A SUPPLY CHAIN GENERATION GAP?

As the so-called millennials are becoming the predominant members of the workforce, they are coming face to face with those baby boomers (51-70) who are continuing to work. An increasing percentage of the workforce is by-passing the traditional retirement age of 65, and working well into their seventies and beyond. The result is a generational void we should not ignore or criticize, but should understand and benefit from.

A few months ago, I was thumbing through a trade publication which featured a section on “pros to know”, or the magazine’s take on the current supply chain visionaries. Not surprisingly, while there were a few notable exceptions, the vast majority of the men and women listed were affiliated with a firm that offered some variation of supply chain technology. In another survey of chief financial officers, Duke University found that 70% of those surveyed felt that the advantage of hiring so-called millennials was their expertise in technology. So is there a gap between the older and younger supply chain generations? You bet there is. Obviously, there is no exact defining line between the two groups. Some younger practitioners may subscribe to the more traditional techniques; and I know several (OK, maybe a few) senior practitioners who have an excellent grasp of new supply chain technologies.

Regardless of our time in grade, most of us are familiar with such systems as those for warehouse and transportation management. They have been around for quite some time, although looking back, the early ones were fairly primitive. But today, the list of applications for supply chain is almost endless. There are sophisticated systems for managing labor, inventory, and the yard. There are voice order picking systems and speech recognition software. We have GPS, RFID, bar codes, clouds, wireless, Block chain, AI, digitalization, and 3D printers, not to mention our smart phones which give us almost instant connectivity. Obviously, with all this technology comes a new breed of supply chain practitioner. This vast reservoir of technology would be useless without those who understand it, relate to it, and can apply it effectively. This is where the gap exists – and a huge one it is.

As an adjunct supply chain instructor, I am constantly aware of what my students do not know and what they know that I don’t. They don’t believe me when I tell them that 25 years ago I paid a consulting firm several hundred thousand dollars to do a basic network analysis for my company. Most of them do not know that transportation was once regulated, but when we begin a discussion of some of the current technology, they quickly leave me behind.

So yes, there is a generation gap, and thank goodness there is. As the world becomes smaller, customers become more demanding, and channels of distribution change rapidly, without new techniques and technology, and the people who understand them, a supply chain manager’s task would be impossible.

As with every major change however, there is a risk; and the supply chain environment is no exception. Already, we have seen breakdowns in personal communication, sensitivity to our colleagues, fellow employees and subordinates, as well as other management skills that cannot be systematized. I see this as a huge risk for I believe strongly that the future belongs to the supply chain manager that can master the technology and at the same time maintain those attributes that are so necessary for effective human relations. For these, technology will never be a substitute, but perhaps the baby boomers can help smooth the edges a little.

Written By: Clifford F. Lynch

THE SAGA OF ELDs

Most in the industry are aware that most over the road trucks and buses are now required to be equipped with electronic logging devices (ELDs); but like many major changes in the industry, the journey to get there has been tortuous. Since 1938, bus and truck drivers have been required to keep logs of their activities while on duty. The logs have been kept in written form, and each day and hour within that day must be accounted for. Every time there is a “change of duty status” such as stops for sleep, fuel, loading or unloading, it must be recorded. The purpose of the log is to ensure that drivers are conforming to prescribed hours of service rules. Authorized government representatives and carriers can check the logs at any time.

Obviously, such a system was cumbersome, to say the least; but drivers were used to it. For several years however, there was a push to require the installation of electronic on-board recording devices, commonly referred to as ELDs. Finally, in 2015, after four long years of public listening sessions extended comment periods, and Congressional action the FMCSA published the long awaited rule. Since the rule was not to take effect until December 18, 2017, there was more time for appeals and protests. . ELDs had long been strongly supported by the American Trucking Associations and just as vigorously opposed by the Owner – Operator Independent Drivers Association (OOIDA). OOIDA pursued their efforts all the way to the Supreme Court, which declined to hear their appeal.

Under the new rule, every driver required to keep a Record of Duty Status must use an ELD to record his or her compliance with hours of service regulations. ELDs are advocated to aid drivers and improve accuracy and efficiency. Many advocates have suggested they will improve safety as well, by forcing compliance with hours of service rules. (It was assumed that many drivers fudged on their paper logs.) In 2014, the FMCSA reported that carriers using ELDs had about 12% fewer crashes, and hours of service violations were reduced by 50%. . Pilot programs had indicated that more accurate reporting actually resulted in productivity losses of 3 to 4%. However, a study by Transplace revealed that 81% of large fleets were already in compliance, and virtually all were working toward compliance. A number of smaller fleets had been unwilling or unable to move ahead with installation, and some were still hoping for governmental intervention right up to the last minute. It was expected that a large number of drivers would simply leave the industry.

So what happened? The new rules have been effect about 8 months, and enforced for about 5. The FMCSA reported that there have been few violations, and in May reported that less than one percent of roadside inspections uncovered drivers without ELDs. It would appear that most of the industry has gotten on board. According to a recent Journal of Commerce article, we have not seen drivers fleeing the industry, but we have seen transit times lengthen. Some one day trips have now been extended to next day. That would suggest that some drivers had to go over the line a little to make the one day trips. So while we may be losing productivity, it is not in the way everyone expected.

Even so, these extended transit times may cause shippers to take another look at their networks and shipment practices, particularly those who are operating the more severe customer service constraints we have today. While ELDs will cause some adjustments to be made by both carriers and shippers, so far it appears that they have had a positive impact.

Written By: Clifford F. Lynch

TURN YOUR CHALLENGES INTO OPPORTUNITIES

Unless he or she just returned from Mars, every supply chain manager has encountered, or certainly heard of the “Amazon Effect”. Driven by the aggressive customer techniques of Amazon, the term has come to stand for rapid and dependable service, often same day deliveries, free shipping, and instant visibility. To accomplish this, Amazon has established hundreds of distribution points in the country from which their shipments are made. Obviously, with the high level of service  provided, it is necessary to have inventories located closer to the buyers; but not every firm has an interest in, or can afford to establish hundreds of distribution centers throughout the United States.

As other sellers scramble to compete with Amazon, they are seeking alternate ways to do so. Wal Mart for example, fills some online orders from their stores, as do other retailers with diverse store networks. One option that surprisingly, is not gaining as much momentum as I would have expected is the establishing of inventories at the facilities of logistics service providers close to target markets. Outsourcing is not a new concept, but it seems that some managers and firms are just discovering it.  A white paper published a few years ago, stated that “outsourcing was formally identified as a business strategy in 1989.” Not too long after that, I had a young consultant inform me it was “invented in 1990.” (That’s scary.) These comments came as somewhat of a surprise to me since I have been involved in some form of outsourcing since the early 1960’s. While outsourcing has gained renewed emphasis in the last twenty years, the practice can be traced back almost as far as one would care to research it

In Warehousing Profitably author Ken Ackerman even suggests that one of the first business logistics arrangements is described in The Bible, Genesis, Chapter 41.This is an account of the seven years of plenty during which the people in the land of Egypt accumulated  crops for the predicted seven years of famine. The grains and other fruits of their labors were taken to public storehouses for safekeeping, after which they were distributed.  In Europe, a number of logistics service providers can trace their origins back to the Middle Ages. The first commercial warehouse operations were built in Venice, Italy in the 19th century. Merchants from all across Europe used them as collection and distribution points. In a nutshell, any person or firm that has ever subcontracted an activity has outsourced. For at least a hundred years, firms worldwide have found that outsourcing can be a solution for any number of distribution challenges.

Through the 1950’s and 1960’s the outsourcing of warehousing and transportation was common. The relationships for the most part, were short term; but there were other firms such as DuPont and Quaker Oats that had long – term outsourcing agreements. (The long term relationship between Quaker and Worley Warehousing for example, was an important component of the Quaker distribution network.)  During the 1970’s manufacturers placed heavy emphasis on cost reductions and improved productivity. Longer – term relationships became more common, particularly in the warehousing area. Single tenant facilities were built and operated by warehouse companies in major markets of the U.S. Consolidation of facilities into larger operations became more and more frequent.

The 1980’s brought with them a phenomenal number of mergers and acquisitions; and in many cases, firms found themselves with more distribution centers than any one company ever wanted. Consolidation became a necessity, and many of the new facilities were outsourced. By 1990, there was an increasing interest in outsourcing anything that was not directly related to a company’s core business. More and more companies came to realize that the real competitive edge was to be found in enhanced customer service and relationships, and many found outsourcing as an effective method of accomplishing this. By 1999, the entire country was caught up in the potential and mystique of the Internet. We hit a rough patch when too many order fulfillment logistics service providers were established, only to have a significant number fail when the bubble burst. Those who survived were both wiser and more conservative.

It was also about this time we began to see another wave of consolidation in the LSP industry, and users of these services found themselves dealing with different companies and individuals, as well as different cultures. Mergers introduced larger, and in many cases foreign entities into the outsourcing equation. Many of these alliances were an effort to respond to the increasing global needs of outsourcing firms.

The decade of the 2000’s brought us a bigger and better industry with more sophisticated providers and expanded services, particularly in the technology area. Today the industry continues to expand and concepts such as vested outsourcing, visibility enhancement, last mile delivery techniques, and other improved services have been installed. Outsourcing once again has emerged as a viable solution to another distribution challenge – the “Amazon Effect”.

Certainly the world and supply chain management are changing, but let’s keep in mind that we already have some tried and true techniques for meeting the new challenges. All we have to do is take advantage of them.

Written By: Clifford F. Lynch

THE CONTINUING INTERNATIONAL TURMOIL

As we wrote last month, negotiations for a new North American Free Trade Agreement (NAFTA) are not going well. President Trump has criticized the agreement repeatedly and succeeded in antagonizing both Mexico and Canada through the U.S. negotiating team. In spite of overwhelming support among U.S. businesses, we have delayed negotiations long enough that any action by Congress will be impossible before next year. By then, a new Congress and a new Mexican president could make an agreement even more problematic

If that were not enough to concern firms and consumers that would be affected, the president has started what could be a major trade battle, if not an all-out war. His philosophy is simple. If we penalize goods manufactured abroad, manufacturers and consumers in this country will be much better off. In principle, that sounds good; but most informed economists say it just does not work that way. Other countries will not sit idly by while we penalize products they are selling us. Let’s look at what has happened so far. It started with Canada and Europe when we imposed a tariff on steel and aluminum coming into the U.S. Canada struck back with a 10 percent levy on about $12 billion of U.S. products, including such things as chocolate, ketchup, soup, salad dressing, and beef. The European countries retaliated against motorcycles, whiskey, boats, and peanut butter. Mexico chose more than a dozen agricultural products, including pork, a major export to Mexico.

The most concerning contest of course, is with China. Last week, the U.S. levied a 25 percent tariff on $34 billion of Chinese exports to this country. Airplane parts and farm implements were the hardest hit. China immediately imposed tariffs on soybeans and automobiles. The soybean levies will be particularly hard on Midwest farmers who sell large amounts of soybeans to China. Currently, the U.S.  is threatening to penalize another $200 billion of Chinese products.

Although we buy much more from China than they buy from us, there are a number of ways they could retaliate. With China our number one supplier of toys, think about Christmas with the price of toys up 20-25%. It also would be very easy for the Chines government to penalize U.S. companies operating in China, organize boycotts, cut off student and tourist travel, or initiate other economic sanctions.

President Trump’s fantasy is that U.S. manufacturers will move back home, production will pick up here, employment will increase, and the economy will grow. Typically, what happens however, is that prices simply rise across the board, consumers are worse off, and no one wins.

For those companies who manufacture offshore, closing foreign operations would be easier said than done. Some firms have made huge investments in other countries and are not likely to readily abandon them. For the supply chain manager, these international conflicts become just one more issue with which he or she must contend. Changing product origins has an impact throughout the pipeline, and adds a major complexity to the supply chains of those companies affected.

Written By: Clifford F. Lynch

THE STATE OF LOGISTICS – 2018

On June 16, the Council of Supply Chain Management Professionals (CSCMP) released the “29th Annual State of Logistics Report”. This year’s report was entitled Steep Grade Ahead .The SOL report was launched in 1988, by the late Bob Delaney, one of the leading supply chain experts of that time; and after his death carried on by Rosalyn Wilson until 2015. Since that time, A.T. Kearney has performed the research and published the results. The complete report can be found at www.cscmp.org, and is free to members of the organization. Since non-members are charged $295, this week, I wanted to publish a brief summary of the report for those who might not see it otherwise

2017 business logistics costs totaled $1.5 trillion, or 7.7% of Gross Distribution Product. Expenditures were up 6.2% y/y, and the percentage of GDP was slightly higher than last year’s 7.6%. At the same time, GDP grew about 2.9%. Expenses for every category were up, ranging from 1.1% for water to 10.7% for rail intermodal.

2017 y/y?
Motor Carriers $641.4 B 7.8
Rail 80.5 8.2
Parcel 99.0 7.0
Airfreight 67.2 3.1
Water 41.0 1.1
Pipeline 36.4 5.8
Inventory Carrying Costs 428.0 4.6
Administration 101.2 4.9

ATK chose the title of this year’s report considering the fact that carriers continue to control the marketplace and are expected to do so throughout 2018. Demand is exceeding supply in every sector.

E – Commerce continued to grow by double digit percentages, and growth should continue at the same rate. Not surprisingly, the report indicated that Amazon is continuing to “raise the bar” as far as customer service expectations are concerned. It further suggested however, that on-line sales growth may be slowed somewhat by the lack of infrastructure capacity necessary to accommodate the tighter delivery requirements.

Although relationships between shippers and providers are becoming more common and more important, in the warehousing sector customers still are focusing on short term cost cutting rather than long term strategic partnerships. This was disappointing; and I believe as capacity becomes tighter, this could be detrimental to those firms concerned only about cost.

Looking ahead, ATK expects five trends to shape the logistics future,

  1. Strong macroeconomic growth, fueled by strong labor and tax cuts.
  2. Costs will rise as interest and fuel costs increase.
  3. Changing demand patterns and new competitors will “challenge old business models”.
  4. A fully digital and flexible supply chain, optimized for E – Commerce and tight delivery demands will be essential.
  5. Technology

For the past year, most reports on the subject of logistics have made some mention of blockchain, and this one was no exception. Kearney believes blockchain has application in three supply chain areas:

“simplifying payments and cross-border transactions; tracking goods as they move through the supply chain, and establishing the provenance and integrity of goods.” In spite of the hype about blockchain however, adoption will be slow. There are several reasons for this, but the major hindrance will be the lack of common standards. In this regard, it will not be unlike the standardization that was necessary to facilitate Electronic Data Interchange (EDI) several years ago.

For those who have access to the full report, a review of the document would be very informative..

Written By: Clifford F. Lynch

NAFTA NEGOTIATIONS ARE A STRUGGLE

Those of us who followed the presidential election campaign will recall that one of President Trump’s commitments, if elected, was to pull the United States out of the North American Free Trade Agreement (NAFTA). First proposed during the Reagan administration, NAFTA was signed into law by President Clinton in 1993. It is an agreement among Mexico, Canada, and the United States which removed trade barriers among the three countries. With a combined GDP of $20 trillion, NAFTA is the world’s largest free trade agreement; and today, trade among the countries exceeds $ 1 trillion. By all accounts, NAFTA has been very beneficial to all three countries, but President Trump called it the “worst deal ever”, citing the loss of manufacturing jobs in the U.S., resulting from the agreement.

Shortly after the election however, after calls from President Pena Nieto of Mexico and Canadian Prime Minister Justin Trudeau, Trump agreed to renegotiate rather than withdraw. Negotiations began last year; and so far there have been seven rounds of negotiations with no end in sight, even though an agreement was expected to be finalized early this year. Many feel that the president should have left well enough alone and that his assumptions about the agreement were either premature or incorrect. It is true that some U.S. firms have moved manufacturing to Mexico; and lately, as wage rates increase in Asia, and political and human rights issues continue to be problematic, more firms are considering returning closer to home. Mexico has emerged as the country of choice for many.

After the passage of NAFTA, the automobile manufacturers were early entries into the Mexican market. Mexico accounts for about 20% of North America’s auto production, up from 3% in the 1980’s, and is expected to reach 25% by 2020. Honda, Nissan, Audi, Ford, General Motors, and Chrysler all manufacture in Mexico, and the industry has set the pace for other industries through their labor education and quality initiatives. Obviously, the auto makers have profited from NAFTA because of the lower wage rates they have enjoyed, and would stand to lose if a tariff was slapped on each auto they sent to the U.S.

But did NAFTA cost us jobs? According to the Economic Policy Institute, about 800,000 jobs were lost to Mexico between 1997 and 2013; but it is not that simple. This is far less than the number of jobs that have been created by NAFTA. The U.S. Chamber of Commerce estimates that about 6 million jobs depend on trade with Mexico, and there have been studies that show that we have lost more jobs to automation than to Mexico. On that note, many feel Trump’s emphasis is misplaced. According to a recent report from Pricewaterhouse Coopers, 38% of U.S. jobs are at high risk of being replaced by automation over the next 15 years, far more concerning than Mexico.

Most informed experts believe that terminating NAFTA would be disastrous. In a recent presentation to a Canadian business audience, Tom Donahue CEO of the U.S. Chamber of Commerce said, “Withdrawing from NAFTA would be devastating for the workers, businesses, and economies of our countries”.

In any event, the negotiations have taken so long there is no way Congress can make any decision on recommendations before 2019. By then, we will have had mid-term elections, Mexico will be electing a new president, and negotiations could take a totally different direction or be abandoned altogether. In the meantime, the president continues to antagonize our other trading partners, especially Canada.

In my opinion, killing or weakening NAFTA would be a big mistake. It could cost us millions of jobs that depend on the trade with Mexico, and if Mexican costs rose because of it, companies would not just shut their doors and move back to the U.S. They probably would take a hard look at the next cheapest country. Somehow, antagonizing our next-door neighbors doesn’t seem like real good politics to me, especially when they bring so much to the table.

Written By: Clifford F. Lynch

THE POTHOLE PROTECTORS

I am sure it won’t come as any great surprise to anyone that we will not be seeing infrastructure legislation coming out of Washington this year. With the mid-term elections coming up in November, members of Congress are far more interested in campaigning and working on legislation that will make them more popular with their constituents.  Infrastructure improvement, or more accurately, infrastructure funding is not one of those favored activities.

Such things are not uncommon in election years, but our problem seems to be that with some major election every two years, Congress seems to find it difficult to get much accomplished between them. This year could be even more problematic. If the November elections result in a major shuffle of Democrats and Republicans, we could see infrastructure pushed back to Square One.

The infrastructure plan presented by President Trump in February, was disappointing to many in that it proposed using Federal dollars as incentives to encourage the states and private interests to pay the rest of the bill. During the campaign, we had been promised a $1 trillion plan, and most believed that a much larger portion of it would come from the Federal government. It is clear now that is not going to happen. Nor does Congress have an appetite for increasing the fuel taxes that go into the Highway Trust Fund. This fund is the major source of money for improvements to roads and bridges; but according to the Congressional Budget Office, between 2021 and 2026, the fund will face a deficit of $204 billion annually.

The fuel tax has not been increased since 1993; and despite pleas from truckers, the United States Chamber of Commerce, and others, Congress has consistently refused to raise the tax. Even if they did, we will continue to see deficits due to better gas mileage and electric cars and trucks. We desperately need some new thinking and some new funding ideas; but this does not appear to be the year we will get them. In the meantime, according to the American Trucking Associations, the trucking industry experiences $50 billion annually in congestion expenses. And, this is in a country that can fly to other planets, produce autonomous vehicles, and sail self-propelled boats. If it were not for safety considerations, our newer aircraft would operate without the luxury of a pilot. At the same time, we seem to be gridlocked when dealing with things like potholes. In any event, it will be at least another year before we see any Federal program.

The saving grace for some states has been the fact that they have pushed ahead and increased their own fuel taxes as a means of funding necessary improvements. Now, we have a new possible source of income for the states that choose to use it. The United States Supreme Court has made it possible for states to legalize sports betting. (Sports gambling in Nevada, where it is already legal, totals $4.9 billion annually; and across the U.S. the illegal sports betting market is about $150 billion per year.) For the states, tax income can increase significantly if they choose to legalize sports gambling. Four states already have – betting on this decision. Experience in states earnings taxes from casinos, has shown that gambling can be a significant source of funds.

Despite this possibility, the Federal government needs to act. The maintenance of a highway system sufficient to meet the country’s needs is a Federal responsibility., and our government should step forward and meet this obligation.

Written By: Clifford F. Lynch

BE DILIGENT IN OUTSOURCING FREIGHT BILL AUDIT AND PAYMENT

For over fifty years, firms have outsourced the audit and payment of transportation freight bills. While not at the top of the list of outsourced functions in the supply chain industry, one third of the North American respondents in the 2018 Third Party Logistics Study indicated that they outsource the activity.

There are significant advantages to outsourcing freight bill audit and payment (FBAP). The auditing and analytical capability of a competent provider can be extremely helpful in managing transportation function. Because of the large amount of funds that flow through the process however, extreme care should be exercised. Several years ago, the industry suffered a blow when two large freight bill payment companies left its clients with over $25 million in unpaid freight bills. One of these situations was at least partially, a result of embezzlement.

Fortunately, most of the firms in the industry today are financially sound, well-managed businesses, and we don’t want to throw the baby out with the bath water. Even so, good risk management techniques, as well as common sense, dictate the importance of thorough financial due diligence in selecting a provider. Remember, if the provider doesn’t pay the carriers, you as a client are liable, even if you have already advanced the funds.  Keep in mind also, that the FBAP industry is not regulated, making it even more critical to investigate, analyze, and verify.

While nothing can be outsourced without some risk, I believe there are fifteen considerations that can minimize the financial risk of outsourcing FBAP.

  1. Insist on inspecting audited financial statements – even if the firm is privately held.
  2. Investigate the reputation of the auditing firm used by the provider.
  3. As a client or prospective client, make sure that the statements and other documents are examined by qualified financial personnel.
  4. Investigate the reputation of the senior management of the FBAP firm.
  5. Ensure that the firm’s financial controls are tested at least annually by an independent auditor.
  6. Be sure that the funds of your firm are not comingled with those of the provider.
  7. Understand the float and its impact.
  8. The provider should have a fidelity bond which would cover possible embezzlement of client funds by employees.
  9. Detailed background checks should be made on all new employees, and credit checks should be conducted on all that would have any access to funds and/or cash management.
  10. There should be a separation of duties in accounting and cash management functions to ensure that a single employee or group of employees cannot manipulate funds or bypass controls.
  11. Verify carriers.
  12. Finally, and most important, the client should manage the relationship, not leave it to the provider.

If the client firm is large or if the amount of freight charges involved is particularly significant, there are two other controls that may be considered.

  1. Explore the possibility of establishing minimum limits on financial assets.
  2. Consider the practice of awarding contracts only if the value of the contract is below a certain percentage of the provider’s total revenue.

If you still have concerns, you might want to consider the following.

  1. For maximum protection of your funds, retain the firm to provide only the audit and analytical functions and actually pay the bills yourself. This approach will not be met with enthusiasm by the provider, but can be a safe compromise.

The outsourcing of freight bill audit and payment is an important financial step for an outsourcing firm and should be treated as such. These arrangements often are complex

and can remove significant amounts of client funds from their control. Financial due diligence must be at the top of the list when qualifying potential providers. While no outsourcing arrangement is absolutely risk free, the client should try to ensure that its funds are as safe as they would be under its own management and control.

Written By: Clifford F. Lynch

LET’S HAVE A LITTLE EQUITY

There has been a considerable amount of discussion lately about what appears to be a pending trade war with China. In an effort to “protect American business”, President Trump has announced his intention to levy a 25% duty on over 1300 hundred products currently imported from China. China immediately called the bluff and promised a 25% tariff on approximately 100 items American businesses sell to China. Farmers are especially irate about the inclusion of soybeans in the list, as soybeans are the country’s second largest export to China. Midwestern states would be affected significantly if the scenario plays out. The president’s concern is the protection of American businesses from those countries he fells are undermining our industries.

Tariffs have always been controversial because of their retaliatory nature. Every time a country levies a tariff on goods from another country, the aggrieved nation responds in kind. Many economist believe the entire exercise is counterproductive and yields very little positive results. Few would argue that the protection of American industry is not a worthwhile objective; but while we are embroiled in the U.S. – China tariff argument, there is another subsidy that has received little attention until recently. Many manufacturers and consumers have been curious about how a shopper can order a product from Amazon that will ship from China with free delivery or a minimal shipping charge. The answer of course, is subsidy by the post office; but not the Chinese post office. It is our very own USPS that is subsidizing these cheap movements.

President Trump blames Amazon for paying so little postage on domestic shipping to a floundering USPS, but the problem is in our own Washington back yard. In 2011, the post office made an agreement with the postal agencies of China, Hong Kong, South Korea, and Singapore to allow small packages to be sent to the U.S. at very low rates. This option is called the ePacket, and the rates are so low that packages from these countries can move much more cheaply than domestic ones. Wade Shepard, in a recent article for Forbes, cited an example of how the postage on a one pound package from Beijing to New York is $3.66; but shipping it in the reverse direction would cost about $50.00.  (Forget about returning anything.) Moving the package domestically would average about $6.00. But why would the USPS ever make such a deal?

International postage rates are actually set by the United Postal Union (UPU), a U.N. agency established in 1874. One hundred ninety two countries meet every four years to set postage rates. Countries that are considered to be poorer or underdeveloped pay less than those who are not. China, believe it or not, is considered a poor country. If the ePacket rates were abolished, postage rates would revert back to the UPU levels which are even lower.

Finally, just last week, in an effort to provide some equity, a bill was introduced in Congress called the Ending Needless Delivery Subsidies (ENDS) Act. This bill would force the Secretary of State to negotiate the end to all international postage subsidies by 2021. This appears to be a good step toward providing at least some protection to American vendors. There still will be issues of cheaper foreign labor and other resources, but at least we would have a more level shipping playing field. Amazon gets blamed for a lot of disruption, sometimes well deserved, but this one is not on them.

Hopefully, this new bill will move through Congress quickly. Not only would it help American suppliers, but it would make a dent in the continuing, horrific USPS losses.

Written By: Clifford F. Lynch

SPOILER ALERT

For over a year, industry pundits have predicted that in 2018, we would experience a significant increase in rates for both truckload and LTL shipments. Many were predicting another “perfect storm”.  While I think the storm might have been somewhat overstated, it appears that basically, they were correct. ACT Research has said “Clearly, truckers are entering 2018 in the best negotiating position in many years”. The expected general rate increases have been announced at 4-6%, but it looks as if we will go well beyond these. According to Bloomberg, spot rates through March 23, were 28% higher than the same period last year. FTR Transportation Intelligence predicts that even the longer term, more stable contract rates will rise by 12% this year. This compares to about 4% in 2017. While there are several reasons for the increases, i.e. weather, higher demand, etc. the most often discussed are the lack of capacity and the competition among carriers for qualified, responsible drivers.

Earlier this year, the Washington Post, following a survey of 1600 shippers, concluded that trucking capacity (or lack thereof) would be the industry’s “primary hurdle” this year. Much of the blame for the capacity shortage has been laid at the feet of the Electronic Logging Device (ELD) mandate. Since they were first suggested several years ago, it has been predicted that they would result in decreased capacity. After several attempts to block their installation, they finally were mandated to be in place by December 18, 2017. Strict enforcement however, was to be delayed until April 1, 2018. Most large carriers installed theirs years ago, but the smaller carriers and particularly the owner-operators, have resisted right down to the wire (and beyond). With full enforcement in effect, a broader adherence to the driver hours of service rules is expected, which in turn will reduce capacity. The log “fudge factor” has been taken away. It is hard to believe that forcing drivers to comply with the rules will make that much difference, but capacity losses have been estimated to be between 4 and 7%. We will know more as we get more experience. It is clear now however, that more drivers will be needed to meet the current demand.

The second contributing factor is the competition for qualified drivers. Rarely, is a capacity problem caused by lack of equipment. More often than not, it results from the lack of drivers to operate it. The shortage of drivers is well known, and I won’t belabor it here. There is an underlying issue with which we deal every day. Now however, as carriers start to compete for those in the driver pool, salaries finally are increasing. Carriers willing to pay more are finding their capacity issues reduced. Those who are not are paying the price through loss of business and increased driver turnover. According to the American Trucking Associations (ATA) driver salaries rose 15-18% from 2013 – 2017. A private fleet driver now can earn as much as $86,000 annually, plus benefits. Salaries for entry level truckload drivers have risen 15% from 2013, to about $53,000. A number of carriers have added several cents per mile to driver compensation, and some are offering substantial “sign up bonuses”.

An interesting contradiction to the driver shortage is the fact that carriers are ordering new equipment at a rapid pace. During the first three months of this year, they ordered about 134,000 heavt duty trucks – almost double last year’s purchases for the same period. The new tax laws have freed up cash for many which is being used to upgrade fleets and add capacity.

Hopefully better pay and more equipment will help negate the driver shortage and the capacity shortfall in the entire industry, but the improvements will come at a price that will ultimately be paid by the shippers.

Written By: Clifford F. Lynch