Top 10 News/TrendsYou Need To Know

Michael LevansEditorial DirectorLogistics Managementwww.logisticsmgmt.com

Top 10 News/Trend Stories

• 1) The Hike in Freight Rates Across All Modes• 2) HOS Saga—The Ups and Downs• 3) Software Vendor Consolidation

(Oracle/PeopleSoft)• 4) RFID Initiatives Roll On• 5) Diesel Fuel Price Roller Coaster• 6) Continued Truck Driver Shortage• 7) Growth in Global Logistics/Imports Continue to

Climb (China)• 8) Port Congestion/East Coast Diversions• 9) Growth of Global 3PL Industry• 10) CLM Name Change

1) The Hike in Freight Rates Across All Modes

• Will be the predominant news story over 05• Most recent story: Logistics Outlook 2005:

The Money Pit/LM Jan. 05

• Exclusive LM Research found that “shippers feel they're being sucked into a vortex of higher prices, with no way to escape.”

1) Why? It’s been a confluence of events• Labor shortages (drivers), regulatory

costs, record-high fuel prices, and rising demand that's outstripping capacity.

• Current conditions have pushed up carrier costs, forcing them to raise their rates

• No relief in sight: “We have a recovering economy with demand coming up, and we're out of capacity in every mode across the board,” says Lee A. Clair, a partner in Norbridge Inc., a management consulting firm based in Concord, Mass.

1) Rate Hikes

• In a December 2004 LM survey, shippers told us that they’re still struggling with rapidly rising freight rates and inadequate freight capacity.

• They’re expect no relief from high rates in 05• 52 percent blaming high fuel costs• Half of the shippers said they experienced

less availability of freight services during the fall quarter with only 14 percent reporting improved availability

2) HOS Saga—The Ups and Downs• Recent Story: Meet the new HOS rules,

same as the old rules/LM Feb. 05

• New Hours of Service (HOS) rules took effect January 2004

• Old Rules: Drivers were restricted to 10 hours of driving time during a 15-hour on-duty period

• New Rules: Drivers allowed to drive 11 hours during a 14-hour on-duty period

2) HOS Saga• Under the new HOS standards: Drivers limited to 60 hours on

duty over seven consecutive days, or 70 hours over eight consecutive days. Driving cycle may begin after a driver has been off duty for at least 34 consecutive hours

• However, drivers are continuously on the clock while on duty• Goal: Decrease driver fatigue, increase safety• Impact: Drivers under the gun, shippers need to be ready to

reduce dock time to get drivers back on the road. • In the first quarter of this year, truckload rates began to rise

and carriers started billing shippers for higher stop-off charges and vehicle-detention fees—and that was on top of already-increased fuel surcharges

• 75 percent of the respondents to a Logistics Management survey of truckload shippers, conducted in the first quarter of this year, told LM that their rates had risen since the HOS rules went into effect

2) HOS Saga• Last Summer: Safety advocacy groups successfully

challenged the rules, saying there was no scientific evidence proving that the rules increased driver safety. The U.S. Court of Appeals for the District of Columbia Circuit threw out the rules in response to a lawsuit filed by a coalition of safety groups

• Last Month: The Federal Motor Carrier Safety Administration (FMCSA) republished the current rules and asked for public comment on how those rules could meet judicial concerns about the impact on driver health. “What we’re asking is for public comment on what changes to the rules may be necessary to respond to the concerns raised by the court,” said agency spokesman David Longo

• Safety groups say this won’t do… The FMCSA has a deadline of September 30 to resolve the matter. The new rules remain in effect….the saga continues

3) Software Consolidation (Oracle, PeopleSoft)

• Recent Story: News Section/LM Jan. 05

• While analysts say that the acquisition will create little more than a ripple in the $5 billion supply chain software market, it could lead to a choice “erosion” for shippers

• In December, Oracle, known for its financial and database software, won its 18-month fight to buy PeopleSoft by raising the acquisition price to $10.3 billion

• Oracle launched takeover bid just after PeopleSoft announced that it had bought software vendor J.D. Edwards & Co.

• PeopleSoft: Reputation in human resources and financial reporting

• J.D. Edwards: Active in the supply chain software market

3) Software Consolidation

• Prior to its bid for PeopleSoft, Oracle began to develop its own supply chain execution and planning applications

• Now it can offer those solutions as well as those from J.D. Edwards

• Impact: So-called “best-of-breed” vendors have developed the execution programs commonly used in logistics—warehouse management systems (WMS) and transportation management systems (TMS). The so-called "best-of-breed" WMS and TMS could find themselves competing against the big ERP players (Oracle, SAP)

• "Everyone foresees Oracle merging these solutions into a common platform one or two years down the road," says ARC’s Adrian Gonzalez.

• "SAP and IBM...have been unable to come up with anything. Most people are staying with standard WMS packages from folks like Red Prairie and Manhattan,” says analyst Richard Armstrong

• The “best-of-breed” vendors will need to stay sharp and focused

3) Software Consolidation

• Quick News Note: Global finance giant JPMorgan bought Vastera in a deal worth some $129 million last month

• Vastera offers software packages to automate the process of global trade

• Vastera had begun offering services to shippers, taking on the duties traditionally associated with custom brokers

• Analysts believe that JPMorgan will try to sell software and trade management services to its roster of international clients, who already use the international bank for letters of credit

4) RFID Initiatives Roll On• Won the “Most Ink” award in 2004• Recent Story: Beaver Street Fisheries moves RFID

upstream/LM. Feb 05

• Back in 2003, Wal-Mart announced its RFID initiative, mandating that it’s Top 100 suppliers be ready to ship RFID tagged cases and pallets by January 1, 2005

• Why: Offers total “visibility” of its supply chain and offers ultimate inventory control

• Impact: Suppliers asked, “How much will this cost, where’s my ROI?”

4) RFID Initiatives

• The January 1 deadline date passed for Wal-Mart’s top 100 to begin tagging shipments to three Texas DCs, early perceptions and forecasts are turning into business realities—and presenting a couple of surprises

• One “misunderstanding” was that the top 100 need to have 100 percent of their SKUs tagged.

• A recent ARC Advisory Group report found that Wal-Mart suppliers are tiptoeing into tagging, with most respondents reporting that they’re shipping fewer than a dozen tagged SKUs.

• A separate Logistics Management reader survey found that 61.5 percent of responding shippers taking part in the mandate are shipping less than 25 percent of their SKUs tagged.

4) RFID Initiatives

• Does this mean Wal-Mart is actually being flexible? Wal-Mart spokesman Gus Whitcomb told us last month that the mandate has been widely “misinterpreted” due to the excessive coverage, and top suppliers are implementing tagging programs that are actually realistic

• Beaver Street Fisheries (Jacksonville, Fla.) are bending the perception that mandate compliance is only for the rich and powerful

• Howard Stockdale, the seafood distributor’s CIO, called Wal-Mart’s CIO, Linda Dillman, and asked if Beaver Street could volunteer for the RFID program

• The company’s is now tagging five percent of its SKUs it ships to Wal-Mart, making Beaver Street the first company outside the Top 100 to take part

• DOD, Metro, Target….the list grows…

5) Diesel Fuel Price Roller Coaster

• Recent Story: The Money Pit/LM Jan. 05

• Rising fuel prices have affected shippers across all modes

• Truckload shippers experiencing sharpest increases

• Shippers have signed transportation contracts that allow their truckload carriers to pass on higher fuel costs in the form of fuel surcharges

5) Fuel Prices

• Comments from the field: Wayne Yee, president of Spectrum Transportation Consultants (Fall River, Mass., tells us that fuel represented 24 percent of his client’s truckload costs on some lanes in 2004

• Mike Regan, chief executive officer of Tranzact Technologies, a transportation software firm (Elmhurst, Ill.) told LM that he’s seen surcharges of 16 cents per mile in some cases

• Shippers should count on paying more to move their goods over the highways even if diesel prices hold at about $2 a gallon

6) Continued Truck Driver Shortage• Most Recent Story: News Section/LM Jan. 05

• Why: It’s a tough job. Finding good drivers and keeping them has already become the TL industry's top priority

• Driver turnover rates of 100% or more are common in the industry

• New drivers think it’s the ultimate freedom (Cowboy)

• In reality, you’re a hard working, small business operator on the go

• It started around the second quarter of 2003, and it's become increasingly difficult due in large part to the continued success of the construction industry.

6) Driver Shortage

• Quick News Note: In December, Schneider National announced that it will raise pay rates for both its own drivers and owner-operators

• Schneider says it will raise rates for its 3,000 independent owner-operators to 90 cents per mile plus fuel surcharges. Owner-operators’ compensation packages will include discounts for business expenses, such as fuel and equipment

• The carrier says its in-house workforce of more than 12,500 non-union drivers will receive an average pay increase of $4,000 per year as well as new shorthaul premiums and higher rates for such non-driving items as detention time

• Impact: Could trigger a new round of wage and rate hikes as motor carriers scramble to compete for drivers in a tough labor market

7) Growth in Global Logistics/Imports Continue to Climb (China)

• MUST READ: The two faces of Globalization/LM July 04 Cover Story by Executive Editor James Cooke

• LM’s State of Logistics Report 2004 covered this in great detail

• In short: As production continues to shift to lower-cost manufacturing sites, U.S. companies will have to rethink inventory holdings and positioning while managing higher international transportation costs

• All indicators point to higher volumes of international shipments due to increasing global trade

• Impact on domestic capacity is immense, yet often overlooked as an issue

• (See #8)

7) Global/China

• China: China is the dynamo driving much of this trade growth.

• Economic growth seems unstoppable: It’s imports expanded by 40 percent and its exports grew 35 percent in terms of value over the course of the last year.

• Almost every statistic points to momentum in sales revenues and market share; nearly every headline trumpets greater opportunity for foreign investors

• Much has to do with deregulation initiatives of the central government in Beijing

7) Global/China

• China’s domestic logistics sector is enjoying a period of spectacular growth.

• Transport Intelligence Ltd. China Logistics Report, predicts compound annual growth rates of 33 percent up to 2007

• This will be supported by the outsourcing of logistics functions as the practice gradually gains credibility and as more sophisticated logistics companies enter the market. (U.S. and “foreign” companies partnered/and partnering)

7) Global/China• However, many reports warns of the strong

possibility of significant macroeconomic upheaval• Soaring labor costs and consequent unemployment

(particularly affecting state-owned enterprises) could badly hurt logistics companies that have invested significantly in China

• LM’s 2005 China Logistics Conference: Virtual event on Thursday, April 28

• State of Logistics Report: The industry will have to find innovative ways to adapt to growing trade, rapidly changing supply markets, and constrained capacity. The new solutions will include ever-increasing information sharing and more individualized supply chain planning

8) Port Congestion/East Coast Diversions

• Most Recent Story: Tight Squeeze/LM Jan. 05

• What’s globalization’s impact on the U.S. logistics infrastructure?

• Look no farther than the ports of Southern California

• By mid-October, as many as 40 container ships were anchored off the Southern California coast

• The ports of Los Angeles and Long Beach (LA/LB) were taken to task for having an insufficient number of dockworkers to handle the 12.8 million TEUs (twenty-foot equivalent units) that were projected to pass through their gates in 2004

8) Port Congestion/Diversions

• Logistics Management surveyed readers in early November: 58 percent of the respondents said they had been affected by the backup at West Coast ports.

• Those respondents reported experiencing an average delivery delay of 6.5 days.

• Sixty percent reported that their intermodal rates increased in the last quarter of 04 as capacity tightened; and 38 percent predicted that the combination of all these factors would cause them to lose fourth-quarter sales.

• Of significant interest for the port community: 54 percent of the shippers who were experiencing delays were taking steps to lessen their dependence on their traditional ports of entry

8) Port Congestion/Diversions

• For U.S. importers, port-of-entry diversions to the Pacific Northwest ports and shifts to East Coast all-water routes (through Panama Canal) were turning into permanent solutions

• Port diversion is becoming a viable, long-term answer to congestion because two necessary pieces of the transportation puzzle are now falling into place:

• First, Gulf and East Coast ports are gearing up to handle double-digit growth in container volumes

• Second, the Panama Canal—which in October and November saw a 7.1-percent tonnage increase over the same period in 2003—is slowly but steadily developing the ability to handle more traffic, despite recent backlogs

8) Port Congestion/Diversions

Ports to watch:• Tacoma: This month opened the Pierce County

Terminal, a new 171-acre mega-container terminal built on 51-foot deep water of the Port's Blair Waterway. The terminal features five super post-Panamax ship-to-shore container cranes—among the largest in the world today. The cranes were purchased by Evergreen

• Houston: Wal-Mart is about to open an $80 million distribution center (DC) near the Port of Houston

8) Port Congestion/Diversions

Ports to watch:• Mobile: Construction will soon begin on Mobile's first container

port, slated to open in 2007. “We'll never develop into an L.A., but we can take a part of the load that's coming through and handle it cost-effectively,” says Alabama State Port Authority Director/CEO Jim Lyons.

• Savanna: “In fiscal year 2003 [during the West Coast labor problems] we saw a 31-percent increase in containers…and we thought we'd see that business going back to the West Coast in 2004," says Robert Morris, GPA's director of external affairs. But they didn’t. “Not only did we keep that business, but we grew another 7 percent on top of that."

• In October 2004, in fact, the Port of Savannah handled the largest monthly container volume in its history.

• To manage this: Shippers will need to make intermodal more of a year-round solution to make sure there’s capacity balance….Keep your eye on Panama Canal improvement news in 2005….

9) Growth of Global 3PL Industry• Most Recent Story: Duel Perspectives/LM Jan. 05

• #7 and #8 and are key drivers• To drill down the core: Dr. Robert C. Lieb,

professor of supply chain management at Boston's Northeastern University, and Brooks A. Bentz, associate partner at the consulting firm Accenture, surveyed logistics executives of U.S. manufacturers on their use of third-party logistics

• According to Lieb and Bentz: U.S. manufacturers have become huge global players, and the scope and complexity of their outsourcing needs may exceed providers’ capabilities

• "The customers have become more global than the 3PLs," says Bentz

9) Global 3PL Growth

• Respondents made it clear that 3PLs need to boost their global capabilities

• Shippers typically prefer to use their current providers when entering new markets or expanding in existing ones

• That's putting pressure on providers as the percentage of shippers using 3PLs in regions like India, China, and Eastern Europe continues to increase

• Now that many Eastern European countries have joined the European Union, that area will be a testing ground

• Nearly one-third of the manufacturers said they would expand their operations in Eastern Europe, and almost all of them said 3PLs would be "important" or "very important" in supporting their logistics strategies there

9) Global 3PL Growth

• The 3PLs are well aware of this trend• Ten of the 23 3PL CEO respondents to the

Lieb/Bentz study ranked "increased pressure to internationalize service offerings" among the most important industry dynamics in their industry.

• "Providers should be developing market-entry strategies, identifying potential alliance partners and acquisition targets in China, India, and the expanded EU, and defining the appropriate service package to be offered in those markets,” says Lieb

10) CLM's Name Change

• Most Recent Story: CLM name change incorporates holistic view/LM Aug. 04

• On January 1, 2005 the Council of Logistics Management (CLM) changed its name to the Council of Supply Chain Management Professionals (CSCMP)

• Reflects the holistic role that modern logistics professionals play

• The organization will continue its efforts in logistics education, but will also focus on procurement, manufacturing, and sales and marketing

• “People in our profession now have an expanded and more critical role within our companies than we did ten or even five years ago…Our roles have evolved, which is why CLM is changing to reflect what's happening in the supply chain,” says CSCMP President Elijah Ray.

Read Logistics Management, surround yourself with people who know what they’re talking about, and ask questions.

Feel free to drop me a line:

michael.levans@reedbusiness.com