Uneak White's Personal Brand Exploration Presentation
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1. AUGUST 2012
WWW.LOGISTICSMGMT.COM
®
2012
29th Annual Quest
for Quality LTL: Winning over
carrier partners 56
Going Wireless evolution 60
for gold
Page 30
Labor
management 64
QUARTERLY TRANSPORTATION MARKET UPDATES
OCEAN CARGO:
Can we still be friends? 68S
LTL:
Profitability improving 74S
2. Your Transportation Solutions Provider
Thank you for naming PITT OHIO
Best in the Quest
18 Time
Quest for Quality Award Winner For
Northeast/Mid-Atlantic Regional LTL Carrier
8 Time
Quest for Quality Award Winner
For Expedited Motor Carrier
Like us on Facebook or Follow us on Twitter
to find out how you can celebrate with us.
www.pittohio.com find us follow us join us
3. 2012
We are honored to be a recipient of this award for
the 10th year in row, as voted by our customers.
Terminals: Iowa City, IA - Alanta, GA - Carlisle, PA - Chester, VA - Columbus, OH - Jacksonville, FL
Kingsport, TN - O’Fallon, MO - Olive Branch, MS - Phoenix, AZ - Dallas, TX
Heartland Express • 901 N. Kansas Ave. North Liberty, IA 52317
800-451-4621 • www.heartlandexpress.com • marketing@heartlandexpress.com
Publically traded since 1986 on NASDAQ - HTLD
4. Get your daily fix of industry news on logisticsmgmt.com
An executive summary of industry news
n Earnings growth…check! Although it term strategic advantages, and still continue to
sounds like a broken record, freight transporta- meet existing service standards.
tion companies continue to post strong results
amid the ongoing chorus of economic uncer- n ATA report zeros in on truck driver
tainty. Some of the first companies to report Q2 shortage. While the challenge for carriers to
earnings, including intermodal market leader find truck drivers is not new, the American
J.B. Hunt, truckload carrier Werner, and Class Trucking Associations (ATA) released a report
management
I railroads CSX and Union Pacific, reported with guidance for carriers aimed at alleviating
quarterly profit growth and pricing gains. But the many challenges that come with filling cabs.
even though Q2 earnings have been positive, According to the report, more carriers are con-
UPDATE
many freight transportation stakeholders are sidering hiring inexperienced drivers and are
exercising caution to see if that will continue turning to truck driver training schools to help
to be the case, with the Peak Season forecast them place those drivers. More than half of the
decidedly mixed due to cautious consumers 50 carriers surveyed in the report said that they
and lack of strong demand. had operated their own driver training school,
but closed it in recent years. Those same car-
n UPS reports slight revenue gains. With riers said that they would consider reopening
earnings reports from UPS and its biggest the schools if they can’t get enough drivers from
competitor FedEx often used as a barometer their current school partners.
of economic output, it looks like the recovery is
slow going, with more evidence that the brakes n Diesel prices head in other direction.
may be applied even harder going forward. Following a 12-week stretch in which the aver-
The transportation and parcel giant reported a age price per gallon of diesel was down every
1.2 percent gain in second quarter revenue at week, according to data from the Department
$13.35 billion, with much of the growth driven of Energy’s Energy Information Administration
by its Domestic Express segment that UPS CEO (EIA), the pendulum for diesel prices swung
Scott Davis said allowed the company to quickly back in the other direction with consecutive
adapt to the needs of e-commerce shippers. gains during a three-week run through the
While domestic had a strong quarter, it’s uncer- week of July 23. The highlight of that run was
tain how sustainable that is, with Davis pointing the week of July 23, which saw diesel prices
out that manufacturing and retail sales data climb 8.8 cents to $3.873 per gallon, marking
issued in June by the Institute of Supply Man- the single highest weekly gain since the week
agement and the Department of Commerce are February 13, when prices rose 8.7 cents to
at their lowest levels since 2009. “Given these $3.943 per gallon.
trends, UPS thinks current second half economic
forecasts in the U.S. are too high, with GDP n Offer period for UPS’s acquisition of
growth likely closer to 1 percent,” said Davis. TNT Express is extended. An offer period
commenced by UPS for its planned $6.28
n More mail by rail. A report by the United billion acquisition of Netherlands-based TNT
States Postal Service (USPS) Office of Inspec- NV slated to run through August 31 has been
tor General (OIG) issued last month highlights extended. UPS said that the European Com-
the fact that moving mail by rail could be mission’s review of the proposed acquisition
highly advantageous and beneficial for the is now expected to move to a Phase II review
USPS. According to the report, the financially because there are facets of the deal that
challenged USPS could save $100 million require more time to analyze. UPS officials
or more per year by shifting a portion of mail said a Phase II investigation can take up to 25
volume to rail without changing the overall weeks to complete, adding that it is likely the
transportation network. The report added that offer condition relating to competition clear-
by increasing its intermodal usage, the USPS ance will not be satisfied by the end of the ini-
could save transportation costs, gain long- continued, page 2 >>
August 2012 | WWW.LO G I STI C S M G MT.C O M L o g i s t i c s Manag eme nt 1
5. Get your daily fix of industry news on logisticsmgmt.com
continued
tial offer period. Because of this, the company for the subsequent two weeks. “I congratulate
said it now expects the deal to be completed the USDA Agricultural Marketing Services as
during the fourth quarter of this year. well as the 10 ocean carrier members of the
management
n North Asia Hub for DHL. Express delivery
Westbound Transpacific Stabilization Agree-
ment for implementing the Container Availabil-
UPDATE and logistics services provider DHL Express
opened up its $175 million DHL Express North
Asia Hub at Shanghai Pudong International
ity program last week, and I urge full participa-
tion by all U.S. shippers,” said FMC Chairman
Richard Lidinsky.
Airport. Covering roughly 13 acres, company
officials said that the hub is able to process n Too much outsourcing? Pharmaceutical
up to 20,000 documents and 20,000 parcels companies are increasingly engaging third
per hour, adding that it is part of its multi-hub part logistics providers (3PLs), but may be
Asian network that is comprised of four hubs abandoning too much control over their busi-
in Shanghai, Hong Kong, Bangkok, and Sin- ness. A new report by healthcare experts
gapore and connect to more than 70 DHL GBI Research states that use of 3PLs is a
Express gateways in Asia. growing trend in the global pharmaceuti-
cal supply chain, as cost cutting measures
n Rails set to fight fuel surcharge collusion encourage businesses to use outside com-
allegations. Following the late June decision by panies that can offer services at competitive
a U.S. District judge in the District of Columbia prices. The report says that while “direct to
that granted class action certification to ship- pharmacy” and “deduced wholesaler agree-
per plaintiffs in a lawsuit that maintains that four ment” models play a vital role in the UK,
U.S.-based Class I railroads—Burlington North- other EU countries are boosting their direct
ern Santa Fe, Union Pacific, Norfolk Southern sales, and only time will tell which approach
Corp., and CSX—colluded on fuel surcharges will succeed.
assessed to shippers, the four railroads are
appealing the ruling, according to a Bloomberg n Temporary slowdown. A recent report
report. According to the report, the railroads indicates that the slowdown in Asian rapid-
asked the U.S. Court of Appeals to reverse the growth markets (RGMs) will be short-lived
ruling, explaining that it could lead to a cumula- was echoed by other economists. Accord-
tive $10 billion or more in potential damages. ing to Alexis Karklins-Marchay, co-leader
Various reports indicate that the plaintiffs main- of the Emerging Markets Center at Ernst &
tain that the railroads, which control roughly Young, slower expansion in the rapid growth
90 percent of U.S.-based freight rail volume, markets is likely this year, but will “only be a
collaborated to maintain prices through fuel blip” before returning to significant growth
surcharges that were part of shippers’ bills, towards the end of the year. “Soaring domestic
and they also contend that this fuel surcharges demand in economies starved of investment
had no direct correlation to actual fuel cost and consumption will offer business excit-
increases. ing new markets for goods and services in
the years ahead,” said Karklins-Marchay. As
n Ag shippers get break. The Federal Mari- well as having the option of easing fiscal and
time Commission (FMC) praised the United monetary policy to accelerate growth, RGMs
States Department of Agriculture (USDA) for are also fortunate enough to have a growing
introducing the Ocean Shipping Container middle class with increasingly higher incomes
Availability Report. The report provides ship- and an appetite to spend.
pers, particularly those in the agriculture sector,
with the participating carriers’ estimates of n Clean cargo update. As the world transi-
equipment availability for the current week as tions to low-carbon alternatives, logistics
well as projected weekly container availability continued, page 4 >>
2 Logistic s Manag em en t WWW.LO G I STI C S M G MT.C O M | August 2012
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continued
and supply chain managers will continue outsourced in the past two years,” said
to depend on fossil fuels for the majority of Bruce Tompkins, executive director of the
management
their energy needs for the foreseeable future,
said Business for Social Responsibility (BSR)
consortium and author of the report. “This
increase signifies that more organizations
UPDATE executives in San Francisco. “But with global
energy consumption set to rise by 40 percent
by 2030, companies need to make smarter
are considering outsourced DCs over ones
that are company-owned and operated.”
With responses from more than 100 com-
decisions about their current energy mix,” panies across nine industries, the report
said Eric Olson, BSR’s senior vice president. reveals key metrics on annual logistics
BSR has come out with a position through costs, DC operations, finished goods inven-
The Future of Fuels, a new collaborative ini- tory turns, on-time delivery, and transporta-
tiative with leading experts from the private, tion sourcing solutions.
nonprofit, public, and academic sectors. BSR
said that this initiative will offer shippers the n Reliable pricing. A major portal-based
information they need on all of the sustainabil- ocean cargo technology provider has
ity impacts of their transportation fuel choices, announced the publication of a new “reliability
from climate change to human rights to eco- report” on key ocean carrier metrics. Accord-
nomic development. ing to spokesmen for INTTRA, the report
combines on-time performance with schedule
n Ports to build. The importance of seaport- reliability measures. Shipping analyst firm
related infrastructure has not been lost on SeaIntel has partnered with INTRAA to pro-
President Barack Obama, who announced duce the data. “For the first time shippers can
seven projects of national and regional signifi- now analyze actual container delivery time ver-
cance last month. The seven projects include sus vessel arrival time on a country-by-country
five harbor improvements to deepen federal level,” said Lars Jensen, CEO of SeaIntel Mari-
navigation channels for larger ships (in Jack- time. “This is a game changer in how shippers
sonville, Miami, Charleston, Savannah and can evaluate carrier performance and make
New York/New Jersey), a project to increase more informed decisions on how their freight
the height of the New York harbor’s Bayonne is moved.”
Bridge to enhance navigation, and an intermo-
dal container facility in Jacksonville to increase n Ocean rates may stick. Drewry’s latest
rail capacity. All of the projects will benefit from Container Forecaster report highlights higher
aggressive federal permit decision-making freight rates for ocean cargo carriers in 2012
and review schedules, while each directly sup- and 2013 together with improved prospects for
ports a vital logistical hub. sustained profitability. The recent successful
implementation of significant rate restoration
n DC trends. Among some of the more initiatives by carriers in the core east-west
revealing responses contained in the recently trade lanes means that most are now operating
released Tompkins Supply Chain Consortium above break-even, said analysts with Drewry’s,
Survey is that nearly one-third of respondent’s a London-based think freight transportation
distribution center (DC) operations are entirely think tank. The report noted that carriers took
outsourced. “Supply Chain Consortium data sufficient capacity out in the winter months to
indicates that while many companies continue ensure that recently re-activated services have
to have their own DCs staffed by their own not caused too much damage to the supply/
employees, there is an upward trend in the per- demand balance and load factors on the east-
centage of DC buildings and labor being bound transpacific remain strong. M
4 Logistic s Manag em en t WWW.LO G I STI C S M G MT.C O M | August 2012
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12. departments Get your daily news fix at
logisticsmgmt.com
1 Management update
11 Viewpoint
Quarterly Transportation MARKET UPDATE
LT L
12 Price trends
15 News & analysis Profitability improving
With pricing power back in
22 Moore on pricing the hands of the rejuvenated
LTL sector, carriers are now
24 Pearson on excellence laser focused on margins while
concentrating on profitable
26 Andreoli on oil & fuel freight. 68S
80 Sage advice
OCEAN
Logistics Management Can we still be friends?
OnDemand As reported in last month’s
State of Logistics Report,
one of the greatest
2012 Technology Roundtable Webcast challenges facing both
www.logisticsmgmt.com/2012tech shippers and carriers in the
future will be the rebuilding
of relationships. 74S
Harnessing the waves of data
As supply chain organizations evolve technologically
and do a better job of collaborating with both their
internal and external partners, the next challenge is the
integration and interpretation of the waves of data that
are now washing up on logistics and transportation
Now OnDemand
manager’s computer screens as a result. LM EXCLUSIVE: 28TH ANNUAL SALARY SURVEY
With this in mind, we’ve collected four leading supply Go to: www.logisticsmgmt.com/salary2012
chain software and technology analysts to examine
the latest trends, tools, strategies, and best practices
available for better capturing and utilizing the new Pulling away from the pack
onslaught of data on the way to realizing an improved According to our 28th Annual Salary Survey, salary growth
level of visibility across your logistics operations. has leveled off a bit from last year’s survey. However, we also
Our panelists will be discussing: found that an aging workforce is giving way to younger, more
highly trained professionals who also happen to be savvy
• The rising importance of business analytics in
technologists—signaling good news for the overall growth
logistics operations
of the logistics profession.
• RFID’s rapid market resurgence
In this exclusive Logistics Management Webcast, Group Editorial
• How ERP providers continue to expand their Director Michael Levans, Executive Editor Patrick Burnson,
logistics offerings and three prominent supply chain career management experts
• The rise of social media in logistics career will put context around this year’s Salary Survey results and
development offer their insight into how logistics professionals are putting
technology to use to help them break away from the pack.
Panel:
Jerry O’Dwyer Ben Pivar
U.S. Sourcing and Senior VP and MEET THE EXPERTS:
Procurement Leader, Supply Chain Lead,
Deloitte Consulting Capgemini Dr. Theodore P. Stank
Professor of Logistics,
Mike Liard Adrian Gonzalez University of Tennessee
Director, RFID, Director, Logistics
VDC Research Viewpoints Bruce Arntzen, Ph.D.
Director, MIT’s Master’s Program
Lynn Failing
Moderator: Vice President, Kimmel
Michael Levans: Group Editorial & Associates, Inc.
Director, Supply Chain Group
August 2012 | WWW.LOGISTICSMGMT.COM L O G I S T I C S MANAG E ME NT 9
13. C R S T D E D I C AT E D S E R V I C E S | C R S T E X P E D I T E D | C R S T M A L O N E | C R S T L O G I S T I C S | S P E C I A L I Z E D T R A N S P O R TAT I O N
IT’S OUR
DESTINATION.
EVERY DAY.
“Quality” is something every company
claims to deliver. So it is especially
gratifying to have the readers of Logistics
Management again choose CRST to
receive a Quest for Quality award. Our
companies have been honored with
twelve Quest for Quality awards over
the past eight years. It tells us that our
commitment to provide superior service
hasn’t gone unnoticed. You can count on
us to continue to have that same goal in
sight with each load we take on the road.
crst.com • 1-800-736-2778
C R S T – T H E T R A N S P O R T A T I O N S O L U T I O N
14. ® ®
Editorial Staff
29th Quest for Quality:
Michael A. Levans
Group Editorial Director
Francis J. Quinn ® ®
Editorial Advisor
Patrick Burnson
Executive Editor
Going for gold
Sarah E. Petrie
Managing Editor
Jeff Berman
it’s my honor to present the logistics In just about every category, our
Group News Editor and transportation community with the research team found that overall
John Kerr results of the 29th Annual Quest for weighted average scores ticked up for
Contributing Editor, Global Logistics Quality Survey. This is the culmina- the second year in a row, signaling that
Bridget McCrea tion of a six-month research project U.S. shippers feel that their key car-
Contributing Editor, Technology conducted by Peerless Research Group riers and service providers have actu-
Maida Napolitano (PRG) that’s become known as the ally improved their service performance
Contributing Editor, Warehousing & DC
most important measure of customer during these tough times. And as we
John D. Schulz
Contributing Editor, Transportation
satisfaction and service performance conveyed to this year’s Quest for Qual-
excellence available in our industry. ity winners, this is a statistical fact that
Mike Roach For just shy of three decades, Logis- they should be celebrating across their
Creative Director
tics Management (LM) has used its organizations.
Wendy DelCampo August issue to officially announce the PRG’s Director or Research Judd
Art Director
results of the survey and celebrate the Aschenbrand has done another terrific
Columnists carriers, third-party logistics providers job of conducting this survey project,
Derik Andreoli (3PL), and U.S. ports that have earned which is by far our most comprehensive.
Oil + Fuel the ultimate vote of shipper confidence This year, Judd also worked with ana-
Elizabeth Baatz by receiving the highest scores across lysts, shippers, and U.S. port executives
Price Trends
our service performance criteria. to develop a new set of performance
Mark Pearson But what makes the Quest for Qual- criteria and bring back our Ports cat-
Excellence
ity Awards stand out in the market is egory after a 10-year hiatus. The criteria
Peter Moore
Pricing the fact that the lists of winners you’re and this year’s winners can be found on
John A. Gentle
about to see have been determined by page 46.
Sage Advice LM readers—the buyers of
logistics and transportation
peerless media, llc services who put these car- U.S. shippers feel that their key carriers
Kenneth Moyes riers and service providers to and service providers have actually
President and CEO
EH Publishing, Inc. work around the clock and improved their service performance during
around the globe.
Brian Ceraolo these tough times.
Publisher and Executive In fact, one of the most
Vice President important elements of the
Quest for Quality Survey is that it allows But now it’s time to celebrate the
Editorial Office
111 Speen Street, Suite 200 shippers to vote on the type of services winners of the 2012 Quest for Quality
Framingham, MA 01701-2000 that they use on a regular basis and Awards. The lists that begin to unfold
Phone: 1-800-375-8015 rank those carriers and providers that on Page 30 represent those carriers
Magazine Subscriptions
they work with every day. and service providers that LM readers
Start, renew or update your magazine This year we had 4,709 logistics and believe have gone above and beyond to
subscription at www.logisticsmgmt.com/ supply chain decision makers place earn Quest for Quality gold.
subscribe.
Contact customer service at: their votes across our nine categories. I hope the results help you better
Web: www.logisticsmgmt.com/subscribe The result: Our readers judged 127 measure all of your logistics services
Email: lmsubs@ehpub.com transportation and logistics services options over the next year.
Phone: 1-800-598-6067
Mail: Peerless Media organizations to be “best of the best.”
P.O. Box 1496 And when you consider the level of
Framingham, MA 01701
continued economic uncertainty and
eNewsletter Subscriptions the strategic cost cutting that’s been
Sign up or manage your FREE
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www.logisticsmgmt.com/enewsletters. and transportation equation, one would
Reprints think that shipper confidence in their Michael A. Levans, Group Editorial Director
For information about reprints, visit us providers would have been rocked over Comments? E-mail me at
at www.logisticsmgmt.com/info/reprints. the past couple years—however, just mlevans@peerlessmedia.com
the opposite is true.
August 2012 | WWW.LO G I STI C S M G MT.C O M L o g i s t i c s Manage me nt 11
15. 12 145 Trucking
8 140 With a 1.1% price decline in June, the trucking industry’s inflation
4 135 trajectory did more than downshift. Indeed, this one-month cut in
0 130 average prices charged by all truckers served to break a 10-month-
-4 125 long streak of inflation upticks. Long-distance LTL truckers of gen-
(2001 = 100) Forecast
-8 120 eral freight took the sharpest turn, cutting their transaction prices by
2008 2009 2010 2011 2012 2013
2%. Nonetheless, second quarter 2012 shows all trucking prices
% change (left scale) Index 2001=100 (right scale)
up 2.9% from year-ago and LTL up 4.8%. We don’t think a wave of
% CHANGE VS.: 1 month ago 6 mos. ago 1 yr. ago falling prices is in the cards even if China’s economy slows faster
General freight - local -0.4 -0.1 0.8 than expected and Europe’s troubles deepen. Average prices in the
TL -1.0 2.3 3.9 trucking industry are forecast to increase 3.7% in the final quarter of
LTL -2.0 1.5 4.0
Tanker & other specialized freight -0.9 0.4 0.1
2012 compared to year-ago and 2.1% in the first quarter of 2013.
24 180 Air
16 168 U.S.-owned firms flying non-scheduled (chartered) planes
8 156 reported price cuts of 1.8% and 0.4%, respectively, for domes-
0 144 tic and international service in June. Meanwhile, U.S. airliners
-8 132 together soared through another month with little push-back from
(2001 = 100) Forecast
-16 120 buyers flying cargo in the belly of planes on scheduled flights.
2008 2009 2010 2011 2012 2013
Average prices for these services dipped 0.2% in June. We had
% change (left scale) Index 2001=100 (right scale)
expected deeper cuts after April’s record-breaking 7.7% price hike.
% CHANGE VS.: 1 month ago 6 mos. ago 1 yr. ago As a result, our forecast for this price series has been raised again.
Air freight on scheduled flights -0.2 0.4 4.1 Now we forecast average prices for cargo service via scheduled
Air freight on chartered flights -1.4 4.4 4.6 flights of U.S.-owned airliners to increase 5.5% in 2012 and 1.5%
Domestic air courier 0.0 7.0 4.9
International air courier 0.5 6.2 3.9
in 2013—not 4% and 1.8%, respectively, as previously reported.
24 190 Water
16 180 For the first time this year, average prices in the waterborne trans-
8 170 portation market declined from a month ago, down 0.3% in June.
0 160 The biggest deflation driver came from tugboats plying inland water-
-8 150 ways, who reported they slashed transaction prices down 4.1%.
(2001 = 100) Forecast
-16 140 Great Lakes-St. Lawrence Seaway freight and deep sea freight also
2008 2009 2010 2011 2012 2013
cut prices by 2.5% and 0.5%, respectively. Inland waterway freight
% change (left scale) Index 2001=100 (right scale)
excluding towing, on the other hand, reported prices up 0.9% from
% CHANGE VS.: 1 month ago mos. ago 1 yr. ago
6 month-ago and up 7.5% from same-month-year-ago. Only two cat-
Deep sea freight -0.5 5.6 -4.9 egories (inland waterways towing and deep sea freight) saw prices
Coastal & intercoastal freight 0.2 5.8 6.6 fall below year-ago levels. The annual inflation forecast for all water
Great Lakes - St. Lawrence Seaway -2.5 3.4 6.5
Inland water freight -0.1 2.0 5.2
transportation services remains 2.3% in 2012 and 3% in 2013.
15 180 Rail
10 170 The latest survey shows carload rail prices stood unchanged in
5 160 June as intermodal rail tags dipped down 0.9%. When reviewing
0 150 quarterly price charts, it’s clear that deceleration in the inflation
-5 140 trend for rail transportation continues apace. In the quarters ending
(2001 = 100) Forecast
-10v
2008 2009 2010 2011 2012 2013
130 June and September 2011, prices accelerated from year-ago levels
at 9.6% and 9.9%, respectively. After slowing slightly to 8.9% in
% change (left scale) Index 2001=100 (right scale)
December 2011, rail inflation slowed to 6.5% in the quarter ending
% CHANGE VS.: 1 month ago 6 mos. ago 1 yr. ago March 2012 and 3.5% in June. We forecast average rail industry
Rail freight -0.2 4.1 3.1 prices will increase 2.6% in the final quarter of 2012 compared to
Intermodal -0.9 1.9 1.4 year-ago and 1.8% in the final quarter of 2013. This means the aver-
Carload 0.0 4.6 3.4
age annual price forecast remains 3.7% in 2012 and 1.5% in 2013.
Source: Elizabeth Baatz,Thinking Cap Solutions. E-mail: ebaatz@alertdata.com
12 Logistic s Manag em en t WWW.LO G I STI C S M G MT.C O M | August 2012
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17.
18. inside
• n-board recorders run into legal
O
static from owner-operators, p.16
• SPS to put FedEx contract
U
up to bid, p. 17
• ort Tracker report optimistic
P
about import volumes, p. 19
ILA, USMX remain in
discussions over labor pact
East Coast and Gulf Coast ports labor
stalemate could potentially hinder
supply chain planning for shippers
through the rest of the year.
By Jeff Berman, Group News Editor
WASHINGTON, D.C./NEW YORK
CITY—With a September 30 deadline
ana
looming, The International Longshore-
men’s Association (ILA), the largest
union of maritime workers in North
America, and the United States Mari-
time Alliance (USMX), an alliance of
container carriers, direct employers, and
port associations serving the U.S. East
and Gulf Coasts, remained in negotia-
tions on a new contract at press time.
In recent months, the talks have
ranged from amicable to conten-
tious, and with no clear end in
sight it has shippers thinking about
making contingency plans to move
freight that typically arrives through
East and Gulf Coast ports.
Both the National Retail Federa-
tion (NRF) and the Retail Industry
Leaders Association (RILA) have
expressed their concerns to the ILA
and USMX about what a potential
labor strike could do. further ask that you issue a state- costly delays to its members supply
In a letter to Harold Daggett, ILA ment committing to continue nego- chains, but would potentially further
president, and James Capo, USMX tiating and working without inter- threaten the fragile economic recov-
chairman and CEO, NRF President ruption, even if negotiations extend ery with Peak Season approaching.
and CEO Matthew Shay pleaded his beyond September 30.” RILA pointed out that the ongo-
case for the organizations to come to The NRF added that retailers are ing labor negotiations affect 14 East
terms on a new agreement. “We ask in the process of making final deci- and Gulf Coast ports that cumula-
that you continue the negotiations sions on whether to divert cargo tively represent 95 percent of all
without delay, and without impact- from the East and Gulf Coast ports containerized shipments—and 110
ing commerce moving through in order to avoid potential disrup- million tons of import and export
the ports,” wrote Shay. “We would tions, which would not only add cargo—to the Eastern seaboard.
August 2012 | WWW.LO G I STI C S M G MT.C O M L o g i s t i c s Manag e me nt 15
19. RILA President Sandy Kennedy USMX cannot legally force pool opera- economics practice leader at CDM
wrote in a letter to Daggett and Capo tions to do so. Smith, how significant the potential
that with the absence of certainty con- At press time, ILA and USMX offi- disruption would be depends on its
cerning the outcome of these nego- cials stated that they had agreed in duration. “At some point the cost of
analysis
tiations, retailers have no choice but to principle on issues pertaining to the obtaining alternative transportation or
continue planning for a shutdown. introduction of new technology and stocking inventories outweighs the prof-
“Some of our members advise that automation and maintenance and repair its lost from just waiting out a disrup-
they are beginning to redirect their sup- of chassis within marine terminals and tion,” said Bingham. “Profits lost come
ply chains in order to allow adequate at off-pier facilities at the East and Gulf from lost sales and depreciated product
lead time to ensure that customer needs Coast ports. value, yet one needs to be careful to not
can continue to be met, regardless of According to Paul Bingham, over-value disruption impacts.”
whether the negotiations are success-
fully concluded by September 30,” regulation
wrote Kennedy. “Supply chain changes
of this magnitude are not desirable to On-board recorders run into legal static
retailers because they take time both to
implement and to reverse.” from owner-operators
While the final outcome of these
negotiations is incomplete, ILA officials WASHINGTON, D.C.—When it comes are about the size of a Bible and cost
noted in March that since 1977 ILA to electronic on-board recorders (EOBRs), between $2,000 and $3,000—on those
and USMX have successfully negoti- independent truck driver owner-operators “bad apple” carriers and drivers who
ated nine new Master Contracts with- have one message to the government: stay have shown egregious safety violations.
out any disruption in operations, with out of my business. Shippers should care about these
the current contract in effect since The group representing the nation’s devices because typically any large cost
2004 and then subsequently extended more than 1 million owner-operators absorbed by their carriers—whether
for two years in 2010. has filed a preemptive lawsuit in antici- company drivers or owner-operators—
But concerns remain heightened due pation of the government’s first attempt is passed onto shippers through higher
to the 10-day, 2002 longshore contract to mandate EOBRs—or “black boxes,” rates.
dispute on the West Coast that some as they are known in trucker-speak. OOIDA officials say they fear that
estimates indicate cost the U.S. econ- Even though government’s rule once this first proposed limited rule
omy several billion dollars per day and doesn’t take effect
negatively impacted various key sectors until 2014, the Owner-
within the economy. Operator Independent
A major sticking point in the negotia- Driver Association
tions between the ILA and USMX has (OOIDA) has filed a
to do with how the ILA has to negoti- preliminary legal chal-
ate all Master Contract issues with the lenge in anticipation
ILA Wage Scale Committee, which the of a broader mandate
ILA’s Daggett said in a letter to Capo coming out of Wash-
is a democratically-elected commit- ington that might affect
tee that Capo has declined to address all truck drivers. The
despite Daggett’s overtures to do so. Federal Motor Carrier
Another issue has to do with tech- Safety Administration
nology. Capo maintains that the ILA is (FMCSA) has pretty
demanding that management guarantee much hinted as much.
a job for any worker even if new tech- OOIDA recently
nologies eliminate a need for that posi- filed a petition for
tion. Capo also noted that the current review with the U.S.
Collective Bargaining Agreement man- Court of Appeals, 7th
dates that both sides negotiate over the Circuit, challenging the
impact new technology might have on Federal Motor Carrier
the work force. Safety Administration’s
Capo also explained that the pos- (FMCSA) proposal on
sibility of chassis pool operators join- black boxes. For now,
ing USMX and be bound to the Mas- the government says it
ter Contract, as per the ILA’s request, only wants to mandate
would be “impossible” to achieve as the those devices—which
16 Logistic s Manag em en t WWW.LO G I STI C S M G MT.C O M | August 2012
20. goes into effect, it’s only a matter of replace,” Spencer says. “These costs
time before a larger, broader rule gets will be dumped on small business
issued requiring the black boxes in all owners.”
trucks. The black boxes are widely in Spencer adds that OOIDA’s lawsuit
analysis
use in Europe and elsewhere. In fact, is about justifying the perceived ben-
trucks operating within the European efits. “They’ve got to be able to justify
Union are required to have EOBRs, it—or forget about it.”
which eliminate paper logs and greatly The issue also reopens old wounds
increase compliance with hours-of-ser- in the owner-operator/big company
vice regulations. schism. On one side is OOIDA, which
The issue is a hot button for drivers. has 155,000 members. On the other
For one thing, some drivers view the side is the American Trucking Asso-
black boxes as an invasion of privacy, ciations (ATA), which has more than
another example of “Big Brother” gov- 27,000 company members. ATA has
ernment invading their in-cab space. come out in favor of the black boxes,
“The rest of the story is that FMCSA saying they improve safety and would
has pretty much made it clear that this save lives.
is the first step. They’ve kind of tipped ATA President Bill Graves has long
their hands that they intend to go much supported what he calls an “incentive-
further,” said Todd Spencer, OOIDA’s based approach” to trucking regulation
executive director. “We have pointed compliance, including EOBRs. Last
out the shortcomings for years.” April, FMCSA issued a final rule man-
For one thing, OOIDA claims that dating EOBRs for carriers. The rule
companies that have utilized the black provides incentives for compliant car-
boxes have no better safety ratings riers to adopt the use of such devices
than companies that do not. Privacy is voluntarily and sets forth certain device
another concern. Data from a trucker design/performance specifications. The
involved in an accident could be used rule will become effective in June 2012.
in any legal proceeding. Another issue
is cost. At a time when all truckers are
So even though the effective date is
still two years away, OOIDA says the
Celebrating
facing an increasing regulatory burden time to act is now. “The legal issues 27 Years
of Quest
and higher fuel costs, OOIDA says this raises have to be addressed—and
these black boxes could not survive a addressed now,” Spencer says. “You
rigid cost/benefit analysis.
“Electronic on-board recorders are
can’t wait on those things. That dog
doesn’t hunt.” for Quality
no more accurate than paper logs they —John D. Schulz, Contributing Editor Awards
parcel
Holland.
USPS to put FedEx contract up for bid Your Leader
in Next-Day
WASHINGTON, D.C.—In a 10-K to strive for the best value in the fulfill-
filing with the Securities and Exchange ment of its service obligations, includ- Delivery.
Commission, FedEx said last month ing those associated with air and ground And proud to be recognized
that the United States Postal Service transportation procurements,” said a for excellence within both
plans to solicit proposals for domestic USPS official. “The existing contract the Midwest/North Central
air services that are currently provided with FedEx is the Postal Service’s single Regional LTL Motor
by FedEx. largest air transportation agreement.
Carriers and Expedited
These services are for various USPS While no decision has been made to
offerings, including First-Class, Pri- the existing contract, the Postal Ser- Motor Carriers 2012 Quest
ority, and Express Mail. The current vice is evaluating all of its options as we for Quality categories.
agreement between the USPS and move forward with our efforts to return
FedEx dates back to 2001 and expires to long-term financial stability, while
in September 2013. According to maintaining excellent service for all our
industry estimates, this contract is val- customers.”
ued at more than $1 billion. The USPS said that it incurred a
“The U.S. Postal Service continues new loss of $3.2 billion during the fiscal 866.465.5263
August 2012 | WWW.LO G I STI C S M G MT.C O M L o g i s t i c s Manag e me nt 17
21. The World’s Most Successful Supply Chain
Management Leaders Have Connections.
lAtest
greAt globAl reseArch AmAzing
networking AttendAnce over 3,000
interActive sessions
Attendees
hundreds discussions
of topics
So Can You.
Having the right connections is critical to your organization’s success. And to your career.
At cscmp’s Annual global conference, september 30-october 3 in Atlanta, georgia, you’ll make the most important
connections in the world in just three-and-a-half days.
• Connect to the latest industry developments.
• Connect with the best-known leaders in the field.
• Connect to the people, ideas, and opportunities that will take your career to the next level—and beyond.
• Connect with your peers.
• Connect to the global marketplace.
Don’t miss Major Session Speaker… …and Closing Session Speaker
T. Boone Pickens Erik Wahl
Energy Executive Artist, Author, Entrepreneur,
How Natural Gas Can Positively Founder, The Wahl Group
Impact the Trucking Industry— The Art of Vision
And What this Means to Your
Supply Chain
Register at cscmpconference.org by August 31, 2012 and
save $150 US on regular registration rates!
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22. analysis
Will UPS step into the ring?
second quarter, following a $3.3 billion about $1.4 billion for FedEx in its fis-
fiscal first quarter loss and a $5.1 billion cal year through May 2012. Accord-
fiscal year 2012 loss. USPS officials ing to the report, FedEx spokesman
said that despite ongoing management Jess Bunn said that during the 11-year
actions that have grown and improved period of the relationship between
efficiency, these sizable losses are FedEx and USPS, FedEx has “raised
expected to continue until key provi- the service levels and reliability of the
sions of its five-year business plan move Postal Service product,” adding “that
forward. Previous losses in recent years record of success will be an important
include $8.5 billion for fiscal year 2010 consideration.”
and $3.8 billion for fiscal year 2009. But that sentiment does not appear
In terms of what FedEx competitor to be a detriment to UPS in any way.
might step in and win the USPS con- “UPS has informed the USPS that it
tract when it expires in 2013, one obvi- definitely intends to bid on this work,”
ous candidate would be its top compet- UPS spokesman Norman Black told LM.
itor, UPS. “UPS absolutely believes it can support
“UPS, I suspect, has been lobbying
that the $1 billion in business be com-
the Postal Service’s commitment to its
mail customers by enhancing the effi- You know
petitively bid considering the financial ciency of the mail system while creating what makes a good
woes the USPS has had,” said Jerry new growth opportunities for UPS.” regional LTL carrier.
Hempstead, president of Hempstead UPS today acts as a customer, ven-
Consulting. “It’s possible that a solution
comes out of left field from ABX Air,
dor, and supplier to the USPS as well
as a competitor, Black explained. And And now...
ASTAR, or Atlas. But by far the larg- since 2006, UPS has provided airlift the entire industry
est threat is from UPS if they want the services for the transport of First Class
business. UPS can take it on, and the and Priority Mail and remains focused
knows it, too.
USPS would not miss a beat.” on providing the best, most reliable ser-
A Bloomberg report noted that the vice possible and growing its relation- For 18 years,
USPS contract represents more than 3 ship for the future, said Black.
New Penn has
percent of FedEx’ sales and generated —Jeff Berman, Group News Editor
earned Quest for
trade Quality honors.
And this year, we’ve won
Port Tracker report is optimistic about two – within the Expedited
import volumes in coming months Motor Carriers and North-
east/Mid-Atlantic Regional
NEW YORK CITY—The near-term cargo volume to increase 1.6 percent LTL Motor Carriers categories.
outlook for import cargo volume at U.S.- annually, with modest annual gains
based retail container ports appears to expected in subsequent months into the
be solid, according to the most recent holiday shipping cycle. The ports sur-
edition of the Port Tracker report by the veyed in the report include: Los Angeles/
National Retail Federation (NRF) and Long Beach, Oakland, Tacoma, Seattle,
Hackett Associates. Houston, New York/New Jersey, Hamp-
The report is calling for July import ton Roads, Charleston, and Savannah, 800.285.5000
August 2012 | WWW.LO G I STI C S M G MT.C O M L o g i s t i c s Manag e me nt 19
23. Executive Summit
North America
The Next Generation Executive
Challenges on the Path to Supply Chain Success
Join the world's
top supply chain leaders.
Supply Chain Council invites supply chain leaders to join us at the Indian Wells, CA
Executive Summit North America 2012. The Summit is designed to 18-20 September 2012
support supply chain and operations professionals through opportuni- Miramonte Resort Spa
ties to share ideas and network with peers, while learning from
renowned speakers. hosted by:
This year's executive summit will include topics that supply chain execu-
tives have expressed as major impactors on their decision-making. The
effects these decisions have had on their professional development as
an executive and the evolution of their organizations will be incorporated
into the sharing. Topics will include:
sponsored by:
Surmounting Supply Chain Disruption to Evolve Growth
Made in America, Again: Why Manufacturing Will Return to the U.S.
Supply Chain Challenges in the New Global Economy
Global Challenges of Interconnected Risk
The Birth of an Electronics Supply Chain
Integrated Business Planning at Hospira...a Matter of Life and Death
Confirmed Speakers:
Denise Layfield Linda Conrad
McCormick Company Zurich Financial
Dan Gilbert Jared Sullivan
Barnes Noble, Inc. CBRE Econometric Advisors
Hal Sirkin Michael Moore
The Boston Consulting Group Hospira, Inc.
Learn More Register
James Hill www.scc-execsummit.org/na
Targus Group International, Inc. +1 202 962 0440
24. Our
19th Quest
as well as the new addition of Miami in
this report.
At a time when mixed economic sig-
nals prevail and many economists are
for Quality
In recent editions of the report, Port
Tracker stated that the first half of 2012
skeptical about the strength of the econ-
omy, Hackett Associates President Ben
Award…
analysis
would total 7.3 million TEU (twenty-foot Hackett said that his firm remains opti-
equivalent units), but this report said that mistic that consumers will remain active.
the first half topped that at 7.5 million “We think June will be up nearly 5
TEU, which was up 2.6 percent annually. percent annually, and we think most of
The 2011 total was 14.8 mil- that will be driven by still-low invento-
lion TEU, which was up 0.4 percent ries,” said Hackett. “Any requirements
over 14.75 million TEU in 2010, and for orders for back-to-school season in
according to NRF estimates, retail sales August and the beginning of holiday
are expected to increase by 3.4 percent shopping in November will result in
to $2.53 trillion. increased volumes. New housing starts
“Whether consumers are going to are also continuing to grow and are still
have the confidence to spend during positive. We think things are not as bad
the next few months depends on what as perhaps some economists and com-
happens with employment, but retail- mentators are making them out to be.”
ers are being cautiously optimistic,” While growth is expected through
said NRF Vice President for Supply the rest of the year, Hackett said an
Chain and Customs Policy Jonathan abundance of ocean capacity still
Gold. “Sales can fluctuate from month remains. “This situation is likely to put
to month, but these import numbers pressure on pricing, which has fluctu-
show that retailers are still expecting ated to a fair degree,” added Hackett.
this year to be better than last year.” —Jeff Berman, Group News Editor
mergers and acquisitions
Genesee Wyoming set to buy RailAmerica
GREENWICH, Conn.—The two larg- of equity or equity-linked securities.
est short line and regional rail opera- “Today is a very shining day for GW
tors in North America will become as we are announcing our largest acqui-
one, with last month’s announcement
that Genesee Wyoming (GW) will
sition in our history,” said GW Presi-
dent and CEO Jack Hellman. “The
and it’s still
acquire RailAmerica for an all-cash
purpose price of $27.50 per share—or
combination of GW and RailAmerica
is an inherently logical one as the over-
a big deal.
roughly $1.39 billion. lapping holding company structure of
GW officials said that this acqui- our two organizations has the capacity to
sition will boost its ability to serve its significantly unlock shareholder value.”
industrial partners and Class I railroad Hellman also explained that the trans- Honored
partners, yield significant synergies and action is strategically transformational in with a 2012
provide strong leverage to the eventual terms of North American operations, as it Expedited
economic recovery of the U.S. econ- will operate 108 railroads over more than Motor
omy, and create a powerful platform for 12,000 track miles in North America.
future industrial developments along “This is an exciting day for both Rail- Carriers Award.
the railroads in the 37 states where America and Genesee Wyoming,” Reddaway. The next-day
QW operates. The two companies said John Giles, president and CEO of delivery leader and best,
cumulatively account for 108 railroads. RailAmerica. “From this strong base of largest regional carrier in
This acquisition, added GW offi- operations and having unlocked signifi- the West.
cials, is subject to approval by the U.S. cant shareholder value, a combination
Surface Transportation Board (STB) and with Genesee Wyoming is the logical
is expected to close as early as the third next step in creating a combined orga-
quarter. GW said it expects to fund the nization that will be a powerful driver of
transaction and simultaneous refinanc- North American rail traffic for decades
ing of its existing debt with about $2 bil- to come.”
lion of new debt and about $800 million —Jeff Berman, Group News Editor 888.420.8960
August 2012 | WWW.LO G I STI C S M G MT.C O M L o g i s t i c s Manag e me nt 21
25. Moore on
LTL Pricing:
The devil is in the details
shippers are increasingly telling me that the a single shipment unaccompanied by any other ship-
number of options in the less-than-500-pound ment. I suggest you read your rules or pricing tariff,
shipment market confuses them. The one thing or ask carrier representative.
that many can understand is that costs continue to 3) An absolute minimum charge (AMC). This
climb despite the deregulation of rates. However, third minimum charge is the charge below which
enormous savings can be achieved by knowing your a carrier simply will not go. Even after contract dis-
shipment weight and distance, direction, and cube counts are applied, shippers may find they are sub-
as well as the capabilities of your carrier. ject to an AMC buried in the rules tariff of the carrier.
The less-than-500-pound shipment market Let’s look at an actual carrier tariff with a recent
makes up over 60 percent of LTL shipments rate increase of a 5.9 percent “average” and see
according to Dynarates, a freight transportation what it looked like in the lower weight breaks.
consultancy. In the meantime, the market has While heavy loads are increased in the 3 percent
many providers and options, from LTL carriers, to 5 percent range, minimums increased 10 per-
various third party “hundredweight” and “multi- cent, less than 500 pounds by 9 percent, and 500
weight” consolidation programs, truckload stop pounds to 1,000 pounds increased 8 percent. Now
off, and pool distribution with and without pallets. we see the devil is in the details.
For simplicity, many shippers include these
smaller shipments in their regular LTL mix
tendered to their carrier each day. But, ship- The less-than-500-pound shipment rates
pers be aware: These packages are a major
focus for increased revenues by LTL carriers.
are a favored place to bump up charges,
The less-than-500-pound shipment rates accessorials, and minimums.
are a favored place to bump up charges,
accessorials, and minimums. The effect of
a general rate increase will vary for individual cus- These example minimum charges in a current
tomers and shipments based on characteristics 2012 rules and pricing tariff will exceed well over
such as geography, lane, product classification, $100.00. With the weight breaks resulting in large
weight, and dimensions. But for small shipments, percentage differences in scales, every pound you
the LTL carriers have made a significant change in can take off a shipment is important. Leading hun-
the minimum charge. Most LTL carriers now have dredweight and multi-weight services don’t have pal-
three minimum charges that are based upon weight let weight or pallet cost, reducing shipment weight
breaks. by a substantial 40 pounds—the weight of the pallet.
Every class rated LTL shipment you make may How do we manage all those details? A good TMS
be subject to: and accurate attention to your shipment weight and
1) A standard minimum charge, subject to the distance, pallet, and non-pallet selection of carriers
additional charges and weights. can help you avoid missing opportunities.
2) Single shipment minimum charge, or “SSMC.” As your product’s freight classification increases
This charge, higher than the normal per shipment and the distance your shipment moves increases,
minimum charge, applies when the carrier picks up the charges will increase. Pay close attention to the
dimensions, distance (zone), and weight breaks.
Peter Moore is a Program Faculty Member at the University of When was the last time you read the rules tar-
Tennessee Center for Executive Education, Adjunct Professor at iff and discussed the important weight category of
The University of South Carolina Beaufort, and Partner in Supply
Chain Visions, a consultancy. Peter can be reached at pete@
less than 500 pounds that could represent 40 to 50
scvisions.com. percent of your volumes? M
22 Logistic s Manag em en t WWW.LO G I STI C S M G MT.C O M | August 2012
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27. Pearson on
Essential capabilities for
emerging markets
in last month’s column,
we presented some dramatic Trade involving emerging markets
research insights about emerg-
ing markets. By 2020, 57 per- 18,000
Export values (bar graph, left axis)
440
cent of the world’s economic 16,000 Indexed export values (line graph, right axis)
graph 400
growth could come from
14,000 360
emerging markets. Emerging
market household incomes are 12,000 320
U.S. $ billion
U.S. $ billion
expected to increase by a total
10,000 280
of $8.5 trillion between 2010
and 2020. And if emerging- 8,000 240
market-to-emerging-market 6,000 200
(E2E) exports continue to
increase at their current rate, 4,000 160
they will outpace developed- 2,000 120
country-to-developed-country
0 80
(D2D) volumes by 2013. 2000 2001 2002 2003 2004 2005 2006 2007 2008 2009 2010
At the company level, our
findings were no less striking. Emerging to emerging (E2E) Emerging to developed (E2D)
There are now 117 emerg- Developed to emerging (D2E) Developed to developed (D2D)
ing market companies in the
Fortune Global 500 (a six-fold Source: IMF Direction of Trade Statistics
increase since 2000). Twenty-
two emerging-market multi- In 2000, the total value of the world’s D2D transactions was roughly
nationals replaced companies equal to the sum of all transactions involving emerging markets (E2D,
from more-developed markets D2E and E2E). By 2010, the sum of all D2D transactions was less than
in 2011 alone. And in 2011, 70 one third the sum of all transactions involving emerging markets.
percent of the Fortune Global
500’s fastest-growing companies (by revenue) rep- positioned to smoothly leverage shifts in Brazil-
resented emerging markets. ians’ buying behaviors—from door-to-door sales to
But what can companies learn from the pio- urban “high-street” settings.
neering work that leading-practice “globalizers” 2. Uncover latent demand. Identifying
have done? Here are six key capabilities that population segments that may previously have
highly effective companies are leveraging to work been overlooked has huge potential. First Energy
and sell in emerging markets. uses fuel pellets made from agri-waste to run the
1. Engage with local stakeholders. Tight smokeless “Oorja” stoves it sells across India. In
connections with communities, suppliers, dis- China’s rural Sichuan province, Haier sells wash-
tributors, and consumers can open doors and ing machines specifically designed and labeled
help keep them open. To help penetrate the fast- to “wash clothes, sweet potatoes, and peanuts.”
growing Brazilian market, L’Oréal counts on retail To reach large rural population segments, Brazil’s
partnerships to help forge new consumer rela- Banco Bradesco operates a floating bank branch
tionships through displays and personal beauty on the Amazon River.
advisers. By connecting with retailers, L’Oréal is 3. Seed future demand. “Enlightened self
interest”—aligning business success with socio-
Mark Pearson is the managing director of the Accenture’s Sup- economic development—is a tried and true strat-
ply Chain Management practice. He has worked in supply chain egy. With this in mind, GSK developed its Access
for more than 20 years and has extensive international experience,
particularly in Europe, Asia, and Russia. Based in Munich, Mark
to Medicine program. One of the initiative’s cor-
can be reached at mark.h.pearson@accenture.com nerstones is dramatically reduced pricing, which
24 Logistic s Manag em en t WWW.LO G I STI C S M G MT.C O M | August 2012
28. Pearson on
has helped GSK build new markets culture. For example, it launched when it comes to carving inroads
and make it easier for people to obtain meritocratic promotion and pay in emerging markets, companies
vital medicines. into a system that traditionally are generally limited only by their
4. Explore public/private part- embraced seniority and reverence imaginations, vision, market-
nerships. Global companies some- for elders. research skills, and the willingness
times find that working hand in glove For every example given here, to put their money where their
with government is easier in emerging there are thousands more. In fact, markets are. Ⅺ
economies than in developed ones.
South Korea’s Information Infrastruc-
ture (KII) Plan was launched with the
goal of connecting more than 80 per-
cent of households to broadband ser-
vices. Private-sector investments in the
project totaled $14.5 billion, while the
The Global Economy
South Korean government added $1.76
Right at Your
Dock Door
billion in loans. Increased availability
of Internet access has helped several
South Korean companies become
world leaders in market sectors such as The heritage continues.
online games.
Now more than ever, service, efficiency and quality
When it comes to carving are not an option but a necessity. Your real estate is
no exception.
inroads in emerging markets,
That’s why Watson Land Company’s buildings are
companies are generally designed to maximize your distribution efficiency.
limited only by their By providing flexible properties strategically located
near major sea ports, airports and railways, we make
imaginations, vision, market- our building your competitive advantage.
research skills, and the
willingness to put their money
where their markets are.
5. Prepare leaders for tomor-
row’s global realities. According to
the aforementioned research, a key
feature of “successful globalizers” is
leadership teams that are widely com-
mitted to entering, expanding and
personally participating in high-growth
markets. To help ensure that future
leaders have diverse international expe-
rience, Nestlé assigns many of its best
and brightest to a 30-month stint in a
foreign market. India’s Tata Commu-
nications has designed an entirely new
operating model to incorporate local
leadership expertise into the company’s
global operations.
6. Create a change-friendly
culture. Stronger emphasis on emerg-
ing markets requires corporate cultures
that are comfortable with uncertainty,
complexity and change. Samsung has
been transforming how it thinks, feels,
Scan with your smart phone
310.952.6400
www.watsonlandcompany.com
and works by drawing select Western
business practices into its corporate
August 2012 | WWW.LO G I STI C S M G MT.C O M L O G I S T I C S MANAG E ME NT 25
29. Andreoli on
Think twice: There’s a
danger to ditching diesel
the average truck consumes
roughly 11,000 gallons of die-
sel per year. Consequently, even
minor shifts in fuel prices have
a significant impact on operat-
ing costs. For instance, when
applied to a fleet of 100 trucks, a
price drop of 25 cents per gallon
generates annual savings exceed-
ing a quarter of a million dollars.
Of course, in a competitive
environment, some, if not all
of these savings, are passed on
to shippers, but the opposite is
also true. When prices increase,
shippers, carriers, and consum-
ers all take a hit.
As the price spread between
oil and natural gas reached an
all-time high, the price differen-
tial between compressed natural
gas (CNG) and diesel yawned to
$1.80 per gallon (measured on
an energy equivalence basis). The promise of such savings down as production grew faster than consumption. On
provides a compelling reason to convert all or part of a fleet the other side of the equation, diesel prices have risen as
to natural gas. demand growth—especially from emerging markets—out-
In addition to fuel savings, natural gas powertrains are paced supply.
less complex, require less downtime for maintenance and Addressing these issues systematically requires the
repair, and are less costly to maintain. On the flip side of the evaluation of factors that are likely to influence supply and
coin, equipment costs are higher, roughly $30,000 or more demand for both natural gas and diesel. The number of
per truck, and switching to CNG (or potentially liquefied natural gas drilling rigs in operation has fallen off a cliff,
natural gas, LNG) requires that facilities be upgraded and declining 36 percent over six months. This precipitous
employees be trained and certified. Additional consider- decline has occurred for two reasons.
ations regarding the availability of fueling infrastructure, First, neither natural gas spot prices nor futures prices
refueling time, vehicle weight, and residual value must also support current drilling efforts. A conservative estimate puts
be made. the average full-cycle marginal cost of production in the $6
As a general rule of thumb, a price differential of roughly to $7 per million BTU (mmBTU) range. In April, natural
$1.50 is needed to break even on the investment in two gas spot prices bottomed out at $1.82/mmBTU, and they
years. The question at hand asks whether or not the price remain below $3.00/mmBTU today.
spread will persist long enough to cover the payback period Second, the same drilling equipment and techniques
for the initial investment. To answer this question requires can be redeployed to produce shale oil, which generates
thoughtful evaluation of the factors that are responsible for higher returns. Consequently, on the supply side, though
the yawning price spread. natural gas inventories remain high and will likely remain
Natural gas production boomed after the introduction high for some time to come, they will eventually decline as
of hydraulic fracturing technologies, and prices were forced a result of the recent pullback in drilling activity.
On the demand side of the natural gas equation, historically
Derik Andreoli, Ph.D.c. is the Senior Analyst at Mercator low prices are driving major shifts in domestic consumption. In
International, LLC. He welcomes any comments or questions, and can
be contacted at dandreoli@mercatorintl.com.
the year and a half since January 2010, the share of natural gas
26 Logistic s Manag em en t WWW.LO G I STI C S M G MT.C O M | August 2012
