Management Update

An Executive Summary of Industry News

Flooded with delays. Shippers and carriers in the Midwest continue to feel the affect of the flooding in the Midwestern region of the U.S., which caused rivers to overflow, submerged roads and rails, and halted or delayed shipments of food, fuel, and other goods, according to various reports. Class I railroad carriers Union Pacific and Burlington Northern Santa Fe reported that they had tracks out of service or severe delays. The Wall Street Journal reported that the flooding has made conditions tough on the barge industry, with current conditions costing the industry more than $1 million per day during the time of the flooding.

Fueling the fire. In a move that is sure to fuel a litigious fire, the Los Angeles City Council gave its approval to the Port of Los Angeles' controversial Clean Truck Program (CTP) late last month. Transport industry insiders have long viewed the CTP as a political stunt designed to scrap the free market drayage system now in place. “We have every confidence that this program will be ruled illegal once it reaches the courts,” said Matthew Scrhap, manager of environmental affairs for the California Trucking Associations. “This move will do nothing to strengthen the port's case,” he added. Indeed, some analysts suggest that it may even prompt the American Trucking Associations to take its threatened legal action sooner than later.

Pain at the pump for the post office. Think you have it bad with rising fuel costs? The Associated Press reported that every time the price of gas goes up by one cent it costs the United States Postal Service (USPS) $8 million. To put that into better perspective, the USPS doled out $6.5 billion in transportation costs in 2007, representing a $500 million bump over 2006. What's more, the post office's highway transport of mail cost the organization $3.1 billion in 2007, which is 5.8 percent more than its 2006 tally.

Survival of the fittest. The air cargo industry must ramp up its investment in information technology if it is to survive the current fuel crisis, at least that was the bold declaration made last month by Giovanni Bisignani, director general and CEO of the International Air Transport Association (IATA). Speaking at the SITA Air Transport IT Summit, Bisignani said everything has changed in the wake of rising fuel: “With fuel accounting for 34 percent of industry costs, airlines are feeling the impact more than most.” He added that cost savings are crucial in every corner of the business, but there is not much “low hanging fruit left.” Critical decisions on everything from aircraft allocation based on cost, capacity, and demand, to making best use of new labor opportunities are needed. “Those with state-of-the-art route planning systems fed with the best available market data will have a clear advantage,” he added. Stay tuned.

Baby it's cold outside. Officials at the U.S. Maritime Administration (MARAD) are maintaining that the plausibility of Trans-Arctic commercial shipping route is gaining traction. “And not just because of the cost savings for shippers,” said Joseph Byrne, MARAD's associate administrator for environment and compliance. “We feel that having an alternate route will also have positive environmental consequences as well.” Officials said that in certain parts of the Arctic (Northern Sea Route), significant commercial transportation is accruing, and it is predicted that Trans-Arctic commercial shipping will start in the near future. “The Arctic has the potential to become an important route for trade and commerce between the United States, Europe and the Eastern Pacific regions,” added Byrne.

Misery loves company. This year's annual meeting of the Agriculture Transportation Coalition (AgTC) attracted a record number of shippers who seemed intent on having one crucial question answered: Where is the outbound capacity? “Misery loves company,” joked Leon Dermenjian, president of Derco Foods and AgTC chairman. “We are all in this together…a quest to find containers.” The major paradox is that U.S. agricultural commodities are in tremendous demand, and these shippers are poised for the first time in many years to profit by this surge. Much to their dismay, however, is in the fact that ocean carriers are making fewer inbound calls. “When are the carriers going to realize that the balance of trade has shifted, and exporters are the new revenue drivers for this industry,” asked AgTC chief counsel, Peter Friedmann. “There's a shortage of space in every area of shipping, including reefer and dry bulk. And this is not a temporary blip on the window of world trade…it's an ongoing and long term phenomenon.”

Going underground. Kraft Foods Inc., in conjunction with real estate developer Springfield Underground and Exel, recently rolled out a 400,000 square-foot underground refrigerated warehouse in Springfield, Mo., which will serve as a central distribution facility for the food and beverage manufacturer. Services provided at this 36-degree facility include full inbound and outbound services like finish goods storage, order picking, and fulfillment services. A Kraft spokesperson told LM that this new warehouse will also help the shipper better consolidate and distribute freight along with providing various “green” benefits, including high energy lighting that reduces monthly energy consumption by up to 48 percent and offers a 65-percent reduction in electricity demand compared to surface warehouses.

SAP takes biggest SCM share. A recent report from technology analyst firm Gartner indicates that SAP led the way with 22.4 percent of the supply chain management software market share in 2007. Rounding out the top five were Oracle, JDA Software, Ariba, and Manhattan Associates. The report added that global SCM software revenue totaled more than $5.9 billion in 2007, which was ahead of 2006's $5.1 billion in revenue. “SCM technologies are well-positioned to address the economic realities facing worldwide markets where costs are skyrocketing while competition and customer demands are intensifying,” said Chad Eschinger, Gartner research director.

“Eco-speed” a win-win. A leaner, “greener” oceanborne component linking Japan to northern Europe was recently introduced by carriers comprising the Grand Alliance. “The implementation of a ninth 6,200 TEU vessel to its Japan–North Europe (EU1) service completes an environment-friendly program aimed at lowering emissions,” said Alliance spokesmen in a statement. A similar move was made earlier this year by the Alliance in its North Europe–Far East services. According to industry analysts, recent flurries of carrier rationalizations have removed some vessels from major trade lanes thereby permitting them to be used them to serve niche markets. “While this is certainly good for the environment, it signals another move by carriers to do what they can to save on bunker fuel costs,” said Jon Monroe, president of Monroe Consulting in Shanghai.

Mid-Year Rate Outlook 2008 Webcast: July 22, 2008 at 2 p.m. EDT. In case you haven't noticed, oil spikes have been added to death and taxes as the third inescapable apocalyptic certainty of twenty-first century existence. The U.S. economy overall remains persistently and disappointingly weak, and prospects for any meaningful improvement during the next six months are almost universally dismissed. So, what does all this dire news mean to your freight rates over the next six months? Join Group Editorial Director Michael Levans and an all-star cast of industry analysts on July 22, 2008 at 2 p.m. EDT as they put the general economic picture into perspective for shippers and help explain the affect the economy is currently having on your rates for the second half of 2008. Register now at logisticsmgmt.com/midyear08