The Suez Canal and the Changing Face of Middle East Logistics 3 rd Trans Middle East Conference Cairo, Egypt November 2007
Who We Are PRELIMINARY Supply Chain Research Supply Market Forecasts Supply Chain Consulting New Zealand Rail Page 2
Agenda PRELIMINARY Global supply chain trends Trade and shipping through the Suez Canal today Panama vs. Suez? Key success factors for a supply chain strategy Page 3
Global supply chain trends
Make-to-Stock Manufacturer Distributor Make-to-Stock Manufacturer Make-to-Stock Manufacturer Supply Chain Perspective Re-Selling Distribution Make-to-Order Manufacturing Make-to-Stock Manufacturing x2, x3, x4 PRELIMINARY Land s End LL Bean Sears Peapod Staples Aramark Iron Mountain USPS Aviall Amazon Dell Partners Healthcare Andersen Windows Vistaprint Chocolate Deities Hasbro J&J Steelcase Weber Simon and Schuster Page 5
PRELIMINARY Lean manufacturing and distribution Inventory as a Percent of GDP (US) 6 5 4 % of GDP 3 2 1 0 1990 1993 1996 1999 2002 2005 2008 2011 Page 6
PRELIMINARY Extended supply chain visibility, management From the supplier s supplier Collaborative forecasting VMI/auto-replenishment To the customer s customer Postponement Direct ship Transparency between levels Visibility CRM-SRM linkage Custom supply chains End-to-end, worldwide, segmented Adaptive, sense-and-respond Learning organization Goods Supply Chain Tier 2 Tier 1 OEM Distributor Retailer Page 7
Customer-Supplier Linkage PRELIMINARY Delphi Automotive Consider the whole supply chain first Establish suppliers close to manufacturing, and assembly close to customers Target the lowest-cost supply chain IBM On-demand supply chain Two-tier mentality Visibility and reactivity Exxon-Mobil Call-center via SAP Payables via SAP Providing suppliers visibility to customer s orders Page 8
The race to lean PRELIMINARY Inventory and Logistics Administration Costs as a Percent of GDP Page 9
Trade and shipping through the Suez Canal today
Middle East trade is booming PRELIMINARY 3,000,000 Trade to and from the Middle East 2,500,000 2,000,000 1,500,000 1,000,000 Exports Imports 500,000 0 1997 1998 1999 2000 2001 2002 2003 2004 2005 2006 Source: Boston Logistics analysis of IMF data Page 11
PRELIMINARY The majority of Middle East trade is conducted with Asia and Europe Merchandise imports of the Middle East by region Merchandise exports of the Middle East by region North America 10% South and Central America 2% North America 13% South and Central America 1% Asia 28% Europe 17% Middle East 17% Europe 38% Asia 55% CIS 1% Africa 2% CIS 3% Middle East 10% Africa 3% Source: World Trade Organization Page 12
The Suez Canal handles mostly this Asia-Europe traffic PRELIMINARY Suez Canal Traffic Flows Source: Suez Canal Authority Page 13
PRELIMINARY 95% of traffic through the Suez Canal is on the Europe-Asia trade NW Europe-Far East NW Europe-South Asia EC North America- South Asia EC North America- SouthEast Asia Suez Canal Traffic by Trade Route NW Europe-Australasia Other 2006 2005 Source: Suez Canal Authority 0 10,000 20,000 30,000 Thousands of TEUs per Year Page 14
PRELIMINARY Suez traffic is increasing as Far East volume shifts to South Asia 2,000 Traffic through the Suez Canal for Asian Trade Routes, 2006 1,600 Millions of TEUs 1,200 800 400 0 2000 2001 2002 2003 2004 2005 2006 Far East Source: Suez Canal Authority presentation to China Trade conference, July 2007 South Asia Page 15
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And larger ships are ordered PRELIMINARY 100000 80000 Distribution of Suez Canal Transits by Size of Vessel, 2006 Ships > 5,200 TEU will increase over 30% by 2009 (1) 000 TEUs 2006 60000 40000 20000 Source: Boston Logistics analysis of Suez Canal Authority statistics (1) This estimate is from the Household Goods Forwarders Association of America 0 <1 1-2 2-3 3-4 4-5 5-6 6-7 7-8 8-9 9-10 >10 Vessel Size, 000 TEU Page 17
Panama vs. Suez?
PRELIMINARY Panama largely serves the USEC-Asia trade 25% of total Asia-USEC container traffic Grains out of the US Gulf By Trade Lane By Commodity Type US-Asia 45% E-Asia 2% E-USWC 4% US-SA 7% E- WCSA 8% Other 34% Vehicles 6% General Cargo 6% Passengers 2% Tankers 13% Others 9% Refrigerated 16% Container 26% Dry Bulk 22% Source: Boston Logistics analysis Page 19
Panama is constrained PRELIMINARY Page 20
Panama is constrained (cont d) PRELIMINARY Page 21
PRELIMINARY The Panama Canal expansion program $5.25b+ expansion Toll increases will increase rates by 69% over three years (1) Before and After the Expansion Dimension Before (2007) After (2014) Capacity (transits/year) 17,000 34,000 Max Vessel Size (TEUs) 4,400 12,000 (1) Household Goods Forwarders Association of America Page 22
PRELIMINARY The Suez Canal can offer shippers lower cost for some traffic Breakeven line may extend as far north as Hong Kong Hong Kong-USEC 11,207 nautical miles via Suez 11,593 via Panama Hong Kong-Halifax 11,101 nautical miles via Suez 11,533 via Panama Large vessels will be the most economical Smaller vessels require too many in a string to achieve target frequencies Can amortize higher operating costs across more containers Source: Suez Canal Authority presentation to China Trade conference, July 2007 Page 24
PRELIMINARY Major players are taking an interest in this Current carriers: CMA/CGM, Maersk, COSCO COSCO is making a $730m investment From 2.5m to 5.1m TEUs/year Double the employment at the port New ownership structure APM Terminals of The Hague, Netherlands (55%) COSCO Pacific (20%) Suez Canal Authority 10% National Bank of Egypt 5% Egyptian Private Sector 10% DP World has bought 90% of the controlling shareholder at Sokhna Port. Projections indicate 1.2 million TEU by the end of 2009 Page 25
Key success factors for a supply chain strategy
PRELIMINARY Window of opportunity for new routes Extend the range of eligible Asia-US traffic Hong Kong-USEC Hong Kong-Halifax Exploit rising rail and Panama Canal rates to introduce an alternative for Post-Panamax vessels 7-year window until Panama Canal expansion is complete Page 28
PRELIMINARY But performance has room for improvements 5 4.5 4 3.5 3 2.5 2 1.5 1 Customs Infrastructure Logistics competence Tracking & tracing Domestic logistics costs Timeliness 0.5 0 Source: World Bank Page 29
PRELIMINARY Performance will make the difference in capturing traffic that is part of companies lean global supply chains The Supply Chain advantage is about more than cost! Reliability Flexibility Total transit time Inventory visibility Value-added services Product-services Intermodal links Page 30
Thank you! PRELIMINARY David Jacoby: djacoby@bostonlogistics.com Boston Logistics Group helps supply chain executives make critical supply chain decisions that involve investment and risk by forecasting the evolution of supply markets and technologies. Our mission is to help our clients develop globally competitive supply networks that maximize Supply Chain Value. Our products and services include: Research that help investors and policy makers quantify the cost and benefit of infrastructure and technology investments Forecasts that help supply chain executives decide how, where, and when to buy critical purchased materials and services Consulting that supports high-stakes decisions such as acquisitions, outsourcing, off-shoring, and make-or-buy Page 31