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Editor’s note: This story is the first installment in a series exploring changes in global trade.
How are logistics companies responding to global supply chain changes? Just follow the money.
Manufacturers invest billions to build factories that are closer to consumers or inside less risky alternatives in China in a push for increased supply chain resilience after years of political and pandemic disruption.
These trends – known as reshoring, nearshoring and friendshoring – may cost shippers in the short term. However, they will benefit from faster delivery times and greater diversity in their distribution strategies as a result, said Brian Bourke, SEKO Logistics’ global commercial director, at a media event in October.
There will need to be enough planes, trains, trucks and container ships to transport products from the shippers’ newly opened factories to realize these benefits. That’s something carriers are willing to provide amid a prolonged stretch of softer volumes and economic uncertainty.
Enhanced capabilities and network adjustments by Union Pacific, DHL Express, ZIM and others aim to capitalize on this geographic shift in demand. Examples vary across modes, from cross-border services connecting Mexico, the US and Canada to new shipping routes from Latin America.
As these logistics offerings improve, more factory innovations are poised to follow.
“In general, companies identify logistics as the most important factor when deciding where to source materials and make direct investments,” according to October report from the US Chamber of Commerce and Ipsos.
Flexibility is key for air carriers
Carriers have been adapting to changes in global trade demand for years, Anders Schulze, SVP and head of Flexport’s ocean business, said in emailed remarks.
“During the financial crisis of 2008, the industry experienced a sudden drop in demand and shipping companies responded by reducing capacity and implementing cost-saving measures,” Schulze said. “Similarly, when the Panama Canal was expanded in 2016, it changed trade routes and required significant infrastructure investment to accommodate larger vessels.”
But the carriers’ current adjustments are being made more quickly than in the past, Schulze said, noting Recent reboot of ZIM of its high-speed e-commerce line connecting Southern China to the US West Coast.
ZIM told Supply Chain Dive that it “developed a distinctive agile strategy” years ago to respond to rapid market changes. Recently, it has expanded its connectivity from South America to the East Coast and Gulf Coast of the United States as a result of market changes and evolving customer needs.
“In some cases, declining demand has led to the closure or downsizing of certain lines, while the emergence of new or expanding markets has allowed us to introduce new lines and transactions,” the company said.
Ocean Network Express (ONE) told Supply Chain Dive that it also remains flexible and proactive to prepare for changes in global trade flows. The shipping company recently reduced its services to the US and Europe, while launching new routes within Asia and Latin America. For example, this announced the ‘FLX’ service. in July, connecting the west coast of South America with Florida.
However, not every carrier is pushing to launch new services. As the industry grapples with unstable demand trendsHapag-Lloyd said in an emailed response that it is instead focusing on adapting its existing services to current demand.
“But of course, we see new emerging markets, which we integrate more into our existing network (like Africa or India),” he added.
Air cargo willing to capitalize
Approaching or making friends in a supply chain is not a simple endeavor – adapting supplier networks, finding the necessary workforce and adapting to another country’s regulations are just some of the challenges involved.
“For manufacturers moving operations to Mexico from China, for example, they may still rely on materials from suppliers in Asia or other sourcing locations,” Matt Castle, CH’s vice president of global product and promotion services, said in an email. Robinson.
That’s where air cargo services come in handy. During a near-anchor transition period, shippers often use air freight to quickly deliver supplier components to keep up with the production and inventory needs of their new facilities, Castle said.
The point here is that as shippers diversify their supply chains to mitigate risks, flexibility is critical as disruption is truly inevitable and shippers have historically turned to air to keep goods moving.
Matt Castro
CH Robinson Vice President of Global Promotional Products and Services
Many businesses will be eager to take advantage of less expensive modes of transportation, such as trucking or rail, once that transition is complete, but air freight still offers advantages for businesses closer to their customers, Castle added. He noted that air cargo “has been a fast, reliable hub” for many auto suppliers and OEMs to overcome congestion along the US-Mexico border.
“The point here is that as charterers diversify their supply chains to mitigate risks, flexibility is critical as disruption is truly inevitable and shippers have historically turned to wind to keep goods moving,” Castle said.
One air cargo industry forecast released last year by Boeing agrees with Castle’s contention that the nearby coast will benefit airlines. The aerospace giant said supply chain changes are expected to trigger a resurgence of production in North Americawhich will result in the manufacture of high-value components that are usually transported by plane.
This provides an opportunity for the air cargo industry to capture more volume as carriers, like their ocean counterparts, face low demand and falling fares. Many air cargo providers are already investing to capitalize on this anticipated uptick.
DHL Express is investing a total of $600 million in Mexico by 2024 to capitalize on the country’s growth, Americas CEO Mike Parra said on LinkedIn earlier this year. This doubles its initial investment in the country announced in 2019.
Cargo carriers WestJet Cargo and Awesome Cargo, meanwhile, aim to boost connectivity between Felipe Ángeles International Airport in Mexico and the rest of North America, according to a Nov. 20 emailed press release.
“While the partnership is not explicitly linked to the close link, it positions both companies to leverage existing trade agreements and strengthen trade connections,” a WestJet spokesperson told Supply Chain Dive in an email.
Intermodal services from Mexico are increasing
Rail and trucking companies are stepping up partnerships to meet demand from North American supply chain investment and the US-Mexico-Canada Agreement, leveraging each other’s networks to offer integrated services between the three countries.
Logistics companies are increasing the capabilities of border gates as manufacturers expand to Mexico
Recently announced investments in Mexico and the cities of Eagle Pass and Laredo, Texas
Union Pacific, for example, started the “Falcon Premium” intermodal service from Mexico to Canada with Canadian National and Grupo Mexico Transportes earlier this year. The offering connects parts of their networks to support shipments of auto parts, food and temperature-controlled goods.
Union Pacific’s trucking partner Hub Group also expects to see benefits from the deal.
“We’re really excited about the southern premium service just launched by our western partner Union Pacific,” said President and CEO Phil Yeager during the company. Q1 earnings call in April. “It’s going to really help us, I think, to take advantage of the proximity opportunity both in the short term and the long term.”
The Falcon Premium combination faces stiff competition from Canadian Pacific Kansas Citythe first single line railroad connecting the US, Mexico, and Canada, and partnership with trucking provider Schneider National.
Schneider’s intermodal business in Mexico is currently a “very small part of our book,” EVP and CFO Stephen Bruffett he said on a November earnings call, but growing. The carrier’s order numbers have already increased by 20% in its services with CPKC inside and outside of Mexico.
“The rate of increase is much higher, as is the overall growth of the market in Mexico, because of the recent consolidation,” Bruffet said. “So the incremental volume is still relatively small, but we’d say the long-term opportunity is bigger.”
This long-term mindset is shared by many carriers across all modes as they retool their extensive networks for a new era in supply chains.