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

Busy Week

This has been an interesting first two days of the week.  On Monday, June 21st,  I attended the graduation of a cousin of mine from the United States Merchant Marine Academy at Kings Point, NY.

Kings Point cranks out experienced young people with more sea time than any other Maritime academy including Annapolis.   It was my first time to KP.  What an impressive place.  With a motto of "Acta non Verba" (Action, Not Words),  The USMMA trains young people who are ready for the operational end of our industry.  

The graduating class of 2009 was composed of only about 150 graduates.  However among them were an impressive number of young women. In fact the valedictorian of the class as well as the class president were both female, one of which was matriculating with a degree in intermodal logistics.   It's not unusual to find that the senior management of shipping companies, terminal operators and related firms all have Kings Point grads at or near the top.

My cousin will go directly to a destroyer based in Yokosuka, Japan for active duty with the Navy.   Given the crazies in North Korea, I worry our young man will be in Harms Way, sooner rather than later.

Kings Point is a small school, but they usually draw important visitors.   The kids graduating Monday received commissions from the Army, Navy, Marines, Air Force and Coast Guard.  In almost every case, there was a flag or general officer present to commission the new ensigns and lieutenants.    The graduation keynote speaker was US Secretary of Transportation Ray LaHood.   LaHood is a career politician and Obama appointee new to his job.  As a result his comments were brief.   However, he did report that the 2010 federal budget would contain approximately 12 million dollars for KP to maintain and renovate facilities.   With that being the extent of his salient comments, I'm not sure what that means for our transportation department!

Flying back to Atlanta from New York wasn't without tribulation.   Having spent 20 minutes in a holding pattern over Greenville SC,  the rocket scientists at Air Traffic Control diverted our Delta MD-88 to Birmingham for fuel.   We sat there for an hour, before being vectored back to the ATL.   Total flight time from NY to ATL: 8 Hours.  That one made me wish our Secretary of Transportation could be aboard.  No such luck.  Guys at his level fly in private jets!

Eyefortransport 3PL Summit, Atlanta Georgia

On Tuesday,  I attended the Eyefortransport 3PL Summit here in Atlanta.  I'm on the board of the American Society of Transportation & Logistics, so I was asked if I would attend if given a free ticket.   I've attended various eyefortransport events over the years including events in Hong Kong and Amsterdam.  They are usually well attended by important folks on both the 3PL and customer sides of the fence.  Not so much this year.    Only about 145 people attended.   I suppose this is a result of the tight travel and entertainment budgets most firms have in place today.   Nobody has the extra cash to attend a business conference.    That would have been the case with me, but I live in Atlanta and the ticket was free!

On the whole the conference was valuable, with keynote speakers from Maersk Logistics (soon to be Damco), MeadWestVaco and other firms, subjects like compliance and risk management were discussed and presented.  These conferences are about people however.  It takes a quorum of industry professionals sharing their knowledge that keeps these things interesting and valuable.   In this regard I think EFT missed the mark this year.   For the most part I think that's not their fault.   In case you haven't noticed...the economy sucks.

In Obamaland All You Need Is The Willing Suspension Of Disbelief

Some people are just pathologically honest.  Check out the blog article written by my friend Mike Regan of Tranzact Technologies.   Mike calls em like he sees em.   I typically agree with his positions.  Check out his excellent article today at Logistics Managements web site.  Mike is a Chicagoan and highly familiar with the ways of our President.  Given that our SecTrans is also a Illinois career politician, some comments apply to Ray LaHood as well.

Eric

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Pirates: Here's an idea- lets let them experience a live fire exercise.

Surfing around today, I read a great article in the Canberra (Australia) Times about the major difficulties Somali pirates are presenting to commercial shipping transiting the Red Sea and Indian Ocean.  These ships are coming under increasing harassment from fast boats equipped with rocket propelled grenades and heavy weapons.  The pirates use speed boats and heavy weapons to approach commercial ships then board them, demanding ransom.   

Navies ranging from the US and British to the Chinese have put warships in the area to help protect merchant ships, but given the long coast line of Somalia and the large area of ocean involved, direct protection seems difficult.

Current international law prevents merchant vessels from defending themselves with deadly arms.   The pirates however have no problem going to sea with AK-47's and RPG's.  The latest thought from the great minds at the UN is to use naval vessels to blockade harbors where pirates might take hostage vessels. There are not many. This is possibly a good strategy.  However, I think there is a much better one.

Let Merchant Vessels Carry Arms.

Spanish galleons in the 1500's carried gold.  They also carried cannon.  The goal was to transport goods without harassment, but if it came...you could at least defend yourself.    Pirates won many of those battles because they used fast attack ships and bloodthirsty crew whose only mission was taking the ship and its' cargo. 

Pirates today would prefer to hold a ship hostage then take ransom from a shipping company and vessel owner.  International law today prevents merchant ships from carrying arms.   I think that's  misguided.

Lets either give merchant vessels moving through known pirate areas guns and heavy weapons or provide them with national marines and troops who are expert at defending attacks.  It seems to me that the moment that merchant vessel defense becomes a naval responsibility, most of this piracy will end.   Helicopter gunships deployed from merchant vessels will be highly deterrent.

So far, the risk assessment seems to be on the pirates side.   Attack, knowing that the victims have no more than water cannon, or stand down knowing the target has devastating weapons and helicopters that are likely to kill you.

When you live in a country with no formal government nor control of the national landscape, versus taking hostage of fat, commercial pigs whose owners will pay you to release them, this seems like a simple commercial decision.

Like the 1500's...a navy of greater will and determination will need to come fix this problem.

Eric

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Remember its a "Dry Heat"

I blogged recently about APL seeking cheaper digs for its corporate headquarters but selection of Phoenix, Arizona seems ironic.

A major shipping company based in the 115 degree heat of Arizona?   It makes sense financially, but the concept of a shipping company based in the "dry heat" of Arizona just seems funny to me!  Especially APL, who historically has always been an icon of the "cool" San Francisco bay area.

I know one thing,  APL won't have a problem finding high quality IT people in the area.  Lots of talented technology people work in the Phoenix area because many companies, including DHL, have their data centers there.

APL headquarters moving to Phoenix By Cecily Burt Oakland Tribune Posted: 01/07/2009 04:39:17 PM PST OAKLAND — Neptune Orient Lines, the parent company of shipping giant APL, announced today that it will move its Americas headquarters from Oakland to the Phoenix area later this year. The company announced in November that it would relocate its Oakland headquarters as part of several cost-cutting moves to meet declining revenues and a worsening economy. APL will retain its marine terminal operation at the Port of Oakland. Oakland has hosted APL's headquarters for 35 years, and the company's roots go back to 1848. NOL purchased APL in 1997. Approximately 340 employees work in the Oakland office. Mike Zampa, communications director for North America, said NOL is in the process of deciding which positions will be moved and which employees will be offered the chance to relocate. Those announcements likely will begin later this month, Zampa said.

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Evergreen Cuts Costs in US Sales Agency Operations

Over the last 30 years, Evergreen Marine has developed a reputation as a symbol of global growth in the container shipping industry.  As an EMC competitor for many years, it always seemed that despite whatever the economic situation was, Evergreen was growing.

However, today, EMC announced reductions in staff and office consolidation in its US sales organization.  This follows announcements by other carriers, including APL and Maersk in terms of major liner operators who are reconfiguring their operations to meet a souring market demand.  If there was ever a sign that the US economy is in recession, cutbacks by Evergreen are a serious indication.

The JOC published in a related article that EMC net income dropped approximately 46 million dollars through the first nine months of 2008.

EMC as well as other carriers in the Asian markets  have seen results suffer as rates have crashed on key trade lanes.

Evergreen Shipping Agency cuts jobs in US restructuring Updated December 30, 2008 12:44:50 PM The JOURNAL of COMMERCE ONLINE Evergreen Shipping Agency (America), agents for Evergreen Marine Corp., announced today that it will consolidate some North America offices and reduce staff in the face of the downturn in the global ocean shipping business. "The worldwide economic turmoil has created a situation we have not seen in our lifetimes," the company said in a statement to its North America employees. The measures being taken will reduce costs and put the agency on a more sustainable structure moving forward, it said. Affected offices include Baltimore, Charleston, Chicago, Norfolk and Toronto. The agency will close its Salt Lake City office and move work done there to Dallas. The company said a number of new positions will open and agency employees may apply. Severance including salary and benefits will be given to employees whose positions will be eliminated. The changes will be implemented on or before March 15. The company did not say how many jobs are being eliminated. "It is disappointing and disheartening that we are faced with a decision that has also impacted virtually every other carrier in ocean shipping today," an agency spokesperson said. "We are positioning EGA to survive the catastrophic economic crisis and to succeed when we recover from these difficult times."

Eric

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Hard Times make Strange Bedfellows

Ocean carriers have been sharing capacity for years. Ocean carriers pool ships, terminals, containers and capacities in order to save on the huge cost of operating merchant container fleets. It is not as common to see whole fleet alliances, consisting of multiple carriers merge services to serve a particular trade. Such is the case below.

The Grand Alliance, consisting of Hapag-Lloyd Container Line, MISC, Nippon Yusen Kaisha (NYK), and Orient Overseas Container Line (OOCL), and New World Alliance members (TNWA) APL, Hyundai Merchant Marine and MOL, are pooling their assets to serve the Asia to West Med trade.

The carriers have had an agreement to combine services to serve specific markets since 2006. Such flexibility allows the carriers to match capacity to available cargo demand. In hard economic times such as today, that flexibility takes cost out of the service while stabilizing equitable freight rates.

The carrier alliances have cooperated before to serve markets such as the Black Sea trade from Asia. That service started in June, 2008.

Grand Alliance, NWA pool services on Asia-West Med Updated December 12, 2008 2:57:53 PM clipped from The JOURNAL of COMMERCE ONLINE Two rival ocean container consortia have pooled services between Asia and Europe in the latest capacity cuts amid declining cargo volumes and tumbling freight rates on one of the biggest liner trade routes. The four-carrier Grand Alliance and the three-member New World Alliance today announced they are joining forces in a revised Asia-West Mediterranean service, halving the number of vessels currently operating the route. The new service, due to start December. 23, will be operated by eight 6,000 TEUs vessels -- six from the Grand Alliance and two from the New World Alliance. The carriers said the new service, EUM, would offer shippers “better market coverage” by including Busan and Valencia. The service rotation is Busan, Shanghai, Ningo, Chiwan, Shekou, Hong Kong, Singapore, Port Klang, Jeddah, Damietta, Genoa, Marseilles-Fos, Barcelona, Valencia, Damietta, Singapore, Hong Kong, and Busan.

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More Ocean Freight History and Humor...

A friend and colleague of mine sent me this in response to my link to the Felixstowe Customer Service Agent joke.

Historical information you need to know about shipping Manure: In the 16th and 17th centuries, everything had to be transported by ship. It was also before commercial fertilizer's invention, so large shipments of manure were common. It was shipped dry, because in dry form it weighed a lot less than when wet, but once water (at sea) hit it, it not only became heavier, but the process of fermentation began again, of which a by-product is methane gas. As the stuff was stored below decks in bundles you can see what could (and did) happen.

Methane began to build up below decks, and the first time someone came below at night, with a lantern, BOOOOM!  Several ships were destroyed in this manner before it was determined just what was happening. After that, the bundles of manure were always stamped with the term," Ship High In Transit" which meant for the sailors to stow it high enough off the lower decks so that any water that came into the hold would not touch this volatile cargo and start the production of methane.  Thus evolved the term "S.H.I.T," which has come down through the centuries and is in use to this very day.

You probably did not know the true history of this word.

Neither did I. I always thought it was a golf term.

Eric

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Now THIS is funny.

It is rare that I find humor these days in the work that we do in container shipping.  However I found this joke on Zainfeb13.  I found this one hilarious..and pretty much true!

Eric

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Hard Times: Ocean Carriers taking steps to deal with economic downturn

Anybody who follows freightdawg.com has noticed a lack of posts for the previous two weeks. I work for DHL, so needless to say I've been "busy". Having said that, I was interested to see that one of my old employers (APL) is taking steps to meet difficult economic times head on.  

Logistics Management Magazine published a story yesterday that NOL group was taking significant steps to contain costs.  These included relocation from their US Headquarters in Oakland, Ca. to a less costly location (TBA), a major head count reduction of up to 1000 people, increased focus on productivity, and if I know anything about APL/NOL, an increased use of technology to support business activities.  All smart moves, but painful ones. I never thought I'd see APL leave Oakland.  APL is a historic, west coast carrier.  To think about their headquarters being some place else, just feels weird. Somehow when Sea-Land relocated to Charlotte that didn't seem strange considering Malcom McLain was a North Carolina boy who started the whole container shipping industry in the first place!

Most people understand that container shipping is an asset heavy industry with ships, chassis, containers, depots, repair facilities, terminals, etc. What many don't realize is that there are not that many people in the trade. Major ocean carriers may have as few as four or five hundred employees in the US and less than 10,000 globally. Compare that with the airlines or  integrators who have hundreds of thousands of employees. Putting that into perspective, when NOL says its going to cut 1000 people that is a significant cut.

APL isn't the only carrier taking cost cutting measures.

Maersk announced this week that they would be laying up ships to outlast the poor forecasts for 2009 and taking cost cutting measures themselves. Ocean shipping has always been a balance between available capacity and cargo demand. Demand is down.  Capacity is up. The other cycle of life in ocean shipping are new vessel orders.  Carriers order ships when the markets are good. Invariably they wind up taking delivery two years later when the market may have turned. The lag creates a capacity/demand gap.   That happens in normal times. Now add a global economic crunch combined with massive financial market strain in the US and globally,  and its a recipe for difficult trading in the container business.

I used to tell my customers "If you cant sell it, I cant ship it."   That maxim is home to roost for the next two years at least.

Eric

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Port of Lazaro Cardenas, a Southern Alternative

Best of Freightdawg.com Article

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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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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