Management Update
An Executive Summary of Industry News
-- Logistics Management, 3/1/2009
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10+2 sets sail. The importer security filing, more commonly known as the "10 + 2 Rule," went into effect last month with little fanfare from the Department of Homeland Security (DHS). Shippers meanwhile will still have some time to adjust to the interim final rule. "Even though the modifications alleviate onerous burdens, some serious problems have still not been corrected in the interim rule," said John Engler, president of the National Association of Manufacturers (NAM). The rule, which requires importers and ocean carriers to provide additional data elements that do not appear on the manifest, will not become final in June after shipper comments have been received and considered by the agency.
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Who loves 3PLs? Nearly eighty percent of domestic Fortune 500 companies use third-party logistics (3PL) service providers for logistics and supply chain functions according to Armstrong & Associates' recently-released report, Trends in 3PL/Customer Relationships. The report suggests that the larger a company is, the more likely it will be to have at least one 3PL relationship. The report states that large shippers like General Motors, Procter & Gamble, and PepsiCo each use 30 or more 3PLs. For more information about the report, go to www.3PLogistics.com.
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Vietnam losing cache? According to Transport Intelligence (TI), a London-based logistics consultancy, high logistics costs are responsible for holding back the development of the Vietnamese economy. In their recently-published report, Vietnam Logistics 2009, TI noted that logistics costs in the market are estimated to be 20 percent to 25 percent of Vietnam's GDP, a ratio far higher than that in developed economies such as the U.S.—higher even than in other developing economies such as China. These high costs have hindered Vietnam's efforts to take advantage of its cheap labor resource and develop the national export economy. However, the report also finds that this situation is gradually changing. The Vietnamese government has invested billions of dollars in the country's infrastructure and this investment is slowly beginning to pay dividends.
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FedEx Freight makes job cuts. In yet another example of the toll that the current economy is taking on the less-than-truckload sector, FedEx Freight said last month that it's eliminating 900 positions, according to media reports. These cuts represent roughly 2.6 percent of its 35,000 employees in various positions at 150 locations. An article in the Memphis Business Journal cited FedEx Freight President and CEO Doug Duncan saying in an e-mail to employees that the job cuts were due to the continued decline in consumer spending and overall industrial production—two factors putting unprecedented pressures on the trucking industry.
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Undermanned vessels may cost shippers. While commercial fleets have enough capable seafarers now, industry experts fear that this may not be the case when the economy improves. "Manning is still a major even though the global downturn may have thrown most shipping industry forecasts out of the window," said Drewry Shipping Consultants. "And the problem of officer shortfalls is not going away." According to Drewry, the industry will need as many as 33,000 officers for 2009 rising to 42,700 by 2013—adjusted to factor an increase in newbuilding cancellations and scrapping. "Concerns are also being raised about companies cutting back on training to mitigate costs. If they do, the manning problem is likely to return to bite them, particularly given the length of time it takes to bring a seafarer to officer class." The bottom line for shippers: fewer vessels will translate into higher rates.
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DOT has the eye of the TIGER. United States Secretary of Transportation Ray LaHood said last month that he has formed a team at the Department of Transportation (DOT) to coordinate the DOT's role in President Obama's economic recovery program. The objective of this team—dubbed the Transportation Investment Generating Economic Recovery (TIGER)—is to ensure that economic recovery funding is rapidly made available for transportation infrastructure projects and that project spending is monitored and transparent. As part of its duties, the team will identify and prioritize key highway, bridge, rail, transit, aviation, and intermodal spending.
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L.L. Bean goes with UPS as primary carrier. UPS has been chosen by outdoor apparel and equipment retailer L.L. Bean to be its primary package and delivery carrier. UPS will provide ground and air service to deliver the orders that L.L. Bean customers place through its print and online catalogs. A Bean spokesperson told LM that the company will leverage UPS for its catalog and direct marketing efforts, as well as customer returns. L.L. Bean will use FedEx—its former primary carrier—and the United States Postal Service for specific portions of its business that request their services, including deliveries to P.O. boxes and international shipping.
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Bullish intermediary. Positive news surfaced in the Pacific Northwest last month as a major freight intermediary announced significant earnings. Expeditors International of Washington Inc. said it had fourth quarter profit of $77.7 million, an 11 percent increase from $70.1 million for the same quarter of 2007. For the entire year, the company posted a net profit of $301 million compared to $269 million in 2007, a 12 percent increase. "Given the incessant tales of woe emanating from Wall Street these days, we hope the consistency and stability projected by these results will be reassuring to our employees, to our customers, and to our shareholders," said Peter Rose, chairman and CEO.
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How soon does RFID pay off? A survey conducted by ABI Research revealed that rapid, positive return on investment (ROI) estimates are critical to RFID purchasing decisions. The survey of 185 organizations conducted in mid-2008 reported that 36.7% of RFID end users anticipated a return within the first year. With more than a third of survey respondents expecting an ROI on RFID within a year, other notable findings found that 25 percent indicated 12-18 months, 13.3 percent said 18-24 months, and 6.7 percent felt that ROI should be between 18-24 months. ABI also found that a general lack of clear ROI models and data on real-world results has slowed adoption of RFID technology, particularly in open-loop supply chain environments.
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Retail dip. Retail container traffic is expected to dip 11.8 percent in the first half of 2009, according to the Port Tracker Report from Global Insight and the National Retail Federation (NRF). The report's projected volume output for the first six months of the year is 6.6 million TEU (twenty-foot equivalent units). This analysis reflects the ongoing realities of the economic downturn, considering 2008 volumes were down 7.9 percent (15.2 million TEU), according to the report. Reasons cited in the report for expected low container volumes included the winter slowdown, the recession, and low retail sales. NRF Vice President for Supply Chain and Customs Policy Jonathan Gold noted that cargo volumes at ports reflects retailers' anticipated sales, and NRF expects that sales will get worse before they get better, adding that retailers are only going to import what they can sell.
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CN & NS set to share. CN and Norfolk Southern (NS) are collaborating on a track sharing endeavor—dubbed the MidAmerica Corridor—on routes covering Chicago, St. Louis, Kentucky, and Mississippi. The companies said the objective of this initiative is to establish shorter and faster routes for merchandise and coal traffic moving between the Midwest and Southeast regions of the country. As part of the deal, NS and CN will haul each others freight on certain routes to reduce distance between destination points. They'll also develop a new coal gateway at Corinth, Miss., to better link NS-served southeastern utility plants with CN-served Illinois basin coal producers, among others.
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Transportation can hear you now. Despite slowdowns and spending cuts in many industries, overall investment by all U.S. businesses on wired and cellular calling is forecasted to reach nearly $140 billion by the close of 2009, says a new market research report from Insight Research. The study predicts that cellular calling will account for just over 41 percent of the U.S. corporate phone bill for telecommunication services in 2009, and is the fastest growing expense area. Among the biggest cellular service spenders, said researchers, will be transportation companies. Insight's newly released market analysis report, Telecom Services in Vertical Markets 2008–2013, reveals that wireless service revenues are expected to grow at a compounded rate of nearly 16 percent annually from 2008 to 2013, while growth in wired services remains essentially flat.
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Senator kaput. One of the most storied liners in the history of modern shipping wrote its final chapter last month as a victim of the global recession. As a result of the financial and economic crisis, and as a consequence of reduced volumes, overcapacity, and extreme unhealthy competition, the shareholders and the board of Senator Lines have decided to cease business. Shippers are well aware of the declining fortunes of several carriers; however, many view the trend as disruptive rather than cataclysmic. "Taking the long view, we understand that the capacity is not going to just disappear," said Peter Gatti, executive vice president of the National Industrial Transportation League (NITL). "The tonnage will still be out there when the economy rebounds."
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"Clean Trucks" equals fewer jobs? California's congressional delegation is being encouraged by the Pacific Coast Council of Customs Brokers and Freight Forwarders Associations to support the Federal Maritime Commission's (FMC) investigation of the Clean Air Action Plan at the ports of Los Angeles and Long Beach. These freight intermediaries maintain that the clean air plan will harm small shippers in particular, and result in a loss of cargo volumes and jobs in and around the ports. "It has been our experience that many of the large trucking companies now focus their efforts and best pricing on their larger customers," stated a letter to the FMC. "When there are two containers with the same urgency, we see that the larger customer gets his container first. Under the new rules, small business will be stuck for delays and demurrage when their containers are bypassed because a large customer demanded that their freight moves first."
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Plummeting air cargo volume. Now that numbers are in for 2008, both of the U.S. West Coast's major air cargo gateways reported a big fall off in freight volume last year. Los Angeles International Airport, the largest trans-Pacific airport in North America, reported a 24.3 percent decline in freight traffic in December with overall cargo traffic falling 11.9 percent in 2008. Declining imports sent cargo traffic at San Francisco International Airport down by 36 percent in December, giving it a 14.4 percent loss in overall freight business in 2008. International imports fell 43 percent at SFO in December from the same month the year before. Industry analysts said this is another indication of slackening production and bloated inventories in factories in China and other major Asian nations.
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2009 Salary Survey webcast is coming! Join Group News Editor Jeff Berman for our annual Salary Survey webcast on March 25th at 2pm Eastern. Berman will share which industries pay the most, which titles command the highest salaries, and how having a logistics or supply chain degree actually pays off. Recruiters David Thomas from North American Findings Ltd. and Jim Rohan of JP Canon Associates will also offer their analyses of this year’s findings and comment on the major trends of the logistics and supply chain employment marketplace. Watch logisticsmgmt.com for registration information.
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