Capacity Issues? Collaborate! Aggregate! Don't Stagnate!

I am up in Toronto today and tomorrow participating in a course for Transportation and Logistics' professionals. Its being hosted by Federated Press and should be well attended. My colleague, Adrian Kumar will be presenting two major sessions, with me adding some support. I have a short session that will revolve around "capacity issues." If you are in Toronto, stop by and check it out...

Capacity Issues - Discussion Points - January 31, 2006 - Toronto

Today's capacity crisis is a perfect storm of volume limitations spanning three major modes of transportation: truck, rail, and ocean.

Driver pay and work/life balance are key issues affecting capacity in the trucking industry. The industry is losing drivers to careers with higher pay and more attractive lifestyles. Carriers today are also more disciplined about adding capacity, hiring drivers only when they can ensure a good financial return.

In the rail sector, the labor fallout from early retirements has restricted train crews, while track and speed constraints limit the ability to run additional capacity across existing rail networks. Because the United States and Canada have not built a significant amount of new rails, capacity can only be added by increasing train speeds and running more trains over the current, relatively fixed network.

The long cycle required to build ships will strain ocean capacity until roughly 2007-2008. In addition, rapid growth in Asian imports to the United States has caused massive port congestion. The lack of collaboration in the transportation sector exacerbates this capacity crisis -- and affects a cross-section of industries.

NOTE: I think this point is a bit of a stretch...from my perspective, we are very close to huge over-capacity in the major trade lanes. Hey shippers...your rates are about to drop!

Retailers are forced to add inventory into their supply chains, facing increased obsolescence and markdowns, or miss sales because merchandise is out of stock. Consumers pay the price when goods don't move efficiently to store shelves.

Shippers absorb higher costs because of delays, a continued lack of capacity, and increased spending on expedited transportation to meet consumer demand. And carriers have difficulty handling the demand, which strains service levels and relationships.

To face this crisis, shippers and carriers must work together to develop smart, creative ways to maintain levels of service, find capacity, and grow business.

Here are five suggestions:

1. Improve pay and overall compensation packages for truck drivers, and work to meet their lifestyle needs. This will help the industry attract drivers, adding capacity back into the system. Shippers and carriers can partner to improve driver lifestyle by creating dedicated driving opportunities, for example.

2. Improve forecasting and define Centers of Gravity. Use capacity as a factor when creating import strategies and locating distribution centers. Ignoring capacity when determining port and distribution center locations leads to ineffective networks and poor customer service. Capacity must drive these decisions to promote greater flexibility and efficiencies. Dont' wait, don't hope, don't stick your head in the sand...be proactive!

3. Expand your contractual agreements - Outsource! Consider including transportation brokerage firms as core carriers. Core carrier programs provide access to the capacity necessary to remain viable in the market. Using limited trading partners is still a good strategy, but a transportation broker might be part of that plan. Mix and match per your need, but contract with too many small/regional firms which will dilute your market position.

4. Aggregate your vendors, segment your supply chain. As is the previous point, define and reduce your vendors and outsource to gain buying power (aggregate). Orchestrate smart freight/bid processes and level out shipping loads. Segmenting the country -- instead of delivering to all regions every day -- has helped many companies level out their daily shipping requirements. In the contracting process, shippers and carriers must be more precise about the capacity supplied for agreed-upon prices.

5. Collaborate across business and government sectors. Engage and lobby government officials to build awareness of the capacity crisis and ensure new rules, regulations, and spending don't exacerbate the problem. With greater collaboration among shippers, carriers, and the government, challenges resulting from new regulations, such as the hours-of-service rules, can be reduced or prevented.

The capacity crisis is forcing key players in the industry to work together to create unique solutions. With proper planning, better strategies, and constant attention to capacity's impact, shippers and carriers can successfully maintain superior service, find ways to meet capacity commitments, and continue to grow their businesses and the economy.

Collaboration and building awareness NOW are tantamount to to long-term success!

A Dane, a Frenchman, and a Sailor walk into a Mobile, AL Bar…

This almost does sound like the beginning of a joke, but it is a strategic move by all three parties involved.

The Alabama State Port Authority said it signed a concession agreement with Mobile Container Terminal LLC to develop a new container terminal at its Choctaw Point site.

The signing in January made official the deal announced last November.

Mobile Container Terminal is a joint venture 80-percent held by APM Terminals North America, a subsidiary of Maersk Inc., and 20-percent by Terminal Link, a division of French carrier CMA CGM.

The agency said operations are expected to begin in the second half of 2007 with a start up capacity of more than 350,000 TEUs, with a full built-out capacity of 800,000 TEUs.

In December, the authority awarded a $4.2 million design and construction management contract to HDR Inc. for a rail Intermodal Container Transfer Facility at Choctaw Point as well.

The State of Alabama is a huge winner in this project, but you have to hand it to APM and CMA-CGM for their mutual risk-taking in the project. Let’s see how it develops as we lead up to, and after the terminal’s completion.

Will your China Strategy Get Stung By ASP Technology?

“… High-performing Chinese supply-chains of the future will integrate today’s legacy and server based applications with future technologies inherent to the Internet …”



Logistics Technology in China

Infrastructure Chokepoints and Investments
FY 2004, container volume in China’s ports increased over 28% (from previous year) to over 59 million TEUS. The crush of traffic and cargo volume led to massive delays in Shenzhen, Ningbo, and Shanghai, with spill over affect in all Chinese ports (including, to some degree, Hong Kong).

Annual growth of containerized traffic is expected to be between 20 and 30 percent for the next
several years (through 2015). It should also be noted, that in 2004, China’s import/export containerized volume was over 60% of the total volume shipped in Northeast Asia (including Hong Kong), Southeast Asia, and the Indian Subcontinent. This means that every China gateway will be a chokepoint, where fast, accurate, and flexible TMS platforms will be needed to stay ahead of the cargo avalanche.

Government officials in Beijing are committed to spend 80 billion USD, over the next five years, for its “Go West” plan to develop the infrastructure network. They have also committed to expand their national rail network to 62,000 miles, from its current 45,000 mile level in the same period! Matching investments in the barge and river gateways will also keep pace.

Over the next seven years, more than a 150 new vessels will be built, with the majority of them topping the 8,000 TEU capacity. Just three years ago, the top capacity ship on the market was a measly 6,500 TEU!

Logistics Technology Blueprint for the Future
High-performing Chinese supply-chains of the future will integrate today’s legacy and server based applications with future technologies inherent to the Internet. These future platforms will have to manage the movement of product and information from origin to destination.

Collaboration across a network of trading partners, along with empowering individuals to make informed and intelligent decisions, on their client’s behalf, quickly…is tantamount to long-term success. To accomplish these goals (with speed, and reduced cost) will require a strategic technology framework that embraces multiple systems, and can readily incorporate new partners, vendors, suppliers, locations and services.

For the China market, the only way will be an ASP solution, which is the most expedient, cost-effective entry for most vendors and China focused 3PL’s. The core building blocks include:

1) A global data model, that uniquely reflects the supply-chain network, will provide a single version of “the truth” for customers, suppliers, vendors, and employees worldwide.

2) Future TMS platforms must provide the China market with distinct features and functions (not clones of what is being used in Germany or the United States) to manage shipment related tasks like booking, asset management, track&trace, freight auditing, etc.

3) The TMS platform must provide integration technology that ensures the automatic flow of critical information, which triggers processes across applications and partners.

4) The end-user experience must be one of user-friendliness, speed, and accuracy…along with after sales support that is unmatched and attuned to the China market specifically.

Finally, a Capital Consulting & Management Study this year determined that only 20% of companies that made investments in supply-chain related software in the last three years were satisfied with their return on investment!

The Chinese market is growing, and ready for more ASP solutions as they relate to TMS and logistics. Containerized export/import volumes will continue growing, over 20% on an annual basis, for the next 10 years. The Chinese government is going to spend billions of dollars to keep pace from an infrastructure perspective as well. The China client base is rich, diversified, with many industry cornerstones (3pls, ports, carriers, and vendors).

Everyone has a China strategy, but does it include easy access to all that data via an Internet based platform? Is your company willing to take the risk? Or, will it get stung by the ASP!

Foresight? Free Agents? Finally!

In warehousing and transportation operations, anyone can buy trucks, rent a warehouse, fill it with racking, forklifts and even the latest logistics systems…and still end up with a dysfunctional and failed operation.

How can your organization dodge this classic ending to a very old story? Here are a few suggestions:

Foresight: Taking into account all available knowledge and data, develop a vision and understanding of the task or operation to be planned. Then, stick to the vision and communicate it in a collaborative manner throughout the organization.

Qualify: Gather all available data to define requirements. They may include volumes, dimensions, weight, item counts and other related details. Adding up these factors leads to a cost/result, both quantitative and qualitative. Don’t get caught up in the current flurry of metrics, measurements, etc…just keep it simple. This will help the communication, and buy in of the vision.

Planning: The keystone of successful logistics and supply chain operation planning is based on a close approximation of the end requirement and ensures an optimal cost/result. For example, warehouse space and trucking requirements are directly proportional to the types/volumes of product, required storage/handling and processing (cross-dock, storage/picking, and so on). Again, common sense and logic will prevail, as they should.

Change Management: Changes affect the cost/result. If a warehouse is leased to support a flow-thru/cross-dock operation and all products suddenly require storage, a larger warehouse is needed, impacting staffing, materials handling equipment (MHE), fixtures, systems, and supplies. Hence, create an atmosphere of collaboration and embrace the chaos.

Free Agents: Most companies don't understand the costs and relationships of all factors relating to outsourcing. However, they can define their needs to an expert, stick with the plan and create profitability. Careful selection is important, based on previous personal experience or positive recommendations and references from other trusted sources. So, logistics professionals need not understand all the details involved in executing supply chain operations to be successful. Using solid, experienced third party firms to execute a logistics operation based on a well-defined and accurate requirement is crucial.

Use common sense, let logic be your guiding light, and use an open, honest platform of communication to create a collaborative success!

Mountaineers! 2006 Sugar Bowl Champs!

All I got to say is, Let's Go Mountaineers! 2006 Sugar Bowl Champs!

I simply can't believe it, but I will enjoy it while it lasts. What an awesome way to start out the new year!

I just got back from holiday, and I am trying to catch up, dig out. So, give me a few days and I will be back with some thoughts to kick off the new year.

Montani semper liberi!