A Year-End Review of Shipping Costs
By John Haber, founder and CEO of Spend Management Experts
Although leading indicators point to a continuing but very slow economic recovery in the United States, the U.S. stock market has been roiled by the twin forces of political gridlock in both Washington, D.C. and the Euro zone. The upcoming 2012 U.S. presidential election threatens to paralyze any financial stimulus at home while Euro-zone economic turmoil continues over a possible Greek default and the likelihood that financial unrest could domino into Ireland, Italy, Spain and Portugal all makes for a very uncertain Global economy.
As 2011 draws to a close and manufacturers, suppliers and retailers set their sights on the New Year, here are some of the market forces they should take into account.
Presidential election year:The contest to America’s highest office promises to be tight. It also looks like Washington’s grid-lock will remain in place until the contest is decided. This bodes for continued slow growth as federal stimulus initiatives are stymied by Congress.
Five-day delivery for USPS– Although it still lacks final Congressional approval, the plan for the Postal Service to implement five-day delivery will probably go into effect in fiscal year 2011. Despite its unpopularity among unions and many democrats, the plan has won the support of President Obama and could generate as much as $3.1 billion in annual savings. Mail will not be delivered to street addresses on Saturday, and mail will not be collected from blue street collection boxes or Post Offices on Saturday. Also, there will be no Saturday pickup of mail from homes and businesses. Express Mail will continue to be delivered six days a week. The new delivery schedule will have a profound effect upon organizations that rely on USPS shipping or a combination of private shipping and USPS shipping.
Collusion and price fixing allegations– In 2011, both the U.S. Federal Maritime Commission and the European Commission investigated price collusion among U.S. and internationally-based ocean shipping lines. European and Asian lines are under the gun for violating antitrust rules while U.S. shippers have been charged with fixing prices and increasing fuel surcharges on shipping lanes to Puerto Rico and on trans-Pacific routes. Railroads have been targeted as well. In particular, Union Pacific and Burlington Northern Santa Fe are being sued by Oxbow Mining, which claims the railroads conspired to raise prices on customers like the Colorado coal mine that Oxbow runs. While Congress has discussed regulating railroad pricing more closely, it has not approved any new rules. Railroads maintain that they must charge higher rates to cover their costs and reinvest in their costly track networks.
UPS and FDX’s refusal to negotiate with 3rd parties– Parcel shippers UPS and FedEx have not been exempt from pricing collusion charges either. This last year, parcel shipping consultant AFMS LLC filed a lawsuit against both companies alleging that they conspired to fix prices for parcel shipments by shutting third parties out of rate negotiations. The first hearing on the case is set for Jan. 13, 2012.
Fuel costs – The good news on the slow recovery is that oil prices are well below the panic prices of $115 a barrel. At the end of the first week in November, benchmark crude fell 40 cents to $93.67 per barrel. Commodities forecasts are calling for slower demand as Euro-zone trouble crimp European growth as well as Chinese exports for the foreseeable future. The bad news is that this is just the kind of market condition that fuels complacency amongst shippers. With little indicator of how the market will fare over the next few months, take this time to:
1. Optimize every carrier contract. What terms and conditions can be improved today?
2. Benchmark pricing. Have you confirmed – rather than assumed – that you’re paying the lowest price? Have you reviewed and justified every surcharge and accessorial?
3. Re-evaluate shipping method selection. Are you choosing higher-cost shipping methods when you could achieve the same delivery time for less?
Capacity Concerns:With fuel costs so unpredictable, many shippers are turning to railroad companies to move their goods across the supply chain. However, container shortages threaten many of the efficiencies offered by rail. Currently, rail container production has been lagging creating a decrease in capacity. This may eventually drive the cost of railroad shipping upwards.
Natural Disasters: On Aug. 28, Hurricane Irene swept up the Atlantic seaboard andwreaked havoc with widespread flooding and power outages. Nine short weeks later, the East Coast was crippled again by a freak Halloween Nor’easter. Clearly, the increase in natural disasters is affecting supply chains. Winter snow storms could very well inflict further damages in the months ahead.
Our conclusion? Today’s supply chain organizations need more aggressive spend management to reduce costs and mitigate risk in shipping. Traditional tactics like invoice auditing and refund recovery are great ways to cut shipping costs in a stable market, but the complexity of today’s shipping environment requires a deeper understanding of how to lessen the impact of industry, political and economic forces on corporate spending.
Edited by Kevin Scarpati
DHL Claim Multi-Sector Collaboration Key to Fighting COVID
Since January, global logistics leader DHL has distributed more than 200 million doses of the COVID vaccine to 120+ countries around the globe. While the US and UK recently rolled out immunisation plans to most citizens, countries with less developed infrastructure still desperately need more doses. In the United Arab Emirates (UAE), which currently has one of the highest per-capita immunisation rates, the government set up storage facilities to cover domestic and international demand. But storage, as we’ve learned, is little help if you can’t transport the goods.
This is where logistics leaders such as DHL make their impact. The company built over 50 new partnerships, bilateral and multilateral, to collaborate with pharmaceutical and private sector firms. With more than 350 DHL centres pressed into service, the group operated 9,000+ flights to ship the vaccine where it needed to go.
With new pandemic knowledge, DHL just released its “Revisiting Pandemic Resilience” white paper, which examined the role of logistics and supply chain companies in handling COVID-19. As Thomas Ellman, Head of Clinical Trials Logistics at DHL, said: “The past one year has highlighted the importance of logistics and supply chain management to manage the pandemic, ensure business continuity and protect public health. It has also shown us that together we are stronger”.
Multisector partnerships, DHL said, enabled rapid, effective vaccine distribution. While international scientists developed a vaccine in record time—five times faster than any other vaccine in history—manufacturers ramped up production and logistics teams rolled out distribution three times faster than expected. When commercial routes faced backups, logistics operators worked with military officers to transport vaccines via helicopters and boats.
In the UAE, the public-private HOPE Consortium distributed billions of COVID-19 doses to its civilians as well as other countries in need by partnering with commercial organisations such as DHL. For the first time, apropo for an unprecedented pandemic, logistics companies made strong connections with public health and government.
“While the race against the virus continues, leveraging the power of such collaborations and data analytics will be key”, said Katja Busch, Chief Commercial Officer DHL and Head of DHL Customer Solutions & Innovation. “We need to remain prepared for high patient and vaccine volumes, maintain logistics infrastructure and capacity, while planning for seasonal fluctuations by providing a stable and well-equipped platform for the years to come”.
How Do We Sustain Immunisation?
By the end of 2021, experts estimate that we need approximately 10 billion doses of vaccines—many of which will be shipped to areas of the world, such as India, South Africa, and Brazil, that lack significant infrastructure. This is perhaps the greatest divide between countries that have rolled out successful immunisation programmes and those that have not. As Busch noted, “the UAE’s significant investments in creating robust air, sea, and land infrastructure facilitated logistics and vaccine distribution, helping us keep supply chains resilient”.
Neither is the novel coronavirus a one-time affair. If predictions hold, COVID will be similar to seasonal colds or the flu: here to stay. When fall comes around each year, governments will need to vaccinate the world as quickly as possible to ensure long-term immunisation against the virus. This time, logistics companies must be better prepared.
Yet global immunisation, year after year, is no small order. To keep reinfection rates low and slow the spread of COVID, governments will likely need 7-9 billion annual doses of the vaccine to meet that mark. And if DHL’s white paper is any judge of success, multi-sector supply chain partnerships will set the gold standard.