Managing pinch points
March 3, 2017,
HIGH POINT — Last year was a tumultuous year for the furniture industry’s supply chain, and more disruption could be on the way in terms of ocean-carrier contracts and distribution of goods stateside.
Pinch points exist all along the line of getting goods from plant to consumer. Container shippers continue to figure out how they can make money in a market with excess capacity, and a tightened delivery infrastructure stateside with consolidation among trucking companies geared toward furniture doesn’t help.
Aside from the implications of potential tariffs on imported goods floated by the Trump administration, the furniture industry continues to deal with choke points throughout its supply chain.
At the source
Bill Smith, CV International
“Transshipment points are bothersome, particularly in Southeast Asia,” said Bill Smith, vice president of business development and sales at CV International.
Vietnam’s Cai Mep port’s ability to host larger ships has eased the congestion of shipping containers from a source country of ever-increasing importance on smaller ships to mother ships east-bound from Singapore or Hong Kong.
Another bottleneck involves U.S. ports of entry for offshore goods, which must accommodate ever-larger container ships. The economies of scale might work for the ocean carriers, but they take longer to unload in U.S. ports.
“As the ships have gotten bigger, it’s been harder to process those vessels at the port of entry,” Smith said, adding that the problem is particularly acute at West Coast ports, which, despite growing activity on the East Coast, still account for a huge portion of west-bound Asia traffic to the U.S.
“If you have market samples coming in and want to expedite a truck shipment from the port, you might pay a ‘hot hatch’ premium” for the container’s location on the ship in order to speed unloading.
Ocean carrier alliances are old news, but when it comes to ocean freight, shippers had best take that consolidation into account. If you’re contracted with a single carrier — or alliance — for your state-bound containers, you might get bumped on spot pricing at the port of departure. And that’s a pinch point in the supply chain.
That’s why Global Shippers Assn. has ocean-freight contracts spread among the three carrier alliances that represent 91% of Asia-to-North America capacity (see graphic at left).
“We always have every alliance representing, which is critical because some people can’t get their goods on ships,” said GSA CEO Freddy Davis. “With our buying power, we have some pull in that.”
Let’s say the “beneficial cargo owner,” that is a vendor or retailer running its import operation alone, sets up contracts with just one or two ocean carriers.
“If you signed a contract rate for $2,500 (per container shipment) and the market rate is $3,000, you run a risk of getting bumped,” Davis said. “That’s all about the spot rate.”
He suggests that importers look at staging ocean shipping as a three legged stool: first, an association such as GSA with a lot of buying power; second, the freight forwarder; and third, the ocean carriers themselves.
“We have 10 to 12 contracts per year across three alliances, so we cross the gamut of carriers,” Davis said, adding that the recent announcement that Maersk Line lost $376 million last year doesn’t bode well for ocean rates (see story page 39). “They have a lot to make up.
You’re already hearing about (carriers) parking ships.”
Davis said that at Las Vegas Market, retailers were actually writing orders from vendors, and he hasn’t seen that in a while at markets. That could load the system.
“Everyone there told me retailers were writing orders, and you have to cover the shipping on that,” he said.
GSA members combined ship thousands of containers. For vendors and retailers shipping maybe 100 containers a year, Davis suggested addressing two legs of the three-legged stool he depicted will be enough to cover their bases.
Transparency in the chain
Ashley Yentz, LeanCor Supply Chain Group
“As firms move farther away from their supply base, lead times increase and visibility inherently decreases as well,” she said. “Items are often purchased for a piece price and then moved with a freight forwarder who makes decisions that can greatly impact cost.”
Those include port of origin, shipping lane, port of destination, inland transport options, demur-rage and drayage.
“Retailers can also be challenged with long lead times and poor visibility to shipments,” Yentz said. “This causes lower customer service levels due to due date changes and labor constraints when containers are batch-delivered from the freight forwarder to the retailer’s distribution center.”
To overcome these challenges, LeanCor helped one furniture client collaborate with its freight forwarders and suppliers. The client had visibility to total cost but not to the specific aspects of where each cost was incurred in the supply chain, or how its decisions — or the freight forwarders’ — were positively or negatively affecting costs and lead time.
“While collaborating with each partner, the client better understood where lead time and cost could be reduced by making different decisions throughout the shipment process,” Yentz said. “Decision-making power was still given to the freight forwarder but guided and measured by the client with a scorecard.
“With more visibility to POs earlier in the supply chain, the client could better understand the cost impacts before they happened, which allowed for proactive decision. With this visibility, the client could reduce waste at the various decision points and reduced overall lead time from 120 to 90 days in just nine months.”
Smith at CVI noted that inter-modal transfers of goods from truck to rail are another potential choke point.
“The rail yards have gotten stingy on how much free time you have (for a truck) to pick up your container,” he said. “You have 24, 48 hours max to have these containers on the yard before getting hit with demurrage fees. You need to have your trucks lined up and have good visibility on when that container arrives” at the yard.
In such cases, Smith said it’s important to have a quality freight forwarder unless you’re willing to track the timing yourself.
“The information is out there, but it’s the freight forwarder who watches that who can add value,” he said.
GSA’s Davis said that stateside warehouses are bogged down, and they’re full because specialized furniture carriers carrying furniture product have consolidated. “It doesn’t help that a lot of that warehouse space is taken up by slow-moving goods,” he said. “You can’t control the economy, but the ideal model is to have 30 days of goods in production, 30 on the water, and 30 in the warehouse. That’s the ideal model, but we’re a fractured industry when it comes to supply chain right now.”
GSA is investing in its own warehousing, and utilizing warehouses at specialized furniture carriers.
“We put a warehouse in Houston just to handle e-commerce, and it’s moving a lot of product,” Davis said. “We’re also working with (specialized carriers) like Shelba Johnson and Brooks-DeHart. I don’t care whose warehouse the product is in as long as they’re taking care of customers. It helps us with customer service, and it helps (carriers) build density on their trucks.”
With an ongoing truck driver shortage and hours-of-service regulations constraining road carriers serving the furniture industry, utilizing carrier capacity is key these days. One solution is “milk runs,” where a truck delivering goods to a destination makes a pick-up for the return trip, avoiding an empty run going home.
“In one instance, we saw a company increase its suppliers’ weekly delivery frequency by 81%, and lower (distribution center) on-hand inventory by 37% as a result,” said Yentz at LeanCor. “And on the outbound-to-retail side, increasing store delivery frequency by 147% lowered on-hand inventory by 53%. Overall, the total logistics cost was reduced by more than $500K in just two years.”
Utilization is used in two distinctly different contexts when discussing route engineering, she said: driver/equipment hours from the carrier perspective and percent of trailer utilized from the shipper perspective.
“Carriers are happiest when they do not have to worry about their next load,” Yentz said. “If we can build routes that allow a carrier to fully utilize their equipment for an extended period of time, they will ‘gobble’ up that load and frequently reward us with a nice rate. This can be accomplished by utilizing milk runs/connecting many different routes together for the same carrier as well as multi-stop routes.
“Additionally, carriers do not want their equipment/drivers to sit idle. Therefore, we should try to build routes that minimized waste and use a driver’s hours to the fullest extent whenever possible.”
“The carrier knows that they have business for that asset and provides its service at a reduced rate as a result,” Yentz said. “In addition to saving money, milk runs of this kind also develop consistency. Frequently, the same driver hauls the same load each week, allowing them to become familiar with the material, the highways and byways they will take along the way.”
LeanCor has designed multiple milk runs that are run weekly and, when tied together, require roughly seven days of transit for one truck.
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