Companies have established wide-ranging global supply chains that have taken advantage of the constant improvement of economies of scale in global logistics, in which greater efficiency and reliability have been generated in both maritime cargo as aerial; linked with low-cost manufacturing centers throughout Asia with major markets in the United States and Europe.

About them, a large percentage of global supply was stimulated by the cost savings obtained through labor arbitration. These costs were used to improve the movement of products over long distances to markets or the additional cost of carrying inventory in long pipelines.

However, the pandemic factor has caused the interruption of logistics networks, being a problem for the supply chain. That is why to diversify production and make supply chains more resilient, it is a good time for managers to take a more holistic view of logistics dynamically.

Concentrated East-West Trade Lanes

The rise of e-commerce and changes in Western production was driven by labor arbitrage and cost advantages but was driven by the low-cost of container shipping and air cargo.

On the ocean trade side, shipbuilding subsidies and tax incentives for shipowners, combined with giant new container ships, brought a sea change in cost reduction. To use this capacity efficiently, high-volume trade routes were created on the trans-Pacific and East Asia-Suez-Europe routes. Boosted the deployment of larger ships with greater availability in cargo capacity, with lower prices.

In the same way, global air cargo underwent a similar transformation, dedicated air cargo carriers building international trade routes for high-value goods, such as electronics and fast fashion, through hubs such as Hong Kong, Doha, Anchorage, and Dubai.

Additionally, managers boosted efficiencies by keeping inventories lean and taking advantage of the plethora of international freight transportation options.

New Alternatives

Training thinking about logistics networks has caused US importers to miss opportunities for geographic diversification and improved resilience.The ports on the east coast have worked hard to improve their infrastructure and provide better service.

Managers must pay attention to geography. With many companies moving part of their production to Southeast Asia, the ocean routes through the Suez Canal and the ports on the east coast have become much more competitive.

The further west of China the production activities are located, the shorter the time gap to reach the west coast of the US.

For places like Singapore, where the time at sea is longer, the less congestion and higher throughput of eastern ports and the proximity to large economic centers in the Midwest and the Ohio Valley could make the route Suez is very competitive for end-to-end transit times.

Some shippers are giving up US ports entirely and shipping their cargo through Vancouver or Prince Rupert in British Columbia. Since the speed and effectiveness of the load will be faster. Like Shanghai to Prince Rupert can take just 9 to 10 days. 

Pay More Attention to Logistics in Supply Chain Design

One of the reasons why organizations stick to established trade routes instead of considering new alternatives.Logistical links are not considered part of a supplier selection and sourcing strategy; rather they start later.

A good selection of ports of last call and first call can reduce transit times by several days.Instead of going through congested ports to get to the Midwest, we can opt for an express service like from Southeast Asia through Virginia ports that would be highly competitive in overall transit time and cost.

When logistics are managed internally, it is often separated from other parts of the business. This can result in the routinization of processes, which could lead to a stagnant view of the overall supply topography and missed opportunities.

The challenges exposed by the Covid-19 pandemic have increased the need for managers to understand the alternatives and develop a better understanding of geography. Concerning it, the idea of ​​direct ownership of logistics is becoming even easier thanks to vertical (and sometimes horizontal) integration.

The range of new services offered by traditional shipping lines facilitates one-stop shopping with better cargo visibility. Logistics design should be a critical part of supply chain planning and design. For small and medium-sized businesses, this may require improving communications between logistics managers and other parts of the supply chain or making managers directly responsible for logistics.


Source: Harvard Business Review