Archive for December 2008 – Page 2

If you want a glimpse of how “green” regulations (as well as “infrastructure” initiatives) could impact logistics operations in the near future, look no further than California.  Several regulations are on the books or in the approval process that aim to improve the state’s air quality and reduce greenhouse gases.  A noble cause, but it’s not one without costs, challenges, and tradeoffs.

Last Friday, for example, the Air Resources Board (part of California’s Environmental Protection Agency) adopted two regulations aimed at reducing truck emissions in the state.   According to the press release, “Beginning January 1, 2011, the Statewide Truck and Bus rule will require truck owners to install diesel exhaust filters on their rigs, with nearly all vehicles upgraded by 2014.  Owners must also replace engines older than the 2010 model year according to a staggered implementation schedule that extends from 2012 to 2022.  The Heavy Duty Vehicle Greenhouse Gas Emission Reduction measure requires long-haul truckers to install fuel efficient tires and aerodynamic devices on their trailers that lower greenhouse gas emissions and improve fuel economy.”

The press release also mentions that “the greenhouse gas reduction measure applies to more than 500,000 trailers, while the diesel regulation applies to about 400,000 heavy duty vehicles that are registered in the state, and about 500,000 out-of-state vehicles that do business in California.”  The state plans to offer over $1 billion in funding opportunities to help truck owners comply with these regulations (never mind that California faces a $41.8 billion shortfall for its combined current and next fiscal years).

I won’t comment on the details of these regulations (click on the links provided to read the documents), but aside from the cost issues, these regulations raise an important question: Should states take unilateral action on “green” initiatives that impact interstate commerce or should the federal government take the lead in crafting a nationwide policy?  This question is part of the ongoing debate regarding state’s rights, triggered in large part by California’s past actions on auto emissions laws.  The scenario the trucking industry wants to avoid (much like the automotive industry) is each state having different laws, requirements, and timetables.  But since California’s policies are typically the strictest, and because the state is so important from a business perspective, whatever regulations California implements effectively become the de facto “nationwide” standard that trucking companies are forced to follow.

My view is that taking a holistic and integrated perspective is the only way to effectively address the environmental impact of industries like transportation, if only because state-level regulations do not exist in a vacuum.  For example, what happens if (when?) the federal government passes carbon cap and trade legislation?  Would the requirements of cap and trade conflict with state-level emissions laws?  Would the overlap of implementation schedules place undue burden on transportation companies?  Simply put, without a coordinated approach, you can legislate the transportation industry to death.

Why does this matter if you’re a shipper?  Well, at the end of the day, you’re going to pay (directly or indirectly) whatever costs trucking companies incur as a result of these regulations.  And California (well, the Ports of Los Angeles and Long Beach) will soon be charging you a Clean Truck Fee and Infrastructure Cargo Fee.  The ports planned to collect the Clean Truck Fee starting November 17th ($35 per loaded twenty-foot equivalent unit and smaller; $70 for larger containers), but collection has been delayed due to legal action taken by the Federal Maritime Commission.  The ports voluntarily delayed the Infrastructure Cargo Fee ($15 per 20-ft-long shipping container, $30 for a 40-footer) for six months because, in the words of Port of Long Beach deputy executive director J. Christopher Lytle, “extra time is needed to complete the planning and approval process for these many [infrastructure] projects.”  Or in my opinion, the ports are concerned that shippers will say “enough is enough” and bring their business elsewhere.

Let me say it again: creating “green” supply chains that are truly sustainable will be costly and messy, and we’re all going to have to pay for it, one way or another.  What happens in California matters, for better or for worse.

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Categories : Regulations, Sustainability, Transportation
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If you want a glimpse of how “green” regulations (as well as “infrastructure” initiatives) could impact logistics operations in the near future, look no further than California.  Several regulations are on the books, or in the approval process, that aim to improve the state’s air quality and reduce greenhouse gases.  A noble cause, but it’s not one without costs, challenges, and tradeoffs.

Last Friday, for example, the Air Resources Board (part of California’s Environmental Protection Agency) adopted two regulations aimed at reducing truck emissions in the state.   According to the press release, “Beginning January 1, 2011, the Statewide Truck and Bus rule will require truck owners to install diesel exhaust filters on their rigs, with nearly all vehicles upgraded by 2014.  Owners must also replace engines older than the 2010 model year according to a staggered implementation schedule that extends from 2012 to 2022.  The Heavy Duty Vehicle Greenhouse Gas Emission Reduction measure requires long-haul truckers to install fuel efficient tires and aerodynamic devices on their trailers that lower greenhouse gas emissions and improve fuel economy.”

The press release also mentions that “the greenhouse gas reduction measure applies to more than 500,000 trailers, while the diesel regulation applies to about 400,000 heavy duty vehicles that are registered in the state, and about 500,000 out-of-state vehicles that do business in California.”  The state plans to offer over $1 billion in funding opportunities to help truck owners comply with these regulations (never mind that California faces a $41.8 billion shortfall for its combined current and next fiscal years).

I won’t comment on the details of these regulations (click on the links provided to read the documents), but aside from the cost issues, these regulations raise an important question: Should states take unilateral action on “green” initiatives that impact interstate commerce or should the federal government take the lead in crafting a nationwide policy?  This question is part of the ongoing debate regarding state’s rights, triggered in large part by California’s past actions on auto emissions laws.  The scenario the trucking industry wants to avoid (much like the automotive industry) is each state having different laws, requirements, and timetables.  But since California’s policies are typically the strictest, and because the state is so important from a business perspective, whatever regulations California implements effectively become the de facto “nationwide” standard that trucking companies are forced to follow.

My view is that taking a holistic and integrated perspective is the only way to effectively address the environmental impact of industries like transportation, if only because state-level regulations do not exist in a vacuum.  For example, what happens if (when?) the federal government passes carbon cap and trade legislation?  Would the requirements of cap and trade conflict with state-level emissions laws?  Would the overlap of implementation schedules place undue burden on transportation companies?  Simply put, without a coordinated approach, you can legislate the transportation industry to death.

Why does this matter if you’re a shipper?  Well, at the end of the day, you’re going to pay (directly or indirectly) whatever costs trucking companies incur as a result of these regulations.  And California (well, the Ports of Los Angeles and Long Beach) will soon be charging you a Clean Truck Fee and Infrastructure Cargo Fee.  The ports planned to collect the Clean Truck Fee starting November 17th ($35 per loaded twenty-foot equivalent unit and smaller; $70 for larger containers), but collection has been delayed due to legal action taken by the Federal Maritime Commission.  The ports voluntarily delayed the Infrastructure Cargo Fee ($15 per 20-ft-long shipping container, $30 for a 40-footer) for six months because, in the words of Port of Long Beach deputy executive director J. Christopher Lytle, “extra time is needed to complete the planning and approval process for these many [infrastructure] projects.”  Or in my opinion, the ports are concerned that shippers will say “enough is enough” and bring their business elsewhere.

Let me say it again: creating “green” supply chains that are truly sustainable will be costly and messy, and we’re all going to have to pay for it, one way or another.  What happens in California matters, for better or worse.

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Categories : Regulations, Transportation
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I don’t normally comment on customer wins, but the recent news of Geodis “acquiring IBM’s global logistics flow management platform” warrants some attention because this announcement could be viewed as a new strategy in logistics outsourcing.  For the past couple of years, I’ve been saying that the business models of logistics service providers, technology companies, and consultants are starting to converge.  I’ve highlighted, for example, how i2 Technologies, LeanLogistics, and Transplace have effectively combined technology with managed services to differentiate themselves in the marketplace.  This deal between Geodis and IBM is yet another validation point, albeit a different one from the examples I’ve discussed in the past.

IBM has been promoting its supply chain and logistics expertise for several years.  The quick back story: IBM spent several years transforming its internal supply chain and logistics organization during the 90s.  In 2003 IBM formed a single strategic business unit, Integrated Supply Chain (ISC), to drive operational excellence in supply chain management across the entire company.  Today, ISC has about 15,000 employees in more than 50 countries, and it manages over $45 billion in spending.  According to IBM, this supply chain transformation has saved them over $20 billion in the last three years. 

And it’s this success that IBM points to when positioning its Supply Chain Business Process Outsourcing services to clients.  But what impact will the Geodis deal have on IBM’s BPO offering in SCM?  This was the first question that popped into my head when I read the press release.  The second question: what prompted IBM to make this move?  Last Friday, I spoke with Gary Smith, VP of Global Logistics at IBM’s Integrated Supply Chain, to get some answers.

The reason why IBM decided to outsource is not a big surprise.  IBM asked itself a basic question: Is logistics an area that we want to continue making strategic investments in?  IBM decided that seeking a strategic logistics partner was the best approach.  According to Smith, “If we continued within IBM, we weren’t going to make the necessary investments to take our capabilities to the next level.  So we looked for an opportunity to marry the best of IBM’s supply chain expertise and capabilities with the best an LSP has to offer, and in the process create a new platform for growth and value for our clients.”

In many ways, Smith’s comments are no different than what I hear from other companies that decide to outsource: our plan is to focus on our “core competencies” and outsource everything else.  What’s interesting in this case, however, is that logistics is a core competency for IBM; it’s just that the company has decided to invest its strategic dollars elsewhere.  The intriguing part of Smith’s answer is how this deal creates a new platform for growth, which relates to my question about how this deal would impact their SCM BPO practice.

In a nutshell, the Geodis deal won’t change things much for IBM in the near term.  The key areas where IBM has been the most successful with its SCM BPO practice are supply chain transformation, procurement services, and supply chain visibility.  The company will continue to offer these services directly to clients moving forward.  Telstra, a leading telecommunications company in Australia, is one of IBM’s best case studies in this area.  But IBM didn’t gain much traction managing logistics operations on behalf of clients, the traditional role of a logistics service provider, and this is where Geodis comes in, and where the partnership potentially creates a new platform for growth.

In other words, Geodis could serve as a channel for IBM’s SCM BPO services, and IBM could serve as a channel for Geodis’ logistics services.  From a client perspective, the story would go like this: IBM will help you with the strategic side of the equation (supply chain transformation, procurement, and IT), while Geodis will focus on the execution side (people, processes, and infrastructure) to drive supply chain operational excellence on a global basis.  At least that’s the opportunity, as I see it, for IBM and Geodis. 

This deal could be a new platform for growth for IBM, and it could motivate other companies (especially in this economic environment) to take similar action.  Or it could be more of the same, just another large company outsourcing its global logistics operations to a “lead logistics provider.”  Time will tell.

Finally, I asked Smith why they selected Geodis.  His response included the usual factors: existing 10 year relationship with IBM, including as lead logistics provider in Europe; financial strength of the company (Geodis is the fourth largest LSP in Europe with €4.8 billion in revenue last year, and they are owned by France’s SNCF); and alignment of strategies.  But Smith also mentioned that about seven years ago IBM and Geodis entered into a similar (albeit smaller) deal in Europe, where about 800 IBM employees were transferred to Geodis.  This transaction was very successful, and virtually all of the transferred employees are still with Geodis today.  And this was another important factor for IBM.  One of IBM’s reasons for outsourcing was to provide its employees with a valuable and ongoing career path, which based on past experience, Geodis will provide.  After all, it’s the talent and expertise of IBM’s supply chain and logistics employees that Geodis is primarily investing in, as the company seeks to strengthen its presence outside of Europe, particularly in North America and Asia.

So, what do you think?  Is this deal between IBM and Geodis truly different?  Will other companies take similar action?  Is this a new strategy in logistics outsourcing?

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This was not the topic I had planned to write about today.  I was all set to comment on the data released this week by the Bureau of Transportation Statistics (its Freight Transportation Services Index (TSI) rose 1.0 percent in October from its September level, but it’s down 0.6 percent from October 2007), and I was also going to highlight a report issued by the International Air Transport Association (IATA) that forecasts a $2.5 billion loss for the air transport industry next year (IATA expects cargo traffic to decline 5 percent next year, following a drop of 1.5 percent in 2008).  But today is Friday, and I don’t want to depress myself and all of you as we head into the weekend, so I’m focusing today’s piece on something more positive.

This morning I came across the news that Ryder launched its RydeGreen Hybrid straight truck.  This new offering follows last year’s introduction of the company’s RydeGreen tractors and trailers.  The truck reportedly can improve fuel efficiency by up to 40 percent in standard in-city pick-up and delivery situations.  Ryder lease customers can order these trucks now and a limited supply will be available for rent at select Ryder rental locations in January.

Earlier this week, I commented on Ryder’s participation in the Carbon Disclosure Project.  This is yet another example of the investments Ryder is making to minimize its carbon footprint.  It’s also an example of how Ryder views “green” as a business opportunity.  The billion dollar question on the consumer side is whether you and I will pay more for environmentally-friendly products.  A similar question exists on the commercial side.  It’ll be interesting to see how many companies order these vehicles next year, especially in this economic environment.

UPS is another logistics company that’s been investing in “green” vehicles.  Back in October, the company announced that it had purchased hydraulic hybrid vehicles.  According to the press release, “The [hydraulic hybrid] technology originally developed in a federal laboratory of the Environmental Protection Agency, stores energy by compressing hydraulic fluid under pressure in a large chamber. UPS was the only company in its industry asked to road-test the technology two years ago and now becomes the first delivery company to place an order for hydraulic hybrid vehicles (HHV).”  Based on the road tests, the HHV prototypes were up to 50 percent more fuel efficient than conventional diesel delivery trucks, and UPS believes it can achieve similar fuel economy improvements and a 30 percent reduction in CO2 in daily, real-world use.

Finally, in late November, ZAP (a manufacturer of 100 percent electric, plug-in vehicles) introduced its four-wheel, 800-lb payload ZAP Truck XL.  I first came across Zap at the beginning of the year when the company announced that they were working with the Coca-Cola Company on a project to use 30 of its compact trucks for a new beverage distribution system in Montevideo, Uruguay.  The “sweet spot” for these types of vehicles is local distribution in heavily congested areas or where roads are not well-suited for large trucks, which is the case in many developing countries.

So, there you have it.  The transportation industry is going “green” one vehicle at a time.  I’ll be tracking how much traction (no pun intended) these vehicles get in the industry next year, and if other transportation companies follow in the footsteps of Ryder and UPS.  In the meantime, have a great weekend.  Don’t read or listen to the news.  Go for a nice walk, and see if you can spot any of these “green” trucks on the road.

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Does “on demand” or “software-as-a-service” make sense for all types of software solutions?  I’m asked this question a lot, and my standard answer is that software-as-a-service makes the most sense for business processes that are inherently network-centric.  In other words, business processes that involves exchanging information and documents with many different external parties.  Transportation management fits this criterion nicely, so does global trade management, which is why software-as-a-service has gained so much traction in these markets.

In global trade management, there’s another reason why this deployment model is powerful.  A GTM software solution is essentially worthless without trade content, the database of rules and regulations, duties and tariffs, restricted party lists, preferential trade agreements, and other information that companies must incorporate into their import and export processes to stay in compliance with trade regulations.  Trade content is continuously changing, and if your GTM system is using outdated information, your trade processes can come to a halt and you can be exposed to hefty fines or legal action.  GTM vendors like Management Dynamics have a team of people that gather, update, and maintain trade content from various countries around the world, and their customers access this information in near real-time via web services.  It sure beats receiving a CD in the mail every other day and having someone on your IT staff upload the changes!

In other words, software-as-a-service and web services are also a good fit for business processes that depend on dynamic content.   And content is the core of SMC3‘s business model, which is why their decision to adopt a common service-oriented architecture (SOA) platform for its solutions and leverage web services makes so much sense to me.  In case you’re not familiar with SMC3, the company has been around since 1935 and they’re best known for CzarLite, a market-based price list of LTL rates that shippers, carriers, and logistics service providers use as baseline for negotiating contracts.  According to the company, over one-third of LTL freight in the US uses CzarLite pricing.  Most of the leading TMS and WMS vendors leverage SMC3 in their solutions.

The briefing I had last week focused on RateWare XL, the SOA-based solution the company launched earlier this year.  The rate structures currently supported by RateWare XL include LTL and density. Support of truckload and small package/parcel rates is planned for late 2009. 

If you look at the traditional way SMC3 solutions interface with TMS, WMS, and other enterprise systems, it is the classic “spaghetti chart” of multiple interfaces crossing each other.  In some cases, some of these interfaces are custom developed, which result in longer implementation times and higher costs.  By taking a web services approach, as the chart at this link shows, the integration is more straightforward and extensible.

SMC3 says that logistics service providers (49 of the top 50 are clients) are the most excited with this delivery model, and for good reason.  Many LSPs have a heterogeneous IT environment that includes multiple TMS and WMS systems.  Instead of building and maintaining separate interfaces for each of these applications, they can access the content via a single web services interface.

The web services model also aligns well with a trend in the TMS industry that I’ve highlighted many times before.  Simply stated, TMS users are no longer just the handful of people in the transportation department; the value of transportation-related information extends across the enterprise to customer service, finance, sourcing, and other business functions, as well as externally to suppliers and customers.  The ability for a customer service representative, for example, to execute a rate inquiry from his desktop, without having to put a customer on hold while he calls down to transportation, is one of the benefits customers expect from a TMS today, and this capability is made possible (easier) by web services.

As mentioned earlier, software alliance partners are an important component of SMC3‘s go-to-market strategy.  A key partner is SAP, particularly with RateWare XL and CarrierConnect XL (available for general release in Q2 2009).  SMC3 is a Certified Content Partner of SAP, as well as an Independent Software Vendor with Certified Integration partner.  The companies have been involved in joint development, and RateWare XL and CarrierConnect XL are integrated with SAP TM 7.0  RateWare XL reportedly processes up to 80,000 LTL rates per second, and CarrierConnect provides access to LTL points of service and transit times.  A key capability is the ability for SAP TM 7.0 users to manage LTL discounts within the system.

I’m a long-time proponent of software-as-a-service solutions, so I readily admit that I’m a bit biased when it comes to solutions that align nicely with this model.  I haven’t had a chance yet to speak with SMC3‘s software alliance partners to get their perspectives on these SOA solutions.  Since most of these partners are SOA-based themselves, my guess is that they favor the new approach.  But I wouldn’t be surprised if they (as well as their end users) also provide some constructive criticism.  SOA and web services certainly improve the integration process, but they’re not silver bullets either.  Obtaining these other perspectives is something that I’ll follow up on.  In the meantime, let me know what you think.  If you’re an existing SMC3 user, is the direction the company is heading the right one for you?

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