Management Update: Logistics and Supply Chain News Briefs

An Executive Summary of Industry News

2008 Logistics Technology Roundtable: Live in May. Join Editorial Director Michael Levans and top analysts for a special webcast on the latest and greatest in logistics and supply chain technology. Hear about the most recent developments in TMS, WMS, and global trade management (GTM), and learn how to get the best value out of these solutions.

Diesel prices continue their climb. The price per gallon of diesel gasoline is rapidly approaching the $4 mark, with no end to the weekly price hikes in sight. This hike, which has seen diesel prices spike nearly 70 cents over a recent four-week period, is taking its toll on the trucking industry and carriers of all sizes. The situation has led the American Trucking Associations (ATA) to project that the trucking industry will dole out $135 billion on fuel in 2008—a $22 billion increase over 2007’s $112.6 billion tally. The ATA also noted that if diesel prices continue to rise, fuel may pass labor as the single highest operating cost for motor carriers.

No waterfront worries? New waterfront contract talks between the International Longshore and Warehouse Union (ILWU) and the Pacific Maritime Association (PMA) got underway last month with both sides expressing optimism. “We feel that this is a positive beginning to constructive negotiations,” a PMA spokesman told LM. “There are some issues that will be off the table, however, which will be addressed separately.” Most prominent of those issues is the threatened work stoppage on May 1, which the ILWU has said is to demonstrate against U.S. involvement in Iraq and Afghanistan. The current six-year contract expires on July 1, 2008 and covers 25,000 ILWU-represented longshore workers at 29 west coast ports in California, Oregon, and Washington. This marks the earliest start yet for contract talks between the ILWU and the PMA, both based in San Francisco.

EPA has emissions on the brain. The Environmental Protection Agency (EPA) has introduced new emissions standards that will cut pollution from locomotive and marine diesel engines by up to 90 percent. The EPA said the impetus for this endeavor is to help Americans breathe cleaner air—as soon as this year. “As more and more goods flow through our ports and railways, the EPA is cutting diesel emissions at their source, keeping our nation on track toward a clean, healthy, productive tomorrow,” said EPA Administrator Stephen L. Johnson. These planned emissions reductions will go into effect for maritime diesel engines and locomotive engines by 2014 and 2015, respectively, according to the EPA.

And the Port Person of the Year Award goes to... U.S. Senator Robert Byrd (D-WV). The American Association of Port Authorities (AAPA), a trade organization representing public ports in the Western Hemisphere, selected Senator Byrd due to “his strong advocacy in Congress for increasing cargo and facility security at U.S. seaports.” Byrd will receive the award at the AAPA’s Spring Conference in Washington, D.C., this month.

Cross-border trucking pilot update. The Department of Transportation’s (DOT) proposed cross-border trucking pilot program, which would expand U.S. cross-border trucking operations in Mexico, recently took another hit . DOT Secretary Mary E. Peters asked Congress to keep the project moving due to the benefits it will provide U.S. exporters delivering billions of dollars worth of goods into Mexico. If Congress pulls the plug, Peters says that Mexico—under NAFTA rules—has the right to impose fees and tariffs on U.S. goods that would result in lost business and jobs. Peter A. Defazio, Chairman of the Subcomittee on Highways and Transit, blasted the program in a letter to Peters, citing a report by the DOT’s Inspector General that found that the program has many safety concerns and “does not have any assurance that [the DOT] has checked every Mexican truck and driver that is participating in the project when they cross the border into the U.S.”

New China Syndrome? While sourcing manufactured goods from China can still provide U.S. businesses with healthy margins, the risk involved is ramping up substantially, said Saji Daniel, president and CEO of Tradex International, Inc., the largest supplier of general purpose disposable gloves in the United States. “Maintaining transparent relationships with manufacturing facilities is crucial to ensuring consistent quality and timely delivery of product,” he said, “but this can be difficult due to the language barrier that still exists.” In an exclusive interview with LM, Daniel said that “the lingering communistic political environment” can also create hurdles with property rights and other freedoms taken for granted in the U.S. “In addition, prospective manufacturers should thoroughly analyze the effects China’s industrial metamorphosis from commodity goods to high-tech products will have on their plans,” he said.

Export surge. In an otherwise bleak year for domestic shipping, there has been one bright spot worth noting: exports are surging. “Ocean carriers are finally realizing—despite themselves—that they can make money with outbound cargo,” said Peter Freidmann, executive director of the Agriculture Transportation Coalition (AgTC), a lobbying group representing shippers of agricultural commodities. “But there still seems to be a type of institutionalized resistance to the idea,” he added. “It’s almost a form of madness.” According to Freidmann, carrier executives still must learn that demand for U.S. goods like high-end fruits and vegetables is at an all-time high now. “And shippers are willing to pay a premium price if the service and space commitment is there,” he said. “Even with the general rate increases (GRIs) and fuel surcharges, shippers are clamoring for boxes.”

Shippers unsure of transpacific ocean carrier alliance benefits. “The devil is in the details,” said Peter Gatti, executive vice president, National Industrial Transportation League. “On paper, it looks like carrier rationalization will keep costs down for shippers, but there will certainly be some major adjustments for us to make for it to work.” The three largest global vessel operators—Maersk Line, Mediterranean Shipping Co., and CMA CGM—announced that they would share resources to revive the Far East/U.S. West Coast trade by introducing “mega-vessels” in joint services, thereby cutting down operating expenses. “But that may mean fewer port calls, and significant adjustments in fixed schedule deployment,” said Gatti. Indeed the trio of EU players will cooperate closely on three weekly services. These will include the use of five vessels in the “mega” 8,000 twenty-foot equivalent (TEU) range on two different loops.

Bullish Boeing. Despite the severe economic pressures being placed on logistics managers these days, shifting cargo from air to sea is not a sustainable strategy for shippers of high-end goods, said Boeing Company executives. “We are really talking about a 'Bambi versus Godzilla’ trade scenario,” said Tom Crabtree, regional director of business strategy for Boeing Commercial Airplanes. “While we will never come close to moving the volume of freight carried by vessels, we continue to outpace their growth every year.” In an interview with LM, Crabtree restated many of the points he made at the The World Air Cargo Event in Bahrain earlier this year. He admitted that “the specter of modal competition looms large,” but seaport traffic is more geographically concentrated. “And it’s not as flexible to diverse points,” he said. “Furthermore, a high-proportion of container traffic is regional and not intercontinental.”