New Panama Canal Options: Running the Numbers with a TMS.Connect by TMC
When the expanded Panama Canal opened this June, a new set of routes became available for shippers and beneficial cargo owners (BCOs). These enterprises are no longer reliant on the Suez Canal route for shipping freight on Post-Panamax container vessels to the United States.
The more routes, the more possibilities shippers have for cutting total landed costs and improving service levels—providing they make the right choices.
Identifying optimum route configurations for different products requires companies to make some important trade-offs. A transportation management system (TMS) can help shippers weigh the pros and cons of each option.
Triad of factors
As described in my previous blog post, the enlarged Panama Canal can handle container ships up to 13,000 TEUs in size. The waterway’s increased capacity provides more routing options for shipments into the United States. Cargo can enter the country via East coast or West coast ports depending on variables such as the type of product being shipped. The trade-offs are especially critical for destinations in a “battleground” region that stretches from Detroit in the north to Houston in the south.
There are three key factors that shippers need to consider when deciding on the optimum route for a shipment: cost, time, and risk.
- Total landed cost has a number of components, including the shipper’s business goals. For example, a higher cost could be part of a strategy to win market share and align product transportation with that mission. Modern TMS solutions are designed to help shippers make such trade-offs, with analytics platforms that take data from multiple sources and present the shipper with a single access point for calculating total landed cost.
- The impact of transit time on routing decisions varies with the type of product being shipped. The preferred amount of inventory held on ships and trucks depends on constraints such as the value of the cargo. If high-value items are being shipped, it’s important to minimize inventory levels. Is your supply chain make-to-order, make-to-stock, or both? A TMS can analyze different combinations of carriers and routes to determine the best transit time.
- To effectively evaluate and mitigate risk, shippers need excellent supply chain visibility. Advanced TMS solutions are programmed to automatically provide shipment status updates when needed, and to flag potential issues. However, these systems will not flag carrier financial problems—shippers still need to closely monitor the viability of ocean carriers in today’s volatile container trades.
An example of how these factors come together when moving product to battleground destinations can be found in the white paper, Wide Open: How the Panama Canal Expansion Is Redrawing the Logistics Map. For two product types, pumps and t-shirts, transportation constitutes just 3% of revenues at most. The savings achieved by routing shipments through the U.S. East Coast to Columbus, Ohio—as opposed to the traditional option of using West Coast facilities—are negligible. Also, shippers want short transit times for fashion items, while pump manufacturers prefer higher inventory levels in warehouses—not on ships—so they can take advantage of every opportunity to make sales. These products are likely to continue to move through U.S. West Coast ports.
The expanded Panama Canal has added many variables to freight transportation equations. Becoming accustomed to the new equations, and to using TMS technology to assess routes and transit times, will help shippers to make the best use of the enlarged Canal—and perform these types of trade-offs in other parts of their supply chains.
Click here to learn more about how a TMS paired with supply chain experts can bring customized solutions, operational excellence, and sustained savings to your global supply chain.