Printing the Way Into Trade Profitability

This article originally appeared in the March 20 edition of Shipping Network, the official publication of the Institute of Chartered Shipbrokers.

Attention is increasingly focusing on the potential impact that 3D printing will have on supply chains, in parallel with the rapid pace of the technology development. The applications are still small and few but growing at a fast pace. However, as with the adoption of other technologies in the recent past, it is likely that adoption will take place even faster than people are expecting.

Although container shipping will notice changing production patterns and supply chains through lower expected growth, we believe that the impact will be small enough and spread over enough time that the industry will be well able to deal with this.

This article  looks at what the volumes of goods are that can actually be printed in the future, what role transportation costs play in the supply chain and how future production and shipping will look like as a consequence of the new technology.

3D printers have opened up the possibility of making products in small volumes, at a relatively affordable rate. Prototypes, personalised products, or with those with very specific requirements, can all be produced relatively cheaply. In some cases, easy production of these products was not even possible at all without 3D printers. Customers can even design their own products rather than relying on brands with mass production runs.

Since the automated production process of 3D printing limits the amount of necessary labour, the advantages offered by countries with low labour cost will disappear. Additionally, the geographical split between production and customer will disappear when printers are located closer to the customers and more dispersed across the world. Shipping goods over long distances will not be needed anymore, saving costs and time. Some suggest that container shipping, which has facilitated these global supply chains by offering cheap and efficient transport of goods, could be decimated. But how seriously should we take these worries?

Printable Goods Volumes

Containers are used to transport a wide range of goods, from food products, base materials, and components to simple final products and complex assembled ones. The applicability of 3D printing varies greatly across each category and hence the level of impact on shipping.

The transport of food products and base materials in containers is not expected to change. When considering the current custom records for trade between China and the EU-28, for example, we estimate that 38% of container trade (in volume) with China will not be affected as a consequence. Another roughly 5% of the container trade are products which are part of the production process. These goods are also unlikely to be heavily impacted. 3D printing would therefore (potentially) only be applicable on 57% of the goods shipped between China and the EU.

The attractiveness of 3D printing to produce products partly depends on the product’s complexity. Those with complex assembly lines will still require labour input or automated assembly lines.

Looking at the trades with China some 10% of the containerised trade is considered to be products with complex assembly, such as high-tech or machinery. These products benefit and often depend on low cost assembly lines and will therefore be less affected by the future production process of their components. The importance of the assembly lines themselves, also suggest that components will be produced in the same location even if a 3D printer could make them in a location nearer to the end customer. For example, if the body of a mobile phone benefits from production in Asia, some of its parts, accessories and components will also be printed in that same location. In summary, 3D printing could be an alternative production method for just under half of the currently shipped containerised goods between China and the EU.

THE 3D PRINTING PROCESS REQUIRES HIGHER QUALITY MATERIALS WITH LOWER QUALITY TOLERANCES

The container trade with China has a large share of relatively simple products which could also be printable in coming years. When, for example, considering trade between Korea and the EU a different profile emerges, with a larger share of complex assembled products. Additionally, intra-Europe trades have a lower share of simple products. This means that the volume of containers potentially being at risk is less than 50% on these trades. In contrast, trades with less developed regions may contain more products which are well-suited to being printed locally. Whether these trades will indeed be replaced by local production will depend on the availability of 3D printers in these developing markets.

Shipping Costs Versus Production Costs

Global supply chains minimise the production costs of goods. Container shipping has been the key enabler of this. Identifying the role of 3D printing in changing this depends entirely on the new supply chain costs.Trying to understand the impact on shipping therefore requires a good understanding of the costs of shipping as part of the total production costs.

On a per container per kilometre basis, shipping is typically more than 10 times cheaper than trucking. Total transportation costs are only a very small fraction of costs of the good to the end customer. When a forty-foot (feu) container with shoe boxes is shipped from China to Europe this typically costs up to around $4,000/40 ft container in total. One single container can hold some 20,000 shoeboxes so the long-distance transportation to a European port is roughly 20 cents per pair of shoes. This means that with a production costs of around $10-$20, transportation accounts for only 1%-2% of the shoe’s production – and much less of the retail price.

Shipping will have a different lead time for producing the goods than 3D printing. Typically shipping goods from China to Europe takes some 21 days extra versus local production. If the same shoes are being considered, the working capital costs for those 21 days extra would amount to 1% of the costs of those goods.

In summary, the costs of shipping the shoes from Asia to Europe are around 2% of the eventual cost price. For some lower value goods that take up more space in the container or shipping to more remote locations this may go up to around 5%-10% in extreme cases. This means that before 3D printing is considered for mass production, the production costs of 3D printing near to the customer have to come down to being close to that of conventional methods.

Where 3D printing becomes the cheapest method to produce goods, Asian producers will also shift to the same printers. If for shoes the transportation costs are in the order of magnitude of 2% of the cost price, factors such as the costs of land, corporate tax regimes, permitting and legislation and even labour costs can offset this 2%. This will keep the current global supply chains in place for most goods. Economies of scale with facilities with more efficient 3D printers or newer technologies may also easily compensate for the small portion of the final product costs that global container shipping makes up of the total costs of the goods. Expertise and cost efficiency are likely to remain key drivers to production location for the majority of goods.

Raw Materials

Although base materials are likely to be bulk products, containerised transport of these base materials is a very likely option. Bulk shipping is only economically efficient for a large volume of homogenous bulk product shipped between only few locations, for example, coal and iron ore from a mine to a powerplant or factory. For all other goods going to many locations the container has facilitated cheap and efficient shipping globally. Therefore, currently, significant volumes of bulk and base materials are shipped in containers to wherever they are needed.

The goods which we are assuming will shift their location of production will consist of a wide variety of products with a wide variety of the base materials. The base materials will likely be mainly plastics and fibres with tailormade characteristics for the various products. With more and dispersed production locations there will a greater number of commodity flows to different locations. In the future, the reduction in bulk terminals and the rise in container terminals will mean that for quite a few base materials container shipping will become the most cost effective mode of transport.

On top of that the 3D printing process requires higher quality materials with lower quality tolerances. As bulk transportation has implications for the quality of the base materials, containerised transport will also be safer to get the base materials to the printers. How large this flow of containerised base materials will be will depend on the location of the facilities producing the base materials, which in turn will depend on technology and the sources of minerals.

Transformation of Production Industry

For some products, much shorter lead times and/or the cheaper production of small volumes will lead to a shift in production location. This is the case for around 30% of the printable products. This means that around an estimated 15% of the current container trade has the potential to shift supply chains nearer to point of sale.

Despite the advantages of low-cost assembly, a clear trend is identified in which products need to be more tailor-made and personalised. 3D printing will play an important role here – for example, in personalising a car. This can already be done to some extent, but this is surely set to increase. However, from a cost efficiency point of view the largest part of the car will be standardised and then personalised parts will be fitted locally. However, again this will hold for only a limited part of total components used.

Overall this means that the impact on shipping is estimated to be limited to some 20% of all containerised goods transported currently. This will require significant development to make this a reality. It assumes significant improvement of the 3D printing technology itself in order to be applied to mass production. Supply chains will need to be reconfigured and will need to deal with various smaller implementation issues such as dealing with quality checks and logistics for smaller volumes. But also developing factories to produce 20% of the goods in a different location will require significant planning and development.

If we (cautiously) assume that this 20% will take 20 years to deliver, and – at the same time – there continues to be an underlying (unadjusted) annual container trade growth of around 4.2%, this will see the growth rate fall to around 3.1%. Although this is a significant reduction in growth, this would not decimate the business. Containerised transport of the raw materials required will offset part of this decline even. The industry will slowly adjust to this new situation and outlook. If, however, the timing is much more rapid, then the impact could be larger. Something which can be monitored closely by the industry.

In summary, will 3D printing have an impact on container trade? Most surely. 3D printers will cause a major disruption in current production processes and customer demands. However, will it decimate container shipping in the next two decades? Very unlikely. It will however cause some slower growth which the industry will need to prepare for. The global supply chain will continue to minimise the total costs of production and container shipping will continue to facilitate this. And let’s not forget that an increasing global demand for 3D printers will create a brand new cargo type for container ships.