Category Archives: Logistics

The Road to Riches? The Rails, My Friend, the Rails.

Every day, SI is becoming more convinced that if you want your Supply Chain to be a success, you need to ride the rails. It used to be if you were shipping goods long-haul over land, you’d ship them by train. There was no long-haul trucking and air was just too expensive. But then the war ended, Dwight D. Eisenhower championed the National system of Interstate and Defense Highways, the Federal Aid Highway Act of 1956 came into effect, long-haul trucking became an option, buses became more popular than trains for many trips, the railroads started to struggle financially, and ground eventually overtook rail for most cargo in the US.

And today, people in North America associate trains with the Wild, Wild West despite the fact that rail is, by far, the most cost-efficient way to move cargo over ground for distances in excess of 500 miles. It’s also typically the best choice for intermodal ocean freight as the major rail networks will not only have their terminals in the ports, but SLAs (Service Level Agreements) to make sure cargo is quickly transferred from ship to rail-car. For example, agreements between the Port of Halifax and CN Rail gives you a double-stack rail-service direct link to Chicago in 71 hours, which is typically a 3-day drive when you factor in daily driver limits and border crossing.

Why is SI becoming more convinced that Rail is the Future? Three reasons:

  1. Fuel Efficiency
    Efficient trains can move a ton of freight nearly 450 miles on a single gallon of fuel. Find a truck that can do that!
  2. Predictability
    The railroads control the rails – and can schedule them to maximize capacity and prevent traffic jams that can delay trucks for hours or more. Plus, well maintained lines and trains that keep to schedules suffer significantly less accidents than traffic on the road.
  3. Adoption by the East
    While the young and immature west might have dumbly abandoned trains just like it abandoned trams (and replaced them with gas guzzling polluting busses), the East is investing Billions in new (high-speed) rail lines everywhere. Consider the amount being invested in the Kunming-Singapore Railway with Laos alone committing to invest 6.2 Billion on the 260-mile segment between Kunming and Vientiane straight through the mountainous region of Northern Laos. Think about that. The GDP of Laos is only 9.3 Billion! That’s a huge commitment for a country the size of Laos, even if the commitment connects China to Thailand and will capture a sizeable portion of the 4 Trillion worth of imports and exports that flow into and out of China. This 6.2 Billion dollar railway will require 196 km of blasting and will create 76 tunnels. To put this into perspective, combined they would form a tunnel long enough to connect Korea to Japan under the sea.

It’s time to ride those rails! All around the world!

One Hundred and Fourteen Years Ago

The United States took over, and began, construction of the Panama Canal. Then, a little over ten years later, it was completed and for the first time ships could travel between the mid-Atlantic and mid-Pacific from at least 10 days, and typically two to three weeks (depending on how fast the ship was and the weather) to less than a day, as it saves ships a 7,872 mile voyage.

It revolutionized ocean freight and although we now take it for granted, it was a historic achievement.

Just a To-The-Point Reminder of Why Shipping Costs So Much

Empty pallets, empty containers, empty loads.

It’s essentially the same reason (airport) taxis usually cost more than Ubers. Empty space one way (in the form of seats).

Think about it. If a truck is coming empty from a big city 300 miles away to your plant to carry product back, every week, that’s over 15,000 empty miles a year on that one truck. A truck which takes a driver (who needs to be paid by the hour), gas (which costs by the gallon), maintenance, and replacement parts on an accelerated schedule. That means that you’re paying twice what you would be paying if the truck wasn’t empty for the majority of that 300 miles.

And even if you sub your shipping out to a logistics company, if the logistics company isn’t working hard enough on your behalf, that’s why certain lanes could be too high. And that’s also why you shouldn’t let a supplier or a single carrier manage your shipping. All carriers are going to have long empty lanes. You need to make sure that you’re cargo is not on these. You need to be sure that the truck isn’t driving more than a few hours from it’s drop off to your pickup (or your drop-off to it’s next pickup) so that the carrier is able to give you the lowest cost possible on the lane.

That’s why the best companies do global lane analysis (using decision optimization) and award contracts to multiple carriers that minimize costs across all lanes (by directly or indirectly eliminating the empty lanes).

So if you want to lower costs in your supply chain, just like you would avoid the empty calories in your diet, avoid the empty loads on your lanes.

There is No Free Lunch, and There is No Free Shipping Either!

Even though shipping is not, or should not, be that complicated anymore, it’s still relatively human intensive (as even technology-driven shipping requires someone to scan the labels, read the response, and load the products into the right boxes and then into the right truck for delivery to the right recipient) and will always costly. Why?

  • Every form of transportation requires a vehicle

    and all vehicles have acquisition and maintenance costs

  • Every form of vehicle requires some form of power

    and all forms of power have a cost, even if they are based on some form of renewable resource (as windmills have to be maintained and biomass has to be grown) — so energy costs will never go to zero

  • Every vehicle requires an operator

    even if the operator is the programmer maintaining the system that controls the drone or the self-driving truck

And not all goods are simple consumer goods that can be put in a box on a truck and handed to you by an average FedEx delivery driver. Some are fragile and require extra packaging. Some need to stay cold or frozen. Some are hazardous materials. Sometimes shipping a single small item can cost thousands, especially when you add in the extra costs in packaging, handling, pick-up, and delivery.

In other words, shipping is expensive. And anyone giving you free shipping is including it in the price, probably at a padded mark-up. So don’t fret the shipping, fret the total cost of the purchase relative to the value received. Sometimes if you shop around you can get a better product at a lower overall price, shipping included.

This is especially true if you’re buying from online marketplaces, Amazon NOT excluded. (Going back to Amazon, as the doctor has noted before, by now consumers should have caught on to the fact that many of the less-reputable third party merchants that use Amazon Prime Shipping mark up their merchandise to cover the shipping costs. the doctor has seen $40 to $60 mark-up on small items that probably only cost $10 to ship with Amazon’s massive shipping discounts.)

Logistics is the new Black, but Procurement is the Rodney Dangerfield of the corporation!

the doctor recently stumbled on a piece published last year by Jeff Ashcroft over on LinkedIn where he said Logistics is the New Black where he noted that the word “logistics” has subtly worked its way further and further into the common lexicon thanks to massive marketing campaigns of courier, rail, and forwarding companies. This is making it the new black.

However, while it was never the Rodney Dangerfield of the Corporate World, as that distinction is reserved for Procurement, it was the black sheep. Needed, but kept at arms length … just in case.

However, now that savvy merchants are realizing that in their logistics function may lurk the well spring of the truly exceptional customer experience they seek, and must now deliver, logistics is taking center stage. This is good, and bad.

It’s great in that good logistics is a necessary condition for supply chain success, and if it’s not successful, the supply chain will never be, but it’s bad in that it’s only one half of the coin for supply chain success, the other being good Procurement. But, as SI has been saying for years, Procurement is the Rodney Dangerfield that don’t get no respect in the average organization (otherwise, why would almost half of Procurement organizations be without modern platforms).

When there is no easy correlation to the average consumer, when organizations like the Dairy Farmers of Canada say they are supply management, when HR organizations say they do Sourcing, and when even Apple, which has been repeatedly recognized to have the best supply chain in the world doesn’t talk about it (with the closest they come being Supplier Responsibility, probably as a result of breathing all that California smug), how is anyone to be expected to understand what a modern Purchasing, or Procurement, organization does? Especially when the term procure is often used in stories about rebels procuring supplies from the government (and this is the example of procure used on the urban dictionary, the military procuring what it needs from the private sector, or, even worse, often linked to prostitution. And purchasing, that’s what the office manager (in charge of office supplies) does.

In fact, all things considered, Procurement is probably lucky to even be the Rodney Dangerfield of the corporate world. While it might not get any respect, at least it gets recognition.

Maybe someday someone will find a way to bring sexy back to Procurement and then it will get some respect, and take the first step towards becoming the new black.