The enormous growth in Asian imports coming through the ports of L.A. and Long Beach hasn't just meant more business for warehousers and longshoremen; logistics providers are seeing a record year.
Logistics providers consolidate all aspects of international shipments for the big importers. They have become an increasingly crucial part of the import chain, because U.S. retailers and manufacturers have become more and more dependent on overseas suppliers for their merchandise and assembly operations. These companies need experts to manage their supply lines and to make sure that their goods actually arrive on time and in good condition.
"We're in an era of specialization," said Bob Curry, president of California Cartage Co. in Long Beach. "People that sell shirts want to stay out of distributing them and farm that out to somebody who is better at it than they are."
Curry whose family-owned company is one of the biggest logistics providers in the L.A. area, with 1.5 million square feet of warehouse space said he has seen demand from department stores and other retailers grow rapidly in the last few years and that the company has been busy expanding its facilities and adding personnel. According to Curry, value-added services, like putting labels and bar codes on merchandise, have been in particularly high demand.
According to the 1997 Economic Census, the most recent count available, transportation and warehousing was a $319 billion business nationwide. Los Angeles County alone had 4,722 establishments with a combined $15 billion in sales revenues in 1997, and that figure is expected to be considerably higher this year. The industry is expected to grow by an annual rate of between 12 and 16 percent.
The segment at the forefront of this rapid growth is the third-party logistics providers or consolidators, who offer a host of services ranging from trucking, warehousing, quality control and packaging, to putting the price tags on merchandise for their clients.
With the volume of imports from Asia through the ports of Los Angeles and Long Beach breaking one record after another, it would take an enormous investment of capital for retailers to control, warehouse, label and distribute the ever-increasing flow of goods themselves.
And it's not just the boom in international trade that is driving the businesses of logistics providers. Many retailers have come to rely on just-in-time inventory management, which minimizes the cost of storing merchandise in warehouses for long periods. So, when it is a matter of getting the summer collection in stores just in time for the ad campaign, retailers have come to rely on professionals who can guarantee that it's going to be there on time.
"The marketplace for many retailers requires flexibility in structuring and positioning their assets," said Jon De Cesare, president of West Coast Logistics, a Long Beach-based consulting firm. "They don't want to spend their money buying or building a huge warehouse in a region and then find out two years later that they don't have any need for it because the market conditions have changed. They'd much rather outsource warehousing and distribution and focus on their core competencies."
Help from the Web
Another factor that has made retailers and other clients more comfortable with third-party logistics providers in recent years is the advance of information technology, according to De Cesare. Clients can visit the Web site of their logistics firm to check on the status of a shipment, which makes the pipeline traveled by goods more transparent and lessens any anxiety clients might have about whether they'll arrive in time.
Among the major third-party logistics providers in the L.A. area, besides California Cartridge, are TriModal Distribution Services Inc., Fritz Cos., Distribution Services Ltd., and some of the major ocean carriers, such as American President Lines and Maersk Sealand, which own independent logistics divisions.
Hiring ocean carriers to handle logistics services carries an added advantage. These companies often have major facilities in overseas ports where they can consolidate shipments for clients in the United States before they are containerized.
"In China, for example, we may have products coming from various manufacturers that go to one retailer in the U.S.," said Richard Metzler, chief executive of APL Logistics, a division of American President Lines. "We can assemble these goods in one shipment, label and tag them, and provide all the necessity documentation."
It's not just major retailers like Wal-Mart, Kmart, and Toys R Us that have grown to rely on local logistics providers to coordinate their shipments and keep their stores supplied. Manufacturers are also outsourcing their logistics operations to third parties.
"Speed to market is crucial in the consumer electronics industry," said Jim Fitzhugh, regional vice president for client relations with Fritz Cos. "We see manufacturers relying on just-in-time inventory control and at the same time using overseas assembly plants. That creates enormous pressure on logistics, because many electronic devices have a shelf-life of only eight months so if you're too late, you miss the sales curve."
Metzler believes there are still plenty of growth opportunities, because more large companies will start to outsource their logistics operations.
"If you think of it as a pie chart, in terms of market share, the biggest slice is still manufacturers and retailers who do their logistics themselves, internally. That's where the big opportunity is to demonstrate to supply-chain managers that there is a better way of doing it, which can have earnings-per-share benefits for their companies," he said.
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