Eric Joiner's Freightdawg.com - The Logistics and Supply Chain Blog!

2008 Labor Accords to Watch

Circle the Dates!

Get out your calendar and circle the following dates in 2008: March 31, July 1, and July 31.  Those are the dates of union contract expiry for the Teamsters-LTL contract, the International Longshore and Warehouse Union (ILWU) contract with the Pacific Maritime Association and the Teamsters-UPS contract respectively.

March 31, 2008 - LTL / Teamsters contract
July 1, 2008 - ILWU / PMA contract
July 31, 2008 - UPS /Teamsters Contract

Prudent supply chain managers are certain to monitor industry press tracking these negotiations, because collectively they could add up to a "perfect storm" of organized labor leverage if one or more goes into protracted negotiation or a strike situation.

The increasing trend toward practice of "Lean logistics" mean more frequent, smaller shipments and generally less inventory on hand.  That could mean freight diversion away from union carriers if shippers get nervous about the possibility of a strike.  Bear Stearns' recent First Quarter 2007 review of Air  Freight and Surface Transportation examined this subject.

According to the Bear Stearns survey, right now 36% of shippers plan to divert freight from their normal shipping patterns only if problems occur. 14% will divert LTL as a contingency, while 50% of shippers say they won't make any changes to their normal shipping patterns. We are a within a year of the first contract expiration and just 13 months for all to be in play.   Should contract talks drag in any of the three however, percentage diversions to non-union carriers will shift.

Early Talks Planned.

UPS - Teamster talks commenced months ago in preparation for a long haul discussion. One key issue to watch will be how the underfunded Teamsters Central States Pension Fund is handled.  UPS wants out of it,as does ABF.  Yellow Roadway Corp., is on the fence about its position. The Teamsters have factions against any revision to the pensions.   UPS is the largest Teamsters employer and has wanted to set up a different pension fund for its member employees.  ABF had indicated a desire to do the same if UPS got its way.  Recent discussions however have shown that UPS is willing to set up a joint UPS/Teamsters managed pension trust.

On May 17th, The ILWU and the PMA announced a decision to pursue early contract negotiations hoping to reach agreement prior to the expiration of their 6 year contract in July 2008.  Bear Stearns' review indicates some confidence on the part of ocean shippers as 63% are not planning changes to routing, while 13% plan to divert some container traffic.  24% said they would only divert in the case of a problem.

Unlike LTL and TL, there are limited options for diversion of ocean freight. There is only so much east coast capacity from Asia and it is going at a premium.  Mode shift to air freight is a possibility but that would be for only those most urgent shipments.  Given the softening economy and 2008 election year, all parties will have motives to "get it done" and renew agreements.The economic cascade effect of a massive strike under any of the three contracts would be very hard on the US consumer.

With this many labor contracts up at once,  the 12 months will be interesting!

Eric

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Automaker woes hurt Eastern Rails

Market Shifts hurt NS and CSX Most.

Last month Toyota Motor Corp. took over the top slot in US car sales for the first time.   At the same time US automakers like Ford Motor Co. are shutting down assembly plants in locations like Norfolk, Va. and Hapeville, Ga. Norfolk produced the Ford F-150 pick up truck and Hapeville was the production facility for the Taurus.

Railroads supported those facilities with inbound auto parts and frames, while outbound vehicles are shipped nationwide on auto carrying trains. Automakers accounted for about 8 percent of total rail transport in 2006. Japanese automakers that have US  assembly plants in locations like Marysville, Ohio and Georgetown Ky., tend to supply factories more by truck, staging vendor material closer to the factory in support of their lean logistics manufacturing techniques.

The decline of the US automaker is likely to continue as Ford, Chrysler, and General Motors all cut production due to a softening economy and a blurring of consumer brand values. The down trend in automobile movement by rail will hurt eastern railroads Norfolk Southern and CSX the most.  Union Pacific and BNSF are hurt less due to their western route structure.   UP/BNSF tend to haul more imported vehicles from Asia.

What is "American Made" any more?

Automobiles in the US today are a product of a global economy. Ford trucks have transmissions and gearboxes made in Brazil. Seats and other parts are made in Mexico. Toyota and GM even share the assembly line in California that builds the Toyota Corolla alongside General Motors cars. Competitive environments can force strange alliances in order to gain share production efficiencies.

Transportation follows the freight. As top level manufacturers shift production locations and the logistics requirements to serve inbound and outbound transportation,  railroads and other modes will have to shift to follow available tonnage.  On a global scale this impacts container shipping as well.  Routes are made by trade patterns. In the meantime, carriers will suffer losses in volume while the reconfiguration takes place.

The automaker market transition isn't the only issue railroads are likely to face in the medium term. Movement of coal by slurry pipeline, increased use of biofuels by consumers and industry, an aging work force all are factors that will shape railroading in the next few years.

clipped from www.stltoday.com Railroads feel profit pinch as U.S. automakers trim production By Angela Greiling Keane BLOOMBERG NEWS 05/29/2007 Norfolk Southern Corp. trains rumble to and from Ford Motor Co.'s factory in Norfolk, Va., delivering fenders, frames, axles and engines and then hauling off finished F-150 pickups. That's about to change. When Ford shuts the plant next month and moves production to Dearborn, Mich., trucks will fetch parts from suppliers nearby. Only completed pickups will travel on Norfolk Southern trains. The shift is part of a historic transition for U.S. automakers and a profit drain for railroads, especially Norfolk Southern, the largest auto carrier. As Ford and its peers cut output, Asian automakers led by Toyota Motor Corp. are adding U.S. factories that rely less on rail shipments. "This auto slowdown is significantly sharper than what we usually see," said independent rail analyst Tony Hatch, who is based in New York. Norfolk Southern, Burlington Northern Santa Fe Corp. and CSX Corp. all cited declining auto shipments as a reason for lower first-quarter profit, along with harsh weather and weakness among house builders. Union Pacific Corp. was the only major carrier to boost earnings in the period. Auto cargoes are down this quarter, too, according to the companies, and railroads don't predict a rebound this year. Investors might have reacted more harshly to the decline had billionaire Warren Buffett and U.K.-based hedge fund TCI Fund Management LLP not revealed rail holdings in April. "Fundamentals likely do not matter as much," as purchases by Buffett and others buoy shares, analyst Edward Wolfe of Bear Stearns Cos. in New York wrote last month in a note to investors. The Standard & Poor's 500 railroads index has gained 23 percent this year, extending gains from 2006, when profits grew.

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SME White Paper: Supply Chain Fraud

OK, so you thought about Supply Chain Security...but what about Fraud?

On May 3rd, I wrote an article regarding both my LinkedIn network and the impact of the Sarbanes-Oxley Act on supply chains.   Part of that discussion captured feedback from a consultant friend of mine whose former firm once uncovered supply chain fraud as a result of a TMS installation.  Good data makes for a good investigation and is a key to preventing supply chain fraud.

Since 9/11, many companies have focused on C-TPAT certification, securing their physical premises and the tightening of supply chain processes against espionage and terrorism.  However, there remains a latent internal threat of theft, shrinkage, sabotage and graft.   When companies merge, reorganize, or have lay offs, these factors increase.  Given our national state of war, as well as economic and industrial turmoil, prevention of damage by employees gets very "real".

"Is your company so focused on external security threats to your supply chain that you forgot about the threat that exists inside your organization?"

Norman Katz is a Certified Fraud Examiner.  Mr. Katz is also the author of an excellent white paper concerning supply chain fraud.   Katz's paper looks at supply chains, areas of potential fraud and deception and links these to SOX compliance.

For smaller companies, one of the unexpected benefits of Sarbanes-Oxley compliance is the surfacing of irregularities both in records keeping and in management of data.  SOX demands good record keeping...which in Logistics, generally means good systems.   Like a good watch dog, good systems can help keep thieves out of the stock room. 

Of particular interest is the section that defines fraud and reasons why supply chain fraud may take place. I quote below.

What Causes Fraud? "There are many theories and psychological studies as to why a person commits fraud. Some of the different theories propose that fraud is committed due to: The Western culture that emphasizes material goods in association with social status, where we are forced to "keep up with the Joneses". External pressures beyond our control, such as health care costs of sick parents or children, daycare expenses, etc. Pressures we may not be able to control, such as gambling and drug addictions. The lack of good morals and values being imprinted upon a person by their social groups, especially beginning at a young age. Revenge against the organization due to poor pay, being overlooked for advancement, overworked, etc. In regards to supply chain frauds, while revenge against the organization is a strong candidate for perpetuating fraud, another culprit is the internal pressures that build within to either increase performance or decrease task times.  This is typically the result of management pressures to cut costs without providing the necessary tools to achieve the new performance goals, or due to the establishment of unrealistic benchmarks."

Katz's white paper goes on to outline where fraud can occur, ways to look for it and how to prevent it.  Norman Katz runs a consultancy practice in Ft. Lauderdale, FL called Katzscan, Inc.   His practice looks at vendor compliance, supply chain fraud and business turnarounds.

Download The Supply Chain Fraud White Paper!

Eric

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Very Cool: Maps of China

I often write about China in the course of my other transportation and logistics articles. Correspondingly, I surf a lot of blogs and web sites that are Asia related. One of my favorites is "All Roads Lead to China" which is run by Richard Brubaker.  (You'll find it blog rolled here in the right side rail.)

I particularly like a feature he has which depicts various maps of China. Especially interesting are the economic maps that show things like soft drink market penetration, and food flavor preferences by region.  These are excellent insights not commonly found in maps and a great resource!

Today Richard has a nice article on Chengdu investment zones as well, which corresponds nicely to my "Go West" article written earlier on the challenges of western China's transportation infrastructure.

Eric

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Looking back at H1/2007: Results by Mode.

2007: Half a Year Gone...so What's Happened so Far?

Here we are just about in June, 2007. Half the year is almost gone and I still am writing 2006 on my checks!  Having studied several market analysts' reports plus my own ear to the ground, let's look by mode at how things sit as we go into the second half of 2007.

Overall, the US economy is still growing, but slower than hoped for, with a 2.2 percent increase in Gross Domestic Product projected versus a little over 3 percent in 2006.

"Overall transportation trending is that the soft economy, coupled with higher fuel costs, weather and excess capacity made H1/2007 a struggle in domestic trading. A better second half is expected."

International traffic remained strong however, and was less constrained by pricing pressure.  The airlines, air freight carriers and the parcel carriers all noticed benefits from this.  April and May show strengthening in the market heading into H2. Fuel remains the dominant factor in shaping trends in logistics and transportation.

Parcel - All three major parcel carriers (UPS, DHL and FedEx) experienced weakening in domestic parcel movement as a result of slowing consumer buying in Q1. International traffic however was up for most carriers and had a major saving impact on balance sheets. Pricing is expected to remain stable for the remainder of 2007.  Competition for international shipments is expected to increase as all three parcel carriers have made substantial investments in Asian hubs, especially in Shanghai.  All three carriers should benefit from continuing strong use of the Internet as a purchasing and fulfillment mechanism coupled with global sourcing and Lean logistics practices. Parcel carriers were hurt by severe winter weather in February, which impacted performance at major hubs in mid America.

Less-Than-Truckload (LTL) - Q1 pricing remained aggressive in the LTL market with discount percentages as high as the mid 80's. LTL GRI's also were mostly in the 5% range, which is more modest than in previous years. FedEx and UPS entry into the national LTL markets is being felt by marketing driven toward more time definite delivery of LTL. Shippers are paying attention with LTL pricing requests showing up increasingly in parcel bids.  Lean logistics practices, featuring more shipments of smaller size and tighter inventory control, increase demand overall for LTL. Rates are expected to improve in the second half of 2007. Fuel impact on the LTL sector is somewhat different than FTL because LTL carriers often make money on fuel surcharges by spreading charges over multiple customers in single consolidations. A lower fuel surcharge therefore hurts LTL revenues.

Full Truckload (FTL) - Carriers experienced a sluggish market in the first half largely due to softening in the US housing market, coupled with ample capacity as a result of the 2006 truck pre-buy and some particularly lousy weather. Truckload rates were softer than in 2006 as carriers looked to protect market share through lower rates. April and May saw some carriers attempt to raise rates but shippers countered by switching to carriers who were not pursuing the same strategy. Truckload carriers were also hurt by February snow storms in the Midwest and Northeastern US.

Ocean Freight - Demand is up for inbound container space, but so is capacity. Most freight forwarders had few problems securing bookings. Demand for US east coast capacity continues to surge due to increases in intermodal rates for mini-land bridge service from the west coast. Ocean carriers remain the biggest victims of trade imbalance as ships arrive full from Asia but sail back to Asia largely empty. Carriers will try to recoup container repositioning costs and fuel through increased rates.

Air Freight - Demand was up for air freight from Asia in the first half of 07.Some of that pressure is coming from shippers increased use of multi-modal time definite services. DHL, UPS and FedEx all offer some flavor of Sea/Air or air/parcel combination. Import strategies moving toward smaller more frequent shipments is just going to push that trend harder going forward.  Air freight capacity has not been a problem as air carriers continue to add freighter capacity such as the B747-400F.

Rail - Railroads were hurt by the slowdown in the US economy due to the commodity nature of their business. Forest products, grains, industrial goods and eastern coal were all lower in movement in the first half. Most carriers however are expecting some volume improvement in H2/07. Western coal still has good prospects for 2007 as well as Canadian wheat. The US wheat crop is a disappointment due to weather. Intermodal volumes are directly linked to performance in the TL sector, so that remains a concern for railroads. Rates remain reasonably firm and are expected to stay that way for most of the year. Automaker restructuring will also be a factor for the railroads. Expect the increased interest and investment in biofuels to impact the rails over time as commodity purchasing of corn vs. coal increases.

Airlines - Delta and Northwest Airlines emerged from Chapter 11 bankruptcy protection this spring, with substantially less debt, a revised balance sheet and a renewed focus on long haul international routes which are less impacted by discount carriers. Most airlines experienced softening of domestic bookings in H1/07 with the possible exception of Delta, whose domestic carriage was said to be above market. Delta also has a strong market share in the US East Coast to Florida market, which traditionally does well in the winter months.  Discount carriers continue to impact the bigger carriers with aggressive domestic pricing. JetBlue became somewhat infamous for the failure of their network due to winter weather in February.  Passengers, I think have learned from that experience with some shifts to larger carriers, at least short term.  Virgin America has been granted operating authority starting this summer and will bring both high end branding and discount pricing to the American market.   In their initially limited trade lanes, VA will bring substantial buzz, and probably some siphon of seats from major carriers. The airlines remain substantially impacted by fuel costs and profitability will be affected.

Eric

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Aviation News Today Update for May 25th

Man! theres tons of good stuff in the Aviation News Today update for May 25th. These include new TSA Scanners that can scan liquids through security, Permission by the DOT for Virgin America to launch discount carrier service this summer, and some bad news regarding the length of wait we can expect to clear customs this summer returning from those summer holidays abroad.

Note: Some corporate proxy servers do not allow display of youtube.com videos. If you see only white space below, you may be accessing the internet through such a server. If so, please revisit from home or another location not going through your corporate VPN.

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Feedblitz Notice: Please Resubscribe!

Attention: Freightdawg Feedblitz subscribers

Some of you may have noticed a lack of Feedblitz email updates coming from freightdawg.com in the last couple of days.  I now know why!    It seems that some technical work we did last weekend with DNS servers accidentally "broke" the Feedblitz settings that send daily updates to you.

This has now been fixed, but unfortunately you must resubscribe.  Please use the subscription box in the right side rail that says "Get Email Updates".   

Apologies for the inconvenience!

Eric

RFID: Metro Expands "Tag It Easy" Program

Metro Group, one of Europe's largest retailers and a pioneer in the use of Radio Frequency Identification tags (RFID), has expanded its RFID program to enable 30 Chinese vendors to tag products bound for Metro stores in Germany.   US RFID tag manufacturer Checkpoint Systems is partnered with Metro in the expanded program.

The article below is from RFID Journal.  You may also be interested in this earlier freightdawg article that contains an excellent video on Metros RFID program.   Metro is one of the few retailers who are making RFID a reality in their supply chain program.   

clipped from www.rfidjournal.com Metro Group Expands RFID Pilot in Asia The retailer's new "Tag It Easy" program with Checkpoint Systems will enable 30 Chinese suppliers to tag goods bound for Metro stores in Germany. By Mark Roberti May 23, 2007—Metro Group, one of world's largest retailers, is expanding its Advanced Logistics Asia RFID pilot to include several Chinese suppliers. The company has teamed with Checkpoint Systems, a Thorofare, N.J.-based provider of radio frequency identification systems, to provide RFID labels for the participating suppliers. "We have been testing RFID in our supply chain from Asia to Germany since 2006," says Gerd Wolfram, managing director of MGI Metro Group Information Technology. "We've been achieving good read rates, and everything has been working fine. So we decided to have a supplier event here in Asia and do a bigger test with more participants." Until now, Metro's Advanced Logistics Asia initiative has involved a third-party logistics provider, Fat Kee Stevedores, and a small Chinese supplier. The two companies have been applying UHF Electronic Product Code (EPC) tags to containers loaded with cartons of various goods to be exported, including pens and kitchen gadgets. At the Fat Kee facilities in China, the packages are pushed through an RFID portal. After the system reads the tags, software creates an electronic packing list, which is sent electronically to MGB Metro Group Buying HK to be checked for accuracy. The list is then used to generate an advance shipping notice (ASN), which is sent to Metro headquarters. When the goods arrive at a Metro Group distribution center in Unna, Germany, the system reads the tags and checks them automatically against the ASN. The pilot was deemed a success, so Metro Group decided to expand the system to additional suppliers in Asia. Today, Metro is holding a meeting with its Hong Kong suppliers to explain how the pilot, known as "Tag It Easy," will be run. Suppliers will be able to access a secure Metro extranet called Metro Link, which will let them view their purchase orders. Each order will have an EPC and Serial Shipping Container Code (SSCC) associated with it. Checkpoint, as the nominated third-party label supplier, will supply and give technical training to the suppliers.

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US Transport Infrastructure: Supply Chain Time Bomb?

The other day I wrote an article discussing transportation infrastructure in China.  In particular China's struggles to support Western China with enough railway lines.  It is interesting however to look at the US infrastructure and the impact of our massive imports on distribution in America.   Dan Gilmore of Supply Chain Digest had a great article on this on May 17th. I clipped part of it below. The complete article is well worth reading.

Dr. Michael Meyer, professor of Civil Engineering and head of the Georgia Tech Logistics Institute, noted at the recent Ga. Tech Supply Chain Executives Forum, that while US vehicle miles continue to grow, our investment in supporting highway lane miles is stagnant. By 2024, Myers says the US import container volume will soar from 18 million to 60 million TEU's.   How are we going to move that amount of traffic?

Clue: We Better Start Now.

Anybody who lives in Chicago, Atlanta, LA or New York understands gridlock caused by massive amounts of both private and commercial traffic. Here in Atlanta, southbound I-75 is a nightmare every morning and every evening. A great number of the vehicles are trucks.  It impacts fuel use, local air quality, housing values and simple quality of life.  Tech's Meyer noted that it will take approximately $60 billion dollars just to bring the city of Chicago up to speed in handling their current volume!

Meyer also admired the efficiency with which China could build infrastructure. Shanghai's new port at Yangshan at the mouth of the Yangtze River was built in under 2 years. I have some personal experience with this.  About three or four years ago, I flew into Shanghai's Pudong airport.  On the 30 mile ride into the city, I noted freshly planted trees, planted 3 deep along the inside and outside medians of the highway.   These trees were of all kinds, planted in no particular order.  These went on for miles! I asked the cab driver what the deal was.

It seems that when the International Olympic Committee came to Shanghai, prior to awarding the 2008 Olympic bid to China, one of the delegates made comment that there were no trees in Shanghai.  Since the Pudong ("east of the river") part of Shanghai was literally built up out of rice paddies, the observation was accurate. Chinese officials, noted it as well and more or less "instantly" trees were planted. That kind of instant infrastructure has also been seen at the south China port of Yantian, where literally they moved a mountain to rework the port facility and supporting warehouses. Such is the beauty of central planning.

In this NIMBY culture we have in the West, we can't move as efficiently as the Chinese in developing highways and ports.  However, something is going to have to be done if we are going to handle the demand we have created for retail products.   

Whats the old saying? "What goes around comes around."   We may not be in an emergency situation  today, but if no further infrastructure investment is made, our kids may pay the price.  Infrastructure takes years to build.   Now is the time to look hard at the highways and the needs of our cities.

Eric

clipped from www.scdigest.com First Thoughts By Dan Gilmore Editor-in-Chief Transportation Infrastructure and the Future of U.S. Logistics I’m not long back from the always excellent Supply Chain Executive Forum at Georgia Tech, under the leadership of Dr. John Langley, which was focused this session on Infrastructure Challenges. I heard a lot there about the real infrastructure issues that we face, and came away pretty convinced something needs to be done (more below). On the other hand, shipper concerns about U.S. ports infrastructure have largely dissipated (for the moment) as delays and congest abate. A combination of shippers taking advantage of alterative ports to Long Beach and some significant improvements in the efficiency of container handling at some of the ports have combined to make the killer delays experienced in 2005 seem like very old news . As we noted in last week’s NewsBites, forecasts are for congestion to be mild even in LA/Long Beach through the rest of the year, even as container volumes continue to rise. (See Container Volumes Continue to Soar, but Congestion Should Stay Mild, Says Latest NRF Study.)                          Then at a transportation panel I recently moderated at the i2 User Conference, a group of very knowledgeable transportation pros from companies like Michael’s stores, Penske and Dell were pretty unanimous in their opinion that U.S. logistics infrastructure was not in a “crisis” that should cause anyone to lose a whole lot of sleep. It’s not that they didn’t see some issues, but I will paraphrase their comments as being that the grave concern in some circles about infrastructure has been over done. ...

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"Go West Young Man...Western China"

China Economic Review has an interesting article on Chinese difficulties in attracting manufacturing to it's western provinces.   China is such a vast country that in many parts of the nation, rail infrastructure to support volume manufacturing is difficult to find.  Most manufacturing in China is found relatively close to the coast, where transportation to ports and export warehousing are easier.

In cities like Guangzhou, there are abundant factories making everything from electronic goods to furniture.  Products are made within easy distance to export infrastructure. Manufacturing makes the local economies relatively affluent and thus drives up the cost of local wages.  As a result, manufacturers often turn to western China for its cheap labor pool.  Factories often have an apartment block or dormitory next to the factory.  Employees go to work in the morning and return to the on-site apartment complex at night. Many of these workers actually are from western China, where jobs are scarce. Factory managers may not be local either, often coming from Taiwan or even the US.  Workers return home only during periods like Golden Week, when factories are shut down long enough to allow the long train ride back to provincial cities like Chengdu in Sichuan province or Chongqing in central western China.

China Railway has been building out its intermodal and domestic rail network for years. However it will be many more  before China has the kind of rail network found in the US or Europe.   That growth limiter will be a major issue for the Chinese economy as wealth continues to settle into coastal provinces to the detriment of western China.  This is such an issue for the Chinese government that China Railway Construction Corporation is now the second largest engineering and construction enterprise in all of China.

Helping China solve this problem presents a great opportunity for international logistics companies who can share their expertise and their capital by investing in China's rail and truck transportation system.  Recently US domestic transportation companies like Schneider Logistics and Yellow Freight have started investing in China to leverage these markets.  The international logistics giants DHL, UPS, FedEx and others have been investing in China domestic business to leverage opportunities as well, with significant investments in hubs to support domestic Chinese business.

clipped from www.chinaeconomicreview.com Building a backbone Manufacturers and retailers are wanted in China’s interior China's economy is long past being based on cheap manufacturing. It is home to a significant consumer class. The urban affluent, just 1% of the population but accounting for 10% of the disposable income, are the tip of the iceberg. The challenge is access. "The market is very limited if you want to go beyond the seaboard... there is no infrastructure," said Charles Merkle, president of CBC Consultants. Beijing is keen to push business westwards to redress the wealth imbalance, but incentives - tax breaks, lower labor costs - for establishing business in far-flung provinces are countered by high logistics costs and long distances. Foreign direct investment in western China didn't pass US$2 billion a year between 2000 and 2005, less than half the investment that went to Shanghai. Trade was US$164 billion over the same period, 5% of the nation's total. If the west is to become the new frontier for growth, business and government need to lay the groundwork. "The key, in my view, is for China to push west its investment in the logistics of supply-chain management," said Stephen Roach, global chief economist at investment bank Morgan Stanley. "It's not enough to provide locational tax subsidies without guaranteeing smooth and efficient flow of the supply chain." This is already happening. At the end of 2005, the Ministry of Communications announced multi-billion dollar investments in ports, inland waterways, shipping channels and highways.

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