An Airfreight Alternative
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The weekly newsmagazine of international trade and logistics, founded in 1827 BY PETER T. LEACH ance Dvorak had a problem. The demand from importers for pre- fill the gap in the market between ocean As purchasing manager for mium express service for inbound ocean carriers’ FCL service and LCL by air- BSI Door Hardware, he was shipments is increasing as supply chains freight. “When we talked to a number of L worried about getting his com- grow longer and their need for guaran- shippers, we discovered that it wasn’t pany’s new door handles to one of BSI’s teed day-definite delivery grow more speed they were looking for so much as big customers in time to fill orders for urgent. While the OceanGuaranteed reliability,” said Brian Clancy, a princi- new sliding doors that it expected from a service offers only LCL shipment so far, pal at the Arlington, VA, consulting February trade show in Orlando. others are planning express shipments firm. “Two-thirds to 80 percent of what BSI imports parts for doors and for full containerloads. Matson they want is absolute certainty on windows made in China for painting and assembly at its plant in Sioux Falls, SD. The company couldn’t afford to wait for its normal full containerloads of An airfreight parts delivered by ocean freight and intermodal shipments from Seattle. But it also couldn’t afford the cost of air- alternative freight from China. “We’re in a huge rush in the months of September through January to get Trucking companies join ship lines our new products in here,” Dvorak said. “The only way we can make it some- in express LCL services times is if we air the product in, and that’s a huge cost for us.” When his sales Navigation Co. and J.B. Hunt Transport arrival, and that’s not the same as rep for Con-way Freight told him about Services are launching their own China- speed.” its new service for less-than-container- Long Beach Express, a time-guaranteed The two companies decided to devel- loads from the Port of Ningbo, Dvorak delivery FCL service from Shanghai and op the OceanGuaranteed service after jumped at it. “When I can bring this Ningbo to any inland point in the U.S. customer focus groups helped with its stuff in by boat and do it in 18 days, “We saw a growing demand for LCL design. “The focus groups showed that guaranteed, that was the solution for us, services a few years ago, but shippers customers couldn’t find LCL services versus the standard time of 35 to 40 weren’t terribly happy with what was out there that were reliable to the point days by boat and rail method,” he said. available,” said Bill Villalon, vice presi- where they could bet their supply chain Dvorak contacted APL Logistics to dent, development, for APL Logistics in on them,” said Ned Moritz, vice presi- arrange the shipment in late December. Oakland. He said ocean carriers’ full dent of branding for Con-way Freight in “My customer had product there to sell container services are fairly reliable but Ann Arbor, MI. He said the advantage right after the show,” he said. “The ship- that most ship lines have gotten out of that OceanGuaranteed has over other ment arrived here in January, exactly 18 the LCL business, leaving it to for- LCL service providers is that APL and days after it was loaded on the boat in warders. Con-way control their own transport Ningbo.” LCL shipment by airfreight, though and infrastructure assets, “which plays a The solution to Dvorak’s urgent highly reliable, is about 10 times more critical role in making this thing hap- delivery need was the OceanGuaranteed expensive than ocean. “It became clear pen.” express delivery service that Con-way that shippers needed a reliable ocean Villalon said their customers told Freight and APL Logistics introduced service combined with a trucking net- them that the available LCL services had last September for LCL shipments by work on the other end, because rail transit times of “30 days to the East ocean from Hong Kong, Shanghai and couldn’t provide the precision,” Villalon Coast, plus or minus 10 days, which Shenzhen to Los Angeles and by truck said. translated into much higher inventory to any U.S. point. Dvorak still uses To determine the market for LCL and pipeline costs for them, and that’s Kuehne & Nagel’s logistics service for services, APL Logistics and Con-way where the big dollars are.” The cus- BSI’s full-container shipments from Freight commissioned a study by logis- tomers said the variability in FCL deliv- China, but he turns to OceanGuaranteed tics consultant MergeGlobal. The study ery times was forcing them to turn to whenever he needs expedited deliveries. showed that there was an opportunity to airfreight or to filling containers partial- Con-way Freight Con-way Freight’s venture with APL Logistics offers less-than-containerload shippers an express delivery service. ly. He said the demand for reliable LCL C-TPAT-certified with those who are Kaohsiung. They are considering service comes from retail and apparel not, the service divides the two types of expanding the service to other points of importers, electronics and high-tech, and cargo into separate containers. The ship- origin, including Latin America and automotive components — “anything pers using the service are divided about Europe, and are also contemplating pro- that is either high value, or where there 50-50 between those who are certified viding FCL express service. is high opportunity cost, where there is and those who are not. Matson and J.B. Hunt plan to either (potential for) stockout or poten- The OceanGuaranteed service is launch their joint China-Long tial for plant shutdown.” priced on a simple 11-zone pricing Beach Express time-definite FCL serv- To provide ocean-truck LCL serv- matrix, depending on where the cargo is ice in May. “Our target market is the ice that’s competitive with airfreight, delivered. The shipments are not subject existing pool of customers who control of transportation assets is to any surcharges except for bunker fuel. transload (from ship to truck) on essential, Villalon said. APL Logistics’ BSI’s Dvorak said he pays about 40 the West Coast,” said Dave Hoppes, sister company, APL, controls its own cents per pound for the express service, Matson’s senior vice president of ocean container ships and terminals, so it is compared with $1.50 per pound for air- services. “Additionally, there are some able to control the stowage and dis- freight, or 12 cents a pound for his regu- customers who don’t transload now charge of the containers shipped by lar ocean and intermodal FCL service. who are about to be hit with some sig- OceanGuaranteed in its terminals. And Since it was launched, the nificant increases in intermodal costs. Con-way controls its own trucking OceanGuaranteed service has achieved We can offer them some economies fleet. Most forwarders that offer LCL 99.8 percent reliability, the companies because the J.B. Hunt 53-foot trailers service have to contract with trucking say. The service guarantees on-time can carry a lot more cargo than some companies and freight depots. “That arrival or it will discount the price. of our 40- or 45-foot boxes,” he said. kind of a network simply can’t repli- Dvorak said BSI Door Hardware has “There’s a niche market out there,” cate the results you’re going to get out had only one shipment that was a day said Terry Matthews, vice president of of a precision day-definite network like late in arriving, “and that was because of sales and marketing for J.B. Hunt. Con-way has in the U.S.,” Villalon bad weather, and the contract doesn’t “Some of the retailers that have hot said. provide discounts for acts of God.” items that were going by all-water to the “We treat the deliveries like they are The OceanGuaranteed service East Coast can now go with us and get domestic freight, except that they have proved so successful that APL Logistics it there a week earlier.” N to clear Customs,” said Con-way’s and Con-way decided in January to Moritz. To avoid Customs delays from expand it to four other ports in Asia — Peter Leach can be contacted at combining cargo from shippers who are Yokohama, Busan, Singapore and [email protected]. www.apllogistics.com www.con-way.com Reprinted from The Journal of Commerce, April 2, 2007 • www.joc.com ©Copyright The Journal of Commerce. All rights reserved .