US manufacturers in Thailand find supply chain solutions

By: | at 11:33 AM | Channel(s): Maritime  

In recent years much of the focus has been on trade and shipping from China. Yet, Southeast Asia continues to develop as a powerhouse given efforts to develop the economies of Thailand, Malaysia, Vietnam, Cambodia, and even Myanmar (Burma).

According to Nazery Khalid, senior fellow, and Dr Nathalie Fau, visiting scholar at the Maritime Institute of Malaysia, the region offers promise in commanding a greater share in the global seaborne trade if it can adjust to the trends and developments in the maritime industry and if stakeholders can optimally harness the region’s enormous marine resources, strategic location and other advantages.

Thailand’s Customs Service is making headway by adopting e-Import, whereby import declarations can be done, including duty payments, at any customs house. This includes excise taxes and value added tax.

“This is done after the shipment arrives,” says Yutana Phoolpipat, director of the Customs Services District at Laem Chabang Port. “We require the manifest no less than 24 hours after the vessel arrives.”

For export, two documents are required.

Thailand is also a participant in the Container Security Initiative (CSI), a US program intended ot help increase security for maritime containerized cargo shipped to the US from around the world. It is also a participant in the Megaports Initiative, a US initiative whereby foreign customs, port authorities, port operators, and/or other relevant entities in partner countries work to systematically enhance detection capabilities for special nuclear and other radioactive materials in containerized cargo transiting the global maritime shipping network.

Arjarin Pattanapanchai, senior executive investment advisor for the Thailand Board of Investment, Thailand already leads the world in exports of rubber and is a large exporter of petroleum chemical products and plastics resins.

“Integrated circuits used to be our third largest export, but now it is machinery,” she says.

Since the Asian financial crisis in 1997, Thailand has boosted it positions to becoming the second largest economy in Southeast Asia after Indonesia. Particularly noteworthy are the large manufacturers that have located in Thailand. Most are clustered in a number of industrial estates on Thailand’s Eastern Seaboard.

“The region is a hub for automobile manufacturing plastics processing, and other industries,” says Pattanapanchai.

Auto Industry

Automobiles are Thailand’s largest industrial sector. Today it ranks 10th in the world. Industrial estates along Thailand’s Eastern Seaboard house nearly all of automotive supplier and assembly activity due to their strategic location close to the Laem Chabang Port. Today the business involves 14 assemblers and more than 2,300 parts suppliers. Among them is American Axel Manufacturing (AAM), a manufacturer of driveling, driver train and chassis systems and related components as well as just-in-time supplier to General Motors and Ford. AAM is located in the Eastern Seaboard Industrial Estate.

“We sequence directly to GM,” explains Gregory M. Bastien, AAM director of Thailand operations. “Our supply chain is based on a one to two-day inventory that allows us to supply within a 40 minute window. We replenish as needed.”

The movement of goods is fast. If an OEM has to warehouse parts because AAM has missed its scheduled JIT delivery, its charged $400 per minute.

While local content reduces time and costs, AAM’s location close to the seaport is critical.

“There’s good infrastructure,” Bastien states.

Raw materials come from North and South America with the US supplying 49 percent. Some steel comes from Japan and China, depending on the grade available. Every week AAM’s US supplier in Detroit consolidates the freight and moves it by rail to the Port of Los Angeles, a journey that takes 17 days. From there it is shipped to Laem Chabang Port. All is for local Thailand production.

Currently, the company receives seven to 10 containers per week. Shipments take about two weeks to arrive. AAM controls the inventory and builds the parts. Materials and inventory are warehoused until needed. The entire turnaround is about two weeks. Parts are then sent JIT to the OEM.

To streamline the process, the company is looking at many objectives, including nationalization of its parts and inventory reduction based on localization. The company is also expanding its operations to accommodate increased regional business by GM and Ford.

“We are expanding our manufacturing capabilities and storage,” Bastien reports. “This will help material flow.” As a result, the company will also buy less from China.

Meanwhile, AAM expects an increase in the number of containers it receives weekly to 12 -16. Less container loads (LCL) will also increase.

Contracts with the OEM are signed on an annual basis.

Aerospace Parts

Primus is a leading Tier II supplier of highly engineered metallic and composite parts, kits and assemblies to the global aerospace industry. The company chose to locate in the Amata City Industrial Estate also in Thailand’s Eastern Seaboard due to its proximity to Laem Chabang Port and two-hour drive to Bangkok.

Boeing is the company’s biggest customer.

Alex Beysen, Primus vice president and general manager, reveals that most materials are imported from Europe and the United States. “The materials are very expensive to import since they encompass aluminum and titanium,” he says.

While the company also operates a manufacturing plant in China, Beysen comments that Thailand offers a good stable environment with skilled workers. “It’s safe and importing and exporting is easy,” he says.

All metallic small parts are shipped via air. Sixty percent of composites are shipped by sea; 40 percent by air.

Beysen reveals that since Primus competes with other suppliers in the United States for Boeing’s business, logistics is critical. “Boeing dictates the source, so we need to plan all lead times,” he says.

Primus uses FedEx as well as scheduled air carriers for air shipments. Materials are flown from Europe every week since imported materials are often shipped in dry ice and considered dangerous cargo.

“The dry ice adds a lot of weight and the shipments must go into special containers, which add to the cost,” Beysen remarks.

Parts, kits and assemblies are flown out or shipped by ocean freight. Sea freight generally takes 28 days.

“We aim at manufacturing small parts for logistics purposes,” he adds. “If you are shipping parts, we can ship LCL. But if I am shipping composite parts, we want use of the entire container.”

The reason, he says, is because the product must be packed for protection. “Shipments can be damaged when shipped LCL,” he states. “The shipment can represent several million dollars. For that reason, we prefer to ship by air cargo.”

Typically, Primus ships one container every two weeks. “We fully load these ourselves,” Beysen reports.

Primus typically has to book the shipment three days in advance. “But if I push, I can get the container out within five hours,” Beysen says. Important is the rotations of the vessels. “Many of the ships still feed Singapore,” he states.

Timing is critical with Boeing, so voyage schedules are important. For that reason, Beysen feels Thailand is not ideal for job shops.

While the aerospace sector is relatively small in Thailand, Beysen sees it growing in Southeast Asia. “Vietnam is coming up as is the Philippines,” he says.

Disc Drives

Electronic components, specifically hard drive discs (HDD), are big business in Thailand. Hitachi Global Storage Technologies and Western Digital are two of the largest manufacturers in the business. Together their Thailand operations represent about 45 percent of worldwide market share.

Western Digital, located in Ayutthaya north of Bangkok, suffered severely during Thailand’s devastating flood of 2011. “The whole place turned into a lake,” recalls Joe Bunya, Western Digital senior vice president. “Water was six to seven feet high.”

Just as the floods hit, executives there also found that global demand for disc drives diminished due to the worldwide recession and a shift in demand for lighter, higher capacity drives.

To diversify risk, the company has been shifting some of its volume to locations in Singapore, Malaysia and China. With suppliers being farther away, the company experiences longer pipelines and a higher inventory level. “This drives up the cost of components,” says Bunya.

The company manufacturers some 735 million hard disc drives (HDDs) in Thailand.

“The six-inch wafer is made in the United States, then shipped to Thailand where we cut it in 42,000 to 46,000 pieces and manufacture the HDDs,” explains Bunya. Overall, the company manufacturers some 735 million drives with an economic impact of $20 million on the Thai economy.

Although the company ships by both sea and air, much is transported by air cargo. Hence, key to its location is being close to Bangkok International Airport. “We ship directly to Original Equipment Manufacturers (OEMs) like Dell, Lenovo, and Hewlett Packard.

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American Journal of Transportation