Supply Chain / Logistics / Transportation

Time ripe for slow steaming answers :: www.americanshipper.com

   If anything is slower than a backhaul transit these days, it’s probably the process to ascertain how slow steaming should affect the bunker surcharges carriers assess shippers.
   It seems everyone is studying the issue. The Transpacific Stabilization Agreement told American Shipper last month it is doing so, as is the European Shippers’ Council. Peter Friedmann, executive director of the Agriculture Transportation Council, said at an April liner shipping conference in London that his members are keen to know this. Consultants are also examining slow steaming’s effect on carriers’ sailing costs.
   But it’s not a linear argument. As Brian Conrad of the TSA pointed out, you can’t say slow steaming reduces bunker consumption by X percent and so bunker surcharges should be reduced by the same factor. Yet it’s probably not as complex as carriers are making it out to be.
   The question to answer before asking whether bunker surcharges should drop in line with bunker consumption is this: Is slow steaming purely a carrier’s operational change that is a separate issue from rising and volatile fuel prices? In other words, should carriers be penalized for operating in a more efficient manner by not being able to collect as much bunker surcharge revenue as they did when they sailed faster and used more fuel?
   Or should slow steaming be considered an operational adjustment, like sailing around Africa rather than through the Suez Canal? To my memory, carriers that switched to round-the-Cape sailings did so of their own volition and didn’t raise bunker fees to compensate for extra fuel burned. It was their choice to route their ships that way, just as it’s their choice to go slower.
   For shippers, it seems easy to connect the dots and say if a carrier consumes less fuel, it shouldn’t charge its customers as much for fuel, even as fuel prices are rising.
   There’s also the service aspect. This isn’t an operational change, like switching from diesel trucks to LNG trucks, where service is unaffected. This is a change that significantly affects the supply chains of carrier customers.
   But from the carrier perspective, you could say slow steaming has nothing to do with procurement of raw materials, and so it should have little bearing on its cost to procure fuel, as it’s independent of how much fuel it uses.
   The issue probably boils down to transparency. It’s not hard to envision shippers and carriers conducting studies that support their own positions.
   But what would really help matters is for one carrier to explicitly state its fuel consumption and costs before and after slow steaming on a key east/west service. Then we could calculate how much per ton, per mile traveled and per TEU slow steaming has actually saved. While that would only illuminate the equation for one service from one carrier (or alliance), it would establish a baseline and could force other carriers to divulge similar information.
   Again, carriers could argue the bunker surcharge is not about the number of tons of bunker burned, but rather about the total cost of fuel for a voyage over and above some specified baseline. Either way, they’d be in a better position to argue the authentic merits of bunker recovery.
   It seems silly to think that it took years for carriers to become transparent about how they calculated their bunker surcharges, only for one operational change to completely obscure the lines of communication soon after. Let’s hope these studies elicit some real actionable results.

Options galore
   The topic of port competition came up in a recent conference, and I got to thinking about that in terms of the ports of Long Beach and Los Angeles. Is there another port in the world where as many terminal operators compete agai

via www.americanshipper.com

Idle Box Fleet Declines to Pre-Recession Levels | Journal of Commerce

Unemployed container ships reach 30-month low of 71 vessels

The number of idle container ships is at a 30-month low, with only 71 ships recorded as unemployed, according to a survey of the container fleet by Alphaliner last week.

The survey said the total unemployed capacity currently stands at 134,000 20-foot equivalent units of containers, or 0.9 percent of the overall cellular fleet, which represents the lowest idle capacity level recorded since the start of the financial crisis in September 2008.

The survey found only 26 carrier-controlled ships currently unemployed, with an idle capacity of 75,000 TEUs.

The entire usable cellular fleet under carriers' control is expected to be employed by the end of May, except for a few over-aged mothballed ships and some damaged units.

Two ships of more than 5,000 TEUs remain unemployed so far, but both (the 10,062-TEU Zim Djibouti and the 8,440-TEU ZIM San Diego) are slated to join the newly-launched Asia-Europe Express 2 service, a loop jointly operated by Zim, China Shipping and Evergreen.

A further 45 ships controlled by non-operating owners with a capacity totaling 59,000 TEUs are presently idle. These include a few charter market ships recently redelivered to owners and without immediate employment.

Alphaliner said the idle fleet numbers are now back to pre-crisis levels, with fairly balanced demand and supply conditions, at least for the time being. At the peak of the recession late in the year 2009, close to 400 ships controlled by non-operating owners and an additional 200 carrier-controlled ships were unemployed.

via www.joc.com

Welcome to SupplyChainBrain: Positive Outlook for Trucking Industry Tempered by Rising Operating Expenses, Survey Finds

GE Capital, Transportation Finance | April 28, 2011

Seventy-one percent of trucking company executives surveyed by GE Capital, Transportation Finance expect business conditions to improve in 2011, but they are concerned about the impact of external and internal factors on their profit margins. The rising price of diesel, a nationwide shortage of drivers and the twin costs of complying with government regulations and maintaining their own aging fleets are all significant concerns.

When asked to identify their company’s top three business opportunities this year, a full 75 percent of respondents said they expect existing customers to ship increasing volumes of goods. The same number said they foresee an increasing rate environment. Sixty-eight percent of respondents expect to acquire new customers in 2011.

 

“As the economic expansion gains strength − although it’s clouded by recent global challenges − trucking companies are working hard to communicate with their shippers exactly what’s involved in moving their freight,” said Dan Clark, president and general manager of GE Capital’s Transportation Finance business. “At the same time, shippers in the U.S. should try to understand the challenges that are impacting trucking executives’ business decisions.”

Executives said their biggest challenge will be recruiting and hiring quality drivers, cited by 74 percent of survey respondents. Two other widespread concerns are the rising costs of diesel fuel (67 percent) and equipment parts and maintenance (41 percent). Additionally, they are concerned about the operational costs of complying with recent government regulations related to the hours that drivers may work and the reporting of safety, compliance, vehicle, driver and regulatory violations to the Federal Motor Carrier Safety Administration, which regulates the U.S. trucking industry.

While shipping capacity is tight, nearly half (48 percent) of survey respondents expect the number of competitors in their market to decrease while an additional 39 percent expect the competitive landscape to remain unchanged.

“In previous business cycles, the positive volume and rate conditions that we’re seeing now would’ve primed the market for new entrants,” said Serena Tse, GE Capital, Americas senior vice president and transportation industry research manager. “Even though carriers have a tremendously positive outlook on business conditions and revenues, they’re sobered by concerns about profit margins.”

Additional findings from the survey include the following:

• A significant portion of carriers intend to maintain their fleet size in 2011; however, 68 percent anticipate adding to their sleeper cab fleets and 70 percent adding to their trailer fleets in 2012.

• Forty-nine percent of carriers expect the average age of their fle

via www.supplychainbrain.com

Ocean rates continue downward spiral - IFW - ifw-net.com

Ocean rates on three of the four main trade lanes continued their downward spiral last week, with prices on the Asia to Europe trade edging closer to the $900 per teu mark.

The latest data from the Shanghai Containerised Freight Index (SCFI) show that last week all-in spot rates on services from Shanghai to Northern Europe hit US$939 per teu, down $24 on a week earlier, while prices from Shanghai to the Mediterranean over the same period slipped $19 to reach $926 per teu.

At the start of the year rates on services from Shanghai to Northern Europe were at $1,401 per teu.

Meanwhile, according to the SCFI, prices on services from Shanghai to the US East Coast fell to $2,979 per feu last week, which is down $11 on a week earlier, but prices to the US West Coast climbed $6 to $1,645 per feu.

And it seems pressure on rates will continue over the next quarter, with container derivatives broker GFI saying the general rate increases (GRIs) announced by some carriers for the Asia-Europe trade are looking likely to fail.

“Speaking to a number of the Chinese freight forwarders this week, the mood remains muted and rate validity periods are still at one week,” GFI said.

“It doesn’t appear that any GRIs announced by some carriers will be successfully implemented until Q3.

“Nor will shippers be willing to accept a GRI given the number of new services that have been recently launched.”

The Shanghai Shipping Exchange (SSE), which producers the SCFI, said the decreasing rates experienced recently were due to a combination of overcapacity and carriers chasing market share.

“The evident growth of the volume on the Europe services, compared with last year, was largely nullified by the capacity surplus,” the SSE said.

“Besides, fierce competition left price-cutting to be a main method for carriers to seize the market over the past month, which some indicated that the present freight rate had hit the break-even point.”

And Paris-based analyst Alphaliner said earlier this week the amount of new vessel capacity that carriers are preparing to add to the market over the coming year will pile further pressure on prices.

Alphaliner research revealed that April will be the highest level of monthly vessel deliveries on record, with 32 containerships, representing 226,500teu, due to be delivered. Total deliveries in 2011 are expected to reach 1.35 million teu.

via www.ifw-net.com

Truck demand accelerates – DC Velocity

Truck freight demand across the nation may now be starting to spike, a situation that could add another layer of angst for shippers and freight brokers already confronting a capacity-constrained marketplace.

According to TransCore, a Portland, Ore.-based load-matching network that tracks freight activity in 64 U.S. traffic lanes, first-quarter online load postings by freight brokers hit records for each month in the quarter. Ken Harper, the firm's senior marketing and communications manager, said TransCore's load-posting data extends back at least 10 years and probably longer. Harper declined to disclose specific numbers, saying they were proprietary to the firm and its clients.

The flurry of posting activity by brokers indicates that shippers, who traditionally work through brokers to locate truck capacity, are experiencing a sharp acceleration in business that requires them to quickly secure space through the spot market instead of via the contract route.

At the same time, Harper said TransCore is seeing "very high load searches" by carriers mostly looking for loads to fill what might normally be empty return, or "backhaul," movements.

For shippers, opting for spot market pricing has, in recent years, often been a better deal than signing a one- or two-year contract, mostly because spot market rates have been depressed due to sluggish demand and overcapacity. However, spot rates have been climbing in the past year as a pick-up in demand intersects with significant capacity reductions from the four-year freight downturn and subsequent economic recession.

By contrast, contract rates have remained relatively static, due in part to the impact of so-called legacy contracts that have yet to come up for renewal.

According to TransCore, spot rates are now higher than contract rates on one-quarter of the lanes the firm tracks.

Meanwhile, carriers have both pricing and operating leverage, and don't seem hesitant to use it. Increasingly, they are working directly with large shippers and skirting the brokers they relied on to supply loads during the lean times.

A recently released first-quarter survey by M&A advisory firm Transport Capital Partners LLC found 87 percent of carriers said they had used fewer broker services during the past three months. "This is a dramatic turn-around since May of 2009, when two-thirds reported using more brokers," said Richard Mikes, a partner at the firm. "The freight supply-demand balance has shifted dramatically to the carriers, and they are using their capacity to serve the needs of their long-term customers."

Lana R. Batts, another TCP partner, added that carriers will "service their long-standing shippers first because of not only higher-paying freight, but also steadier volumes and the desire to assist these shippers as a priority." By working directly with shippers, carriers can also avoid the 15 to 20 percent broker mark-ups that cut into the profitability of each load they receive from brokers, said Batts.

The capacity situation remains fluid. According to Harper of Transcore, capacity for dry vans, on which most of the nation's truck freight moves, has stabilized. The situation was different several weeks ago, when dry vans were reported in very short supply notably from the East Coast into the Midwest, as carriers were spread thin and refused to move loads on lanes where they weren't receiving compensatory rates. By contrast, capacity of flatbed trucks remains extremely tight, with little change expected in the near future, Harper said.

Ben Cubitt, a former top shipper executive and now senior vice president of consulting and engineering for Transplace, a third-party logistics service provider based in Frisco, Texas, said Tuesday that the capacity crunch in the Midwest has "eased off significantly" in the past few weeks. However, Cubitt said he expects any slackness to be absorbed during the next few weeks and

via www.dcvelocity.com

YRC restructuring infuses company with millions in capital – DC Velocity

YRC Worldwide Inc.'s long-awaited next step in its restructuring plan, announced late Friday, infuses the troubled less-than-truckload (LTL) carrier with more than $100 million in needed liquidity. The deal, however, will dilute the value of the company's existing stock to just pennies per share.

The agreement, approved virtually unanimously by the company's lenders, multi-employer pension funds, and the Teamsters union, also calls for YRC's debt-holders to exchange $165 million in debt for a 72.5-percent equity stake in the company. Under the plan, the company's 25,000 Teamsters members will retain a minority equity ownership in YRC.

In a statement, John Lamar, YRC's chief restructuring officer, said the agreements set a "solid foundation for long-term success." Lamar said the company remains on track to complete the comprehensive restructuring by the end of July.

"Saving the jobs of our 25,000 freight members at YRCW remains our number one priority so we welcome this news today," Teamster General President James P. Hoffa said in an April 29 statement. "These agreements and the support of the company's primary stakeholders represent a significant step forward in the company's restructuring plan and help to assure the continued momentum of the transaction. We will continue to be involved every step of the way to make sure this plan is completed and our members continue behind the wheels and on the docks."

However, the new agreement is so dilutive to existing shareholders that by July, they will hold only about 2.5 percent of YRC's outstanding stock. Anthony J. Alfidi, founder and CEO of his own San Francisco-based investment firm, said that based on YRC's closing stock price on Friday of $1.98 a share, reducing existing shareholders' stake in the company to 2.5 percent will have the effect of driving down the value of YRC shares to less than 5 cents a share.

By announcing a plan to "cancel the company's massive debts by using massive amounts of new equity" to bondholders, Alfidi, who has long been critical of the restructuring, said the deal is "confirmation of the company's ability to eke out an existence that defies reality."

Jon A. Langenfeld, transport analyst for Milwaukee-based Robert W. Baird & Co., was equally skeptical, openly questioning in a research note today the rationale for YRC's lenders agreeing to another round of restructuring.

"Our belief is that lenders have reacted to political and social pressure" to keep a large unionized employer afloat, Langenfeld wrote. The analyst also believes that YRC's creditors have concluded that the company is "too big to fail." Langenfeld contends YRC's shares are worthless and has issued a $0 price target on the shares.

Wall Street punished YRC on Monday, sending shares down nearly 24 percent to $1.51 a share.

via www.dcvelocity.com

Logistics Humor - Coast to Coast Overnight Rail Service!!

Another dose of Logistics Humor. You may have heard this before but it is still good for another laugh. Besides it will give you a break from those meteoric fuel prices!

YRC says restructuring plan now going well - Today's Trucking, the truck news site.

KANSAS CITY – A few weeks following its announcement that a "milestone failure occurred" in the next phase of creditor and labor restructuring, YRC Worldwide now says it is making "significant progress" negotiating terms of key agreements.

According to the Kansas City Star, the embattled company must comply with its financial restructuring plan by the end of July. Its next deadline for which documents must be “in final form" is this Friday.

Chief Restructuring Officer John Lamar now says the company is "very pleased" by the latest progress in its discussions with J.P. Morgan Chase & Co. (JPM) and a steering committee of the Teamsters union and senior secured lenders.

In its latest quarterly statement, YRC's revenue rose more than expected, bolstered by its regional arm.

Although lenders didn't declare the company in default, YRC cited it as a possibility last month given its failure to satisfy the Pension Fund Condition with the Teamsters union.

via www.todaystrucking.com

Skipped sailings the flavor of the season :: www.americanshipper.com

  If the liner carrier industry were like the fashion industry, then the strategy of “skipped sailings” would be anointed the color of the season.
   More appropriate would be to say that lines in the past few months have augmented their wholehearted embrace of slow steaming (last season’s de rigeur strategic tool) with skipped sailings.
   Like slow steaming, the concept of omitting a sailing is nothing new to the industry. But the fact that so many carriers and alliances have chosen to use it in the last quarter to hedge against weak demand is new.
   A quick search of American Shipper’s news database reveals a handful of instances of skipped or omitted sailings since fall -- either those announced outright by carriers or alliances, or those discovered by the schedule researchers at American Shipper affiliate ComPair Data.
   Most notable are omitted sailings on a New World Alliance transpacific service and dropped Asia/Europe sailings from the CKYH and Grand alliances, as well as Maersk Line and CMA CGM.
   There are essentially three ways a line can reduce effective capacity without suspending a service:
   • Slow steaming (meaning introducing more ships into a string and slowing it down).
   • Reducing the average vessel size deployed (i.e. moving from 8,000-TEU ships to 6,000-TEU vessels).
   • Selectively skipping sailings.
   All three correlate with minimizing capacity available to shippers. But for carriers, a skipped sailing has inherent operational advantages over the other two measures. There is much less disruption to a line’s schedule and no redirection of vessels required from other services or from layup.
   In fact, a better comparison for skipped sailings is the so-called peak loader services -- ad hoc extra sailings carriers run when demand is higher than anticipated. Carriers ran these peak loaders quite a bit in the first half of 2010 as they encountered what they called an unanticipated demand spike on virtually all the major global trades.
   For shippers, carriers’ increasing reliance on selective skipping or adding of sailings could come as a comfort, particularly if lines and alliances are upfront with their customers about which sailings they plan to omit. That’s because the alternatives to omitted sailings, such as service suspensions, are far from desirable.
   But where shippers will bristle is when the skipped sailings come in concert with slow steaming and other measures that slow down supply chains and force them to carry extra inventory.
   But let’s face it: isn’t it preferable, from a shipper’s standpoint, to be talking about services running every other week on a fixed schedule than to see massive amounts of capacity pulled through service suspensions?
   The fact that we are nearly at the end of January -- just a few days away from the Chinese New Year -- and nary a single major transpacific or Asia/Europe loop has been pulled suggests that service suspensions aren’t in the interest of carriers either. And the skipped sailings have, for the most part, been confined to a few services out of a range of options on those trades.
   Perhaps one positive for shippers from slow steaming is that it has allowed carriers to use their fleets in such a way that a planned omitted sailing here and there will do. — Eric Johnson

via www.americanshipper.com

Proposed HOS changes will harm truckers and shippers, executive warns – DC Velocity

Dan England, chairman and president of large refrigerated truckload carrier C.R. England and first vice chairman of the American Trucking Associations, said today that proposed changes in the regulations governing truck drivers' hours of service will do great harm to the trucking industry and could have a detrimental effect on highway safety.

Speaking at the NASSTRAC conference in Orlando, Fla., England charged that the Federal Motor Carrier Safety Administration (FMCSA) is bowing to political pressure and ignores evidence in the government's own statistics that the current rule is working well. To buttress his argument, he told the group that Sen. Frank Lautenberg (D-N.J.) last year held up the nomination of Anne M. Ferro as head of the FMCSA until the agency announced that it would revisit the rule.

He said ATA would challenge the regulations in court if they are adopted. John Cutler, legal counsel for NASSTRAC, the shippers' organization, said the group will join ATA in any such challenge. Under a court-ordered settlement, FMCSA must publish a final rule by July 26.

The proposed changes in the hours of service (HOS) regulations would limit drivers to 10 hours on the road a day, down from the current 11, and change the rules regarding mandated time off for drivers, which truckers contend would push more trucks onto roads during rush hour. The proposal's many critics argue that the new regulations would severely disrupt supply chains designed around current driver scheduling rules.

England said the proposed changes, if adopted, would force carriers to put more trucks on the road to compensate for lost hours, boost driver pay to offset the loss of driving time, and add more inexperienced drivers to fleets. The net result, he said, would be lower productivity per truck, increased transportation costs and congestion, and more headaches for state regulators and law enforcement.

England said that recent statistics from the Department of Transportation show that the truck-related fatality rate in 2009 was 1.17 per 100 million miles driven, the lowest rate on record. The rate has fallen by more than 36 percent since the current rule was adopted in 2004, he said.

via www.dcvelocity.com