Archive for Global Trade

The Pacific Rim trade deal, formally known as the Trans Pacific Partnership (TPP), obtained a great deal of media coverage in June as Congress debated legislation aimed at providing the President with “fast-track” approval authority. The intensity surrounding debates and opinions led me to believe that this proposed multi-lateral trade agreement would soon come to fruition. Not even close.

Source: Office of the US Trade Representative

Source: Office of the US Trade Representative

Examining the Details?
Logistics is inexorably linked to international trade. At ARC, we conduct research on logistics processes and technologies that directly support international supply chains. Some of the technologies include global trade management (GTM) systems, transportation management systems (TMS), and supply chain planning and network design tools. Due to the potential impact of this trade deal on these markets, I decided to dig deeper into the details to obtain insight into the imminent changes slated to occur. The scope and structure of the agreement are available on The Office of the US Trade Representative for those interested in viewing the agreement framework. However, obtaining specific details on the proposals is proving to be more difficult. Although details are not yet available, there are some features worth noting.

Reduction of Trade Barriers and Development of International Supply Chains
The TPP participating countries are working to eliminate many of the tariffs placed on each other’s exports. This will serve as an important step toward increased integration of multi-national supply chains through the reduction in government imposed competitive barriers. Examples of current tariffs outlined on USTR.gov include a 27 percent Vietnamese tariff on US made auto parts, a 40 percent tariff on poultry entering Malaysia, and tariffs from a number of countries on US made textiles.  The removal of government duties such as these is likely to make customs management less complex for companies and will also shift the competitive landscape toward those with comparative advantages and increase international trade volumes. The increase in global trade is likely to increase international sourcing, extend production lead times, and increase demand for supply chain visibility solutions that provide insight into upstream supply chain events and status changes.

Rules of Origin
The elimination of tariffs between TPP countries opens the opportunity for non-participating countries to use TPP countries as a transshipment intermediary, or a “pass through” to avoid tariffs and duties. To assure compliance, the TPP countries are looking to develop a common set of rules of origin to determine whether or not a given product or item originates within the TPP region, and therefore qualifies for preferential treatment.  It is questionable how quickly these rules will be developed, as the WTO harmonization program was originally expected to be completed in 1998, but is still ongoing due to unforeseen complexities.  However, specific rules such as the yarn forward rule of origin is being proposed to assure that only properly sourced items will receive the preferential duty treatment. The complexity of the rules of origin and ongoing updates to the agreement will assure that item classification software will remain a critical application for those companies that produce complex products and engage in substantial international trade activities.

Intellectual Property Rights
The World Economic Forum publishes an annual global competitiveness report leveraging its Global Competitiveness Index (GCI). The Index categorizes the most advances economies to be those driven by innovation. It should therefore be no surprise that the US is seeking strong intellectual property rights and protections to be included in the TPP. Patent, copyright, and trademark infringements are major concerns for companies that invest heavily in research and development. Increased protections will help alleviate theft and counterfeiting concerns and encourage additional investment in product innovation. Pharmaceutical IP provisions are specifically mentioned as an area of focus for the US. Also noted is US-Japan bilateral negotiations on motor vehicle trade, IP rights, and phased out US tariffs on Japanese automotive products.

Conclusion
The Trans Pacific Partnership is still a deal in the making. It is a complex, multi-lateral negotiation that is likely to hit a number of speed bumps going forward. Reduction of trade barriers, standardization of processes, and international supply chain integration are all key tenets of the proposed agreement. NAFTA trade flows increased from $290 billion in 1993 to over $1.1 trillion in 2012 (about 7 percent CAGR by my calculation). If NAFTA trade flows are an accurate barometer, then the TPP shows promise to propel pacific trade forward at a rapid pace.

Categories : Global Trade, Logistics Trends
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SHamiltonA shortage of drivers in the trucking industry is creating some painful dilemmas for transportation buyers and logistics managers. With the average age of a truck driver now in the late fifties and a dwindling interest in the trucking career path among young workers, it’s getting harder — and more expensive — to find drivers to carry long-haul loads. Truck drivers are required to spend long hours away from home without the company of co-workers. And trucking can be a grueling, sometimes dangerous job. As a result, the number of truckers is decreasing and, consequently, costs for their services are rising. Some loads are even being left to linger on docks while companies wait for truckers to become available.

But there’s good news for those looking to offset this shortage and increased cost. You have an attractive, time-tested alternative to consider: intermodal shipping. Intermodal shipping allows you to transport your freight in an intermodal container (sometimes called an ISO container) or vehicle using multiple modes of transportation, including railways, barges and trucks.

Here we look at the advantages of intermodal freight transport and what you’ll need to do to make the switch.

1. Services Are Easier to Attain
Intermodal opens up other avenues of transportation that are more readily available so trucking services can be kept to a minimum. While trucking is still part of the intermodal system, it’s easier to find a truck driver to do a short day run versus one who will provide long-haul services.

2. It’s Less Expensive
Utilizing intermodal transportation is also significantly cheaper than relying exclusively on long-haul trucking. The bulk of the miles for an intermodal shipment will be logged on a train, which is far less expensive than over the road trucking.

3. It’s Better for the Environment
Intermodal is also more environmentally friendly than long-haul trucking because large numbers of freight containers are moved together using the most efficient modes of transportation.

While intermodal transit time can take a little longer than long-haul trucking, a third-party logistics provider can help you plan ahead and build the extra time into your schedule. And if you’re accustomed to shipping delays caused by waiting for long-haul trucking services to become available, you may find that intermodal is actually faster than your current shipping solution.

If your company faces the challenge of changing the mindsets of production/logistics staff and convincing them to plan for different transit times, an intermodal provider can help. A 3PL can walk them through the process, address any hurdles they may face and customize an intermodal plan for their unique shipping needs.

In short, if the distance between your plant and the consignee is greater than 700 miles, you should inquire about intermodal shipping. At CLX Logistics, all of our intermodal customers are saving money versus shipping over the road.

 

Stephen Hamilton Jr. is the managing director of ChemLogix Global (a division of CLX Logistics), which encompasses CLX Logistics’ intermodal and international service offerings. He began his tenure with CLX Logistics in 2001 as the manager of the company’s liquid bulk intermodal business.

Last week negotiators from the P5+1 (or EU+3) and Iran developed a preliminary agreement on Iran’s nuclear program. This opened the door for Iranian sanction relief and presents the question, “How will Iran’s international trade change, and what partners will benefit?”

The World Bank lists Iran’s 2013 GDP at $369 billion, making it the third largest economy in the region, behind Saudi Arabia and Turkey. Iran’s largest export is petroleum, representing about 80 percent of product exports, and China, India, and Turkey are the largest purchasers of Iran’s goods. (As a note, the US Census shows that the US exported $182 of goods in 2014, and imported $0). Expanding Iran’s options to sell its petroleum internationally could have dramatic effects on the global oil market and substantial effects on that for natural gas as well.

Oil Transportation
Market participants expect a lag time between the sanction lift and oil market effects. In fact, a 5 percent increase in the price of oil just two days ago (April 6) was partially attributed to the expectation of longer than expected time-to-market for Iran’s oil. However, there appears to be plenty of Iranian oil just waiting to be shipped. Estimates range from 7 to 35 million barrels of Iranian oil that is currently sitting either onshore or in supertankers waiting to be shipped. At the same time, Iran appears intent on opening up its ports to international shipping firms. The head of Iran’s Ports and Maritime Organization stated, “Serious talks are underway with shipping companies from across the world, including Europe, on a weekly basis.” In addition, Shipping Company of India is revisiting its recently dissolved joint venture with Islamic Republic of Iran Shipping Lines. The reestablishment of this joint venture is especially substantive due to India’s status as the second largest importer of Iranian oil, after China.

TAP TANAP SCP Schah Denis from Wikimedia

TAP TANAP SCP Schah Denis from Wikimedia

Gas Transportation
In 2008, after a brief disruption of Russian natural gas supplied through Ukraine, the European Commission (EC) launched a strategy to increase the diversity of its natural gas supply sources.  As part of this strategy, the EC proposed the Southern Gas Corridor. This proposal was subsequently envisoned as a pipeline from Azerbaijan through Turkey, named the Trans Anatolian Natural Gas Pipeline (TANAP). Iranian gas supplies were considered a potential extension to the project.

This past September, Reuters quoted A European Commission source that stated, “Iran is far towards the top of our priorities for mid-term measures that will help reduce our reliance on Russian gas supplies.” The article further stated that impediments included the sanctions and a lack of infrastructure. Investors consider a pipeline through Turkey to be a practical option. Turkey views itself as a potential “energy hub of the region” connecting the energy supplies to its east with the demand to its west. The Turkish President is scheduled to make a visit to Tehran next week where he is reportedly expected to express interest in an expansion of Iran-Turkey trade from the current $14 billion.

The potential removal of international sanctions on Iran offers much in the way of opportunities for trade partners, especially India, Turkey, and China, as well as fuel sources for Europe. It also offers promise for international ocean carriers and gas pipeline infrastructure design and construction firms. The time horizon for these opportunities ranges from near-term for the effect on global oil prices, to mid/long-term for gas pipeline infrastructure completion.

ARC Advisory Group (Logisticsviewpoints.com) periodically publishes a study on the global trade management (GTM) systems market. Trade compliance, international transportation execution, and trade visibility represent the core functionality offered by these software solutions. The trade compliance functionality often includes up-to-date trade content that assures users comply with the constantly evolving international trade regulatory environment. ARC is currently developing this study. Please don’t hesitate to contact us for additional information.

Categories : EU, Global Trade, Petroleum Industry
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ecommerceDuring the second half of 2014, Clint Reiser and I worked on an extensive survey examining the omni-channel commerce landscape. One of the key findings from that research was on the growth of e-commerce. According to our research, the lion’s share of revenue is still driven by the store. Brick and mortar locations accounted for approximately 67% of all revenue for our survey respondents. However, when looking at revenue growth, our research tells us a different story. Over the last five years, survey respondents indicated revenue growth of 6% from the brick and mortar channel compared to 47% for e-commerce. Looking ahead, respondents forecasted flat growth for their brick and mortar channel compared to 40% growth for e-commerce. This is a pretty dramatic shift in the retail landscape. It shows that the convergence of channels will be more important as omni-channel operations continue to evolve. It also poses a significant problem for retailers: how to deal with the last mile.

Fedex_ups_uspsLast mile delivery is the final leg of the supply chain. It is the moment the customer finally receives their order. And it is generally the most expensive, least efficient, and most problematic part of the overall delivery process. In the US, last mile deliveries have their own unique set of challenges. Mostly they come down to cost issues, and a retailer’s desire to control the final moment of the brand interaction. There are a few main categories for last mile deliveries. First, is parcel delivery. UPS, FedEx, and the Postal Service are the three main players in this area. These companies are delivering thousands and thousands of packages daily from retailers around the globe to customers front doors and offices. The shipping rates have gone up recently, and these companies provide very little control over the last mile for retailers.

Amazon FreshAn alternative to typical parcel deliveries is in use by Amazon. To control the last mile, and to utilize its massive distribution centers, Amazon has rolled out its own private fleet of trucks to make deliveries. For Amazon, it creates more flexibility in delivery timeframes and reduces overall shipping costs (as Amazon is no longer paying UPS, FedEx, or the Postal Service for deliveries). This is not the first time Amazon has looked for creative ways to complete deliveries. As recently noted in Logistics Viewpoints, Amazon is one of a few companies testing drones for deliveries. The company has also experimented with bike messengers in New York City for small deliveries as well as delivery lockers for customers to pick up items at their convenience.

Another alternative to using the big parcel companies that has taken off is the use of crowdsourced delivery services. Deliv, for example, is a crowd sourced delivery option that stretches across multiple retail segments. This company uses a smartphone app to alert pre-qualified drivers of a pending delivery. The driver picks up the merchandise from the retailer and delivers it to the customer. Instacart is another example of crowdsourced delivery. Based in San Francisco, this company connects personal shoppers with customers to deliver local groceries. Both of these companies are proving that the crowdsourced model is growing. And all of these models show that while they may be expensive, they are doing a good job of satisfying the customer during the last mile.

last mile indiaBut outside of the US, it is another story. The growth of the e-commerce economy is great for retailers, and allows more people to shop for the goods they want, but it poses significant challenges to the last mile. The world’s two most populated countries, which bring an awful lot of buying power, face significant challenges. In India, for example, Morgan Stanley estimates that Indian online sales will hit $100 billion a year by 2020, up from $3 billion in 2013. The difficult part is figuring out the infrastructure to make home deliveries viable. Trucks have a difficult time navigating the crowded streets and the postal service is notoriously slow. One new option in India is the use of couriers to deliver goods purchased from Flipkart, Snapdeal, and Amazon India. But, in order to actually deliver these products, couriers are turning to smaller modes of transportation. In many places, delivery trucks are simply too big to navigate. Instead, couriers are using motorcycles and scooters to carry giant backpacks filled with 100 pounds+ of merchandise. These drivers navigate narrow streets, potholes, and erratic drivers to deliver everything from soda to laser printers. Most people agree that without the use of couriers to deliver these goods, the e-commerce market as a whole would grind to a halt in India.

china last mileChina faces its own set of challenges. The e-commerce market is growing exponentially in China and vast improvements have been made to establish more operations centers across the country. These improvements have made it possible for residents in rural China to shop online and receive orders in a timely fashion. But the last mile still remains an issue. One of the biggest roadblocks for Chinese retailers is the government policy banning freight vehicles and gas-fueled and electric tricycles in downtown areas. This poses a number of problems. First, delivery people can be detained, have their vehicles seized, and receive fines for violating regulations due to the pressure of making a delivery timeframe. Secondly, to combat the costs of tickets and seized vehicles, many companies are simply driving up their delivery costs. These costs can certainly be burdensome to the customer, but at the same time, they are necessary if they wish to receive their package. And third, if the last mile problem is not solved, and vehicles are seized or delivery personnel are detained, the packages may never be delivered. According to the operator of one such delivery service, “if the last mile problem is not solved, up to 1 million packages awaiting delivery could be stockpiled in cities around the country.” This shows just how serious the last mile problem, and the associated challenges are in China.

In conclusion, the global e-commerce market is growing. In fact, according to eMarketer, global B2C e-commerce will reach $2.3 trillion by 2017. This explosive growth brings about new opportunities, new customers, and new challenges. One of the biggest challenges will be controlling the last mile. Logistics infrastructure, economic and political regulations, and competition have proven to be roadblocks for many companies. But as the market grows, the solutions will too.

The unemployment rate edged down slightly in February 2015, to 5.5%. While the unemployment rate for teenagers decreased 1.7% to 17.1%, the rate for adult men (5.2%) and women (4.9%) remained relatively unchanged. This is a good sign for the US economy, as jobs continue to grow. There is one area, in particular, that has a very promising forecast: supply chain leaders. The US Bureau of Labor Statistics estimates that jobs in logistics will increase 26% between 2010 and 2020. The problem? Today’s leaders are nearing retirement age and there is a shortage of available talent to fill these positions. While there are many great college programs out there to help guide the next generation of supply chain leaders, there is not enough interest to fill the demand. This could have disastrous effects on the overall state of logistics in the future. Without enough qualified leaders, will the logistical processes we take for granted today (same or next day shipping, worldwide availability of produce during all seasons, etc.) become a thing of the past? Probably not. But without the right people in place, the processes can only hold up for so long. And when the processes begin to break down, logistics costs will rise. And that is when things will get interesting. So for any readers out there in college, or with kids in or nearing college, a helpful “push” towards a career in supply chain might not be a bad idea. In fact, it just might be a very lucrative one.

And now, on to the news.

ports 2Now that the contract talks are over, operations can resume at West Coast ports to work through the backlog. As a result, import cargo volume at the nation’s major retail container ports is expected to rise an unusually high 16.9% this month over the same time last year. The March number is high both because of the backlog of ships at anchor waiting to be unloaded and because the annual Lunar New Year shutdown of Chinese factories was later this year, delaying some February cargo into March. Imports are expected to remain up year-over-year for each of the next 4 months. This is good news for retailers, as they rush to ensure spring merchandise is on the shelves and ready to be sold.

cargo theft graphThe 2014 cargo theft report points to an elevated threat and more sophisticated thieves. For the second straight year, the number of thefts reported has dropped, but the average value of the theft has risen. The number of thefts dropped 12% from 2013, while the average value of each theft rose 36% to $232,924. This indicates that thieves are more aware of what is on trucks are specifically targeting high value merchandise. Food and beverages were the most stolen items at 19% of all thefts, followed by electronics at 16%. The number of electronics thefts valued over $1 million tripled from 2013. The report indicates that lack of secured parking accounted for 87% of thefts, and nearly all of the cargo thefts in 2014 occurred in just five states: Florida, California, Texas, Georgia and New Jersey.

mexico borderThe Teamsters Union announced this week it has filed a lawsuit against the Federal Motor Carrier Safety Administration’s (FMCSA) recent move to expand its cross-border trucking program with Mexico. The FMSCA announced it was opening the U.S. operating authority application process to all Mexican carriers as part of compliance provisions in the North American Free Trade Agreement (NAFTA). The Teamsters lawsuit alleges the decision “is arbitrary and capricious in light of the admitted lack of significant data” gleaned during the agency’s three-year cross-border pilot program.” The Teamster’s big issue with the announcement is over the validity of data from a pilot program that deems Mexican carriers just as safe as US carriers. The Teamsters have vowed to continue to fight this ruling to ensure the safety of US roads.

amtrakSpeaking of court cases, the US Supreme Court has temporarily revived a federal law credited with improving Amtrak’s on-time performance. The 2008 law stipulates that Amtrak trains have the right of way over freight trains on shared tracks. The freight railroad industry fought the law and argued that Amtrak is a private organization that could not regulate competitor’s actions. Initially, an appeals court sided with the freight railroad industry, ruling that Congress unconstitutionally gave regulatory power to a private company. The Supreme Court disagreed, citing the fact that Congress created Amtrak in 1970 as a for-profit company, meaning that even though Amtrak is subject to government oversight, it is like a government entity. The case will be decided by the appeals court after a full review.

Amazon 3D PrintingAmazon has recently filed a patent application which indicates that 3D printing may be a way to reduce inventory by replacing the traditional warehouse model. The patent suggests that once a consumer orders the item, printing instructions are sent to the closest available 3D-printing truck and device combination, before delivering the freshly made device when it’s finished. The main driver here would be to reduce inventory carrying costs. This is obviously not a guarantee that Amazon will move forward with the mobile 3D print shop, but it is an interesting idea. While it is not immediately practical for most goods, it could be applicable to Amazon’s 3D print shop, which currently sells with jewelry, home décor, tech accessories, among others things. Although the print time is just too long for this to happen today. Either way, it’s always fun to see what ideas Jeff Bezos has floating through his head.

Spot Market RateAnd finally, rates on the spot freight market generally turned higher over the past week as freight availability continued it seasonal rebound. The largest increase was in the van segment, which increased 3.2%, up to an average of $1.94 per mile. The reefer rate was up to $2.16 per mile, which is an increase of 2.4%. The flatbed rate fell to $2.12 per mile, or 0.5%. Load-to-truck ratios improved in all three segments as well, with vans up 16%, reefer ratio up 15%, and flatbed ratio up 12%.

That’s all for this week. Enjoy the weekend and the song of the week, The Clash’s I Fought the Law.