Global Logistics-March 2009

Distant are the days when Thomas Jefferson’s fledgling U.S. government launched a series of covert operations to chase North African pirates back to their Barbary Coast hideaways in an effort to protect maritime trade. Today, piracy is the common term for downloading music or videos without paying copyright fees. But a brash new breed of modern-day buccaneers is laying siege on global container fleets, and shippers are beginning to pay a hefty bounty.

Over the past year the frequency of pirate attacks, particularly in Africa and Southeast Asia, has spiked considerably. The International Maritime Bureau reported 293 piracy incidents in 2008, an increase of 11 percent from the year before. Pirates made an estimated US $30 million hijacking ships for ransom last year, seizing more than 40 vessels off Somalia’s 1,880-mile coastline. Concerns over pillaged profits are forcing global ocean carriers to introduce piracy surcharges to offset potential losses and subsidize ongoing efforts to secure trade.

In January 2009, French container shipping company CMA CGM imposed a US $23-per-TEU surcharge on movements across the Gulf of Aden due to the risk of piracy in the region. The tariff covers insurance and other security costs of transiting through the prime shipping trade route. CMA CGM has adopted security measures such as maintaining a high vessel speed while crossing the Gulf of Aden and moving in convoys guarded by coalition warships.

United Arab Shipping Co. has taken a similar tack, announcing in February a US $22-per-TEU charge for containers moving through the Gulf of Aden.

Elsewhere around the world, maritime agencies and academies, governments, and carriers are outlining plans to quell this latest shipping insurgency. The Massachusetts Maritime Academy, California Maritime Academy, and The Maine Maritime Academy all offer training to merchant seamen on tactics for avoiding and confronting pirates at sea.

Japan’s defense ministry recently ordered the dispatch of ships to fight pirates off the shores of Somalia, joining countries that have taken similar action, including the United States, Iran, Russia, France, Britain, and China.

As container volumes in the Asia-Europe trade increase, and the Suez Canal’s prominence among Asia-U.S. East Coast importers also grows, piracy and the associated costs of protecting container shipments remains a potential, and often unaccounted, threat to economy and efficiency.

Chinese E-tailer Discounts for Success

In the face of a global economic crisis and in the wake of a middle-class boom, one Chinese e-tailer is merging two U.S. phenomena≠bulk discount outlets and department stores≠to lure consumers for the long haul.

Seizing an opportunity to build a domestic client base as export demand drops, dazhe.cn, an online discount department store, is selling high-cost inventories quickly and cheaply to expand brand awareness of its products and its company.

In China, bulk and durable goods expenditures, such as houses and cars, are falling sharply, while sales for daily, general merchandise have risen. Whenever there is a discount, bargain hunters buy more instead of less.

Also, as demand for Chinese-manufactured exports drops, U.S. and other foreign enterprises facing their own difficulties selling domestically are placing more focus on China’s consuming population as a growth market.

For example, on dazhe.cn, L’Orèal cosmetics are selling at 90-percent discounts and Nike sports bags are half-price. The e-tailer’s goal is to become the industry leader when the economy recovers, then take its online discount department store global.

Saudi Companies Sensitive to Outsourcing

Is Saudi Arabia’s supply chain strategy out of synch with the rest of the world’s practices? A recent survey says yes.

Highlighting the disparities between the nation’s supply chain objectives and practices, the Saudi Arabian Supply Chain Intelligence Report indicates that while improving service levels is a top priority for companies, the strategies they are implementing to achieve this goal need refinement in order to optimize performance and ensure long-term success.

Rapid growth in the supply chain and logistics segment in Saudi Arabia has seen companies increasingly challenged by several factors, including growing complexity, variation in customer demand, and increased supply chain volumes. Failure to adopt the correct supply chain strategy to deal with such challenges can threaten a company’s sustainability because quality and service levels are threatened.

The survey, commissioned by logistics service provider Hala Supply Chain Services, also draws the following conclusions:

• Increasing volumes and complexity, varied customer needs, and supply chain staff skill levels are among the major challenges Saudi Arabian companies face. However, the current strategies they are using to handle and mitigate these problems do not follow international trends that have proven to yield positive results.
• Companies in Saudi Arabia are accustomed to a do-it-yourself supply chain strategy, an approach in which supply chain improvement projects are internally managed. The low rate of success in these endeavors is not surprising because staff skills and capabilities were identified as a challenge.
• Transport functions, primarily outbound, tend to be the only processes Saudi Arabian companies consistently outsource. This insular approach can cripple service levels because it significantly reduces available regional and global resources.
• Collaboration often takes place only at the supplier level. International best practices have shown that upstream and downstream collaboration is essential to successfully deal with challenges such as planning, forecasting, and coping with increased volumes.

Supply Chain Haute Couture

Demand-driven apparel manufacturers and retailers flaunt chic logistics on and off the runway. DHL Global Forwarding is tailoring its resources to help the global fashion industry put its best foot forward with the launch of its Fashion & Apparel Center of Excellence in India.

As manufacturing moves to lower-cost countries, supply chains in the fashion industry have become more extended and complex, increasing trade and legal demands such as import controls, quotas, and tariffs.

In South Asia, the fashion and apparel logistics industry is estimated to be worth US $3.9 billion per year, with India, Pakistan, Bangladesh, and Sri Lanka alone accounting for US $2.4 billion. The DHL Fashion & Apparel Center for Excellence, which will comprise a core team of industry professionals trained by fashion experts in Europe and North America, is looking to capitalize on this booming niche.

DHL’s services cover the fashion industry’s entire logistics value chain—from materials purchasing and sampling, to manufacturing quality control and direct delivery to international fashion boutiques.

The center will develop customized solutions at origin and enable companies to better manage the product flow farther upstream in their supply chain. It will also dedicate significant resources to introducing a range of IT solutions that enhance visibility, reporting, and exception management.

DHL will oversee the application of best practices and processes that enable prompt and proactive management of supply chain issues that fashion and apparel companies routinely confront.

• Apparel and footwear is the largest air and ocean freight export commodity group from South Asia to Europe, accounting for more than 16 percent of total airfreight export volumes, and 13 percent of total ocean export volumes in 2008.
• India-Germany is the top airfreight export trade lane for South Asia, with apparel and footwear accounting for 33 percent of total airfreight exports in 2008.
• Vietnam-Germany is the top ocean export trade lane for South Asia, with apparel and footwear accounting for 28 percent of total ocean exports in 2008.