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Canadian Pacific Railway Accelerating Crude Oil Shipments with Potential Impacts to Current Logjams

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In a Supply Chain Matters posted commentary in August, we called attention to continued railcar shortage concerns among U.S. Midwest grain farmers.  Last winter, specialty rail car shortage problems stemmed from pileups among both the BNSF Railway and the Canadian Pacific Railway (CP) CP Railnetworks heavily burdened by surging crude oil transport demand and compounded by severe winter weather.  The problem was a classic capacity-constrained network, as winter conditions incurred a heavy toll on equipment and schedules. At the time, the railcar shortage was expected in extend further into this year.

A published Bloomberg report in August reported that upwards of 10 to 15 percent of last year’s grain crop still remained stored in silos because of the continued lack of availability of specialized bulk rail cars to transport the crop. Some contracts for delivery of grain from as far back as March remain unfulfilled in August.

An expected high U.S. spring wheat crop began harvesting last month and must now be either stored or sent on bulk railcars to end-markets and export ports. Growers were concerned whether railroads would ever be able to catch-up with compounding backlogs.

There is now have another data point to consider.  Last week, CP outlined a series of aggressive financial targets that included a doubling of earnings by 2018. One-third of the expected new revenues is expected to come from added crude-oil transport from both the Alberta and North Dakota Bakken region, While today, Bakken crude represents 60 percent of CP’s unit volume, plans call for shifting that percentage toward the Alberta region.  According to industry reports, Alberta crude is less volatile in transport, and CP is obviously betting that Alberta crude will be in more demand for rail transport needs.

To accomplish these financial and operational objectives, CP has plans to increase crude shipments upwards of 60 percent in 2015 while expanding specialized crude terminals in the Alberta region.

From our lens, the above is not good news for U.S. and Canadian farmers. 

Shifting an already overburdened CP rail network further north could well take more capacity away from U.S. Midwest use. If currently harvested grain and other crops become just as log-jammed as last year, the situation may get far uglier, especially considering that both U.S. and Canadian rail networks are now running under constricted speed requirements in transporting crude.

We would appreciate hearing the views of farmers and operators on the ground, dealing with the current bulk rail transportation challenges.  Do you feel this planned network shift by CP will compound current logjams?

Either share your observations in the Comments area below this posting, or send us an email: info <at> supply-chain-matters <dot> com


NRF Issues Optimistic Forecast of Holiday Sales- Be Watchful and Be Prepared

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Business media and online channels are abuzz regarding the latest rather optimistic forecast of expected retail holiday sales issued by the National Retail Federation (NRF), an industry trade group of the retail industry. However, retail supply chains need to be prepared for even more challenges and unknowns in the coming weeks leading up to the end of year.

The NRF is forecasting that upcoming retail sales in the months of November and December (excluding autos, gasoline and restaurants) will increase by 4.1 percent over 2013 levels, equating to nearly $617 billion. According to the NRF, retail sales incurred an actual 3.1 percent increase during this same time period in 2013. The current forecast marks the first time since 2011 that holiday sales would increase by more than 4 percent.

In an interview with business network CNBC, NRF’s chief economist indicated that the 4 percent increase could be on the low end, given the current downward trend in energy prices that are benefitting consumers.

Also today, Shop.org released its 2014 online holiday sales forecast, expecting sales in November and December to grow between 8 – 11 percent over last holiday season to as much as $105 billion.  Holiday non-store sales in 2013 grew 8.6 percent.

In its release, the NRF wisely warns retailers that shoppers will remain extremely price sensitive and that retailers will have to overcome such challenges through differentiation in value and exclusivity. That trend was reinforced by a recent PwC study based on a poll of more than 2,200 consumers across the U.S. that spanned all demographics and income levels, and defined the holiday season as September through January. The PwC study reported that 84 percent of respondents indicated that they plan to spend the same or less than they did in 2013.  That is a somewhat conflicting data point relative to spending levels and for us, is a clear indicator of continued price sensitivity among the majority of consumers.  Thus, the retail winners in 2014 are those with the most attractive promotions and merchandising creativity.

Even more confusing is presumptions that termed “webrooming” (researching online and buying in physical store) the opposite of “showrooming” (research and touch in-store and buy online) will prevail this year. We refer readers to various commentaries, including our own,  written at the conclusion of the 2013 holiday buying period regarding lessons learned.  In early January, the Wall Street Journal produced ShopperTrak trending data related to total retail foot traffic since 2010 that clearly indicates a significant reduction in store visits, by a factor of almost a half since 2010.  In our Supply Chain Matters 2013 lessons learned commentary, we addressed information data security (credit card data breaches) coupled with logistics and transportation capacity breakdowns as important lessons. Some of those learnings are now reflected in conversations among retailers and their logistics partners.

What does all of this mean for retail supply chain teams? 

It essentially means that the challenges in the upcoming holiday surge are going to be even more dynamic  than last year and supply chain agility, flexibility and patience will be all important factors. 

Sales and Operations teams will probably have dynamic, perhaps even heated  discussions with merchandising and marketing on the timing of promotions, including how late to keep the channels open for orders and guarantee holiday delivery for consumers.

Planning for inventory needs in the correct fulfillment channel will be another challenge and will require a lot of demand sensing and day-to-day collaboration with marketing and merchandising teams. There are but 11 weeks remaining of planning time. Because of the threat of a west coast dock labor stoppage, most of the inventory has arrived and is making its way to various distribution points. Similar to last year, the period between the Thanksgiving and Christmas holidays is a short 26 days and the severity of winter weather conditions will again be all important in assuring continuous logistics flow without last year’s numerous logjams.

One very important other wildcard to monitor is whether economically stressed but savvy consumers, who may have lost trust in the data and information security practices of retailer systems, trend toward shop online and pickup and pay by cash at retail stores at the very last minute.  That may well be the 2014 doomsday scenario for retail supply chains that lack adequate agility in inventory re-positioning, multi-channel and logistics partner fulfillment capabilities.

Good luck, best wishes and let the planning and execution begin.

Bob Ferrari


FedEx and UPS Attempt to Influence Retailers to Avoid Holiday Ship Snafu Repeat

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Today’s Wall Street Journal reports (paid subscription) that both FedEx and UPS are working hard to influence retailers on taking different promotional perspectives during the upcoming holiday buying season and avoiding the last-minute delivery breakdowns that occurred in 2013. The tone of this WSJ report indicates resistance to change by many retailers, but Supply Chain Matters is of the view that there are other forces at-work.

The report indicates that UPS is asking online retailers to hold the bulk of their sales discount programs in mid-December, and stagger promotional programs by region, instead of promoting an all-out nationwide surge in the final days leading up to December 25th.  Brown further prefers that online retailers suspend free overnight shipping offers on December 23.

FedEx is reported to be attempting to collaborate with retailers on frequent forecasting of volume loads and advising how much volume the carrier’s network will be able to handle in the weeks before Christmas. The carrier will also adhere to supporting a certain defined number of package shipments for individual retailers, but if the FedEx network becomes strained, it will turn away volume that exceeds pre-defined capacity agreements.

Not reported is whether either carrier is willing to extract premium shipping surcharges for last minute, guaranteed shipments which has threatened earlier in the year.

As noted in previous Supply Chain Matters commentaries, both carriers and retailers have been investing time, money and planned supplemental resources to try and overcome the bottlenecks encountered last year.

The WSJ indicates that while larger brick-and-mortar and online retailers seem willing to work with package delivery firms, numerous others indicate they have no intention of staggering holiday promotions or rolling back last-minute promotions for guaranteed holiday delivery.

Unstated but obvious to retail supply chains is that this has been another challenging year for the retail industry, with some retailers continuing to be financially stressed.  Suppliers, in some cases, have to deal with extended receivables or elongated payment schedules. There are therefore critical expectations being placed on holiday sales volumes to provide added cash to coffers. One example is Sears, which continues to re-structure to free-up additional sources of cash to fund ongoing operations.  JC Penny continues in its challenge to bounce back from a prior management debacle, and restore consumer loyalty in its promotional incentive program. Target continues to feel the after-effects of last year’s massive credit card data breach.

Another important change this year is that more retailers will be experimenting with ship direct to brick and mortar store options for online sales as well as order online, ship from inventory available in-store. There are some indications that consumers are losing trust in the use of credit cards with retailers after a steady stream of other cred-card data breaches among numerous retailers. Instead, more consumers may opt for order online, pick-up and pay at local store as their holiday shopping preference. There are indications that Wal-Mart is currently planning for such a scenario. These changes may or may not help package delivery companies this year.  The last-minute spike and bottleneck could well be experienced at brick and mortar stores as consumers queue-up for last-minute merchandise pickups.

Finally, just as occurred last year, the weather will be another important determinant factor.  If severe storms or cold occur during December, especially late December, than we could well observe a repeat of 2013.

The important takeaway however, is that retailers and carriers are at least talking with one another at an earlier phase leading up to the holiday surge and that for the most part, both sides are being far more proactive than 2013.

Bob Ferrari


Report Indicates Amazon Has Deployed New Sortation Centers in Preparation for Upcoming Holiday Surge

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Earlier this month, Supply Chain Matters posted its initial commentary to prelude what to expect in the upcoming holiday buying surge period. In that posting we observed that retailers and parcel carriers had carried over important learning from the 2013 season.

UPS has invested $500 million in plans to augment its package-car capabilities by an additional 10 percent over last year’s levels as well as dramatically flexing its capacity and intermodal capabilities at its Worldport central hub. Brown will also deploy what it terms as pop-up “mobile distribution center villages” that will function across various U.S, network points beginning with the expected holiday delivery surge.

Bloomberg now reports that Amazon has embarked on its own plans to avoid a repeat of holiday delivery snafus. A North Carolina retail advisory firm is cited as indicating that over the past 18 months, the online retailer has deployed 38 new fulfillment centers across North America, plus an additional 15 new “sortation centers” which are an added layer of capability to bypass the busy hubs of carrier partners such as FedEx, the U.S. Postal Service, as well as UPS. These sortation centers reportedly provide added flexibility to work around congestion points during high surge periods, including the all-important days before the Christmas holiday. They are further designed to be an important fulfillment component to Amazon Prime members who have signed-up for free shipping and other privileges.

As we and other have noted, Amazon is further experimenting with its own fleet of delivery vans being piloted in a select U.S. cities.

It is indeed going to be an interesting upcoming test of acquired learning as both online retailers and package carriers over the coming months. Supply Chain Matters will provide continued coverage of B2C/B2B Omni channel commerce learning during the 2014 holiday surge.


NTSB Issues Accident Investigative Report on 2013 UPS Cargo Plane Crash

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On August 14, 2013, a UPS cargo plane bound for Birmingham Alabama from Louisville Kentucky crashed in the early morning hours just short of the airport runway, tragically killing both pilots on-board.  Flight 1354, an Airbus A300 cargo plane crashed shortly before 6am Eastern time near a parallel access road in the immediate airport area, about a half mile from the runway.

The National Transportation Safety Board (NTSB) in the United States has now issued its final report regarding the accident which concluded that a series of pilot errors and deviations from company safety rules led to the accident. The NTSB indicated that UPS flight 1354:

crashed because the crew continued an unstabilized approach into Birmingham-Shuttlesworth International Airport in Birmingham Ala.. In addition, the crew failed to monitor the altitude and inadvertently descended below the minimum descent altitude when the runway was not in sight.”

The NTSB further reported that flight crew fatigue also contributed to the accident. The detailed accident investigation report indicated:

For the captain, that fatigue due to circadian factors may have been present at the time of the accident.”

The report further indicates:

Review of the first-officer’s use of her off-duty time indicated that she was experiencing fatigue, primarily due to improper off-duty management time. Even though the first officer was aware she was very tired, she did not call in and report that she was fatigued , contrary to the UPS fatigue policy.”

The detailed report further noted that the flight dispatcher should have alerted the flight crew to limited options on arrival in that a single runway was only available. Doing so would have helped the flight crew prepare for the approach and evaluate options.

Thus it would appear that a combination of cascading factors apparently led to this accident.

In an October 2013 posting, Supply Chain Matters called reader attention to an Opinion column published in the Wall Street Journal titled “A Tired Pilot Is a Tired Pilot, Regardless of the Plane”. It was jointly penned by the now famous Chesley ‘Sully’ Sullenberger, who piloted a US Airways A350 aircraft to successfully land in New York’s Hudson River saving the lives of passengers, and Jim Hall, former chairmen of the NTSB. In this editorial, the authors brought to light the current dangers imposed by fatigued pilots. While the U.S. Federal Aviation Administration (FAA) implemented long-overdue fatigue standards for pilots for the passenger airlines, these requirements did not apply to pilots of cargo planes. The premise of these distinguished authors was that by excluding cargo pilots, who often fly continuous long inter-continental routes, the mission for making safety the first priority for aviation is compromised.  Their most powerful argument: “Whether there are packages or people behind the cockpit door, pilot fatigue exists just the same. And it threatens the lives of pilots and bystanders on the ground alike.

In its September accident report, the NTSB made a series of recommendations concerning the FAA, UPS and the Independent Pilots Association including review of fatigue policy and methods including nonpunitive mechanisms to identify and effectively address reported fatigue issues.

It would seem that the October WSJ Opinion column regarding pilot fatigue has even more meaning for air cargo crews.

 


EU Commission Approves Hapag-Lloyd and CSAV Merger

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In April, German based ocean container carrier Hapag-Lloyd and Chilean based CSAV formally announced a merger deal after preliminary talks leaked in December 2013. This combination would create the fourth largest container shipping company in the world with upwards of 200 vessels and transport capacity of 7.5 million TEU’s in the fleet. The outlined deal involved Hapag’s control of 34 percent of the merged entity after two added capital infusions totaling approximately $1 billion. Container_Term

After its consideration, the European Commission has now issued its approval of the planned merger.  

Approval hurdles in other jurisdictions remain before the final green light, but the EU nod is a significant milestone.


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