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

Parcel Carriers shift from “Oversize” to “Dimensional” charges

This is a "best of" Freightdawg.com Article!

Jerry M. Hempstead is a 32 year air express industry veteran and consultant.  He is President of Hempstead Consulting based in Orlando, FL.  Jerry is a contributing author to freightdawg.com and may be contacted by email at gmhempstead@aol.com

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Parcel carriers change rating practices on oversize shipments

In January 2007, all three major parcel carriers announced revisions in how they treated over sized shipments.   New FedEx, DHL, and UPS "dimensional weight" rules are noted in the links below.

• FedEx Dimensional Weight Rules
• DHL Dimensional Weight Rules (Viewed as PDF)
• UPS Dimensional Weight Rules

Whether you are negatively impacted by these amendments is contingent on the package size of your shipments. If a shipper’s items are less than 3 cubic feet in size then these announcements are actually good and could result in lower shipment costs. However, studies have shown that if your shipments currently move under previous Oversize Rule(s) the migration to dimensional weight could result in your company paying between 15 and 17% more than you pay today for these shipments.

"What can I do about it?"

First, Understand your Book of Business

With respect to managing your parcel costs, a shipper first must understand what they have and how the rule may affect them. The first step in this process is to create a profile of your parcel shipments that details the types of parcel shipments that occur, where they are shipped and the volume of packages tendered to each carrier.  If this profile discloses a significant number of oversize shipments, or there are other warning signs that indicate that your company may be adversely affected, then you  likely have some thinking to do.

"Then consider your options"

You have several options, some of which can be used in combination. These first address internal inefficiencies, then leverage the politics of your carrier relationships, the competitive marketplace and your specific situation.  Each case may be different.

Consider Changing Packaging - Based on what the profile discloses, it may be worthwhile to look at the packaging sizes used. There are some nuances between various box sizes where one size may dim one-way and another not at all. The information may be in your shipper invoice file or on your weekly flat file billing from your carrier.   A review of the bills can provide some beneficial insight.

Ask for higher discount to offset Dim rule changes - You can always try the traditional method of demanding a higher discount off of the base tariff rate to mitigate some of the impact of the rule change. One toy company noted that after they sat down with their current parcel carrier and went over their analysis of the impact of this change, (which showed an increase of 14%), the carrier volunteered to increase their discount to partially offset the impact of this increase.

“Breach of Contract” - Call in the incumbent and tell them it is your expectation that the oversize rule that was in effect at the time the contract was signed must be the rule moving forward for the duration of the contract. If they refuse, then advise them that you consider that carrier in breach of the contract and are therefore canceling the contract on 30 or 60 days notice per the contract. No parcel carrier wants to lose market share or lose customers over this new rule.

Put the business out to bid - Call in the competition and put the book of business in play and TELL the bidders they can only have the business if they grandfather the old OS rule and or waive Oversize entirely for the duration of the contract award. The key here is convincing the incumbent parcel carrier that his business is at risk. Right now, there is a battle going on amongst the Big Three (UPS, Fed Ex and DHL) and they have been very aggressive in protecting their turf and trying to get new customers.

Suggest a Phased approach - If you want to adopt a less adversarial stance, you can request that the incumbent carrier phase in this new rule by applying a more liberal dimensional factor such as 300 or 600 for the next year and then gradually reduce the divisor until the 194 is reached some time in the future. The increase in the dimensional factor can reduce the weight against which the package is compared (a.k.a. the package is billed at the greater of the weight of the package or the weight calculated under the dimensional freight rule).

Consider adding regional parcel carriers - If the Big Three are not willing to budge, then consider using use regional parcel carriers that don't apply an oversize or dimensional rule (such as Eastern Connection or California Overnight or WPX) wherever possible. Our experience has proven that the Big Three are very adept at noticing (what we refer to as) diverted freight. This is freight that once was moving in their system and is no longer there.

While some of these steps may seem pretty basic, we have surveyed some shippers and have been somewhat surprised at how few of them are being proactive in negotiating with their carrier (right now) to address these issues. Additionally, we have been a bit surprised to learn that very few of these shippers have a complete profile that details their parcel transactions. 

If you would like additional information, or have any questions, don’t hesitate to contact me at gmhempstead@aol.com.

Jerry

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Box Business: Container Yachts!

This is a "best of" Freightdawg.com article!

In Ye Olden Days...

Back in the 1980's, I was a young sales rep for P&O Containers working in the ocean shipping business. One of my clients was Sea Ray Boats.  Sea Ray built power boats ranging from small personal watercraft up to yachts.

P&O was amongst a handful of carriers that transported Sea Ray products worldwide.   We did it by putting them on flat rack or platform containers.   These are just ocean containers without sides or a roof.  The boats were invariably "out of gauge", meaning that they stuck out beyond the sides or top of what would be a normal 40 ft. ocean container,which is 40 ft long x 8 ft. wide x 8.5 ft tall.  Because of the extra dimensional factor, "OOG" cargo such as these and other motor yachts would ride on the top tier deck of the container ship.   Our pricing department would charge a premium for the extra dimensional space by claiming that these loads displaced usable container space.   

Operational Costs of Container Transport

The truth of the matter is that the specialty containers these OOG loads required were expensive to lease, and hard to find. Further, once grounded overseas, special equipment often had to be repatriated back to origin without a load, meaning the outbound head load had to support a deadhead cost factor in the base rate.  Compounding the logistics was that our arch competitor at the time, Sea-Land, was a prime mover of this kind of cargo and tended to suck the leasing markets dry as a defensive tactic in addition to their large requirements for military cargo. (Those Rats!)

In the North Atlantic trades to Europe as well as to Asia, the pleasure boat market tended to be new boats going for retail sale through dealers.  In the Mediterranean however, there was an additional market for large yachts to be relocated seasonally between the Med and the balmy waters of the Caribbean. Wealthy owners would load their boats aboard in Miami or Charleston and then pick them up a week or two later in Algeciras, Genoa or Piraeus. They'd take a commercial flight to Europe and their boat would take a cruise on a bigger sister.  Some big yachts transit the Atlantic this way rather than sailing on their own despite the ability to do it.   

For the most part, nothing has changed since those days over 20 years ago. Container ships are bigger and faster, but the port operations and the equipment needed to move yachts this way hasn't "really" changed.  Until Last Year.

Enter the "Container Yacht"

Bernie Blum is a sailor who likes to sail anywhere he can, anywhere in the world. After being quoted as much as $40,000 dollars to transport his 43 ft sail boat to Scandinavia, he decided that there had to be a better way.

Working with Seattle naval architect Bob Perry, they designed a 39 ft. motor/sail yacht that can fit within the body of a standard 40 ft ocean container.   Called the "Far Harbor 39", the boats are built in Oregon at Schooner Creek Boat Works and marketed by Blum's new company "Container Yachts".   

The FH 39 has a 600 mile range under power and sails with a full-batten mainsail and a roller furling jib. She has an enclosed cockpit and is well appointed for a vessel with a beam width of only 7.4 ft.   She motors at approximately 9 mph but I suspect she sails like a rocket!

Retailing for around $225,000.00 Dollars, the boat fits nicely into an ocean container, which can then be transported worldwide for much more nominal prices.  Further,  the container is intermodal and can be hauled by truck or by rail virtually anywhere.   Left in the container, the boat can be stored wind and weatherproof on the ground or on a chassis.   

The target market for container yachts remains with the wealthy.  To transport your container yacht to the Med still takes 10 days.   Clearing customs, prepping the boat for sail, dealing with hazmat requirements on fuel etc., still is a bit of a hassle. For that reason, if you're not planning on cruising the Med or Caribbean for 3-4 weeks, a charter would probably be a better deal.   Still, if you have the time and especially the money, the container yacht is a great way to see the world from the sea.

Missing a "Value Prop" in the container itself?

In reading ContainerYacht.com's marketing material, they make much of the lowered cost of transport, however the value I see is really in safe storage and extended life of the boat by less exposure to the elements.   Using a carrier's container reduces the benefit to only lowered cost of transport...but for just a few thousand dollars more, the boats could come with a shipper owned container and then the value translates beyond transport and into appreciation on the life of the boat.  Most ocean carriers charge less for carriage of Shipper Owned Equipment (SOE) because there is no requirement for repatriation. (just remember to file a customs declaration at destination for both the boat and the container!)  There may also be a savings in Marine Insurance because of greater security of the asset both in the US, in transit and abroad. 

Personally, I'd build these boats in South Asia and market them complete with container and free delivery anywhere worldwide.   Boat in a Box indeed!

Eric

clipped from www.robbreport.com Boating: Box Launch To explore the Queen Charlotte Islands two years ago, Massachusetts businessman Bernie Blum had his 43-foot Cheoy Lee shipped overland from Florida to British Columbia. Blum then set his sights on the Baltic, but transporting his yacht there proved to be more complicated. “The big yacht transport outfits don’t go to the Baltic,” he notes. “They suggested France. I found one freighter that would take my boat as deck cargo—for $42,000.” That plan would not work: Blum did not have the time to sail his boat from the Mediterranean to the Baltic, nor did he have the inclination to pay such a fee. “Why should it cost so much to ship a boat?” Blum asks. “I knew that if I could fit one in a container, I could ship it for a fraction of the price.” About a year ago, he contacted Bob Perry, the Seattle naval architect who had designed his Cheoy Lee. “I asked if he could design a cruising boat to fit into a crate,” Blum says, “and 90 minutes later he e-mailed a sketch.” Blum also discovered that his theory already was being practiced by the owners of Flying Tiger—a 33-foot racing sailboat that the owners can dismantle, fit into a container, and then ship to regattas.

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Very Cool: RFID Checkout at the Grocery Store

This is a "Best of" Freightdawg.com article!

Back in February, I wrote an article highlighting an excellent video done by the Metro Group on how RFID works. The video below, which is actually an IBM commercial I snagged from youtube.com, is a clever piece showing what appears to be shoplifting, but is actually one of the key features of an RFID enabled store.

The "shopper" in this case picks up whatever he wants and when the customer passes through an RFID reader at the check out, the products, which are in his pockets, are automatically scanned and charged to his credit card.

Those who have read some of my other articles know I despise check out lines, especially self check outs.  I can never make them work.    The scenario below is a dream to somebody like me.  It speeds me through the store and out to do my other errands.    Since the tag reader knows what I bought, it can also be tied to replenishment ordering to resupply the store with the goods I just bought.

Wal*Mart has mandated that their top 100 vendors tag products with RFID tags.   One day it will be great if all products are similarly tagged.   Just think how convenient holiday shopping will be if you don't have to wait in long check out lines!    I might actually venture back into a shopping mall again.

(Note: Some corporate proxy servers ban video from youtube.com.  If you see white space below...you may be on such a network.  Please revisit from home or a connection that does not go through your company VPN.)

Eric

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Retail Video on RFID

This is a "Best of Freightdawg.com article!

This is an outstanding video demonstration and explanation of RFID.   Radio Frequency Identification. It was produced by the Metro Group in Germany.  Retailers such as Wal*Mart and Target in the  US require this technology from their vendors for application at the pallet level.  European Retailers such as Metro and Tesco are also making use of Radio tagging.    DHL is a major partner with Metro in enabling RFID in Germany.

There are a number of people who think RFID is a conspiracy to track individuals and an insidious threat to personal freedom.  I prefer to think of it as a high potential supply chain tool whose cost must come down to be widespread in reality.

Eric

This was clipped from www.youtube.com using Clipmarks 2.0.   (Note that some proxy servers prevent viewing youtube videos.  If so...check the article from home!)

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"The best of" Freightdawg.com

Vacation: June 23-30th

Its that time again.  The kids are road tripping me, my wife and my wallet off to Orlando to be uber marketed to by theme park minions from June 23-30th.   During that time, I hope you will enjoy a number of very good articles that have been published here previously.   Most of these articles pre-date the supplychaindaily.com feed that now distributes Freightdawg.com content all over the web. Hopefully that will put this rich content in front of new eyes as a result of the broader feed.

Articles tagged as "Best of" Freightdawg.com will be segregated into a new category for easy reach in the future.

I will attempt to post a new article during the coming week, in particular, I will post some post Paris Air Show video. For the most part however,  freightdawg readers will be in great hands with the high quality stuff we redux for the benefit of a growing audience.

(psst...I'm not telling Google!)

Eric

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FedEx will create Europe/Asia Pilot Bases

FedEx this week announced intention to base pilots in both Paris and Hong Kong in order to increase flexibility and efficiency in crewing cargo flights in Asian and European markets.    Competitors such as DHL, TNT and UPS already have air crews based worldwide.

clipped from www.commercialappeal.com FedEx to Base Pilots Overseas By Jane Roberts Contact June 15, 2007 FedEx Corp. plans to establish pilot bases in Paris and Hong Kong, saving it the cost of getting U.S.-based pilots to work and giving it more flexibility as it takes on DHL, the No. 1 courier company in Europe. The Memphis-based company and the pilots' union are discussing an amendment to the pilots' contract, including cost-of-living stipends and details about the planes FedEx intends to fly in each market. "We've had very cordial dialogue with the company," said David Webb, chairman of the FedEx master executive council of the Air Line Pilots Association. "We've had ongoing trips to Asia to look at housing, schools and hospitals. These two domiciles are going to be important to the future growth of Federal Express," he said. Webb expects FedEx would like to have pilots bid on the new routes this year. "We're working diligently to complete the negotiations. Everyone seems to be willing to listen to each other and make the best effort to have it work out," said Maury Lane, company spokesman. "But we're in no rush because we can keep doing business the way we are." When domiciles are established, pilots who choose to commute from the United States, or from anywhere else, will have to pay their own fares. FedEx has bases in Memphis, Los Angeles, Subic Bay and Anchorage, Alaska. Memphis is  the largest. "You want to have your pilots based where the flight originates because that's where you have the longest layovers," said Satish Jindel at S J Consulting near Pittsburgh. "It gives the pilots a better quality of life and better scheduling." The change comes as FedEx adds capacity to its fleet and prepares to open its Asian hub in Guangzhou, China, in December 2008. FedEx's Asian business is growing by double digits; growth in Europe is slightly less.

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Paris Air Show: Opportunity for Airbus

Following on yesterdays article on the 2007 Paris Air Show,  check out this video from AINTV.com on the 2007 Paris Air Show and just how important this sales market is for Airbus and other manufacturers.  Airbus has struggled heavily with the logistics and manufacture of its mammoth A380 airliner.   The Paris Air Show is an opportunity to re-invigorate both the A380 and the troubled manufacturers order book for other models as well. Despite issues with the A380, it's the A350 that may find the most interest as it competes with Boeings B787 Dreamliner to replace the aging B767 in both passenger and freighter service.

Billions of dollars in new aircraft purchases will be made or considered this week.   There will be lots of aviation news coming out of Paris this week.  AINTV.com covers this as well or better than anybody.

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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2007 Paris Air Show - Good Times and Big Orders

June 18th - 24th

The worlds most important air show alternates annually between the Paris Air Show and Farnborough Air Show in the UK.  This time it takes place this week in France at Paris Le Bourget Airport.   The Paris Air Show is attended by virtually all of the most important aircraft and component manufacturers and their customers, both military and civilian.   This is the competitive high ground where global aircraft manufacturers like Airbus and Boeing continue to wage war over airline orders. Key decisions and orders are announced at the Paris Air Show in between spectacular aircraft flight demonstrations.

Boeing and Airbus continue to fight for long haul orders from air carriers, while the competition between Embraer of Brazil and Bombardier of Canada continues for regional jets.   While Airbus continues to tout its A380 long range mega carrier,  Boeing is countering with the ultra long range B777-300ER series.  For the first time in a long while, no 747 variant is in Paris this year.    The most interesting competition however is for the mid-long range wide body space currently dominated by the Boeing 767.   The 767 is coming to the end of its service life within the next 3-5 years.  For that reason, air carriers like Delta Airlines are looking at either the Boeing 787 Dreamliner, or the Airbus A350 as a replacement for the 767.  Delta is actively looking at both airplanes and will make a decision by the end of 2007 on which aircraft to select. The size of the Delta order will eventually be greater than 100 airplanes according to Delta COO, Jim Whitehurst.    The 787 has an advantage in that it will be available in 2008, while the A350 will not be available until approximately 2012.   For Delta however, that makes no difference.  DAL is intent to bring a new aircraft online in the 2013 range to phase out the B767.  Emirates Airlines is also considering a 100 plane order as they aggressively expand their markets.

Airlines who have announced intent to buy the A350 this week at the Paris Air Show include India's Kingfisher and Singapore Airlines.  US Airways has announced a multi-aircraft deal with Airbus for 92 jets.   22 of which would be A350's with the rest being a combination of A319, A320, A321 and A330's.   KLM and Air France also ordered new aircraft from Boeing worth 2.7 Billion though these orders had been on Boeings books before and listed as "unidentified" customers.   

The B767 is a key player in the air freight market, so parcel carriers like DHL, FedEx and UPS also have great interest in the freighter versions of the 787 and A350 aircraft as well as conversion of passenger 767's to freighter service as the airlines take on newer passenger aircraft.

Meanwhile, regional jet manufacturers continue to blur the definition of "regional jet".   New models such as the Embraer E170 and E190 models and Bombardier CRJ NexGen Family, including the CRJ-900 and CRJ-1000, now have ranges to compete with MD-8x and B737 aircraft.  This gives airlines the flexibility to offer regional route services into markets that may not support a large enough passenger base for an aircraft the size of a 737.  Continued expansion by low cost carriers makes the market rich for the RJ manufacturers, especially in the burgeoning Asian markets.  Embraer's own research shows China's domestic needs as a key market for RJ's in the next 30 years.

All these aircraft sales and healthy airline industry mean good times for engine manufacturers like General Electric, UTI and Rolls Royce.  Every time a jet is sold, the engine manufacturers compete on how those aircraft will be engined.  Rolls Royce this week won its largest engine contract ever with a $5.6-billion deal with Qatar Airways. The Trent XWB engines for Qatar’s new fleet of Airbus A350 jets are to start arriving in 2013.

On the military side,  Airbus and American partner Northrop Grumman,  are aggressively competing for the US Air Forces future air refueling tanker.   The KC-30 advanced tanker is competing with Boeing's B767 tanker to replace the aging KC-135 in American service.   The KC-30, which is based on the Airbus A330 air frame, has already won an order from the Australian government and is using that deployment as a case study demonstration to the American military that it is fit to win the competition.   Boeing also has brought its C-17 Globemaster III,  F-15E ground attack fighter and Apache Longbow helicopter for military sales consideration.  All are already in service with the US military and a number of allied nations.

Fellow blogger Rob Marks of Jetwhine.com is in Paris this week and has promised to post pictures.  I'll link to those as Rob posts them.

Eric

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Cosco Holdings to Raise nearly 2 Billion

China Economic Review has an interesting article today about Cosco Holdings .  Cosco is China's largest shipping company, with a fleet of 139 vessels.    Cosco intends to get bigger however, raising cash to build as many as 12 new ships and buy a 51 percent majority stake in Cosco Logistics. Cosco will capitalize the acquisition by selling as many as 1.78 billion shares in the Shanghai Stock Market. With Chinese exports booming,  Chinese shipping interests are continuing to position themselves to move an increasing portion of available freight on its own ships and through it's own 3PL networks.

What strikes me as curious however is why Cosco does not buy Orient Overseas Containerline (OOCL)?   OOCL is Hong Kong based and already shares significant political, business and technical ties to Cosco.  Indeed Cosco and OOCL already share the same basic IT systems.  OOCL's IRIS-2 System has been in use under license by Cosco since 2001.

How many competing companies do you know of that share an enterprise management system?   It would seem to be a reasonably easy operational integration since the IT is already compatible. 2 Billion dollars seems about the right amount of money to make that happen and the market synergy is already there.   I may be adding 1 + 1 and getting 3, but the question is an obvious one.

clipped from www.chinaeconomicreview.com China Cosco Holdings runs Asia’s largest container line. It intends to get bigger. It is setting up one of the biggest share sale in China this year which may raise as much as RMB15.1 billion ($1.98) and it will be used to buy new ships. The company is based in Tianjin and will sell 1.78 billion shares in Shanghai at RMB7.60 to 8.48 each. The sale will probably be the fourth biggest of those approved in China so far this year. The money will be used for a dozen new ships and to buy a 51% stake in Cosco Logistics from its state-owned parent Cosco Group and another RMB401 million for projects being developed by the logistics unit. Edward Wong, an analyst with Quam Ltd. in Hong Kong, said, ‘The outlook for container shipping has improved and freight rates are recovering. It’s also the right time to raise funds as investors are still willing to pay a higher valuation for Chinese stocks.”

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QE2 Finds Permanent home in Dubai.

Prior to the introduction by Cunard Line of the Queen Mary II, the Queen Elizabeth II or "QE2" as she has been known, has been the symbol of cruising luxury.    Introduced in 1969,  the QE2 has crossed the Atlantic more than 800 times. Reuters announced today that the QE2 has been sold to Dubai based private equity firm Istithmar. 

Istithmar intends to refurbish the vessel back to her original glory as a floating hotel complete with shops.    The ship will then be permanently anchored off of a man made island in Dubai around 2009. Istithmar is the investment arm of Dubai Ports World.  DP World bought British rival P&O last year.   How ironic that two former heralds of the British red ensign and great competitors have now devolved into their component parts in foreign ownership.  Lets hope that the QE2 finds life as a floating hotel better than the Queen Mary did in Long Beach, or the P&O Line "Oriana" did in Japan.

The Queen Elizabeth II will leave commercial service with Cunard in November 2008.  I bet that final cruise sells out in 10 minutes.  Two things I regret I will never do is fly on the Concorde and sail on the QE2.  Both remain symbols of British style and elegance.

I will however,make it a plan to sail on Cunards newest ship, due in December, 2007, the Queen Victoria.

clipped from edition.cnn.com LONDON, England (Reuters) -- Dubai said on Monday it had agreed to buy the Queen Elizabeth 2 for $100 million and turn the famous cruise ship into a floating hotel and museum to draw tourists to one of the Gulf emirate's man-made islands. State-owned private equity firm Istithmar will become the new owner of the QE2, the longest-serving ship in the 168 year history of the Cunard line, which belongs to Carnival Corp., the world's largest cruise operator. The liner will be anchored off the 560 hectare (1,384 acres) Palm Jumeirah, the smallest of three islands shaped as palm fronds that government-owned developer Nakheel is building off Dubai's coast. The cruise ship, which will also have shops on board, will arrive in Dubai in 2009 as part of a drive to turn the island into a tourist destination, Nakheel spokesman Charlie Taylor said. Around 6.5 million people visited Dubai last year, more than any Arab destination except Egypt.

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