The changing dynamics of Packaging & logistics

Dr. N.C. Saha Saha is the Director and Principal Executive Officer of Indian Institute of Packaging. He is also the secretary general of Asian Packaging Federation (APF), a board member of World Packaging Organisation (WPO) and The Chairman of nine sectional committees of Bureau of Indian Standards (BIS) for the formulation of national standards on packaging. He has close to 28 years of experience.

Retail consumption has had a significant say in the evolution of packaging, logistics and transportation, for the last two decades. However, it is ecommerce that has been the ‘game changer’. The emergence of e-commerce has led to a demand-supply imbalance of freight transport services. The pressure of trade growth has outpaced the availability of transport services to such an extent that it has led to serious issues of congestion and capacity constraint. These transport challenges have revolved around the fulcrum of volatile oil prices. Freight movement in most modes remains largely dependent on ever-more expensive and finite fossil fuels, primarily diesel fuel. International trade growth places pressure not just on the ports but also on inland transportation systems and service availability. Simply put, more goods entering through the ports means more domestic moves to deliver these goods to their destinations. Moreover, as ships increase in size, demand for inland transportation services also grows.

Factors influencing the supply chain In essence, persistent oil price volatility and capacity constraints mean that high-priced transportation is here to stay. As a result, managing transportation costs is more important than ever for preserving margins and profitability as well as improving supply chain performance. Three transport-driven shifts in supply chain strategy in particular have emerged and are gaining ground. A shift from off-shoring to close shoring: Instead of procuring supplies and outsourcing manufacturing wherever it is cheapest to do so, more companies are now concentrating on performing those activities as close to end markets as possible. The shortened distance and reduced risk of port congestion and associated delays also mean that companies can more quickly adjust freight movements to changes in customer demand. Overall, then, this shift is both cost-advantageous and beneficial to customer responsiveness. Current assets are reduced because close shoring shortens lead times and the uncertainty associated with the lengthy ocean line haul for offshore-sourced goods. As a result, less in-transit inventory and safety stocks are required to buffer against that uncertainty.

A shift from product design for marketability and production to design for ‘shipability’: Many companies are revising package and product designs to reduce weight and increase shipment density. For instance, some have reformulated such products as detergents, dish washing liquid, cleaning agents and fruit juice to make them concentrated and physically more compact. Packaging is being redesigned to optimise package size and weight for the contents through package reconfiguration, the use of lighter-weight materials, and the elimination of unnecessary packaging layers, such as outer cartons and shrink-wrap film. More products in lighter, smaller package sizes are appearing in retail stores. Freight costs are reduced because the reduction in package size and weight, as well as the use of fewer packing materials, allow more goods to be shipped in one truck, container, or other conveyance. Moreover, a larger number of smaller-size containers, can fit within a manufacturer’s allotted retail shelf space. Thus, revenue is enhanced through better utilisation of valuable shelf space- and avoiding re-packaging at landing.

A shift from lean inventory policies to hybrid lean transport / inventory policies: Shippers are paying closer attention than ever to shipment consolidation. They are examining their own shipping patterns to find opportunities to consolidate their shipments, and are considering potential leverage to be gained from using a third-party logistics provider (3PL) as a matchmaker for shipments along shared routes. Second, they also are focusing on building consolidated, multi-product containers, pallets, or cartons to optimise capacity utilisation. And finally, shippers are becoming more astute in evaluating alternative modes of transportation to cope with high transportation costs. This means looking increasingly to inter modal rail services, instead of trucking services, for long-haul freight. These hybrid strategies emphasise balancing the cost of transportation and the cost of carrying inventory, which includes interest, taxes, obsolescence, depreciation, and insurance. These transport-driven shifts in supply chain strategies are designed to mitigate transportation challenges, and they achieve those objectives. But it is not widely recognised that their benefits go well beyond that. They also contribute to improvement in an organisation’s broader supply chain and financial performance. Trade realities have underlined time and again that distance, density, and shipment size are key drivers of transportation costs. Sourcing strategies that focus on pursuing low costs for labour and raw materials from overseas sources have given way to strategies that consider sources in closer geographic proximity in order to reduce distance-driven transportation costs. In terms of shipment density, previously overlooked density-dampening factors, such as unfilled space within packages (air) and volume-adding ingredients (water), have lately drawn shippers’ attention relative to the impact they have on transportation costs. Companies are also engaging in freight consolidation (either among their own business units or by leveraging third parties), and select transportation modes that facilitate less-frequent, larger shipments of freight when it is appropriate.