Commentary: Change in the Air

It’s been a noteworthy summer in this sense: Major, even historic, changes in the global transportation landscape are revealing themselves in emphatic ways. The sense is that a premium is being placed on doing things differently, that 2012 is finally the year companies started to re-engineer their supply chains in response to the post-recession economy.

For example, the shift in apparel, retail, electronics and other shipments to ocean freight from air started as the economy was coming out of recession, but only recently have the numbers and the comments behind them made headlines. Air freight volumes were down 7 percent at DHL, 6 percent at Panalpina and up 1 percent at Kuehne + Nagel in the first half of 2012, while ocean volumes increased 4, 7 and 6 percent at the three global forwarders, respectively.

“We saw volume growth in all areas of our business with the exception of air freight,” Expeditors International CEO Peter Rose said in the company’s second quarter earnings release. C.H. Robinson said in its July 24 earnings call, “We see a lot less tendency to ship via more expensive air mode and more shift toward ocean.”
And The Loadstar, a U.K. logistics blog, recently quoted an industry expert speaking about apparel as saying, “The whole model has changed to sea freight, where air freight used to be the first choice. Whatever they shipped used to be sold as soon as it hit the floor, and the retailers would make their money on the first day stock arrived. But now stocks aren’t selling; it’s much better to have it sitting on a boat, or sitting at the quay. The problem with air freight is that stocks always arrive quickly.”

That air freight has been growing in the Middle East indicates sea-air options that seek to preserve transit times while capturing lower-cost ocean rates are gaining in popularity. Dubai is a major sea-air hub.

The same trends that have shippers seeking slower, cheaper freight options are propelling North American intermodal, as U.S. freight continues a historic shift from over-the-road transport to intermodal (Story, page 24). The increases are impossible to miss: Domestic intermodal volume rose 12.5 percent year-over-year in the second quarter. Although this represented a slight deceleration from the 14.9 percent growth in the first quarter, it was the third straight quarter of double-digit growth — an expansion trend that resembles pre-recession ocean imports.

Change is occurring in other scenarios, specifically in areas seeing movement where there was none previously. Rail in China provides two examples. As the country built some of world’s largest container ports, there was no parallel expansion in the country’s intermodal rail. Containers have ranked well down in the railroad ministry’s priorities — behind passengers, military, disaster relief and bulk cargo, not necessarily in that order.

The huge Yangshan container terminal complex 20 miles off Shanghai’s coast, for example, has no rail connection, requiring lengthy truck moves to and from manufacturing centers in Jiangsu province. But as we’ll report in a special section next week on the Port of Shenzhen, intermodal seems finally to be gaining traction.
The Shenzhen terminals, their growth clipped by the loss of manufacturing in the Pearl River Delta region, are following the interior-bound migration of manufacturing by setting up regular rail service. Fifteen regular services to interior cities including Nanchang, Changsha, Wuhan, Chengdu and Chongqing are operating, said MaYong Zhi, deputy director general of the Shenzhen Transport Commission.

Shenzhen terminal YICT handled 100,000 TEUs in rail movements last year. “We are launching more fixed-time trains to more cities within inland China,” Ma told The Journal of Commerce. Intermodal rail in China will be the topic of a session at the JOC’s 6th Annual TPM Asia conference in Shenzhen on Oct. 17-18 chaired by my colleague Mark Szakonyi.

The other shift concerns China-to-Europe rail, another transportation option that in recent years has received more press than it deserved, but is now starting to win over shippers. As Willy Lin, chairman of the Hong Kong Shippers’ Council, wrote recently, the China-Europe landbridge service “is up and running.”

The cooperation of governments along the route indicates the service has the necessary backing to be successful, he said. “With the start-off point from major cities like Shanghai and Tianjin, the transit time to eastern Europe is about 18 to 21 days with an extra two to three days for moving the cargo to western Europe. These are competitive transit times,” Lin wrote.

“The railway plus multimodal mode of transport could be attractive to air freight shipments too if shipments could accept an extra couple of days, while transit time is still much shorter than the traditional ocean shipping plus overland transport,” he wrote. “Indeed, when the European Commission carbon credit scheme comes into place, utilizing land services could translate into immense savings on the purchase of carbon credits.”

Changes aren’t just coming. They’re already here.

Peter Tirschwell is senior vice president of strategy at UBM Global Trade. Contact him at ptirschwell@joc.com, and follow him at twitter.com/PeterTirschwell.
 

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