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

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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Old School Air Cargo

Once upon a time, back in the 1960's, my grandmother, my granddad and my father all worked for Lockheed Georgia Company in Marietta, Georgia.  In those days the premier products coming out of Lockheed Georgia were the C-130 and the C-141.  By 1970 that also included the mammoth C-5A.

The Vietnam War was raging and Lockheed couldn't produce enough airplanes.  The parking lot at what had been the "Bell Bomber Plant" in the 40's, and became "Air Force Plant No.6", was full. 

My father worked in international aircraft sales.  Amongst the derivative products of the C-130 was the L-100.  The L-100 was a civilian version of the venerable and well proven C-130 Hercules.  I loved it as a kid.  Simple reason.  Dad had a desk model of the L-100 in Delta colors.  Any airplane I could play with had to be cool.

Delta and Alaska Airlines operated the L-100 along with Southern Air, which had its connections to the CIA.  I wish I still had that desk model...

At the time the L-100 was introduced with Delta, the main customers were "Aerospace customers". Guess what?   The main customers that would have fit Delta's route structure then would have been Lockheed California Company and Lockheed Georgia. The CEO of both Lockheed companies was Dan Houghton.  My Grandmother happened to be his executive secretary.  (she was a bar certified lawyer to boot.)

What is ironic is that Delta abandoned specialized air cargo aircraft when they developed belly capacity in then new, wide body aircraft like the 747, L1011 and DC-10.  Delta abandoned the 747 in  1976 because it didn't fit their network.  The L-1011 was a workhorse and handled the majority of domestic air cargo.

Today, airlines are using regional jets and smaller commercial jets to service longer distances.  This has killed the domestic air cargo market because there is no excess belly space for freight.  Perhaps an aircraft like the L-100 would have found a niche today?

As for "Air Force Plant No. 6"... Lockheed produces a new product called the F-22.  Along side the C-130J!

clipped from blog.delta.com Forty-two years ago this month, on September 15, 1966, Delta launched the world’s first scheduled service of the all-cargo, turbo-prop Lockheed L-100 Hercules.  It was the commercial version of the military C-130 Hercules, famous its ability to land on unimproved short strips, yet carry bulky loads and vehicles. This photo of the rear of the boxy L-100 fuselage shows the loading system.  Cargo pallet transporters, pulled in a train by a tug, were wisked from the Delta freight facility to the Hercules.  The palletized freight was then moved over the roller bed surfaces of the transporters and the floor of the plane.  Here, you see a T-shape option for complex loading/unloading where the pallets are moving from side position onto the main line of loading.  According to Delta press releases from 1966, three men could unload and load a full Hercules–45,000 pounds–in less than 30 minutes. The Hercules was suited to Delta’s relatively short haul, small shipment operation in the 1960s.  With this plane, we offered the first single-carrier cargo service between California and the Southeast, filling a big gap between the aerospace industries in those regions. When our first widebody passenger jets–the Boeing 747 and Douglas DC-10–arrived with their speed and large underfloor “belly bin” capacity, we did not need a fleet of specialized cargo aircraft any longer.  Delta’s last L-100 flight operated thirty-five years ago this month, on September 1, 1973.

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AeroLogic signs with Boeing for after market services

AeroLogic is a joint venture company between DHL and Lufthansa Using a fleet of Boeing 777-200F freighters, they will jointly serve markets in Europe, North America, Asia and other destinations as needed starting in 2009.

AeroLogic is based in Leipzig Germany, which is a joint freighter hub for both carriers. Their fleet will eventually consist of 11 x 777-200F freighters.

Boeing will provide after market support.

clipped from www.marketwatch.com Boeing and AeroLogic Partner to Streamline Carrier's Maintenance Operations MADRID, Spain, Sept 25, 2008 - Boeing announced today at MRO Europe that AeroLogic has adopted the airplane manufacturer's Web-based solutions, Maintenance Performance Toolbox and Airplane Health Management, as foundations for the carrier's 777 Freighter maintenance documentation platform when deliveries begin in 2009. Maintenance Performance Toolbox, including the Library and Authoring modules, will help AeroLogic, based in Leipzig/Halle, Germany, streamline an array of maintenance activities, including managing technical publications and training and customizing online maintenance manuals. A total of 14 European carriers now use this innovative maintenance tool. AeroLogic will use Boeing's Airplane Health Management to monitor its 777 Freighters, giving the airline a real-time fault management tool to identify maintenance needs and communicate with ground teams to enable proactive, planned and timely maintenance operations and address potential issues. AeroLogic GmbH is jointly owned by DHL Express and Lufthansa Cargo AG, with each company holding a 50 percent stake. The airline, which was founded in September 2007, developed from the joint venture set up by the two partners in 2004. AeroLogic's cargo capacities will be used primarily by DHL Express and Lufthansa Cargo. The two partners also will be responsible for sales and warehouse handling.

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DAL/NWA Merger Takes Next Step

Back in April of this year Delta and Northwest Airlines announced their intent to merge their two airlines into a single entity still called Delta.

Today, the FAA approved a transitional plan to merge the air operations of the two airlines into a single network. Ultimately that will result in a single operating certificate. The process should take about 18 months.

Delta is holding its annual shareholders meeting in New York this week.  Delta Shareholders are expected to approve issuance of new shares to buy Northwest.  Northwest Shareholders will be asked to approve the acquisition.  DAL hopes this whole thing is done and dusted by the end of the year.

As a long time Delta passenger, native Atlantan, former DAL summer employee, and general fan of the airline, I'm not so sure this whole thing works to my benefit as a passenger.  However, as a freight carrier, Delta will clearly benefit from Northwests experience in cargo operations and extensive Asian routes. (at least the ones they haven't killed off yet.) Professionally I like that.

We will see. 

clipped from minnesota.publicradio.org FAA approves transition plan for Delta, NWA merger September 22, 2008 Atlanta — (AP) - The Federal Aviation Administration has approved a transition plan designed to combine the operations of Delta Air Lines and Eagan-based Northwest Airlines, and to achieve a single operating certificate after they merge. Airlines are required to have an operating certificate, which means they must prove to the FAA that they have the financing and management expertise to run an airline. Delta and Northwest each have their own operating certificate right now. The plan they submitted to the FAA outlines the methodology, processes, tools and timing they will employ to maintain the safety of their day-to-day operations during the transition period. The FAA's seal of approval for that plan means the two airlines can move forward with the transition process. Their goal is to achieve a single operating certificate over the next 15 to 18 months.

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Airline Fuel Hedging is Risky Business

Airlines buy fuel hedges in an effort to balance current cost of fuel against what they think the price of fuel will be in the future. That's an excellent strategy when the price of fuel goes up.  Southwest Airlines and Alaska Airlines are both famous for doing this very well.  In a number of fiscal quarters SWA has claimed that the only reason they made money was that they had a competitive advantage in the price of fuel because they hedged well.

Typically airlines hedge by buying forward contracts on kerosene, or home heating oil because Jet fuel isn't actually a traded commodity.  Kerosene however moves at about the same price levels as Jet Fuel.

Now, while aviation fuel remains high, the price for crude oil is falling.  United, Northwest and Delta are feeling the pinch and stand to lose money on their hedges.   Hurricane Ike took a number of refineries off line so supply is keeping the price of Jet A high even while the kerosene or heating oil the airlines used for hedges falls. 

clipped from seattletimes.nwsource.com By JOSHUA FREED The Associated Press MINNEAPOLIS — Airline bets that oil prices would rise looked like a no-brainer this summer. But with oil prices falling, those hedges against rising fuel costs are getting expensive. United Airlines said today it is on track to lose $544 million on fuel hedges this quarter. That included $72 million in realized losses and another $472 million in unrealized losses. Those positions forced United to put $400 million into restricted cash for the parties on the other side of its oil price bets. Other airlines have not disclosed their hedging losses or gains for the third quarter, but it is likely that United was not alone in underestimating oil's dramatic fall. Oil settled at $97.16 a barrel on the New York Mercantile Exchange today, down from a July peak of $147. Northwest Airlines said in July that its hedges require it to pay if crude falls below $108. Its hedge for 10 percent of its fuel for next year requires it to pay if crude falls below $112. Of course, rallying oil prices could make those hedges look smart again. And — importantly — even if United loses money on fuel hedges, it will save money because the fuel itself is cheaper. JPMorgan analyst Jamie Baker wrote in a note that oil's fall over the space of just one week will save airlines $3 billion. Fuel has become the biggest expense at the big airlines. United's 2007 fuel bill was $5 billion, which was reduced slightly by an $83 million hedging gain. "Yes, hedgers are under water on their hedges, but they are seeing some relief on the cash market side. That's how it should work," said Jonathan Leak, a senior vice president for risk management at World Fuel Services, which puts together fuel-hedging programs for airlines. However, fuel prices have not fallen as much as crude in the short run because refiners are at capacity. Hurricane Ike made that worse because 12 of the 14 jet fuel refineries in its path are still shut down because the power is out, Leak said. Those 14 refineries make 19 percent of the nation's jet fuel.

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Port of Houston survives Ike.

The good news is that the Port of Houston sustained minimal damage from Hurricane Ike, which did considerable damage to the city of Houston and surrounding areas. The impact seems contained to the port area and major assets like port cranes survived without significant damage.

Port operations will resume with permission of the Port Captain once an inspection is complete.

clipped from www.logisticsmgmt.com Ocean cargo: Port of Houston well on way to recovery Patrick Burnson -- Logistics Management, 9/15/2008 12:50:00 PM HOUSTON— The Port of Houston Authority (PHA) is in “an asset assessment and operation recovery mode” in the wake of Hurricane Ike said port spokesmen. “The welfare of PHA’s employees, customers and neighbors is our first concern,” said Argentina James, the port’s director of public affairs. Based on preliminary assessments, the PHA facilities have limited negative impact from the hurricane, he added. “As is most of the Houston Area, we are without electricity and we are operating with limited temporary power from generators,” stated spokesmen. In a voicemail message, press officers noted that phone service was still unreliable to the region, advising shippers to contact PHA via email. Meanwhile, containerized shipping movements in and out of the vital Gulf gateway are expected to resume on a case-by-case basis. “We rely on the captain of the port to make that determination,” said spokesmen. “At this time, that determination has not been made. We will continue to coordinate communication and assessment efforts with the local and regional port coordination team.” Initial assessments of the PHA terminals revealed minimal wind damage that knocked down a few fences, containers and electrical lines, said officials, who added facilities and its assets are in “good shape” considering the magnitude and strength of the hurricane.

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Ike Spikes Class 1 Railroads

Hurricane Ike, which ripped the Texas coast over the weekend blew inland and has caused numerous problems with Class 1 rail lines running throughout Texas, Oklahoma and Louisiana.

BNSF, KCS, NS and UP all had rail lines impacted by flooding and wind blown debris. Intermodal traffic headed eastbound is likely to be delayed as much as 48 hours.

clipped from www.progressiverailroading.com Ike wreaks havoc with four Class Is' operations Like Hurricane Gustav two weeks before it, Hurricane Ike left an imprint on rail infrastructure along the U.S. Gulf Coast. After hammering large portions of Texas and some parts of Louisiana over the weekend, the storm prompted Kansas City Southern to close segments of its mainline between Dallas, and Vicksburg, Miss., because of floodwaters, damage and debris. Prior to the hurricane, KCS embargoed traffic for Beaumont and Port Arthur, Texas, including interchanges with Union Pacific Railroad and BNSF Railway Co. in Beaumont, and UP in Port Arthur. KCS also issued traffic embargoes in other parts of Texas. UP also shut down portions of a line between Dallas and Shreveport, La., because of signal outages and numerous fallen trees lying across tracks. The Class has suspended all operations into and out of Houston, which was pummeled by the storm. Because of KCS' and UP's line closures, Norfolk Southern Railway issued an alert to intermodal customers to expect transit delays from 24 to 48 hours on traffic moving between Atlanta, Shreveport, Dallas and Los Angeles.

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South American Air Cargo Challenges

I was in Mexico a couple of weeks ago pursuing business opportunities in Mexico as well as the rest of Latin America.  The Mexican link is important because of all the commerce done in Latin America, Mexico accounts for approximately 50%.

The potential for the rest of Latin America however is huge and growing.  Air Cargo World has a great article clipped below which high lights the markets opportunities and challenges.   LAN Chile has invested the most in terms of cargo capacity, but still suffers from an imbalance between north and south cargo mixes. Computers, auto parts, industrial equipment and consumer goods all head south, with produce and floral goods headed northbound.

LAN is expecting delivery of some of the first Boeing 777-200F freighters.  These present an opportunity to link South America directly with Asia based on long range freight movements.   Lufthansa also has designs for the Latin market based on their joint venture with DHL called Aerologic. 

The biggest opportunities coming appear to be in supply chain, where only Chile measures on a modern scale.  Other Latin countries lack both infrastructure and market sophistication to execute supply chains at a faster pace.

clipped from www.aircargoworld.com Southern Cargo Exposures South America remains largely untapped in terms of air cargo potential, but there are developments worth noting Michael Mackey Air cargo is developing in South America - albeit unevenly - despite myriad problems it faces. Chile's LAN Cargo occupies the pole position at the moment where its' emphasis is on further growth, having just announced the creation of a new cargo affiliate airline in Colombia. The carrier has nine 767-300 freighters and two wet-leased 747-200 freighters. These aircraft carry around two-thirds of the carrier's total cargo with another third being moved as belly cargo within the passenger fleet. What they're carrying is an interesting mix. Inbound, the big item is spare parts, mostly automotive as well as laptops, printers, mobile phone and mining equipment. Outbound, it carries perishables: fruit, flowers; salmon and spare parts from Brazil; leather out of Argentina; and horse meat bound for France. This imbalance, while it concerns LAN, does not deter the carrier. LAN draws a historical parallel to show how the airline is progressing. "What we want to do is link (South America) with the world. Five years ago it was with North America," said Tomas Silva, Lan Cargo´s vice president for global accounts and alliances. Nor is this wishful thinking as the carrier will have the necessary lift, starting with two 777 freighters in January and March 2009. A third aircraft will follow in 2011, a fourth in 2012. Proud though they are of these developments, LAN is less effusive on which routes they will fly, although the general feeling is it will be Miami as well as São Paolo, Buenos Aries and Santiago. Silva said most flights would probably touch three cities.

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