Maximizing your transportation dollar: challenges and solutions for the global marketplace.

Latin American shippers face three key challenges as they try to make the most of their transportation dollars: globalization, supply chain visibility, and rising cost pressures. As world markets become increasingly complex and interconnected, it becomes more difficult for organizations to track products moving through supply chains and distribution channels, while stabilizing or reducing their expenses.

Fortunately, a growing array of logistics solutions and transportation options are now available to help Latin American organizations enhance customer satisfaction, operate more efficiently and achieve positive financial results.

"Globalization will continue to be one of the key trends in the transportation industry," says Michael Bednarz, manager, air cargo business development, Port of New York and New Jersey. "As the world's economies continue to integrate and expand, we'll see many areas of the world become more specialized in their manufacturing, such as the increase in apparel and electronic machinery coming from Asia."

Today, the Americas are more closely tied to Asia and Europe than ever before, according to Spencer Dickinson, managing director of cargo marketing, American Airlines, Fort Worth, Texas. "We're clearly in a transition to a world marketplace," he says. "Every day, the types of shipments that we're accepting and the number of destinations are continuing to expand. Demand for perishables, electronics and many consumer products keeps growing in Sao Paulo, Beijing and other global markets."

For manufacturing, retail, distribution and service businesses, having access to immediate information on shipments or "visibility" is critical to achieving operational efficiencies and ensuring that customers receive their orders on time. Visibility is a critical component for just-in-time manufacturing processes, as well as for minimizing warehouse inventories.

"The biggest opportunity for maximizing supply chain savings is trading information for inventory," says John Beckett, vice president of operations for Menlo Worldwide Logistics, Redwood City, California. "As you lengthen shipment times in a global economy, you are adding risk. So having visibility over the entire supply chain is where every organization wants to go."

To enhance visibility, many Latin American organizations are investing in their internal infrastructure--both people and net works or turning to outsourced third-party logistics providers (3PLP) for effective solutions (see related article).

Rising fuel costs continue to challenge Latin American shippers. "Higher fuel prices are affecting shippers and transportation providers on a global basis," says Dickinson. "Everyone needs to find efficient ways to provide cost-effective transportation services." The explosive recent growth in the Chinese economy has also led to dramatic increases in the price of steel, resulting in higher costs for new ships and shipping containers.

Those cost pressures are impacting ocean carriers, adds Frank Larkin, senior vice president, Hamburg Sud North America. "Particularly challenging for the entire container shipping industry has been the simultaneous impact of very high costs for bunker fuel and skyrocketing costs of ship charters," says Larkin. "Current charters, which have traditionally been contracted for one-year periods, must now be renewed well in advance and for much higher rates and longer terms."

A related issue is vessel capacity, according to Alberto Mejia, manager, marketing services, Intermarine, Inc. "The growth in the world economy and the boom in China have simply outstripped the world supply of vessels," he says. "Thus, availability of suitable vessels has diminished--a problem that has proved to be particularly troubling to those who offer project transportation service, but do not have a vested position in ships."

Finally, security concerns will continue to be a challenge to Latin America shippers, as products and cargoes face heightened scrutiny at ports of entry. Ray Mauri, cargo marketing manager, Port of Miami suggests that international exporters and importers become certified by the U.S. Customs Trade Partnership Against Terrorism (C-TPAT), a voluntary program in which supply chain participants establish acceptable security practices in all phases of their operations. "This will greatly enhance their ability to ship their products more quickly through the security measures now in place," Mauri says.

A DOZEN TIPS FOR SHIPPERS

For Latin American shippers, the key to success in the coming year will be finding ways to resolve these global challenges and find new ways to improve the supply chain and distribution channels. Here are 12 suggestions from logistics experts on ways to maximize limited transportation dollars:

1. Accelerate the transportation process. Nowhere is the old adage "time is money" truer than in the logistics field. Accelerating the flow of material through a company's supply chain can reduce inventory costs, while faster distribution and delivery channels improve both cash flow and customer satisfaction. "The challenge today is how to move goods faster through the supply chain," says Bednarz. "One potential solution is to utilize larger aircraft, more efficient carriers and experienced integrators in order to accomplish this objective."

2. Discuss shipping needs with transportation providers. It's important for shippers to discuss their specific needs with the transportation provider. American Airlines, for example, worked closely with Chile's sea urchin industry in Chile to fly these Asian delicacies to its Dallas hub, then make a same day connection to carry them to Tokyo. In the ocean cargo sector, Hamburg Sud pre-positions its equipment to meet regional and seasonal needs, and recently established a new Venezuelan trucking company to move cargoes between major interior industrial centers to key ports. Intermarine is another shipping company whose operating approach is based on matching the right equipment and resources to more specific cargoes.

3. Enhance shipment visibility. One of the critical elements for successful supply chain management is visibility. "A shipper who has visibility can plan ahead, then optimize costs and transit times," says Tom Page, solutions and marketing director for UPS' supply chain solutions Latin America region. "It is important to have access to customer orders or the point of sale (POS) activity. Knowing the POS transactions helps in allocating resources in the warehouse, loading the trucks, and making the deliveries. It also lets a shipper negotiate with providers and better manage the overall capacity of a supply chain."

4. Build collaborative partnerships. Regional and multinational organizations need to cultivate their supply chain relationships. Sharing information and resources may well benefit all parties. Collaborative alliances between different types of companies can also be beneficial, adds Page. For instance, a Latin company shipping perishables to the north might share its shipment schedules with a North American firm sending electronic equipment to the south. The result would be more efficient use of cargo aircraft and potential cost savings to all parties.

5. Understand the customer's requirements. One of the most common mistakes in the distribution chain is failure to recognize the customer's requirements. "In some cases, the sales force may know the specifics, but that information may not be sent to the right internal departments," Page says. "Other times, the shipping department may not even know the terms of sale--a situation that could result in duplicate insurance coverage of the cargo."

6. Use online booking and tracking tools. Major transportation providers now provide online booking tools that provide a high level of "track and trace" functions. As Dickinson says, this is a timesaver for customers, who can tell if a shipment is on schedule or if there have been any weather-related or customs delays.

7. Apply the right transportation mode to the shipping need. An experienced logistics provider can save money for shippers by selecting the right transportation mode for products, according to Beckett.

8. Consider a "distribution-to-order" model. For companies that outsource their manufacturing operations, the distribution-to-order model allows factories to ship directly to the manufacturer's customers. "That eliminates all the traditional touch points from the factor to the warehouse to the retailer to the end user," says Page. For instance, a shipment of printers could be prepackaged and prelabeled at the factory, brought into the U.S. as one customs entry, and distributed to users via a domestic transportation network.

9. Adopt a "postponement" model. Another time-saving approach is using the "postponement model," delaying the distribution of products until the last possible moment to reduce unnecessary inventory. "Some types of products like music CDs require different types of packaging for different retailers," says Beckett. "We keep those products in a generic form and customize at the last point in the process, so retailers don't wind up with too much or too little."

10. Utilize guaranteed arrival services. Assurance that needed parts or assemblies will arrive on time is critical for manufacturing operations, according to Dickinson. "When you are sourcing materials from various points, you need consistent, reliable and fast service with guarantees the products will be shipped as scheduled."

11. Aggregate individual shipments. One of the most effective cost-saving tips for large shippers is to aggregate individual shipments, according to Becket. "If you are shipping to the same customer multiple times in the day, you may be able to combine these shipments and achieve tremendous savings," he says.

12. Determine vessels" locations and itineraries before booking. If you are booking cargo on a spot basis, find out the location, disposition and itinerary of the specific ship, advises Mejia. "If you are booking forward cargoes, satisfy yourself that the carrier or forwarder you are working with has the capability and commitment to position future vessels when needed."

Clearly, companies shipping goods to and from Latin America need to manage their logistics and distribution chains carefully in order to maximize their transportation dollars. "Price should not be the key factor when deciding on a carrier," says Mauri. "Reliability, frequency and customer service should be taken into consideration when making a final decision. Remember that low-cost, many times can be much more expensive."

WHEN IS IT BETTER TO OUTSOURCE?

One of the vital questions for shippers doing business in Latin America is whether or not it makes sense to outsource transportation management services to a third-party logistics provider (3PLP).

"To me, the starting point is how much transportation costs are compared with your total costs," says John Beckett, vice president of operations for Menlo Worldwide Logistics, Redwood City, California. "The other question is whether you want transportation to be a core competency of your company or not. If costs are a big item and you don't want to manage it in-house, an outsourced solution is probably best."

Tom Page, solutions and marketing director for UPS' Supply Chain Solutions Latin American region, offers a similar perspective. "The first step in the decision is to analyze current shipping volume, and whether your operations span multiple countries or regions."

A second factor, which is particularly important in Latin American countries, is the experience and expertise of internal logistics personnel. "You can be a small company and have smart, effective people, or a large company without any talent," says Page. "But larger companies typically have both more people and more exposure to transportation management."

A related issue is the company's internal network and communications infrastructure. Does the current system provide enough information to manage a complex supply chain effectively? Is the supply chain management application integrated with manufacturing, warehousing and customer relationship management (CRM) systems?

"Are Latin American companies willing to invest in best-of-class transportation management systems?" asks Page. "If there is not an effective return on investment, then clearly it makes sense to look at an outsourced solution."

SELECT THE RIGHT GATEWAY

Selecting the most appropriate U.S. gateway for shipping goods to and from Latin America can make a significant difference in the logistics process, according to trade experts.

"It is really important for shippers to understand the advantages and disadvantages of moving their goods through a specific network or gateway when looking to get the most out of their transportation dollars," says Michael Bednarz, manager, air cargo business development, Port of New York and New Jersey. "All components of the transportation process need to be complementary to achieve benefits like a substantial reduction in costs or higher logistics efficiency. Otherwise, an inefficient supply chain may lead not only to delays and losses, but also have a detrimental effect on the company brand image."

Bednarz notes that the two-state Port Authority offers modern air cargo services, and can accommodate all types of aircraft, including the new A-380 when it is ready to enter the New York market. Newark Liberty International Airport's new 130,000-square-foot facility can handle both 747 freighters as well as smaller aircraft. The Port Authority and its private business partners have invested nearly $375 million at JFK International Airport in the past six years, developing more than 1 million square feet of cargo space.

Latin American shippers should look for efficient global connections, according to Bill Frainey, assistant vice president of marketing for Dallas/Fort Worth International Airport (DFW), whose international cargo rose 19 percent in 2003. "Being able to move perishables, textiles, electronics, and other products quickly from continent to continent is a vital part of the logistics sector."

Frainey adds that DFW provides convenient freight service to China, Taiwan, Korea, Hong Kong and Singapore, in addition to its connections with Europe and North and South America. "Products coming into DFW can be out of the airport in a matter of hours via cargo freighters or trucks serving the U.S. market."

It's important for shippers to consider the cost of time as well as transportation services in developing strategic logistics plans, notes Frainey. "Sometimes the cheapest way is not the most effective," he says. "For instance, truck transportation usually has a lower cost than air, but there is a much higher risk of spoilage and shrinkage. When time is of the essence, air cargo makes the most sense."

The Texas airport has become one of the star cargo gateways of the world, spurred by red-hot economic growth in Asia and the recovering economies of the United States. DFW's cargo growth has exceeded 6 percent annually for the past 10 years. International cargo figures have also lifted by 13 percent over the some period for the airport, which recently launched service to Shanghai and Beijing with China Cargo Airlines.

Elsewhere in Texas, Jim Edmonds, chairman, Port of Houston Authority, notes that containerized cargo has rapidly become the most significant commodity in the shipping industry, and will continue to grow as a percentage of world trade--especially between the U.S., Mexico and Latin America.

The Port of Houston Authority owns and operates the public facilities along a 25-mile long complex of diversified public and private facilities. The port ranks first in the U.S. in foreign waterborne tonnage, second in overall total tonnage, and sixth largest in the world.

In June, the port authority held a groundbreaking for the new Bayport Container & Cruise Terminal to be built in phases over 15 to 20 years to meet market demand. Completion of the first phase, including 1,660 feet of the ultimate 7,000-foot wharf and approximately 65 acres of the 1,043-acre facility, is targeted for mid-2006.

"As we look to the future, Mexico and the rest of Latin America present the greatest future market growth potential for Houston's port," Edmonds says. "The Port of Houston Authority's Bayport Container and Cruise Terminal will provide the increased capacity that is critically necessary to accommodate the needs of our existing and potential customers in that region."

In Florida, the Jacksonville Port Authority (JAXPORT) is investing in its three public marine terminals Jacksonville ranks among the top 10 container ports in the United States and is one of the country's busiest vehicle handling ports. Historically, Jacksonville has enjoyed a strong role as a RO/RO [roll on/roll off] and container port, with nearly 80 percent of its trade shared with Latin America and the Caribbean--including serving as the U.S. mainland's largest trading partner with Puerto Rico.

"JAXPORT has the ability and experience to handle all cargo types," says Frederick R. Ferrin, executive director. "We continue to search for and attract new cargoes by continuing to strengthen our cargo diversification ability and experience. JAXPORT also has diversified our trade lanes to grow our business beyond our traditional cargo markets in Latin America and the Caribbean. Our direct connection to the container transshipment center in Freeport to all regions of the world has allowed JAXPORT to be considered for trade with regions in which we have not traditionally had a presence."

Security is one of Jacksonville Port Authority's most important initiatives, and JAXPORT has been accelerating its port security for several years, even prior to federal mandates as a result of September 11, 2001. JAXFORT has received national attention for its comprehensive security plan, approved by the Florida Department of Law Enforcement (FDLE). The plan includes measures that address everything from cargo threat to drug trafficking and terrorism.

In South Florida, the Dante B. Fascell Port of Miami-Dade is recognized as the "Cruise Capital of the World" and the "Cargo Gateway of the Americas." The Port of Miami-Dade (POM) is the largest container port in Florida with a strategic location for serving the Caribbean and Latin America.

To retain its competitive rank as a world-class port, a $250 million capital improvement program is in progress to accommodate the changing needs of shippers and carriers.