Few professional athletes have done a better job of dispensing outstanding business advice than Wayne Gretzky, who once explained, “I skate to where the puck is going to be, not where it has been.”
In much the same way, site selection professionals cannot afford to assume they’ll meet their companies’ long-term goals merely by focusing their efforts on how their companies’ (and competitors’) goods are getting from point “A” to “B” today. Instead they must look at how those goods are likely to travel tomorrow — and to align their businesses’ locations accordingly.
Along those lines, here’s a look at five of the most notable supply chain trends worth watching in the year ahead, along with some recommended takeaways for how your company can do a better job of staying in front of them.
A Game Changer
There’s no doubt that the long-anticipated $5 billion-plus expansion to the Panama Canal will be a game changer. But how it changes the game is still a matter of debate.
Some say the canal’s expanded ability to carry more massive containerships will create a more level playing field, inspiring more trans-Pacific shippers to bring goods in via East or Gulf Coast ports (especially if goods are destined for eastern U.S. customers). Others caution that only some of these ports will have the necessary channel depth, intermodal connections, and crane automation required to handle these larger vessels as efficiently as West Coast ports by the time the canal is complete — and that a big chunk of the potential savings offered by all-water moves may be offset by the higher tolls the Panama Canal Authority is likely to charge. Just as important, they point out that West Coast ports of entry still have the advantage of offering a wider range of land-based transportation options for shippers once goods arrive. Either way, the expanded Panama Canal will increase the range of viable international shipping routes available to global shippers and could affect the flow of traffic around many ports.
1. Site Selection Takeaway — The Panama Canal Expansion could indeed make many East Coast locations that much more attractive — and intensify the competition for distribution centers near the ports of Miami, Norfolk, Baltimore, and New York-New Jersey because these are the locations that will be “big-ship” ready. However, companies would be wise not to abandon their strategy of having at least one distribution center on the West Coast, too.
Chassis Provisioning Changes
Ever since the birth of containerized shipping, containers and chassis (the wheeled structures required to transfer containers from ships to trucks or trains) have been as inseparable as peas and carrots. And more often than not, ocean carriers have been responsible for facilitating that combination here in the United States.
However, that began to change a few years ago, when Maersk became the first large carrier to remove chassis responsibility from its balance sheet. Since then almost all of the world’s major ocean carriers have embarked on chassis provisioning exits of their own.
Although this has not yet caused disruptions in supply chain service, it has left the shipping industry in a state of flux, because no one has quite determined what the new face of ocean chassis provisioning should look like — or how it ultimately will impact everything from the ultimate size of the U.S. chassis fleet to the chassis use prices shippers will pay.
2. Site Selection Takeaway —Regardless of how the chassis provisioning issue plays out, most experts agree that the new normal will vary from region to region. For example, some regions — like the Northeast — will probably offer a greater supply of neutral-pool- and terminal-pool-supplied chassis, while other regions may be more heavily dominated by co-op chassis pools, which require more of a commitment from participating parties. At the very least, make sure your company considers these regional differences before committing to a new plant or distribution center.
Additionally, the once low priced practice of drop-and-hook (letting shippers leave chassis and containers outside crowded distribution centers for extended periods of time until room can be made for the trailers’ contents) could become far more expensive, fueling the need for slightly larger distribution centers or overflow space.
From a contingency management perspective, few periods were more stressful in the life of the average shipper than the years between 2001 and 2003 — when events ranging from a major terrorist attack to a massive blizzard, a port lockout, and a UPS strike seemed to occur with all-too-alarming regularity — until this year. The recent International Longshoremen’s Association (ILA) strike at two West Coast ports and the very real strikes of hurricanes Isaac and Sandy serve to remind shippers of just how important it is to have a well-designed Plan B. As a result, risk management has once again become the hot topic in many logistics circles — and finding ways to protect supply chains from shocks has become priority number one.
3. Site Selection Takeaway — Even the best-chosen locations cannot completely disaster-proof a company’s supply chain. However, there is no doubt that the number of distribution centers a company operates — and the places where it operates them — can have a decided impact on its ability to execute disruption-minimizing strategies like port diversification, inventory redeployment, expedited ocean shipping, or mode shifting. Evaluate each of your potential locations with this reality in mind.
Emphasis on Small-Increment Shipping
If your company sells any kind of product, it will probably sell considerably more of it online in the coming years. According to Forrester Research, annual U.S. e-commerce sales are well over the $200 billion mark already. More important, they’re expected to increase another 45 percent (to almost $327 billion) by 2016.
As a result, last-mile deliveries are on the rise — as are consumers’ expectations for online deals that include not only lower product prices but also quick delivery times and bargain-basement shipping rates. In fact, Forrester’s U.S. Online Retail Sales Forecast for 2012 found that more than half of online purchasers bought more often from companies that offered free shipping. It also discovered that nearly two thirds of the largest online retailers were using free or reduced-price shipping as a marketing ploy.
The last-mile delivery industry is responding in kind, with companies like Amazon.com experimenting with new methods of self-serve delivery and companies like 3PD recently announcing a “first-to-last-mile” national network that specializes in shipping, installation, and assembly of heavier items.
4. Site Selection Takeaway — Whether your company expects to ship orders from one plant, distribution center, or retail location or 1,000, it will be imperative to establish reliable ways to ship and deliver single orders to virtually any U.S. zip code without incurring too many extra charges. Before you commit to certain locations, check out the typical zone-to-zone charges and average delivery times for your carriers of choice. This is especially true if your company carries heavy goods such as furniture, appliances, electronics, or medical equipment, because many of the most well-known carriers have well-defined limits to the weight and size of the goods they will handle. And some only serve certain areas.
The Resurgence Of Mexico
After nearly a decade of hearing all about the merits of Asia (and particularly China) as one of the world’s most cost-effective manufacturing venues, it may seem like “déjà vu all over again” for many U.S. companies, because according to studies conducted by AlixPartners, it is now Mexico rather than China that is U.S. executives’ top international manufacturing venue of choice.
Their reasons include everything from lower freight costs and better speed-to-market to lower inventory-carrying costs. Plus, Mexico itself has made a number of substantial strides since the early post-NAFTA days. For example, it launched a National Infrastructure Program that facilitated many improvements to its roadways, railways, airports, and seaports, and its supply of modern warehousing facilities has improved dramatically. Additionally, many North American rail carriers have made Mexico-related service improvements of their own; today there are several intermodal corridors available to U.S.-Mexico shippers, making rail transportation a much more viable alternative for cross-border shipping.
5. Site Selection Takeaway — An AlixPartners executive put it best when he said, “Whether it’s in Mexico or the U.S., any company that’s not at least considering alternative manufacturing sources closer to their home market is certainly missing an opportunity.” Companies that are not strongly considering the possibility of having distribution centers in cities that are either near to or within this once-again-hot venue may eventually find themselves behind the power curve.