Earlier in the week this blog provided commentary and reaction to a recent financial news headline that the world’s largest shipping line, A.P. Moller Maersk, reported its first financial loss in the company’s history.  I noted that to anyone involved in supplier sourcing, procurement and logistics, the news is of little surprise given the massive after-effect on global trade as a result of the global recession.  I further concluded that a U.S. exporter should remain in the drivers seat for contracting so-called backhaul ocean transportation, freight moving from the U.S. to Asian or European ports.  Apparently, this does not turn out to be the case, and something is amiss in terms of customer and supplier relationships.

 Today’s Wall Street Journal features a well-written front page story, Export Revival Threatened By Shipping Bottlenecks (paid subscription required), that outlines a landscape of frustrated shippers attempting to ship bulk goods to Asian markets in a timely and cost efficient manner. According to the story: …”producers (U.S. based) of everything from hazelnuts to cardboard are complaining they can’t get their goods shipped in a timely manner.” Shipping delays of three to four weeks have been common, and shippers have become increasingly frustrated with ocean carrier service levels. The picture seems to be one where the ocean carriers want to defy the notion that the customer should be the focal point in determining acceptable service levels. Another concern brought in this article is that some U.S. ports lack the capacity to handle larger outbound shipping activity, having instead placed a primary focus on servicing large volumes of imported container laden volumes.

The picture is one where severe drops in global trade destined to U.S. and European ports has caused ocean carriers to not only severely idle fleet capacity, but also slow down the cruising speeds in existing ships in order to save on fuel.  That is like an international airline indicating to a prospective passenger that because the airline has severe financial difficulties the previous eight hour transpacific journey has been extended to 10 hours, so deal with it.  Air passengers have the option to select far more options in other air carriers, not so for ocean carriers.  We called attention in our previous commentary that the CEO of A.P. Moller Maersk indicated that carriers have too long neglected the less-profitable “backhaul” shipment of goods from U.S. ports, and that there would subsequently be a renewed focus on more customer service.  That seems to be the understatement of the year.

It seems to me that ocean carriers, as well as shippers, have lost fundamental perspectives regarding solid supplier and buyer relationship building, and it would be interesting to hear additional commentary from our readers.

Two questions come to mind that may provide more perspective to this ongoing problem.

In the end, do ocean carriers exist solely to serve their shareholders, or to serve shippers? Are cutbacks in service levels, fuel surcharges or fleet capacity impacting the cost and service level needs of shippers? Have these carriers become too arrogant in their view of shipper relationships?

Conversely, shippers have also been mandated to respond to the effects of severe recession. There has been resurgence in the application of reverse auctioning and other hard nose procurement negotiating practices directed toward services-related procurement, including transportation. Has this trend soured any notions of supplier collaboration and mutual trust-building?  Have procurement practices subsumed any notions of building long-term carrier relationships?

Share your views and let us collectively ascertain what the real problems may be.

 Bob Ferrari

It seems that I am far too often penning Supply Chain Matters postings related to product contamination and supply chain risk.  I sometimes get asked why so many postings relate to this topic.  The short answer is that the occurrences of incidents are just growing and growing, and implications to food related and other regulated supply chain are rather troubling. They also point to a continuing trend that outbreaks of food contamination are not being traced in a timely manner.

The latest highly visible incident involves the voluntary recall of over one million pounds of ready-to-eat varieties of Italian sausage products involving Daniele International Inc. of Pascoag and Mapelville Rhode Island.  The brands involved are rather noteworthy for their image of quality, and include Boar’s Head, Black Bear and Dietz & Watson brands. The recalled products may be contaminated with Salmonella. The U.S. Department of Agriculture and The Center for Disease Control are jointly conducting an investigation regarding the source of the outbreak. To date, 189 persons across 40 U.S. states have been identified as being infected with illness, with incidents being tracked thus far back to July of 2009  A dedicated web site has been established by the CDC to provide public information regarding this recall.

The Food Safety and Inspection Service (FSIS) of the FDA has become involved because of an ongoing investigation of a multi-state outbreak of Salmonella Montevideo illnesses, which have thus far been traced to Daniele.  The Montevideo strain is noted as a somewhat common strain of salmonella infection, and is the same strain found in the 2009 incident involved in the pistachio nut recall.  It is however different from the Typhimuriam strain involved in the peanut butter paste recall that occurred roughly one year ago.

According to a public statement  provided by Danielle International, the potential culprit may be the cracked pepper utilized to coat the meat products.  The manufacturer notes that it has switched suppliers and will now use irradiated pepper, which is pepper that is treated with high doses of radiation to kill deadly bacteria.  While government officials have not completely pointed to that conclusion, this development should be of concern to all other food manufactures who utilize cracked pepper in their products.

This ongoing incident could have the same implications as found in the past peanut paste and pistachio nut recall incidents, the fact that the incidents of contamination impact the supply chains of other manufacturers or food providers who are utilizing cracked pepper product.  

Supply Chain Matters issues similar caution, if you have not already, immediately start checking the sources of your cracked pepper supplies, along with their use. Traceability of products is a rather important need at this juncture.

Unlike the ongoing product recall incident concerning Toyota vehicles, Danielle is demonstrating a rather positive outreach with public communication.  An open letter from the President of Sales  of this family operated business notes the concern to resolve this issue in the quickest and safest manner.  We applaud Danielle for this proactive outreach.

Food-related supply chain professionals need to remain focused on insuring that all aspects of the supply chain are constantly audited for ingredient safety and traceability.

 Bob Ferrari

A late breaking Wall Street Journal article published in the U.S. indicates that Toyota Motor Company will suspend dealer sales of eight different Toyota models that are involved in the ongoing product recall involving sudden acceleration of vehicles. Because of this suspension, Toyota is expected to suspend production of vehicles next week.

The models involved in the current recall include the Avalon, Camry, Corolla, Highlander, Matrix, RAV4, Sequoia and Tundra. Toyota had previously issued a recall of 2.3 million vehicles last week, along with other recalls in past weeks.

Needless to say, this development is unprecedented, and has potential far reaching impacts related to automotive supply chain disruption, if the suspension continues for a lengthy period.  While details remain sketchy, Toyota has either reached a point of serious concern related to the safety of its vehicles, or is taking extreme measures to insure that the problem is root-cause identified and corrected.  I suspect that the problem is far more than a sticky accelerator as noted in the Journal article, and probably more to do with engine control electronics. In either case, this is a significant development.

Supply Chain Matters will strive to provide more commentary as more information becomes available.

Bob Ferrari

After the previous terrible incidents related to contaminated milk powder in China’s dairy industry as well as lead tainted toys, and its devastating impact on children, there is a new story developing which is focused on children’s jewelry.  The Associated Press conducted an investigation and is reporting that some Chinese manufacturers have been substituting Cadmium, a dangerous heavy metal and known carcinogen, in the manufacture of charm bracelets and shiny pendants being sold throughout the United States and other countries.  According to this story, the U.S. Consumer Product Safety Commission will be opening an investigation and take action, if necessary, if it finds evidence of the alleged contamination. The list of potential cadmium-laced products is significant and involves jewelry sold in Wal-Mart and other retail outlets.

This pattern seems to be common phenomena for suppliers residing in China, who tend to always seek a lower cost alternative to insure profitability.  The problem dates back to the previous use of lead in jewelry, which has since been heavily regulated under the Consumer Product Safety Improvement Act of 2008.  That legislation was prompted from the outcry of numerous incidents of lead found in the paint of toys imported from China.  Since then, zinc has been utilized as a safer and nontoxic alternative for exported jewelry, but zinc has its own drawbacks in lack of luster and higher price. In 2008, the price of cadmium plummeted, and it became a likely alternative. In the AP article, jewelry industry veterans in China claim that cadmium has been used in domestic products for years, but should not have been used in exported products. 

One has to ask, is shinier and cheaper more important than the risk to the health of children?  Are the lack of safe standards for manufacturing and distributing goods to Chinese consumers and especially children, acceptable in China and not in export?  I say no to both.

Since the AP story will surely capture the attention of parents, as well as the attention of the U.S. Consumer Product Safety Commission, jewelry and other related manufacturers should expect further investigations, potential actions and fallout. It is a development that needs to be followed, and we will certainly keep an eye out for any further fallout.

If you are interested in a book that adequately describes the phenomena of China’s production game, you should read Poorly Made  in China. The author, Paul Midler, served as a manufacturing agent helping non-Chinese firms deal with issues involving their Chinese suppliers.  Midler notes that “trouble was his business.” I often refer to this book in my supply chain risk workshops.

 Bob Ferrari

As the United Nations conference on climate change ended in Copenhagen, many received a rude reminder that the effects of global warming are indeed upon us. The timing could not have been worse, coming just before a major holiday travel period.

Over this weekend, one of the largest snowstorms in many years impacted the largest populated cities on the U.S. east coast.  Blizzard-like conditions and unusually large snowfall stranded major cities from Washington DC up the east coast to Boston.  The snowfall stranded many, cancelled more than 1600 airline flights and disrupted transportation throughout the U.S. northeast.  Today, upwards of half a million airline passengers were attempting to find alternative flights or transportation.

According to a Bloomberg article, as much as 24 inches (60 centimeters) of snow fell of Bethesda Maryland, and 23 inches of snow was recorded at Philadelphia International Airport.  Here in Boston, where I reside, in excess of 21 inches of snowfall fell on portions of Cape Cod and the southeastern coast, while moving just 20 miles inland, snowfall levels dropped off dramatically as the storm center shifted direction out to sea.  There is a foot of snow outside my window and its bitter cold as I pen this posting.

In Europe, a bitter cold snap and snowstorms have had dramatic winter impact as well.  The underground Eurostar trains between London and Paris were forced to shut down unexpectedly last week as trains stopped dead in the tunnel because of what is suspected to be the effects of condensation caused by outside cold and inside warmth.  Upwards of 60,000 travelers were left stranded for up to twelve hours in the tunnel and service has still not be restored. 

According to a BBC News article this afternoon, additional rail, air, and road transport links are disrupted across northern Europe where snowstorms and bitter cold are impacting major areas. Parts of the continent experienced 20 inches (50 centimeters of snow over the weekend.

Of course, the timing of all of this bad weather could not have been worse, coming just before the Christmas and New Year’s holiday period where so many have travel plans, or where last-minute shopping and logistics fulfillment is in its final stages. UPS alone had expected to deliver 22 million packages today, its busiest day of the year.

There should be no doubt on whether global warming has impacted the planet, especially if you had prior or upcoming plans to travel in the U.S.or Europe for the holidays. 

To parody the movie quote from The Treasure of the Sierra Madre (1948)-

Global warming, I don’t have to show you any stinkin’ proof of global warming!

Let us all look to the glass half-full- many of us will be experiencing  a white Christmas this year.

In spite of all this dirruption, do enjoy the holidays.

Supply Chain Matters will not be publishing for the remainder of this week as I take some time to be with family and friends, and recharge.

Stay tuned for a series of new postings next week, the last week in 2009, which will feature our annual Supply Chain Matters Predictions for the coming year in supply chain.

Bob Ferrari