Logistics Indicators.jpgMy colleagues and I publish a blog each Friday outlining the week’s logistics news. Included in these posts are updates to logistics industry economic indicators. These indicators are of interest to industry practitioners because they provide a timely snapshot of the market’s performance. From this feedback, executives can update their views and assumptions about the industry and its likely path going forward.

I have consolidated into this article a list of the major logistics industry indicators. Hopefully this blog post will serve as a valuable reference document for quick access to these industry indicators. So go ahead and bookmark this webpage! (A Guide to Logistics Industry Economic Indicators)

Statistical geeks’ note: I looked at the correlations for the Cass Freight Shipments to US DOT Monthly TSI and the Cass Freight Expenditures to US DOT Monthly TSI. The correlations for the absolute values of the indexes was highly positive, but the correlation for the rates of change (month-to-month and year-over-year) were near zero. Do you know why the absolute value correlation was high but the rate of change correlations were negligible? Hint, that is the “first difference.”

Indicator:      Cass Freight Index

Data provider:     Cass Information Systems

Activity measured:      North American freight volumes and expenditures

Release:     Typically about three to five business days into the month, measuring prior month’s activity

Scope and process:     The index covers all domestic freight modes, and the values are derived from $23 billion in freight transactions processed by Cass annually on behalf of its client base of hundreds of large shippers. Cass also provides mode-specific indexes including the Cass Truckload Linehaul Index, Cass Intermodal Price Index, and a joint initiative with INTTRA, the Cass / INTTRA Ocean Freight Indexes.

Indicator:     Cass / INTTRA Ocean Freight Indexes

Data provider:      INTTRA and Cass Information Systems

Activity measured:     U.S. import and export ocean container activity

Release:     Typically mid-month, measuring prior month’s activity

Scope and process:     The indexes include import activity and export activity. The indexes are derived from data for executed shipments of containerized cargo processed within the INTTRA e-commerce platform between the U.S. and a selective group of 25 leading import and export trading partner countries.

Indicator:     US DOT Freight Transportation Services Index

Data provider:     Complied and reported by the US DOT Bureau of Transportation Statistics from public and private sources

Activity measured:     For-hire trucking, freight railroad services, inland waterway traffic, pipeline movements, and air freight.

Release:     Second Wednesday or Thursday of the month, measuring activity from two months prior

Scope and process:     The index is a comprehensive, combined, multi-modal measure of monthly transportation activity. The data is gathered by the Bureau of Transportation Statistics from a number of public and private sources and includes the following: Aviation Revenue Freight Ton-MilesTruck Tonnage (American Trucking Associations); Rail Freight Carloads and Intermodal Traffic (Association of American Railroads);  Inland Waterborne TrafficPipeline Movements

Indicator:      US-NAFTA Freight Flows

Data provider:     US DOT Bureau of Transportation Statistics, Transborder Freight Database

Activity measured:     Value of U.S. exports to and imports from Canada and Mexico by commodity type and mode of transportation

Release:     Toward the end of the month, measuring activity from two months prior

Scope and process:     The North American Transborder Freight Database represents official U.S. trade with Canada and Mexico for shipments that entered or exited the United States by modes of transport including air, vessel, pipeline, rail, and truck.

Indicator:     FTR Trucking Conditions Index and FTR Shippers Conditions Index

Data provider:     FTR Transportation Intelligence

Activity measured:     The trucking (shipping) operating environment, including volume expectations, rates, capacity, and fuel

Release:     Typically released to public in the second week of the month, measuring activity from two months prior

Scope and process:     Proprietary multifactor model aggregating and estimating market inputs. A value near zero represents a neutral environment, a positive value represents a positive operating environment, and a negative value represents a negative operating environment.

Categories Logistics Trends, Statistics
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Michael O'Brien and Jack TarkoffIn the movie Memento, the main character, Leonard Shelby, relies on tattoos and Polaroid pictures to retrace his past after amnesia wipes out his memory. He needs these details to faithfully reconstruct recent events and resolve the crime that upended his life.

While you don’t need tattoos to track pharmaceutical shipments, the passage of House bill H.R. 3204, the Drug Quality and Security Act (DQSA), means track-and-trace requirements for pharmaceuticals have become more precise than ever: Each detail of a drug’s journey matters, and distributors must be able to produce the report at a moment’s notice. Oversight has passed from the state level to the federal, which means pharmaceutical distributors must abide by a set of processes that apply to all shipments within the U.S.

Memento’s tactics for recalling details may be a little extreme, but you do need a fail-safe process in place to comply with federal regulations, should the Food and Drug Administration (FDA) come calling. There’s a lot of work to be done, and not much time to do it. The first deadline is just a few weeks away – January 1, 2015. It’s time to outline your foolproof track and trace strategy once and for all – and it’s going to take a whole lot more than a few Polaroid pictures.

Why the heat is turning up on DQSA
Both the state and federal laws are designed primarily to combat illegal drug counterfeiting, which poses a health risk around the globe. Counterfeiting thrives in weak regulatory enforcement systems. For example, some figures show that 40 percent of the drugs circulated in Latin America are counterfeit. In West Africa, the figure jumps to 70 percent, according to the World Health Organization (WHO)

Sometimes the drugs in question don’t contain any active ingredients; they are essentially worthless, except to unscrupulous manufacturers and distributors. Other counterfeit drugs contain an amount insufficient for the illnesses they are designed to combat. According to the WHO, they may do more harm than good by encouraging drug-resistant bacteria mutations. Some counterfeit drugs even contain ingredients that cause illness or death.

DQSA is designed to combat these illegal drugs by requiring that the medication’s entire history be traceable through the whole supply chain. Not just to the lot level, as is the case today, but down to the unit level.

More stringent requirements
In practical terms, that means every single bottle or package will eventually have an individual serial number, created and logged by the manufacturer. Every time a container changes hands, it will need to be noted and verified so it can be traced later. Each transaction will require a report comprising the transaction information, transaction history and transaction statement, which must be maintained for six years.

If a question arises about the legitimacy of a drug shipment during those six years, pharmaceutical distributors will need to be able to produce this complete history and reverse-engineer the distribution process to get it back. If they can’t, they’ll face severe consequences – from steep financial penalties to having their licenses revoked. The FDA is not shy about warning pharmaceutical distributors that cannot produce the basic information required currently. The risks will become much higher when more detailed records are mandated.

Pharmaceutical distributors will be under increased pressure to report suspicious orders, such as those with unusual payment or delivery methods, abnormal order sizes or extraordinary quantities. This is already required by DEA Form 22 under the Controlled Substances Act, but DSQA ups the ante. Distributors will have one business day or up to 48 hours to respond to a recall or an investigation related to suspect products.

Preparing for DSQA
Perhaps the most important thing a pharmaceutical distributor can do as the deadline approaches is examine its product management systems and processes to determine if they are capable of meeting more detailed track and trace requirements.

Those still using paper systems (or electronic applications such as spreadsheets) should consider moving to an Enterprise Resource Planning (ERP) system. A manual system may work if you ship small volumes; anything more than that requires an electronic system. By 2017 an electronic system will be required by law.

If you already have an ERP in place, determine whether it is a general ERP or one created specifically for the pharmaceutical industry. General ERP systems are designed for industries that don’t have to deal with the level of counterfeiting present in pharmaceuticals, nor the associated health risks. Therefore general ERPs don’t have sophisticated track-and-trace capabilities built into them.

The good news is ERPs designed specifically for the pharmaceutical industry allow distributors to meet the track-and-trace requirements automatically. Rather than creating new processes that will disrupt the organization, a pharmaceutical-specific ERP captures and stores the information as part of normal business and enables the level of reporting DQSA requires.

Because not all DQSA requirements have been defined yet, you’ll want an ERP flexible enough to adjust as-needed. That capability will also come in handy should the requirements change along the way.

Jump into the fire
Counterfeit drugs are not just a health risk. They also put an organization’s brand, reputation and even existence in jeopardy. Complying with more stringent track-and-trace laws can create issues on the front end, but they’re ultimately better for everyone.

With the right ERP system – one that is designed for the pharmaceutical industry’s specific requirements – you’ll have the protection you need to meet federal regulations. No tattoos required.

 

Michael O’Brien is the Vice President of Sales for IBS, a world leader in distribution resource management software, providing ERP and WMS business applications for the wholesale, distribution and manufacturer/distributor markets. For more information about IBS, or to contact Mr. O’Brien, email michael.obrien@ibs.net.

Jack Tarkoff is the Vice President of Sales for rfXcel, a pioneer in creating real-time compliance and traceability systems.  For more information about rfXcel, or to contact Mr. Tarkoff, email jtarkoff@rfxcel.com.

The U.S. Energy Information Administration forecast on Wednesday that diesel fuel prices, which averaged $3.92/gal in 2013, are projected to fall to an average of $3.82/gal in 2014 and $3.38/gal in 2015.

eia graphic

Unlike most commodities, transportation contracts often have built-in fuel cost indexing, called fuel surcharges, to cover increases and decreases in fuel costs.  Those transportation professionals that are tasked with reducing transportation costs as a percentage of total revenues, may be getting ready to celebrate if their fiscal year end is Dec. 31st.

A good article by C.H. Robinson, How to Talk Transportation Budgets to Non-Transportation Professionals, makes it clear why it may be premature to celebrate.  I will give you the highlights, but if you are a transportation professional being judged on budget adherence, it is well worth reading, particularly the final section.

As the article makes clear, there are a number of reasons why budgeting for transportation is complex:

Shipment size – Certain modes are much less expensive. It is cheaper to ship by truckload than less than truckload (LTL), cheaper to ship LTL than parcel. If customers change the quantities in which they order, and a shipper is forced to use a more expensive mode, transportation costs will go up. A customer may even change the pallet sizes they use, and this can lead to a truckload not as fully cubing out. And that can also drive up costs.

Changing networks – As new companies become customers, and old customers stop ordering from the shipper, the delivery network changes. A trip of the same length going into Florida, for example, will cost more than a shipment to Chicago. Further, an individual carrier over the course of the year will have changing demand patterns on particular lanes. Those changes can adversely affect the profitability of moves on certain lanes. When this happens, the carrier becomes much less likely to accept tenders, and shippers may need to book that move with more expensive carriers.

Product mix – “Not all products are created equal when it comes to transportation. Density has a significant effect on the cost per pound.”

The key lesson for logisticians is that providing a transportation budget to the finance department based on a simple transportation costs as a percent of revenues approach, can be bad for your career.

The article goes on to demonstrate how transportation professionals can better explain variances to the C-level by focusing on the core variance drivers. Doing this analysis requires a TMS with good analytical capabilities. “This makes it possible to monitor unexpected shifts in transportation costs and discover the source of the shifts.” In short, the article lays out the best metrics for identifying specific variances.

I would argue, that rather than explaining after the fact the variances to a CFO, it is much better to build a budget that is based on assumptions surrounding the location of customers, the modal and product mixes, and other key drivers of this budget. You don’t commit to a specific budget number, you commit to the specific most likely shipment scenario and budget to that scenario. The scenario won’t be right of course.  But no matter what happens positive or negative, the logistics executive will be much better to explain what happened.

Finally, it is fair that C-level executives should expect year over year improvements from the transportation department. Granular planning will focus the transportation department on places where improvements are realistic.

Snow ContrastSo…This morning Boston received its first snowfall of the season. The overzealous news reporters are already in action “traffic delays, polar vortex, stay tuned for (15 minute interval) updates!” The picture on the left is the snow on my property this morning. I had to rush outside to capture that little dusting of snow before it completely melted. In contrast, the picture on the right captures the snowfall in Wisconsin earlier this week. It looks like they’re going to give Rochester, NY a run for its money this season. My point, I’m admitting we are such wimps in Boston.

On to this week’s news… lots of shale oil supply chain stuff:

The Cass Freight Index for October was static month-to-month. Shipments were down about 1 percent, while expenditures were flat. The report attributes the reduction in shipments to port congestion, especially on the west coast, and a drop in new orders for manufactured goods in September. However, both shipments and expenditures shows healthy year-over-year growth, at 3.3 percent and 6.4 percent, respectively.

The Dakota shale boom has relied heavily on rail transport of its crude oil production. This has displaced capacity that has traditionally been available for commodities such as grains and other agricultural products. An article on Bakken.com reports that BNSF Railroad has told some of its oil transportation customers that they cannot add new oil tank cars to its system until next year. Here are a coupl brief excepts from the article:

The moratorium on new cars, which customers were informed of in recent weeks, is BNSF’s latest effort to avoid worsening congestion on its rail network amid record freight traffic….The efforts by BNSF come just as nation’s rail system faces what could be its biggest ever test as farmers start shipping a record harvest of corn and soybeans just as winter weather threatens to slow down operations.

I am interested in seeing what impact this decision will have on shale oil production from the region. Will the oil production increase as it would have with excess rail capacity, with trucks taking over the excess volumes? Or will trucking capacity constraints or the increased cost of truck transport, in conjunction with lower crude oil prices constrain production volumes until rail capacity is increased? I’m guessing the latter. Does anyone disagree?

An article on the Journal of Commerce reports that Sasol recently decided to build an $8.1 billion plant in Louisiana that will triple its chemical production capacity in the U.S. The article quotes Sasol president David Constable as stating, “The U.S. Gulf Coast’s robust infrastructure for transporting and storing abundant, low-cost ethane was a key driver in our decision to invest in America,” Chemical production is up nationally, and this is creating logistics demand and opportunities. Here is an excerpt from the article:

Those steady gains mean more chemical shipments on highway, rail and by water. That in turns means more interest and investment by third-party logistics companies and transport operators in the lucrative chemicals business.

The article goes on to mention recent chemical industry logistics activities including Transplace’s acquisitions of Logistics Management Solutions and SCO Logistics and Quality Distribution’s recent 10.9 percent increase in chemical logistics revenue.

Wall Street Journal (subscription may be required) published an article on Halliburton’s “war room” that tracks the sand shipments used for fracking operations. There are certain requirements for fracking sand and it is a critical ingredient in the fracking process. Here is a quote from the article:

More than a dozen employees hunker down daily on the first floor of Halliburton’s north Houston office in front of massive screens with real-time maps of railcars transporting sand, live camera feeds of sand mine loading and unloading operations, constantly updated weather conditions and data about sand levels in the company’s storage silos.

Who would’ve thought ten years ago that sand would’ve become such a critical commodity in US oil production..

Finally, Walmart recently reported an increased in same store sales. In previous posts I had mentioned that same store sales had been declining at Walmart, while e-commerce sales had been increasing at the retail giant. So it is only fair that I report Walmart’s same store sales rose 0.5% in the U.S over the most recent period. Meanwhile, e-commerce sales grew 21 percent worldwide on a constant currency basis.

 

Have a great weekend everybody. This weeks video is a short home video from Quebec City showing the results from 12 feet of snow.

 

Categories This Week in News
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Chuck FuerstThe need for track and trace capabilities in industries such as food and beverage, manufacturing or automotive industries is obvious: the threat of contamination or recalls impacts public safety, and the responses to those events are highly regulated. Organizations need to know what goes into their products and their location at all times. But increasingly, companies in other industries are taking a fresh look at the need for advanced tracking and tracing capabilities that are critical throughout the order process and can drive efficiencies the entire way through, from picking to returns.  According to a report by Aberdeen Group and GS1, e-commerce and multi-channel demands on companies are increasing, with 65 percent of respondents bypassing their own DCs to ship directly to stores via suppliers or 3PLs, along with 63 percent stating that supply chain visibility is a “high priority for improvement.”

If you’re pushing track and trace enhancements to the bottom of your to-do list, reconsider. The changing supply chain and higher customer expectations will require that you know every detail about where your inventory has been, is going, and when and how it will arrive. With this information, you’ll have a more comprehensive understanding for better decision-making around order fulfillment and operations management, as well as transparency throughout the returns process.

Detailed inventory management
Tracking your inventory is important for staying afloat (let alone remaining profitable) in today’s omni-channel world. Operating in a multi-channel environment requires the tight synchronization of product, shipment, cost and financial data. This can’t be accomplished without granular track and trace technology.

For example, a warehouse management system (WMS) can provide date stamps and assign unique lot numbers to inbound and outbound products as it tracks existing numbers automatically (using radio frequency or RFID) as they enter and exit the facility. This can help catch problems earlier – such as an item that was loaded onto the wrong truck – and track inventory more accurately so you know earlier when to reorder. In the put-away phase, stock location and rotation should be based on established, system-directed rules that avoid mixing products in locations that could affect integrity. For example, a product that has been rinsed should not be put away in a manner that would allow this excess water to drip onto another product or packaging material.

Without accurate visibility into historical and real-time inventory intelligence, organizations cannot efficiently fulfill orders coming through multiple channels, and risk losing money by missing merchandise that could be moving from a shelf to a customer.

Better analytics and reporting
Enhanced track and trace capabilities support advanced analytics for reporting requirements, such as in the event of a recall, and provide the real-time intelligence that can drive better inventory forecasting and more strategic operational decisions.

Working with a tier 1 WMS, you are able to pull reports around granular, configurable lot/batch/expiration date management, global inventory to create easy collaboration with suppliers, co-packers and distributors, and respond to changing compliance requirements. For example, a morgue archive allows you to identify recalled or expired items no matter when or how they entered your warehouse. In addition, data gathered from RFID tags can be tracked with the WMS to help you better analyze inventory trends and movements.

Product recalls occur occasionally, but they typically result in substantial inventory loss.  Many companies have limited means to track and trace contaminated inventory, which means they often discard more inventory than necessary due to the inability to isolate and track a single product component.  A tier 1 WMS also allows you to track and trace by ingredient, not just at the SKU, UPC or lot level. This increased level of detail helps you identify only the inventory affected by specific ingredient components, limiting the scope of potential inventory loss.

Fair returns
Track and trace abilities are key to your bottom line when dealing with returns. With greater visibility into inventories to help speed recalls and support accurate return processing, companies can save money and get the returned product back to the manufacturer or back into the inventory pool as appropriate.

Accurately picking and tracking inventory during order fulfillment pays dividends when the item is returned – literally. For instance, I know of a manufacturer that donated products after a natural disaster. A few less honest recipients claimed they bought the merchandise and tried to return the product to get cash refunds or credit. Because of the merchandise’s RFID tags and the ability to closely track the inventory within its WMS, the retailer knew that the pieces were donations and could deny the returns.

A better customer experience
More than just responding to recalls, advanced track and trace capabilities can drive efficiencies throughout the entire order process, from picking to returns. This isn’t just helpful to your operations; it also supports a better customer experience. Whether you are a retailer managing fast-changing merchandise trends or a 3PL supporting a diverse customer base, you’re likely dealing with a complex number of SKUs, quick sell-through speed, seasonal buying patterns and perhaps a potential for theft. You only have one chance to get your inventory allocation right and to provide the best experience for your customer.

 

Chuck Fuerst is the director of product strategy at HighJump Software. He has more than 15 years of experience in the technology market, working for supply chain and ERP software companies to deliver innovative solutions. Chuck is responsible for monitoring supply chain industry and technology trends and identifying ways to enhance the value of products for HighJump’s customers. He holds a bachelor’s degree in marketing management and innovation from Concordia University.