Why transportation is becoming a competitive differentiator in the new age of manufacturing.
By Derek Lothian.
For Jerry Bigam, it was a case of the chicken or the egg.
The CEO of Edmonton-based Kinnikinnick Foods long knew it was time to expand beyond the North American marketplace. For years, however, his ambitions were surpassed only by the growing list of challenges to serving a global consumer base in a highly niche industry.
At the helm of one of the largest gluten-free food manufacturing facilities in the world, Bigam’s primary obstacle was exposure to risk. Existing transportation infrastructure meant he would need to anticipate demand at least six weeks in advance, allowing the company time to ship product to tidewater, and then across either the Atlantic or Pacific Ocean by container.
It was a risk he wasn’t willing to take.
“It didn’t matter where we were looking overseas, the competitive economics were too hard,” recalls Bigam. “Nothing kills a new product in a new market quite like empty shelves. We would have needed to build up a ton of inventory in the hopes it would eventually move; and it didn’t make sense to tie up significant capital to invest in taking that chance.”
But, in 2015, the game changed.
Despite showing signs of recovery, the U.S. economy was still sluggish, and the introduction of new shipping routes with Icelandair, KLM, and Air China Cargo at nearby Edmonton International Airport (EIA) forced Bigam to take a second look at new offshore export opportunities. So, he boarded a plane and began attending trade shows.
“We have a very specialized product required in most countries in the world, but in smaller volumes,” explains Bigam. “We needed to start small and build up. The benefit of better air service was that, if we got a run on specific lines in different corners of the world, we could actually transport pallets instead of containers, and customers could have them in a day or two instead of waiting a month and a half.”
Before long, Kinnikinnick Foods was fielding multiple orders from Europe and Asia. And, this past January, the company began selling to the U.K., leaning on popular Internet retailer Amazon to help boost revenues and build brand awareness.
According to EIA Vice President of Commercial Development, Myron Keehn, it is an example of how the logistics supply chain can function as an economic driver.
“After safety and security, our number one focus is economic development,” says Keehn, who notes cargo volumes at the airport have increased in each of the past seven years. “We try to find out what these emerging markets are looking for, and then we work on building the ‘air pipeline’ to connect the goods.”
It is also a matter of modal integration.
EIA recently joined forces with Rosenau Transport to unveil a 210,000-square-foot, on-site warehouse and distribution centre, providing a central, Western Canadian link between air cargo carriers and both the Yellowhead and Queen Elizabeth II highways — the latter of which runs as far north as Peace River and as far south as Mexico.
Rail access is equally important. The nearest rail yard is less than 10 kilometres from the airport, and other inland ports on the Prairies — such as CentrePort in Winnipeg and the Global Transportation Hub in Regina — have incorporated rail facilities directly into their site plans.
“In logistics, speed is everything,” says Keehn. “A lot of industries, like manufacturing, are moving away from competing on volume to a strategy where they’re competing on service. Our job is to help them sharpen that competitive edge.”
Bigam couldn’t agree more.
Although Edmonton is not generally thought of as a gateway for exports, he contends there are strong regional advantages.
“From an air traffic perspective, Edmonton is on a polar route, which gives us some unique non-stop flight options to ship into the Pacific Rim or Europe,” he says. “If I’m moving product into England, instead of shipping from Edmonton down to Louisville and having it forwarded, I can take the same shipment directly over the pole into the U.K. market a day quicker and notably cheaper.”
Speed to market is especially key when dealing with perishable food. Because of EIA’s ability to offer quicker turnarounds, the airport shipped roughly 420 tonnes of cherries last year alone, and has cultivated a new ‘fresh fish’ phenomenon in landlocked Edmonton, with Arctic char, cod, and other ocean delicacies pouring into city stores via Icelandair’s soon-to-be-daily inbound flights.
Manufacturers in the oil and gas sector, meanwhile, are able to provide made-to-order technologies and replacement components to extraction operations in Scandinavia, Asia, and the Middle East — markets previously out of reach for an industry that winces at the slightest notion of downtime.
Yet, identifying these opportunities is not always easy. In fact, Heather Stewart has made a career out of it.
The president of BBE Expediting Ltd., a freight management firm with 40 years’ experience in remote northern and international multi-modal shipping, Stewart recites a litany of considerations that factor into effective logistics management — from route planning and vendor sourcing to shipment verification, contingency preparation, and regulatory compliance.
Innovation now matters, too. With the advent of drone technology, autonomous transportation, and e-commerce capabilities, selecting the right long-term logistics partners can be more about looking toward the future than procuring on current needs.
Just this fall, Anheuser-Busch teamed up with Uber to move 45,000 cans of Budweiser in Colorado using a self-driving 18-wheel truck — the first commercial delivery of its kind. The beer maker estimates the technology could save the company up to $50 million per year if applied across its entire distribution network.
Stewart’s best advice: Like any other specialized skill set, if you don’t have it, ask others who do for help.
“Anyone who has been in manufacturing for several years can likely attest to how critical — and how complex — shipping has become over the past decade,” she says. “The service used to be a commodity — lowest price used to win almost by default. Now it’s much more of a value-driven business, and cost is only one factor. Exporters are much more attuned to the predictability and efficiency of delivery.”
Even the smallest details have become differentiators.
EIA’s decision to consolidate many air cargo service options with the Canada Border Services Agency (CBSA) is one of those underappreciated specifics. Instead of having to transport goods off the tarmac and across the grounds for inspection, CBSA agents screen shipments in the same building as BBE and its carrier affiliates. This seemingly minor change has dramatically increased productivity and reduced processing errors.
Securing the area as a designated Foreign Trade Zone (FTZ) is attracting domestic and international attention as well.
A partnership between EIA, Edmonton Economic Development, and the federal government (dubbed collectively Port Alberta), the FTZ allows companies situated within its radius to — amongst other benefits — defer duties on imports, and, for businesses with export sales north of 90 per cent, waive GST on some purchased goods.
“The FTZ is another tool manufacturers have at their disposal. The trick is knowing when and how to leverage it,” says Andrew Jones-Krysler, branch manager with Pentagon Freight Services and one of the foremost authorities on cargo forwarding in Northern Alberta. “Being geographically isolated from many of our region’s core sales destinations, you need to do your homework, and have a proactive plan that balances shipping considerations with corporate production, warehousing, and investment decisions.”
Few domestic companies will argue with any progress that moves the needle. A recent nationwide survey of manufacturers pegged transportation infrastructure and logistics as the second greatest encumbrance to doing business in foreign markets, and the top challenge to increasing exports.
It is a narrative, BBE’s Stewart believes, the industry must work together to change.
“A single link in the supply chain that doesn’t perform sends ripples right back through the entire economy,” she says. “It has an effect at the community level. That’s why it’s critical we’re innovative in how we collaborate and deliver service — and I think EIA has demonstrated itself as a model for how we can bring those players together to push in the same direction.”
Those grassroots impacts are apparent. One year ago this fall, EIA introduced the region’s first-ever non-stop service to Shanghai (and Canada’s only scheduled freighter service to mainland China), operated by Air China Cargo. Early estimates suggest the route has helped inject upward of $31 million into the economy since.
Regionally, though, the most obvious impacts of trade are arguably seen a few hours to the east, in Saskatchewan, where one out of every five jobs is reliant on exports. Roughly 70 per cent of all goods produced in the province eventually find their way to markets beyond Canadian borders — to China, the United States, and a growing number of ‘non-traditional’ markets.
DynaIndustrial, for instance, has set its sights on South Africa.
Founded in 1976, the custom manufacturer and metal fabricator manages locations in Regina and Saskatoon, in addition to a sales office in Mobile, Alabama. With the slowdown in the natural resource sector, Director of Sales Victoria Rhodes says the company needed to re-evaluate what other jurisdictions had a demand for its specialized expertise.
“Being from Western Canada, we have a natural affinity towards mining, and oil and gas,” quips Rhodes. “We know those industries well. It just so happens that South Africa is also home to one of the largest mining operations on the planet.”
Despite suffering a notable dip in output from its all-time peak, South Africa remains the world’s fifth largest producer of gold, and is a leading exporter of diamonds, iron ore, platinum, chromium, palladium, and a cornucopia of other minerals.
DynaIndustrial found its break in gold.
After more than three years of promotion and negotiation, this past November, the company saw its first ‘rock bolter’ operate in the South African market. The DynaBolter is a semi-automated machine that installs steel bolts into the roof and back of mine bores to prevent cave-ins and the dislodging of debris. Several similar units have been sold into Canadian ‘soft rock’ potash mines over the years; however, this is the first that has been commissioned specifically for ‘hard rock’ environments.
“Global business of any kind takes time, but that is particularly true when you’re dealing with highly customized products,” says Rhodes. “You need to find partners who share your corporate values and beliefs, and who do business the same way you do. You need to carry out your due diligence in the transaction. And above all else, you need to be sure your customer can get your product when they need it.”
That ability to deliver is often what makes the difference.
“In the resource space, when people want product, they want it now,” she says. “The competiveness of the market is such that you need to be better, faster, and more responsive than everyone else if you want the sale.”
Back at EIA, Keehn and his team have embraced the same philosophy, and point to the $500 million worth of recent private sector investment as proof they are on the right path.
“Manufacturing on the Prairies is deceptively diverse,” he adds. “We innovate so many different products for so many different markets that providing the right shipping service can be a moving target. But that is where the business is going, so that is where we need to go, too.
“Canadian manufacturers can have the best solution in the world, yet it’s all for naught if they can’t get it to market on time, reliably, and cost competitively.”
Three key exporting tips
(From the perspective of a freight forwarder)
By Chris Lemke
1. Choose the best Incoterm for the job
Incoterms, or International Commercial Terms, are published definitions that set the global standard for the interpretation of common contract clauses in trade, including the costs and responsibilities of the buyer and seller. Know them, and know what controls they entail. Ex Works classification, for example, absorbs the majority of risk and cost onto the seller, while Delivery Duty Paid transfers the risk and cost onto the buyer.
2. Know your freight forwarder
Not all freight forwarders are created equal. Select yours carefully. Ask for referrals, ensure they present you with options in terms of transit time and rates, carefully examine their in-market relationships, understand their use of technology, and match the scope of what you’re asking against what they’re capable of delivering upon.
3. Adapt to customer preferences
What does your customer want? That is the first question any business should ask, and it’s the first question in choosing a freight forwarder. Does your packaging protect the product from moisture and the rigors of multiple handlings? Are there specific compliance issues in the country to which you are shipping? Consider how you can make your customer’s life easier and thus encourage future business.
Chris Lemke is the Edmonton-based business development manager for Kuehne + Nagel Ltd. — an international logistics firm founded in 1890.