In the logistics business, time is money, meaning that minutes can often cost millions of dollars. Take the American company Zappos, for example. Since its conception in 1999, Zappos has grown to be the largest online shoe store in the world.
The retailer’s phenomenal growth began in 2003, when Zappos reached $70m in sales and abandoned drop shipping – a mode of distribution where a customer's order is shipped directly from the manufacturer – which accounted for 25% of its revenue. The decision was based on logistics and a desire to offer superior customer service.
"I wanted the entire company built around customer service. Zappos could not control the customer experience when a quarter of the inventory was out of its control,” says Tony Hsieh, CEO of Zappos.
The next year, Zappos moved its headquarters and call centre from San Francisco, California, to Hendersonville, Nevada, and its gross sales reached $184m. In 2006, it moved its fulfilment centre – where its stock is stored and shipped from – to Shepherdsville, Kentucky, to commence a very important relationship with United Parcel Service (UPS), the carrier that it used for most of its orders.
UPS operates its WorldPort hub – a 1.6 million-square-metre operation that turns over 130 aircraft and processes an average of 1.6 million packages daily – in nearby Louisville, Kentucky. DHL Express is also close by, which operates its facility nearby in Covington, Kentucky. Five interstates and a network of US highways serve Kentucky, which is within 965 kilometres of 60% of the US population. Kentucky is also a rail centre for the mainline services of the CSX, Canadian National and Norfolk Southern railroads.
“From Louisville, and with the help of UPS, the company was able to serve areas with population density and the US lower 48 states with next-day or two-day delivery,” says Craig Adkins, vice-president of services and operations at Zappos. As a result, sales grew a significant 40% from $597m to $840m in 2006.
Today, the company is owned by Amazon, which now operates Zappos’ former fulfilment centres that total 340 square kilometres. In October, Amazon also opened a 305-square-kilometre distribution centre in Jeffersonville, Indiana, across the Ohio River from Louisville – its fifth in the state. Zappos controls its brand from its new corporate headquarters in Nevada.
The Zappos e-commerce example demonstrates how purchasing and distribution channels are rapidly changing. Retailers are no longer focused entirely on bricks-and-mortar structures to sell products. Just-in-time operations and supply chains and warehouse management systems, coupled with strategic locations that offer transportation advantages, are key to success.
Growth in e-commerce, via the use of smartphones and wireless internet, influences the movement, storage and sale of merchandise from production through consumption. Third-party logistics providers are also becoming an integral party of supply chains for an increasing number of companies.
Challenging economic conditions and rising transportation costs, influenced by higher fuel prices, have also caused companies, particularly those in the manufacturing sector, to factor in operating costs for over-the-road shipping. According to the Council of Supply Chain Management Professionals (CSCMP), shipping currently represents the largest single cost factor in the supply chain, far outweighing real estate and rent costs.
“Transportation costs are particularly steep in California, a key state for many companies’ distribution networks,” writes John H Boyd in a special 2012 issue of CSCMP’s Supply Chain Quarterly. Consequently, intermodal transportation – the marrying of road and rail services – has become increasingly important to both manufacturing and retail operations.
Ohio, where two important intermodal transfer facilities have been constructed – one for Norfolk Southern in Columbus and the other for CSX near Toledo – is giving rise to a burgeoning warehouse and distribution industry. Both facilities connect to important seaports on the east coast that stand to benefit from increased trade resulting from the expansion of the Panama Canal, due to be completed in 2015.
In Europe, there are several locations that continue to develop their strategic and competitive logistics advantages. The Nord Pas de Calais region of northern France, for example, offers quick access to five European capitals – Paris, Brussels, London, Amsterdam and Frankfurt. There are 78 million people within a 290-kilometre radius of the region and ports in Antwerp, Rotterdam and Le Havre are accessible in less than two, three and four hours, respectively.
Inland, the northern French commune of Valenciennes is a major rail hub and major multimodal node for the region. Its wide-gauge, 186-kilometre Dunkirk-Valenciennes Canal allows inland waterway vessels of up to 3000 tonnes to sail to the main inland ports in the Nord Pas de Calais region.
International companies with distribution operations in Nord Pas de Calais include clothing brand Morgan, electrical personal care manufacturer BaByliss, multinational electronics and electrical equipment company Brother, electronics company Ingram Micro, car manufacturer Mercedes-Benz and sportswear manufacturer Columbia Sportswear.
Columbia Sportswear operates a distribution centre near Cambrai, from where it serves 1500 retailers in 38 European countries. Among the retailer’s location criteria were proximity to key customers and ports, a highly skilled workforce, warehouse costs, relations with local authorities, customs and regulations, site availability, ample land, and the positive experience of similar companies in the region. “Most important was the availability of a good and sufficient labour pool,” says Vincent Liagre, the company's distribution manager.
Next best location
A recent study by real estate firm Cushman & Wakefield suggests that the nearby Belgium region of Wallonia will become one of Europe’s most attractive logistics hubs by 2020. Currently, the Walloon Port Authority of Liege is working to develop its Liege Trilogiport multimodal platform to become a fully fledged 'logistical village' in the heart of Europe. “We want it to be operational by mid 2015,” says Helene Thiebaut, a spokesperson for the port.
Wallonia's other assets include road and rail networks and the underutilised Liege Airport. Its transportation infrastructure is uncongested compared to competing locations in the Netherlands and Flanders. Consequently, healthcare company Baxter Healthcare, medical devices, pharmaceutical and consumer packaged goods manufacturer Johnson & Johnson, healthcare information provider Lilly, medical technology development company Medtronics, pharmaceutical company Janssen Pharmaceutica and others have opened large distribution facilities in the region.
Elsewhere, the traditional global logistics hot-spots of Dubai and Hong Kong still maintain a stronghold. Companies look to these locations for their global transportation connections via both sea and air, and profusion of experienced and skilled third-party operators that know how to move products fast.
With strong competition in China – from Shanghai and neighbouring Shenzhen, Hong Kong, in particular – is working on schemes to promote logistics while also growing new commercial sectors of business. The wine industry offers a key example.
China’s rapid increase in wine consumption has caused the Hong Kong government to sign an agreement with mainland China offering enhanced customs facilitation measures. The Registration Agreement offers an expedited customs process that drastically reduces the processing time for wines moving from Hong Kong into mainland China.
Dovetailing with this is the Closer Economic Partnership Agreement, which was signed by the two governments in 2003. Since wine is one of the qualifying products, this means it can be exported into mainland China tariff-free.
How it works is if the duty value of the wine has been predetermined, registered wine traders may request Shenzhen customs to conduct a wine duty valuation before the shipment is exported from Hong Kong to mainland China. Shenzhen customs normally completes the procedure within one day when the shipment arrives. If no pre-valuation has been contested, the Shenzhen customs will expedite the clearance process.
"It is all about efficient logistics, and making products more price-competitive and profitable,” says Hong Kong commissioner for economic and trade affairs, Donald Tong.