|On Second Thought
president of sales and marketing, ModusLink Global Solutions
Major shippers are incorporating the Panama Canal route into their near-term business plans, East Coast ports are expanding their infrastructure to meet future demand, and we are now close enough to envision what the route’s capacity will be once the canal expansion is complete in early 2015.
The central promise of the larger Panama Canal is dramatically increased capacity, which will allow the route to accommodate vessels up to three-times the size of the canal’s current limit, commonly referred to as “Panamax,” and speed up the transit time for vessels of all sizes.
Currently, a Panamax vessel traveling from Asia can expect to arrive in Norfolk, Va., in 22 days — if everything goes perfectly. However, congestion at the entry and slow passes through the canal locks tend to add a few days to the trip. Panama’s investment in the expansion, which will double the capacity of the canal, is validated by the idea that delays will be drastically reduced, and shippers with freight bound for the United States will find significant value in having reliable and affordable all-water access to ports on both coasts.
For shippers currently relying on the U.S. trans-continental intermodal system or the Suez Canal route to ship product from Asia to the East Coast, an expanded Panama Canal presents an attractive alternative — and for those who already use the canal regularly, the increased capacity means increased efficiency. However like any route, it will come with its own door-to-door lead times and costs — important factors that need to be entered into the supply equation for product destined for the U.S. market. Before making too many changes within your organization, here are a few factors to consider:
The new system might save a few days. How will you use that time?
If you tend to budget for a three-day stop in Panama and the expansion allows you to reliably approach and pass through in half a day, one idea would be to forward those extra days on down the supply chain, delivering product earlier than is currently standard, thereby increasing end user satisfaction and brand loyalty. Another option would be to use the extra time to take some of the pressure off of product development, production, and packaging phases, with the end goal of an improved deliverable and fewer returns. Yet the greatest payback may be in the development of a logistics plan that allows your company to spend that reduced lead time adjusting the levels of buffer inventory required in an ever-accelerated replenishment cycle.
Are your customers set up to handle the change?
Maximizing this new route may require a new distribution footprint. Your decisions regarding what will make the most sense should be made based on multiple customer needs and requirements. These decisions will not happen quickly. Be prepared for slow but fluid movement toward a more diversified route system, and be careful not to overinvest before you know exactly what your customers will need.
Will the East Coast infrastructure be able to handle your plans?
Momentum from found time in Panama needs to be sustained when your shipments reach ground — so when considering a change, also consider the relative availability, frequency and capacity of eastbound versus westbound container traffic. Transit time benefits could well be lost if the East Coast is unable to provide frequency options needed by you and your customers.
Is it worth the extra layer of logistics?
Many businesses will capitalize on the canal’s expansion not by abandoning the West Coast entirely, but rather by splitting their product and providing bicoastal deliveries. However, some business models simply do not warrant a duel injection model into the East and West coasts. This can depend strongly on the demographic profile of your demand. For example, companies with high SKU (stock-keeping unit) counts may find that the cost of sophisticated planning for dual-coast shipments outweighs the benefit of a few days saved.
Are your shipments time-sensitive?
The dual-coast approach enhanced by the expansion of the Panama Canal will be especially beneficial for new product launches. When time is of the essence and the competition is right on your tail with an alternative product — as is the case in many electronics launches and hot holiday offerings — the dual-coast approach can earn you more precious time as the only option on the shelf and also saves the incremental cost of air transport. For products that really need to hit stores everywhere with no time to waste, those two factors will add up to the highest possible profit.
Could greater efficiency be found elsewhere?
Since many companies have multiple suppliers providing product from China, splitting volumes further via a dual-coast approach could result in a loss of shipping economies — and ultimately cost more. Instead of rerouting product to save time, now may be a good time for companies to look at adding consolidation centers in China to warehouse multiple supplier shipments, allowing them to then replenish East and West coast distribution centers as appropriate.
The logistics industry has been tasked with navigating the short- and long-term benefits, costs, implications of — and alternatives to — incorporating this game-changer into shippers’ business plans. Its implications have been discussed abstractly in white papers, studies and columns like this one for years now, but the expansion will soon change the shipping environment in a tangible way. It will pay dividends to those who are realistic about what it can and cannot offer, and leave behind those who greet its debut without a responsible, real-world plan. Is your organization ready?
Nightingale is president of sales and marketing for ModusLink Global Solutions, a supply chain management firm. He can be reached by email.