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Rail Update: Steady as she goes 24 NAFTA Tune-up time 30 The evolving DC tech stack 34 June 2017
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Consolidation continues, but at a slower pace 40S QUARTERLY TRANSPORTATION MARKET UPDATE
State of Ocean Cargo: Carriers cope with regulatory restrictions 65S
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management
UPDATE
A N E X E C U T I V E S U M M A RY O F I N D U S T RY N E W S
IBM subsidiary rolls out weather-related dashboard. A new offering from The Weather Company (TWC), a subsidiary of IBM, called the Operations Dashboard for Ground Transportation is geared toward optimizing workforce productivity and route selection for freight and logistics companies. The dashboard is comprised of various weather-related data sources, including precipitation, wind, fog, ice and pooling water and integrates real-time traffic flow and incident data. According to TWC, the timing for the dashboard is good, considering weatherrelated delays cost the freight sector roughly $8.7 billion per year, according to the Department of Transportation’s Bureau of Transportation Statistics. Users can access dashboard information, designed as an IOS app, through tablets or cell phones to get needed information in a timely manner. Dispatchers have the ability to set up individualized alerts of approaching hazards delivered via API to an in-cab or mobile device, TWC said.
Cost of congestion on the rise. Data from the American Transportation Research Institute (ATRI) shows that traffic congestion on the U.S. National Highway System (NHS) added over $63.4 billion in operational costs to the trucking industry in 2015. According to ATRI, the data indicate that traffic congestion tended to be most severe in urban areas, with 88% of the congestion costs concentrated on only 17% of the network mileage, and 91% of the total congestion cost occurring in metropolitan areas. ATRI said that its analysis also demonstrates the impact of congestion costs on a per-truck basis, with an average increased cost of $22,676 for trucks that travel 100,000 miles annually. Freighter aircraft demand trending up. A new forecast and independent assessment of freighter aircraft demand has been released by the air cargo consultancy Air Cargo Management Group (ACMG). “The robust activity in freighter conversion of narrow body types over the past four years has led to an increase in the quantity of narrow body freighters in the global fleet,” said Robert Dahl, managing director of ACMG. “This increase reverses a trend that began in 2000, through which the narrow body freighter fleet decreased about 40% over a decade-
long period.” The report includes ACMG’s prediction for the freighter fleet make-up by aircraft type through 2036, taking into account the assessment of new-build freighter production, passenger-to-freighter conversion activity and the retirement of freighters from the existing freighter fleet. Analysts expect demand for freighter aircraft to continue trending higher, albeit not at the same rate as before the Great Recession.
Amazon sets sights on home furnishings market. While it’s no secret that Amazon is building up its logistics and transportation playbook, The Wall Street Journal (WSJ) reported that the e-commerce giant intends to “build four massive warehouses to help it deliver bulky appliances and furniture as part of a strategy to expand furniture offerings and speed up delivery times.” As to why it’s entering this segment, Amazon told WSJ that furniture is one of its fastest-growing retail categories. This will surely be worrisome news for furniture and home furnishing shippers, while also likely leading to a need for more outsourced logistics partners to ship large items like couches and dressers. What’s more, the report explained that retailers are still figuring out how best to go about certain aspects of selling furniture online, such as what variety to offer, coupled with the best approaches for delivery to customers at home. Amazon is now focused on expanding product selection, as well as increasing delivery to 1 day or 2 days in certain cities, the report added. DOT Secretary says vision for U.S. infrastructure plan to be unveiled. In kicking off last month’s Infrastructure Week, Department of Transportation (DOT) Secretary Elaine Chao said that the White House would soon share its vision of what its national infrastructure plan would look like. Chao explained that DOT has started an initial regulatory review process, citing how the Federal Highway Administration, as an example, has started to reduce the regulatory burden in an effort to quicken the pace of productivity. Perhaps the most telling part of Chao’s speech was her explanation of how a new paradigm would be created to shift the focus beyond what’s being built to how projects are being funded and financed. “For example, states and localities that have secured some funding or financing of their Continued, page 2
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management
UPDATE
A N E X E C U T I V E S U M M A RY O F I N D U S T RY N E W S
own for infrastructure projects will be given higher priority access to new federal funds,” she said. “The goal is to use federal funds as an incentive to get projects underway and built more quickly, with greater participation by state, local and private partners.”
Financing squeeze on U.S. ports? Proposed cuts to an existing grant program would force U.S. ports to choose between issuing debt to keep capital improvements on schedule or delaying capital programs to allow cash from operations to accumulate, Fitch Ratings says. However, recent partnerships between regional ports could lower capital expenses in the long run for some entities, partially offsetting the cuts. The 2018 federal budget proposes eliminating funding for the Transportation Investment Generating Economic Recovery (TIGER) grant program, on which many seaports rely to fund a portion of their capital improvement programs. A new grant program has been implemented, the Fostering Advancements in Shipping and Transportation for the Long-term Achievement of National Efficiencies (FASTLANE), which the federal government noted should make up for the removal of TIGER grants. However, FASTLANE mainly targets larger projects costing more than $100 million.
Werner makes entrance into last-mile market. Werner Enterprises is the latest company to get on board in the e-commerce-driven last-mile sector, with the introduction of Werner Final Mile. Company officials said that this service will provide nationwide delivery and related services to residential and business locations and leverage its expansive network of delivery teams with operations in nearly 200 locations. The company added that through this service, Werner would mainly deliver large or heavy goods and items with two uniformed associates operating a 24- or 26-foot lift gate straight truck. Craig Stoffel, Werner’s vice president of global logistics, told Logistics Management that there were a few big drivers behind Werner’s decision to enter this market. “It’s a changing marketplace when it comes to the buying habits in the U.S. and the global population,” said Stoffel. “Nearly half of our revenue is touching retail and affecting a large amount of our customer base
2
LOGISTICS MANA GEM ENT | JUNE 2017
and volume. And, for us to continue to add value to our customers, it was a natural step for Werner to expand into this part of the supply chain.”
Legendary leaders celebrated. Achieving Women’s Excellence in Supply Chain Operations, Management and Education—a group better known in the industry as AWESOME—has presented its Legendary Leadership award to two highly accomplished supply chain leaders: Francesca DeBiase, chief supply chain and sustainability officer, McDonald’s Corporation; and Kristin French, retired brigadier general, U.S. Army, and principal deputy assistant secretary of defense, U.S. Department of Defense. “The selection of these two outstanding leaders is evidence of the impact women are having at the highest levels of supply chain leadership in dramatically different organizations,” said Nancy Nix, executive director of AWESOME. The Legendary Leadership award was created in 2014 to recognize women supply chain leaders who have achieved extraordinary professional excellence and success, addressed challenges impacting opportunities for women and advanced the changing landscape of women’s supply chain leadership.
Working to close the gender gap. APICS, along with The Manufacturing Institute and Deloitte, recently released a study that addresses the gender gap in today’s logistics marketplace. “Women in Manufacturing” is the result of more than 600 survey responses from women professionals in the manufacturing industry, along with nearly 20 manufacturing executive interviews. The study examines how companies can effectively recruit, retain and advance talented women in manufacturing and illustrates ways that women in manufacturing are making an impact in the industry through programs like Science, Technology, Engineering and Production (STEP) Ahead. This study confirms the importance of increasing the amount of women in the supply chain workforce and that many companies are missing a critical talent pool. “This study is an important step in understanding how we as an industry can make supply chain careers more attractive to women,” said Abe Eshkenazi, APICS chief executive officer. •
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logisticsmgmt.com
CONTENTS
VOL. 56, NO. 6
Logistics Management LOGISTICS & SUPPLY CHAIN EDUCATION:
Opportunity abounds
18
Here are five trends that every shipper— and potential shipper—must watch as the demand for experienced logistics and supply chain professionals soars. GLOBAL LOGISTICS
30 Cross-border Logistics: NAFTA tune-up time We take a deep dive into the 23-year-old NAFTA agreement, the impact it has made on logistics operations and hear what the experts suggest Washington should—and should not—do. WAREHOUSE/DC MANAGEMENT
34 The evolving DC tech stack
TRANSPORTATION BEST PRACTICES & TRENDS
24 2017 Rail/Intermodal Roundtable: Volumes stable, business steady While the overall economy is putting an emphasis on smaller shipments, these two stalwart freight transportation markets continue to chug along at a healthy clip. Our panel of leading rail/intermodal experts helps shippers put the markets into perspective.
DEPARTMENTS 1 9 10 12 16 17 72
Management update Viewpoint Price trends News & analysis Newsroom notes Moore on pricing Pacific Rim report
With the growth of e-commerce, the technology stack for distribution centers is expanding. We explore why WES/WCS software is gaining prominence and share how operations are expanding their use of data science.
SPECIAL REPORTS 2017 TOP 50 U.S. AND GLOBAL 3PLS
40S Top 50 3PLs: Equity investment and consolidations maintain traction The trend of mergers and acquisitions has hardly subsided, and fresh injection of equity investment is transforming the marketplace. And shippers may see 3PLs continue to purchase high-tech solutions and hire young professionals for their implementation. STATE OF OCEAN CARGO:
65S Carriers cope with regulatory restrictions As if global ocean carriers didn’t have enough trouble managing rates and capacity, government agencies have called into question the viability of alliances and mergers designed to restore stability in the industry.
Logistics Management® (ISSN 1540-3890) is published monthly by Peerless Media, LLC, a Division of EH Publishing, Inc., 111 Speen St, Suite 200, Framingham, MA 01701. Annual subscription rates for non-qualified subscribers: USA $139, Canada $219, Other International $269. Single copies are available for $20. Send all subscription inquiries to Logistics Management, PO Box 677, Northbrook, IL 60065-0677. Periodicals postage paid at Framingham, MA and additional mailing offices. POSTMASTER: Send address changes to: Logistics Management, PO Box 677 Northbrook, IL 60065-0677. Reproduction of this magazine in whole or part without written permission of the publisher is prohibited. All rights reserved. ©2017 Peerless Media, LLC.
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EDITORIAL STAFF
ONLINE
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Michael A. Levans Group Editorial Director Francis J. Quinn Editorial Advisor Patrick Burnson Executive Editor Sarah Petrie Executive Managing Editor Jeff Berman Group News Editor John Kerr Contributing Editor, Global Logistics
Bridget McCrea Editor at Large, Technology
Roberto Michel Contributing Editor, Warehousing & DC
John D. Schulz Contributing Editor, Transportation
2017 EXCLUSIVE LM WEBCAST
Women in Logistics According to the findings of Logistics Management’s recent “Salary Survey,” the vital role women play in the logistics management community continues to gain traction every year. In this educational Webcast, executive editor Patrick Burnson will share our recent findings and will then be joined by a panel of women who are now leading top-level logistics and supply chain operations. The panel will share their success stories as well as advice for women who are making their way up the ladder. Our featured panelists include:
Chris Lewis Creative Director Wendy DelCampo Art Director Kelly Jones Print/Online Production Manager
COLUMNISTS Derik Andreoli Oil + Fuel Elizabeth Baatz Price Trends Kris Timmermans Excellence Peter Moore Pricing PEERLESS MEDIA, LLC
• Tisha Danehl, vice president of the executive recruiting firm Ajilon; • Ellen Voie, president and CEO of the Women In Trucking Association (WIT); • Andrea Morriera, international logistics manager for Orchard Supply Hardware; and • Heather Sheehan, owner of Crispy Concepts LLC.
Brian Ceraolo President and Group Publisher
Kenneth Moyes President and CEO
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2017 Technology Roundtable Webcast NOW ON DEMAND logisticsmgmt.com/2017tech
Are we moving closer to “intelligent” logistics? Everyone is talking about the Cloud, the Internet of Things (IoT) and distribution automation as enablers to help logistics managers keep pace with rising customer expectations in both B2C and B2B. But exactly what sort of technologies fall under these broad terms, and how will they actually help logistics operations keep pace with new customer expectations? Join group editorial director Michael Levans and a panel of four supply chain technology analysts as they demystify some of today’s “buzz” terms and share practical insight into how to better apply the existing technologies that will create a more “intelligent” logistics operation. Bob Hood, principal, digital supply chain, Capgemini; Steve Banker, vice president, supply chain management, ARC Advisory Group; Norm Saenz, managing director, St. Onge; and Dwight Klappich, research vice president, Gartner set out to answer:
LOGISTICSMGMT.COM
• What and how much should we move to the Cloud?
• What practical technologies can make our operations intelligent?
• Has the integration of TMS and WMS been overlooked?
• Are logistics professionals actually prepared to mange the current disruption?
JUNE 2017 | L O G I ST I C S MAN AG E ME N T
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VIEWPOINT
The improving demographic mix When you want to take a broad snapshot of the demographics of a particular industry, it’s often best to put research reports aside and simply show up to a few of that market’s bigger trade show or conferences. When there’s a trade show floor involved, I first walk the perimeter to get an idea of the size of the floor. Then I walk down the middle aisles to get a feel for the “buzz” at that moment in time, keeping an eye on attendee engagement with exhibitors. Are these business discussions? Are they merely catching up? Or is it a little of both? It’s in those early observations that you start to get an idea of the general demographic makeup. Is it more of a veteran group? Or, is it younger and savvier? Or possibly a little of both? When I roll up my many logistics and supply chain trade show and conference experiences over the past few years, I’m happy to report that I’m starting to see a little of both in terms of engagement levels as well as a healthier demographic mix. I’m seeing our stalwart veterans mixing and mingling with a growing number of younger attendees—both male and female. Back in 2004, when I first started working on Logistics Management (LM), that wasn’t the case. In fact, the lack of young professionals was notable; so much so that their absence drove editorials and feature stories asking why we weren’t building a deeper bench for the future. It’s impossible to put a finger on the exact moment the tables turned, but I can be nearly certain that the steady growth of e-commerce and the evolution of the digital necessities that make it work are at the heart of this current—and absolutely vital—demographic shift. “Simply put, the demand for experienced logistics and supply chain managers is increasing exponentially,” says contributing editor Bridget McCrea. “And when you consider the growth of e-commerce and its scalable, digital foundation, the opportunities are
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literally endless for younger people looking to build life-long careers.” Starting on page 18, McCrea offers five emerging trends in logistics and supply chain education and career development. While the number of logistics-specific educational offerings are taking off and becoming more popular at some of our most esteemed universities, she cites some shortcomings and advises our base of veterans to make sure Millennials are getting hands-on-training— not just screen time. We’re also seeing more women entering logistics and supply chain management positions. In fact, the findings of our recent “Salary Survey” said that the role women play in the logistics management community continues to gain traction every year. To further examine this, executive editor Patrick Burnson put together a panel of three women who represent three different areas of the market—a recruiter, a trucking executive and a shipper—in our first “Women in Logistics” Webcast happening on June 15. “These professionals share their success stories as well as offer advice for women who are making their way up the ladder,” says Burnson. “And while there’s still a steep hill to climb, opportunities abound.”
Michael A. Levans, Group Editorial Director Comments? E-mail me at mlevans@peerlessmedia.com Follow me on Twitter: @MikeLeva
JUNE 2017 | L O G I ST I C S MAN AG E ME N T
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priceTRENDS Pricing across the transportation modes 2
145
1
143
0
141
-1
139
-2
Forecast
-3
2015
2016
2017
% change (left scale) % CHANGE VS.:
2018
137 135
Index 2001=100 (right scale) 1 month ago 6 mos. ago
General freight - local TL LTL Tanker & other specialized freight
-0.1 0.2 0.7 0.2
0.2 0.1 2.7 0.6
1 yr. ago
-1.4 0.6 4.4 1.1
6
170
3
167
0
164
-3
161
-6
Forecast
-9
2015
2016
% change (left scale) % CHANGE VS.:
2017
2018
158 155
Index 2001=100 (right scale) 1 month ago
6 mos. ago
1 yr. ago
-0.4 -2.2 -0.5 0.4
1.7 -5.2 5.3 6.5
-1.6 -3.2 7.3 8.4
Air freight on scheduled flights Air freight on chartered flights Domestic air courier International air courier 6
185
3
181
0
177
-3
173
-6
Forecast
-9
2015
2016
% change (left scale) % CHANGE VS.:
2017
2018
169 165
Index 2001=100 (right scale) 1 month ago
Deep sea freight Coastal & intercoastal freight Great Lakes - St. Lawrence Seaway Inland water freight
1.0 0.0 na 0.0
6 mos. ago
1 yr. ago
4.2 -3.9 -0.6 -2.8
9.5 -6.2 1.0 -2.2
4
175
2
173
0
171
-2
169
-4
Forecast
-6
2015
2016
% change (left scale)
2017
2018
167 165
Index 2001=100 (right scale)
% CHANGE VS.:
1 month ago
6 mos. ago
1 yr. ago
Rail freight Intermodal Carload
0.5 -0.5 0.8
2.1 1.9 2.1
3.9 5.2 3.7
10
L OGISTICS MANA GEM ENT | JUNE 2017
TRUCKING Thanks to pressure from fuel costs, margin conditions in the U.S. trucking industry have been deteriorating—but slowly. In the first quarter of 2017, fuel costs increased 7.6%. In addition, worker wages inched up 0.33% as overhead expenses grew 1%. Adding it all up, total costs increased 1.7%. Meanwhile, average transaction prices for trucking services increased only 0.6%. As a result, the industry’s pre-tax gross operating surplus in the first quarter stood at $28.94 per $100 of sales. That’s down 50 cents from the previous quarter and down $1.32 from the same quarter a year ago. Our trucking forecast calling for a 1.6% average annual price hike in 2017 looks modest given these cost trends.
AIR In the first three months of the year, wholesale jet fuel prices increased 7.3%—a sharp turnaround from the big price cuts enjoyed a year earlier. Counteracting those cost hikes, worker wages were down 0.7%, although other salaries and benefits costs were up 0.6%. The good news for U.S. owned airliners: they were able to push through a 4.9% price hike for services. Alas, all that price-hike success was due to increases in passenger fares. In the three months ending April 2017, transaction prices for airfreight on scheduled flights and on nonscheduled flights were down 3.5% and 1.5%, respectively. Taking into account all the data, we estimate this industry’s margins improved by $2.61 for every $100 worth of sales.
WATER The global shipping crisis is reflected in our estimates for margins in the U.S. water transportation industry. The latest results from our U.S. industry cost model show the pre-tax operating surplus sank to $10.89 per $100 of sales in March 2017. That’s down from a surplus of $14.02 last year and $20.45 in March 2015. The problem for margins in this industry has been the inability to increase prices. In the three months ending April 2017, water transportation transaction prices declined 0.7% from a year ago. However, that price drop was far better than the 6.6% price cut reported in April 2016. With the price trend improving and margin pressures high, average industry prices are forecast to rise 0.4% this year.
RAIL The recovery in rail operators’ ability to hike prices is continuing apace with the carload market and intermodal—both trending in a direction that will soon challenge shippers. In the most recent survey of transaction prices, carload operators reported monthly price increases in 10 of the past 12 months. Now, in the first four months of this year, carload prices are up 2.3% from the same period a year earlier. Likewise, intermodal rail prices are up 6.4% at the same time. All together, and including the negligible addition of passenger rail service, it looks like the U.S. rail industry will finally emerge from its pricing slump as we project a 2.4% price hike in 2017 and 1.1% in 2018.
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NEWS analysis Also: • It’s “beyond time” to modernize U.S. infrastructure, U.S. Chamber of Commerce urges, Page 13 • Shippers make case for U.S. to remain in the Paris Agreement, Page 13 IANA reports Q1 intermodal gains, Page 14
Uber Freight makes official entrance into trucking market Long awaited new app matches carriers with loads, puts them into the fray in the highly competitive, $700 billion truckload brokerage arena. By Jeff Berman, Group News Editor
WHILE ANTICIPATED for some time, ubiquitous ride-sharing service Uber said last month it has officially entered the freight transportation arena, specifically truckload brokerage, with the introduction of Uber Freight. In a blog posting, Eric Berdinis, Uber Freight product manager, wrote that Uber Freight is an app that matches trucking companies with loads to haul—taking the guesswork out of finding and booking freight, a stressor for drivers. “What used to take several hours and multiple phone calls can now be achieved with the touch of a button,” Berdinis explained. Vetted users download the Uber Freight app, search for a load and tap to book it. Rate confirmation comes within seconds, eliminating the common anxiety about confirmation. And, Berdinis said that rather than the common practice of a trucker waiting 30 days or more to get paid, Uber Freight is “committed to paying within a few days, fee-free, for every single load,” and “when things don’t go as planned or drivers have to wait longer than expected, we pay for that, too,” with accessorial rates published on the Uber Freight blog and Website. Uber has had its sights on the truckload brokerage market for some time, with a September 2016 Reuters report noting that it was keen on becoming a freight hauler through its acquisition of Otto, a self-driving truck startup for $680 million in August 2016, and a technology partner for trucking. Uber is now pitching
12
its services to shippers, truck fleets and independent drivers, not just to outfit trucks with self-driving technology, but also to be a player in the highly competitive $700-billion truckload brokerage arena—which is replete with major play-
ers such as C.H. Robinson Worldwide, XPO Logistics, Echo Global Logistics among others. Uber’s Berdinis said in an interview that the company has been testing its freight platform for several months. “We firmly believe we can make a significant impact in the future of trucking with a new way of booking freight and a new way of connecting small fleets and owneroperators with the large tail of capacity out there to the community of shippers that don’t traditionally have the resources to go out and find capacity,” he said. Prior to this launch, Uber had been piloting a program with a handful of U.S.based shippers as well as a number of small
L OGISTICS MANA GEM ENT | JUNE 2017
carriers based in the triangle between Dallas, Houston and San Antonio. Going forward, Berdinis said that Uber Freight will focus on independent drivers and small fleets, noting that owner-operators may be viewed as a dying breed these days due to the challenges in finding consistent freight. Uber Freight’s initial focus is on the two most common freight types in the United States, dry van and refrigerated (reefer), which offers a lot of space to route and optimize movements of these small fleets using the app. “Going into this space and doubling down on small fleets and creating a top-quality service for a shipper base offers room for growth,” he said. According to Morgan Stanley analyst Ravi Shanker, the move marks an escalation in the truck brokerage disruption wars. “Thus far, we’ve seen several startups vying to be the ‘Uber of freight’ achieve scale in the past two years, but Uber’s launch marks the entry of the first tech giant into this space ahead of Amazon’s impending launch this summer.” In the long-term, Shanker says his firm is seeing secular margin compression at all of the 3PLs. “This is due to the threat of increased competition from startups vying to crowd-source freight, and they continue to raise meaningful amounts of private capital; insourcing at e-commerce and other logistics giants; and vertical integration into the assetlight business by asset-heavy players including, eventually, OEMs.” • LOGISTICSMGMT.COM
NEWS analysis INFRASTRUCTURE
It’s “beyond time” to modernize U.S. infrastructure, U.S. Chamber of Commerce urges THE GENERAL MESSAGE SENT during the recently held “Infrastructure Week” was loud and clear: The lack of U.S. infrastructure modernization is increasingly causing expensive bottlenecks at ports and around our cities that are responsible for expensive delays in an ever-complex worldwide market. “I’ve been playing around with supply chain issues since I was a young man—which is a long time ago,” said Thomas Donohue, former head of the American Trucking Associations (ATA) and for the past 20 years the president and CEO of the U.S. Chamber of Commerce. “Today’s supply chain is not what I grew up with, and change is inevitable in this business.” Donohue and others spoke during “Infrastructure Week” at the U.S. Chamber’s fifth annual Global Supply Chain Summit in May. He added that this is a “once in a generation” opportunity to modernize the U.S. infrastructure to the tune of $1 trillion in investment. The quest, as always, is how to pay for it. Fuel tax increases are apparently back on the table in Congress, and that was music to the ears for some in attendance. Ed Mortimer, executive director of the U.S. Chamber’s transportation initiative, has backed the Chamber’s call for a gradual increase in the federal fuels tax—currently 18.4 cents a gallon on gasoline, 24.4 cents on diesel, unchanged since 1993. “It’s not just time to fix it,” Mortimer said. “It’s time to modernize it and improve it, and that not only includes roads and bridges.” He added that intermodal access to ports around the country is clogged due to the increase in foreign trade and water advocates don’t want to be left out in any building boom. LOGISTICSMGMT.COM
Molly Campbell, a director at the Port Authority of New York and New Jersey, added that “infrastructure is our bread and butter.” She said that their port is undergoing a major dredging program to help accommodate larger, deeper ships. “We would love to have infrastructure spending that’s more flexible, but the government needs to invest in projects that make the most economic sense, not just merely on political will,” she said. As always, truckers are in the vanguard of those calling for increased spending on infrastructure. FedEx and other truckers have openly called for an increase in the fuel tax to pay for improvements to alleviate bottlenecks. Bill Sullivan, executive vice president of advocacy at the ATA, said that big investments are needed for the trucking industry, adding that ATA officials recently met face to face with President Trump and Vice President Mike Pence to lobby for more spending on highways. Sullivan reiterated ATA’s call for an increase in the fuel tax—which, notably, he called “a user fee.” Trucking interests are vigorously opposed to tolling of existing highways, although Sullivan left the door open for tolls on newer highways. “The highway is our office,” Sullivan said. “And we believe that there has to be a sustainable funding mechanism to find dedicated funding for highway investment,” adding that a recent freight bottleneck survey showed that congestion costs U.S. shippers $63 billion a year in delays—an embarrassingly high figure for a country with the biggest economy in the world. Perhaps the United States could take a page from smaller countries such as Panama, which has invested mightily in infrastructure improvements. In fact, the newly expanded Panama Canal is making a positive impact on worldwide trade, said Karla Gonzalez, deputy chief of mission at the Embassy of Panama. “The East Coast ports are the most important beneficiaries of the Panama Canal expansion,” said Gonzalez, noting
the growth in ports of Virginia, Savannah and Jacksonville and the millions that are being spend on improvements in Baltimore and Miami. “I can’t place enough emphasis on the need for U.S. ports to modernize.” Those improvements at ports are welcome news to manufacturers, who have talked about being hampered by an aging U.S. infrastructure in an increasingly competitive worldwide market “We need infrastructure,” said Judith Marks, CEO of Siemens USA. “We need access to ports and airports. We are at a unique junction in this country to double down on infrastructure and double-down on public-private partnerships. We need to think of infrastructure with a capital ‘I.’” Chamber officials have long backed a comprehensive infrastructure investment program, and Trump administration has talked about a $1 trillion investment for infrastructure, but so far details are sketchy. And we rolled up all the comments from this recent event, there is no question: The need for modernizing U.S. infrastructure is as great as it’s ever been in our nation’s history. • ––John D. Schulz, contributing editor
SUSTAINABILITY
Shippers make case for U.S. to remain in the Paris Agreement
WHILE PRESIDENT TRUMP and administration officials haven’t made their intentions clear in regards to the United States remaining in the Paris Agreement, a large faction of well-known companies have made it apparent that they want to remain part of it.
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NEWS analysis The Paris Agreement by the United Nations Framework Convention on Climate Change (UNFCCC) requires each of the 190 participating countries to strengthen the global response to the threat of climate change by keeping a global temperature rise below 2 degrees Celsius above pre-industrial levels and to pursue efforts to limit the temperature increase even further to 1.5 degrees Celsius. To reach these ambitious goals, appropriate financial flows, a new technology framework and an enhanced capacity building framework will be put in place, thus supporting action by developing countries and the most vulnerable countries, in line with their own national objectives as well. “The nonbinding agreement also provides for enhanced transparency of action and support through a more robust transparency framework,” the UNFCCC added. Reports stated that the Trump administration was hoping to make a decision about remaining in the Paris Agreement prior to the G-7 and G-20 summits that were held last month. A Wall Street Journal report noted that, at those meetings, world leaders were likely to pressure President Trump to remain in the agreement. The report also noted that EPA Administrator Scott Pruitt is keen on the U.S. withdrawing from it, with other people with close White House ties “urging more tempered steps, such as pairing the U.S. carbonemission reduction targets.” What’s more, while on the campaign trail, President Trump called the Paris Agreement “a bad deal for the U.S.,” while saying clean air and crystal clear water are important. As for how large U.S.-based businesses feel about the agreement, it’s clear that they want things to remain the same and not see the U.S. exit. In a letter sent to President Trump on April 26, 16 companies, including Apple, DuPont, General Mills, Google, Intel and Walmart pleaded their case for why the U.S. should remain in the agreement. “Climate change presents U.S. companies with both business risks and business opportunities,” the letter stated. “U.S. business interests are best served by a stable and practical framework, facilitating an effective and balanced response. We believe the Paris Network provides such a framework.” The letter added that companies based
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or operating in the U.S. benefit from U.S. participation in the agreement in several ways, including strengthening competitiveness and reducing the risk of competitive imbalance for U.S. companies. In a May 10 letter to the President, 30 U.S.-based CEOs, including large shippers like Cargill, Johnson & Johnson, Unilver and Tesla, expressed their support for the U.S. remaining in the agreement: “As CEOs of large American companies, or with significant operations in the United States, we are concerned about keeping the doors open for the global flow of American manufactured goods and products at this critical time when our manufacturing sector is starting to grow from our competitive energy advantage.” Jason Mathers, Environmental Defense Fund senior manager for supply chain and logistics, said his organization sees the agreement as being incredibly important, “because it has ambition, is global in scope and provides a very broad framework.” • ––Jeff Berman, group news editor INTERMODAL
IANA reports Q1 intermodal gains
THE INTERMODAL ASSOCIATION OF NORTH AMERICA (IANA) reported last month in its “Intermodal Market Trends and Statistics” report that first quarter intermodal volumes saw annual growth for the second straight quarter. Prior to the last two quarters, volume growth saw annual declines during the second and third quarters of 2016, which were preceded by 25 consecutive
L OGISTICS MANA GEM ENT | JUNE 2017
quarters of growth. Total first quarter volume movements—at 4,240,884— were up 2% annually, ahead of the first quarter’s 1% increase. International containers led the individual intermodal categories with a 2.9% annual increase for its second straight increase following two quarters of declines. Domestic containers rose 1.3%, while trailers eked out a slight annual gain, up 0.3%. IANA said in the report that this performance is impressive in that it follows a 2% gain from the first quarter of 2016, which suggests that the first quarter’s increase was real growth—as opposed to having an easier annual comparison. Looking at international volumes, IANA said that while first quarter volumes were up 2.9% and U.S. international volumes were up 2.5%, U.S. container imports were lower, seeing a 1.6% gain. The report explained that international growth and container import growth tend to be fairly close, but that was not the case in 2016 and into this year so far. IANA president and CEO Joni Casey said that the first quarter international volumes were “fueled by increased consumer confidence and spending.” As for domestic containers, which recorded less than half the growth rate of international and fell far short of the fourth quarter’s 6.4% annual increase, IANA pointed to declines in the Midwest, Northeast and Southeast regions. “We would have expected gains to be a little higher, but there are still strong headwinds particularly in the east, with truck capacity relatively loose and cost of fuel still low by comparison,” Casey said. First quarter intermodal marketing companies (IMC) total first quarter loads rose 7.5%, with intermodal loads up 3.6% and highway loads up 11.6%. Intermodal revenue was up 5.6% and highway revenue saw a 13.8% annual gain. Total revenue saw an 8.4% annual gain. Average intermodal and highway revenue per load and each saw matching 1.9% annual increases art $2,608 and $1,438, respectively. IANA’s Casey said that over-the-road volumes and loose truck capacity drove the total increase in IMC loads. • ––Jeff Berman, group news editor LOGISTICSMGMT.COM
Sponsored by NEWCASTLE
MAKING THE CASE REPORT
Making the Case for
Mobile Workstations for Receiving By eliminating paperwork and relying on mobile carts that are equipped with an integrated power system, companies can effectively boost dock-to-stock cycle time, reduce labor by as much as $10,000 per worker, eliminate improperly labeled products, and minimize inaccurate inventories.
I
N TODAY’S FAST-PACED distribution environ-
The good news is that the right combi-
ment, the room for error has shrunk just
nation of state-of-the-art equipment and
COVERED IN THIS REPORT:
as the need for a higher volume of smaller,
technology applications are helping logis-
personalized orders has increased.
tics operations rise above these issues and
• Common receiving challenges defined • What are mobile-powered workstations? • Case Study: Direct Relief speeds up handling of crucial healthcare supplies • How to untether receiving and watch productivity rise
Pushed to do more with less, and to keep workers as productive as possible
work smarter, better, and faster. By using barcode technology to stream-
in the midst of a labor crunch, warehouse
line the warehousing process, for example,
and distribution center (DC) managers
managers can effectively remove redun-
need state-of-the-art tools that help them
dant processes while maximizing resource
achieve their goals while also minimizing
utilization. And, rearranging products to
errors and ensuring high levels of cus-
match changes in demand helps minimize
tomer satisfaction.
the negative impacts of seasonal demand, efficiency and organizational profitability.
The problem is that the receiving area
while developing the right mix of expertise
is prone to errors—just one of which can
through workforce planning helps manag-
have a tenfold impact across the rest of
ers hone the skills necessary for successful
amount of time a worker spends walking
the warehouse or DC. Left to chance,
labor force practices.
back and forth to retrieve labels and pa-
Whether the goal is to cut down on the
perwork, eliminate the time spent bringing
the un-optimized receiving process not
In this report, we take a look at the role
only erodes a material handler’s overall
mobile-powered workstations are playing
product to a workstation for processing, or
efficiency, but it can also create key labor,
to help warehouse and DC managers solve
give workers access to a full PC or laptop
productivity and profitability issues.
their most pressing pain points while also
out on the DC floor, a mobile workstation
enhancing worker productivity, operational
helps achieve those goals—and more.
For example, in many of today’s warehouses, poor and inefficient physical layout can diminish the size and importance of receiving—a critical juncture where labels are added, items are counted and reconciled, pallets are broken down, and shipping errors are reported—and at a great detriment to an entire operation.
Go to: www.logisticsmgmt.com/newcastlesystems0617 for a complete report on the benefits of mobile workstations
Newsroom Notes
Jeff Berman is group news editor for the Supply Chain Group publications. To contact Jeff with a news tip or idea, please send an e-mail to jberman@peerlessmedia.com.
with Jeff Berman
Does Trump’s gas tax increase proposal have potential? Considering that the federal gasoline tax has not been And while President Trump floated the idea of raising raised from its current levels of 23.4 cents for diesel and the tax, a recent report in The Hill more or less squashed 18.4 for gasoline since 1993, it’s somewhat surprising that that idea, noting how Republicans are opposed to the conit gets as much as attention as it does. cept, calling it a “politically fraught issue that lawmakers Sure, the reasons vary as to why that’s the case. Howhave avoided for years.” ever, as one of the primary revenue sources for the HighHowever, that doesn’t necessarily mean that it’s way Trust Fund (HTF), which routinely pays out more falling on deaf political ears either. A letter recently than it collects, it really is time for the tax to be raised. In addressed to Senator Mike Enzi (R-WY), Chairman fact, that exact thought has been expressed by many high- of the Senate Committee on the Budget, and Senator powered trucking industry executives, as well as a whole Bernie Sanders (I-VT), the committee’s ranking memslew of other industry stakeholders. ber, from various business and transportation concerns, As we have written about extensively over the years, including the U.S. Chamber of Commerce, the National having sufficient capital in the HTF is critical as its revAssociation of Manufacturers, and the American Assoenues are allocated for federal highway, transit, and highciation of State Highway and Transportation Officials, way safety programs. What’s more, diesel taxes represent among others, highlighted the “importance of federal about 90% of HTF net revenues. The issue of Congress being proactive when In fact, the premise of raising the gas tax has, it comes to possibly raising the federal gasoline tax is even more elevated now, considering that historically, been nothing more than a longour nation’s infrastructure remains in a fullstanding game of ‘kick the can’ over and over blown state of disrepair with changes needed and over… long past yesterday—explaining why Trump’s recent comments that he would consider raising the tax gained a fair level of attention. transportation investment to growing the U.S. economy In fact, the premise of raising the gas tax has, historiand creating jobs.” cally, been nothing more than a long-standing game of Taking that thesis a step further, the letter pointed out “kick the can” over and over and over… that while the 2015 Fixing America’s Surface TransportaWhat’s more, going back to 2008, Congress has had to tion (FAST) Act provided sufficient HTF resources to suptake $143 billion from other sources to put into the HTF port the relatively modest surface transportation investment to fill needed gaps in investment, due in large part to the it authorized through fiscal year 2020, it also requires $70 fact that the gasoline tax had not been raised. billion in transfers to reach that goal. It also cited CBO That point gets even more magnified when you condata stating that there will be a $20 billion average annual sider that HTF-based revenue didn’t even raise $40 billion shortfall between existing revenue and the amount needed in fiscal year 2015, according to the Congressional Budget to prevent cuts in highway and public transportation investOffice (CBO). In the meantime, the CBO has stated that ment upon expiration of the FAST Act. the HTF will be insolvent in the next 10 years unless a This funding predicament and subsequent impacts workable funding solution emerges. on both the federal budget and U.S. economy require a Raising the gasoline tax has never truly been on long-term solution “to stabilize and grow federal surface the table as a viable funding option. The reason? Well, transportation as part of any tax reform initiative,” the letaccording to many industry analysts, it’s been the lack of ter said. It added that should the HTF revenue shortfall political will or incentive. not be addressed, it would again require Congress to shift In fact, at an industry conference around five years funds from other parts of the budget to “support another ago, former Department of Transportation Secretary Ray in a long string of one-time trust fund infusions.” LaHood explained to me that the Obama-led White House Remember how “fun” those were? Needless to say, nothwas opposed to raising it due to economic conditions at the ing has truly changed when it comes to the state of the HTF time—which was his way of saying that raising the tax was and the prospect of raising the gasoline tax. Ignoring a probnot under any type of consideration. lem will not make it go away. Does Congress know that? •
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Moore on Pricing
Peter Moore is adjunct professor of Supply Chain at Georgia College EMBA Program, Program Faculty at the Center for Executive Education at the University of Tennessee, and adjunct professor at the University of South Carolina Beaufort. Peter writes from his home on Hilton Head Island, S.C., and can be reached at peter.moore@gcsu.edu.
Capturing in-transit inventory on rail Shippers should be noting that rail is increasing, or fixed safety stocks. This can be modeled in an ingly carrying inventory that’s fueling a growing inexpensive, Cloud-based network optimization tool. U.S. economy. According to the Association of Predictable is critical for in-transit inventory American Railroads (AAR), intermodal rail traffic items, as we’re literally promising usability at a given in March 2017 jumped 21% over February totaltime and place for our customers. Can we predict ing almost 1.3 million units, representing a 4% the transit time on rail? Yes we can. Rail car location increase over 2016 traffic and a new record in U.S. messages with a history back to the EDI realm are intermodal volumes. linked in sophisticated systems that can statistically Further, rail is making an impact on bulk shippredict transit times. These are adjusted many times pers, as carload originations also jumped over 22% in a day as rail freight passes intermediate points. March over the previous month and were 7% ahead Visible refers to tracking at the item level. As of the same period in 2016. In fact, the railroads have noted above, with more recent systems we know enjoyed five years of steady growth in the carload volumes, according to the AAR. Indeed, there’s a clear need for visibilShippers can, in fact, make an impact on overall ity into inventory in transit as we move to inventory levels by being able to promise delivery shorter and shorter delivery cycles. Howevand allocate inventory while in motion on rail. er, rail has historically been a separate, less visible supply chain, as we could only trace at the car/container number level. In order to effecwhere the product is on a given trailer or railcar and tively use rail in our in-transit inventory solution, it we can make that product and order information has to be affordable, capable of being planned, preavailable to our customer through a push-based infordictable, visible and flexible. mation service. Bottom line: The infrastructure of rail Affordable seems like a no-brainer for rail is in place and the software for making a dashboard because it’s so energy efficient and well established. for customers is still improving. Unfortunately, competition for portions of the railIt’s important to keep in mind that we need roads’ market is very limited, as consolidations have flexibility both on an emergency route-change transpired over the past several decades. In fact, basis and on a sustainability, re-planning basis. many markets have only one railroad serving them. Flexibility has not been associated with inventory We’ve seen the railroads push price increases on rail in the past; however, we’re seeing improved with the rationale that those industries that methods for tracking and a move to paperless waydepend on them should share margin with them. bills and other documentation is enabling faster This rationale can push shippers to painful profit response to changes by operations. levels and act as a disincentive to capital investIt won’t be as flexible as highway, but rail is operment in rail-dependent plants. ating vastly better than it was just a decade ago. Capable of being planned refers to the abilThus, shippers can plan alternate solutions should ity to generate information that can be made visible there be a disruption in service. through forecasting models. With the ability to colShippers can, in fact, make an impact on overall lect data at the item level inside the railcar/container inventory levels by being able to promise delivery and tie that to the demand in real time, shippers and and allocate inventory while in motion on rail. It their customers could rely on inventory status while may be past time to integrate on-rail item level in motion. In turn, this reliability will allow the subinventory into the capable-to-promise equation for stitution of virtual inventory—that which is still com- customer service. •
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EXCLUSIVE
Logistics & Supply Chain Education:
OPPORTUNITY
ABOUNDS Here are five trends that every shipper—and potential shipper—must watch as the demand for experienced logistics and supply chain professionals soars.
BY BRIDGET MCCREA, CONTRIBUTING EDITOR
A
s global supply chains continue to evolve, and as e-commerce and omni-channel continue to put more and more pressure on our operations, demand for experienced logistics and supply chain managers is increasing exponentially. Here are five emerging trends in logistics and supply chain education and career development that every manager needs to keep an eye on over the coming year.
1 Supply chain programs proliferate, but fall short on the transportation front. Gail Rutkowski, executive director for the National Shippers Strategic Transportation Council (NASSTRAC) in Chicago, says that she’s seen a “big uptick” in the recent number of professionals enrolled in master’s supply chain programs.
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Credit
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EXCLUSIVE: Logistics & Supply Chain Education
“When I was young, it was hard to even find any kind of education related to logistics or supply chain,” says Rutkowski. “Today, I think the universities are doing a much better job of offering those kinds of courses to students.” However, Rutkowski contends that while most of those programs are focused on broader logistics and supply chain management, many fall short when it comes to the allimportant transportation segment. “Interestingly enough, Penn State’s supply chain program, which has been around for years, just added transportation to its course offering three years ago,” she points out. “Transportation was something that most of these guys avoided, because you really can’t ‘teach’ transportation in a classroom—you’ve got to get out and do it.” Even with the current “transportation gap” in education, Rutkowski says universities are doing a good job at creating current, relevant curriculums for today’s budding and veteran supply chain professionals. “There are some very strong programs out there,” says Rutkowski, who points to Penn State, Brigham Young, University of Tennessee, Georgia Tech and Auburn as a handful of institutions that are leading the pack. “Still, I think they could all be doing a little better on the transportation front.”
2 The oft-misunderstood Millennial generation needs to “learn by doing.” Take a look around your organization and you’ll see more Millennials joining the workforce—and they’re looking for opportunities in logistics and supply chain management. Unlike their predecessors, these “digital natives” have a different outlook on what work should look like as well as how to perform their individual jobs. This reality is hitting hiring and training managers in all industries right now, and logistics is no exception. “Millennials definitely approach work from a different angle,” says Rutkowski, “but that doesn’t mean that they don’t work, or that they don’t work hard.” Due to its sheer size and prowess,
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How would you rate your understanding of e-commerce and e-fulfillment processes within your organization?
Somewhat knowledgeable 53% Highly knowledgeable 37% Not very/Not at all knowledgeable 10%
Salary by level of understanding of e-fulfillment processes Average
Median
$128,245 $105,000
Highly knowledgeable
$105,175
$90,000
$82,575
Somewhat knowledgeable
$73,500
Not very/Not at all knowledgeable
Source: Peerless Research Group (PRG)
the Millennial generation may just change the way we all think about work—like it or not. “This younger generation is dedicated and it wants to make a difference,” says Rutkowski, “but there are some things that will only come with on-the-job training.” That becomes an issue when graduates take “gap time” instead
Education level/Salary by education level Education
Salary by education
2016
High school
6%
$83,710 $75,000
$84,525 $78,000
Some college
18%
$84,620 $75,000
$77,765 $70,000
$82,270 $73,500
$78,955 $67,000
College–associate's (2-year) degree
10%
College–bachelor's (4-year) degree MBA
18%
Other graduate
7%
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$110,735 $95,000
40%
$110,050 $95,000
$144,955 $120,000
$146,990 $120,000
$131,135 $120,000
$118,400 $110,000
Other 1% Average
Median
Change from 2016
Source: Peerless Research Group (PRG)
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EXCLUSIVE: Logistics & Supply Chain Education
of getting right into logistics and Salary by completion Have you completed supply chain, for example, and miss of formal education any formal education out on the early on-the-job training in logistics and/or supply $115,600 that they need to get a foot in the $105,620 $100,000 chain management? $90,000 door. “Unfortunately, they’re not going to learn on Snapchat or InsYes 43% tagram,” says Rutkowski. “They’re going to learn by doing.” Yes, No No 57% have formal education At the Institute for Supply Management (ISM), chief content $98,865 $83,500 2016 $115,185 $95,000 and engagement officer M.L. Peck says that both institutions and Average Median Change from 2016 companies alike need to focus on Source: Peerless Research Group (PRG) learning that combines both theory and hands-on experience when it comes training the next generation of logistics and supply In the meantime, peak 2017 median salaries remained at chain decision makers. $90,000, matching last year’s number, with managers at all ISM, for example, offers an on-demand, subscription-based levels reporting cost-of-living raises. service that includes hundreds of different learning modules However, those survey respondents who have only been in that are broken down into 15 minute—or less—digestible their present position for three years to five years—the highest chunks. “They are very narrow and to the point,” says Peck, percentage of those questioned in the survey—captured the “which really appeals to younger generations that grew up greatest gains in income, rising to $97,000 from $87,000 over learning from platforms like YouTube.” just the past 12 months. And finally, survey respondents who said that they’re “highly knowledgeable” about e-commerce are bringing in a median salSupply chain managers are seeing compensation ary of $105,000 compared to the $73,500 earned by those who bumps, especially for e-commerce. say they are on the low end of the learning curve. According to the Logistics Management’s “33rd Annual Salary Survey,” new demands facing logistics managers—mainly driven by the continued double-digit growth of e-commerce— More women are entering the field, but both are pushing salaries up to new levels. genders need to get more interested—and at a The survey also found that professionals are being lured by younger age. logistics jobs providing a better standard of living in regions In a recent “Women in Supply Chain Survey,” Gartner where new concentrations of e-commerce are being created. and executive women’s leadership group AWESOME, examined the representation of women in supply chain leadership roles. They also identified practices that are increasing the What would you say have been the most important steps in advancing your career? engagement with and success levels of women in supply chain and logistics. Personal or social networking 50% In particular, the researchers say that the percentage of Taking classes/Getting a women in supply chain leadership positions decreases as the 28% degree in business corporate ladder rises, and that fewer than half of the compaTaking classes/Getting a degree 25% in transportation nies surveyed have goals of attracting, retaining, and promotIndustry certifications 22% ing more women into leadership roles. In fact, just 47% of respondents have the stated goal of Joining an industry/ 18% professional association increasing the number of female leaders in supply chain Other 20% (16% have formal goals), while just 42% of those respondents have a “planned, supply-chain led initiative” in place. Abe Source: Peerless Research Group (PRG) Eshkenazi, CEO at Chicago-based supply chain management
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EXCLUSIVE: Logistics & Supply Chain Education
association APICS, sees a sector that’s ripe for change on the human resources front. “We don’t see a lot of women leaders, and as a result we also don’t see too many women looking at opportunities for leadership; to us that’s a huge issue,” says Eshkenazi. On a positive note, he says that current supply chain grads tend to be split 50/50 on the gender front, and that some companies are even offering “higher pay to women in order to attract them to the organization.” But there’s still a steep hill to climb when it comes to women in logistics and supply chain management, and particularly on the leadership front. “We’re still not seeing a high volume of individuals going to college to seek out opportunities in supply chain and logistics. Instead, they’re ‘discovering’ the opportunity during their third or fourth year in college,” says Eshkenazi. “That leaves us with a huge opportunity to turn that tide and get both men and women interested in our industry at a younger age.” One way to do that is through partnerships with STEM (science, technology, engineering, and math) programs at schools, starting at the high school level. “We need to create their awareness of opportunities in supply chain and operations management,” says Eshkenazi, “and develop successful role models that students can look up to and say, ‘You know what? I can do that too.’”
5 There’s a seat in the C-suite for supply chain and logistics managers, but they’ll need to learn the lingo in order to make an impact. On the career front, we’re now seeing more logistics and supply chain managers occupying C-suite and boardroom chairs. So, where their jobs were once focused mainly on running transportation operations or overseeing the warehouse and DC, logistics professionals are taking on broader roles at a time when the supply chain itself is growing in importance and relevance. Some of this may have started as far back as the last recession, says Peck, during a time when logistics and supply chain managers really proved their worth in terms of mapping out more efficient routes to save on fuel, getting the goods to their final destinations quickly, and locking in better supplier pricing. Company leaders sat up and took notice, she adds, and noted the cost savings and efficiencies that came from running a streamlined logistics and supply chain operation. “As an industry, we really stepped up and started to get a lot of visibility and recognition,” says Peck. That momentum
LOGISTICSMGMT.COM
Are you planning to take any continuing education programs or classes during the next 12 months? 46% 34%
2013
35%
30%
2014
2015
38%
2016
2017
Do you think this class or program will enable you to earn a better salary? 2013
33%
18%
49%
2014
33%
18%
49%
31%
2015
37%
2016 2017
25%
24%
Yes
15% 30%
No
44% 48% 46%
Uncertain at this time Source: Peerless Research Group (PRG)
carried right into 2017, a year marked by a stronger economy, but also a persistent need to cut costs and save money. Financial factors aside, Peck says that logistics and supply chain professionals can also prove their value on the innovation side, where getting products to market faster and more efficiently is an ongoing challenge. “By including logistics and supply chain in those early, strategic, C-level planning conversations, companies can reduce the time it takes to get to market,” says Peck, who adds that supply chain managers that want a presence in the C-suite can start by getting to know the language and lingo of business and executive management—which, in most cases, revolves around finance. “As more professionals take this step, everything from job titles to responsibilities to salaries could be elevated exponentially,” adds Peck. “So, instead of talking about inventory turns, talk about working capital and remember that you’re in the C-suite to solve a problem. That’s where you can start to add real value for your organization.” •
Bridget McCrea is a contributing editor to Logistics Management
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Transportation Best Practices/Trends
2017 Rail/Intermodal Roundtable:
Volumes stable, business steady While the overall economy is putting an emphasis on smaller shipments, these two stalwart freight transportation markets continue to chug along at a healthy clip. Our panel of leading rail/intermodal experts helps shippers put the markets into perspective. BY JEFF BERMAN, GROUP NEWS EDITOR
W
hile the overall economic outlook may be best described as “inconsistent,” the railroad and intermodal market sectors have
both witnessed consistent growth for the most part—especially over the last decade. In fact, in terms of volumes, these two vital freight transportation markets are ahead of where they were just a year ago at this time. On the rail side, it’s clear that it’s no longer the bellwether that it once was, but growth lost on the coal side has been made up for in other areas, such as grain and chemicals. And on the intermodal side, domestic intermodal is not as dominant as it had traditionally been; however, that’s due to the international movements swinging steadily upward. And while rail shippers are still clamoring for regulatory changes in order to provide what they believe would be needed rate relief, the railroads continue to allocate massive amounts of capital spending to maintain and upgrade “the nation’s private rail network” in the name of safety, upgraded track and technological advancements—all with an eye on the future. To help put the current state of the nation’s rail and intermodal network into better perspective, Logistics Management is joined by three of the nation’s foremost experts in the market. Our panelists include Larry Gross, senior partner at freight transportation analyst firm FTR; Tony Hatch, rail analyst and principal of ABH Consulting; and Bill Rennicke, partner at Oliver Wyman, a management consultancy.
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Logistics Management (LM): How would you define the current state of the railroad and intermodal markets? Larry Gross: Intermodal is in the process of shaking off the doldrums of 2016. According to data from the Association of American Railroads (AAR), volume for the first four months of 2017 was up 2.3% annually. The annual growth in movements of ISO (international) containers exceeded that of import twenty-foot equivalents (TEU) in January and February, a welcome change from last year. Movements of domestic containers and trailers were also up slightly annually in January and February. Rail carloads are notching strong annual increases so far in 2017, but these are overstating the health of the sector. While volume is surely better than a year ago, most of the recovery occurred in the second and third quarters of 2016. Since that time, total carload volume has generally been declining; and if the current trends continue, volume will once again fall below prior year during the second half of 2017. Bill Rennicke: To build on Larry’s data, railroad and intermodal markets are currently very challenging for rail carriers. The overall economy is putting an emphasis on smaller shipments; faster, more reliable service; and optimizing the supply chain—especially on the consumer side of things. Railroads have allowed many intermediaries in the market, and these make a significant impact on the efficiency and pricing of the supply chains in which railroads participate. At the same time, markets are undergoing significant technological changes that are creating disruptions in the logistics business and
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for much of the traditional customer base of the railroads. For the year, intermodal traffic is up a meager 0.5% and automotive traffic is down 2.5%, suggesting little actual growth in market share in the consumer sector. Tony Hatch: I’ll add that rail markets are improving overall, as coal markets have stabilized—and compare quite favorably to year-earlier results—and the high-margin subsector, export coal, is having one of its periodic “boom-lets.” The so-called “freight recession” is over, for sure. LM: Carload volumes are showing decent growth on a year-to-date basis, with these early Q1 numbers helped by “easy” comparisons. Overall, are things moving in the right direction for carloads? Rennicke: It’s tough to argue that the numbers aren’t moving in the right direction against weak comps. However, the intermodal and automotive sectors are not growing faster than GDP like they were two years ago. Declines in diesel fuel costs and incremental gains in trucking fuel efficiency are putting pressure on intermodal traffic. Automotive business, especially for cars, is down as the industry slumps a bit after back-to-back record years for automobile sales. Sometimes weak demand is actually OK for rail share, as slower transit times just become storage-in-transit for slower moving models. However, this does not speak well of the overall value of rail service. Also, anecdotal evidence suggests more production from Mexico to the Eastern Seaboard is moving via short sea, while trucks are moving greater volumes direct to dealer from transplant assembly plants in the Southeastern U.S. Overall, the
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Transportation Best Practices/Trends: Rail/Intermodal
industry needs to discover a new growth catalyst to replace energy traffic, and figure a way to reignite intermodal as a growth area. Gross: Although volume is substantially higher than a year ago, these year-over-year comparisons don’t provide a full, timely view. The current trend for carloads in general is negative. Setting aside the usual seasonal dip around the holidays, total carloads have been trending flat to down since the middle of the fourth quarter of 2016. For example, carloads of coal for
modal is also affected on the international side by the confusion over the alliances—a net neutral short-term effect that can still cause gyrations— and muted consumer spending. Gross: Domestic intermodal movements were up less than 2% through the first four months of 2017, as domestic container activity grew only sluggishly. However, there has been strong growth in the use of 28-foot pup trailers in intermodal, which I believe reflects e-commerce related activity being handled by parcel and LTL carriers.
“The overall economy is putting an emphasis on smaller shipments; faster, more reliable service; and optimizing the supply chain—especially on the consumer side of things.” —Bill Rennicke, partner, Oliver Wyman the four weeks ending April 1 averaged 86,400 per week, 14% below the recent peak achieved in November. However, the picture is not all bad. I’m seeing nice sequential growth in construction-related commodities, including stone, sand and gravel and, importantly, lumber and wood products. The latter recently reached the highest level since early 2016, providing a tentative indication of improvement in new housing construction. LM: Shifting to intermodal, yearto-date volumes are also up, with domestic continuing to lead the pack and international starting to regain its footing. That said, how do you view the current state of intermodal? Hatch: General freight is doing fine, and intermodal is contributing. What’s unusual is just that—intermodal is contributing but not leading. Truck capacity remains loose, though trucking earnings, unlike the robust results in rail, were quite poor. Inter-
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We’re expecting to see continued acceleration in domestic intermodal activity as the year progresses, especially as the implementation date for electronic logging devices on trucks approaches. This will cause a tightening of truck capacity, which will work to intermodal’s benefit. Rennicke: The current state of intermodal is OK, but not great. A small but perceptible amount of international traffic is shifting from the West Coast to the East Coast, where the shorter haul puts it under extreme truck pressure. Possible future border tariffs may further hamper future international intermodal growth. Domestically the industry is being challenged by improving truck fuel efficiency as well as by supply chains that are getting shorter and more tightly managed. Driver shortages, so far, don’t seem to be a problem for the trucking industry, possibly because fuel efficiency gains have enabled truckers to
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marginally increase driver pay—and also because demand is stronger in shorterhaul lanes where driver productivity is higher and railroads are less service and cost competitive. LM: How do you view the current railroad service levels compared to this time a year ago? Gross: The railroads are running as fast as they choose to thus far in 2017. In an economic response to lower volumes, the railroads are running fewer, longer trains in order to lower costs. This results in longer waits between departures, boosting yard dwell times. These huge trains also tend to be slower, and the resulting average train speeds are substantially down from prior year, but in line with the long-term average. Similarly, average yard dwell is somewhat higher than it was last year, also standing above the 10-year average. Although the service statistics are negative, I don’t view these as indicative of major service issues. The network is running smoothly by all accounts, just a bit slower than was previously the case, and the situation is much the same for intermodal—speeds are down, but barring weather interruptions and the like, service appears to be running smoothly. Rennicke: Railroad service levels are up marginally from a year ago, but not enough to matter. A continuing focus on longer trains suggests that overall railroad service is not going to dramatically improve, and the weather woes on the West Coast this winter may actually drag service numbers down for a month or so for the western carriers until service equilibrium is restored. Ultimately, to really drive strong growth will require new lanes or a fresh focus on service. We will be watching CSX and the Hunter Harrison saga to see
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Transportation Best Practices/Trends: Rail/Intermodal
if new norms are set for eastern railroads. Interestingly, in Canada, where both carriers are highly service focused, railroads seem to be gaining market share, with stronger gains in both carload and inter-
to costs like paper, and, of course, in intermodal, where pricing is lagging overall rail 2% to 3% annually in gains so far this year. Overall, rail intermodal can expect to see the winter/spring
“Intermodal makes so much sense from a shipper and public policy point of view, so I expect the next five years will be pretty good.” —Tony Hatch, rail analyst and principal, BH Consulting
modal traffic than we see in the United States. Hatch: Rail service is stable, while down a bit annually according to the metrics, but has been affected by the winter weather, which was normal to bad, compared to an easy winter a year ago. “Stable” is not good enough, of course. It wasn’t addressed enough by analysts in the first quarter earnings calls. However, I expect it to continue to improve over the course of the year, given the focus and the big capital expenditures of the previous five years. LM: How are market conditions affecting capacity and rates for rail and intermodal? Rennicke: Overall capacity is not tight in any of the major commodity areas for railroads or trucks, so rates are likely to be flat. And with technological advances in trucking in accident mitigation and fuel efficiency, truckers will likely be able to keep reasonable pressure on rail rates. Railcar supply is good for most car types and production is keeping up with modest growth rates. There are huge surpluses, though, in tank cars and hopper cars, and still some surpluses in centerbeam cars for forest products. Hatch: Market conditions are clearly affecting rail pricing overall, especially in select merchandise areas, where trucks are pricing at or close
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as the bottom of the pricing cycle, as their service improves and truck capacity tightens due to some combination of regulations like electronic logging devices (ELDs) and economic conditions. Gross: When it comes to rail carload pricing, the railroads are somewhat between a rock and a hard place. Normally, one might expect to see more aggressive pricing as a result of challenges in rail volumes. On the other hand, upward pressure on pricing is the result of the industry’s desire to maintain good financial results and low operating ratios. The industry has limited ability to increase volume through pricing activity because most of the traffic moving in truck is not susceptible to conversion to rail carload no matter how it’s priced, due to service, location, lot size or a host of other considerations. Therefore, more aggressive pricing will only result in market share shifts between carriers, and that is typically a self-defeating exercise over the long run. Because of that, I expect a steadyas-you-go approach to carload pricing that will be a continuation of the current trends. With regard to intermodal, there may be some room for upward movement, particularly as truckload capacity begins to tighten toward the end of the year due to ELD implementation.
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LM: Is pricing where it needs to be in light of the major capital expenditure outlays made by the carriers? Hatch: Pricing, of course, needs to continue to grow—along with share—to justify the big capex spent developing the domestic intermodal network— including corridors and gateways—and the high cost of service. Rennicke: Capital spending for line capacity and for rolling stock was down last year and will be down further this year, although because of positive train control (PTC), overall capital spending remains relatively strong. Railroads have sufficient margins that they’re not cutting back on maintenance spending. So yes, it seems that railroads are able to support their capital plans with current pricing. However, in the future, railroads can expect pricing gains to moderate as trucks continually improve their efficiency. Also growing market share will have to come at the expense of margins if railroads want to better penetrate shorter haul traffic markets. Gross: We’re seeing some dialing back on capital expenditures, and this makes sense in a time of stable or declining volume. While it may prove difficult for the railroads to maintain their current, rather lofty margins on lower volumes, their economics should still be sufficient to continue to support the needed investments in the business as required. LM: While the Trump administration is very much in its early innings, how do you view the current state of rail policy as it relates to things like the STB’s ongoing quest for reciprocal switching, the possibility of railroad re-regulation, and PTC? Gross: I think the chances for significant re-regulation of the industry
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Transportation Best Practices/Trends: Rail/Intermodal
have diminished, but not vanished. The STB is a semi-autonomous agency that’s more capable of charting an independent course than the Federal Railroad Administration (FRA), which is a part of the executive branch. FRA efforts such as the two-person crew mandate are dead, but the PTC requirement is already enshrined in legislation and therefore is not subject to potential delay. Rennicke: It’s difficult to speculate, but regulatory changes are likely to be a mixed bag. PTC implementation is probably too far along to be pulled back. The real funding challenges around PTC are more on the passenger side than on the freight side, and public pressure after some relatively high profile passenger accidents in the Northeastern U.S. will likely keep the pressure on for PTC implementation. We think reciprocal switching (EP-711) is too close to call, but not likely to be resolved this year, as filling vacancies on the STB tends to be a lower priority item for most incoming administrations. Hatch: I don’t buy into the Trump infrastructure boost. Quite frankly, you have to show me the money. And remember, infrastructure in this case includes schools, hospitals, internet, etc. So, I continue to think that the North American rail network will grow its “infrastructure advantage,” perhaps aided by reduced “red tape” regulations and working with trucks to take share at good returns. LM: What will the rail and intermodal markets look like five years from now? Rennicke: The rail industry is at a crossroads due to technological innovation and disruptions in the energy and logistics businesses. Railroads and their suppliers must either begin to step up
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“The big question mark is the timing of the introduction of autonomous or semi-autonomous trucks. When these begin to meaningfully enter the marketplace, they will put severe pressure on intermodal because it’s likely they will trigger significant reductions in trucking rates.” —Larry Gross, senior partner, FTR
the pace of change in technology and service levels to evolve and become more aggressive and competitive in the marketplace, or they will begin a slow and inexorable decline. To thrive, the industry needs to put a strong focus on getting back ahead of the technology curve instead of chasing it. This will take some new capex to pursue things such as integrating various technologies to get a driverless train, LNG as a locomotive fuel, and hybrid technology to improve raw fuel efficiency by capturing regenerative braking energy. Further, railroads seem a long ways away from booking systems, dynamic pricing, and managing data interfaces to boost capacity utilization, eliminate delays and disruptions at interchange points, and maximize margin capture. Hatch: Intermodal makes so much sense from a shipper and public policy point of view, so I expect the next five years will be pretty good. I continue to think that the North American rail network will grow its “infrastructure advantage,” perhaps aided by reduced “red tape” regulations, and work with trucks to take share at good returns. As for things that are concerning, there’s rail service improvements on a consistent basis; rail capex, where good returns will ensure positive reinvestment; and Trump and trade, not only the obvious parts related to NAFTA, but to any trade war’s impact on international container shipping, on agriculture, plastics and exports.
Longer term? I don’t know if all of the talk on autonomous vehicle trucking means that “winter is coming,” but certainly the race is on for the rails to generate enough heat to stay hot over the long haul. Gross: I think the industry will look much the same as it does today. The carload side will be under continuing volume pressure, and it would not surprise me if volume is lower five years from now than it is today. Coal still accounts for one in four rail carloads. Coal consumption will continue to decline no matter what the Trump administration does with regard to environmental regulations because the major issue is economics, not regulations. There will be no change in the relative standing of coal vs. natural gas, which is currently driving conversion. It’s difficult to see where the industry will make up the carload volume that will be lost. Intermodal will also not look much different, although I expect good growth that will likely exceed that of overthe-road trucking in most years. The big question mark is the timing of the introduction of autonomous or semiautonomous trucks. When these begin to meaningfully enter the marketplace they will put severe pressure on intermodal because it’s likely they will trigger significant reductions in trucking rates. •
—Jeff Berman is the group news editor for the Supply Chain Group
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Global Logistics
CROSS-BORDER LOGISTICS:
NAFTA TUNE-UP TIME We take a deep dive into the 23-year-old NAFTA agreement, look at the impact it has made on logistics operations in the United States, Mexico and Canada, and then hear what the experts suggest Washington should—and should not—do.
Trucking executives, transportation officials and shippers have enjoyed 400% growth in cross-border trade since the North American Free Trade Agreement (NAFTA) was implemented 23 years ago. However, all three contingencies are now openly concerned about Washington making impulsive moves that could threaten the open borders that connect the United States, Canada and Mexico. “We are going to make very big changes, or we are going to get rid of NAFTA once and for all,” President Donald Trump said recently. “We cannot continue like this.” All cross-border freight transportation stakeholders are essentially begging the first-year president to find his fights elsewhere. Privately and publicly, those on the front lines of border trade are telling the administration: “Please, no major changes to NAFTA.”
“I’m concerned about it because I believe in free trade,” says David Congdon, vice chairman and CEO of Old Dominion Freight Line, the nation’s thirdlargest LTL carrier. “Global trade is a reality of life these days. The United States is a consuming nation; and yes, a lot of our manufacturing has moved offshore and we import a lot. However, if you start putting a tax on products that U.S. consumers are buying, that’s not good.” According to Congdon, what could
hurt logistics and transportation companies would be a general decline in the U.S. economy. For instance, Trump’s proposed ‘‘border adjustment tax” could raise costs for consumers and put a damper on spending—and thus slowing the economy. Yet, that’s exactly what the fledgling Trump administration is considering. Whether it’s called a “border tax” or an “import tax,” logisticians say it’s a bad idea, and one that could harm long-standing relationships between two of our largest trading partners: Canada and Mexico. To top if off, President Trump’s harsh rhetoric toward Mexico during his campaign and presidency has not have helped relationships with our southern neighbor. In the meantime, trade and tax experts say that Trump doesn’t, or can’t, distinguish between a “border adjustment tax” that affects all industry and “individual
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Dan Vasconcellos
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Global Logistics: NAFTA
trade sanctions” that he would like to apply on a company-by-company basis. At this point, it appears that Trump believes that his tax proposal would essentially utilize a border tax as if it were a trade sanction—which it’s not. “Any way you consider it, NAFTA has been a phenomenal advantage to both the United States “The agreement and Canada,” says is not trivial in its John Costanzo, impact and WOULD president of PuroBE EXTREMELY lator International, DIFFICULT TO a subsidiary of DETANGLE OR Purolator Inc. REVOKE. Whether in Canada and it could be revised the largest parcel in one easy-to-do delivery service swoop is probably in the country. While noting some unlikely.” manufacturing —Julie Gibbs, director, BPE Global jobs have left the United States, they did not go to Canada—most went overseas because of lower wages. “NAFTA’s elimination of tariffs has enabled the United States to become more efficient in its exports,” says Costanzo. “And if we didn’t have NAFTA, we’d have to create something like it, otherwise we’re giving up manufacturing to other countries. It’s been a tremendous asset to both the United States and Canada, and I don’t see it going away.” Whether Trump knows it or not, the 23-year-old NAFTA is an extremely complex document that affects mightily the economies of three nations, is politically and legally complicated, and fraught with minutiae and fine print legalities that the president probably knows little or nothing about. Julie Gibbs, director of BPE Global, a global trade compliance consulting firm, called NAFTA “the largest free-trade agreement in the world” that has quadrupled the trade among the three countries.
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“The agreement is not trivial in its impact and would be extremely difficult to detangle or revoke,” says Gibbs, adding that whether it could be revised in one easy-to-do swoop is probably unlikely. As with Trump’s non-existent repeal of the Affordable Care Act, it’s highly possible that the president would just give up first before any hard revisions—which is actually what most logisticians are fearing most. The North American free trade market is working extraordinarily well, they say, and even a whisper of major change hurts the marketplace. “As a rookie president, Trump has shown intolerance of delays and compromise,” says Gibbs. “And it’s highly likely that Trump will tire of renegotiation of NAFTA.” Now, let’s take a deep dive into the 23-year-old NAFTA agreement, look at the impact on logistics operations on all sides of the border, and then we’ll hear what the experts are saying Washington should—and should not—do.
NAFTA: Size and scope First, let’s look at the North American market, NAFTA’s impact on the U.S. economy and its enormous scope. Total value of cross-border freight among the three NAFTA countries and carried on all modes—truck, pipeline, vessel and air—fell 3.4% from 2015 to $1.069 trillion in 2016. Trucks carried 65.5% of U.S./NAFTA freight, the most heavily utilized mode for moving goods. Mexico exports about $1 billion worth of goods per day to the United States, making it the single largest source of imports and its third-largest trading partner. According to the Wilson Center, a Washington research center and think tank, 25 cents out of every dollar of goods that are imported from Canada to the United States is actually “Made in USA” content, as are 40 cents out of every dollar for goods imported
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into the United States from Mexico. Even though trucking hauled slightly less U.S. freight to Canada and Mexico in 2016 than 2015, the Department of Transportation’s Bureau of Transportation Statistics own numbers show that still results in an enormous amount of freight between the three NAFTA countries. Value of U.S.-Canada freight flows fell 5.4% to $544 billion in 2016. Trucks carried 60.1% of the value of the freight to and from Canada, followed by rail at 16.2%. The top commodity transported between the United States and Canada in 2016 was vehicles and parts at $106.1 billion, with trucks moving 56.4% of the value. In the meantime, the value of U.S./ Mexico freight fell 1.1% to $525.1 billion last year. Trucks carried 71% of the value of the freight to and from Mexico, followed by rail at 14.7%. The top commodity transported between the United States and Mexico in 2016 was electrical machinery at $102.6 billion, with trucks hauling 91.6% of the value. However, it’s not just raw materials and finished goods coming to and from this country. A sizeable chunk of the American economy depends on exports. And even if the nation runs a deficit in trade, no less an authority than the U.S. Chamber of Commerce says that’s not necessarily a bad thing. “While trade deficits often don’t tell us much about the overall health of our economy, it is a good time to examine our various trading relationships to increase opportunities for American companies to compete on a level playing field,” says the U.S. Chamber of Commerce president and CEO Thomas Donohue. “It is worth remembering that some of our best years of economic growth have produced our largest trade deficits, while the Great Recession was accompanied by a sharp reduction in the trade deficit.” LOGISTICSMGMT.COM
Global Logistics: NAFTA
According to Donohue, the Chamber is supporting strong enforcement of trade rules and agreements “as long as such enforcement is based on facts and the proper interpretation of those facts and not politics.” According to the Department of Commerce, U.S. exports of goods and services to Canada supported an estimated 1.7 million jobs in 2014 (latest data available) with 1.3 million supported by goods exports and 394,000 supported by services exports. U.S. goods and services trade with Canada totaled an estimated $662.7 billion in 2015. Exports were $337.3 billion; imports were $325.4 billion; and the U.S. goods and services trade surplus with Canada was $11.9 billion in 2015. Whatever the precise numbers, U.S. transport executives say that the export market is a solid, growing, reliable part of their businesses. It’s a market that is to be cultivated—not curtailed by some arbitrarily written border tax. “I believe whatever the taxing mechanisms are, they ought to be fair and balanced,” says Old Dominion’s Congdon. “I’m for that. I know how much freight we haul to the Mexico border and how much we haul back and forth to Canada, and it’s good business. The North American markets are good to us, and I don’t want to see our levels of business disturbed. We have to be fair and rational.”
So what should be done? Reminiscing on NAFTA’s early days, many may recall 1992 presidential candidate Ross Perot’s reference to NAFTA as a “giant sucking sound going South.” More than 20 years later, some still argue that NAFTA drove U.S. jobs south; but at the same time, others argue that jobs lost over this period would probably have gone to China or elsewhere anyway. “What we can say is that NAFTA LOGISTICSMGMT.COM
fundamentally reshaped North American economic relations, driving unprecedented integration between Canada, the United States and Mexico,” says BPE Global’s Gibbs. But as in any healthy evolution, Gibbs says that there are always improvements to be made. Indeed, she believes that a 21st century overhaul to address data flow, a concept that wasn’t around in the 1990s, would be an important tweak to the agreement as would a look at the accounting for the online retail market to ensure that the complex rules of origin are fair across the three countries. The Trump administration shared their NAFTA draft proposal last month, and it’s much less forceful than what candidate Trump was offering. Fortunately, there’s no threat of withdrawal. Included are specific provisions for “snapback,” market opportunities specific toward “domestic procurement,” and a leveling of the tax playing field. “All in all, these are elements that are in line with a much needed overhaul to the program,” says Gibbs. “It will be interesting to watch these provisions manifest against the administration’s protectionist stance.” Nevertheless, Gibbs adds that there will “undoubtedly” be changes. “The level of impact will depend on what Trump can push through. NAFTA is a big concern because of the immediate impact to U.S. jobs and the economy,” she says. President Trump has announced his intention to renegotiate at this point. Some changes being mulled include: Temporarily reinstating tariffs if a flood of imports causes serious injury to domestic industries; improving procedures to resolve disputes; and employing tougher intellectual property enforcement. However, experts contend that the logistics and transportation markets shouldn’t panic over Trump’s rhetoric. Under the Constitution’s Commerce
Clause, only Congress may alter our tariff, tax and Customs laws. According to Gibbs, U.S. companies should lobby Congress to protect themselves from losing this benefit by quantifying what the loss of NAFTA savings would mean to them in terms of tariff costs and global supply chain modifications. “Companies should also share this data with “PRE-NAFTA, Congress to avoid a U.S. COMPANIES devastating impact USED TO DREAD to the U.S. manu- SELLING TO facturing sector,” CANADIAN she says. CUSTOMERS. Purolator’s And while there’s Costanzo adds that still complexity, post-NAFTA trade if you do the harmonization setup correctly, rules have made it’s seamless and exporting much relatively easy.” simpler. “It’s night —David Congdon, and day,” he says. vice chairman and “Pre-NAFTA, U.S. CEO, Old Dominion Freight Line companies used to dread selling to Canadian customers. And while there’s still complexity, if you do the setup correctly, it’s seamless and relatively easy.” The state of the fast-growing B2B and retail e-commerce is another changing dynamic, adds Costanzo. E-commerce economics are very different than brick-and-mortar business, but he adds that only further strengthens the case to fine-tune—not trash—NAFTA. “We’ve heard this rhetoric before,” says Costanzo. We had ‘Buy America’ back in the 90s, and this too shall pass. The United States relies so heavily on exports and imports. In fact, we sell $300 billion of goods to Canada, so we can’t jeopardize those supply chain efficiencies. Eventually, I think that cooler heads will prevail.” •
John D. Schulz, is a contributing editor to Logistics Management
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Warehouse/DC Management
The Evolving
BY ROBERTO MICHEL, EDITOR AT LARGE
With the growth of e-commerce, the technology stack for distribution centers is expanding. We explore why WES/WCS software is gaining prominence and share how operations are expanding their use of data science.
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T
HE FAMILIAR TECHNOLOGY STACK OF warehouse management systems (WMS) to manage transactions and inventory at the distribution center level and then hand order requirements down to the automation layer is not as simple as it used to be. With the complexities of e-commerce fulfillment, the need to orchestrate and optimize operations is driving the need for advanced execution software in the middle of the stack and for more optimization tools. In short, the DC tech stack has changed. It’s no longer just WMS on top, warehouse control system (WCS) software in the middle, and automated materials handling systems at the floor level. The stack has expanded, and while
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not every DC needs the same foundation, failure to grasp evolving areas could end up stacking the deck against omnichannel success. What’s more, while automation hardware—including robotic goods-to-person systems, pick-to-light systems and high-end sortation—play a role in the tech stack for e-commerce, even automation providers say the stack is software driven. “The new types of automation hardware are extremely important, but I think it’s a matter of hardware and software as a combined solution that give users the advantages and throughput they are after, especially when you have Amazon pushing the same-day delivery model, and everyone is chasing and trying to achieve that same panacea,” says Michael Howes, vice president of software and controls
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DC Tech Stack Caption
for Swisslog Warehouse and Distribution Solutions (WDS) Americas, which offers automated materials handling as well as software solutions. E-commerce means that DCs have a greater volume of small orders that make it more complex to orchestrate systems, not only within the four walls of the DC, but with order fulfillment and transportation management decisions. “Everyone is being pushed to ship smaller and faster,” says Joe Vernon, senior manager of North America supply chain technologies for the consulting firm Capgemini. “The demand/ fulfill cycle has been cut from days to hours, and freight costs are more often absorbed now, rather than passed along to a customer.” Vernon sees distributed order management (DOM) solutions, as well as new types of optimization software that can synchronize pick sequencing, staging and loading, as gaining in importance. Perhaps the biggest shift in the DC tech
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stack for e-commerce has been the emergence of warehouse execution system (WES) software, an evolution of WCS. WES brings in richer functionality around order releasing and wave management, resource optimization and analytics, in addition to WCS solutions’ more traditional role of coordinating automation and material flow.
The role of WES WES solutions provide visibility and management capabilities around order requirements, inventory information, and equipment and labor resources, observes Mike Dunn, group vice president with Fortna, a distribution consulting and engineering firm. “The interesting technology questions inside the DC are: ‘What systems should I own to have visibility into those three components,’ and then, ‘What software can I use to really optimize my processes?’” Dunn says.
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Warehouse/DC Management: WMS
Evolving DC tech stack Distributed order management (DOM)
SCM • Supply, demand and inventory planning tools
ERP • Orders/procurement/financials/inventory Transportation management systems (TMS)
Data science and analytics
Yard management systems (YMS)
Warehouse management systems (WMS) • Inventory management • Order releasing/wave management • Receiving • Labor management • Putaway • Pack/ship functions • Replenishment • Voice pick/scanner integration Warehouse execution systems (WES)/ Warehouse control systems (WCS)
Mobile industrial computers and devices
IoT platforms/ solutions
may include:
• Order releasing and wave management • Inventory/replenishment management • Labor management • Pick-to-light, voice picking, scanner integration • Pack/ship • Material flow control • Machine control integration Automation • Sorters • PLCs • Conveyors • Motion control • Scales • Sensors • Cameras • Field devices
Inventory aware automation • Shuttle systems • Goods-to-person robotics • AS/RS
Source: Modern Materials Handling
WES tends to be at the center of things in today’s tech stack, says Dunn, because with its WCS roots, it has real-time knowledge of equipment processes; it knows labor availability details; and it can take the order requirements from the enterprise level to manage the order pool and decide what should be processed next by the DC’s resources. While some WMS systems are getting better at grouping orders into smaller waves for processing, most WMS systems tend to batch work into large static waves, says Dunn, whereas WES excels at releasing chunks of work to the floor in the right size and sequence to satisfy orders while squeezing maximum efficiency from resources. “When we think about how to really optimize inside of a warehouse, it’s about creating chunks
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of work that are large enough to drive productivity, but small enough to react to and satisfy customer demands,” says Dunn. “And the optimal size for work may change every hour. In the morning, you may be able to process a larger chunk of work efficiently while still meeting demand, but later in the day, you may need to use much smaller chunks of work, which are suboptimal from a productivity standpoint, but are necessary to meet demand.” While WES has gained in importance, it can’t do everything, says Dunn. Omni-channel companies have often turned to DOM to manage where orders should be fulfilled from, and at many companies, a WMS handles overall inventory, says Dunn. Down at the automation level, he adds, DCs often have strong interest in technology such as goods-to-person systems or pickto-light systems that minimize or simplify the LOGISTICSMGMT.COM
Warehouse/DC Management: WMS
labor requirements for order picking. But Dunn sees WES as the best solution for the order releasing and resource management decisions that need to be made around order priorities. “We believe the best solve for many of these business problems is going to be a combination of WCS and WMS capabilities,” Dunn says. “Finding a way to have those two types of systems work well together to release and process work is going to be the optimal solution.” No one wants chaotic, inefficient peaks and lulls in the pace of work, so WES providers often focus on enabling a demand-driven, level pull of work through a DC and its various points of automation. So it’s not just software bells and whistles to consider with WES, but the approach used to achieve flow, explains Walter High, vice president of marketing with Invata Intralogistics, a WES provider and consulting firm. “In building out system infrastructure, we take a whole system approach to optimizing process flows that embraces lean engineering techniques in the physical layout of our systems, the intelligence of our software, and the application of advanced technology that maximizes the efficiency of human interaction, while eliminating toilsome labor requirements,” says High. “In doing so, we eliminate as much manual and planned push-based processing as possible, and replace it with pull-based, selfregulating and self-maintaining systems.” Projects around orchestrating flow also benefit from a data science approach in which data analysis, modeling and simulation are used to determine how to best configure the DC’s technology stack, adds High. “Using data science, we are able to look an existing operation and test options to determine their affect on that operation,” he says. “So while the technology stack can dramatically affect a company’s strategic advantages in the market, changing it out when productivity languishes is not always the right answer. The answer is derived through understanding a customer’s data, business requirements and growth expectations, and scientifically modeling that information in a way that delivers direction.” LOGISTICSMGMT.COM
Broader needs While some omni-channel retailers are leveraging WES solutions, there remains a big chunk of the market with simpler tech stack needs, observes John Sidell, principal with supply chain consulting firm New Course. For many consumer goods manufacturers or other companies that aren’t at the bleeding edge of omni-channel, but do have growing e-commerce needs and more pressure from small rush orders, the key concern is identifying when e-commerce volumes force a change to the tech stack, explains Sidell. “There are consumer goods companies and others who are asking, ‘where is my tipping point—in terms of e-commerce volume and complexity—when I either bring in a third-party logistics partner or create a new operation dedicated to e-commerce?’” says Sidell. “Where they are with that tipping point greatly influences what they need in a technology stack.” For some companies who have relatively modest e-commerce pressures, the tech stack will tend to be more streamlined compared to what an omni-channel retailer would put in place at a DC, says Sidell. A WMS with a more agile approach to wave management, some zone picking, or perhaps a voice-picking solution combined with WMS might be key pieces of a tech stack for many organizations. “For some companies, the current tech stack can be adapted to support new methods of order picking,” says Sidell. “If they can tap additional functionality from their WMS vendor, turn that on and train the users, that may meet their needs. That said, as your online business grows, the need for more automation grows with it.” The growth of e-commerce also has elevated the importance of DOM and the inventory visibility DOM relies on, says Sidell. Well-implemented, accurate WMS systems support this visibility, says Sidell, as do accurate store-level systems. “One of the most crucial elements with omni-channel is real-time inventory visibility across your supply chain network,” says Sidell. “To have effective DOM and fill orders with
“There are consumer goods companies and others who are asking, ‘where is my tipping point—in terms of e-commerce volume and complexity— when I either bring in a third-party logistics partner or create a new operation dedicated to e-commerce?’” —John Sidell, principal, New Course
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Warehouse/DC Management: WMS
“The future is to make this whole ecosystem smart, optimized and predictive.” —Joe Vernon, senior manager of North America supply chain technologies, Capgemini
confidence in the promised service level, this inventory visibility is a must.” The solution stack for DCs increasingly needs to look beyond the four walls of a single site to optimally process and ship orders, says Capgemini’s Vernon. Some sites might have multiple buildings within a “campus,” notes Vernon, which adds to the complexities of the DC-level inventory moves, processing and staging. The whole process constitutes a “multi-tiered, multi-constraint optimization puzzle,” says Vernon, to get the right goods to the right dock doors at the optimal time for pickup by carriers. To solve this challenge, says Vernon, DCs are adopting solutions for pick sequencing, staging and loading optimization with integration to robotics and automation. Vendors in the space such as warehouse optimization can help DCs schedule complex activities in a synchronous way to achieve flow and better use labor, according to Vernon. Capgemini is involved with pick sequencing, staging and loading optimization by offering data science services that assess actual performance in shipping orders against the model in the software, so that the model can be improved for further efficiencies. Providers of robotic goods-to-person systems and other warehouse automation systems also employ data science to refine the effectiveness of their solutions, says Vernon. The data science for pick sequencing and loading will build on data science from the automated equipment providers, rather than replicate it, he adds. Expect to see more data science from solution providers and consultants, says Vernon, since some DCs are becoming highly automated and generate a constant data stream that can be analyzed to refine optimization engines. “The future is to make this whole ecosystem smart, optimized and predictive,” says Vernon.
On the edge Another aspect of the tech stack for omnichannel is various “edge” hardware such as
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sensors, mobile computers, and voice-system components that enable workers and processes. Much of the value from this hardware comes from the ability to consolidate data generated on the edge and make real-time decisions with it, says Bruce Stubbs, director of supply chain marketing for Honeywell Safety and Productivity Solutions. One enabler of these actionable insights is Cloud-based gathering of data generated by sensors in trucks or other supply chain locations, says Stubbs. Honeywell has already leveraged its Cloud platform capability gained from its acquisition of Movilizer to do things like generate Cloud-based insights into “cold chain” events in sectors such as food and pharmaceuticals, according to Stubbs. Another tech stack evolution Honeywell is involved with is performance analytics of data generated by voice systems. Whereas once the software component of voice systems was mainly about generating effective voice prompts and integration to WMS, now there also is analysis software that combs data generated by voice-based processes to improve performance. To this end, says Stubbs, Honeywell offers an operational intelligence software for its voice system that provides actionable insights for associates on the floor, such as slot skipping that degrades efficiency, while also generating reports for managers on issues like how actual, current performance compares against productivity standards, or to budget targets. According to Stubbs, such software is an increasing part of the value proposition today. “We’ve transformed from a hardware-oriented company to a total solutions provider, and that involves a lot this software on the edge to enable connected workers,” says Stubbs. “We’ve enhanced our [operational intelligence] platform to be able look at all the task-related data that exists and leverage it in a real-time, actionable way to improve work processes and head off problems before they start.” •
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3PLs:
AND
®
TOP 50
2017
A SP E C IAL SUPPLEMENT TO:
The trend set over the past few years for mergers and acquisitions has hardly subsided, and a fresh injection of equity investment is transforming the marketplace. At the same time, shippers may expect to see 3PLs continue to purchase high-tech “solutions” and hire young professionals for implementation.
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By Patrick Burnson, Executive Editor
44S Top 50 U.S. 3PLs 48S Top 50 Global 3PLs 56S New Transport Intelligence report finds that Asia’s outsourcing needs accelerated contract logistics 58S Damco unveils new digitized service for freight forwarders 58S CBRE data shows decent, but changing trends for logistics & industrial real estate in the Americas 60S XPO Logistics takes steps to expand last mile network in Chicago area 62S UPS rolls out new service in Europe for time-critical shipments 63S Global 3PL Management: Factors to keep top of mind
L OGISTICS MANA G EM ENT | JUNE 2017
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2017 Top 50 3PLs
Special Report
A S P E C I A L S UP P L E M E N T TO L OGI S TI C S M A N A GE ME NT
SPECIAL REPORT
2017 Top 50 U.S. and Global 3PLs eading industry analysts maintain that the “mega-deals” witnessed over the past two years in the third-party logistics provider (3PL) sector have abated, but that certainly doesn’t mean that mergers and acquisitions (M&A) will fall out of the picture.
L
According to Evan Armstrong, president of the consultancy Armstrong & Associates, the 3PL market is also still ripe for equity investment. “The one outstanding example of this was when Aerospace, Transportation and Logistics [ATL Partners] bought a controlling share of Pilot Freight Services late last year,” he says. “We also anticipate more M&A activity as 3PLs strive to expand geographic scale and provide integrated solution offerings.” At the same time, says Armstrong, technological changes are having a dramatic impact on 3PL operations. Companies such as project44, MacroPoint and others are driving improved transit status data and carrier capacity information from transportation providers to lead logistics companies. “This year’s electric logging devices [ELD] mandate could also be a boon for shipment tracking and carrier capacity monitoring information,”
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says Armstrong. “These types of advances allow for more process automation and increased operational efficiencies. They’re also increasing the quality of information available to customers of non-asset based transportation managers.” Specifically, industries such as pharmaceuticals are increasing their digitalization needs, Armstrong’s research reveals, putting more emphasis on 3PLs to match these new technological demands. To better ensure counterfeit products are not being sold within established sales channels, for example, the pharmaceuticals industry has a 2017 mandate to begin capturing product serial numbers across its supply chains. “While this mandate has presented a challenge for many value-added warehousing 3PL operations, the ones we’ve met with are implementing the required operations changes and will meet the deadline,” says Armstrong.
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2017 Top 50 3PLs
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Armstrong & Associates Top 50 U.S. 3PLs (April 2017) 2016 Rank
Third-party Logistics Provider (3PL)
2016 Gross Logistics Revenue (USD Millions)*
1
C.H. Robinson
13,144
2
XPO Logistics
8,638
3
UPS Supply Chain Solutions
6,793
4
J.B. Hunt (JBI, DCS & ICS)
6,181
5
Expeditors
6,098
6
Kuehne + Nagel (The Americas)
4,909
7
DHL Supply Chain North America
4,200
8
Burris Logistics
3,629
9
Hub Group
3,573
10
FedEx Trade Networks/SupplyChain Systems/GENCO
2,916
11
Ryder Supply Chain Solutions
2,659
12
DB Schenker (The Americas)
2,630
13
Coyote Logistics
2,360
14
Total Quality Logistics
2,321
15
CEVA Logistics (The Americas)
2,310
16
Panalpina (The Americas)
2,209
17
GEODIS (The Americas)
2,200
18
Schneider Logistics & Dedicated
2,125
19
DSV (The Americas)
1,798
20
Echo Global Logistics
1,716
21
Transportation Insight
1,710
22
Landstar
1,632
23
Transplace
1,620
24
Americold
1,555
25
Penske Logistics
1,500
26
Swift Transportation
1,431
27
NFI
1,250
28
Werner Enterprises Dedicated & Logistics
1,156
29
OIA Global
1,150
30
BDP International
1,090
31
APL Logistics Americas
1,055
32
Yusen Logistics (Americas)
1,044
33
Cardinal Logistics Management
1,006
34
Mode Transportation
949
35
SunteckTTS
900
35
syncreon
900
35
Lineage Logistics
900
36
Radial
800
36
TransGroup Global Logistics
800
37
Ruan
796
38
Nippon Express (The Americas)
790
39
Radiant Logistics
783
40
Damco (The Americas)
773
41
Neovia Logistics Services
763
42
Worldwide Express
750
43
ArcBest
677
44
Odyssey Logistics & Technology
650
45
Hellmann Worldwide Logistics (The Americas)
640
46
Kenco Logistic Services
626
47
Crane Worldwide Logistics
616
*Revenues are company reported or Armstrong & Associates, Inc. estimates and have been converted to US$ using the average annual exchange rate in order to make non-currency related growth comparisons. Copyright Š 2017 Armstrong & Associates, Inc.
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Special Report
2017 Top 50 3PLs
A S P E C I A L S UP P L E M E N T TO L OGI S TI C S M A N A GE ME NT
Armstrong & Associates Top 50 Global 3PLs (April 2017) 2016 Rank
Third-party Logistics Provider (3PL)
2016 Gross Logistics Revenue (USD Millions)*
1
DHL Supply Chain & Global Forwarding
26,105
2
Kuehne + Nagel
20,294
3
Nippon Express
16,976
4
DB Schenker
16,746
5
C.H. Robinson
13,144
6
DSV
10,073
7
XPO Logistics
8,638
8
Sinotrans
7,046 6,830
9
GEODIS
10
UPS Supply Chain Solutions
6,793
11
CEVA Logistics
6,646
12
DACHSER
6,320
13
Hitachi Transport System
6,273
14
J.B. Hunt (JBI, DCS & ICS)
6,181
15
Expeditors
6,098
16
Toll Group
5,822
17
Panalpina
5,276
18
GEFCO
4,800
19
Bolloré Logistics
4,670
20
Kintetsu World Express
4,415
21
Yusen Logistics
4,169
22
CJ Logistics
3,662
23
Burris Logistics
3,629
24
Agility
3,576
25
Hub Group
3,573
26
Hellmann Worldwide Logistics
3,443
27
IMPERIAL Logistics
3,352
28
Kerry Logistics
3,097
29
FedEx Trade Networks/SupplyChain Systems/GENCO
2,916
30
Ryder Supply Chain Solutions
2,659
31
Damco
2,500
32
Coyote Logistics
2,360
33
Total Quality Logistics
2,321
34
Sankyu
2,275
35
Schneider Logistics & Dedicated
2,125
36
Wincanton
1,720
37
Echo Global Logistics
1,716
38
Transportation Insight
1,710
39
APL Logistics
1,700
40
NNR Global Logistics
1,676
41
Mainfreight
1,640
42
Landstar
1,632
43
Transplace
1,620
44
arvato
1,615
45
Americold
1,555
46
Fiege
1,550
47
Penske Logistics
1,500
48
Swift Transportation
1,431
49
Groupe CAT
1,328
50
NFI
1,250
*Revenues are company reported or Armstrong & Associates, Inc. estimates and have been converted to US$ using the average annual exchange rate in order to make non-currency related growth comparisons. Copyright © 2017 Armstrong & Associates, Inc.
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Special Report
2017 Top 50 3PLs “Adapt or die”
Logistics managers should also expect more 3PL consolidation, says Armstrong, pointing out that the global market is finding it exceedingly hard “to grow and scale” their networks organically. “Acquisitions are required to leapfrog into and move upward within the Top 50 Global 3PL rankings,” says Armstrong. “This will continue to drive acquisitions like we have seen with DSV/UTi; XPO/Norbert Dentressangle, and Con-way with Geodis/OHL.” Finally, the “adapt or die” imperative is still with us—and will be for “Acquisitions are required to leapfrog the foreseeable fuinto and move upward within the Top ture. To keep pace with omni-channel 50 Global 3PL rankings.” fulfillment and —Evan Armstrong, president, disruptive technolArmstrong & Associates ogies like drones, 3D printing, Internet of Things, driverless vehicles, advanced robotics and wearable technology, it’s become painfully clear that 3PLs must constantly evolve to anticipate shipper demands. “Fortunately, 3PLs are amazingly good at embracing change,” says Armstrong. “For example, we’ve been in operations utilizing PINC Solution’s drones for improved trailer yard management and Google glasses for warehouse picking. In addition, many applications, such as HubTran, are adapting machine learning to automate mundane freight bill payment tasks.” In the meantime, Armstrong adds that 3D printing remains mired in its growth stage, but will continue to impact spare and service parts logistics operations. “However, we will see some type of human-overseen driverless vehicles hit the streets in the near term, and that could be especially beneficial in long-haul trucking operations.” For Armstrong, the “Uberization” of trucking, or what he prefers to call “digital freight matching,” is still trying to find its legs. “However, we see that there’s significant progress being made to build improved real-time lane pricing information with companies such as CargoChief, and improved carrier management applications from
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industry stalwarts such as C.H. Robinson and Coyote Logistics,” he says.
Building a portfolio Many of the same observations are shared in Gartner’s annual “Magic Quadrant” report that was released last month at its supply chain conference in Phoenix. The aim of the report is to provide a qualitative analysis of the market, its direction, maturity and its participants. Greg Aimi, Gartner’s director of supply chain research and co-author of the “Magic Quadrant,” says that logistics managers are still pressing for consolidation in their 3PL portfolios, but not until providers can demonstrate that they have a truly global network. “For this to happen,” says Aimi, “there must be a significant air and forwarding capability. Furthermore, 3PLs in the Asia Pacific region have yet to get started with western acquisitions—but I assume they will.” He adds that the report revealed that logistics managers are seeking out a high-degree of industry vertical expertise and specialized solutions, thereby driving a number of “tuck-in” M&As. “At the same time, the technology area for 3PLs is just getting started,” adds Aimi. “Let’s just forget that they were laggards when it came to unifying software systems to a single global platform in the past. Today, global operational transparency requirements and digital business drivers from their shipper customers are just going to increase the need for 3PLs to be top dogs when it comes to tech and innovation.”
New journey According to Aimi, this is the second iteration of the “Magic Quadrant” for North American 3PLs. Since the first report, Gartner made significant changes in the criteria definitions to better identify what makes a 3PL valuable to shippers seeking a North American regional provider. Researchers note that the 3PL industry is “progressing along a maturity spectrum,” and trying hard to accommodate increasing shipper requirements
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Special Report
2017 Top 50 3PLs through a combination of acquisition and organic growth strategies. However, not all are at the same place in their journey. According to Gartner, there’s a transformation underway across today’s logistics industry, and perceptions of logistics service providers are changing. Relationships historically have been transactional, pragmatic and “physical activity oriented.” Researchers note that 3PLs contributed by
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competing head-to-head in low-margin pricing wars and assumed the role of an interchangeable commodity. Consequently, the idea of leveraging specialized services seemed out-of-reach—until recently. “As acceptance has grown for an increased amount of logistics outsourcing, companies are
3PL: Cultural shift underway
G
artner analysts note that in the North American logistics market, most 3PLs started business by predominantly providing deep capabilities in one of three major logistics service roots: transportation services, warehousing and fulfillment services, or international freight forwarding and customs brokerage. In fact, many providers today still predominantly offer services from just one of these main service lines or “root services.” Other providers, especially the larger ones, have expanded their offerings to include services from one or both of the other roots to have a more comprehensive offering. The truckload brokerage business, for example, has been regarded as one of the stodgier business models in the logistics sector for some time. However, one firm that appears to be breaking out of that mode recently came to our attention when we learned of its “new age” culture and young leadership. Nolan Transportation Group (NTG) is a company in this high-growth, fast-paced industry, providing thirdparty logistical services to over 8,000 customers across the United States, Canada and Mexico. Founded by Kevin Nolan in 2005 as a truckload brokerage with a box of cash and two employees, the company posted $278 million in revenue in 2016. According to Nolan, it’s all about culture. He notes that the brokerage business is built on effective sales with a high volume of transactions happening every minute of every day. He’s built a successful sales organization by hiring recent graduates who believe in a high energy, collaborative work culture with ample opportunity for growth and promotion from within. Logistics Management recently sat down with Nolan to gain his observations on the journey so far
Logistics Management (LM): Do you expect barriers to entry in the 3PL space to come down, or will it be tougher for new players to emerge? Kevin Nolan: I believe the legal—bond, insurance and background—barriers to entry will stay consistent with current levels due to the new administration. However, the difficult barriers to compete with players of scale will grow as consolidation and investments continue. Examples of this are technology, hiring and paying vendors faster. LM: What advice can you give to new players breaking into this business? Nolan: Balance…plain and simple. Being a 3PL means we’re in the middle of customer and vendor. Treat carriers and customers the same, because you can’t exist without either. It’s easy to gravitate to the customer side more, but the great 3PL sees both sides as equals. LM: How important is trust in the supply chain? Nolan: For non-asset and asset light, trust is everything. Production, construction time lines, and end-user satisfaction are all based on delivery of product. If you don’t give correct information, the trickle down will ruin your reputation across their whole organization. In supply chain, surprises and breakdowns happen. You have to face these problems head on and communicate with all parties so they can plan accordingly as well. —Patrick Burnson, executive editor
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2017 Top 50 3PLs
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realizing that their performance is more dependent on not only their 3PL providers’ capabilities and execution, but also the manner in which they are managed,” says Aimi. “This mandates a transition in the roles and responsibilities of tomorrow’s logistics professional from being a master of logistics execution to a master of provider orchestration; and it puts an importance on the relationship between customer and 3PL.”
“Logistics managers should be ever mindful that 3PLs are partners who are re-examining their supply chains and looking for useful ways to innovate and transform.”
Shareholder pressure
Interestingly, while the importance of resource integration is widely acknowledged, it’s not —John Langley, Jr., Ph.D, clinical uncommon for professor of supply chain management, logistics compaPenn State University nies to continue to operate their systems separately, notes John Manners-Bell, chief executive of the Londonbased consultancy Transport Intelligence (Ti).
For example, MannersBell notes that companies like DHL, UPS, Deutsche Bahn and SNCF continue to operate despite the fact that there is little integration between many of their operations or functions. He maintains, however, that this is a less than optimal situation and has often led to a significant lag in the realization of costs savings or to the absence of expected cooperation. “What’s more,” says Manners-Bell, “this lack of cooperation makes disposals likely if and when management comes under pressure from shareholders. While contract logistics companies typically integrate well, due to their asset-light nature, they still need to work on the daunting challenge of integrating the IT systems of the acquired company.” Ti researchers say that the logistics industry maintains the consolidation trend, suggesting that acquisition remains the most favored route towards building global portfolios of integrated services. Their analysts agree with Armstrong and
Examples of major contracts in early 2017 Client
Company Duration
Sector
Country
Region
Description
MercedesBenz
CEVA
3 years
Automotive
Brazil
South America
CEVA renewed its existing contract with MercedesBenz for a further three years. It also signed two new agreements which will extend elements of the contract for three and five years respectively.
Carlsberg
DHL Supply Chain
2 years
Consumer/ Retail
UK
Europe
Carlsberg awarded a two-year contract to DHL Tradeteam for the management of UK distribution services.
Groupe SEB
XPO Logistics Europe
SAS Kuehne + Scandinavian Nagel Airlines (K+N) Neue HalbergGuss (NHG)
Yusen Logistics
3 years
Consumer/ Retail
Global
XPO secured a multi-million pound, long-term contract with global domestic appliances and cookware giant Groupe SEB.
Aerospace
Global
SAS Scandinavian Airlines extended its contract with K+N for global logistics services until 2020. K+N will manage the international transport of spare parts for the SAS airplane fleet.
Industry and Germany Manufacturing
Europe
Yusen Logistics won a contract for a total supply chain solution for NHG. The contract covers the movement of engine blocks from Germany to the production plant of a car manufacturer in Ohio, as well as the provision of a closed loop supply chain back to Germany. Source: Ti database of major contracts
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2017 Top 50 3PLs Gartner that the level of consolidation in 2017 is estimated to drop compared to 2016, both in terms of total deal value and volume. “However, looking ahead, the outlook for consolidation activity in the industry remains positive,” says Manners-Bell. “In addition to being driven by the search for growth through global presence and expertise in high-margin sectors, the continued growth of e-commerce will also drive M&A activity in the logistics industry.” John Langley, Jr., Ph.D., clinical professor of supply chain management at Penn State University, agrees with many of the points raised by Armstrong, Gartner, and Ti, but concludes that logistics managers must be aware of other imperatives as well. “Three factors will contribute to a greater reli-
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ance on technology as 3D or additive manufacturing comes into play,” says Langley. “We have the same forecast for issues related to block chain, visibility, and optimization.” At the same time, Langley cautions managers to consider disruption and risk when choosing a global 3PL, particularly if they’re operating in a politically unstable environment. “Also of significance is that the ‘Amazon concept’ is resulting in a great need for providers of all types to reassess their existing capabilities and essentially transform their strategies and operations to better fit into the future needs of shippers,” says Langley. “Logistics managers should be ever mindful that 3PLs are partners who are re-examining their supply chains and looking for useful ways to innovate and transform.” Patrick Burnson is executive editor of Logistics Management
New Transport Intelligence report finds that Asia’s outsourcing needs accelerated contract logistics ccording to “Global Logistics 2017,” a recent report released by the London think-tank Transport Intelligence (Ti), the overall contract logistics market is estimated to have grown by 3.9% in real terms in 2016. Despite stronger global growth during this period, many developed markets struggled to match even the modest growth rates seen in their contract logistics markets in 2015. This reflects trends in the global economy, where growth rates in advanced economies slowed overall. According to Ti analysts, it would be “too easy” to match these struggles to the impacts of political events such as the U.S. presidential election and the Brexit vote. In 2016, Barack Obama was still U.S. president and the European Union had 28 members. Instead,
A
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weak real wage, productivity and consumption growth dampened global economic growth. “Manufacturing production and retail sales volume growth remain fundamental drivers of contract logistics,” says Ti Economist, David Buckby. “Manufacturing expansion in advanced economies remains weak while Asia Pacific, including China, is seeing the lion’s share of growth.” According to Buckby, retail is a different story. “To an extent, e-commerce has bailed out contract logistics in advanced economies,” he said. “And I expect these trends to continue to shape the background of the contract logistics sector for the next few years at least.” Despite stronger global growth in 2016, many developed markets struggled to match even the modest growth rates seen in their contract
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2017 Top 50 3PLs logistics markets in 2015. This reflects trends in the global economy, where growth rates in advanced economies slowed overall. Meanwhile, multinational manufacturers increasingly consider options outside China (especially nearby ASEAN) as production locations, primarily thanks to cheaper labor costs, all the while ingraining Factory Asia more deeply, a spur for the region’s manufacturing contract logistics. That being said, even with rising wages, manu-
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facturing in China is still undeniably strong, add Ti analysts. As low cost manufacturing has departed, this has been offset by China moving up the chain to more value-added production. “While Europe and North America suffer from both stagnating retail sales and manufacturing production growth, Asia is taking advantage, driving growth for the global market as a whole,” adds Buckby. •
—Patrick Burnson, executive editor
Damco unveils new digitized service for freight forwarders hile a bevy of high-tech outfits have threatened to disrupt the current freight forwarding marketplace with its their digitized offerings, older established players are hardly standing still as far as innovation is concerned. Witness, say analysts, the recent moves made by Damco, the third-party logistics subsidiary of Danish shipping conglomerate A.P. Moller/Maersk. Starting last month, “Twill,” the provider’s digital freight forwarding startup, became openly available to shippers in the U.K. market and will later be open to shippers worldwide. John Klompers, the Damco’s global head of freight forwarding, told Logistics Management that he sees the modern freight forwarder changing into a global freight supply chain “orchestrator.” “Service reliability, space allocation guarantees and a multi-carrier platform have become much more important to spread risks and to avoid supply chain disruptions,” said Klompers. To that effect, Damco has positioned itself to compete with Twill by enabling logistics managers to book, manage and monitor shipments online with a simple keystroke.
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“Damco is a frontrunner in the digitalization of the supply chain and does this by co-creating with customers,” says Klompers. “The focus is on the customers’ immediate need, using technology to provide insights and trends and to spot potential problems and supply chain stresses before something goes wrong. We have developed Apps to provide the visibility needed to effectively manage supply chains.” Klompers noted that, as the supply chains become increasingly more complex, one may never be able to take risk completely off the table. “But we believe freight forwarders are the key solution for logistics managers to avoid supply chain disruptions in the ever changing freight market,” he added. So far, the beta model has been focusing on managing ocean shipments within the China to U.K. trade lane. Damco spokesmen said that it will add more shipping routes and products over the coming months—and, in the first part of Twill’s expansion, all of Asia-Europe trade will be addressed. —Patrick Burnson, executive editor
CBRE data shows decent, but changing trends for logistics & industrial real estate in the Americas hile many key market themes remain intact as they relate to the industrial real estate market, there are also some apparent changes as well, according to the recent edition of CBRE’s
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“Americas Industrial & Logistics Trends Report.” The report’s data points, which are based on feedback from more than 950 CBRE brokerage and investment professionals, highlight the current
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2017 Top 50 3PLs state of the industrial real estate market, which continue to hit, or approach, all-time highs for certain benchmarks, including: • net absorption growth of America’s industrial and logistics space continued for the 28th consecutive quarter in the first quarter, with occupancy at 95.2% for its highest level since 2002, while slowing on the heels of near-record user demand in 2016; • while net absorption fell sequentially and annually, the vacancy rate dropped 10 basis points to 4.8%, with the availability rate up slightly at 8%; • due to tight supply, the net rent index rose 1.6% in the first quarter and 6.7% annually to $6.24 per square-foot, its highest level since 1980; • new development at 46.5 million square-feet in the first quarter was down 11% compared to fourth quarter of 2016 and up 17.4% annually; and • industrial and logistics was the only CBRE sector to see a gain in investment volume, up 3.2% to $13.9 billion in the first quarter, with individual asset sales rising 15% annually. David Egan, CBRE head of industrial and logistics research in the Americas, told Logistics Management that the biggest takeaway is the first quarter decline in user demand in leasing across the Americas markets, specifically in the United States. “It is low and noticeably lower than the numbers that came before it,” says Egan, “and it raises some red flags, with people wondering if it is an ominous sign for the state of the market. In fact, there isn’t a slowdown in users looking for space in the market. It
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has more to do with there not being much space left, and vacancy rates are so low that the ability to get a deal done is getting difficult.” CBRE says the dominant users leasing space in most markets are in the e-commerce, 3PL and food & beverage markets. The needs for users in these markets, says Egan, are getting more diverse, with those three markets “dominating” demand in the industrial space. Earlier in this cycle, from 2012-2014, most of their attention was focused on super big box facilities that were 500,000 square-feet and above and largely in major core markets like Chicago, Los Angeles, Dallas and Atlanta with big regional population centers. “There is still plenty of activity happening in those types of buildings and markets, but we have seen a significant shift in the diversity of demand from those types of users from the major markets to secondary and tertiary markets, which are smaller and don’t have as big of population centers,” added Egan.
—Jeff Berman, group news editor
XPO Logistics takes steps to expand last mile network in Chicago area
T
aking steps to expand its last-mile
logistics network, freight transportation and logistics provider XPO Logistics announced that it has expanded its “Chicagoland” facility in Bollingbrook, Ill. Company officials say that this new facility doubles the capacity of XPO’s Chicago-based market delivery center (MDC), which serves
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large retailers, e-commerce service providers, and heavy goods manufacturers, to almost 100,000 square feet. XPO defines the MDC as a facility that receives product, schedules product, and, as needed,
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prepares and assembles product at that site before it heads out to delivery. It also takes care of customer service issues, and conducts a “check in” of product that comes off of trucks for reverse logistics products that need to go back to a retailer or manufacturer for any reason. In an interview with Logistics Management, Charlie Hitt, president of XPO’s last mile business unit, said that Chicago is one of XPO’s three busiest and fastest-growing markets nationwide. “We need to invest in what our customers are having happen in the growth of their business, particularly in e-commerce.” The impact of a rapidly growing e-commerce market on the last mile sector, especially for heavy goods, is something that cannot be overstated, stressed Hitt. For XPO, that e-commerce activity, in terms of client relations, continues to grow. “We have had 15% to 20% growth in the last quarter alone in e-commerce business,” Hitt says. “Traditional brick and mortar retailers are expanding out with more e-commerce offerings, and they want it to be seamless and they want it fast.” Prior to this announcement, the Chicagoland MDC was roughly 50,000 square-feet and handled last-mile for retailers, as well as business that came in from Internet sales than can plug into the XPO system. “We think this business will grow 30% to 40% next year in Chicago, but it could be more and we’re going to be opportunistic about that if that happens,” said Hitt. He explained that this forecast is reflective of an ongoing “do it for me” theme among consumers in that they don’t want to do something like pick up a TV at a store and hook it up on their own. “Now, they want someone to take the old TV or washer and dryer away or have it done for them,” notes Hitt. “That is what they want; they want things to be simple.”
—Jeff Berman, group news editor
UPS rolls out new service in Europe for time-critical shipments ast month, UPS announced that it rolled out a new service in Europe focused on urgent, time-critical shipments requiring special handling. Called UPS Express Critical, the company said examples of these shipments include things like aircraft parts or surgical tools that are particularly germane to the industries like
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healthcare, manufacturing and aerospace. INSIGHT Global 3PL Management: Factors to keep top of mind As for how this service works, UPS explained that a UPS team assesses a lobal third-party logistics providers (3PLs) are not a dime a dozen; in fact, there are shipping request though a 24x7 contact only a few truly global supply chain managers—and they are a part of large, diverse global transportation networks. Most of the major players, such as UPS, FedEx, DHL center and then identifies transportation alternatives and implements a delivery plan and DB Schenker, all have IT platforms interfacing with their customers to provide global meeting customer time and cost requirements. Services provided through UPS Express Critical include air, charter and surface, as well as a personal courier who can carry the shipment by hand from origin to destination on a commercial flight. Daniel Gagnon, vice president of global logistics and distribution for UPS, told Logistics Management that increasing customer demand drove the development of this new service. “Most major market segments UPS serves often require overnight express services,” says Gagnon. “This service appeals to customers when next-day service is not fast enough. Highly specialized services are needed to meet the unique requirements of customers shipping extremely valuable or timecritical—and this is the case in growing industries such as life sciences, aerospace and high-value retail.” Prior to introduction of the Express Critical Service in Europe, Gagnon explained that the UPS forwarding group offered services on a shipment-by-shipment basis, whereas now the network of third-party couriers and air carriers will be integrated into the new system. When asked what the competitive advantages of this service are from a UPS perspective, Gagnon cited the company’s experienced industry teams are able to quickly assess a cost effective delivery solution that meets its customers’ specific time and delivery requirements. “Having this flexibility from a single, trusted source is an advantage,” he added.
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—Jeff Berman, group news editor
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visibility from origins to destinations; they’re experts at Customs clearance around the globe; and they’re active in all transportation modes and regularly adjust between ocean, air, trucking and sameday delivery to best accommodate individual orders. However, global shippers need to keep in mind that supply chain management capabilities—even those managed by the
most expansive global 3PLs—vary greatly between countries. The biggest challenge is often managing expectations within a region’s physical limitations.
Managing geographical expectations Advanced economies generally have better highways, ports and railways as well as better communication systems and technology. Political changes can especially complicate matters, but those issues are normally limited to emerging market and developing economy countries. As a general rule, logistics costs as a percent of GDP are lower in advanced economies and higher in emerging market/developing countries. Not surprisingly, the countries with the largest economies dominate infrastructure statistics. The United States has the most miles of highways, railways and pipelines. Meanwhile, China, with the second largest economy, has the third largest amount of highways and railways. India is second in the total miles of roadways; however, only 2% to 3% of India’s roadways are modern highways. Even some of these, like Highway 9 from Mumbai to Pune, have uneven surfaces and transportation obstacles. These persistent infrastructure challenges create opportunities for modern, sophisticated 3PLs. Global shippers who seek to succeed in today’s landscape should remember the following: Even when a global supply chain is managed by an experienced and expansive global 3PL, many regions and countries have limitations such as infrastructure, technology and carrier service levels. It’s important to manage expectations based on your areas of operation and seek out “true” global 3PLs that know the lay of the land.
—Richard Armstrong, Armstrong and Associates
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Quarterly Transportation Market Update
STATE OF OCEAN CARGO:
Carriers cope with
regulatory restrictions As if global ocean carriers didn’t have enough trouble managing rates and capacity, government agencies have called into question the viability of alliances and mergers designed to restore stability in the industry.
T
BY PATRICK BURNSON, EXECUTIVE EDITOR
he ocean carrier industry was handed another setback by a major regulatory agency last month as the U.S. Federal Maritime Commission (FMC) rejected the proposed merger of three Japanese liners. The unanimous decision to nix the Tripartite Agreement, comprising Kawasaki Kisen Kaisha, Ltd. (K Line), Mitsui O.S.K. Lines Ltd. (MOL) and Nippon Yusen Kaisha (NYK) represents a fresh challenge to the “3-J” alliance for the time being. Furthermore, delays in Japanese antitrust approval mean that the carrier’s contract deadline for next month will be missed.
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Ocean Cargo
Much of what the Tripartite parties were asking for, says FMC commissioner William Doyle, revolved around pre-merger or pre-consolidation “coordination.” For example, the parties were seeking authority to share information and conduct joint negotiations with third party businesses in the United States for as much as a year in advance of any potential merger. “These provisions would violate ‘gun jumping’ laws that forbid the sharing of competitively sensitive information or the premature combining of the parties,” adds Doyle. “In order to receive the benefits of a merger, one needs to first merge.” Chris Rogers, an analyst with the global trade consultancy Panjiva, is not particularly alarmed by FMC’s decision, which he describes as “technical in nature.” More of a worry, however, is the ongoing Department of Justice (DoJ) investigation of the container liner industry and what Rogers describes as
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“Congressional concerns” about alliances more broadly. In an advisory letter written by DoJ assistant district attorney general Renata Hesse, the FMC was called upon to forbid the creation of the OCEAN Alliance, or to at least have the carriers rewrite the agreement to ensure competition. “The DoJ has long taken the position that the general antitrust exemption for international ocean shipping carrier agreements is no longer justified,” she says. For the time being, however, both the Ocean Alliance and THE Alliance still control 45% of the global business by sharing vessels and operating joint services.
Stable forecast Meanwhile, global credit research analysts for Moody’s Investor Service maintain that the outlook for the global shipping industry is stable, given that— after excluding mergers and acquisitions
L OGISTICS MANA G EM ENT | JUNE 2017
and spinoffs—the aggregate earnings before interest, taxes and amortization (EBITA) of rated shipping companies will remain at similar levels in 2017 when compared to last year. But unlike 2016, when the industry saw double-digit EBITA declines, the operating environment has bottomed and earnings will remain on an even keel, although at a low level during 2017. “However, a material level of industry-wide earnings growth will be beyond our 12-month horizon,” says Stephanie Leavitt, a Moody’s analyst. Moody’s further notes that the continued scrapping of Panamax-class vessels, driven by the expansion of the Panama Canal, and of older ships, driven by tightening environmental regulations, are likely to continue, partly offsetting global capacity expansion. “Market conditions are still weak,” says Leavitt, “but are unlikely to worsen from the levels seen for both segments in 2016.
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We expect that supply growth will exceed demand growth by less than 2%, or within our parameter for a stable view.” Freight rates in these two segments will also gradually increase, she adds. For the shipping industry generally, Moody’s would consider changing the outlook back to negative if analysts see signs that shipping supply growth will exceed demand growth by more than 2%. “Conversely, we would consider a positive outlook if the oversupply of
vessels declines materially and aggregate year-over-year EBITA growth appears likely to exceed 10%,” concludes Leavitt.
Overcapacity woes However, despite growing confidence in a container market recovery over the past six months, other leading shipping analysts are forecasting the return of freight rate volatility to the world’s major trade lanes as the
Shippers rate service quality of ocean carriers “poor to average”
T
he service provided by container shipping
service,” “accurate documentation,” and
lines is rated as “poor to average” and
“quality of equipment (containers).”
has deteriorated in the past year, accord-
“We see that shippers want to be
ing to a survey of exporters, importers
treated not only as customers, but also
and freight forwarders conducted jointly
as partners when discussing their con-
by maritime shipping advisory Drewry and
tainer transport requirements,” says Fa-
the European Shippers’ Council (ESC).
bien Becquelin, maritime policy manager
The ESC and Drewry contacted sev-
at ESC. “In times when supply chains
eral hundred shippers and forwarders
are becoming more and more complex,
from all over the world in March and asked
partnership is of key importance and un-
them how satisfied they were with 16 price
fortunately it is missing.”
and non-price related attributes of the
According to Becquelin the air cargo
services provided by ocean carriers. The
industry had been suffering from similar
survey also looked into areas most in need
customer service issues, but has changed
of improvement and how quality varies by
its ways.
type of carrier.
Philip Damas, head of the logistics
On a scale of 1 (very dissatisfied) to 5
practice of Drewry, agrees: “Shippers and
(very satisfied), customers on average did
forwarders clearly see the necessity for
not rate carriers higher than 3.3 for any
the carrier industry to invest in informa-
of the 16 service attributes, the survey
tion technology and to balance the needs
showed.
for cost competitiveness and for more
The three areas of service or price
predictability and reliability.”
in which shippers and forwarders were
Meanwhile, the ESC and Drewry plan
the most dissatisfied with were “carrier
to run the shipper and forwarder satisfac-
financial stability,” “quality of customer
tion survey regularly and invite interested
service,” and “reliability of booking/cargo
shippers and forwarders to contact them
shipped as booked.” At the other end of
should they wish to be included in next
the spectrum, the three areas where they
year’s survey.
were the most satisfied were “price of
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– Patrick Burnson, executive editor
L OGISTICS MANA G EM ENT | JUNE 2017
specter of overcapacity comes back to haunt the industry. Tan Hua-Joo, executive consultant at the Paris-based consultancy Alphaliner, says that although 2016 was “the most balanced year” in terms of supply and demand since 2009, he remains skeptical about a rate rebound. “Hopes on the part of carriers for greater stability are still some time away,” he says, “even though the global fleet growth was constrained to just 1.6% last year.” New vessel delivery deferrals, in combination with an unprecedented number of vessels sent to scrap yards and an unnaturally large idle fleet propelled by the collapse of Hanjin last year, complicate the matter, adds Tan. “As we move into this year, the rate of growth in the global fleet is going to increase as there’s very little room for the industry to keep the growth of fleet down.” Alphaliner is forecasting total fleet delivery of 1.32 million twentyfoot equivalent units (TEU), most of which will be new “Mega” vessels, and although it’s also forecasting another year of record scrapping levels—up to 700,000 TEU—there will still be a net increase in the global fleet of 620,000 TEU, which would represent a 3.1% increase. Altogether, 1.6 million TEU of the world’s fleet found itself idled last year, although some 500,000 TEU of this was Hanjin tonnage. Tan notes that a lot of the Hanjin vessels have been brought back into operation, and Panamax vessels have seen something of a spike in demand due to the new alliances’ demand for capacity—leading to charter rates going back up to around $10,000 per day. “The idled Hanjin tonnage is now
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down to about 200,000 TEU, and we expect this be reintroduced to by June,” says Tan. “So, as long as the shipping lines take back this idle capacity, there’s no sign of a recovery in the market as carriers continue
to bid for market share and significant freight rate stability will continue.” In fact, Alphaliner analysts say that they don’t see a “genuine recovery” in the freight markets for another 18
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months when demand ramps up to fill ships on a reliable basis. Robbert van Trooijen, head of Maersk Line for Asia-Pacific, takes issue with this forecast however, stating that 2017 will be the year “in which all of us would find that balance.” First indications of this trend will be seen on the trans-Pacific, Asia-U.S. East Coast and Asia-North Europe trades, he says. “On the Asia-U.S. East Coast trade lane, 148,000 TEU were deployed at the height of capacity last year, and although it’s been growing since Hanjin’s bankruptcy, it’s now at 144,000 TEU per week,” says van Trooijen. The trans-Pacific trade is showing a similar pattern when compared to last year, van Trooijen adds, with deployments of 240,000 TEU per week now compared to 237,700 TEUs last year. “In view of all this, I think we should be confident that the capacity injected in the east-west trades is more balanced than it was,” he concludes. •
Patrick Burnson is executive editor of Logistics Management
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Pacific Rim Report By Patrick Burnson
Patrick Burnson is executive editor of Logistics Management. To contact Patrick with feedback or a story idea, please send an e-mail to pburnson@ peerlessmedia.com.
San Diego veteran shapes the future for Port of New Orleans Brandy Christian began service as the president and CEO at the Port of New Orleans this past January after having spent two years as the port’s chief operating officer. It’s important to note, however, that Christian gained 14 years of valuable experience with the Port of San Diego, a tenure that culminated in her role as vice president, strategy and business development. We recently caught up with her to learn how that valuable Pacific Rim experience influences her current management style. Logistics Management: How has the experience you gained on the West Coast helped you in the Gulf? Brandy Christian: The ports are similar in that both have breakbulk and container cargo operations, a robust and growing cruise business, large real estate portfolios—though New Orleans’ is more industrial than San Diego—and terminals that are located in the heart of urban areas alongside residential neighborhoods. LM: Is there a distinct West Coast management style that translates well in New Orleans? Christian: Effective management transcends geography. My style is straightforward and focused on succeeding with our mission as an economic engine. I value transparency and open, honest dialogue throughout the organization, and I’m working to ensure that employees have a clear path for development, both through the port’s organizational structure and with employee engagements efforts that will be implemented over the next few years. My management style reflects my background in quality management systems, which has been helpful throughout my career. LM: You’ve been on the job for six months. What have you learned so far? Christian: Quite a bit. The Port of New Orleans is well positioned geographically, and we’re also fortunate with diverse businesses. To make sure we take advantage of our opportunities, I initiated and prioritized a master planning process to guide our investments for the next 20-plus years. In a systematic, disciplined manner, we’re assessing our
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current business and identifying strategic opportunities. We have a tremendous opportunity to grow. LM: What goals have been achieved so far, and what challenges are about to surface? Christian: In addition to moving forward with a comprehensive master plan, which is already helping us identify growth opportunities, I have increased our visibility as a port. In meetings with carriers, shippers, current and potential customers, national, state, and local stakeholders, I’ve been demonstrating our commitment to forging strong partnerships for mutual economic benefit. Internally, I implemented a reorganization of the port last fall for greater efficiency, functional alignment and to provide more opportunities for employees to grow within the organization. In terms of challenges, we need to allocate our finances so that we can capitalize on opportunities and make sure that our current assets are maintained appropriately. Going forward, a planned and disciplined approach is the only way to ensure long-standing issues don’t come as a surprise. LM: Business with Cuba was one issue addressed at the recent “Cargo Connections” event. Can you speculate on that trade opportunity and others in the hemisphere? Christian: Cuba was once New Orleans’ number one trading partner. The country still represents tremendous opportunity for the Port of New Orleans if the embargo is lifted—both for cargo and cruise. Currently, we ship frozen poultry to Cuba on a humanitarian basis. We signed an memorandum of understanding with the National Port Administration of Cuba last October and have followed up by hosting delegations here in New Orleans and by visiting the Cuban Ambassador to the United States in Washington, D.C. Overall, we’re well positioned both in the hemisphere and around the world as a gateway port. The Panama Canal expansion has been good for us so far, and we now have a direct Asian service with PEX3 and we’re seeing more Asian cargo as a result. Both shippers and carriers are looking at the Gulf due to the region’s robust export market and efficient access to the Midwest via rail. • LOGISTICSMGMT.COM
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