Monthly Archives: September 2012

Three Does Not a Monopoly Make

But it does make competition hard and collusion easy. So what am I referring to now? As recently expounded upon in this recent article in the online version of The Economist, UPS has made a bid for TNT (Express), the fourth largest logistic carrier in the world, the second largest in Europe, and the largest in Britain and Italy. If UPS gobbles up TNT, it may not only shift the balance in power in the near-duopoly between FedEx and UPS in the US, but give UPS the edge it needs in Europe to take on DHL toe-to-toe in Europe (where it controls up to 50% of the market). If UPS succeeds, UPS would have at least a quarter of the market in three big European centres — Britain, France, and Italy. Unless Federal Express scooped up DHL (and it’s pretty easy to predict that bid would happen if UPS scooped up TNT), FedEx might soon go the way of the Pony Express in Europe.

While UPS is likely claiming that this will benefit shippers as it will allow them to offer better service at lower prices, the fact that we could soon be dealing with a duopoly, and would effectively be dealing with a duopoly in the US (UPS and FedEx) and Europe (UPS and DHL) is a bad thing. Consider the fact, as pointed out by Leigh Merz in A Shipper’s Right, that UPS and FedEx have already mandated that shippers can only work with FedEx or UPS directly (and not through brokers or other third parties). Hopefully this restriction will be removed as an anti-trust violation in the upcoming court-case between AFMS and the UPS-FedEx anti-trust lawsuit, but until then, United States shippers are already operating at a disadvantage.

And if we get a local duopoly and a global triopoly, there’s a good chance it could only get worse. All it will take to enforce a new, shipper preferred, style of business is for three senior executives to meet for lunch at the Executive’s club, spontaneously decide that, from now on, all products that weigh less than 5 lbs per unit go first class air freight, and, presto, no ocean cargo for you! And all it will take for prices to rise, on average, 5% across the board is for the CEOs to play a around of golf and decide that, next quarter, as a result of fuel increases, all prices will rise an average of 5%. Now, each shipper will still have lanes where it will be more competitive, but switching won’t save significant dollars as the competitors prices rose in sync. Not saying this will happen, but you see how easy it could happen if, by chance, it happens that each organization happens to have at least one senior executive who is less than honourable at all times. And this is an industry where price collusion happens more regularly than it should. As The Economist article noted, in March, the European Commission handed out fines totalling 169 Million Euros to 14 freight-forwarding companies, including UPS subsidiaries, for price collusion.

Right now, the EC is undertaking a phase II merger investigation, as per this recent press release, and has until November 28 to determine whether the proposed transaction would significantly impede effective competition in the European Economic Area (EEA). I hope they do. In the meantime, the case details are available at the EC site and, as per the initiation of proceedings, published in C226, the Commission invites interested third parties to submit their observations on the proposed concentration to the Commission. While it’s now too late to have the observations fully taken into account in the procedure, if you’re a major multi-national with a big voice, it might not be a bad idea to get your observations in anyway. Often, it only takes a few very noisy squeaky wheels to slow things down and force a good look.

The Looming Strike Might Cost Billions – But You Don’t Have To Lose a Dime!

A recent article over on Fox Business on how the looming strike could cost billions if all of the east-coast US ports are shut down on Oct. 1 (because of a strike) is scary, unless you are a multi-national who has the option to simply shift your freight North or South. While such a shift might not be optimal for you, as it will require you to build new supply lines, secure new cross-docking and storage facilities, and, hopefully, use new free-trade zones (and become familiar with the optimal utilization of such if you aren’t already using them) at a time when you are ramping up for the holiday season, not only might such a move prevent you from experiencing losses (that could lead to ruin if the strike was a long one), but it might even save you money in the long run!

While often overshadowed by their southern and northern neighbours, Canada’s ports and Mexico’s ports are open for business, and some have been expanding their capacity significantly in recent times. For example, as recently pointed out in Halifax Gets It There dot com and summarized succinctly on the Port of Halifax site, the Port of Halifax has an ample supply of empty containers, no congestion, and capacity to space at its terminals and on rails. Plus, it already has 11 of the world’s top 15 global shipping lines and the capacity to handle up to 2.5 M TEUS. This is almost the TEU volume of The Port of New York and New Jersey. Plus, the Port of Montreal can handle 1.6 M TEUS! Now, it’s true that Montreal is currently at 80% of capacity while Halifax is barely at 30% of (projected) maximum capacity (remembering that Halifax is situated on the second largest natural harbour on the planet), but the Port of Montreal is also in the midst of the first phase of a major expansion project that will increase capacity by 15% in less than two years. And in New Brunswick, for those looking for a smaller port with less competition, there is the Port of Saint John which can handle 150,000 TEUs.

In Mexico, you also have a number of ports to choose from, including the port at Altamira, the port at Tuxpan, and the port at Progreso. As far as I can tell, Altamira can handle at least 50,000 TEUs, Tuxpan is building a facility to handle at least 90,000 TEUs, and Progreso can handle a whopping 300,000 TEUs per year. Not the volume of the big East Coast Canada ports, but nothing to sneeze at either — and Mexico has five more ports on the Gulf.

So redesign (at least some of) your supply chain now to use Canadian and Mexican ports, and you won’t have to worry about losing a dime if the East Coast US Ports go on strike.

The Best Way to Insure Routing Guide Compliance …

… Is to be clear about who is routing what! I must admit that, after reading a recent article three times over on Inbound Logistics on ensuring routing guide compliance, I’m still not exactly sure who the article is for.

Generally speaking, a routing guide contains a set of rules intended to govern how all shipments being sent to a company’s facility are to be handled, and what costs the company is willing, and not willing, to incur. Based on this, it seems logical to assume that a routing guide is for the benefit of a company’s suppliers, and that it is the suppliers, or, in some vernacular, the vendors, whose compliance needs to be insured.

So, when the article starts off by saying that when vendors fail to comply with shippers’ routing guide instructions, all parties involved experience frustration. Huh? Isn’t the vendor doing the shipping by way of a carrier? I guess, in this context, “shipper” means “buyer”, but the buyer might be nothing more than a consignee, with the vendor doing all the shipping arrangements and a 3rd party doing all the transportation. Maybe it’s acceptable lingo in the old-fashioned logistics world, but if you want to reach supply management at large, let’s be clear who’s who.

Now, if we make this assumption and move on, replacing “shipper” by “buyer” in the first nine tips, everything sort of makes sense, but then tip 10 refers to the situation when a customer is late ordering a product. What customer? No where is customer mentioned up to this point! Does it refer to the “buyer”, known as the “shipper” (even though the buyer isn’t “shipping”)? Or the buyer’s customer? And why is the buyer’s customer allowed to order direct? If we assume that “customer” refers to a buyer “representative”, then this makes sense, but, at least for me, this is an even bigger stretch than assuming “shipper” and “buyer” are one in the same.

But the confusion doesn’t end there! If we then examine the tips, we are told to be upfront about chargebacks, which is a must, but the chargebacks referred to are actually fines levied by the “shipper”, who we are assuming is the “buyer”, to the vendor for non-compliance. This is a little confusing for two reasons. First of all, the standard definition of a charge-back is the return of funds to a buyer after a successful dispute. This is not the return of funds paid by the buyer (or “shipper”) to the vendor for an un-delivered or defective product, but a fine levied on the vendor for failure to comply with a buyer (or “shipper”) policy. This is not a chargeback. Secondly, in this situation, the money changing hands will be between the vendor and the 3rd party logistics carrier, and it is the vendor who will be seeking a chargeback if the logistics carrier screws up. Right?

And then, a little later on, we are told to divide carriers into categories by mode and weight breaks. While it’s useful to know what carriers offer a given mode, the volume brackets that define LTL (Less-than-TruckLoad) and TL (TruckLoad), and which carrier is the most cost effective within a mode and volume bracket, this is of no use to a vendor who does not know what mode a product should normally be shipped at, and the conditions under which an exception should be made.

And if a buyer really wants to ensure routing guide compliance, it’s not that hard to do so. All the buyer has to do is inform the supplier of the default shipping method it wants used and the alternate shipping methods that are acceptable if the default shipping method is not available. If the buyer takes the uncertainty out of the equation, the vendor will get it right. And this is not hard to do if the buyer has an on-line, searchable, routing guide integrated with its e-procurement system where a link to the appropriate mode and carriers, for the volume level, is included in the e-version of the purchase order. One click, and the vendor knows exactly what to do. If the PO, or on-line routing application, also includes the contact details for an appropriate contact person in case of questions, or unexpected issues, as well as a link to information about obtaining approval for expedited delivery and selecting the appropriate method for expedited delivery if need be, then there’s no reason that a vendor shouldn’t be able to get it right.

In summary, here’s the doctor‘s top 10 tips for ensuring routing guide compliance:

  • Keep
  • It
  • Simple
  • Stupid
     
  • And
  • Supply
  • Suppliers
     
  • With
  • Information
  • Needed

Understanding & Completing the C-TPAT 5-Step Risk Assessment Process

Today’s guest post is from Karen Lobdell, Director of Global Solutions at Integration Point.

The US C-TPAT program continues to evolve since its inception in late 2001. As a requirement of the program, members must complete an international supply chain security risk assessment and are expected to have a documented process for determining and addressing security risks throughout their international supply chain to meet minimum criteria.

This risk assessment is not only required as part of the application process, but it should also be incorporated into the member’s Annual Security Profile Review. To assist program members with this process, CBP developed the “5-Step Risk Assessment Process”. Is your company wondering how best to implement this process? Are you concerned that implementing the process will be administratively burdensome?

The 5-Step Risk Assessment Process is comprised of the following steps:

  • Mapping Cargo and Business Partners
  • Conducting a Threat Assessment
  • Conducting a Security Vulnerability Assessment
  • Preparing an Action Plan to Address Vulnerabilities
  • Documenting How the Security Risk Assessment is Conducted

While this exact format is not mandatory, a risk assessment process must be in place and incorporate these components, but how you do this is flexible. Let’s break this down into a more manageable process.

Mapping cargo and business partners can seem like an impossible task for companies that have a vast number of suppliers. So before mapping hundreds of trade lanes, take a look at those areas of highest threat and map those to drill down deeper within the supply chain and identify further areas of risk.

When conducting a risk assessment, values used for scoring are up to the individual company. The point is to go through the exercise and identify where the threats are and how severe the risk is. After this is done, you can move to the next step of conducting a security vulnerability assessment.

This step was designed to assist in identifying gaps or weaknesses in the supply chain that deviate from the standards. Vulnerability assessments should be done on business partners as well as internal departments, and are typically conducted via a questionnaire or survey. Although the minimum standards will be based on the C-TPAT criteria for this particular example, assessment could go above and beyond the program criteria and the standards would vary if conducting a risk assessment on an area other than C-TPAT/security. Many companies still perform this step manually with the use of Excel spreadsheets and email. This can be very administratively burdensome –especially for large corporations that may be working with thousands of suppliers/partners. This is one area where automation can be a huge time-saver, as well as improve accuracy.

A solid vulnerability assessment will identify those gaps/weaknesses that need to be addressed — but that is only one step. A successful risk management program includes implementation of an action plan to close those gaps, or at a minimum, mitigate the exposure that exists. Combining this information with threat scores and potential consequences can help prioritize actions that need to be taken.

The final step is documenting how you are conducting risk assessments. CBP’s mantra has always been — show us, don’t tell us.

CBP has stated that the focus will continue to be on segmenting high risk vs. low risk. This is more effective than the prospect of 100% scanning. Not only does CBP prefer to deal with safety and security from a risk standpoint, they expect the trade to do so as well. In ideal risk management, a prioritization process is followed whereby the risks with the greatest loss (or impact) and the greatest probability of occurring are handled first, and risks with lower probability of occurrence and lower loss are handled in descending order.

For more on the 5-step risk assessment process, best practices and how it can be used for other trusted trader programs, check out the on-demand webcast presented by Integration Point. You can access the on-demand version via webex.

Thanks, Karen!

Let The Mexicans Have Our Trucking Jobs

Because, in the end, we’ll still be at least 100,000 drivers short in the long run!

What am I talking about?

Last week, CNN ran an article that noted that the program to allow Mexican trucks on U.S. roads [is] off to a slow start, which really shouldn’t be a surprise, considering the onerous, and costly, restrictions that were placed on the pilot program.

A pilot program that is a little ridiculous when you think about it. As summarized by this recent article on MexicoTrucker.com on NAFTA and Those Unsafe Mexican Trucks: Fact or Fiction,

  • All Mexican drivers hold a Federal License from the Republic of Mexico, the equivalent of a U.S. CDL. The validity of this license as been recognized in a MOU between the United States and Mexican governments, and this has been upheld by the The United States Supreme Court.
  • As a result of their license, drivers must present proof of identification, residency, and a current medical certification upon request.
  • If they receive authority to operate in the US, they must comply with the Federal Motor Carrier Safety regulations. This means that they must pass a safety audit and be subject to random audits like U.S. drivers.
  • Most do short-haul drayage shipments within the 100 mile radius of the commercial border zone, where the shipments are handed off. Reporting requirements for short-haul are not substantial, and these logs are easily maintained.
  • Unlike many U.S. carriers, major Mexican carriers that wish to do cross-border trucking into the US conduct socio-economic studies and criminal background checks and only hire drivers with at least two (2) years experience.
  • There is a lot of similarity between the U.S. and Mexican regulatory schemes. Some of the similarities are highlighted in this HighBeam Industry Report on Trucking, Except Local
  • Mexicans are a proud people and the author of the aforementioned article is not embellishing when he says that the job of a truck driver is viewed as one of importance, responsibility, and trust as well as being a highly desirable, better-paying, job for someone with limited education or white-collar skills. I think it’s important here to point out that the U.S. is #2 in vehicles per capita, at 81% penetration, and that Mexico is #56, at 28% per capita. It’s also important to point out that, per capita, domestic freight by road is roughly 1/3 that of US, as per this study by Matt Drake et. al at Duquesne University*.

When you add all up all of the pre-assessment, assessment, registration, and certification costs associated with the pilot program, it’s a lot of effort for little reward. Especially when you consider that all of the arguments against letting Mexican drivers on US roads, which led to their restriction and this pilot program, are ludicrous when placed under scrutiny. The biggest arguments are national security, safety, and American job loss. From a security perspective, this is no different then letting Canadian truckers on the road. U.S. security legislations, including C-PTAT and 10+2, apply to anyone crossing the border, so there are no additional security concerns once the drivers have been certified. As for safety, Mexican regulations are almost as strict as U.S. and the law clearly states that Mexican drivers and trucks will not be allowed on U.S. roads unless they comply with U.S. regulations, and any carrier that wants to be on U.S. roads will happily comply. This just leaves fear of American job loss, which must be the real reason, but a close examination of the issue should demonstrate that there should be little concern on this front.

First of all, the Mexican trucking industry is near, or at capacity. Then you have the fact that Mexico, like the rest of North America, is facing a driver shortage at least as severe as the US, as per this article on the truck driver shortage. And when you consider the driver shortage in the US is going to exceed 110,000 within 2 years, as per the aforementioned HighBeam article (and a post on SI five years ago advising you to Roll On!), even assuming Mexico could add drivers to its ranks faster than the US, when you consider the relative populations, and relative trucking capacities, it is exceedingly unlikely that Mexicans could fill even 10% of the current driver shortage in the U.S.

So I say we forget the political buffoonery and the non-existent issue of American job loss, drop the pilot program, and let any driver who can meet the requirements on American roads. After all, the only thing the pilot program is doing is driving good drivers away, who have been burned by these programs in the past. The real issue is how we are going to continue to move our freight, and given the serious driver shortages across North America, we have to work together.


* The study is a little dated, but the most detailed I could find.