Logistics Management: Management Update
An Executive Summary of Industry News
-- Logistics Management, 1/1/2009
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Obama picks Transportation Secretary. President-elect Barack Obama has selected Ray LaHood, a Republican Congressman from Illinois, as Secretary of Transportation. LaHood is likely to play a key role in the new administration, with transportation infrastructure development being viewed as a major driver for re-building the economy and creating and saving jobs. A former member of the House Transportation and Infrastructure (T&I) Committee for six years, LaHood is said to have a close relationship with Obama's Chief of Staff Rahm Emmanuel, according to a Chicago Tribune report, which also noted “he has not shied away from criticizing the Bush administration and has a reputation for working with leaders of both political parties.” House T&I Committee Chairman James L. Oberstar lauded the selection of LaHood as Transportation Secretary as “superb,” noting that LaHood's managerial skills will be key in getting all federal modal administrators to effectively collaborate on the next transportation bill.
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Geodis makes a (very) big deal with IBM. In a transaction notable for both its significance and scale, Paris-based 3PL Geodis will vastly expand its service footprint by acquiring IBM's global logistics operations. The move will allow Geodis to leverage IBM's logistics wherewithal and operational expertise in more than 50 countries, as it will be the lead logistics provider—or 4PL—for IBM and manage roughly $1.0 billion Euros (approximately $1.3 billion U.S.) of logistics costs supporting asset recovery services, service parts logistics, and flow management of all global hardware and software products. Jean-Louis Demeulenaere, Geodis Deputy CEO, told LM that the opportunity to acquire IBM's end-to-end logistics flow management platform allows Geodis to expand its global footprint and showcase its abilities to different customers and prospects.
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China trade goes cold. The deepening financial crisis, which has led to recession in most of the Western world, is beginning to have an impact on Chinese exports, trade officials in Beijing report. And there are significant signs that container, bulk, and break-bulk vessel throughput will be relatively slack there through 2009. “Our economic slowdown has cut domestic demand for raw materials including iron ore and coal, casting side effects on the dry cargo transport business,” stated a spokesman for China's Ministry of Transport. The government agency also reported that China's port throughput represented 460 million tons in November, up 0.5 percent year-on-year, the lowest growth in a decade. The tonnage report of November indicates that 310 million was domestic trade, up 1.5 percent year-on-year. Meanwhile, foreign trade throughput posted negative growth in the month.
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Risky business. Are global companies managing risk? Based on the results of a recent UPS and Economist Intelligence Unit study, they may not be. The study found that almost half of the companies operating global supply chains are leery of major disruptions in their ability to source, produce, and ship goods globally. What's more, it appears they are being less than proactive in preventing disruptions and managing risk. In fact, 47 percent of the 350 surveyed shippers admitted that they need to be more focused on risk mitigation while 42 percent noted that the expansion of their global supply chains currently outpaces their ability to manage risk.
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Panama on schedule. While continuing to adjust its economic forecast, Panama Canal authorities insist the expansion project is on schedule for completion in 2014. “The big question for all of us is when will a demand for carrier capacity be restored,” said Alberto Alemán Zubieta, administrator and CEO of The Panama Canal Authority (ACP) in an interview with LM. “In any case, we want the project on track and have it provide the industry with a more efficient routing solution.” The $2.3 billion financing package will cover a portion of the $5.25 billion total cost, said Zubieta. The negotiated financing structure includes favorable provisions for the ACP including a 20-year amortizing period with a 10-year grace period and establishes unsecured, untied financing for the ACP, whereby there are no prerequisites to contract from any one source.
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Things are grim all over. With grim economic forecasts echoing through the halls of industry over the last few months, it's not surprising that the Institute for Supply Management's (ISM) semi-annual forecast calls for continued economic declines. The ISM predicts an overall decrease in manufacturing sector revenue by 1.1 percent in 2009, with 12 out of 18 industries expected to show declining revenues. According to the forecast, the only manufacturing groups expected to see any type of increase are petroleum and coal, electrical equipment, and appliances and components. “Manufacturing purchasing and supply executives lack their usual optimism about their organizations' prospects as they consider the first half of 2009; however, they are somewhat more positive about the second half,” said Norbert J. Ore, chairman of ISM's manufacturing business survey committee.
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Ocean carriers in repose. In response to slack trade and an unstable rate structure, one of the world's leading global ocean carriers began withholding capacity late last year. Other carriers soon began to follow suit. The announcement from Copenhagen came in the wake of Maersk's recent changes to a number of its service networks previously noted in LM. The carrier will lay up eight surplus vessels and will combine intra-Europe volumes with feeder volumes into a “multi-trade” service. Maersk Line has announced its decision to lay up eight 6,500 TEU (twenty-equivalent unit) vessels, following the recently announced changes to its Asia-Europe, Asia-Central America, and Transpacific service networks which has resulted in surplus vessel tonnage. According to Michel Deleuran, Maersk Line's head of network and product, current market conditions indicate that it makes better economical sense to lay up the eight vessels than redeploy them.
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Change in direction. A major auto manufacturer that has been importing vehicles through the Port of Tacoma since 1982 has recently changed directions—and started exporting vehicles to Asia. Although initial volumes are small, Mitsubishi Motors is exporting Eclipse sports cars through the port to China and South Korea. The vehicles are built at Mitsubishi's manufacturing plant in Normal, Ill., transported by rail to the port of Tacoma's Marshall Avenue Auto Facility and then loaded to Wallenius Wilhelmsen Line auto ships. Randy Casebolt, manager of national port operations for Mitsubishi Motors North America, said his company expects to export about 400 vehicles through Tacoma during its current fiscal year, which ends March 31. About 500 units are projected for the following year.
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No dice. Less than three months after JDA Software Group Inc. announced its plans to acquire supply chain management software mainstay i2 Technologies, it appears that the deal is off. Last month, i2 said it has officially terminated its Agreement and Plan of Merger with JDA. This news followed a November report from i2 that said its stockholders voted to approve the proposed merger with JDA. But this decision was followed by a proposal from JDA to lessen the common share consideration in the merger agreement below the $14.86 per share price, presumably due to economic conditions. The i2 board subsequently deemed this deal was not in its best interest. If the deal had gone through, it would have represented the largest deal for JDA since its May 2006 acquisition of Manugistics for $211 million.
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Air cargo remains soft. A report issued by the Geneva-based International Air Transport Association (IATA) may have caused considerable alarm overseas, but many U.S. shippers were telling LM that it could have been worse. “Had our members not pre-planned for certain cost factors after the steep hike in fuel charges earlier in the year, our carriers might have been hit harder by this development,” said David Castelveter, a spokesman for the Air Transport Association (ATA). “In a relative sense, our carriers are looking a little better because they took their lumps earlier when cutting back on expenses and services was imperative,” he added. But that does little to diminish the overall impact of IATA's forecast for 2009, Castelveter admitted, noting that it showed an industry loss of $2.5 billion. All regions except the U.S. are expected to report larger losses in 2009 than in 2008.
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Supply chain analysts ask: Where's the money? Last month's Chief Procurement Officer's Summit staged by the Aberdeen Group in San Francisco gave voice to experts comprising finance, logistics, and manufacturing sectors. “There is no real recession-buster,” said Jean-Jacques Beaussart, CPO of National City Corp. “We have to concentrate on the immediate needs, and worry about demand later. The cost pressure is intense.” Given the vicissitudes of procuring product for distribution in a down economy, many new strategies have been put into place, they agreed. Capturing revenue today remains the challenge, so that the focus is more on “the now” than the future. “Doing more with less is something we're all facing,” intoned Andrew Bartolini, vice president of global supply chain management research for the Aberdeen Group. “But how do managers do this?”
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Hola Miami. In a move to enhance its hemispheric range, APL will route its leading Central America service through the Port of Miami. Beginning this month, the world's No. 7 container carrier by volume will move the Central America Express (CAX) and its companion service—the CX2—from the niche gateway of Port Everglades to a major container load center. Miami will be the only U.S. port of call for the service that connects Honduras, Guatemala, Nicaragua, and El Salvador with APL's major European and Latin American trade routes.
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2008's Railroad Facts is on the tracks. The Association of American Railroads (AAR) annual reference book is replete with facts and statistics on a wide range of topics, including railroad finance, traffic, operations, and equipment, among others. It also includes profiles of Class I railroads, Amtrak, Canadian, and Mexican carriers. This edition, says the AAR, is of heightened interest to shippers, as it includes information on a record-breaking 2007 for industry revenues, capital investments, and accident rates. Single copies are $18; discounts are available for larger quantities. Order online at www.aar.org.
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LM's 2009 Salary Survey and Outlook webcasts are right around the corner! Be sure to watch your inbox now that you are back to work in the New Year. During mid-January, we'll be sending out 2009 Salary Survey questionnaires via e-mail. Last year nearly 1,400 readers participated in this highly anticipated study, giving the market a clear picture of average logistics salaries around the country, as well as which titles rake in the biggest bucks. And, on Thursday, January 29th at 2:00 p.m. EST, the 2009 Logistics Outlook webcast goes live! This ever-popular event offers shippers a snapshot of where the U.S. economy is headed and, more importantly, what kind of rates to expect in the coming year. During this interactive event, shippers will be able to ask industry experts questions in real time. Visit logisticsmgmt.com/outlook09 to register. Get ready for a great year, we'll see you online!
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