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How Port Selection is Becoming Increasingly Critical to Supply Chain Strategy
Building an efficient supply chain involves a bewildering number of factors. And now with today’s “mega ships” creating their own economies of scale — one that encourages larger shipments to fewer ports — the port(s) you choose to ship your goods to is now more critical than ever. Port selection can play a major role in both how long it takes to get your products to market, and how much it costs.
For major national retailers, port selection has always been a factor. Walmart for example—the world’s largest company by revenue (approx. US$486 billion according to the 2017 Fortune Global 500 list)—is building a $135 million import Distribution Center (DC) in Mobile, Alabama. Why there? The Port of Mobile: a strategically located Gulf Coast port that, thanks to the newly expanded Panama Canal, is helping facilitate greater container shipment volume from Asia. The anticipated demand created by Walmart’s new DC is so great that the port is fast-tracking a $50 million terminal expansion. Mobile’s full-container import volume of 100,309 TEU and 108,433 TEU in exports accounted for a 22.4% year-over-year jump in imports and a 12% rise in exports. Overall traffic climbed 16.8%. For Walmart, the new large DC marks its sixth in the U.S., following centers in Houston, Savannah, Los Angeles-Long Beach, Virginia, and Chicago.
“Four Corners” Strategy
While a firm with limited scale might utilize a single import distribution center, Walmart’s focus on multiple strategically located DCs is sometimes referred to as a “four corners” strategy. This draws on the services of four or more import centers, covering both West and East coasts. By expanding the use of cheap ocean transport, this strategy dramatically reduces a firm’s transportation costs (as compared to using a single import center). It’s no wonder that other major retails such as Target, K-Mart, and Home Depot have adopted similar strategies, carefully taking into consideration the location of their DCs and the ports that serve them.
Why port selection is now more important than ever
The importance of port selection in today’s massive product-movement environment can’t be understated. The new mega-ships mentioned at the outset, for example, can cause mega congestion.Automation was supposedto mitigate this. While many automated container terminals do now routinely handle exchanges in excess of 10,000 TEUs at a single port of call, these efficiencies can easily be lost as inland-bound cargo moves from the quay to the intermodal connections.
The Port of Los Angeles-Long Beach, for example — the biggest port in the US — has already experienced a number of these issues. A “maxed out” rail system, the threat of labor disruptions, and traffic mitigation fee hikes have left many clients wondering if it’s such a good idea to “put all their eggs in one basket” and rely so heavily on a single port.
On the other hand, these same mega ships (again, along with the newly expanded Panama Canal) are starting to make lesser-used ports more attractive, particularly on the East and Gulf Coasts (such as the Port of Mobile). Global competition is forcing changes in how ports and other firms along the international logistics chain conduct business. It’s also becoming easier to account for port selection in the supply chain equation thanks to system innovations along with new technology.
In other words, if you’re favoring a single port due to yesterday’s logistics, or simply out of habit, it’s time to reevaluate the math.
Trucking is Changing, Land Transportation Costs Are Rising
A key factor in the port selection equation is land transportation costs. U.S. shippers are facing unprecedented truck intermodal cost hikes. Rapid economic growth has resulted in bottlenecked supply chains, with a corresponding rise in supply-chain costs, and across-the-board increases in transport rates. These trends are expected to continue into 2019.
The Electronic Logging Device (ELD) mandate is also changing trucking by increasing transit times, further increasing costs. It’s effectively creating a kind of “donut hole” for 450-700 mile distances, causing firms to redraw their trucking service maps. Before ELD, single truck drivers would routinely make 450+ mile trips, being able to unload and return in a single day. With ELD, a trip that distance is pretty much impossible to do in a single day for a single driver. Thus, smaller trucking firms are eschewing such trips for either short- or long-haul freight, leaving intermediate length trips to larger fleets with multiple drivers — who can still turn a profit. ELD limitations are no doubt forcing many shippers to take a more holistic view of land shipping distances and how they use logistics in general.
Perishables, Just-in-Time Products Need Faster Turnarounds
Another port selection variable is how quickly you need to get your products to market. Some products (like perishables) require quicker turnarounds, and mega ships just don’t fit the bill. SeaLand (part of the Maersk Group) is an example of an intra-Americas regional carrier that’s using smaller vessels to offer a new Gulf-Central America cold cargo-ready service. It’s targeting the growing demand in the U.S. for fresh fruit from Latin America. Services like this are designed to meet strict schedule commitments, even accounting for fog and other delays. Of course, just-in-time shipping isn’t limited to just perishables; whenever you require a faster ocean turnaround, consider the port.
How Can Shippers Choose the Best Port?
Clearly, modern supply chain logistics can be tricky! Unless you’re Walmart, choosing a carrier yourself can be problematic, especially since your carrier of choice might not efficiently service the port that might work best for your supply chain. The solution? Third Party Logistics (3PL). A good 3PL provider can route your cargo to the best port, on the best carrier, in the most efficient way possible. A provider like DB Schenker will take into account a matrix of interlocking ocean, land and air variables. Established 3PL providers also work with networks of strategically located, modern distribution centers that can provide Walmart-type advantages, such as fully exploiting pre-negotiated rates.
Even big shippers — those with enough volume to negotiate with a single carrier — can further reduce costs and gain additional benefits by taking advantage a BCO & Global NVO Strategic Alliance. This allows them to use multiple carriers while maintaining the lowest rates possible.
So while larger ships and upgraded ports have created new opportunities on one side of the equation, on the other side are land transportation networks that have struggled to keep up with increased volumes and new regulations. Even small changes along today’s increasingly complex supply chains can cause unexpected ripples that impact a shipper’s bottom line. However, an experienced 3PL provider can help you implement a flexible supply chain strategy that optimizes port selection, as well as contract logistics and a host of other factors, saving you time, money and worry.