Shipping article(s)
December 3, 2015

The shift of manufacturing away from the coastal provinces in China is presenting a multitude of problems and challenges for shippers, according to a speaker at the TPM Asia conference in Shenzhen.


In 2008, Procon Pacific, which manufactures flexible intermediate bulk containers, also known as bulk bags, used to carry out 90% of its production in Jiangsu province, about two hours away from the Shanghai-Changzhou area, said Dan Krassenstein, the company’s director of Asia operations. Today, about 60% of the production is done in Shandong, 35% in Jiangsu and 5% in the Chongqing area, from where Procon’s product has to be transported to Shanghai by river barge.


“Transparency and reliability is probably a one on a scale of one to 10,” said Krassenstein. “Essentially, there are only two players who are providing empties in Fuling port near the Chongqing area. Then, the cost of trucking within Chongqing itself and from Fuling to Chongqing is exorbitant. So you really don’t have options to go an extra 200 kilometres to grab the next port down the river where there’s more space availability because it’s cost-prohibitive. One is to truck it all the way to Shanghai, or another is to put it on rail down to Yantian.”


Krassenstein added that there is very little visibility during the journey and that if he’s lucky, it could take 11 days to get from Fuling to Shanghai, but sometimes he’s not so lucky and it ends up taking 26 days. “There’s absolutely no way of knowing how your luck is going to be,” he said. “So we only produce our less urgent product there.”


Nevertheless, staying within China is still a better option that moving out of the country altogether to countries such as Vietnam, Cambodia or India. “Infrastructure there is horrible,” Krassenstein said.


As an example, what looks like it should be a 14-hour truck journey could actually take five days. “That’s why we haven’t seen a shift of production in our industry to Southeast Asia,” said Krassenstein. “Too many of the players can still reduce their profits, revenues and costs a bit more if they keep their business in China.”


Self Photos / Files - Containers Fotolia_60501254_MKrassenstein was part of a panel of three shippers giving their views on a variety of issues. Apart from the changing nature of China’s manufacturing sector, one of the topics discussed was the impact of the potential merger of China Shipping Container Lines and Cosco Container Lines.


“As shippers, we want options,” said Natalia Chan, senior director of import transportation for Asia at US retailer Target Corporation. “We do want options and when we’re selecting our ocean carrier partners, I think one of the questions is, ‘Will they still be around?’”


However, Chan said that she wouldn’t oppose the merger if it didn’t impact reliability. “At the end of the day, our goal is to serve our customers and to ensure that the goods are there, so a predictable and reliable service is very important,” she said. “Whatever consolidation or merger they come to, all we ask for is the service level.”


Krassenstein said that, while competition is good, especially from a shipper’s standpoint, the deal wouldn’t necessarily be a bad thing. “With Cosco and China Shipping becoming one, suddenly you don’t have that competition – that’s the bad,” said Krassenstein. “The good might be that now you have a much larger Chinese player who can go head-to-head against the likes of Maersk.”


The merger of the two companies, which suspended the trading of their shares in August 2015, would create the fourth-largest ocean carrier in the world.


Bjorn Vang Jensen, vice president of global logistics at Electrolux, said that whether or not the merger was a good thing or a bad thing, it wouldn’t be a “game-changer” but it would certainly be “a seismic event for the industry.”


“Some of the alliances will have to do another round of musical chairs,” said Vang Jensen. “Yes, there will be one less choice, but there’s still a lot of choice out there. What will be really interesting to see, if it happens, is who is going to take the lead.”


While the merger could also affect the rates shippers will have to pay, pricing isn’t the most important consideration when selecting carriers.


Electrolux, like most other BCOs, always tries to seek a low-cost freight solution that works, according to Vang Jensen, but there are many other factors too. “It’s not just about the lowest rates or the race to the bottom,” he said.


Krassenstein, who said he prefers not to deal with the carriers directly because the 3PLs are filling the void, said that he had thought about what his priorities were when making a booking. “Low pricing is not even on the list,” he said. “The very first word that came to my mind is reliability. Am I willing to pay a premium? Absolutely.”


Because Procon’s product is relatively low-margin, Krassenstein said that he does need competitive pricing so he can be sure he is not paying more than a competitor.


Another important factor is transparency. “I want to be the first one to know when there’s a problem,” he said. “Then, I’ll work with the 3PL on a solution.”


Chan said that Target doesn’t just want the cheapest ocean freight market because that is not how Target conducts business with the carriers. “It’s always a balance of the cost, capacity, reliability and predictability,” she said. “We want reliable service, so this is what we go for. We always want to leverage our sizing scales to have competitive prices as well as the right level of service. So if you want to ask how we describe our contracting process, I would say that it’s more strategic sourcing, because of how much we value the partnership with our strategic ocean partners.”


When asked what kinds of problems keep them up at night, all three shippers agreed that the management of risk was probably the most pressing issue on their minds.


Sources of risk include the alliances, overcapacity and figuring out who or what goes on whose vessels, according to Vang Jensen.


As part of a smaller BCO, Krassenstein is involved in every facet of his company’s supply chain, so risk management is an integral and unavoidable part of his work.


“Every single day, there’s a crisis. It’s a quality-control issue; it’s a late-production issue; it’s a lack-of-space issue; it’s a port congestion issue – every day there’s always something,” he said. “But at the end of the day, I turn my phone off and nothing keeps me up.”



By Jeffrey Lee

Asia Cargo News | Shenzhen

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