Logistics Management: Management Update
An Executive Summary of Industry News
Staff -- Logistics Management, 9/1/2009
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DHL ordered to pay up. Media reports indicate that DHL Express USA will hand over $9.4 million amidst claims it shipped items to Iran, Sudan, and Syria, which is in direct violation of federal law. The U.S. Departments of Treasury and Commerce said that DHL violated laws that allow the export of only certain types of items to those countries, including informational materials and goods valued at less than $100, according to a Wall Street Journal report. The report added that DHL violated those laws from 2002 to 2007 by exporting packages containing items like computer software, oil-field equipment, auto parts, and electronics equipment. The Treasury and Commerce Departments also said that DHL broke the law by failing to properly monitor what was inside thousands of other packages heading to those countries.
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Air cargo remains in "intensive care." Some relative improvement in the cargo sector was reported by The International Air Transport Association (IATA) last month. "Demand may look better, but the bottom line has not improved," said Giovanni Bisignani, IATA's director general and CEO. "We have seen little change to the unprecedented fall in yields and revenues...and the road to recovery will be both slow and volatile. In the meantime, the industry remains in intensive care." The 11.3 percent decline in cargo demand for July was also a relative improvement over the -16.5 percent recorded in June and the -19.3 percent average for the first seven months of the year.
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Ship scrapping soars. According to maritime analysts, the number of container vessels sold for demolition so far this year has reached record highs. Industry researchers at Paris-based Alphaliner announced that the number of scrapped vessels has exceeded 275,000 twenty-foot equivalent units (TEU), with increasing numbers of larger ships among them. A total of 148 ships have been scrapped this year, of which 85 were controlled by carriers while 63 were disposed by NVOs (Non-Vessel Operators). Carriers have led the move to scrap elderly tonnage, including a few ships larger than 4,000 TEU, making them the largest cellular ships ever demolished. MSC has been the most active carrier in the scrap market, with 20 owned ships sold this year for demolition.
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Intermodal volumes still singing the blues. While the economy has shown recent glimmers of improvement, it has not caught up to the intermodal market, at least according to the Intermodal Association of North America's (IANA) quarterly Market Trends report. IANA reported that total intermodal container and trailer loadings—at 2,829,971—were down 18.7 percent in the first quarter. Nearly all intermodal metrics tracked by IANA were in the red for the quarter, with the lone exception being domestic containers, which were up 0.9 percent at 969,231. This category saw better growth in 2008 when it was up 7 percent for the year—growth that was largely attributed to high oil and gas prices. It also appears that the recession has made a dent in domestic container loadings based on the second quarter's output and a 0.1 percent gain in the first quarter.
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USPS forecast: rain, sleet, gloom of night. Facing myriad economic headwinds, the United States Postal Service (USPS) reported a $2.4 billion net loss for the fiscal third quarter. This loss exceeds the second quarter's $1.9 billion shortfall. For the third quarter, USPS revenue was down $1.6 billion. Along with the recession, the USPS said a large driver for the quarterly loss stems from the shift from traditional mail delivery to electronic communication alternatives, including e-mailing business documents and online purchase ordering. The USPS projects a net loss of more than $7 billion by the end of the fiscal year even though the federal agency says it's on track to reach its 2009 goal of more than $6 billion in total cost reductions.
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Rude welcome for new PRC chief. The Postal Regulatory Commission (PRC), an independent federal agency that exercises regulatory oversight over the United States Postal Service, announced that Ruth Goldway has taken over as Chairman, replacing Dan Blair. Goldway begins her new position at a time when the USPS is in rough financial condition; however, industry analysts say that she sees packages and shipping services as a very important part of the future for the USPS. According to reports, Goldway is working hard at better understanding the current issues and is keeping an open mind concerning future USPS endeavors.
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You can check out any time you like... Leading California economists and major employers released a new study analyzing the state's crippling fuel costs and its impact on logistics management. According to the comprehensive report done in behalf of "Fueling California," a new nonprofit consumer alliance, the issue has a direct bearing on "job flight." The report notes that because California must import its fuel, rather than produce it, shippers pay a higher premium to operate there. The state's seaports, for example, are receiving fewer inbound cargo vessel calls because drayage operators must pay more for truck fuel. According to alliance spokesmen, this analysis will determine "what makes California different" than other states in terms of fuel standards and policies. The complete study can be downloaded at www.fuelingcalifornia.org.
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Panama Canal update. A critical milestone for the Canal Expansion Program was reached last month when the Panama Canal Authority (ACP) received Grupo Unidos por el Canal's (GUPC) performance and payment bonds and signed the contract. ACP Executive Manager Jorge de la Guardia then issued the Notice to Commence work. The scope of work included in the contract encompasses the design and construction of the Canal's new set of locks and water-saving basins on both the Pacific and Atlantic ends of the Canal. "This event marks both an end and a beginning for the Canal Expansion Program," said Jorge de la Guardia. "The fair, rigorous, and transparent contracting process for the new set of locks has concluded...and a new partnership with Grupo Unidos por el Canal has begun."
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Hey, remember RFID? According to ABI Research, total RFID revenue (including transponders, readers, software, and services) is expected to top $5.6 billion this year. That projection represents an increase of $240 million, or 4.25 percent, over 2008 revenue. What's more, ABI Research expects strong RFID growth for supply chain management item-level tracking in the next five years. Overall, ABI anticipates annual growth to remain steady over the next five years, with the total market experiencing an 11 percent compound annual growth rate (CAGR) through 2014. Analysts expect the market to reach more than $9.2 billion in 2014, or approximately $7.62 billion with consumer automobile applications excluded.
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M&A activity sinking. As was the case in the first quarter, transportation and logistics merger and acquisition (M&A) activity was down significantly in the second quarter, according to data from Pricewaterhouse-Coopers (PwC). The firm said there were 11 announced M&A deals in the transportation and logistics sectors worth $50 million or more. This is down from 18 deals in the first quarter and off significantly from the fourth and third quarters of 2008, which hit 43 and 46 deals respectively. Average deal value also declined in the second quarter, with 11 deals at a total value $1.4 billion announced during the second quarter, following 20 deals valued at $3.1 billion in the first quarter. This cumulative output for the first half of 2009, said PwC, puts 2009 M&A activity on pace to be 67 percent down from 2008, when 189 deals valuing $96 billion were announced.
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Mexico gets more multimodal. APL Logistics and Con-way Freight announced that their OceanGuaranteed service for less-than-containerload cargo from Asia will now reach all major metropolitan markets in Mexico. Spokesmen said that this represents the biggest expansion yet of the three-year-old program that combines ocean and truck transportation to deliver cargo to a shipper's door. As reported in LM, OceanGuaranteed debuted in 2006 as a China-to-U.S. service and expanded last year into Canada. With the addition of Mexico, origin ports in Asia are now connected for the first time to every major North American market via day-definite delivery.
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Retail shippers salute Seattle. The Port of Seattle's "Clean Truck Plan," which is included in the Northwest Ports Clean Air Strategy, won a ringing endorsement from the National Retail Federation (NRF). "The Port of Seattle has taken the right approach working with its stakeholders to develop a plan that will improve harbor truck-related emissions without imposing significant supply chain costs on the port's customers," said Jonathan Gold, NRF's vice president of supply chain and customs policy. Gold added that the NRF urged the Commission not to change direction or endorse policies designed to restructure the harbor drayage market "in the name of clean air." The NRF, the world's largest retail trade association, added that the Clean Truck Plan should continue to focus on replacing the trucks and not the individuals who drive the trucks.
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NAFTA tension mounts. The recently-concluded 2009 North American Leaders' Summit yielded few answers for shippers concerned about the free movement of goods on highways—and provided even less information on the current ban on Mexican trucks. "We are in a wait-and-see mode," said Clayton Boyce, spokesman for the American Trucking Associations, in Washington, DC. "But we expect the DoT (U.S. Department of Transportation) to issue a position next month." Meanwhile, shippers are hoping that Mexico President Felipe Calderon's plea for fairness will prevail over the political interests of the U.S. Teamster's Union and other powerful lobbyist to extend the ban indefinitely.
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End of an era. An iconic brand came to an end when A.P. Moller-Maersk announced that it would stop making ships in its money-losing Odense Steel Shipyard in Denmark. The company, which owns Maersk Line and extensive oil and gas production facilities in the North Sea, said it will also put its Lithuanian Baltija Shipyard up for sale—an operation that will become obsolete after the closure of the Odense yard. According to Moller-Maersk's chief executive Nils Andersen, the closing of the Odense Shipyard is the first tangible sign that the Danish shipping giant is taking steps to follow through with its strategy to only invest in profitable enterprises. The company plans to sell the industrial, design, and engineering facilities associated with both shipyards.
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LM's 18th Annual Masters of Logistics study goes live on September 29th at 2 p.m!LM's Group Editorial Director Michael Levans, Dr. Mary Holcomb of the University of Tennessee, and Dr. Karl Manrodt of Georgia Southern University are getting ready to put the findings of this annual research project into perspective in a live webcast. The study, which benchmarks distribution costs and logistics practices, finds that the playing field on which the true Masters of Logistics and their counterparts play has started to level due to the economic conditions. LM sponsored the study that was conducted by Georgia Southern University, the University of Tennessee, SAP, and the consultancy Capgemini. An overview of the results begins on page 24, but for more on what the findings mean for shippers, tune in on September 29th at 2 p.m. Register at logisticsmgmt.com/masters09.
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