Category Archives: Logistics

Should You Hedge Your Transportation Costs?

It’s a tough question, and one that you need to answer sooner rather than later. If you read this recent article on how “global shipping lines grapple with plunging rates, overcapacity, and faltering recover”, you realize that the global shipping industry is likely in for a very shaky ride over the next few years given the unpredictable demand, the strong likelihood of consolidation, and the big bets some major shippers are making that could intensify the current overcapacity problem.

The following tidbits of information in particular are worrisome:

  • GDP growth forecasts for Canada in 2012 have recently been revised downwards by various analysts to just above 2%
    Canada, which has done quite well in weathering the global economic storm (through better bank regulation, smarter risk aversion, and a focus on natural resources) is barely going to grow. Imagine how the Eurozone and the USA are going to fare in 2012.
  • China growth, while in the high single digits, is slowing
    When GDP growth in the country that houses one-sixth of the world’s population and that is still on track replace the USA as the dominant economic superpower in under fifteen (15) years is slowing, what hope does the rest of the world have for a quick recovery?
  • The dollar still drives decisions. Green is of secondary importance.
    With little incentive to look at new technologies, there is little incentive to look at sustainable solutions that could be more cost effective in the long run. (Such as more efficient engines, on-board solar and wind power, etc.)
  • Maersk, which ordered 10 Triple E vessels capable of carrying 18,000 TEUs in February 2011, ordered 10 more mega-vessels that will cost US $190 Million in late June.
    All of these vessels are bigger than the 15,000 TEU Emma Maersk, which will remain the largest container ship on the high seas until 2013 when the new ships are deployed. But where is the volume going to come from to fill them?
  • Maersk is betting that Asia-Europe trade will increase by 5% to 8% annually over the next four years.
    China’s GDP growth is around 9% and falling. And not all of that is due to trade. The Eurozone is dealing with one financial crisis after another, and no other country in Asia is going to keep up with China.
  • Box freight rates on the Far East-Europe spot market have plunged below zero after stripping out bunker surcharges. Worse, the rates will continue dropping as the big carriers engage in a “destructive” rate war.
    Price wars always have casualties.
  • Net rates are now lower than during the darkest period of the 2009 container slump.
    Rates have no where to go but up (although they may not start rising until we have a few price war casualties).
  • Alphaliner estimates that idle container ship tonnage will climb above 500,000 TEUs by the end of December.
    To put this in perspective, that’s 19.25 Million m3 of idle cargo space which could hold approximately 33.258 Trillion iPad 2’s in the box, if Foxconn could produce them all. (This is 4.75 iPad 2’s for everyone on the planet.)

Put all this together, and you see that:

  • (Some) carriers are going to go out of business.
    It could be yours!
  • Shipping lanes are going to close.
    Carriers will have to drop low volume lanes and consolidate volumes to keep costs down and stay in business.
  • Rates are going to go up.
    As those carriers that don’t go out of business will have no choice to raise rates if they stay in business, even with lane consolidation and elimination of discretionary and low-volume ports.

If you don’t have a ocean freight backup strategy, it’s time to get one, and if a delay could cause you a significant loss or increase in rates as you scramble to divert cargo to a higher cost carrier, it might be time to hedge your bets. the doctor may not be an expert in ocean freight, but this crystal ball is not very hard to read.

Why Gas Prices Are Too Damn High!

OnlineBachelorDegreePrograms.com recently created an interesting infographic that, after breaking down the cost, demonstrated that the underlying reason was global instability and how it affects the price of crude oil which accounts for about 75.5% of the cost of gas in the US. The second biggest cost component was, expectedly, taxes, which account for about 12.25%. A reduction in taxes would help, but even if taxes were chopped in half, you’d still only save $2.44 on a 10-gallon fill-up.

The problem in the US is that Wall Street has changed the formula in the U.S. for pricing gasoline. Until last April, gas prices hinged on the price of U.S. crude oil, set daily in a small town in Cushing, Oklahoma which hosts the largest oil-storage hub in the country. Today, gasoline prices instead track the price of a type of oil found in the North Sea called Brent crude which, today, happens to trade at a premium to U.S. oil by around $20 a barrel. Good for the US oil exporters adding Billions to their bottom lines, but bad for the average U.S. consumer. (Remember, just because a company drills in the U.S. doesn’t mean it has to sell in the U.S. So if you’re a protectionist, maybe you should be fighting for more wildlife preservations. It’s not like you’re going to get cheaper gas anytime soon.) [For more information, see this Fortune article on “If the U.S. is now an oil exporter, why $4 gas?”]

So, unless OPEC decides to try and regulate prices, or the US produces more oil and passes laws mandating that such oil is kept it on its own soil for domestic use and reduces the cost of acquisition for domestic use (possibly by legislating how oil is to be priced in the U.S.), it looks like gas prices are going to be too damn high for a while.

Click the image below to see the full graphic.



Created by: Online Bachelor Degree Programs (.com)

Is Supply Chain Losing the Talent Race?

PWC recently released a report on Winning the Talent Race which was Volume 5 of its study on talent management. Although it contained some not altogether unexpected results (given the talent shortage predictions back in 2007 and the lack of focus on talent management in Supply Chain), the numbers are still quite shocking in magnitude. Not only are 400,000 more truck drivers needed in the US trucking industry alone (up from about 100,000 five years ago), but current estimates by the CSCMP (Council of Supply Chain Management Professionals) are that the US trucking industry will need to hire 1 Million new drives in the next 15 years just to deal with replacing retirees (as 35% of professionals in the transportation and logistics industry are over 50) and projected freight level increases!

But the real problem is that, first of all, this problem is global. Across North America and the EU we have the situation where 35%, or more, of our professionals are nearing retirement age and the number of potential recruits (eligible to hold a commercial driving license) is not keeping pace in an industry where the number of professionals needed to keep pace with global trade. Global trade is expected to at least triple in the next 20 years, due largely in part to emerging markets around the globe, and as a result, the number of professionals needed to staff the industry is going to triple in the next 10 to 15 years (as they need to be hired in time to get the requisite training and experience to take over before we lose all of our greybeards).

And, second of all, rising stars do not want to work in the industry. The researchers found that the new generation of recruits typically view jobs in the T&L sector as “dead-ends” because of factors including low wages, unfavourable working environments, and a lack of career advancement opportunities and that 27% of current T&L workers compromised in accepting a job they felt had less career potential / opportunities for advancement than they had hoped and over 50% of logistics and supply chain professionals are actively looking for another job with better offers. This is terrible and shocking. Supply chains fuel the business world and half of the people we have want out?

But we shouldn’t be surprised. When was the last time your organization actually did something to address the talent management issue that has been on your top three list for the last five years. If you’re honest, chances are your answer is a number that is further than five years in the past or never. Every year for the past four years, like The Mpower Group who has also been trying to address this issue for a couple of years, I heard lots of chatter about how this was going to be the year the organization was going to take the talent bull by the horns and get it in line and every year nothing got done as the training budget was the first to go in the lingering downturn and focus was shifted back to cost savings at all cost. You can’t ignore a talent management issue year over year and expect that it will just fix itself from an organizational viewpoint. The only thing that will happen is that whatever talent you have will leave and take your talent reputation with you. (And good luck attracting new talent then.) If you think your problems are bad enough now, imagine how bad they’ll be when you have no points of talent attraction in a world where talent is attracted to, and finds, talent.

Remember, we are entering the age of connectedness where, thanks to global mega-platforms like LinkedIn and Facebook, everyone is connected to everyone else within 5 degrees of separation (actually, 4.6 and falling), and everybody knows that the dice are loaded, rolling with their fingers crossed. And everybody knows that when your top talent leaves that the plague is coming and moving fast (and, thanks to Facebook, they know before you do). That’s why one of the major recruitment weak points that the survey pointed out is social media. Unfortunately, Transportation, Logistics and Supply Chain is way behind on this front and losing ground fast.

Of course, recruitment isn’t the only issue. As the survey discovered, it’s also compensation, career path, and corporate brand. Rising stars want to feel that they are getting the best offer out there, that they can progress up a career path, and that they are working for a great company. A quick look at the top employer lists doesn’t include many (if any) T&L companies and only a few are known for their world class supply chains. Companies like Apple, where the CSCO (Chief Supply Chain Officer) can become next-in-line for CEO, need to be the norm, not the exception (and a career path from logistics manager to CSCO has to exist for the right hard-working, ambitious, and ready to learn superstar). In addition, as the report points out, the lack of diversity and understanding of demographic shifts isn’t helping.

In short, if your organization doesn’t kick its Supply Management Talent Management program into high gear this year, it may not be around in five years to figure out how it’s going to replace 35% of its staff.

Will Your Supply Chain Avoid the 88 Million Dollar Fine?

Last year, JP Morgan had to pay $88.3 Million in fines for breaking U.S. embargo laws and trade sanctions, including Global Terrorism Sanctions Regulations and Weapons of Mass Destruction Proliferators Sanctions, in three incidents between 2005 and 2011 that involved Cuba, Iran and Sudan, as reported on AllGov. That’s a huge penalty that resulted from simply making loans and wire transfers. And in 2010, Maersk had to pay a $3.1 Million fine for using ships registered in the U.S. to carry commercial cargo to Sudan and Iran between January 2003 and October 2007. Another huge penalty for carrying goods that had never touched the US.

The issue at hand is trade sanctions and all of the pitfalls associated with them if you are US based, importing into, or exporting out of the US. As pointed out in this recent World Trade article on “avoiding the pitfalls of trade sanctions”, a company has to deal with:

  • (broad) country sanctions,
  • import or export specific country sanctions, and
  • Specially Designated National (SDN) sanctions against
    front companies, non-state entities, or individuals

maintained by the Office of Foreign Assets Control of the U.S. Department of the Treasury and:

  • denied persons list and
  • entity list

maintained by the Bureau of Industry and Security of the U.S. Department of Commerce.

There are dozens of country sanctions, hundreds of import/export (commodity) specific sanctions (and more could be on the way, including, of all places, a new sanction against the UK which could appear as early as 2013 as a result of allegations that they gave Airbus illegal subsidies (as per this recent Daily Mail article). And then there are thousands of denied persons and entities and this list also changes regularly.

So, what can you do? You can start by monitoring the sanction programs on the Treasury web site, country information, and the SDN list.

Then you can monitor the denied persons list and the denied entities list on the Bureau of Industry and Security site, which summarizes a multitude of export administration regulations. But considering that these are only summaries, and the full details can only be found in the Federal Register on the Department of State web site, including the pages on non-proliferation sanctions and chemical and biological weapons sanction laws as well as the pages of the counter narcotics group, you would also need to monitor the pages of the office of terrorism finance and economic sanctions policy, and the energy, sanctions, and commodities group of the bureau of economic and business affairs.

But that’s a lot of work … and it may not be enough! So what’s next?