Logistics and Globalisation - An Inside View

Logistics and Globalisation - An inside view

Globalisation

The world is changing. Last year, more than 50% of the growth of the global economy came from 'developing' countries. We are all well aware that the powerhouse that is China has been growing from strength to strength, and with India poised to eclipse China in the next few decades the manufacturing base is well and truly settled in the East.



The graph above demonstrates the incredible growth in GDP in India and China in comparison to the G7 countries combined growth.

This change in the global economy over the last 30 years has had a profound effect, and will continue to do so. When we look closer to home, we can see the decline of the UK manufacturing Industry. The second graph shows the extent of this decline over recent years:



There have been, and will continue to be debates about the effect of globalisation overall, but whatever your view - Globalisation is here to stay.

Jack Walsh, the CEO of General Electric once said: "An organization's ability to learn, and translate that learning into action rapidly, is the ultimate competitive advantage" and that sums up the current situation in the UK.

For those companies that are willing to look at the future and to embrace the changes, the rewards are substantial.

The Logistics Industry

The seismic shift from being the world's greatest exporter to one of the largest importers has had an effect on all industries, especially the Logistics sector. Even 10-15 years ago companies dealing in international Logistics and Transportation could easily afford to become niche players as either an 'import specialist' or an 'export specialist.' This is not so easy in the current climate, as companies are required to be more flexible in dealing with the customers' requirements, and specialist companies have given way to a 'one stop shop' approach that can be seen with the major third-party logistics companies (3PLs) and even amongst smaller operators.

This one stop shop approach has led to a number of high profile mergers and acquisitions involving major logistics names such as DHL, Exel, Kuehne and Nagel, ACR (formerly Hays) Wincanton and P & O. Deutsche Post, the German post office, has acquired companies across the logistics spectrum, including Danzas (Freight Forwarding) Air Express International (air freight), DHL (Express deliveries), Exel and Nedlloyd Districenters (Contract logistics) to enable them to provide a comprehensive portfolio of logistics services including purchasing stock on behalf of their clients.

The requirement for warehousing is also likely to be on the increase as lead times for stock become longer and companies strive to meet customer demands. This is a paradigm shift from the utopian position of Just in Time concepts of the 1980s and 1990s.

Pressure on margins as a result of overseas manufacturers entering the market has meant that any UK manufacturers have had no alternative but to drive costs down, and transportation is often the first area that companies look at to reduce costs.

The trade imbalance has also had an effect on the viability of specialising in export logistics. A combination of the huge volumes coming inbound, and the advent of the new 'super-vessels' has meant that shipping lines are desperate to get containers re-positioned. The same is true of European transport. The influx of European hauliers carrying goods into the UK has meant that a great number of these trailers go back empty. The result is that you can pay as little as £250 for a full trailer of goods to some areas of Belgium, France and the Netherlands and as much as £1300 to bring goods in from the same area. These figures illustrate the imbalance.

The combination of the downward pressure of the manufacturing sector and the imbalance of trade has had the effect that many logistics companies are now working on unsustainable margins, as costs are pushed ever lower. Combined with the rise in fuel prices this has lead to companies operating large fleets of vehicles re-assessing their position, or getting into difficulty. It is estimated that the cost of operating a vehicle has risen between 15-20% over the last 12 months, while rates have actually decreased. Average margins for 3PLs in the UK are currently in the region of 2.5%

Technology

We cannot think of Global Logistics without looking at the leaps and bounds taken in recent years on the technology front. Track and trace systems, RFID technology, real-time web interfaces and many other tools have revolutionised the way we work. The 3PLs have put a great deal of their resources into developing tools to assist in the flow of information, and now some of the companies lower down the supply chain are experimenting as well.

In a recent presentation on technology in logistics it was stated that, in the not-too-distant-future it will be possible, via telematics, to trace any piece of cargo in real time, anywhere on the planet, across any mode of transport or warehouse. This is still relatively new technology, but it is coming to market, and will change the way logistics companies operate once again.

The idea of a unified, cross-platform, track and trace system is truly mind-blowing - but it is a real possibility.


Moment of Truth

In these uncertain times, Logistics companies have to look at a strategy that can sustain them financially for the medium to long term, and for many this has meant some major changes.

Many companies are now looking at allied areas such as inventory management, purchasing, factoring, sourcing and complete supply chain solutions. These 'integrators' are leading the way for other Logistics companies. The DHL/NHS Logistics contract is a typical example of this.
Diversification in this global market is the key. Those organisations that can listen to their customers, see their changing needs and adapt to cater for their supply chain requirements are the ones who will succeed in the long term.

Napoleon Hill said "Opportunity often comes disguised in the form of misfortune, or temporary defeat." And for many in the Logistics sector, especially the smaller companies there are some major opportunities that have been opened up through Globalisation. It is an exciting time, but a risky one as well.


About the Author: John Cave is the General Manager of Westhaven Worldwide Logistics, and founding partner of Novatus Global Solutions. He comes from a background in the Manufacturing Industry as a Logistics Manager and has always been fascinated by International Trade.

All content copyright John Cave 2006.

All graphs are copyrighted by HSBC Trade Services and used with permission.

Dummies Guide to Importing - Part 1

Thought I may save myself some e-mails in the long run by trying to put a decent idea of what to look for when importing products from overseas.

This is not an advert, this is what we do (there, that's the only plug you will get!)

The UK has been a net importer of products for some time, and as manufacturing companies in the UK struggle to compete on costs with their overseas partners, many large companies and SME's are changing their strategy to become stockists and distributers.

Also, the massive boom in online trading through E-Bay has lead to people doing the same from their home - and many of our customers are home traders.

Depending on comments, I am happy to go into any amount of detail, but I will try to keep this a brief overview at the moment. I will concentrate on imports from China, as they are the largest volume, but the same goes for anywhere outside the EU. India for example, is becoming a real manufacturing powerhouse, and will be challenging China especially for industrial goods.

If you are considering bringing something in from overseas, the most important thing is the product. I am sure there are garages full of products that nobody ever bought..... Market research is vital.The second is the supplier. The third is the supply chain.

I will concentrate on the information needed for Freight rates at the moment, but in following blogs I'll try and pick up on the Market Research and developing the right partner overseas. Freight costs are the largest cost of most imports from China, often more than the goods themselves, so it is very important to be able to get an accurate picture of costs you are going to face.

I often have people coming on to me asking "I've got this idea of bringing widgets into the UK from China - how much will it cost?"

These are the questions that need to be answered first:

Question 1

How much do you have?
To be able to give any real idea of costs, any freight company needs some fairly accurate details. The ideal way is to get weights and dimensions of the whole shipment from the supplier when you are negotiating rates etc. with them. Manufacturers are more than used to giving these details out, and will have them at hand.

Question 2

What are the terms of supply?
You may have come accross 3 letter acronyms such as FOB, CFR, CIF, DDP, DDU, FAS etc. These are vitally important, as they say when the suppliers liability ends, and yours begin. To give an example. If a supplier gives you a term of FOB, they will take responsiblility for the goods to get "Free On Board" the vessel. In other words they will pay for the goods to be delivered from their factory, to the port, and any terminal handling costs at the port as well.
If they say DDP. That means they will deliver to your door, and pay all duties and taxes in the UK. Quite a difference.

Question 3

How quickly does it need to get here?
Does it need to come via Air or Sea? Airfreight can take from 3-6 days, and seafreight can take around 4-5 weeks. This obviously has a bearing on the cost of a shipment. For small amounts (up to 200kg, depending on volume) it is often cheaper to send via Air, as the minimum costs at the ports outweigh the total airfreight rate.

Question 4

How important is cost / transit time?
It is no different to any business. Customers often want the cheapest possible price, for the best possible service. This doesn't work. Especially when dealing in Airfreight this can be a problem. The cheapest rates may only be based on one flight per week, that travels via another airport, and has to wait there for 3 or 4 days before connecting on the final flight to the destination.
The more expensive rates will offer a better service, possibly a daily service, direct to the destination. This is very important to think about before approaching a freight company, as you will rarely be comparing like with like.

Question 5

Have you researched Customs Duties / Licenses etc.?
I have come across a number of people who have called me when their goods are sitting at the port, and they have been faced with a Duty rate of 20% asking me if there is any way round it? The answer is no! Make sure you have your tariff code well researched, and if applicable lodged with customs, so you know what your costs are going to be.
Another one that I have come across recently, was someone that had brought in a load of cotton t-shirts from India via air, but hadn't done any research. He had paid for the goods, and the airfreight and called in a panic because Customs wanted an Import License. Sadly, he had to apply for the license, and wait for it to come through. This took 3 weeks and left him with a hefty storage bill from the airline.

Hope this is a helpful introduction, please feel free to contact me for further information.