REVERSE LOGISTICS: Big opportunity for Jamaica businesses

Jamaica's proposed development as a logistics hub has sparked recent discussions on the economic prospects for local business and workers as the country seeks to serve the global supply chain and take advantage of the increased opportunities that will emanate from the expansion of the Panama Canal. Emerging as one of the key areas of consideration is 'reverse logistics', which has the potential to generate significant commercial activity.

As the term suggests, reverse logistics comprises the activities involved in the movement of raw materials, unfinished goods, and merchandise away from the consumer market or end-user back to the manufacturer or the point of origin for re-use, recycling, or proper disposal. In 2005, Forbes Magazine estimated that reverse logistics cost United States firms US$100 billion annually.

The current phase of the widening of the Panama Canal to accommodate supersized cargo ships is set to be completed in June 2015. Based on Jamaica's strategic location to the United States market and global shipping lanes, local investors will be presented with similar opportunities to establish operations in reclaiming, refurbishing, repackaging, reselling, and recycling goods expected to be shipped through the nation's ports.

The secondary market for resale of used and refurbished goods, particularly as it relates electronics, is also a feature with which Jamaicans are familiar. For example, it has been estimated that eight per cent of mobile phones sold worldwide are returned for various reasons, with the average secondary market value of between 35 per cent and 75 per cent of the original price, depending on the nature and extent of repackaging or repair required.

Other reverse logistics business opportunities for Jamaica may include outlet retail stores that market returned, repackaged branded goods at reduced prices, parts and materials reclamation or salvaging, particularly metals and plastics, manufacture of packaging for goods to be resold, and large-scale repairs centres, which manage the refurbishing and repair of goods distributed throughout the region. The establishment of such operations will, in turn, increase local employment in fields such as customer service and support, electronics, engineering, computer technology, marketing, and sales.

Companies like Jabil that provide manufacturers and shippers with complete logistics support, including warehousing and distribution, have found that reverse logistics and aftermarket support provide a welcome value-added to clients who outsource their repair and warranty services, returns management, transportation and material procurement in order to reduce delays to customers and allow their employees to focus their efforts on production and sales. In 2012, Jabil netted more than US$17 million in revenue, which represented a steady increase in revenue since 2008.

In a recent article for online magazine Logistics Management, Edgar Blanco, research director at the Massachusetts Institute of Technology Centre for Transportation and Logistics, was quoted as saying that several large US manufacturers are likely to move repair and repackaging operations to the Caribbean region with the expansion of the Panama Canal. He also advised global shippers to watch for an increase in the provision of reverse logistics services throughout the Caribbean and Latin America and cited the recycling of batteries and cartridges by electronics companies in Colombia as an example of current large-scale reverse logistics activities being carried out in the region.

Trans-national trade

The average consumer almost never considers what happens to goods once returned to manufacturers and where they might end up. In many cases, retailers are also unaware of, or otherwise unconcerned with, this process, as the market is intrinsically more preoccupied with access to and availability of goods and services. With the increase in trans-national trade and increased production of manufactured goods globally, large corporations and retailers have become increasingly concerned with this aspect of supply chain management.

According to a 2010 study on logistics conducted by the distinguished Aberdeen Group, the average manufacturer spends up to 15 per cent of total revenue on returned goods. This channelling, repackaging, recycling, disposal of returned, expired, seasonal, and defective goods is referred to as reverse or inbound logistics and negatively affects manufacturers' and retailers' bottom line. Many of the world's firms have sought to address the issue.

The Reverse Logistics Association (RLA) further notes that the most important purpose of developing a reverse logistics strategy is for companies to 'optimise' after-market or after-sales activity. As such, entrepreneurs and companies have started to take advantage of this business objective by developing and providing reverse logistics services to the manufacturing and retail sectors.

The RLA, founded in 2002, comprises third-party service providers to which companies and manufacturers outsource their after-market supply chain activities. Members include popular names such as Microsoft, Walmart, Best Buy, and the Kellogg Company, as well as virtually unknown third-party logistics providers such as Jabil, which operates out of 16 global locations, including Amsterdam, which is a little over an hour from the major logistics hub of Rotterdam.

With Jamaica's strategic geographic positioning, the local business community and the Government must be proactive in ensuring that the foundation is laid for the establishment and support of reverse logistics operations in advance of 2015.