harnessed properly.

Communication on inventory status

Manufacturers should aim to use real-time communication for multiple reasons. But in the case of improving supply chain issues, it can allow the tracking of inventory from a number of different vendors if they are connected with the factory with real-time communication channels. Visual Slack messages updating an inventory status are also suited to the remote conditions of a supply chain.

Agent-based modeling

Agent-based modeling, a computational model for simulating the actions and interactions of autonomous agents, is often used to track how different nodes within a network can affect something that doesn’t appear to have any correlation. In the case of a steel company looking into where to source their materials from, agent-based modeling could be used to track who has better supply more effectively.

For example, if supplier A has made X number of shipments in the past few weeks, and supplier B has completed 30% fewer shipments, we can conclude that supplier A has a better inventory level. So, using machine learning tools in this scenario utilizes data over many months to give predictive insights on these future shipment patterns.

Factory managers around the world can use the supply chain upheaval to take a completely fresh look at their supply networks and understand how smart solutions can make them more robust to factors seemingly out of their control. Smart sensors, improved communication channels, and modeling can all enable manufacturers to harness precious raw materials better and utilize the best suppliers.

]]> Supply chains have been teetering on the brink of downfall for many years from issues such as labor shortages, and the pandemic has only highlighted this problem further. When lockdowns started around the world, many empty shipping containers remained where they were. However, in early summer 2021, many countries loosened restrictions around COVID, unleashing pent-up consumer demand.

Global lead times are now stretching six to nine months out. In the U.S. Census Small Business Pulse survey, held from May 31 to June 6, 2021, 36% of businesses reported delays with domestic suppliers. The problem is exacerbated further due to manufacturers seeing their workforce diminish rapidly and failing to rebuild it to full strength. Additionally, raw materials are taking a lot longer to reach manufacturers, and they are also becoming more expensive, particularly in the electronics industry.

If manufacturers need to make better use of what raw materials they do have, then gathering and analyzing real-time data from sensors on production lines can significantly reduce how much raw material is necessary to get products out the door. This can additionally decrease reliance on the global supply chain if products can be made from existing inventory.

Not only do advanced analytics reduce the supply of materials needed for a factory, but also help to find alternative vendors for materials that are in short supply. Let’s take a closer look at the key impact that these industry 4.0 technologies can have in easing the burden on the global supply chain.

Reducing scrap to better utilize raw materials

To stop the overproduction of scrap and allow more time to be spent on improving the uptime on the production line, manufacturers should rely on intelligent manufacturing. With factories having limited capacity at the moment, they need all the help they can get—smart sensors can track data and produce real-time analysis, allowing workers to identify issues such as poor quality and scrap earlier so the restricted raw materials are harnessed properly.

Communication on inventory status

Manufacturers should aim to use real-time communication for multiple reasons. But in the case of improving supply chain issues, it can allow the tracking of inventory from a number of different vendors if they are connected with the factory with real-time communication channels. Visual Slack messages updating an inventory status are also suited to the remote conditions of a supply chain.

Agent-based modeling

Agent-based modeling, a computational model for simulating the actions and interactions of autonomous agents, is often used to track how different nodes within a network can affect something that doesn’t appear to have any correlation. In the case of a steel company looking into where to source their materials from, agent-based modeling could be used to track who has better supply more effectively.

For example, if supplier A has made X number of shipments in the past few weeks, and supplier B has completed 30% fewer shipments, we can conclude that supplier A has a better inventory level. So, using machine learning tools in this scenario utilizes data over many months to give predictive insights on these future shipment patterns.

Factory managers around the world can use the supply chain upheaval to take a completely fresh look at their supply networks and understand how smart solutions can make them more robust to factors seemingly out of their control. Smart sensors, improved communication channels, and modeling can all enable manufacturers to harness precious raw materials better and utilize the best suppliers.

]]> Automating Short-Haul Intermodal with Electrified Overhead Rail https://www.inboundlogistics.com/articles/automating-short-haul-intermodal-with-electrified-overhead-rail/ https://www.inboundlogistics.com/articles/automating-short-haul-intermodal-with-electrified-overhead-rail/#respond Tue, 01 Sep 2020 10:00:00 +0000 https://inboundlogisti.wpengine.com/articles/automating-short-haul-intermodal-with-electrified-overhead-rail/ This can’t and shouldn’t happen to the trillion-dollar logistics sector that is the literal backbone of our economy and global trade network. The productivity, reliability, safety, and security of the global supply chain depend on it.

Here are just some recent incidents that further drive home this vulnerability:

Early in the crisis, when the rest of the world’s economies were still open and waiting for goods, containers were abandoned at Chinese ports because truck drivers and port workers were on lockdown.

Some ports refused to accept vessels coming from virus-stricken countries, while other ports were shut down temporarily after workers tested positive for COVID-19.

So, we learned two things: First, temporary worker shortages are likely and may be prolonged as a lack of testing and tracking continue. Second, these delays and out-of-sync relationships have caused huge cash-flow problems for many factories, shipping lines, and ports.


Wake-Up Call

In many ways, this large-scale disruption is a wake-up call for the entire shipping and intermodal logistics supply chain, and the tipping point for many ports that now see not only the value of increased port automation, but also extending that automation into short-haul intermodal outside their gates.

To address these concerns, EagleRail is producing an overhead, electrified light-rail shuttling system and service—similar to how Amazon warehouses process 60-pound packages, but with 60,000-pound containers.

Automating intermodal short-haul transportation with electrified overhead rail is a huge advancement during normal logistics processes, but even more beneficial when additional workforce and travel restrictions are in place.

An electrified light-rail shuttling system:

  • Removes the dependency on human workers for repetitive, low-paying, and often dangerous drayage runs
  • Allows this short-haul task to run cleanly and efficiently 24/7/365 without tying up local roads
  • Completes the digital and coming blockchain hand-off from ship to port to drayage to long-haul transportation

Additional port and intermodal automation should be planned for to help prevent the next supply chain interruption. Investment dollars should be set aside now for supply chain systems so our economies become active and healthy more quickly after the next global interruption.

]]> This can’t and shouldn’t happen to the trillion-dollar logistics sector that is the literal backbone of our economy and global trade network. The productivity, reliability, safety, and security of the global supply chain depend on it.

Here are just some recent incidents that further drive home this vulnerability:

Early in the crisis, when the rest of the world’s economies were still open and waiting for goods, containers were abandoned at Chinese ports because truck drivers and port workers were on lockdown.

Some ports refused to accept vessels coming from virus-stricken countries, while other ports were shut down temporarily after workers tested positive for COVID-19.

So, we learned two things: First, temporary worker shortages are likely and may be prolonged as a lack of testing and tracking continue. Second, these delays and out-of-sync relationships have caused huge cash-flow problems for many factories, shipping lines, and ports.


Wake-Up Call

In many ways, this large-scale disruption is a wake-up call for the entire shipping and intermodal logistics supply chain, and the tipping point for many ports that now see not only the value of increased port automation, but also extending that automation into short-haul intermodal outside their gates.

To address these concerns, EagleRail is producing an overhead, electrified light-rail shuttling system and service—similar to how Amazon warehouses process 60-pound packages, but with 60,000-pound containers.

Automating intermodal short-haul transportation with electrified overhead rail is a huge advancement during normal logistics processes, but even more beneficial when additional workforce and travel restrictions are in place.

An electrified light-rail shuttling system:

  • Removes the dependency on human workers for repetitive, low-paying, and often dangerous drayage runs
  • Allows this short-haul task to run cleanly and efficiently 24/7/365 without tying up local roads
  • Completes the digital and coming blockchain hand-off from ship to port to drayage to long-haul transportation

Additional port and intermodal automation should be planned for to help prevent the next supply chain interruption. Investment dollars should be set aside now for supply chain systems so our economies become active and healthy more quickly after the next global interruption.

]]> https://www.inboundlogistics.com/articles/automating-short-haul-intermodal-with-electrified-overhead-rail/feed/ 0 Can the New Silk Road Compete with the Maritime Silk Road? https://www.inboundlogistics.com/articles/can-the-new-silk-road-compete-with-the-maritime-silk-road/ https://www.inboundlogistics.com/articles/can-the-new-silk-road-compete-with-the-maritime-silk-road/#respond Wed, 11 Mar 2020 10:00:00 +0000 https://inboundlogisti.wpengine.com/articles/can-the-new-silk-road-compete-with-the-maritime-silk-road/ As with most narratives, it is worth taking a critical look at the facts pertaining to certain logistical aspects of the Belt and Road Initiative (BRI), as the New Silk Road is officially known.

First, consider the overland connection between China and Europe: the possibility of bringing Chinese consumer goods to the United States on the east-west route via rail. This transcontinental route was not the brainchild of China’s President Xi Jinping, who made the BRI a national doctrine in 2013.

In fact, goods have been rolling along the Trans-Siberian route from China to Europe since 1973 (with some interruptions due to the Cold War). Today, there are two routes out of Northern China, which head via Mongolia, Kazakhstan, and Russia to terminal stations such as Duisburg’s Inner Harbor or Hamburg.

China’s western region, home to the megacity of Chongqing and its 30 million people, is also connected to the northern routes. Using this route, cargo from the west no longer needs to be transported the many miles to China’s coasts.

High Costs of Rail Freight versus Ocean Freight

How significant are these rail links for logistics between Asia and Europe? In 2017, 2,400 trains moved about 145,000 standard containers between China and Central Europe. This corresponds roughly to the cargo of seven large container ships. The International Union of Railways expects this to grow to 670,000 standard containers—equivalent to 33 container ships—in 10 years.

Despite this forecast growth, the existing rail links between China and Europe are likely to remain logistical mini-niches. “Compared to sea freight, the volume of goods transported to Europe overland will always remain small,” says Steve Saxon, a logistics expert from McKinsey in Shanghai.

This is primarily a matter of cost. Transporting a standard container between Shanghai and Duisburg by rail costs between US$4,500 and US$6,700; compare that to the cost of sending a similar container from Shanghai to Hamburg by ship—currently around US$1,700.

This difference is simply too great for railway transport to be truly competitive against ocean transport, even though cargo moves at about twice the speed. Efficiency improvements will not have a big enough impact to shift from ocean transport to rail.

Another factor is that, at the moment, China heavily subsidizes these international rail connections. Once that support ends in 2021, competitiveness will erode further. It is not clear whether rail transport will be self-sustaining without subsidies.

Also, in most cases, anyone needing a shipment quickly and flexibly typically sends it via air freight, even if this option costs around 80% more than shipping via railway. Thus, freight transport by rail is, and will remain, caught between economic (ocean) and fast (air).

Would More Train Routes Change the Situation?

China is planning an additional railway line in its southern region, which will move cargo to Europe via Central Asian countries, as well as Iran and Turkey, bypassing Russia entirely.

Indeed, a railway line has connected China with Iran since 2018. This route is geographically similar to the “old” Silk Road, a trade route for camel caravans that crossed Central Asia on their way to the eastern Mediterranean.

If this railway line is completed one day, it will raise a number of questions from a European perspective:

  • How can safety, punctuality, and reliability be guaranteed?
  • How can delays caused by customs clearance be minimized?
  • What effect will international sanctions have, for example, on transit through Iran?
  • How can the misuse of containers for smuggling immigrants be avoided?

The bottom line is many issues need to be addressed before a railway corridor south of Russia can be established.

There are two more routes in China’s BRI strategy. One is in Southeast Asia: a 2,400-mile railway line from Kunming to Singapore plus a branch to Calcutta. The other is a rail line that starts in China’s far west, then runs through Pakistan to the port of Gwadar on the Arabian Sea. Crossing over various passes in Central Asia, this technically challenging project is expected to cost US$62 billion. However, both routes have only an indirect connection to freight traffic between China and Europe.

So the situation will remain much the same into the future—some 90% of world trade will go by ship. Rail transport via the New Silk Road will not change this. If all this freight suddenly started rolling along the Silk Road, the route would be like an endless conveyor belt loop—the idea is absurd.

What About the Maritime Silk Road?

More important than Eurasian railway routes is the so-called Maritime Silk Road, i.e., the transport of cargo from China to Europe by sea. As soon as Portuguese sailors opened up China for trade by sea in 1514, the old Silk Road began to fade from memory.

Today, more than 50% of global trade takes place on the Maritime Silk Road between China/East Asia and Europe. The world’s largest container ports are on this route: Shanghai, Singapore, Shenzhen, Ningbo-Zhoushan, Busan, and Hong Kong. The development of the Maritime Silk Road needed no Chinese master plan; logistics infrastructure arises wherever corresponding investments pay off.

China has numerous plans for these established shipping routes, including port expansions. Its shareholdings in around 80 port companies—including Piraeus and more recently Genoa and Trieste—support its plans and ensure investments.

Why should we take issue with China for pursuing these goals leveraging its position as a leading global economic power? It is not the first country to promote its economic interests with direct investments and financing. Europe, too, should pursue a strategy of developing an enhanced infrastructure to transport freight to and from China/Southeast Asia to ensure a reciprocal exchange.

And China’s plan to step up use of the maritime corridor through the Suez Canal, which shortens transport between China and Central Europe by at least four days compared to the route around Africa, is reasonable and less complicated. Ferdinand de Lesseps completed the Suez Canal in 1869 with precisely this goal in mind.

A Dose of Reality

Nobody denies that the diverse projects of the New Silk Road hold great economic potential; that they would improve the network of connections between Asia and Europe; and that Beijing has a geopolitical interest in pursuing them. China is creating an enhanced infrastructure that will benefit all participants in the global economy.

Nevertheless, it is advisable to evaluate the logistical opportunities with the necessary dose of reality. I would caution against being dazzled by the beautiful visions and the fascinating narrative, as it could cloud your vision and lead to using poor judgment and making risky investments.

]]> As with most narratives, it is worth taking a critical look at the facts pertaining to certain logistical aspects of the Belt and Road Initiative (BRI), as the New Silk Road is officially known.

First, consider the overland connection between China and Europe: the possibility of bringing Chinese consumer goods to the United States on the east-west route via rail. This transcontinental route was not the brainchild of China’s President Xi Jinping, who made the BRI a national doctrine in 2013.

In fact, goods have been rolling along the Trans-Siberian route from China to Europe since 1973 (with some interruptions due to the Cold War). Today, there are two routes out of Northern China, which head via Mongolia, Kazakhstan, and Russia to terminal stations such as Duisburg’s Inner Harbor or Hamburg.

China’s western region, home to the megacity of Chongqing and its 30 million people, is also connected to the northern routes. Using this route, cargo from the west no longer needs to be transported the many miles to China’s coasts.

High Costs of Rail Freight versus Ocean Freight

How significant are these rail links for logistics between Asia and Europe? In 2017, 2,400 trains moved about 145,000 standard containers between China and Central Europe. This corresponds roughly to the cargo of seven large container ships. The International Union of Railways expects this to grow to 670,000 standard containers—equivalent to 33 container ships—in 10 years.

Despite this forecast growth, the existing rail links between China and Europe are likely to remain logistical mini-niches. “Compared to sea freight, the volume of goods transported to Europe overland will always remain small,” says Steve Saxon, a logistics expert from McKinsey in Shanghai.

This is primarily a matter of cost. Transporting a standard container between Shanghai and Duisburg by rail costs between US$4,500 and US$6,700; compare that to the cost of sending a similar container from Shanghai to Hamburg by ship—currently around US$1,700.

This difference is simply too great for railway transport to be truly competitive against ocean transport, even though cargo moves at about twice the speed. Efficiency improvements will not have a big enough impact to shift from ocean transport to rail.

Another factor is that, at the moment, China heavily subsidizes these international rail connections. Once that support ends in 2021, competitiveness will erode further. It is not clear whether rail transport will be self-sustaining without subsidies.

Also, in most cases, anyone needing a shipment quickly and flexibly typically sends it via air freight, even if this option costs around 80% more than shipping via railway. Thus, freight transport by rail is, and will remain, caught between economic (ocean) and fast (air).

Would More Train Routes Change the Situation?

China is planning an additional railway line in its southern region, which will move cargo to Europe via Central Asian countries, as well as Iran and Turkey, bypassing Russia entirely.

Indeed, a railway line has connected China with Iran since 2018. This route is geographically similar to the “old” Silk Road, a trade route for camel caravans that crossed Central Asia on their way to the eastern Mediterranean.

If this railway line is completed one day, it will raise a number of questions from a European perspective:

  • How can safety, punctuality, and reliability be guaranteed?
  • How can delays caused by customs clearance be minimized?
  • What effect will international sanctions have, for example, on transit through Iran?
  • How can the misuse of containers for smuggling immigrants be avoided?

The bottom line is many issues need to be addressed before a railway corridor south of Russia can be established.

There are two more routes in China’s BRI strategy. One is in Southeast Asia: a 2,400-mile railway line from Kunming to Singapore plus a branch to Calcutta. The other is a rail line that starts in China’s far west, then runs through Pakistan to the port of Gwadar on the Arabian Sea. Crossing over various passes in Central Asia, this technically challenging project is expected to cost US$62 billion. However, both routes have only an indirect connection to freight traffic between China and Europe.

So the situation will remain much the same into the future—some 90% of world trade will go by ship. Rail transport via the New Silk Road will not change this. If all this freight suddenly started rolling along the Silk Road, the route would be like an endless conveyor belt loop—the idea is absurd.

What About the Maritime Silk Road?

More important than Eurasian railway routes is the so-called Maritime Silk Road, i.e., the transport of cargo from China to Europe by sea. As soon as Portuguese sailors opened up China for trade by sea in 1514, the old Silk Road began to fade from memory.

Today, more than 50% of global trade takes place on the Maritime Silk Road between China/East Asia and Europe. The world’s largest container ports are on this route: Shanghai, Singapore, Shenzhen, Ningbo-Zhoushan, Busan, and Hong Kong. The development of the Maritime Silk Road needed no Chinese master plan; logistics infrastructure arises wherever corresponding investments pay off.

China has numerous plans for these established shipping routes, including port expansions. Its shareholdings in around 80 port companies—including Piraeus and more recently Genoa and Trieste—support its plans and ensure investments.

Why should we take issue with China for pursuing these goals leveraging its position as a leading global economic power? It is not the first country to promote its economic interests with direct investments and financing. Europe, too, should pursue a strategy of developing an enhanced infrastructure to transport freight to and from China/Southeast Asia to ensure a reciprocal exchange.

And China’s plan to step up use of the maritime corridor through the Suez Canal, which shortens transport between China and Central Europe by at least four days compared to the route around Africa, is reasonable and less complicated. Ferdinand de Lesseps completed the Suez Canal in 1869 with precisely this goal in mind.

A Dose of Reality

Nobody denies that the diverse projects of the New Silk Road hold great economic potential; that they would improve the network of connections between Asia and Europe; and that Beijing has a geopolitical interest in pursuing them. China is creating an enhanced infrastructure that will benefit all participants in the global economy.

Nevertheless, it is advisable to evaluate the logistical opportunities with the necessary dose of reality. I would caution against being dazzled by the beautiful visions and the fascinating narrative, as it could cloud your vision and lead to using poor judgment and making risky investments.

]]> https://www.inboundlogistics.com/articles/can-the-new-silk-road-compete-with-the-maritime-silk-road/feed/ 0 Using FTZs to Treat Pharma Challenges https://www.inboundlogistics.com/articles/using-ftzs-to-treat-pharma-challenges/ https://www.inboundlogistics.com/articles/using-ftzs-to-treat-pharma-challenges/#respond Fri, 01 Mar 2019 10:00:00 +0000 https://inboundlogisti.wpengine.com/articles/using-ftzs-to-treat-pharma-challenges/ Every day, pharmaceutical manufacturers navigate complicated regulations while managing costs and reducing risk. Foreign trade zones (FTZs) can help, but only if manufacturers understand what they are, their potential benefits, and how to best use them.

FTZs—areas in or next to U.S. ports of entry under the control of Customs and Border Protection (CBP) but considered outside CBP territory—are designed to remove certain disincentives associated with manufacturing in the United States. But they can also offer advantages to international manufacturers before their products enter U.S. commerce.

Formal CBP entry procedures and duty payments are only required once a product enters CBP territory for domestic consumption. FTZs allow products to move in or out of these designated areas for storage, assembly, manufacturing, and processing, without actually entering U.S. commerce, although they are on U.S. soil. In pharma, this practice has many benefits, such as allowing drug makers to defer duties and manage costs until their products enter U.S. commerce.


Pharma manufacturers with any imported products, whether raw materials, active pharmaceutical ingredients, or finished drug products, should evaluate the benefits of FTZs and consider a strategy that effectively leverages them.

Additional Benefits

FTZs can also minimize risk and expedite a pharma manufacturer’s entry into the United States, pending FDA approval. The U.S. FDA approval process often takes one year or more to complete. FTZs allow manufacturers to store treatments for inventory, warehousing, re-labeling, repackaging, and exporting to other countries in the meantime. Once approved, treatments can be immediately released from the FTZ, increasing delivery speed and enhancing patient access.

Once a product has launched and requires reoccurring U.S. shipments, CBP has implemented the weekly entry filing (WEF) program, which allows customs brokers to submit an estimate of the product that will be withdrawn from the FTZ and offered for consumption into the United States during the subsequent seven days. This program is designed for repetitive, high-volume entries of low-risk products, including some FDA-regulated drugs.

After the FDA approves the process, products would no longer require additional sampling or examination. These programs enable manufacturers to get their therapies quickly and efficiently to the patients who need them.

How a 3PL Can Help

FTZs offer tangible benefits but they require a thoughtful approach and resources to manage. As a result, some manufacturers work with a third-party logistics (3PL) partner that operates an FTZ and can help leverage an FTZ strategy and assist with storage, receiving, and fulfilling orders.

Using an FTZ and 3PL can defer costs, speed delivery, and increase efficiencies. But the most important benefit, in pharma, is to get treatments to patients faster.

]]> Every day, pharmaceutical manufacturers navigate complicated regulations while managing costs and reducing risk. Foreign trade zones (FTZs) can help, but only if manufacturers understand what they are, their potential benefits, and how to best use them.

FTZs—areas in or next to U.S. ports of entry under the control of Customs and Border Protection (CBP) but considered outside CBP territory—are designed to remove certain disincentives associated with manufacturing in the United States. But they can also offer advantages to international manufacturers before their products enter U.S. commerce.

Formal CBP entry procedures and duty payments are only required once a product enters CBP territory for domestic consumption. FTZs allow products to move in or out of these designated areas for storage, assembly, manufacturing, and processing, without actually entering U.S. commerce, although they are on U.S. soil. In pharma, this practice has many benefits, such as allowing drug makers to defer duties and manage costs until their products enter U.S. commerce.


Pharma manufacturers with any imported products, whether raw materials, active pharmaceutical ingredients, or finished drug products, should evaluate the benefits of FTZs and consider a strategy that effectively leverages them.

Additional Benefits

FTZs can also minimize risk and expedite a pharma manufacturer’s entry into the United States, pending FDA approval. The U.S. FDA approval process often takes one year or more to complete. FTZs allow manufacturers to store treatments for inventory, warehousing, re-labeling, repackaging, and exporting to other countries in the meantime. Once approved, treatments can be immediately released from the FTZ, increasing delivery speed and enhancing patient access.

Once a product has launched and requires reoccurring U.S. shipments, CBP has implemented the weekly entry filing (WEF) program, which allows customs brokers to submit an estimate of the product that will be withdrawn from the FTZ and offered for consumption into the United States during the subsequent seven days. This program is designed for repetitive, high-volume entries of low-risk products, including some FDA-regulated drugs.

After the FDA approves the process, products would no longer require additional sampling or examination. These programs enable manufacturers to get their therapies quickly and efficiently to the patients who need them.

How a 3PL Can Help

FTZs offer tangible benefits but they require a thoughtful approach and resources to manage. As a result, some manufacturers work with a third-party logistics (3PL) partner that operates an FTZ and can help leverage an FTZ strategy and assist with storage, receiving, and fulfilling orders.

Using an FTZ and 3PL can defer costs, speed delivery, and increase efficiencies. But the most important benefit, in pharma, is to get treatments to patients faster.

]]> https://www.inboundlogistics.com/articles/using-ftzs-to-treat-pharma-challenges/feed/ 0