US Importers Face Huge Supply Chain Challenges in 2005

(2005-01-08)

GT Nexus' Web-Hosted "on Demand" Software Solutions Can Help Importers Manage Complexity and Control Costs, While Ensuring Service Performance

A "perfect storm" of economic and transportation management issues is poised to swamp US importers in 2005 as market and regulatory forces converge to create one of the most difficult global shipping environments in years.

Import volumes in 2005 will eclipse record volumes of 2004 should growth projections of 10-12 percent hold up. Bottlenecks in infrastructure, at the same time, show no signs of easing. Ocean carriers, who each year handle more than 95 percent of US imports by volume, are operating at the highest capacities in years. Although a large number of new cargo ships are on order, that capacity won't hit the market for 12-18 months.

Meanwhile, port congestion threatens to only get worse, while an increasing number of regulatory mandates, some no longer voluntary, continue to mount pressure on global logistics management.

It will be a challenging year for logistics managers, observes Greg Aimi, research director with AMR Research, in a recent report. "The global and US logistics [transportation] infrastructure is stressed, and there are no signals that significant relief will come in 2005.

"In fact, indicators show it will get worse before it gets better," Aimi predicts. "Our current disparity between demand and supply [in freight capacity] is the worst we've seen. Getting product to store shelves has never been harder. . . . All companies should begin preparations now."

Billions spent on global sea freight every year

A top 100 US importer likely spends between $5 million to over $100 million annually on ocean transportation. The biggest problem in managing these expenditures: getting the "optimal" combination of price, service and capacity while taking risk out of the equation.

Customers deal with solving the problem today in ways that are cumbersome, error-prone and sub-optimal -- often using nothing more than spreadsheets. Research shows that an on-demand software service -- which combines procurement tools with sophisticated optimization, online contract management and partner measurement -- produces better results in a fraction of the time most importers take today.

"Our experience is that almost any large shipper can identify between 4-8% in potential cost savings by using this system," noted John Urban, GT Nexus president. "We provide the software and a team of global transportation specialists who can work with customers to help them through the process."

Protecting the supply chain from risk

Global companies today more than ever must depend on a resilient supply chain that can adapt to changing market forces, sourcing decisions and customer demand -- while minimizing risk. The cornerstone of that resiliency is an "optimized" global transportation plan -- and the infrastructure on which the plan is executed. This provides the business with the ideal mix of price vs. service as well as the tools to measure it. And therein lies the benefit.

"An army of spreadsheet experts can't do that," noted Urban. "Getting to an optimal mix of price and service, and making sure you stay there requires an over-arching system. It's an integrated technology platform that supports the entire supply chain, going beyond procurement and incorporating software to manage and monitor performance once the freight starts to move."

Without integrated monitoring and measurement, all the hard-fought benefits of an optimized plan can evaporate, negating the value of the plan and exposing the shipper to increased costs and disruption.

On-demand software up to the challenge

With the 2005 cycle for ocean freight procurement set to kick off this month, importers and exporters are gearing up for a mission-critical task. Freight bids must be prepared and tendered to carriers whose proposals must then be consolidated and evaluated, service terms and commitments negotiated, and pricing agreed upon. Ocean freight procurement is complex and time-consuming, especially in an environment of increasing rates, assessorial charges and tight capacity.

Technology can help on many fronts, particularly software delivered as an "on-demand" service over the Internet. This approach removes risk from the shipper, who does not have to buy, install, provision and operate software, but instead, can start immediately to use a system that has already been deployed, and can be configured for their needs.

"Fortunately, transportation and logistics management is one field where there are proven and mature on-demand systems," notes Beth Peterson, principal with BPE, a global trade management consultancy. "The most effective incorporate procurement, optimization and digital contract management tools on a single, integrated platform, providing the logistician with a real-time means to monitor their global supply chain."

Recognizing the unique market challenges that importers and exporters are facing this year, next week GT Nexus will launch a new "managed service" program for ocean freight procurement. The program, delivered as an "on-demand" service, provides both the software platform, and a dedicated specialist to operate the system for the customer as part of their logistics team. It will be available to US importers, exporters and 3PLs.

Best practices -- follow these tips to get the most out of your buying strategy

Even with capacity challenges and higher rates, savvy businesses can still secure sufficient capacity and service within an acceptable budget that protects their global supply chains from disruption, noted Urban. He offered the following tips for shippers:

1) Define your needs as specifically as possible. Structure your ocean
transportation bid with clear and consistent information, standardized
across your network of carriers. Use last year's business profile and
performance statistics as the baseline to build this year's plan.
The more definitive you can be about your needs for capacity --
by region, by lane, by transit time, equipment and other service factors
- the easier it will be for the carrier to respond in kind - and for you
to evaluate their proposals equally.

2) Know your supply chain's characteristics. Understand where you can be
flexible, and where you need absolute service. For example, products
that are ordered regularly to replenish standing inventories can be
managed with a more flexible service, whereas products that are
time-sensitive or economically perishable must have absolute service.
Design your plan to address these varying service and capacity needs.

3) Know the difference between price and cost. A typical ocean
transportation move can have some six different "legs" or service
elements. The lowest "price" or transportation rate for an ocean move
may not always give you the lowest overall "cost," particularly if the
low-price service is less reliable, driving up other costs, such as
inventory buffers, penalties, fees and expedited shipments.

4) Automate and standardize as much as possible. Take advantage of online
systems with good analytic tools that let you optimize your plans, speed
the evaluation of proposals, and help quantify the tradeoffs between
cost and service. Such systems are available "on demand" and can give
you strategic insight leading to more cost effective and
service-specific agreements.

5) Continually monitor, measure and adjust. All the hard work to secure
effective service contracts can be lost if the shipper does not have
processes in place to manage those contracts and measure partner and
carrier performance. Measure plans against performance regularly to
ensure you're meeting your commitments to your carriers, and that they
are providing the promised capacity and service. A disconnect on either
end can disrupt your supply chain and increase costs.

Business plans need to reflect cost implications of global logistics
"Logistics complexity is on the rise and capacity constraints are wreaking havoc on companies' already-stressed supply chains," concluded AMR Research's Aimi. "Management teams must be forecasting the cost and variability implications of logistics into the strategic and tactical plans of the business."

ABOUT GT NEXUS

GT Nexus is the leading provider of hosted, on-demand software and services for global logistics and supply chain execution. Founded in 1998, the company provides integrated technology that enables enterprises and their partners to control, optimize and manage the flow of goods and information through a single Web platform, from order point to final delivery, anywhere around the globe. GT Nexus solutions span and link three critical logistics functions: multi-modal transportation management, global supply chain visibility, and performance management. GT Nexus technology also powers GTN -- the world's leading portal for the ocean transportation industry. Backed by a consortium of global shipping lines based in Europe, Asia and the Americas, GTN represents over 45% of the worldwide market for containerized cargo. For more about Alameda, California-based GT Nexus, visit us at www.gtnexus.com.

Media Contact:
Gary Frantz
GT Nexus, Inc.
510.747.3214
gary.frantz@gtnexus.com


SOURCE: GT Nexus, Inc.