Big-box retailers looking to keep a lid on inventory and related costs will increasingly turn to transloading near major seaports. That’s the message from Robert Leachman, a professor of industrial engineering and operations research who analyzes supply chain logistics.
In a presentation to the California Leadership Symposium in Sacramento, Leachman said the transloading of Asian imports from 40-foot marine containers to 53-foot domestic containers in Southern California, and at other major gateways, alreasdy is increasing.
The University of California-Berkeley professor, known in the maritime industry for two “elasticity” studies he performed over the past decade on the relationship between port fees and cargo diversion from Los Angeles-Long Beach, said large importers and national retailers utilize three types of logistics strategies when it comes to importing consumer merchandise from Asia.
The “push” strategy is normally applied to low-value merchandise to reduce transportation costs. Importers make their allocation decisions when the product is still in Asia. They ship the containers intact through a U.S. seaport and on to an inland distribution center before they decide the final destination.
Importers utilize a “push-pull” strategy when their goal is to reduce inventory-carrying costs. Consumer merchandise is imported through a major gateway and trucked to a nearby distribution center where it sits until the retailer determines where in its national network the merchandise will end up. The merchandise is often transloaded into domestic containers for the inland move.
Transloading comes at a cost, and transportation costs in the push-pull strategy are usually higher than in the push scenario. Retailers using the push-pull strategy, however, are better able to manage their inventory and reduce inventory-carrying costs by utilizing this strategy. Leachman calls this the power of postponement.
Los Angeles-Long Beach handles about 40 percent of all U.S. imports from Asia, and retailers using the Southern California gateway utilize one or both strategies. Many national retailers also use a four-corners strategy in which they spread their shipments out over the four major gateways for the Asia-U.S. trade: the Pacific Northwest, Los Angeles-Long Beach, the Southeast and New York-New Jersey.
With low wages in China and other Asian countries and near-record-low interest rates in the U.S., consumer goods imported from Asia have broken down into three categories by value: 25 percent low cost, 50 percent medium cost and 25 percent high-value merchandise.
With wages in Asia rising, however, currencies are being revalued and interest rates are bound to increase eventually, Leachman said. He ran a model in which total supply chain costs increased 15 percent, and in that model the low-cost merchandise dropped to 15 percent of total imports from Asia, mid-value merchandise remained at 50 percent and high-cost merchandise increased to 35 percent of imports.
As that scenario develops, retailers will move toward more push-pull shipments in order to reduce inventory costs, and that will result in an increase in transloading near major seaports, Leachman said.