Canadian Shipper November/December 2015 by Annex Business Media

NOVEMBER/DECEMBER 2015

PUBLISHED SINCE 1898 | WRITTEN FOR BUYERS OF TRANSPORTATION SERVICES

2015 SUPPLY CHAIN EXECUTIVE OF THE YEAR Teck Coal’s Craig Olley

OUTLOOK 2016 How will shippers fare?

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CONTENTS

NOVEMBER/DECEMBER 2015

DEPARTMENTS

6 | Editor’s Forward An economic outlook for shippers; what makes for a winning Supply Chain Executive.

COVER STORY

PUSHING EAST

8 | Viewpoint

Middle East hubs beckon with new gateways, juicy yields

Why a shorter workweek could be both heart-healthy, and more productive.

12 | In the News Highlights from the CITT Toronto Area Council’s Fast Forward-the Future of Trucking evening event.

52 | Inside the Numbers Results from our Buying Trends Survey.

54 | The Bigger Picture Towards a multi-faceted risk management strategy.

Dollars for docks

Port financing in choppy seas

©Mikhail Gusev/iStock/Thinkstock

26 A view of the Palm Jumeirah archipelago in Dubai, United Arab Emirates.

FEATURES EAST COAST INFRASTRUCTURE | 18 Project update for East Coast ports and terminals.

THE GOALKEEPER | 22 Introducing Craig Olley, FMA’s 2015 Supply Chain Executive of the Year.

ALL HANDS ON DECK | 28 Reporting from the Association of Canadian Port Authorities’ annual conference and AGM.

continued

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WHAT’S ONLINE

continued

BIG DATA | 30 A white paper primer offers up many uses for well organized, well sourced data in the supply chain.

SHIPPING TOGETHER | 32 Looking at the LCBO-SAQ strategy for moving low volume products.

OUTLOOK 2016 | 34 Our annual modal report on what’s trending, what’s to watch for in the year to come.

MATURE SUPPLY CHAINS | 44 What they are and how to get one.

SURFACE TRANSPORTATION SUMMIT REPORT | 48

Highlights from our premier event looking at key issues for shippers and carriers.

WEB TV Transportation Matters

SHIPPER SHAPE Making drivers’ lives better-how can shippers help?

PUSHING PRICE

Why the race for bottom rates harms relationships.

BLOG BITS Search our blog archives at ctl.ca

Carolina Billings Why do people run away from conflict? Is someone who is never at conflict or wants peace above all else a pacifist or someone in denial?

Dan Goodwil Becoming a Best in Class Shipper – Freight Spend Management Freight costs can be in the millions or tens of millions of dollars. This large expense needs to be managed very skillfully.

Find us on Twitter at: @CanadianShipper

@LouSmyrlis

@JuliaKuzeljevic

@JamesMenzies

@FleetExecutive

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EDITOR'S FORWARD Julia Kuzeljevich

A feature it’s always a pleasure to write

ach year, Canadian Shipper is proud to be the media outlet profiling the Freight Management Association of Canada’s Supply Chain Executive of the Year.This year’s winner is Craig Olley, Director Logistics, with Teck Coal Limited.Teck is the world’s second largest producer of seaborne steelmaking coal and Canada’s largest freight shipper. Its supply chain ships 95% via west coast ports to seaborne destinations, predominantly; Japan, Korea, Taiwan, China, India, South America, Europe and North America. I’ve been putting together the supply chain executive award feature for many years and it is always a pleasure to do so. It’s not often that we get to dig deeper behind the strategies in operation into the people behind the strategies, and into the leadership and teamwork and personal attributes that help them make their mark. As Director of Logistics for the last two and a half years, Olley’s primary responsibility is for the operations functions for the group, touching mine production, rail, ports and freight. He is not being sarcastic when he says he “enjoys long gruelling days, and enjoys the grind.” Olley notes that it’s unfair or unreasonable to expect anything from someone else that you wouldn’t expect of yourself. “I know that’s a big part of what I am.” Like all winners of the Supply Chain Executive of the Year award, Olley is quick to say that his success as a supply chain executive is “really about the success of the team at Teck”. “It’s nice to hear from your peers and that makes it all worthwhile. Even without that, I still love what I do,” he says. I hope you will enjoy Canadian Shipper’s in-depth interview with Craig, and with his colleague Steve diPiano, who nominated him for the award, as much as I enjoyed writing it. OUTLOOK 2016 No one knows the future, but those who spend their time measuring the indexes and trends that have an impact on business and the economy have been hard at work determining the most accurate outlook for the year ahead. And indeed it’s that time of year when we endeavour to provide an indication of the top trends, issues and challenges that lie ahead in supply chain for 2016. To this end our industry experts have put together an outlook for each mode of transportation-a comprehensive look at what lies ahead in 2016 for air, courier, marine, motor carrier and rail. Canadian Shipper is a key sponsor of the annual Surface Transportation Summit, along with media partners Fleet Executive, consultant Dan Goodwill & Associates and the Freight Manage6 November/December 2015 www.canadianshipper.com

ment Association of Canada. This year’s summit, held just before we went to press in late October, offered ample opportunity for discussion between shippers and their freight partners, and an overview of the key economic trends that will impact the supply chain in 2016. At the Summit, Carlos Gomes, a senior economist at Scotiabank and regular contributor to our economy panel, said he expects global growth to advance but at a moderated pace of 3%. Gomes notes that the global slowdown is concentrated within the emerging markets. But the good news is that the consumer globally is getting stronger. “The developed world will gear up next year. India is now overtaking China as the fastest growing economy of the world, and there will be a ‘change in leadership’ as growth transitions there,” Gomes noted. In Canada, the key point to understand is that economic conditions did weaken end of the year but oil and gas accounted for most of the decline, driven by a sharp drop in business investment. Construction activities-i.e. commercial construction, have weakened off. Consumer spending is likely to strengthen, though, driven by record vehicle sales. “The housing market is very strong across Canada and the employment picture has actually improved overall,” he said. As we shift into next year Canada’s growth will be closer to 1.7% where normal growth is at 2.5% Even in sectors impacted by the decline in oil and gas, manufacturing activity is starting to pick up. A lot of Canadian exports are geared to the U.S., where employment is advancing at its strongest pace in 15 years. Its leading indicators are positive, Gomes notes. In Canada, meanwhile, for manufacturers the level of unfilled orders is up 16-17% on a year over year basis. Manufacturers have a significant backlog to work through, but once they produce it there will be the opportunity to transport it, Gomes said. Auto industry sales will also be at their second highest level on record this year surpassing the 2000 peak, he adds, all signs of movement to come. While weak business conditions in Canada overall have seen companies shy away from investment, a rise in U.S. demand ahead could justify it. CS

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THE VIEW Lou Smyrlis, MCILT November/December 2015 Volume 118 Issue No.5

EDITOR Julia Kuzeljevich (416) 510-6880 Julia@TransportationMedia.ca EDITORIAL DIRECTOR Lou Smyrlis (416) 510-6881 Lou@TransportationMedia.ca

When less is more How a shorter work week could improve your office workers’ productivity

f you’ve recently taken a three-day weekend and returned to work feeling more refreshed because of it, take the next step and ask yourself this question: Why are three-day weekends the exception rather than the rule? That may be a controversial question in a profession where 50- and 60-hour work weeks seem to have become the norm for many. It’s certainly a controversial question in a profession where work hours have grown longer as staff sizes have become thinner. But it’s a question worth asking. Decades of research show that those long hours spent behind the desk come with a high price. Over time they present a ticking time bomb for your heart. Recently, The Lancet, a highly respected medical publication, published a meta analysis - essentially a study of studies – that examined the link between heart disease and overwork in more than 600,000 American, European, and Australian men and women. It found that employees working long hours – defined as 55 or more per week – had a 33% increased risk of stroke than people who worked fewer than 40 hours per week. The overworked employees also had a 13% greater risk of developing heart disease than their peers who worked fewer hours. Those working more than 55 hours per week also got less sleep and had a harder time falling asleep, and were less likely to wake up feeling refreshed, which, of course, further contributed to how tired they were feeling. Overworked people, operating on lower energy levels, are also found to be less likely to properly read the emotional signals and cues given by their co-workers. In other words, tired people are more likely to end up in office arguments. Research shows that those working longer hours need more time to recover from their work than employees with workdays of normal length. The first opposition to suggestions of a shorter work week is obvious: in an industry as fast-paced as transportation we can barely manage to get all that needs to get done in a fiveday week, how could we possibly manage to do so in a four-day week? Yet the paradox is that a shorter work week actually increases employee output. And this is something we’ve known for about 200 years. In the 19th century, when factory owners were compelled to limit workdays to 10 and then 8 hours, management was surprised to find that output actually increased and accidents decreased. Back in 2009 Harvard Business School researchers studied the impact on a group of employees from a busy Boston consulting firm who were asked to take a day off in the middle of the week – no checking e-mail, no checking in was allowed.The experiment went on for five months.The end result? The firm’s clients reported an improvement in service from the teams who took the time off compared to the performance of the employees working their usual 50 plus hours per week. And you may be surprised to find – as I was – that three day weekends are already becoming common in business. A recent report from the nonprofit Families and Work Institute noted that 43% of the 1,051 American employers surveyed were already offering compressed workweeks to at least some of their employees. More research is required on the impact of a shorter work week on modern day office workers but I wouldn’t be surprised if it turns out that, as the Chinese proverb says, sometimes less is more. CS

ART DIRECTOR Ellie Robinson erobinson@annexnewcom.ca CONTRIBUTING EDITORS Carroll McCormick, Leo Ryan, James Menzies, John G. Smith, Ian Putzger, Ken Mark, Carolyn Gruske MARKET PRODUCTION MANAGER Kim Collins (416) 510-6779 kcollins@annexnewcom.ca VIDEO PRODUCTION MANAGER Brad Ling RESEARCH MANAGER Laura Moffatt CIRCULATION MANAGER Mary Garufi (416) 614-5831 mary@newcom.ca PUBLISHER Nick Krukowski (416) 510-5108 nkrukowski@canadianshipper.com VICE-PRESIDENT PUBLISHING Joe Glionna PRESIDENT Jim Glionna 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 NEWCOM BUSINESS MEDIA INC.

SUBSCRIPTIONS: Contact us at: mmarasigan@annexnewcom.ca Tel: 416 442 5600 ext. 3548. Fax: 416 510 6875. Website: canadianshipper.com (click on subscription button)

SUBSCRIPTION RATES: Canada: $65.95 + applicable taxes, per year; $107.95 + applicable taxes, for two years. U.S.A.: US$107.95 per year. All other foreign: US$107.95 per year. Single copies $8 except for the annual Logistics Buyers’ Guide (Aug) $60.95 + applicable taxes, (not including HST) plus $2.00 for postage. USA: US$68..95, Foreign: US$68.95 ISSN 2292-2490 (print), ISSN 2292-2504 (Digital), (Canadian Shipper.) Indexed by Canadian Business Periodicals Index. Printed in Canada. All rights reserved. The contents of this publication may not be reproduced either in part or in full without the consent of the copyright owner. POSTMASTER: Please forward forms 29B and 67B to: 80 Valleybrook Drive, Toronto, Ontario, M3B 2S9 Second Class Mail Registration Number 0721.

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IN THE NEWS

FAST FORWARD EVENT EXAMINES FUTURE OF TRUCKING The CITT’s Toronto Area Council hosted an exclusive speaker event on September with a presentation about where the trucking industry is heading. ‘Fast Forward: An Inside Look at the Future of Trucking’, examined the future of trucking and the use of that information towards negotiating equitable rates and contracted service agreements. This event was sponsored by Mobil Delvac with the support of M-O Freightworks, Fleet Executive Magazine and the CITT Toronto Area Council. Part of the presentation centered on what role shippers can play in making drivers’ lives better. Jason Libralesso, Senior Director, Transportation, with Sobeys, stressed building a relationship with the carrier. “It’s that relationship of going to the customer and basically working with them. A lot of shippers are making those strideswhether it’s having the right facilities for drivers to take a break in while they’re waiting for a load,” he said. Jonathan Wahba, Chief Operating Officer, with Kriska, noted that shippers should be more wary and respectful of drivers’ time. “Unfortunately drivers are paid by the mile and waiting time is ‘free.’Waste in supply chain is downloaded to the drivers, which is not a good way to endear ourselves to them. Whether it’s drop trailers or no waiting time, it’s a big deal for a lot of our drivers,” he said. Elias Demangos, President of Fortigo Freight, said that everyone wants cost containment, and everyone wants to lower

BY JULIA KUZELJEVICH

survival to get through it,” said Libralesso. “If we use 2008, 2009 as a reference, it’s certainly a lot better or improving. In ‘08, ‘09 we experienced large shippers running bids every six months-a true race to the bottom from a price perspective, which is not sustainable over time. Today, especially if we look at North American environments including large U.S.-based shippers, we deal mostly with the level of awareness around the big challenges in the industry being a lot more acute. “The driver shortage, the coming EOBR ELD mandate, which is a big deal in the U.S., and for crossborder carriers, hair follicle drug testing, and the drug and alcohol clearing base. There’s a wave of regulatory challenges coming at our industry, and all of them are going to take capacity out of the system. And I think large, sophisticated shippers are aware of this,” said Wahba. 2014 was a brutal winter and really put a squeeze on the supply chain, and there was pain felt by shippers.

their overall supply chain budget. “There are a few different ways to do that. In and out gate times. Pricing is already pretty low. It’s not so much a pricing thing as it is, let’s figure out all the different pinpoints of inefficiency. Let’s start working together. We’re finding, at least in our business, a lot more partnerships, and partnerships that are longer term in nature now. So we’ll do that hard negotiation of pricing and then every day let’s figure out ways to save money. Let’s work together, let’s collaborate, let the teams be almost one, with the same goal of, let’s lower the supply chain cost. In 2008, 2009 it was, ‘give me your lowest price,’” he said. What’s the general character of the shipper-carrier relationship right now? “With the economy a little unstable right now it’s just going to create more and more challenges. The demands of the customer are going to be unrelenting, and it’s going to be survival. The way that carriers and shippers partner-it’s just a matter of

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IN THE NEWS

“In 2015 our experience has been it’s pretty flat-it’s one load for one truck give or take depending on the markets. So there is available capacity in the market today but all of these issues are just under the surface and they’re coming at us, they’re not going away,” he said. “Sophisticated shippers recognize us, see us, and want to work with carrier partners so they don’t experience a winter of 2014, or a spring 2015 port strike in Los Angeles affecting their business. We’re optimistic it’s going in the right direction,”Wahba added. Going forward, things that will affect capacity will drive shipper-carrier relationships, said Libralesso of long-term relationships, “It’s critical that we head in that direction. It’s kind of like a marriage-there’s good times and bad, and the carriers and shippers need to share in those moments. Having those combined and collaborative targets, be it financial, be it performance, be it ensuring they are getting in and out of the gate, those service level components, is something that you work with and it’s going to benefit both,” he said.

when it’s not there, then what, and that’s not going to help us make sure that we’re delivering to our customers and it’s going to affect us long-term,” said Libralesso. “I also think that we are our own worst enemies. Most trucking companies, most

transportation companies, it’s easier just to go in there with your best price.Work a bit harder. Look at value. Look at what else you can do for the customer other than just price. We as carriers need to do more to add value other than just going in there continued

“There’s a wave of regulatory challenges coming at our industry, and all of them are going to take capacity out of the system. And I think large, sophisticated

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shippers are aware of this.” Jonathan Wahba, Chief Operating Air Canada Cargo Officer, Kriska Why haven’t some carriers and shippers developed a better understanding? “My two cents’ worth is that over the past seven to eight years there’s been lots of capacity in the marketplace, and transportation has been largely commoditized. You read about it in the paper every day. Your vendors are pushing for lower prices because the consumers are pushing for lower prices. It just flows through the purchasing supply chain, and until there’s a capacity crunch somewhere in that stream, there hasn’t been a significant event to push two people together,” Wahba said. “We can go with the opportunistic type pricing and we can get the lowest but

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IN THE NEWS

with a price,” said Demangos. Looking further into the future, and at changes in how we manufacture and distribute things, changes such as 3D printing and omnichannel retailing could call for smaller, more regionally-based orders. How does that affect the selling of transportation? “Being in retail, and seeing the patterns of what that customer wants, they don’t necessarily want to go into the store. They want to click it, collect it, or have it delivered. So whether it’s a move toward smaller fleets that can move around the city, and do home deliveries, that’s where we could see some of that come into play,” Libralesso said. “I think that the folks in our industry who will feel it first are the small pack guys, like UPS, FedEx, Purolator. They are the folks that are most challenged on day one by a real-time one hour later type of delivery. Recently the folks at Onmitrax and Shaw had a roundtable to discuss how Uber has revolutioned and disrupted the

taxi industry and there’s a lot of little supply chain technology groups trying to figure out how can we make that work in transportation. If Omnitrax, the former Qualcomm-which is the biggest provider of mobile truck technology in the world-if their senior folks are thinking about it, you know it’s going to come at us somehow, some way. We’re not all quite sure how it’s going to look yet,” Wahba said. Would more regional type distribution patterns help towards easing the driver shortage? “Yes, if you’re a driver now who’s going and making a delivery and at the same time printing on a 3D printer, you’re no longer just a driver. It all becomes a little bit more sexy. If you have autonomous trucks, you’re not just a driver. Maybe now you’re an engineer, managing this truck that’s moving down the road on its own. By the fact of having the drivers home every night, having them doing more local, higher touch type stuff, it’s more of a customer service

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Closer

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rep type environment,” said Demangos. Will technology such as Uber move inside the cab as far as a driver doing more of an operations, dispatch, driving role? Demangos thinks this is something that will take some time to evolve. “I think there’s a lot of legalities, a lot of insurance cobwebs that need to be unravelled before some major shipper goes and says, here I’ll put this on Uber and good luck if it ever gets there. It’s certainly coming.We asked FedEx senior execs about it and they said they know about it but they are more concerned about drones and how to use them to help our final mile deliveries,” he said. CS

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MIDDLE EAST HUB

PUSHING EAST OPPORTUNITIES BECKON VIA MIDDLE EAST HUBS BY IAN PUTZGER

ir Canada is pushing further east. The beginning of November marks the start of new services from Toronto to Dubai and Delhi. Flights to the Indian capital were scheduled to commence on November 1, followed by the launch of the Dubai route two days later. The airline has operated flights to India before, but with stops in Europe. Dubai is a new destination for it altogether. Both are served non-stop, using the carrier’s brand new Boeing 787-900 Dreamliners, which offer better fuel efficiency and range than planes with similar seating capacity, as well as improved cargo carrying capability. “These are great opportunities from both a passenger and cargo perspective,” comments Vito Cerone, director of marketing and sales, the Americas of Air Canada Cargo. At this point he is not sure how much cargo the airline will be able to carry to Dubai, given the combination of a new aircraft and a new sector. “We will have to see how much cargo we can load, how much passenger baggage there will be on the flights, but I am sure we can get seven to eight tons on the plane,” he says. With little head-on competition the new route offers the prospect of juicy yields. The aviation agreement between Canada and the United Arab Emirates grants six weekly flights to airlines from each side. At the eastern end, those are split evenly between Dubaibased Emirates and Etihad from nearby Abu Dhabi. Air Canada starts with three weekly frequencies too but is looking to step up its presence later on. “With international destinations the goal is always to try to gear up as much as possible,” Cerone says, adding that ultimately this should be daily flights.

With limited direct lift to Dubai,Air Canada will go after high yield traffic like pharmaceuticals for the new route.“We always try to focus on premium traffic. At the end of the day, I have seven to eight tons per flight. I don’t have 30 tons available,” Cerone says. Shippers who cannot or will not pay a premium to get their cargo flown to Dubai have ample choices of indirect routings. Emirates moves some of its traffic from Canada over U.S. gateways, where it operates a mix of passenger and freighter flights, notes Ashok Thomas, chief executive officer of Global Supply Chain Logistics, a Torontobased forwarder with strong ties in Dubai, where Thomas worked in senior positions in the logistics arena before moving to Canada. Likewise, other Middle Eastern carriers like Etihad, Qatar Airways and Saudi Arabian Airlines fly from their respective home bases to Canada as well as several U.S. points and deploy freighters on some U.S. routes. “A lot of Canadian business is going out of the U.S.,” says Thomas, adding that some airlines quote two rates for shipments bound for the Middle East - one for smaller shipments on direct flights and one for larger consignments on an indirect route. Additional lift to the Middle East comes courtesy of a host of European airlines. “Every European carrier competes in that market, given the yields to Europe,” comments Joe Lawrence, president of airline general sales agent Airline Services International. “It is a very competitive market,” he adds. “Competition is tougher than it ever has been.” Shippers who need freighter capacity have no direct options to get their cargo to the Middle East, but again they can avail themselves of indirect routings.

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MIDDLE EAST HUB

“There is maindeck capacity in Canada, both by European and Asian carriers. This is not a major issue. If you need more, you can go to New York or Chicago,” remarks Brian Pedersen, vice president airfreight at Kuehne + Nagel Canada. Lawrence sees a role for freighters chiefly when it comes to outsize cargo that cannot fit in the belly hold of a passenger plane or hazardous materials that are banned for passenger aircraft. However, there are restrictions on hazardous materials even on freighters, he notes. As for trucking hazardous goods to a freighter leaving from the U.S., this would require using an authorized trucking firm, which tends to be prohibitively expensive, he adds. The oil industry has a fair amount of traffic to the Middle East, some of it outsize pieces or dangerous goods, but most other commodities can go in passenger planes. “A lot of focus is on high-end business. A lot of high quality perishables fly to the Middle East. For example, if a chef in a high class restaurant in Dubai wants high quality mushrooms and the best are in Canada, they will fly them in,” remarks Pedersen. “What we see most is probably aviation and aerospace traffic, and then perishables.” In the early days Cerone has no particular commodities in his sights, but the emphasis is on high yielding traffic. “Pharmaceutical cargo is always there,” he says. Kuehne + Nagel treats the Middle East and Africa as one regional structure, with headquarters in Dubai. It is one of the logistics firm’s fastest growing regions, according to Pedersen. “Dubai and Saudi Arabia have always been very strong. These are year-round markets, they are not seasonal,” says Lawrence. In 2014 Canadian merchandise exports to the UAE amounted to $1.748 billion, dwarfing an import volume of $86.7 billion from there. The low westbound volume reflects the UAE’s role as an entrepot for the Middle East and a crossroads for cargo moving between the Far East and Europe. Cargo flowing through Dubai has gone through the roof, but little of this torrent of goods originates in the UAE. “Virtually everything from the Middle East is either from the Indian subcontinent or from the Far East,” comments Thomas. In the first seven months of this year over 1.4 million metric tons of air cargo moved through Dubai, up 2.7 percent from the same period in 2014. This marked a slowdown from previous years, reflecting the loss of momentum of Chinese exports to the Middle East and Europe. The Middle Eastern carriers have built up vast route networks, using their home bases largely as transit points for cargo moving between third countries. “Virtually every Middle Eastern player flies to Africa and to the Indian subcontinent. Emirates and Etihad also fly beyond to the Far East,” remarks Lawrence. He notes that there is very little difference in airfreight rates to Dubai and India.

©Muhammad Yusuf/iStock/Thinkstock

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Airfreight with destination Dubai does not necessarily remain there. Much of the cargo unloaded at Dubai’s twin airport complex is broken down by forwarders there and shifted to other flights or alternative modes of transport to leave the UAE. The strength of Global Supply Chain Logistics has been the handling of cargo from Canada that goes to destinations beyond Dubai. “This is not a mature market like Europe. It is not easy for a newcomer to enter,” remarks Thomas. Canadian forwarders would find it hard to muscle in on the market from Canada to the region at any rate, as much is controlled at the other end. Not only do forwarders in Dubai break up consolidations to distribute shipments across the Middle East and beyond, but the routing is also determined in the Middle East. “A lot of the traffic is consignee-driven. The forwarders at the receiving end dictate how the traffic is moved,” Lawrence says. Meanwhile,Thomas is preparing for the next opportunity in the region. “A large opportunity, for Dubai in particular, as soon as the sanctions are taken off, will be Iran. That is going to be one of my emerging markets,” he says. CS

Ian Putzger is an award-winning journalist with more than 20 years experience covering transportation and logistics issues. He is a former writer and editor with the Hong Kong-based Asian Sources Media Group, and Airtrade, a British magazine covering the global air cargo industry.

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EAST COAST INFRASTRUCTURE

Capacity boost: East Coast ports pursue infrastructure projects At various East Coast ports in recent months, infrastructure projects - either ongoing, planned or proposed – have commanded much attention. Some materialized during the run-up before the October 19 federal election as the outgoing Conservative government, through such vehicles as the infrastructure component of the New Building Canada Fund, courted political support in key maritime gateways by offering federal funding. The Liberal cabinet now at the helm in Ottawa has pledged to spend an additional $5 billion annually to upgrade key infrastructure, but the main initial focus will be on public transit and such ‘social’ areas as cheap housing and child care centres. Certainly,Transport Canada will continue to encourage infrastructure projects enhancing the competitiveness of Canadian ports. In the short-term, however, a major project at the Port of Quebec awaits a final go-

ahead after receiving what appeared like conditional federal, partial-funding support in July with a number of hurdles to be overcome. What was qualified as federal “funding consideration” of up to $60.2 million was announced for a huge undertaking to construct a deepwater multi-purpose terminal in the Beauport sector of the Port of Québec. The overall project, known as Beauport 2020 with an estimated total cost of $530 million, has a five-year construction phase once regulatory environmental and other conditions are met. A press release said the Québec Port Authority was responsible for costs of nearly $130 million. The port is reportedly counting on private sector infrastructure investments of between $250 million and $400 million for transfer and storage operations. This is a not unchallenging assignment at a time when the port has seen its bulk cargo volumes decline sharply (more

By Leo Ryan

than 25%) in the past two years due to plunging world commodity prices. Mario Girard, President and CEO of the Québec Port Authority, described the project as “the most important investment in the Port of Québec since the 1960s.” The investment, he stressed, will be used to “solidify the port’s competitive position on the North American market and address concerns at the wharf over congestion and lack of space.” Girard also pledged there will be a public consultation process amidst wide concerns expressed by local environmental interests and by opposition political circles in the provincial parliament. The project proposes to extend the current wharf by 610 metres, with a water depth of 16 metres at low tide, and to expand the land area for storage space. A railway track will be laid and a segment of the Henri Bourassa Boulevard on the port continued p. 18

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EAST COAST INFRASTRUCTURE

continued from p. 16

property will be rebuilt.There is a fish habitat compensation project as well. For the Port of Trois-Rivières, things went smoothly on the regulatory front prior to the announcement by Transport Canada this past summer of $16.2 million financing support for a proposed $50 million multi-purpose

terminal.The remaining investments will be shared by the port administration and local industries, including the Somavrac Group. Slated for completion in 2017, the terminal will boost the annual cargo capacity of the port from four million tonnes to seven million tonnes. In essence, the under-

taking involves fully re-building Dock 13 with a new 23,000 square metre terminal as well as erecting two new warehouses. Last year, Trois-Rivières recorded the biggest cargo increase of any Canadian port. And port chief executive Gaétan Boivin sees the new terminal generating a wide range of traffic from liquid and dry bulk to general and project cargo. Also moving with the wind in its sails is the Port of Montreal, where several infrastructure projects are in progress on the heels of record throughput of 30.4 million tonnes last year. In addition to deepening berths and improving truck traffic flow in and around the port, construction was launched earlier this summer to further boost container capacity in the Viau sector. Terminal operator Termont Montreal is investing $42 million in the first phase and will invest an additional $30 million in a second phase. The Viau project will expand Montreal’s total container capacity to 2.1 million TEUs. The subsequent phase of container expansion will be on land the MPA owns at Contrecoeur, 40 km east of Montreal, where preparatory work has begun for an eventual more than one million TEU facility when market demand arises. Increased trade across the Atlantic is notably anticipated after the ratification, hopefully by next year, of a free trade agreement between Canada and the European Union. Regarding the Viau expansion, Madeleine Paquin, chair of Termont Terminal and president and CEO of Logistec Corporation, commented: “The development of this new capacity is not only good for Termont, MSC and the Port, but also for Montreal, Quebec and Canada.With its intermodal networks, Montreal is a key facilitator for international trade.” In another recent major development, Logistec recently completed the modernization of its Contrecoeur bulk terminal with new equipment. It will further diversify its cargo base to handle more breakbulk, heavy lift and project cargo. Projects on Great Lakes On the Great Lakes, there was big news in October for the Port of Hamilton, where Winnipeg-based G3 Canada Limited (successor to the Canadian Wheat Board) announced the start of construction of a $50 million year-round terminal (slated for completion in 2017) that will ship grains and oilseeds grown in Southern Ontario continued p. 20

18 November/December 2015 www.canadianshipper.com

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A HUGE BOOST IN CARGO TRAFFIC WITH THE STROKE OF A PEN

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15-11-05 9:07 AM

EAST COAST INFRASTRUCTURE continued from p. 18

for export to world markets. This portends increased business for Hamilton’s already fast-growing agribusiness sector. According to G3 chief executive Karl Gerrand, the new terminal forms “part of a vision to create a coast-to-coast grain enterprise.” The grain products will be loaded from Hamilton on Great Lakes vessels and rail cars destined for G3 facilities at the ports of Trois-Rivières and Quebec, where they will be transferred onto ocean ships heading to Europe and other overseas markets. Elsewhere on the Great Lakes, the Port of Oshawa last spring acquired what president Donna Taylor called a “truly intermodal” dimension thanks to the opening of a $4 million rail spur that allows the port to move cargo of all sizes year round. Further east, on the Bay of Fundy, the Port of Saint John last July received a federal contribution of $68.3 million towards a $205 million project to modernize two terminals in order to accommodate larger vessels and increase handling capacity for anticipated growth in

container cargo from present relatively low levels compared with Montreal (1.4 million TEUs) and Halifax (400,000 TEUs) The past two years have seen container traffic at Saint John nearly double to 90,000 TEUs. Besides longtime customer Tropical Shipping, a major new factor has been the advent of regular liner service of Mediterranean Shipping Company, one of the world’s leading container carriers. A bridge air draft issue at Halifax Meanwhile, at the Port of Halifax on the Atlantic Coast, George Malec, vice-president of business development and operations, indicates that a current major focus is to develop a stronger distribution network. “This is supported by over $100 million in infrastructure investment since 2011 that is being used to develop trade.” The completed deepening to 55 feet, in particular, of the berths at the two container terminals has paved the way for larger ships to call at the port. Indeed, ships in the 8700-TEU range began calling for the first

time at Halifax this past summer. However, an air draft issue reportedly emerged in August at the Macdonald Bridge when a containership on its way to the Ceres terminal was sitting too high in the water because of less export cargo heading overseas. Several other vessels were subsequently diverted to the south end Halterm terminal that does not require a bridge passage. A huge deck replacement infrastructure project (coined Big Lift) to raise shipping clearance by about seven feet was launched in March and is due to be finished in 2016. CS Leo Ryan is a veteran journalist who has reported on key transportation and trade developments in Canada for more than two decades. A former Montreal bureau chief for The Journal of Commerce, he specializes in port and shipping issues and was awarded the Medal of Merit in 1992 by the then Canadian Port and Harbour Association.

20 November/December 2015 www.canadianshipper.com

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SUPPLY CHAIN AWARD

MEETING THE GOALS OF SAFETY, SUSTAINABILITY AND TRANSPARENCY IS THE FOCUS OF CRAIG OLLEY AND HIS DEDICATED SUPPLY CHAIN TEAM AT TECK COAL LTD.

Goalkeepe BY JULIA KUZELJEVICH

he winner of this year’s Freight Management Association of Canada’s Supply Chain Executive of the Year is Craig Olley, Director Logistics, with Teck Coal Limited. Teck is the world’s second largest producer of seaborne steelmaking coal and Canada’s largest freight shipper. As Director of Logistics for the last two and a half years, Olley’s primary responsibility is for the operations functions for the group, touching mine production, rail, ports and freight. Canadian Shipper is pleased to feature this exclusive interview with Olley, and with Steve Di Piano, Manager Logistics, Commercial Teck Coal Limited, (who nominated Olley for the award).

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SUPPLY CHAIN AWARD

CANADIAN SHIPPER: Could you describe the current state of the coal industry in Canada?

per

The coal industry is a major economic driver, particularly in Western Canada. Teck’s operations alone directly employ over 4,000 people and contribute over $4.5 billion to GDP annually. 70% of our business is sold FOB loading port basis and for the balance, terms of sale are CFR where Teck arranges ocean going vessel freight. Our 2015 shipments will be approximately 26-28 million metric tonnes. There’s no question that the Canadian steelmaking coal industry – and the industry globally – have been impacted by oversupply in the market. That’s why Teck has taken steps to continue strengthening our competitiveness in the face of these challenging market conditions, including reducing costs across our operations and improving efficiency.

CRAIG OLLEY:

CANADIAN SHIPPER: How did you become involved in the industry? Tell us a bit about your background, and education, leading to your current role? CRAIG OLLEY: I have a GDBA from Simon Fraser University through Beedie School of Business and plan to complete my MBA in the coming years. In my previous life I marketed and serviced tax sensitive pension plans, group benefits and life insurance. Approximately 20 years ago I had an opportunity to make a change and find a new passion to focus my energy towards.An opportunity was presented to me by a friend who owned a logistics company representing fording coal, which at the time consisted of three of Teck’s current six steelmaking coal mines. Total Marine Logistics, Nicholas Sears, was looking for a mouldable, green, hard worker who would apply logic to the day to day quality control at the ports. The time I spent working with fording mine engineers, geologists and technical marketing personnel was invaluable, consuming almost seven years of my career. After a nine month leave, testing my marketing skills as US Sales Manager for Futura Forrest Products supplying pressure treated lumber into the Pacific Northwest, I returned back to the coal industry. Fording had amalgamated with other coal assets to thwart a take-over bid from Sherritt Coal and the Ontario Teachers’ Pension Fund and formed EVCC (Elk Valley Coal Corp) now consisting of the Line

Creek, Cardinal River and Elkview mines. Elkview mine was a 100% owned Teck mine and my initial introduction to Teck Cominco was in 2004. In 2008 Teck acquired all interests in the partnership and operates today as Teck Coal Limited, a 100% owned subsidiary of Teck. My new role was as Sr Operations Supervisor responsible for the day to day coordination between our rail and port requirements. Can you provide some of the particular details/requirements unique to the industry that transportation partners must be prepared to respond to?

CANADIAN SHIPPER:

CRAIG OLLEY: We are very mindful of the fact that we must be respectful in the communities where we mine, rail and ship our steelmaking coal. As such, we are very focused on monitoring and executing controls to ensure the safe and responsible transportation of our product. We expect all of our suppliers to act in a similar fashion. The Teck steelmaking coal export supply chain travels over mountainous terrain from mine to rail to port, and can be subject to challenges related by inclement weather, winds, and natural incidents. The majority of our shipments originate from our Elk Valley mine sites and travel to our west coast ports travelling approx. 1150 km and back. We also ship product east to Thunder Bay for customers on the Great Lakes and directly to steelmaking customers in the Chicago/Indiana area, as well as to various industrial customers located in BC, Alberta and Saskatchewan. At any given point we could have upwards of 20-24 active train sets in operation. As a result Teck depends on reliable and consistent rail service. Without our rail suppliers we simply could not execute our function. In 2011, Transport Canada accepted changes to regulatory requirements concerning ship loading, aligning itself to MARPOL Annex V which stipulates that all shipments shall be subject to Transportable Moisture Limits and suppliers shall conform in declaration and procedure requirements. This came into effect Jan 1, 2015. As a result Teck has implemented controls to ensure we are in compliance with the new regulations. This can at times be challenging because our steelmaking coals can absorb moisture while intransit and while at port prior to loading, specifically at our west coast ports where there can be significant rainfall depending on the time of year. continued on p. 24

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SUPPLY CHAIN AWARD

continued from p. 23

CANADIAN SHIPPER: The

shipper-carrier relationship, and how to strengthen it, is something we frequently discuss in the publication. Can you discuss some of the strategies/partnerships you are involved in to maintain or further develop productive relationships with marine ports, rail, terminal operators, etc.?

CRAIG OLLEY I

have spent 20 years at the ports where today I have an office onsite at both Westshore and Neptune Terminals. The key to leading a team that touches so many aspects of the Supply Chain that are all integrally intertwined in your success is to support and encourage your people and to lead by example each and every time.

Hard work has always been a trait that I’ve never backed down from, instilled by my father. Applying what we’ve learned and experienced makes us successful. STEVE DI PIANO, MANAGER LOGISTICS, COMMERCIAL TECK COAL LIMITED: We

believe that our role in logistics is ultimately to deliver a supply chain at the best economic bargain to enable our steelmaking coals to compete with our global competitors; offer adequate access to supply chain capacity to execute our function, and execute in a consistent and reliable fashion to meet our customer expectations.We spend quite a bit of time reflecting on supplier performance, KPIs and, of course, sound cost management.We are fortunate to work with large and sophisticated suppliers and have several long-term agreements with all the west coast ports and the two class I railways in Canada as well as BNSF. We approach suppliers using verifiable data, which we believe creates singular and factual baseline for discussions and continuous improvement. The relationship with shipper and carrier needs to be balanced with all parties trying to understand what each other’s priorities are. At times the priorities can be conflicting, however, there needs to be a mutually acknowledgement and respect for them. We have a significant role in how the railroads plan based on our volume forecasts. We may not be able to structure our volumes in a manner which is ideal for them, but the sooner we can share our plans with them the better they will be positioned for their resourcing. CANADIAN SHIPPER: Could you discuss

some aspects of the new value stream model/lean program you were involved in developing with rail? The Value Stream program, which uses Lean principles as its foundation, was developed in early 2012, in partnership with several supply chain partners including; Canadian Pacific, BC Railway and Westshore Terminals. We worked together to develop a complete, factual supply chain perspective, build a common body of knowledge on challenges and performance needs, identify constraints, counter-measures and priorities for resolution, and outline actions needed to deliver the highest value to all. Currently, the supply chain partners do not formally utilize the Lean/Value Stream program however many aspects developed back in 2012 continue to be maintained as a focus within Teck’s Logistic Group.

CRAIG OLLEY:

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SUPPLY CHAIN AWARD

CANADIAN SHIPPER: Looking at environmental initiatives, can you discuss the coal dust mitigation initiative you were involved in both at the mines and en route to ports?

rail and terminal partners to monitor the coal during transportation and shipping. At the same time, we continually assess the effectiveness of those safeguards and look at opportunities to improve.

CRAIG OLLEY: Safety and sustainability are absolutely critical to what we do at Teck. Teck has been named to the Dow Jones Sustainability World Index (DJSI) for six consecutive years. We work closely with all of our supply chain partners to implement extensive measures to minimize any chance of dust during transportation and handling of our product.When steelmaking coal is loaded at our mine sites, each train car load is flattened and sprayed with a special topping agent. The topping agent is reapplied half-way to the port at a special respray station constructed in partnership by Teck and CP at Tappen, B.C.The coal-handling terminals we work with in the Lower Mainland use advanced, automated dustsuppression systems to ensure coal stays on the terminal site. We coordinate with our

CANADIAN SHIPPER: What are some of the hobbies/activities/community interests you like to pursue in your spare time, that keep you engaged in your work ? CRAIG OLLEY: I enjoy all activities including golf, snowboarding, time at the gym. I played competitive soccer most of my life representing British Columbia at various age groups, and spent my youth playing with the Vancouver Whitecaps Youth team until I was 19 when I realized pro soccer wasn’t in the cards for me with three knee operations before I was 18 years of age. I have two daughters (Alisha and Taylor) and two step-children (Lauren and Ryan) from my second marriage along with a new grandson Kian in August of this year. Time up in Osoyoos at the lake with family and

friends is where I enjoy spending my free time when not travelling to parts of the world we haven’t seen yet. Another area where Teck and our employees continue to do outstanding work is in leading the Mining for Miracles supporting BC Children’s Hospital. In 2014, representing Coal/Energy we collectively raised $209,630.00 versus our Copper/ Zinc group which raised $205,743.00 for a total of $$415,373.00. I had never thought that by asking friends, colleagues, business partners and family that I could raise almost $110,000.00, and have the satisfaction of knowing you and your support group could make such a difference. It was a remarkable experience. CS Editor Julia Kuzeljevich has been writing about transportation issues for 15 years. Her articles have garnered several transportation and Canadian Business Press writing awards.

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PORTS REPORT

DOLLARS FOR DOCKS PORT FINANCING IN CANADA IS A CHOPPY SEA BY CARROLL MCCORMICK

aising funds for port infrastructure projects in Canada is sometimes rather like crowdsourcing: generate interest, put out a call for money and hope for contributions. Multiple sources for funding infrastructure development is not uncommon for the country’s 18 Canada Port Authorities (CPA) in the National Port System. “Port authorities have become very adept at putting together a patchwork quilt of funding; for example, saved earnings, provincial and federal grants, loans and private money,” says Wendy Zatylny, president, Association of Canadian Port Authorities (ACPA). This is, for example, how the Saguenay Port Authority raised $37 million to build a new 12 kilometre rail link and intermodal yard, which officially opened this May. It tapped the federal and provincial governments, the City of Saguenay and its own bank account for funds. Trolling for capital expansion project money is one thing. Finding maintenance money is a quite different kettle of fish. Take Port Alberni, which needs $15 million to revitalize its facilities. “Our struc-

tures, built in 1964, are very much dilapidated and at the end of their useful life,” says Zoran Knezevic, President & CEO, Port Alberni Port Authority. The federal government owns the CPAs, which, according to the ACPA, “… were created by an Act of Parliament in 1998 under the Canada Marine Act, providing an overall governance structure for the management of Port Authorities with important local governance and control.” In plain language, the federal government divested its responsibility for the operation of its major ports to the Port Authorities and their boards of directors. Under the terms of this Port Divestiture Program, however, the CPAs are caught between the devil and the deep blue sea with a rather backhanded autonomy. They have strict borrowing limits and may not use their assets as collateral for borrowing.They are self-sufficient, with no federal funding, including no maintenance funding. Yet they must hand over gross revenue charges to the federal government. For Port Alberni, with annual revenues of only $5 -$6 million a year, finding rehabilitation money is tough. “It is hard to jus-

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tify investing $15 million to revitalize those berths, because we don’t have a business case. I’m concerned that we will have to condemn two berths. Closing them down will have an impact on industry and the communities,” Knezevic says. The Port Alberni Port Authority is not alone in this leaky boat. A 2012 White Paper, Strengthening the Canada Port Authorities – Key Enablers of Canadian Trade, written by the ACPA, notes that the CPAs need $5.3 billion to rehabilitate and expand their facilities to meet growing trade. “This is simply the identified pool of money. This is the magnitude of the funding needs,” Zatylny says. “The government has passed on the responsibility for maintenance to the CPAs. The government expects the CPAs to pay most of the $6 billion in projects identified in an ACPA survey of the CPAs,” says Serge Auclair, Vice President, Strategic Planning, Montreal Port Authority (MPA). CPAs are certainly welcome to tap their own revenues for maintenance projects, or borrow money. “We can raise money through banks or bonds. We have a $130 million borrowing limit. If we borrow ©iStock/Thinkstock

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PORTS REPORT

money, we borrow it in our own name,” Auclair says.The Port Alberni Port Authority can borrow up to $1 million. There are exceptions to the federal government’s stated hands-off role in funding ports; it has created some special, big-ticket capital funding programs. There is the $2.1 billion Gateways and Border Crossings Fund, launched it in 2008, and due to expire in 2018. There is also the New Building Canada Fund, which, according to Infrastructure Canada, has $14 billion to spend, of which $4 billion belongs to a National Infrastructure Component. There is no specific fund for ports; rather, ports must compete for funding with other projects. As an example of a National Infrastructure Component -funded port project, this July the federal government announced that it will give Port Saint John $68.3 million toward a $205-million terminal improvement project. Unfortunately, these funds are designed for big-ticket projects, Zatylny notes. “A decade ago the feds used to put up 50% of funding. Now it is one-quarter to one-third. Now the ports have to come up with the other two-

thirds. But the challenge with the Building Canada Fund is that projects have to be worth $100 million or more to qualify. It is hard for smaller ports or large ports with smaller projects. So the Building Canada Fund has this imbedded barrier for participating in the fund. CPAs have smaller projects that they cannot get funding for. The Building Canada Fund will entertain smaller projects on a case-bycase basis, but the CPAs still have to [present] a full business case.” This is a lot of work and expense, knowing that their projects do not meet the threshold. Then there are provincial initiatives, large among them right now the Quebec government’s pledge to invest over $1.5 billion in the Quebec maritime strategy. This March the provincial government announced, for example, that it is reserving $95 million in the provincial budget for access road improvements and the restoration of Alexandra Pier and the Iberville Passenger Terminal for cruise passengers at the Port of Montreal. “It is possible to find funding if projects are profitable. But you will find, in certain cases, projects with benefits to the local economy that are not that beneficial to CPAs. If we were a private company we would say there is no business case, but for us we are a factor in the local economy. This is where governments will step in and look at the value of projects to the local economy, and see where they want to invest,” Auclair says. One strategy for finding rehabilitation funding is to develop capital projects that include a maintenance dimension that makes sense to a private developer. For example, the MPA rescued a huge grain terminal from possible demolition by making a deal with CanEst Transit to repurpose it into a cleaning and containerization terminal. CanEst invested $20 million to retrofit the terminal with all-new equipment. The MPA put up $4 million to improve the terminal, rail and road access. “The challenge for ports is to be active and look out for projects. Two or three years ago we made a decision to invest and

try and find partners. We are also trying to create added value services; for example, the old grain terminal, which could have been torn down. CanEst came in and is now containerizing grain. In the end, the infrastructure, which was not in good shape, is now in top shape and will create revenues. This is an example of how you reinvent yourself,” Auclair says. Auclair adds that Public Private Partnerships between governments, CPAs and private companies are on the increase. “This is basically the model in how we are going in infrastructure.” However, he notes, “If you are a smaller port serving the local community, there are no growth projects. So you need $16 million to repair a wharf.Where do you get the money? If you have a project that is profitable, the banks will look at it. But if you are going to pay for maintenance, they might get a bit worried.There are CPAs in this position.” “What Port Authorities have to do, with a lack of federal funding, is attract funding. It is much easier for ports with well-established traffic to attract investments. It is much more difficult for smaller ports. It is not as attractive for private investors,” notes Knezevic. Such challenges notwithstanding, the Port Alberni Port Authority has applied to the New Building Canada Fund for $561 million toward a $1.7-billion project called PATH (Port Alberni Trans-Shipment Hub), for which it already has a pre-feasibility study in hand. “The significance of being a Federal Port is that we can apply for federal funds,” Knezevic says. “Especially for smaller ports, we wouldn’t be able to get smaller projects off the ground let alone a $1.7 billion project.” CS Carroll McCormick is an award-winning writer who has been covering transportation industry issues and technologies for more than a decade. He is based in Quebec.

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PORTS REPORT

ALL HANDS ON DECK Canadian port executives measure challenges of global changes BY LEO RYAN

he 18 member ports of the Association of Canadian Port Authorities (ACPA) handled more than 310 million tonnes of cargo in 2014, with Vancouver and Montreal, the two largest, handling record volumes. But resting on one’s laurels is no option amidst fastchanging global trade and transportation trends, port executives from across Canada were told at the ACPA Annual Conference and AGM from September 29 to October 1. Hosted by the Port of Montreal, the conference featured presentations and discussions encouraging port officials to think outside the box to remain competitive. Within the context of an overall theme of Pushing The Limits, business panels covered such subjects as the forces driving the logistics landscape, competitive challenges facing ports, maritime trade expanding more quickly than world GDP, community relations and the absolute requirement to join the social media revolution. Transportation analyst Professor Claude Comtois from the Université de Montreal zeroed in on significant changes in global bulk logistics chains and seaborne trade that Canadian ports should take into consideration. In particular, he singled out the impact on such ports as Sept-Iles of the prolonged plunge in world commodity prices and sharp decline in China’s imports of iron ore, On the North Shore of the St. Lawrence River, Sept-Iles has experienced a more than 25% drop in traffic. So has the

Port of Quebec been hit by a big decrease in dry bulk cargo. At the same time, China has been investing heavily in iron ore projects in Africa and South America to diversify its supplies. While acknowledging that Canadian ports have been investing substantially to increase capacity in recent years, Comtois said these investments have paled in comparison to the giant infrastructure investments in China. “Innovation in dry bulk logistics is non-negotiable.” Provision of deepwater and competitive infrastructure is central to the competitive position of a port along with the ability to berth the largest vessels on a particular trade, stressed Andrew Penfold, Director of UKbased Ocean Shipping Consultants Ltd. St. Lawrence channel to Montreal issue In an interview with Canadian Shipper, Penfold suggested that “the channels on the St. Lawrence River leading to Montreal needed to be dredged up to two metres deeper to handle larger ships in order remain competitive in the North Atlantic trade with the Port of New York and New Jersey.”The latter has launched a capital program of several billion dollars to raise the Bayonne Bridge and provide a 50-ft deep channel. In container shipping, Montreal at present accommodates vessels of up to 4,400TEU capacity and could handle post-Panamax vessels up to 6,000 TEUs. But

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“workhorse” ships in the 8,000 TEU range are soon expected to become the norm on the East Coast of North America with the expansion of the Panama Canal in 2016. The last time that important dredging was completed on the channel between Quebec City and Montreal was in 1999. The minimum depth was then increased to 11.3 metres (37 feet). Further dredging would require federal financing in the tens of millions of dollars – not presently on the radar screen in Ottawa. As far as the West Coast is concerned, Bill Ralph, Maritime Economist with R.K. Johns Associates, pointed out that some 80 ships with average 10,000 TEU capacity are calling at the region’s ports on weekly rotations. Extending market reach of ports How can a port authority extend its hinterland and international market reach? Here, Penfold says first of all, it is “vital to ensure correct marine facilities are available for current and future needs – i.e. water depth, cranes, equipment, etc.” Secondly, one should provide “targeted port dues initiatives.” Thirdly, a port authority should be commercially flexible amidst changing markets and adapt lease structures to the needs of the terminal operators. Fourthly, anchor cargo by supporting investments – not just in road and rail but also inland terminals and distribution centres. Eric Fournier, Founding Partner and Executive Producer of Moment Factory (and formerly with the Cirque du Soleil and Bombardier) offered a glimpse, complete with striking screen visuals, of today’s multi-media environments. “All references are turning upside down,” Fournier said. “The job in life is really to bring people together. Part of the challenge of the new generation is that they want to have access to everyone. And even in the most complex of environments, creativity must have a say.” Another way of saying one must push the limits… CS Leo Ryan is a veteran journalist who has reported on key transportation and trade developments in Canada for more than two decades. A former Montreal bureau chief for The Journal of Commerce, he specializes in port and shipping issues and was awarded the Medal of Merit in 1992 by the then Canadian Port and Harbour Association. ©suriyasilsaksom/iStock/Thinkstock

15-11-05 9:20 AM

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15-11-05 9:20 AM

BIG DATA

TRULY

VISIBLE

BIG DATA'S MANY USES IN SUPPLY CHAIN ➥

rue supply chain visibility may finally be within reach for those organisations able to exploit Big Data, according to the authors of a recent white paper on big data by Transport Intelligence and oTMS. Ken Lyon is the Managing Director of Virtual Partners and Mirek Dabrowski the president and cofounder of oTMS. At any time, shippers will expect to be able to interrogate their partners systems in order to see detailed views of shipments in transit. They will expect to be alerted automatically about any changes or delays, but more likely, they will expect the service provider to have either resolved the issue, or at least present them with options for dealing with the problem, all backed up by the data and rationale supporting the deci-

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sion. Unless your systems environment is capable of evolving into something like this, you will be at a significant disadvantage to any competitors that are able to do so. The term ‘Big Data’ is regularly used to describe a very large data repository containing everything an organisation needs to know, or wants to know. The explosion in the population of connected devices is also generating huge amounts of data. As this data is aggregated by organisations in large databases, it is termed as ‘Big Data’. How this data is qualified, classified and analysed is crucial, because when it’s done well, it can lead to competitive advantage in the marketplace, said the paper. But data quality is determined by its accuracy and precision of any context. Cleaning up inaccurate data sets can be ©everythingpossible/iStock/Thinkstock

15-11-05 9:20 AM

BIG DATA

costly and possibly of limited value. But it’s more disruptive to include inaccurate data in any Big Data project as it could lead to misleading information. The implementation of any new systems, then, must be established using a master data set that has been validated for accuracy and context, ensuring that any other systems are able to reference to a common source once they are deployed. Large scale Cloud platforms are now being used by many companies as a way of interconnecting trading partners and enhancing their ability to communicate and collaborate. This strategy also makes it easier to accumulate very rich data sets that can be exploited for the benefit of the community of users as a whole, said the paper. Using big data Applied to supply chains, big data could reveal opportunities for efficiencies and performance gains. If a supply chain is able to share data from every aspect of its operation at any time, it is more likely to result in definite conclusions. Data that is accurate and available in abundance usually results in better decisions and less ambiguity, the report said Clarity from supply chain complexity? A system capable of capturing data at every point in the supply chain, qualifying its meaning and placing it in the appropriate context, is an incredibly powerful management tool, or more accurately, decision support tool for the business in such situations. Supply chain visibility has been seen as an essential component for managing supply chains for years, but so few companies have been able to achieve it.This is usually due to the relevant information being captured by a variety of different systems, most of which are controlled by different organisations. The age of the various systems also has a bearing on matters, as older systems are difficult to interact with (notoriously so in some cases), data definitions are inconsistent and mechanisms to exchange data electronically inefficient. As the proliferation of sensors, devices and systems generate huge amounts of data, it is essential that the operational systems used to monitor and manage supply chain and logistics activity do not become overwhelmed. Unfortunately, time is not on their side, as the benefits of analyzing streams of operational data ‘as it happens’ (in Real Time, as it’s called in the IT business) are compelling. “A Single Version of the Truth” Competing interpretations of what data may mean is not only unhelpful, it can be very costly.This is why there should be only one reference point informing all others – the so called ‘Single Version of the Truth’. The value of this is clearly illustrated in situations where companies are collaborating across a transport network or supply chain. The ability to discuss problems (or opportunities) is so much easier if all parties are examining the same data, enhanced with appropriate layers of context that describe what it means to them.This avoids confusion, misinterpretation and errors such as double counting or duplication. Capturing data is one thing, being able to analyse and reveal the appropriate information it holds is something else. Data visualisation tools are very powerful and this is vital in the context of supply chain data, as many participants are often viewing the same information in

different ways.This can result in confusion and misunderstanding. The key is to use simple universal images and terminology to create a common understanding of the data.This builds trust between supply chain partners, which in turn, leads to greater collaboration and cooperation. Modern supply chain operations rely on logistics service providers to deliver a constant flow of information back to shippers and between the related parties.This enables more informed decisions and faster responses to unexpected events.As products are now usually built to order or manufactured in small batches, this has resulted in smaller inventory pools. This makes sense as it has reduced costs for manufacturers who have reduced the amount of capital they have invested in inventory. This only works if they can keep the supply chain moving, as any delays or interruptions may mean the products or parts are not available when their customers want them. If the logistics operators are able to monitor every stage of their operations, they can manage their assets more effectively, plan more accurately and alert partners in advance of any problems. This obviously means that they need information systems capable of supporting these requirements. Flexible and agile information systems will become available to the smaller players. The Internet provides universal communications access, powerful computing platforms are available, on demand, as services in the ‘Cloud’ and smartphones act as personal information assistants, delivering data and information directly to supply chain managers and operators. These platforms have been designed to support very large volumes of transactions and store data generated from numerous locations. Unfortunately many older logistics systems were never designed to exist in such an environment. They are often limited in the amount of data they can handle, the number of transactions they can process and the ability to accept a colossal volume of messages arriving simultaneously. Although some of these systems may have unique and customised functionality for specific operations, unless they can be accessed and this capability shared via cloud services, they will struggle. If they cannot function within these new environments, their value will be limited and will rapidly become redundant. As logistics operations evolve, the underlying data stores will be massive repositories of information that will increase in value the more they are refined and augmented. Data related to supply chain operations will be combined with data captured from other sources and systems, to provide a rich picture of the operating environment and the parties therein. A detailed understanding of the customer and their shipping activities should provide insight into how services can be tailored specifically for them. The analytic systems will suggest options for new services or alternate scenarios for dealing with shipment delays or disruptions. Depending on the scope of the logistics operators services, it may be possible to design cross industry services for managing inventory, providing transport capacity priced by real time rate engines, (similar to the methods used by the new taxi services that adjust price against capacity by the second) and the ability to reconfigure orders in transit in response to variable market demand. All of these and many more can only exist if the data driving them is timely, accurate and presented in context. CS www.canadianshipper.com November/December 2015 31

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15-11-05 9:20 AM

ALCOHOLIC BEVERAGE

SHIPPING TOGETHER TWO PROVINCIAL LIQUOR BOARDS JOIN FORCES TO MOVE LOW-VOLUME PRODUCTS

y combining low-volume orders from certain European countries with the Société des alcools du Québec (SAQ), the Liquor Control Board of Ontario (LCBO) has mixed up a winning combination: lower shipping costs, more frequent ordering and more responsiveness to changing customer demand. Of the consolidation pilot, begun in June 2014, LCBO media relations coordinator Christine Bujold says, “The consolidation pilot enabled both respective liquor boards with the ability to more quickly build a full container for products for which neither would ever order in full containers.” The SAQ did not respond to requests from Canadian Shipper to comment on the consolidation pilot. However, in an LCBO document on the consolidation pilot, Stéphane Groleau, director,Transportation and Procurement, at the SAQ, says, “The initial results of our collaboration with the LCBO have been positive and we look forward to continuing to explore other ways we can work together in the future.” The goal of the pilot has been for the LCBO and SAQ to place lower-volume orders together, thus more quickly building up a combined order that fills a shipping container.This gets around their rule of not shipping an order until they have ordered enough product to fill a container. “Both boards move full containers only, even consolidated containers are only moved once there is enough freight consolidated to build a full container.The benefit in comingling separately purchased product is a more regular dispatch of full containers,” Bujold explains. The liquor boards are co-loading freight in eastern and central European countries such as Bulgaria, Croatia, Estonia, Latvia, Lithuania, Finland, Sweden, Slovakia, Slovania and Russia. They include spirits and wine.

Neither liquor board moves a large volume of product from these countries, according to an LCBO document. Speaking for itself, the LCBO notes that coloading has increased the frequency of dispatches from these countries to every week or two, instead of once a month. “The LCBO and the SAQ purchase products separately and the orders are put together for shipping. By combining the orders to make larger shipments, both LCBO and SAQ can order low volume product from these countries on a more frequent basis,” Bujold says. “The efficiency comes in the ability to respond more quickly to changing customer demands by reducing the time it takes for either liquor board, on their own, to consolidate less than container load freight into a full container to move.” This not only means that sufficient product is more likely to be on the shelves for customers, since the shipping cycles are shorter. It also means that the liquor boards can respond more quickly to increases in demand – a specific focus of the partnership, according to Bujold - and reduce the risk of product shortages. “We are able to receive products more frequently, and therefore better able to respond to changing consumer demand for lower volume product. This ensures we provide excellent service to our customers, which is a top priority for LCBO,” Bujold says. As well, by having shorter ordering cycles, the LCBO can reduce costs by keeping less inventory on hand. Usually, the LCBO destuffs all of its inbound freight at its own distribution centres and then distributes it to its 650 stores. For these combined orders, however, a third party

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BY CARROLL MCCORMICK

in Montreal destuffs the shared containers. The LCBO portion is transported, mostly by rail, but sometimes by truck, to its distribution centres. “Shipments can be sent to one of our distribution centres in either Durham, London, Toronto or Ottawa,” Bujold says. The consolidation pilot is still under development, but the LCBO already sees potential for further collaboration. For example, according to the LCBO, since spirit sales are much higher in Ontario than in Quebec, it might benefit the SAQ to purchase spirits directly from the LCBO, with products shipped from its Durham Warehouse. At the same time, the LCBO would reduce its costs by being able to order more freight. “As a single entity, we transport more volume over the North Atlantic than anyone else. Together we basically dominate this trade. Having this additional freight would help continue to drive down our costs,” notes the LCBO’s Nick Nanos, director, Traffic, Customs, Toronto & Ottawa Logistics Operations, in the LCBO document. The LCBO even envisions such arrangements with other liquor jurisdictions to better manage transportation and obtain economies of scale for all concerned. After all, Nanos notes, “If the majority of product is shipping through the eastern seaboard, anything going to Manitoba is going right by our doorstep.” CS Carroll McCormick is an award-winning writer who has been covering transportation industry issues and technologies for more than a decade. He is based in Quebec. ©monticelllo/iStock/Thinkstock

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15-11-05 9:21 AM

OUTLOOK 2016

AIR CARGO CARRIERS

FOCUS AND FLEXIBILITY BY IAN PUTZGER

irline cargo executives could have hardly asked for a better start to 2015. The ongoing labour dispute at US West Coast ports ensnared vessels and cargo, prompting shippers and their agents to take increasingly desperate efforts to untangle their shipments from the congested marine sector and fly them to destinations in North America. The surge in demand quickly overwhelmed scheduled capacity and launched an armada of charter flights. Not only Asian and US airlines filled their planes to the rafters - at premium rates but Canadian and European carriers also found their lift in hot demand from shippers looking for routes to North America. By late April the frenzy had run its course and demand for airfreight was on a course of steady decline, with yields sinking ever lower in subsequent months to wipe out the gains that airlines had chalked up in the first few months of the year. When demand was at its peak Canada’s largest freighter operator had its hands full. For Cargojet the contract to provide linehaul to Canada Post and Purolator Courier within Canada went into effect. “We successfully transitioned the business over in April and then spent the next three months making sure that we performed well. A lot had changed since the RFP, which took one-and-a-half years, so we had to right-size the operation,” says Jamie Porteous, executive vice president of sales and service. The massive fleet expansion that Cargojet undertook to accommodate the mail contract has given the carrier plenty of capacity to fill outside that deal. A major focus has been charter business, which has doubled every year since 2008, according to Porteous. Having freighters stationed at various points across Canada gives the carrier greater flexibility to respond quickly to charter opportu-

nities, he says. Contract flying for other companies-such as a weekly transatlantic freighter run between New York and Warsaw for Lot Polish Airlines-has been another avenue to boost the utilisation of the fleet. Airlines have been battling not only in terms of competing for cargo that grows slower than the available capacity but also with a high degree of volatility. “It is becoming harder and harder to project tonnage and revenues, harder and harder to forecast from one day to the next,” comments Joe Lawrence, president of general sales agent Airline Services International. Despite the worsening market conditions new international freighter operations took off. KF Aerospace mounted scheduled flights from Toronto via Moncton to Brussels and Air China inserted Edmonton into a freighter run from Dallas to its home market. Ron Buschman, managing director of Aerodyne Cargo Services, is baffled by the new arrival in Alberta. “What do Air China know that I don’t know?” he asks.The energy sector, the main engine of airfreight demand growth in Alberta, is facing a grim prospect. “Some folks in the oil industry reckon the downturn could last through 2016,” he says. Lise-Marie Turpin, vice president of cargo at Air Canada, comments that the new services are more a case of freighter operators looking for markets that help them boost their load factors rather than a sign of market strength. Despite the weaker economy, imports from Europe and Asia have fared reasonably well, according to her. On the export side, some pundits predicted growth fuelled by the low loonie.There have been some signs of strengthening exports, but “it is not going gangbusters, “not to the level we would see from the US on a similar drop in the US dollar”,” remarks Brian Pedersen, vice

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president, airfreight at Kuehne + Nagel. The exchange rate with the US currency has also prompted suggestions that shippers and forwarders south of the border might funnel their exports through Canada to take advantage of lower costs, as happened during the 1990s. “There are conversations that are ongoing, but there is an awful lot of capacity out of the US. Those rates are so low that they negate the advantage a forwarder would have from going north,” comments Turpin. "I don't think gateway strategy should be determined by exchange rates only," says Pedersen. "What happens when the Canadian dollar comes back? Our gateway infrastructure is not built like a tent that you pull up and just move elsewhere." Bellyhold capacity to international markets is set to rise. Air Canada’s lift is on course to almost double between 2013 and 2017, as the airline is taking delivery of Boeing 787 Dreamliners. They offer significantly higher payload capability than the older B767-300s they replace. On the VancouverShanghai sector, one of Air Canada’s first routes to see the 787, the plane has been a game changer, according to Turpin. The 787s not only offer more lift capacity and larger doors than the 767s, their range also enables them to open new routes, such as Toronto-Dubai or Toronto-Delhi, that Air Canada was due to start in November, with good expectations on the cargo side. The 767s continue to haul freight for Air Canada Cargo, as they are shifted to the airline’s Rouge subsidiary. Much of Air Canada’s work this year has been on the ground. In the summer it unveiled an online booking tool that allows established customers to complete a booking and receive an air waybill number (AWB) in less than two minutes.They can also view the status of all their current shipments, fill out an e-AWB, add to the house AWB, edit a shipment or print a document pouch. According to Turpin, this has been well received. Currently efforts are underway at the carrier to improve visibility further by the deployment of RFID, which was recently launched on the route from Montreal to Frankfurt and will subsequently be rolled out in major stations across Air Canada’s network (in smaller stations shipments will continue to be scanned).Turpin calls it “the beginning of a new era in terms of tracking”. The airline was among the first carriers ©vanbeets/iStock/Thinkstock

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OUTLOOK 2016

MOTOR CARRIERS HOPES FOR UPWARD RATES BY HARRY RUDOLFS

ost CEOs and trucking owners are unanimous in their assertion that freight rates have to go up in 2016. They also seem fairly confident that, barring any unforeseen circumstances, fuel prices will remain comparatively stable, and the low Canadian dollar will continue to boost exports. But the driver shortage issue continues to plague the sector and there’s no panacea in sight. “Drivers exiting the industry are doing so at a greater pace than the ones that are entering the business,” says Wendel Erb, president of Erb Transport Group of Baden, Ont. “So the only way to keep the ball rolling is to give wage increases to retain the ones you’ve got. And then there’s the cost of training new drivers. In fact there’s an added cost every time we institute another training programsomeone’s got to pay for that.” Erb also thinks that the spiraling cost of replacing equipment will also put upward pressure on rates. “Since most of our new equipment is sourced in the US or paid for in US dollars, we’re talking a 20% increase in the cost of our capital acquisitions,” he says. “You can take a year off from buying equipment but you can’t do that every year.” Vaughn Sturgeon, president and CEO of Atlantica Diversified Transportation Systems of Moncton, NB, agrees with Erb that rates must increase-the only question is by how much. “Freight rates, like freight volumes, are a bit choppy, but for the most part have moved up in 2015,” he says. “It’s hard to say exactly where rates are going but I think they will need to rise to the high single digits over the next few years to cover costs of new equipment and driver increases—1-2% will not cut it.” With numerous terminals in Alberta and western Canada, Rosenau Transport has been adversely affected by the economic down-

turn in the oil patch. President Carl Rosenau expects business to remain flat for most of 2016, but is hopeful for a rebound in the last quarter. “Everybody is looking for a discount,” he says. “But the tractor that used to cost $150,000 is now costing $190,000. You can ask (customers) for an increase of two or three percent, but you sometimes have to settle for one or two percent.” Although it’s difficult to predict what a change in government could mean for the oil patch, it could be more bad news. The Liberals are suggesting they would curb fossil fuel subsidies, and they are seeking to limit the Canadian Exploration Expenses deduction which may further dampen activity in Canada’s oil and gas sector. “I wish the price of crude would go up, for Alberta’s sake, but I’m not sure we’ve hit the bottom yet,” adds Rosenau. As a result, his company is looking for new opportunities outside the oil patch. “A few weeks ago we were all about farming and oil, now we’re starting to get into mining and forestry. Farming is still pretty steady but we’ve got to think outside the box. We’re considering contracts right now that we never would have considered years ago.” However, one bright light on the horizon may be the newly-minted Trans-Pacific Partnership deal which has just been signed but not yet ratified. Although the terms of the agreement have yet to be made public, it encompasses 40% of the world’s economy and includes many of the fastest growing countries. The TPP seeks to remove trade barriers and should benefit Canadian manufacturers, especially those that have been negatively affected by protectionist barriers put in place by some US states. Sturgeon of Atlantica Diversified thinks that the TPP will probably be good for the trucking sector overall. “I haven’t seen any

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details but generally these trade deals create more trans-border moves which should increase volumes. For the most part these volumes are strong now, and this should further strengthen these lanes. It should also put more rate and capacity strain on these trans-border moves.” The low Canadian dollar has brought some opportunities to the somewhat dormant manufacturing base and should continue to do so. “We have seen a lot more exports coming out of Ontario and Quebec lately” according to Mark Seymour, president and CEO of Kriska Holdings of Prescott, Ont. “The low dollar makes our exports more attractive, and I’ve noticed a bit of a swing in the balance of freight moving from north to south. I think we’ll see more activity in this area if the dollar remains the way it is.”

“The low dollar makes our exports more attractive, and I’ve noticed a bit of a swing in the balance of freight moving from north to south. I think we’ll see more activity in this area if the dollar remains the way it is.” Mark Seymour, president and CEO of Kriska Holdings of Prescott, Ont

Seymour also thinks that the lower price for crude has been positive for the average Canadian, and will be good for trucking in the long run. “The low oil price is bad for Alberta but good for the Canadian consumer. Cheaper gasoline prices leave people with more discretionary spending and boost consumer confidence.” Sturgeon agrees that the low Canadian dollar has its upside, but suggests it can be problematic at the same time. “The low dollar and the lower fuel prices will be a mixed bag. Lower fuel benefits are passed on almost exclusively to the shipping community and the lower dollar will help that community when exporting into the US. So in the macro sense, it should create more volumes to the US but also create an imbalance coming back into Canada with lower volumes moving this way,” he says. ©vanbeets/iStock/Thinkstock

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OUTLOOK 2016

RAIL CARRIERS REVIEWING REGULATION; MOBILE APPS TO CHANGE LANDSCAPE BY CARROLL MCCORMICK

n the day before Christmas this year, the statutory Review of the Canada Transportation Act is officially due to be sent to the Minister of Transport. The report of recommendations should be made public in 2016. “Once it is made public, any special interest or the public can make any comments it wants on the recommendations of the review panel. Shippers and other groups will weigh in,” says Bob Ballantyne, president of the Freight Management Association of Canada. The terms of reference, according to the federal government, include “provisions of the Act that are relevant to the transportation of grain by rail, and more broadly to the rail-based supply chain for all commodities.” The last statutory Review of the CTA was in 2001. Due to the backlog in grain deliveries in the 2013-14-crop year, the Review’s mandate includes a special item: the provisions of the Act relevant to the transportation of grain by rail.This look may also spill over into the rail-based supply chain for all commodities, according to the government. The Review will also examine overall capacity and adaptability issues. The Freight Management Association (FMA) and the Coalition of Rail Shippers (CRS) are among those who have made submissions. One CRS recommendation is to protect and strengthen the Act’s Statutory Obligations, that is, the obligation that railways accept all traffic. “One of the issues really important to shippers, especially dangerous goods, is the Common Carrier Obligation. I think railroads here and in the US are trying to put limits on what they have to carry,” Ballantyne says. Another CRS suggestion concerns the need to counterbalance railway market power.

This is a perennial issue resulting from the dual monopoly held by the two Class 1 carriers, Canadian National and Canadian Pacific. The FMA’s first recommendation is that the term “suitable and adequate accommodation” in Section 113, referring to the “carriage, unloading and delivering of traffic” be defined as “…a railway company shall fulfill its service obligations in a manner that meets the rail transportation needs as may be reasonably defined by the shipper.” “We and other shippers' associations have weighed in on that. Railways won’t like this. This is one that shippers feel fairly strongly about,” Ballantyne says. “It would help balance the buyer-seller relationship.” The FMA suggests that Transport Canada launch a specific communications program with short-line railways (SLRR) and provincial governments to take advantage of the New Canada Building Fund: Provincial-Territorial Infrastructure Component-National and Regional Projects. This would alert SLRR operators to the availability of these funds. Speaking of SLRRs, several items completed or launched this year for and by SLRRs will benefit shippers next year.This March, the Saskatchewan government, under its 50-50 cost-shared Shortline Railway Sustainability Program, which is funded by the Saskatchewan Grain Car Corporation, gave a total of $900,000 in grants to 13 Saskatchewan SLRR operators to improve their rail infrastructure. The improvements, which include projects like upgrading track, stabilizing track roadbeds and repairing bridges, will be done this year. With investments from area farmers, municipalities and communities, Northern Lights Rail purchased a 59-kilometre line from CN this May. The operator of the new SLRR, which runs from Birch Hills to Melfort, notes that it will move grain in producer

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cars primarily to Thunder Bay, Churchill and into the United States. Shippers can expect savings of $1,000 to $1,500 per loaded producer car, according to Northern Lights Railway president Wayne Bacon. The Port of Saguenay completed its 7.5-mile rail link and intermodal yard this year, giving shippers to the port more options, and increasing the efficiency and capacity of port operations. The Vancouver Island Railway is also set to receive as much as $7.5 million under the Building Canada Fund’s major infrastructure component, plus provincial money, for restoration work. This SLRR provides both freight and passenger services.

“One of the issues really important to shippers, especially dangerous goods, is the Common Carrier Obligation. I think railroads here and in the US are trying to put limits on what they have to carry.” Bob Ballantyne, president of the Freight Management Association of Canada CN announced $2.7 billion in capital expenditures this year. Track infrastructure spending of $1.4B will improve the network, including $100M for work on northern Alberta branch lines, including heavier rail, crushed rock ballast and new ties. Growth and productivity initiatives such as yard improvements, intermodal terminals, transload and distribution centres, and information technology will account for $800M of the capex budget, according to CN. The equipment purchasing portion of the capex spending, including 90 new locomotives and rolling stock, will cost $500M. CN is also spending $20M to add 200 more domestic, 53-foot temperature-controlled containers to its container fleet.This investment will expand its cold supply chain capacity. CP planned $1.5B spending this year. The projects include yard infrastructure and siding work this year and next. CP ©dedivan1923/iStock/Thinkstock

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OUTLOOK 2016

MARINE CARRIERS CANADIAN CARRIERS ENJOY QUIETER WATERS THAN GLOBAL OPERATORS BY LEO RYAN

hile a new generation of megaships on order is contributing to massive overcapacity on the global container market and driving spot freight rates to historical lows in some ocean trade lanes, it remains steady-as-she-goes for Canadian and other shipping lines pursuing fleet renewal for cargo traffic in the Great Lakes/St. Lawrence Seaway System. The latter is part of several billion dollars of investments in recent years by key players in the North American maritime corridor. The ships come with the latest state-of-the-art designs to enhance energy efficiency and environmental performance. The considerable outlays represent a vote of confidence in the long-term future of the strategic waterway despite current traffic declines generated in particular by plunging world commodity prices. During the course of 2015, Montrealbased Fednav Limited, biggest ocean-going user of the Seaway, will have taken delivery of six Seaway-sized vessels, part of a 27-ship order, from Oshima Shipyard in Japan. These six ships are being integrated into the fleet of FALLine, which has been operating a liner service between Europe and Great Lakes ports since 1996.They differ from earlier versions due to box holds that notably improve loading and unloading of steel – major import business from Europe - and project cargo. First of the 31,000-DWT newbuildings to enter service was the Federal Baltic. It was followed in the summer and fall by the Federal Beaufort, the Federal Barents, the Federal Bering, the Federal Bristol and the Federal Biscay. Worthy of note: the Federal Biscay has been singled out to be first in the Fednav fleet to be equipped with a Japanese ballast water system, BallastAce, designed to be effective in both freshwater and saltwater. It has been submitted to the U.S. Coast Guard for approval. Algoma Central Corporation, which op-

erates the largest Canadian-flag fleet of dry and liquid bulk vessels, recently underscored its commitment to fleet renewal by signing a conditional contract to build three new Seaway-max self-unloaders with a Croatian shipyard. This came on the heels of the cancellation of a contract with a Chinese shipyard as a result of the yard’s financial problems.

Latest tally shows 20 megaships with a capacity of 18,000 TEUs in service and another 52 on order. Indeed, since the turn of the millennium, container shipping capacity has doubled every seven years. It will attain 20 million TEUs this year – up from 5 million TEUs in 2000! Wayne Smith, senior vice-president, commercial at Algoma Central Corporation, said the latest ships will possess “all the environmental advances and efficiencies of our new Equinox class and are essential to supporting the competitiveness of our industry and our customers. Algoma is continuing discussions with other parties on further fleet renewal opportunities.” Headquartered in Port Dover, Ontario, Lower Lakes Towing transports bulk cargo to Canadian and U.S. Great Lakes ports.This past fall, it took delivery of its newest selfunloading vessel, the MV Manitoulin, from a Chinese shipyard – boosting the size of the Lower Lakes fleet to 16. Soon after arrival in November, the vessel was slated to start carrying limestone to various Great Lakes ports

to support the construction industry. “This vessel is the first new river class self-unloader to be introduced into Great Lakes service in over 40 years,” said Scott Bravener, President of Lower Lakes Towing. ‘This additional capacity reaffirms the company’s commitment to support the growth of its customers.” In other similar developments, McKeil Marine, a Hamilton-based tug and barge enterprise, added a bulk vessel to its fleet for customers throughout the Great Lakes and East Coast of Canada. Thanks to the completion of its fleet renewal program, Canada Steamship Lines has added four self-unloaders and two gearless bulkers to its Great Lakes fleet. At the same time, it is now deploying five new ships on the international trades. Escalating megaship trend Meanwhile, the trend towards ever larger containerships has been escalating unabated, with growing pressures on port terminals, inland distribution networks, freight rates, and on smaller shipping lines trying to survive against such giants as Maersk, MSC, Hapag Lloyd and CMA CGM. Latest tally shows 20 megaships with a capacity of 18,000 TEUs in service and another 52 on order. Indeed, since the turn of the millennium, container shipping capacity has doubled every seven years. It will attain 20 million TEUs this year – up from 5 million TEUs in 2000! The behemoths are presently being introduced only on the Europe-Far East trade, the world’s busiest route by volume. This is having a cascade effect on other routes. Larger vessels that previously plied the EuropeAsia route are being displaced into TransPacific service. And former Trans-Pacific units are moving into Transatlantic services.A sign of the cascading phenomenon was the arrival at the Port of Halifax last August of ships in the 8,500-TEU category – the largest to call on Canada’s East Coast. Some industry analysts consider the megaship trend could (finally…) be reaching its limit as the economies of scale associated with huge vessels up to 400 metres long decline. In this regard, according to a report by the International Transport Forum of the Parisbased Organization for Economic Cooperation and Development (OECD), slot cost savings are decreasing as ships become bigger. The report asserted: “A large share of the cost savings were achieved by ship upsizing

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OUTLOOK 2016

to 5,000 TEUs, which more than halved the unit costs per TEU, but the cost savings beyond that capacity are much smaller.” For its part, the respected UK shipping consultancy, Drewry Maritime Research, has warned that slowing global trade and a bloated orderbook of large vessel capacity mean that container shipping is set for another three years overcapacity and financial pain. Drewry’s Global Supply/Demand Index, which measures the relative balance of vessel capacity and cargo demand in a market where 100 equals equilibrium, has fallen to a reading of 91 in 2015 – the lowest level since the recession-ravaged year of 2009. Consequently spot freight rates have especially dropped to historical lows on the Asia-Europe, Asia to East Coast of South America, and Asia to Middle East trades. Interestingly enough, the transatlantic

“A large share of the cost savings was achieved by ship upsizing to 5,000 TEUs, which more than halved the unit costs per TEU, but the cost savings beyond that capacity are much smaller.” From a report by the International Transport Forum of the Paris-based Organization for Economic Cooperation and Development (OECD)

trade between Europe and North America has recently evolved from its former ‘sleeping dog’ status. Various carriers have even bolstered capacity to keep pace particularly with rising volumes on the westbound leg as a weak euro and strong U.S. dollar spark European exports to North America. The impact of this trend is felt to a certain degree at the ports of Montreal and Halifax as well as at U.S. ports on the eastern seaboard. But assessing the overall picture, Neil

Dekker, Drewry’s director of shipping research, offers a sobering outlook. “The container shipping industry,” he says, “is in the midst of an overcapacity crisis which will worsen next year. Shipping lines will need to idle a much larger portion of the fleet than they have hitherto been prepared to do. Otherwise, short of an unexpected recovery in traffic volumes, container shipping is set for several years of overcapacity and mounting financial losses.” CS

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OUTLOOK 2016

COURIERS E-COMMERCE DRIVES GROWTH IN EXPRESS SEGMENT BY IAN PUTZGER

fter broad expansion drives in Atlantic Canada and in the west, UPS has shifted gears and is consolidating. “We are letting the expansions we recently undertook settle,” says Mike Tierney, president of UPS Canada. He dismisses the idea that the drop in oil prices has stalled growth in Alberta. The momentum has slowed, but it is still good growth, he states. Financial results of the integrated express giants suggest that the same is true on a global level. Parts of their portfolios have shown strain from the shaky macroeconomic environment, but the express parcel segments show growth. DHL led the pack with a 12.2% rise in express revenues for the first half of 2015. E-commerce has been a major driver. Observers and operators agree that the B2C sector has shown a momentum that clearly outstrips the B2B side. According to projections from Forrester Research, between 2014 and 2019 e-commerce sales are going to show compound annual growth of 12.3%, whereas the overall retail sector stands to see a comparatively paltry growth rate of 2.6%. Cargojet, which provides linehaul on Canadian trunk routes for the large express companies, reports that signals from its clients point to a strong peak season this year. The express parcel carriers face this with a mixture of delight and apprehension, mindful of the tidal wave of traffic that overwhelmed systems two years ago. “UPS say they are well prepared for the next peak. Two years ago they were underprepared, last year they were over-prepared,” notes Tim Sailor, principal of Navigo Consulting Group. “You always had fourth quarter surges; they are just more pronounced now.”

Tierney acknowledges the challenge. “B2B is fine, but B2C can fluctuate up quickly.You’ve got to have an infrastructure that can deal with that but also makes sense for the remaining 10 months of the year. You can’t operate an infrastructure that is equipped for six weeks and under-utilized the rest of the year,” he comments. A recent report from Transport Intelligence on the express parcel industry draws a picture of an industry facing strong growth but also unprecedented pressures. “E-retail, new business models, disruptive technologies and the volatile global economic environment are transforming the express parcels industry. The future is overwhelmingly positive-but only for those companies which work out how to take advantage of this systemic change,” is how Transport Intelligence CEO John Manners-Bell summarised the findings of the report. Horst Manner-Romberg, managing director of German parcel research and consulting firm M-R-U, notes that these pressures are chiefly on the distribution side of the B2C business, as opposed to the procurement element. Even some of the deliveries are not to consumers but to businesses, he adds. The economics of the delivery side of the B2C business remain challenging, notwithstanding myriad efforts to combine flexibility to meet consumers’ preferences with more cost-effective solutions than driving parcels to residential addresses in the hope that the recipient will be there. Consumers’ expectations pose considerable problems, especially the notion of free shipping, which has forced e-tailers to look for more cost-effective solutions, remarks Sailor. He reckons that this expectation will remain prevalent. Manner-Romberg points to Amazon’s Prime program, which offers free two-day

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shipping for a membership priced at $79 per year.“Amazon is driving the market,” he says. Even more worrying for parcel companies are Amazon’s ambitions to take over the distribution itself. It has set up 58 regional distribution centres, a structure that suggests its management anticipates growing demand on the consumer side for expedited delivery, remarks Sailor. Purolator Courier has put much energy this year into the integration of its shipping software into e-commerce platforms. Manner-Romberg views this as a key plank in parcel firms’ strategy for this sector, as the touch points are critical for a seamless flow of data. This is not just about operational efficiencies to avoid errors and mismatches; it also faces questions about future capabilities of handling data. For one thing, the data that accompany a product are getting more extensive. The description of a simple chocolate spread easily exceeds 400 attributes, MannerRomberg notes. “What if they have to provide these in the on-line store?” he asks.

“E-retail, new business models, disruptive technologies and the volatile global economic environment are transforming the express parcels industry. The future is overwhelmingly positive- but only for those companies which work out how to take advantage of this systemic change,” John Manners-Bell, CEO Transport Intelligence

Questions about the ownership of this deluge of information are yet to be settled. “If Amazon performs the delivery itself, the answer is clear, but if company X hands DHL 5,000 parcels, who owns what?” Manner-Romberg says. As the number of commodities sold and shipped online expands, parcel firms have to determine which products they do not want to carry. “The amount of products that are available today is nowhere near close to ©Manuel Faba Ortega/iStock/Thinkstock

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OUTLOOK 2016

where it will be,” warns Tierney.“You have to make sure you are well positioned for that.” Sailor has misgivings about food shipments. “It is very tough if you have a dry ice shipment and perishables,” he says. He reckons that operators will raise ancillary handling charges to levels that make shipping such traffic with them prohibitively expensive. On the other hand, the large integrators have been happy to embrace temperature-sensitive shipments that require sophisticated temperature control solutions, notably healthcare and pharmaceuticals traffic. Both the yields and the growth prospects are juicy. “The healthcare segment overall is doing very well. We continue to expand it globally,” says Tierney. FedEx illustrated the global appeal of pharmaceuticals transportation in August, when it unveiled two cold chain products that target the market for temperaturesensitive shipments in China. Manner-Romberg points out that the growth rates in the international arena overall are significantly more promising for express parcel carriers, thanks to the rise in international e-commerce flows. He points to the increase in parcels that moved between China and Russia from 2013 to the next year, surging by over 130%. “We see that in other segments and countries,” he adds. UPS has intensified its dialogue with smaller and mid-sized Canadian clients about expanding into international markets. “For us growing export is key. Export was a big part of our business plan this year,” Tierney says, adding that this momentum should continue in 2016. “We are looking for double digit export growth,” he says. Sailor remarks that international growth will dwarf domestic growth in the US parcel market, but cautions that this is no slam dunk for parcel firms. “You have to have the technology where somebody in Mexico thinks it’s a local experience. You have to make elements like language and currency conversion as seamless as possible,” he says. Another question to tackle is going to be return logistics. Most likely products will be either destroyed or returned to their country of origin in consolida©Askold Romanov/iStock/Thinkstock

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tions, depending on their value, he reckons. Manner-Romberg sees a long road ahead, but one that will be hard to avoid. “There are a number of stum-

bling blocks, such as different national regulations about how many days a consumer has to return an item, and lots more, but it is the business of the future,” he says, adding that “It’s still a long way with international B2C business”. CS

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CANADA LOGISTICS CONFERENCE 2015

y Rudolfs

A GROWN-UP APPROACH STEPPING UP TO A MORE MATURE SUPPLY CHAIN

hen it comes to the battle of supply chains and company competition, it is not the best supply chains that win but the most mature. What is tied to supply chain maturity, though? This was the topic of debate during a panel discussion at the Canada Logistics Conference 2015. Warren Sarafinchan, CCLP, Vice President, Sales and Supply Chain, with Sun-Rype Products, moderated the discussion, which featured Perry Lo, CCLP, Managing Director, Canaan Transportation, Jacquie Meyers, President, Meyers Transportation Services, and Ginnie Venslovaitis, CCLP, a logistics professional and former Director, Transportation Operations with Hudson’s Bay Company. As Sarafinchan noted, the topic of the mature supply chain is wide and deep. Some see disruptions in the supply chain as a cost of doing business, while some see the mature supply chain as a matter of “good luck”. Discussing the challenges of working with teams made up of many generations, Meyers noted that while some of it is generalizing, the Gen Y's (or millennials) tend to need collaboration, and to seek social connection and fulfilment. “Our biggest challenge in the trucking industry is a sobering question. We are doing an abysmal job attracting Gen Y to the trucking profession, and just an ‘ok’ job attracting them to the office environment. I started looking at this about a year ago-of 230 drivers (in the company), just one was under the age of 30. We need to find ways to attract that generation into our businessif we do nothing, 63% of my drivers will retire in 10 years,” Meyers said.

“Supply chain is not doing enough-there certainly needs to be some effort in creating awareness of supply chain with executives and with the human resources

team. In supply chain, there are jobs involving finance and it’s about understanding the whole network design. There should be an increased focus on (supply chain) education in college and high schools,” said Venslovaitis. Supply chain, she added, is a big business issue, with a highly functioning supply chain important to the global economy and to global business. “At Meyers one of the things we are doing is that we have changed our driver program.We have a rookie 12-week mentoring program, bringing new hires in right after school for training and mentoring. We now have 15 rookie drivers,” she said. Mandatory entry level training for the trucking industry will take truck driving to a skilled profession, Meyers added, but the industry also needs to ensure there is access to affordable loans for these kids to take truck driving. “We don’t have that for truck driving right now. It’s up to us to lobby this government on how impor-

By Julia Kuzeljevich

tant it is to keep the trucking industry moving,” Meyers said. Bridging the generation gap at the company is another priority. “We have set up multigenerational teams, and collaboration between the groups. We have done mentoring and reverse mentoring, where young people can provide ideas for the business.There’s huge ROI on having these cross-generational teams working together,” she said. “It’s just bringing those teams together where you know there is a big gap, where they can get to know each other in a non-work situation, or at an activity where they have got to work at a task together. There is also professional team building where they have got to learn what makes the other team members tick,” Venslovaitis said. Lo noted it’s important to give the millennial generation challenging assignments. “The traditional practices of making them go through the meat grinder, doing their time, those days are over,” he said. Having a good diversification strategy when it comes to uncontrollable events like strikes helps on the risk mitigation side. “Build a buffer so that you won’t be affected and your supply chain will bend, not break,” Lo said. When it comes to the use of technology, Lo, who travels a good deal for his job, said that it “really limits what you see and how you get the job done. I think the art of the deal is those visual cues. It works wonders when dealing with problems. Canada is a trading nation but our industrial output on a global scale is a pittance. continued p.46

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CANADA LOGISTICS CONFERENCE 2015

Canada needs to get out of its comfort zone,” he said. Cross-cultural exposure in today’s world is a given, and there are often certain cultural assumptions that need to be addressed. “I had teams in different cities-there are basic attitude differences between Toronto and Montreal and the West. Canadians assume there are various processes and ways of doing things. Americans make some assumptions about Canadians, too. Sometimes (we need to take) a moment to clear the air, and correct our assumptions about each other,”Venslovaitis said. “People coming from different cultures will interpret things differently. What you might interpret as a yes is not necessarily a yes,” Lo said. And working across multiple time zones means you can expect to be in demand at all hours. “Suppliers these days expect you to be on call,” Lo said. “As a manager of multiple teams, you have to be inclusive of the teams’ time zones when setting meetings. It’s just important to put up those barriers around yourself and consider engaging the people by putting it in the right time slot,” said Venslovaitis. What are some of the emerging issues that will affect supply chain stakeholders going forward? “Fuel,” Meyers said. “We are at a suppressed level right now but at some point it’s going to be going up again and we have to figure out how we’re going to work that into our budgets. The strengthening U.S. dollar is just hammering the trucking industry. Just because of the exchange rate we’re looking at trucks that are 38% more expensive. How do owner-operators get into our market now? We are going to be coming into a capacity crunch. Carrier pay and driver pay is going to have to be addressed. There’s a proliferation of 3PLs not buying equipment,” Meyers said. Considering the potential impact of the predicted ‘demographic tsunami’ on the driver base, “It is very important for shippers to understand the importance of their carrier base-you need to share your business plans, any new business, and new lanes-anything that will affect your carrier’s business. Just have your eyes open on how you can make

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the carrier more efficient in serving you,” said Venslovaitis. “Look at the total supply chain and ask yourself what you can do to make that better,” she said. “The upside for shippers is that as truckers find efficiencies, we automatically pass the savings on to the shippers. But it’s hard for us to plan driver and equipment strategy when (for example) we’re managing all the loads on one day. What about regionalizing your supply chain? If you can create a supply chain where I can get my drivers home at night, it’s going to help me attract drivers to the job,” Meyers said. Carriers should also receive rates that will allow them to reinvest in their business.

“Our drivers actually interact with our customers more than our salespeople do. I encourage everyone to take stock of what you can do to improve the driver experience.” Warren Sarafinchan, CCLP, Vice President, Sales and Supply Chain, Sun-Rype Products

“How does your team respect the job the drivers are doing for you? Are you on time with your appointments? There needs to be a room for them-washrooms, etc. Without them, their product doesn’t go anywhere,” said Venslovaitis. “The top three things that would make drivers happier is no harassment, (the availability of) toilets, and (better) safety. It’s incredible that that isn’t available

everywhere,” Meyers said. Carriers have started blacklisting shippers that are not treating drivers properly, and they are using this as a recruiting strategy, telling drivers they won’t send them to the blacklisted warehouses, said Meyers. “Our drivers actually interact with our customers more than our salespeople do. I encourage everyone to take stock of what you can do to improve the driver experience,” said Sarafinchan. When it comes to the dreaded RFQ process, from a shipper point of view, Venslovaitis said that the ‘forces of finance’ will continue to rule. “There are certainly forces of finance at play when it comes to RFQs, where senior leaders see transportation spend as an opportunity to cut, and to put money back into the bottom line. So as shippers what benefit do you have to provide the carrierwhat’s the most important part of the relationship-service or cost? Be realistic. Step back and think about that-challenge your senior leadership,” she said. “I get it-I know there are always those forces at play. I understand that pressure. I do think it’s changing. I think we’re going to get to a point where my customers are doing less (sic) RFQs because they are getting burned. There are challenges and it’s expensive for your carrier to get to know you. I’m seeing shippers going to smaller batches of carriers. Work with those partner carriers to drive costs out of your system. I’m hoping to see longer term agreements so we can invest in customized solutions (for shippers),” she said. What is the value of a mature supply chain, and how do you get it? “Your supply chain has to be robust, and it has to be flexible,” said Lo. “It’s the understanding of the bigger picture, of all the people that are touching the supply chain. Be prepared for the worst with a plan to manage the disruptions, and do anything you can do to take time out, and to take waste out,” she said. “Become a shipper of choice. Be part of the solution. Collaborate with your carriers, pay compensatory rates. If you invest in all of those little pieces, your carriers are able to invest-it’s a very positive ripple effect,” said Meyers. CS

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SURFACE TRANSPORTATION SUMMIT

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his year’s Surface Transportation Summit, held in Mississauga, Ontario, October 14, featured a panel of shippers and industry consultants who discussed the future of retail distribution in Canada. Moderated by Dan Goodwill, of Dan Goodwill & Associates, the panel examined trends and changes that will shape both retailers’ and carriers’ strategies for delivery in the near future. What’s happening with the retail consumer these days and what are some of the biggest changes seen in their buyer behaviour over the last few years? Serge Carestia, VP Supply Chain, with Home Depot Canada, said the big box stores used to dictate what everybody was going to buy-now it’s completely the opposite. “It’s in the hands of the consumer. Retailers struggle to constantly find out what the customers really want. Now customers are telling us what they want, where they want it and how they want it delivered. So they don’t necessarily want to come into the store anymore.” “There’s no longer a product out there, where it’s ‘stack it high, let it fly’-now it’s really figuring out what the customer wants and delivering it.” “We’re seeing an aging population, and that’s going to pose some unique challenges, both on the Shoppers Drug Mart side and on the Loblaw side,” said Robert Wiebe, SVP, Supply Chain, Loblaw Companies Ltd. “There’s a lot of drug reform, and the provinces also understand that because of the aging population we’re going to have to control costs-that could be a big thing for us from a margin perspective. We’re also seeing customization: people want what they want, when they want it. If they want one specific olive oil from Italy, we have to find a way to get it to them,

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and not blow our brains out from an inventory perspective.” Urbanization is yet another trend, Wiebe noted. “We’re seeing smaller delivery sizes, more frequent deliveries, and more deliveries going into smaller stores,” he said. Looking at some of the docks in these smaller locations, it can be a challenging delivery system, Wiebe said.

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“We’re going to see more and more of that. We have 14 pilot stores right now that would be 50% food, 50% OTC (over the counter).” These pilot stores, with their perishable foods, and located in densely populated neighbourhoods in urban, downtown locations, have no back rooms and need daily deliveries. “There’s a tremendous amount of pressure brought to bear by that dynamic,” said Wiebe, vs. the Superstore environments in

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SURFACE TRANSPORTATION SUMMIT

which they typically schedule a 53 ft. line haul delivery, said Wiebe. “What’s interesting is to think about the challenge described by Serge and Rob, and recognize that’s coming from organizations with a very high degree of sophistication and being able to diagnose, understand and respond effectively to the challenges. Consumers’ expectations are being set today on a local basis. Customers are after that phenomenal customer service. It’s about being able to offer the consumer the price points and channels, because we are in a very long term, low growth environment,” said Stephen J Brown, National Consumer and Industrial products industry leader, with Deloitte. How are supply chains adapting to meet these changing needs? It’s not so much about the online world replacing the brick and mortar, at least not in Home Depot’s case, said Carestia. “In our world we are trying to figure out how to integrate our online with our (brick and mortar) stores so that you could buy anywhere in the world.What we’re trying to do integrate our associate online with the customer, whether the customer is at home, or in the parking lot. We have a lot of small contractors that do a lot of small renovations. They are in their truck, mobile, ordering product all the time. By integrating those two we make our stores even more relevant, because we don’t only have the product, we have the knowledge,” Carestia said. “When you think about the aging population, they often need to call someone in to do (repairs) for them. The younger population might try and fix it-you’re probably going to want to call someone and get instant service-where do I get that part? We see a world where there is a Home Depot person that is helping you online to fix that problem,” he said. “We don’t want to take away any information that our store associates need to compete. We just want to empower them,” he added. With the integration of the Loblaw, and Shoppers Drug Mart supply chains, said Wiebe, “What we’ve tried to do is focus on channel and velocity, and keep the highest movers with the highest volatility to demand in your closest market. Where you have super slow movers, and low demand

volatility, those items, we house them nationally. Our level of reliability has to be incredibly high from a carrier, and transparency to where a load is and when it’s going to arrive.This reliability will be more and more important for us,” he said. The company wants to draw from the supply chain strengths of both the Loblaw and Shoppers stream. “Loblaw would typically be very strong on case picking, where Shoppers is stronger on getting products straight to shelf, and keeping inventory levels low,” he said. “The downtown Toronto pilot stores are very much 50% food, 50% what you would see in a typical Shoppers store,”Wiebe added. “Supply chains are getting increasingly complex and you’ve got the dimension of this trade-off between in-store and online,” said Brown. “When we do scans on some of the most innovative practices going on in the retail space, this notion of having an unlimited assortment available online and the threat that that poses from a company like Amazon cannot be underestimated and so these companies are figuring out how to combat a fundamentally different business model and that is not easy. How? It’s about figuring out ways to make things effective and simpler for your clients, because it’s not simple for them. Don’t just think about your piece of the puzzle, think about what is going on upstream and downstream given the objectives that they’re trying to drive and if there isn’t a unique customer experience there it’s either convenience or cost, and those are generally pretty easy competitive hurdles to overcome,” he said. “From a transportation perspective it is dramatically changing. Inventory could be anywhere, depending on the product, and connecting all that together so consumers can get what they want when they want is very complicated. What that means is if they want home delivery you need to get it to their house and I think the traditional transportation has to get more dynamic and more flexible. We tried a number of things in the market. We’ve tried to deliver flooring at home within 48 hours or on the same day. Linking that up in a traditional way is very, very tough,” Carestia said. Because customers are extremely smart, and they can sniff out where they can get

items like a shed shipped free, now you have to make it profitable. “We need the transport companies that work with us to adapt, to be flexible, to understand what our customer wants, and that includes delivering it to their house,” Carestia said. With the Loblaw supply chain handling some $3 billion worth of inventory,“Inventory and working capital become very big levers in our business,” said Wiebe. With regard to the various tiers of service offered by Amazon, what are some of the thoughts on how they are trying to approach things from a transportation perspective? “Amazon has the flexibility to do these things because they don’t have the fixed cost infrastructure of the network. It’s interesting to hear them talk about bricks and mortar, but strategically it would be a mistake to try and out-Amazon Amazon.That’s not a good strategy. So you figure out who you are targeting and make choices around delivering the best job that you can do for the right value for your customers. That doesn’t mean that you don’t try and innovate in your own way. I’ve heard it said around innovation that there’s no one organization that has all the smartest people in the world.The best ideas may be coming from some unexpected places. Today at the rate of change, it’s important to be curious and outward looking, and to spend some time developing an ecosystem of innovative, small, hungry companies that can offer things that you can incorporate in your business,” said Brown. “What I’m seeing is trying to develop maybe not a unique way of doing it but trying to develop a whole delivery model in some way. How can carriers help us figure out how to deliver differently?” said Carestia. Canada’s challenges lie around its demographics, lack of penetration in the online world, lack of density that the US works with, long distances-all are factors that need to be considered. “I’ve tried to whiteboard it, in terms of all the data and touchpoints, and while we have the overall delivery capacity at Home Depot, it’s just they’re all separate delivery models and pieces of equipment. I put that challenge out to every transportation company that works with me, and I have not seen a model yet. I would challenge the transportation community-how do you help us?” Carestia said. CS continued p.50

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Northbridge exec discusses emerging risks, need for innovation

wo key trends affecting the Canadian transportation industry today are the disparity between the US and Canadian economies, and the weakness of the Canadian dollar. That was the message from Silvy Wright, president and CEO of Northbridge Insurance, when speaking at the Surface Transportation Summit October 14. She said the strength of the US economy compared to Canada’s has meant more freight is moving north-south than eastwest, the opposite of what has been seen over the past five years. Increased exposure to the litigious US has implications for insurers and carriers. Wright said the loonie was on par with the Canadian dollar two years ago, and now sits at

about 75 cents. This means a 30% increase in the cost of equipment and claims costs for Canadian carriers travelling to the US. She pointed out a $5-million limit on a policy issued in Canadian dollars means the policy will only cover about US$3.7 million in the event of a claim that originates in the US. Canadian trucking companies that operate in the US should be aware of highrisk, hyper-litigious areas, which tend to include the states of California, Texas, New Mexico, Louisiana and Florida. “If you are increasing your routes in the US, understand when you go through Louisiana or Florida, you are potentially subject to a very litigious environment,” Wright

Is outsourcing right for you?

s outsourcing to a third party logistics provider the right strategy for your business? Moderated by Canadian Shipper’s editor, Julia Kuzeljevich, a panel of logistics experts at the October 14 Surface Transportation Summit weighed in on whether or not outsourcing drives results. The panelists included Bret Walters, general manager operations of Chalifour Canada, Brian Ware, vp, marketing and business development, Lakeside Logistics and Lou Smyrlis, publisher and editorial director, Trucking Group, Newcom Business Media. To kick off the session, Smyrlis shared the results of the annual survey Canadian Shipper conducts about Canadian third party logistics providers. Smyrlis said that one of the most interesting results the survey found was the answer to a question posed to shippers about their main supply chain challenges. More than half of respondents said reducing costs was the number one challenge they faced. “This is not something we’ve seen just in this year when the economy started to slip back into negative growth,” Smyrlis added. “We have seen this trend in our sur-

vey and other surveys repeatedly over the last five years. It seems like shippers are very concerned with controlling cost.” The survey also probed respondents on their outsourcing trends. Two-thirds of respondents said they outsourced some of their logistics, while 20% admitted to not outsourcing, but are considering it, and only 14% have never outsourced and have no plans to do so. Of those companies that said they outsourced, 78% said they outsourced for outbound transportation and 64% said they outsourced for inbound transportation. “The very last question we asked, and this is probably the most important one,” Smyrlis said, “is when you outsource has it actually improved logistics operations?” For that question, it’s good news, said Smyrlis adding that 41% in the sample said yes, they were able to reduce the logistics costs – which was a major concern for the survey sample. In addition, 18% said their service improved. There to give a first hand account of how outsourcing can change a company for the better were Ware and Walters.

By James Menzies

warned, emphasizing the need for route planning. She also urged carriers to pass this information along to shippers so they can share the cost of the heightened risk. Wright concluded her comments by urging carriers to focus on innovation. “We’re all busy managing our operations,” she said. “But we need to make time to think about innovation. I really urge, whether you’re a small company or a large company, to have a dedicated person or dedicated time where the executive team comes together and thinks about innovation. What are you doing to improve that? How do we take innovation to the next level for the transportation industry? Because if we don’t, somebody else will.” CS

By Sonia Straface

Ware of Lakeside Logistics – a transportation solutions provider – spoke first. He said he doesn’t consider Lakeside to be a 3PL, but rather a 4PL – and that his business doesn’t call it outsourcing, rather smartsourcing. “We’re a fourth party logistics solutions provider. I think of 3PL as tactical – they’re getting your stuff from A to B. It’s a classic form of outsourcing – it’s a simple lift and shift,” he said. “I think of 4PLs as non-asset strategic partners. We’re doing a lot of creative thinking and number crunching and relationship building with other suppliers, carriers and brokerage firms…so instead of outsourcing…we’re smartsourcing…to provide maximum cost savings.” One of Lakeside’s customers is Walters of Chalifour Canada. Chalifour distributes hammers, nails, pipes and water heaters from a distribution centre in Ontario to a network of independent hardware stores across Canada. Before outsourcing – or smartsourcing – with Lakeside, it had 4,000 customers across Canada.The company delivered to 700 stores each week. “We were hurting…(our) transportation costs were 14% of our annual revenue

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SURFACE TRANSPORTATION SUMMIT

and we were only recouping half of that from the stores we delivered to,” said Walters. “We were predicting these costs to rise and there was no way to increase prices or delivery charges because the store owners were already feeling the pinch of low margins and big box competition.” Chalifour also had a major problem with packaging. “If a dealer ordered a simple box of screws, we delivered it,” Walters added. “If a dealer had a box of screws and an ABS pipe, we made sure they got it with no scratches or dents. Our hallmark was delivering weirdly shaped stuff, in random quantities in a perfect condition.” So,Walters went to Lakeside which presented on its services, which guaranteed

cost savings a delivery standard. So, Chalifour decided smartscouring was the route to go for the sake of business. “I can’t stress enough strategy is key to maximizing transportation efficiencies and lowering transportation costs,”Ware said. “Before (Chalifour had) 50 trucks leaving London each week. Each truck was 50% full.The carrier was using a dedicated point to point route model…LTL rates were way too high. For example, Chalifour might send half a load to Calgary and then another half load to Edmonton and they would be half-full trucks. Basically Chalifour was shipping air and nobody wants to pay for air.” Lakeside implemented its strategy which changed the transportation model for Chalifour immensely.The company went from us-

Canada’s recession is over, stronger growth ahead

anada’s recession is already over and its economy should grow through the rest of the year and into 2016. That was the assessment of Carlos Gomes, senior economist with Scotiabank, when speaking at the Surface Transportation Summit October 14. “Yes, economic conditions did weaken in the first half of the year.We had two negative quarters, but it was a decline that was fairly concentrated within a couple of sectors,” Gomes said. “In particular, the oil and gas sector accounted for most of the decline.” Gomes said the oil and gas sector saw business investment spending drop by more than 30% this year. In 2016, Gomes said consumer spending is likely to strengthen and he noted Canada’s employment picture has improved this year. “That is setting up conditions for improvements across Canada as we move into next year,” Gomes said. He is projecting economic growth of 1.7% in 2016, up from about 1% this year. However, he said he’s still concerned about the metals/minerals sector and the machinery sector, which have seen a sharp

By James Menzies

drop in demand because of low oil prices. “But I think overall manufacturing activity should start to pick up and that’s a definite positive,” Gomes said. Globally, Gomes is also expecting stronger growth next year from most nations, including the US, Canada, the Euro-zone, Japan, India and Mexico – the notable exception being China, which could see growth slow further. Still, China is growing at about a 6% clip and its consumer segment is strengthening and playing a stronger role in the country’s economy, helping offset manufacturing declines, Gomes pointed out. Global growth has moderated to about 3%, but Gomes said it should pick up to about 3.5% in 2016. Canada’s economy and its exports should be buoyed by continued strength in the US, Gomes said. US employment is advancing at its strongest pace since 2000 and US leading indicators “remain very positive,” Gomes said. US consumers have deleveraged and the combination of low interest rates and low energy prices has given them more money to spend. “Coming into the downturn (of 2009) the US was overextended and that has

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ing 50 trucks a week, to 20 trucks a week. Additionally, each truck was now 75-80% full. Instead of using a point-to-point model, Lakeside combined multiple deliveries on one truck, to reduce miles travelled. From project approval to roll out, the new transportation model was developed and executed by Chalifour and Lakeside’s combined efforts in just five months, said Ware. “Lakeside proposed a guaranteed decrease in transportation cost of 10%, the actual decrease that we achieved was 20%,” said Walters. “And we achieved a 95% on time delivery standard. Needless to say, we are very happy. We exceeded the savings target by 100% and that’s not because we set a low target. The target we proposed was very reasonable at 10%.” CS

changed significantly,” Gomes said. Canadian manufacturers have significant backlogs to work through, which should bolster freight volumes as those goods are ready to be shipped to market. And the auto sector, experiencing a record year in Canada and the second best year on record in the US, is expected to remain strong in 2016, Gomes said. “The improvement in household balance sheets in the US is enabling them to go out and make major purchases,” he said. Looking specifically at truck and rail transportation, Walter Spracklin, equity research analyst, RBC Capital Markets, said he expects carrier profitability to improve, even though there’s adequate capacity in the market. Spracklin said the driver shortage could tighten capacity but he hasn’t seen it translate into a strong pricing environment for carriers to this point. It's difficult to predict pricing in the trucking sector, but rail can pass on rate increases of 3-4% annually “like clockwork.” Variables such as segment, region, lanes, etc. will have a major impact on trucking profitability in 2016, Spracklin concluded. CS

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INSIDE THE NUMBERS

FAST FORWARD

Direction of shipment levels in 2015 Down 5-10% Down 10-20%

Down more than 20% 11%

10%

As Canadian shippers, who cut back on their freight volumes this year, look ahead to 2016, they see a similar year, interim results from our annual Transportation Buying Trends Survey indicate. Just a little over 40% expect to grow their freight volumes in 2016 – a similar amount to those who grew their shipments this year. On the good news side, 47% expect their freight volumes to remain even, compared to 29% who thought likewise last year.

About the same

Up 10-20% 29%

Up 5-10%

Modes shippers expect to use more 23%

0% 8%

Up more than 20%

13%

26%

Down 10-20%

Down more than 20%

Up more than 20%

Projections of shipment levels in 2016

Down 5-10%

Not sure

3% 5%

About the same

2% 3%

17% 15% 13%

47%

Up 10-20%

10%

11% Not sure

4% 29% Up 5-10% Rail

Mode expected to have greatest pricing power

For-Hire Truckload

For-hire LTL

Courier

Air Intermodal Freight

Shipper perceptions of capacity by mode (10 = tight capacity; 1 = excess capacity; 5 balanced capacity) Rail

19% 16%

Marine

16%

17%

Truckload 4.65%

Intermodal

4.42%

10%

4.89 % LTL

Marine

4.45% 4.61%

4.83% Rail

For-Hire Truckload

For-hire LTL

Courier

Air Freight

Marine

Intermodal

Air Freight

3.58% Courier

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THE BIGGER PICTURE

RISK MANAGEMENT DESERVES A STRATEGY With the continual globalization of supply chains, risk management has evolved from a tactical activity to one of strategic importance. It wasn’t that long ago for example, that logistics and procurement managers viewed “risk” from a domestic perspective, expediting late deliveries, rationalizing short shipments, or dealing with incremental cost overruns. Compare those scenarios to the multitude of risks facing importers and exporters today as they strive to source, and ship, raw materials and finished goods inventories to, and from, countries all over the world, and one can see how the scope of risk management has increased. To be effective, risk management strategies should encompass all functional areas of the organization, departments that interact with customers and suppliers, and have the authority to make decisions and effect change. Risk management now ranks alongside other important supply chain functions including customs, procurement and logistics; areas that support the organization’s objectives to maintain customer service. By managing risk effectively, customer service (and ultimately the broader result of customer satisfaction), should lead to increased competitive advantage (sales) by strengthening customer and supplier relationships based on trust, reliability and consistency. Implementing an effective risk management strategy elevates the importance of visibility, not just for unforeseen events like natural disasters, such as tsunamis, but also unexpected events, such as the recent tragic loss of the cargo ship El Faro in the Bermuda

Triangle while enroute from Florida to Puerto Rico during Hurricane Joaquin. Unforeseen and unexpected loss can also include supplier failure such as product non-compliance, and often has a cascading effect, resulting in increased liability and loss of inventory which impacts customer relationships. As a result, risk management strategies must be broad and flexible in order to encompass global operations. Transportation, technology, supplier relationships and compliance are among the functions that play a role in developing an effective risk management strategy. A number of technology providers for example have developed event management systems which alert organizations to potential risks worldwide.These range from weather alerts affecting maritime transportation to man-made disasters like the explosion in Tianjin, China in August this year that affected port operations in that city. In addition to notifying importers and exporters of risk, some event management programs can also suggest alternate suppliers, products or parts, enabling organizations to recover more quickly. For importers, strong supplier relationships are another key component of an effective risk management strategy in a global environment. A key role for procurement professionals in this area is to identify contingency suppliers in the event of production failure or non-compliance, particularly in terms of quality management. This provision can be particularly challenging for purchasers as potential suppliers may be located in different cities, or even different

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countries, introducing problems around varying cultures, customs and language. Logistics managers also have a significant role to play in supplier-driven risk management strategies by ensuring transportation suppliers are selected based on their ability to provide reliable, consistent service, and are supported by a network of alternate suppliers that can be brought into the network when needed. An often overlooked area of a backup-supplier identification process is the need to actually develop a relationship that goes beyond an ‘expression of interest’.When a backup supplier is required for example, it is often needed on short notice. As a result, organizations should be mindful that an account must be opened with the alternate supplier, and credit terms established, before orders can be placed. More recently, compliance has become an important component of risk management strategy for many global organizations. This is a broad category, ranging from government regulations to customs formalities, and cargo security programs. A central tenet of any risk management strategy for importers is the recognition, and acceptance, of the responsibilities of the importer of record: the awareness of applicable regulations levied by various government ministries and agencies, the importance of having a strong relationship

with a customs broker, maintaining (and updating) records of harmonized codes, and opportunities to take advantage of trade agreements and duty relief programs. As companies expand into global markets, risk management strategies should also identify the impact of cargo security programs on international supply chain performance. Membership in Canadian programs like PIP (Partners in Protection), or the US program C-TPAT (Customs-Trade Partnership Against Terrorism) for example, can help importers gain pre-approval as trusted trading organizations. Related programs such as CSI (Container Security Initiative) and ACI (Advance Commercial Information) should also be quantified in terms of their impact on the supply chain, and the potential for shipment delay and increased liability. These are just a few of the many risks that global organizations encounter. There are many others, including political conflicts that can disrupt supply chain operations, and business risks such as entering into supplier and customer relationships without comprehensive contracts of sale, all of which illustrates for organizations the importance of developing an effective risk management strategy, and recruiting employees with the necessary skills to implement that strategy successfully. CS

Laurie Turnbull, CCLP, 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@coleintl.com ©JJPan/iStock/Thinkstock

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