NOVEMBER/DECEMBER 2014
PUBLISHED SINCE 1898 | FORMERLY CANADIAN TRANSPORTATION & LOGISTICS
OUTLOOK 2015 Prospects and predictions for the modes STS Inside the Surface Transportation Summit LEADERS Introducing the 2014 Supply Chain Executive of the Year
EXCHANGING COMPLEMENTS TAKING BOLDER STEPS TO LINK CANADA AND JAPAN
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CONTENTS
NOVEMBER/DECEMBER 2014
DEPARTMENTS
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8 | Viewpoint The New Suez Canal-a viable option for Asian trade?
COVER STORY
10 | In the News
GLOBAL TRADE
CSCMP’s State of Transportation report: what our panel had to say
JAPAN
Linking the complementary
52 | Inside the Numbers
economies of Canada and Japan:
Are motor truck fleets ready to grow? A look at the trends
what are the implications for shippers?
54 | The Bigger Picture CS columnist Laurie Turnbull on Supply Chain Management: Where adaptability is key
OUTLOOK
2015
Priorities, prospects and predictions on the trends at work in trucking, rail, marine, air and courier as we head into 2015
©shirophoto/iStock/Thinkstock
16 A view of Yokohama and Mt. Fuji.
FEATURES CITT CANADA LOGISTICS CONFERENCE CALGARY | 26 A look at Western Supply Chains and pipeline logistics
SURFACE TRANSPORTATION SUMMIT | 30 Produced by Canadian Shipper, Fleet Executive, and Dan Goodwill & Associates, coverage features the state of surface freight transportation in North America: What are we currently seeing? And what can we expect to see in the coming year?
LEADERS | 36 Meet Viterra’s Tim Kennedy, the 2014 Supply Chain Executive of the Yeara proven leader in innovation and collaboration. continued www.canadianshipper.com November/December 2014 5
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“There’s always going to be risk. The issue is how to manage it.” People who know Distribution, know BDO.
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The Manufacturing and Distribution Practice at BDO The logistics business has never been simple. And with recent emphasis on supply chain sustainability, higher safety standards, and an evolving regulatory climate, it’s getting more complex. BDO’s dedicated professionals provide an exceptional array of partner-led services to help you keep up with key issues and maximize profitability, even in challenging times. Assurance | Accounting | Tax | Advisory www.bdo.ca/manufacturing
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Seiter&Miller 001246 Pub. Canadian Shipper Size 8.125 x 10.875 Issue May-June ‘14
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.
WHAT’S ONLINE
continued
REFRIGERATED TRANSPORT | 40 The trends, the challenges and the best practices around “keeping your shipments cool”.
ELECTRONICS | 42 Shorter product life cycles and high returns make electronics supply chains an ongoing challenge.
INFRASTRUCTURE REPORT: IQALUIT AIRPORT | 46 The role of cargo ships in Nunavut.
CASE STUDY | 50
KOM applies slotting strategy solutions for Mondele-z facility
WEB TV Transportation Matters
SCOTIABANK’S GOMES OPTIMISTIC ABOUT THE ECONOMY Scotiabank’s Carlos Gomes told the Surface Transportation Summit the general economy is strong and so is the trucking industry.
40
CARGO CRIME PART 2: International Truckload Services Inc. (ITS) was victimized twice during the commission of a crime. Steve Farris, ITS VP of safety and risk management, says first the company’s identity was stolen, and then so were two trailers full of cargo.
BLOG BITS Search our blog archives at ctl.ca Carolina Billings I know why the caged tiger paces
42
Dan Goodwill Managing the Uncontrollable Variables in your Supply Chain could Save your Company
Julia Kuzeljevich Planning for bad weather in the supply chain
Find us on Twitter at: @CanadianShipper
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@LouSmyrlis
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@JuliaKuzeljevic
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@JamesMenzies
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@FleetExecutive
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THE VIEW Lou Smyrlis, MCILT November/December 2014 Volume 117 Issue No.6
EDITORIAL DIRECTOR Lou Smyrlis (416) 510-6881 Lou@TransportationMedia.ca
Riddle me this Does the New Suez Canal present a viable option for Asian trade?
L
eading economic indicators are pointing towards continued economic growth and rising freight volumes. While that upbeat message delivered by Scotiabank senior economist Carlos Gomes at our recent Surface Transportation Summit is welcome news after several years of anemic and volatile economic recovery, it does pose a challenge for Canada’s supply chain professionals, particularly the many dealing with container-based shipments. Before the 2008 financial crisis, rapid trade growth sparked mainly by China’s world trade ascendancy led to a doubling of the container volume moving through the North American transportation system.Without a similar increase in capacity, it didn’t take long for bottlenecks to develop in the areas surrounding and connecting major port gateways. When labour strife was added to the mix, it made for very fragile supply chain strategies. Marine ports and intermodal yards have since taken measures and added capacity to address the bottlenecks that plagued them during the previous economic expansion. The current growth spurt is not expected to be as robust as the previous one, in part because China is no longer growing at a double digit pace. But a China growing at a steady 7% GDP and an increasing reliance on containerization as a way to reduce costs for international cargo will no doubt place pressures on the North American transportation system soon enough. I don’t buy into claims that enough has been done to address the bottleneck issues of the past. The reality is the slow recovery hasn’t really tested the system. In that respect the best advice for supply chain managers not wanting to get caught with all their eggs in one basket when moving international freight is to understand all the options. And there are new options involving the movement for international freight from Asia. One of the more interesting developments is the New Suez Canal, which is the name given to the first major expansion of the Suez Canal in Egypt, which started this summer.The first stage of the project, which is expected to be completed within a year, will dredge and deepen a 72-km long New Canal and create seven new tunnels under the Canal, connecting the Sinai Peninsula to the Egyptian homeland. A second stage for the project will create the Suez Canal Supply Chain & Logistics Corridor within 5 years. If you’re moving freight from Asia why should this interest you? Because, as Hazem Ghonima, president of TAF Consultants, explains, it will double the capacity of the Canal from 49 vessels to 97 vessels per day and cut down the voyage time through the Canal from the present 20 hours to 11 hours. The New Canal will enable ships with a draft of 66 feet, carrying more than 18,000 TEU, and VLCC oil tankers of 250,000 DWT to transit freely in two directions at the same time. This will no doubt make containerlines consider the efficiencies of reaching Eastern North America through the Red Sea, Mediterranean and Atlantic rather than the current Pacific Ocean/Panama Canal and West Coast/Continental Intermodal Network options. Of course, the Panama Canal is also moving aggressively to continue to attract containerlines. Its planned expansion, which includes two new sets of locks and widening and deepening existing navigational channels, will allow the handling of vessels capable of carrying up to 12,600 TEUs. But if the Suez Canal’s ability to handle the largest containerships appeals to marine lines looking to generate increased revenue from greater productivity, we could be seeing an increasing amount of Asian trade reaching our shores this way. At the very least it will provide a viable alternative to the bottlenecks presented at the US West Coast ports during the previous economic expansion. Maybe it will even make saner heads prevail during labour negotiations. Either way, the Port of Halifax, which has plenty of available capacity and enjoys the deepest berths on the North American East Coast and is capable of handling the largest container vessels plying our oceans, stands to gain. So do supply chain managers who have one more option. CS
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November/December 2014
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ASSOCIATE EDITOR Julia Kuzeljevich (416) 510-6880 Julia@TransportationMedia.ca PUBLISHER Nick Krukowski (416) 510-5108 nkrukowski@canadianshipper.com ART DIRECTOR Ellie Robinson erobinson@bizinfogroup.ca CONTRIBUTING EDITORS Carroll McCormick, Leo Ryan, James Menzies, John G. Smith, Ian Putzger, Ken Mark, Carolyn Gruske MARKET PRODUCTION MANAGER Gary White (416) 510-6760 gwhite@bizinfogroup.ca VIDEO PRODUCTION MANAGER Brad Ling RESEARCH MANAGER Laura Moffatt CIRCULATION MANAGER Barbara Adelt (416) 442-5600 ext. 3546 badelt@bizinfogroup.ca EXECUTIVE PUBLISHER Tim Dimopoulos VICE-PRESIDENT PUBLISHING Alex Papanou PRESIDENT Bruce Creighton HEAD OFFICE: 80 Valleybrook Drive, Toronto, ON M3B 2S9 Canadian Shipper is written for Canadian transportation and logistics professionals who manage product flow from manufacturer to point-of-sale. Editorial is focused on reporting, analysis and interpretation of Canadian log istics trends and issues. It is published by BIG Magazines LP, a division of Glacier BIG Holdings Company Ltd.
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IN THE NEWS
The CSCMP held its State of Transportation Event Thursday October 9th at the Toronto Marriott Airport Hotel. Transportation Media Editorial Director Lou Smyrlis moderated a panel featuring David Bradley, CEO of the Canadian Trucking Alliance, Mark Seymour, President/CEO of Kriska Transportation, John Ferguson, President and CEO, SCI Group, and Michael Gullo, Director, Policy, Economic and Environmental Affairs, with the Rail Association of Canada. Smyrlis asked the panel if the RFP process was continuing to dominate the relationship between shipper and carrier, and whether it was improving relationships. According to Seymour, RFPs “are the impetus of conflicting priorities on the shipper side. I am more learned about why they exist- to test the market, and to ensure competitive pressures ensure the best price for the service. But all too often all they are really trying to do is leverage price,” he said. Seymour said that carriers are trying to build engineered solutions “and that takes time. We’re forever on our heels waiting for the next RFP. Shippers may not get the best engineered solution as result,” he added. RFPs are too often price focused, and “don’t ask the right question. My wish would be that RFPs would take place every two to three years and that shippers and carriers would sit down on the anniversary of every contract, and bring data and credibility as to why the carrier needs more. I think that is reasonable and fair and would
BY JULIA KUZELJEVICH ©Design Pics/Thinkstock
Shipper-carrier tensions aired at CSCMP “State of Transportation” event
caption goes here
strike a very fair balance,” Seymour said. Added Ferguson: “We have to go with procurement processes from time to time. Often it’s a rigid process. We strive for strategic long term relationships.” When asked what is driving the consolidation trend in the trucking industry, CTA’s David Bradley said it “hasn’t had an impact in terms of pricing. The pressures have been somewhat temporal. Right now I would characterize things as being more strategic. There are a hell of a lot of truckload companies for sale today that may not fit with some acquisitions strategies. The next ten to twenty years will be interesting to see where the consolidation and deconsolidation trends come from,” he said. Bradley also commented that he doesn’t see a lot of interest from American companies in acquiring Canadian ones-at least, not in any meaningful sort of way. “It may be a good thing for carriers here
that Canada is still viewed as a foreign country. Our drivers know how to deal with the border, but US carriers are not prepared to make the same effort for a relatively small marketplace. This doesn’t mean there won’t be some private investors,” he said. Capacity in the trucking market is another huge concern for shippers, but as Bradley indicated, the trucking industry “is not a homogeneous market. While there is greater confidence than there was, people are still cautious in terms of expanding their fleets. There is slower replacement. The big issue is the driver shortage. Even if you wanted to expand and grow organically this is keeping a natural lid on things. In central Canada where things have been slower to come back we are still in an equilibrium state, and I think that’s going to continue,” Bradley said. The next round of greenhouse gas reductions comes in 2018, and the trucking industry “is getting tired of being the guin-
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IN THE NEWS
ea pig. Last time around we saw a major prebuy to beat what was coming. Now a lot of carriers have gotten a lot smarter about managing capacity,” Bradley said. “When we talk about equipment there are a lot of reasons one should invest in new equipment, and there are many reasons why people are not doing it. Technology should be in every investment portfolio to help make better decisions,” Seymour said. The driver shortage, and its effects on the capacity situation, “may be the best thing to happen to the trucking industry,” noted Bradley. “Here in central Canada there has been zero real growth in driver wages in twenty years. Drivers want to be paid for all their time. Too often everybody else’s inefficiency falls in the lap of the driver,” he said. “Shippers and carriers have conflicting priorities, and there is nothing wrong with some healthy tension.The blurred line where you go from healthy tension to tense tension is really hard to see-it’s tough being a carrier and it’s tough being a shipper,” Seymour said. In the wake of the 2013-2014 “60-year winter” combined with a bumper grain harvest, and following legislation put in place by Ottawa mandating grain moves for Class 1 railways, Smyrlis asked RAC’s Gullo what actions the rail industry is putting in place to prevent backlogs ahead of the next harvest. Gullo said there was a lack of understanding last year about the potential grain crop. This was combined with a terrible winter where temperatures dipped for a period well beyond the 25 day average. The grain industry was also grappling with the removal of a single desk operator (the Canadian Wheat Board). “Both railways have aggressive programs in place on velocity and productivity, and a large margin of capital investments will be reinvested in the network on these,” Gullo said. Canadian Pacific will also be providing a dedicated grain fleet, he added. Regarding the federal government’s move to change the interswitching provisions for short line railroads from 30 km to 160 km in some areas of the Prairie provinces, Gullo said that those “have the ability to harm the rail industry. Introducing shorter haul moves is not necessarily the way to go if the aim is better velocity. Congestion has an adverse effect on velocity,” he said. Gullo also criticized the lack of process
in the way the interswitching provisions were pushed through. “It’s not a model that reflects proper public policy,” he said. The answer is supply chain collabora-
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tion, he said, and “foresight in orders. It’s understanding the long term, and the ability of rail to scale up. It’s about forecasting data and collaboration, something that has been possible in other sectors, Gullo added. CS
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GLOBAL TRADE
COMPLEMENTARY EXCHANGE CANADA AND JAPAN EMBARK ON BOLD STEPS TO FURTHER LINK THEIR ECONOMIES
BY KEN MARK
12 November/December 2014 www.canadianshipper.com
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GLOBAL TRADE
C
anada and Japan are taking bold steps to link their economies closer together. Japan seeks to awaken its slumbering export engine while Canada wants to expand its overseas markets beyond the United States. Helping to advance such goals is the current trend toward international trade agreements. These include the CanadaEuropean Union Comprehensive Economic & Trade Agreement (CETA) and the continuing talks involving a dozen or more Pacific Rim nations to set up the Trans-Pacific Partnership (TPP). Overall, Canada and Japan have no major outstanding trade issues, says Cam Vidler, Ottawa-based director, International Policy at the Canadian Chamber of Commerce. “We have complementary economies – energy – oil and natural gas, resources, agrifood and seafood for Canada while Japan is very strong in electronics, pharmaceuticals and advanced manufacturing. From Japan, we can learn more about innovation and intellectual property issues and how to manage them better,” he said. A recent joint study on a proposed Canada-Japan Economic Partnership Agreement (EPA) concluded that it could boost Canada’s economy by $3.8 billion annually – equal to creating close to 25,000 new jobs and increasing our annual exports to Japan by up to 67%. The stickiest issue in negotiations is likely our 6.1% tariff on assembled autos. However, Vidler states that the focus of 21st century trade agreements has shifted away from simply reducing tariffs to opening markets in services, intellectual property protection as well as finance and investment. To support that view, after the recent ratification of the Canada-Korea Free Trade Agreement, the tariff on Korea-built autos entering Canada will be removed within two years. As for other sectors, Canadian negotiators hope that our talks will open the door to
lower tariffs and higher sales in Japan for Canadian agri-food exports including seafood, meat, (especially beef and pork) as well as grain, not to mention forestry products and fertilizers. Such items currently face high tariffs making them less competitive. To improve its access to Canada’s mineral and energy resources, the Japanese government is pursuing greater investment protection for long-term projects by large Japanese corporate investors. As well, they are also pursuing smoother immigration processes to facilitate the short-term entry of executives and scarce skilled technicians working on such projects. Another product-related trade concern is simplifying and harmonizing non-tariff issues including government regulations regarding product quality and safety standards. Says Vidler, “Many countries have similar standards. But the question becomes how to recognize each other’s standards and ensure they are being met. One possible solution is having domestic regulators certify that exported items comply with the other country’s standards.” On the transportation and logistics front, Japan recently introduced its version of the WCO (World Custom Organization) SAFE Framework whose objective is to establish a set of practices to Secure and Facilitate Global Trade. Under its “No Doc-No Load” policy or 24 Hour Advance Manifest Rule, Japan Customs requires all freight forwarders/ non-vessel owning common carriers (NVOCC’s) and vessel operators to submit electronic cargo manifests detailing container cargoes intended for entry into a Japanese port within 24 hours before vessel departures from the port of loading. Failure to comply or filing inaccurate information can result in imprisonment of up to one year or fines of up to C$5,300 (¥500,000). Jos Nuijten, Amsterdam-based, Des-
“We have complementary economies – energy – oil and natural gas, resources, agri-food and seafood for Canada while Japan is very strong in electronics, pharmaceuticals and advanced manufacturing. From Japan, we can learn more about innovation and intellectual property issues and how to manage them better" Cam Vidler, Ottawa-based director, International Policy at the Canadian Chamber of Commerce.
continued
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GLOBAL TRADE
continued from p. 13
cartes Systems Group vice-president, Network Integration Strategy outlines offers various solutions: Those with few shipments to Japan can use a web-portal to file manually, copy existing filings, look up functions as well as monitor responses from Japan Customs and make corrections. All they need is a ReporterID, available from Japan Customs, and Internet access. Firms with higher volumes can send information electronically through the Descartes Global Logistics Network (GLN). That information is validated and automatically transmitted to Japan Customs. As well, customers can use the portal to monitor filings and make corrections that they cannot do on their in-house system. Others can outsource the task by sending the filing-related data to the Descartes JP-AFR Preparer service. Its support team will file on their behalf and follow-up with Japan Customs if necessary. Although Nuijten states that such filings do not add value to transactions, failure to comply or file correctly can lead to extra costs and other penalties. “For customers with a limited number of filings, the portal option is very cost effective. It is basically a ‘pay as you use’/SaaS (software-asa solution) expense. It only requires a very small upfront investment involving only registration and training,” he says. In the wake of the 2011 9.0-scale earthquake and subsequent tsunami that devastated eastern Japan and disrupted global supply chains, the Logistics Institute Asia Pacific at the National University of Singapore (NUS) issued a white paper Combatting Supply Chain Disruptions: Lessons Learned from Japan 2011. Finally, our two countries are also embarking on talks to meet Japan’s needs for secure energy sources and Canada’s plans to expand overseas markets for its abundant oil and gas production. In October 2013, the Canada-Japan Energy Dialogue opened a new chapter in our business relations with Japan. At that time, our Minister of Natural Resources, Joe Oliver, and Japan's Minister of Economy, Trade and Industry, Toshimitsu Motegi, signed a ‘Statement on Oil and Gas Cooperation’ to enhance cooperation between Canada and Japan on bilateral energy matters. The agreement supports Canada’s strategy of expanding and diversifying our energy export markets while moving forward
Combatting Supply Chain Disruptions: Lessons Learned from Japan 2011 A SUMMARY OF THE MAJOR FINDINGS: Set up a Business Continuity Management Team that has access to all aspects of the business. Such visibility will enable it to properly assess potential risks and stakeholder impact. Avoid single-source suppliers and create supply chain networks. The recent supply chain disruption has motivated Japan’s highly specialized producers to move away from single-source suppliers. One option is to offer firms incentives for supplier diversification in other parts of Japan or setting up overseas branches. Despite the higher logistics costs of a more complex global supply chain, the resulting end-to-end visibility may reduce the current risk of co-locating suppliers in one area. Know the scope of your supply chain. Speeding up deliveries of innovative products will increase costs since they often require responsive supply chains. But since simpler items are likely to be more cost sensitive, slower delivery times may be more acceptable to customers. By understanding their products and their markets more clearly, manufacturers can decide whether speed or cost efficiency is more important to getting business back to normal. Set up a viable business continuity plan to identify potential threats to the organization while outlining how to build resilience and effective response to disruptions. Besides detailing what resources senior management needs to deploy, the plan must also inform customers of the firm’s preparedness and the actions it will take. Introduce a learning system that, after order is restored, enables the firm to review how it resolved the disruption. It must also dig deeper to see what was done well and what could have been done better. As well, it should also look at how other countries handled similar disruptions and learn from their efforts.
on important initiatives between the two countries. These include setting up annual high-level meetings to encourage cooperation on trade and investment in oil and liquefied natural gas (LNG). Such discussions will address related infrastructure projects such as developing ports, pipelines, re-gasification plants and liquefaction terminals. As well they will facilitate the exchange of information on energy policies, potential energy supply, market outlooks, interprovincial pipeline issues, marine safety, and environmental regulation etc.
14 November/December 2014 www.canadianshipper.com
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International trade agreements require long, complex and patient negotiations. These recent announcements merely mark the beginning of a long journey. CS Ken Mark is a Torontobased freelance writer and a 2013-2014 Asia Pacific Foundation of Canada Media Fellow supported in part by Cathay Pacific Airways.
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is better. Port Metro Vancouver is already close to Asian markets. And with unprecedented infrastructure investment in our gateway, we’re getting even closer. We’re building land-side projects that boost rail and road efficiency. We’re increasing our container terminal capacity and reducing ondock dwell through collaboration with supply chain partners. And we’re operating with longshore labour certainty to 2018. We’re bringing your goods closer to market and you closer to your customers.
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OUTLOOK 2015
Entrepreneurial spirits Trucking leaders look at prospects for 2015
M
ergers and acquisitions continued at a brisk pace in 2014, and there’s no reason to believe they will abate in 2015. But the deal that rocked the Canadian trucking industry was that of sprawling giant TransForce buying up Contrans, a big trucking entity in its own right, based in Woodstock, Ont. The acquisition has most certainly raised eyebrows in the shipping community. “TransForce would rationalize their deal with Contrans on the basis that they are stronger in Quebec and Contrans is stronger in Ontario,” says transportation analyst Dan Goodwill, of Dan Goodwill and Associates. “It’s a market concentration strategy, but is it really good for the shipper? You could argue
“The volatility of our dollar is going to increase costs for Canadian carriers, but will also drive business for our customers so I believe it will affect us both positively and negatively.” Wes Armour, president and CEO of Armour Transportation Systems that there are still thousands of smaller truckload carriers out there, but this gives one company a lot of leverage.” The acquisition will no doubt provide TransForce with opportunities to find efficiencies, but the concern is that it will make it harder to find competitive pricing from a company that is not under TransForce’s umbrella. But Dean Mackie, president of Mackie Transportation Ltd., thinks that the entrepreneurial spirit of the trucking sector guarantees the survival of smaller carriers. “There will always be room for smaller players like ourselves versus the TransForces of the world. Contrans is one of our competitors and they’re a good competitor and I expect they will remain so. But the deal has placed a lot of capacity into the hands of one company,” he says. Ron Tepper, president and CEO of Ron
Tepper Holdings which includes Canada Drayage Inc., Bruce R. Smith Transport and Consolidated FastFrate, is seeing steady growth in all divisions and adding trucks across the board. He agrees that there is a role for carriers who aren’t mega-players.“We consider ourselves under the radar, big enough to compete, small enough to be able to make adjustments and offer our customers a leverage point, rather than having to deal with only one company, owned by one guy.” Shortly after the Contrans/TransForce acquisition, Mullen Holdings Ltd., of Okotoks, Alberta and mid-sized carrier Kriska Transport of Prescott, Ont., announced an interesting east-west merger of some of their operations. In a unique arrangement, Mullen offered up its Mill Creek Transport division, combining it with Kriska Holdings Ltd., thereby creating Kriska Transportation Group, a new entity which will oversee the operations of both companies. In an interview with Carolyn Gruske of Truck News, Kriska COO Jonathan Wahba acknowledged that the TransForce/Contrans deal provided impetus for the amalgamation with Mill Creek. “Our concern is if we don’t participate in that trend, at some point everybody will get bigger around us. Down the road we know we will compete with the big guys for customers, for drivers, for suppliers, and economies of scale make sense in the asset-based transportation business. So the driver shortage and consolidation are the two big triggers for us.” The deal is exceptional because it’s rare to have a publicly traded company (Mullen) combining with a private carrier rather than buying them outright. But on another note, Kriska CEO Mark Seymour suggests that the new Kriska has something to offer retiring fleet owners. “The Contrans/TransForce deal is eliminating a major player,” he says. “We’re offering another place to park your company. A lot of guys are in love with their companies and don’t want to sell to someone who will change the nature of the company. We’re offering an alternative that will be respectful and sensitive to the culture.” As far as freight rates go, Dan Goodwill
16 November/December 2014 www.canadianshipper.com
By Harry Rudolfs
thinks they are moving in one direction-and that’s up! “A lot of carriers that got burned in the last recession are being very careful about adding capacity. And it’s really hard to get drivers. I don’t see large numbers of people suddenly wanting to take up trucking.” Wes Armour, president and CEO of Armour Transportation Systems adds: “I truly believe capacity is shrinking, mainly driven by lack of drivers and the high cost of operation. We’ve seen it in U.S. truckload and also in Canada, and I see truckload capacity continuing to become very tight within a very short amount of time. This summer there was not a lot surplus of equipment or drivers to be found and a lot of shippers were quite concerned. In our case, we found that even the rental companies, both trailers and tractors, were sold out this summer which made it extremely hard to handle extra volumes,” he added. Armour also thinks that the strength of the US dollar will have an upward effect on freight rates. “Freight rates are going to increase partially due to the strength of the U.S. dollar. With a strong U.S. dollar, carriers will be paying more for drivers, fuel, parts and new trucks, just to name a few,” he says. “The volatility of our dollar is going to increase costs for Canadian carriers, but will also drive business for our customers so I believe it will affect us both positively and negatively.” The “driver shortage” is on everyone’s mind and not just for company drivers. Owner operators are even scarcer and much in demand. They supply a truck and driver and work as independent contractors. But their paucity is partially due to the fact that many carriers had to let many of their owner operators go during the recession of 2008. Some of these O/O’s moved on to other carriers or hung up the keys at that time-The owner operator strata of drivers is approaching retirement at a quicker pace than the pool of company drivers. Carriers are looking to hold off any crisis by recruiting more aggressively and increasing the pay packets for their brokers. “We are doing a lot of recruiting and we have people working on a total package
2015 OUTLOOK
the will include insurance, repairs and financing if necessary’,” says Ron Tepper. “We continue to add things like repairsthey can pay so much per month if they need to-and things like fuel and tires we can buy en masse and offer at a discount.” An optimistic note seems to be spreading across the industry in adjacent sectors. 3PLs are doing well and gaining market share, according to Dan Goodwill. “3PLs are showing continued growth. Shippers like them because it gives them a full menu of shipping options. In the end, the freight still has to move by truck, whether it’s a freight broker or a 3PL organizing the movement.” Intermodal is also looking rosy. The consensus is that service is much improved, and one indicator is that a courier like Purolator is now using CP Rail to ship express
trailers piggyback between Toronto and Montreal on weekends, something that would have once been absurd because of service constraints. “We’ll be continuing to use intermodal more as it is a more efficient way to move our loads,” says Wes Armour. “We find the railways to be very responsible and have improved over the past few years by cooperating with carriers and creating partnerships. Intermodal has worked very well in our system and has provided our organization with a lot of opportunities.” LTL and TL carriers are seeing growth and increased demand. TL customers are locking in for longer contracts and there seems to be a new-found spirit of cooperation between some shippers and carriers, according to Dean Mackie. “Freight rates
Reigning regulations Will laws and legislation top the agenda for rail?
T
hree decisions announced around mid2014 could reverberate throughout the rail industry next year: two Supreme Court of Canada (SCC) rulings and a decision by the government of Canada to get an early start on a review of the Canada Transportation Act. On May 23 the SCC issued a ruling that confirmed that all rail shippers, including those with confidential agreements with railways, have the right to seek relief from unreasonable incidental and supplementary charges before the Canadian Transportation Agency (CTA). Briefly, the background on this was a 2008 CTA decision not to rule on a complaint by Peace River Coal relating to a fuel surcharge tariff because it had a confidential contact with a railway. But in the May ruling, says Robert Ballantyne, president, Freight Management Association of Canada, “The Supreme Court upheld a Cabinet decision that required the Agency to rule on the complaint. The ruling was a significant victory for the shipper community. Shippers now know that this vehicle will work and that the CTA has to make these decisions.” What shippers will do with this reaffirmation of their right to take complaints to the CTA remains to be seen. The ball is in the railways’ court, Ballantyne suggests: “Cases in the future will depend on what the railways do with these ancillary charges and tariffs.”
By Carroll McCormick
On June 25, the government of Canada announced the launch of a statutory review of the Canada Transportation Act. According to Ballantyne it came a year early, because of the problems in moving the 2013-14 season’s grain harvest. The Terms of Reference for the Review begin with this line: “Given the urgency created by the recent backlog in grain deliveries from the 2013-14 crop year, grain transportation will be given priority consideration. The Review will consider the provisions of the Act that are relevant to the transportation of grain by rail …” The Review will no doubt receive submissions that will shed more light on the grain backlog drama, which included the railways reporting impressive successes in moving grain this year and shippers complaining of mountains of wheat piling up outside grain elevators while ships left Vancouver empty.There were also calls for legislation that would make it easier to fine railways over transportation problems like this. As the fallout from the Lac-Megantic derailment last year continues to rain down, railways will continue promoting their safety agendas next year; e.g., pushing customers to retrofit or retire legacy DOT111 tankers and improve safety standards
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are definitely edging up and will continue to do so. We’re seeing more opportunities, more people putting their work out to tender. In some cases, but not all, there seems to be more of a willingness to work with the carrier.They invite you down and show you their projections for the next year and ask how we can work together.” However, so much depends upon the weather, as Canadian carriers well know. Last year’s tough winter impacted every fleet’s bottom line.“It’s hard to plan against a winter storm when you have an operation with fixed costs,” says Ron Tepper. “Last winter was horrendous and there are predictions there will be more of the same this year. We try to create as much variability in our costs as possible, but we have no control over the weather or how it affects our customers.” CS
and emergency response plans with communities. Rail safety and communities is also part of the Review mandate – “How safety and well-being concerns related to rail transportation (including the movement of dangerous goods) through communities can be addressed.” Perhaps the Review’s recommendations will include a summary of the efforts to date to address the safety concerns voiced after Lac-Megantic. Industry will be busy next year complying with Transport Canada regulations announced earlier in 2014 that include an order to retrofit or remove 65,000 DOT111 cars within three years. A side note to the grain and safety issues was the announcement in August by OmniTrax that it was suspending its plan to make a test shipment of crude oil in 2014 through the Port of Churchill via its Hudson Bay Railway. The oil transport plan was reportedly borne of insufficient volumes of other cargo, but derailments, pressure from groups concerned about moving oil through the north and the happy circumstance of a bumper grain crop changed the business plan. OmniTrax expects to ship 700,000 continued
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tonnes of grain this season, up 60,000 tonnes from last season. The company predicts it will be shipping one million tonnes a season within a couple of years. Hot on the heels of the Review announcement came the June 26 SCC ruling that validated the Tsilhqot’in Nation’s claim that it is the owner of a roughly 1,700-square kilometer parcel of land in British Columbia. A few days later the Gitxsan First Nations served an eviction notice to CN and other users on its territory in northwestern British Columbia. CN’s rail line to Prince Rupert runs through the territory. In early August the Gitxsan shut down the rail line for a few hours, but by that weekend, the Gitxsan suspended the eviction order. Whether the suspension will be permanent is unsettled, according to the Canyon Current, a September newsletter from the Kitselas Treaty Office. What is certain though is that the SCC ruling will have long lasting implications for land claims across Canada, with various levels of risk for companies now operating on disputed lands. “A lot of people are saying that the Supreme Court ruling applies just to BC. The significance [of the SCC decision] is way, way wider,” says James O’Reilly, a lawyer with O’Reilly & Associes Inc., in Montreal. O’Reilly has nearly 50 years of experience as a specialist in Aboriginal rights, treaty rights and the self-governing rights of Aboriginal peoples. “For all of Canada I’d say that for twenty to twenty-five percent of
the land, title claims are unsettled. [Companies] are at peril to have their rights suspended, for sure,” he says. By the end of 2014 CN will have completed a 10-year purchase plan for 763 highhorsepower locomotives. CN reports that 114 of them will have alternate-current electrical traction systems, which are more robust than direct-current systems, and will improve fleet reliability in extreme winter conditions. Some short line railways (SLRR) changed hands in 2014, which bodes well for their future. The global investment management firm Fortress Investments purchased the Montreal, Maine and Atlantic Railway (MMA) earlier in 2014. MMA went into bankruptcy protection after the derailment and explosion that destroyed downtown Lac-Megantic. Since Canadian Wheat Board (CWB) received permission to own physical assets in 2012, it has made several purchases that include minority and majority ownership in SLRRs. By virtue of CWB’s purchase of Mission Terminal in Thunder Bay in December 2013, it already has a minority share in Boundary Trail Railway Company Inc., which owns 22 kilometres of track and a minority stake in Great Western Railway Ltd. in southern Saskatchewan. GWR has 496 km of track and is part owner of the 97-km long Fife Lake Railway. This August CWB purchased the Great Sandhills Terminal Ltd. in Saskatchewan. The purchase came with a majority stake
Ahead of the peak Couriers aim to be ready for the holiday surge
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nited Parcel Service has prepared painstakingly for the 2014 peak shopping season. Mindful of the crush of last-minute orders in the 2013 Christmas period, the integrated express carrier has invested US$500 million in capital expenditures and another US$175 million in operating expenses to get ready for this year’s peak surge. It lined up 29 additional freighter aircraft and 95,000 temporary workers for the seasonal spike. Purolator also made a lot of effort to be ready for the onslaught of Christmas shopping, lining up vehicles and staff. "Supporting retailers during the busy holiday season is important to us and we will be ready, regardless the weather", notes president and
CEO Patrick Nangle. “We started preparing for this peak right after the last one concluded,” says Mike Tierney, president of UPS Canada. “Last year it was a perfect storm with weather conditions, volume of parcels and late volumes.” In Canada the company almost doubles the number of seasonal workers for the Christmas peak, besides making use of additional facilities that have come on stream over the past 12 months and an $8 million automated sort system for small parcels installed in its Toronto hub.
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in Great Sandhills Railway, which operates 197 km of track between Swift Current and Burstall, Saskatchewan. Although CWB is not revealing any purchase plans it may be considering for 2015, Mark Dyck, director of logistics, CWB says, “We will look at all opportunities.” CWB is certainly not shying away from spending money where it can enhance its ability to market grain, as well as canola, peas and other crops. “We are also in the process of building four highthrough-process elevators in Western Canada. It includes the building of a loop track that can hold 134 rail cars,” Dyck says. A decision is expected by the end of December whether CP’s 172-km Kawartha Lake Railway, which runs from Havelock to Toronto, will be reborn as the Shining Waters Railway (SWR). If it is, SWR will use $300 million of funds already committed by the governments of Canada and Ontario to upgrade the track from Class 1 to Class 4. The year 2015 may also bring news of whether a proposed rail line from the Labrador Trough to the port of Sept-Îsles will be built.This June the Quebec government announced it was contributing up to $20 million toward a feasibility study for a multi-user rail line. Whether this would be as ambitious as CN’s now-cancelled study on a 550-km, $5 billion rail line in northern Quebec is unclear, other than a note in one press release that it would be a “phased construction approach". CS
By Ian Putzger
In addition, UPS has worked with customers on volume projections and examined opportunities to spread out flows more evenly. “The on-line shopping phenomenon is exploding, which creates challenges for our industry,” reflects Tierney. “The conventional ways of projecting volume are gone.” The words ‘free shipping’ may be music to the ears of shoppers, but to parcel delivery firms they sound rather ominous. For that matter, e-tailers are also suffering from the concept. According to SJ Consult-
2015 OUTLOOK
ing Group from Pittsburgh, Amazon received US$3.1 billion in shipping charges from its customers last year but spent US$6.6 billion on transportation services. Still, e-tailing seems to be trapped in the concept, with no way out. “Free shipping has become the reality of the marketplace,” comments Tim Sailor, principal of San Francisco-based Navigo Consulting. In mid-October Target announced free shipping “all the way to a six-dollar lipstick”, he points out. As much as possible e-tailers have tried to push the cost of ‘free shipping’ onto their logistics providers, which forces these to find efficiencies wherever they can. According to Sailor, the margins still work overall, but there are limits. “You can clearly go broke trying to deliver noncompensatory packages into people’s homes,” commented FedEx supremo Fred Smith in reference to the Christmas deluge of e-commerce parcels during a con-
ference call with financial analysts. The final stretch of the shipment to the consumer’s door remains fraught with frustration for delivery firms, notes Horst Manner-Romberg, managing director of German parcel research and consulting firm M-R-U. A study of the British online shopping market conducted this past August identified consumers not being at home to receive their delivery as the number one issue for logistics companies, a bigger headache for them than managing costs or peak times. At the beginning of October UPS introduced its My Choice concept in Canada. Tierney says that My Choice has been well received in the US. “Consignees want to have more control over their inbound shipment. They can schedule a delivery window or direct the parcel to the nearest UPS store,” he says. Sailor sees a marked rise in hybrid solutions that involve the postal service for the final mile delivery, pointing to high growth
rates for these services offered by FedEx and UPS south of the border. UPS’s Surepost offering surged 60% in the second quarter of 2014. In Canada UPS does not involve Canada Post except in “super-rural areas”, according to Tierney. Nangle sees much benefit in working with the postal agency, pointing to Purolator’s hybrid PuroPost service, under which the company moves e-commerce from the US in consolidations over the border and feeds them into the postal sysem for delivery. “On the final mile is where our collaboration with Canada Post shows its benefit,” he remarks. He adds that the main focus for Purolator remains on the B2B sector, with B2C in a complementary position. “We will not be building out a separate network to serve residential addresses," he stresses. While the free shipping concept is deeply entrenched, there is a second trend in the B2C space that is exemplified by continued
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Amazon Prime and Google Express, which are spreading in metropolitan areas in the US. The latter announced the expansion of its offering to Chicago, Boston and Washington in October. Sailor sees this appetite for rapid delivery rising but does not expect the concept to extend beyond major urban centres. “It will be based on high density and proximity to a distribution centre. Amazon has put a lot of focus on putting up more distribution centres,” he remarks. Where will these emerging trends leave smaller and mid-sized parcel delivery firms? Sailor sees ample room for them. “Small and mid-sized couriers definitely have a role to play. If they can overcome that technology barrier, they can play both in the deferred and in the overnight/next day delivery areas,” he comments. Nevertheless, the large players are clearly building up their reach. In terms of footprint, Purolator is building a new terminal in Fort McMurray and is transitioning its Regina facility into a larger space. It has also set up new facilities for Purolator Lo-
gistics, an area that will likely see more investment in 2015, according to Nangle. Having extended its own reach into Atlantic Canada a couple of years ago, UPS embarked on an expansion drive in British Columbia in the summer, opening operation centres in Kamloops, Nanaimo and Comox and expanding its existing centre in Kelowna. Purolator Logistics targets primarily mid-sized companies, a clientele that Purolator intends to cultivate. Historically the company has not penetrated this market segment fully, Nangle says. He is bullish on the market. “Business has been good. We are on track to hit our targets,” he says. “We see more revenue per shipment, which suggests that our offering is appreciated.” He expects growth in 2015.This should be above average in Purolator’s northbound traffic from the US and in the small business space, while the core business in Canada should produce moderate growth. UPS is poised for further expansion. “We continue to grow. I anticipate that to continue in 2015,” says Tierney. UPS’s cap-
Towards fertile ground Carriers pursue freighter links
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he Calgary airport authority had cause for celebration in October when a Boeing 747-8 freighter by Cathay Pacific touched down at the airport to kick off a twice-weekly connection to Asia. Calgary slots into two of the Hong Kong-based carrier’s freighter flights from New York to its home base, topping up with cargo and fuel on the way. It restored direct freighter link to Asia for Calgary, which had lost allcargo service to Korea six years earlier. Mindful of a lack of maindeck lift to overseas points, a number of Canadian airports have been pursuing freighter links to Asia, marketing their patch as a fertile ground to top up loads on westbound flights. Prince George, which has an 11,450 ft runway that has accommodated the giant Antonov 124 freighter, has built a 25,000 sq ft cross-dock facility to handle perishables. “Asian carriers are usually pretty full flying into North America but they have vacant space on the return leg to Asia, so the idea is to stop in Prince George to refuel and top up on cargo,” says Al Ridgway, the airport’s
director of cargo development. At the opposite end of the continent, Moncton saw its ambitions for a European freighter link come back to lie in the spring, when CAL Cargo Air Lines entered the Maritimes market with a weekly B747 run. Like Calgary’s Hong Kong connection, Moncton ties into an existing CAL operation from New York to Liege, topping up the eastbound flight with seafood and lobster. Air Canada moved out of the freighter arena a short while before the market went south, but it is re-establishing a link to the main deck business through its fledgling partnership with Cargojet. This led to a joint freighter charter to Colombia in the spring and an appetite for more. “We look to do a lot more like the Bogota freighter with Cargojet on a more regular basis,” says Mike Morey, director of operational strategy. Mexico, where Air Canada has limited capacity, would be a
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ital investment in 2015 could be the highest ever, he indicates. Purolator Logistics is part of an investment programme borne out of extensive soul searching and consultations with clients of Purolator. “Our investment program is focused on where we can grow and how we can ensure we can continue to create value for our customers," says Nangle. Significant focus is on operational performance and on physical and data flows, leading to investment in processes and technology.” “Another question to deal with is going to be Purolator's position vis-a-vis its retail presence. Back in 2006, to complement its own retail outlets, it had struck an agreement with Staples to install Purolator service counters in some 270 outlets of the stationery and business equipment retailer. Like other outfits with brick and mortar stores, Staples is in the process of cutting back there. The company is conducting a strategic review of what retail means for Purolator, says Nangle. "It is not terribly urgent." CS
By Ian Putzger
very promising target for such a venture, he adds. He is even more bullish on possibilities within Canada. The alliance opens the door for Air Canada to tap into Cargojet’s domestic network, which could feed the passenger airline’s international routes from Canadian points where AC only has narrowbody flights. Cargojet is going through a rapid expansion of its fleet in preparation for the contract to provide linehaul for Canada Post and Purolator that commences in April. The country’s largest freighter operator has added six B767 and five B757 cargo planes to its line-up this past year. The additional capacity will help to absorb an increase in traffic registered this year, as Cargojet’s express customers have seen their volumes boosted by e-commerce, but it will also expand the airline’s capacity for charter work. According to Jamie Porteous, executive vice president of
2015 OUTLOOK
sales and service, the company’s ACMI and ad hoc charter business have grown considerably in 2013. In the first six months of the year it generated as much revenue from charters as it had in the whole of 2012. With more widebody freighters in its fleet, Cargojet will station more of them outside its Hamilton hub in markets like St John’s, Montreal and Vancouver, which will enhance its flexibility to respond to charter requests, Porteous says. In Alberta Edmonton has moved to establish itself as a gateway for charter activity, a push that it underscored with the acquisition of a main deck loader this year, observes Ron Buschman, managing director of charter broker Aerodyne Cargo Services. “Edmonton has come a long way. They have a new apron, they are very accommodating, and the facilities have got better,” he comments. His company has managed about the same number of charter flights as before,
but direction and magnitude have changed. Historically Aerodyne has organised many outbound charters from Alberta with Antonov 124s or B747s; today it is mostly inbound flights with small freighters. The case for outbound charters has been undermined by the ready availability of scheduled freighters within trucking reach in Vancouver or south of the border, Bushman notes. On October 22 Cargojet resumed regular flights across the Atlantic from Halifax to Cologne, an operation that had been suspended last December. According to Porteous, it will run until Christmas, with the possibility of continuing if demand justifies it. In light of recent history, which saw various short-lived transatlantic freighter flights out of the Maritimes, nobody is holding their breath on this one. Air Canada is expanding its international capacity as more B787 Dreamliners enter its fleet.The rising number of 787s and 777s
in the airline’s fleet is paying dividends for cargo. Unlike the smaller 767s they replace, they can carry higher payload and are less weight restricted on longhaul sectors. “They give us stable lift in a market. We don’t have to worry about having to take off 10 tons because of headwinds,” says Morey. For the most part, the new aircraft replace 767s, but Air Canada Cargo still has the bellies of those at its disposal, as the older planes shift over to Rouge, Air Canada’s low-cost subsidiary in the international market. Being deployed in leisure markets with little or no industrial activity and being reconfigured to accommodate more passengers, the Rouge fleet has clear payload restrictions, but they do not matter much, given the markets where the planes are deployed, comments Morey. At Air Canada Cargo the focus has been very much on internal processes and structures with the objective to deliver a better level of customer service. Probably the clearest expression of this drive is the estabcontinued
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lishment of a ‘Customer Experience’ department, which has been preparing to go live at the start of the new year. The new division will give customers one contact point for all their issues, from questions and complaints to monitoring their shipments on a real time basis. “You know these people will be looking after your shipment. If you have a question, you don’t need to figure out who to call about it,” Morey says. At the same time the new unit, whose head reports directly to AC’s vice president of cargo, is tasked with continuous improvement by establishing what elements are working and which ones are not, he adds. To improve speed and accuracy of shipment data handling, Air Canada Cargo has developed an app that allows warehouse staff to use smart phones to scan shipments, eliminating the need to capture data manually and later keying them into the system.
The next step, which is already in progress, will be to get the units to accept electronic air waybills on the export side, says Morey. The carrier has also worked on the prioritisation of pick-ups on the ramp to minimise the time that critical shipments like high-end perishables are exposed to weather conditions. These and other initiatives aim to improve flows of physical cargo and data, which should have an impact on the bottom line. Air Canada has been one of the standard bearers of the e-freight initiative and its subset, the electronic air waybill. “We surpassed the IATA target of 20% e-air waybill penetration for this year. We are now at 22%. By the first quarter we want to be a 100% for domestic traffic. There are no documents to accompany the shipment,” declares Morey. Jeff Cullen, CEO of forwarder Rodair International and president of the Canadi-
an International Freight Forwarders Association, notes that the e-freight initiative still has a long way to go but that it is moving in the right direction. Anything that can brighten up the bottom line is welcome news in the industry. Recent months have brought some relief especially on routes from Asia - with strengthening demand and a narrowing of the gap between available cargo and the overcapacity in the market, which kept downward pressure on yields for most of the year. Still, Howard Jones, president of airline GSA Network Cargo Systems, warns that yields have some way to go to return to sustainable results for operators. “The Canadian market looks stable and flights are okay now, but yields are still depressed. There are stupid rates out in the market because of overcapacity. Cargo that requires special handling is sold at rates for general cargo,” he comments. CS
Cargo continues to evolve at Air Transat. The Canadian airline is outsourcing its freight business to a third-party operator. Effective November 1 it is being taken over by Leisure Cargo, a ‘total cargo management company’ which markets the freight capacity of a number of carriers. The airline had subcontracted its cargo activities before but decided to take them in-house at the end of 2010, at a time when its freight capacity was undergoing significant expansion through the introduction of Airbus A330 aircraft into its fleet. Paul Nugent, general manager of cargo, says that taking the business into its own hands elevated its capabilities to a higher level and established a brand in the industry. Faced with an over-saturated supply situation in the market exacerbated by the introduction of Air Canada’s Rouge, Air Transat’s top brass came to the conclusion that bringing in a third-party operator who could tie the cargo operation into a broader network would be the best way forward. “We had a pretty decent year, but it was a lot of hard work. We have done well with niche products, in markets where we have a strong position. We examined several bids, and Leisure Cargo offered the best potential going forward,” Nugent says. The Germany-based cargo management company, which was established in 2000, markets itself as a virtual cargo airline, managing the bellyhold capacity of 19 airlines with a network of some 300 destinations. This will allow Air Transat to tie into a global network, giving it unprecedented reach, says Nugent. “With Leisure we have one waybill through the entire network, via various airlines. We have had interline agreements with various airlines to extend outreach, but you are always in queue for space on the second leg when you hand over your cargo to another airlines,” he remarks. In terms of personnel facing Canadian customers, the change will be negligible. Many of the existing Air Transat Cargo staff will shift over to Leisure Cargo Canada, a new entity that will be led by Nugent, who is overseeing the transition to the new structure.
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2015 OUTLOOK
Mega-ship trend dominates Shippers juggle their options
T
he global shipping environment remains highly volatile and complex, compelling frustrated shippers to constantly juggle their options to benefit at least from persistently low freight rates. What’s true today can change tomorrow. And if your cargo happens to be headed for the big U.S. maritime gateways of New York/ New Jersey and Los Angeles-Long Beach, you can count on costly port congestions and demurrage charges – per diems assessed by terminals to discourage use of their facilities for extended storage. Highly-productive ports in Asia have been faring relatively better, as have leading ports in Northern Europe. On Canada’s West Coast, Port Metro Vancouver has been encountering moments of gridlock – but by no means as serious as the top U.S. ports.
By Leo Ryan
At the heart of this evergrowing congestion crisis: mega-ships sprouting like weeds as global carriers form megaalliances and mount a relentless drive to reduce slot costs and to deliver service more effectively. As they strive to optimize their operations, negative impacts spread to nearly every other stage of the supply chain. Billions are being spent on deeper water, raised bridges, giant container cranes, reinforced piers and other infrastructure. But truckers are hit by long idle times and railways can rarely ensure a smooth flow inland during peak periods. Port terminals involved in the race have not been able to increase quay crane devel-
opment on par with the increase in vessel capacity. Ports are also under tremendous pressure to turn the vessels around as rapidly as possible after they arrive. According to Hua Joo Tan, executive consultant with research firm Alphaliner, global carriers next year will take delivery of 1.8 million TEUs of container capacity, representing 8% growth in supply over existing fleet capacity. This will surpass an anticipated 6.4% rise in demand – thereby provoking another year of rate pressure for carriers that have collectively lost billions of dollars in four of the last five years. More than 60 of the new vessels coming on stream in 2015, representing more continued
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The Nunavik, Fednav's newest powerful ice-breaking bulk carrier, this fall was the first commercial vessel to transit the Northwest Passage with an Arctic cargo delivered to a Chinese port. (Fednav)
than half of the orderbook, will be capable of carrying over 10,000 TEUs. And 53 will be larger than 13,300 TEUs. It is only a few years ago, in 2011, that Maersk Line, the world's top carrier, launched a sea change in the container shipping industry by ordering 20 Triple E behemoths with capacities of 18,000 TEUs and a propulsion system burning 40% less fuel. In the wake of the 2008-2009 recession, this was bold indeed. Today, however, Maersk is reaping positive results by recording substantial profits. Not to be outflanked, Mediterranean Shipping Co., the world's number two container operator with capacity of 2.6 million TEUs, will absorb 350,000 TEUs of new capacity in 2015. Some industry observers predict that MSC will overtake Maersk by 2016-2017. The third biggest carrier, CMA CGM, will take delivery of vessels totaling 240,000 TEUs next year. But the capacity growth has not translated into higher rates. “Carrier hopes for a rate recovery likely will have to wait until 2016,” suggests Tan, referring in particular
to the Asia-Europe and Trans-Pacific trades. On the mega-alliance front, Maersk started the ball rolling by forming the P3 Network with MSC and CMA CGM. But this was nixed by the Chinese authorities in June. So, Maersk quickly changed to a 2M alliance with just MSC. Canadian transatlantic services continue to be operated independently as they are not part of the 2M agreement. Responding to its competitors, CMA CGM formed the Ocean Three Alliance with United Arab Shipping and China Shipping. Evergreen has been added to the CKYH Alliance between Cosco, “K” Line, Yang Ming and Hanjin. Earlier this fall, Hapag-Lloyd and Chile-based CSAV were engaged in merger negotiations that would elevate Hapag-Lloyd from number six to number four among global container carriers. Drewry Shipping Consultants considers that the rebound in container shipping operations will be driven by the advent of the new mega-alliances and further cuts in unit costs rather than by rebalancing of supply and demand. “A different recovery is taking shape,
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which is unlikely to be built on any improvement in freight rates,” the UK-based firm said. “This is about survival and the longterm management and sharing of costs,” stressed Neil Dekker, Drewry’s director of container research. Good news for shippers: Drewry predicts that ocean freight rates will decline in 2015 by up to 4% versus 2014, and no recovery will occur before 2016 or 2017. In this regard, Drewry pointed out in mid-October that the weekly spot container rates in the east-west container trades had recently dropped sharply – “suggesting that carriers are engaged in another rate war.” Westbound Asia-Europe rates, in effect, plunged by $620 to just over $2,000 per FEU (40-ft container) – their lowest level since March. On the Atlantic trade between Europe and North America, Drewry reported a promising trend of 8.4% growth in the second quarter. It sees the westbound leg progressing by 9% for all of 2014, compared with 2.5% in 2013, and to spike by 6% in 2015 to attain a record of over 2 million TEUs.
2015 OUTLOOK
Interestingly enough, Kuehne & Nagel, the world’s biggest ocean freight forwarder, has singled out the mature transatlantic route, along with the intra-Asia and transPacific markets, to compensate for declining Asian shipments to Europe over the next three to five years. Canadian marine carriers forge new horizons Meanwhile, the shipping scene in Canada may have various challenges for achieving profitability, but there is a better balance between supply and demand than in the fierce competitive environment on the high seas. Such Canadian domestic carriers as Canada Steamship Lines and Algoma Central Corporation, for instance, have continued to renew their fleets – and this has timed well with a strong recovery in commercial traffic through the St. Lawrence Seaway. Buttressed by a 70% spike in U.S. and Canadian grain exports in the period to
end September, total throughput on the waterway was up by 5% and was expected to exceed 38 million tonnes at year’s end. As in the past, but even more so in 2014, Canadian shipping lines made their presence felt in Arctic sealift operations during the traditional shipping window between July and October. This applied notably to the fleets of Quebec City’s Groupe Desgagnés and of Nunavut Eastern Arctic Shipping (NEAS) – both of which have been expanding their capacity. But perhaps the most striking recent contribution in Arctic shipping came from Montreal-based Fednav Limited, the virtual pioneer of year-round operations in Canada’s Far North, which wrote a new chapter in a history spanning six decades. The Nunavik, Fednav’s newest powerful icebreaking ship, was the first commercial vessel to transit the Northwest Passage completely and unescorted with an Arctic cargo. The 31,700-DWT bulk carrier sailed
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September 19 from Deception Bay in Northern Québec carrying a cargo of nickel concentrate bound for the port of Bayuquan, Liaoning Province, China. It arrived without major hitches in mid-October. By favouring the Northwest Passage over the regular Panama Canal route, the Nunavik saved roughly 5,000 nautical miles (9,400 km) or 20 days of sailing time and more than 1,300 tonnes of greenhouse gas emissions. Looking to 2015, another initiative involving a Canadian carrier, will mark a new era of shipping on the St. Lawrence River thanks to a joint venture between Groupe Desgagnés and U.S. energy giant Valero. Once regulatory demands by the National Energy Board are satisfied, the most visible feature will be the planned deployment of two European-built Panamax Ice Class tankers in a ferry service carrying Alberta crude oil from a Montreal terminal to a big refinery at Lévis, opposite Quebec City. CS
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CANADA LOGISTICS CONFERENCE 2014
Success in the West: Panel examines issues, solutions for Western supply chains
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estern Canada boasts a distinct set of logistics challenges. During CITT’s Canada Logistics Conference 2014, held October 22-25 at the Fairmont Palliser in Calgary, Alberta, a panel session called “Success in the West”, moderated by Canadian Shipper’s Editorial Director Lou Smyrlis, delved into some of these challenges and into supply chain strategies as the winter approaches. John Ignaczewski, Director Intermodal Wholesale Sales, CP, said the company has been leveraging its capabilities, working on its many western corridors, with a goal to provide comprehensive services throughout. “We have put $1.2 billion dollars into capital expenditures of which 75% goes right back into getting the infrastructure ready for winter. Lots of money has been put into our north line into Edmonton, and we are also focused on the IT side of things, enabling customers to go in, get updates and see their overall supply chain and how it’s moving,” he said. Mark Lerner, AVP, Domestic Intermodal, with CN, said that the railway went through some painful steps in the 1990s to streamline, leading to increased train speeds under precision railroading in the 2000s, and in the last few years, under current CEO Claude Mongeau, CN is aiming to be a supply chain enabler of complete, endto-end solutions. Discussing the key issue of bottlenecks in the system because of weather, Lerner said it’s a question of physics how cold affects the rail. “In Western Canada we can run some trains that are 14,000 ft. in length. Distributive power allows us to maintain longer trains. But at temperatures that are lower than -35 degrees Celsius we reduce trains to 8500 feet with distributive power, so we have to add more power or crews and velocity and cycles are down. We have some resiliency in the network if it’s an issue of a day or two. But after 7-10 days in a row as we experienced last winter, it just shuts it
down.We’re a network, and the whole network suffers. When you think about weather think about the extremes and the duration,” he said. The winter of 2013-2014 also led CN to be more proactive on its communication strategies, he added. “We have embarked on creating a customer service group that works 7/24/365. Dispatchers sit now with customer service reps so the CSRs have a pulse on the first and last miles. Even before we start shipping with the customer we create a service delivery plan around what are the escalation procedures, whom do we contact etc. We know when our regular customers are in jeopardy and we are trying to be proactive around this,” said Lerner. James Zacharias, Vice President, Revenue Accounting and LTL Sales, with TransX, said that restrictions around certain single lane highways in the West mean the driving is much more dangerous, with the impact being more slowdowns, and traffic congestions. “We spend a lot of time training drivers on proper passing, using simulators. Road closures really hold back the traffic flow in both directions.The cost doesn’t stop but the traffic does, and the impact to the shippers is delays at both ends. We lost 96,000 truck hours last year, more than double those of the year before.There is not a lot you can do because of the single lane highway restrictions. With the GPS systems we have in play now we know if the unit won’t be able to make it on time so we send out automated red alerts via email so that the customer is aware we may have to rebook the appointment.We also send a weather forecast out to our shippers who will know when to expect the truck is going to have some kind of delay. We added more rail capacity this year and on the logistics arm tried to secure some more capacity if needed,” Zacharias said. Greg Stringham, Vice President, Markets and Oil Sands, Canadian Association of Petroleum Producers, said that CAPP,
which represents about 90-95% of the gas industry that produces upstream, “has to rely on rail significantly more now. We are looking for logistics to get our product to market. We are also spending $71 billion this year in capital investments and in order to do that we need logistics to bring things in as well, to produce the product and move it back out internationally. Our board is focused on cost control given where oil prices are,” he said. Canada is probably the 6th largest producer in the world, with the US now a second-place producer. “The US is now looking at exports too, so Canada must look to the global stage. Even three years ago we would probably not have had rail cars on the covers of our oil and gas magazines.With the geopolitical issues occurring around the world Canada could be seen as a stable supplier. The dynamic has shifted dramatically over the last few years,” he said. Warren Sarrafinchan, VP Supply Chain/Information Services, Sun-Rype Products, noted the company, which aims to help people live better lives, is seeing success with its expansion into the US and Eastern Canada. In terms of weather and road related constraints in the company’s supply chain planning, Sarrafinchan noted the severity of some of the Western passes, especially during the winter months. “You can reposition inventory differently depending on what is happening.You have to take a pragmatic approach: transit times are going to increase in the winter. If you structure around realistic transit times you have a better chance of being successful. The uncontrollable delays are going to happen. It’s important we get the communication about the delays as fast as possiblegood, timely and factual info about what is happening,” he said. Some delays, he suggested, can however be considered “controllable.” “It’s hard to plan around information
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CANADA LOGISTICS CONFERENCE 2014
that is not timely or fact based and (results in) you making the wrong decisions. Having a plan, extra assets, and the right maintenance programs are proactive approaches we’re expecting from our supply chain partners,” Sarrafinchan said. How can shippers best deal with the inevitable road closure and weather delays when transporting goods through Western Canada? “You have to be realistic-in the winter we are not going to have the same level of service. A lot of our shippers want to have lean supply chains but there are times when they are shipping forward a little bit. You saw similar activity when the IWLU was having trouble on the West Coast. We have over 8000 containers and we also use steamship line containers-in the winter the cycle time is lower. We also look at day of the week capacity and whether there is some flexibility in your fleet to wait for off-peak shipping,” Lerner said. Forecasting is huge and it’s an issue amongst everybody, he noted. “We can always work ahead with as much advanced notice as possible. One more item is flexibility in equipment type: we offer a variety of equipment, from ecotherm containers, steamship line containers, and steamship boxes on genset. The use of some of these solutions may help you manage your capacity,” Lerner added. “With road closures you have to look at your overall supply chain and build contingency into it,” Ignaczewski said. “CP has moved into a new marketwe’re actually now handling courier traffic. A lot of that was just understanding what they needed, I think that was a real success story especially as we went through the winter,” he said. CP is providing liners in ocean containers and is also starting a Chicago transload service that will transit to ocean carriers in Vancouver, he added. What are the prospects for the intermodal network in terms of being able to handle
growth if there is an uptick in the economy? “I could look at this in different waysthere are a lot of headwinds in trucking in terms of the driver shortage, use of EOBRs etc. If the economy spikes, it’s going to drive a lot of supply chain concerns, and it’s going to drive a lot of freight into intermodal. With respect to intermodal infrastructure, we learned a lot from this winter. We are investing 18-20% of our revenues back into infrastructure this year, trying to isolate our pinchpoints, i.e. along single lane rail track, and at the Chicago and Toronto terminals. We have put in double track in some areas of the Prairies and also Winnipeg-Chicago, and are hiring 20% additional employees into the network. You don’t
want to overbuild but you have to get in front of it,” Lerner said. Said Zacharias of the trucking capacity situation, “Now we are trying to make some money again.We’re adding a lot more staff or trucks, and if we don’t have the right rates to support that, it is not going to make for a good economic model. Capacity will be much quicker to come on board. Shippers have been able to save some money, but as the whole market and industry starts to realize they have to make money again it becomes difficult to add the capacity. The driver shortage is not as much of a problem as it is in the US but it is still a problem. Can we get creative in converting long haul to more short hauls?” he said. CS
In the pipeline: a look at Western Canada’s energy logistics
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nergy products are of great importance to the Western Canadian economy. Presenters at CITT’s Canada Logistics Conference 2014, Greg Stringham, Vice President, Markets and Oil Sands, Canadian Association of Petroleum Producers, and David Bryson,VP Strategy and Integrated Services VP Customer Service, Liquids Pipelines, with Enbridge, discussed the challenges and dynamics around energy supply chains.
Canadian Shipper: What will be the ma-
jor projects driving the growth of energy supply chains and what are the market trends that will shape it? Stringham: Geopolitical issues around the world mean Canada could be seen as a stable energy supplier. Asia is looking at diversifying.The dynamic has shifted dramatically over the last few years. Bryson: We have grown from a $6 billion company to $45 billion in the 20 years I’ve
been there. Enbridge transports, distributes and generates energy and is among the 100 most sustainable organizations globally. The liquids pipelines account for about 75% of our earnings and we are now making a strong foray into renewables- energy, wind, solar and geothermal. We started as a small diameter pipeline out of Western Canada-we now have approximately 25,420 km of crude pipelines across North America and move many separate crude commodities and refined products along the system. Oilsands production is forecast to grow as is Bakken crude. Our network starts out in the oil sands and runs right through the Bakken-depending on where you are and how you analyze the data, generally all are rising, so we will have infrastructure challenges to deal with.We work hard to address the bottlenecks in our existing system with $37 billion worth of projects on the books right now, the lion’s share in the liquid market space, with 6 main Western pipelines, 5 running to Lake Superior. continued
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CANADA LOGISTICS CONFERENCE 2014
Canadian Shipper: How would you de-
scribe your operations and optimization strategies? Bryson: We have a fixed transportation infrastructure, so when we plan something, we have to get it right. We have a common carrier and contract system so in the head and tail of our pipeline system many customers have signed up for 20 year contracts at fixed daily volumes. If any carrier comes to us and is creditworthy they can essentially move volume in any given month. In only a few cases do we actually
put a plug between the two commodities in a pipeline system. Otherwise we work on a flow-based interface.You could think of our system like a rail network with things in batches, moving around. It’s also perhaps like an automotive plant-very sensitive to disruptions. On a monthly basis we build schedules, we bring feeders in and work hard with our producers to bring those products in. At the other end refiners need to be on the game with minimal disruptions. Our customers have other choices in rail and other pipelines-constant mea-
Laurie Turnbull of Cole International presented with CITT Award of Excellence
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aurie Turnbull, CCLP, was presented with the CITT Award of Excellence at the Gala
Awards Dinner for the CITT Canada Logistics Conference 2014 in Calgary this October 24th. The award is given to an individual whose career has exemplified innovation in the field of supply chain logistics and who has accumulated many notable achievements. Turnbull, who is currently Supply Chain Consultant at Cole International Inc. is well-known across the supply chain and logistics sector, speaking at events for top organizations across Canada, including the Supply Chain Management Association of Canada (SCMA) and CITT, as well as writing as a contributing columnist for Canadian Shipper. He has also taught countless professionals in the sector, acting as a CITT course facilitator and as faculty at community colleges such as Seneca College, Humber College, and Sheridan College. Turnbull continues to develop his skills, pursing a Master of Science in Operations and Supply Chain Management at the University of Liverpool. Thanking the CITT Board of Directors, Turnbull said he was truly honoured to share the award with all of the past recipients and credited the CCLP designation with helping him in his career. He also offered “sincere thanks to Catherine Viglas, CITT president, and to the CITT as a vibrant and professional association.” Turnbull also thanked Cole International Inc. as well as his family for their patience during his long hours of study for the CCLP designation.
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surement, analytics, and feedback groups feed the system. Our logistics team looks at more optimal splits, tank allocation, and service delivery areas, while support organizations in analytics, petroleum quality, and capacity management put a relentless focus on optimization. Canadian Shipper: What do you see as
the major challenges in transporting energy products in the years to come? Stringham: There are a lot of domestic issues associated around safety. Public confidence is really key to this. We look to our providers to say that you are the best in the world on the safety side. That’s the minimum entry point. We are working closely with the rail companies and with Transport Canada on standards and what needs to be done to make sure the rail facilities are the safest.We believe that we are getting there. The real key for us is that rail regulations be harmonized with those of the US, and well understood by the public. The pipeline system says they are 99.9% safe, and rail is 99.996 going to 7. But every incident is very visible. So the comparability is close but the size of incidents have been the ones most noticed by the public. Bryson: The challenges are many around
designing and building infrastructure that is moving away from the well head to the refinery gate on any given day. We have to work very hard with customers to not give them a reason to go elsewhere. Our building blocks have to be operational excellence, system safety, and operational reliability. Most tools we use are in-house tools. We have undertaken work to improve these, especially around formal analytics, and predictive data. It’s incumbent on us to understand what is predictable for the next month. We are in the early stages of a significant growth pattern. The thing that has really got all of the companies focused is how do you physically get infrastructure built? Competition has drastically increased from what it was a few years ago I think things have changed drastically going through the traditional project planning cycle, even as the foundation shifts under your feet (on regulatory issues around approvals and protests.) CS
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SURFACE TRANSPORTATION SUMMIT
More efficient transportation strategies start with a frank discussion of current realities
SURFACE TRANSPORTATION 2014
ummit
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ith the North American economy gaining strength, the focus of shipper-carrier relationships is shifting. The shift is towards more efficient transportation strategies and practices to ensure adequate capacity for the growing amount of freight that needs to be moved and the quality of service that needs to be provided. After years spent dealing with a divisive inward focus on cost cutting it’s a welcome sign to see both sides of the transportation equation once again looking outwards and focusing on improvements to our commercial transportation system. Although the intentions are good, and the economic climate improving, the challenges remain substantial. Success, we strongly believe, is dependent on shippers and carriers finding ways to work together in a new spirit of cooperation and collaboration. And that is what drives us to bring shippers and carriers together every year for our annual Surface Transportation Summit. Our third annual Surface Transportation Summit – orLou Smyrlis, Publisher & ganized once again in parteditorial director nership with Dan Goodwill Trucking Group, & Associates – took place Transportation Media Oct. 15 at the Mississauga Convention Centre. The focus on working together, on Nick Krukowski, Publisher, collaboration over confrontaCanadian Shipper tion, must be resonating with Transportation Media both shippers and carriers as our attendance has doubled Dan Goodwill, President, since our first year. Almost Dan Goodwill & Associates 400 top-level transportation and logistics professionals
answered our call for a full day of education and networking. The exchange of ideas surpassed expectations but the conversation is too important to allow it to end there. So with this issue we are providing a comprehensive report on the major themes from the conference across all Transportation Media properties – Truck News, Truck West, Fleet Executive and Canadian Shipper, reaching more than 150,000 providers and buyers of transportation services across the country. This dialogue between shippers and carriers must continue beyond the Summit and we will be doing our best to ensure that it does. Finally, we would like to thank our growing group of industry sponsors, whose support allowed us to bring the Surface Transportation Summit to a higher level. And don’t forget to book Oct. 14, 2015 into your calendar for our next Surface Transportation Summit.
Continued economic strength ahead, senior Scotiabank economist predicts
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eading economic indicators are pointing towards continued economic growth and favourable conditions. That was the upbeat message from Carlos Gomes, senior economist with Scotiabank, when providing an economic outlook at the sold-out Surface Transportation Summit in October. “Despite all the events of the last week in the equity markets, we continue to be optimistic with respect to our outlook,” Gomes told nearly 400 motor carrier and shipper executives. Gomes said global economic growth is expected to accelerate over the next year.
“When we look at the global economy, most regions are on an upward trend, especially the US,” Gomes said. The European economy has returned to growth mode, albeit at a modest pace. China’s economic growth is expected to remain around 7% per year. While household debt in the US and Canada is high, Gomes said he isn’t alarmed because interest rates are low and household finances are actually healthier than in the past. “In both the US and Canada, the key thing that’s important is that household balance sheets have improved significantly,” Gomes said.
By James Menzies
In 2007, about 20% of disposable income went to paying debt, interest and energy costs. Today it’s about 15%. “While debt is high, the fact rates are low and energy prices are actually declining as we speak, means it’s not consuming a significant amount of household income,” Gomes said. “It leaves significant disposable income for other purchases.” This is good news for the auto sector, which has seen demand for new vehicles return to pre-recession levels while the average age of the fleet remains at a record high. “The financial conditions of households are very healthy and the average age of the continued p.32
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SURFACE TRANSPORTATION SUMMIT
fleet in the US is about 11.5 years. About 40% of all vehicles in the US are more than 12 years old.That tells you if they’re not going to be replaced this year or next year, they’ll definitely have to be replaced one to three years down the road, so that gives me confidence we’re going to have a decent cycle for an extended period of time,” Gomes said. Gomes sees Canadian exports growing 6% in 2015 and is bullish on the US economy, where consumers are financially stable and manufacturing activity is up. Asked if he has any concerns, Gomes said economic conditions in Europe and China still bear watching, as do interest rates in the US and Canada, though indications are that they’ll be kept low for the immediate future. David Newman, equity research analyst, Cormark Securities, agreed with Gomes that economic indicators are strong and so too are conditions facing trucking providers. Newman noted about 20% of US trucking capacity was removed due to the recession, a tougher regulatory environ-
continued from p. 30
ment and the driver shortage. Trucking rates are going up, Newman said, and active truck utilization has reached 99%, giving carriers some pricing power. Newman pointed out the US economy should remain strong, even if there is turmoil in Europe and China, since 80% of US corporate profits are domestic. The Canadian Purchasing Managers’ Index recently hit a nine-month high, which is another indicator of freight volume strength. Cormark’s own North American Freight Monitor points “toward a healthy freight volume environment” as well as pricing increases, Newman said. Canadian ports are “booming,” he added, thanks to the diversion of containers from the ports of L.A. and Long Beach, which experienced labour issues over the summer. The Canadian spot market has seen volumes rise 42% year-over-year and rates have been increasing, which is now cascading over into contract rates, Newman said. Providing a fleet perspective, Mark Seymour, president of Kriska Holdings,
Talking regulations at the Surface Transportation Summit
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regulatory issues in transportation session was held at the annual Surface Transportation Summit on Oct. 15, moderated by Canadian Shipper Associate Editor Julia Kuzeljevich. The session saw two experts who were both allotted a time to speak to the audience about their views and opinions on the recent regulations in the transportation industry that will affect freight in the coming years . First was David Bradley, CEO of the Canadian Trucking Alliance and president of the Ontario Trucking Association (OTA). He began by saying there is “always a ticking time bomb out there” and “an issue waiting to happen” and his role is to anticipate what’s coming and to address these issues head-on as opposed to the band-aid solutions that the government offers up. “We really try to drive the agenda as much as anything as opposed to taking the issues and arguing afterwards, when it’s usually too late,” he said. Going off the cuff (or so he told the audience) with no notes or powerpoint
slides, Bradley spoke about the current media focus on a Toronto Star piece published during the previous days on driver training and licensing of Class A drivers in Ontario. “We anticipated something like this would occur because of the issues around Class A driver testing in Ontario,” he said. “We have been pushing for action, for concrete action for some time and I’m hopeful that this press, while negative, is going to help us get there.” Bradley said the biggest issue for carriers is hands-down their human resources challenges, specifically getting truck drivers to work for them. He reminded the crowd that the average age of truck drivers is now 46, while a third are 55 or older, which means tens of thousands of people are retiring without the industry replacing them. “At the same time, the training industry is not producing, on a consistent basis at least, candidates that most reputable carriers would feel comfortable hiring,” he said. “We have this conundrum where you’ve got good schools at one of the spectrum and the other end of the spectrum where
said carriers need to take advantage of current conditions and a healthy rate environment to fix what’s broken within their organizations. Seymour also advised carriers to take advantage of the opportunity to re-assess how they run their businesses now that freight volumes and rates are strong. And this will require working with shippers. “There are lots of opportunities right now to work on the issues within our business as it relates to profitability and discipline,” Seymour explained. “We can take this opportunity to fix things that are broken. There has never been a better time to do that; to tighten our network, charge for things we haven’t been able to charge for in the past, to adjust short-term pricing strategies and not lock down into a three-year pricing model because our costs are going up too quickly. We are never able to engineer solutions and get waste out of the system if we’re forever going back (to customers) year after year, wondering if we’re going to be able to keep the business in certain lanes and certain markets.” CS
By Sonia Straface
they provide basically enough training to allow you pass the Class A test, which is pretty easy to pass if you have virtually any skill to drive a vehicle.” Bradley says this makes many people licensed drivers who don’t eventually work (or who work for “bottom-feeder carriers” who then pose a threat to the public) for the industry but are technically truck drivers because of the license they hold. This in turn, said Bradley, gives the government another excuse not to help the trucking industry find workers because there are so many unemployed drivers in Canada. Bradley said that what he and his association(s) have recommended is to introduce a level of mandatory entry level training before one can take the Class A test. He added that he knew it sounded counterproductive to make it more challenging for drivers to get a license while there is a severe driver shortage in the industry, but that too often driving is considered to be a job of last resort. “We’ve got a situation for the time kids continued P.34
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Ju M Ro Cl Sa De Ta Ra As Jo Us N Be Da Jo Ca Ri Co Sh Ch Sh Je St M Su Li Be Co Jo Le Ph Sh Pe Sa Da Yo Ra Yu Ch Ch Ja Jin Al N Ka Da Va Da Le Iri Ch Sa Ch La
CONGRATULATIONS TO OUR 2014 GRADUATES
OF THE SUPPLY CHAIN MANAGEMENT PROFESSIONAL (SCMP) DESIGNATION PROGRAM Juline Akobundu, SCMP Mohammad Abul Ahsan, CSCMP* Rosekate Osayimese Akinreti, CSCMP* Clarke Anderson, SCMP Samira Armanfar, CSCMP* Dennis Au, SCMP Tamara Austin, SCMP Raja Ayaz, SCMP Ashkan Ayyubi, CSCMP* Joen Azarcon, SCMP Usman Bajwa, SCMP Nicole Battaglia, CSCMP* Bernard Bégin, p.g.c.a. Daryl Behr, SCMP Johannes Jurgens Bekker, SCMP Carrie Bellamy-Sutherland, SCMP Riffat Ali Shahzad Bhatti, CSCMP* Courtney Bickell, SCMP Sheena Bonczak, CSCMP* Charlene Bowman, SCMP Sherry Lynn Boxall, CSCMP* Jennifer Bray, SCMP Stephen Bronneberg, SCMP Mathew Brown, SCMP Suzanne Brown, SCMP Lindsay Bruce, SCMP Belinda Brunet, CSCMP* Codrut Buretia, SCMP Joanne Janet Burke, CSCMP* Leah Burton, CSCMP* Phil Caperchione, CSCMP* Shane T. Castle, CSCMP* Peter Chan, SCMP Sanjay Chand, SCMP Daniel Chao, SCMP Yogendrasinh Brijpalsinh Chaudhari, CSCMP* Rachel Chen, SCMP YuZhuo Chen, SCMP Chi An Chen, SCMP Chun Hao (Baron) Chen, CSCMP* Jason Y. Chen, CSCMP* Jinyu (Ricky) Chen, CSCMP* Alex Chik, SCMP Nnenna Chukueke, SCMP Katie Chung, SCMP Darius Chung, CSCMP* Vance Clark, SCMP Dawn Conrad, SCMP Leeanne Tracy Croteau, CSCMP* Iris Dandoo, SCMP Chris Davidovich, SCMP Sarah Davis, SCMP Chris Davis, SCMP Lauren Dexter, SCMP
Edith Fatima Botelho Dias, CSCMP* Amy Dolomount, SCMP Lesley Dovichak, SCMP Arnold D’Souza, SCMP Joanna Mengjie Du, CSCMP* Nadiya Dubinina, SCMP Rebecca Duguay, SCMP Nazim Elmekki, SCMP Curtis Evans, SCMP Thea Felix, SCMP Lisa Fenton, CSCMP* Suzanne Ferenczi, SCMP Ron Fox, SCMP Colin Frederick, SCMP Daisy Fuentes, SCMP Kayley Fulton, SCMP David William R. Gillies, CSCMP* Matilda Gjini, SCMP Robert Daniel Goodsell, SCMP Victor Granados, SCMP Danny Greenfield, CSCMP* Yasser Hammoud, SCMP Zeeshan Hanif, CSCMP* Paula Hawkins, SCMP Vicki Hillie, SCMP Qin (Jamie) Hu, SCMP Shelly Huang, CSCMP* Luther Itael, SCMP John Janjic, SCMP Jingyan Jiang, CSCMP* Todd Johansen, SCMP Alex Kane, SCMP Nathan King, SCMP Ekaterina Korneyashenko, SCMP Jerry Kowalczyk, CSCMP* Bev (Beverly) Kowdrysh, SCMP Stephen Kushniruk, SCMP Cheu‐Oui Lam, SCMP Navdeep Lamba, CSCMP* Amanda Lance, SCMP Lisa Larson, SCMP Steven Laschowski, SCMP Olivia Laughren, SCMP Adam Lecznar, CSCMP* Rick William Leung, CSCMP* R. Bruce LeVan, CSCMP* Lynda Lewis, CSCMP* Anjela Li, SCMP Isabella (Yu Hong) Li, SCMP Wei Li, CSCMP* Roman Limon Bello, SCMP Katherine Litke, SCMP Li (Daisy) Liu, SCMP Scott Lovas, SCMP
Brant Lu, SCMP Qin (Linda) Lu, SCMP Millie R. Lynch, CSCMP* Craig MacTavish, SCMP Patrick Magee, CSCMP* Allan Mah, SCMP Naïm Manouchi, p.g.c.a. Dilyan Marinov, SCMP Cindy Massey Straus, CSCMP* Gilbert Matembe, SCMP Thomas Mathews, SCMP Jean McHugh, CSCMP* Mary Meadows, CSCMP* Darryl J Melvin, CSCMP* John Mercer, SCMP Eva Michalowski, CSCMP* Ken Miller, SCMP Antwan Moawad, CSCMP* Deanna Laura Monaco, CSCMP* Ramses Munoz, p.g.c.a. Stepan Muranets, SCMP Andrew J. K. Murray, SCMP Susan Murri, SCMP Caroline Nichol, SCMP Carol D. Norrie, CSCMP* Marin Nosic, CSCMP* Tara Nunes, SCMP Michelle R. Nurse, CSCMP* Karen A. O’Brien, CSCMP* Adebukola Onasanya, SCMP Wilson Oteri, SCMP Megan Otteson, SCMP David Overland, SCMP Jillian Parisee, SCMP Kanti Patel, CSCMP* Ashish Pawar, SCMP Donalda Penley, SCMP Caroline Penrose, SCMP Valerie Ann Pereira, CSCMP* Marc Perreault, SCMP Deanna Pitirri, CSCMP* Hamed Pourchi, SCMP Marilia Prudente, SCMP Aneta Pytel, CSCMP* Nazia Quazi, CSCMP* Daniel Rafuse, SCMP David R. Rajwanth, CSCMP* Shankar Rao, SCMP Stephen Rasch, SCMP Azhar Rasheed, SCMP Jawwad A. Rashid, CSCMP* Erik Ratajczyk, CSCMP* George Read, SCMP Monique Rideout, SCMP
Michael Ritchie, CSCMP* Berkley Rogers, SCMP Teng Rong, SCMP Briana Rudolph, SCMP Sanjay Sahoo, SCMP Bassam Salem, CSCMP* Sarabjeet Kaur Saral, CSCMP* Jesse Saunders, SCMP Lee Anthony Scherbinsky, CSCMP* Ryan T. Scott, CSCMP* Jennifer Scott-Tinney, CSCMP* Erisa Seggumba, SCMP Jitesh Shah, SCMP Darcy Shannon, SCMP George S.S. Siha, CSCMP* Laura Simonsen, SCMP Terminder Singh, SCMP Alper Somyurek, SCMP Paul Spagnuolo, CSCMP* Oleg Sribny, SCMP Rachelle St. John, SCMP Paulette Stoddard, SCMP Pan Su, SCMP Matthew Sutherland, SCMP Matthew Swinarski, SCMP Maria Szilagyi, CSCMP* Shalini Talwar, CSCMP* Heather Tannash, SCMP Muhammad Saqib Tariq, SCMP Michael Taylor, SCMP Arseni Temirov, SCMP Craig Totten, CSCMP* Kyle F. Tout, CSCMP* Emad Uddin, SCMP Beckey Unrau, SCMP Amedeo Valentino, CSCMP* Maria Agnes Vandermeer, SCMP Antonio Vazquez, SCMP Fang Wang, SCMP Mabel (Zhihong) Wang, CSCMP* Brent Willett, SCMP Rose M. Williams, CSCMP* Wade Wilson, SCMP Denise Wilson, CSCMP* Min Wendy Wu, CSCMP* David (Wei) Xie, CSCMP* Vera (Shixia) Xu, SCMP John Yang, SCMP Li Yun You, CSCMP* Josephine Youdeowei, SCMP Luyang Zhang, SCMP Xiao Dan Zhao, SCMP Julia Xiao Ping Zhu, CSCMP*
scmanational.ca *SCMA's professional designation is CSCMP (Certified SCMP) in Ontario and SCMP in the rest of Canada and internationally.
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SURFACE TRANSPORTATION SUMMIT
are coming out of university with their degrees and they can’t get work,” he said. “So now they’re considering the trades. Well again, trucking is not a trade. They want that piece of paper, they want to have adequate training. We won’t get the occupation deemed to be skilled, I think, until we have mandatory entry-level training.” Next, Michael Gullo, director of policy, economic and environmental affairs at the Railway Association of Canada (RAC)
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spoke about rail regulations. He focused his talk on the Lac-Megantic tragedy and how safety is handled now. “We know we’re in a different environment now, and we accept our position and our responsibility,” he said. “It is important to note that in Canada just like in the US, the shipping of dangerous goods by all modes of transportation is generally considered to be very safe.” He added that within days of the acci-
Defining winning shipper-carrier collaboration
H
ow do you define true collaboration between shippers and their carriers, when it comes to visible characteristics? That was the question debated by a leading shipper-carrier panel at the October 15, 2014 Surface Transportation Summit at the Mississauga Convention Centre. Jacquie Meyers, President, Meyers Transportation Services, said true collaboration is about joint problem-solving, longterm commitment and investment in that relationship. “Give us a commitment of five years that you’re going to work with us. When you get to the step where you’re investing and committing together the world is your oyster,” she said. Giving carriers that legitimate seat at the table is important. “Collaboration saves you far more money than a poorly managed RFQ,” Meyers said. Susan Promane, Whirlpool Canada’s Director, Supply Chain, said that in her experience “There aren’t that many carriers who truly operate that way. How we define carrier management is that we make sure we articulate our business goals on a regular basis. We look at scorecards and reward annually. We lock in for two years which we consider to be realistic. We do test the market after this. We typically don’t have that many changes but what we are really looking for are carriers who do what they say, and who can adapt to change, which is a real opportunity for some,” she said. “From my professional experience we have always taken the approach that the transport company we hire is an extension of our brand,” said Anna Petrova, an Associate Director, Supply Chain, who attended the
conference as an independent representative. “Aligning strategies is an important part of the relationship. Our customers are the retailers who can punish us and fine us. When that happens it’s important to stay aligned with the carriers. This is easier said than done, and requires commitment on both sides,” she added. Elias Demangos, President and CEO, Fortigo Transportation Management Group, stressed the communication factor as important to collaboration. “It’s about regular communication, and not letting issues fester. You have to go into this honestly. A lot of our partnerships are multi-year partnerships. A lot of hard work, dedication and straightforwardness has to go into continuing that partnership,” he said. It’s a given that issues will arise, Demangos said, so “for me having a Plan B is critical to how we play in the business.” When you’re entering into a rate discussion, said Promane, “everyone has cost pressures but I want to understand a little more about what they (carriers) are doing to drive down their costs. As a true partnership that’s what I expect from the other side. But oftentimes this is met with resistance,” she said. “It’s sometimes difficult for shippers to be very clear about their execution expectations. It takes only so long to agree on the rates and then it takes two years to cohabitate on this ‘hopefully successful marriage.’There’s a lot of room for grey areas when the expectations are not defined,” said Petrova. She suggests formalizing them in a document and designating it as a service level agreement, or carrier document, or by something the parties will recognize as such. “Do you want a dedicated CSR on your account? Do you want regular re-
dent, two safety advisory letters were issued. “Canada’s railways collaborated fully with Transport Canada in order to get these safety improvements in place immediately,” he said. Gullo ended his speech with a last word about safety. “In summary, in the case of safety, a robust legislative regulatory compliance and enforcement regime…is complementary…here in Canada.” CS
By Julia Kuzeljevich
ports? All those things need to be clarified and transparent. Demonstrating mutual respect and cherishing the partnership is what builds the relationship,” Petrova said. From the carrier side, how do you demonstrate to your partner that you are worthy of their trust? “Don’t ever lie to your customers. If my dispatcher lies to you they will not last as a dispatcher and I will not last as a supplier,” said Meyers. “We are very open with our customers about where our costs are going, about our load balance and about what are we doing to improve our service levels. What do I expect back? Openness, honesty and transparency,” she said. Measurement of a carrier’s performance, said Petrova, strongly considers the carrier’s service capabilities. “We measure on-time performance, carrier-controllable, safety, and what I would call compliance to administration, i.e. billing accuracy, EDI compliance,” said Promane. Positive leadership at the carrier makes a difference, said Petrova. “I attend lots of (transportation) conferences. They all tend to have that cloud of continuous complaint. We all have our challenges. We need to create a more positive leadership for our teams and to focus on our wins. I’m sure every transport company in this room has had great achievements. We’re hoping for more visible positive leaderships-an industry that is always on the defensive is not very attractive,” she said. “It’s been very often that we as shippers had to drive the innovation. It so happened that for the most part it was always us,” Petrova commented. CS
34 November/December 2014 www.canadianshipper.com
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LEADERS
CONTAGIOUS ENTHUSIASM Tim Kennedy, 2014’s Supply Chain Executive of the Year, is a leader in innovation and collaboration Change has been a constant for Canada’s grain handling and marketing system since the Canadian Wheat Board ended its marketing monopoly for wheat and other grains in 2012. Then came the winter of 2013-2014, when a bumper crop of wheat, combined with an atypically long cold spell, created a backlog in Canada’s grain transport system, and in its wake an onslaught of regulatory changes in transportation. Enter Tim Kennedy, Director,Transportation and Logistics at Viterra, one of Canada’s grain industry giants. Chosen as the 2014 Supply Chain Executive of the Year, an award of distinction given by the Freight Management Association of Canada (FMA), Kennedy has been called a leader in innovation and in the introduction of new technologies. A 36-year grain industry veteran, Kennedy was appointed to his current role as Director of Transportation and Logistics in August 2007, after he began his career in logistics in 1995, working in inventory management and rail planning. In making the award, the FMA Board of Directors “was impressed by the depth and breadth of Mr. Kennedy’s experience in managing a complex multi-modal logistics function, with both inland and export terminals and managing an annual freight budget approaching one billion dollars.” “Tim Kennedy represents the best in supply chain management”, said FMA President, Bob Ballantyne, “His technical, management and communications skills and achievements are outstanding, and he has been generous in sharing his knowledge and developing the skills of his staff ”. Viterra CEO Kyle Jeworski has been working with Kennedy for 18 years. “Prior to my current role I was head of grain merchandising and transportation and we worked closely together. Our working relationship is fantastic-Tim has always been such a good resource.Transportation is front and centre for us, and whether it’s on strategy, or on industrial relations, we get a good 36
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Tim Kennedy, Director, Transportation and Logistics at Viterra, receives the FMA Supply Chain Executive of the Year Award at CITT’s Canada Logistics Conference 2014.
sense of the competing relationships. Tim is full of life every day he comes to work and has a contagious enthusiasm. I think that says something,” Jeworski said. Of Kennedy’s 36 years of service, Jeworski said some may see it as a negative, “because the assumption is a person becomes set in their ways. But Tim works to find new solutions. He draws from past experiences but he is very much a person who is driving current and future success. That’s very important-to be constantly thinking about something. We are proud of the award he got,” said Jeworski. Affable and unassuming, Kennedy has performed a number of roles in both rail and truck transportation over the years, roles he describes matter-of-factly and modestly. “I worked in country grain terminals as well as in various marketing roles until 1995. Through the late 1990s and early 2000s my focus was primarily on the centralization of logistics activities as well as on asset rationalization. In August 2007, when Viterra was formed with the merger of Saskatchewan Wheat Pool and Agricore-United, my role was expanded to include all rail and truck
By Julia Kuzeljevich
transportation. At that time, my portfolio grew to include the transportation management of all fertilizers-including anhydrous ammonia,” said Kennedy. With the acquisition of Viterra by Glencore International in 2012 Viterra divested of the fertilizer business and Kennedy assumed responsibility for vessel logistics including all laker movement on the St Lawrence. With the acquisition complete he assumed responsibility for all modes of transportation in North America. “My primary focus is end to end supply chain management including forecasting, planning, visibility, risk management, and above all, maintaining a highly focused logistics team,” he said. “In the absence of commercial freight markets in Canada, while at the same time moving away from the single desk marketing of the CWB, we now find ourselves selling and trading in an open market while performing logistics in a semi-regulated and legislative freight environment. A major focus of mine is to look for commercial steps in the current and future environment to move Canada’s grain industry to an environment where investment is incented through the rewarding of efficiencies. This can only be achieved through supply chain partnerships that carry balanced levels of accountability, and penalizing of inefficiencies and non-performance,” Kennedy said. “Last year we had a record crop of grain in Canada which was an immense challenge from an operations perspective. We’re moving grain in excess of 1600 km to a port position. Grain is unique in that you’re dealing with so many commodities and qualities. Tim continues to drive efficiencies-he’s a strong advocate of increased velocity. He has done a lot of work with governments of all levels and with the railways. He spends a lot of his time trying to find solutions for both sides. I am proud of how he represents Viterra. He challenges the status quo,” Jeworski told Canadian Shipper. Viterra consultant Richard Wansbutter has held various roles at the company incontinued on p38
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नमस्कार
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LEADERS
continued from p. 36
cludingVP Marketing and logistics, and government relations, working directly with Kennedy for over 22 years. “For me it’s been a real pleasure working with Tim. He truly is deserving of the award. Logistics is fairly complex and a key area of importance for us. I deal with a lot of individuals, and he is truly one of the most knowledgeable individuals. He really knows the business. He leads from that solid knowledge base and doesn’t micromanage. He is patient and takes in other people’s ideas. If he feels strongly about it he is certainly prepared to defend his position vigorously, and doesn’t over-react to criticism. He really does depend a lot on his team and delegates. His vision is clear on where he wants to take the team. Back 10-15 years when consolidation efforts meant the closure of some of our elevators for efficiency reasons, discussions with the farmers at times were difficult. Tim demonstrated that a new high-throughput elevator would actually raise the service levels. It’s been difficult at times with our railway friends but we sit down if and when necessary to explain where we’re coming from and why. Tim does step back and see the bigger picture,” Wansbutter said. Handling diverse, complex relationships on a daily basis, Kennedy said his guiding principles on relationship management are to be forthright and to operate with a high degree of integrity. “These are, no matter what level of the supply chain in which you participate, the foundation for any solid relationship. Rail transportation continues to be the number one logistics challenge as Canadian freight for grain movement does not trade in a commercial open market and is enshrined in legislation. Even in cases where grain is already bought, sold, and both ends of the grain pipeline have capacity, companies can find themselves at extreme risk if rail is not available. Relationship management is key to creating industry knowledge, to maintaining transparency, and to developing best and worst case scenarios for rail movement,” he said. Kennedy also led the integration and coordination of Viterra’s grain logistics with the company’s fertilizer business to ensure maximization of rail car and truck movement. “Overall, Tim manages one of Canada’s largest and most complex freight and logistics divisions, which includes shipping over 150,000 railcars and 42,000 trucks per year along with coordinating over 14 million metric tonnes of vessels logistics. In addition 38
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to Viterra’s bulk movement this also includes managing Viterra’s niche special crops processing business that includes containers, intermodal freight and box cars.Viterra’s total freight budget is in the order of $500 million per year for land freight and over $375 million in vessel freight,” Wansbutter said. Over the years an in-house, proprietary platform was developed, under Tim’s leadership, for the planning, forecasting and execution of both rail and truck logistics. “Transportation and logistics is more than moving inventory; it is creating supply chain visibility with real time accurate reporting. This means capacity availability for
working with. He always ensures he is abreast of current and developing logistical issues and that they are dealt with in a rapid and efficient manner. He has developed an exceptional team to ensure thatViterra’s logistics needs are met to satisfy our grower and end-use customer base. He is an individual with great integrity and is respected by logistics suppliers and competitors alike,” said Wansbutter. “I don’t believe the record grain crop is an anomaly-it may be the new norm and with that continued pressure to increase velocity and move the grain into an export position. We have so many risks, challenges and also opportunities and Tim has seen so
“It is being involved at all levels and divisions of the organization fueled by a competitive environment filled with constant change that keeps a logistics professional’s skills sharp and fully engaged.” Tim Kennedy, Director, Transportation and Logistics, Viterra sales staff, operational planning, visibility for operations, and accurate on-the-fly information regarding inventories in transit and in store. Internal reporting at Viterra is shared with all key staff involved in the supply chain in order to make the best informed decisions 7/24,” Kennedy said. Kennedy said that with the rail service review being moved up a year it appears that government, shippers, and carriers are serious and have a greater appetite for change than in previous years. “In order for Canada’s transportation infrastructure to be able to keep up with the forecasted growth significant investment is required. That must start now. Investment must be solicited, and the environment must provide a return on investment.” “In the field of logistics you find yourself involved in all levels of the organization sales, operations, finance, and corporate. Each part of the organization is made up of professionals who one can always learn and be mentored from. It is being involved at all levels and divisions of the organization fueled by a competitive environment filled with constant change that keeps a logistics professional’s skills sharp and fully engaged,” he said. “From my perspective Mr. Kennedy is one of the most dedicated and innovative logistics executives I have had the pleasure of
much before. I think when he received notice of this award the first thing he did was send a nice note to the entire group saying it really is the entire team’s efforts. He believes in the quality of the team. He is driven but humble. He has the desire to do what is right and to find solutions. He has an integrity that is unmatched,” Jeworski said. Kennedy said that his 36 years in the business have offered ample opportunities “that have further mentored me in the various and vast modes of transportation management. My focus outside of work is my wife Nancy and our four kids who range in age from 17-28. We keep extremely busy working to assist our kids with their educations and to establish them in society. We take great pride in the contributing members of society our children are becoming. My other hobbies include sports cars, home projects, and travelling-especially during Saskatchewan’s winter months!” he said. CS Associate editor Julia Kuzeljevich has been writing about transportation issues for more than a decade. Her meticulously researched articles have garnered several transportation and Canadian Business Press writing awards.
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REFRIGERATED TRANSPORT
KEEPING IT COOL
The push for velocity and lower costs adds complexity to refrigerated supply chains
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hippers needing refrigerated transport solutions are facing rising cost pressures, and at the same time, a greater focus on velocity. The growth of fresh foods and premium products is contributing to this complexity in the supply chain, said Versacold president and CEO Douglas Harrison. Cost pressures are on the rise, primarily driven by energy costs and the growing cost of finding good talent, he said. With approximately 40% of the cubic capacity in the temperature-sensitive 3PL and warehouse market,Versacold understands that it needs to spend money in order to keep on top of the changing industry. According to Versacold president and CEO Douglas Harrison, the company has invested $24 million in new equipment technologies and facilities upgrades. “The trend in food and healthcare is growing complexity in regulations, in Canada, cross-border and globally,” said Harrison, adding that recall management–where products can be tracked, traced, identified, and retrieved–is of increasing importance. The temperature-sensitive industry is also working in an increasingly complex global supply chain environment. More food is being produced in single product facilities in one part of the world and being shipped across the globe, and it is only through the increased use of technology that this is possible while temperature controls are maintained. “We spend a lot more on remote sensing so we can guarantee the safety and quality of the food product. We’ve invested heavily in taking a more consultative approach in modelling, and we’ve evolved our facilities from freeon-based to ammoniabased,” Harrison noted. One of Versacold’s biggest expenses is energy, but it’s not one that can be reduced by gaining efficiencies. Freezers and cold storage must be maintained at precise temperatures, and the electricity required to run the coolers is a constant. While rates for electricity tend to be regulated by the provinces, Harrison said they are “increasing far above the rate of inflation,” as are workers’ wages. “Certainly the number one trend is a far greater focus on food safety, quality and far greater regulatory requirements. With consolidation of retailer and producer segments-the largest segment of the M&A market over the last quarter has been in foodthere’s been a focus on control of the supply chain but also a greater interest in cooperation. Recall management is certainly a critical element,” he said. “In Canada there is an ongoing battle for control of the supply chain 40 November/December 2014 www.canadianshipper.com
BY JULIA KUZELJEVICH
between the large manufacturers and retailers. We’re finding we’re becoming more of an intermediary in leveraging supply chain efficiencies in conversations with these two (groups),” he said. On the transportation side, shipping consultancy Seabury finds a pronounced shift is taking place from air cargo to ocean transport, according to a study released mid-year. New container technologies are contributing to the trend. “A decade ago, tomatoes were just as likely to be transported by air as in a reefer container. Today, tomatoes are transported almost entirely in containers. The same holds true for numerous other perishable commodities,” says Seabury’s Maritime Advisor Derek Brand, who authored the report. About 100,000 TEU per year is transported by ocean carriers instead of by airplanes. The shift is particularly pronounced in certain perishable commodities like tomatoes, capsicum, fresh fish, lettuce and pineapples, but not only perishables. “The volumes that have shifted to ocean transport are significant for the air cargo industry,” said Brand. If there had been no mode shift since the year 2000, 5.4 million tonnes of cargo would still be transported by air rather than ocean. Air cargo should have grown at an average annual rate of 4.5%, but has instead grown at 2.6%. Brand cited technology in controlled atmosphere containers, (CACs), that can slow down the ripening process opens up ocean transport as a viable alternative to air cargo on some of the longer trade routes. Technology offers a variety of tools to not only keep products at the right temperature, but to better monitor the load-from temperature sensors and GPS tracking to self-reporting alerts for computers and mobile devices. Protecting temperature sensitive freight also comes down to some simple best practices and good communication amongst carriers, vendors, providers, and receivers. The need to maximize uptime is one of the biggest trends on the refrigerated transport side, said Michael McCarty, group director of operations, Fleet Management Solutions for Ryder Canada. “When you start to move all these perishable goods that tends to be the push. The customer is truly not understanding all the different resources available to them,” he said. Ryder puts a number of technicians that are licensed through an extensive training program. “It is challenging to find a good reefer technician. We really do push to find the best of the best. A lot of customers have perishables Photos: ©Givaga/iStock/Thinkstock ©Richard Jemison/iStock/Thinkstock
REFRIGERATED TRANSPORT
and we want to make sure we have the equipment maintained properly so they are not breaking down. The last thing you want is an issue with the truck being on the side of the road,” McCarty said. “Even when it comes to the simplicity of loading they are actually hurting themselves in many areas,” he said. Having the proper amount of airflow through the vessel, when it is loaded incorrectly, can be an issue. “Where I see it happening for example is in food services, in the use of multi temperature units with dividers that are not properly connected, killing the reefer unit and spoiling product,” he said. There is also not having the right application and the right loading in a way that is going to allow airflow from the top to the bottom of the container.
and how they work. If something does go wrong we want get to it fast enough so they don’t lose their cargo,” McCarty said. In trailer transport, refrigeration controls such as Carrier Transicold’s new APX remote panels place trailer refrigeration controls in locations more easily accessible to operators, the company said. The remote panels are available in two configurations: “flushmount,” designed for mounting inside the trailer near the rear doors, and “surface-mount” for use on trailer exteriors. Flush-mount panels are especially useful at distribution centers, where personnel can configure the refrigeration unit control by walking into the trailer from a loading dock. Surface-mount panels provide similar practicality and are typically mounted near the front of the trailer, opposite the main unit control located behind the driver, providing safer curbside access for the operator when the rig is parked along a traffic corridor. “Remote panels provide the ability to control the refrigeration system from secondary locations that are more convenient for drivers and distribution operations,” said Mark Fragnito, product manager, Carrier Transicold. “The new APX remote panels provide the same control functionality as the main APX control display common to Carrier Transicold’s current X4 and Vector series trailer refrigeration units.” The remote panels include the same dashboard display – a large, backlit screen, flanked by labeled control buttons and menu keys – that makes operation easy and intuitive. “The APX remote panels look and function the same as the main APX unit control, eliminating the learning curve for drivers and others already familiar with the system,” Fragnito added. Air Canada Cargo recently announced the approval of several additional GPS tracking devices for use on its aircraft, enabling shippers to monitor the location and environmental conditions of their shipments in real-time, the airline said. “Part of Air Canada Cargo’s mission is to provide our customers with innovative shipping solutions that meet their evolving needs. With multiple GPS tracking devices approved for use on all our flights, shippers can benefit from the numerous advantages offered by real-time visibility and data collection for their shipments on Air Canada Cargo,” says Vito Cerone, Director, Marketing and Sales, Americas. Air Canada Cargo has approved the FedEx SenseAware 2000, OnAsset SENTRY 400, FlightSafe and SENTRY 500 FlightSafe, Key Seven EPS2 Microtracker, and Sendum PT300 and PT300D devices for use onboard following rigorous testing by its engineering and cargo operations teams. Shippers can use any of the approved devices when booking with Air Canada Cargo. With real-time capabilities at all points in the supply-chain, GPS tracking devices provide stakeholders with critical data that enables them to intervene to reduce or eliminate loss related to the integrity of the cargo, the airline said. Each device has a different product offering, with some devices offering multiple sensors such as temperature, humidity, pressure, shock, location and vibration. Devices use multiple modes of sensing and proprietary logic to automatically turn off wireless transmitting radios while in flight to ensure safe and regulatory compliant operation. CS
“When we sell or lease a truck we want to make sure the customer understands the alarms, and how they work. If something does go wrong we want get to it fast enough so they don’t lose their cargo.” Michael McCarty, group director of operations, Fleet Management Solutions, Ryder Canada
“The other thing we’ve seen is warm product being put into a cold environment. That is a disaster because the best players in the business understand if you want to maintain the temperature in the back or the container itself you will load cold into cold and warm into warm,” McCarty said. During pre-trip inspections, he noted, drivers may not be taking the time to look for leaks. “You’re looking for the seals that are not functioning properly, that are driving the cold air out. Like anything if you’re trying to keep your unit cold you want to eliminate any warmth sources,” he said. Shippers should maintain a debris-free facility as anything that was on the floor can get picked up and sucked into the reefer, McCarty noted. Trailer shutes should also be in good shape, i.e. not torn, so the airflow can go along the trailer. Any tears in the roof or chute would hurt the flow of air, putting your product at risk. “The driver can help by doing a quick visual. In my opinion it’s more of a best practice. When you look at the cost of cargo the last thing you want is to have any kind of loss because you didn’t take any precautionary measures,” McCarty said. “We try to encourage our technicians to use their eyes and hands to do as much triage as they can possibly do. One of the challenges I see out there from the smaller players is oftentimes we end up doing the maintenance on the truck but we forget the maintenance on the reefer unit itself. It ends up failing because we might have been able to catch a belt before it actually broke. One of the things that is a great best practice is you can’t expect the customer understands how it all works. When we sell or lease a truck we want to make sure the customer understands the alarms,
p40-49 CdnShipper NovDec2014_RefridgeElectronicIqaluit.indd 41
www.canadianshipper.com November/December 2014 41
ELECTRONICS
Nimble and quick REDUCING THE COMPLEXITIES AROUND SHORTER PRODUCT LIFE CYCLES BY JULIA KUZELJEVICH
T
he push for bigger, better and more technologically advanced electronics products to hit store shelves sooner means the vertical faces tremendous supply chain pressures. New and improved product with shorter and shorter life cycles creates supply chain challenges in that lead time is reduced, so companies must be nimble. “Competition among technology companies is global and it’s fierce,” said Michele Murphy, Director Operations for Technology and Services Logistics Canada DHL Supply Chain, whose supply chain services are delivered under Exel in Canada. “We service a number of global technology firms across the country with contract logistics and spare parts critical delivery. We find that our services match quite nicely to those issues. Tech supply chains are truly global and there are many com-
plexities and issues to address,” she said. “The trend I’m seeing is everything becomes obsolete almost immediately. What comes back as a return is crazy-90% of the product is in mint condition,” said Andrew Britton, President and COO at NLI International, a newly formed provider of direct to home delivery solutions for high end furniture, electronics and appliances purchased online. The company recently opened two Mississauga, Ontario based distribution centres. “Every day we get an inbound load of goods that is a different SKU.We will have 250 models come in of (a certain) size and tomorrow a completely different model,” Britton noted. “I see retailers storing less inventory and ordering smaller quantities. The average shipment weight is also declining,” Eric Warren, Vice President Business Develop-
ment, Hercules, which handles electronics shipments for several clients. In electronics logistics, the challenge is the pressure to reduce cost, while improving service performance. “That includes supply chain costs. That means we need to be scaleable and risk tolerant,” Murphy said. The electronics sector can learn from some of the strategies deployed in other industries, she said. Returns are definitely a growing priority in the electronics industry. “The average return rate ranges from 11-20% and it’s estimated that every year the electronics industry spends $19 billion managing customer returns. There is real value for companies to optimize their returns process. We have learned a few things: the majority of returns do not relate to product defects but to ‘no fault found’.We work with continued p.44
42 November/December 2014 www.canadianshipper.com
p40-49 CdnShipper NovDec2014_RefridgeElectronicIqaluit.indd 42
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ELECTRONICS
continued from p.42
our customers to implement processes We are involved in many places, like the presale side of tech services, as well as aftermarket where products are returned and it’s necessary for some diagnosis and disposition,” she said. Thomas Regan, Group Director of HiTech and Electronics, with Ryder, said that with products changing so quickly and
with shorter product lifecycles, “If you do not understand that dynamic that can drive a lot of volatility.” Ryder offers a co-location solution that integrates forward and reverse logistics in the same facility to further optimize the returns process and drive greater value recovery of returned assets.
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By co-locating the distribution management of finished goods with returns processes such as technical repair, refurbishment, and repackaging in the same facility, co-location enables customers to benefit from lower administrative costs, fewer transportation miles, lower fuel costs, improved visibility and control throughout the product lifecycle, and faster processing speed. “We’ve had success with co-location of the forward/reverse process under one roof. Sometimes it does not work because of transport restrictions/leases/combining workforces. But when it does you can leverage peak volumes,” Regan said. One of the key advantages of co-location is a stronger mix of people, and reduced training costs. “As your returns are coming in, if you’re co-located, you can identify any product flaws immediately, and if everyone is under one roof you can take advantage of those synergies,” said Regan. “There’s no question. Looking at a lot of the reverse data we’re working on with existing or new customers-the amount of no fault found is becoming higher and higher. The overall social media effect of not taking care of that customer is changing how product is brought to market,” he said. The bigger opportunity is trying to identify the customers who just didn’t feel comfortable and not many people want to admit they didn’t know how to use a product. This is changing the stricter returns policies of the past and creating some very flexible policies today, Regan noted. “Now the damage to the brand is immediate and retailers fear this. So the question is how do you get the value out of that product now? How soon can you get that sent back out to either a secondary market or an international developing market?” “We try to recover any value we canwe believe companies can recover about 50% of the returns value-it can become a huge revenue stream. We also find that there are some efficiencies in integrating forward logistics and returns and repairwhen we do this we find cost savings of 10-20%. Tech companies are facing so many challenges that the returns process has not been top priority,” Murphy said. The notion of flexible, scaleable capacity is a key solution that can help companies deal with volatile demand and fast, quick requirements in the supply chain, Murphy noted. “To achieve this we find there is much
ELECTRONICS
more integration across services. The multiuser shared service concept is also working in a number of arenas, i.e. shared ware and transportation to help companies get the right capacity. Spare parts critical delivery is a key component in Canada-speed is top in that arena.We are able to dispatch orders on a critical basis within 30 minutes and that will deliver a critical part to a technician or customer location within 1-2 hours. Typically the parts being delivered are for very critical situations, i.e. production parts are down, or banking systems are out of operations,” she said. “We know all markets are differentsome have well-established transportation services, some don’t. Our services are very customized to local infrastructure, to policies and to the consumer. The solutions are also global and integrated across many elements of the supply chain,” she said. “Product has to flow and flow efficiently. If you make it too complex you lose any value of the return pretty quickly.We determined there should be a three minute process to determine the disposition of that product, and then 4-5 options of what to do and training around light repair and testing,” Regan said. For Britton, it has become company practice to photograph a trailer at the beginning and end of the trip to incur fewer claims when carriers may remove his load to throw someone else’s freight on to the truck. With electronics shipments when the order drops “we have to turn freight around pretty quickly. We’re under the same time constraints as everyone else. The retailer just wants to be able to report that it’s gone. But time in transit has not changed,” he said. “In consumer electronics you are fined now for everything as well,” he said, especially when a shipment is delayed in transit and the product does not arrive in time to meet a promotion. “Impeccable box trend” is another item of key importance to transportation providers. “Most people will not accept electronics if there is any blemish in the carton,” said Warren. He noted that in consumer electronics there’s no outside packaging so you are essentially moving the box that the consumer will see on display. “They’ve gone to slimmer packaging to increase the density in the trailer.There’s one receiver in the market where if there is a fingerprint on the box they won’t accept it,” he noted. Special clamp trucks exert just the right
amount of pressure, squeezing the box to pick it up. “We have a lower damage rating in the network, and anyone moving electronics knows you better have a tight security program. The key is keeping the goods moving, to use GPS, etc. We make it as difficult as we can for thieves,” Warren said. CS
Associate editor Julia Kuzeljevich has been writing about transportation issues for more than a decade. Her meticulously researched articles have garnered several transportation and Canadian Business Press writing awards.
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INFRASTRUCTURE
The cargo ships carry their own tugs, barges and other unloading equipment. Photo by Matthew Illaszewicz
Airport
SEALIFT MATERIALS FOR THE NEW IQALUIT AIRPORT ARE ALL ARRIVING BY SEA BY CARROLL MCCORMICK
S
ummer is shipping time in the Arctic. In addition to their regular resupply duties, since 2013 cargo ships have also been bringing in materials from Quebec for the rebuilding of the Iqaluit International Airport, located at the northwest end of Frobisher Bay. When the government of Nunavut (GN) pulled the trigger for the $300-million project, the GN and its private partners launched a carefully organized supply chain effort that will continue until the airport is completed in 2017. The project is a partnership between the GN and Arctic Infrastructure Partners, formed by InfraRed Capital Partners Limited,
Bouygues Building Canada Inc., Colas Canada Inc. and the Winnipeg Airports Authority. Iqaluit, the capital of Nunavut, is about 2050 kilometres north of Montreal. There are no highways connecting it to, well, anywhere. Except for aggregate, which is quarried locally, all of the building materials must be shipped in, offloaded onto the beach at Iqaluit and moved up to the airport. The construction equipment must also be brought in. “There is no local availability that you would experience in southern Canada. Excavators, graders, cranes, trucks and a plethora of small vehicles to meet the needs of the project were shipped this season,” says Catricontinued p48
46 November/December 2014 www.canadianshipper.com
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INFRASTRUCTURE
continued from p.46
ona MacLeod, director of communications, Department of Executive and Intergovernmental Affairs, GN. Nunavut Eastern Arctic Shipping Inc. (NEAS) is the official sealift service provider for the construction project. The company is based in Iqaluit and has port operations in Valleyfield, Quebec, where all
the materials for the project are staged and packed in its ships. NEAS delivered the first loads of construction materials in 2013, during the shipping season that runs from June to November, weather permitting. They included 10,000 drums of asphalt and over 1000 bundles of insulation. Construction began this
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year on the air terminal building, the combined services building, apron and taxiway. This year NEAS made 12 stops at Iqaluit, twice the number of visits it usually makes. The existing, 2,900 square-metre (SM) airport terminal was built over 25 years ago. In 2013 it handled 140,000 passengers and just under 20,000 recorded arrivals and departures. The construction project includes building a new 9,935 SM terminal, repaving the 2,623-metre runway, improving the airside electrical systems, realigning the taxiway and expanding the apron. Every spring, NEAS studies the longterm weather forecasts to see when the weather will become favourable. Only then can the new shipping season begin and ships start departing the Port of Valleyfield for the roughly six-day, 1,700 nautical mile (3,148-kilometre) sail down the St. Lawrence River, across the Gulf of St. Lawrence, through the Strait of Belle Isle between Newfoundland and Labrador and up the coast. “All of our suppliers are sent a sea lift packaging and transport specification by our logistics manager. They have a responsibility to deliver to the port in a timely manner. Most of the materials arrive via road pre-packaged and the final method of containment is based upon the recommendation of NEAS and the logistical manager,” MacLeod explains. “To minimize the risk of limited space and the risk of non-delivery,” MacLeod adds, “we book as soon as possible when the sea lift rota is published. Small reservations can be accommodated up to a month before departure.” A NEAS company map of the northern archipelago is peppered with some 40 destinations, including the communities of Eureka, Kuujjuaq, Quaqtaq and Ulukhak-
With no wharf at Iqaluit, getting the cargo on land is a big challenge.
tok. Just getting near them can be a challenge for the NEAS crews. To reach Iqaluit, for example, ships may require icebreaker assistance if Frobisher Bay is not clear of ice. That happened in 2012 when the expected winds out of the northwest did not materialize. Instead, winds out of the southeast pushed ice into Frobisher Bay, and it took weeks longer for it to clear. “In a normal year it would be July 10-15 to get in there, [but] in 2012 Iqaluit was full of ice until August, because of the wind. It was very dangerous,” says Suzanne Paquin, president and CEO, NEAS. Unloading the cargo is another kettle of fish. Iqaluit has no docking facilities. In fact, the waterfront has been characterized as essentially unchanged since Martin Frobisher sailed up Frobisher Bay in 1576. Every ship carries on its deck what Paquin refers to as a kit, which a ship will deploy to move its cargo to shore. “We are responsible for everything,” Paquin says, including tugboats, barges, lights and loaders. This year, for the first time, GN defined a staging area on the beach. “We could be there for a week or 10 days. Everyone comes down there to see if [their cargo] has arrived.The cargo poses a huge challenge to safety on the beach. The government of Nunavut put together a great initiative to keep the kids away and delineate the area,” Paquin says. Wind and tide are under no-one’s control, however. “Wind can cause problems, mostly in the fall,” Paquin says. “Right now [late October] we have a vessel in Rankin Inlet. There were gale force winds. The ship didn’t work for more than a day.” Sometimes a captain will have no choice but to steam on to the next community and return later. Thanks to the shape of Frobisher Bay, Iqaluit experiences unusually high tides; the record is about 12 metres. NEAS crews can only unload during part of a tide cycle, Paquin explains. “We spend more time waiting than working.We get about four hours, or even less, on a tide. The tide is probably the biggest challenge.” However, all of this is old hat for the highly skilled team at NEAS. With over 50 years of experience delivering cargo to the Arctic, the shiny new airport will surely arrive on time. CS
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CASE STUDY
KOM International slotting strategies optimize Mondele- z International facility
writing
ssues
e.
es
on and
wards.
- z Project Scope and Objectives The Mondele The aim of the project for Mondele-z was to develop and evaluate alternative slotting strategies within the configuration of the existing layout, and to look at the reprofiling and resequencing of products to allow for efficient flow. Slotting strategies and product placement are among the top 10 items that influence productivity. The others are order size, pick line length, hit rate/density, rack and aisle layout configuration, materials handling equipment and methods, building height and rack elevations, product flow and traffic patterns, dock size and configuration, and ergonomics/mechanization/automation. KOM’s approach was to perform a cost-savings comparative anal50 November/December 2014 www.canadianshipper.com
ysis to detail the current and new proposed productivity throughput levels by direct labour functions for each alternative picking concept. Once the new operating scenario was determined it would be implemented and the final slotting of the chosen option performed. Experience has shown that between 40% and 60% of total selection time is spent travelling (walking) which makes the length and logic behind the pick path a critical productivity issue, noted Swiednicki. Over half of Mondele-z’s Brampton DC case pick time was discovered to have been spent travelling. Using current flow patterns, path lengths and order statistics, KOM simulated the selection travel time under the current layout.Then, using it as a benchmark, KOM developed and evaluated the impact of different pick paths and slotting strategies. The objective of the KOM pre-slot was to ensure that the biscuits and confectionery case-picking area had sufficient fronts and storage to handle today’s requirements. This is the process of assigning the most efficient slot types to every item based on its movement, inventory and physical characteristics. The number of slot types is then converted to rack requirements and finally, the number of racks required is compared to racks available to determine the fronting and storage requirements. In the chosen layout option and recommendation, projecting significant annual savings in total case pick costs, KOM re-aligned items to their correct optimal slot types respecting the existing layout and rack depths, and maintained Mondele-z’s current slot types and sizes, the smallest slot being one-level double deep. KOM set up a new pick path to eliminate unproductive travel; weekly miles of travel were reduced by 40% (or 56,000 miles per year). They also eliminated forced replenishment, and reduced weekly replenishment by 27%. Fast-moving SKUs were double-fronted and products re-slotted and re-sequenced to improve order picking efficiencies. It’s important to get slotting right, and to maintain it, Swiednicki noted. Following an evaluation of your requirements, the slotting strategy must be tailored to fit the given situation, he said. The combination of factors impacting slotting can be quite complex. After the project was completed, Mondele-z International’s Distribution Centre saw a greater level of efficiency on various fronts including travel time reduction, replenishment, and reducing selection trips by picking close to half of the orders 2 pallets at a time. Maintaining slotting is an ongoing process and there are many tools available, typically a black box, noted Swiednicki. “What’s needed is customization to your operation’s optimal slotting solution,” he said. Minimum requirements for quarterly slot maintenance include verification of new item placement, of packaging/size/weight/ and VHI changes, verification of velocity increases/decreases and of dot priority location. Slotting is a facility-specific, unique process, where applying a “cookie cutter” approach is not optimal. Each DC and operation is unique so it’s important to verify priorities, criteria, and determine strategies around them. “Done right, the slotting strategy and ongoing slot maintenance will both optimize capacity and labour efficiency,” Swiednicki said. CS
©Topazgem/iStock/Thinkstock
a
An inaugural Canadian Warehousing Education and Research Council event took place August 25 at Mondele-z International’s facility in Mississauga. Tim Scott, Director Distribution, North America for Mondele-z International was the organizer of the event and was responsible for initiating the first meeting of the WERC Canadian Chapter in Canada. The meeting also included a tour of the Mondele-z Distribution Centre in Brampton, Ontario. A 17-year veteran of the distribution industry, Tim was most recently the Director, Logistics Operations, Canada for Mondele-z. Prior to this he served as Director Logistics Operations, Canada for the Kraft Foods Group. Mondele-z International Inc. is one of the world’s largest snacks companies, with global net revenues of $35 billion in 2013. The company’s brands include Oreo, Cadbury, Dentyne, Halls, Chips Ahoy!, Toblerone and Trident. After a recent Canadian distribution network transformation, the Mondele-z Distribution Centre in Brampton, Ontario (operated by Hopewell Logistics) was faced with new challenges when it came to sustainable, productive operations. With the help of supply chain management consultants KOM International, the teams were able to identify optimal product flow, positioning and practices that had the potential to significantly improve operations. The WERC engagement was an opportunity to share with industry peers how the three participants challenged each other to address opportunity and drive the solution from paper to execution through strong collaboration. Hopewell Logistics was established in 1996, and utilizes campusstyle distribution centres to leverage the advantages of collaborative distribution solutions aiming to deliver versatile, efficient and costeffective supply chains to consumer packaged goods manufacturers. Their site features a 638,000 square foot distribution centre which is the primary shipping location for all Mondele-z Canada customer shipments and which runs a Red Prairie WMS platform with over 900 Active SKUs. Keith Swiednicki, a Senior Partner and COO at KOM International, delivered a presentation on slotting strategies at the event. Swiednicki originally joined KOM International in 1984 as a project manager. Over the years, he has completed hundreds of logistics consulting projects, and most involved facility resets through to final slotting, which has contributed to his reputation today as a highly respected logistics and supply chain consultant, the company noted.
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14-11-13 7:27 AM
INSIDE THE NUMBERS
Current trade-in cycle for heavy duty vehicles
READY TO GROW?
8-9 years
Canadian motor carriers – both private and for-hire -
10 years or more
have been very reluctant to add to their fleets since the end of the Great Recession. This is due to a variety of
14% 26%
factors, including higher equipment costs, a continuing
6-7 years
of respondents
shortage of drivers to place behind the wheels of new vehicles, and a belief that excess capacity resulted in
26%
more pronounced downward pressure on pricing. But with the Canadian truck fleet getting very old indeed, our annual Equipment Buying Trends Survey found that motor carriers of all sizes are looking more enthusiastically
31%
about purchasing new trucks next year.
4-5 years
Percentage of fleet plan to replace by end of 2014 50% of fleet or more 40% of fleet
2-3 years
Plans to replace part of fleet by end of 2014
Yes
10% of fleet
3% 3%
3%
70%
38% of respondents
6%
30%
30% of fleet
No
20% 20% of fleet
Plans to replace part of fleet in 2015
ANNUAL EQUIPMENT BUYING TRENDS
Percentage of fleet plan to replace in 2015
Yes
20% of fleet
28%
87%
9%
13%
45% of respondents
No 52 November/December 2014 www.canadianshipper.com
10% of fleet
2% 4%
30% of fleet 40% of fleet
50% of fleet or more
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14-11-13 7:34 AM
THE BIGGER PICTURE
ADAPTABILITY STILL KEY IN SUPPLY CHAIN MANAGEMENT Canada’s decision mid-summer to impose sanctions against Russia in support of Ukraine, followed by Russia announcing sanctions of its own banning a wide range of food imports from Canada, is yet another reminder of the importance of having an adaptable supply chain management strategy. Granted, Canada and Russia are not major trading partners; according to the Library of Parliament, total merchandise
Situations like this are a good test of how adaptable your supply chain strategy is. Imagine yourself in the exporter’s position. A lot of questions were being asked at the time; some, perhaps, that you hadn’t thought of before. For example, what arrangements (if any) were in place with your freight forwarder or ocean carrier when containers could not be unloaded or a vessel was redirected? Who would be respon-
There are many other potential risks that illustrate the value of an adaptable supply chain strategy, one that includes contingency plans to address sales issues, protect consumers, minimize liability, and costs. trade between Canada and Russia in 2012 was only $2.7 billion. And, in terms of worldwide trade, Russia was Canada’s 18th largest export market and 43rd largest import market. Nonetheless, some products will be impacted more than others, notably pork and seafood, two of Canada’s largest exports to Russia, worth close to $600 million annually. Initial reactions from many Canadian exporters seemed optimistic, hopeful they would be able to find new markets, or satisfy additional demand for existing customers. More of an immediate problem however, had to do with shipments already in-transit to Russia. In the case of food exports, there were reports of hundreds of ocean containers of frozen pork products en route to Russia when the import ban was announced.
sible for the additional costs? Was a contract for the international sale of goods in place between the buyer and seller, and did it include provision for this scenario? Was an Incoterm selected, and was it appropriate under the circumstances? What kind of cargo insurance was in place (if any), and was the exporter familiar with coverages, limitations and exclusions? Did your credit terms, including open account or letter of credit, provide adequate protection in the event the buyer refused to pay? Was export insurance for accounts receivable in place? Remember, the goods were a long way away at the time, raising the question of oversight. Let’s stick with the same example involving frozen food exports. What were your backup plans if the carrier insisted on returning the goods to origin, at
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your cost? Did you have a contingency plan in place if the product spoiled and required disposal? And (perhaps most importantly), who would be responsible for maintaining cold chain integrity? Would you have been able to resell the goods in transit, and if so, could you have demonstrated to the buyer that refrigeration and food safety requirements were consistently maintained? And, from a liability perspective, do consumers have the right to know what transpires in situations like these? Could you have maintained traceability for the redirected shipment? Were you prepared for any subsequent liability, and able to engage in litigation, if needed, in a foreign country other than that of the original intended buyer? In terms of risk management, political unrest is a good (although undesirable) example of how established supply chain strategies can be upset virtually overnight. But it’s certainly not the only reason.There are many other potential risks that illustrate the value of an adaptable supply chain strategy, one that includes contingency plans to address sales issues, protect consumers, minimize liability, and costs. There are other examples that could result in similar situations, where delivery of goods could be delayed due to natural disasters such as volcanoes,
earthquakes and tsunamis, or even port closures due to medical quarantine in certain affected areas. Developing an adaptable supply chain strategy involves having proactive discussions internally and externally, getting feedback and advice from many sources, including senior management, compliance, sales, marketing, customers, distributors, freight forwarders, customs brokers and insurance agents. Even so, the real value of an adaptable strategy is one that is flexible, able to address different and unique challenges. The trade unrest (in effect at press time) with Russia may continue for some time, or it may be resolved politically as quickly as it developed, or it may worsen.Anticipating political reaction, and the impact it will have on supply chain requirements, is difficult at best.What is the potential for political unrest is the Pacific region following China’s announced intention regarding elections in Hong Kong in 2017? That’s hard to predict, although buyers and sellers now have time to think about the ramifications. Nonetheless, events such as these reinforce the value of thinking strategically for logistics and supply chain practitioners; of the need to develop processes that address cost and customer service concerns, yet are adaptable in the face of unforeseen disruptions. CS
Laurie Turnbull, CITT, P.MM is a supply chain consultant with Cole International, a leading Canadian logistics company providing Customs brokerage, warehousing and worldwide transportation services. He can be contacted at laurie.turnbull@cole.ca.
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