Each day, semiconductors made in Japan are flown to Taiwan. There, integrated circuit manufacturers ply their trade. The fabricated circuit boards are then air-shipped to China, where they are assembled to make finished computers. Those are then rushed to end markets in the U.S., Europe, and elsewhere for distribution and sale.
Logistics symphonies such as this, part of what is known as the "Global Value Chain" (GVC), are conducted millions of times each year. The orchestras are composed of thousands of suppliers and manufacturers. According to the World Trade Organization (WTO), about $20 trillion in global trade, or 49 percent of the world total, was moved using a GVC model during 2011, the most recent year for which the group had verifiable data. That compared with 36 percent in 1995, WTO said at the time.
The GVC approach eschews the model of centralized development, production, and assembly in one country in favor of specifically defined tasks assigned to different countries, whose companies add value as the product moves through each step of the process. This enables multinational companies to source work to countries with labor forces specializing in a specific skill, such as hard-drive manufacturers in Thailand.
By leveraging each trading partner's unique strengths, the theory goes, the process can yield better quality at a competitive overall cost. That's why multinational companies favor the GVC model even though they will bear higher shipping costs and could incur some logistical and bureaucratic headaches. As time in transit is crucial to a GVC's success, many parts must be shipped by air, the only mode capable of covering long distances in short timeframes. If a GVC is properly executed, higher transport charges will be offset by the speed with which goods hurtle between far-flung locales, eliminating the need to maintain costly buffer inventory.
BRINGING IN THE DATA
GVCs have been around since the 1980s, albeit under different names. Then, as now, the goods moved by air. However, there has never been a concerted effort to quantify the connection between the model and the mode. That was until the International Air Transport Association (IATA), the global airline trade group, published a study last December that, for the first time, put numbers behind air's importance in making GVCs work and how the mode's involvement elevates trade activity throughout the world.
The study, commissioned by IATA and prepared by consultancy Developing Trade Consultants, examined trade flows in developed and developing countries to create an "Air Connectivity Index," which measures the number of cargo-carrying flights between two countries. According to the report, a 1-percent rise in the index is associated with a 6.3-percent increase in global trade by value. What's more, a 1-percentage-point increase in the index is associated with a 2.9-percent rise in GVC participation, the report found.
Perhaps most important given the industry's tardy but now-vigorous efforts to introduce more digitization into its operations, the report found that every 1-percentage-point rise in a separate index that gauges improvements in digital processes was associated with a 2.3-percent rise in the value of world trade. In 2006, IATA began an initiative called "e-freight" to replace paper-document handoffs with the electronic exchange of data and messages. The following year, it laid the groundwork for an "e-air waybill," which would replace the paper air waybill with an electronic data interchange (EDI)-based digital agreement between an airline and freight forwarder. By the end of 2016, e-air waybills were expected to be deployed on 56 percent of what IATA classifies as "legally feasible" trade lanes.
IATA officials cautioned that the speed of air transport and continuing IT improvements are not the end games in expanding the role of GVCs. "Digitization is not a goal in and of itself. But when done right, it can help achieve a seamless service," said George Anjaparidze, an IATA senior economist who spearheaded the project. Even more important, IATA officials stressed, is the drive to streamline and harmonize customs clearance processes to, in the report's words, "allow air transport to capitalize on its key advantage of speed."
In a phone interview, Anjaparidze said that "it is critical that the seamlessness extends to the customs agencies" for GVCs to work effectively. Some countries—usually developed ones—have gone beyond the base requirements for improving their clearance processes, while others continue to lag, he said.
A big step in harmonization efforts occurred in late January when the United Nations Conference on Trade and Development (UNCTAD) integrated IATA's cargo-messaging standards into the UNCTAD automated system, which is used by 90 countries to support their customs procedures. The adoption of the IATA standards, known as "Cargo-XML," synchronizes the electronic communications between airlines and customs authorities in the 90 countries, the airline group said.
The partnership means that all aircargo stakeholders in the countries following the UNCTAD system "can now talk the same digital language," said Glyn Hughes, IATA's global head of cargo.
STAYING APOLITICAL
GVCs don't have the politically fueled visibility of finished-goods trade, which is a good thing for stakeholders. The typical trade dispute is fought between two countries over specific finished products. By contrast, a GVC encompasses multiple countries and a myriad of components, each of which is essential to bringing finished products to market. Because so many trading partners are involved, introducing trade friction would likely shake global commerce far more than a high-profile dispute over one or two finished commodity types, experts warn.
That GVCs have not become political footballs is also a good thing for the aircargo sector, which has sought a catalyst to drive sustained growth since the Internet and telecom buildout of the 1990s crashed at the turn of the century, taking with it a multitude of businesses that were frequent users of air. For the past 17 years, the sector has struggled to overcome various obstacles, chief among them profound changes in supply chain design and execution that reduced the demand for the intercontinental fast-cycle sourcing, manufacturing, and distribution model that could be managed only through the skies.
IATA did not create the project to tout air cargo's value in supporting GVCs, Anjaparidze said. Instead, it was an effort to "understand how trade characteristics have evolved" through the years, he said. If it is assumed that GVCs cannot work without a well-honed aircargo network, then there are worse futures the beleaguered industry can hang its hat on.
CSCMP EDGE attendees gathered Tuesday afternoon for an update and outlook on the truckload (TL) market, which is on the upswing following the longest down cycle in recorded history. Kevin Adamik of RXO (formerly Coyote Logistics), offered an overview of truckload market cycles, highlighting major trends from the recent freight recession and providing an update on where the TL cycle is now.
EDGE 2024, sponsored by the Council of Supply Chain Management Professionals (CSCMP), is taking place this week in Nashville.
Citing data from the Coyote Curve index (which measures year-over-year changes in spot market rates) and other sources, Adamik outlined the dynamics of the TL market. He explained that the last cycle—which lasted from about 2019 to 2024—was longer than the typical three to four-year market cycle, marked by volatile conditions spurred by the Covid-19 pandemic. That cycle is behind us now, he said, adding that the market has reached equilibrium and is headed toward an inflationary environment.
Adamik also told attendees that he expects the new TL cycle to be marked by far less volatility, with a return to more typical conditions. And he offered a slate of supply and demand trends to note as the industry moves into the new cycle.
Supply trends include:
Carrier operating authorities are declining;
Employment in the trucking industry is declining;
Private fleets have expanded, but the expansion has stopped;
Truckload orders are falling.
Demand trends include:
Consumer spending is stable, but is still more service-centric and less goods-intensive;
After a steep decline, imports are on the rise;
Freight volumes have been sluggish but are showing signs of life.
CSCMP EDGE runs through Wednesday, October 2, at Nashville’s Gaylord Opryland Hotel & Resort.
The relationship between shippers and third-party logistics services providers (3PLs) is at the core of successful supply chain management—so getting that relationship right is vital. A panel of industry experts from both sides of the aisle weighed in on what it takes to create strong 3PL/shipper partnerships on day two of the CSCMP EDGE conference, being held this week in Nashville.
Trust, empathy, and transparency ranked high on the list of key elements required for success in all aspects of the partnership, but there are some specifics for each step of the journey. The panel recommended a handful of actions that should take place early on, including:
Establish relationships.
For 3PLs, understand and get to the heart of the shipper’s data.
Also for 3PLs: Understand the shipper’s reason for outsourcing to a 3PL, along with the shipper’s ultimate goals.
Understand company cultures and be sure they align.
Nurture long-term relationships with good communication.
For shippers, be transparent so that the 3PL fully understands your business.
And there are also some “non-negotiables” when it comes to managing the relationship:
3PLs must demonstrate their commitment to engaging with the shipper’s personnel.
3PLs must also demonstrate their commitment to process discipline, continuous improvement, and innovation.
Shippers should ensure that they understand the 3PL’s demonstrated implementation capabilities—ask to visit established clients.
Trust—which takes longer to establish than both sides may expect.
EDGE 2024 is sponsored by the Council of Supply Chain Management Professionals (CSCMP) and runs through Wednesday, October 2, at the Gaylord Opryland Resort & Convention Center in Nashville.
While the Council of Supply Chain Management Professionals' 2024 EDGE Conference & Exhibition is coming to a close on Wednesday, October 2, in Nashville, Tennessee, mark your calendars for next year's premier supply chain event.
The 2025 conference will take place in National Harbor, Maryland. To register for next year's event—and take advantage of an early-bird discount of $600**—visit https://www.cscmpedge.org/website/62261/edge-2025/.
**EDGE EARLY BIRD Terms & Conditions: Promotion is for the EDGE 2025 conference in National Harbor, Maryland. Offer valid for Premier and Basic Members only. Offer excludes Student, Young Professional, Educator, and Corporate registration types. Offer limited to one per customer. Offer is not retroactive and may not be combined with other offers. Offer is nontransferable and may not be resold. Valid through October 31, 2024.
Honoring supply chain professionals and companies for their contributions to the industry is a tradition at the Council of Supply Chain Management Professionals annual EDGE Conference. The following are some of the recognitions given out this year.
The 2024 Distinguished Service Award was presented to Heather Sheehan, owner of Crispy Concepts LLC, instructor with Penn State University, and board member and adjunct faculty member with the University of Denver’s Transportation & Supply Chain Institute.
Sheehan, along with Roger Penske, chairman of Penske Corp., were inducted into CSCMP’s Supply Chain Hall of Fame.
Travis Kupla, Ph.D, of the University of Arkansas, won the Doctoral Dissertation Award for his paper “How Supply Chains Respond to Disruptions: Three Essays on Responses to Operational, Geopolitical, and Natural Disaster Disruptions.”
The Bernard J. La Londe Best Paper Award was given to Matias G. Enz from the University of Missouri-Saint Louis, and Douglas M. Lambert from The Ohio State University for their paper “A Supply Chain Management Framework for Services.”
Wenting Li and Dr. Yimin Wang of Arizona State received the E. Grosvenor Plowman Award for their research paper, “A Procurement Advantage In Disruptive Times: New Perspectives On ESG Strategy And Firm Performance.”
The Teaching Innovation Award was given to Dr. Shane Schvaneveldt of Weber State University for his paper, “A Lean 5S Experiential Learning Game for Logistics and Supply Chain Management.”
To see a full list of honorees, please visit cscmp.org and click on the tab "Academia & Awards."
Supply chains today are facing an onslaught of disruption and change from geopolitical events to technological advances to economic shifts. Supply chain partners that successfully navigate those changes together will seize a competitive advantage that will win them market share and increase profits.
The “2025 Third-Party Logistics Study,” spearheaded by Dr. C. John Langley of Penn State University and developed in collaboration withNTT DATAand Penske Logistics highlights the crucial role that change management plays in the relationship between third-party logistics providers (3PLs) and their customers. Unveiled today at the Council of Supply Chain Management Professionals (CSCMP) EDGE conference, the study delves into the dynamic nature of relationships between shippers (companies that manufacture goods or provide services) and third-party logistics providers.
“While users and providers of 3PL services continue to report successful relationships, they find themselves having to deal with an increasingly wide range of challenges,” said Dr. C. John Langley, Professor, Supply Chain & Information Systems, Penn State University. “While examples include economic concerns, geopolitical unrest, and changing markets for supply chain services, they also are taking advantage of change management processes to benefit from new and improved capabilities such as artificial intelligence (AI) and direct-to-customer proficiencies.”
The survey found that both shippers (61%) and 3PLs (73%) agree that supply chain change management is vital. Respondents from both groups indicated that the top factors that are driving the need to change their operations were shifting customer demands, economic factors, and technological advancements. In particular, both shippers and 3PLs believe that improvement and change is needed in supply chain visibility, with 69% of shippers and 68% of 3PLs citing it as an area of concern.
AI as change agent
One technological advance that is enabling change in supply chain operations, according to survey respondents, is AI. Both shippers and 3PLs agree that AI can be pivotal in automating data analysis, identifying patterns, solving problems, and automating repetitive tasks. Top implementation areas for AI cited by respondents include supply planning and demand forecasting (33% of shippers and 19% of 3PLs) and transportation and route optimization (27% of shippers and 22% of 3PLs).
The e-commerce effect continues
Omnichannel retailing and e-commerce continue to exert pressure on supply chain operations for shippers and their third-party logistics partners. Both shippers and 3PLs view delivery speed and visibility as strong areas of differentiation. According to the study, 48% of shippers and 53% of 3PLs reported that customers routinely expect deliveries in less than two days, and 27% of shippers and 26% of 3PLs noted that there are three-day or less delivery expectations. Shippers (44%) and 3PLs (38%) are willing to absorb a small percentage of the costs related to shipping speeds.
The Annual 3PL Study surveys 3PL providers and users of 3PL services to understand the current state of 3PLs and how 3PL relationships are evolving with their customers. The 2025 study and past versions are available for download at www.3PLStudy.com.