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

Auburn Hosts 4th Annual SCM Charity Golf Outing

I got an email today from Dr. Brian Gibson, head of Auburn University's Supply Chain Management program, promoting Auburn's upcoming annual Supply Chain Management charity golf outing.  The event welcomes AU Alumni, students, faculty, employers and friends of the program to participate in the charity event on April 25th 2008.   

The four-person Texas scramble golf outing brings together the logistics and transportation community for a relaxing day of fun and camaraderie. The venue for this outstanding event will once again be the challenging Moore’s Mill Golf Club in Auburn, AL.   Full details on the outing can be found in this pdf file.

The purpose of this event is to raise scholarship funds for Auburn SCM students. Previous events fulfilled the Dr. James Adams Endowment and allowed AU to award individual scholarships. The 2008 outing will boost existing endowments and help launch the Auburn Supply Chain Management Association scholarship endowment. It will honor the leaders of Auburn's student organization who make the annual golf outing a great success.

As a 1984 AU graduate in Marketing and Transportation, I am delighted to see Auburn's program grow in scope and support.  Dr. Jim Adams was a teacher of mine.  I'm so pleased to see an endowment in his name.  Good to see an old Southern Railroad guy get the recognition he deserves!  Jim Adams cared a lot about transportation and was a great teacher to his students.

Eric

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Aerologic: DHL and Lufthansa JV Cargo Airline Named

Back in October 2007, DHL and Lufthansa Cargo AG announced a new joint venture all cargo airline based at the DHL cargo super hub at Leipzig.  The 50/50 JV will start operations in 2009 and eventually utilize 11 Boeing 777-200LRF Long Range Freighters.

The new airline has subsequently been named AeroLogic.  The all cargo airline will feature a flexible operating plan. During the weekdays, the 777's will fly between Europe and Asia serving DHL Express.  On the weekends, the aircraft will fly with Lufthansa cargo.  The Lufthansa routes can be anywhere worldwide including North and South America.

Marketing for the new airline will be handled by both DHL Express and Lufthansa Cargo organizations. Ground handling will also be provided by both organizations depending on routes served.

The company will be managed by a new management team featuring seasoned executives from both Lufthansa and DHL. Joint Managing Directors Dr. Thomas Papke of Lufthansa Cargo and Thomas Pusch from DHL Express.

DHL has used Lufthansa cargo airlift for many years for flights both into commercial airports as well as on charters into its Express hubs.   The JV represents an extension of the DHL and Lufthansa relationship for both DHL Express and DHL Global Forwarding.   DHL Global Forwarding is the largest indirect air carrier in the world, while DHL Express is one of the largest commercial purchasers of third party airlift for parcel shipment.

A separate press release from Boeing Co. on Monday indicated that Deucalion Capital has purchased the first eight 777 freighters, valued at $2 billion at list prices, for lease to AeroLogic.  AeroLogic will take off in early 2009 with the first four of its new 777's.  Additional aircraft will come online in 2010 and early 2011.

The 777-200RLF's were initially ordered by Avion Group of Iceland in 2005 and picked up by Deucalion after the order was canceled.  This allowed the DHL/Lufthansa JV to jump up in the Boeing order book.

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World Economic Forum - January 23-27th

Next week, the World Economic Forum will be meeting in Switzerland for the 2008 summit.  The theme this year is "The Power of Collaborative Innovation".This message has to do with how well we work together as well as how well we innovate.

There will be more coverage on the WEF in Davos in the coming days.

The video below showcases the issues that will be covered in Davos.  This will be the first of a few from the Davos Switzerland WEF meetings.

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US Parcel Business: Competition is a Good Thing.

Jerry Hempstead of Hempstead Consulting is a great friend and former colleague of mine. After 32 years in the express and parcel business in the United States, Jerry "retired" a couple of years ago only to become one exceptionally busy guy. Jerry's expert knowledge of the parcel business has led him to some very interesting consulting engagements in China and the United States.

The article below is an Opinion/Editorial reflecting Jerry's personal insights. Jerry can be reached at gmhempstead@aol.com

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Every year I read magazine and on-line articles on parcel carrier tariff and accessorial increases with great interest. These articles always contain at least some acrimony about pricing changes.  Presentations by parcel consultants at conferences are usually no better. 

In an unregulated market, carriers have the right to charge whatever they want as long as they don’t collude on pricing decisions or pricing strategy. The only governors on pricing are competition and market conditions. 

How the Dance is Done.

Normally annual rate increases are initiated by FedEx. FedEx announces their general rate increase and rules changes for air shipments then state that their ground increase will be announced shortly. UPS usually matches the FedEx air increase and makes an announcement on the UPS general increase for ground. FedEx then matches the UPS ground increase. Historically DHL matches both increases at almost the same percentage levels. That’s how the dance is done on the carrier side.

In my years of parcel express experience, I never called on a customer that paid full tariff (book) rates. Everybody had a discount of one sort or another. Beginning in 1980 shippers could negotiate anything they wanted with the air carriers. There were so many players back then that all kinds of discounting, refunding, schemes, plans and incentives were invented. 

That was then. This is Now.(2008)

Recent conjecture in the media has been that DHL may reconfigure or possibly reduce its express operation in the United States.  This idea came from the extrapolated "analysis" of two analyst reports.  Unfortunately neither report painted a complete picture relative to the value of DHL Express's US presence to the whole of Deutsche Post World Net. 

DHL consists of many parts, most of which are profitable.  Deutsche Post World Nets (DPWN) contract logistics and freight forwarding businesses are very profitable.  DHL Express is a moneymaker outside the US.   So while some analysts get excited about the US market, DPWN is a many tentacled beast.  DHL’s various business divisions are highly interlinked. Removal of DHL Express from the US market would substantially hurt the other (profitable) business units. Relative to DHL’s US market position, consider that UPS lost money for many years in Europe and FedEx even withdrew from Europe at one point.

DHL continues to make strong service investments and alignments in the US and globally.   Deutsche Posts new JV all cargo airline with Lufthansa and recent investments in Polar Air show that.   DHL isn't going anywhere.

Looking at how competitive pricing is arrived at, DHL serves a substantial role in the US market as a mitigating competitive factor in containing rate increases for the parcel shipping public. Without a third player, FedEx and UPS control the game. Shippers will long for the rational rate increases of the past. 

I did a lot of service analysis for shippers in 2007 that were using UPS, FedEx and DHL.

Except for December 2007, which was impacted by weather, there was little statistical difference in the delivery performance of the three carriers when you look at delivering on the correct day. The improvement of DHL’s service was also evidenced in the annual shipper survey done by Morgan Stanley and Parcel Magazine. 

Your world will not end if you only support FedEx or UPS; but your discounts might end if you don’t support all three players in the US market. The shipping community needs to support all three parcel carriers in order to have the market leverage that a third viable carrier provides.

Consider the Bigger Picture: World Market Forces

Maersk recently announced a 3000 person layoff and divisional realignment globally. They are the world’s biggest shipping line.  Lufthansa recently announced they will be hiring 3000 people because of the growth of international air passenger traffic.   Transportation carriers follow the freight.  If a shipper can't sell it, a carrier can't ship it.    In weak economic times, carriers reconfigure their networks. 

A Word to the Wise

In my many years in the parcel business, I’ve worked hard to get the best deal for both my customer and my company. Competition was always the driving factor that forced me to get the best deal. Removing competition from the playing field while all carriers are under pressure due to fuel costs and currency fluctuations will significantly increase rates in coming months.

Trust me. Don’t leave FedEx and UPS without a third competitor. Regardless of conjecture of market analysts, DHL is part of a much larger entity in Deutsche Post that’s simply not going to leave the US market.

Jerry

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Retail Economy: It's War Out There!

This morning going through email I received a (spam) note from Amazon.com. Endless Shoes and Handbags will now charge a negative 5 bucks for overnight shipping?!? I'm in the parcel business, so that one got my attention.  Of course the price of shipping is not free.  The shipper has it built into the cost of his goods.

What this advertisement does tell me is that on-line retailers are scrapping with the bricks and mortar retailers for consumer dollars.  The holidays are over and with the high price of gas and heating oil, plus those post holiday credit card bills,  people are just not spending.  The on-line merchants and the stores at the shopping mall are feeling the pinch.  Retail sales for the 2007 Holiday season were the lowest in 5 years according to TNS Retail Forward, with fourth quarter growth year over year only 3.4%.

Unfortunately the parcel carriers are feeling the pinch too. When retail suffers, parcel suffers.  That makes for a major dogfight between FedEx, DHL and UPS for domestic business.   It puts pressure on parcel rates and on mode selection.  What's interesting here is that the shipper is promising overnight express shipment not ground delivery.   

Last year (then) UPS CEO Mike Eskew pretty much said that UPS's profits came largely from international business, not from domestic.   This year all the carriers are investing heavily in new international services in order to diversify the balance sheet.   The dollar is weak, so US products are attractive to foreign buyers.   With the economy and the cost of fuel being worse this year than last, there is no reason for that trend not to continue.   If I were a shipper needing to negotiate domestic rates with parcel carriers, now would be a good time to do it.

My brother runs a highly successful exec search firm that specializes in finding and hiring e-commerce guru's for the on-line retail market.  He's got some big box and specialty retailers for customers as well as Internet only firms.  I'll have to ask him whether he asks any supply chain related questions of his candidates.  In today's economy knowing how the goods get to the consumer is critical to on-line marketing strategy. It's not all about drop shipping any more.

Eric

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CSX: Railroading Record Revenues

Today started out with a three quarters of a point emergency rate cut by the US Fed and a down day on Wall Street and other world markets amid fears of US economic woes.

No doom and gloom for CSX though!  The US Class 1 railroad had their quarterly conference call with market analysts.  All Michael Ward (CSX CEO) had to say was "another great quarter and another great year". It's good to be the King.

Coal revenues and intermodal revenues were the big winners.  Automotive revenues were also up, but just barely.

I find it interesting that Berkshire Hathaway reduced their ownership of CSX stock this quarter but the railroad posted record earnings. Perhaps the "Oracle of Omaha" has it directionally correct relative to owning rail stocks, but maybe not completely fine tuned as to what the ownership mix is just yet?   Warren Buffet is still building the ultimate train set in my view.

What I see so far is a pretty great energy strategy with a few pieces left to complete the puzzle. I think that railroad stock ownership is a good thing with particular regard to their strategic role in energy transportation. All American railroads are going to benefit from energy transportation in 2008. Buffett, amongst others, gets that.

What's the CSX On-line Strategy?

CSX took a unique step in conducting considerable on-line consumer advertising...not something railroads would ordinarily do.   I view that as a clever strategy toward raising the publics view of CSX for stock investment. I could be wrong, but I have yet to hear another opinion on the subject. 

I actually wrote to CSX marketing and asked them why they were advertising on-line.  I got no answer.  I also went to the NITL/IANA Transcomp Conference in Atlanta and visited the CSX booth. I asked the same question there and got blank looks.  Whatever their on-line strategy is, CSX hasn't communicated it internally very well, and I'm not completely sure the public understands it either.

CSX as an operating company is clearly doing great things. CSX as a marketing company at least here, has yet to demonstrate clarity with their (unique) on-line strategy.

Eric

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DHL Goes Green with Beluga SkySails

The Motor/Wind combi vessel, MS Beluga SkySails was christened in  December 2007.  The unique ship uses a combination of traditional motor propulsion augmented with a giant para sail for additional wind powered thrust.   Ships using the SkySails system can experience savings in fuel use from 10 to 35%.

DHL Global Forwarding has booked the first of a series of project shipments using the Beluga vessel on behalf of DGF customer Dieffenbacher GmBH. The project covers eight shipments of a particle board factory.  The initial shipment will be 10,000 metric tons in size.   

Use of the wind aided ship is part of DHL's overall GOGREEN initiative to make shipments carbon neutral to protect the environment.  DHL GOGREEN applies to both DHL Express and DHL Global Forwarding shipments.

clipped from www.domain-b.com The Beluga Shipping-owned MS Beluga SkySails, the world's first cargo vessel with an innovative towing kite system will sail from Hamburg-based SkySails, is being used for commercial transport for the first time. It will carry the first part of a complete particleboard factory across the Atlantic from Bremen in Germany to Venezuela on behalf of DHL Global Forwarding, the ocean and airfreight arm of the Deutsche Post World Net Group. The multipurpose vessel will set sail early next week. What makes it so special is a new wind propulsion system with a huge towing kite that provides additional thrust to the ship at sea - a sustainable solution for reducing fuel consumption, costs and emissions. Once the diesel-powered ship is out at sea, it will unfurl a an especially designed flying sail to supplement its engines with wind power. A computer will adjust the height and the angle of the sail, developed over a period of four years by Hamburg-based SkySails.

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Arkansas State Recieves AST&L Waiver.

The American Society of Transportation and Logistics has awarded Arkansas State University's logistics program an examination waiver that allows graduates of the ASU business logistics program a CTL certificate.  (Certification in Transportation and Logistics.)

The ASTL CTL certification is a globally recognized indicator of individual excellence in Logistics and Transportation knowledge.  The CTL certification substantially increases the value of a degree from Arkansas State's Logistics program.

clipped from www.arkansasbusiness.com Arkansas State University at Jonesboro's College of Business logistics program recently received a blanket waiver from the American Society of Transportation & Logistics.    ASU is one of 25 other schools in the United States to receive the waiver, according to an ASU news release.  "This waiver will benefit ASU students by allowing those students pursuing marketing degrees with emphases in logistics to graduate with automatic AST&L certification," the news release said.    Recent graduates can receive the certification in transportation and logistics without further examinations, which were necessary to fulfill AST&L requirements, the news release said.    Students who are certified by the AST&L demonstrate a "substantial knowledge of transportation, logistics and supply chain management," the release said.

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Virgin Group: Innovating Bio-Fuel Use

Leave it to Sir Richard Branson to lead in any business he undertakes. Virgin group has pledged to invest profits from all of its transportation related companies to the development of renewable fuels and green modes of transport for the next decade.

Virgin Group has established a separate company called Virgin Fuels to develop ethanol production facilities in the US. This $100 million dollar investment will be used to take advantage of ethanol for multiple modes of transport.   Virgin Fuels is a precursor of the larger Virgin Green Fund, which will invest several billion dollars in renewable energy development over the next several years.

Working with GE Aircraft Engines,  Virgin has announced that they will begin testing various bio-fuels for use in Virgin Atlantic aircraft.  A Virgin 747 jumbo jet will fly between the UK and Amsterdam on test flights. The aircraft will be flown without passengers or cargo on non-commercial test flights. Virgin and GE intend to discover which of a variety of test fuels will generate maximum fuel efficiency while containing the jet's emissions and carbon footprint.  Interestingly, ethanol  won't be among the tested fuels because it doesn't burn well at high altitude, low oxygen environments.   

Branson and Virgin are highly sensitive to environmental impact, having been the first airline to allow passengers to purchase carbon footprint offsets for an extra charge on their air tickets.   Virgin is combining the marketing and PR value of the carbon offset premium with hard engineering of the 747 tests.

Branson has a long history of being a prime mover in any business he is involved in.  He also has a way of making his business ventures "very cool".   I think this bio-fuel exercise demonstrates why. Bio-fuels and fuel conservation get a lot of marketing talk from other airlines. Virgin is making it real. Customers see this and actively work to support Virgin businesses because of it.

Eric

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The Impact of Alternative Fuels

Over the course of the weekend I had an interesting discussion with my father, who is a senior executive with an international food trading company.  Boring as it must have been for my son, also riding in the car,  we were talking about the high cost of bunker fuels in ocean shipping and the impact of fuel costs on transportation. These seriously impact the cost of the goods my dad's firm trades.   ( I will grant you that this is not a typical conversation for most families, but I run a blog called "freightdawg.com"!)

Those fuel costs show up in bunker charges, but also in the cost of agricultural products including poultry and beef.  For this reason there is significant need to develop non-petroleum based alternative fuels like ethanol.  The United States simply must find a cheaper fuel alternative, but it has to be the right fuel alternative.

Ethanol has been very successful in development and use in Brazil, where it distilled from cheap and plentiful sugar cane.  In the US however, ethanol is distilled largely from corn. Corn is a primary foodstuff for humans but is also a feedstock in beef and poultry production.   When farmers grow corn for production of ethanol, it drives up the cost of the remaining corn that will be used for food and feedstock.  The high cost of corn then shows up in the price per pound of poultry and beef.   Combine feed costs with the high cost of transporting the product to processing facilities, distribution and to consumer markets and you get a double whammy. 

"I know that when the cost of six chicken breasts at my corner Publix store costs $18.00, it is time to stop the madness."

In the international food market, Brazil's advantage in cheap bio fuel production, combined with government subsidy of their domestic poultry industry, makes international trading in US poultry products very tough.  Brazil is a major competitor in international protein markets.

The thing is,  we are finding that using corn to make ethanol isn't a very efficient process.   Ethanol from corn only produces 25% more energy than it costs to produce it.  Other materials ranging from algae to other grasses and plants yield much better production conversion numbers.  The issue then becomes whether we can grow a practical amount of raw bio material to develop economic quantities of ethanol.

There are other ways to make bio-fuels.  Time Magazine this week has a great article on use of switchgrass as a cellulosic ethanol feedstock.   It will take time to develop, but switchgrass is a non food plant that has much higher biofuel energy development to fuel conversion rates.   Venture capitalists like Vinod Khosla are investing in the technology to convert plants to ethanol.

Companies like Tyson Foods are already experimenting with fuels rendered from animal fats to transport their poultry products.  That's a great step.   Just think if the fast food restaurants in this country converted animal waste fat?   

Other fuel possibilities come from use of Dymethyl Ether.  DME is a coal derived gas that can be converted to a clean safe burning liquid similar to Liquid Propane Gas (LPG). DME can be used to create fuel or used to create materials like plastic.  China and Japan have invested heavily in the gasification of cheap Chinese coal to create DME. 

US automakers understand DME technology.  Ford Motor Company and the University of Michigan successfully developed engines that ran on DME some years ago.   DME production is not a technology leap.  Production methods have been well known and used to produce electricity since the 1980's.   Further, DME when burned produces almost no pollution.   I covered DME in detail in a previous freightdawg.com article.

The US needs a unified multi-faceted energy strategy.  With the economy headed into probable recession, the cost of fuel is showing up both at the gas pump and on our dinner tables.  The only strategy I see right now is Berkshire Hathaway buying up railroads and tank cars needed to haul corn ethanol to market!

Eric

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