Transportation innovation and economic growth are inextricably linked. Without innovation, economic growth is not possible.
“ Healthcare can’t stop. The key is managing the existing network more creatively.”
Traffic congestion in cities worldwide is a major problem. Unfortunately, the issue is compounding as cities grow and car ownership rates increase.
However, there are numerous opportunities for forward-looking companies capable of delivering solutions to mitigate such overcapacity.
Finding innovative ways to support economic growth and expansion, maintain high levels of service, enable business continuity, reduce fuel and carbon emissions and improve supply chain productivity is critical.
Healthcare, for example, can’t stop. The key is managing the existing network more creatively.
Transportation as an economic engine
History is lined with examples of transportation expansion fostering economic growth.
- The Panama Canal: Since opening in 1914, one million vessels have traveled through the canal, facilitating significant trade growth. Saving 14 days of transit time from the eastern to western United States, the Panama Canal represents an 8,000-mile shortcut in the transport of goods. And the current expansion will trigger additional economic growth.
- The container: Shipping containers were first used in 1956 and took 10 years to reach maturity. They reduced port turnaround times from three weeks to one day, resulting in a tremendous positive economic impact.
- Giants: China Shipping Container Line’s “Globe” is an ultra-large containership that can carry more than $1 billion in goods and 19,000 twenty-foot equivalent units – with less than 23 crewmembers. For perspective, it’s as long as the height of the Empire State Building.
“ UPS recognizes that even in a congested world, business continuity is essential.”
UPS monitors several economic indicators for different modes of freight transportation in order to anticipate future capacity.
Current forecasts for air and ocean freight transportation are favorable for shippers and should help close some of the distance between manufacturer and customer.
In 2014, we saw arguably the most prosperous period for air freight since the economic recovery in 2010.
Through the remainder of 2015, capacity is expected to outpace demand in both the air and ocean freight sectors.
UPS anticipates a moderate growth in demand for air freight with robust capacity expansion.
In order to project demand, UPS tracks several drivers:
- Global semiconductor sales
- Jet fuel costs
- Modal shifts to air versus ocean
- Global manufacturing Purchasing Managers Index (PMI)
For capacity forecasting, we also monitor the order books of Boeing and Airbus.
Ocean freight demand has slowed in recent quarters – that trend is likely to continue through the remainder of the year.
This forecast is based on several demand drivers:
- Consumer sentiment in the United States and European Union
- U.S. retail inventories
- Euro/dollar parity
- Chinese export orders
Of particular concern are U.S. retail inventories and Chinese export orders. On the capacity side, UPS is always analyzing the container vessel order book and idle fleet to project future capacity.
In both air and ocean freight, there are areas of overcapacity. The million-dollar question: How can you leverage that?
Instead of employing a simple price comparison, the best logisticians can demonstrate how changing routes or modes of transportation can produce significant savings for companies moving cutting-edge products around the globe.
Leveraging the market with innovation
Taking what we know about the market, UPS sees distinct ways to drive change and fuel growth.
- Transportation optimization: UPS leverages overcapacity in the transportation system through geo-optimization and time-optimization. We also manage dynamic weather conditions through temperature-based decision processes and flexible packaging solutions. It is sometimes cheaper for temperature-sensitive items to be moved via air with less packaging than moved on the ground in thicker packaging. It might make more sense to ship on Wednesday rather than Tuesday. It’s all about collaboration and flexibility.
- Incremental improvements: Look for opportunities to improve what your company is already doing. For example, UPS pioneered several cumulative innovations, such as “no left turns,” which saves drivers 1.3 million gallons of gas annually and the ORION route optimization program, expected to reduce the distance driven by UPS drivers in 2016 by 100 million miles. UPS also leverages winglets that deliver between 3 percent and 6 percent in jet fuel savings.
- Technological leaps: Logistics companies are exploring drones for remote and critical shipments, Roadie – an Uber-like program for residential small packages – Peloton truck-platooning technology and the Internet of Things, which amounts to track-and-trace on steroids.
Finding the next Panama Canal
The world’s most sophisticated logistics companies are focused on identifying the next big thing in transportation.
In an increasingly connected world, prosperity is dependent on charting efficient, sustainable paths for global commerce. In fact, you could argue that innovations in the transportation industry are the barometer by which future economic growth will be judged.
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