So You Need To Save On Ocean Freight

You could start with these pointers from Inbound Logistics on Reducing Ocean Freight Costs:

  • Consolidate LTL/LCL to FTL/FCL
       (and use 40-foot and high-cube containers)
    It costs almost as much money to run a truck almost empty as it does to run a truck almost full (when you consider that an empty trailer weights around 12,000 lbs or 5500 kgs), so a trucking company has to charge you more on a weight/volume basis if you don’t ship FTL as they might not be able to consolidate someone else’s cargo and lose money otherwise. Similarly, it’s cheaper to ship full containers, and for a carrier to standardized on 40-foot containers.
  • Transload operations to inland destinations
    Once shipments arrive, route them through a transload facility to be repacked and loaded to inland destinations. Avoiding unnecessary warehousing reduces costs and expedites shipments.
  • Make round-trip opportunities available.
    Providing inbound and outbound flows from a location allows carriers to make optimal use of equipment. While it will not be possible from final destinations, especially if shipping direct to stores with transload operations, you can give the carrier outbound shipments from US production facilities / (return) service depots on its return route to minimize it’s costs, and yours.
  • Know the market
    You should know the current market prices for fuel costs, capacity on your lanes, and provider overheads. You should also know total demand. This way you can negotiate a good (fair) deal.
  • Pay carriers on time according to agreed terms.
    Delaying payments only costs your company in the long run. If you don’t, the carriers will likely have to borrow at an interest rate that (far) exceeds any interest you may make keeping the cash in the bank. This means that they will have to build these costs into their fees, which will go up and cost your organization ore over the long run.

Or, you could just eliminate the need for (a significant quantity of) ocean freight (entirely). Let’s face it — 100% savings is WAY more than the 5% to 10% the above will shave off your costs.

How do you do this? Nearsource (or, better yet, Home-source)! In North America, consider Mexico or Brazil. With overseas labour costs and logistics costs climbing significantly year-over-year, for some products, it’s just as economical to produce them south of the equator — especially when you consider overseas labour rates and logistics costs are NOT going down. Now, SI knows this isn’t necessarily possible for all categories (as high-tech requires very advanced production facilities which can’t be thrown up or staffed overnight, for example), but with the exception of high-tech, biotech, and other industries that require a large pool of very specifically educated people and very high-tech production facilities, there’s no good reason NOT to be looking at locales like Mexico and Brazil right now. (And even if the raw materials need to come from overseas, the cost of shipping (refined) raw materials, which are very dense, is much less than shipping final goods, which typically aren’t dense and which require a fair amount of packaging — and which often have lower import duties!)

Sourcing Innovation’s Big Prediction for 2013, A Summary

Over the past week, Sourcing Innovation has revealed its big prediction for 2013. In particular, it predicted that a variant of the conversation detailed in Parts I and II between a CEO and a CFO will happen in more than one Global 3000 firm this year. What was the jist of that conversation?

In Part I, we found out that upon his return from a luxury vacation, a CEO discovered, in his first conversation with the CFO, that the sales on the new product line were zero … because the product never arrived! The new distribution deal with Automated Crossdock Co — negotiated to take the goods direct from the manufacturer’s warehouse to the retail stores — turned out to be worthless as the supplier refused the trucks entry. When the CFO tried to find out why, he was continually given the runaround. And, at least three weeks after product was supposed to hit the shelves, there’s no product in sight.

In Part II, we find out that after repeated calls to the overseas law firm, the CFO finds out that the supplier has gone bankrupt. At first, the CEO thought this would be no big deal, as demand could just be shifted to the next supplier on the list, but this wasn’t the case because the product required a special machine to produce, that only the supplier had. And while another machine could be ordered, it would take about 6 months to custom build, ship, and install at a new supplier location. So it turns out to be a very big deal because, not only is the product line essentially shelved, but the company could end up filing for bankruptcy as sales on existing product lines had declined to the point where the company was losing money. And, despite expectations to the contrary, thanks to a lawsuit settlement, a severe IT upgrade cost overrun, and big management bonus, the company doesn’t have the cash reserves to last six months. As a result, the CFO is already starting to prepare for a bankruptcy filing as they see a proactive planning as their only chance of survival.

In Part III, we reviewed the learnings from parts I and II to try and discern if the company’s predicament was really the supplier’s fault, as indicated by the CEO, or if it was the company’s fault. We reviewed the seven major learnings and determined that, on their own and together, the facts were pretty damning against the company. But we concluded that, despite all of the company’s failings, which were numerous, had the supplier not failed to deliver the product before going bankrupt, the company would have survived. So who was to blame?

In Part IV, we offered you more insights into the situation by giving you a piece of the conversation that took place between the supplier’s CEO and CFO weeks before and a piece of another conversation that took place between the CEO and the CFO that took place months before. And then … we said you had to wait for part V for the answer.

In Part V we gave you the answer. The blame lied entirely with … to the delight of the Grinch … the company! Why? Re-read the entire series to understand!

I Hope You’re Not Paying a Wealth Investment Advisor!

Because if you are, the only person getting wealthy out of the deal is the investment advisor on your money! Especially when your LOLCat can do a better job, and will work for temptations and catnip!

As per this recent article in the The Observer, a ginger tabby named Orlando beat a team of professionals and a group of students in a year-long stock-picking experiment summarized in a recent article on how Orlando is the cat’s whiskers of stock picking. The cat, who selected stocks by throwing his favourite toy mouse on a grid of numbers allocated to different companies, beat Justin Urquhart Stewart of Seven Investment Management, Paul Kavanagh of Killick & Co, and Andy Brough of Schroders who had decdes of investment knowledge.

So if you really want to beat the market, replace your stock analysts with cats who are just as accurate (and don’t put much faith into predictive analytics no matter how much big data you have).

A Sourcing Innovation Prediction for 2013, Part V

The blame rests solely with the company and all companies who believe that payment terms of 200 days are reasonable! Governments should not only go to war over this atrocity, but should fine and criminally charge anyone who purposely delays payment to suppliers just to make the quarter / year end numbers look rosier! It’s one thing if the company doesn’t have money in the bank and can’t borrow at better terms than the supplier, and the supplier knows this up front but agrees to late payment in exchange for a greater margin knowing that the demand is there and the company will pay as soon as the customer does. But this isn’t the case.

Right now, most companies have money in the bank. Lots of it. Last year US-based Mega Corporations were hoarding $1.73 Trillion in cash! That’s roughly 12% of US GDP! And even if they didn’t have cash in the bank, there was still plenty of cash to borrow from the US banks that were sitting on $1.50 Trillion of excess cash reserves! (Source: The Guardian) In other words, the mega-corporations and big banks alone are sitting on a cash stock-pile that is 25% of annual US GDP! And while most of them may be doing their best to shelter it outside of the U.S. (Source: WSJ), and in Europe and Asia in particular, these companies still have easy access to that cash and, more importantly, typically have more cash in either the supplier’s home country or a country in close proximity to the supplier (since US companies are still outsourcing just about everything, despite the fact that it often makes sense to home-source and near-source due to rising transportation costs and labour rates).

They’re just choosing to …

Be a mean one, just like me.
They really are a heel.
They’re as cuddly as a cactus and as charming as an eel,
  just like me!
They’re all bad bananas with a greasy black peel!

They’re all monsters, worse than me.
Their hearts are empty holes.
Their brains are full of spiders, they have garlic in their souls,
  just like me!
(Even) I shouldn’t touch them with a thirty-nine-and-a-half foot pole!

They fill my heart with envy,
The way they run you ’round,
And promise you the moon while they run your business to the ground,
  fatefully.
Given a choice between the two of us, you’d rather have me around!

They’re a …

 The Grinch

We get the picture Mr. Grinch. They’re terrible people selling our collective futures for a slightly bigger profit today. And the worst thing is that they are too short-sighted to realize that, in the scenario described, a supplier bankruptcy really is their fault. If you told an average CEO that the company’s supplier went out of business, costing hundreds (or thousands) of people their livelihood, because the company too long to pay, what would he say? “It’s not our fault. We only represented 5% of their revenue. If 5% of our customers pay late, it doesn’t hurt us. So if they were run well, 5% of their revenue being late shouldn’t hurt them.” And the CEO would be right if only 5% of payments were late. But the reality is that, for many suppliers these days, is that they have to deal with 50% of their payments being late — real late, because once one mega-company shows that it’s okay to extend payment terms from one unreasonable number to an even-more unreasonable number, every other mega-company follows suit because they have a precedent and they have to do what they can to make their numbers look better, at any cost!

But since none of these CEOs or CFOs take the time to put 2 and 2, or 5 and 5, together, they don’t realize that at some point, there’s going to be too many 5’s, the supplier isn’t going to have the cash, and the local banks aren’t going to step up and lend the supplier any money. Banks don’t stay in business by handing out money to every Li, Wang, and Fung that walks through the door. They do it by managing risk. In this scenario, at some point the bank has to say to a begging supplier “if these companies haven’t paid you by now, they’re probably not going to pay – and even at 20% interest, we can’t lend you money that we feel we have a 0% chance of seeing again“.

So unless you want your company to be one of the ones where the CEO and CFO have this conversation later this year (before they lay you off as part of their bankruptcy restructuring plan), keep on top of Accounts Payable and make sure you do everything you can to insure that your suppliers, especially your cash poor ones, get paid promptly. Otherwise, you’ll be a grinch by association. And we’re better than that!