Turning Over Procurement of Carriers to a 3PL?

I have met many companies recently who not only have outsourced their operations to a 3PL but they have also turned over the procurement and carrier relations functions as well.  I think this is a bad idea.

I believe this for at least three reasons.  First, and the most obvious, is you have turned over the entire budget to a company which, most likely, has conflicting interests to your own.  At some level, the 3PL is interested in making money for their company and many times actions which accomplish this do not also help the client company.  Can you develop complex gainshare algorithms which limit this problem?  Yes, but it is very unlikely you will get them to work.

Second, you limit your ability to exit the 3PL relationship if needed.  Everyone goes into 3PL relationships thinking they will never end and this makes sense.  You do not get married and immediately plan on getting a divorce.  However, in business, ensuring you have an exit strategy is a good and prudent thing to do.  When you turn over the procurement portion to the 3PL you have complicated any exit if needed.

Finally, you will lose critical intellectual capital.  When dealing with a 3PL it is important the shipper maintain the intellectual capital needed to fully understand the areas of warehousing and transportation management.

For all these reasons I would highly recommend shippers retain the procurement function.  Just seems to make sense to me.

Are You Truly Dedicated to Sustainability?

This is a question I ponder all the time. While I am thrilled when people do anything to help the planet, regardless of motives, I do wonder what would happen if people really were dedicated to this important initiative.  While we all know the "big things" to do (i.e., alternative fuels, recycle, etc.) I wonder how much impact we could make if we all just did some of the small things.  So here are just a few things you can do starting TODAY to make the planet a better place:

1.  Regardless of the type of vehicle you own, drive the speed limit.  Reduces emissions and saves gas.  Nothing infuriates me more than to see a hybrid drive driving 80 - 90 miles an hour.

2. Recycle, recycle, recycle.. Including composting

3. Buy less stuff.. Everything you buy comes to you on a truck, using fuel and will eventually have to be disposed of.  Less stuff means less of all that.

4.  Go on a diet and eat locally grown items.  This is an amazing task which is great for everyone.  You will be healthier (I know, I am one to talk but I have lost a lot of weight and will continue!), less food will need to be grown, and less trucks needed to drive all that food around if you buy locally.

Here is a small example:  We are spreading mulch to make our garden better and hopefully return oxygen to the environment.  We needed to put down weed blocker and rather than go buy it, we used old newspaper to do this.  It got rid of waste, we saved money and it eliminated the need for the weed blocker which means one less roll needed to be shipped.  If everyone did this and we reduced the need by thousands (Sorry if you are in the weed blocker industry) then we could actually take trucks off the road, reduce emissions and reduce the need for diesel fuel.

Here are some other ideas from The Wall Street Journal.

This is the way we can all contribute on a small level as we all work hard to make big changes as well.

Just a thought...

Happy Earth Day!!

Sustainability - It is About A Complete and Holistic Strategy

I am somewhat fascinated when I discuss sustainable supply chains with people.  I usually either get an "all or nothing" answer, an answer which is tied to a pet project, or the occasional "sustainability does not matter" answer (thankfully those people now are few and far between).

The clear proposal is good sustainable supply chain programs have to encompass a holistic view involving everything from how products are designed and packaged, how they are shipped, the type of fuel used when shipped and how the product is recovered at the end of life.  You cannot have a true sustainability program without looking at at least all the attributes listed above (they are not all inclusive).

So, the next time you address this topic make sure the "all or nothing" group does not rule the conversation.  Break the problem down into small pieces and attack each one.  This is your best solution.

Ryder Launches Military Veteran Site

Great progress from Ryder Corporation.  I guest blogged on Logistics Viewpoints recently about how great companies will leverage the returning veterans as a great base of fantastic employees.  This week Ryder announced (as reported on Logistics Viewpoints) a new employment website targeted at military veterans. Apparently you can put in your MOS (Military Occupational Specialty) and it will filter to the jobs available for your skill.

Congratulations to Ryder for "getting it" and leveraging the skills of our returning veterans.

Driver Wages - Really Going Up or "Signaling"?

An interesting article trying to quantify what driver wages would have to hit to be at the equilibrium point.  However, this data is meaningless unless you determine what the target price is for transportation services?  At what point to shippers move to substitutes to offset transportation increases?

Some may think substitutes are only in the mode of transportation however that is the least efficient way to substitute.  Shippers are always tweaking around the edges with mode transfers etc. however the most efficient and biggest impact areas for shippers to evaluate are activities such as mfg site selection, load ability, inventory trade offs etc.

At what point do transportation rates get so high that the shipper changes their operational methodologies?  Until you know the answer to this question it is hard to determine what wage rate will be the equilibrium / market clearing wage rate.

Is The Trucking Industry Rebounding?

There is anecdotal evidence based on an informal count of trucks on the NJ turnpike showing an increase in truck traffic.   I warn you, this informal study reported on CNBC is about as informal and non scientific as you can get however when you tie it to other evidence (i.e, FEDEX financial results - profit doubles) you see some coalescing evidence that the economy is picking up and trucks are moving.

However, if you take the comments by FEDEX CFO Alan Graf at his word, evidence is the economies of the world are not growing fast enough to offset things such as high unemployment

There is a mixed bag I guess.  I chose to believe the former rather than the later.

Diesel to $4.14.. Highest since the record setting 2008

Yikes!  Perhaps we will now get serious about alternative energies.  As a reminder, this is not a supply problem.  It is a world market and the price is going up.

Penn Wells Considered Safe by EPA - Fracking Politics

The politics around fracking, the way we are getting natural gas out of the ground, has been somewhat unbearable.  Here is the first time I have read good "science" behind the argument and it looks like the politics were much ado about hype than anything.

Keep an eye on this.  Natural Gas is the way our Country will get off our addiction to foreign oil.  I fully support a strict and detailed EPA enforcement to ensure we do not fix one problem and cause another.  However, I want to also ensure we use science and not politics to solve the problem.

Apple and iPad 3 Put Strain on Airfreight Rates and Capacity

As is being reported by multiple sources, airfreight rates are going up if you can find the capacity at all.  This, mostly, is due to Apple and the launch of the iPad 3. 

Amazing that one company and just one product can do this but when it is Apple anything is possible.  My sources tell me this could continue for 3 - 12 weeks depending on sales.  Given that sales are already being pushed out if you order on line (indicating they are already in a backorder situation) my guess and money is on the bigger number.

UPS In Tentative Deal to Buy TNT Express

As reported on CNBC, looks like UPS will buy TNT Express after all.  My guess is this is all about taking on DHL in Europe however I do not know for sure.  I have never been a big fan of logistics companies purchasing others unless there is underlying technology you need.

My guess is UPS does not need any technology TNT has.  It is dangerous to buy just for a "customer list".  Acquisitions are generally not a "10X idea".  They usually occur when management is out of ideas.

The Case for Sustainable and Ethical Supply Chains

For most of my readers it will not come as a surprise I am a bit of liberal when it comes to ownership for the sustainability of your supply chain.  It is just a fact that companies must take ownership of this and your customers, more and more, are becoming "sustainable aware" of what it takes to get them your product.  Further, they are going to punish you for not caring for the environment.

But, what about ethics?  This is the next area and it is more difficult as it is harder to measure.  We know slavery is wrong and we know if we see great working conditions that is good.  However, what about in between?  Does $2 per day seem unethical even though when you account for purchase power parity it may not be too bad?  This is the dangerous area and precisely why companies have to take control of their entire supply chain and ensure there is nothing which can even be perceived as being unethical or immoral in how things are made, how people are treated and how the Earth is treated.

This article in Forbes on Sustainable and Ethical Supply Chains sums it up well.  Two big examples of problems and then fixes.  Nike in the '90s had real issues with this and Apple does today.  Both moved and are moving aggressively to tray to stop the unethical behavior and both have brand names that allow them a bit of latitude.  Bottom line:  They have provided so much value to the customer that the customer will forgive a transgression as long as they actively fix it and fix it fast.

The key question for you is whether your brand is that strong?  Most are not.  Most will be dead on arrival if they are seen to be exploiting people or the environment for financial gain.

The bottom line:  Take control of your supply chain, have a good code of conduct, demand compliance and put in strict audit systems to ensure compliance is occurring.  Trust but verify is the name of the game.

Don't let your zeal to jump on the outsourcing bandwagon cause you to put your brand and your entire company's future in jeopardy.

CASS Freight Indices

I should have remarked on this earlier although I have been busy, busy, busy!  Looks like freight rates have leveled off from the somewhat aggressive increases over the last few months.  Intermodal seems flat while truck rates are up a bit.  This is what the CASS data would suggest although I personally think generalizing about this is a very dangerous game.

Depending on your freight flows and freight characteristics you may or may not see this trend.  If you are a "mega shipper" then perhaps the averages apply however most have specific and unique freight patterns.  My advice is to dive deep into those patterns and understand, in depth, regional movements along with nuances in the areas you operate.

What Makes Tomorrow's Leaders

I am reading a lot about this subject and I suppose the driving force is I now have a son in college.  I wonder what he will want to do ultimately with his life.  As I read I see some common threads in tomorrow's leaders no matter what discipline they are in (so, these apply to supply chain people).

First, learn languages!  This is an absolute must and one which is tough for Americans to get their arms around.  If you cannot speak at least one other language other than English you are essentially toast.  Two or three are even better.  The best people I see in business today are very comfortable moving between languages.

Second, be prepared, willing and excited about moving globally.  I met a person the other day who had run an operation in Russia, is now in China, travels frequently to the US and is a German national.  OK, you may not be able to do all that but understand that is who you are competing with.  Unfortunately, most people elsewhere in the world are far more comfortable doing this than Americans are.

Third, be a leader.  It just does not matter what you do (unless you are going to be a highly skilled technocrat / individual contributor your entire life. No matter what you do in life, you will need to be a leader.

Fourth, never stop learning!  When I interview people I ask what book they most recently read and you would be amazed how many really cannot remember one or if they did read it, it is clear they just skimmed it.  Reading things such as the Harvard Business Review, The Economist, The NY Times and The Wall Street Journal are a must.  Put down the remote, turn off the T.V. and read!

These are just a few of my thoughts on this topic.  There are a lot more I know.  I wanted to get these out fast.

Welcome to SupplyChainBrain: Who’s to Blame for Ocean Carriers’ Losses?

Welcome to SupplyChainBrain: <font size=2>Who’s to Blame for Ocean Carriers’ Losses?</font>

Incredible that this group has allowed this to continue.  However they continue to miss the "boat" per se.  They talk about exchanging rates for service however most do not provide service levels needed.  No value exchange there. 

Overall, good article about the state of the container shipping industry.

Fuel Prices

The idea of limited oil is an idea which needs to be reevaluated.  As drilling technology gets more advanced it appears oil and natural gas reserves will continue to grow. 

So, why the fuel price increase?  It does not appear to be a result of what normal economics would drive.  It is far more about speculation and fear which is the reason fuel must be managed.  If you are unwilling to take an active role in managing fuel you will generally be subject to the "whipsaw" effect of the marketplace. 

Keep an eye on fuel drilling capacity, production capacity and the import/export imbalances to decide if there truly is a fuel shortage.  Right now the United States is exporting a lot of refined petroleum products.  I am sure this increase will cause the continued move to intermodal and rail movements.  It should not be an all or nothing move however.  A good "multi modal" strategy is one which protects capacity and allows for adaptations to the current economics. 

T. Boone Pickens Responds to President Obama's Natural Gas Plan. A "Victory Lap"

POTUS Pushes for Natural Gas Trucks

For those looking for a single solution to solve the world's problems, this will disappoint.  However, for those who understand it is the proper mix and application of multiple sources of fuel which will solve our need for energy, this will really excite you.

President Obama has made it a centerpiece of his work to incent the movement of Class VIII trucks to natural gas.  This is absolutely the right call.  It is abundant and clean.  Further, the technology is much further along than people realize.  With the announcement of multiple distribution agreements and the build out of NG fueling stations, this is an idea whose time has come.

The question of CNG (Compressed Natural Gas) or LNG (Liquified Natural Gas) is one of application.  Both have a role.  Generally speaking CNG is easier to distribute and does not require the cryogenic freezing of LNG (It is liquified by freezing the NG to -260 degrees F - Read more about LNG here).  However, LNG does allow your truck to go further.  Read:  One is probably great for short haul, out and back type of applications (CNG).  One is better for over the road (LNG).

One drawback to LNG for those who look at the entire distribution supply chain:  LNG has to get to the station via truck.  A lot of trucks on the road to distribute LNG.  So, while the end truck may be powered by clean LNG you have to ask yourself how it go to your distribution point.

CNG moves in pipelines and is compressed at point of use so this issue above does not apply.

I am personally very excited about these opportunities.  We are heading in the right direction for sure thanks to some very daring and exciting people such as T. Boone Pickens and Aubrey Mclendon. 

Predictions on Fuel

Predicting fuel prices is a tough game and one where the house almost always wins.  However, predicting the macro trends with good data and facts just requires hard work.  Derik Andreoli in this article on oil and fuel trends hits it on the mark.  This is a "must read" and a "must keep" as you plan how you will navigate your way through these dangerous and unstable waters in 2012.

2012 Rate Outlook: Flat…for now - Article from Logistics Management

2012 Rate Outlook: Flat…for now - Article from Logistics Management

General outlook in this article is freight rates are stable, economy is going to grow slower than expected (what else is new.. people's appetites are always bigger than they can consume), and low inventory levels are here to stay. The article also says ocean freight lines are looking to increase rates. My belief is with all the new capacity coming on that will be unlikely. They still discuss "driver wages" however I have not seen one carrier who is increasing driver wages so it is hard to claim costs are going up when the carriers apparently refuse to raise that particular cost.

While I agree fuel prices are going up that is not a hard prediction to make. Summary:

1) Rates relatively flat

2) Inventories stay low (don't bet on a massive restocking)

3) Driver wages remain stagnant - carriers appear to support lowering capacity versus refilling at higher cost

4) Fuel prices continue their macro trend up.

That is it for now!

Should a 3PL Understand the "end" Customer

This is a key question I think all 3PLs should ask themselves.  Their customer (the person who pays the bill) may be a big manufacturer or retailer.  This manufacturer or retailer may have a set of needs they articulate to the 3PL but the real need they have is to add value, through their supply chain, to the customer of their customer - usually the consumer.   If a 3PL can add value to that supply chain, in the eyes of the consumer (The person who pays the ultimate bill) then I am sure the customer (the manufacturer or retailer) will be happy with the 3PL.  Given this statement, why do so few 3PLs really know the consumer's needs, wants and desires?

If you are a 3PL you can do two things:  1) You can require a detailed statement of work, hundreds of pages including convoluted metrics and then you execute against this document.  Does the consumer (again, your customer's customer) see value in what you are doing?  Does that value accrue to the manufacturer or retailer and add real value?  In this situation, the one most 3PLs play in, the 3PL does not care.  They are executing "to the contract".

In the second and preferred situation the 3PL really takes it upon themselves to fully understand the needs of the consumer.  From this they formulate a plan in conjunction with the manufacturer or retailer which outlines what services are needed to add value and have that value accrue back to the manufacturer or retailer.  This is the preferred method.  This is the method some sub-assembly providers give to auto companies;  they help shape the business and not just do what they are told.

The analogy to this situation is what your mother most likely told you when you were young:  If so and so told you to jump off a bridge would you?  Unfortunately, a lot of 3Pls will jump off the bridge if they are told to.

I submit 3PLs need to spend time doing market research and living with the consumer of the products of the companies they are servicing.  Once they do that they will truly not what is needed and not just wanted. 

Use of Lean Techniques in The D.C.

A great article over at Logisticsview Points concerning use of lean tools in the distribution center.  The article is written by Carl Fowler of Menlo Logistics.

I will not repeat it as you need to go there and read the entire piece.  I will say I agree 100% and it makes the simple yet effective case for everyone to implement lean in the D.C.

Unemployment Claims Plummet

The singular biggest metric to watch for business activity (IMHO) is the first time unemployment claims number.  This number is going down consistently which means business activity will pick up.  Unemployed people will begin working and employed people will feel more confident.

The graph below from Northern Trust tells the story:

Since September we have been going straight down with the initial claims.  Don't let the naysayers fool you by saying "people are dropping out of the market".  These are first time claims so just about everyone files their initial claim.  Firing slows way down and therefore we know the economy is stabilizing.

Good news for everyone and especially trucking and logistics firms.  More workers, more confidence, more buying, more freight.. it is that simple.    

Why You Want to Manage Your Suppliers' Social Responsibility

If there ever was an argument to manage social responsibility of your suppliers, this I think puts the argument to bed:

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When Your Suppliers Tarnish Your Brand - Apple "Cry for Help"

I consistently talk about sustainability within your supply chain.  Most companies look inward on this.  But as this article, Apple's Cry for Help, calls out, you have to also look at your suppliers and even their suppliers.  Nothing kills a brand faster than a T.V. camera in Foxconn showing the nets they have to put under the windows to keep workers from committing suicide.

The New Face of Brokerage

I have really stayed away from endorsing certain companies just because I want to discuss more macro issues in the logistics industry however I will break with tradition for this post.  I am seeing a trend develop with brokers where it is not your "father's broker" anymore.  They truly are becoming logistics experts who do more than just "dial for diesels".

One such company I have talked to many times is Coyote Logistics. This company is young, aggressive, extremely smart and a leader in technology.  They listen and understand your needs then formulate solutions.

I say this because people who have been in the industry a long time (include me in this!) have a mindset of "no brokers".  We remember the days of brokers just calling and wanting your freight but taking no ownership in true logistics solutions.  They were "brokers" in ever sense of the word:  matching up buyers and sellers and that was it.  After meeting Coyote I can tell you the model I described above is dead.  Long live the new generation of brokers!

As a shipper you may want to look at companies such as Coyote to manage certain segments, certain promotional events, moves or even your full transportation needs.  It is not a one size fits all and there are reasons to use these new breed of brokers and reasons not to.  However, I would tell you that if you still have the mindset of "brokers are bad" I highly suggest you call Coyote and see if this new breed can change your mind.  It certainly did mine.

Why Sustainability?

Unfortunately, I think sustainability is starting to get a bad rap.  First, there are political overtones which people just can't seem to get over.  However, what is more troublesome is the "greenwashing" which is going on.  Many companies are now using it as a "marketing tool" and do not really believe in the idea of sustainability.  As if to show how prevalent this is in the industry, Greenpeace actually has a web site dedicated to stopping greenwashing.  The title is "Clean up your Act not your image".

I personally believe doing "good things" for the earth can be done while also being responsible to stake holders for a company.  You have to just believe that statement or you will go down the rat hole of "pay back" periods, EVA and the other tools accountants dream up to "engineer" their finances.  At the end of the day we either take sustainability seriously or we will have it imposed on us. What good is it to have an energy efficient product for example with "sustainable packaging" if the product arrived at the store on a truck spewing fumes into the air, idling and wasting fuel and using imported fuel?  Makes no sense to me.

John Pattullo, CEO of CEVA Logistics said in 2010, "In today's economy, many customers are unwilling to pay a premium for green transport [however] the logistics industry must support change towards sustainable services."  I could not agree with him more.  Sooner or later we have to make the change and I hope it is sooner. 

So, I implore all those in the logistics field:  Do not take such a serious topic as sustainability and turn it over to the marketeers.  Your customers and, most important, the public will see it for what it is, and ultimately, you will tarnish your brand.

December Cass Index report shows signs of improvement but points to slow Q4 growth overall - Article from Logistics Management

As I have predicted for a while, freight was very soft in Q4. Shippers have reset inventory levels at very low points and unless they see a large swing in macro economic indicators, I doubt they will increase volumes (Don't pray for a "restocking" initiative).

I believe also shippers are starting to take advantage of improved technology driving actions such as back haul sharing, co loading and other joint initiatives. This, of course, takes sophisticated software. There may be a convergence going on: Sophistication of software and the willingness of shippers to accept a bit more complexity to offset the higher per unit costs. Key metrics to measure will be:

Loaded revenue per mile, revenue per tractor / trailer and the amount of idle equipment.

While everyone is complaining about the driver shortage, no carrier that I have seen has been willing to raise wages. The "windfall" of revenue due to tightened capacity appears to be flowing to company bottom lines and not to the driver.

December Cass Index report shows signs of improvement but points to slow Q4 growth overall - Article from Logistics Management

The Coming Capacity Crunch. Y2K All Over Again? UPDATED: Added Former Government Officials

I must admit I do believe there is a capacity crunch coming but I am also starting to get very skeptical.  Does this sound like the "Y2K" scare all over again?  There is a cabal of vested interests in creating this scare.  Too many people are profiting from the scare. Here is my quick inventory:

1) Carriers:  By scaring the hell out of people they are trying to raise rates in advance of costs.  Carriers will say they want to raise rates to "protect capacity" but then when you look to see what is being done with that money, it is essentially being pocketed.  Driver wages have not moved one bit.  I might understand if the money was going to driver wages but it is not.  Where is it going?

2) Consultants:  Lots being built on this just like the consulting of Y2K.  Create a crisis then charge a lot of money to help solve the crisis. 

3) Leasing Companies:  The story goes that the capacity crunch is on and so you will want to look more to dedicated fleets. Voila!  We have a solution for you if you will just lease these trucks for 5 years. 

4) Trade organizations:  Their story is in order to stay in front of the capacity crunch you have to join and pay fees to attend special seminars like "What to do when the capacity crunch hits".  There are thousands of these seminars and they do not amount to much.

5) Former Government Officials:  This is the best part of the entire cabal.  There are former government officials (Link is provided as an illustration of the revolving door between government appointee then consultant.. I do not personally know Mr. Burnley) who are directly complicit in forming the laws which most likely will cause an artificial capacity constraint (i.e, tinkering with the HOS rules).  They then leave government and make a lucrative career out of consulting on how to deal with the problem they helped create in the first place. 

Unlike Y2K where the narrative was a technical issue (turned out not), this issue is purely economics.  The key question is at what point will capacity come back to the market and what will be the market clearing equilibrium price for services.  Further, what will be the alternatives and when will the costs get to the point where alternatives are used by the shippers. 

I am not saying this is not real but like most things it probably is getting very over-hyped as an entire industry appears to be building around the anticipation of the event rather than the actual event.  

I also wonder, from an antitrust standpoint, how much of this is the carrier base "signaling" to their competitors of intentions.  They clearly are publicly signaling their intention of decreasing capacity and raising rates.  Something perhaps someone should look in to.  

Transplace Industry Blog - Domestic intermodal volume remains strong

Intermodal volume about the same as last year however I am very certain the container count is up in the overall fleet. This would mean excess capacity.

Transplace Industry Blog - Domestic intermodal volume remains strong

The "Softer Side"...

Fitting on my first day back my thoughts went to leadership and the "softer side" of logistics.  An article written in December from Kate Vitasek talked about this issue directly.  As logistics leaders we are very good at measuring the performance of our networks but how are we at measuring the performance of our people in terms of leadership and engagement?  Do we believe these are important qualities?

What I am finding is the "technical" side of logistics and overall supply chain can be trained or, in most cases, the young and very good talent are coming to companies with the technical skills needed.  What the universities cannot train is the leadership aspect.  The more responsibility you have means you generally are going to spend more time on motivating, engaging and setting up people for success rather than on the technical details.  So, how does young talent get that type of experience so they are ready when they reach the higher levels?

You must find the opportunities and they are out there.  Even if they are leading a small team, get them into that leadership position early and often.  Further, if you are lucky enough to have large groups (i.e., shifts in a distribution center) make sure they get to lead those groups.  Reinforce the importance of doing this early and often in their career.  I know most college graduates do not aspire to lead the night shift but they have to have that experience early in their career.  

Also, ensure leadership is a fundamental skill one must acquire to get to higher levels.  Leadership can be "practiced", learned and improved upon.  Just like any other skill however, you must do it over and over again to get better at it.  Make sure your younger folks are given these opportunities. 

John Bogle, founder of Vanguard Mutual funds says, "not all things that count can be counted and not all things that can be counted, count".  Leadership is one of those things which cannot be counted very easily but probably "counts" more than anything in logistics. 

Price of Fuel Going Down as Supply Increases? Don't Bet on It.

It is arrogance to assume the US can control the worldwide price of oil and refined petroleum products (PP).  It is also delusional to think the oil companies will do anything other than what is in their best interest.

Practically, what those two statements mean is 1) Petroleum products, regardless of where they originate, will flow to the most economical location - it is fungible.  2) Oil companies could care less if the US is dependent on foreign oil or not (see 1. above).

We now have the interesting situation where US demand for petroleum products (i.e., gasoline) is lower than the supply.  The narrative has been when this occurs, prices will go down and that will spur more demand, a new "market clearing" price will emerge and all will be fine.  Of course, this assumes the US is a closed society and the only thing the oil companies can do (or want to do) is dump the excess oil /PP on the US market.  But, we learn, they have a second option.  They can export it to countries where demand is growing the price is higher.

This puts us into an odd situation: The US is now a net exporter of petroleum products.  The excess supply did NOT lower prices or wean us off of foreign oil.

So, if you are a trucker or shipper thinking all that shale gas and oil will ultimately lower your operating costs you may want to think about a "plan B".  It will merely get exported.

Thoughts on Economic Distortion

In transportation I have heard shippers say they do not want to negotiate too "hard" with carriers because they want to treat them as "partners".  I have always wondered what that meant.  What does "negotiating hard" mean and what does being a "partner" mean are key questions for both the buyer and seller of transportation services?

I submit they mean the same thing and tend to be emotional statements.  What I prefer is to work with transportation providers as an extended supply chain.  After all, unless one side is trying to get unfair or undo leverage on the other side we should be working together as a single entity for the common good of the ultimate customer.

What this means is there cannot be economic distortion in the discussions.  Economic distortion exists when one side has information pertinent to the discussion the other side does not have - some call this information asymmetry.  When economic distortion exists there is bound to be an outcome which is weighted to one side or the other in terms of value.  When that occurs the sub-optimum solution is obtained and it will ultimately lead to mistrust and a dissolution of the relationship.

I go from the premise that eventually all information will become known and will be available to both sides.  As soon as one side realizes they were disadvantaged by the other side not disclosing pertinent information the disadvantaged side tries to fight back and so begins the war of distrust and trying to "one up" the other side.

So my warning to the buyers is do not think you are somehow out maneuvering the transportation provider.  Ultimately, the real situation will be discovered and when it is you will be hit back and hard.  You may get a short term gain but at a long term price. To the suppliers / logistics providers: If you are thinking you have a long term sustainable business model by taking advantage of your customers by not disclosing proper information (costs, operational efficiencies etc) you are kidding yourself.  Sooner or later what you thought was secret will become known and when the customer realizes they have had the wool pulled over their eyes, they will dump you.

In the end, American business could save a lot of time, money and extraneous resources if this little dance did not need to be played out every time an arrangement needed to be made between buyer and seller.

This may not be a 10X idea but it certainly is a 10X program if properly implemented.  If a company and its suppliers really took this to heart I believe both sides would see dramatic improvement in productivity and efficiency thus driving the 10X change that we seek.  Lots of people talk about this, few if any actually do it.

Assume all relevant information will become available and save a lot of time by trying to take advantage of short term economic distortions.

US To Be A Net Exporter of Petroleum Products in 2011

For you transportation professionals who bought into the idea if we drill and produce more oil, prices will go down.  Think again.  This article in Seeking Alpha shows the US will end the year as a net exporter.  Yes, the prices are not going down, the fuel is just going out.

Final HOS Rule Released and Sec. LaHood is on Santa’s Naughty List! - Article from Logistics Management

Final HOS Rule Released and Sec. LaHood is on Santa’s Naughty List! - Article from Logistics Management

Dodged a few bullets but the total work hours are down from 82 to 70. What is interesting, quite amazing and important is this gets phased in over 18 months. That is a lot of time for shippers and carriers to get ready and for lobbyists to get it overturned. Ok, I am a bit cynical but as the article points out, if there really was a "crisis" of safety on America's highways would we wait 18 months to implement a resolution?

Taking a Control Tower Approach - Article from Supply Chain Management Review

Taking a Control Tower Approach - Article from Supply Chain Management Review

I am a big fan of the "control tower" idea and think it is absolutely a necessity. Whether you outsource it or not is an entirely different question. Outsourcing is a decision concerning what the core competency of your company is and where you want to put your capital to work. A manufacturing company who has a core competency in manufacturing may choose to outsource logistics. A retailer who believes their competitive advantage is logistics may choose not to.

Either way, you should embrace this control tower concept. It is an idea which has seen many lives over my 20+ years of logistics experience and it keeps getting better with age and technology.

Q3 GDP Growth is a Fire in The Pan Spurt

Conference Board's perspective on the Q3 "growth" spurt.  Personally, I cannot imagine GDP continuing to grow when we are at 9%+ unemployment.  Just the simple economist in me coming out.

Conference Board Report

Supply Chain Executives Define Social Media Too Narrowly

Supply Chain Executives Define Social Media Too Narrowly

A good post and one which I responded to. Please click on link and look for comment from Kevinaom. A very timely and interesting topic.

Learnings Through Logistics' Visits

I  had a great week visiting with many logistics providers and trying to get insight into just exactly what is going on in this business.  Some will tell you the business is collapsing due to low demand, some believe the transportation business is ripe for a great uptick in profitability due to constrained capacity (the jury is still out, in my mind, on whether this is artificial or not), some believe it is all just the same.. we are moving around the margins.

I get conflicting signals.  For example, everyone tells me the driver shortage is wildly acute and we run the risk of just not having enough capacity to service the industry because of a lack of drivers.  Many say if the GDP stays above 2.5% or greater then we will just not have enough capacity to service the shipper market.  However, using "Econ 101" this would tell me driver wages should be increasing.  That is not the case. Driver wages are flat.

The next question is whether the increase in intermodal actually is absorbing the otherwise demand for driver capacity?  This seems to be a plausible answer.  Container capacity is up 10% to 20% (depending on who you talk to) and this means those containers have to be filled.  They will not let them just pile up in a container yard.  Add to the fact that many shippers are lowering their point of indifference of choosing between trucks and IM (Indifference is the length of haul in miles where a shipper sees the two as interchangeable) and more shippers are choosing IM on more lanes.  Obviously, this reduces the need for drivers on long haul runs.

So, data is really mixed.  The analysts are all saying most of these companies (public) are "fairly valued" and the industry should not be overweighted in a stock portfolio.  Projections for pricing have been reduced (early this year most were claiming a 4% price increase but that does not seem to be happening) and capacity has freed up.

The one caveat?  Last year we were saying this same thing and the market for trucks and transportation went on fire in the first quarter.  So, this post did not give you an answer (sorry) but may have provided some things to think about.

Home Construction Will Be Muted - Bad News for Logistics Providers

I think we have all learned over the last few years why home construction is always looked at by economists.  It is probably the single biggest indicator of the health of the economy.  When people buy homes all sorts of things happen:

1. Construction materials are bought
2. People are employed en masse
3. Peripherals are purchased (appliances, lights, drapes etc.)
4. Landscaping is performed...

I do not know the exact number but my guess is after someone buys a $200K house they most likely, over the next year, spend another $20K at least on "stuff".

This drives all sorts of logistics activities - warehousing and most importantly, transportation volume.  Transportation is inbound into the manufacturing plants which gear up for the activity and outbound finished goods going to all those new homes.

OK, now we know why this is so important.  This is also why it is depressing to hear home construction will be muted for a while - most likely 5 -8 years. The inventory is just too high and there are still a lot of adjustable rate mortgages to reset in 2012.  Not a good sign.

For those of you who say, "Yes, but those staying in a home will remodel" I would say this "rule" (if it ever was one) does not hold up anymore.  The reason is most people, intuitively, know they are now living in a depreciating asset and not an appreciating asset.  Remodeling makes sense in the latter as it is much like a bank account.  However, in the former remodeling is like buying a consumable product which has no sustainable value.  People know this intuitively and will not, in total, increase dramatically their major remodeling (assuming they are sane and rational).

Sorry to be the bearer of bad news.

Leasing companies see their supply chain as a competitive advantage.

What Does the Economic News Tell Us

Things are slow and everyone is in a "wait and see" mode is what I believe these numbers are telling us.  Unemployment stayed high at above 9% (9.2%) while all orders (durables and non-durables) increased slightly from manufacturers.  The question of course is did that result in sales or did it result in inventory?  We shall see as companies report their 2d qtr earnings.

In my mind the equation is fairly simple:  No jobs and no job growth leads to a lot of uncertainty which leads to consumers not spending which starts the "death spiral".  Tax cuts for the wealthy will not put people back to work as the wealthy can make a lot of money right now "trading paper" and they do not need to open factories and stores.

The real scary thing is the fact that the one economic engine which has driven even the meager recovery (if you can call it that) we have had so far is Government spending.  Now we will see what happens when the Government retrenches spending in a recessionary environment.  I think we know the answer and it is not a good one.

The Government is playing with fire and unfortunately they are going to have to be burned to have them learn the lesson of implementing contraction policies in a time of a no growth economy.

A very sad day as Dr. Bowersox, the founder of the supply chain industry has passed away. Look for more on this great man.

Hybrid Cars and Reverse Logistics

Took a ride in my new Hybrid Ford Fusion yesterday and as always, everything causes me to think about logistics.  First, I will have a "call out" to Ford Motor Company as this is an incredible car.  Write me if you would like more information but suffice to say, I am thrilled about the automobile (and the 39.5mpg I had driving to Chicago).

OK, but the one issue (if there is one) with Hybrids is there is a giant battery pack in the back of the car.  As others have asked (rightfully so), "what happens when that dies"?  Ah, this is where the reverse logistics industry comes in.  There will have to be a way to recover the batteries, ship to a central point and a way to disassemble and recycle the components.  A big business just waiting to be started.

A quick google shows Toyota (as you would expect) has started a service like this and I am sure others will follow.  Amazing how new needs are created, then people fill those needs and all of it requires logistics!

10X Logistics Now in Mobile Form

If you like to read my blog 10xLogistics, you will like it even better now that it is easily accessed from your iPhone or other mobile device.  If you just save the bookmark 10xlogistics.blogspot.com and go to it from your mobile device you will get a very readable format optimized for the smartphone environment.

Enjoy!!

Logistics Report Out

I have read the new report on the "state of logistics and I have a few thoughts.  First, we have to figure out how to make the report more relevant.  The logistics' industry is under tremendous change right now and to have a report on 2010 come out in the summer of 2011 is tough.  All the verbiage around what is happening in the transportation industry is almost not worth reading beyond just good history.

Second, it does forecast for 2011 correctly but it probably is a bit late in its prediction.  The report says rates will change dramatically in late 2011.  Well, we have gone through a cycle already in 2011 where rates changed a lot in Q1 and now the economy has put the brakes on thereby changing the capacity / demand equation just in the last few months.  I think however capacity has finally come out faster than demand has slowed resulting in a still favorable environment for carriers.  Intermodal is still on fire.

Real estate is still very weak.  It is not hard to find great warehousing deals but, of course, who the hell wants a warehouse!

Overall, if there were a measurement of whether the "shipper" or the "carrier" are in control, I would say it definitely is favoring the carrier at this point.  Shippers will need to ensure they have a good strategy in place to manage carriers and also work with good regional carriers.  I have found a lot of value in the regional carriers and the value they can provide.  Do not always just default to the "big 5".  There are other great players out there and as the "big 5" regionalize their operations they lose the competitive advantage against the local players.

More to follow but it is very interesting times to say the least.

The Business of Investing

Ok, I know this is a logistics blog but I also have a passion for business in general so I thought I would write very quickly about investing.  Warning:  I am a Jack Bogle, index investor who believes there is absolutely no way to beat the market in the long run.  I am reading "Don't Count on It!" by Jack Bogle and he summarizes the simplicity of investing in this way:

A return on a stock / equity investment is simply the addition of:

1) The economics (i.e., growth rate plus dividend yield) and...

2) Speculation / Emotion - This is essentially the change in the P/E ratio over or under the long term averages.

For P/E, he basically says if P/E is under 10 then it is clearly likely to increase and if P/E is around 20 it will likely decrease (of course as all good indexers remind you, you just never know when!).

Applying this very simply, here is what I think of what your or my expectation of stock market returns should be right now:

1) Growth of the entire market is about 2 - 4% (i.e., the GDP0
2) Dividend yield is (Using the vanguard total market ETF as proxy): 1.76%

This means you can plan on "enterprise" returns of 3.76% to 5.76%.  However, the P/E is 8.04 which means you are likely to pick up an additional 2% or so in "emotional or speculative" returns as the P/E reverts to the mean.  So, you should plan on about 5-10% returns on stocks with the middle ground being most likely.  That is a normal expectation.

Impact of High Diesel prices.. Get Ready

Owner operators will exit the business, the "big 3" will get bigger, everything will cost a lot more. Get ready.

Impact of high Diesel prices.

Government to Buy EOBRs for Mexican Trucks

I saw this a few days ago when it was revealed but had not commented until now.  My first reaction was what a disgrace.  How can our tax dollars be used to fund Electronic On Board Recorders (EOBR) on Mexican trucks when US trucking companies are making the investment themselves?  Further, what is the point of this and how will it be managed?

I just read Brian Straight's article over at Fleet Owner titled Tax Dollars Wasted on Mexican Truck EOBRs and there was a bit of a different spin here.  Could this provision be a "poison pill" placed into the agreement by the US Government knowing it will cause huge outcry?  While that is possible, I do not give them that much credit.   I really believe someone in our Government thought this would help the cause by showing how we will be able to track these trucks.  The enforcement just seems massive and the costs outrageous.

In the end, I do not think we will see many of these trucks coming across the border as it is just too complicated.  But, time will tell and if the American trucking industry gets out of hand in terms of cost and low capacity, I suppose this will become our relief valve.

The Logistics Daily is Launched

Get a compilation of my twitter feeds (@logisticsexpert/logisticsindustry) in a newspaper form at the Logistics Daily.

Japanese Tragedy Brings Importance of Logistics to The Front

There has been a raging debate going on over at Linkedin about whether Logistics has lost its importance and luster in the corporation.  I think the devastating tragedy in Japan will put this to bed once and for all as it is clear logistics will drive the recovery in that Country.

For the GIS folks who believe logistics has been displaced with information flow, I would love to see you get water, food, fuel and recovery needs to people who need it with an iPad and some code.  What will solve Japan's crisis and help people in need are trucks, truck drivers, warehouseman and "boots on the ground" not computers.

This puts this debate to bed in my mind.  Computers are a tool for the people who will actually do the work recovering.

My heart and prayers are with the people of Japan AND with those courageous people who will risk their lives to get the food, fuel and medical supplies to those who desperately need it.

Back to Square One - Mexican Carriers in the US

Well, we are back to square one... what was the point of that?  Mexican Carriers Will Be allowed in US

Very Interesting Article in NYT: Does Technology REDUCE The Need for Education?

This is really interesting and it may apply in the logistics' field.  Paul Krugman asks the question if technology reduces the need for an eduction ?  He also cites an article in today's NY Times about software which is making a lot of junior lawyers and paralegals' jobs obsolete (combing through documents during the discovery phase). This article is titled: Armies of Expensive Lawyers, Replaced by Cheaper Software.

So, the question this poses for all of us is as supply chain software gets ever so sophisticated will it reduce the need for much of the higher education currently being used in supply chain management (i.e., Masters in Supply Chain Management, Ops research, etc.).  This is also being debated right now over at Linkedin.  Logistics and supply chain will continue to be extremely important in the firm and the overall structure of a corporation, the question is will the people managing it be that important?

Lack of Posting.. will "Step it up" in 2011

As many return readers have noticed, I have not posted much in a while.  Call it the "holday spirit" and understand I have been swamped both with work and with preparing for the holidays.  No excuse, it just is what it is.  I will be aggressively posting in 2011 with both longer "in depth" posts about subjects and also short "link" type posts as well.

My belief for 2011 for the logisitics' industry is that it will be a year of "blocking and tackling".  This means cost cutting will continue to be paramount along with using logistics as a "wrapper" around a product to become the competitive differentiator.  As I have said before, many products have worked their way to commodities and the way companies will truly differentiate themselves is through logistics.

But, this is not "fancy" logistics. It is the basic blocking and tackling.  Make the order management system very efficient, have availability (my belief is have high availability on a tighter number of SKUS v. having thousands of SKUS which all suffer in some availability), have a lightening fast delivery system, and have the billing and invoicing system be flawless. It is the things of Amazon.com and we all know how successful they have become. (although I will admit they have figured out how to have great availability on huge number of SKUs which really differentiates them).

As 2011 develops we will see if I have to move off my "playbook" but for now that is how I intend to work through the year.  Let's see how we do!!

Have a happy Holiday Season and a very happy New Year!!

Kevin

UPS: We ♥ Logistics Commercial

While a great ad for UPS it also says it all about why I love logistics!

Supply Chains Used As An Extension of The Brand - Part 1

This week I am going to put some thoughts down about whether companies use their supply chain as an extension of their brand or just as an evil necessity that they would rather do without.  I have personally been involved in many companies and I have seen it done many ways.

Here are some characteristics of supply chains when used in the following manner:

1) Used as an extension

• Company does not separate the product from the acquisition experience for the customer. They are intertwined.
• Company puts protection of brand above all else (including cost).
• Company probably does not do a lot of outsourcing in supply chain (Do you want your brand in another person's hands?).
• Company cross trains between marketing, sales, product development and supply chain.
• Company is most likely not "stovepiped". In other words they are not organized around functional silos but rather around products, categories of products or channels / customers.
  

2) Not used as an extension

• The reverse of everything above.
• The customer gets additional feeling of benefiting when dealing with the supply chain. 
• Service is matched to the brand experience the company is going after
• Supply Chain is seen as a cost to be cut. 
• The big one:  When people in the commercial side of the business refer to themselves uniquely as "the business" and the supply chain is just something to execute at the lowest cost imaginable. 

This is just a short list and as I develop my thoughts further I am sure this list will be adjusted and added to.

Can anyone think of a company that makes their supply chain experience part of the brand v other companies which make it just a back office function?

Supply Chain Teams Should Consider Hiring Industrial Engineers

The article below discusses why supply chain teams should consider hiring industrial engineers. I could not agree more. I have a number of them on my team and they are fantastic even beyond the "normal" IE work. Just really good thinkers. The article below describes why.

Supply Chain Teams Should Consider Hiring Industrial Engineers

Thoughts on Cost....

All of us who have been in the industry for a while know the drill.  The expectation is logistics cost as a % of revenue will decrease year over year. This makes a lot of sense especially when you think of leveraging fixed assets.  Obviously, your costs for "back room" type activities should not go up in a linear relationship with your revenue.  If it did then what is the point?

But on the other hand we have to ask ourselves at what point can logistics' services add add to the revenue of the company?  And I do not mean just getting money from shared services (which is all the rage today) but I mean an equation which states that better service leads to higher customer satisfaction which leads to increased sales and higher revenue.  As products become commodities at faster rates than ever before perhaps leading companies should be thinking about the packaging of services around the product as a value add and revenue generator instead of a cost to be cut.

A quick example would be Amazon.com.  Why do you shop there? Do you shop there because they have better products or different products?  The answer is clearly no. They have what everyone else has.  What they have that virtually no one else has is a very convenient and easy order entry, an incredible delivery mechanism, easy returns and real time tracking.  The advantage of Amazon.com is not the products but the services around the products.

What is becoming clearer to me everyday is companies need to be looking at logistics and supply chain as THE competitive advantage.  Unless they have a product that is absolutely unique or not able to be copied due to patents or unique technology, a company needs to look at the services around the product for competitive advantage.

One way NOT to do this is to only ask those who manage those services to cut costs.

Trucking Firms Have Value in Tow

A very good article on the financial situation in the trucking industry from Morningstar.

Trucking Firms Have Value in Tow

Trucking news: Ceridian-UCLA Pulse of Commerce Index down 0.5 percent in September - Article from Logistics Management

Trucking news: Ceridian-UCLA Pulse of Commerce Index down 0.5 percent in September - Article from Logistics Management

Unfortunately, it appears my predictions have been right. As the article states, it looks like inventory has "stalled" on the superhighways. Watching trucking is a great way to get to know what is happening in the economy and it clearly is a leading indicator of things to come. Trucking always picks up early and dies fast which tells you what end of the business cycle we are on.

Some of this cannot be just compared to historical norms as intermodal freight has taken market share from trucks. However, trucking still is the predominant way to move freight especially from DC to store; the true measure of what the customer is pulling through consumption.

Keep an eye on December to determine if the holiday sales take off as planned. If they do not, we are in for a long and cold winter.

Blackberry Storm 2, Motorola Cliq: The Critics Weigh In

For those of you who may be thinking about the Storm 2 blackberry for a business phone forget it. The phone is a disaster. Battery life is horrible and the touch screen is a disaster. Further, the system locks up and is very slow. I cannot believe that I can out type a touch screen phone. I have to wait for it to catch up to me.

Forget the phone... it appears it is a "toy" for those who cannot afford either a Droid X or an iPhone. Putting this phone on the market is an insult to all consumers.

Blackberry Storm 2, Motorola Cliq: The Critics Weigh In

Transportation Capacity is Loosening

Pretty clear from a variety of metrics the capacity crunch of the summer for transportation capacity is over.  I have said many times the inbound volumes for logistics in general have been far bigger than the outbound volumes. This translates into a building of inventory which ultimately ends in the problem we see today:  The transportation network will shutdown.

We are starting to see this slowdown and if the Christmas retail season is slow, we will see a full blown shutdown IMHO.