Changing dynamics of high-tech logistics

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When it comes to manufacturing and transport of high tech commodities the move is from off-shoring to near-shoring and now to right shoring. However, air freight has an enviable stake in the supply chain. Reji John...
E urope’s largest all-freight carrier Cargolux is in talks with Boeing to buy five more 747-8F freighter jets. The aircraft would serve a planned joint venture between Cargolux and its 35-percent shareholder Henan Civil Aviation Development & Investment (HNCA) to be based in Zhengzhou, north central China, a key manufacturing hub for world's leading electronics brands. "At this moment the plan is to purchase another five 747s for the project which will be based in China, on top of the existing fleet,” said Dirk Reich, CEO, Cargolux. Reich was speaking recently after taking delivery of the 13th out of 14 of the 747-8 freighters. The Luxembourg-based all cargo carrier Cargolux operates a hub at Zhenghzhou, home to the main production base of Apple's primary iPhone assembler Foxconn. Shipments from there have surged in recent weeks amid strong demand for the latest models. "Especially in the last weeks before the weekend of the (iPhone 6s) introduction, we have seen big shipments from China to all over the world particularly the US,” said Reich. "It looks like the sales are in the same range as they were last year, so it is an early sign of the high season for air freight starting,” he added. IAG Cargo will offer a new transatlantic route between its Heathrow hub and San Jose in California from May next year as it hopes to capitalise on the continued growth of high-tech manufacturing in the region. The British Airways and Iberia cargo arm will utilise belly capacity on a BA Boeing 787-9 aircraft which can carry up to seven pallets or 16 tonnes of lift on each flight. The airline group said the route is expected to prove particularly beneficial to businesses in the hi-tech manufacturing sector operating from Silicon Valley; located a short distance from San Jose airport. Additionally, San Jose will be able to support IAG Cargo’s wider operations in California, providing overspill support for cargo flights out of Los Angeles and San Francisco. IAG Cargo chief executive Steve Gunning said: “California is one of our busiest markets, so it is important we can support fully our customers there. Studies have found that high-tech companies are warming to a variety of shoring strategies to capitalize on opportunities in established and emerging markets. New this year is the evolution of near-shoring to the concept of “right-shoring.” Right-shoring is a holistic strategy that balances a number of factors to determine the proximity of sourced materials to production, warehousing and distribution. These metrics may be cost or resources (skills and infrastructure) for the best overall margin performance and customer satisfaction. High-tech businesses, no matter how large or small, cannot afford to cling to the ways of the past. High-tech businesses, no matter how large or small, cannot afford to cling to the ways of the past. After all, this is an industry that thrives on innovation and one where there is practically no downtime between product generations. For today’s high-tech firms, there is no one-size-fits-all strategy. Clearly, the high-tech market is one that changes rapidly and puts tremendous pressure on companies to adapt to that change. It also forces them to confront new obstacles in their quest to enter new markets. A recent survey shows that high-tech companies often have difficulty navigating the regulatory environment in new markets. This is a top barrier to expansion. Logistics companies like UPS can help businesses overcome such challenges, using established in-country infrastructure to keep high-tech companies from having to break the bank to compete in relatively untapped foreign markets. The right logistics partner also can help businesses identify trends in the changing marketplace, solve problems and create long-term value. When it comes to the shoring debate, however, the right answer for many companies sometimes is less obvious. Off-shoring, near-shoring and right-shoring all have their advantages. A lot of factors come into play. Right-shoring is likely to increase in coming years as companies become more familiar with the practices and as security and regulatory issues prompt them to re-evaluate their supply chain strategies. But, for today’s high-tech firms, there is no one-size-fits-all strategy. High-tech businesses, no matter how large or small, cannot afford to cling to the ways of the past. In a survey done by UPS, various aspects of the high-tech supply chain were examined, including a global high-tech outlook, near-shoring, and the customer-centric supply chain, among others. The underlying theme of the survey had to do with driving change in the “chain”, with high-tech logistics executives preparing for gear-shifts to remain competitive and stay ahead in a tight market. Looking at the state of high-tech exports, the survey found that 41 percent of respondents expect to see exports grow faster over the next two years compared to 2013, with 39 percent seeing exports grow at the same level during that period, 13 percent expecting them to remain at the same absolute level, and seven percent expecting them to decline. “The economy is clearly slowly recovering from the global recession, and many high-tech companies have their eye on the emerging markets prize as a long-term trend of new consumers entering the middle class in these markets with a pretty heavy appetite for high-tech goods for things like smart phones or tablets, coupled with the high-end infrastructure to support that connectivity,” said Ken Rankin, UPS High-Tech Marketing Director. High-tech companies around the world expect exports to grow over the next two years, but air cargo freight and passenger jets are set to gain not container lines. According to a new study published by UPS, 74 percent of respondents were bullish on exports. Of the 516 high-tech executives surveyed, 46 percent said they expect industry exports to increase at its current pace over the next years and 28 percent said they expected growth to accelerate. Just 14 percent, roughly 72 respondents, said they didn’t expect industry exports to grow at all. While the UPS survey did not ask how shipper planned to export their goods, if history is any indication those high-tech products will be travelling by air freighter or in the belly of passenger aircraft. Shippers moving e-goods, which are often small and light-weight as well as expensive, have traditionally preferred flying their products to their final markets. High-tech electronics manufacturers face one looming challenge: the growing need to manage cross-border trade. Seventy-four percent of the US-based senior-level high-tech decision makers responding to a 2012 UPS-sponsored survey expect to increase exports of their companies' products during the next two years. "The increase has been driven by changes in sourcing strategies, and demand for high-tech products among the growing middle class in emerging markets," says Alantria Harris, high-tech segment marketing manager at UPS in Atlanta. Political and cultural barriers in those countries, however, have presented challenging hurdles for high-tech shippers. Whereas in 2013, the highest hurdle for most shippers was accessing the likely appeal of products, in UPS’ latest survey, 35 percent of respondents said navigating the regulatory environment was their greatest obstacle.
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