Category Archives: Logistics

Will The Day of The Last Somali Pirate Come?

Doubtful.

Even though some somali pirates have been retiring, as nicely summarized in this recent article on Somali Piracy in The Economist, piracy is just too damn lucrative. Especially given the other employment options available to the pirates.

As per the Economist article, the average ransom for a ship between 2005 and 2012 was $2.7 Million. Each pirate involved in the hijacking received between $30,000 and $75,000, with a bonus of up to $10,000 for the first man to board a ship and for each man who had their own weapon. Think about that. On average, one hijacking earned a man more than he would earn from a full time job in the US (where the average man earns approximately $45,000 a year). Now it is true that pirates are charged considerably more for loaned goods and services than they are worth and often have to pay $20 for $10 of mobile-phone airtime, but even at 100% mark-ups, pirates are still earning a hundred times more from a single hijacking than they would earn otherwise in a country where the average income is in the dollar-per-day range.

And it’s not just pirates, and the financiers that organize the missions, that make a killing. Cooks (who feed the crews), pimps, lawyers, merchants (who can provide banknote checkers to detect counterfeit), militia (who control ports and can provide details of cargo and patrol somewhere else on the day of the attack), and even government officials (who can look the other way when ransoms are illegally being flown into a country) also make off quite well. Piracy is a thriving business sector in Somalia, adding 50 M to 100 M annually to an economy that legitimately produces less than 1 Billion in GDP. With no employment opportunities that are nearly as lucrative and no sector with the possibility to create the same level of wealth in the country as piracy, it should be pretty obvious that piracy is not going away any time soon.

Especially since many men don’t have any other choice. Many pirates used to be fisherman, an age-old family trade passed downed from their fathers and grandfathers, and they were happy with that life. They learned to cast nets, pull them up, sort the fish, and go to the market to sell the fish for a modest, but acceptable, price at a very young age. But then, as explained in this article on “Terror on the Seas” on realtruth.org, in the early 90’s, civil war broke out, the government collapsed, and maintaining order became impossible. The borders, and the territorial waters, went unprotected and foreign fishing trawlers emptied the waters unchallenged. The once tuna-rich waters were now as fish-free as a dead pond and the fishermen had to do something (or starve). They tried to form their own coast guard, but how much can a few fisherman with the odd dinky do to protect a 2,000 mile coastline against large international vessels. They tried, but up against improbable odds, got desperate, and aggressive – eventually storming a vessel and demanding money for its release. The ransom was paid, and they realized they had found a new livelihood which was not contained to fishing vessels. After all, who has more money, a small fishing company or a large international oil company?

What else are the pirates supposed to do? They can’t fish, there’s only so much farmland available in a country that is mostly desert and semi-desert, and it’s not exactly an outsourced manufacturing or service center. As one pirate said in a 2008 Newsweek article, “… when evil is the only solution, you do evil. That is why we are doing piracy. I know it is evil, but it is a solution.” Until they have another viable option, another solution, piracy is going to remain strong.

When You’re Riding the Rails

Don’t Forget Canada!

Not only does Canada, which is only 11th in GDP, have the 5th largest rail network in the world, it is also one of only two countries in the top 10 list of countries with the largest rail networks with a privatized rail network, and this makes it prime for freight.

CN, which has over 32,350 km of track, which constitutes 70% of the rail network in Canada, moves more than 300 Million tons of cargo and delivers more than 250 Billion in goods a year across its transcontinental network that goes from Halifax to Vancouver and down to the Gulf Coast (and New Orleans) through Chicago and Memphis — reaching 75% of North American consumers!

And the rail rates in Canada are extremely competitive. Adjusted for purchasing power parity, Canada has some of the lowest rates in the world, tying or beating the US and beating Russia, China, Japan, India, Germany, and France with an average cost per mile hovering just above 3 cents in 2010 whereas France came in at over 8 cents!

Furthermore the Rail Sector in Canada, and CN in particular, is continuing to invest Billion(s) every year to increase capacity and efficiency and keep rates low in an effort to continue to decrease the miles required to make rail more cost effective than trucking. (Even though trips as short as 500 miles are now just as cost effective on the rails as they are on an 18 wheeler.)

And with integrated operations at four of Canada’s major ports — Halifax, Montreal, Prince Rupert, and Vancouver — Canada’s railways, and major rail network, provides your organization with a viable alternative to getting its goods to North American consumers. Given that many US ports are near, or at, capacity, and that the railways in and out of those ports are also near or at capacity, this gives your organization a strong incentive to include Canadian Rail as an important part of your North American distribution network.

BravoSolution’s Business Center 2.0 – A Complete Category Solution for Transportation, MRO, Temporary Labour, GPO Category Management, and Retail: Part I

Two years ago, we reviewed BravoSolution’s Business Center Category Sourcing Solution that took e-Sourcing to a new level for nine common categories that provided the average Supply Management organization with a considerable sourcing challenge. In order to maximize savings in each of these categories, the organization needed to construct category-specific RFQs/RFBs for the category, collect extensive amounts of detailed data, build a tailored model, and/or analyze the impact of each possible sourcing decision. And if the RFXs were designed wrong, the data was incomplete, or the model missed key trade offs, the solutions were sub-optimal at best, and not even as good as the current supply management situation in the worst case.

That’s why BravoSolution built a solution that, capturing the years of experience and knowledge built-up by their global sourcing and solutions teams (who work out of offices in ten different countries on four different continents), that would allow a buyer to:

  • define an event of the supported type with the click of a mouse,
  • dynamically determine appropriate, and minimal, data requirements,
  • send the appropriate RFXs to the chosen suppliers with just a few clicks of the mouse,
  • push the data into the optimization engine,
  • add or remove (default and pre-defined) constraints with a few mouse clicks, and
  • select the award scenario and generate a contract template with a click of the mouse.

It was a great leap forward in e-Sourcing technology for the average buyer who was not an expert in e-Sourcing, and definitely not an expert in the chosen categories. But it had limits — specifically, out-of-the-box, it was limited to the categories that it supported or to categories for which repeatable methodologies could be identified and for which appropriate workflows could be implemented (as long as the buying organization was willing to work with the BravoSolution team to build a new category solution).

Knowing this, and knowing that certain industries had needs that were different than other industries, BravoSolution decided that what was needed was an equally simple solution that could be applied company wide (to all significant categories) for buyers in industries that needed extra support (either due to the complex nature of the problems, the time intensiveness of the categories, or the average level of e-Sourcing sophistication of the buyer in an industry where the average organization is arriving late to the advanced sourcing party). This is because BravoSolution realized that the reality of the situation is that if e-Sourcing is easy to use for some categories, but hard to use for other categories, the organization will continually favour the easy categories in their sourcing efforts, to the detriment of the organization’s cost savings or value generation goals. If a sourcing event is appropriately designed and effectively executed, and the organization has Procurement policies and systems in place to insure that the identified and negotiated savings are appropriately captured, most of the savings are going to be identified in the first event and the incremental return on subsequent events, especially in an economy where costs are going up and the supplier has more bargaining power, will be minimal. Meanwhile, more and more dollars will flow down the drain as savings-rich categories get continually ignored.

But if the sourcing team is presented with a solution where every souring event is as easy as every other sourcing event, intelligence is built in for all of the common categories, and existing data (such as supplier locations, contract transportation pricing, production constraints, etc.) can be re-used and propagated from one event to the next, then every category is going to be given equal consideration for the strategic sourcing treatment. And BravoSolution’s new and improved business center solution makes this a reality for the Transportation (3PL), MRO, Temporary Labour, GPO Category Management, and Retail industries.

In the remainder of this series, we will discuss BravoSolution’s new business center solution, built on collaborative sourcing capabilities (that were covered in these posts on Collaborative Sourcing, High Definition Sourcing, and Category Excellence) for MRO, GPO Category Management, and Retail. Stay tuned. (We’ll be back at the same KaT time on the same KaT channel.)

Cross-Border Shipping with Mexico


Today’s guest post is from Dick Locke. Dick, who has delivered seminars to over 100 companies across the globe, is a seasoned expert on International Sourcing and Procurement who wrote the book. (His guest posts are still archived.)

the doctor sent me this article from Inbound Logistics and wondered if I agreed. Well, mostly, but I think it overstates some difficulties. I operated an International Procurement Office in Mexico and we were able to get on-time delivery to our US customers in the 98% range over long periods of time … and that included supplier performance, cross border performance and logistics performance in two countries.

Some of the issues the article mentions are common in every country. Natural disasters are just one example. Every logistics network has to have backup plans when problems occur. And of course, when you’re operating in another country you have to have an open mind to doing things their way.

The article does have some good points:

* Exporting from Mexico requires using a Mexican customs broker. If you are moving goods to the US, you will probably want a US customs broker also, unless you want to have your own people at the border. Yes, that’s an extra step in the process.

* The border does jam up around Christmas as many expatriate Mexicans ship presents south.

* Of course you need to understand your country’s security related requirements, such as C-TPAT in the US.

* You should always avoid insuring every shipment and rely on a blanket policy

* You do need to keep track of goods crossing the border

But some is either overstated or applicable to any country, and some I disagree with.

* If you are shipping LTL there are several LTL logistics companies, all aimed at industry. DHL, Fed Ex and UPS as well as local Mexican companies such as Estafeta all do cross-border LTL work.

* You are not “guilty until proven innocent” under Mexican customs regulations any more than you are in the US or other countries. And the US has the same five year “statute of limitations” on customs errors … and it’s five years from your last import of a product.

* I wouldn’t ask a Mexican carrier to price services in US dollars. Fuel costs are in pesos as are nearly all of the carrier’s operating expenses. Asking to price in dollars will get you a higher price and possible attempts to renegotiate if the dollar weakens.

As an observation, the Mexican trucking industry is changing. Twenty years ago, it was a collection of small, independent1 truckers. Today there are bright, new, shiny trucks on the Mexican roads and large, serious logistics services available.

1 Extremely independent. Mexican truck drivers were the last of the wild west cowboys. A habit of stopping off overnight at what were euphemistically called “cantinas” made on time delivery really difficult. Times have changed.

PKP Cargo (PKP SA) is Going Public. Will China Get a Bigger Foothold in Europe?

China is riding the rails to riches. As per these recent posts on SI, China is Kicking the USA’s @ss when it comes to rail with its recent launch of the world’s largest high-speed rail route from Beijing to Guangzhou in the world’s third largest rail operation that carry’s over 25% of the world’s total railway workload. Add to this the fact that Laos is committing to invest 6.2 Billion on a new 260-mile passenger and freight railway between Kunming and Vientiane that connects China to Thailand and ports closer to the Suez Canal, and China is riding the rails to riches in a big way.

And now it looks like they get a chance to expand their operations in Eastern Europe. On October 31, Polskie Koleje Panstwowe SA, the Polish state railway, is going IPO on the Warsaw Stock Exchange with the sale of its cargo Europe in an effort to raise as much as 1.6 Billion zloty (approx 518 Million dollars). PKP runs the EU’s second largest freight company after Deutsche Bahn AG and controls 8.5% of rail freight in the EU, and can also arrange transports to and from Asian markets, including countries, such as Kazakhstan, Uzbekistan, Turkmenistan, Mongolia and China with licenses to provide services in Slovakia, the Czech Republic, Germany, Austria, Belgium and Hungary. PKP is going to keep at least 50% of cargo, but may be offering close to 50% for sale.

And we know China is interested. China paid a visit to PKP SA last month to determine the investment outlook of the Polish in terms of Chinese relations in the power, telecommunication, and railway industries. An IPO gives China the chance to buy a big stake even if the investment opportunity is otherwise limited. And with a bigger stake in Europe, it makes it easier for China to send goods to the European market (through its new rail line from Zhengzhou to Hamburg). Add a big stake in PKP SA to its DB Schenker (Deutsche Bahn) partnership, and China would be poised to have influence over a rather sizeable chunk of the European rail transport network. It’s the obvious investment for acquisition hungry China.