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A funny thing happened on the way to the recovery the other day.
Truckers are getting busier. There’s no doubt that ad hoc, or ‘spot’, pricing has improved for truckers over the past five or six months. Reports of regional shortages of trucks are wide spread across the market leaving many shippers scrambling to find trucks where there are none.
Although truckload volumes are above the very weak 2009 levels and there are spot capacity issues, we’re far from out of the woods yet. Analysts from the investment firm Stifel, Nicolaus & Co., (Investment firm? I thought it was a brand of vodka.), surveyed executives from three privately owned heavy hitters in the 3PL trucking world. The survey answers were not as rosy as you would expect. Take note these executives are from privately owned firms. This is an important clue as to the credibility of the opinion and data. Executives working for publicly traded firms have every reason in the world to spin opinion, and information, to the positive side to help prop up stock prices; their privately owned counter parts have no such constraint.
The 3PL executives said that while the spot market is in fact getting price bumps from regional shortages, contract rates remain an economic punching bag. One of the 3PL’s told analysts contract carriers are cutting rates an additional 5 to 6 percent on re-bid contracts this year due to an overall soft market. Why the marked contrast in economies for segments of the same industry? (If this were a website I were writing for, this would be the part where the screen would pop up demanding you join the site for $6.99 per month to finish reading the article. Worry not, I’m still free.) The free answer is: where you are positioned in the marketplace guides when you will take your punches in this economy, that’s why.
For the last two years small trucking companies were eating anything they found in the road, often finding nothing. The large 3PL’s, some even having company owned trucks, smelled blood in the water. They made the move of brokering freight to the hungry smaller carriers at low bargain rates. Squeezing the small carriers rates down to move freight actually increased some mega 3PL’s margins during the down turn. While the small carriers suffered, the supersized 3PL’s took advantage of the market and capitalized on the starving resource.
Turning the freight clock forward to today, times have changed for the small carriers as well as the mega 3PL’s. The smaller carriers are basking in higher rates from capacity shortages while the large 3PL’s are expecting a long hard year and seeing their market grow softer.
Although the small carriers may feel some satisfaction from seeing their former task masters suffer while the smaller carrier rates rise, the fact the large contract carriers are hunkering down is not good news for anyone. Large 3PL’s and contract carriers do not deal in today’s freight market. They are living in tomorrow’s market and signing rate contracts for longer periods of time. Since contract rates are being driven down, it’s not hard to connect the dots to figure out the large shippers are expecting a lack luster year for shipping.
Even worse news is the current rate spikes the small carriers are enjoying may not be sustainable. As the market shrunk over the past two years, countless small carriers went out of business. Other small carriers hung in spinning their wheels trying to get to the other side of the down turn. With no market changes many of the small carriers attempting to make it through the storm were destined to joining so many other carriers before them that closed their doors.
Then the market change came they had all been waiting for. Shippers were not finding trucks with one or two calls as they had before. Freight needed to move and the small carriers left had trucks. The impact of ‘cash for clunkers’ auto trade in program, the $8000USD first time home buyers’ tax credit, and companies being forced to replenish their inventories all made an impact, and none too soon for scores of small carriers. Finally enough carriers went out of business to level the playing field between freight supply and truck capacity. Or so you would think was the case.
In looking closer at the origin of the added freight to the market, it struck me not much of it is permanent freight. Cash for clunkers and the first time buyers’ tax credit came and went and left a temporary impact. Even companies forced into restocking empty shelves are not as good an economic indication as you would think. Since the public is still not buying as long as the unemployment rates remain north of 8%, the restocking is only a result of long term periods of not buying inventory rather than an indication of more consumption. Want proof of that? Just go back to paragraph three in this article and look what kind of year the contract carriers’ customers’ are expecting.
So there’s a chance the carnage is not done in the market after all. Once the temporary freight runs through the pipeline the trucking industry may end up starting 2009 all over again. Not good news for small to medium size trucking companies who made it through the first storm. They may have to deal with the reduction of freight on the market all over again. This time in spades due to trying to live up to two federal government mandates to meet tough environmental guidelines.
The timing of the added costs of going green couldn’t be worse for the trucking industry. Many of the small to medium sized companies will use the money earned from today’s higher rates to pay off debt collected over the past two years trying to weather the storm. What many carriers won’t realize is the bottom is likely to drop out of today’s flurry of added freight only to leave them with another long storm to ride through; this time with no reserve left to get them to the other side. This second storm could create a second wave of carriers evaporating from the market.
Port of Long Beach already looking over their shoulder.
If you go through your framed collectors editions of our newsletter you will find two articles. The first article around last Christmas was about the Panama Canal expansion and how it could spell trouble for the west coast ports of Long Beach and Los Angeles. The second was the last issue published and outlined the opportunity being seized by JAXPORT based on the expansion. If you don’t recall the articles, go see a doctor. Your memory is shot.
Well, as it turns out the folks in Long Beach must be avid readers of our newsletter along with most of the civilized world. They got the message. On June 8th The Port of Long Beach launched a $40 million project to deepen its main channel to 76 feet so even the largest vessels in use today will be able to proceed directly to berth. Now, and until the deepening is complete, the biggie super sized oil tankers have to off load to smaller feeder vessels which would transport to berth for unloading.
The project is only part of a 10 year $3 billion dollar program to expand marine terminals and infrastructure to improve services at the legendarily congested port. The Port of Long Beach must have taken my writings very seriously indeed. They are already asking for shippers to come back that haven’t even left yet. As Long Beach Mayor Bob Foster was quoted as he addressed a gathering at the port “We’re sending a message to our customers. We want your discretionary cargo to come back,” Foster said. So there you have it, the power of the pen.
Things are looking up.
Not all news is doom and gloom. It’s just doom and gloom is more fun to write about so you get to read more of it. In the spirit of showing my optimism for the future, I want to take a moment to write about one really positive thing per newsletter. This editions positive subject is:
The kids are moving out this month! Yep, the kids, complete with two of their own kids, are moving on into the great wide world. Not to worry though, this widely unexpected move is still close enough I will be able to hit their home with a baseball even with my feeble throwing arm.
This spectacular change in my living circumstances is sure to save the economy and speed our country’s recovery. With no doubt my wife and I will realize gains to our personal economy which of course will trickle in to our local economy. The positive economic tsunami will reverberate out of Jacksonville and lead the nation to prosperity in no time.
How long will our family driven recovery take? The house warming gifts alone will be measurable on GDP report released by the government next month. Make sure and watch for it.
Would you like to super-size your order today?
In a clever maneuver by Maersk to maximize revenue per vessel, welcome ‘priority ocean cargo’ into the world.
The priority upgrade allows shippers not wanting to wait in the ‘first come first serve’ line to determine the urgency of their shipment, and then select an ocean service suiting their time needs for an up charge. Maersk would then load and unload the shipper’s cargo to insure it would be first off the vessel.
So the ‘first class freight’ sounds like a crazy idea? Not so says a Maersk generated survey. According to the survey 88% of shippers would like to have their freight bumped to the front of the line, and 54% are willing to pay for it.
Alas, the most impatient people in the world will still have to wait. Maersk priority service will not be available for shipments to and from North America.
As with most perks, the up charge will vary depending on how much of a hurry you are in, availability on the vessel, and how much you are willing to pay. Since demand plays into the charge calculation, I wonder if freight positioning will turn into an all out E-Bay style bidding war to see who gets off the vessel first.
If Maersk cashes in on the idea, look for other lines to follow suit. Things that make money tend to catch on. One concern that can be foreseen if the service becomes popular is shippers not paying for premium service being bumped off vessels like book rate mail during the Christmas holidays.
Ocean dry bulk rates may fall.
After months of unstable bulk rates for large ships, the price structure may soften this year.
Okay, prices go up, prices go down. If the experts are right the bulk prices may go down. After hitting a six month lows in April bulk transport prices went up nicely in May due to increased chartering from China and Japan.
So what happens in a free market system when prices go up? Chartering companies put more vessels into service to handle the increased demand. Good for shipper, bad for rate structure. As the new vessels enter the market price gains of May will soften and then fall this year.
Chartering companies may want to take a lesson from their container hauling counter parts and reduce the number of vessels in service to create more of a balance with demand.
West Coast no longer the best coast?
Do you remember the Christmas Edition of our newsletter? I wrote an article called ‘Are the ports of Los Angeles and Long Beach in for a rude surprise?’ The article was about the widening of the Panama Canal and the impact it would have on the west coast ports as well as the Southeast ports. Remember the cool pictures above of the Panama Canal? Oh never mind. It was the holiday. I was trumped by Santa Clause.
I was not the only one thinking that way. As a matter of fact, I’m betting I was way behind the curve and JAXPORT with my views. JAXPORT, being right on top of things, went right to work on seizing the opportunity. Below is a blurb from JAXPORT’s monthly communication sent out by Chief Commercial Officer Roy Schleicher.
JAXPORT AND PANAMA CANAL AUTHORITY SIGN AGREEMENT
JAXPORT and the Panama Canal Authority have signed a memorandum of understanding to forge a stronger business relationship. Under the formal agreement, signed last week in Panama by JAXPORT CEO Rick Ferrin and Panama Canal Authority Administrator/CEO Alberto Alemán Zubieta, JAXPORT and the PCA will share market information and business intelligence and jointly market our facilities. Rick Ferrin was joined by JAXPORT Board Chairman David Kulik and JAXPORT’s Senior Director of Trade Development & Global Marketing, Raul Alfonso.
The Panama Canal’s new, larger locks are scheduled to open in 2014, and JAXPORT anticipates much of its growing cargo volumes to transit the canal. ‘Ready or not, here we come’ seems to the common thought at JAXPORT these days. They have always known their port possesses one of the best geographic locations on the east coast which has helped JAXPORT to climb to 13th largest port in the country based on volume with little sign of slowing. Its clear Jacksonville’s port is no longer satisfied with being the unlucky number 13.
Just in the past few years JAXPORT has managed to bring Mitsui O.S.K. on board, struck a deal with South Korea’s largest container carrier Hanjin, and attracted Carnival Cruise Lines to make sailings to the Bahamas. To say the least they have been busy; and still want to accomplish more this year. The port has a current 41 foot channel depth of 15 miles reaching two of its’ three terminals and has committed themselves to deepening the extra 5.3 miles to reach the third terminal by the end of this year.
JAXPORT’s proximity to terrific rail resources, I-95, I-10, and I-75 has always made the port an easy in easy out port; now the port has an eye on positioning themselves as the ‘go to’ port of the southeast. Not only has the landlord port been aggressively pursuing ocean carriers that serve the Asian market, they are working hard with the U.S. Army Corps of Engineers on channel projects that would be the true icing on the cake.
JAXPORT, like anyone who graduated high school in 1978, has their eye on the big 50. Not 50 years, but 50 feet. Part of the port’s work with the U.S. Army Corps of Engineers study is to find the optimum depth of Jacksonville’s federal channel. If the study goes JAXPORT’s way, Jacksonville will be the first East Coast deep water port of call, which will meet the needs of the larger cargo vessels that will be coming through the newly expanded Panama Canal.
In no uncertain terms this is huge. Currently much of the east west trade in larger vessels is stuck heading to our friends Los Angeles and Long Beach on the West Coast. Given the long inland transport to much of the country from the West Coast, the legendary congestion of the West Coast sister ports, and the higher costs of the West Coast, JAXPORT stands firmly as the darling of the East Coast when they hit the big 50 and the Panama Canal project is finished. Given the ports hard work to date, there’s no doubt they do indeed have their eye on the prize.
Is being cheap the new “thin”?
In today’s world there’s one thing we are all noticing, people are getting thrifty. Regardless if their personal economies are being challenged, folks are watching their money and getting creative on how to save it. When I speak to people these days I see a trend in their pride in being a cheap-skate.
With pride they will explain to me how they save $2.48 a week by buckling down and making their own ketchup on weekends. They’ll admit the kids don’t like it very much, but with times the way they are the kids will have to get over it and eat the ketchup. I’m not making fun of anyone for being cheap. Like Al Gore is to the Internet, I am to cheap, one of the founders. I have always lived conservatively by nature and still do. Since I was cheap before cheap was cool, my adjustments to the “new” economy have been little.
I see the same trend in business. More managers are looking for more ways to save a buck getting darn creative doing it. This sort of fat trimming cleansing during down turns is a healthy byproduct of the natural economics cycle of our modern economy; although human nature does tend to complicate the economic cleansing.
Many Americans by design are binge dieters. We have a self esteem crisis because we get turned down for a date, see we have gotten much too fat to continue hitting the party circuit and eating the best foods, and lock ourselves in a gym eating only egg whites and celery. All with the goal of losing enough weight to be able to get back out to the party circuit and eat the best foods again.
I did say fat trimming is a healthy part of down turns and it is. There is a caution thrown in with the trimming. Don’t become an economic binge dieter. We all know that binge dieting is not good for our personal health. We also have to remember economic binge dieting is not good for our economic health. As we make cuts in our business related to goods and services, we must always keep in focus what we came to work for in the first place. If you are slashing costs to the point of eroding your firm’s ability to compete in the future, you’re not doing your company any favors. Just because the phones are not ringing this quarter, it’s no time to trade in your phone system for a one-line local with no call waiting. When the phones do start ringing again, your competitors will be getting the calls. Worse is the cost cutter who sacrifices client relationships and service to trim budgets and make the books look better. Some managers get the feeling their client base is held hostage during trying times due to circumstance. This type of manager becomes a predator and falls to the temptation of treating their client in a combative manner to squeeze extra pennies out of the relationship. This technique is fine until the market rebounds and competition sprouts up and scoops up your battered client with ease. The client will remember how they were treated during the down turn and it may be impossible for you to keep them when other companies come calling.
I am sure you are beginning to wonder how any of this relates to transportation. I guess if you read this far, heck, why not. Beware of the manager who pursues deep cuts in the transportation budget during a severe down turn. Any fool can cut costs to the bone when vendors are hungry and going out of business at an alarming rate. As a buyer we all know the feeling of being drunk with power when vendors are starving. There is an endorphin rush that will be had when the short term savings are realized, but the binge cutting hangover will make you regret the cutting frenzy. Using transportation as the example, think of the position you desire to be in when the pipeline becomes filled with freight and it creates a capacity problem. Do you want to be the company that can’t even buy a relationship with the good transportation companies or have useless contracts that won’t be honored due to the market improving?
The best way to measure the economic soundness of proposed cuts is to project where the cuts leave you when business starts to flow again. If you can foresee not being able to develop the needed pipeline to serve your company’s needs to handle increased business, than the cut may be unwise. Ask yourself if the cheap, but fragile, pipeline implemented when you cut costs will hold up under a heavier workload. Take note if the contracts with truckers will hold up when your freight isn’t attractive anymore because of unsustainable rate structures. If it takes a week to get a hot shipment picked up during good times, you were too cheap during bad times. That week means your transportation vendors deserted you for greener pastures turning your firm from the hunter into the hunted while you attempt to secure a new relationship in the new sellers market.
No means no!
So what happens when a company in the U.S.A. wants to export to a country the U.S. Government has on the bad boy list? The company ends up writing a big check to Uncle Sam and gets some major time out in the corner. Balli Aviation, which is a subsidiary of the UK based Balli Group, PLC, just wrote a check to the Bureau of Industry and Security for $2 million dollars. That’s not counting a $15 million dollar check related to the civil settlement portion and a five year corporate period of probation for the same type of violation. In comparison I feel downright unproductive.
When you are dealing with Uncle Sam, no always means no. Balli Aviation thought selling three Boeing 747’s for export to Iran was somehow a good idea. What they ended up with was one of the largest fines for a U.S. export violation in the history of the Commerce Department’s Bureau of Industry and Security.
Want to import Cuban cigars? Maybe export to Iran?
Think again and check with www.youwillgotojail.gov before you take the leap. If you get no useful information from youwillgotojail.gov, try http://www.bis.doc.gov for more information. The Fed is not all bad news and fines. They make learning the rules fun. The next ‘Complying with U.S. Export Controls Seminar’ just happens to be in Vegas baby! Thanks to Robert Peek of JAXPORT for sending an article on the subject to me.
There are signs the economy may be starting to budge.
One of my less handy friends once gave me his philosophy on home repairs. He lived by the rule you only need three tools in your home. For things that moved and shouldn’t, there’s duct tape. For things that didn’t move and they should, there’s WD-40. For everything else use a butter knife.
It’s starting to look like one of my friends favorite tools, the WD-40, is being put to use on the economy. Despite continued job losses, there are signs that things are starting to move if looked at in a global perspective. Fortescue Metals Group, the world's fifth largest iron ore producer by capacity, said its March quarter iron ore shipments rose by 53 percent and it would maintain its current production rate over the next year. The Australian iron ore producer expects prices to be stable or to rise along the way as well. Companies buying steel is good news.
Along with some other ports in the world, the ports of Los Angeles and Long Beach turned in another winning month in March, with container volume in Long Beach up 13 percent over March 2009. The total container volume in Los Angeles was up 4.5 percent from last March. That’s a nice sign things are starting to break up. What’s even more exciting is there was a same time period increase in export freight of about 19% in helping to raise the overall number.
What was the most annoying buzz word of 2009?
Every year there seems to be five or six buzz words that are used so often by the end of the year you want to banish the words forever.
According to a survey done by Newsvine.com, 2009’s most over used buzz words were ‘great recession’, ‘Twitter’, ‘shovel-ready’, ‘staycation’, and ‘credit crunch’. In an on line survey ‘Twitter’ overwhelmingly won the dubious honor of the word we are most sick of hearing. Twitter garnered 42.1% of the total votes followed by the distant second place finisher ‘staycation’ which earned 26%
Mean green bankrupt machine?
It’s hard to find anyone who doesn’t want to be greener for the good of our planet. That includes truckers of all shapes and sizes. There’s a caveat to the truckers wish to green up; they want to be green but not bankrupt.
There are a number of steps being taken by the government to try and make us all greener. Cash for clunkers and tax rebates are typically the first things people think of when it comes to government initiatives to make us greener. Washington is also busy looking to the transportation industry do its’ part by government mandating higher use of alternative fuels like biodiesel. In 2009 the ATA said the industry used 350 million gallons alternative fuels in private truck fleets. The government says that number has to rise to 1 billion per year by 2012.
The Port of Los Angeles, which is our nation’s busiest U.S. port, has gotten in on the action as well. In 2008 the port of LA started the Clean Truck Program. In a nutshell LA’s clean truck program bans ‘dirty’ trucks from picking up or delivering freight to the LA port. The trucking industry is taking the well meaning port to court saying its forcing local regulation on interstate trucking prices which is against federal law.
In making our population greener there will be winners and there will be losers. In looking at the unfolding regulations and initiatives it appears independent truckers and consumers wallets will not fare well through the greening up process of our country. In the case of the consumer’s wallet, get ready to pay higher prices to support the higher costs of transport of the goods you purchase. As the bill for turning green is incurred by the transportation industry, the costs will be passed down the line to the consumer.
The true endangered species in our country today is turning out to be the independent owner operator. In the case of this small business owner, the short list of options for a future career is either; buy a new cleaner rig that meets government standards at a cost that could approach or exceed $100,000USD, and hope the rules don’t change again anytime soon, or try to become an employee of one of the large trucking giants who can afford to update their fleets. Neither option is appealing for the independents, or the major trucking companies.
The trucking industry may be rails new BFF.
Over the road trucking and intermodal rail are two of the main choices you have to move your long haul domestic freight. Considering their history, it seems natural these competitors would sneer at each other as they walk by their rival’s booth at trade shows.
The trucking industry has always jabbed at the rail industry for being slow, rough on freight, and unable to do shorter hauls. Truckers are also quick to point out rail receives federal subsidies to modernize privately owned track. Rail Lines shamelessly tout rail being less expensive, more fuel efficient and eco friendly, than over the road trucking. This jousting back and forth should all but insure the rail crowd and the trucking crowd don’t frequent the same taverns after a long hard day of moving heavy things. You may be surprised.
While rail and trucking have always been competitors for business and are not yet drinking buddies, they have forged a partnership of sorts. Rail lines know without any trucks they would be forced to create their own truck fleets to feed freight to the rail heads. No matter from where they come from, rail lines know they need trucks. For the trucking industry’s part, other than revenue for moving short haul freight to the rail head, you have to wonder what’s in it for the trucking industry. Wonder no more, the trucking industry is a big time rail customer and makes a ton of money being one.
Yep, behind the jabs and political banter there’s a growing relationship bound together by dollars and cents. The trucking industry is quickly becoming the flag ship rail customer. In 2006 domestic freight accounted for 41 percent of all intermodal rail traffic. By 2009 that number vaulted to 48 percent with little sign of the upward trend slowing.
Trucking companies have long slipped their customers ‘truckload’ freight on the rail to move it across country if there were no hard time requirements to meet. Many transportation buyers never knew their freight loaded in to their carriers’ truck headed to the nearest rail head instead of the freight destination. Now because the practice is being expanded on in the light of day, shippers are being exposed to the knowledge their freight may go truck, it may go rail.
Trucking companies railing freight is here to stay and isn’t necessarily a bad practice. Given there is disclosure by the trucker to the customer as to the mode of transport being used to move the freight; the customer can make a choice that allows rail, or requires rubber only. The transportation consumer, armed with the right information, can pick the right mode of transport for their freight based on what’s right for the freight and budget.
In the past many large carriers avoided mentioning the freight would be railed, which is a bad practice. If you are a shipper and remember a great deal on cross country trucking you got from one of the big guns of the trucking industry, there is a chance your freight hit the rail to make the trip. You felt you got a good deal and the carrier made revenue by not using one of their own long haul trucks.
In some cases the shippers’ commodity, depending on packaging, may not be suitable for rail transport. Freight that is more fragile or not packed well does not do well on rail. Alas, this is a shipper beware situation. There are just not enough experienced dispatchers in many of the major trucking companies that can spot a questionable commodity.
Items such as glassware, furniture, electronics, and machine assemblies, are all suspect and should get a second look. Without proper packaging a commodity such as electronics or assemblies can turn into electronic parts and machine parts really quick on the rail.
Handled correctly multimodal for your domestic freight is a win-win for the trucking industry, the rail industry, and the consumer. The trucking industry can reduce the amount of long haul truckers they utilize, the rail industry has a well worn built in sales network in the form of the trucking industry, and the consumer should see reduced costs on freight being railed.
The only clear losers here are the long haul independent truckers the large trucking companies use to move their long hauls. As railing truck freight continues to become more popular, it will reduce the amount of freight for the independents.
I’ll take a ‘V’ for $500
What’s your favorite letter? Personally I would like mine to be a V. Some people say W, and quite a few people say L. Am I playing ‘Wheel of Fortune’? No I am not. I’m talking about what type of economic recovery we can expect for our new economy.
The letters being thrown around are symbolic of what the economy’s recovery will look like on a graph chart. Most of us, especially those of us under 40 years old, are only familiar with the ‘V’ recovery which is similar to the ‘U’ recovery. Simply put the V represents the economy taking a sharp nose dive, hitting bottom, then taking an equally sharp upturn in the form a nice growth spurt. For those of us who like their band-aids torn off quick, the V, although still painful, is the best of the recovery types.
Next in line is the ‘W’ recovery. You’ve heard this one most often described and the dreaded ‘double dip’ recession. Not many people want to see a double dip recession play out. This recession, followed by an unsustainable recovery, followed by another down turn, then finally reaching the real recovery in the end would bring much heartache. The W would result in situations such as companies laying off and reducing inventories on the recession onset, then realizing a recovery re-hiring staff and buying inventory, only to lay the staff off and dump the inventory in the end as the W went down the second decline before the real recovery begins.
It’s ‘L’ time. The L recovery is the worst yet. The L recovery is nothing more than getting used to the condition of the current recession and calling that condition the new economy. The L, as the letter would indicate, is a sharp economic slide (we all know about that part), hitting bottom and staying on, or near, bottom for a very long time. There is a recovery of sorts, but nothing you would notice due to the slow, almost imperceptible, economic progress.
Since the lion’s share of our economy is not based on the stock market, nor government anything, but is based on consumer driven factors and the health of our small to medium sized business sector, as the job outlook remains dark in our country the L recovery seems likely.
How can we all help the recovery? Have anyone you know who is unemployed or under employed call their representative in Congress and ask them for a job. After enough calls Congress may start getting the point.
3PL’s fight over Christmas business
Third Party Logistics firms (3PL’s) have long known the money is in taking care of the distribution needs of the holiday related retailers. Even though the work is based on tight schedules and hard penalties when the schedules are missed, most 3PL’s value this lucrative market.
Now most all of the major players in the 3PL industry are setting their sights on winning the big holiday season client, S. Claus Inc. based out of the North Pole. The 3PL’s courting the business all agree this client is by far the most attractive customer in the industry due to their name recognition, worldwide distribution needs, and longevity in the gift distribution world.
Although many of the major 3PL’s have received small contracts to assist S. Claus, Inc. on outsource by need basis, the 3PL’s are all in the hunt for the whole contract starting 2010. To date S. Claus Inc. has handled all their warehousing and distribution needs by utilizing in house resources. Transportation responsibilities fell to the company founder Chris Kringle with warehouse labor being provided by S. Claus, Inc. long time union labor partner Employee Labor Federation, better known as (ELF).
There’s more than money as the reason all the 3PL’s are eager to work with S. Claus and ELF labor. There is a long standing positive relationship between S. Claus and ELF labor which makes the working relationship with any 3PL a very positive experience. As one industry source put it, “We had the chance to work with ELF labor on an outsourced project a couple of years ago and it was a very good working relationship.” When asked how the 3PL’s staff felt about working with ELF labor the industry source said, “Our guys here are just nuts over ELF labor and we expect that to always be the case.”
When asked for a statement on the rumored move to outsourcing to 3PL providers was true, S. Claus Inc. released a carefully worded written statement saying; “Our organization considers many factors when planning for any season and will not rule out on outsourcing to maintain our market position. At the end of the 2009 season we will address which 3PL firms have been naughty and which have been nice to plan our 2010 season.”
In the mean time the 3PL’s will continue to jockey for position to be selected for the coveted job of working with S. Claus, but none are committing major resources as of yet. As one 3PL put it; “We continue to keep our options open and have a secondary target of coal distribution in the event our relationship with S. Claus does not meet expectations.
Are the ports of Los Angeles and Long Beach in for a rude surprise?
Quick, name the two US ports where 60% of containerized ocean freight comes in the United States. Good guess. The title of the article must have given it away.
It makes sense Los Angeles and Long Beach have always had so much volume. Other than Norfolk, they are the only other ports in the USA with drafts of 50 feet or deeper. Add the deep water draft to plain old geography to the Asian trade lane and the subject ports become the darlings of the port world.
Did you cringe when I said darlings? Okay, I’ll admit the subject ports are easy to hate due to high costs, labor disputes, regulatory burdens and congestion issues, but they are the undisputed king of the hill when it comes to freight through the gate.
How long the two ports remain the king of the hill is arguable. The Panama Canal, which has been the gateway for smaller container vessels from the Pacific Ocean to the Atlantic Ocean since 1914, is going on steroids. The Panama Canal is right in the middle of an expansion megaproject to make the canal run faster and jump higher.
How big is “mega”? Today’s limit of twenty foot equivalent unit (TEU) is vessels that carry 4,400 TEU’s. When the Panama Canal project is finished, 4,400 TEU’s shoots to 12,600 TEU’s to more than double and one half increase in capacity.
Should the west coast twin ports be scared? Some say yes, some say no. Estimates range from a meager 10% to a grueling 25% traffic loss as a result of the heightened future capability of the Panama Canal.
So just how much container traffic will be diverted to the Panama Canal that is now going to Los Angeles and Long Beach? No one really knows. As always, there are two camps with their own expectations. Some industry experts believe there will be an exodus away from the west coast ports and stand by their 25% loss expectation. Their belief is importers are fed up with the higher costs of dealing with the west coast. They cite the added cost of intermodal to the east coast distribution centers and lower by the mile all ocean transport costs as factors that will encourage enough of the industry to choose the slower Panama Canal route to make a real difference to our friends on the left coast.
Other industry experts aren’t so sure and think a more modest 10% will migrate away from the west coast ports. The reason being there’s just too much infrastructure investment already in the west coast to handle the work load to let it slip away. The second, and more conservative camp, say organizations that have a vested interest in maintaining the capacity, like the west coast railroads, will step up to the plate with lower rates and add more services to keep the west coast desertion rate at a minimum.
In the end we will know by watching where the money goes. By spying on the larger retailers and where they spend their new distribution center dollars, will signal their intentions. If we see large investments in east coast distribution centers by the retailers, it may mean a fairly stiff shift in traffic routes. Another area to watch is east coast port investment. Since there are not enough 50 foot draft ports on the east coast, look for ports looking to tap the private and public sectors for money to widen and deepen berths to handle larger traffic. On both sides of the country it would seem to be the same situation of “spend the money, they will come”.
Water found on the moon
The day I was writing this newsletter NASA announced their last probe, the LCROSS, proved there is quite in fact a significant amount of water on the Moon. The LCROSS found this out by blasting into the Moon to create a debris plume then testing the mess for water. How cool would it be to work for NASA? You get to blast a $79 million dollar machine into the side of the Moon, on purpose, and not lose your job. That would be worth every bit of wearing the pocket protector.
I began to wonder what the discovery of water on the Moon meant to me personally. Could I now water my lawn no matter what day it was? Would the Moon become a stop on the Tour de France? The possibilities in my head were growing when I realized NASA could now theoretically build a lunar base and send people there for extended missions to do cool astronaut things.
Why do I think this means something to me personally? Once the lunar base is built, someone’s going to have to haul freight there! The current fleet of space shuttles is getting pretty old. There will be a need and I’d like to get my foot in the door right now on this opportunity.
Granted, I may need some working partners on this idea, so if you want in just let me know. Previous experience in space travel helpful, but not necessary.
Domestic transport, where the rubber meets the water?
Short sea shipping may be the next “thing”?
To its’ supporters short sea shipping is the wave of the future. To its’ critics short sea shipping just doesn’t “hold water”. Sorry about that, I couldn’t resist. Short sea shipping is what it sounds like, freight transport via the 25,000 miles of navigable waterways in our country to move more of your freight. Although our waterways already move 1.4 billion tons a year of freight, just 2% of our domestic shipping, there’s a growing movement pushing to increase the anemic number and use barge transport instead of trucking or railing cargo. Believers say it will help with the congestion on the highways and make our transportation system more environmentally friendly.
Granted, it sounds like a decent idea for some freight considering one barge could hold up to 456 containers that might otherwise move by truck. In thinking about the upcoming capacity and driver shortage the idea started to appeal to me even though barge transport is known for being “not quick”. Why couldn’t freight requiring no time schedule move by water? It wasn’t long before I realized the answer to “why not?” was money. Good for the environment, that’s wonderful. Less road congestion, that’s good too. Is it economical? I don’t think so. In the end money, not the roads or the environment will have a larger impact on whether this idea “floats” or not. Sorry again. If it costs too much to ship it, the freight will not come.
I started to visualize a container of freight moving from Valdosta, GA to Roanoke, VA, a 600 mile-ish trip by truck. I may have the route incorrect in my thinking, but I can’t be far off. There are two likely routes for our freight to Roanoke. First the Intracoastal Waterway up the east coast to Norfolk, second the inland waters which include the Mobile River, Tennessee River and the Ohio River to Huntington WV. Both routes are likely so I will pick the Intracoastal for an example. No matter the route I took, except for the actual water transport, there was nothing economical about it. To start our sample freight on its’ journey a truck would be dispatched out of Jacksonville, FL, Brunswick, GA, or Savannah, GA to take a container to Valdosta, GA to load the freight into. Then the trucker will have to haul the loaded container back to the port. The port will then unload the truck and stage the container for loading on to the next north bound barge. Once the container is loaded on the barge and completed its’ slow trip up the Intracoastal to the most likely port of Norfolk, VA, the container must be trans-loaded to a truck and trucked to the consignee in Roanoke with the empty being returned to Norfolk. All the truck miles would be costly enough to crush any savings the water transport garnered and “sink” (last one, I promise) the idea. .
Domestic water transport makes much more sense on longer runs when the shipper and the consignee are fairly close to the waterways and larger hub areas. Since we all can’t live and produce in locations like New Orleans, LA and Chicago, IL, it sounds like domestic water transport will only serve a limited market until the costs created by non water cargo handling are minimized.
One solution to the Somali pirate problem
Hearing a lot about the pirates lately? In case you’re a “head line only” reader and never bother to click on the story, it’s time for you to get an update. Somali pirates are still nabbing ships in the Indian Ocean and surrounding seas. The total number of ships hijacked by Somali pirates is up to somewhere near a zillion.
Although piracy is a problem in quite a few places in the world, the Somali pirates are by far the most prolific. The lion’s share of the reason the Somali pirates are over achievers is the collapse of the Somali government; added to that the country has no navy to maintain Somali territorial waters. This lack of central authority created a void the pirates were happy to fill. With nowhere else to look for any type of authority, up to 70% of the down trodden Somali population remains pro-pirate leaving little reason for the pirates to stop.
Although some pirates have run into bad luck, bad luck being the navies of other countries, most pirates go unnoticed looking for their next victim. The pirates typically launch attack speed boats from larger “mother” ships and rush the would-be hijacked vessel with automatic weapons and rocket launchers. Since most major cargo vessels are not armed by design, if the Somali pirates can catch the cargo vessel, there isn’t much resistance from the crew.
Although it would seem to make sense to train and arm the crew to the teeth to discourage the pirates, no one is anxious to see gun battles on cargo ships that could be transporting dangerous goods, although some vessels do now carry guards. The response by the world to date has been to send naval vessels to patrol the waters and catch as many pirates as they can. Alas, this is much like looking for a needle in a haystack and more pirates go unnoticed than are caught. Even those who are caught are just pawns of the king pirates and the piracy goes on with new pawns. Governments are now grappling with ideas of how to curb the problem.
One possibility suggested is attack the problem on land instead of on sea. Some government leaders believe if the world governments could win the hearts and minds of the Somali people and fill their stomachs, along with help to structure a new government, the pirates would find less of a safe haven in the battered country. The idea has not been pushed to the side, but no government is all that keen to try and prop up the country and go on a “government building” spending spree complete with military control.
The impacts of the pirate attacks are hard to see to those of us not working on a ship. Higher costs, slower transport times, and more expensive, if available at all, insurance are all items that are trickling down to all of us as embedded impacts. You could bet if we ran out of, or low on, a commodity due to the pirates, the world would be screaming for action.
Of course the best military on earth could be tasked with controlling the pirate problem, but they are a little busy right now doing more important things and there are politics to consider. I do see another solution to the pirates that has not been put on the table yet. Let me be the first to suggest it. Here in America, and other nations, we possess the fire power and the know how to get the job done. I recommend the government issue hunting tags to all hunters and declare open season on Somali pirates.
There is no length too great for hunters in the pursuit of their favorite sport. Not even a few thousand miles of ocean would stop the hunters I know from standing in line for their Somali pirate tag. Small details as to limits and rules could be worked out by the game commission and we should leave the logistics and the resources up to the hunters themselves. Hunters have proven ingenuity and resourcefulness to get the job done.
Gizmo Joe was green before green was cool.
My Father, affectionately known as “Gizmo Joe” for his ability to “MacGyver” (improvise) his way out of, and sometimes into, many problems, was green before green was cool. Through much of my childhood I walked around in darkness afraid to open the frig without first developing an efficiency plan to open the refrigerator door, grab enough food for 16 hours, than close the door all in under 14 seconds. I have been accused of heating the neighborhood in December and draining the lakes dry trying to get a cold glass of water.
As an adolescent I was sure my Father had lost his mind from the pressures of life. I shrugged off his behavior as better crazy about the frig door than cracking and ending up on the evening news naked. As an adult I find myself acting just like Gizmo Joe. Just ask my granddaughter Kate or grandson Wayne. They will be sure to tell you their Grandfather is strangely obsessed about lights and doors.
In the end it’s a conservatism brought on by necessity. Habits built over years of building and conserving to make ends meet last long beyond the need to do so. You can’t spend money and have it too.
The same logic when applied to the environment may be harder to wrap our minds around, but the logic stands. We can’t squander away our environment and have it too. Is it time to burn our cars and outlaw plastic? Heck no. But just a trim here and a trim there can and will make a difference without really changing our quality of life. Make it a habit.
Paper or plastic?
If you remember a time when you went for a drive to get away from it all and were truly “out of pocket”, you are from my generation. No cell phones, no wireless anything, a blackberry was something you ate, and you took your groceries home in a paper bag.
The first time a checkout person in the super market grilled me with “paper or plastic?” I blurted out “cash”. The whole paper or plastic thing was new to everyone so I wasn’t the only customer of the day that had to be briefed on our delicate environment and the choice of bag material. I froze from being put on the spot with the knowledge my choice of bag had some sort of impact on the environment. I had to make this choice publicly in front of the checkout person, the bagger, God, and the person waiting behind me in line. I like the environment. What if I made the wrong choice? What would everyone think of me if I demanded the bag that was bad for the environment? Which one was good for the environment and why offer the bad one at all? I finally had to be lead away from the checkout counter to an area filled with other petrified shoppers. We all watched an instructional video called “Bags, Your Earth Your Choice”. Now many years later I am confident in my bag choice and do it with ease. The world has changed and we have to change with it.
Companies in recent years have been faced with the similar choice of “plastic or wood”. For some time now plastic pallets have continued to grow in popularity in the freight world. That’s really good news for the plastic pallet manufacturers since it’s estimated over one billion pallets are used every year to move just domestic freight. Technology has made it possible to produce plastic pallets strong enough to hold most freight and inexpensive enough to make sense considering they are more durable than their wood counter parts. The lifecycle of a plastic pallet is considerably longer than wood versions. It stands to reason the more uses the better it must be for the environment, right? Maybe not so much.
The question of which pallet has a smaller environmental foot print was asked by companies like Wal-Mart.
Since the use of pallets is so basic related to the 16 billion tons of freight that move within our country every year, larger supply chain managers correctly deduced even a small improvement in the foot print of a pallet would quickly add up to be a environmental windfall for our planet. No small potatoes in our current culture. In a recent survey of supply chain executives, 70 percent said that environmental issues are of prime importance in their decision process and 57 percent expect that their eco-initiatives will return financial and public relations dividends.
How do you determine the “greenness” of your pallets? Look at a form of lifecycle logistics. By tracking where you pallet starts in the beginning, foreseeing where it ends up after its’ useful life is over and how long the life will be, you can judge the environmental footprint. To save you from hanging on the edge of your seat too long, I’ll tell you right now wood pallets are the greener choice. Plastic pallets begin their life in an oil well; travel long distances in an oil tanker, then go through a manufacturing process with a heavy environmental footprint. After full life cycle plastic anything, including pallets, may end up in a landfill decomposing over the course of 700 years.
Wooden pallets are often made from the excess trim of the lumbering process. If this trim didn't go into the manufacturing of wooden pallets, it would end up in an already overcrowded landfill.
That makes the manufacturing of wooden pallets an environmental plus because it uses waste instead of creating it. At the end of their life, wooden pallets are ground up into garden mulch. They're green from beginning to end.
Quoting Transportation Doesn’t Have to Be Painful
We’ve all done it, or at least heard about it. No one likes to talk about it and admit it, though human nature leads us to it. In this modern day there’s no need to suffer the burden of keeping it a secret. It’s time to come clean. Say it with me.. “I under quoted the freight to my customer”. There, that lifted a burden off of us all. Now let’s talk about it.
It’s always been hard to quote freight not moving at the time of the quote. Careers have been made, and sunk, based on the budgets created for the logistics portion of the job. Sometimes it’s small potatoes sometimes it’s not. Consider the size and scope of some of the oversize project freight crossing the world in today’s market place. In today’s business environment, ever expanding technology is making it possible, and economical, to source products and services, even on the grandest scale, globally. Logistics professionals are often called upon to start producing initial budget numbers a year in advance. Even in the best of times, researching for transportation quotes becomes a daunting task considering the fluctuations of fuel and capacity. During the worst of times, the task of project quoting keeps good men and women awake at night.
One of the easiest ways to be, and stay, in the project cargo business is to know who you are working with. More often then I care to think about, I see quotes being shotgun blasted over the market place. The intention of this type of broad quote requesting is honorable, to increase competition and sharpen prices, and results can be catastrophic.
Unless you just landed your space vessel, after a long trip from a neighboring universe, and this newsletter is the first thing you picked up to read, you know there are some not so pleasant changes taking place in the transportation market. These changes are forcing carriers and 3PL’s to look for new ways to find freight revenue. One of the more attractive areas they attempt to wedge themselves into is the project freight arena. Small brokers that were booking lumber loads in the first quarter of the year, are now throwing quotes in for large multifaceted projects. Since Inter Continental Logistics Inc. has been moving domestic project freight for years; we get a special, and painful, look at the results of the “would be project professional’s” results. It usually starts with a phone call from a desperate shipper, or forwarder, whose freight is “stuck” and his carrier or 3PL has evaporated like a dishonest roofer after a hurricane.
I know by now you see the moral of the story coming. Know your vendors and go with the source that has a proven track record of moving the type of freight you want to move. It may be tempting to go for the lower quote from the “new” company, but the cost in the end may be many sleepless nights.
The Best Way to Reduce Cargo Insurance Claims Starts Close to Home
Insurance carriers and cargo owners have one thing in common when they wake up in the morning, both don’t want a cargo insurance claim as a part of their day. Insurance carriers don’t want to pay claims and cargo owners don’t want to collect them. Both know that the protection is necessary; both also know that while busy paying and filing claims unnecessarily we’re not all doing what we came to work for in the first place, to make money.
While there is no way to avoid all cargo damage, here is a helpful hint that can be implemented on the front end to save you time and money. Packaging is the one factor we can all control that will have an impact on our cargo. Improper packaging is responsible for more cargo damage then almost any other cause other then mishandling. Whether your cargo is moving across the state or across the world chances are it’s going to be exposed to one or more situations that damage can occur. If your cargo is packaged properly it can withstand many of the bumps in the road that often come with normal transportation.
Full crating with a built in solid lift surface (skid) is by far the best form of package to use to protect your cargo. Crating not only helps protect your cargo from damage, it also makes your cargo easier and safer for cargo professionals along the way to handle. While most cargo is better off crated, commodities such as machines, engines, and irregular shaped parts are most vulnerable to damage due to sharp edges and uneven surfaces. If added weight is a factor try a skeleton crating. In the case of international shipping, pay close attention to the types and condition of wood that can be used for crating.
Shipping sensitive commodities like electronics can be tricky. Plasma and flat screen TV’s are quickly becoming high volume high claim commodities. Shipping these types of items without proper packaging is a major blunder. Look for factory packaging including new cartons with clear handling directions, corner guards, all well secured to a skid underneath.
Rolls of carpet and textiles that are tendered without any type of outer packaging are not smart business. The materials can be ripped on crate edges or any hard corner and usually end up dirty or wet if exposed to the elements. Cardboard tube packaging with good end caps closed tightly will help get your valuable carpets or textiles to the consignee the way it is expected.
The above information is too limited to be used as a guide. For comprehensive packaging information follow the link provided below.
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