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Transportation News Bulletins - Logistics

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Supply Chain Cash Flow Slows Down
Friday, 12 February 2010 00:00
Payment rate slowed last month after accelerating in December

Cash flowed more slowly through supply chains in January, reflecting longer payment periods among suppliers, transporters and customers in the first weeks of 2010, according to the latest Supply Chain Index released by Cortera.

The rate of payment in Cortera’s January 2010 Supply Chain Index was 9.05 DBT, or days beyond term, a 9.95 percent increase over its December report.

That’s unusual, but not necessarily a bad thing, the business credit bureau explained, as it indicates a return to pre-recession payment trends.

“If history is a guide, we’re about to see a steady, multi-month improvement in payments, cash flow and debt reduction throughout the supply chain,” said Jim Swift, Cortera’s president and CEO. “For stakeholders, quick, reliable payments remain the best way to fuel continued growth throughout the entire supply chain.”

Typically, payment rates get faster and debt becomes more current in January, as businesses pay off bills with fresh cash from holiday sales in November and December. This season that happened earlier, in late December, a possible effect of more cautious inventory restocking strategies, Cortera said.

The 9.05 DBT result was an 18.47 percent improvement over last January’s 10.72 DBT. It also was closer to the 8.75 DBT reported in January 2008, which lends credibility to the idea that many businesses are on the path to recovery, said Swift.

Cortera’s monthly SCI is based on the accounts receivable activity of more than 350,000 businesses, including manufacturers, distributors and wholesalers, retailers and transportation companies.

Journal of Commerce Online, 2/12/2010

Georgia Transportation Funding Deal Could be Near
Friday, 12 February 2010 00:00

In hopes of curbing traffic congestion and other concerns related to transportation, Georgia legislative leaders appear to be nearing a deal on a funding plan that would let residents vote to tax themselves to pay for needed improvements.

Gov. Sonny Perdue also wants to borrow $300 million a year to benefit freight movement throughout the state.

The Republican governor and leading lawmakers in the statehouse announced they are moving forward with a proposal that would have regions decide whether to increase the 4-cent sales tax by one penny to pay for road and other infrastructure work. If approved by lawmakers, voters would have the final say in the 2012 presidential primary.

Getting transportation funding legislation through the statehouse has been difficult the past couple of years. The Georgia House and Senate, which are led by Republicans, have been divided on how to come up with the money to pay for projects. The stumbling block has been whether the tax should be regional or statewide.

The latest proposal would permit regions that vote in favor of the tax to spend money on local projects. Others rejecting the increase would not get any additional funding.

“This approach will mean dollars spent in a region remain in that region, and the projects will benefit the entire region,” Perdue said in a statement.

Lawmakers would have to sign off on the projects getting the funds. After eight years, voters would have to decide whether to renew the tax.

While Perdue and Republican leaders are making plans to unveil their initiative, Democrats are calling for a quicker outcome that they say is needed to address the state’s ailing transportation system.

The governor has indicated he is weary of pushing for the tax increase in the middle of a struggling economy.

Perdue is also pursuing a plan to issue $300 million a year in bonds that would help move freight across the state. He wants lawmakers to approve a bond package for 10 years for a total of $3 billion.

The plan’s key component is improving the flow of trucks into and out of the Port of Savannah. The governor is hopeful of making upgrades at the nation’s fastest-growing container port in time for a major widening of the Panama Canal, due for completion in 2014.

The bonds would be repaid using state general funds.

Land Line Magazine, 2/12/2010

Knowledge is Power
Thursday, 11 February 2010 00:00

The economic environment has led to several subtle shifts in the way forwarders in the heavylift and project cargo industry need to operate.

Several forwarders have revealed that the number of enquiries in the past few months has increased considerably, but few have come to fruition, while lead times, especially for ad hoc equipment orders, have shortened.

“There are many budget enquiries, but less tangible and real tenders for freight forwarding services out there at the moment,” says Thorsten Grams, corporate head of operations of Panprojects, Panalpina’s independent competence centre for project shipments. “The amount of real cargo has decreased.”

According to DHL Global Forwarding Industrial Projects, part of the reason is budget figures, as original equipment manufacturers (OEMs) and engineering, procurement and construction firms (EPCs) respond to increased bid activity from principals planning to ramp-up activities that may have slowed. Smaller manufacturers may also be attempting to break into alternative markets.

Meanwhile, for those projects which do come to fruition, lead times have been significantly shortened. Jillian Peacock, group marketing manager for Abnormal Load Services (ALS), says: “We are quoting and getting a response much faster. We can see the results quicker—it’s now just a matter of months, and that helps with the cash flow.”

DHL Global Forwarding believes the short lead times can be put down to a number of factors.

“A number of projects which may have been deferred, particularly in extractive industries, are now coming back and wishing to make up time. Also, some end-users of equipment may be trying to source new equipment quickly before any major upturn in demand,” says a spokesman.

The company also suggests that manufacturers may be offering shorter lead times as part of their value proposition.

Despite changes to the way they work, in general, players in the heavylift market are optimistic and see signs of growth.

“The outlook is certainly more optimistic than six to nine months ago,” says DHL Global Forwarding, claiming there is particularly strong interest in downstream petrochemical and refining complexes, renewable and nuclear power.

The inevitable project cargo time lag means that a “reasonable recovery will be in progress by late 2010 or early 2011”. It adds that some customers are increasing bid activity now in the hope of locking-in lower cost unit rates before the upturn comes.

But Jawad Kamel, president and CEO of Advance International, is less hopeful for the longer term. “Project cargo is an investment business—billions of dollars of investments. That can’t happen in the private sector—it is government projects. What we are doing now is projects signed between 2006 and mid-2008, and they will continue to 2014 and 2016. But then there will be a vacuum. No major new order has been placed.”

He too has seen an increase in requests, but says: “Lots of manufacturers are pulling out old files or making imaginary projects and contacting the market for things which might happen one day. It’s just a way of keeping them busy.”

Kamel is convinced that large-scale government projects will see a gap in 2014, because of the lack of orders now.

“The banking systems are not yet working properly and the finance and support is simply not available. There is some money in Japan and China, and they will deliver some to manufacturers, but only their own, which makes it very difficult.”

He believes major project cargo will return once developing countries are back on their feet, but adds: “The size of projects will shrink. There won’t be 7,000 tons of daily production, but maybe 1,000 tons. Heavylift cargo will drop for a time to light and medium-light heavylift.”

DHL Global Forwarding believes the key issue for the industry is being able to balance the supply and demand equation, and “the ability of players to remain in the marketplace long enough for a recovery to gain momentum”.

At the moment, rates are holding up in the 1,000-ton plus sector, while for smaller items, where there is significantly more capacity and competition, rates are less.

In the small and medium-sized forwarder market, things look buoyant.

“I think it’s a good market for us at the moment,” says ALS’s Peacock. “There are some opportunities as some of the larger companies have made cutbacks. We have flexibility and specialism to offer.”

She adds, however, that more competitors have moved into the heavylift area.

“They have less specialist knowledge, but often they win the contract, and then use third-party companies like us to help. It’s really crazy. We lost some bids, I think, because they looked expensive, but often there were additional costs added later by the winning bidder, or the job hadn’t been done properly, so we have won back some business.”

Last month, medium-sized forwarder UTC launched its heavy equipment division. Mark Kennedy, UK country manager, says the company is benefiting from its experience and from customer relationships.

In October it delivered 6,000 tons of Liebherr cranes to Rio, having beaten several top-tier global forwarders to the deal. “It partly came down to price, but also expertise,” says Kennedy.

“Some global companies don’t seem to respond to requests in the right way. They just give prices, with no substance behind it or justification for that price. They just hope their reputation will win it for them.”

He adds that since the recession began, many companies cut back on staff travel. “That means you don’t hear of jobs at source. Instead of trying to stop everything, we are investing in people, time and travel so we can find the opportunities.

“For lots of the big forwarders, with Asian imports down, I think they just set up project divisions just to appeal to that sector, but without any real expert knowledge.”

International Freighting Weekly, 2/11/2010

Wal-Mart Tightens Delivery Deadlines
Monday, 08 February 2010 00:00
Retailer’s “must arrive by date” ratchets up supply chain pressure on shippers, carriers

Like most shippers, Wal-Mart Stores is looking for a delivery guarantee from its suppliers. Unlike most others, the world’s largest retailer now is demanding one.

While many retailers were scrambling last week for any space they could find out of Asia, Wal-Mart implemented its strongest delivery requirements yet on suppliers in the United States, imposing new deadlines for getting goods to distribution centers as well as tough penalties on those that miss the mark.

As of last week, U.S. companies shipping goods to Wal-Mart distribution centers must begin to deliver within a four-day window leading up to a “must arrive by date,” or what the company calls its MABD. The requirement will initially apply to suppliers shipping prepaid and truckload freight to Wal-Mart DCs.

Those who deliver less than 90 percent of their loads each month within their delivery windows will be assessed a “reimbursement” charge totaling 3 percent of the cost of goods sold. The charge applies to shipments arriving before the four-day window closes—called “MABD-3”—as well as after the deadline date, Wal-Mart spokesman John Simley said.

It’s a tough requirement and because of Wal-Mart’s outsized scale, the requirements and the push by a large range of shippers and carriers to meet them will reach deep into supply chains across the country and overseas. The latest action by a company famously innovative—some might say obsessive—about gaining control of its supply chain also is being closely watched in a retail business increasingly focused on tight management of distribution channels.

“This is about trying to maintain a steady and productive flow of goods through the supply chain, so we’re ready to receive the things we’ve ordered,” Simley said. “Anything that deviates is a problem. ”

Other retailers have similar MABD programs, Wal-Mart points out, but Wal-Mart’s size—it imported 720,000 TEUs of freight in 2008, 62 percent more than Target, the second-largest containerized importer—magnifies the mandate’s impact.

Shippers will have to adjust their ordering, production and shipping schedules to meet Wal-Mart’s deadlines, and work with trucking partners to expedite freight. Shippers doing business with Wal-Mart may have to impose new delivery targets on their own suppliers and improve their sourcing and demand forecasting, driving efficiencies out from receiving docks across supply chains.

The mandate will force some suppliers to rethink how they ship to Wal-Mart, said James Harris, president of High Impact Analytics, a consulting firm that specializes in helping shippers comply with MABD programs at Wal-Mart and other retailers.

“First, suppliers must evaluate their data to make sure they have correct lead times” for each site they ship to, he said. Some shippers may want to make fewer shipments to build greater truckload density, and add a “grace period” when shipping to locations where they’ve had difficulty making delivery targets. “You may have to work with Wal-Mart to change the way your products are routed through their supply chain, and that’s going to be a difficult conversation for some suppliers,” Harris said.

Unless they’re flexible enough to adapt to Wal-Mart’s mandate, shippers will have more than costly penalties to worry about. They risk losing Wal-Mart as a customer. “The vast majority of our suppliers are pretty good,” said Simley, who expects penalties to be rare. “There are some who have opportunity for improvement.”

Shippers are certainly concerned, said a trucking executive who requested anonymity. His company provides transportation services to Wal-Mart and its suppliers.

“This is definitely one of those examples of how when Wal-Mart hands down a requirement, people rush to comply,” he said. “It is going to necessitate that carriers and suppliers work even more closely together because there’s so much at stake.”

The program raises many questions for shippers, said Steve Banker, an analyst with ARC Advisory Group. “If a supplier gets penalized for poor carrier performance, will it pass the penalties along to the carrier? How would this influence carrier procurement?” he asked in ARC’s Logistics Viewpoint blog.

Shippers will have to consider carefully which carriers they use to ship to Wal-Mart, and may have to work new language on liability for shipments that miss their MABD into carrier contracts.

Can Wal-Mart charge shippers a “reimbursement” penalty? If they’ve hired the carrier that arrives late, yes, Simley said. “If Wal-Mart hired the carrier, then they’re off the hook,” he said.

That may be an incentive for some shippers to give Wal-Mart greater control over its inbound inventory and let the retailer pick up freight at their loading docks using its own for-hire carriers or private fleet. “If they don’t have a truck, we’ll come and get it,” Simley said. Wal-Mart’s 7,200 tractors give it the fifthlargest fleet of trucks in the country, according to SJ Consulting estimates. “We’re trying to schedule fullload shipments throughout our system,” Simley said, and hauling more freight from suppliers would help fill more of its trailers.

That effort to consolidate more loads into full truckloads is part of Wal-Mart’s effort to improve its supply chain efficiency and, along the way, improve the company’s environmental footprint.

When the freight hits the dock, MABD requirements are about who controls the supply chain—the supplier or the customer, in this case, Wal-Mart.

Wal-Mart is among a large range of retailers trying to gain a better grip on their own destiny by managing their own inbound inventory. Across the retail industry, suppliers often still choose the transportation vendors that deliver freight to their customers, said Gary Girotti, vice president of the transportation practice at Chainaltyics. Retailers in a weak economy are trying to change that. “Every retailer we’re talking to has some sort of vendor inbound conversion going,” Girotti said.

The MABD requirement is a loading-dock-level extension of Wal-Mart’s overarching strategy to accelerate “speed to market” by streamlining sourcing, procurement and inbound transportation and reducing inventory. It follows and complements many supply chain initiatives, from increasing its use of radio frequency identification technology to hybrid trucks.

Last week, Wal-Mart followed through on plans unveiled last year to consolidate sourcing and increase direct purchasing by creating four Global Merchandising Centers. It also began to integrate its logistics, real estate and store operations divisions in the U.S. and reorganize its U.S. territories.

Even with relatively strong sales in a weak economy, the company is cutting back in some areas—it recently said it would close 10 Sam’s Club stores, in a rare moment of retrenchment. But as it drives down inventory and streamlines its logistics network, Wal-Mart is increasing the variety of goods it sells, including products sold online and delivered to U.S. stores for pickup by a customer. That will make MABD window compliance more critical.

“It all boils down to the customer experience at the store,” Simley said. “Our customers depend on finding products in our stores at the time they need them.”

Trucking companies that haul freight for Wal-Mart’s vendors are working to help them meet the requirements. “We’ve been proactive with our customers who ship to Wal-Mart,” said Ed Conaway, executive vice president of sales at Con-way Freight.

The requirement may also bring an opportunity to bolster beaten-down yields at those trucking companies that can meet the commitments. Shippers “have to decide between two things: either to use a carrier that can make the delivery windows or to get their goods shipped earlier,” Conaway said.

Averitt Express and ABF Freight System have pages on their Web sites dedicated to retail MABD compliance. “We have our own standard operating procedures for MABD shipments, as well as a team of associates dedicated” to MABD compliance, Averitt said on its Web site. ABF created an online MABD compliance planner that helps shippers plan production and shipping schedules for each order based on its MABD. The system can automatically flag Wal-Mart shipments for expedited service.

Wal-Mart’s MABD program does offer shippers some wiggle room, Harris said. “There’s a fair amount of grace built into the Wal-Mart program,” he said. “At other retailers, these programs can seem more like a profit center. Wal-Mart not only provides the details you need for compliance, they provide the tools needed to track compliance.”

Also, shippers wouldn’t be charged the 3 percent penalty unless its total value would exceed $1,000 a month.

“There are some things that are beyond the supplier’s control,” Simley said. “We recognize if there’s a weather event, that it’s not their fault. Ultimately, we’re trying to get the stuff to the store. The only real metric that matters is the customer.”

The Journal of Commerce Online, 2/8/2010

The White House Pitches Exports
Monday, 08 February 2010 00:00
Manufacturers applaud president’s push to double exports in five years, but can the supply chain handle it?

Combine President Obama’s export pronouncements in his State of the Union speech, and his 2011 budget for export promotion, and the trade community has something to celebrate.

In his Jan. 27 address to Congress, the president pledged, “We will double our exports over the next five years, an increase that will support 2 million jobs in America.”

To do it, the administration would launch a national export initiative to help small businesses and farmers increase exports, and reform an antiquated export control system.

The president’s 2011 budget proposal, released Feb. 1, includes a 21 percent increase for Department of Commerce export promotion programs.

“I’m thrilled,” said Frank Vargo, vice president for international economic affairs at the National Association of Manufacturers. “This is the biggest increase I’ve seen in decades. It’s clear the president is putting his money where his mouth is.”

He said Commerce’s three offices responsible for export promotion could receive $320 million, up from $261 million. “This will really allow them to expand their programs,” Vargo said. “The export promotion programs have been starved for a lot of years.”

Beyond job creation, the ambitious goal raises numerous supply chain questions. The U.S. now imports just less than twice what it exports, so ocean and air carriers deploy equipment with that head-haul in mind—and price it accordingly. But exports, which are predominantly low-value industrial goods as well as agricultural products, must contend with frequent, and increasingly frustrating, equipment shortages, especially in the Midwest. Further, international carriers place a lower priority on export freight because it yields less for their bottom lines.

NAM has been pushing for years to get more funding for manufacturers. In comparison, the U.S. Department of Agriculture gets twice the funding to promote agricultural exports, even though they’re worth about one-tenth of exported manufactured goods.

“The California prune growers association gets more money for market development than all of manufacturing does,” Vargo said. “The White House Office of Management and Budget has held for years that export promotion for the Commerce Department should be on a full cost-recovery basis. You help a company; they should pay for the cost of the service they receive. The Agriculture Department doesn’t do that. Whether they have a different OMB than Commerce has to report to, I don’t know.”

Both congressional houses have agriculture committees, but neither has a manufacturing committee, Vargo noted.

“The World Bank concluded that you get about $40 of additional exports for every additional dollar of export promotion,” he said. “The president also talked about getting a Doha Round that would actually open markets.”

NAM’s official stance, however, is that there should be no Doha deal until high-tariff countries such as Brazil, India and China make their markets more accessible.

In connection with a renewed Doha Round, the president said the U.S. should “strengthen our trade relations in Asia and with key partners like South Korea and Panama and Colombia.”

The Bush administration negotiated free-trade agreements with those countries but was unable to persuade the Democratic-controlled Congress to pass them before leaving office last April. They remain controversial; many Democrats, pushed by their labor constituents, support legislation requiring the White House to renegotiate existing trade deals before Congress considers any new agreements.

“Labor mistakenly believes that these free-trade agreements are bad for us, and are the reason for our trade deficit,” Vargo said. “That’s not true. We actually have a trade surplus in manufactured goods with our trading partners.”

A presidential task force on export controls on Jan. 31 presented its recommendations to the departments of Defense, State and Commerce. Export control reform could increase exports by $65 billion, according to a recent Milkin Institute report. Some members of the trade community, however, believe reform is better seen as a national security issue, not trade.

Defense Secretary Robert M. Gates, one of the administration’s leading proponents for export control reform, concluded export controls are not only hurting U.S. manufacturers, but they also are causing other countries to develop their own technologies because they can’t buy from a U.S. source, Vargo said.

“You wonder where the future technologies that our military is going to need for superiority are going to come from if we have weak innovation,” Vargo said. Reforms could promote security, but without them, exports, innovation and jobs will be hurt.

“Any true trade nerd was thrilled to see that” when Obama mentioned exports and export controls in the State of the Union address, said Marianne Rowden, president of the American Association of Exporters and Importers.

“If you asked me a year ago, I’d have said we’ll do whatever needs to be done to keep the lights on,” but the president’s first year didn’t bode any major trade effort, she said. “I didn’t expect a full legislative agenda on trade.”

The administration has yet to articulate a trade policy, but Congress is moving forward with Customs reauthorization and export controls, Rowden said. With export promotion in the mix, lawmakers should move quickly before bureaucratic resistance bogs down any forward movement.

“We have a small window of opportunity,” Rowden said. “This has been tried 10 times before and failed every time. Maybe this time the stars are truly aligned.”

The Journal of Commerce Online, 2/8/2010

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