Scholars Identify 'Logical Next Step' for Supply Chains

Logistics Insight Asia - Top Story, 23/3/2009

In a report released by the Olin Business School at Washington University in St Louis, US, Dr Panos Kouvelis and Dr Jian Li declared that shipping full-container loads with specific delivery dates is the logical next step in ocean service.

Their findings were included in the research paper “Managing the New Uncertainty,” published by the business school’s Boeing Center for Technology, Information and Manufacturing (BCTIM). The research project was sponsored by global supply chain services leader APL Logistics.

Day-definite service refers to the practice of delivering ocean cargo on a specific date agreed to by a shipper and carrier. Until now, the service has been aimed at less-than-container load cargo (LCL). This refers to shipments that do not fill an ocean container and are transported with other shipments in the same container.

But given the pressure a global recession is placing on supply chain managers to operate more efficiently, Kouvelis and Li say the time has come for widespread use of day-definite delivery for full-container loads (FCL).

“The rapid slowdown in global markets is driving a renewed focus on tightly managing intercontinental supply chain costs,” the researchers said in their report. “Day-definite FCL service is a highly beneficial product innovation for progressive intercontinental supply chains and the managerial efforts to make them leaner.”

Kouvelis, director of the BCTIM with a background in supply chain management; and Li, a former research fellow at the Center, said the benefits of day-definite service for full-container load cargo include:

• Significant savings in total distribution cost;
• Reduced supply chain variability; and
• A boost for the environment since shippers can replace reliable but highly polluting air freight with dependable ocean service.

“Reducing reliance on transport modes with heavy carbon emissions, such as air transport, is increasingly being viewed as a supply chain imperative,” the researchers noted. “Using a day-definite service in lieu of air freight can contribute significantly to the greening efforts of carbon-sensitive supply chains.”

Day-definite ocean services can fast-track containerized shipments thanks to priority handling and processing at load and discharge ports. The shipments are moved inland via expedited team truck service directly to the customer’s door.

In their research, Kouvelis and Li compared day-definite services for full-container load cargo with air freight and standard FCL ocean services. Their findings: Day-definite service was 134 to 244 percent less expensive than air freight for total distribution cost, which includes transport, in-transit inventory and warehouse inventory costs.

Day-definite service was even cheaper than regular FCL ocean services in many instances, especially when hidden costs such as penalties and chargebacks for late deliveries were factored in.

As for reliability, the researchers said day-definite products had become “virtually indistinguishable from traditional air freight.” Because of this, shippers can now reduce their reliance on costly inventory build-ups and safety stock. Instead, they can depend on cost-efficient day-definite ocean service to deliver cargo in time to meet consumer demand.

“For logistics managers, the ultimate objective is to minimize total distribution costs without impacting customer service levels,” said Kouvelis and Li. “As shippers have quickly embraced the advantages of a day-definite LCL service, the logical next step is to extend the viability and total cost benefit of a day-definite ocean service to FCL shipments as well.”

NOL, www.nol.com.sg