Management Update

An executive summary of industry news

By Staff -- Logistics Management, 6/1/2005

NASA has begun laying the "groundwork" for interplanetary supply chains. Last month the National Aeronautics & Space Administration (NASA) awarded a contract to two Massachusetts Institute of Technology professors to create a framework for analysis and planning of supply chains between Earth and space. David Simchi-Levi and Oliver de Weck will research the construction of a supply chain that encompasses the transfer of goods from terrestrial suppliers to launch sites, the integration of payloads onto launch vehicles and Low-Earth Orbit (LEO) satellites, and the in-space transfer of payloads from satellites to the Moon or Mars.
Back on Earth, truckers could be facing even higher diesel prices this winter. That prediction comes from economist Phillip K. Verleger in a recent Wall Street Journal article on the worldwide shortage of oil refineries. Verleger, a senior fellow at the Institute for International Economics, said that diesel fuel could reach as high as $3 a gallon this winter and $4 a gallon the following winter. The article also noted that refiners have been getting higher profit margins for diesel fuel than for gasoline. Although prices at the pump have stabilized recently, those higher margins and a looming shortage of refinery capacity are likely to boost diesel prices in the future.
The world's biggest container carrier wants to get even bigger. Copenhagen-based A.P. MØller Maersk has proposed buying rival P&O Nedlloyd, the world's third-largest container line, for $3 billion. Maersk Sealand chief executive Knud Stubkjaer said that the amalgamation of the two carriers would offer a greater value proposition to shippers. The combined carriers reportedly would have 70,000 employees, 550 vessels, and the largest market share of any carrier—about 17 percent of the global shipping market. The deal could be finalized sometime this summer if European antitrust regulators don't object.
It's time for another round of LTL rate hikes. Regional rate bureaus announced their general rate increases in March and April. Now many less-than-truckload (LTL) carriers are doing the same. Although it wasn't the first to announce, FedEx Freight may be the most closely watched. The carrier implemented an average 5.6 percent increase on May 16. The increase will apply to interstate and intrastate traffic and selected shipments between the United States, Mexico, and Canada. FedEx blamed the rate hikes on higher tolls, driver security requirements, and the need for new truck engines to meet air quality rules. For more on LTL rate increases, turn to "Bohman on Pricing" on Page 23.
Peak-hour pricing comes to the West Coast. Starting in July, importers will pay a penalty for picking up containers during daytime hours. That's when the ports of Los Angeles and Long Beach will launch the PierPass Program to encourage shippers to pick up and deliver cargo during off-peak hours, defined as 6 p.m. to 3 a.m. on weekdays and 8 a.m. to 5 p.m. on Saturdays. Shippers moving containers during peak hours will be assessed fees starting at $20 per 20-foot container and increasing to $40 per container after one month. The program aims to shift 15 to 20 percent of container traffic to off-peak hours in its first year of operation.
Look, up in the air! No, wait—on the ground... For the first time in its 33-year history, FedEx Corp. will move more freight by ground than it does by air. So says Colography Group President Theodore Scherck, who closely follows the express and expedited transportation markets. Scherck estimates that 50.1 percent of FedEx's U.S. traffic this year will move either by ground parcel services or by FedEx Freight's LTL services. The remaining 49.9 percent of domestic traffic will be shipped via air. Writing in Colography's newsletter, Scherck noted the irony of the air express pioneer moving a majority of its cargo over the road.
Will C-TPAT go global? Later this month, the 165 member countries of the World Customs Organization (WCO) will vote on whether to approve cargo security standards modeled after the Customs-Trade Partnership Against Terrorism (C-TPAT) and a similar program in Sweden. The proposed security "framework" would provide customs authorities worldwide with uniform standards for cargo screening. It also would harmonize the collection of shipment information, allowing data from the exporting country to be used by the importing country for screening purposes. Once the WCO approves the framework, members would need to adopt and implement it. To encourage developing countries to do so, the WCO and U.S. Customs and Border Protection have pledged to provide them with technical and financial assistance.
A new private-sector group hopes to boost intermodalism in Europe. Last month more than 50 companies joined together to launch the European Intermodal Research Advisory Council (EIRAC). Participants include rail and ocean terminal operators, third-party logistics companies, freight forwarders, ports, short-sea shipping operators, and other intermodal stakeholders. The organization will primarily act as an advisory body to the European Commission. EIRAC will also work toward developing a single European logistics system in line with the European Union's transport policy objectives.
Still no relief in sight for the driver shortage. A recent report by the American Trucking Associations predicts that the shortage of truck drivers will balloon from 20,000 today to 111,000 by 2014. Although there currently are 3.4 million truck drivers on the road, demand for trucking services is growing far faster than the supply of drivers. Total annual tonnage hauled by truck is expected to increase from 9.8 billion tons in 2004 to 13 billion tons by 2016.
One-hundred percent screening of air cargois on the congressional agenda again. Congressmen Edward Markey of Massachusetts, Christopher Shays of Connecticut, and Carolyn Maloney of New York are seeking to attach a rider to the Department of Homeland Security's appropriations bill. Their amendment would require the federal government to physically inspect 100 percent of the cargo carried on passenger aircraft by 2008. The legislators also have proposed an amendment that would require the federal security agency to notify passengers when unscreened cargo has been loaded on an aircraft. Markey has been pushing for full air cargo screening for several years, so far without success.
The TSA is not going away anytime soon, said Asa Hutchinson, former number two man in the Department of Homeland Security (DHS). Hutchinson offered his predictions on the future of the Transportation Security Administration and other federal security initiatives at the American Association of Exporters and Importers conference in New York last month. Rumors of the TSA's demise spread when new DHS Secretary Michael Chertoff launched a top-to-bottom review of the department. Adding fuel to the speculative fire: President Bush's FY06 budget transfers some of TSA's responsibilities to U.S. Customs and Border Protection. Hutchinson believes the reorganization will improve interagency coordination and consolidate similar functions that are now spread across several agencies. "I think TSA's mission is irreplaceable," he said. "Don't confuse a tweaking of its mission with dismantling."
Do you need to work with third-party logistics providers in China? Then be sure to attend our "China and Logistics" webcast on June 21 at 2 p.m. EST. Industry analyst Jon Monroe will give a presentation on how shippers can develop an effective relationship with third-party logistics providers (3PLs) to facilitate shipments moving out of China. Monroe will also answer listeners' questions live during the webcast. To register for this free event, go to www.logisticsmgmt.com/china3PL.