Archive for Global Trade

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.

Bob_Dylan_-_The_Times_They_Are_a-Changin'The times they are a-changing. This week’s news reflects some major changes, especially in the retail world. The West Coast port work stoppage has come to an end with a formal agreement in place after 9+ months of discussions. Major retailers are branching into new, and often unlikely spaces, as the global e-commerce market soars. The commercial drone industry finally has an initial set of regulations in place, which now opens a 60 day comment period. Amazon, for one, is none too happy with the proposal. And finally, this weekend marks the end of February. For those of us in the frozen landscape of New England, it means that the end is in sight. Spring will be here soon, and we can finally move on from a record-setting winter. Yes, the times they are a-changing.

And now, on to the news.

wcpAt least for now, the West Coast port labor fight has come to end. The owners of the 29 West Coast ports and the dockworkers union have reached a tentative deal for a new contract. As a result, the port can begin to work through the backlog of stalled goods waiting on the docks and out at sea to get operations back to normal. While this is good news for retailers, manufacturers, and agricultural exporters, the road to recovery will not be quick. Analysts predict it will take months for operations to normalize, and the flow of goods through the ports will be slow going for the foreseeable future. All parties involved in the deal know that this is certainly not the end of worry over future confrontations.

remote droneThe FAA revealed a proposal over the regulation of commercial drones in the US. The proposal would allow commercial drones up to 55 pounds to fly within sight of their pilots up to 500 feet high at speeds as fast as 100 mph. The remote pilots must be at least 17 years old and would have to get certificates by passing a test of aeronautic knowledge and a vetting by the Transportation Security Administration. Many people are happy with the proposal. Brian Wynne, CEO of the trade group Association for Unmanned Vehicle Systems International, called the proposal a milestone toward remote-controlled aircraft sharing the skies with passenger planes. Amazon and Google however, are not so happy.

“That means we really are not talking about unmanned aerial vehicles. We are talking about something that has to have a person. It defeats the whole purpose,” said Michael E. Drobac, executive director of the Small Unmanned Aerial Vehicle Coalition, of which Amazon, Google and GoPro are members.

In Hyderabad, India, the logistics side of e-commerce has been a challenge. Local convenience stores and gas stations are stepping in to try to save the day. Third party logistics providers are working with local shops to establish e-commerce hubs in neighborhoods in smaller cities. Rather than developing complicated supply chains to ensure home delivery across the region, retailers can now deliver goods to small local stores for convenient pick-up by the customer. This plan allows the local business to serve a major role in the last mile of delivery while enabling retailers and logistics players to save money on their supply chain operations.

FarmersMarketOnline food shopping has been growing at a rapid pace in the last few years. And now, an unlikely retailer is entering the space: Overstock. Known for selling surplus and returned items through its e-commerce site, Overstock.com is now a player in the online grocery space. But instead of working with traditional supermarkets like other retailers, Overstock is taking a different approach. Overstock is working directly with farmer’s markets to deliver “locally grown, farm fresh food.” The program works with local farmers to deliver food directly to customers. Overstock handles the delivery of the order to customers and uses a profit-sharing program to compensate farmers. With an increasing focus on local and sustainable food sources, Overstock has put itself in a great place for growth in the grocery space.

waffleTwo more retailers are entering new business ventures as well: Waffle House and Woolworths. Waffle House, a breakfast restaurant based in the US, is entering a new business – delivering mail. The restaurant chain is attempting to compete with the USPS, FedEx, and UPS. The plan is take a page from Uber’s playbook and use its restaurants as drop-off locations. Using an app developed by Roadie Inc., customers can find drivers already heading towards their package’s destination. The drivers will then deliver the package to Waffle House locations, where customers will retrieve it. Rather than getting paid, drivers receive a free waffle when they download the app and free drink when they make a delivery.

At the same time, Australia based retailer Woolworth’s has inked a deal with eBay to serve as pick-up locations for orders. The service will initially be available to eBay buyers living in Sydney and Tasmania. They will have the choice to collect their orders from more than 90 Woolworths and Big W stores located across both cities. eBay and Woolworths predict that up to 12,000 sellers will be involved in the new click-and-collect service, based on Woolworths’ claim that 91 percent of Australians currently live within 10 kilometers of one of its stores. These two agreements show the changing nature of supply chain logistics. Click-and-collect is becoming a larger portion of businesses for retailers, and will only continue to grow as the global e-commerce market does as well.

That’s all for this week. Enjoy the weekend and the song of the, The Times They Are A-Changing by Bob Dylan.

On Friday, the Pacific Maritime Association (PMA) and the International Longshore and Warehouse Union (ILWU) announced a tentative agreement on a new five-year contract covering workers at all 29 West Coast ports. This announcement comes after months of labor negotiations and West Coast port congestion that has caused widespread shipment delays felt across the nation and across industries.

Courtesy of Michael Kelley http://www.mpkelley.com/

Courtesy of Michael Kelley http://www.mpkelley.com/

My colleague Chris and I have included ongoing updates on the gridlock in our Friday news posts. This past Friday I referenced a Gizmodo article that included some truly remarkable photos of the congestion at the Ports of LA and Long Beach. This got me thinking about the longer-term prospects for the stakeholders of the West Coast ports.  I have a personal interest in economics and business strategy; so I almost automatically look at the dynamics of these situations from the perspective of Porter’s Five Competitive Forces.

Michael Porter -  The Five Forces That Shape Industry Strategy

Michael Porter – The Five Forces That Shape Industry Strategy

Existing Competition Among Ports
I consider the West Coast ports to be one entity in this situation, since the ILWU is established along the entire coast. Therefore, other ports outside of ILWU territory can be considered alternatives, or “competitors.” I found it interesting that the ILWU chose to disaffiliate itself from the AFL-CIO (since the International Longshoremen’s Association is affiliated) back in 2013, as I always thought that “strength in numbers” was a key tenet to collective bargaining. Anyway, it is clear from the press and from statistics that a notable amount of shipments are being diverted away from the West Coast ports to more reliable alternatives such as Gulf and East Coast ports. (In fact, The Panama Canal has been another beneficiary of these ship diversions because the ships coming through have a greater number of loaded containers, generating greater fees for the canal operators.) There is evidence that discretionary West Coast cargo has been getting diverted for some time. A PMA annual report states that East Coast and Gulf ports have gained market share at the expense of the West Coast. And they point to reliability concerns after the 2002 coast-wide port shutdown as the likely cause. With the Panama Canal expansion, the Gulf and East Coast ports will become an increasingly viable alternative for the West Coast going forward.

The diversion of shipments to alternative ports is driven by the importers’ desire to receive the goods in a timely manner and on a reliable basis. Diversion causes an increase in shipping distance and cost. But at this time diversion is providing time and reliability advantages. Importers are likely to continue to shy away from the West Coast until they obtain sufficient confidence in the reliability of the ports.

Threat of Substitutes to Labor
Aside from the reduction in work caused by diverted shipments, the ports are becoming increasingly automated due to general modernization, capacity constraints, and the increased use of containers that lend themselves to standardized processes. In 2013, when the ILWU disassociated with the AFL-CIO, the Seattle Times referenced  a letter from the ILWU president stating that they faced the “challenge of the ports soon being run by robotics and computer-operated machinery over the next five to ten years.” This is likely to be true, as the ports need to stay competitive and increase throughput. But I also think that while some jobs will be replaced by automation, others will be created to support the new technology and processes in use.

Technology is currently being deployed across the West Coast ports. The recent TracPac container terminal at the Port of LA is the West Coast’s first to be completed terminal automation project, according to PMA. It is a $510 million upgrade that is composed of 10 projects and includes the construction of an automated intermodal container transfer facility and equips each terminal with on-dock rail. West Coast terminals are reportedly also considering the deployment of additional automation including automated guided vehicles and automated stacking cranes. An example of the use of AGVs in terminals is APM Terminals new facility in Rotterdam that will use battery-driven lift AGVs for container transport within the yard and eight STS cranes that will be controlled remotely.

So the shipping lines are being pressured by volumes and economies of scale; the West Coast port operators are being pressured by the alternatives being created by the Panama Canal and alternative ports; and the ILWU is being pressured by the port operators. It sounds to me like competitive forces are alive and well on the Pacific.

Things are certainly changing in the trucking industry. Even though demand is rising, the industry is facing a monumental challenge in its shortage of qualified and licensed drivers. The driver shortage has been at the forefront of trucking news for some time, and we have certainly covered it here at Logistics Viewpoints. With the ongoing investments in research and development for driverless vehicles, could this be the solution to the driver shortage?

driverless trucksDriverless cars have been receiving the lion’s share of buzz lately. But they are not the only vehicles out there. In fact, driverless trucks are already operating at iron ore mines in Pilbara, Western Australia. The trucks were brought in to alleviate safety concerns for drivers, while increasing efficiency. These trucks are mostly operating on deserted dirt roads, not driving through crowded cities. But that could all change soon.

DriverlessTruck2Pretty much every car and truck company out there is testing driverless trucks, and it is only a matter of time before they hit the road. Not only could driverless trucks combat the driver shortage, there a number of other tangible benefits that can be felt. First, current regulations dictate the number of hours a driver can be behind the wheel. These regulations vary by country, but the bottom line is that each driver can only log so many hours a day or week. With driverless trucks, the trucks could drive 24 hours a day, while only stopping to re-fuel. There would be no mandated work stoppages or rest times. There would be no time lost to meals and snacks. There would be no time lost to sleep. The trucks can just keep going. This will cut down on the transit time to deliver goods, which will reduce overall costs.

Second, safety concerns of fatigued drivers will no longer exist. Driver fatigue is a serious issue in the trucking industry. For that reason, regulations exist to limit driving times. With smart trucks, there is no chance of human error on the road. In fact, there is not even human interaction. The trucks will not need to rest or reset themselves. Instead, they can continue to drive through the night.

Third, resources can be dedicated to other tasks. Freight turnover will increase due to shorter transit times. As a result, money can be invested in other areas of labor to speed up the loading / unloading process. The quicker trucks can be loaded and unloaded, the quicker they are back on the road. However, the increased use of automation could eventually lead to driverless trucks delivering goods to staff-less warehouses, with conveyors and scanners for unloading the trucks.

The looming question, however, is whether or not a driver needs to be in the driverless truck “just in case.” As driverless trucks become a reality, this will be a key question. If human drivers are needed in the trucks, the driver shortage will still be felt. However, drivers could use the time in the truck to complete other tasks for the company. This essentially gives the “driver” double duty, which will also save the company time, money, and resources. For example, drivers could complete invoices and send them out while the truck drives itself. Conversely, if human drivers are not needed in the truck, it can be the solution to the driver shortage. Then the question becomes, what about the drivers?

truck dayAnother week, another winter storm in the Northeast. It is a seemingly endless onslaught of snow, with another potential blizzard on the horizon. Last week I wrote about e-commerce grinding to a halt with the back-to-back storms, and Clint Reiser wrote about the weather’s impact on the supply chain (and his pursuit of a roof rake). Well, things are just going to get worse. I have nowhere to put the snow anymore, nor do any of my neighbors, surrounding towns, or major cities. Aside from the visibility issues of 10 foot tall snowbanks, delivery trucks have nowhere to park. I’ve seen countless delivery trucks “parked” in the middle of the road, blocking the flow of traffic. While this is something that would normally irritate me, these drivers have nowhere else to go, and no other alternatives. The result is traffic congestion, delayed deliveries, and a sense of longing for spring. Luckily, yesterday was truck day for the Red Sox. Only 52 days until opening day.

And now, on to the news.

west coast portAs of yesterday, West Coast ports are shutting down for four days as a result of the ongoing labor standoff. The ports on the West Coast run from Seattle to Los Angeles, and account for half of the imports into the United States. Previously, there had been worker slowdowns which resulted in massive gridlock and a slow flow of goods from the ports. But this shutdown could be devastating. According to National Retail Federation and National Association of Manufacturers, a shutdown of ports in cities like Los Angeles, San Francisco, Portland and Seattle would cost the U.S. economy almost $2 billion per day.

“The last prolonged port shutdown of the West Coast ports was the 10-day lockout in 2002 which some estimate cost the U.S. economy close to $1 billion a day and took months to recover from. The NRF-NAM estimates that a five-day stoppage would reduce GDP by $1.9 billion a day. This would increase exponentially with a 20-day stoppage resulting in a loss of $2.5 billion a day.”

walmart workerWalmart is jumping into grocery pick-up service. The retail giant is testing the service at three Arizona stores, as well as one in Bentonville, AR and Denver, CO. The retailer is offering thousands of items, from fresh produce and dairy to electronics and toys. Unlike other online services, which typically include a $10+ delivery fee, Walmart’s pick-up service is free to customers provided they place a $30 order. Customers choose a delivery timeframe at check-out and receive a call when their order is complete. Upon arriving at the store, they call a designated telephone number and a store associate will load the groceries into their car. This service could have a big impact on working parents, as they can place an order in the morning and pick up the groceries on their way home from work. Depending on how successful it is, there could certainly be labor implications of picking and running groceries all day.

sidecarSidecar, a ride-hailing start-up in competition with the likes of Uber and Lyft, announced plans to use its fleet of cars to introduce a package delivery service, delivering items like food and groceries for partner companies. The program will use drivers that are already picking up and dropping off customers. This move will put Sidecar into same day delivery category, competing with the likes of Amazon and Google, as well as other smaller companies like Deliv and GrubHub. This is an interesting move by Sidecar, as it is combining two increasingly popular services – same day delivery and crowdsourced delivery. It is probably an easier transition for an established company than for a new start-up to just compete in the delivery market.

Another winter storm as brought the e-commerce world to a halt. Monday’s storm in Boston dropped another twenty inches of snow on an already snow covered world. As a result, UPS canceled all pick-ups and deliveries in Boston. FedEx also warned of significant delays across the region. With so many e-tailers dependent upon their delivery network, since they do not have their own private fleets, this news was devastating. E-tailers are warning shoppers that their orders will most likely be delayed, costing them both money and customer satisfaction points. Just how costly has the winter been? According to Adobe, a storm on January 27 cost retailers an estimated $35 million in sales.

The Cass Freight Index report points to continued growth in 2015. The report noted that the economy was “much stronger” in 2014, with the year representing the best year for the supply chain sector since the recession. But even with a strong performance, strong GDP seen during the second and third quarters tailed off in the fourth quarter in the form of more modest growth, coupled with the ongoing issues at West Coast ports centered around labor and capacity issues and also negatively impacting late December shipment volumes. January freight shipments—at 1.027—were up 2.7 percent annually and down 4.7 percent compared to December.

And finally, steady job gains in the trucking industry have brought employment levels back to pre-recession levels. For-hire trucking companies added about 2,400 jobs in January, which is a 3.5% growth over last year. The for-hire trucking industry nearly doubled its hiring rate in 2014, expanding payroll by 46,000 jobs, compared with 24,900 in 2013. But even with the continued growth, the driver shortage is still a concern, as driver demand cannot be met. Many trucking companies are looking at cost-effective incentives to bring in new drivers, but there is still a long road ahead.

That’s all for this week. Enjoy the weekend and the song of the, California Dreamin’ by the Mamas and the Papas.