Better Options for Expedited Air Service to Address Capacity/Congestion Issues

Despite its leading role in global manufacturing, China has a first-rate problem when it comes to reliable air service options.  Namely, that its two major airports, Beijing and Shanghai, rank dead last and next-to-dead last in terms of on time departures.  Flights taking off from Beijing were delayed 82 percent of the time during 2013, with a 71 percent late departure rate for Shanghai.

While many factors are at play in causing the delays – poor infrastructure, tightly-controlled air space, increased regulatory and security mandates, and overcapacity – the impact is taking a toll on supply chains dependent on goods arriving from China.

This is especially true for urgent, time-sensitive products traveling as “expedited” shipments, for which a premium price has been paid to ensure an on-time arrival.  Expedited shipments range from machinery parts that must arrive at a North American factory in time to avert an assembly line shutdown, to a shipment of desperately-needed temperature-controlled vaccines, to any range of reasons a shipment needs to be delivered as fast as humanly possible.

But as the China example makes clear, external factors are affecting expedited service providers’ ability to guarantee delivery times.

The good news though, is that innovative expeditors are finding ways to offer creative options to circumvent those external factors.  A new white paper from Purolator International, “Expedited Air Service:  Innovative Logistics Solutions for High-Value, Most-Urgent Shipments,” discusses some of the more compelling new options.

For example, many businesses are finding air charter services, generally thought of as cost-prohibitive, to be a highly efficient alternative.  Air charters allow an expeditor to customize a flight plan, so that busy, notoriously congested airports can be avoided.  Instead, a shipment can travel via a less congested alternative, such as a regional airport.  Or, a shipment can travel through a country with a more efficient customs clearance process, or that has a favorable trade agreement in place with the United States.

Expedited air service is a premium solution that offers on-time, seamless delivery.  As Purolator’s white paper makes clear, new solutions can help a service provider facilitate delivery of those high levels of performance.

Please click here to download a complimentary copy of “Expedited Air Service:  Innovative Logistics Solutions for High-Value, Most-Urgent Shipments.”

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U.S. Businesses Fail to Claim more than $2.4 Billion Annually in Drawback Reimbursements

U.S. businesses are legally entitled for reimbursement of up to 99 percent of duties paid on qualified goods that are imported into the U.S., but then subsequently exported or destroyed.

So why do more than $2.4 billion in eligible reimbursements go unclaimed each year?

It’s complicated.  That is to say the process for seeking reimbursement is complicated, so most businesses don’t even try to claim the monies to which they are legally entitled.

The process for seeking duty reimbursement is called “duty drawback,” and is administered by U.S. Customs and Border Protection (CBP).  Drawback has actually existed in the United States since 1789, when the first session of the U.S. Congress sought to encourage manufacturing within the young nation.

A new white paper from Purolator International, “Duty Drawback:  Could your Business be Eligible for a Duty Reimbursement?,” offers a detailed overview of the drawback process, and helps make sense of what is generally regarded as a highly complicated application and qualification process.

Any business that imports materials into the United States must pay duty on those goods.  If those materials are then used in the manufacture of products that are subsequently exported – they are taxed again.  For example:   A U.S. manufacturer imports a quantity of zippers from Canada, and those zippers are used in the production of jackets that are subsequently exported.  Well, the U.S. manufacturer would pay a duty on the zippers when they arrived from Canada, and again upon export from the U.S.

Through drawback, the manufacturer could be eligible for a refund of up to 99 percent of duties paid on the zippers when they were initially imported.

To qualify, a business must maintain meticulous records and be able to provide a clear “trail” that a product initially imported into the U.S. is the same – or in some cases nearly the same – as the product subsequently exported (or destroyed).  In addition, a business must demonstrate that a product meets CBP’s strict conditions for qualification.

As Purolator’s new white paper makes clear, most businesses rely on a third party logistics expert or customs broker to manage the drawback process on their behalf.  And with good reason, since CBP’s own website acknowledges:  “[T]he process of filing for drawback can be involved and the time it takes to receive refunds can be lengthy.”

Despite the apparent bureaucratic hassle involved, an experienced logistics provider will be well versed in understanding the process.  With billions of dollars waiting to be claimed, what do you have to lose?

A good first step is to download Purolator’s white paper, which can be accessed here.


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Logistics Clusters are Helping Businesses Innovate Supply Chains and find Efficiencies and Cost Savings

The nation’s top freight carriers record an annual empty miles percentage of roughly 12.5 percent.  That is to say that trucks are forced to make the return trip to their point of origin empty, because no additional conveyances are available along the route.  And the figure is much higher – as much as 25 percent – for private carriers that only carry loads for a single shipper, and thus have fewer reloading opportunities.

Clearly this is a waste of good cargo space, and a lost opportunity for carriers to profit from miles that are already included in a shipping route.  Yossi Sheffi, director of the MIT Center for Transportation and Logistics theorizes that empty miles are something that can be largely avoided through migration to “logistics clusters.”  As Sheffi notes in an excerpt from his new book Logistics Clusters:  Delivering Value and Driving Growth that appears in the Sept/Oct 2012 issue of Supply Chain Brain magazine:  “Delivering freight into a logistics cluster means that there is a high likelihood that there will be a follow-on load going out of the cluster.  This is due both to the large number of logistics operators in such a cluster and to the interchangeable nature of freight flows.”

What exactly is a logistics cluster?  As reported in Industrial Distribution magazine, a logistics cluster refers to a “geographically concentrated set of logistics-related business activities.”

Dr. Sheffi illustrates the positive impact of a logistics cluster by citing two manufacturers – competitors in some product categories – that decided to join forces and share logistics services in order to more efficiently serve a shared customer via its Vero Beach, FL distribution center.  One of the manufacturers, a leading producer of batteries, was sending 9,000 pounds each week to the DC using an LTL carrier.  The other, a manufacturer of home cleaning, air care and other products, was averaging 20,000 pounds of freight per shipment with a truckload carrier.

The two manufacturers approached their common customer – a national retail chain – and asked to have its ordering system modified so that the manufacturers’ shipping schedules would be the same.  As a result, the two manufacturers are now able to share a single truckload carrier.  The results have been win-win:  reduced transportation costs, improved carbon footprint, improved on-time delivery and reduced shortages and deliveries.  In fact, the customer has been so pleased, it has approached other manufacturers within the cluster area to arrange similar arrangements.

As businesses increasingly search for “out of the box” ways to streamline operations and tweak their supply chains, logistics clusters are increasingly proving to be a valuable way to achieve synergies and savings.

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What Exactly do Canada and the U.S. Buy from Each Other?

It’s no surprise to most that Canada is the United States’ top trading partner, with almost $1.7 billion in goods crossing the border each day. But what exactly are U.S. businesses sending to Canada? And what are U.S. businesses and consumers purchasing from our northern neighbor?

According to the U.S. Census Bureau, which tracks imports and exports, top sales to Canada through October 2013 included:

Product Category Value (in billions)
Transportation Equipment $54.01
Machinery, except Electrical $27.29
Chemicals $25.51
Computer & Electronic Products $22.28
Food and Kindred Products $12.50
Petroleum & Coal Products $12.18
Primary Metal Mfg. $12.07
Fabricated Metal Products $10.68

Top purchases from Canada included:

Product Category Value (in billions)
Oil & Gas $73.53
Transportation Equipment $56.58
Chemicals $22.11
Primary Metal Mfg. $18.70
Petroleum & Coal Products $15.70
Food and Kindred Products $11.79
Machinery, except Electrical $11.37
Paper $8.42

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Supply Chain Top Jobs Increasingly Held by Women

When the President hosted a White House ceremony in June to mark the 50th anniversary of the Equal Pay Act, included among the invited guests was Ellen Voie, president and CEO of a non-profit group called Women in Trucking.  While that day’s ceremony was called to celebrate progress of women in achieving pay equity across all industries, Voie’s presence signified the tremendous progress women have made in the traditionally male-dominated world of transportation and supply chain management.  The trucking industry, for example, counts almost 170,000 women among its corps of drivers.

In fact, at a time when the supply chain industry continues to be an overwhelmingly male-dominated sector, women are increasingly breaking new ground by attaining senior management positions and setting new standards for innovative thinking.  Rosemary Coates, president of Blue Silk Consulting in Los Gatos, CA suggested to Logistics Management magazine that women’s ability to problem solve is at least in part responsible for their success.  “The supply chain and logistics arena is a place where there are a lot of existing problems,” she said.  “Women are problem-solvers.  We have traditionally had to deal with family budgets and evaluating risk and reward in our family lives, so when it comes to bringing value to employers, we can draw from that discipline and experience.”

A “Women in Supply Chain” venue launched by Canadian think tank Van Horne Institute, notes a strong uptick in the number of females enrolled in post-secondary supply chain management degree programs,  and that “soft skills” such as collaboration, creativity and problem solving are in high demand throughout the industry.

These sentiments seem to be echoed by Ann Drake, chairman and CEO of DSC Logistics, who recently launched an initiative called Advancing Women’s Excellence in Supply Chain Operations, Management and Education (AWESOME).  In a news release announcing the new group, Drake noted:  “Now that the field of logistics and supply chain management is more about strategic thinking and collaboration, we should be seeing women as leaders in every aspect of the profession.  What we’ve found is that women are rising to new levels, but there is still much untapped potential.

Through AWESOME, Drake hopes to bring together leading women from across a broad category of supply chain professions, ranging from manufacturing to retail to third party logistics to space and aviation, and has compiled a list of nearly 400 women as potential group members.

The rise of women to top supply chain professions has generated much attention from leading industry publications.  Logistics Quarterly launched a Women in Supply Chain Management feature, that provides insights and analysis from women in senior management professions.  One contributor, Dianne Mollenkopf, assistant professor in the Department of Marketing and Logistics at the University of Tennessee, was quite direct when asked what advice she had for young women considering a career in logistics:  “Go For It!,” she advised.  “Those in logistics roles get to see across multiple organizations,” she added.  “Because women tend to be relationally focused, this cross-function vision and influence provides a great opportunity for women to add value….”

Similarly, in March 2013 Supply Chain Demand magazine published  its “first ever” list of “Top Female Leaders of the Supply Chain,” focusing on 28 individuals at the peak of their fields.

Speaking at a Logistics Quarterly Spring 2013 “Women in Supply Chain Management” symposium, Facebook COO Sheryl Sandberg argued that a major obstacle in climbing the corporate ladder is the tendency by women to underestimate their capabilities.  “If you ask men why they did a good job they say ‘I’m awesome,’” Sandberg told her audience.  “If you ask women, what they say is that someone helped them, they got lucky, they worked really hard.”  And this matters, she says, because no one will get the promotion by not believing in herself.

While no one is suggesting that women are going to overtake men among the ranks of supply chain professionals — a 2012 Career Patterns in Logistics and Supply Chain Management study  found that only 27 percent of survey respondents were women – women are increasingly assuming top-level positions.  As Ellen Voie and her team of 170,000 female truckers are demonstrating, the days of supply chain management being regarded as a “man’s world” are rapidly coming to an end.

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New Opportunities via Cloud Services

Remember the children’s game Jenga?  Players would place wooden blocks atop each other in a criss-cross pattern until inevitably, the tower would come crashing down, as the delicate balancing act became unsustainable.

The Jenga concept is a good way to describe the increasingly complex supply chains that have come to define today’s global and diversified businesses.  Businesses must manage the activities of multiple moving parts, all focused on the same objective, but not necessarily all on the same page with how to reach that objective.  Unless steps are taken to bring all those parts together, a Jenga outcome is likely.

Until now that is.  In the last few years cloud technology has helped businesses better manage and synchronize processes, achieve cost savings and maximize efficiencies in ways previously not even considered.  Cloud services have been gamechangers in providing businesses with new options for integrating technology into their processes and allowing transparency and visibility to employees.

A summer 2012 survey by Everest Group and Cloud Connect of almost 350 business executives found that 95 percent were already using either Software as a Service (SaaS) applications, or Platform as a Service (PaaS) cloud solutions.  The survey also found that 54 percent were using the cloud for application development/test environments, 45 percent for disaster recovery and storage, 41 percent for email/collaboration, and 35 percent for business intelligence/analytics.

Now that the cloud concept has moved beyond its infancy, businesses are finding more and better ways to meld its capabilities to fit their precise needs.

Cost Savings:  The Wall Street Journal profiled an Omaha-based property storage business that is saving almost $85K annually as the result of moving certain functions to a cloud server.  On a larger scale, a Massachusetts-based global supplier of electronics components saved more than $500K by moving its employee email platform to the cloud.  And a report by McKinsey technology consultants found that cloud computing can save a business 20 to 30 percent in total IT costs.

Productivity:  One California plastics company was able to transform operations by implementing a cloud –based videoconferencing application.  Now, employees who previously spent days on the road repairing customers’ equipment are able to show remote workers how to make the repairs themselves.  The net result is a considerable savings in employee time, as well as a reduction in travel costs.

Scalability:  A huge appeal of cloud services is the ability to adjust service levels based on expected needs.  A retailer that sees most of its sales during the holiday rush, for example, can contract with a cloud service provider to meet expected need.  But during the summer down period, that level of service can be ramped down.

Regulatory Compliance:  A 2010 Harris Interactive survey found that 81 percent of IT professionals said that maintaining regulatory compliance via the cloud was an issue for them.  Many of these businesses opted to build their own “private” clouds, complete with dedicated servers and systems.  But more recently, public clouds have proven adept at offering adequate compliance capabilities.  Amazon, a leading provider of cloud services, is compliant with credit card data standards.  And cloud servers allow businesses to store records and data often required to meet regulatory mandates.

Capacity Procurement:  When a nationwide provider of “rent-to-own” products turned to the cloud to help streamline processes and gain visibility into procurement and spending practices, its management team was shocked at the efficiencies achieved via a cloud-based management system.  With all employees and suppliers operating from the same system and following the same procedures, the company achieved a multi-million dollar savings

As these examples make clear, cloud technology, although still relatively new, is significantly changing business’ modus operandi.

Consider, for example spending on cloud services worldwide topped $91 billion during 2011, and is expected to more than double to $207 billion by 2016, according to analysis by Gartner.  And here in the U.S., small businesses (businesses with fewer than 100 employees) are investing in cloud services – more than $3.5 billion during 2011, a figure that the Wall Street Journal expected would grow by 25 percent last year.

So it seems the sky is the limit as businesses increasingly look to the cloud for business solutions.  And while certain “kinks” do remain – security concerns, risk of server failures – the cloud is bringing capabilities and options to businesses that were previously cost prohibitive.

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Changes to Driver Rules Likely to Cause Higher Trucking Rates

New rule changes took effect on July 1 that directly impact truckers and trucking companies.  But the effect of the rule changes are expected to reverberate throughout the economy, with analysts predicting truck rate increases of as much as ten percent.

The rule changes, which were finalized late in 2011 by the Federal Motor Carrier Safety Administration (FMCSA) will require drivers to take a break of at least 30-minutes within an eight hour shift, and will also amend the “34 –hour restart” provision, to require two periods from 1a.m. to 5 a.m. within the restart, and limit restarts to no more than one per week.

Although FMCSA officials say the changes are intended to “prevent fatigue-related truck crashed and save lives,” industry officials predict the rules will instead result in a litany of unintended consequences, including higher rates and additional strains on an already severe driver shortage.

As reported in Logistics Management, truckers and industry professionals continue to oppose the new rules, much as they mounted strong campaigns against the changes during FMCSA’s lengthy rulemaking process.  “It may not sound like much and Washington bureaucrats within the Federal Motor Carrier Safety Administration say the change is both necessary and slight, but truckers and operations personnel working the day-to-day matrix of building full truckloads with sufficient numbers of drivers say the change is meaningful – and costly,” the magazine noted.

Todd Spencer, executive vice president of the Owner-Operator Independent Driver Association (OOIDA), called the new rules “probably well-intentioned,” but said the impact would likely be a five-to-ten percent decrease in productivity.  “Most truckers believe that the rules eliminate some of the flexibility drivers need to respond to what their brains and bodies are telling them,” he said at a mid-May gathering of industry professionals hosted by Wall Street investment firm Stifel Nicolaus.  “The new 34-hour restart is the most troubling as it requires that each driver’s weekly schedules be reset once a week – and each resetting must include two consecutive nights of sleep each inclusive of the hours from 1 a.m. through 5 a.m. within the context of the relevant time-zone at their home terminal.

“That means,” he added, “that West Coast domiciled drivers cannot start out after their weekly rest while on the East Coast until 8 a.m. eastern standard time.”

Mark Rourke of Schneider National estimated that the rules could result in a rate increase of as much as four percent, adding that “It’s a big deal, it changes our work configurations.”

Richard Mikes of Transport Capital Partners echoed that sentiment, citing the impact the tightened driver hours will have on capacity.  “Whether the lost productivity costs are two or four percent, that’s a big number when you are in as close a balance as we are.”

While no one can predict with certainty what impact the rule changes will have, it is noteworthy that the trucking industry continues to present a united front in opposing the new rules.  Several groups including the American Trucking Associations filed a lawsuit to delay implementation of the rule changes.  In addition, members of the U.S. House of Representatives Transportation Committee have weighed in, by sending FMCSA a letter asking that implementation be delayed until that lawsuit is resolved.

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State of Logistics Report – Slow but Steady Rebound

More of a casual jog than an all-out sprint is one way to describe the rate at which the logistics industry has regained ground since the economic recession.  That is one takeaway from the “23rd Annual State of Logistics Report” that was released in late June.

The annual report has been prepared every year since 1988 by Rosalyn Wilson of Delcan, Inc.  The current report, which tracks logistics trends and spending during 2011 found total logistics costs increased to $1.28 trillion, an increase of 6.6 percent from the previous year, and a figure that accounted for 8.5 percent of the overall U.S. gross domestic product.

While 6.6 percent may seem like a healthy increase, consider in the decade prior to the start of the recession, costs increased by 63 percent, and accounted for more than 10 percent of GDP.

Among the report’s findings:

  • The 6.6 percent increase in costs was due more to increased rates, than to any increases in volume.
  • Trucking companies are increasingly incorporating intermodal rail options as a way to help offset the impacts of driver shortages and high equipment costs.
  • The rise in intermodal transportation helped boost railroad market share, with overall revenue up by 15.3 percent.
  • Overall, trucking rates increased by 5 to 15 percent during 2011.
  • Despite strong showing of U.S. exports, air cargo revenue actually dropped, with international revenue down by less than one percent, and domestic levels down by more than three percent.
  • Inventory carrying costs continued to rise, and overall inventories have returned to pre-recession levels.  Retail inventories, however, have remained flat, suggesting that retail management practices may have undergone a post-recession rethinking process.
  • Pending government regulations including the Federal Motor Carrier Safety Administration’s revised “Hours of Service” rules will have a measurable impact on capacity concerns and driver productivity.  Some estimates predict that the new hours of service rules will decrease driver productivity by as much as 3 to 8 percent, because of the reduced number of hours that a driver will be able to work.

Wilson says that the slow pace of spending indicates that “we have not made it through the recession yet,” since logistics spending tends to increase as businesses feel better about their futures and show more confidence about investing more in inventory and logistics.

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Nearshoring Attractive to U.S. Fashion Industry

Given the average “shelf life” of an article of clothing in some fashion retail chains is about six weeks before discounting begins, it’s easy to understand why the allure of shorter inventory lead times and distribution flexibility would be appealing.  That would explain why U.S. retailers are increasingly moving currently outsourced manufacturing processes away from China and other Asian nations, closer to home in Mexico and throughout Latin America.  Apparel retailers have a very short window of time in which an item is “hot,” and customers will simply move on if they are unable to acquire an item when they want it.

According to a new white paper by Sourcing Journal Online, Levi’s, Hanes, Carhartt, Gap, Wal-Mart, Lee, and JC Penney are among the U.S. apparel companies that have moved manufacturing back from China in recent years.  These companies join a growing list of companies from all business sectors recognizing the advantages of bringing manufacturing back to North America:

  • Lower labor costs.
  • Favorable trade agreements including:
    • North American Free Trade Agreement (NAFTA)
    • Central American Free Trade Agreement plus the Dominican Republic (CAFTA-DR)
    • U.S.-Columbia Trade Promotion Agreement
    • Caribbean Basin Trade Partnership Act
    • Hope II (offers incentives for Haitian textiles)
    • Shorter supply chains
    • Faster lead times
    • Better quality control
    • Access to trained labor force
    • Greater flexibility

Shortened lead times and added supply chain flexibility are especially important to fashion retailers in today’s age of “fast fashion,” where success depends on a manufacturer’s ability to move products to stores as quickly as possible, so as to capture current market trends.  As the Sourcing Journal paper points out, fast fashion leaders’ lead times have been reduced from 90 days to 4-6 weeks, with inventory refresh rates up to twice as fast as traditional retailers – “40 days on average, versus 80-90 days,” the paper noted.

Although China is still the outsourcing destination of choice for the vast majority of American companies, Mexico and North America are making steady in-roads.  A recent study by international business consultants AlixPartners found that 42 percent of senior executives have either already taken steps to near-shore manufacturing operations, or plan to do so within the next three years.  These findings are reinforced by a survey, which found that 21 percent of North American manufacturers reported bringing production back to, or closer to, North America within the past three months – a nine percent increase over a similar survey conducted three months prior.

As businesses consider the feasibility of near shoring, an essential component will be an experienced and capable logistics partner.  A partner who, according to Sourcing Journal, “can meet the rigorous demands placed on brands and retailers today by consumers and global market conditions… a partner who is flexible, reliable, innovative, and able to move product on short lead times.”

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Education the Difference in Supply Chain Careers

A quick look at logistics-related employment openings on reveals job titles including “demand planning manager,” “global supply chain manager,” and “reverse logistics manager.”  Each of these positions has at least two things in common:  (1) Each requires strong technology and analytical skills; and (2) None of these job titles existed ten years ago.

While the industry will always have a need for classic logistics/transportation workers: warehouse and distribution operators, fulfillment managers, drivers, planners, and schedulers – the nature of the business supply chain has changed the employment landscape.

Specifically, companies hiring logistics and supply chain professionals are looking for defined skill sets:

  • Strong Technical Skills. Not only an ability to operate systems, but an understanding of how to use data gleaned from those systems and apply it to business processes.
  • Global Perspective.  An understanding of today’s global supply chains, and knowledge of cultural preferences, global volatility, and geographic boundaries.
  • Intertwined Business and Supply Chain Skills.  The ability to see “the big picture,” including how a decision at one point in the supply chain affects outcomes elsewhere in the business.

The good news is increased globalization has raised the appeal of “supply chain management.”  According to Bloomberg BusinessWeek, nine schools have launched graduate and undergraduate programs since 2011, when supply-chain management started taking off, including online master’s programs. Also reported in Bloomberg BusinessWeek, the Association to Advance Collegiate Schools of Business (AACSB) reports a 25 percent increase in the number of undergraduate supply chain management programs since 2006.  Lehigh University reported record numbers of students enrolling in its undergraduate supply chain manager program.  North Carolina State University’s Poole College of Management plans to establish a supply chain concentration within its undergraduate accounting program, and Arizona State’s Carey School of Business has doubled the number of supply chain majors.

Professor Jeffrey Smith of Auburn University noted in a May 2013 article in MHI Solutions that today’s perspective on the role of the supply chain has evolved due to companies like Wal-Mart and Apple. “Wal-Mart became the world’s largest retailer by leveraging the strength of its supply chain,” he said.  “Likewise, Apple took control of their supply chain to manage all aspects of their production – shipping, lead times, products, due dates – and that’s allowed them to manage the demanding complexities associated with their iPhone and iPad products.”

The Bureau of Labor Statistics projects employment of logistics professionals will grow by 26 percent between 2010 and 2020.  As noted above though, the nature of those jobs will change dramatically, requiring workers to have technology skills, global mindsets, and strong analytical capabilities.

Links of Interest

Inbound Logistics Education Resources

Bloomberg Business Week

US News Grad School Rankings

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