Logistics Management: Management Update
An Executive Summary of Industry News
-- Logistics Management, 6/1/2009
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A year for the ages. According to Jon Langenfeld, senior research analyst at Robert W. Baird & Co., "2009 is a freight year for the ages." Speaking at the recent National Shippers Strategic Council (NASSTRAC) annual conference, Langenfeld said that it is not likely freight rates will see a meaningful uptick later this year. But when freight volumes do eventually recover, he said it could be by 5 percent to 10 percent or more. In the interim, though, he said that the first half of 2009 could be the worst period for the transportation industry since deregulation. Going forward, he said that once a freight recovery occurs, it could take anywhere from 1 year to 3 years, with a meaningful recovery unlikely before the second half of 2010.
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Risky business. Sourcing from low-wage countries like China seemed like such a logical idea before the world's economy went south, said C.J. Wehlage, research director at AMR Research. But with demand continuing to slacken, logistics decision makers are now more concerned with maintaining the integrity of their pipeline. "The failure of some suppliers in China has become an issue," he added during a conference in San Francisco last month. "And having the low-wage option is not such an advantage if quality and reliability suffer." Wehlage was among the featured speakers at last month's "High-Tech Forecasting & Planning Summit" organized by the London-based IE Group. His presentation mirrored a study done by AMR Research last year, finding that volatile fuel, energy, and commodity prices rank highest in areas of global risk.
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A possible solution to risk? In a move promising to bring more transparency to sourcing from China, U.S.-based Panjiva announced that it will partner with an overseas credit specialist. Panjiva, which gathers objective information on global manufacturers, and Sinosure, a provider of credit information on companies in China, announced an exclusive relationship to provide U.S. companies with information that will help them mitigate the risks of doing business overseas. Panjiva CEO Josh Green said that given the level of "macroeconomic uncertainty," this can be a microeconomic solution. "Sinosure has been the only provider of export insurance to Chinese manufacturers, which makes it a strong source of business intelligence," he said. "They know which companies are financially stable and which ones are in trouble.
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Is the economy slowing down the mail? That appears to be the case as evidenced by the recent United States Postal Service (USPS) report that it suffered a net loss of $1.9 billion for the fiscal second quarter. The USPS cited the recession, coupled with the diversion of letter mail to electronic alternatives, as playing a large role in the ongoing reduction of mail volume and revenue. The USPS will likely face a $1.5 billion cash shortfall by the end of the year. It has also experienced operational net losses in 10 of the last 11 quarters, with a year-to-date net loss of $2.3 billion. The USPS Postmaster General said the agency has its sights on the future by realigning costs to match lower mail volumes and taking various steps to grow revenue.
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Intermodal volumes are down now too. Citing low consumer spending and high inventories, the Intermodal Association of North America (IANA) reported that total intermodal container and trailer loadings—at 2,786,465—were down 16.3 percent in the first quarter. While domestic intermodal performance has been a bright spot during the recession, economic conditions caught up in the first quarter, with a mere 0.1 percent gain at 893,506 containers. International containers remained in the red at 1,485,753 for the quarter, which was down 22.7 percent year-over-year.
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Savannah's surge. The Port of Savannah, which receives 22 all-water Asian services transiting both the Panama and Suez Canals, gained China Ocean Shipping (Group) Company (COSCO) as a new customer last month. The first COSCO vessel to call on the port, M/V Zhen He, arrived at the GPA's Garden City Terminal. Prior to the Zhen He's arrival, COSCO moved cargo through Savannah on alliance carrier vessels. "By adding Savannah as a port of call for our vessels, we have enhanced our customers' ability to reach the consumer markets faster and at a lower cost," said Howard Finkel, the carrier's vice president of trade. He added that the growing number of distribution facilities in proximity to the port represents a new market opportunity to expand COSCO's business.
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Swine flu flew. While the force of the Swine Flu epidemic touched every mode of transportation, the air cargo industry has taken the hardest hit. "Fewer passengers means less lift for existing flights, and a reduction in schedules for shippers to adhere to," said Brandon Fried, executive director of the Airforwarders Association (AfA). "This really could not have come at a worse time for our business." Numbers released by The International Air Transport Association (IATA) last month confirmed this observation. According to the Geneva-based organization, scheduled international traffic demand fell to 11.1 percent below 2008 levels. Airlines cut international passenger capacity by 4.4 percent resulting in an average load factor of 72.1 percent. This is 5.4 percentage points below the average load factor recorded in 2008.
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Brokers want a break. Shippers and freight intermediaries posed a legal challenge to an action by Customs and Border Protection (CPB). The National Customs Brokers & Forwarders Association of America, Inc. (NCBFAA) filed an Amicus brief in the Court of International Trade contesting CPB's authority to revoke a customs broker's entry filer code without affording the broker due process. The NCBFAA brief argued that deactivation of the entry filer code is tantamount to suspension or revocation of the customs broker's license.
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Tough to top these industry reputations. Of the world's 600 most reputable companies, four of the top 139 are in the freight transportation and logistics sectors, according to the Reputation Institute's 2009 Global Reputation Pulse. Leading the way at number 12 was UPS, followed by FedEx (16), A.P.Moller Maersk (31), and Union Pacific Railroad (139). The Global Reputation Pulse measures the corporate reputations of the world's 600 largest companies and is based on consumers' trust, esteem, admiration, and good feeling about a company across seven dimensions of reputation in 32 countries.
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