Management Update

An Executive Summary of Industry News

By Staff -- Logistics Management, 1/1/2007

The Dubai Ports World saga officially comes to an end. After months of backlash over national security, Peninsular and Oriental Steam Navigation Co. (P&O) agreed to sell management and terminal-operations rights for more than 20 U.S. ports to AIG Global Investment Group. Last year, Dubai Ports World (DPW) planned to buy those rights from P&O, but U.S. politicians strongly opposed the sale, contending that giving a Middle Eastern company control of port operations would create a security risk. The U.S. House of Representatives later voted 62–2 to block DPW’s bid. Much of the political tension stemmed from inaccurate reports from mainstream media outlets suggesting that DPW was buying entire ports.
Is he an alarmist? Irrationally paranoid? Regardless of what you’ve called Commander Stephen Flynn following his appearance on 60 Minutes or after reading his last book, America the Vulnerable, his 20 years as an officer in the Coast Guard and his blue-ribbon intelligence connections have forced the shipping community to sit up and listen. Flynn’s message to shippers is simple: There’s a distinct possibility that your supply chain will be the conduit for the next terrorist attack—and you’re utterly unprepared to respond. He continues to pound his security message home in his new book, The Edge of Disaster: Rebuilding a Resilient Nation, which is set for release next month. In his new work, Flynn contends that shippers must be prepared to respond to both acts of terror and acts of nature. “Resiliency,” he says, “must now become our national motto.” Flynn has agreed to join LM as our keynote speaker for the 2007 Online China Logistics Conference which launches Tuesday, April 24. In his address, he’ll share his blueprint for a layered, global security system that all shippers can help to create.
EIA forecasts $2.66 per gallon diesel average in 2007. The Energy Information Administration’s (EIA) short-term energy outlook calls for an average price of $2.66 per gallon of diesel for 2007—down 1.9 percent from 2006. According to the report, demand for all major petroleum products is expected to increase in 2007, but maybe not by much: A recovery in air transportation is expected to boost jet fuel demand by only 1.9 percent, for example. If there is little rise in demand, price increases are likely to be moderate. And, as noted in our cover story, some economists predict that the price of crude oil will remain soft in 2007—so we could be looking at less-volatile diesel prices this year.
When it comes to the truck driver shortage, the song remains the same. Recent data from the American Trucking Associations (ATA) indicates that the dearth of truck drivers is still a problem for truckload carriers. Despite a dip in driver turnover in the first two quarters of 2006, the third quarter saw turnover on the rise again. Turnover for large truckload carriers rose to 121 percent from 110 percent; small truckload carriers saw turnover increase to 114 percent from 100 percent.
Are shippers getting the most out of their warehouse management systems (WMS)? A benchmarking survey of 100 retailers and retail suppliers, conducted by the Supply Chain Consortium and Tompkins Associates, found that they are not. While many companies are using WMS to enhance operations, only 60 percent of respondents said they performed a post-audit of their supply chain technology to determine whether they are getting an adequate return on their investments. Respondents also indicated that their WMS are being underutilized, with less than half saying that they use WMS to schedule appointments for their receiving docks and only 38 percent using the task-interleaving functionality in their systems. For more information about the survey’s findings, go to www.supplychainconsortium.com.
Railroads could soon face more restrictions on hazardous cargo routing. The U.S. Department of Transportation (DOT) has proposed a rule that would require railroads to compile detailed data on hazmat shipments and routing, and then use that information to analyze risk and select the safest routes. On the theory that a shipment at rest is a shipment at risk, carriers would have to reduce the amount of time hazmat cars await pickup or delivery. The proposal aims to prevent both chemical spills and terrorist attacks. DOT’s notice is available at www.phmsa.dot.gov; comments will be accepted until Feb. 20, 2007.
Looking for a snapshot of where trucking rates are headed? Then you might want to start reading carriers’ financial reports. According to Kevin McCarthy, manager of logistics services for third-party logistics company C.H. Robinson, publicly held motor carriers publish their average rates in the quarterly “10K” statements they file with the federal Securities and Exchange Commission. In his presentation at the Council of Supply Chain Management Professionals’ conference in October, McCarthy also noted that an analysis of his clients’ trucking rates showed that the majority of shipments in any lane typically move under a handful of rates. On one lane, for example, there were 31 different rates, but just four of them covered 88 percent of the shipments. On another lane that involved 10 different motor carriers, four rates covered 91 percent of the shipments.
Another step forward for port security. The departments of Homeland Security (DHS) and Energy (DOE) will augment port security with the new Secure Freight program—a first-of-its-kind initiative that will improve scanning of containers for nuclear and radiological materials. In the initial phase, nuclear-detection devices will be deployed to six ports in Pakistan, Honduras, the United Kingdom, Oman, Singapore, and Korea. Beginning in early 2007, Customs and Border Protection officers will scan containers at those ports before they depart for the United States.
U.S. imports from China are growing fast, but export growth lags far behind. U.S.-China trade in 2005 grew at a faster pace than trade between the United States and all world markets, but the trade imbalance between the two countries continues to widen, according to research by The Colography Group. U.S. imports (by all modes) from China last year rose by 19.2 percent, to 129.6 billion pounds. U.S. exports, meanwhile, crept upward by less than 2 percent to reach 74.2 billion pounds, said researchers at the Atlanta-based consulting firm.
The 2006 edition of Railroad Facts is hot off the presses. The Association of American Railroads’ pocket-sized reference book is replete with facts and statistics about railroad finance, traffic, operations, equipment, and more. Railroad Facts also includes profiles of Class I railroads, Amtrak, and Canadian and Mexican carriers. The new edition hits the streets as the industry wraps up another record-breaking year for volume, intermodal traffic, and revenues. Single copies are $15.00; discounts are available for larger quantities. Order online at www.aar.org.
The Sages are coming! The Sages are coming! Now that there appear to be opportunities for rate relief out there, we couldn’t think of a better time to launch a column that is designed to help shippers get the most out of their carrier relationships and better manage their logistics networks. This issue marks the first installment of Sage Advice, a brand new back-page column penned by industry stalwarts Wayne Bourne and John A. Gentle. Bourne, who was most recently vice president of transportation for Best Buy, and Gentle, who spent more than 35 years in logistics leadership positions at Owens Corning, will share the lessons they’ve learned during their many years of experience. Shooting straight from the hip, they’ll tell shippers how to become, well, just as successful as they’ve been. Gather ’round the campfire, Gentle and Bourne are here to help.