January 2015 | News | Global Logistics

Global Logistics—January 2015

Tags: Latin America, Supply Chain Management, Global Economy, Rail, Mexico, China, Transportation, Safety, Logistics

Uber is testing its popular taxi model on small shipment movements in Hong Kong. Shippers can track deliveries in real time through the app.

Uber Hails Hong Kong Cargo Pilot

While analysts continue to speculate about how the "Uber model" will translate to parcel and small shipment movements, especially in densely populated areas, the San Francisco-based taxi/technology company has begun testing its platform in Hong Kong.

Its latest incarnation, UberCARGO, promises to deliver the same cashless convenience that has captured the attention—and credit cards—of passengers on the go.

"With UberCARGO, a van arrives wherever you want it to be in minutes," according to the company's blog. "You can load your items in the back of the van yourself, or request the driver's assistance if you need an extra hand. Deliveries can be tracked in real time through the app, the item's location can be shared with the recipient, and you can ride along with your goods so you'll have ease of mind that your items are safe."

Rates are calculated based on time and distance. Base fares in Hong Kong begin at $2.58, then escalate 20 cents per minute and/or 60 cents per kilometer.

Hong Kong's population density, which ranks fourth in the world, makes it an ideal location for testing the viability of such a model—especially as same-day delivery demands and capacity constraints converge in congested urban areas. A cottage industry that supports the technology side of crowdsourcing local deliveries is already emerging in the United States.

It's still tough sledding in most countries; Hong Kong is an exception. China recently banned private cars from using ride-hailing apps, which arguably would be a target market for Uber's growth. Its Ministry of Transport decided only licensed taxis could use the technology. There's also an established domestic market for such services.

Similar roadblocks are preventing traction in countries such as South Korea, India, and Germany, especially where government is looking to tame a relatively "lawless" industry that has an unfair advantage over existing, and regulated, taxi industries.

Mexican Truckers to Run North of the Border

The U.S. Department of Transportation (DOT) is ready to enforce a provision that was initially included in the 1993 North American Free Trade Agreement (NAFTA). After a three-year pilot program, the agency decided to open U.S. roads to Mexican trucking companies—provided they apply and are granted permission to make long-haul cross-border runs into the United States. DOT has yet to announce when the application process will begin.

Fifteen trucking companies from Mexico enrolled in the pilot that concluded in October 2014. They crossed the border 28,000 times, travelled more than 1.5 million miles, and underwent 5,500 safety inspections by American officials.

"Data from the pilot program and additional analysis...proved that Mexican carriers demonstrate a level of safety at least as high as their American and Canadian counterparts," says U.S. DOT Secretary Anthony Foxx.

The announcement closes a forgettable chapter in a decades-old drama between the two countries. Mexico, which had imposed more than $2 billion in annual tariffs on certain U.S. exports, waived the surcharges when the U.S. DOT announced the pilot program in 2011. American trucking companies, by contrast, have been able to apply and operate long haul south of the border in accordance with NAFTA since 2007.

Reactions to the DOT's announcement have been expectedly mixed. The American Trucking Associations supports the effort, as long as Mexican carriers meet the same requirements as their U.S. peers. Opponents, who believe that such reform will erode jobs and expose the United States to more security risks, claim the pilot program did not go far enough.

"This DOT policy change flies in the face of common sense, and ignores the statutory and regulatory requirements of a pilot program," says Jim Hoffa, general president of the Teamsters. "Allowing untested Mexican trucks to travel our highways is a mistake of the highest order, and it's the driving public that will be put at risk by the DOT's rash decision."

Todd Spencer, executive vice president of the Owner-Operator Independent Drivers Association, was equally dismissive. "The FMCSA is clearly doing an end-around, and playing with numbers to try and justify opening the border to long-haul trucks from Mexico," he says. "It's clear from the lack of participation that Mexico-based motor carriers are not interested in hauling beyond the commercial zone, if it means complying with the same regulations as U.S. truckers."

Turkey, Iran Wrapped in Truck Fee Fiasco

Situated at the nexus between Europe and Asia along the Silk Road trade, Turkey's rising star as a MINT (Mexico, Indonesia, Nigeria, and Turkey) economy is well-documented. Location is a strength. But conflict also comes with the territory—especially with a neighbor like Iran.

The two countries are engaged in a tit-for-tat standoff over transit fees for overland transport. The divergence in fuel costs between Iran and other countries in the region is the source of the friction.

Tehran, the capital of Iran, increased fees at the Turkish border partly to offset cheaper gas prices elsewhere. The country went so far as to charge trucks for gas that remained in a fuel tank when crossing the border. Turkey retaliated by hiking its fees. Consequently, the impasse has created lengthy delays at the borders.

Turkish transportation companies are looking to fix the problem by circumventing Iran altogether. As an alternate to transporting freight overland to Central Asia, they are proposing a route that goes through Georgia and Azerbaijan using roll-on, roll-off vessels and ferries to cover the 200-mile leg across the Caspian Sea.

The plan aims to carry 25,000 trucks annually over the Caspian Sea intermodal land bridge from Azerbaijan's newly constructed Alat port to Turkmenbashi in Turkmenistan. The alternative routing is also expected to greatly improve transport times and reduce costs.

2014 U.S. Ocean Imports by Port: An Interesting Year

2014 was anything but boring for U.S. ocean ports. There were labor strikes along the West Coast, the ports of Tacoma and Seattle formed a Seaport Alliance, and the United States enjoyed the busiest year of ocean imports in its history. Not surprisingly, nearly every leading U.S. port saw growth. Los Angeles rose eight percent in imports from 2013, while the Port of Savannah increased by 17 percent. Oddly, the Port of Seattle declined in imports by 20 percent. Will 2015 continue the upward trend?

2014 U.S. Ocean Imports by Port

Source: Zepol Corporation

India Raises Flag on New Rail Service

India's reputation for poor road infrastructure has long been a pain point for the country of 1.2 billion people, raising total logistics costs and making its hinterland a less attractive offshore manufacturing location. In lieu of reliable long-haul truck/road transport, the country has had to rely on a vestige of British colonialism—the railroad.

Still, creating a responsive, rail-driven supply chain is no small task. In the latest example of necessity-driven invention, APL Logistics VASCOR Automotive did just that. The Delhi-based joint venture successfully launched its AutoLinx rail service, which runs every two weeks between Chennai and New Delhi. The door-to-door service covers the entire 1,300-mile supply chain for its customers, delivering finished vehicles from the assembly line to the dealership floor.

"AutoLinx helps OEMs reduce the environmental impact of their supply chains and eases the pressure on India's road infrastructure by moving freight via rail," explains Bill Garrett, CEO of the joint venture.

Trial runs were conducted in close collaboration with four automotive OEMs: Ford, Honda, Hyundai, and Renault-Nissan. The trials began in September 2014, focusing on the service corridor between Chennai and Delhi, and involving the handling, movement, and delivery of more than 1,100 finished vehicles.

As the service gains traction, APL-VASCOR expects to increase its frequency and add new destinations.

Global Airfreight Demand Steady

The airfreight industry is showing signs of sustained growth, a good indicator that the global economy is on the move. News that UPS is expanding its Worldwide Express Freight service, which serves urgent, time-sensitive international heavyweight movements, is testament to positive shipper demand. Recent data from the International Air Transport Association (IATA) supports continued growth.

IATA's November 2014 data reports demand, measured in freight tonne kilometers (FTK), grew 4.2 percent compared to November 2013. Capacity increased by 3.3 percent over the same period.

"More goods are being traded internationally, fueling the growth in air freight," says Tony Tyler, director general and CEO of IATA.

IATA expects airfreight markets to expand by 4.5 percent in 2015, outpacing projected growth in world trade (four percent). Although Tyler cautions that "macro-economic and political risks" always threaten to impact trade flows, performance across global regions is mostly positive:

  • Asia-Pacific carriers report a 5.9-percent increase in FTKs with a four-percent capacity increase. Although business confidence in China has weakened, government policies to encourage consumption are having a positive impact. Elsewhere, emerging Asian economies have seen a sharp rise in imports over the past six months.
  • European carriers saw a small 0.9-percent rise in FTKs, while capacity expanded by 2.6 percent. The Eurozone economy continues to flat-line, affected by renewed concerns over the euro and Russian sanctions.
  • North American carriers recorded a FTK decline of 0.3-percent and a drop in capacity of 2.6 percent—despite a ports strike on the West Coast that shifted some demand from sea to air. Underlying indicators for the U.S. economy remain sound, which should support a return to growth.
  • Middle Eastern carriers continue their strong performance, with FTK growth of 12.9 percent and a 17.1-percent capacity increase. The region's efficient hubs provide a strong platform for connecting long-haul freight shipments.
  • Latin American carriers saw FTKs fall by 0.7 percent, reflecting economic weaknesses across the continent, but particularly in Brazil and Argentina. Capacity was reduced 0.5 percent.

U.S. Passenger Car Imports Stagnant

Foreign car imports have been growing exponentially since 2009, but 2014 flat-lined. Declining imports from Canada, Japan, and Germany were to blame. Japan's car exports to the United States dropped by 10 percent from 2013, nearly a $4-billion decrease. Not all Asian automakers suffered last year, however. U.S. imports of vehicles from South Korea rose 20 percent.

2014 U.S. Ocean Imports by Port

Source: Zepol Corporation

All Aboard LATAM Rail Investment

Latin America's poor rail freight record has long been a fundamental transportation problem, especially for commodity-intensive trades that dominate the continent. This deficiency is exacerbated by fragmented port infrastructure, which fails to capitalize on freight densities and flows. Years of neglect, and now rapid growth, have bottlenecked potential economies and efficiencies.

A new Frost & Sullivan report, Strategic Analysis of the Latin American Rail Freight Market, indicates Latin American countries are finally looking to invest in and develop rail freight transport. The San Antonio-based consultant expects more than $47 billion in rail transportation investments by 2020.

The impetus for change is almost unavoidable. The gross domestic product of Argentina, Brazil, Colombia, Chile, and Peru has grown at 5.2 percent over the past five years, and is expected to continue on a similar trajectory in the near term. Economic growth supports further investment in infrastructure and equipment necessary to develop rail freight communication and logistics systems, says the report.

"With the average age of LATAM's locomotive fleet exceeding 40 years old, and a few models in active service for more than 50 years, rail companies have little option but to purchase new locomotives or refurbish old models to improve fleet availability and assurance of motive power," explains Shyam Raman, automotive and transportation research analyst of Frost & Sullivan.

One concern that could dampen investment is sustained inflation. Rail projects are often long term and capital intensive. That could be problematic. But increasing freight volumes, political stability, and new foreign investment are likely to deflate price concerns.

"Regulatory changes that promote foreign investment through public-private partnerships, in particular, support market expansion," explains Raman. "Foreign participants have begun entering joint ventures to minimize the risk of investment and penetrate the previously stagnant rail freight transport market."

Panama Canal Tweaks Toll System

A well-publicized labor dispute in 2014 between Grupo Unidos por el Canal, the European consortium contracted to build a third set of locks, and the Panama Canal Authority (ACP) delayed construction activity while the two sides wrangled over budget overruns. The expansion project was initially projected to cost $5.25 billion. Now the total may exceed $7 billion.

When complete, the new lock system will accommodate vessels three times the size of what currently passes through the Canal, which is a considerable improvement as far as economy of scale. But the ACP is also taking necessary measures to tweak its toll system and ensure it retains current traffic while clawing back lost market share from the Suez trade.

In late December 2014, the authority floated a new toll structure and is now seeking formal comments on the proposal.

"The proposal, in its current form, safeguards the competitiveness of the waterway, charges a fair price for the value of the route, and facilitates the Canal's goal of providing impeccable service to the global shipping and maritime community," says Jorge Luis Quijano, administrator for the Panama Canal.

The restructuring will price cargo segments by units of measurement, while aligning with customers' needs and modifying pricing for all Canal segments. For example, containers will be measured and priced on TEUs and dry bulk will be based on deadweight tonnage capacity and metric tons of cargo. 

ACP is also planning a customer-loyalty program for its container business. Frequent customers will receive premium prices once a particular TEU threshold is reached. The proposed tolls include significant reductions in the capacity-based charge, and price differentiation based on vessel sizes. Accordingly, the authority will share the risks associated with fluctuating economic conditions and lower-utilization return voyages.

Equally notable, the expanded lock system will now allow the Panama Canal to accommodate non-traditional traffic such as Liquefied Natural Gas (LNG) shipments. LNG vessels currently cannot transit through the waterway due to beam dimensions.

The proposed unit of measurement for LNG vessels is the cubic meter, which is widely used in LNG shipping, and will make it easier to calculate tolls for new customers to the Panama Canal. The revised toll structure also provides incentive for new LNG customers. Shippers that use the same vessel for a round-trip voyage through the Canal will have the option of receiving a special ballast fee, as long as the transit in ballast is made within 60 days after the laden transit was completed.  

Lithuania's Competitive Switching Brouhaha

Competitive switching is a hot topic in the U.S. rail market—a veritable third rail between captive shippers and Class I railroads. In Lithuania, a similar narrative is playing out across its border with Latvia.

The European Commission is looking into claims that Lithuania's state-owned rail operator Lietuvos Gelezinkeliai (LG) removed a railway track that connected with Latvia, thereby restricting shippers from using other rail freight operators in the two countries. If confirmed, such action would violate the European Union's antitrust rules.

LG suspended traffic on a corridor running between Lithuania and Latvia in 2008. It eventually dismantled the track. The European Commission opened an inquiry when a rail shipper filed a complaint. LG faces a fine of up to 10 percent of its annual revenue if found guilty of infringing on shippers' rights.

On a positive note, Lithuania became the latest European Union country to adopt the euro as of Jan. 1, 2015—joining the 19-strong Eurozone bloc. The move is expected to help insulate the former Soviet republic from increasing geo-political pressure in the region.

Adopting the euro further separates the country from Russia and re-enforces its identity as a EU member state.

The Netherlands: Innovator in Logistics & Transportation Safety

Inbound Logistics recently participated in an international media tour of the Netherlands, home to Europe's highest concentration of logistics service providers. Here's a look at how this nation's rich IT assets are advancing global research and applied applications in the logistics sector.

Driverless trucks. TNO, the government's applied research institute, is a partner in the new private-public "automated driving" program. The first phase will allow hundreds of self-driving trucks to zoom around Rotterdam, Europe's busiest commercial port, and on key highways linking to the port. Once safety kinks are worked out, Dutch leaders expect driverless cars will be a reality sooner rather than later. TNO is also intently studying how 3D printing—the "third industrial revolution"—will fundamentally change the future for manufacturing, transport, and logistics practices worldwide.

Cybersecurity cluster. Thwarting cybercrime is a major operational activity in all industries, including logistics and transportation. The uber-wired Netherlands, known as the "digital and secure gateway to Europe," is a leader in cybersecurity. A prized asset is the Hague Security Delta (HSD), the continent's largest security cluster. More than 400 security firms, employing 13,000 people, work with government and research entities to develop radically new cybersecurity, big data, and related tech projects. Exciting developments are expected from the HSD Campus, a new national security innovation center that opened February 2014 in The Hague.

Logistics safety. The STC-Group, an international educational institute for navigation, transportation, and port-related industries, serves more than 10,000 degree-seeking students and private-company employees annually through its schools and training facilities. The organization operates centers scattered around the Netherlands, and has branches on other continents. STC created the world's largest "park" of simulators. These technological marvels improve real-life performance and safety metrics by bringing education and training modules to life. The firm is also known for its advanced crane simulators, which use realistic visuals, movements, and sounds to teach all aspects of handling and storing cargo. STC's two Transport Chain simulators, with linked workstations and sophisticated proprietary software, show how disparate logistics roles must work together to move cargo quickly and efficiently.

Maritime safety research. Funded by 110 million euros, COMMIT/ is a six-year national public-private IT research initiative created to solve scientific and societal problems. One project in development is an automatic risk assessment system designed to increase the security of large maritime areas. The artificial intelligence-driven program will help law enforcement and military personnel find criminal or terrorist vessels easily, and predict the intent of any suspicious maritime activities.

With all this activity, the Netherlands continues to hold its enviable position as an innovator in worldwide logistics services.

—Lisa A. Bastian