Saturday, May 24, 2008

Rosewood Case Study: Strategic Transportation Planning



Rosewood Case Study: Strategic Transportation Planning

Rosewood has marine, rail, road and air transport options for import and export activities.

Import Markets

Marine transport advantages/inconveniences: The lowest cost for volume ratio transport available with the slowest service delivery speed which impacts speedy customer service ability and implies that Rosewood must maintain an ample inventory of stocked veneers at point of manufacture which increases handling and overall costs through warehousing in Canada. Also a report from Grupo Brasil in 2004 describes inconveniences at Brazilian ports as follows:

a. Poor infrastructure in and around most Brazilian ports

b. Current bottlenecks in most ports,
both in the delivery of goods (by trucks) as in the
access ways for ships entering and exiting ports

c. Lack of containers to ship goods

d. Lack of easy solution and also lack of
political resolve to resolve above mentioned
issues.

http://www.grupobrasil.net/pdfs/minutes2004meeting.pdf

Marine transport costs/benefits: The costs are minimized based on bulk shipments however Rosewood's volume of veneer demand may not satisfy an exclusive selection of this transport mode. The benefits are that Canada's marine transport systems at Montreal and Halifax for example can allow for speedy processing of shipments to inland intermodal systems in Canada.

Rail transport advantages/inconveniences: Brazil's rail network has been expanding due to intermodal linkages through the Port of Santos which is beginning to unseat the leading export Port of Paranagua both primarily handling soya based products destined for fuel consumption and reducing overall rail freight charges for products sourced in the States of Mato Grosso and Mato Grosso do Sul. These might prove ideal systems for "piggy backing" bulk deliveries if Rosewood chooses to stock up inventories and warehoused materials handling at destination in Canada much like valuable Korea Tobacco and Ginseng Company exports which are squeezed into available space around Korean car export carrier transports.

Rail transport costs/benefits: Much more efficient, perhaps speedier and more reliable than Brazilian road networks however the lowered cost and better service available for rail transport as compared to road freight in Brazil might encourage Rosewood to source a supplier already located along a serviced rail hub or spur to avoid truck traffic entirely. According to extremely old Brazilian Government data from 2001 the rail network represents Brazil's best efforts in deregulation and privatisation of transport systems and may imply future road improvement systems along similar strategic transportation planning reforms.

Road transport advantages/inconveniences: The road freight delivery system in Brazil is described as difficult to measure without solid statistical data available but continued growth is expected to hover around 6.6% up to 2012 due to a lack of rapid improvement of the road network as compared to rail and sea freight options. However highway and road link systems in Santos and Paranagua are described as heavily congested and similar in scale to the problems experienced in Sao Paulo's urban sprawl which will slow and or delay any wood veneers deliveries through this method. Thus few advantages may be observed in Brazil's road transport options.

Road transport costs/benefits: The costs for ineffective and inefficient road service in Brazil are tangible and knock nearly 2% off predicted service growth which is required to improve economies of scale for trucking companies to expand their services and deliver products more quickly for reduced costs. Fuel costs in Brazil mostly serviced by soya-based biofuels however are perhaps lower than North American road freight fuel charges.

Air transport costs/benefits: While the cost of importing raw materials from Brazil might prove prohibitively expensive, depending upon the finishing specifications of the goods as wood veneers their cost to value ratio may prove high enough to allow air freight to be an option. The faster this product may be delivered to the factory the more effectively customer service may be performed in terms of speed of production cycles and exworks inventory.

Air transport advantages/inconveniences: The first advantage would be speed of delivery which would allow Rosewood to maintain a JIT production and order schedule in Canada or any other local production facility which was competitive particularly in custom ordering services or unique design options. The current inconvenience would prove to be Brazil's air services capability which are described as, "experiencing a crisis of unrestrained and unplanned growth" while at the same time predicted to, " benefit from even faster demand growth for high-value/low-bulk cargoes." (Business Monitor, Brazil Freight Transport Report Q1 2008)

Export Markets

Marine transport advantages/inconveniences: By contrast Canada's ports abilities options appear superior particularly in servicing customers in the inland waterway networks surrounding the Great Lakes with continuous upgrading of services, competitiveness, infrastructure, sustainable development and legislative reforms as described by the Association of Canadian Port Authorities. This will be extremely useful for marine exports to the USA and Mexico. However the Port of Montréal is subject to delays due to union protestors on occasion as evidenced in 2003 concerning Bill 31. In addition a Transport Canada Survey in 2005 discovered that frequent delays at this port are due to:

a. Minimal use of EDI communciations systems

b. Inaccuracy of documents and paperwork presented by intermodal link drivers

c. Containers not being released either by Revenue Canada and/or the shipping lines

d. Container releases not being communicated to the terminal

e. Delays in containers not being off-loaded from the vessel

Marine cargo shipping might prove the most suitable export mode to both the US and Mexcian markets but further challenges in receiving those orders could be mixed. US marine transport challenges are described in an amazing slideshow presented by Captain David B. MacFarland at The National Marine Sanctuary Foundation.

Marine transport costs/benefits: Export innovations continue to develop in Canada including Short Sea Shipping. While reducing costs in terms of increasing competitiveness are being considered - even the St. Lawrence Seaway is described as operating at half of its estimated capacity by an undated City of Hamilton Chamber of Commerce policy paper.

Rail transport advantages/inconveniences: Moderate cost compared to road and sea shipping options however Short Line Systems in Canada are to be potentially regulated by a forced or competitive access system described by The Railway Association of Canada as, "reducing critical investment, undermining productivity growth, reducing efficiency by fragmenting traffic, reducing safety and providing an unfair advantage to U.S. railroads."

The US Chamber of Commerce seeks to boost competitiveness as, "railroads are proposing investment tax credits to encourage additional private sector investment in rail and related intermodal facilities" and that, "freight rail tonnage is expected to increase at least 50% by 2020." Since 1989 Mexico has seen free entry and market-based price setting to make its services more competitive. Reliable trucking is becoming more common and logistics practices are improving according to the World Bank.

Rail transport costs/benefits: Costs are lower than road freight however slower as well. This means the customer will have to wait longer for delivery. Suitable for shipments to the US however currently unsuitable for Mexican deliveries with the possibility of better intermodal options (supporting increases in delivery volumes exceeding 50%) linking all three transport service sectors by 2020.

Road transport advantages/inconveniences: An increasingly accessible delivery mode, Canadian road freight between 1990 and 2004 "grew nearly three times faster than all other modes combined" according to Statscan. This indicates continously reduced costs due to increased volumes of traffic. The US Chamber of Commerce describes a need for "investments in truck freight corridors, including exclusive truck lanes" and " increases in truck size and weight to improve productivity." While the future has yet to deliver a dramatically more fuel efficient cargo truck the idea has always been out there:

A proposed NAFTA Superhighway will make Mexico an attractive long haul trucking destination for Rosewood.

Road transport costs/benefits: The costs for road freight are decreasing in Mexico as the government develops faster survey methods allocating resource improvements. However it is being developed primarily as an export source corridor and may prove unsuitable to market finished goods deliveries from Canada at present.

Air transport costs/benefits: The most costly shipping method however most likely to support JIT customer service cycles.

Air transport advantages/inconveniences: At present Canada, the US and Mexico are all increasing load and facing challenges due to slow expansion of air freight services. This will effect Rosewood as the basis of advantage would be the cost savings related to time of delivery and with potential for delays air freight would become a less attractive transport option for export markets in the US and Mexico.


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