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Q3 2014, Issue 2

IN Logistics

S o u r c i n g A n a l y t i c s S e r v i c e s

Q u a r t e r l y N e w s l e t t e r

Regional Analysis 3PL Market in

Australia

In-depth Analysis of the changing

landscape of 3PL market in Aus-

tralia

6 Key Areas Every Purchasing Expert

should address

Airport investment boosts cargo

prospects in Eastern Europe

The top 50 air cargo carriers

in 2014

Slower Growth Rate for Global

Ports in 2014Q2

Special Trucking Report: Collabo-

ration is the game

Market Watch: Air Freight, Road

Freight & Ocean Freight

The Sourcing Analytics Team is part of Indirect Pur-chase Shared Service Center based in Pune. We extend our multiple service support to our stakeholders in vari-ous categories and commodities across globe to provide high value research based inputs. Our customized ap-proach combines deep in - sight into the dynamics of Categories and sourcing research based insights. This ensures that our stakeholders achieve sustainable com-petitive advantage, build more capable category strate-gies, and secure lasting results. We are Founded in 2013, with a team of analysts based in India, Sweden & Ger-

Volume 2 A Sourcing Analytics Publication Q3 2014

IN Logistics

Page 2 In Logistics

© Sourcing Analytics Team of Indirect Purchase Organisation at Sandvik 2014. All rights reserved.

Please contact Sourcing Analytics Team at:

E–mail : dnya-nesh.sarang@sandvik.com

Tel : +91 840 888 0319

Mail : Sandvik Asia Pvt Ltd Old Mumbai Pune Highway

Dapodi - Kasarwadi

Pune - Maharashtra

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Page 3 In Logistics

In This Issue IN Logistics

2014: Trends Shaping the future of Logistics Indus-try

Market Watch : Quarterly Headlines

Regional Analysis: 3PL market in Australia

Europe: Closing the trade barrier gaps

Intermodal cuts freight rates in US Expert Speak: Calculating the benefits of Freight Bill Auditing

IN Air Freight

Market Watch : Air Cargo Market Analysis

Yoy tonnage Growth by region

Regional Analysis: Airport Investment boosts cargo

prospects in Eastern Europe

Expert Speak: Air Cargo in Africa: Call

for action

Supplier Watch: The world’s top 50 cargo carriers

UPS expects rates to rise as air cargo enjoys first

peak in years

IN Ocean Freight

Market Watch : Falling freight rates carry hid-den risks

Flexibility to tackle shifting markets

Asia-Europe spot rates tumble to $750 per TEU

Container availability rising : ocean carriers

Regional Analysis: India intermodal delays prompt new carrier surcharges

India plans big increase in Chennai port fees

Supplier Watch: Cosco signs $618 million deal for new ships

Will alliances spark more orders for big ships?

IN Road Freight

Market Watch : Further capacity tightness and rate hikes remain in the cards for the truckload market

Expert Speak: Fuel Efficiency and cost sav-ings

Special Trucking Report: Collaboration is the game

more than 5% of revenue..

At the low point of the global reces-

sion the industry had lost over 15%

of its revenues and profits had fallen

to 2.2% of revenue in December

2009. Revenues then recovered

strongly in 2010, leveled off 2011, but

then moved upward in 2012 before

turning down again in 2013.

At the end of 2013 overall revenues

in real terms were found to be only

marginally higher than in 2008. Of

the sectors, freight and trucking

revenues have declined, freight

forwarding revenues have increased

and contract logistics revenues are

slightly higher than those in 2008.

Operating profit margins for the

For the logistics industry, 2013 has

proved to be a "difficult year", ac-

cording to a new report published by

Transport Intelligence (Ti).

The study, Global Transport and

Logistics Financial Analysis 2014,

which reviews the performance of

twenty of the world’s largest logis-

tics providers shows that only three

of these providers grew their total

logistics revenue in 2013, and all of

them did so at the expense of declin-

ing operating profit margins. The

remaining seventeen providers saw

declines in revenues and nine of

these also saw declines in operating

margins. At the end of 2013 only six

out of the twenty companies in this

review made operating profits of

industry have never recovered to pre-recession levels.

The results for 2013 bear out what the industry has been saying for some

time about market conditions. Much of the logistics industry is already evolv-

ing and adapting to new conditions but despite an upturn in trade, the indus-

try collectively has seen a downturn in revenue and profitability in 2013. The

sustainability of some elements of the industry must again come into question

and more radical changes cannot be ruled out.

However, 2014 is looking up. After a dismal fourth quarter in 2013, and a

cautious first quarter in 2014, the "new normal" trend was shaken off in the

second quarter. The logistics sector added 288,000 jobs in April, shipment

volumes and freight payments climbed, and construction projects began to

grow. These trends continued into May, as retail sales also increased and the

Consumer Confidence Index rose from 81.7 percent to 83 percent.

“The first five months of 2014 have been the strongest since the

end of the Great Recession. All indications are that freight will

grow moderately for the rest of the year, and the economy

should follow suit. ”- Rosalyn Wilson, Parsons

Trends Shaping the future of Logistics

Global logistics industry hauling itself out of

recession

Page 4 Six Key Areas Every Purchasing Expert Should

Logistics firms have struggled against falling revenues in 2013, though innovations and improved

trade offers hope for the future

logistics and

transportation mergers

& acquisitions heats up

“By 2020, freight brokers will either be dead or have evolved into 3PLs. Companies aren't looking

for someone to handle one load; they're looking for a full-service, managed transportation partner

that can work with them to create the most efficient and effective supply chain network possible.

We are moving into a world where organizations want to focus on their core competen-

cies, and to do so, they are looking for sophisticated partners.“ - Robert Nathan, CEO of

In late 2013 and first half of 2014, North America has been the focus of

nearly $2bn worth of mergers and acquisitions activity. This brief window

has seen game changing deals with the likes of Norb-

ert Dentressangle’s acquisition of Jacobson Compa-

nies and XPO Logistics’ purchase of New Breed, not

to mention the merger of TransForce and Contrans.

Deals like these have the potential to change the

nature of the markets in which they take place and to

transform the business environment in which compa-

nies operate.

Indeed, it should not come as a surprise that the trucking industry has

experienced a number of mergers & acquisitions this year. Increasing

regulations, a shortage of drivers, and near shoring all spell an environ-

ment ripe for consolidation.

M&A in Freight Brokerage Industry: Because of the issues surround-

ing the trucking industry, brokerage companies have also been appealing

as acquisition targets. The freight brokerage space experienced a lot of

churn in 2013, with players such as Coyote Logistics, XPO Logistics, Echo

Global Logistics, and Blue Grace Logistics acquiring new assets. Tighten-

ing capacity and market fragmentation continue to feed a fertile mergers

and acquisitions (M&A) market.

Despite a difficult environment, all

three primary modes—LTL, truckload,

and intermodal—

recorded double-digit

profit growth. Intermod-

al was the only mode

that saw an increase in

shipment volume, in-

voice amount per load,

and total revenues.

LTL posted the largest increase in

total shipments, while all modes

experienced a margin percentage

decline. Truckload volume decreased

modestly, and LTL invoice amount per

load decreased as well. Overall, the

results point to continued growth.

Beyond that, some brokers are

morphing into 3PLs—adding non-

asset value through new technolo-

gies and services. Lines continue to

blur. What differentiates one from

the other remains in question.

As capacity grows scarce, and ship-

pers and carriers look to find space

and fill backhauls, one might even

consider whether pure-play brokers

will come back into vogue.

IN LATE 2013 AND FIRST

HALF OF 2014, NORTH AMERI-

CA HAS BEEN THE FOCUS OF

NEARLY $2BN WORTH OF

M&A ACTIVITY.

Preferential Sourcing

The volume of cross-border trade has increased considerably, with extra-regional trade strongly outpacing

intra-regional trade in many regions. That’s driving many shippers to revisit sourcing and distribution decisions,

an activity which requires balancing cost with opportunity, particularly in developing countries. Shippers must

also account for multiple factors, including consumerism, lead-time constraints, risk management/continuity

planning and portfolio differentiation. Yet another factor is the increase of preferential trade agreements

(PTAs), which now number almost 300.

Basic management of global supply chain activity — the approach taken by many shippers — focuses on the

physical movement of goods and viewing production and distribution as fixed variables. A more advanced ap-

proach accounts for additional complexities, referencing a more complete set of variables to optimize decisions

at each point within the supply chain. Shippers undertaking advanced global supply chain management often find

value in developing a mature Global Trade Management (GTM) methodology, which can be seen in their organiza-

tional structure, supply chain decision points and the completeness of their GTM tools.

Some 3PLs already partner with firms that provide detailed supply chain collaboration services and are well-

positioned to support shippers in their GTM needs. Whether or not they include 3PLs, the increasing complexity

of global trade requires shippers take a more comprehensive approach to sourcing and distribution decisions.

Page 5 In Logistics

What first-time IT managers really need to know.

Global market intelligence firm IDC and other analysts declared 2013 to be the start of

the Big Data era in supply chain. But shippers differ widely in their levels of interest,

understanding and adoption. While other surveys have reported higher levels of partic-

ipation, 30% of shipper respondents and 27% of 3PLs report they are planning or

currently undergoing big data initiatives.

Shippers (97%) and 3PLs (93%) feel strongly that improved, data-driven decision-

making is essential to the future success of their supply chain activities and process-

es. Interestingly, about half of each group disagree that Big Data fuels these decisions.

In spite of this, shippers and 3PLs concur that Big Data can be leveraged in both func-

tional and strategic aspects of supply chain operations, and to support visibility and

make supply chains more agile.

Shippers also see opportunities to

collaborate with their 3PLs using

Big Data. About half (50%) see the

biggest such opportunity in creat-

ing more agile and reactive logis-

tics/supply chain strategies, fol-

lowed by supporting end-to-end

visibility.

Significant internal hurdles stand in the way

of Big Data success, including a disconnect

between internal supply chain and IT opera-

tions and a lack of supporting IT infrastruc-

ture. Additionally, just 57% of shippers and

47% of 3PLs indicate they “have access to

timely and comprehensive data relating to

supply chain planning and operations” within

their organizations.

BIG DATA IN LOGISTICS

Page 6 In Logistics

Big Data and logistics are made for each other, and today the logistics industry is positioning

itself to put this wealth of information to better use

Opportunities for 3PL-Shipper Big Data Collaboration

How TO: VET SUPPLIERS

Thanks to globalised, multi-tier supply chains operating in economically challenging times, the risk of supplier failure

in terms of turnover, supply disruption, customer relations and brand perception has increasingly become an area

of concern for supply chain managers.

This concern often goes beyond those who

hold responsibility in internal sourcing and

supply chain disciplines, and is shared by

the finance, operations, engineering and

quality assurance teams.

The increasingly complex structure of to-

day’s supply chains often extending to tier

three or tier four suppliers provides access

to a cheaper, or a particularly sought after

product or service to the end consumer.

However, it also serves to amplify the po-

tential for disruption. These sub-tier suppli-

ers need to be identified and the nature

and importance of their role in contract

delivery understood at the pre-contract

stage. These suppliers are often omitted

from an assessment until an issue arises.

In addition to sub-tier suppliers it’s also

important that the supplier vetting process

targets where it is going to make the most

impact. Those suppliers representing higher

levels of business criticality, reputational

impact, complexity or limited supply are

where the focus should be, especially

where this combines with high value goods

or services.

Supplier health checks can proactively help

organizations take steps to identify and

avoid or reduce the chances of supplier

failure. These checks should include:

1. Financial Health: Assessing the viability of a supplier in terms of

its financial stability is crucial. A strong balance sheet and good cash flow position means that the supplier is better able to withstand variability in revenue streams that may occur. It is also a good indication of a supplier’s ability in the longer term to execute against investments required to grow its business. Company credit reports effectively provide an evaluation of a sup-plier’s accounts and more (CCJs, late payment history, industry benchmarks and ratio analysis etc.).

2. Company structure If a supplier forms part of a group of companies, it is im-

portant to establish the nature of any sister companies to ensure that they are not at odds with any aspect of the organisation’s reputation, or to identify where financial issues in one

company could impact the contracting company. Furthermore, it is important to understand

the nature of any relationship with a parent company to ascertain if the supplier has control over the direction of its own business plan, objectives and investment, as well as the policies and processes to deliver it.

3. Location Understanding where contracted goods and/or services will actually be

supplied from and identifying any risks or impacts that may be associated with a specific location is essential. The difficulty with this particular aspect of a health check is that impacts can come in the form of an unexpected disruption such as natural disasters or even terrorist attacks.

4. Value: The value of a contract to a supplier could be an indication

of the supplier’s attitude and approach to the relationship over time. A customer preference exercise can be carried out to ascertain the rela-tive value of the business against the attractiveness of the account. It is possible to work out just how valuable an account is to a supplier by looking at its approach in terms of service and response levels, drive for best price and maximum profit and keenness to lock in. Face-to-face dialogue will also help both customer and supplier jointly develop and increase dependency through extracting mutual value.

How TO: VET SUPPLIERS

5. Capacity Assessing a supplier’s ability to deliver is also best carried out

through direct contact. An information request or site visit should provide you with the information you need to assess a supplier’s resources in terms of staff, technolo-gy, equipment and storage to ensure it has enough capacity to handle your require-ments and understand how quickly it would be able to respond to these and to oth-

er market and supply fluctuations.

6. Compliance Supplier compliance is about assessing any pre-requisites for con-

tracting with an organisation such as sustainability, environmental commitments, ethi-cal values and CSR. Supplier compliance information should be ascertained at the tender

process. 7. Communication Many highly collaborative supplier relationships share

health check information as part of the agreed way of working together. On-going partner relationships must focus on fostering growth in trust and shared information through regular and structured communication. When carried out in a rigorous and consistent manner, the information obtained as part of a supplier health check process in terms of a complete view of the assessed organisation’s current and future validity as a supplier can then be in-put into the supplier’s risk profile.

Page 8 In Logistics

This can then be incorporated into an organisation’s overall risk manage-ment process and identification of any issues or opportunities which need to be addressed or simply communicated will provide the insights and infor-mation necessary to help maintain a strong and healthy supply chain.

Quarterly Market Watch

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S o u r c i n g A n a l y t i c s S e r v i c e s

European Ports Stuffed with Congestion

A summer labor shortage and longer pro-

cessing time for larger ships is creating con-gestion around European port cities and forc-

ing ocean carriers to levy surcharges on

tardy shippers.

Europe’s top ports – Rotterdam, Antwerp, and

Hamburg – are among several cities dealing with congestion issues. Europe is constrained

by space, with dense road networks, heavy traffic, and a lack of rail capacity, infrastruc-

ture, and utilization. Consequently, many cities serve as feeder ports for short-sea shipping

throughout the European Union – in addition to import and export destinations – which

only increases traffic on and off terminals.

Water and road transportation offer little

latitude, so ports are dependent on technolo-gy and resources to speed freight flows. And,

as containerships continue to get bigger, ports need to accommodate longer loading

and unloading times.

Rotterdam started tackling the problem a few

years ago when it unveiled a system that scans cargo on moving trains, rather than

unloading carloads. The Port of Rotterdam

uses high-power X-ray scanners to vet densely packed cargo in trains moving at

speeds up to 35 miles per hour. As a result, Dutch Customs can inspect nearly 200,000

rail containers per year, or a single 40-foot container in eight-tenths of a second.

As larger ships continue to come online, the challenge for European ports and countries is

identifying how to better integrate and utilize rail freight transport to speed throughput,

and address congestion and capacity issues.

Beset by deteriorating freight volumes and

overcapacity, ocean carriers have been

pulling up anchors in search of ways to

optimize asset utilization and plug leaking

profits. They have laid up vessels,

reconfigured services and lanes, and entered

into alliances to help offset market volatility.

Those efforts seem to be paying off as

shippers begin to navigate another peak

season.

In August 2014, Maersk Line raised freight

rates on routes from Asia to northern

Europe by $450 per 20-foot container. Other

Ocean Carriers Seek Capacity Balance, Raise Rates

ocean carriers likely will follow suit.

Leading steamship lines in the Asia-U.S.

trade have similarly called on carriers to

raise rates by at least $600 per 40-foot

container (FEU) due to sustained third-

quarter cargo demand across major

commodities.

Carriers need a rate structure that

encourages investment, draws equipment

back into the market, covers rising inland

transport and cargo handling costs, and

enables the broadening of service offerings,

reports the Transpacific Stabilization

Agreement (TSA), a research and discussion forum comprising

15 of the world’s leading container shipping lines.

“Given current rate levels, TSA members believe that $600 per

FEU is the minimum needed to meet those objectives,” says

Brian Conrad, TSA executive administrator.

Freight rates plunged to unprofitable levels for most carriers

in 2013 as a result of overcapacity in the market.

Maersk Line announced

new tariffs on U.S. inland

import and export ship-

ments in an effort to

regain rate balance.

Yusen Logistics is Expanding

Russian Railways Increase Revenues

Russian Railways increased revenues by more than 14% last year (against

2012) to Rb1,763 billion ($49.5 billion), with a key revenue driver being its

logistics and transport subsidiary Gefco, which contributed Rb169 billion to

an overall annual logistics revenue of R179 billion.

DB Schenker Invests in Portugal

German logistics provider DB Schenker has invested €9m in a 12,000 sq.m

logistics centre in Vila do Conde, near Porto in Portugal. The centre offers

dedicated contract logistics services and 50% of that activity will be for

automotive tier one suppliers.

Shipper’s Take a Chance on Risk Management

When it comes to contingency planning, supply chains are engaging in risky business, according to

Managing Risk in the Global Supply Chain, a study conducted by the Global Supply Chain Institute at

the University of Tennessee(UT) on behalf of UPS Capital Corporation.

Remarkably, 90 percent of the more than 150 supply chain executives surveyed do not measure

supply chain risk when outsourcing production, and none use outside expertise to assess supply

chain risks.

“The supply chain is the area of a company where executives must balance operational efficiencies

with customer and company needs, all without having direct control over many of the moving

parts,” says Paul Dittmann, executive director of the Global Supply Chain Institute and the study’s

author. “Visibility of material movement, and control of the supply chain, becomes even murkier in

the global environment, putting global supply chains at greater risk.”

UT researchers also report that normal day-to-day challenges — unexpected delays, cyber securi-

ty, supplier failures, and warehouse shortages — often overwhelm executives, giving them little, if

any, time to plan for major interruptions such as natural disasters or political disruptions.

Yusen Logistics is expanding multimodal cross-border services between

the US and Mexico. As part of its Mexico Border Cargo Management offering,

it will now offer a range of intermodal options along with in-house customs

clearance and cargo inspection through its Laredo facility.

The agreement covers the Asia-Europe, Asia-Mediterranean, Transpacific

and Asia-U.S. East Coast trades. It consists of a combination of vessel-

sharing, slot-exchange and slot-charter agreements. On the Asia-Europe

trade, the partners are offering four weekly services in addition to two

existing services, making for six departures weekly. In the Asia-

Mediterranean trade, they are operating four weekly services – two to the

Mediterranean, one to the Adriatic and one to the Black Sea.

In the Transpacific trades, there are four weekly services to California and

one to the Pacific Northwest (covering both the U.S. and Canada). And on

the Asia-U.S. East Coast route, they are offering one service via the Suez

Canal, and one dedicated to the Gulf of Mexico. Agreements in the Transat-

lantic trade are being finalized and will be announced soon, the lines said.

CMA CGM Joins CSCL and UASC in "Ocean Three" Alliance

The CMA CGM group has joined with China Shipping Container Lines

(CSCL) and United Arab Shipping Co. (UASC) in a new container service

arrangement known as Ocean Three.

UPS announced that it expects to hire

between 90,000 and 95,000 seasonal

employees to support the anticipated holiday

surge in package deliveries that will begin in

October and continue through January

2015. Last year, all carriers were swamped

with orders, many at the last minute, and

many deliveries were made after the

holidays.

UPS has implemented the following actions

since the 2013 peak shipping season:

• Using industry-wide delivery volume

forecasts and working closely with high-

UPS Beefs Up Staff, Looking to Avoid Last Year's Holiday Delivery Problems

impact leading customers, UPS has made

improvements to network utilization and

schedule planning.

• Daily processing capacity will increase

with the opening of new and expanded

buildings, plus installation of temporary

mobile sorting and delivery centers. UPS is

adding thousands of new or leased delivery

vehicles, trailers, aircraft and portable

loading aids to flex capacity in the UPS

network.

• Added operating days and shifts – full

ground delivery and pick-up operations the

Friday after Thanksgiving and nearly 50 new package sorting

shifts throughout the company's existing hub locations.

• Shipment tracking timing and accuracy will be improved with

additional and mobile app upgrades for enhanced information

on package location and shipment status.

• Enhancements to the UPS My Choice service will give

consumers receiving home deliveries improved alerts on

delivery time windows and options for re-scheduling and re-

routing.

IN Green—Global Sustainability Initiatives in Logistics UPS reduced absolute carbon emissions by

1.5 percent, added 249 liquefied natural gas-

powered tractors to its fleet, and saved more

than 1.5 million gallons of fuel through the use

of the ORION route optimization solution,

according to the expediter’s 12th annual

sustainability report. UPS also met the goal of

reducing its air and ground fleet’s carbon

intensity by 10 percent before 2016 three

years early, and established a new goal of a

20-percent reduction by 2020.

Global container shipping line APL received

the Port Metro Blue Circle award for reduc-

ing its 2013 emission under the EcoAction

Program, which promotes low emission prac-

tices for ocean-going ships entering the port.

Kane is Able, a third-party logistics

provider, added seven compressed

natural gas Volvo trucks to its fleet. The

purchase is part of Kane’s sustainability

initiative to minimize its carbon footprint.

Regional Market Analysis:

3PL Australia

Australia’s transport and logistics industry had reve-

nues of ~A$201bn and represented 15% of its gross

domestic product (GDP) in 2013.

Total freight volumes have quadrupled in the past four

decades, due to a significant growth in road freight and

mining-related rail freight. However, Australian coastal

shipping freight volumes grew only marginally due to

lower volumes of domestic petroleum and iron ore.

Regional Characteristics

Road freight is the major mode of freight transport

(30%), followed by air and rail in terms of value.

–Road: Freight dominates the Australian non-bulk

freight market due to its advantages in price, speed,

and convenience. It comprises of ~42,000 operators

with ~60% of demand coming from manufacturers,

wholesalers and retailers.

–Air freight: Volumes have been increasing, driven by

the online product purchase revolution.

–Rail: transport mainly dominates the eastwest corri-

dor (Melbourne/Adelaide/Perth) and primarily ser-

vices the bulky product items such as iron ore and coal

which account for ~70% of rail freight.

–Maritime: Australia relies on sea transport for a

substantial part of its domestic freight and ~99% of

its exports (in terms of volume). Australia is the

world’s fifth largest shipping nation in terms of ship-

ping load and distance travelled.

Competition

The transport and logistics industry is fairly

concentrated with the top three players

controlling more than 70% of the market.

• Toll group is the largest player capturing

~38% of the market followed by Australia

Post and Linfox.

• The competitiveness of this industry is

reflected in a relatively low average profita-

bility of 6.2% making it crucial for the freight

operators to manage costs effectively.

–Niche operators achieve higher margins

than general freight carriers. However, oper-

ators closely aligned to declining industries

are exposed to financial risks if they are

unable to redeploy their specialized assets.

• The barriers to entry for non-specialized

freight (metro courier services) are low due

to low entry costs (inexpensive and second-

hand light vehicles) and high driver availabil-

ity (no specialized driving skills required),

thus, increasing competition in this segment.

Page 13 In Logistics

RELATIONSHIP WITH

OTHER MARKETS

Transport and logistics companies in Australia

face higher cost pressure compared to their

peers in Asia-Pacific, such as mainland China, in

terms of taxes and labour.

• Fuel being an important driver of cost, the

impact of it on the industry is different in Aus-

tralia than in the US because of the different

taxation systems on fuel. Thus, although Aus-

tralia has a higher fuel price per litre, this price

is somewhat insulated from changes in world oil

prices than in the US.

• As a member of numerous bodies such as the

Asia-Pacific Economic Cooperation forum, G20,

World Trade Organization and Organisation for

Economic Co-operation and Development, Aus-

tralia has multiple free trade agreements with

countries such as the US, Singapore, Chile and

Thailand. Its total world trade rose 1.4% to

~A$600bn in 2013.

–In 2013, the European Union (EU) was Austral-

ia’s third largest trading partner after China

and Japan with total trade of €42.3bn, while

Australia was ranked the 15th largest trade in

goods partner of the EU.

Supplier Behavior

• The road freight industry is highly competitive with smaller operators acting as price-takers.

–This is because they have little influence over major costs, such as fuel and labor, or the price

they are able to charge their customers.

–Even large operators struggle to differentiate their services from those provided by a large

number of owner/drivers and smaller operators who cut prices to secure volume thus engag-

ing in price-led competition

–Road freight also faces competition from rail freight to transport grain and livestock due to

cost advantages of bulk freight.

• Operators are focusing on establishing and maintaining a niche offering by improving safety and compli-

ance regimes, embracing collaborative networks and adopting new technology to differentiate their ser-

vices.

–Players are trying to remain competitive by implementing new systems, equipment and pro-

cesses in the road transport sector to monitor real-time driving performance to improve safe-

ty, reduce environmental impact, decrease fuel consumption and improve driver productivity

–They are targeting cost reductions through renegotiation of contracts, centralized procure-

ment, capital efficiency and tax efficient supply chain management to meet budget constraints.

Also striving to manage staff costs, one of largest variable expenses, by spending on a skilled

workforce, training and development, safety measures and retention of a mobile workforce.

The Future

• Australia’s freight is expected to double by 2030 and triple by 2050, driven by population growth, globalization and demographic trends.

–Total domestic freight is projected to grow by 80% from 2010 to 2030, based on growth in domestic movements of bulk commodity exports, particularly iron ore

and coal, and road freight.

–The projected increase in total freight volumes is in line with projected growth in GDP, but faster than forecast population growth in the same period.

–Growth in Asia will increase the demand for Australian commodities, such as iron ore, coal and liquid petroleum gas, will give a boost to the industry (By 2030,

commodity exports to China are expected to grow by 170% and to India by 140%.)

• Despite this growth, profit margins may remain low with little scope for companies to invest in modern vehicles or provide a visible return on assets employed in

freight and forwarding functions.

Top 3PL Suppliers—Australia

Page 14 In Logistics

Closing the trade barrier gaps

W ith $1 trillion in trade taking place

between the U.S. and the 27

nations comprising the European

Union (EU), the potential impact of a new transat-

lantic trade pact is truly significant. The com-

bined population of 800 million generates almost

half of the world’s gross domestic product and

represents 40 percent of global trade.

But while negotiators for the Transatlantic Trade

and Investment Partnership (TTIP) have yet to

iron out a deal, savvy U.S. shippers have begun to

vet logistics providers and EU supply chain net-

works to take advantage of expected changes in

market access, regulatory aspects, and rules.

“The biggest transatlantic trade bonanza lies in

reduction of non-tariff barriers,” says Ann Bruno,

vice president of international operations of ICAT

Logistics. “If TTIP negotiators succeed in elimi-

nating only half of the non-tariff barriers, the

GDPs of both the U.S. and the EU will increase by

3 percent.”

Fortunately, adds Bruno, railroads, shipping lines,

air freight companies and ports will have plenty

of time to prepare for the coming “TTIP-ing”

point in transatlantic trade.

P o la nd : I n ve s t me nt p la y i ng o f f

Way ahead of the game in this regard, is Poland,

which continues to serve as an example of how to

capture and grow its logistical network.

“We see more countries in the EU attracting

play a huge role in the future of the European

logistics markets,” says Karel Stransky, director

of corporate solutions at Colliers.

Amazon.com Inc., the world’s largest e-

commerce company, recently hired more than

6,000 permanent employees in three new logis-

tics centers in Poland to build capacity for fur-

ther expansion in Europe. “Poland’s central loca-

tion in Europe, proximity to Amazon’s European

clients, and access to a skilled workforce were

among the reasons for Amazon’s investment

decision,” says Tim Collins, director of the e-

retailer’s European operations.

According to Collins, Amazon plans to open two

centers near Wroclaw in southwestern Poland

and one facility near the city of Poznan, 150 miles

east of Berlin. The Poznan center and one of the

Wroclaw centers will open in August 2014, while

the second Wroclaw logistics hub will start oper-

ations in mid-2015. The announcement came as

scant surprise to FedEx Express, which has been

active in the region for the past several years.

“The strong position of the Polish economy and

tremendous popularity of e-commerce have both

contributed to increasing demand for shipping

services,” says Michael Ducker, chief operating

officer of FedEx Express. “We view Poland as a

key market for investment and growth.”

investment in infrastructure, following Poland’s

example,” says Richard Thompson, global head of

supply chain and logistics solutions at real estate

services firm Jones Lang LaSalle (JLL). “Poland

is currently the third largest market for U.S.

multinationals behind China and India, with com-

panies like Proctor & Gamble and Kimberly Clark

leading the way.”

According to Thompson, U.S. shippers looking to

optimize their presence in the EU are also looking

for “sustainable” transport models linking sea-

ports, airports, warehousing, and point-of-sale

destinations.

“Just as it has been in the States, intermodalism

is growing like crazy in Poland and neighboring

countries,” says Thompson. “We’re seeing much

less reliance on trucking, and more use of short

rail. It goes without saying that e-commerce is

going to trend up in the EU as well.”

Analysts with Colliers International, another

leading commercial real estate service, contend

that the industrial and logistics market in Europe

is on track to grow exponentially over the next 10

years, with Poland set to benefit the most. In-

deed, more than 350 U.S. firms now have offices,

factories, subsidiaries, or joint ventures operat-

ing in Poland.

“Poland’s predicted presence in the top three, in

terms of consumer spending and manufacturing

increases within Europe, means that it’s set to

G e r m a n y : G r o w i n g c o n n e c t i o n s

Four years ago, FedEx relocated its Central and

Eastern European hub from Frankfurt to Cologne

to advance its agenda in the region. UPS, another

dominant EU logistics player, has also target-

ed Germany’s Cologne/Bonn Airport for the

future by announcing a $200 million expansion—

its largest facility investments in the company’s

history.

“With this upgrade, we now have the equivalent of

15 football fields of sorting space for a growing

export economy on the move,” says Cindy Miller,

president of UPS Europe. “All of this ensures that

UPS’ Cologne/Bonn air hub remains the center-

piece of the company’s European express net-

work, a key component of UPS’ global air opera-

tions.”

The operating area now at Cologne/Bonn

measures more than 1,130,000

square feet. The addition of eight

automated sorters increases the

hub’s package sorting capacity by

70 percent to 190,000 packages per

hour—or around 53 packages per

second. The conveyor system now

delivers a package just 15 minutes

through the hub from unload to load

point.

“This is part of a long-term strategy to help

shippers successfully compete and do business

on the important trading lanes within Europe and

linking Europe to North America and Asia in an

era when free trade agreements on the horizon

promise growth for companies large and small,”

adds Miller.

Frankfurt Airport (FRA), meanwhile, achieved a

new annual record in cargo growth to 2.1 million

metric tons last year. Just this past January,

FRA’s cargo throughput (airfreight and airmail)

advanced 7.2 percent to 160,970 metric tons.

Infrastructure continues to expand, too.

“FRA is the only major airport in Europe to open a

brand new runway [in 2011], followed by a large

Pier A-Plus terminal expansion in 2012,” says

Anke Giesen, Fraport AG’s executive board mem-

ber and executive director of ground handling.

“Furthermore, new on-airport development sites

are available at our freight station, CargoCity.”

DB Schenker, a leading European integrated

logistics service provider, opened its new Euro-

pean headquarters here in late 2013. And this

year, the House of Logistics and Mobility, the

world’s first airport university campus, will lo-

cate there as well, providing ongoing education

for U.S. and EU logistics managers.

While Germany’s Hanseatic city of Hamburg is

known chiefly for its seaport, U.S. air shippers

are beginning to take note of it as well. Earlier

this year, Hamburg Airport began construction

on its new Hamburg Airport Cargo Center

(HACC). Modern facilities here will replace the

existing air cargo center. The new facility will be

645,834 square feet and will open in summer

2015.

“We’re investing around 45 million euro from our

own funds in the modern airfreight facilities,”

says Michael Eggenschwiler, the airport’s CEO.

“The design of the Cargo Center was planned in

cooperation with the freight forwarding compa-

nies already based there.”

The airport has a high tenanting ratio, with

around 85 percent of the space either already

under contract or fully negotiated and ready for

contract. HACC, which includes offices, will have

an annual capacity of up to 150,000 tons of car-

go.

E U ’ s b i g t h r e e p o r t s

According to JLL’s Thompson, U.S. shippers

should concentrate on a trio of ocean cargo

gateways when considering ocean freight pene-

tration into the EU: Hamburg, Anwerp, and the

“mega” port of Rotterdam.

Emile Hoogsteden, director of containers and

logistics at the Port of Rotterdam Authority, says

that the port is optimizing its supply chain net-

work with the ongoing development of Maasvlakte

2—an extension of its existing industrial ware-

housing space along with expansion of Rotterdam

Mainport Development Project (PMR).

“Nowhere else in Europe will the largest ships in

the world be able to moor 24 hours a day,” says

Hoogsteden.

With nearly 30 percent of Northern Europe’s

annual container imports and exports passing

through the Port of Rotterdam, the region is

unsurprisingly a major focal point for manufac-

turers and retailers in European supply chain

operations.

For example, Menlo Worldwide Logistics,

the global logistics and supply chain management

unit of Con-way Inc. is now looking to develop its

business at the 93,000-square-foot facility in

Rotterdam still further. According to Tony Gunn,

Menlo’s managing director in Europe, 57 percent

of all Asian- and U.S.-sourced products have a

European distribution center located in the Neth-

erlands. “And a significant proportion of these

are in the Rotterdam region due in large part to

the flexibility that the location allows dynamic

supply chains.”

While Menlo’s current Rotterdam-based shippers

reside predominantly within the high tech sector,

the logistics capabilities of its personnel and

suitability of the warehouse are also geared to

handling life sciences, lifestyle, and e-commerce

product, adds Gunn.

Indeed, with key nodes in that transport network

such as Schiphol, Brussels, Aachen, and Dussel-

dorf all within a two hour drive (Frankfurt just

four hours), the hubs of the major freight inte-

grators are all less than an hour away from

Rotterdam.

Last year was also a stellar year for the Port of

Antwerp, Rotterdam’s neigh-

bor to the southwest. The

Belgium port set a new rec-

ord, with a total freight

volume of 190.8 million tons,

representing growth of 3.6

percent over the previous

year.

“While the container volume

contracted slightly as a result of the economic

recession, this was more than made up by the

excellent figures for liquid bulk, up by 31.4 per-

cent,” says Stefanie D’Herde, the port’s market-

ing coordinator. These growth figures demon-

strate that the investments by private companies

in combination with the targeted efforts by the

Port Authority and the various trade associations

are bearing fruit, D’Herde adds.

Last year was also characterized by the contin-

ued increase in the size of container carriers,

with units of 18,000 TEU entering service. Anoth-

er significant development was the setting up

of the P3 network, whose choice of Antwerp as a

port of call not only reinforces the gateway’s

position in the worldwide supply chain, but also

confirms Antwerp’s firm place among top-

ranking world ports.

“The problem-free call by the Mary Maersk

(18,000 TEU) once more confirms the ease of

access for even the largest container ships and

shows that the deepening of our channel has

been a success,” says D’Herde. And given the

frenzy of activity on the continent as of late,

industry analysts say that more “problem free”

events in the supply chain arena are most wel-

come.

Page 16 In Logistics

Cuts Freight Rates According to the Intermodal Association of

North America (IANA), intermodal represents

the fastest growing source of transportation in

North America where the first quarter of 2013

saw domestic container rates rise by 10.2%

compared to the same period in 2012.

Intermodal or combined transport is the merger

of several different modes of transport into one;

the most common of which is a mixture of road

and rail haulage.

Meanwhile, in a study by Network Rail, the com-

pany responsible for the upkeep of the UK’s

railway network, substantial cost savings can be

achieved through the combination of road and

rail haulage at a distance of more than 150

miles if loads of more than 300 tonnes per train

are transported and only a small portion of road

haulage is required at either end of the rail

transport chain.

Intermodal transportation also has its environ-

mental benefits since more tonnes can be car-

ried by one single vehicle or by the fact that

CO2 emissions per unit can be significantly

reduced if transported by rial and inland water

ways.

But, longer lead times and lower levels of flexi-

bility are set to remain inherent in combined

transportation methods, meaning that for indus-

tries with a focus on short lead times, intermod-

al may not always be the most practical.

‘Depressed’ rates picking up for European

intermodal operators

Europe’s combined road-rail transport opera-

tors are seeing signs of rates picking up from

their current low price levels, with intermodal

volumes forecast to grow around 5-6% this

year, although prices are currently barely sus-

tainable for the sector, industry insiders claim.

The European combined road-rail transport

market posted traffic growth of just over 4%

last year, in terms of tonne-kilometres trans-

ported, but intermodal operators, one of the

member categories within the European Inter-

modal Association (EIA), continue to do battle in

a low-rate environment, the EIA claims.

But there is some light at the end tunnel for the

sector, with rates moving upwards again and

intermodal traffic projected to grow by between

5-6% this year, reflecting improving economic

conditions. The most important intermodal

traffic ‘corridor’ stretches from Rotterdam to

Italy via Germany. This is followed by a corridor

linking Hamburg to the Czech Republic and

Slovakia. The basis for the success of these

intermodal corridors has been significant in-

vestment in infrastructure, and consensus

between authorities, operators and shippers on

intermodal transport policy.

Hewlett Packard and dairy group Friesland

Campina,” explained Wolters. “It has created a

framework where shippers and operators can

exchange views on transport policy-making,

innovation projects and the promotion of inter-

modal best practice.”

The case for greater cross-border harmoniza-

tion and standardization covering legislation,

procedures and equipment within the EU if

intermodal transport is to truly emerge as a

sustainable solution which reduces congestion

and contributes to lower CO2 emissions.

EXPERT SPEAK

● Traffic congestion in the EU is a key

issue and one that is costing intermodal operators and shippers tens of millions

of euros annually.

● There is an urgent need for neighboring

countries or member states along certain intermodal corridors to jointly produce mode-overlapping and cross-

border transport policies.

● EIA and its members are now investi-

gating solutions for “a new interconti-nental supply chain security project,

port-hinterland approaches and innova-tion projects - such as 45ft MegaSwap-Boxes - according to the principle of

turning sustainability into profitability

- EIA’s secretary general Peter Wolters as

told to Lloyd’s Loading List.com

Page 18 In Logistics

Calculating the Benefits

Of Freight Bill Auditing

I n the world of big data, a decimal point can make all the differ-

ence. Because freight charges represent up to 10 percent of a company’s total expenses, identifying and correcting freight bill

errors through auditing is crucial, and shippers want to glean the same

insights for their global transportation moves as they capture from domestic carrier data.

Up to 30 percent of all freight invoices are

incorrect, according to market research. But

performing freight audit and payment internally

is challenging, requiring specialized expertise,

and extensive time and effort – resources many

companies lack. Freight bill payment and audit-

ing services can help companies more easily

track where their dollars are going, and ensure

they are paying the correct carrier fees.

Choose Wisely

Before outsourcing freight payment and audit-

ing, vet potential providers based on the follow-

ing criteria:

Financial security. Does the provider have audit-

ed financial statements, an annual SSAE 16 Type

2 review, and an adequate Employee Dishonesty

Bond?

Customer service. Does the provider track

customer service issues? Does it use a custom-

er relationship management tool? What key

performance indicators does it maintain?

Carrier relations management. Is provider staff

committed to maintaining outstanding carrier

relations? Do they visit with carriers to com-

municate, resolve issues, and create efficien-

cies that benefit all parties?

Coding, editing, and validation. How comprehen-

sive is the provider’s ability in this area? Can it

derive cost centers from other data elements?

Rules should be table-based and event-driven to

ensure quick and easy updates.

Freight liability. How does the provider deter-

mine whether the bill should be paid? Is sup-

porting documentation attached? Can it perform

electronic validations?

Parcel shipment capabilities. Can the provider

meet the integrated carrier’s requirements to

obtain refunds for late delivery shipments that

are manifested but not moved on time?

Visibility. Can you view images of freight bills

and supporting documentation to resolve is-

sues? Does the provider’s website include

standard and ad-hoc reports, client-driven

report scheduling, and on-screen and email

report delivery?

Savings Beyond the Audits

Using the intelligence freight audit and payment

services provide, shippers can optimize their

supply chains and garner up to 15 percent addi-

tional savings. In addition, engineering can

benefit from this data. From analyzing your

network to identify the optimal location for your

warehouses, to switching modes and consolidat-

ing multi-stop truckload shipments, freight audit

and payment services offer multiple savings

opportunities.

Profit margins are under the gun for manufac-

turers, retailers, and distributors. Although

selling product is integral to their survival,

market share and profits rely on getting that

product to the customer cheaper and faster

than competitors. Freight audit and payment has

evolved to become a key part of many shippers’ ac-

counting, logistics, and IT operations. It is critical for

shippers to choose partners carefully, and take ad-

vantage of their capabilities.

The Future is Global

Today's global supply chain demands managing inter-

national shipping data. Hiring a freight bill payment

and auditing service can help.

Whether shippers are concerned with international

activities or are focused on domestic activity, freight

bill payment and auditing services are growing in

popularity and provide valuable benefits.

According to Stripling at Mohawk, freight bill payment

and auditing services are a tremendous benefit not

only from a business streamlining and intelligence

standpoint, but also from a budgetary perspective.

"We have gleaned enough savings from using these

services that they basically pay for themselves," she

says. "And all the great data we have as a result is an

additional benefit that is practically free."

“They may be designed to perform a straightforward

function, but freight bill payment and auditing services

can also reveal money-saving operations data. “

T here was a time when purchasing was a relatively straightforward task.

You found the best price at the best terms and negotiated a contract.

Signed. Sealed. Done.

Sorry to say those days are long gone.

When considering the company’s needs, you need to look very closely at the

current economic conditions and trends, and base purchasing on factors that

include price, brand, spend distribution, raw materials, and prevailing market

trends to name just a few.

Once you’ve looked at all of these factors, then you can make timed purchasing deci-

sions. If this sounds daunting, the reality is that every purchasing manager should

have the unique skill of determining timed purchases.

Simply put, when the economy is tight or in uncomfortable flux, you should be placing

short-term spot buys. When the economy is good, you have the luxury of planning far

out and thereby making long-term purchases. Regardless of whether the economy is

good or bad, however, you should always avoid impulse buys. As the person in charge

of purchasing, you should always distinguish between wants and needs.

Here are the key areas that every purchasing expert needs to address:

1 Market trends. Is unemployment going up or down? Higher unemployment

probably means lower consumption. It can also mean a reduction in manufac-

turing, so you may need to secure capital equipment to guarantee delivery. How are

interest rates trending? If they look like they’re climbing, you’ll want to secure your

needs at the prevailing lower rates to save money for your company. If your supplier

is a public company, see how they are trending in the market.

2 Raw materials indexing. For those in the transportation industry,

we’re always concerned about the fluctuating prices for rubber, steel, cop-

per, aluminum, and, of course, oil. A sharp increase in any one of these might indicate

a coming shortage. Less rubber can mean more expensive tires. A decrease in steel

availability could mean an uptick in truck costs. You need to stay aware of global,

economic, and political changes that can affect any of the raw materials you depend

upon.

3 Distribution channel. Do you buy directly from the manufacturer, or

are you making your purchases through a distributor? You need to know the

level of support and service the distributor can rely on from the manufacturer. If

you’re dealing with a local dealer, you need to ensure that they have the pull to get

6 Key Areas Every Purchasing Expert Should Address

the product and services you need, when you need it.

4 Outsource to experts. There are so many service providers

out there who can focus on specific areas better than you can. They

may have better leverage due to quantity ordering. Their relationships with

multiple suppliers may give them preferential pricing you can’t realize. On

specific higher-cost items, this may be an ideal alternative to handling it

yourself. Bottom line: outsourcing can reduce labor costs and increase your

access to expertise. There may be an incremental increase for the service

but when you measure ROI, it should become clear that this was a correct

move.

5 Network with peers. Nothing exists in a vacuum. Know what

others in your position are encountering. Whether it’s a company

gathering or industry symposium, you should meet once or twice a year with

colleagues to discuss the issues that are affecting your purchasing deci-

sions. It can be an in-person gathering or ongoing online communications.

It’s important to keep the lines of communications open.

6 Develop collaborative relationships with suppli-

ers. This is where your personal skills are vital. Your suppliers

should be looked at as an integral part of your business, and they should be

treated that way. Good relationships with your supply base will help you

manage your purchases. Often, your suppliers have access to information

that is just not available to you. This information may influence your pur-

chasing decisions. You should also create a tiered supplier base. Depending

on a single source could prove devastating. Companies go out of business;

natural disasters shut down manufacturing or close distributorships. Be

prepared. The tiered supply chain can save you from an economic or cus-

tomer service disaster.

“Big changes are coming for procurement specialists in

the future. But managing the factors above is a major step

in the process.” - David Nitzsche, Senior Vice President, Sup-ply Management, AmeriQuest Business Services

IN Air Freight

Market Watch

Year-Over-Year Tonnage Growth by Region

This is the air cargo chargeable weight change year over year, including intra-regional air cargo. Asia Pacific, North

America and Africa saw the largest increases for June 2014. Source: WorldACD Market Data

A ir freight volumes increased but

at a slightly slower pace in

June, rising 2.3% year-on-year

compared to 4.9% in May. The

first six months of the year combined

are up by a solid 4.1% compared to the

same period in 2013, which is well

above the 1.4% growth in 2013 overall.

Current freight tonne kilometer

levels are the highest they have been

since mid-2010, outside of the vol-

umes recorded in January 2014. This

means that demand conditions

throughout 2014 have been strong

enough to support these improved

FTK levels, but there has been no

sustained acceleration in growth over

recent months.

The performance of air freight mar-

kets has closely followed develop-

ments in world trade and business

activity, which both showed solid

gains toward the end of 2013, only to

taper off earlier this year. Most re-

cent data, however, points to re-

sumption in prior improvements in

these demand drivers. The results

have been mixed however, with some

regions showing stronger gains than

others.

The most notable improvement over

recent months has been for the Asia

Pacific region – local carriers expe-

rienced a 4.9% rise in FTKs in June

year-on-year. Latest (May) data

shows that regional trade volumes

remain at improved levels, after

continued decline throughout Q1. By

contrast, European airlines experi-

enced a 1.5% fall in FTK June year-on-

year, and a contraction by the same

rate in June compared to May. In

part, the solid performance recorded

by Asia Pacific carriers was negated

by weakness in volumes carried by

European airlines. While industrial

production growth over recent

months has pointed to accelerating

growth in the Eurozone, there has

been some weakness in manufactur-

ing activity and export orders, both of

which erode some of the optimism

around growth in demand for air

freight for regional carriers.

The outlook for air freight markets is

broadly positive after some signs of

wavering in prior months. The meas-

ure of global business activity in-

creased in June, suggesting demand

conditions could be picking-up after a

slowdown in Q1. World trade volumes

declined throughout the first three

months of the year, but latest data

shows some improvement in volumes

in Q2. New exports orders have been

notably volatile over recent months,

but levels continue to indicate growth

in world trade, which bodes well for

air freight demand.

The most notable improvement in air

freight demand over recent months

has been for the Asia Pacific region.

Growth in June was 4.9% compared

to a year ago. For the first six months

of the year, FTKs carried by Asia

Pacific airlines were up 4.6% com-

pared to the same period in 2013.

Although much of that improvement

year-to-date is a result of an in-

crease in volumes which took place at

the end of 2013, the past months have

shown some acceleration in the

growth trend once again, after virtu-

ally no change in volumes in the early

part of 2014.

European airlines experienced a

1.5% fall in FTKs in June year-on-

year, and a contraction by the same

rate in June compared to May. In

part, the solid performance recorded

by Asia Pacific carriers was negated

by weakness in volumes carried by

European airlines. While industrial

production growth over recent

months has pointed to accelerating

growth in the Eurozone, there has

been some weakness in manufactur-

ing activity and export orders, both of

which could weaken the demand base

for air freight transport on regional

carriers.

Air Freight : Market Analysis

Melbourne Airport reported that it was the

only major Australian airport to increase

airfreight imports and exports over the past

year. The airport provided an overview of its

performance to an audience of more than

700 people from business, government and

the wider community at the Melbourne Town

Hall on Monday. Exports of merino breeding

rams to China increased by more than 3,000

percent for the year. “The Victorian rural

sector is raising the bar internationally, and

high-quality Victorian breeding stock is in

high demand,” Chris Woodruff, Melbourne

Airport CEO, said. Melbourne Airport’s capital

expenditure for the 2013/14 year increased

by 67 percent. “This private expenditure is

Melbourne Airport breeds cargo growth

supporting our transformation and the

Victorian economy as well as creating more

jobs,” Woodruff said. “Next year alone, we

expect to invest around $700 million as part

of sustained 10-year investment period.”

Major investments at the airport include a

new domestic terminal, 21 more aircraft

parking bays, expansion works within the international terminal

and road network upgrades including Airport Drive, a new

entry to Melbourne Airport that will connect directly with the

M80 Western Ring Road. There are warehouse and logistics

facilities underway for TNT, Toll Group and DHL. During the

year, Melbourne Airport’s 2013 Master Plan was approved by

the government and includes the proposed orientation for the

third runway. An extensive consultation and approval process

for the airport’s runway development program is underway.

Woodruff encouraged the federal government to secure better

outcomes for international air services agreements. “The

consequences of not expanding these arrangements are not

just for airport and airlines – it’s also our tourism, business

and education sectors which rely on international visitors,” he

said. “Our exporters will also lose out on valuable business

opportunities.”

Freight upswing for Hong Kong Airport

Hong Kong International Airport (HKIA) continued to see upswings in freight in August.

Cargo throughput grew by 8.8 percent to 366,000 tonnes. Flight movements had a 4

percent increase to 33,700, achieving a new monthly high for the second month in a row.

The growth in cargo throughput was driven mainly by transshipments, which were up 22

percent from a year ago. During the month, cargo throughput to/from Southeast Asia

and Mainland China improved most significantly compared to other key regions. “It is

encouraging to see that HKIA has once again achieved new traffic records this month. We

anticipate air traffic at HKIA to continue its growth trend during the remainder of the

year in view of the upcoming travel peaks of the National Day golden week and Christ-

mas,” C K Ng, acting CEO of Airport Authority Hong Kong, said. Over the first eight months

of this year, HKIA handled 2.8 million tonnes of cargo and 258,105 flight movements,

registering respective growth of 6.9 percent and 5.2 percent compared to the same

period last year.

On a 12-month rolling basis, cargo volume increased by 5.7 percent to 4.3 million tonnes.

Flight movements recorded 5.6 percent year-over-year growth to 384,935.

Swiss commission fines airlines over freight cartel

The Swiss Competition Commission (COMCO) has fined 11 airlines a total of 11 million Swiss francs (US$12.2 million) regarding a freight cartel. The investigation of

the Competition Commission revealed that the airlines had agreed on freight rates, fuel surcharges, war risk surcharges, customs clearance surcharges for the

U.S. and the commissioning of surcharges. All those elements are part of the price that is charged for airfreight transport. COMCO described it as a horizontal

price agreement case.

The COMCO fines the following airlines: Korean Air Lines Co. Ltd., Atlas Air Worldwide Holdings, Inc. (Polar Air Cargo Worldwide, Inc.), AMR Corporation (American

Airlines), United Continental Holdings, Inc., SAS AB (Scandinavian Airlines), Japan Airlines Co., Ltd., Singapore Airlines Limited, Cathay Pacific Airways Limited, Car-

golux Airlines International S. A., British Airways Plc. and Air France-KLM SA. COMCO said Deutsche Lufthansa AG, as part of the cartel, triggered the legal proceed-

ings by self-denunciation and avoided a fine.

As a subsidiary of the Deutsche Lufthansa AG, Swiss International Air Lines AG also benefits from full immunity from the sanction. After the initiation of the legal

proceedings, British Airways, Cathay Pacific Airways, Japan Airlines, Air France-KLM SA and Cargolux submitted leniency applications and received substantial

reductions of the sanctions.

Robust August for Cathay

STRONG demand out of Hong Kong and mainland China boosted Cathay Pacific Cargo’s

performance in August . The airline and its sister company Dragonair carried 146,955

tonnes of cargo and mail in August, an increase of 19.7 per cent in comparison with the

same period last year.

The cargo and mail load factor rose by 3.8 percentage points to 62.5 per cent, whilst

capacity, measured in available cargo/mail tonne kilometres, climbed by 13.3 per cent.

Cargo and mail revenue tonne kilometres (RTKs) flown climbed to 20.6 per cent.

For the year to the end of August, overall tonnage rose by 11.3 per cent while capacity

was up by 11.4 per cent. RTKs grew 14.3 per cent.

Mark Sutch, Cathay’s general manager for cargo sales and marketing, comments:

“Demand remained robust throughout August and the year-on-year tonnage increase

was again well above expectations. Demand out of Hong Kong and the key manufacturing

regions in Mainland China remained strong and we hope to see a further uptick in Sep-

tember as new consumer IT products are launched in the market.

“The Americas remain the key focus of our cargo business and we will extend our pres-

ence further with a new freighter service to Calgary and increased frequencies to Co-

lumbus in October, and more flights to Mexico from November.”

AA and USAir countdown to cargo merger

American Airlines and US Airways are counting down the days to a complete cargo merger on October 20, the date when the two carri-ers become one for freight bookings. From then on, customers will start using the same airwaybill to access an integrated airline net-work that has surprisingly little overlap, just 12 routes out of thou-sands on offer.

But there is more to the transition than numbers, more than just switching to a single airwaybill using the American Airlines prefix 001 rather than the 037 of US Airways (USAir). AA may be four times larg-er than USAir in terms of cargo revenue - mainly because the latter had only 26 wide-bodied aircraft - but USAir is no junior partner.

USAir has a partnership with the US Postal Service that hopes to con-tinue, and a varied product range that includes small shipments but

also human remains.

From that perspective, AA Cargo now has a much more expansive network across Europe then we did prior to the merger. It brings together two cargo organizations focused in slightly different areas because of the assets they had. Part of the integra-tion process since the merger was formally signed nine months ago has been the co-location of 152 cargo stations that will see the freight operations placed under one roof. The programme is now more than two-thirds complete.

Prior to the merger, American was expanding its footprint in the US. Now we have a pretty significant expansion of the num-ber of places where we can accept freight. The AA Cargo product range will form the backbone of the merged freight busi-ness - Priority Parcel Service, ExpediteFS, ExpediteTC and ConfirmedFS for example—One exception is the USAir human re-mains product (TLC), which will be available on AA.

Other important changes include an increase in the maximum piece weight for a narrow body aircraft, which goes up to 350 lbs. (159kg) from 300 lbs. pre-merger, and the availability of the temperature-controlled C-Safe container, a unit which was a legacy USAir product.

customer.

“From a cargo customer’s perspective, it is one network. When a cargo customer either calls or goes online to book, they will see all the flights.” In doing so, it adds the USAir destinations in Europe to the extensive Latin American network that AA offers.

Page 23 In Logistics

Page 24 In Logistics

Airport

investment

boosts cargo

prospects in

Eastern

Europe

T here was a time when poor airport infrastructure

in Central and Eastern Europe, and underdevel-

oped airline networks, left the region’s importers

and exporters with little choice other than to truck their

airfreight to and from hubs further west, such as Frankfurt,

Paris and Amsterdam. Local options serving manufacturers

and consumers in Poland, Bulgaria, Hungary and the Czech

Republic are now more viable, as economies recover and airports invest in better facilities.

Warsaw’s Chopin Airport (WAW) recently completed a new

cargo apron to handle additional freighters. Located along-side the old cargo apron in the southern area of the airport,

the new ramp can accommodate three wide-bodies such as

AN-124s or six narrow-bodies. The development follows last year’s opening of a second cargo terminal to stimulate com-

petition in handling and drive down prices.

“We are currently working on a new long-term cargo devel-

opment strategy and plan to extend our infrastructure fur-

The development follows last year’s opening of a second

cargo terminal to stimulate competition in handling and

drive down prices.

Warsaw's Chopin Airport has expanded its infrastructure to handle more freighters, includ-

ing the completion of a new cargo apron

ther,” spokesman Przemysław Przybylski says. “The aim, as well as

to retain our existing customers, is to capture market share from

competing airports and road feeder services.”

WAW handles more than 70 percent of Poland’s air cargo traffic.

Throughput in the first half of this year reached 27,300 tonnes, a year-over-year increase of 18.4 percent. Inbound cargo stood at

15,400 tonnes and outbound 11,900 tonnes. There was a 12.8 percent increase in international mail traffic during the period.

The biggest cargo carriers were LOT Polish Airlines, with 9,500 tonnes, followed by UPS, European Air Transport (the regional feed-

er airline for DHL), Emirates and TNT Airways. LOT has introduced B787-8s for its services to JFK, Chicago, Toronto and Beijing, sig-

nificantly enhancing belly-hold cargo capacity, but the national car-

rier has been in financial difficulty for several years. The European Commission approved a government bailout worth 200 million eu-

ros (US$267.6 million) in July. However, LOT is required to give up routes and slots at certain airports to ensure competitors are not

disadvantaged.

Emirates, which launched a Dubai-Warsaw service only in 2013, operates A330-200s or B777-200s according to season, but al-

ready, in its first, partial year of operations, took a 6 percent share

at the airport thanks to its cargo-friendly passenger airplanes.

Bulgaria’s Sofia Airport handled 7,546 tonnes of general cargo in January-June 2014, a decrease of 2.6 percent, partially offset by a

4.5 percent increase in mail to 874 tonnes. There was a slight bias

in favor of import cargo. Twenty passenger and four cargo airlines

operate scheduled year-round services into the Bulgarian capital,

with freighter and belly-hold cargo accounting for approximately equal shares of overall lift.

The largest carriers are European Air Transport and Bulgaria Air.

Among the fastest-growing airlines are Czech Airlines (up 50 per-cent this year), LOT (+25 percent), Qatar Airways, Lufthansa and

Turkish Airlines.

Sofia boasts good road links to the neighboring countries on the

Balkan Peninsula – Turkey, Greece, Romania, Serbia, Macedonia,

Albania, Croatia and Slovenia. The airport was certified for Cat

IIIb very low visibility landings at the end of 2013. It claims to

offer some of the lowest airport charges in the region, and says airline customers benefit from liberalized ground handling and

fuel provision.

The collapse of Hungarian national carrier Malev Hungarian Air-

lines in 2012 forced Budapest Airport to shelve plans for an air cargo city. But with confidence returning to the market, the pro-

ject, which includes the building of two cargo terminals, apron

and related infrastructure, is back on the drawing board.

Construction of phase one, comprising an 118,000-square-foot (10,962-square-meter) warehouse with capacity of 150,000

tonnes of cargo per year, is set to begin late 2015. René Droese, property director responsible for cargo operations, says the

airport’s main handler, Celebi, will lease space in the unit.

The development is close to Budapest’s Terminal 2, the recently

built passenger terminal, convenient for belly-loading. The four integrators, which have less need for this connectivity, will re-

main at Terminal 1, where they can park more easily.

First-half cargo volume at BUD was 46,000 tonnes, level with H1 2013. The airport expects 1-2 percent growth for the full year.

Imports exceed exports by 60 percent to 40 percent and around 85 percent of cargo is carried in freighter aircraft. Turkish Car-

go operates to Istanbul twice a week with an A330 freighter,

while Cargolux and Azerbaijan’s Silk Way West run longer-haul scheduled services. Silk Way West launched direct flights to Baku

last March using a B767 freighter.

“As the largest cargo airport in northeast Europe, we have a large catchment area. The

nearest airport with greater cargo throughput than Warsaw is Leipzig-Halle, around

nine hours’ drive away, Chopin Airport is a convenient location for cargo exchange

between Russia, Asia, the Far East and northeast Europe. Airlines can save as much as

one hour compared to other European hubs, and users benefit from shorter trucking

distances. With the development of our infrastructure, we hope to capture some

business from neighboring airports and become an attractive alternative to trucking

cargo from the Baltic states, Hungary, the Czech Republic, Slovakia and Ukraine.”

DHL uses Budapest as a central and east European parcel hub, shuttling daily to and from Leipzig with a B767. Separately, DHL’s Global Forwarding

arm opened a new logistics center adjoining the airport last year, handling airfreight, ocean freight and trucked shipments.

Emirates will launch a daily passenger service to

Dubai at the end of October, using A330s that

offer 12-14 tonnes of cargo capacity, and is also

considering adding Budapest to its freighter

network.

A high-quality road network connects Hungary

with Austria, Slovakia, Serbia, Croatia, Slovenia,

Romania and Ukraine. “Budapest’s centralized

geographic location serves rapidly growing local

and regional electronics, automotive, pharma-

ceutical and biotech industries,” Droese says.

In October, BUD will introduce an improved in-

centive scheme for scheduled cargo carriers

serving new destinations. Freighters with a maxi-

mum takeoff weight of more than 100 tonnes will

pay no landing charges in year one, with support

gradually reducing over the following three

years.

Droese accepts that customers historically

preferred Vienna, Budapest’s main competitor

just 150 miles away, because of its better road

infrastructure and bigger passenger network.

Budapest has worked hard to attract new carri-

ers, especially from Asia, but recognizes that it

also has to convince forwarders, who are better

established at Vienna, of its benefits.

VIE saw a modest increase of 1.6 percent in

cargo throughput in 2013, reaching 256,000

tonnes. Cargo carriers accounted for 36 percent

of the total, passenger airlines 34 percent and

trucking 30 percent.

The airport is home to Lufthansa subsidiary

Austrian Airlines and has had some success in

encouraging other Star Alliance carriers such as

EVA Air, Air China and Ethiopian Airlines to add

Vienna to their schedules. With its two intersect-

ing runways likely to reach capacity soon after

2020, VIE aims to build a third runway. The pro-

ject received a positive decision in the first in-

stance in July 2012, but the Austrian Federal

Administrative Court is working through a num-

ber of appeals against the development.

Prague in the neighboring Czech Republic is also

trying to win traffic from Vienna and handled

25,000 tonnes of cargo from January to June, 1.7

percent ahead of the same period in 2013.

Most freight flies belly-hold, with just five sched-

uled cargo airlines calling PRG – FedEx, China

Airlines Cargo, Belarus-based Genex, TNT and

Farnair Switzerland, which operates Czech Air-

lines Cargo services.

Road feeder services account for more than one

-third of the cargo handled in Prague’s two cargo

terminals. “Prague possesses all the attrib-

utes to serve as a cargo consolidation center

for Central and Eastern Europe,” a spokes-

woman says. New highways connect the airport

with Germany’s southern provinces and with the

eastern Czech Republic. Leipzig/Halle (LEJ),

Europe’s fifth-largest cargo hub, handled 442,109

tonnes of cargo between January and June, a

growth rate of 0.9 percent, after seeing a full-

year increase of 2.7 percent in 2013.

Its largest customer is DHL Express, which self-

handles at a dedicated facility. The company is

investing there to expand sorting capacity.

Key to LEJ’s success is its speed of handling,

according to head of public relations Evelyn

Schuster. Cargo on an inbound B747 freighter

can be through the warehouse and on the truck

within three hours of touchdown.

Among other benefits, Schuster cites twin, inde-

pendently operated 11,800-foot (3,596-meter)

and no congestion; access to the trans-European

highway system; and a direct rail link.

Moscow’s Domodedovo International Airport

suffered a 4.3 percent fall in first-half cargo

traffic, handling 88,890 tonnes. PR manager

Irina Kumina blames the decline on political

instability as well as economic weakness causing

shippers to switch to cheaper modes such as

road transportation or water.

Russian airports largely depend on transit cargo.

With the country’s widest route network, includ-

ing domestic routes, DME offers unrivaled con-

nectivity, Kumina says.

Belly-hold cargo represents 85 percent of DME’s

total, although AirBridgeCargo and Korea’s

Asiana operate scheduled B747 freighter flights.

They were joined last year by privately owned

Russian operator Transaero, using TU-204

freighters. DME plans to open a new cargo termi-

nal by the end of 2015, more than doubling its

capacity to 405,000 tonnes per year.

The top 50 air

cargo carriers

FedEx, UPS top rankings, but Middle

East grows at fastest rate

C argo carriers made few

strides in tonnage in

2013, according to World Air

Transport Statistics from the

International Air Transport As-

sociation.

The ranking of the top five cargo

carriers remained unchanged

compared to 2012. With lagging

volumes the norm, almost every

carrier interviewed by Air Cargo

World talked about a focus on

moving perishables.

Americas

FedEx held tight onto its No. 1 spot for total cargo, its tonnage increasing by

about 2.1 percent.

UPS Airlines again came in second for total cargo, though its total tonnage

declined by 10.6 percent, according to IATA’s statistics. But for Q2 of 2014,

volume was up by 7.2 percent, with projects for the rest of the year of a little

more than 5 percent increase in the U.S. and 4-6 percent increase in interna-

tional, Mark McCloud, UPS Airlines CFO, says.

Export volume growth was up 9.1 percent, with the strongest growth coming

from Europe and Asia. “We’re really excited about expanding service to custom-

ers in emerging markets in Asia, the Middle East, Europe and the Americas,”

McCloud says. “We’re keeping a close eye on emerging markets, and have cre-

ated a business unit focused on developing opportunities in the Indian subconti-

nent, Middle East and Africa.”

UPS Airlines is promoting free trade agreements (FTAs) including the Transat-

lantic Trade and Investment Partnership – a FTA between the European Union

and the U.S. – and the Trans-Pacific Partnership – a FTA between 12 countries

in Asia Pacific and the Americas.

“By reducing barriers to trade, these FTAs have great potential for improving

the world’s economy, creating jobs and improving standards of living all over

the planet,” McCloud says.

UPS is also expanding its international facilities, including adding 70 percent

sort capacity to its European air hub in Cologne, Germany, and opening a new

Trans-Pacific hub in Taiwan.

Back home, Q2 saw UPS’ strongest domestic growth (+7.4 percent) in more

than a decade. The business-to-consumer segment drives most of UPS’ growth

in the U.S., McCloud says.

“This is fueled by the ever-increasing rise in e-commerce, and now, m-

commerce. In our most recent quarterly earnings announcement, we also

noted an increase in our B2B segment,” he says. McCloud reports substantial

growth in deferred services such as Second Day Air and Next Day Air Saver.

UPS’ Next Day Air Early A.M., which guarantees early morning delivery for time-

critical shipments, is growing, McCloud says. The carrier recently expanded the

service’s coverage area for the second time in five months.

Middle East

While Middle East-based carriers improved their tonnage figures, the 2013

statistics showed that only Etihad Airways significantly jumped spots (from

No. 21 in 2012 to No. 16 in 2013). Emirates SkyCargo was the No. 3 carrier in

the world for total cargo, but No. 1 for international freight. The airline saw a

7.1 percent jump in scheduled freight tonnes carried compared to 2012.

Pradeep Kumar, Emirates senior vice president for revenue optimization and

systems, cargo, says the Middle East region continues to perform well. “In the

[Gulf Cooperation Council], infrastructure developments continue to drive the

need for materials and supporting logistics,” Kumar says. “This is particularly

noticeable in the UAE, Saudi Arabia and Qatar. A thriving and growing consum-

er society with spare capital to invest and a growing tourist industry, are all

signs of on-going positive momentum for growth.”

Ulrich Ogiermann, chief officer cargo for Qatar Airways (No. 13), also says the

Middle East is doing well. Qatar saw a 12.4 percent jump in its scheduled

freight tonnes carried in 2013.

Kumar of Emirates mentions solid growth in Africa and a comeback in the U.S.

Emirates recently started freighter flights to Atlanta and increased capacity

to Chicago. Kumar also says more export volumes are coming out of Europe

and points in Asia Pacific such as China.

Between September and October, Emirates will launch service to Oslo, Brus-

sels and Budapest.

Emirates SkyCargo is also expanding its cargo handling facilities at Dubai

International Airport. It is slated for completion by May 2015.

In addition to pharma, Ogiermann says Qatar also sees growing demand in the

charter business, especially in construction, livestock and oil and gas. He says

the airline is almost doubling its charter flights year over year. Qatar Airways

is upgrading services to Vienna, Moscow and Perth, Australia, between Sep-

tember and October. Beginning in November, the airline will increase opera-

tions to Madrid.

Page 28 In Logistics

Asia

Korean Air Cargo was the No. 4 carrier in the world for total cargo. Its ton-

nage decreased by 6 percent compared to 2012. But Korean Air’s freight has

shown demand growth, says Byeok Jin Kim, general manager and team leader

of the airline’s cargo product marketing team. In Q1 of 2014, Korean Air Cargo

transported 285,961 tonnes, a 12.7 percent increase year over year. Korean

Air’s sales volume reached 2.9 trillion Korean won (US$2.8 billion), 1.8 percent

higher than that of last year.

“Although the growth rate of the air cargo market has somewhat slowed down

due to the stagnation in emerging economies such as China, Korean Air’s

second quarter sales outcome is expected to be 1.6 percent higher than that

of the first quarter,” Kim says. “To cope with the decrease in industrial prod-

ucts cargo, Korean Air is actively engaged in the development of niche mar-

kets like fresh cargo and pharmaceutical cargo.”

After the signing of the Canada-South Korea FTA in March, Korean Air began a

cargo route between Incheon and Halifax, Canada, to transport live lobster.

“As the demand for fresh cargo is diverse according to the region and season,

there is a need to develop new demand through an in-depth analysis,” Kim

says. “Such development of the fresh cargo market will be the driving force in

the growth of the airfreight market.”

Cathay Pacific Airways remained in its No. 5 position for total scheduled

freight tonnes carried, though its tonnage decreased by 2.1 percent compared

to 2012. In the first half of 2014, the Cathay Pacific Group, which includes

Dragonair, reported cargo revenue rose by 3.4 percent year over year. Yield

decreased by 6.9 percent.

“Overcapacity in the industry remains a major concern and has made it diffi-

cult to increase rates,” Cathay said in its report.

The airline has concentrated on branching out. Its subsidiary Cathay Pacific

Services Limited officially unveiled the Cathay Pacific Cargo Terminal at Hong

Kong International Airport in February. With an annual handling capacity of 2.6

million tonnes, the new terminal is a common facility serving all airlines at

Hong Kong Airport.

Europe

Overall, European carriers slipped in the IATA rankings compared to 2012.

Lufthansa was the top European cargo airline, but it fell two positions to No. 12

this year. Its total tonnage remained virtually unchanged.

“What we see is 2014 is not the best cargo year in history,” says J. Florian

Pfaff, vice president area management Germany, at Lufthansa Cargo. “It’s now

a few years in a row that we don’t really see a recovery in the demand for air

cargo worldwide. There are obviously some regions where we have better

development than others, but if you see it from a global perspective, we are

not content with the overall business climate we’re in.”

Pfaff says Germany fares well for Lufthansa Cargo, but other places in Europe

such as Italy and Scandinavia are declining. Though the airline sees some

increases lately out of Asia, Pfaff says it remains to be seen whether it is

sustainable. Overall, Latin America is stable. Pfaff says Lufthansa Cargo is

concentrating on its growth area: special products such as express, pharma-

ceuticals and dangerous goods. General cargo is not doing as well. “That is the

product where we see the biggest decline,” he says.

Lufthansa’s winter route schedule will be released by the beginning of Octo-

ber. Pfaff says twice a year, Lufthansa management from around the world

meets for network day. The executives review the airline’s routes, including

those served by freighters, and explore whether these are profitable. “We

react on the market demand,” Pfaff says. “That’s why we have reduced capac-

ity when it is necessary.”

British Airways’ IAG Cargo (No. 18) saw a 5.7 percent decrease in total ton-

nage in 2013. During Q2 of 2014, IAG Cargo’s revenue fell 12 percent compared

to the same period last year. IAG Cargo attributed this to the airline’s move in

May to use capacity on Qatar Airways-operated freighters, in the process

returning three B747-8 freighters it had leased.

The airline said this reduced freighter program meant reduced capacity and

therefore diminished revenue. In the first half of 2014, Lufthansa increased its

load factors to about 70 percent. Pfaff says capacity management is im-

portant for the airline. “I think that is the big task we have at Lufthansa Cargo

in order to remain profitable,” Pfaff says.

Page 29 In Logistics

Page 32 In Logistics

Supplier Watch

UPS expects rates to rise as air cargo enjoys first peak in

years

A ir cargo out of Asia is seeing its first peak season in five years, and better capacity management among cargo carriers is set to push up freight rates into

the last quarter.

Steve Flowers, president of UPS Global Freight Forwarding, told JOC.com the giant integrator was recording double-digit growth in air freight volumes

with solid demand from developed markets, especially those in North America.

“The two major air cargo gateways in Asia of PVG (Shanghai Pudong) and HKG (Hong Kong) are showing significant growth in year-to-date figures and at UPS we

are seeing a similar trend,” Flowers said.

“We have double digit growth through the first half of this year and expect that demand to continue, and are expecting the first peak since 2009.”

Shanghai Pudong International Airport Cargo Terminals Co. Ltd reported 23 percent growth in air freight throughput in July year-over-year, while the latest

figures show exports at Hong Kong Air Cargo Terminal Ltd in August grew 30 percent year-over-year to the U.S. in August and by 31 percent to Europe.

However, as container shipping lines can confirm, greater volumes do not mean an improvement in profitability unless the freight rates go up. Air cargo carrier

profitability is determined by yield, and that has been depressed because of weak volumes and a glut of belly cargo space coming into the market as airlines

upgrade fleets to newer and more efficient aircraft.

In fact, Cathay Pacific director of cargo James Woodrow said the yield fell by 6.9 percent during the first half of the year. “We are not in the business just to

carry kilos, we are in business to make money, so we also need to see yield increasing, and that in the last three years has been very tough,” he said.

Flowers believes this situation is about to change with indications of the tightening of air cargo capacity and increasing air freight rates.

“Based on our proprietary UPS model using published IATA data, we have seen regularly scheduled main

deck capacity flying direct out of Hong Kong reduced by double digits during the months of May to Septem-

ber versus the same period last year. This, combined with demand increases, indicates a firm up of airline

rates in the second half of the year,” he said.

Asia's major airlines have 28 parked freighter aircraft, mostly 747s, with Cathay Pacific retiring the last of

its old 747-400s in the past few weeks. It operated the final flight of its last 747-400 on Aug. 31, on its San

Francisco-Hong Kong route and uses 777-300ERs on the trans-Pacific passenger routes. The Hong Kong

carrier has upgraded its all cargo planes to new 747-800 freighters, known as the Dash-8.

IATA said it expected a 14 percent increase in 2014 of deliveries of new twin-aisle aircraft with belly hold

capacity, adding downward pressure on aircraft utilization rates ahead. But the industry association noted

that there was positive sentiment about an improvement in yield.

“Heads of cargo surveyed in July expect stronger growth in traffic volumes over the next 12 months as well as some increase in cargo yields,” IATA said in a

report released this week.

Flowers said while the tonnage out of Shanghai and Hong Kong was the largest in the region, UPS was seeing strong demand for coverage from other emerging

Asian markets.

“The migrating of manufacturing is changing the regional dynamics and we are starting to see significant increases out of places like Vietnam,” he said.

UPS is the world’s eighth or ninth largest airline, “depending on which day it is”, said Flowers, but that enabled the integrator to shift its aircraft to wherever

there was demand.

“Asia is a very important market for us and it is constantly moving depending on where the opportunities are. Having our own assets means we are able to move

with those markets,” he said.

Falling freight rates carry hidden risk The outlook for shipping rates looks set to be favorable for months to come, but buyers should keep an eye on the

health of the shipping industry.

IN Ocean Freight

Key Takeaways

1) Buyers are very likely to enjoy

relatively low container rates for

the rest of 2013, due to industry

overcapacity.

2) Shipping companies capitalize

on low vessel prices by investing

in new container ships, despite

adverse market conditions.

3) Maersk Line reveals pessimis-

tic future outlook.

I t seems container ships have been carrying around lots of hot air this year. Witness the especially economi-

cally important Asia-Europe route, where average spot rates for freight fell 55% in the second quarter this

year, according to Xinhua, the official press agency of the People’s Republic of China. Even rates on trans-

Pacific routes registered a decline of 15%. Weaker demand than expected and overcapacity has led to this price

plunge.

What is good news for buyers and importers of goods, however, is bad news for shipping companies. As of

2nd August, 2013, the Shanghai Containerized Freight Index (SCFI) was at 1162.75, which is 74.3 points up on the pre-

vious week. The SCFI reflects the spot rates for export containers from Shanghai to all major regions in the world.

Container rates from the China Containerized Freight Index (CCFI), which functions as an important indicator for

China’s export container transport market, have also been rising since the beginning of this year.

However, these major shipping rate indices only show small improvements and are still far below 2012 levels. Pre-

crisis rates from early 2008 seem totally out of reach. Low spot rates are the result of temporary oversupply

situation in the global container shipping industry. While major container freight indices have been experiencing high

levels of volatility, the Baltic Dry Index (BDIY), a major price index for the dry bulk segment, has been on a more

stable trajectory since the beginning of 2012 and enjoys a far more optimistic future outlook.

According to a statement published on the website of the Ministry of Industry and Information Technology, Chinese

new ship orders rose by 113.2% in the first half of 2013. Furthermore Golden Destiny, a ship broker, reported that

new-building order activity of vessels has been at a high rate this year. Buying new ships in such market conditions

seems to make no sense for carriers, at first glance; not only freight rates, but ship prices too are very affordable

at the moment.

Shipping success

Considering the high capital expenditure required, shipping companies can very much welcome low ship prices. This

expense can represent half of the total life span costs of a ship, which can be 20 to 30 years. Capital cost therefore

significantly determines the profitability of a ship. The major operational costs of a ship constitute port fees, labor,

fuel, and other costs.

Given that it takes two to four years from the placement of an order to the actual delivery of a ship and carriers

expect demand for container shipping to generally go up, carriers need to think way ahead and exploit low prices for

vessels. Competition among liners remains very intense since no one wants to lose its key customers to its compet-

itors, further justifying low spot prices.

Investing in larger vessels, in particular, can be a very important part of a carrier’s strategy since shipping costs

per TEU reduce significantly as the size of the ship increases. Considering that demand is expected to pick up in the

future, investing now is a sensible move for those with a long-term vision.

From 2007 to 2012, the average capacity of a container vessel increased by 27%. Maersk, the world’s

largest shipping company and often used as a bellwether of global trade, has just introduced the world’s

largest container ship, the Triple-E class. This new four 400 metre long ocean giant, with a capacity of

18,000 20ft containers, has commenced operations on the vital Asia to Europe route. The new vessel

promises a 30% reduction of unit costs, assuming the ship will be fully loaded.

An on board waste heat recovery system will save up to 10% of the engine power. Furthermore, it is

supposed to emit 50% less CO2 per container than is average for vessels operating on the world’s busi-

est trade route, the Asia-Europe route. So far no major easing of the current market situation is in sight

for the second half of this year, especially not on the Asia-Europe trade route. According to CIMB Re-

search, European imports are forecast flat while full year U.S. imports are expected to grow by only 3%.

Sinking rates

It is very likely that buyers will be able to enjoy relatively low spot rates for the rest of the year, unless major shipping lines will not reduce capacity collectively.

Apparently Maersk has placed 20 orders for its new Triple-E class ocean giant. However, Søren Skou, chief executive of Maersk Line, said, it would not increase its

capacity on the Asia-Europe route, as it would put older vessels out of operation.

Skou unveiled a very pessimistic future outlook for the global container shipping industry. According to him, the weak demand outlook is not only due to the general-

ly faint growth predictions for the global economy.

But there are two main developments that rein in growth rates of the container shipping industry. First, ’Offshoring’ of European and US production to Asia seems

to have reached its peak and even ’Re-shoring’ seems to have become an established business term. Second, the trend towards containerization, which means the

increasing transportations of goods via boxes, has gradually run out of steam. Almost everything that can be carried over the ocean via containers is already being

transported via containers.

Flexibility to tackle shifting markets

Supply chains will have to become more flexible and transparent to respond to major changes in global marketplaces.

Global manufacturers have traditionally located their production

sites in low-cost sourcing destinations, such as China where they

can take advantage of lower costs.

However, while these low-cost destinations remain cost-

competitive, they are witnessing a rise in labor costs, which is

starting to make companies think twice about investing in these

markets and move once more to consider shifting production back

to more established markets whether in Europe or North America.

This trend has been described as near-shoring, on-shoring or re-

shoring, but it will also not be timeless.

Ever changing demographics, markets, weather conditions as well

as changes to the political landscape, access to natural resources,

labor and infrastructure could all lead to the relocation of parts of

the supply chain. Therefore, the supply chain strategies of the future need to have flexibility and adaptability at their core.

Aside from the changing nature of manufacturing regions, another major shift that procurement chiefs need to be aware of is the increasing complexity of supply

chains, which has resulted in more supply disruptions.

According to the ’2013 Third-Party Logistics Study’ by Capgemini, 15% more companies reported supply chain disruptions compared to the 2009 study, mainly as a

result of supply chain extensions and just-in-time approaches. Another report, Supply Chain Resilience 2011 by The Business Continuity Institute, found that 75% of

companies only monitor their tier-one suppliers, even though 39% of supply chain disruptions occurred at the tier-two stage.

Page 34 In Logistics

Market Watch

IN Ocean Freight

Asia-Europe spot rates tumble to $750 per TEU

Spot freight rates on the key Asia-north Europe trade are reported to have slumped to just $750 per 20-foot container, down more than

$1,000 since the beginning of the year.

The rates being offered by carriers for westbound shipments represent a big gap with the latest figures from the Shanghai Container-

ized Freight Index, which put the spot rate at $908 per TEU. The SCFI spot index was down $147, or nearly 14 percent, from the previous

week.

The SCFI tends to lag the market, suggesting further declines are likely in the coming weeks. “We are

hearing spot rates in Asia are being offered as low as $750 per TEU for [the] Asia-North West Europe

route,” said Ricky Forman, a derivatives broker with London-based Freight Investor Services.

Spot rates on the Asia-north Europe trade began the year at $1,765 per 20 foot container.

The steep rate slump has taken carriers by surprise. They had expected a surge in cargo volume ahead

of China’s Golden Week holiday, Oct. 1-7, when the nation’s export industries shut down.

The spot market affects carriers’ bottom line more than it did even a couple of years ago, because container lines are shifting more of

their business from long-term contracts. Maersk Line, the Asia-Europe market leader, has a 50-50 split between spot rates and con-

tracts of up to one year across all trades, Chief Executive Soren Skou said recently.

With a break even rate of around $1,000 per TEU, most carriers risk losing money on the westbound leg in the fourth quarter.

The deepening market slump comes as carriers are preparing to implement general rate increases in the coming weeks. Maersk plans to

hike rates from Asia to north Europe by $450 per TEU on Oct. 1. Hapag-Lloyd has announced a $550-per-TEU increase on shipments to

north Europe and the Mediterranean.

G rowing delays in the intermodal rail

connections between major India

ports and Delhi are promoting

carriers to raise previously

announced congestion surcharges.

Hapag-Lloyd has increased its “on-carriage

congestion surcharge” imposed earlier on

import cargo handled at India’s leading ports

of Jawaharlal Nehru (Nhava Sheva) and

Pipavav to compensate for the extra costs

caused by months-long intermodal delays.

The Hamburg based carrier in a notice to

customers said it will charge $125 per 20-

foot container, effective Sept. 22 in non-U.S.

trade lanes, and Oct. 15 in U.S.-related

service routes, up from $25 per TEU levied

now.

The surcharge applies to shipments

discharged at terminals in Nhava Sheva and

Pipavav for final delivery at Tughlakabad

inland container depot, near Delhi, which

handles the majority of northern hinterland

traffic.

Singapore-based APL last week issued a

similar notice, raising its surcharges on

Tughlakabad-bound cargo to $225 per TEU

and $300 per FEU, from $100 and $200,

respectively, as applied earlier.

The Mumbai-Nhava Sheva Ship Agents’

Association, which has been spearheading

India intermodal delays prompt new carrier surcharges

the cause of port users, in a recent

statement urged government agencies to

step in and find a way to expeditiously clear

up clogged rail yards at the ports of Nhava

Sheva, Pipavav and Mundra, where the

import backlogs reached around 40,000

TEUs as of Sept. 12.

“As a result, vessels are not able to finish

their moves in the given window hours,

leading to delays in berthing and sailing.

Consequently, one of the terminals at

Jawaharlal Nehru Port had to impose

restrictions on handling the incoming volume

of ICD containers,” MANSA said.

According to MANSA, which represents the

entire ship agents’ community at Nhava

Sheva and Mumbai, yard congestion is

exacerbated by a shortage of train

deployments by state-owned Container

Corporation of India in the northern corridor,

which have averaged 11 to 12 services per day

over the past week, versus a trade demand

of 16 trains per day, and this in turn is

putting pressure on the container terminals

as well as landside infrastructure.

“Since Concor has not been able to increase

the number of trains, private container train

operators should be allowed to deploy their

rail cars in this sector (in the) interim, until

the situation returns to normal levels,” the

association said. "If no remedial action is

taken urgently with the intervention of the highest authorities,

the shipping trade will then have to pay heavily toward

additional ground rent charges, coupled with increased vessel

turnaround times and delayed vessel berthing/sailing.”

Ocean cargo carriers face another challenge: manning vessels

Owners and managers need seafarers – and they want experience, expertise and quality. However, they do not have the resources to fund substantial rises in re-

muneration. In recent years owners and managers have been heavily cost focused as weak freight rate earnings have yielded poor returns.

Manning has become the natural target for cost cutting, being the single largest element in ship operating costs, with officer recruitment being directed towards

the lowest cost source.

Drewry estimates the current officer supply to be 610,000, representing a shortfall of 19,000 personnel. This shortfall is forecast to rise to 21,700 by 2018 given

that there will be a requirement for an additional 38,500 officers by this time.

“While ratings (crew) remuneration packages tend to follow International Transport Workers Federation (ITF) standard terms, officer earnings are more market

driven,” says Drewry’s managing director Nigel Gardiner. “Manning costs look set to come under renewed upward pressure, putting a further squeeze on profitabil-

ity unless owners are able to push freight rates higher.”

However, there is less supply pressure with ratings and this will have a moderating influence on wage negotiations currently underway between the ITF and Interna-

tional Bargaining Forum, which represents employers. The other factor in owners’ favor is that most seafarers are paid in U.S . dollars. When converted to domestic

currency, seafarer earnings tend to compare well with other occupations.

“But the shortage of officers remains, especially among senior engineering ranks and for specialist ships such as LNG carriers,” warns Gardiner. “There is also a

general drift towards shorter working tours and increased benefits which is putting further pressure on supply.”

The current shortage of officer corps seafarers is forecast to worsen and risks impacting ocean cargo carrier profitability, according to Drewry’s recently published

Manning 2014 Annual Report.

Market Watch

W estbound trans-Pacific carriers

expect container availability to

increase in the next three weeks

at most key U.S. intermodal hubs,

according to a weekly U.S. Department of

Agriculture survey.

The USDA’s Agricultural Marketing Service

compiles the Ocean Shipping Container

Availability Report from data voluntarily

Container availability rising, Ocean carriers say

provided weekly by six container lines that

belong to the Transpacific Stabilization

Agreement, a carrier research and

discussion agreement.

The latest data show expectations of

increased container supply in most locations,

except for a handful of points including the

Pacific Northwest, Oakland and Minneapolis.

Deficits are forecast for 40-foot dry boxes in

Houston and 40-foot high cubes in New

Orleans.

Of 18 locations surveyed, average weekly

availability in three weeks is expected to be

higher for 40-foot dry boxes at 14 locations,

for 40-foot-high cubes at 13 locations, and

for 20-foot dry boxes at 12 locations.

The carriers said container availability for

the current week in Chicago included 1,315 40

-foot dry containers, the highest total since

July 2012, and 2,621 dry 20-footers, the most since July 31,

2013. Availability in three weeks is forecast to rise to 1,884 dry

40-foot boxes, 3,564 20-footers and 4,393 high-cube 40s.

At Dallas, an important hub for cotton exports, the carriers

said current-week availability was 776 40-footers, 747 20-

footers, and 2,921 high-cube 40-footers. Availability in three

weeks is forecast to rise to 1,489 40-foot dry containers, 1,337

20-footers, and 4,520 high-cube 40s.

O perating costs for ships calling at Chennai Port, a major state-owned cargo hub on

India’s southeastern coast, will go up steeply beginning on Oct. 1 in response to a

tariff increase decision by port regulator Tariff Authority for Major Ports.

“Considering the deficit position depicted by the cost statements for the period from

October 1, 2014, to March 31, 2016, this authority has accorded approval for an across-the-

board increase of 42 percent in the existing scale of rates of Chennai Port Trust,” TAMP said in

India plans big increase in Chennai port fees

its ruling.

The hike mainly comprises marine dues, such as berth hire and pilotage fees, as well as cargo-related charges, covering stevedoring, demurrage and wharfage

fees.

The new rate scale is set to remain in force until March 31, 2016.

The Chennai Port Authority encompasses two container facilities -- DP World-managed Chennai Container Terminal and the Chennai International Terminal operated

by Singapore-based PSA International -- with a combined capacity of 2.2 million 20-foot-equivalent units. The CPA board earlier this year gave the port the go-

ahead to start exploring the prospects of developing a new multi-purpose terminal through private participation after the authority was forced to abandon a much-

hyped 4-million-TEU terminal plans following lukewarm interest from potential investors.

CPA recently also ended a plan to add container capacity by converting one of its existing bulk berths into a minor container facility because of a lack of response

from pre-qualified bidders.

Chennai handled 1.47 million TEUs in fiscal year 2013-14, which ended in March, down 5 percent year-over-year, with total yearly throughput estimated at 51.1 million

tons.

Market Watch

Page 37 In Logistics

Slower Growth

Rate for Global

Ports in 2014Q2

Due to lower trade volumes to and

from emerging markets in Asia, ports

around the world overall saw weak

performance in the second quarter

of 2014

S hanghai Internation-

al Shipping Institute

(SISI) recently re-

leased the Global Port Develop-

ment Report 2014Q2, which

shows that due to the lower

trade demand by emerging mar-

ket countries represented by

Asia in 2014Q2, global ports suf-

fered weak performance in gen-

eral and came to a “slow lane”

of growth.

In this quarter, developed econ-

omies including Europe and the

US have maintained a steady

recovery thanks to industrial

rejuvenation and policy incen-

tives, while emerging economies are facing challenges such as the lack of long-term growing mo-

mentum. This brings down the growth rate of international trade and slows down the expansion

of global ports, whose growth decline may continue in Q3.

I. Growth of cargo throughput at global ports decreases and domestic trade at Chinese ports

at a low ebb

In Q2, the cargo throughput of main ports worldwide maintained an uptrend but at a notably slower

rate, and the fluctuation and differentiation of different ports became more serious. What’s with the

faster regional economic integration and with the promotion of short-distance purchase mode,

medium- and small-sized ports have developed rapidly and regained the leading position. After

the bad weather, the American economy had a robust rebound this quarter and main ports kept a

more than 4% growth rate in general, while European ports have maintained an over 2% growth

rate since the beginning of the year thanks to the continuous economic recovery. However, ports

in China and other emerging market countries in Asia suffered a slower growth of cargo throughput

to less than 5% under the double pressure of slower foreign trade growth and insufficient internal

drive.

Competition among major traditional ports intensifies and growing momentum slightly weak

According to the ranking of global ports in H1, the top three ports are firm in their position with an ob-

vious distance from each other, while the ranking of following ports changes frequently because of

fierce competition. Under the background of slower international trade growth, a series of new trends

such as the short supply of goods, scale-up of ships and development of pivotal ports is intensifying

port competition. As the re-industrialization in Europe and the US and the urbanization drive in China

both rely on such

bulk commodities as

mineral and energy,

there is still vast

room for the de-

velopment of bulk

ports and energy

ports like Ningbo-

Zhoushan, Tangshan

and Hedland.

Slow expansion of Chinese and Korean ports may become normal status

In H1, Chinese ports above the designated scale handled 5.49 billion ton cargoes, up only

5.2% year-on-year, which is nearly half the 9.9% growth rate from a year earlier. This is mainly

caused by the sharp growth decline in the domestic trade throughput. As the Chinese economy is in

the special period when growth is shifting gear, restructuring is facing throes and incentive

policies earlier on are being digested, the “new normal” that internal drive will be insufficient

for a period to come will put greater downward pressure on the ports.

The Korean market had a sluggish demand in Q2 and growth rate of imported and trans-

shipped cargoes took a nosedive. As coastal ports in China become increasingly international and

open, the role of Busan and other pivotal ports will weaken. They may find it difficult to keep the two-

digit growth rate of transshipped cargoes as before, and low-speed and slow-paced growth will be the

main trend for Korean ports in the future.

European and American ports continued growing momentum in Q1

The multiple trade agreements among European and American developed economies and the

continuous upswing of domestic manufacture have promoted business and trade exchanges

within the region and enabled the ports to continue the slight growth in Q1. Energized by the European

central bank’s easy monetary policies such as negative interest rate, European ports have ba-

sically walked out of the “negative growth” that lasted several years after the financial crisis.

On the other hand, the 4%-or-so year-on-year growth of main American ports couldn’t be

mentioned in the same breath as the 13.16% growth rate a year earlier, but the tapering of QE

hasn’t seriously impacted the economy. The improving economic and trade situation makes it possible

for those ports to maintain positive growth in the future.

Australian ports grow even faster

The Australian economy developed steadily with a high-speed GDP growth in Q1 and a sound

growing trend in Q2. Its domestic consumer market has been improved, employment bettered, and ex-

port increased, with only the manufacture performing poorly. But this didn’t affect Australian

ports that are focused on the export of energy and bulk commodities, and they continued to grow at

a high speed thanks to Australia’s rising mineral production capacity and the growing demand from

China and other emerging market countries.

II. Container throughput increases at faster pace and high-speed growth spreads

Cross-border investment and merchandise trade remained active in all countries in Q2. The shipping

volume on Europe-Asia, Europe-US and trans-Pacific lines all maintained steady growth, and

container throughput at main ports in Europe, the US and Asia all grew faster than 5% in general.

Among them, the container throughput at ports in Shanghai, Singapore, Hong Kong, Rotterdam, Ant-

werp and Los Angeles increased obviously faster than a year earlier, and ports of two-digit

growth such as Ningbo-Zhoushan, Inchon, Los Angeles and Santos kept appearing while the

number of ports of negative growth was decreasing.

In the port ranking of H1, all ports achieved growth to varying degree except for the slight decline at

Shenzhen port, and neighboring ports overtaking each other was a frequent phenomenon. In

particular, competition among nearby ports of transshipment and among hinterland gateways is on

the rise.

Growth of Chinese ports slows down and container throughput at inland ports enters low-speed

period

In H1, Chinese ports above the designated scale achieved a container throughput of 96.70 million TEU,

up 5.7% year-on-year, which is slower than the 8.3% from a year earlier. Among them, in-

land ports completed 9.57 million TEU with a much slower growth rate than last year, falling to the

range of negative growth, while container throughput at coastal ports increased only 6.9% to 87.13

million TEU. Signs of this round of container throughput decline at inland ports appeared last

August, whose container growth lingered in the negative range ever since except in January 2014.

In comparison, container throughput for domestic trade remained the main driver of Chinese ports’

growth. In H1, container throughput growth at ports nationwide dropped sharply. Although car-

go throughput for foreign trade is larger than for domestic trade, container throughput for domestic

trade has accounted for 37.1% of the total port throughput as China keeps developing its do-

mestic container transportation, and container for domestic trade has also become the engine for

coastal ports to expand their container throughput.

Container throughput at European and American ports rebounds drastically

The departure of bad weather and the rapid expansion of physical industry such as manufacture in Q2

boosted port operation in the US and drove the overall growth of main ports to exceed 7%,

not only overtaking that of Asian ports, but also leading the recovery of container ports around the

world. Among that, the port of Los Angeles completed 2.13 million TEU with its growth rate

jumping to 10.8% from -17.1% last year.

The European economy maintained a slight growth, the expansion of trade surplus sent posi-

tive signals, and investment in large ships and shipping demand mildly picked up. All these factors gave

a fresh impetus to the container throughput at European ports, and the 6% growth of container

throughput on the Asia-Europe lines of Chinese ports in H1 further consolidated the recovery of Euro-

pean port and shipping industry.

III. Dry bulk ports perform similarly this quarter

Bulk cargo ports focused on coal and iron ore still grew to varying degree in this quarter.

The concentrated shipment of iron ore in Q1 drove the port inventory to a high level, but the supply de-

creased month by month in Q2, and the lower coal price led to a limited recovery of coal shipment.

Therefore, the differentiation among bulk ports of different cargoes was alleviated to some extent.

Booming iron ore demand in emerging market countries

The iron ore market remained hot and both trade and shipping volume increased in Q2. China’s iron

ore import increased 18.31%, which was driven by the falling iron ore price and financing mines, keep-

ing the port inventory on a high level.

Mild recovery in coal shipping market

Global coal supply and demand was mildly improved in Q2, but downstream consumption remained

weak, and the market remained on a low level. China’s coal import increased a mild 0.9% to 160 mil-

lion tons, which, combined with domestic coal transportation, gave the coal throughput at national

ports a slight 4% growth in the first five months. On the other hand, the Richards Bay port made a

turnabout and shipped 15.95 million ton coal, basically on a par with a year before. The Rotterdam port

handled 14.59 million ton coal in H1, up 9.48% year-on-year.

Panama: Leveraging Opportunities Beyond the Canal

I t's not only shipping lines, railroads, logistics service providers,

and multinational firms that want to know to what extent the

Panama Canal expansion project will affect business. Every

company will be affected plenty, and must be prepared to modify exist-

ing distribution operations to reflect the changing world.

Why will the Panama Canal expansion have such an impact? Look at the

project in context with the following opportunities currently taking

shape in Panama.

In 2011, Panama and the United States signed and implemented a free trade

agreement. That agreement resulted in significant liberalization of trade and

related services, and presented commerce opportunities for other countries

that have free trade agreements with the United States.

The opportunity to build and expand open, transparent, and meaningful relation-

ships between the United States and Panama became available as stronger

awareness developed about the advantages and uses of the agreement.

The expansion of the Panama Canal doubles its capacity. Greater numbers and

larger sizes of ships will be able to pass through the expanded canal. Outside

Panama, the expansion is creating demand on the U.S. East Coast for ports able

to handle post-Panamax ships.

The expanded canal will allow Panama to serve as the logistics hub of the Ameri-

cas, as the Panama Canal Authority announced during MODEX 2012. In that

sense, the new canal is not as much about capacity as it is about connectivity.

Suppose a ship from Asia is carrying containers bound for one dozen countries

in Latin America, the Caribbean, and North America. It isn't practical for one

large vessel to go to all of these ports, so containers may be off-loaded in Pana-

ma. Smaller ships could then transport the containers to their required destina-

tions.

This scenario also raises an opportunity for any company looking to expand its

sales abroad: coordinating with shippers, ports, and logistics companies to fill

the delivered, empty containers with increased exports.

Will Panama be the next global logistics hub? With its geographic location, dol-

larized currency, free trade zones, and the canal, Panama is already the pre-

ferred distribution hub of Latin America. Building links to U.S. businesses and

logistics hubs will be critical to building future relationships.

To improve efficiency and reduce costs, companies will buy compo-

nents from the places where they can be most efficiently manufac-

tured and transported. Businesses may find it better to have parts

manufactured in different countries, then transport them to a central

assembly point. Panama is rapidly becoming such a center for assem-

bling, finishing, and packaging goods, as well as exporting them.

Additionally, Panama has been focusing on developing its logistics and

trans-shipment facilities for a long time. It is using its Pacific and

Caribbean ports, railroads, and highways to provide shippers with a

multitude of options when moving goods through the country and be-

yond.

Things are changing in Latin America, and it affects every business.

When planning or refining your distribution strategies, remember to

leverage the developments in Panama for a more streamlined, effi-

cient, and profitable bottom line.

Page 44 In Logistics

Future Outlook Ocean Freight Industry

This article is An excerpt From Recent Study Done by Sourcing Analytics team on Ocean Freight Industry: Visit our share point to download the complete MI report

Impact of Mega Trends

Growing container trade: We haven’t yet hit the peak of global trade volume, and the proportion of trade shipped in containers continues to grow, primarily

replacing bulk shipping.

Socio-economic changes: Congestion in the waters around the major port cities is likely to increase rapidly. this will leave ships waiting just offshore for longer

periods, presenting environmental problems.

Sustainability: Due to increasing shipping traffic the issue of global sustainability and especially the reduction of Co2 emissions has become more important.

stakeholders, customers, and regulators put more and more pressure on the container shipping lines to improve their environmental performance. For instance

Maersk targets a reduction of 25% of its Co2 emissions by 2020. one of its innovations is a new hull design optimised for low er speed allowing it to increase the

ship capacity scale by more than 16%, without requiring more engine power.

Larger vessels: There will be a trend towards larger container vessels. the biggest container ship currently operating can carry up to 18,000 containers. stX has

already designed a vessel capable to carry 22,000 containers. Due to economies of scale Co2 emissions and costs per TEU will fall. But these ships require deeper

harbours, longer piers and broader waterways. these giant new vessels will challenge port capacity due to their longer loading and unloading times. At some point

in the near future the size of vessels will reach a peak due to physical and economical constraints.

Adoption of the “Cradle-to-cradle” design philosophy in the container and vessel manufacturing process will be an essential part of the process to reduce the

environmental impact of shipping.

Propulsion alternatives such as fuel cell systems ensuring zero-emissions are currently tested on military ships and small feeder vessels. Broader use for larger

container ships is not expected before 2020 (see GL zero emission Container vessel).

The Market In Ten Years

The global market for maritime containerization is predicted to grow consistently and reach 731 millions TEU’s by 2017. this rise is made possible by the increasing

sea trade, developments in shipping networks and hubs, and investments in port terminal facilities.

Part-year arctic transit could become economically attractive due to the rapid thawing of the Arctic sea. According to a recent study by DnV a potential Arctic

trade of 1.4 million TEU is projected in 2030 for container traffic from north Asia.

Competition on major routes served by larger vessels between the big hubs might remain stable while smaller regional routes served by smaller ships experience

increasing demand caused by growing sea trade within the Asia-pacific region and between north and south America. this shift in competition could lead to higher

prices on small routes.

The Service in 2020

There will be a wider range of routes available as the market develops to serve emerging markets, developing countries and under served markets.

Services shift towards door-to-door rather than port to port.

Demand in 2020

According to Maersk Line the demand on the Asia to Europe trade is expected to increase by 5-8% per year during the period from 2011-2015.

The trade imbalance in the container flow between the Asian continent and the European continent is expected to grow further.

Growing demand for shorter and medium routes such as for north-south routes and Inter-Asia routes (India, China, Korea).

The demand for container services in 2012 is forecasted to grow only by 6.5%, compared to a growth of 8,3% for container ship fleet. shipyards are expected to

deliver 127 vessels of 1.23 million TEUs this year. the boost in new ships and especially in larger ones will lead to an overcapacity.

Page 46 In Logistics

Supplier Watch

Cosco signs $618 million deal for new ships

China Cosco Holdings will splash out $618 million on five 14,500-TEU vessels that will be built by CSSC’s Jiangnan Changxing Shipbuilding yard as the mainland’s

largest carrier continues to upgrade its fleet in an attempt to arrest declining profitability.

The giant shipping company managed to negotiate an attractive price for the vessels that will be constructed at $123.6 million each. The 15,000-TEU Emma Maersk

cost $145 million in the mid-2000s, and Maersk Line signed the deal for its 18,000-TEU Triple Es at $185 million apiece.

China Cosco made the new build announcement in a statement to the Shanghai Stock Exchange late Wednesday, saying the investment was intended to upgrade

the fleet and would be funded through internal resources and bank borrowings.

The carrier has been pushing out its order book recently and has five 9,400-TEU ships on order from Hudong-Zhonghua Shipbuilding that are being constructed

at a cost of about $90 million each.

The shipping line is not exactly flush with cash after racking up substantial losses in the past few years, although as a state-owned company and the mainland

flagship it has never been in any danger of going under. China Cosco did come close to being delisted from the Shanghai Stock Exchange last year, an embarrass-

ing ejection that would have been triggered by a third consecutive loss, by selling assets to its parent company.

However, in August, China Merchants Bank announced it was providing a three-year credit facility of $4.9 billion to China Cosco and its subsidiaries, giving the

line access to funding for its new build orders.

Upgrading its fleet to newer and more fuel-efficient vessels has become a priority for China Cosco and its container shipping division Coscon, and it has acceler-

ated its scrapping programme to take advantage of government incentives that encourage state owned lines to jettison older tonnage. In the first half, China

Cosco scrapped 31 vessels at a cost of the company of $147 million.

As of Aug. 28, Coscon’s fleet totaled 163 vessels, with capacity of 801,083 TEUs, according to industry analyst Alphaliner, making it the fifth-largest global con-

tainer carrier by fleet size. Its orderbook comprises six ships with a combined capacity of 60,386 TEUs, according to Alphaliner.

Will alliances spark more orders for big ships?

New global alliances of container ship lines could produce a retaliatory surge in large-ship orders by competitors in 2016-2018, according to a research report

by Bank of America Merrill Lynch analysts.

The report adds fuel to an industry debate over how carriers’ increasing cooperation in global alliances will affect ship capacity and rates. Some industry lead-

ers, such as Hapag-Lloyd CEO Rolf Habben Hansen, say fears of overcapacity are “exaggerated” and that alliances will stabilize capacity and support higher rates.

Bank of America Merrill Lynch analysts Paul Dewberry and Yasuhito Tsuchiya say that’s possible, but unlikely.

They said carriers have decided that in a commoditized mar-

ket, their future profitability hinges on use of large, fuel-

efficient ships that provide lower per-unit costs. The analysts

cited the influence of Maersk Line, which recently reported

first-half profit of $1.1 billion and has relentlessly pursued

lower costs and economies of scale.

“The superior performance of Maersk -- one of the first

adopters of the megaship -- appears to be merely reinforcing

the opinion of liner management teams that large megaships

of 14,000 TEU and above are necessary to compete on the key

Asia-Europe trade,” the analysts said in a research report on

Asia-Pacific carriers..

Maersk and Mediterranean Shipping Co.are seeking approval

of their M2 alliance, which would be built around high-volume

east-west routes using efficient ships with capacities of more

than 14,000 twenty-foot-equivalent units. This month, CMA

CGM, China Shipping and United Arab Shipping Co. unveiled

plans for a rival alliance, the Ocean Three.

The M2 and Ocean Three will enjoy economies of scale that

members of the existing G-6 and CKYHE alliances may face

irresistible pressure to try to match, Dewberry and Tsuchiya

said.

“Rather than rationalize capacity and improve discipline, we

believe the creation of large shipping alliances has embold-

ened smaller carriers to order additional capacity,” the ana-

lysts said. These carriers are “confident that their new megaships can be filled with partners’ volumes, when in isolation they could not contemplate acquiring

such large vessels.

“Given large disparities between the numbers of megaships ordered by each alliance, we believe that a further round of megash ip ordering for delivery in 2016-18

is looking extremely likely,” the report said.

The possibility of a new surge in capacity comes as a slowing of ship deliveries has put container ship industry on the verge of its first period of sustained profit-

ability since 2010, when rates spiked as post-recession demand recovered faster than carriers could reactivate laid-up vessels.

The Bank of America Merrill Lynch report said container ship capacity is expected grow 7.3 percent next year, outpacing a forecast 5.5 percent rise in demand

growth, putting rates under pressure in 2015. But the report said that in 2016 capacity growth is on target to grow by a net of 3 percent, including scrapping of

older vessels -- assuming there’s not a spike in vessel orders.

Page 47 In Logistics

IN Road Freight

Further capacity tightness and rate hikes remain in the cards

for the truckload market

Market conditions continue to favor trucking carriers, due in large part to tight capacity, according to the most recent edit ion of the Trucking Conditions Index (TCI)

from freight transportation forecasting firm FTR.

The TCI reflects tightening conditions for hauling capacity and is comprised of various metrics, including capacity, fuel, bankruptcies, cost of capital, and freight.

According to FTR, a TCI reading above zero represents an adequate trucking environment, with readings above ten indicating that volumes, prices, and margin are

in a good range for carriers.

The TCI for July, the most recent month for which data is available, is 8.49, which FTR said is one of its highest points of 2014 and reflects increases prices and

service lapses due to the ongoing tight capacity in the truckload sector. And the firm noted that current truck utilization levels are within 100 basis points of rec-

ord levels, which it explained translates into any further economic growth and associated freight likely to strain capacity and subsequently increasing rates fur-

ther.

“When looking at the truckload market, for much of 2014 it has been a tale of two markets with spot activity very strong, especially in rates,” said FTR Director of

Transportation Analysis Jonathan Starks in a statement. “The contract market has been less robust but still showing signs of stress on capacity, costs, and rates.

You can expect to see those two markets merge this fall as a shipper’s core carriers get further stressed and contract rates move higher. The public announce-

ments of strong driver pay increases by fleets are a testament to this fact. Despite easing over the summer, spot rates are still elevated versus last year. Keep an

eye on spot rate as we head into September as they will be an early indicator of capacity shortages and stress in the system.”

Robert W. Baird & Co. analyst Ben Hartford concurred with FTRE, noting in a research note that spot truckload activity remains healthy because of the ongoing

truckload capacity tightness.

“Truckload industry regulatory changes and incremental driver recruiting challenges continue to limit available truck capacity,” he wrote. “Spot truck activity re-

mains above seasonal in 3Q14; and we believe industry rate growth needs to accelerate in 2H14 and 2015 to offset incremental inflationary cost pressures experi-

enced in 2014.”

Hartford added that he expects rate increases for committed capacity during the second half of the year to top the first half’s rate, explaining that anecdotes of

shippers’ willingness to secure capacity during seasonally weak July/August likely speak to both anticipation of expected capacity tightness in the fourth quarter of

this year and the likelihood of continued rate growth acceleration in 2015.

In Road Freight

MARKET WATCH

US freight volumes improving steadily

Carriers gaining market power but rates struggle to keep up with cost inflation.

US freight volumes are increasingly steadily in Q2, according to new

market data.

The latest edition of FTR’s Trucking Conditions Index (TCI) showed

"some positive" upward movement in June after moderating slightly

during the previous two months.

At a reading of 7.64, the latest index reflects an environment where

carriers are gaining market power but rates are struggling to keep up

with cost inflation. The index rose 1.9 points from May, but April and

May were substantially below the 8.35 average seen during quarter

one (Q1).

Jonathan Starks, FTR’s director of transportation analysis, commented: "The headline number of 4% for gross domestic prod-

uct growth (GDP) in the second quarter (Q2) is getting plenty of news but the real number for getting a sense of true demand

in this economy is the final sales component of GDP. It stood at 2.3% in Q2, well above the -1% seen in Q1 but noticeably

below the 3.5% it averaged during the second half of 2013."

He added that truck freight continues to show steady increases and the capacity situation is unlikely to loosen up any time

soon.

"These good developments are partially offset by slower than expected growth in contract rates. Spot market rates are still

elevated, although they have shown normal moderation during the summer months. We expect to see both spot and contract

rates continue to rise as we get into the fall shipping season," says Starks.

Details of the TCI for June are found in the August issue of FTR’sTrucking Update. It notes that, despite the slow pace of the

overall economy, the goods-producing sector that powers truck freight continues to enjoy a strong recovery.

DB Schenker: Transportation of freight by train, truck and plane from China to Brazil

For the first time ever, the logistics experts at DB Schenker have combined transportation by rail, road and air across three continents to organize a delivery for

an electronics manufacturer from China to South America.

In total, 21 metric tons of cell phone electronics were transported by rail from Chongqing in central China to Duisburg, Germany, via Kazakhstan, Russia, Belarus

and Poland. The next step was a truck journey to Frankfurt airport, from where DB Schenker sent the cargo by plane to Brazil.

The combination of rail, truck and air freight shortened the journey time from Asia to South America by almost four weeks compared with using ocean freight alone.

The 10,124 kilometer rail trip to Duisburg took 17 days. The goods spent a total of just 24 days in transit before reaching their destination in Brazil. The alternative by

ocean would have taken between 50 and 55 days.

The freight was labeled, X-rayed and securely packaged by DB Schenker's central hub at Frankfurt airport, from where it was sent to its final destination in Brazil.

DB Schenker in Brazil handled the customs processes and clearance.

"This first successful shipment combining rail, road and air freight has shown the growth potential of multimodal logistics," said Daniel Wieland, Head of Rail

Logistics & Forwarding at DB Schenker Logistics. Thomas Mack, Head of Global Air Freight at DB Schenker, added: "We are proud to pioneer this interesting

transportation option for the market in Latin America."

Trucking dominants US freight movements

US organizations continue to use trucks as the primary mover of freight across the country, a new report reveals.

The latest edition of American Trucking Trends, an almanac published by the American Trucking Association (ATA), notes that in 2013 trucks moved 69.1% of all

domestic freight tonnage, up from 68.5% the previous year.

The industry also collected 81.2% of all freight revenue, up from 80.7% in 2012.

Trucks move the majority of all the North American Free Trade Agreement trade, hauling 55.4% of trade with Canada and 65.4% w ith Mexico.

The trucking industry paid an estimated $37.8bn in state and federal highway user fees.

Bob Costello, ATA chief economist, said: "These numbers tell us what is happening in trucking and that’s important for industry leaders, suppliers and

policymakers.”

ATA president and CEO Bill Graves said: "This report shows once again what a critical role trucking plays in the US economy. Trucking continues to move the most,

and most valuable, freight in the US despite the challenges of congestion, regulations and crumbling infrastructure.

"Our industry’s growth in the face of continued road and bridge deterioration has been amazing, but it is time for our elected leaders to do their part to insure

that the highways we use to move America’s goods safely and efficiently are in good condition."

Could New Fuel Efficiency Standards

Lead to Transportation Cost

Savings?

I n February 2014, the Obama administration outlined plans for

improving fuel efficiency and reducing greenhouse gas emis-sions for American trucks. To support this effort, the Environ-

mental Protection Agency and U.S. Department of Transportation must

set new standards for medium- and heavy-duty vehicles.

The rules, which the agencies must issue by March 2016, will have ripple effects in a number of transportation-related industries. While over-the-road (OTR) trucks

represent just four percent of vehicles on the road, they account for 25 percent of fuel use and greenhouse gas emissions.

Whether shippers operate a private fleet or depend on outside carriers, the miles-per-gallon achieved by the fleet that delivers their freight heavily impacts final

landed cost. The average OTR truck travels more than 100,000 miles annually, and burns more than 16,000 gallons of diesel, typically in the six-miles-per-gallon

range, at a cost of about $4 per gallon.

The mandates are not aimed at carriers or shippers, however, but at original equipment manufacturers. For years, builders of the country's heavy OTR equipment

have toiled to meet increasingly demanding standards for reduced emissions.

From 2002 to 2012, the reduction in harmful emissions from new OTR equipment has been nothing short of exceptional. Current model year tractors produce 94

percent less harmful emissions than pre-2002 equipment. The focus now is on reducing CO2 emissions. The only way to do that is to burn less fuel.

SETTING THE STANDARD

The standards and proposed extensions call for an average fuel economy increase of 2.5 percent each year. This means that, as the nation's large fleets begin to

replace older equipment, trucks will consume less fuel to cover the same miles.

Major truckload carriers have already done the math and realized that investing in new trucks is a smart decision. When a half-mile-per-gallon improvement in fuel

economy equates to a monthly fuel savings of more than $400 per tractor, it's easy to understand why large carriers are investing in new assets and shortening

the average time they hold their equipment. In fact, the average fleet age for the top truckload carriers in the country is less than three years old.

The new fuel economy standards should mean more new trucks on the road sooner, and an overall reduction in fuel consumption. New concept models are already

achieving nine to 10 miles per gallon.

With many major corporations still holding on to large amounts of cash after navigating through the recession, investing some of that capital in new equipment

might be the biggest bang for their buck in a long time.

Some major shippers are even considering a return to private fleet operations because of the greater efficiencies available, both through equipment design and

operations management advances. That's especially true when you consider new flexible leasing structure options available from some fleet management compa-

nies, allowing companies to base equipment decisions on optimal truck performance, rather than simply running trucks as long as possible.

If you can adapt to this thinking, your company will be well-positioned to ride out the regulatory changes with minimal impact—and may even save on your bottom

line.

Page 51 In Logistics

Special Trucking Report: Collaboration is the game

Carriers are enjoying a solid 2014, but warn of a pending capacity crunch as driv-er availability worsens amid tighter federal regulations. Bottom line: Shippers who choose not to collaborate with their carriers and streamline operations will most certainly be hit with higher rates.

T he trucking industry is enjoying a financial renaissance

of sorts, and its leading carrier executives are saying it’s about time. After five years of so-so results follow-

ing the Great Recession, carriers report that they’re

finally getting some rate increases to cover the ever-rising

costs of doing business.

“ It’s good, but not great,” says Chuck Hammel, president of

the stalwart regionalless-than-truckload (LTL) carrier Pitt

Ohio. He says capacity is “running between balanced and

tight,” with rate increases largely dependent upon a ship-

per’s individual freight profile.

Bill Logue, president and CEO of FedEx Freight, the largest single LTL carrier in the nation, said in 2010 that his objective was to

get his company back to its historic double-digit margins. In its most recent quarter, FedEx Freight posted a 51 percent increase

in operating income—or a $41 million boost—pushing the compa-

ny closer to that internal profit goal.

Top carrier executives agree that their increased profitability may be a harbinger of future years. “From an overall freight

perspective, our focus is now on a good balance between yield

and volume,” said Logue.

On the volume side, the American Trucking Associations’ (ATA)

latest shipment statistics include an 8.9 percent year-over-year

surge in LTL shipments and a 4.6 percent year-over-year volume

increase for truckload (TL) freight. Top industry executives say

that those increases are likely to continue right into 2015.

On the TL side, Mark Rourke, president of truckload services for Schneider National, the nation’s second-largest TL carrier, calls

its second quarter demand “well above average” following a

tough winter. “It’s too late in the year to be called a weather

catch-up situation,” says Rourke. “Demand has not dropped at all.”

Independent analysts back up these carrier views. In her recent

State of Logistics Report, logistics industry analyst Rosalyn Wil-

son called trucking demands in the first five months of this year

the strongest since the end of the Great Recession in 2009.

Steve Williams, president and CEO of Arkansas-based Maverick

USA, a major flatbed carrier that operates 1,300 company-owned

tractors, says he could easily add 300-400 additional power

units—if he could find drivers. He is not alone.

“Capacity problems are being experienced in both the trucking

and rail industries as volumes grow,” says Wilson. “The impact of

productivity-

reducing truck regulations has exacerbated the driver shortage,

which further limits capacity despite the strong growth in the size of the truck fleet in 2014.”

Over the next few pages we’ll examine three major factors push-

ing up trucking rates and show how they’ll affect your shipping decisions over the next few years.

1. Driver shortage

In a nutshell, the driver shortage is bad and getting worse. By

most estimates, the industry could use between 20,000 and

50,000 additional drivers right now to augment the 3.6 million or

so long-haul drivers currently on the highway. However, that shortage could reach as much as 150,000 in a few years, ac-

cording to estimates by economist Noel Perry of FTR Associates.

According to David Ross, trucking analyst with investment bank-

ing firm Stifel, the lack of drivers is effectively the major capaci-

ty constraint in the trucking industry, not capital.

“In the conversations we’ve had recently with carriers, it is not

all about the money,” says Ross. “Carriers paying $45,000,

$65,000, and $85,000 in annual salary all have unseated trucks.

For some dedicated fleets, the driver shortage has become such

a problem that shippers have started awarding retention bonus-

es or pay increases to the drivers.

Carriers are trying everything. Some have started their own internal driving schools, while others, such as Con-way, have

stepped up recruiting ex-military personnel returning from Af-

ghanistan and Iraq. Some have instituted sign-on bonuses as high

as $5,000 for drivers who stay with their company as little as

one year.

Long-haul TL carriers have tweaked their networks to satisfy demands to get drivers home more frequently. Most have also

entered the short-haul—under 500 miles—regional TL market

and have expanded dedicated operations to satisfy those de-mands. But despite higher pay across the board, the driver

shortage continues to worsen because more drivers are retiring

than entering the industry, regulations are getting tougher, and

drug and alcohol testing is increasing.

“Getting trucks seated is very difficult,” says Rourke of Schnei-

der, a carrier that utilizes about 11,100 drivers for its 9,700 trucks hauling 30,600 trailers. “Capacity is always difficult, but it

certainly has ratcheted up in difficulty.”

Schneider is plagued not so much by driver turnover—in an in-

dustry where 100 percent turnover in a year is the norm—but by

lack of available compliant drivers. About 21 percent of Schnei-

der’s drivers are ex-military, a stat that has helped with compli-

ance. But to work on attracting new blood, the company has re-

configured its network to get drivers home more predictably and

has added more dedicated runs.

However, the shortage remains. “If I thought 10 years ago we

could get drivers home weekly, I would have thought we’ve solved the world’s problems,” Rourke explains. “But expectations have

changed. Now weekly has become daily.”

The big advantage LTL companies have is their hub-and-spoke networks that allow drivers to be home nearly every night. Most

LTL carriers also utilize a “feeder” system that identifies dock-workers that might be prime candidates for new drivers. But TL

carriers don’t use many docks, because they travel mainly from

point to point directly, so that feeder system is not available to

them.

“We have an excellent driver development program from dock

employees who look at FedEx as a career,” Logue adds. “We can self-feed our driving requirements. Our system is designed to

get drivers home every night, so we have an advantage there.”

The driver shortage is also the chief catalyst in the surge in in-termodal rail freight.Trucking companies are increasingly reluc-

tant to use a driver on a long-haul route with solid rail connec-

tions—say, Chicago to Los Angeles or Chicago to Portland—

because that driver can better be utilized elsewhere.

2. Mounting regulation

Shorter hours of service (HOS); increased testing for drug and

alcohol abuse; electronic on-board recorders to catch mileage cheats; and who knows what’s next.

Truckers say that if the federal government had set out on a plan

to place a lid on trucking capacity, the last few years of regulato-

ry overload could not have done a better job.

U.S. Chamber of Commerce President and CEO Thomas Donohue, formerly head of the ATA calls it a “regulatory tsunami.” Truck-

load carriers say that the effect of the new HOS regulations, requiring at least two 30-minute breaks for most drivers, has

effectively reduced their productivity.

According to a recent two part study conducted by Mary Hol-

comb, Ph.D., associate professor at the University of Tennessee, and Joseph Tillman, chief researcher of TSquared Logistics, with

the assistance of Logistics Management, the actual cut in

productivity has been much greater than originally figured.

Not surprisingly, the study of 891 participants, made up of both

shippers and carriers, reported that the type of truck transport

most affected by the rule change is long-haul moves, followed by

dedicated and short-haul moves.

Early in the implementation of the HOS rule change, many ship-

pers thought that the impact on productivity would be in the 1

percent to 4 percent range. According to the results of the most

recent study conducted in June, the reality is much more grim: Respondents now expect the loss will be somewhere between 3

percent and 9 percent, with many more shippers anticipating

that the deficit to be in the upper end of that range.

“It’s clear that the estimates of the impact on productivity were

significantly under projected,” says Holcomb.

And there are more regulations coming. Electronic on-board recorders, that are backed by most large carriers, should be mandatory in the next two or three years. The ATA says EOBRs

will “level the playing field” against those who cheat. The ATA is probably right, but there are also industry estimates that as

many as two-thirds of drivers cheat on their paper logs. If en-forcement becomes more rigid through electronic means, that

likely will mean a further tightening of capacity.

Truckers are also bracing for a proposed rule on speed limiters

that would hold carriers to around 63 mph to 68 mph. Consider-ing some trucks currently operate between 70 mph and 75 mph,

that is yet another hit on productivity. Sleep apnea testing may

also become a requirement, causing the driver availability issue

to worsen further.

3. Spot vs. contract rates disconnect

Nowhere is the dichotomy in trucking more evident than when

you examine the gap be-

tween spot and contract rates. While contract rates

are up between 2 percent to 4 percent over 2013,

spot, or non-contract rates, have surged be-

tween 10 percent and 15

percent in the same time.

Spot rates are a harbinger

because they track what is

happening in the most

recent weeks, as opposed

to contracts that typically

last a year or longer. Ac-cording to DAT Trendlines,

a data service that tracks

spot rates, the national

average spot van rate is

near a record high of about $2.10 per mile.

Analysts say that this clearly indicates higher rates for every-

one. Contract rates often “lag” the spot market because con-

tract renewals come up only every year or so. The higher spot

rates would seem to be driven by higher manufacturing output,

construction, and agricultural products, which overall is good

news for the overall economy.

Economist FTR’s Perry is predicting that contract rates will soon

be following the spot market lead. He’s reporting that second quarter contract rates were rising even as spot rates stabilized,

and is now predicting that the trend will continue at least

through the end of summer. In a recent analysis, he “sees no sustained softening of capacity conditions through 2016.” So,

shippers should brace for stiff rate increases for at least the

next two years.

Of course, how much rates will rise depends on every shipper’s

freight profile. Freight that is “driver friendly” with few delays in loading and unloading will be given a break, carrier executives

say, because every minute of delay is costly in the new HOS envi-

ronment.

On the TL side, Schneider’s Rourke sees “very solid” contract renewals. Although he declined to give specific rate increases, he

says that it’s “not only retention, but price performance is ex-ceeding what we had expected doing this year.”

Carriers say nearly every customer is concerned about capacity.

And with the U.S. industrial economy on a steady uptick, and is-sues about drivers front and center in everyone’s mind, increas-ingly carriers say shippers are willing to pay more to get ever-

tightening capacity.

Increasingly, reliability and capacity are taking on a greater role

at contract renewal time, carrier executives say. “A customer bases what’s important on quality

and reliability,” FedEx Freight’s Logue says. “They want to make

sure you can handle their vol-umes, and you are flexible and reliable. Those are the first things

in any rate discussion in most cases—then pricing comes into

play.”

What’s the bottom line?

According to John Larkin, the

veteran trucking analyst for Stifel,

the best trucking companies “are

morphing into supply chain opti-

mizers to for their customers.” And they’re doing this by offering

services a customer may need to

run an efficient supply chain.

Whether it’s full TL, LTL, intermodal, or some combination of all

three, carrier executives says shippers that collaboratively work

with carriers to aid their ease of doing business are nearly cer-

tain to get priority when it comes to peak periods of freight de-

mand.

With volumes back to where they were after slumping 25 percent

in the depth of the Great Recession, carriers can afford to be

increasingly choosy about their customers. As FedEx Freight’s Logue says: “Everyone is focused so that the industry doesn’t go

back to that kind of environment we saw five years ago.”

What’s the bottom line for shippers? Rates are rising, and will

continue in an upward track for at least the next two or three

years. Shippers who choose not to collaborate with their carri-

ers will feel the brunt of higher freight rates. However, when you

peel back all of the layers, hardly anyone using truck services is

immune in today’s regulated environment.

A Measure of North American Freight Volumes

SCFI is a weekly freight indices for fifteen sectors from Shanghai in USD per TEU or FEU

MULTIMODAL TRANSPORTATION IN INDIA

Being well-connected by road and by sea, India has seen a tremendous growth in multimodal transportation. It is important that par-

ties are aware of the relevant provisions governing multimodal transport to ensure their interests are adequately safeguarded and

necessary precautions can be taken.

T he Multimodal Transportation of Goods Act 1993 (“MTG Act 1993”)

was enacted with the purpose of developing the multimodal trans-

portation sector in India and to implement a uniform set of rules and regula-

tions.

Under the MTG Act 1993, a Multimodal Transport Operator (“MTO”) is the compa-

ny who is registered as an MTO and concludes a multimodal transport contract

either on his own behalf or through a person acting on his behalf as a principal.

It does not include a company that acts as an agent either of the consignor or

the consignee or the carrier participating in the multimodal transportation who

assumes responsibility for the performance of the multimodal contract.

Not only is the registration process both cumbersome and time consuming, this

definition has led to significant issues as often it is the freight forwarders who

conclude the contract with the actual shipper and who makes arrangements for

the transportation and assumes responsibility for transporting the goods. As

the shipper often does not have any direct contract with the actual MTO it

makes it difficult for the shipper to sue under the multimodal transport docu-

ment (“MTD”) for any loss or damage to the cargo whilst in the custody of the

MTO. The shipper can, however, avoid such a situation by insisting that it is

named as the shipper in the MTD issued by the MTO.

Under the MTG Act 1993, a multimodal movement requires the export of goods

from India using at least two different modes of transport. It is, however, ex-

tremely common for registered MTOs to issue MTDs for uni-modal transport,

resulting in a number of claims being filed under the MTG Act 1993. Further-

more, as the MTG Act does not apply to imported goods, it means that different

rules and regulations apply to such movements.

In respect of liability for loss or damage, the Act provides that the MTO must

show that the loss or damage did not occur due to any fault or neglect of the

MTO or his agents. If the nature and value of the consignment have not been

declared by the consignor and the stage of transport where the loss or damage

occurred is not known, the Act gives a right to the MTO to limit its liability to two

SDRs per kilogram of the gross weight of the cargo affected or 666.67 SDRs

per package or unit, whichever is higher. If, however, no carriage by sea or by

inland waterways is involved, the limit incurred is 8.33 SDRs per kg. Where the

mode of transport is known, the MTO is liable according to the provisions of the

applicable law governing that type of movement.

The Act provides that delivery of the consignment to the consignee is prima

facie evidence of proper delivery in accordance with the MTD, unless notice of

the loss or damage is given by the consignee to the MTO at the time the goods

were handed over. Where loss and damage is not apparent, the notice should be

given within six days. Problems arise, however, where defects are identified

after six days or when consignees fail to notify the carrier, in which case the

burden to prove the goods were handed over in a damaged condition falls on the

consignee.

The Act gives the MTO a statutory lien over the goods and the documents for

MTOs consideration under the MTD. The Act also puts the onus on the shipper to

inform the MTO of the nature of any dangerous goods and what precautions

should be taken to transport such goods. Failure to do so will render the shipper

liable for all loss unless the MTO has knowledge of the goods. The Act provides

for a limitation period of nine months to bring an action against the MTO from

the date of delivery or the date on which the goods should have been delivered.

The Act also allows the MTD to provide for any dispute to be referred to arbitra-

tion.

The parties should be aware of the intricacies of the MTG Act 1993 when trans-

porting goods in India and also any specific terms and conditions agreed, so

that they are aware of their rights and obligations and are able to take neces-

sary precautions.

Supplier Watch

Supplier Recent Financial Performance Current Risk Rating (Z Score)

Sales for the 3 months ended 6/30/2014 increased

5.63% to $14.27 billion from last year's comparable

period amount of $13.51 billion. Sales for the 6 months

ended 6/30/2014 increased 4.11% to $28.05 billion

from $26.94 billion for the same period last year.

Gross profit margin increased 4.62% for the period to

$10.96 billion (76.81% of revenues) from $10.48 billion

(77.55% of revenues) for the same period last year.

Gross profit margin increased 3.44% for the year-to-

date period to $21.53 billion (76.76% of revenues) from

$20.81 billion (77.26% of revenues) for the comparable

6 month period last year.

Sales for the 3 months ended 8/31/2014 increased

5.99% to $11.68 billion from last year's comparable

period amount of $11.02 billion.

Gross profit margin increased 5.39% for the period to

$7.29 billion (62.43% of revenues) from $6.92 billion

(62.78% of revenues) for the same period last year.

Supplier Recent Financial Performance Current Risk Rating (Z Score)

Sales for the 3 months ended 6/30/2014 increased 0.66% to 13.70 billion from last year's comparable pe-riod amount of 13.61 billion. Sales for the 6 months ended 6/30/2014 increased 0.95% to 27.26 billion from 27.01 billion for the same period last year.

Gross profit margin increased 5.82% for the period to 1.47 billion (10.76% of revenues) from 1.39 billion (10.23% of revenues) for the same period last year.

Gross profit margin increased 4.05% for the year-to-date period to 2.96 billion (10.84% of revenues) from 2.84 billion (10.52% of revenues) for the comparable 6 month period last year.

Sales for the 13 weeks ended 6/28/2014 decreased 5.89% to 1.66 billion from last year's comparable peri-od amount of 1.77 billion. Sales for the 26 weeks ended 6/28/2014 decreased 6.25% to 3.27 billion from 3.49 billion for the same period last year.

Gross profit margin decreased 5.44% for the period to 1.56 billion (94.10% of revenues) from 1.65 billion (93.66% of revenues) for the same period last year.

Gross profit margin decreased 5.82% for the year-to-

date period to 3.08 billion (94.04% of revenues) from 3.27 billion (93.61% of revenues) for the comparable 26 week period last year.

Sales for the 3 months ended 6/30/2014 remained flat at 4.37 billion. Sales for the 6 months ended 6/30/2014 decreased 0.58% to 8.50 billion from 8.55 billion for the same period last year.

Gross profit margin decreased 0.78% for the period to

634.00 million (14.50% of revenues) from 639.00 mil-lion (14.63% of revenues) for the same period last year. Gross profit margin remained flat for the year-to

-date period at 1.25 billion (14.72% of revenues vs. 14.57% of revenues last year).

Z Score LEGEND: Financially sound: 2.60 or higher Neutral: 1.10 to 2.60 Fiscal danger: less than 1.10

Sources and References Article Title Source(s)

Trends Shaping Future of Logistics Www.inboundlogistics.com Www.procurementleaders.com

How to vet suppliers Www.logisticsmgmt.com

Logistics: Quarterly Market Watch Www.inboundlogistics.com Www.supplychain247.com Www.procurementleaders.com Www.logisticsmgmt.com

3PL Australia Www.procurementleaders.com

Closing the trade barrier gaps Www.logisticsmgmt.com

Intermodal cuts freight rates www.lloydsloadinglist.com

Calculating the Benefits Of Freight Bill Auditing Www.inboundlogistics.com

6 Key Areas Every Purchasing Expert Should Address Www.inboundlogistics.com

Air Freight Market Watch Www.aircargoworld.com Www.iata.org Www.joc.com

Airport investment boosts cargo prospects in Eastern Europe Www.aircargoworld.com

The top 50 air cargo carriers Www.aircargoworld.com

Falling freight rates carry hidden risk Www.procurementleaders.com

Asia-Europe spot rates tumble to $750 per TEU Www.joc.com

India plans big increase in Chennai port fees Www.joc.com

Slower Growth Rate for Global Ports in 2014Q2 Www.3plnews.com

Panama: Leveraging Opportunities Beyond the Canal Www.inboundlogistics.com

Future Outlook Ocean Freight Industry Internal Analysis

Will alliances spark more orders for big ships? Www.joc.com

Further capacity tightness and rate hikes remain in the cards for the truckload market Www.logisticsmgmt.com

Could New Fuel Efficiency Standards Lead to Transportation Cost Savings? Www.inboundlogistics.com

Special Trucking Report: Collaboration is the game Www.inboundlogistics.com

MULTIMODAL TRANSPORTATION IN INDIA www.clydeco.com