I interviewed John Vogt who discussed Potential Inefficiencies in Global Distribution.
Can you talk about what some of the inefficiencies you see are?
Dustin, thank you very much for the time to have a discussion with you. I’m expressing some feelings of my own. We deliver international and global movements, so we’re seeing more and more that there are very, very strong established lanes, and we get used to having a vessel leave the United States, going to Europe and vice versa. On a specific day, it takes 16 to 18 days, and it’s guaranteed to be there. What’s happening around the world is, we develop parts of Asia and parts of Africa and even some of the Kazakhstans and places of the more remote areas. We’re seeing a much less reliable service and, therefore, a somewhat less efficient service.
Partly due to the fact that these are developing lanes and partly due to the development of these lanes having less volume. But, of course, also by virtue of the fundamental problem that none of these are direct sailings. What you end up with is a very simple multiple transshipment point. As we get closer to these countries, so the frequency of movement and the guarantee of the frequency of that movement to be a specific day or time period deteriorates. What happens is we get used to hipping between Europe and America—very efficient, very cost-efficient, as well as just effective—and you get to these more remote bases with multiple transshipments and a lull of frequency and reliability of service in the lost pieces, what you end up with is a very less-efficient methodology of distributing goods.
That really means that inventory builds up either just before entering those countries or in the countries, and, therefore, it is more costly to be able to deliver goods with reliability and a good service level to these countries. We’re in a business that actually has to develop these capabilities and cater for them and be able to communicate both the fact that with you expect to get it to Europe in 18 days, plus or minus 1 day, you don’t have that same reliability and capability to get it to some of these more remote locations. We need to be careful that our clients and customers understand this very clearly.
Can you talk about where some places are specifically that you see some of these inefficiencies?
I think when you look at it, we see new manufacturing taking place in, for example, in Asia, in Vietnam. The frequency of vessels sailing out of that is not the same as one would get out of Hong Kong or Singapore. When you look, also, into the more remote places in Kazakhstan, in Iran, western and east Africa, these are hard places to get to with reliable, cost-efficient services, so these are the places that are going to have to develop the capability to do this. That means some of the lines and airlines are going to have to settle that they want to be in these places in the long-term and take the commercial initiative to actually set up these more efficient methodologies.
Thank you. Can you talk about why we’re having these inefficiencies?
Yes, well, I think when you look at the development of a trade lane—and I’m being fairly high-level on this one—development of a trade lane really needs volume; it needs consistent, repeatable volume. You hit the fundamental problem of a new area being developed with a big volume change, so what you end up with is two or three or four * (4:32—unclear) into the marketplace. There isn’t enough volume to sustain four or five carriers, so what you end up with is you’ve got to pay the penalty of the time while these carriers decide who’s going to be the dominant player in this market.
It also is very much dependent upon the end customers, who sometimes do this on a shorter-term basis and therefore create a surge, expect a service, and then it’s not a sustainable business or an entity there, so they fall away. Really, just a development of global trade. We will see it in marketable places, but in all of these more remote places all leading us to have very different standards, and we need to drive to better methodology than just accepting that it’s highly inefficient.
How can the inefficiencies be addressed?
I think it’s a little bit more rational thinking on the commercial side. Quite honestly, people need to look at this in a much longer term of, “I don’t have cargo today; therefore, I will no longer do it.” I will preface that with I have total sympathy and understanding of the * (5:56—unclear) carriers and air carriers who are struggling to make decent margins. Quite honestly, the garbage business and the companies that develop specific lanes and, therefore, dominate those lanes for a longer term, good or bad times, I think are the ones that will have the ultimate value to us and therefore eliminate those efficiencies or reduce them to the level where people are comfortable with being a service that’s appropriate for those areas.
Thank you, John. Can you provide a brief background of yourself?
Sure. I’m one of those people who worked in the chemical industry doing control systems and progressively moved into running companies. One of those companies was an import-export company with storage tanks. One day I woke up and looked at I could make more money and be a far better value service to the industry by including all of the international shipping of what would be L and G and LPG products and therefore became a ship-chartering specialist and we extended the company into a logistics company.
So, I was born as a logistics person. I developed that skill in multiple industries, everything from automotive to the pulp and paper, steel and aluminum and power. The only one I haven’t done extensively is pharmaceuticals.
I’ve just finished as a vice president of Halliburton, the second largest oil-services company in the world. I hold three degrees and one of them is a Ph.D. in logistics. Occasionally, I try to think about broader concepts of logistics than just the survival of the operation.
Thanks for sharing today. I look forward to talking to you again soon on another topic.
I look forward to it; it’d be very much enjoyable.
About John Vogt
President at WWBC LLC