For importers, reshoring to the U.S. isn’t necessarily the solution. It would entail a massive overhaul of current operations and supply chains, leading to higher prices and fewer choices for American consumers. Depending on the product, importers are increasingly looking to other countries, such as Mexico and Vietnam, to manage the risk associated with uncertain trade policies. Furniture companies, for example, realize that it is cheaper for Mexican manufacturing operations to import wood from the U.S. than it is for Chinese manufacturers. With a similar cost of labor between Mexico and China and lower transportation costs to and from Mexico, some of these companies have started to shift their sourcing to Mexico.
Overall, to manage sourcing risk effectively, it may be necessary to diversify geographically. Mile one: Which port gateways are affordable, fastest and the most reliable? What are shippers’ options for moving products through the freight movement network of highways and railways? For importers of low-value goods, such as toys and clothing, ocean transport is the most cost-effective mode. However, many U.S. seaports are extremely congested and delays can cost shippers thousands of dollars per day. And you don’t ascertain the best seaport to move goods through by simply looking at a snapshot of TEU volumes. While shippers will by default prefer seaports based on proximity to the goods’ origin, other considerations include:
· Seaport capacity to handle increasing cargo volumes;
· Availability of transportation modes near the seaport to move product to the final destination;
· And the total costs and time to destination associated with each seaport.
A strong economy means that all inputs — from raw goods to labor — are more expensive, so all scenarios must be analyzed. Middle miles (miles two and three): How to develop a balanced and integrated intermodal strategy? Intermodal facilities are a cost-effective and reliable solution for the long-haul movement of goods, especially as rising fuel costs and a driver shortage continue to plague the trucking industry. This is a second-mile decision. When determining optimal domestic transportation routes, shippers should not only analyze the total costs of truck versus rail but also look at reliability — the infrastructure supporting connections from seaports to inland ports in major cities.
The use of intermodal can create access to additional urban areas where labor and industrial real estate is more available at desired cost levels. This is a third-mile decision.
Supply chain managers need to consider expanding their use of intermodal in their distribution network strategies. Last mile (mile four): How do you maintain share of increasingly fragmented consumers? Whether customers are rural, urban or suburban, they expect goods purchased online to arrive at their doorsteps within one or two days of placing an order. In crowded urban areas, traffic and congestion make these delivery commitments particularly tricky. Shippers have turned to Europe for innovative approaches to last-mile deliveries. For example, European delivery companies are experimenting with dropping purchased goods right into the trunk of customers’ cars while parked at work.
Obviously, the convenience of last-mile industrial space comes at a premium, so shippers need to factor real estate costs into their final location decisions. Retailers also shouldn't take a “one-size-fits-all” approach when it comes to their last-mile strategy. Specifically, a demographic analysis in each market should drive the identification of optimal last-mile facilities, and this will vary according to each city’s urban and suburban profile.
As the U.S. begins to develop export infrastructure, the hope is that importers will one day only pay for the head haul, and exporters will pay for the back haul as they send their goods on return transportation. Inland ports in locations like Kansas City and Chatsworth, mentioned above, may help with this problem. The urgent need for export infrastructure is only going to grow as a burgeoning global middle class demands premium goods from the U.S.
While technology — from warehouse automation to self-driving trucks — has the potential to radically improve the efficiency of supply chains, full adoption is still years away. Therefore, shippers need to look at their supply chains through the lens of the “five-mile” framework and plan for different scenarios in what remains a very uncertain economic and trade environment. Dr. Walter Kemmsies is the managing director in JLL’s Port Advisory Group. He may be reached by email at Walter.Kemmsies@am.jll.com.