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Amazon Reportedly Shopping for an Airport

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Since last November, Supply Chain Matters has highlighted developments indicating how Amazon is rolling out a strategy for managing and controlling its own logistics, transportation and customer amazonfulfillment capabilities. They have included the long-term leasing from ATSG of dedicated air cargo aircraft, Amazon branded semi-trailers and advanced logistics sortation facilities.

Now social media and industry outlets are echoing a report from a German-language newspaper indicating that the online retailer may be negotiating a deal to buy the Frankfurt-Hahn Airport in Germany.

The focus of these reports emanates from a German language daily, Sueddeutsche Zeitung. A Tech Insider posting echoing this report indicates that the German report did not indicate what the discussions might have been about or how recently they occurred, but that three airport acquisition offers from unnamed parties were made for the airport. A posting on Geek Wire added that the subject Hahn airport is located near Koblenz where Amazon currently owns a large fulfillment center.

We would add that is the same pattern demonstrated when Amazon initially executed the lease of air cargo aircraft from ATSG last fall, electing a U.S. airport that was close by existing large Amazon customer fulfillment centers. Further, a published Seattle Times report in January indicated that the online retailer would begin competing directly with longtime partners United Parcel Service, FedEx and DHL in Europe, with pieces falling into place to make such competition a potential in the U.S. as well in time.  That report might have indicated that Europe would have been the initial target.

Thus, if or when this potential acquisition of a European based airport does come to pass, it will be another stepping stone toward rolling out a global customer fulfillment capability totally managed by Amazon. Whether its Hahn airport, or another opportunity, the signs point to an active investment and deployment strategy underway, and online retailers and producers had better pay attention.


Yet Another Shipping Alliance and an Industry Stalling the Inescapable

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The Wall Street Journal reports (Paid subscription required) that a new ocean container shipping alliance is being formed.

This alliance would include China’s Cosco Group, Hong Kong’s Orient Overseas Container Line (OOCL); Taipei based Evergreen Marine and France’s CMA CGM. This new grouping, to be termed the Ocean Alliance, will operate nearly 350 vessels across various global routes, and by CMA CGM estimates, could account for 26 percent market share in Asia-Europe routings.

The Ocean Alliance is being put forward to rival the market dominance of Maersk Line and Mediterranean Shipping Co., (MSC) which formed the 2M Alliance in 2014 that reportedly now controls roughly 34 percent of the Asia to Europe trade route.  Maersk, MSC and CMA CGM had previously proposed the termed P3 Network which was eventually scuttled by Chinese regulators in 2014. CMA CGM and Cosco currently operate in the Ocean Three alliance the reportedly controls 22 percent of cargo moving on the Asia and Europe trade route.

This newly proposed alliance is also subject to regulatory approval from the European Union, China and the United States under the supposed guidelines that any alliance does not benefit from domination of an individual trade route.

In its report, the WSJ indicates that operators have already met in recent days with the U.S. Federal Maritime Commission (FMC) as well as the other regulators. However, a quote from the commissioner at the FMC indicates that existing alliances seen today will change significantly. That could well be an indication of continued industry turbulence and ongoing changes.

Now at this point, readers may well be confused by all of these alliance names and arrangements. That should not be a surprise since this is all about compensating for gross industry wide over-capacity in vessels and positioning for pricing control over major trade routes. The fact that maritime regulators would continue to agree to such alliances is yet another concern since shipper’s interests are not necessarily the prime motivation for such actions.

In February, the WSJ noted that that the industry, in-essence, had three options, either shrink, merge or continue to ride out one the worst downturns in decades. Some consultants recommend consolidation though a combination or merges and alliances, but the question comes down to overall timing.

According to Drewry Shipping Consultants, utilization of ships across the world’s busiest shipping routes fell to 87 percent in 2015, down from 93 percent in 2014. Rates charged on the Asia-Europe routes fell by 42 percent in 2015.  In March, Drewry noted that an index of spot rates on 11 trade routes between Asia, Europe and the United States had fallen 62 percent. According to a Globe and Mail report published in early March, the oversupply of massive new container ships serving the China-Europe route had pushed smaller vessels to Atlantic Ocean routes, consequently depressing rates between North America and Europe.

Obviously, shippers who now rely primarily on spot rates are experiencing the benefits the current industry bloodbath, while those who opted for longer-term contracts more than likely question their decision. The ongoing dynamics for so long since industry changes are about to get even more messy.

This week, a posting on Supply Chain Brain poses a very timely question: Are Carriers Changing Their Minds on Megaships? That commentary reinforces what we at Supply Chain Matters have noted for months, namely that shipping lines chose to ignore the consequent implications of introducing far larger mega-ships.

Besides exacerbating a condition of overcapacity, the impacts on various global ports in terms of truck chassis scheduling, added crane and rail and truck throughput capacity, and impacts to existing trade union contracts were literally thrown over the wall for others to figure out. Industry supply chains felt the pain of the initial effects in the fall of 2015 with four months of disruption across U.S. West Coast ports.

The Supply Chain Brain posting cites a Drewry director as indicating at a recent industry conference that the estimated current excess capacity is near 2 million TEU’s (trailer equivalents units) and that an estimated 5 percent of ocean container vessels, nearly 1 million TEU’s sits idle generating zero revenues.

Any way you elect to look at it, the ocean container transportation segment has serious problems that by one means or another will have to find resolution. The open question remains, how-long will the process continue?

Shippers who are currently benefitting from the fallout of depressed rates, but paying the price in slower service and unreliable scheduling, should not be lulled into a perspective of sticking one’s head in the sand, and assuming such conditions will eventually work themselves out. When the dam eventually breaks, there is a lot of water that will flow out.

The time is long overdue for industry shippers, logistics providers, transportation brokers, shipbuilders and indeed global regulators to have their collective voices heard. The ongoing ocean container industry crisis needs solutions with both customer and global supply chain interests in mind. This litany of alliance formation prolongs the solving of an obvious and inescapable problem.

Bob Ferrari

© 2016 The Ferrari Consulting and Research Group and the Supply Chain Matters® blog. All rights reserved.


Supply Chain Matters Highlights from the MIT Crossroads 2016 Conference

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Supply Chain Matters had the opportunity to attend the 2016 Crossroads Conference hosted by the Massachusetts Institute of Technology (MIT) Center for Transportation and Logistics (CTL). Crossroads is an annual event that began 12 years ago for the benefit of MIT CTL corporate sponsors, and each year the conference brings together leading-edge industry and global supply chain trends and insights developed by MIT and external academic focused research. This Editor has been fortunate to be invited to this event for many prior years, and this year was no exception.

The agenda included a presentation by Sertac Karaman, MIT Assistant Professor of Aeronautics and Astronautics on the timely topic: Autonomous Vehicles: Driving Change in Logistics Networks. In the talk, Professor Karaman traced the recent history of self-driving cars after Google developed the first autonomous vehicle. What was most interesting was his predictions for what’s next in this area, which he indicated would be broader deployment of autonomous vehicles operating in distribution and logistics centers within the next two years, and within what he described as suburban focused driving environments within the next six years. One of the remaining challenges to be addressed, according to Karaman, was urban delivery and logistics requirement. Here, he referenced efforts underway from UK based Starship Technologies directed at a specialized autonomous delivery vehicle that can navigate urban landscapes. The summary conclusion is that there has been substantial technological advancement in autonomous vehicles over the past decade and the forthcoming two-year immediate impacts in supply chain environments will be in low-speed, low complexity environments in existing distribution centers and warehouses. Beyond that, there are many other opportunities as technology advances continue.

A presentation by Matthias Winkenbach, Director of the MIT Megacity Logistics Lab at CTL addressed the topic: Big Data and the Journey to a More Efficient Last Mile. Winkenbach reminded the audience that 60 percent of future GDP growth will emanate from 600 global cities, and that the logistics industry must tackle the current huge density of retail outlets that exist in mega city landscapes through more advanced use of big data integration techniques involving geographic, delivery requirements, physical sensor and other pertinent data sources. By combining publically available data such as income demographics, density of commercial establishments, road network density and capacity, with transactional data related to orders, MIT researches have been able to plot and simulate logistics needs for the delivery of food and beverage deliveries in some of the world’s most dense mega-city complexes. The integration of this data was described as the ability to correlate customer stops with special delivery services, to optimally identify delivery person walking time needs (off-vehicle operations) along with providing drivers information on optimal parking locations or congestion points to avoid at certain times.

A rather interesting insight from the Q&A session of this presentation was actual audience polling that revealed that a lot of data is actually being collected by organizations but is not being currently leveraged because of a number of challenges related to data accuracy, understanding, size and complexity as well as technical competence.

A fascinating but very concerning presentation came from Retsef Levi, Professor of Operations Management, MIT Sloan School of Management whose topic was: Adulteration Risks in Global Food Supply Chains Emanating from China. He addressed MIT research spanning over two years which was funded by the U.S. Food and Drug Administration. Observed was that imports of food shipments into the United States have dramatically expanded to include upwards of 80 percent of seafood, 70 percent of honey and other basic food commodities. The FDA sponsored Food Safety Modernization Act signed into law in 2011 was passed to prevent food safety problems rather than regulatory agencies having to merely react and respond to growing incidents. The act clearly shifted the responsibility and accountability for food safety with the industry, including validation of the food supply chain. MIT assembled a cross-departmental research team to address how does the structure of the food supply chain impact risk?  Because of the FDA sensitivities related to this research, we will refrain from sharing more of details. Suffice to note to our readers that the research identifies compelling risk drivers that include unmonitored stakeholders, overall dispersion of food supply chains, regulatory strength and the targeting of key strategic commodities that are common to many food products.

An industry focused presentation came from Joel LaFrance, Supply Chain Visibility Lead at General Mills. The day before the Crossroads conference, a group of CTL corporate members identified supply chain visibility as their most important and compelling challenge. That theme was addressed as LaFrance addressed the importance of defining supply chain visibility lexicon, as contrasted with transparency and traceability. He described the new influences impacting General Mills supply chains including unprecedented complexity and volatility as well as the convergence of physical and digital processes. The consumer goods producer started it supply chain visibility journey nearly 18 months deploying a series of use cases and initiatives directed at supporting line-of-business needs. Further shared were top four learnings that included realization that connected data is critical, that insuring end-to-end supply chain visibility changes that way work is performed, along with prioritizing end-to-end visibility needs as opposed to targeting specific functional needs.

This author had to cut-short his attendance for the full agenda, because of a previously scheduled client commitment. However, we did obtain a copy of CTL Executive Director Chris Caplice’s presentation: Transforming Professional education: An Update from the Front Line. Addressed was MIT’s ground breaking efforts in delivering an online ‘Micro-Master’s’ Program for Supply Chain Management that features open enrollment, online certification and no admissions criteria. While the program is characterized as not an MIT degree program, it does provide a faster path towards a degree. The curriculum will include courses such as Supply Chain Fundamentals, Supply Chain Analytics, Supply Chain Design and Technology. The online learning experience includes on-demand, ‘bite-sized’ video segments of 3-9 minutes coupled with quick reinforcing questions and extensive practice problems after each section. Current enrollment in this online program now exceeds 28,000 and includes student representation from 181 countries which is quite a testament to the global interest levels in acquiring supply chain management skills. This innovative program was described as helping organization’s to identify supply chain talent because MicroMasters provide a proxy for grit. It further helps to recognize and foster high-potential achievers by recognition.

This was another informative Crossroads conference one providing broader perspectives on the direction of supply chain management.

Bob Ferrari

© 2016 The Ferrari Consulting and Research Group and the Supply Chain Matters® blog. All Rights Reserved.

 


The Future of International Freight Procurement- A Supply Chain Matters Guest Commentary

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The following is a supply Chain Matters guest commentary contributed by Cory Margand, Founder and CEO of SimpliShip an international freight marketplace created out of the frustration of today’s outdated shipping processes and underutilization of technology. We recently spoke with Cory Margand and Keegan O’Brien of SimpliShip and invited this guest blog contribution.

 

“Insanity: doing the same thing over and over again and expecting different results”

  • Albert Einstein

 

Is anyone else sick of hearing about the doom and gloom of the ocean carriers?

The freight landscape has shifted and businesses are operating in new ways. Yet, our industry is making the same choices without considering the impact of this new landscape and expecting different results. Given the oversupply of vessels we are currently experiencing, there has been a lot of talk about the state of the industry due to some of these choices. Shippers must now wait and see how their rates will be affected by things like carrier consolidation. If we are ever going to see a change; the focus needs to shift to the process itself. Shippers must position themselves to have more control over their fate;   rather than just the carriers. So, what should your business be doing differently?  Gantry_Load_4

STOP LOCKING ALL YOUR VOLUME INTO CONTRACTS

How it works today:

  1. Beneficial Cargo Owners (BCO’s) go out with a tender annually with volume by lane
  2. Carriers/NVOCC’s provide their bids
  3. BCO’s select their carrier portfolio based on price, capabilities, and performance

 

So what’s the problem? Quite simply no one can tell the future, especially in today’s highly volatile and changing global logistics environment. So, why would you lock all of your volume into a contract? As an example, in 2015, rates in certain lanes dropped roughly 50 percent after longer-term contracts were awarded. I wouldn’t want to have been the person responsible for negotiating contracts on behalf of the BCO (although they probably bragged to their boss how much they saved year on year). We are talking upwards of millions of dollars depending on volume! In other words, it’s never a zero sum game; either the carrier or the shipper loses out and loses out big!

START MAKING SPOT RATES PART OF YOUR STRATEGY

How the shipment tendering process can work:

  1. Non Vessel Owning Common Carrier’s (NVOCC’s) & Forwarders negotiate contracts with carriers
  2. Some of the larger shippers will enter into contract negotiations but still have a huge need for spot rates in order to fill-out required capacity.
  3. Small businesses procure spot rates continuously throughout their sell in cycle

Typically, small businesses rely on 1 or 2 Forwarders and rates are provided after multiple emails or phone calls. Unfortunately, that means there’s no leverage for the shippers, there are limited negotiations and it’s done in a total vacuum. The worst part is that once the rates are received, they hardly ever compared apples to apples; the shipper must now spend even more time figuring out which is the best combination of rates and service. Not to mention, this means more time required to track such information in spreadsheets or other applications. On the flip side, NVO’s & Forwarders are cold calling all day long in hopes they get an in- person meeting with a shipper at some point. I can speak from personal experience that the odds are stacked against the Forwarder from the beginning.

Now, I’m certainly not impartial, but I want to make it clear that it’s time for everyone in the industry to embrace technology to drive efficiencies and risk management for both shipper and carriers. Processes that create a losing situation for supply chain partners need to be eradicated immediately. With SimpliShip, shippers enter their air or ocean shipment information, post it and instantly connect with a network of pre-screened NVOCC’s and freight forwarders eager to earn their business. The marketplace is mutually beneficial, providing a centralized location for shippers to reduce costs and time; while NVO’s and forwarders benefit by gaining a new sales channel, low customer acquisition cost, and significantly reduced lead times to secure new business.

Visit www.SimpliShip.com to sign up or learn more.

 

Disclosure: Neither The Ferrari Consulting and Research Group nor the Supply Chain Matters® blog have a current business relationship with SimpliShip.com. We share this guest commentary for purposes of market education.


Breaking News: Panama Canal Authority Announces Expansion Inauguration Date

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One of our Supply Chain Matters 2016 predictions calls for continued turbulence surrounding global transportation and logistics. One of the components of that prediction was whether the long-awaited expansion of the Panama Canal would actually occur in 2016 because of a litany of construction delays and setbacks.

Today, the Panama Canal Authority eased some of that concern in its announcement that the canal expansion will be officially inaugurated on Sunday, June 26, 2016.  This announcement was made in conjunction with today’s opening ceremony of a new state-of-the-art scale model maneuvering training center to be utilized to provide pilots and tugboat captain’s hands-on experience in navigating the expanded canal.

According to today’s announcement, the $5.3 billion Panama Canal Expansion Program is currently 97 percent complete with contractors expected to close out overall locks construction by the end of May. Final testing is further expected to be completed in the weeks leading up to the end of June. This includes a test of the new locks with a large scale tanker in May.

The program itself is roughly two years behind schedule, challenged by engineering setbacks, contractor disputes and cost overruns. The project provides the promise for shifting international trade routes and shortening overall ocean transit times by allowing much larger ships to travel from parts of Asia directly to U.S. East and Gulf Coast port destinations. Larger ocean container vessels, representing nearly three times the size that can currently be accommodated by the canal, will now be able to traverse.

Meanwhile, some U.S. East Coast ports lag behind in efforts to expand their port infrastructures in order to accommodate the larger sized vessels that were restricted to call only on U.S. West Coast ports.  As examples, the deepening the harbor at the Port of Charleston and the raising of the Bayonne Bridge linking ports in New York and New Jersey are each years behind schedule. However, some major ports such as Savannah have declared readiness. Thus, the full impact and benefits for the Panama Canal expansion may take considerable more time to assess.


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