http://blogctl.ctl.ca/LaurieTurnbull/ The Impact of Transportation in the Supply Chain en Copyright 2012 Mon, 27 Feb 2012 00:45:48 -0500 http://www.sixapart.com/movabletype/ http://blogs.law.harvard.edu/tech/rss The on-again/off again Hours of Service (HOS) issue for commercial vehicles in the United States surfaced again recently when the US Federal Motor Carrier Safety Administration (FMCSA) issued it s latest rule revision in December. While the FMCSA did not further revise the current maximum daily driving time of 11 hours, arguably the most contentious aspect of the HOS rules, it did propose a reduction in the maximum number of hours a truck driver can work per week from 82 hours to 70 hours. The revisions to the current regulations will take effect in 2012-2013. The FMCSA has been criticized by various groups on both sides of this debate, including the Teamsters and the American Trucking Associations, since it increased the daily driving time from 10 hours to 11 hours in 2003. The discussions surrounding HOS revolve around safety on one hand, and productivity and higher costs on the other, and it appears this latest revision by the FMCSA will do nothing to quell the polarized opinions held by different industry groups. In fairness to the FMCSA however, driver shortages and general economic conditions make it very difficult to strike a balance between safety and productivity concerns. And while I can appreciate industry efforts to improve economies of scale I think many observers will agree with the FMCSA that maximum driving times of 11 hours per day and 70 hour per week for commercial operators are more reasonable than the former. Nonetheless, changes in the US HOS rules will likely impact Canadian carriers providing US services as well. Reading the well publicized reports on HOS it’s easy to overlook the fact that the opinions of some of the most importation participants in this debate are often overlooked, those of the drivers themselves. I was reminded of this fact while reading Al Goodhall’s column in the February edition of Truck News. He recalls a comment from another driver that driving “just wasn’t any fun anymore”. Undoubtedly, bureaucratic industry wrangling similar to that surrounding the HOS debate in the US played a part in that opinion, coupled with the feeling that many drivers are working longer hours for less compensation. He even suggests this may be the real reason for the driver shortage many claim is now plaguing the industry. While this may, or may not, outweigh factors such as driver attrition or the lack of appeal truck driving holds for younger people, his point serves to remind transportation managers of the importance of selecting carriers that focus on these critical issues when hiring and scheduling hours of service for drivers. Another factor not to be overlooked is the precarious financial position of some asset-based carriers resulting from current economic conditions, albeit this is quoted as justification by those who support regulations for longer hours of service. This problem was identified by several transportation company owners at a recent Ontario carrier conference as one of growing significance, namely that of carriers operating in virtual bankruptcy. This unfortunate situation is brought about by financial institutions reluctant to foreclose on carriers that are technically bankrupt, because they foresee difficulties in disposing of carrier assets in the current economy. As a result, these carriers operate by offering non-compensatory rates that distort the market for competitors. This condition can be transparent for many purchasers of transportation services, putting shipments in a potentially precarious position. Transportation networks for many Canadian companies are often complex, consisting of a mix of LTL and TL services, both domestically and Transborder. But the breadth and scope of challenges facing transportation managers today may force many to ask what the impact of these problems will be on their ability to perform due diligence on behalf of their employers. Negotiating directly with asset-based carriers will remain a primary strategy for many, but it may be impractical for transportation managers to verify the regulatory compliance, financial strength and driver capacity of every supplier. Utilizing the services of a third-party logistics company to qualify suppliers can be an effective strategy for maintaining network integrity (in whole or in part) in the face of such difficulties. Cumulatively these factors, ranging from changing regulations affecting driver hours of service, to the (unknown) financial constraints affecting carriers, pose significant challenges for purchasers of transportation services, not only in the year ahead but, seemingly, for the foreseeable future. Developing a supplier base that includes the volume leverage of a third-party logistics provider as part of an overall contingency plan is an effective strategy. http://blogctl.ctl.ca/LaurieTurnbull/2012/02/latest_revision_to_hos_rules_u.html http://blogctl.ctl.ca/LaurieTurnbull/2012/02/latest_revision_to_hos_rules_u.html Mon, 27 Feb 2012 00:45:48 -0500 Forthcoming changes in the area of Customs this year serve to remind transportation managers of the importance of including Customs issues when planning supply chain strategy. Since joining the World Customs Organization (WCO) in 1971, Canada has subscribed to the Harmonized Commodity Description and Coding System (HS), a multipurpose international product nomenclature developed by the WCO. The HS system comprises about 5,000 commodity groups, each identified by a six digit code, with a set of rules to determine product classification for Customs purposes (in layman's terms, the HS forms the basis of the system used to determine rates of Customs duty). According to the WCO, the HS system is used by more than 200 countries and affects more than 98% of products in international trade. In 2011, the WCO announced a number of modifications to the HS system as a result of changes in technology and international trade patterns. These modifications resulted in a number of changes to the Canadian Customs Tariff effective January 1, 2012, prompting importers to review products whose tariff classifications may have changed, which in turn may require revisions to Certificates of Origin pertaining to Free Trade Agreements, and Customs rulings for various product classifications. Based on trade statistics reported by Foreign Affairs and International Trade Canada in 2010, the HS system determines rates of duty on merchandise imports from virtually all of Canada's Top 10 import-trade partners: 1) the United States, 2) China, 3) Mexico, 4) Japan, 5) Germany, 6) United Kingdom, 7) Korea, 8) France, 9) Italy and 10) Taiwan. The impact of these changes for transportation managers is (potentially) twofold. First, they may result in company-supplier changes within origin countries based on lower negotiated product costs to compensate for increased duty rates, and/or changes in suppliers to between origin countries. For transportation managers this can be a troublesome scenario as purchasing departments scramble to find alternate sources of supply. New supplier locations may not coincide with existing carrier rate agreements, necessitating new carrier rate negotiations, or proximity to origin ports, resulting in increased transportation handling and freight costs. Both of these scenarios reinforce the importance of Customs for transportation managers in terms of awareness of Customs issues, changes in world trade that can affect Canadian importers, and the need to integrate transportation and purchasing operations to support flexible, cost-effective supply chain processes. Another Customs issue of concern for Canadian importers is Phase 3 of the Advance Commercial Information (ACI) program, more commonly known as “eManifest”. ACI is designed to provide the Canada Border Services Agency (CBSA) with electronic pre-arrival information regarding cargo shipments destined for Canada. ACI Phase 1 was implemented in 2004, requiring marine transportation carriers to electronically transmit pre-arrival information to CBSA 24-hours before loading cargo at a foreign port. ACI Phase2 was implemented in 2006, requiring air carriers and freight forwarders to electronically transmit cargo data to CBSA 4-hours before arrival in Canada, as well as expanding the marine requirements in Phase 1 to shipments loaded in the United States. ACI Phase 3, or “eManifest”, will require electronic transmission of cargo data from carriers for all highway and rail shipments, the majority of import shipments to Canada originating from, or transiting through, the United States by surface modes transport. ACI Phase 3 will impact the largest number of shipments destined for Canadian importers, with highway carriers required to send shipment details electronically to CBSA at least one hour before reaching the Canadian border. The requirement for surface carriers to electronically transmit information to CBSA before shipments arrive in Canada has tremendous significance in terms of the possibility for delay, or potential inadmissibility, of shipments. Transportation managers who control inbound freight movements for example, may wish to verify eManifest transmission capabilities with their existing carriers. This may also be reason to reexamine supplier agreements where freight costs are prepaid (included in the product price), or freight collect where the supplier is responsible for carrier selection. CBSA commenced eManifest implementation for highway carriers on November 1, 2011. Based on a rolling 0-12-18 month schedule, highway carriers that do not comply with the requirement to electronically transmit cargo data prior to arrival at the border by November 1, 2012 will be denied entry and may incur zero-rated penalties. Highway carriers that do not comply with eManifest requirements by May 1, 2013 may be denied entry to Canada and face monetary penalties. The United States has implemented similar eManifest requirements under its Automated Commercial Environment (ACE) program. It is also worth noting that the data required under eManifest is harmonized where possible with the WCO in order to streamline the administrative burdens. As a result, for importers concerned about timely cross-border delivery, control of the cargo movement, ensuring that eManifest requirements are adhered to, may form the basis of Shipper/Receiver/Carrier/Customs broker partnerships in future. http://blogctl.ctl.ca/LaurieTurnbull/2012/01/customs_developments_affecting.html http://blogctl.ctl.ca/LaurieTurnbull/2012/01/customs_developments_affecting.html Tue, 10 Jan 2012 00:35:54 -0500 If recent comments are any indication, Maersk Line CEO Eivind Kolding seems intent on pushing his company, and the ocean carrier industry, in a bold new direction. Mr. Kolding's “call for change” has been widely quoted in the international trade press this year, and he has delivered his message personally at industry conferences as a keynote speaker. The message may sound familiar to some, i.e. the industry has to change, performance has to improve, we're on the brink of a new era, etc. But there are some crucial differences this time. To begin with, Mr. Kolding is CEO of Maersk Line, the world's largest ocean carrier, so when he speaks on industry matters, people tend to listen. Furthermore, his message is not what you might expect. Rather than simply issue another corporate blandishment about challenging times and how Maersk intends to weather the storms on the horizon, Mr. Kolding has decided to address substantive issues head on. He's not pulling any punches either, inferring, if not stating outright, that the industry is in danger of being overtaken by technology, carrier performance is terrible, the booking process is difficult, and customers are not being serviced. Not at all what one might expect from the CEO of the world's largest ocean carrier. In essence, Mr. Kolding is warning that the industry is in danger of being left behind by a customer base that needs something his industry is no longer providing: consistency, reliability and convenience. But rather than simply sounding alarm bells, he is wisely couching his message as one of opportunity, one that is attainable, not lost. A large part of what Maersk is trying to achieve involves the services it provides to customers, specifically looking at various service offerings and deciding which are essential to its core competency, and which are simply “custom of the trade”, and therefore costly and burdensome. “Costly” in the sense that they erode profits from other service offerings, and “burdensome” in that they tie up resources that could be put to better use satisfying real customer needs. Mr. Kolding undoubtedly knows that any message resulting in service changes will be criticized by some as an excuse to reduce services. Nonetheless, he has taken his message to the industry with determination. One need only look at recent changes to appreciate Maersk's attempts to reshape its marketplace. The issue of truck chassis in the U.S. is a prime example. Unlike most countries around the world, ocean carriers in the U.S. developed a practice of supplying trucks chassis to their customers for container moves. This has a been a routine practice for almost 50 years, and while convenient for shippers, it placed ocean carriers in the land transportation business, adding significant cost and administrative burden to their marine operations. Whether due to the cost factor alone, or influenced by the 2009 decision by the FMCSA (Federal Motor Carrier Safety Administration) to require additional inspections of ocean carrier chassis transporting containers on public highways, Maersk announced its intention to stop providing truck chassis, implying the service should more appropriately be administered by shippers and land carriers. It may be several years before a final industry business model is in place for handling container chassis in the U.S., but many other ocean carriers have followed Maersk's lead on this issue. (A list of ocean carrier announcements regarding chassis operations in the U.S. can be found on the OCEMA web site (Ocean Carrier Equipment Management Association, a U.S. based association of twenty major ocean common carriers). This year Maersk took another step towards change by announcing its intention to charge shippers a “load protection fee” for failing to deliver booked containers. Unlike many carrier surcharge implementations however, Maersk is an active partner in this one, promising to pay the same charges to a shipper if it fails to load a container on a scheduled ship. That’s the difference between being a stakeholder (someone who stands to gain) in your customer’s business operations, and being a partner (someone committed to improving operations for all concerned). To further demonstrate how serious it is about finding a new approach to the way ocean transportation is conducted, Maersk has set up a web site (changingthewaywethinkaboutshipping.com) to invite dialogue from the industry. Readers are treated to a candid assessment of the ocean transportation industry, and it’s not very flattering. There’s more than enough blame to go around, and Mr. Kolding isn’t afraid to point out where customers and shippers can do a better job. Some of the more revealing facts on the Maersk web site include: • The industry only delivers one out of two containers on time • Three out of ten confirmed containers don't turn up when the ship is ready to sail • Only 56% of customers live up to the volume commitments they make to Maersk • One-third of container delays are caused by vessel operations and weather conditions at sea and two-thirds are the result of terminal operations So the stage is set for a frank discussion. Based on the above, there seems little doubt of the “need” for change, the real question is how, and when, can it be accomplished? Mr. Kolding’s message for the marine industry, and perhaps for all of us in the transportation business, is that we need to rethink the way we construct our business models, the method in which we connect with our customers, by anticipating their needs and being proactive, rather than reactive. The Maersk web site features a downloadable “manifesto” that outlines its rationale for this initiative, and describes some compelling examples of how other companies have successfully anticipated customer needs. For example: • Ryanair launched a website in 2000 enabling it to sell directly to customers. At the time, many industry insiders thought passengers would shun the online approach in favour of the traditional travel agent connection. But Ryanair astutely predicted that what passengers really wanted was a new business model that provided a fast and reliable booking process. Today, Ryanair is Europe’s second-largest airline, and passengers can only book seats online, or through the company’s call centre. • Apple revolutionized the mobile phone market by forecasting that customers would “need” greater access to online services. Convenience and ease of use became essential parameters, far outweighing price considerations. The importance of dialogue regarding these issues cannot be overestimated. Shippers traditionally shun volume commitments, and carriers are reticent to commit vessels and/or vehicles following the 2008-2009 recession. These aren’t popular topics in transportation circles, but at some point shippers and carriers have to come to terms with volume/capacity commitments if they ever expect to see significant improvement in on-time performance metrics. The message may not be entirely new, but Mr. Kolding should be commended for pushing the envelope and prodding industry participants by highlighting faults on both sides of the desk. His central theme, one that should be heeded not only by marine carriers but all transportation service providers, is that the industry is lagging in providing adequate services to shippers in today's global business environment. And shippers also have a critical role to play in improving industry performance, as they often have unrealistic expectations in terms of carrier resources, especially in uncertain economic times. We have an opportunity to change it, and if we don’t do it together, we may find it changed for us. Or as Maersk states in its manifesto: “We really could be so much more; we must make the industry of tomorrow, today.” http://blogctl.ctl.ca/LaurieTurnbull/2011/08/ocean_freight_time_for_change.html http://blogctl.ctl.ca/LaurieTurnbull/2011/08/ocean_freight_time_for_change.html Wed, 10 Aug 2011 23:48:37 -0500 Mexican President Calderon’s trip to Washington in early March seems to have produced significant progress regarding the ongoing dispute between Mexico and the U.S. over cross-border trucking. The refusal of the U.S. to enact the southern cross-border trucking provisions of NAFTA due to safety concerns with Mexican carriers has been a sore point with Mexico since the trilateral free-trade agreement took effect in 1994. The current U.S. position on cross-border trucking with Mexico did not begin with NAFTA however. In fact, the origins of the present-day standoff date back more than twenty-five years. President Reagan voiced similar concerns when he signed the U.S. Bus Regulatory Reform Act (BRRA) in 1982. Section 6 of the BRRA imposed a moratorium on the issuance of licenses to Canadian and Mexican trucking firms seeking access to U.S. markets, not because of safety concerns, but rather the alleged failure of Canada and Mexico to extend the same degree of reciprocal market access to U.S. carriers. In other words, the U.S. claimed its carriers faced restrictions entering Canadian and Mexican markets that carriers from those countries did not encounter entering the U.S. The 1982 legislation also authorized the President to lift the moratorium however, which President Reagan immediately did in the case of Canada, stating that U.S. carriers were not, in fact, precluded from entering the Canadian market, and declaring open and fair competition between U.S. and Canadian trucking companies as being in the U.S. national interest. Not so in the case of Mexico however; President Reagan refused to lift the moratorium on Mexican trucking firms, pointing to the limited market-access afforded U.S. carriers trying to enter Mexico. President G.H. Bush renewed the moratorium on cross-border trucking with Mexico, notwithstanding his signing of the NAFTA Agreement in 1992. NAFTA addressed the U.S./Mexico cross-border trucking issue in two phases: first, each country was to allow carrier-access to each other’s border states within one year, by 1995, and, second, both countries were to allow complete cross-border trucking by the year 2000. President Clinton, however, was not inclined to overturn the moratorium during his term in office either, as evidenced by the U.S. Department of Transportation (DOT) announcement in December 1995 that scheduled access to U.S. border states by Mexican carriers would be postponed, this time due to safety concerns. Mexico subsequently filed a NAFTA challenge, claiming the U.S. was in breach of its obligations under NAFTA and, in 2001, a NAFTA Arbitration Panel agreed, ruling in Mexico’s favour. Nonetheless, the U.S. maintained the moratorium, with continued support from the Teamsters Union and special interest groups who alleged that safety concerns trumped U.S. NAFTA obligations. In an attempt to comply with the NAFTA Arbitration Panels’ ruling, President G.W. Bush, a supporter of cross-border trucking, launched a pilot project in 2007 that would allow 100 Mexican carriers to deliver shipments throughout the U.S. Congress disagreed however and moved to prohibit any government spending on the project. Citing renewed safety concerns, President Obama officially ended the proposition on March 11, 2009 when he signed the Omnibus Appropriations Act containing a provision that prevented any funding of the pilot program by the U.S. DOT. One week later, on March 18, 2009, clearly frustrated after fifteen years without a resolution to the cross-border trucking dispute, Mexico retaliated by imposing approximately $2.4 billion in import tariffs on ninety industrial and agricultural American products, affecting exports from more than thirty-five U.S. states. With that single move, Mexico accomplished more than it had in the previous fifteen years of negotiation. The impact on U.S. exporters was guaranteed to get the Administration’s attention, succeeding in focusing attention on the need to negotiate a resolution to the long-standing dispute. Of particular interest to NAFTA-watchers was the process Mexico utilized in reaching its objective this time around. Stepping outside of the NAFTA dispute-resolution process altogether, Mexico employed a strategy similar to that used by the U.S. in its dispute with Canada when the U.S. imposed tariffs on imports of Canadian softwood lumber. In effect, Mexico astutely leveraged its position on cross-border trucking against the current economic climate in the U.S. and its focus on domestic jobs. On March 3, 2011, President Obama and President Calderon announced they had agreed, in principle, to finally implement the cross-border trucking provisions of NAFTA. Mexico agreed to drop 50% of its tariffs on U.S. imports once Mexican truckers begin U.S. safety and driver training, and the remaining tariffs will terminate when the first Mexican trucking company receives its U.S. operating authority. The U.S. DOT has issued a “concept document” as the first step in illustrating the renewed commitment to achieve open-border access, although at this stage it is little more than a statement of expression. Consisting of only two pages, it outlines the general direction DOT will take in certifying Mexican carriers. The main difference this time around however is the depth of the Administration’s commitment – the authorizations granted to Mexican carriers will be permanent. Nonetheless, in a move presumably designed to appease critics of the program for safety reasons, the requirements that Mexican carriers will have to meet are fairly stringent, reportedly exceeding those already contained in the original NAFTA Agreement. Although this latest initiative seems promising to those in favour of cross-border trucking, its future is by no means guaranteed. There is still much opposition to the program from the Teamsters Union, claiming the move will result in lost jobs for the American trucking industry, and final legislation still has to be drafted which will then have to to be passed by the U.S. Congress. The road ahead will undoubtedly contain more twists and turns, and the odd speed bump, but at least its running in the right direction. http://blogctl.ctl.ca/LaurieTurnbull/2011/03/crossborder_trucking_back_on_t.html http://blogctl.ctl.ca/LaurieTurnbull/2011/03/crossborder_trucking_back_on_t.html Tue, 22 Mar 2011 11:55:41 -0500 News regarding contract disputes often catches my eye, for two reasons. First, there are often lessons to be learned, and second, they can be “easy” lessons when the dispute is happening to someone else and we get to stand on the sidelines and watch other companies duke it out. Sort of like watching a fight in the schoolyard, between the parents. It was with more than a passing interest then that I noticed the November 2010 newsletter of Toronto-based law firm Fernandes Hearn LLP, and its headline “Warehousers Beware! B.C. Court Disallows Standard Terms and Conditions”. And with good reason since any time industry-approved “standard terms and conditions”, be it for bills of lading, warehousing agreements, etc., become the subject of legal disputes, people in our industry (should) take notice. The case referenced in Fernandes Hearn’s newsletter involved a recent BC court decision regarding a dispute between Kruger Products Limited (formerly Scott Paper Limited) (the “storer”) and First Choice Logistics Inc (the “warehouser”). Kruger stored paper products in a 200,000 sq ft warehouse in New Westminster, BC operated by First Choice. A fire, originating in a forklift, destroyed the building along with Kruger’s stored inventory, resulting in a claim against the warehouse operator for $16,000,000.00 (yes, that’s $16 million dollars!). At this point you might think that a claim based on a warehouse fire, that all parties acknowledged originated in a forklift operating in the building, resulting in total loss of the facility and the customer’s inventory, would be settled in a fairly straightforward fashion (i.e. as an insurance claim). In fact, what followed is an insightful exercise in litigation for supply chain practitioners involving warehousing issues at (common) law, contracting standards, insurance/indemnification, standard industry liability terms and conditions, and relationships (actual and perceived) between storers, warehousers, contractors and sub-contractors. These details are explained at length in The Honourable Mr. Justice Burnyeat’s 74-page ruling on this case, available on the Canadian Legal Information Institute (CANLII) web site at www.canlii.org (search Docket no. L032139). Following the many twists and turns of this case, the reader is taken on an intriguing journey that makes reference to agreements between the parties, the Canadian Standard Contract Terms and Conditions for Merchandise Warehousemen, the Warehouse Receipts Act of BC, the Occupiers Liability Act, the Negligence Act, the Sale of Goods Act, and numerous case references surrounding legal precedents on bailments (defined as: The transfer of possession of something (by the bailor) to another person (called the bailee) for some temporary purpose (e.g. repair or storage) after which the property is either returned to the bailor or otherwise disposed of in accordance with the contract of bailment, Source: Duhaime.org). This case presented many issues for disposition. Perhaps of most significance however, succinctly outlined by Mr. Rui Fernandes of Fernandes Hearn LLP in their November newsletter, was the failure of the warehouser to successfully claim exemption from liability under the Canadian Standard Contract Terms and Conditions for Merchandise Warehousemen, to wit (excerpt): “Liability of Warehouseman – Section 9, (d) Without limiting the generality of the foregoing, it is specifically declared that: i) All goods are stored at the owner’s risk of loss, damage or delay in the delivery caused by or through inaccuracies, obliteration or absence of marks, numbers, address or description, act of God, irresistible force, enemies of the Queen, civil or military authorities, insurrection, riot, strikes, picketing or any other labour trouble, water, steam, sprinkler leakage, floods, rain, wind, storm, fire, …” Presumably, the presence of the named loss “fire” in this clause was fundamental to the warehouser’s defense, in addition to other clauses contained in a Warehouse Management Agreement negotiated (but not signed) by the parties. In his ruling, Justice Burnyeat stated “a warehouser may limit its liability but not if it lowers the statutory duty of care.” He then cited instances where the warehouser did not fulfill its obligations under the Agreement, along with inconsistencies and conflicts in the Agreement language. Of equal interest to me was the issue of determining limitation of liability. Section 9, Liability of Warehouseman in the Canadian Standard Contract Terms and Conditions for Merchandise Warehousemen referenced above further states: “ii) The legal liability of the warehouseman shall be strictly limited to the lesser of the monetary amount of the damage incurred or 100 times the monthly storage rate on any one package or stored unit with the contents (or, in cases where the warehouseman’s charges are calculated for other than actual storage, maximum $50.00 per unit) unless the owner specifically request a higher limit in writing and declares an excess value, in which case the warehouseman may, at his option, accept liability and assess an additional charge to the monthly storage or other applicable rate.” As explained by Fernandes Hearn LLP, “First Choice took the position that “unit” was a pallet or lift given how the warehouse dealt with the product. Kruger Products took the position that the “unit” measure was a case given how customers ordered the product. The court found that the limitation amount…was the lesser of the monetary amount of the damage incurred or of twenty five times the monthly storage on any “case” (not pallet or lift).” In other words, the court agreed with Kruger Products that the unit of value to be used in determining limitation of liability would be the “case”, not the “pallet” as put forward by First Choice. In my mind, that’s obviously a salient point for those of us in the service industry. The Warehouse Management Agreement between the parties was of paramount importance in settling this case, particularly its effect on deciding the “duty of care” obligation promulgated by Kruger under common law, the Warehouse Receipts Act and the Occupiers Act. The importance of a pertinent, congruent Warehouse Management Agreement in a scenario such as this cannot be underestimated, particularly in light of Justice Burnyeat’s closing remarks under the heading of “Limitations by way of Insurance Provisions: (excerpt) [210] In addition to having the potential effect of impairing the duty of care owed by First to Scott, I am also satisfied that acceding to the submission made by First would make meaningless the indemnification contained in the Warehouse Management Agreement. Any such acceptance of the position advanced by First would have to be in very specific language. That specific language cannot be found in the Warehouse Management Agreement.” That remark got my attention since it speaks directly to the issue of contracting in (our) industry. As service providers, we frequently write agreements of this nature in an attempt to clearly identify the obligations of the parties, to help resolve disputes, to lay out a path for mediation in the event of disputes, to preserve business relationships, improve performance, and above all else, keep the parties out of court! In this case that clearly did not happen. I started this blog somewhat facetiously with a schoolyard example, but I certainly take no delight in the misfortune of the two parties involved in this case and the ensuing litigation. In fact as a service provider, I sympathize with both. Warehouse management agreements such as the one described in Kruger Products vs First Choice Logistics are common enough in our industry. Many of us have been involved in drafting similar agreements and are familiar with the pitfalls. This case is complex, involving many issues at common law as well as issues of contracting, and as such the information herein is presented for reference and general information only, and is not intended to represent a legal opinion, position or advice. I would certainly recommend that those of you with an interest in this subject matter read further into the issues surrounding the case. This wasn’t an “easy” lesson for those involved, but its certainly one the rest of us, both sellers and purchasers of warehousing services, should take note of. Mr. Rui Fernandes perhaps put it best in his closing remarks in the November newsletter: “The moral of the story is that, if you are a warehouser and you want to limit your liability in any way you should have a well drafted signed warehouse agreement that does not have any conflicting language.” I couldn’t agree more. http://blogctl.ctl.ca/LaurieTurnbull/2010/12/contract_wording_at_the_heart.html http://blogctl.ctl.ca/LaurieTurnbull/2010/12/contract_wording_at_the_heart.html Wed, 22 Dec 2010 12:38:13 -0500 The International Chamber of Commerce (ICC) completed its review of Incoterms 2000 earlier this year and the new version, Incoterms 2010, will become effective January 1, 2011. Although the official ICC publication will not be available until September this year, news is already circulating about possible changes in the international trade terms. The most notable change apparently is that, for the first time, the number of Incoterms will be reduced, from the present number of thirteen, to eleven. If correct, all of these changes will be taking place in the “D” group, with four of the five terms being eliminated and two new terms being introduced. The terms supposedly being eliminated from Incoterms 2010 include DAF (Delivered at Frontier), DES (Delivered ex Ship), DEQ (Delivered ex Quay) and DDU (Delivered Duty Unpaid). These four terms are being replaced by DAT (Delivered at Terminal) and DAP (Delivered at Place). The DDP (Delivered Duty Paid) term will remain. The new terms should help to simplify some of the overlap, up to now, with the old D terms. For example, DES, DEQ and DDU all placed responsibility on the seller to bring the goods to the destination place, which in many, if not all, cases would have been a Port. These three terms also placed responsibility for risk of liability on the seller up until the destination “delivery” point. Introduction of the new terms will presumably have the effect of simplifying these multiple terms. Another exciting development regarding the new terms is that they will apparently address domestic transportation requirements. This will be good news for shippers who have voiced concerns for years that Incoterms did not provide a suitable alternative to domestic FOB terms. The new version should also help reinforce the position of the ICC as the main patron of international shipping terms of sale, especially since shipping terms were removed from the UCC (Uniform Commercial Code) in the United States in 2004. Other rumoured changes include more emphasis on multimodal terms, acknowledgement of modern cargo security programs, and a change of “delivery” point for some terms. The latter would be a critical change since it refers to the point at which risk (liability) transfers to the buyer; as a result, buyers should review the new terms to ensure they clearly understand when cargo insurance should apply. The issue of title/ownership remains unchanged in the new version, with Incoterms suggesting a remedy to this issue is better found elsewhere, notably in the buyer/seller contract of sale. As with every new edition of Incoterms, it is worth reminding shippers that it is not mandatory to upgrade to the new version. In fact, many shippers will probably continue using Incoterms 2000 for several years. More importantly, buyers and sellers should review the new terms to determine if there is any advantage in switching to the new version, and ensure any changes are clearly understood, and documented, between contracting parties. If you haven’t already done so, now is the time to order the new Incoterms 2010 publication, available from the ICC, or your local Chamber of Commerce. The ICC provides solutions for companies trading internationally in over 130 countries around the world. More information can be found on the ICC web site at www.iccwbo.org. http://blogctl.ctl.ca/LaurieTurnbull/2010/07/new_incoterms_on_the_way.html http://blogctl.ctl.ca/LaurieTurnbull/2010/07/new_incoterms_on_the_way.html Mon, 26 Jul 2010 12:48:26 -0500 If you haven’t done so already, check out the “Inside the Numbers” column in the May edition of Canadian Transportation & Logistics magazine, featuring a snapshot of shipper perceptions regarding modal rate increases. As we all know, forecasting works best when you are dealing with “certainties”; for example, reasonable expectations of demand volume, cost of materials or changes in economic conditions. And when one or more of those components is missing, the forecast model starts looking more and more like a roulette wheel. The summary charts in this month’s Inside the Numbers column help to illustrate that point, particularly in the marine mode. When asked if they thought marine rates were going to increase, decrease or stay the same in 2010, shippers were split almost evenly with approximately half of those surveyed predicting an increase, and half predicting no change. Only a small percentage, 7%, forecast a decrease in rates for 2010. On one hand, predicting an increase was a safe bet. Look at it this way (the benefit of hindsight not withstanding) if someone asks you “are rates going up or down next year?” you’ve pretty much got a 50/50 chance of winning the door prize. Rates bottomed out in 2009 so an increase should have been expected, especially since rate levels dropped by as much as 50% over the previous three to four years. The group that forecast ‘no change’ probably felt rates were at their lowest feasible levels and, with no firm economic recovery in sight, estimated that steamship lines would hold rate levels pending signs of increased demand. The 7% who forecast continuing decreases might have been gambling demand would continue to fall and rate levels would follow suit. The group that forecast increases this year were correct of course, but the really tough question still remains – by how much? On this score, it looks like just about everyone who forecast an increase missed the boat (no pun intended). The largest group, 35%, forecast increases in the range of 2.1% to 4%, with the next group, 22%, expecting increases of 4.1% to 6%. Although this group was astute enough to see increases coming, we all underestimated the aggressive approach liner companies would take to “return rates to sustainable levels”. So far this year the industry has seen increases of close to 30% in some areas due to successive general rate increases. And there are rumours that the peak season surcharge expected in June/July may be repeated in August, so the net result of marine rate level increases may not be known for some months yet. At least those transportation managers who forecast increases were able to prepare their organizations for the fact that costs would be going up, even more so for the small group of 11% who forecast increases in excess of 10%. Not so unfortunately for the 47% of transportation managers who forecast “no change” in marine rates this year, or the 7% who forecast rate decreases. Forecasting transportation costs doesn’t get easier in the face of economic uncertainty, it just gets more important. http://blogctl.ctl.ca/LaurieTurnbull/2010/05/forecasting_ocean_rates_is_a_r.html http://blogctl.ctl.ca/LaurieTurnbull/2010/05/forecasting_ocean_rates_is_a_r.html Mon, 31 May 2010 15:36:26 -0500 There’s no doubt the past couple of years have been a “shaking out” period for the transportation industry. And although business indices and industry forecasts of late are apt to contain phrases like “the recession seems to be slowing” or “results are showing signs of an increase”, industry experts and government officials often disagree on the state of our economy’s recovery, sometimes in the same industry presentation! When was the last time you heard blanket industry concerns over tight capacity, driver shortages and the need for market pricing to regulate high demand? Industry concerns over low demand, excess supply and idle equipment are still problematic. And with oil prices inching steadily upwards, drivers will continue to have one eye on the road and the other on the fuel gauge. Despite the continuing challenges many transportation firms have valiantly held on, making tough decisions, initiating cost-saving measures and squeezing efficiencies out of every turn of the wheel. Many of the firms who survived invested wisely in technology resources that enabled them to develop partnership arrangements with shippers to weather the economic downturn. These investments included user-friendly web interfaces for tracking and tracing shipments, web portals for electronic shipment status reports and, in some cases, direct links to shippers' computer systems to integrate order-entry and transportation information. Unfortunately, not every transportation company has the resources to invest in sophisticated technology platforms. As a result, when the economy does rebound, many small to medium-size freight companies will still be competing heavily to develop a value-added service strategy. Software as a Service (SaaS) may well provide the answer for many smaller firms looking for a cost-effective opportunity to compete in this arena. SaaS offers the potential for flexible, on-demand web-based computer applications, at lower cost than many in-house or off-the-shelf packages. Industry leaders like Descartes, Red Prairie, Sterling Commerce, Management Dynamics and Manhattan Associates are offering or exploring these on-demand solutions as various transportation/supply chain applications. Coupled with web-hosted supply chain management hub services that work with existing ERP systems like those offered by Supply Chain Connect based in Houston Texas, providing a platform to share order entry data with end-to-end inventory visibility, and you have a powerful new opportunity to partner with your customer in developing service solutions. Transportation service providers have always maintained this business is about more than “just rates”. On the other hand, there are many shippers for whom transportation is just that, rates, and their continuous quest to drive freight costs to the lowest possible level. These firms treat transportation like a commodity, rather than a service. Undeniably, that's a strategy that works for some organizations; the challenge for transportation companies is finding shippers who value transportation as a service, as a means of connecting to their end-customer by leveraging transportation to their competitive advantage. SaaS may offer a cost-effective way for small to medium-size transportation companies to reinforce that position and develop new value-added relationships based on information sharing. http://blogctl.ctl.ca/LaurieTurnbull/2010/03/using_saas_to_build_long_term.html http://blogctl.ctl.ca/LaurieTurnbull/2010/03/using_saas_to_build_long_term.html Tue, 16 Mar 2010 10:40:34 -0500 People can be fairly predictable at the best of times, and certainly in tough times. As a service provider, I can almost guarantee I’ll get two types of requests from customers when the economy enters a period of downturn; first, “we want lower rates” and second, “we want better service at those lower rates”. Fair enough, both of those scenarios are understandable and can be negotiated and resolved (even if it results in a negative resolution with companies changing suppliers). But then what? Where do you go for continued savings or improvements once you’ve renegotiated with suppliers? To begin with, an understating of “where” savings can be found is essential. It’s common to look outside first, at external suppliers, since “savings” appear immediately when suppliers reduce their rates. However, “better service at lower rates” may be more of an oxymoron than a successful negotiating strategy. Let’s face it, when was the last time you bought a bottle of wine (at a lower price) that advertised “better taste with half the grapes”, or an automobile that claimed “better performance with half the quality”. In other words, it might work, but there is probably a better chance it won’t, or of it does, it might only work for a short period of time, or until the supplier can replace you with a more profitable customer. The downside of this strategy of course is the potential for administrative (and service) disruptions and, eventually, even higher rates if new suppliers have to be sourced. Which is why every good cost reduction/service improvement strategy should include both external and internal sources. In other words, don’t forget to look at your organization’s internal practices as a source of potential savings. There are many internal processes that can yield savings or service improvements, including the use of consolidations. From a transportation perspective, the principle of “consolidating” is relatively simple: combining orders so you can ship in bigger lot sizes, thereby lowering unit costs at the higher weight level. The same principle can be leveraged with suppliers. In the case of inbound collect shipments for example, requesting that suppliers ship inbound orders once, or twice, per week rather than daily, will increase load weights (and reduce unit costs). Additional savings can be obtained by having inbound carriers pick up and consolidate orders from suppliers in close proximity to one another. Consolidations on the customer side of your operation can be more difficult. Take the example of a customer who places orders with your firm every day before a noon cutoff, in order to receive next day delivery. Oftentimes a company will resist asking customers if they will entertain changes in shipping policy for fear it will impact negatively on their sales. Nonetheless, its an opportunity worth exploring and some customers may well be willing to receive your orders fewer times per week without impacting their business operations (i.e. even though your customer orders daily, the orders may be to replenish safety stock; or having fewer orders to receive may enable your customer to better schedule receiving personnel, etc). There are many ways to reduce operating costs. Renegotiating supplier prices is one method, but reexamining internal processes, such as the use of consolidations, can also be effective and should not be overlooked. http://blogctl.ctl.ca/LaurieTurnbull/2009/11/generating_value_with_consolid.html http://blogctl.ctl.ca/LaurieTurnbull/2009/11/generating_value_with_consolid.html Wed, 25 Nov 2009 16:39:29 -0500 CT&L’s Daily News for October 2nd reported July trade numbers published by the Bureau of Transportation Statistics (BTS) of the US Department of Transportation, and it wasn’t all good news. The BTS report reflected the gloomy state of trade between the NAFTA partners this year, now decreasing for seven consecutive months. According to the BTS, the reported value of Canada/US surface transportation trade for July fell just over 33% compared to a year earlier. One interesting note to the report however included mention that the state of Illinois replaced Michigan as Canada’s leading US trade partner that month. Which prompted me to wonder what we bought more of from Illinois than Michigan in July. A quick review of the Canadian government’s international trade site revealed that Michigan’s leading exports to Canada in 2007 (the most recent data reported) were, not surprisingly, motor vehicle parts, automobiles and trucks. Michigan is, after all, the heartland of American automobile production. In 2007 in fact, 66% of Michigan’s total exports were transportation related products, followed by metals and energy products respectively. So how did Illinois knock Michigan from the top spot? Was it a surge in Canadians’ appetite for Illinois corn, soybeans or ostriches? That’s right...ostriches! According to the Illinois Department of Agriculture there actually is a specialty market for ostriches in Illinois. I thought I was onto something here. Perhaps I would be the first to discover a burgeoning trade in ostrich feathers for the Canadian entertainment industry, or the wildlife safari business (can you ride an ostrich I wonder?) or (at worst) a growing underground market for ostrich burgers (even I have trouble with that one). Presumably it was nothing so exotic, or (arguably) tasty. The automotive industry once again featured prominently in 2007 with Illinois exports to Canada of automobiles and motor vehicle parts, followed closely by machinery and metal products. Given the state of our North American economy I am somewhat heartened to think that our automobile industry may still be the backbone of Canada/US trade, whether from Michigan or Illinois. (But I can’t help but wonder when the BTS will find out about those ostriches!) http://blogctl.ctl.ca/LaurieTurnbull/2009/10/automobiles_and_ostriches.html http://blogctl.ctl.ca/LaurieTurnbull/2009/10/automobiles_and_ostriches.html Tue, 06 Oct 2009 09:53:23 -0500 There has been a growing awareness in recent years of a difference in perception between C-level executives (CEO’s, CFO’s, COO’s) and O-level managers (Operations-level managers including Transportation, Purchasing, Logistics, Inventory, Materials Management, etc.) when it comes to the role of supply chain management. These differences in perception within the same organization may seem paradoxical, but they also illustrate a potentially troublesome scenario for transportation managers. Julia Kuzeljevich, Features Editor for Canadian Transportation & Logistics magazine, touched on this subject in her excellent cover story “Not Too Close For Comfort” in the May issue of CT&L. The cover story addressed changing global sourcing strategies identified in the 15th Annual 3PL Provider CEO Perspective study. One of the many important trends identified by participants in this study was the increasing number of organizations adopting near-sourcing strategies, relocating their operations away from Asia and closer to home (reportedly 20% of European CEO’s and over 30% of CEO’s in the Asia-Pacific area) in response to increasing fuel costs, currency fluctuations and time-to-market concerns. These changes in direction also serve to highlight the differences in perception between C-level executives and O-level managers. For example, transportation managers traditionally balance cost and service concerns, although with the advent of global sourcing practices increasing freight costs are a reality, focusing more attention on service concerns as a result. Faced with longer transit times, potential delays and multiple border crossings, it’s understandable that transportation managers would strive to develop long term carrier partnerships based on consistent, reliable service patterns. In many cases, cost concerns may take second place to delivery performance as transportation managers respond to requirements for sales-driven customer service objectives, balanced by financial concerns for minimal inventory levels. Optimally, these carrier relationships tend to be founded on repetitive (or forecasted increases in) shipping volumes. The 3PL Perspective study however identified concerns among C-level executives that extended chains also raise vulnerability issues, resulting in a desire for more agile supply chains, providing flexibility to relocate operations to other countries as market conditions dictate. These differences in perception can result in competing interests between transportation managers focused on supply chain costs and attempting to develop long-term supplier relationships based on stable, repetitive shipping volumes, and C-level executives more concerned with quarterly results and total landed costs, requiring flexible supply chains that can have adverse effects on rate levels and may result in shorter-term carrier relationships. For transportation managers faced with this dilemma, two requirements should become abundantly clear: 1. The need for O-level managers to have senior management representation so they can have access to information that might indicate pending market changes. 2. Provision for flexibility when developing strategic supply chain plans, including the potential need for contingency carriers in the event near sourcing becomes reality. Another consideration in this decision-making process is the impact on inventory, both from the perspective of investment costs and carrying costs. Near sourcing may result in shorter lead times, which in turn can have a significant impact on inventory levels. Employees look at inventory in different ways: C-level executives view inventory in terms of its impact on working capital, while O-level managers view inventory as a buffer against erroneous forecasting and potential customer complaints. In fact, inventory overlaps both of these areas and needs to be reviewed as early as possible when organizations consider changes in strategic direction. Understanding this difference in perception is critical for O-level managers to be successful, particularly with regard to how their performance will be measured by the executive suite. http://blogctl.ctl.ca/LaurieTurnbull/2009/06/clevel_perceptions_of_supply_c.html http://blogctl.ctl.ca/LaurieTurnbull/2009/06/clevel_perceptions_of_supply_c.html Tue, 09 Jun 2009 16:18:24 -0500 Several times a year I have an opportunity to travel across Canada, working with transportation and procurement managers on logistics issues. This activity is without question one of the most enjoyable aspects of my profession, but it also serves as a reminder of the need to put the current framework of border-security regulations in perspective. The security programs in effect today (and those still to come) can be complex and confusing for many importers and exporters. While awareness of these initiatives is high in the transportation service sector, the same cannot be said for the shipping community. Surprisingly, many companies are still unaware of the various programs available to the trade community. And many of those who are aware have unfortunately shied away from participating, fearful they will incur unforeseen costs or onerous administrative requirements. The new security programs are an extension of the Smart Border Declaration signed by the Canadian and US governments in 2001. That declaration signaled the intent of both countries to address the need for improved security in four key areas at our borders: the secure flow of people, the secure flow of products, infrastructure investment and improved information sharing. Both Canada and the US have made tremendous progress in all four areas since 2001 so the question remains, why aren’t more companies aware of, or participating in, these programs? The lack of general awareness can be explained by the fact that these topics are not regularly featured on television, radio or generic Internet news sites. They are a regular feature however in trade magazines, so logistics employees do have an opportunity to obtain information from these sources. So why aren’t logistics and supply chain professionals pushing their employers harder to participate? Perception seems largely to blame, not knowing what’s really involved and concern their organizations will be identified as non-participants (i.e. security risks) if they attempt the process then decide not to follow through. I addressed this issue in a recent presentation to a group of procurement managers, using the Nexus program as an analogy. Nexus enables pre-approved individuals to cross the Canadian/US border quickly in designated “fast lanes”, avoiding long lineups and delays. The process of being pre-approved involves a criminal background check to ensure the traveller is “low-risk”. In other words, Customs officials can be reasonably confident that Nexus participants will not abuse the program by trying to smuggle goods into the country in an attempt to avoid paying duties and taxes. The value of speedy border crossing and infrequent inspections is that commodity valued so highly by so many…Time! You only have to be stuck on a border-crossing bridge once on a long weekend to fully appreciate the value of a program like Nexus. I joined the program for that very reason and feel strongly that the benefits outweigh the (perceived) tradeoffs. In drawing a parallel between Nexus and commercial goods programs like Canada’s CSA (Customs Self-Assessment), PIP (Partners in Protection) and the American C-TPAT (Customs-Trade Partnership Against Terrorism) program, audience comments and questions quickly illustrated the differences in perception. One of the first responses to my analogy was “Nexus is for people, so it doesn’t apply”. But that’s exactly why it does apply. Recall two of the four key areas mentioned above, secure flow of people and secure flow of goods. Nexus has been very effective in identifying low-risk travellers and rewarding them with the ability to cross the border without delay or (frequent) inspection. This risk-management approach enables Customs to focus its resources on non-Nexus travellers. By volunteering my security-worthy status to Customs as a Nexus traveller I receive certain benefits that I value as important. For commercial goods shipments, the Nexus concept is mirrored in programs like CSA, PIP and C-TPAT. These cargo security programs afford importers and exporters the same potential benefits. The second, and perhaps more strenuous, objection to my use of Nexus as an analogy involved the individual’s requirement to undergo a criminal background check, the perception that now “they” will know everything about me. Of course that’s the “big brother” syndrome and in fairness it occurs to all of us at one time or another. But under closer scrutiny, what have I divulged that wasn’t known already? My passport status, tax records, birth record and criminal background status are already known to some government agency. By applying for Nexus I have simply consolidated that existing information for another government agency to my benefit. I would argue the same is true for companies. Your organization’s information with respect to business registration/incorporation, business type, industry category, taxes, goods imported and exported already exists in one government agency or another; by joining the new cargo security programs are companies simply not consolidating existing information for Customs to their benefit? A third perception is that companies will incur significant costs by joining these programs. All of these programs are voluntary and free to join; granted, there may be IT costs related to transmitting required data elements to Customs under the CSA program. On the other hand, CSA enables importers to reduce the number of transactional transmissions by aligning financial records with Customs requirements. Another misconception surrounding PIP and C-TPAT membership is that participants will be asked to build a fence around their buildings or property. This is not necessarily true. If you manufacture or distribute common (low risk) goods it is unlikely Customs will require you to fence your property. If, on the other hand, you manufacture radioactive isotopes this may be a requirement, although if your company is in that business you hopefully have a fenced property (or equivalent level of security) already. A certain synergy exists between all of these risk management programs, greater rewards in exchange for demonstrated higher levels of security. Perhaps the real reason more companies aren’t affording themselves the chance to receive these tangible benefits is simply a question of perception. http://blogctl.ctl.ca/LaurieTurnbull/2009/04/put_cargo_security_programs_in.html http://blogctl.ctl.ca/LaurieTurnbull/2009/04/put_cargo_security_programs_in.html Thu, 30 Apr 2009 15:13:10 -0500 2008 was a banner year for Canada in terms of trade agreements and trade negotiations. At the start of the year, we had four existing free trade agreements (FTA) with: the USA and Mexico (NAFTA, implemented in 1994), Chile (implemented in 1997), Israel (implemented in 1997) and Costa Rica (implemented in 2002). Those agreements cover a time span of fourteen years from 1994 to 2008; that’s an average of one FTA every three and a half years. By comparison, Canada almost matched that entire fourteen-year output this year by signing three new FTAs, with Colombia, Peru and the EFTA (European Free Trade Association – Iceland, Liechtenstein, Norway and Switzerland, a trading bloc of four countries that do not belong to the European Union), bringing our total to seven by year-end. Negotiations for a FTA with Jordan were also concluded this year, and ongoing negotiations for agreements are still pending with South Korea, Panama, Dominican Republic, Singapore, CARICOM (Caribbean Community comprised of Antigua and Barbuda, The Bahamas, Barbados, Belize, Dominica, Grenada, Guyana, Haiti, Jamaica, Montserrat, Saint Lucia, St. Kitts and Nevis, St. Vincent and the Grenadines, Suriname, Trinidad and Tobago), CA4 (Central America Four comprised of El Salvador, Guatemala, Honduras and Nicaragua), and the FTAA (Free Trade Area of the Americas, comprised of Antigua and Barbuda, Argentina, Bahamas, Barbados, Belize, Brazil, Canada, Chile, Colombia, Costa Rica, Dominica, Dominican Republic, El Salvador, Grenada, Guatemala, Guyana, Haiti, Honduras, Jamaica, Mexico, Panama, Paraquay, Peru, Saint Kitts and Nevis, Saint Lucia, Saint Vincent and the Grenadines, Suriname, Trinidad and Tobago, United States and Uruguay). That’s a lot of countries which means, despite the fact that not all discussions are active (FTAA discussions are currently stalled), and there is some member overlap between agreements, Canada has the potential to enact a significant number of additional agreements in the next few years. (This information and additional detail on Canada’s international trade agreements can be found on the Foreign Affairs and International Trade Canada web site.) Canada’s free trade agreements have always been a subject of interest to me, both because of the potential impact on transportation demand patterns and the fact that changing freight patterns demonstrate the need for effective supply chain management practices. What I found more interesting however was the underlying geography of these agreements, particularly in light of the current east-west trade flows that seem so prevalent between North America and Asia. Canada and China for example have been discussing a Foreign Investment Promotion and Protection Agreement (FIPA) since 2004; not surprising since Foreign Affairs and International Trade Canada reports that Canadian foreign direct investment in China in 2006 exceeded CA$ 1.5 billion, and China’s foreign direct investment in Canada exceeded CA$ 1.2 billion the same year. Not huge numbers in comparison with some of China’s larger trading partners perhaps but certainly a foundation for future growth. Although somewhat foreshadowed by the growing Canada-China relationship, Canada has been steadily pursuing trade relationships with our neighbours to the south through these new trade agreements. This makes a lot of sense when you consider the potential impact on transportation transit times enabled by the land bridge between Canada and South America. The full impact of our potential trading relationship with Central America and South America only becomes evident however when you look at the individual agreements and their corresponding member locations on a map. NAFTA gives Canadian traders access through the United States to Mexico, while the pending CA4 agreement extends the route south through Guatemala, El Salvador, and Nicaragua, to our existing FTA partner Costa Rica, then on to Panama (FTA status pending) and Colombia, where Canada finalized a FTA this year. From Colombia, the land bridge extends into Peru (where Canada also finalized a FTA this year) with further access to markets in Chile, where Canada has had a FTA since 1997. In other words, the vision of a North-South America trading bloc supported by free trade agreements is now within sight. Should we be excited by this prospect? Some would say yes if our experience with NAFTA is any indication. Particularly since The Treasury Board of Canada Secretariat reports that Canada’s annual trade in merchandise and services with its NAFTA partners has nearly doubled since 1994. And once fully enacted, Canada’s existing and pending trade agreements in Central America and South America will expand the current NAFTA population market base by more than 25%, from approximately 445 million potential consumers to more than 560 million. However, while trade agreements demonstrate a desire by member states to promote trade, oftentimes the required infrastructure and administrative support systems to support those agreements are not in place until much later. One of the most glaring examples of this problem is the inability of Mexico’s trucking industry to adequately address road safety concerns to the satisfaction of the US government, with the result that the transportation provisions of NAFTA (i.e. allowing cross-border access by Mexican and US transport companies) have yet to be fully enacted. Despite the fact that these agreements are (almost) all in place, it will be a long road (both literally and figuratively) to any meaningful impact on trade. There will be many obstacles to overcome, both quantitatively (manufacturing, labour and freight costs) and qualitatively (quality concerns, packaging, labeling, government regulations, etc.), as we have seen in past trading relationships (both north-south and east-west). But the potential is certainly intriguing and one that bears watching in the years ahead. Who knows, it might even be the catalyst that leads to the eventual enactment of transportation provisions under NAFTA. http://blogctl.ctl.ca/LaurieTurnbull/2008/12/canadas_expanding_free_trade_markets.html http://blogctl.ctl.ca/LaurieTurnbull/2008/12/canadas_expanding_free_trade_markets.html Fri, 12 Dec 2008 14:33:08 -0500 The dramatic increase in fuel costs this year is a constant reminder of the importance of cost management for transportation managers. Negotiating is still the favourite tool for many, but periodic negotiations may not adequately address the impact of cost-creep. For example, carrier rate agreements may be negotiated for a set period of time but rising fuel surcharges, ancillary charges and unforeseen costs can further impact total costs. When people ask me how they can reduce transportation costs they usually qualify that question by saying they have already done some form of negotiating and can’t understand why their total costs continue to increase. That’s a common problem and it underscores the importance of monitoring costs on a regular basis. The best way to do that is to implement some form of regular cost evaluation program with visibility into the various cost elements. A report on total costs does little more than confirm whether or not you’re meeting budget expectations. But in order to control costs adequately you have to know what they are, so what’s “in” the report can be just as important. If you’re not doing it already, now is the time to start meeting with your company’s IT group to identify the potential for meaningful cost reporting. Since fuel surcharges are the most visible element of transportation expenses for senior management, that’s a good place to start. Find out if its possible to break out fuel surcharges from your overall transportation expense. Segmenting transportation expenses can reveal some interesting data since fuel surcharges can vary by a host of factors, including carrier, mode, shipment size and destination. Having the ability to identify actual freight expenses vs. fuel surcharges can be helpful during discussions with carriers about cost control, not just rate negotiations. And let’s not forget that every discussion with carriers about fuel surcharges need not be adversarial. Carriers are affected by rising fuel costs too and are very aware of the impact this situation is having on carrier-shipper relationships. It’s not unusual for carriers to have better reporting capabilities than their customers in terms of the customer’s shipping patterns – use that relationship to your advantage by asking your carriers for reports on your shipping volume. Carriers can be a great source of information and will undoubtedly see it as an opportunity to provide a value-add component to your relationship. Greater visibility into cost elements can also be helpful in reviewing “how” your company ships its products. If you start with the premise that you can’t do much about rising fuel costs, think about other areas in your company’s operation that may have been overlooked. For example, are there opportunities to improving the weight to cube ratio by revising product packaging? Has your company considered revising its shipping terms of sale (FOB/Incoterms)? Are you making the most of consolidation opportunities? Have you asked carriers to advise of any backhaul opportunities that might be appropriate in your shipping lanes? If your company extended its supply chain by importing from low-cost labour countries, review your total landed costs in the past year compared to the costs of relocating sources of supply closer to home. Sadly, an often-overlooked source of information can be your customer; developing a survey incorporating customers’ needs for cost control information can enlist their cooperation in developing ways to better handle shipping requirements (i.e. frequency, order size, return goods shipments, etc.) Now for some good news - that’s just for starters. There may be other opportunities for reducing costs (or improving service) by examining warehousing services, cargo insurance policies, forecasting methods, the impact of new security regulations on transit times and customs/trade compliance issues. And the really good news? Improvements in many of these areas will have cumulative net-dollar value since the savings carry forward. I started this blog suggesting that transportation managers meet with their IT departments but there are a lot of other internal stakeholders that transportation managers should also be communicating with, including production, sales, purchasing, inventory and warehouse management. Open and frequent communication with these groups helps to ensure that everyone in the organization is aware of the challenges faced by transportation managers in order to protect the company’s competitive position in their marketplace. http://blogctl.ctl.ca/LaurieTurnbull/2008/10/the_impact_of_transportation_o.html http://blogctl.ctl.ca/LaurieTurnbull/2008/10/the_impact_of_transportation_o.html Fri, 03 Oct 2008 19:27:45 -0500