A new study from the Boeing Center for Technology, Information and Manufacturing (BCTIM) at the Olin Business School, calls on shipping companies to increase their use of full-container loads with specific delivery dates to reduce costs and counter the effects of the recession on global trade.
Kouvelis
Panos Kouvelis, BCTIM director and distinguished professor of operations and manufacturing management at Washington University in St. Louis – Olin Business School, co-authored the study with Jian Li. They conclude in their paper “Managing the New Uncertainty,” that making recommended changes in the shipping supply chain is the “logical next step” for ocean freight services. The research project was sponsored by global supply chain services leader APL Logistics www.apllogistics.com.
Kouvelis and Li say the time has come for widespread use of day-definite delivery for full-container loads (FCL) because of the economic pressures of the global recession on supply chain managers to operate more efficiently.
“The rapid slowdown in global markets is driving a renewed focus on tightly managing intercontinental supply chain costs,” the pair said in their research paper. “Day-definite FCL service is a highly beneficial product innovation for progressive intercontinental supply chains and the managerial efforts to make them leaner.”
Day-definite service refers to the recently developed 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), that is, shipments that don’t fill an ocean container and are transported with other shipments in the same container.
The study points to several benefits of day-definite service for full-container load cargo:
• Significant savings in total distribution cost
• Reduced supply chain variability
• 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: Air freight service was 134% to 244% more expensive than day-definite service 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.”
Editor’s Note: Interviews with Panos Kouvelis are available via free ISDN and VYVX lines for taped or live broadcast use. Contact Melody Walker, melody_walker@wustl.edu, 314-935-5202.
About The Boeing Center for Technology, Information and Manufacturing
BCTIM is a supply chain and technology research center at WUSTL’s Olin Business School that works collaboratively with various corporate partners to foster a meaningful, mutually beneficial interaction between industry and academe on management issues, and more specifically on the effective management of business operations, with explicit focus on enhancing the competitiveness of supply chain partners. Web site: http://bctim.wustl.edu.