Currently, suppliers have the option of either shipping product on pallets to consolidation centers at the port locations or packing the product in 20-foot and 40-foot containers that are loaded directly on the ships bound for the United States.
In many cases, the volume from a supplier is relatively small and will not sufficiently fill a container. The consolidation centers are where individual pallets are loaded into the containers that protect the product while being shipped across the Pacific Ocean and then to Grainger’s Kansas City distribution center. The freight forwarding company coordinates the efficient shipping of the 20-foot and 40-foot containers. These are the same containers that are loaded onto rail cars in the United States.
Currently, about 110,000 cubic meters of material are shipped annually from China and Taiwan. This is expected to grow about 15 percent per year over the next five years. About 85 percent of all the volume shipped from China and Taiwan are sent directly from the suppliers in 20-foot and 40-foot containers that are packed by the supplier at the supplier site. Approximately 20 percent are packed in the 20-foot containers and 80 percent in 40-foot containers. The 20-foot containers can hold 39 cubic meters (CBM) of material and the 40-foot containers, 77 CBM. The cost to ship a 20-foot container is $540 and a 40-foot container, $620 from any port location in China or Taiwan and to either Los Angeles or Seattle. Grainger estimates that these supplier-filled containers average 85 percent full when they are shipped.
The remaining 15 percent shipped from China and Taiwan go through consolidation centers that are located at each port. These consolidation centers are run by the freight forwarding company and cost about $60,000 per year each to operate. At the volumes that are currently running through these centers, the variable cost is $5.00 per CBM. The variable cost of running a consolidation center could be reduced to about $1.60 per CBM using technology if the volume could be increased to at least 30,000 CBM per year. Now there is much variability in the volume run at each center, and it only averages about 3,000 CBM per site.
Material at the consolidation centers is accumulated on an ongoing basis, and as containers are filled they are sent to the port. Volume is sufficient that at least one 40-foot container is shipped from each consolidation center each week. Grainger has found that the consolidation centers can load all material into 40-foot containers and utilize 96 percent of the capacity of the container.
Grainger ships from four major port locations. Approximately 10 percent of the volume is shipped from the north China port of Qingdao, and 42 percent is shipped from the central China port of Shanghai/Ningbo. Another 10 percent is shipped from Kaohsiung in Taiwan. The final 38 percent is shipped from the southern Yantian/Hong Kong port.
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