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One belt, one road, and one very blurry supply chain benefit

It is big. It is bold. It is talked about. It is … well … complicated. From the distance, it looks like a brave attempt at resuscitating an ancient network of commercial routes known as Silk Road. While there is a reason to believe in importance of land and maritime routes linking China to the countries west of it, there was a reason why, over time, the Silk Road trade eventually lost significance. There were just not enough of products being shipped back and forth. Even ancient caravans could not operate full one way and empty the other. But let’s recognize the planners for the boldness of the idea and figure out how to leverage this initiative for the benefit of the modern supply chains.

To the confusion of all interested in this subject, there is nothing singular about the “One Belt One Road” initiative. There are some substantial funds being pledged to the concept. Depending on who is counting, somewhere between $50 and $150 billion could be made available to construct the “hard” elements of that initiative: railways, ports, airports, and … well, what is after the “and” is not very clear. Would a multi-user logistics centre qualify? Would intermodal facilities qualify? Would developing inland waterways qualify? Questions abound.

While the countries, developers, and the construction companies test the waters and work through the application processes, the transport companies need to consider how to weave those new facilities and links into the fabric of their networks. Inevitably, capital improvements to the existing facilities will help, but they will not change the game for network planning. But because they will alleviate existing congestion problems, the planners responsible for network optimization and yield optimization need to consider those new capabilities.

Significantly more promising, and beneficial, will be construction of new ports and intermodal components. What will affect the quality of network planning, is the lack of clarity of what constitutes a valuable “One Belt One Road” project. Lack of overall architecture plan including sequence and timing of new construction will prevent the planners from rationalizing strategic network developments. Confusingly, the acquisition of foreign ports was known as Chinese strategy of the “String of Pearls”. Chinese investments in ports of Karachi and Pireus came reasonably quickly, but nobody knew if they were part of the “one road” strategy, or were they great commercial “pearls” snapped from sovereign owners at a bargain? A similar question could be asked of the country of Sri Lanka striking a deal with China to construct a new container terminal in Colombo. The facility will certainly add to the existing transshipment capacity. Again, with the knowledge of the overall architecture and timing, network planners cannot say if that investment was planned and timed according to the plan, or was just another opportunistic bargain.

From a shipping perspective, the inland part of the network is equally important. As on sea, the “one Belt One Road” initiative has the potential of changing the costs, yields, and network optimization strategies. Here, an example includes the announced construction of a high speed rail linking Belgrade and Budapest. At best, the link, if properly integrated into transit railway networks of Europe and Asia, could offer an alternative routing between port of Trieste-Belgrade, and enable cost effective transport of goods between Turkish/Greek ports and Serbia/Central Europe. At worst, it could become a white elephant project with not much impact on European freight transport times or costs. For the shipping lines, knowledge of what and when will happen on land, is critical to predicting volumes/services and prescribing actions in mid- and long term.

This is probably my biggest concern about the “One Belt One Road” initiative. What gets constructed and where it is constructed is driven by what might be preferred by the fund. The sovereign investments aimed at general improvements to the national infrastructure could be pushing out investments that could be very beneficial to creation of pan-continental supply networks.

So, what should the shipping and transport companies do with their networks vis-à-vis the “One Belt One Road” initiative? In the short term, not much. Current investments are too much point focused to be of value. In the mid- and long term, the transporters should add the new facilities to their network design scenarios. The easiest way is to create a supply chain routing planning scenario (not a simulation), assign expected shipping costs within the planning model, and store it for ongoing comparison with the existing, functioning network scenarios. If this is done in a software capable of storing and comparing multiple supply chain execution scenarios, an alert can be raised up informing the planners when the routes become available for shipments and the economics of the new routing become attractive, as comparing to the existing routings.

At the strategic level, people responsible for designing and maintaining supply chain networks deserve to know what “One Belt One Road” is going to construct, what will be the sequence of construction projects, and what the overall network will consist of – all in all – a grand architecture rich in detail, not a four word slogan with a slush of money behind it.

Kris Kosmala

Kris Kosmala is a partner at Click & Connect where he advises companies trying to leverage digitalization to change their business competitive position.
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