Studying the Suez Canal Global logistics

The Egyptian is believed to be the first persons to build a man-made canal to connect the Mediterranean to the red sea through the river Nile and its branches. The canal was first open for international navigation on 17th November 1869; the overall length of the canal is 193 km, its width varies from place to place but it is 60 meters to the narrowest, only one lane is provided in the canal for transportation and navigation purposes. As the canal is the fastest mode of transport from the Atlantic Ocean and the Indian Ocean therefore it is considered as the major source for revenue for the Egyptian government the canal is intersected by 3 lakes in the pathway first the lake manzala in the north and the lake timsah in the middle and finally the bitter lake in the south which almost comprises 30 km of the total length of the canal. Suez Canal is also known as the highway to India, the main advantage of the canal is that it connects Europe to Asia and ensures better transportation of goods without even connecting Africa. Other good point of transporting goods across Suez Canal is that navigation through the canal runs day and night therefore the good can be delivered on time and with efficiency. The Suez Canal is capable of accommodating ships as heavy as 150,000 tons and the total average transmit time is 15 hours as there is no locks in the canal. The canal is built by a French company led by Ferdinand de Lesseps and was built between April 25, 1859 and 1869.

Importance of Suez Canal

The Suez Canal is definitely important for trading purposes across Europe and Asia, suppliers, distributors and consumers are very much profited by Suez canal both in terms of money and time,

Suppliers

It is estimated that over 35 million barrels of oil passes through the canal every day, not only oil but every kind of goods is transported by this canal, therefore the canal is very important from suppliers point of view. Suppliers across the world use this canal for trading purposes. The major revenue of Egypt comprises a very big part that comes from Suez Canal. Suppliers from all across the world use Suez Canal for transportation and logistics purposes. According to studies and surveys it is believed that Suez canal collects a revenue of us$ 5.3 million everyday and had contributed us$ 3.4 billion in the year 2005 alone, the Suez canal is the favorite choice of suppliers for one more good reason that its tax rates are very less in comparison to the panama canal. Suppliers hire shipping lines and distributors to transport and to distribute their goods across places, and as Suez Canal is one of the fastest and most economical ways to transport their goods therefore it is of great importance to suppliers. Suppliers like ebay and logistics companies primarily use this canal for transportation of goods across the canal.

Shipping lines

Suez Canal is the very first choice for shipping lines as it costs them very less to transport goods and logistics across the world, it cost them very low to transport goods and as a result they gain a huge profit from suppliers by transporting their goods. Shipping lines are chosen to transport goods across the Suez canal because first it is very cheaper then airway transport and that the energy consumption in ships is very much less in comparison to the airways. Secondly suppliers believes that it is very safe to transport their goods from the water way then to the airway as the risk of any accident across the airways is very less when travelled by the water ways. And the most important reason why suppliers chose shipping lines to transport and to carry their goods across the Suez canal is that ships can carry much more goods then airplanes. Therefore the shipping companies are benefited hugely by the Suez Canal.

Distributors and customers

Distributors are the persons who distribute the goods to retailers and dealers after getting them from suppliers. Distributors carries the goods that is delivered to them and then supply it to the retailers, the distributors are getting highly profited by the Suez canal as the market of suppliers and shipping lines is very good therefore distributors are blooming from the profit they got from the suppliers and the shipping lines, in other words they are also profiting and affecting the suppliers as the supplier can have so much options for getting their goods delivered to the market.

As the goods are delivered in a very appropriate quantity and with efficiency therefore consumers are very much profited by the use of Suez canal by the suppliers, because of the efficiency of the Suez canal water transport, the suppliers can send more and more goods through it and as the canal has no locks in between therefore the goods are transported on time to the destination and thereby affecting the consumers. As consumers are the end users of the services provided by the Suez Canal therefore the Suez Canal holds the key of importance for consumer point of view also. Companies like eBay and Amazon uses the canal to send the goods to the peoples of Asia and Europe primarily.

3 PL

A third party logistics company is a part of the supply chain management strategy practice where certain logistics functions of a company is outsourced to a logistics provider usually known as third party logistics provider or 3PL. the main logistics functions performed by a third party logistics company are:

Inbound freight

Customs and freight consolidation

Public warehousing

Contract warehousing

Order fulfillment

Distribution

Management of outbound freight

Some value added services are also provided by the third party logistics services, most important of them are:

Repacking of goods

Assembling and return of goods and logistics

Third party logistics are usually sought out when the firms do not have enough logistics management strategies and resources.

Third party logistics provider relationships are based on a long term or a short term contract depends on the supplier, usually the contract is of long term duration. The key aspects in selecting a third party for better outsourced relations are to have an organized strategy for choosing a successful third party logistics provider. The major aspects that the logistics manager of the car manufacture company should take in mind should be that:

Formation of a cross-functional team: the formation of a cross functional team within the organization is a very important aspect in choosing a 3PL party, all of the departments of the organization such as manufacturing, sales, marketing, quality control, logistics, finance etc. should be taken under consideration before selecting a 3PL provider. Consulting all the departments will help the company to chose a 3 PL that will help every department of the country and thus the logistics manager should kept in mind this key aspect while selecting a 3 PL service provider.

Set objectives for choosing a 3 PL service: the company should formulate certain objectives for himself so as to select a better 3 PL service provider, the company should formulate objectives that includes reaching new heights in the market reducing costs of the processes, to select the type of market they are willing to compete in. all these factors would help a company to select a better 3 PL depending on the services they want to deliver. In this case the logistics manager is willing to supply spare parts therefore he should formulate strategy based on that like the 3 PL should be equipped enough to carry heavy goods, and on time.

Identifying and defining the customer’s needs: the customer is the eventual end user therefore the needs and amenities of the customer should be kept in mind while choosing a 3PL, needs of a customer like the part should not be damaged, the goods should be available on time and there should be no extra cost in the process so that the customer should not have to suffer.

Selecting the 3PL operator among a list of candidates: formulate a list of candidates in the 3PL market that can perform the tasks easily, efficiently and on time. There are various techniques for selecting a suitable 3PL like online search of the best operator, attractive portfolio of the 3PL operator, previous records, location and most importantly the market position of the 3PL operator. The logistics manager should see the previous track record of the 3 PL operators in heavy goods and efficiency of the goods transported.

Contacting and exploring the selected candidates: after selecting the suitable 3 PL operator, before sending him the formal proposal the company should communicate to the 3 PL service providers if he is willing to take the job that is provided to him by the company. A mail or a letter should be send to the 3 PL Company stating the current market position of the company and all the details related to the company to increase transparency in the process. The details should include

The arranging of customs clearance when the spare parts arrive in jebel Ali.

Transportation of goods to a regional distribution centre in jebel ali.

Storing the goods in a distribution centre that should be large enough to accommodate 2,000 pallets.

Receiving orders from the distributors and assembling the required goods.

Delivering the assembled orders to the various GCC distributors by road transport.

The letter should also contain negotiating agreements about handling the logistics and expanding the services.

Importune request for proposal: after selecting and confirming various service providers the logistics manager should send a request for proposals to the 3 PL providers. The proposal should include all the details related to the logistics services that the company is keen to get. The services that are contained in the proposal should be the regarding the distribution of logistics, transportation of the logistics, warehousing of the logistics and other value added services as promised by the 3 PL provider. The logistics manager should send all the details with utmost care so that there should be no discrepancies in the future with the 3PL service provider.

Choose the best candidate for deliverance of logistics: as soon as all the departments of the company give a no objection certificate and all the requirements and services of the 3 PL operators is considered deeply. Then the logistics manager can select the best 3 PL service provider. One more and the most important aspect that the company should keep in mind is that all the departments of the company should keep a close watch on the services and the job done by the 3 PL operators so as to check him for long term agreement that depends on the feedback given by other departments.

ALTERNATIVE IN CASE OF EMERGENCY

In case the Suez Canal is closed for an indefinite time the logistics manager should form a strategy to find an alternative, the strategy may include transportation of logistics through road or through the air ways one more option is that to send the goods through shipping ways but through different canals like panama canal and through the cape of good hope, the cape of good hope had been proved to be a very good alternative when the Suez canal had been shut down as the route is somewhat similar to the route of Suez canal but it goes through Africa.

Therefore the most attractive and the best decision would be to take the path of Cape of Good Hope as it is also a shipping way and the company should not face much difficulty in supplying the parts from cape of good hope moreover the 3PL provider that the company had chose would not be needed to change as the policies remains the same i.e. transportation of the goods through the water way.

Advantages and disadvantages of choosing Cape of Good Hope as an option

Disadvantage

The distance between Singapore and Rotterdam stands at 11,800 nautical miles when travelling through the Cape of Good Hope as compared to the distance between them when travelling through the Suez canal i.e. 8,300 nautical miles, and as the ships have to take the whole route around the ocean therefore it sure to take much longer time .

The larger distance will take much time in transporting the goods from Rotterdam to jebel ali and thus contribute to a somewhat loss to the company in terms of money and time.

One major factor that can’t be neglected is that the passage way of Cape of Good Hope is full of pirates from Somalia; in the recent times there have been cases in which the Somalia’s pirates have looted the ships that carry goods. Therefore the company may need to take extra security measures to protect their logistics, or the third party logistics operator may ask for more amounts to transport the goods from Rotterdam to the jebel ali port, and that could be a very high amount.

The company would need more fuel and power supply to run the ships and that will be counted as an additional cost.

Eventually the one who have to be affected by all these is the end user who have to pay more for the loss that the company has faced, therefore the prices would go up and the consumer would give a chance to some other local dealer or a nearby dealer who can deliver the goods at right time and with a decent amount of price.

Advantages

Despite having a few disadvantages the company has advantages too

The company had two other options beside the Cape of Good Hope first the roadway transportation and secondly the airways transportation.

If the company would have gone with the roadway transportation option then it would have taken a much longer time to transport the goods and that to with a very high logistics transfer price. And there may be a possibility that the company had to rethink about the third party logistic service operator and that would take a large time to rethink and reselect a 3PL operator again, and the new 3PL operator may ask for huge amount and even lesser services.

Secondly if the company would have selected the airway transportation then the first thing is that it would have cost almost double or may be more and as the airplanes can’t carry that much cargo therefore they may have to send the goods in phases. Therefore selecting Cape of Good Hope by the company would be appraisable.

The consumer would not have to panic more for the goods as it will take only a slight amount of time to transport the goods through Cape of Good Hope compared to that of airway or roadway.

Conclusion

Suez Canal is the very first choice for shipping lines, but the most attractive and the best decision would be to take the path of Cape of Good Hope as it is also a shipping way and the company should not face much difficulty in supplying the parts from cape of good hope moreover the 3PL provider that the company had chose would not be needed to change as the policies remains the same i.e. transportation of the goods through the water way.