Global logistics

To answer Barry's question, pretty inefficiently.

It is remarkable that worldwide container traffic is growing at the rate that it is. However, the impressive statistics obscure the fact that global logistics is a messy and very disorganized business. I have never been involved in it myself, but after looking at dozens of startups in the space I did start to notice some consistent problems. Having said that, it is remarkable that we can move large quantities of goods from anywhere to anywhere pretty quickly and reliably.

First of all, there is a basic problem with global trade in that it is predominately one way. In other words, the U.S. has a tremendous amount of container traffic coming from Asia (China) to the U.S. but not much going the other way. Full containers come to the U.S., how do they get back to Asia? Empty is the answer and "empty repositioning" is a huge problem for the shipping industry because it costs the same amount of money to ship an empty container as it does a full container but of course shipping companies don't get paid for shipping empties. I've seen statistics that point to a typical container on a ship being empty 75% of the time as it is being transported to a port where it can actually be used. There is no, at least to my knowledge, multi-port/multi-shipper repositioning network that enables one shipper to borrow containers with the promise that they will be returned in a port where the owner can use them. The good news is that shipping containers are standardized to 20 and 40 foot units with various addons like refrigeration, so eventually the industry could develop a repositioning system becuase the containers are fungible.

Next up is organized labor, which has been adamantly opposed to the introduction of technology in ports that will reduce jobs. Anyone who remembers the longshoremen strike in the west coast ports a few years ago will recall that technology is a major issue for the unions. Why? Because right now if you need to locate a container in a dock a union worker goes out and tracks it down, with an RFID or GPS system that container would be tracked 24/7 and there would be at least one dock worker out of a job.

Speaking of various schemes for tracking containers en route and in the ports, none of them seem to be both cost effective and technically effective but the gap is definitely closing. Looking at RFID as an example, it's somewhat cost effective but the problem is that containers are stacked on top of one another, which requires a peering arrangement to get a signal out of, and with containers being 8 feet wide you can't be certain you are not tracking the container directly next to the one you intend to get. While at sea, tracking containers can be expensive given that ship-to-shore communication can be expensive... but like everything else this is something that can be overcome in time.

The last area that severely limits efficiencies in global logistics is the regulatory environment that they operate in. Going beyond the post-9/11 U.S. Customs processes, there are a number of laws that have been on the books for a long time that impact global shippers. For example, container ships coming in from Shanghai to Long Beach are prohibited from moving containers from Long Beach to Oakland. The Europeans have a new standard, ISO 02, although I'm not sure that there have been any implementations of this standard. There are state and Federal weight requirements, and finally the rail infrastructure is under threat because of tax and investment policies that do not favor expansion. The trucking industry is also at risk because of fuel costs and a highway infrastructure that has not kept pace with traffic demands... ever drive the 710 into Long Beach?

The port infrastructure has faired quite well primarily because it's a profit center for local governments and most ports operate outside of public political scrutiny. Having said that, the investment required to ensure that the major ports are competitive globally is enormous, not just in technology development but also competing for local resources to ensure that highway projects are funded, and for the constant dredging that is required for ports to handle today's super container ships (8,000-12,000 TEU - twenty foot equivalent units, in other words a single 20' container). Ports are dangerously close to capacity and expanding existing ports or adding new ports, such as the port that Mexico is planning in Baja, will require years of fighting with environmental groups universally opposed to such actions.

Link: Barry Talks! : Common Sense for Uncommon Times.

How do you manage hundreds or thousands of ships carrying tens of thousands of containers?

Comments

[Zack Perry]

Jeff you make some very good points. Global logistics is a mess. The current trade imbalance is astonishing. If you take a look at our top trading partners you will also see Canada and Mexico up there. As NAFTA is truly coming into play for many logistics companies you can expect these lanes to grow just as rapidly as the China lanes. Over time if the Chinese economy spins out of control I think Mexico could reposition itself to be our top commodity trading partner.

As far as coordination and sensor technologies? We are still aways away. RFID still is not providing ROI that justifies its existence even if it is pennies for a tag. High-valued goods with smart sensors are about the only thing truly getting traction right now. Thanks for posting this entry.

[Barry]

Thanks for the great and thoughtful response. Contrast the situation in the US with (say) Rotterdam or Hamburg where robots unload something 30 containers per hour (see here http://www.issues.org/issues/13.1/bookma.htm -- I saw this on the National Geographic channel recently -- amazing). Rotterdam is the largest port in the world followed by Shanghai and your point about US ports being fettered by all sorts of legacy encumberments e.g. unions is a good one.

How will we compete? -- is the not-at-all rhetorical question that begs asking.

[vinnie mirchandani]

good analysis. Jeff, you should consider post more original stuff - not just react to other posts or beat up on Oracle!

[ppk]

This is a great post. It's not just about the effeciency of loading, unloading and transhipment of containers. There are lots of "opportunities" in the security space. One of the companies that I know of that are doing interesting things is Lorantec (http://www.lorantec.com). They have a satellite based device that tracks the container and alerts the owner if it is tampered with. BTW, I have no connection with Lorantec other than having met their CEO a couple of times.

[Paulomi Patel]

Hi Jeff,

I am a student of Apparel Logistics and Management from George Brown College, Toronto. I came across this particular problem of heavy one way container traffic in one of our class discussions, and it has stuck with me since then.
I am currently researching on this particular issue, (that is when I came across your article on this blog), and have found that not much has been done about the problem.
I also came across an address by Captain Gordon Houston, President & CEO, Vancouver Port Authority, to the Railway Association of Canada, who mentioned about the growing infrastructure fascilities at the Vancouver port, and in may other ports across the US, in order to handle the growing container traffic. Though there are humungous investments being made to manage the growing containers, no solution is being found to manage the specific problem of the empty container traffic.
I was wondering if you have come across any recent developments in this field in the past few months since writing your reply to Barry about the mess in the global logistics and transportation.
I am currently doing a research project on this particular issue, but I also feel that somewhere here lies a good opportunity that needs to be tapped.
Let me know if you have some thoughts to share.