Management Update

An Executive Summary of Industry News

Out of shape? New USPS shape-based pricing is here, and shippers who weren’t prepared may have gotten bent out of shape. Items sent without the correct postage were either returned or sent with an extra charge passed on to customers. Shape-Based Pricing is a variation of the dimensional weight calculation that resulted in new challenges for package shippers when it was introduced in January 2007 by UPS and other major couriers. Catalog shippers should also be aware of a new category: not flats-machinable. Some shippers who used to be able to mail at the standard mail flat rate may find that their pieces no longer meet USPS’s flexibility requirements, and now fall under this new, higher rate. This is a temporary category that will change to a parcel rate down the road.

A new era of trucking may be looming. The Surface Transportation Board issued a ruling to terminate the antitrust immunity of the National Classification Community and other rate bureaus and cease the practice of carrier collective ratemaking. The STB said this decision is the final step in making the motor carrier industry fully competitive—a process that began more than 25 years ago. It added that the 11 remaining rate bureaus comprise a system of collective ratemaking that was established during a “period of extensive regulatory intervention in the transportation marketplace…[and] given the maturity and vitality of the motor carrier industry, that system is incompatible with a free market-based and competitive system.” For more insight on this decision, see Bohman on Pricing.

Price fixing: All aboard? According to Quinn Emanuel, the New York City law firm hired to represent clients in a class action suit, the railroads “conspired to fix, raise, maintain, or stabilize prices of rail freight transportation services sold in the United States through use of rail fuel surcharges added to customers’ bills.” The complaint alleges that the railroads “moved in uniform lockstep” to fix prices for the fuel surcharges, which bore no direct relationship to their actual fuel cost increases. Because of this practice, the suit says, the railroads “restrained competition in the market for unregulated rail freight transportation services” and “realized billions of dollars in revenues ... in excess of their actual increase in fuel costs from the specific customers on whom they imposed the surcharge.” Stephen Neuwirth, a partner with Quinn Emanuel, told LM this is a critically important case for the rail industry and that shippers who were victims of these fuel surcharges need to get back the amount they overpaid, which could amount to billions of dollars.

UPS hybrids get hot down south. The UPS fleet of 20,000 low-emission and alternative-fuel vehicles has expanded by 50 with the deployment of hybrid electric delivery trucks. These vehicles will operate in Atlanta, Dallas, Houston, and Phoenix. The providers of Hybrid Electric Vehicle (HEVs) technology promise a 45 percent increase in fuel economy, and a dramatic decrease in vehicle emissions, according to Robert Hall, director of UPS ground fleet engineering. The new HEV package cars are expected to reduce fuel consumption by roughly 44,000 gallons over the course of a year compared to an equivalent number of traditional diesel trucks. UPS has agreed to work with the U.S. Energy Department over the course of 2007 to share the vehicles’ fuel economy, emissions, and other performance data.

Warehouse safety is NOT funny. NBC’s hit comedy “The Office” tells us so. A recent episode focused on a safety meeting in which a warehouse supervisor lectures the office staff on staying away from dangerous warehouse equipment before being properly trained. Despite the interruptions of the dim-witted regional manager, the warehouse supervisor provides the staff with a thorough safety overview of lift trucks, forklifts, and balers used to sort and distribute warehouse freight. Even at fictional paper supplier Dunder Mifflin—where everything is funny—warehouse safety is no laughing matter.

Port security is a global issue. U.S. Secretary of Homeland Security, Tom Ridge, speaking at a luncheon hosted by the Hong Kong Shipowners Association last month, explained that while tens of thousands of containers annually move through Hong Kong, it is imperative that every possible measure be taken to prevent attacks on vessels and terminals. “The high state of alert in the United States will continue, and we urge the international shipping community to maintain its vigilance,” said Ridge. He also pointed out that the private sector in Hong Kong has made significant investments in implementing security procedures to keep oceans and ports safe in the event of a terrorist attack. Along with this private sector investment, the Hong Kong Shipowners Association—and its container terminal operators—is collaborating with U.S. Customs and other regulatory agencies to take new supply chain measures to ensure operations are safe at land and sea.

U.S. and China ink historic air service agreement. U.S. Department of Transportation Secretary Mary Peters and Chinese Minister of Civil Aviation Yang Yuanyuan recently came to terms on an initiative that will more than double the number of daily passenger flights between the United States and China by 2012 and provide air cargo companies with “greatly expanded commercial freedom” by 2011. The officials said this agreement will make things easier, cheaper, and more convenient to fly people and ship goods between the two countries. U.S.-based shippers can expect to see major air transit improvements, as this deal will provide them with unfettered access to Chinese markets by lifting all government-set limits on the number of cargo flights and cargo carriers serving the two countries by 2011, according to Peters.

New gas source targets small energy consumers. Users of small, tiller-controlled electric stackers and pallet trucks can look forward to a new power source, according to Jungheinrich AG, a German manufacturer of industrial trucks. The Jülich Research Centre demonstrated this technology recently at the Hannover Messe Trade Fair 2007 using a Jungheinrich electric fork lift truck powered with a direct methanol fuel cell. This ongoing research, conducted by the Research Centre and carried out through its association with Jungheinrich and other partners, will determine whether the direct methanol fuel cell would be both technically and economically feasible as a drive concept for industrial trucks. Benefits include quick refueling, doubled shift life compared to battery power, and easy availability of methanol.

Have a China question? Nicobar is here to help! Read LM’s new China Logistics Blog and let our China experts, Andy Mulkerin and Barrett Comiskey of Nicobar Group, demystify operations in China. Comiskey is based in Shanghai and has spent the last five years building working relationships with manufacturing and finance organizations throughout Asia. Mulkerin is based in New York and has 10 years of experience in U.S. manufacturing operations. He developed supply chain strategy for Sony Corporation in Tokyo for the introduction of the Blu-ray optical disc technology in the PlayStation 3. The two will weigh in with news/trends analysis, Q&A sessions, and tips designed help shippers establish an effective logistics and supply chain strategy into China