Behind every product on every shelf everywhere, there has been some mode or combination of modes of transportation involved. Whether it be hand carry, truck, cargo vessel, rail, or air, that product had to be moved from its place of origin to become accessible to the customer.
It is always a privilege to be able to look behind scenes to understand how things work, who the major players are, and even get a glimpse of the unsung heroes that keep everything moving forward in shipshape condition. Recently I had an opportunity to interview Ronald Kleijwegt, Hewlett-Packard's director of logistics for Europe, the Middle East, and Africa. Among other questions, I asked him to highlight some of the major trends in shipping over the past 10 years.
I was very surprised to hear that, due to rising and fluctuating oil prices and environmental concerns, these days superfreighters are actually steaming across the oceans at significantly slower speeds than before. This phenomenon in the shipping industry is appropriately called "slow steaming." It used to take 25 days to ship goods from China to Europe, but that has now extended to 37 days. While slow steaming conserves fuel, it also extends lead times.
Given competitive time-to-market pressures, this seems to be a counterintuitive move for many businesses. But, on the plus side, some of these superfreighters can carry 20,000 twenty-foot containers. If a company consolidates shipments into larger lots, then efficiencies can be gained from single versus multiple crossings. In fact, according to Kleijwegt, since 2008, Asia-to-Europe shipping costs via ocean freight have gone down 50%. The global shipping numbers fall somewhere between 30% and 50%. Clearly, there is a cost advantage, but lead times are still a big issue.
HP incorporates these longer lead times into its planning. At the same time, the company is not content to accept the status quo . When HP needs a faster shipment, it takes advantage of another trend in the logistics business. As superfreighters have increased their capacities, dedicated air freight carrier numbers have steadily gone down. The airlines that handled many air shipments have shuttered their operations due to over capacity. As a result, commercial airlines have begun using excess capacity in the cargo hold, or belly, of the aircraft for overseas cargo. So, the next time you take your laptop to Europe, you might be sitting directly above 20,000 other laptops on their way to retail warehouses.
I asked Kleijwegt about HP's ratio of air freight to cargo vessel costs. He gave me an example from a decade ago. When HP used to ship monitors with cathode ray tubes (CRTs), it was 10 times more expensive than at present. However, even with the smaller and lighter devices popular today, air freight is six or seven times more expensive than ocean. That is a significant cost reduction. However, HP's air shipments are only scheduled for and prioritized by expedited lead time requirements and/or for specific commodity types.
HP also has been employing another solution that is setting the stage for yet another shipping trend. In a 2013 article published in The New York Times titled, "Hauling New Treasure Along the Silk Road" by Keith Bradsher, there was this news: "Hewlett-Packard, the Silicon Valley electronics company, has pioneered the revival of a route famous in the West since the Roman Empire." Developed by HP, this is a 7,000-mile rail transport system that moves HP product from inland China factories to HP facilities in Europe.
As it turns out, rather than trucking products from inland factories to the ports of Shenzhen or Shanghai on the coast of China and then transferring cargo to oceangoing vessels sailing around India and through the Suez Canal, HP's TransEurAsia direct rail system cuts shipping time 30% -- from 35 to 21 days. While the sea route is still about 25% cheaper than sending goods by train, the cost of the added time by sea is considerable.
Since 2011, 80 trains, 3,500 containers, and more than 8 million HP products have successfully made the 7,000-mile journey. I did use the term "trend," and I realize one company does not make for an industry trend. As it turns out, other companies will be sharing the rail services. Kazakhstan, one of the stops along the rail route, announced that rail freight will grow to 7.5 million 40-foot containers by 2020, from just 2,500 transported from Western China to Europe last year. HP is already hosting workshops that will stimulate non-IT companies to use the rail services, increasing frequency of trains, and sharing commensurate costs.
One more major event happened in 2010. The state-run Chinese shipping company COSCO leased the port of Piraeus in Greece for $650 million. China views the port as a gateway to Europe. HP also sees the port's economic potential. The larger superfreighters can steam through the Suez Canal and go straight across the Mediterranean to this new HP hub. Now, HP can cut 10 days off the current ocean route. It can also take advantage of new overland distribution routes for goods destined for Eastern Europe, Russia, North Africa, Israel, Lebanon, Jordan, and other Eastern and Middle Eastern countries.
Other trends include electronic documents that decrease customs throughput times aided by processes like pre-registration for large companies that become known as trusted shippers and receivers. The government-issued certification reduces the number and nature of inspections, so customs can concentrate on the smaller, lesser, or unknown shippers that may be involved in nefarious activities.
After talking with Kleijwegt, I was amazed at the level of knowledge and effort required to keep pace or even set the pace for logistics improvements around the world. Companies like HP demonstrate that it is possible to optimize worldwide freight handling methods and procedures while reducing security risk and assuring that products will be available when needed.
This article originally appeared in the Avnet Velocity e-magazine, "Building a Defense to Counfound Counterfeiters."