Effects of globalization
In a recent discussion of his new book, Tom Friedman notes:
…“The third chapter of the book — and I will stop here — is really the core thesis. It is called "The Triple Convergence." … The informing drove the outsourcing; the outsourcing drove the in-sourcing; the in-sourcing drove the supply-chaining; the supply-chaining drove the off-shoring. All started to work together at a tipping point, and the result was a Web-enabled global platform for multiple forms of collaboration and sharing of knowledge—irrespective of distance, of geography, and increasingly, even of language. We are just at the beginning of this. … Tom Friedman, “The World Is Flat: A Brief History of the Twenty-First Century.”
The growth of digital information enabled by the Internet, as well as the payoff on IT investments driven by Y2K have facilitated double digit growth in global commerce. The “informing” element mentioned by Mr. Freidman’s created new methods for finding new sources and markets. In response, U.S. corporations turned to out-sourcing in both manufacturing and services. In managing supply chains the cost opportunities fueled the growth of 3 and 4 PL’s.
Outsourcing increased disposable income in the rapidly developing economies(RDE’s) creating opportunities in China and India. Effectively, technologies and best practices that took many years to develop in the USA, became the starting point for them. Equally important, these rapidly developing economies(RDE’s) can design and build out their infrastructure using current best practices.
It can be argued that when we moved our production off-shore, we offset the transportation mileage of our former suppliers to our own facilities. The impact of these choices would logically impact the in-bounding of goods to US ports. However, the effect of China as an exporter appears to have been underestimated. Similarly, we are increasing the distance of delivery within the US.
As we continue to absorb this trade we are faced with a dilemma. Our ability to fund, modify or change our transportation infrastructure at the growth rate of trade with the RDE’s is not apparent or tested. We believe we need to focus on our infrastructure in line with this growth across our networks seaports, roads, ports, human capital and knowledge capture and retention, is being stretched.
Global TEU Growth
Theo E. Notteboom, in his article Container Shipping and Ports: An Overview “Worldwide container port throughput increased from 36 million TEU* in 1980 to 266 million TEU in 2002. Forecasts point to 432 and 468 million TEU in 2010( OSC, 1997 and OSC, 2003).
Review of Network Economics, Volume 3, Issue 2—June 2004
In addition, the global ocean fleet has responded by moving to design and construction of larger vessels to increase operating efficiencies and volumes.
As discussed by Messrs. Fry and Thompson in their 2005 article Bigger Ships, Bigger Risks, “A major international shipping company, China Ocean Shipping (Group) Company, recently ordered four 10,000 TEU container vessels, which demonstrates the size of modern container vessels. However, these larger ship sizes are by no means at the limit of future growth. Various industry authorities suggest the next generation of mega-size container ships built within the next five to 10 years will be between 12,000 TEU and 18,000 TEU capacity with 22 to 24 containers across a 60-meter-wide deck and drafts of 15 to 21 meters.”
While in theory this new ship size should lower per unit costs, we must appreciate the environmental and funding impacts nationally.
Demands for Oil and Fuel
While TEU’s volume increases, the impact of a terror attack on just one port is obvious. The chance to use a single TEU as a basis of terror is equally ominous. Notwithstanding the potential lives lost, the impact a terror attack on any USA port would be enormous. The inability to use LA or Long Beach would not only increase pressure on other ports; but global financial, commercial and supply chain effects would be substantial.
From a ongoing fuel cost basis, we need to recognize the implications behind China’s internal growth and expanding influence in global economics. In his written comments before the U.S.-China Economic and Security Commission on China’s Global Strategy and U.S. Policy responses, Mr. Randall G. Schriver states:
“ Four aspects of Chinese interaction with the outside world deemed critical to the success or failure of the Chinese economy, also serve to inform us about Chinese diplomacy and foreign policy. First China is highly dependent on the outside world for energy resources---and its demand continue to surge. According to the DoD report, “ China currently imports 40% of its oil. By 2025 this figure may rise to 80%.”
In similar comments before the same committee, Dr. Gal Luft, Executive Director of The Institute for the Analysis of Global Security, states :
“Close to 60 percent of China’s oil imports come form the Middle East and its imports from there are projected to grow by more than 500% by 2030. China is already making its presence felt with money, arms, and diplomacy, moving to fill the widening post-September fissures between the U.S. and Saudi Arabia and Iran.” He goes on to say, “Without a doubt the biggest prize in the Middle East is Saudi Arabia, home of a quarter of the world’s oil reserves. Since its 1999 pronouncements of a Sino-Saudi “strategic oil partnership,” Saudi Arabia became the supplier of crude to China.”
As the disposable income increases in both China and India( 1/3 of the worlds population), the need for oil and gasoline will have direct effects on both private and for hire freight volumes and costs. More importantly, the global strategies of our government became more and more of a factor in our commercial decisions.
Sarbanes Oxley:
In his article, “SOX As A Catalyst For Continuous Financial Improvement” Sanjay Srivastava, talks about the effects of Sarbanes Oxley and the ongoing and growing requirements for financial transparency. “…A quick summary of SOX’s key sections reveals how powerful a catalyst SOX can be for ongoing financial improvement. Section 302 calls for certification of financial results. Section 404 mandates the ability to report on and certify the effectiveness of internal control structures and processes. And Section 409 dictates the disclosure of material information “on a rapid and current basis.” Together they define the need for:
• Ongoing visibility across disparate systems and processes
• Objective identification and analysis of key compliance and performance indicators
• Real-time monitoring and reporting of changing financial conditions
• Information forensics for accurate auditing of the financial supply chain
If these sound like good business practices, it’s because they are. For example, in the revenues and receivables arena, lack of visibility into enterprise systems often results in inconsistent or inaccurate invoicing due to disjointed processes throughout the quote-to-cash cycle. This not only puts a company at high risk of SOX noncompliance but also encourages revenue leakage, drives high DSO and chargeback rates, ties up working capital and contributes to customer dissatisfaction.”
The burden of detail required in compliance with Sarbanes puts additional stresses on our supply chains. In addition, with the speed of change and the increasing amount of sales and costs being incurred off-shore, which supply chain is being detailed; the one now or the one needed in 12 to 18 months.
Effects of globalization
