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

Port of Lazaro Cardenas, a Southern Alternative

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Alternative ports both north and south of the US borders have taken on increasingly important roles as carriers add these ports to vessel strings in the transpac trade.   This article was published back in December 2007 but is more relevant now more than ever.

The other day I wrote about the Port of Prince Rupert, BC in western Canada.  Prince Rupert Island is positioned ideally as a natural northern alternative to congested US west coast ports. The combination of Prince Ruperts location plus speedy Canadian National Railroad connections across the top of North America can get shipments from Asia to the US heartland in record times.   That article also mentioned the development of port facilities in Mexico as possible alternatives.   The Port of Lazaro Cardenas, located on Mexico's west coast in the state of Michoacán is one worth considering.

The port of Lazaro Cardenas as well as the port of Manzanillo are both on Mexico's west coast.   Lazaro Cardenas is smaller, but has a key asset in that the on dock rail facilities are provided by Kansas City Southern de Mexico S.A. de C.V..    KCSM is a subsidiary of American railroad, Kansas City Southern.    That linkage gives Lazaro Cardenas on-dock intermodal links directly into the southern US as well as the shortest route to Mexico City.

Kansas City Southern purchased controlling interest in Transportacion Ferroviaria Mexicana (TFM) in April of 2005, enabling TFM, KCS and The Texas Mexican Railway Company to operate under common leadership, creating a single, 1300 mile rail system connecting the Midwestern United States, central Mexico and Mexico’s Pacific seaports.  KCS also makes connections to other US Railroads. One example would be delivery on the 7th morning into Atlanta from Lazaro Cardenas via a connection with Norfolk Southern.

The LCT Terminal was developed and managed by major international terminal operator, Hutchison Port Holdings.  That means the port is managed by experienced, professional terminal operations managers, and has the latest in terminal facilities.   LCT also offers a dedicated customs inspection area for railroad, truck and reefer cargo. 

Lazaro Cardenas is expected to handle over 2 million TEU's a year with future expansions.  LCT's deep water harbor features a natural 59 foot draft, capable of handling the most modern transpacific containerships.

Lazaro Cardenas Terminal is equipped with the latest in security technology, using pre-screening methods and advanced manifesting to alert both US and Mexican customs on the details of imported goods transiting the port.  New rules by Mexican customs authorities allow US importers to post a single $55,000 continuous bond for goods transiting Lazaro Cardenas for the US.  This move alone allows for significant savings over importation through LA or Long Beach.    Shippers also do not have to pay US harbor maintenance taxes for movement via Mexican ports.

Currently there are five shipping lines calling at the port of Lazaro Cardenas.  Maersk Line, NYK Line, COSCO, Evergreen and APL, with more to follow.   

Carrier strategies in vessel rotations can include LCT as a port call on a West Coast US String, as a port call on a West Coast South American rotation, as a first port of call prior to Panama Canal transit to the US East Coast, or as a connection to feeders for movement throughout Latin America.

With economies becoming global and international supply chain growth, use of alternative ports will become both economically and environmentally critical to the efficient movement of goods.   US West Coast ports will continue to grow, but alternatives provide not only a needed check valve to expansion pressures, but new jobs where there were few before. Those jobs will be true, new jobs, not ones taken from other markets.

Eric

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Air Transport: Hard Times Now? Just wait until the Fall.

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Now that fall is upon us, the airlines are cutting back capacity.  While fuel is cheaper than expected, capacity is still being restricted.  I published this article back in June, 2008.  The impact shown here will now hit us in unexpected ways. 

One of which is pressure on airline upgrades for frequent flyers.   With fewer flights, there will be more platinum elite business customers competing for the available first class seats.  I saw that one personally last week on a flight to Newark.  Over 100 platinum customers on the same plane as me.  Despite my Y class ticket and status, I was number 24 for an upgrade!

Anybody who follows the airline business in the US reads daily about job cuts, capacity cuts and grounded aircraft. Anybody actually flying feels it in delayed flights, reduced amenities and increased fares. Face it, its not a fun time to be in the airline business. It has to be absolutely horrible for airline employees and their families.

Here's a snapshot of some of the major North American airlines and the impact that the weak dollar and higher fuel are having. Frankly it is a fiasco. Once the peak season this summer is over, the following cuts in people, planes and capacity have been announced.  No doubt more will be coming.  

The interesting thing is Southwest. Southwest will be growing their business by 4% as they take advantage of abandoned markets. Southwest has always been very aggressive on fuel hedging and is benefiting from that practice yet again. All carriers hedge fuel to some degree, but buying fuel on forward contracts takes cash.  With so many major carriers fighting just to make payroll every week, the liquidity isn't what it used to be. JetBlue and Airtran stand to also benefit though those carriers have made steps to delay delivery of new aircraft to help manage the stress.

Some of the ways the airlines are attempting to cope with the crisis are

• Increased fares! 
• Increases in peak season fares and surcharges. 
• Increased fees for baggage 
• Eliminating older aircraft 
• Increased use of Regional Jets 
• Postponed or canceled receipt of new aircraft orders 
• Eliminating unprofitable domestic routes 
• Eliminating less profitable international routes 
• Employee layoffs 
• Urgent work to convert to biofuels when possible 
• Fewer and fewer on board amenities 
• Increased service to higher margin international routes 
• Reduced number and hours of operation of Airline Clubs

Its not just the carriers here in the US that are struggling.  Qantas is having major problems in Australia and the Pacific as well. They've eliminated a number of routes between Asia and Australia as they refocus their aircraft on more profitable markets.

The Cargo Airlines aren't flying above the clouds either.

CargoItalia has returned it's aircraft to the leasing company. They may not return. Other carriers like Polar, Air Canada Cargo and Cargolux have reduced their capacity to Europe.  Singapore Airlines, EVA, Northwest Cargo and Air China have all cut capacity on the Asia to US tradelane.  Even on trades with high demand like the Latin American trades, carriers like Arrow and Centurion have been reduced to flying only on the weekends.

Air Freight Forwarders are receiving letters almost daily on new peak season surcharges and increases in fuel surcharges from the air carriers. These get passed along to the customer who in turn either has to adjust his sales price on his goods or seek alternative modes of transport. Any wonder why the ocean carriers are completely FULL?

For folks like me, there is opportunity and pain in this mix. The pain comes from my weekly air travel. I hate getting beat up every week just like the next guy.The benefit however is that shippers are more willing than ever to consider new supply chain ideas. Creativity and opportunities to shift the status quo are always fun. Lately that has taken the form of modal shifts to ocean freight and expedited LCL, strategic placement and allocation of inventory. Considerable focus takes place on green use of trucks/trains and planes as well as how to balance speed, shipment size and transit times across multiple supply chains within a conglomerate environment.

How are you managing both the stresses of fuel prices and the weak dollar in your business?

Eric

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Gone Fishin: Fall 2008

I take two trips a year that I look forward to more than anything else I do.  I go fishing with my 21 year old son Clint and a handful of other relatives or close friends twice a year.  We go to a very special place in the panhandle of north Florida called St. Marks. 

We've been both fresh and light saltwater fishing in this area for 50 years or more as a family.  It's the only time during the year that I "throw the cell phone in the river" and really appreciate the down time.  I consider it the most important mental health break I take.

I'll be back on Thursday the 30th. In the meantime, I'll be sharing again some "best of freightdawg.com" articles for you to enjoy. Some are more relevant now than when they were originally posted.

Eric

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BNSF Runs the Ethanol Express

Burlington Northern Santa Fe Railroad moves a lot of ethanol. With major track ownership in the US midwest, BNSF is a prime mover of corn and corn related products. Unit trains of ethanol move to market regularly with BNSF operating a key unit train to Dallas called the Ethanol Express.

Warren Buffet has invested a lot of money in BNSF as well as other railroad assets such as Union Tank Car. (UTLX).

BNSF Expands Ethanol Express to Dallas/Fort Worth FORT WORTH, Texas and OKLAHOMA CITY, Okla., Oct. 9, 2008: BNSF Railway Co. today announced that it will begin delivering unit trains to Musket Corporation's newest ethanol storage terminal on Nov. 1. With storage capacity of 10 million gallons, the Dallas/Fort Worth Musket Ethanol Terminal is one of the area's largest ethanol storage facilities and is designed to meet the daily needs of the Dallas/Fort Worth Metroplex. Located in the Mark IV industrial area in North Fort Worth, the facility maintains its own rail spur and is designed to completely unload a unit train of 95 cars every 24 hours. Tank cars are drained via an underground piping system and ethanol is pumped directly into the four storage tanks. The ethanol can then be pumped directly into trucks for local distribution. The new facility will receive shipments exclusively from BNSF Railway's Ethanol Express a 95-car unit train service specifically created to move ethanol from a single origin or gathering place to a single destination. The Ethanol Express will save ethanol producers and end-users time and money through increased fleet utilization, lower inventory carrying costs, and logistics coordination and support each and every day around the clock. BNSF moves more than 370 million gallons of ethanol per year through the Ethanol Express program.

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Economic Downturn Spells reduction in Container Capacity

Everybody expected that the airlines would reduce capacity this fall.  They have been saying this for months. Shippers planned for it.  I'm less sure however of how many US importers expected a reduction in container ship capacity.  The US and global economic downturn definitely has taken a toll on ocean carriers. They've just been a bit less visible in terms of planning for the crisis at hand.  

APL has now announced a reduction in capacity in its east-west trades between Asia, the US and Europe.   This is not surprising given the reduced demand created by the weakening in consumer confidence as well as fuel volatility particularly in the North American market place.  It also does not surprise me since APL CEO Ron Widdows is an operations guy.   He thinks in terms of ships and capacity.

What APL doesn't say is what they will do with their ships.  Containership capacity doesn't just "go away".  It gets laid up.  APL has made a calculated decision that ship capacity is cheaper being parked than moving freight.  Don't expect APL to be the first to make this decision either.  Consortium partners will naturally have to consider the impact, not only of APL's decision, but whether they themselves should also consider parking some tonnage to wait out the storm.   

Maersk, Evergreen and major Japanese carriers no doubt will be considering this as well even within their own homogenous, but huge fleets of container vessels.  The goal is matching market capacity against shippers ability to pay the highest rate that can be negotiated.  If ships are not available, rates go UP. Carriers are betting on this with fleet reductions. Much of it however is a reflection of re-balancing of trade. Ships follow the business. Current economic pressures will squeeze new origins and port pairs. APL is being very smart in waiting to see how this all balances out.

APL slashes capacity on major trade lanes Updated October 21, 2008 9:14:52 AM Peter T. Leach / The JOURNAL of COMMERCE ONLINE Today APL announced it is slashing vessel capacity on the major east-west shipping lanes and restructuring its network in response to what it called "increasingly challenging conditions in the major container trades". The subsidiary of Singapore-based Neptune Orient Lines, and the eighth-largest global liner company, said the capacity reductions would amount to 25 percent on the Asia-Europe trade and 20 percent on the trans-Pacific. "The traditional seasonal softening of demand in the main container trades has been compounded by the global financial crisis and economic slowdown," said APL President Eng Aik Meng. On the trans-Pacific trade between Asia and North America, APL already has suspended the PS3 (Pacific South Express 3) service. To cover the loss, it has upsized the PCX (Pacific China Express) service and revised its port rotation as follows: Ningbo, Yangshan, Kwanyang, Pusan, Long Beach, Oakland, Pusan, Kwanyang, Ningbo. The liner operator also has suspended the PSW (Pacific South West) service. In light of this change, the SAX (South Asia Express) service now makes additional calls at Yantian and Chiwan. The revised SAX rotation is: Singapore, Yantian, Chiwan, Singapore, Kaohsiung, Chiwan, and Singapore. The PCE (Pacific Coast Express) is omitting calls at Xingang and Nagoya, but includes an additional Pusan call in the eastbound direction. Revised coverage is Qingdao, Pusan, Yokohama, Singapore, Oakland, Dutch Harbor, Yokohama, Pusan, and Qingdao.

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Supply Chain Strategy: Developed by Market.

Cranfield University in the UK is a leading supply chain educational institution. Richard Wilding, PhD is an expert on supply chain strategy by market. He is a professor of Supply Chain Risk Management at Cranfield. Dr. Wilding is a well respected expert in Europe on Supply Chain Strategy.

Corporate marketing teams make the case relative to product value in individual markets. Logistics teams however are the ones who fulfill the delivery of the promise made by marketing.

Eric

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A Full Moon and a String of Pearls

I hate to admit it, but I really do love business travel. I enjoy the fact that after 25 years of running around America and beyond, that there are cities outside my own where I am very comfortable navigating and getting around.  I love people and different environments. 

This week I visited northern Mexico to customer sites in Mexicali and elsewhere. That meant a four hour flight from Atlanta to San Diego then a 120 mile run out into the Imperial Valley desert of California.  I made the customer visit, then drove back to San Diego. Mexico is pretty easy to get into, but I didn't love the 90 minute wait to get back through US Customs and Border Protection.

I love the desert and the amazing mountainous rock formations that you have to go through on I-8 headed east through the desert toward El Centro. It's just different from what I am used to. It is  refreshing to me to get out of the office out where the business really lives.

This morning, after some other meetings, I drove from San Diego to LA. That is normally a gorgeous drive. Its not only the scenery, it's the adventure.  

This is wild fire season in Southern California.  I found that out today.   The trip from San Diego to LA is a beautiful run up the I-5 to the 405 of about 110 miles. Today, with the fire season in full swing, I spent 2 hours in Oceanside, California at a dead stop.   By the time I got past Camp Pendleton, I saw that they had the traffic stopped for a grass fire.  I'd never seen that before, but can appreciate the risk that these fires bring to peoples homes in southern California.

All that was cool, but here's what I loved.

We get a pretty good rate at one of the hotels near LAX. This particular hotel is on Century Boulevard. It is near LAX and our office.  That puts the hotel right on the flight path for the several parrallel runways of LAX.  

Being in the air freight business and a major transportation geek, I loved the fact that on one side of my hotel room, I had a ninth floor view of the LAX runways.   On the other side, I had a view of the inbound aircraft landing at LAX.  

LAX gets a wide variety of aircraft as well as international airlines.   I watched everything from A330's from Air Tahiti Nui to numerous 747's take off and land.   European flights take off in the early evening just as the FedEx heavies are landing.  Meanwhile Singapore Airlines and other freighters for Asia take off even later.  Moving heavy iron is a magical thing to me. Ships, heavy aircraft, rail engines and trucks are all just a big toy set to me.

As evening comes, inbound aircraft turn on landing lights.  The lights illuminate the separation of inbound aircraft.  Air Traffic Controllers call that line of inbound planes flying the ILS a "String of Pearls".  That's what it looks like too.  A beautiful line of lights perfectly formed up over a 12 mile approach.   

Tonight, rising to the east of Los Angeles was a full moon. That moon, turned orange by the smog of the city, made a perfect backdrop to the orchestration of commercial aviation.  I sat in the room tonight and just enjoyed the beauty of the business I am in.

Call me a geek, but I love the transportation business.  I used to get the same buzz watching 1000 foot container ships maneuver in Oakland or San Pedro.

Eric

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CSX Trip: Windy City Follow Up!

On October 7th, I and a number of other bloggers had a unique chance to visit with CSX Railroad management in Chicago. CSX invited a number of social media folks to come to Chicago to see their newest genset locomotive technology, as well as to provide access to CSX's communications and operations staffs.   About 15 people from sites such as Ars Technica, mattgoesgreen.com, ecollo.com, travel, trains and other things and others visited the CSXT intermodal railyard and got schooled on both Chicago local operations and how railroads work. I was the only logistics geek there, but that's good for freightdawg.com!

CSX is spending considerable money on establishing their brand and their mode of transportation as an efficient and eco-friendly way to transport goods.   That's not a touchy-feely thing as much as a solid approach to new media as part of a multi-media advertising campaign.  CSX advertisements directly claim that rail transportation is an efficient and environmentally friendly way to move goods.

By inviting professional and industry related bloggers to come see for themselves, CSX is underscoring their branding while providing legitimacy to their environmental investments.    Bloggers are usually good at unvarnished opinion. CSX has provided key bloggers with direct access to their communications teams for information when needed, as well as taking influential bloggers on site to see how the business operates.   This a very sophisticated approach for an old school transport mode and shows tremendous understanding of how Internet social media works.

Check out this link to mattgoesgreen.com and the pics and video Matt Trachtenberg took.    Personally, I got to meet some new and very smart people who are covering the Green side of business today. A very nice way to spend 2 days of vacation time!

Eric

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Green Communication: CSX Gets it.

I'm amazed. A Class 1 freight railroad is actively advertising in the United States on radio, the internet and in print media. When I first saw this it drew my immediate curiosity. My initial thought was "Who will read this stuff then act on it in a way that generates revenue for the railroad?"

How many housewives buy rail traffic?  Who is the target audience? Whatever the reason, I paid attention because something unusual was happening in the executive suite of an old school transportation business. I just didn't know what it was.

Then I got an email. 

CSX was inviting ME to come to Chicago to attend a conference as well as to see their latest ecological and energy efficient equipment and operations.

The conference is the EPA Climate Leaders Conference in Chicago next week. CSX Railroad is investing heavily in communicating it's biggest value proposition. Railroads are both clean technology and the most efficient way to move product to market.

Railroads compete mainly against trucks. The bigger the load and the longer the haul, the more railroads present value to shippers. CSX has produced an on-line carbon calculator to allow shippers to compare distance and load vs. mode of transportation to determine transport efficiency.

CSX gets both its value proposition to freight shippers, but also to environmental groups.   I got invited to join a group of bloggers from a broad spectrum of interests.  These include transportation, technology, the environment and current events/news. Blogger attendees will tour the Chicago rail yard, see CSX's latest GenSet Locomotive, and attend a dinner meeting with senior CSX executives.  Other on-line attendees include Ars Technica, Trains For America and Green Living.

CSX's communications and marketing teams are carving a new branding niche.  Not only are they investing in traditional media to send their message, they are investing in both traditional and new on-line media. Lets face it, anybody with an audience can influence stock prices. Bloggers have a role in this.

CSX has really gone cutting edge in addressing this market by educating bloggers on what they are doing.  If bloggers from a wide range of interests consider railroads an efficient transport medium, then the public perception of railroads will change.  BNSF, NS and others owe CSX a debt here I think!

For an old school transportation medium, I congratulate CSX on how well it understands the branding opportunity that the net and industry bloggers offer. I've spent 25 years in the transportation business working with heavy iron in modes ranging from containerships to B747's.

I'm looking forward to some steel wheel love.

Eric

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Capgemini view on Supply Chain in 2016

Sometimes I like to let the consultants just go... for entertainment purposes. What fascinates me are the pragmatic interests of the "supply chain professionals" interviewed here vs the virtual demands expressed by Dr. Patrick Dixon a little further down the blog page. 

What I hear is a desire to satisfy the customer very quickly vs. a customer demand to be satisfied instantly.

Everybody wants to serve the end buyer as conveniently as possible. Interestingly, there are many different ideas on how this should be done.

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