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Over-the-road transportation index shows improvement (03/02/2010)

The American Trucking Associations' For-Hire Truck Tonnage Index rose 3.1% in January after posting an improvement of 1.3% in December. In a year-over-year comparison, the index rose 5.7% over January of 2009 levels. The ATA release showed that, “for all of 2009, the tonnage index was down 8.7 percent (slightly larger than the previously reported 8.3 percent drop), which was the largest annual decrease since a 12.3 percent plunge in 1982.”

The recent rise in demand for over-the-road services will begin to impact capacity, hitting some geographic regions a bit harder than others. With West Coast activity reportedly increasing from both inbound and outbound transportation activity, the demand for over-the-road services has increased with it. Separately, air cargo, rail, and the deep sea shipping industries have all also experienced recent improvements in activity. Find out more here.

Durable goods orders down unexpectedly in January--Aircraft orders surge (03/02/2010)

The Durable Goods report for January showed that non-aircraft orders dropped unexpectedly by .6% after rising by 2% in December. Economists with several prominent manufacturing and credit management associations say that early reports for February suggest this softening may be continuing into the heart of the first quarter.

Shipments of Durable Goods (which factors into the inventory figures) were also down more than expected, dropping .2% in January after rising 2.4% in December. Inventories were essentially flat during the period.

The drop in Durable Goods orders was a setback of a strong recovery for the economy. However, for the airline industry, it was a sign of the importance being placed on more fuel efficient aircraft and the willingness of companies to invest in the future. A healthy airline industry is important to the overall recovery process of the economy; thousands of suppliers and tens of thousands of jobs count on it. But, the industry cannot carry the burden of full economic recovery alone. Because of this, the general sentiment on the street is that the recovery of the economy may not be as robust as was thought at the end of January. Examine this further.

Diesel prices increase--Oil remains in the high 70s (03/02/2010)

The national average price for diesel increased more than 7.5 cents last week to hit $2.83 a gallon. To put this in perspective, diesel is now 70 cents higher than it was at this time last year, when oil prices had plummeted to $35 a barrel from $147 a barrel the previous summer. Overall inventories of distillates have dropped because of recent winter weather events on the East Coast, causing a resupply of inventories in the last several weeks. Oil prices moved to just over $80 a barrel before softening at the end of the week after a weak unemployment and durable goods orders report.

There are several factors that are impacting oil prices. Prior to some of the weaker economic news of late, the promise of rising demand had begun to weigh on oil prices. In addition, the U.S. dollar continues to fluctuate. As the value of the dollar drops against most foreign currencies, it purchases less oil per dollar--and the relative cost to purchase oil increases. So, even if consumption of oil does not increase substantially, a weaker dollar can send prices upward. In addition, there have been geopolitical tensions in the Middle East and Africa that have added to supply concerns.

Lastly, the Chinese New Year has ended and many of the commuter workers will be returning to their jobs, increasing oil consumption in the country and increased energy consumption in general. That may also play a role in the price oil moving forward and the relative impact that it has on diesel prices. Find out more.

Aluminum prices separate from rationale supply and demand dynamics (03/02/2010)

The price of aluminum no longer has much to do with the traditional drivers of demand and supply. The vast majority of the aluminum in the world is now tied to financial arbitrage deals that are exploiting the difference between the spot and forward markets. The estimate of the amount of physical aluminum stock that is tied to these financial instruments is between 70% and possibly 90%.

The physical stocks in the London Metal Exchange now add up to enough to build 68,000 Boeing 747s (over 4.5 million tons). This is gross over-supply in even the best of industrial times. Data would suggest that there is plenty of aluminum available on the open market, but that is not the case, as much of it is tied up in financial instruments. Thus it would appear that there is a 110-day supply of aluminum when the reality is that there is less than a 50-day supply.

Businesses that trade in raw aluminum are being dealt a dose of this speculation influence on prices. This bubble in the price of aluminum will ultimately burst, if investors start to liquidate aluminum stocks before manufacturing demand is sustainable enough to warrant high prices over the long term. Get the rest of the story here.

Cargo increasing at nation's west coast ports (02/24/2010)

Comparing January 2009 with January 2010, cargo running through the LA Basin was up 1.6%. Through all of 2009, total volume through the ports was off nearly 17.4% from 2008. Considering the impact of the global economic recession and its “crest” in 2009, the overall drop in tonnage running through the ports for all of 2009 is not a surprise. But, given that economic recovery is still slow in getting underway, what would explain the 1.6% jump in cargo volume in January?

Businesses are arguably facing inventory lows not seen in perhaps the last decade. There have been concerted efforts by the nation’s retailers to keep inventory at a manageable level--and not allowing much carryover. After many companies conducted their physical inventories in early and mid-January, many purchasing managers were unbridled and allowed to rebuild some of their inventory. That, and companies trying to get merchandise state-side (imports from China) prior to the start of the Chinese New Year helped to send volumes up in January.

There are still likely to be average increases throughout the year on a monthly basis. Most economists agree that the recovery is fully underway--even if it turns out to be a slow and lengthy one. And, given that 2010 figures will run against some of the lowest monthly comparisons from 2009, we should see positive growth through most of the year, spiking in the traditional peak period starting in June. Find out more here.

2010: The year of flexibility continues (02/24/2010)

It is difficult for professional economists to get a firm handle on the rate of recovery for the U.S. economy--and even whether we are officially into the recovery cycle. Numerous economic indicators are providing mixed messages for the overall economy. But, there are several things that are becoming obvious.

First, this is not going to be a consumer-led recovery. Economists continue to reiterate this and many of the toughest pressures from economic challenge are bearing down on consumers. Unemployment remains high and a number of key expenses are starting to creep up (gasoline, energy, interest rates, food costs), ultimately reducing discretionary income and reducing spending.

This can be seen in the latest Producer Price Index. For the first time since 1982, prices for consumers goods (less food and energy) fell in January. This deflation effect is being generated because retailers are being forced to drop prices to stimulate activity. Consumer access to credit, reduced incomes, and higher prices for core necessity items ultimately is having an effect on discretionary spending as mentioned earlier.

Second, and on a positive note, businesses have started to spend on infrastructure and productivity-improvement types of investments. Technology companies are seeing a nice uptick in activity as process and productivity improvement purchases are being used to offset the need to hire or replace former workers. This appears to be a trend that will continue to permeate through much of 2010. For those companies that support the business-to-business markets, this is good news. For the jobs market, it has an opposite effect. It creates structural unemployment, which is a permanent loss of certain types of jobs in an industry because of modernization, substitutes, or changing market trends.

The net result of this uncertainty is a need for supply chain managers to remain flexible through the recovery with many transportation service options at their disposal. Examine this further.

Proposed jobs bill increases infrastructure spending--driver demand likely to increase (02/24/2010)

Congress and the Administration are focused on increasing job creation. Going back to the Depression Era, debate rages over the effect that massive infrastructure spending had on creating jobs during some of the roughest periods. Building projects like the Hoover Dam had a lasting effect at the time and required thousands of workers directly, and tens of thousands indirectly (the multiplier effect). Congress hopes to recapture some of that magic with the new jobs bill that will help bring funding to transportation infrastructure in the U.S.

Without debating the merits or feasibility of such a plan, there is one certainty: for those with a commercial driver’s license, better times could be on the way. Historically, the over-the-road and construction industries compete for professional heavy equipment drivers. If thousands of new construction jobs are created for the highway infrastructure programs proposed by Congress, there will be new demand created for professional drivers, at a time when transportation recovery is also getting a boost from inventory rebuilding activity.

This should attract new applicants to the profession as a result. Nobody in the industry is discussing a job shortage--the trucking industry has idled tens of thousands of trucks over the last two years during the recession. But, between retirements and an uptick in general transportation activity, the employment picture for drivers should get better over 2010. That’s assuming that the bill gets through Congress in its current form. Find out more.

Biofuel development to increase with administrative changes (02/24/2010)

The Obama Administration has pushed to change the requirement for biofuel production nationwide, moving the current production level of 11.1 billion gallons to more than 36 billion gallons (21 from advanced non-ethanol biofuel). More than 140 billion gallons of gasoline and 40 billion gallons of diesel are consumed in the U.S. every year (2006 YE DOE figures); the administration’s new biofuel threshold will eventually cover 20% of our fuel needs.

Given the volatility in fuel prices experienced since the summer of 2008 (high of $147 a barrel to a low of $35 per barrel), there are concerns by the administration that the U.S. is exposed significantly to any supply problems that might emerge from various oil supply regions around the globe (Middle East, Africa, South America, Russia). Many economists believe that the spike in oil prices in the summer of 2008 created the “tipping point” for the global economic recession and financial crisis.

Oil prices have shown recently that the risk of higher prices for basic supply can move higher without significant increases in demand. There are many different influences on the cost of oil that have affected the price volatility. With low demand and growing U.S. oil stockpiles, the price of oil has still risen over the past week, approaching $80 a barrel. Analysts are still predicting that the price of oil will approach $95 a barrel by the end of 2010, barring any changes in supply or demand projections. Any unrest in a key supply market would send this price projection much higher.

Understanding how long it takes to get alternative fuels, refilling infrastructure, and vehicles manufactured capable of using new fuels, the Administration will continue to push the spending necessary to get actual production started. It will take this investment in research and development and build-out of infrastructure, along with a solid commitment by consumers and commercial users of alternative fuels, to make a difference in our reliance on foreign sources of oil. Get the rest of the story here.

The blizzard of 2010 impacts on business (02/17/2010)

The blizzard of 2010 that dumped up to 23 inches of snow on the nation’s Capitol and closed the Federal Government offices in D.C, stranded business travelers across the country, and impacted countless meetings up and down the coast will have a significant impact on the general business environment. Estimates suggest that the Federal Government alone lost nearly $100 million in productivity each day that the storm had operations closed. Just in time for the resumption of the weekend, the upper northeast region is expected to get another round of winter weather as early as Monday. Although estimates are still being compiled across the country, and it will take likely through the first quarter to fully understand the total impact of the storm on lost productivity, the “storm of the century” in 1993 cost an estimated $6 billion (in 1993 dollars). This one is likely to reach upwards of that.

There is a plus side to this blizzard--companies that produce and sell winter merchandise that help people get through the snow storms are benefitting from a major push right at the end of the season. Retail sales for winter merchandise will have taken a nice lift in February, and helped to clear any shelves full of winter inventory going into the spring.

IEA projects oil demand to be higher than original forecasts in 2010 (02/17/2010)

The International Energy Agency has revised its previous forecast for oil consumption in 2010. “Demand is estimated at 86.5 million barrels a day, representing an increase of 1.6 million barrels a day compared with 2009 levels,” the IEA said in its monthly report on Thursday. “This growth will come entirely from emerging, non-OECD economies.” China’s continued expansion and economic health will be the primary market fueling oil consumption. The country is expected to have more than 12 million new cars sold in 2010, equaling that likely to be sold in the U.S. But, a significant portion of these purchases will come from first time car buyers (or the resulting trickle-down effect in getting more used cars on the market through trade-ins). In essence, the majority of these 12 million vehicles will ultimately result in 12 million more vehicles consuming gasoline (and thereby oil).

Light sweet crude oil is bouncing between $72 and $76 a barrel, but has generally started to find support and will likely be rising slowly through the year. Several analysts have pegged the price per barrel on average to hover in the $95 bbl range toward the end of 2010 if current economic trajectory is maintained. As to what is driving the price of oil on a daily basis: the fluctuation of the U.S. dollar seems to be one of the primary factors affecting it. Secondary to that are geopolitical activities (tensions in the Middle East and Russia, Venezuela), uncertainties in global economic recovery in Europe, and the health of the U.S. recovery. Last on the list would be current spikes in consumption due to tough winter weather on the East Coast (increases consumption of heating oil) and cold snaps in Europe increased demand for heating oil in that region. Explore further at: http://www.marketwatch.com/story/oil-futures-rise-as-iea-hikes-demand-forecast-2010-02-11?reflink=MW_news_stmp.

What is really happening in the Dry Bulk Industry? (02/17/2010)

Over the past month, large discrepancies have been reported in the news concerning the dry bulk shipping industry. One series of stories suggests that new capacity will be coming online at an alarming rate for an industry already suffering from an overcapacity situation. Two hundred twenty-one shipping vessels are expected to come online this year if all orders are filled. Yet, on the other hand, we hear stories of capacity shortages on the West Coast and price spikes associated with difficult to find capacity. What is really happening?

A number of the world’s top maritime carriers are reporting significant losses for 2009, and some are at risk of becoming insolvent if foreign governments are not able to support their flagged vessels with financial bailout funds. Considering the outlook for 2010, many analysts cannot envision a situation in which the volume of goods moving between key global markets does not improve significantly throughout the year. But, the maritime industry is signaling to the marketplace not to expect significant improvements in the capacity to tonnage ratios before 2011.

This articleprovides some estimates for where dry bulk rates may be headed for 2010, assuming the market behaves normally in a supply vs. demand environment. And right now, that balance is tilted negatively on the supply side (excess). But, there are some spot shortages of capacity--specific shipping lanes where unexpected demand has maximized the available capacity in those lanes. This has created a capacity shortage in some lanes moving off of the West Coast of the U.S. These conditions are likely short-term as capacity will find these tonnage opportunities, but will impact business costs for shipping in the meantime nonetheless.

Cargo theft and piracy still a problem worldwide (02/17/2010)

Although not a headline story these days, piracy on the high seas and even in the domestic U.S. market is still on the rise. Just this week, a bulk chemical hauler was hijacked by Somali Pirates and several other attempts were made, despite stepped up security efforts by the international community.

Some security experts cite the global economic recession for the boldness and aggressiveness that thieves are using to steal cargo. Challenges from a drug lord uprising along the U.S./Mexico border have also impacted theft figures and helped to show that the U.S. had a significant increase in cargo theft in 2009 (as opposed to some markets that showed a decreases, such as the UK). As a result of the increased boldness of thieves, many companies have stepped up security measures and have tightened the tracking of cargo, especially cargo deemed as sensitive (electronics, pharmaceuticals, ammunition, etc.).

Using certain types of shipping services, such as Sealed Divider, seems to be catching on for certain types of shipments moving in certain portions of the country.

If the unemployment rate continues to hover in the 10% range and as states cut back on the amount of social aid they can provide, the rate of incidence of all types of crime will increase. It is an unfortunate reality of economic struggles. Supply chain managers will need to consider this among their list of items for risk mitigation strategy development. Penetrate further into this at: http://www.logisticsmanager.com/Articles/13112/Cargo+theft+rises+in+North+America.html.

Baltic Dry Index drops--Seasonal variation or cooling economy? (02/10/2010)

The Baltic Dry Index (BDI) is one of the oldest and most widely watched indexes in the world. Started in the late 1700s, the index measures global maritime prices for shipping a core set of commodities. Analysts believe that the index shows the earliest signs of global economic activity because the types of commodities measured are typically some of the raw materials that feed early stage manufacturing processes.

The BDI hit a low of 667 in the spring of 2009, down just six months after recording one of its all-time highs above 11,000 in the summer of 2008 (during the oil price spike period).

Over the past several months, the BDI has recovered somewhat, moving into the 3,500 range. But, over the past week, the index has started to soften, moving downward below 2,500.

Some believe that the build-up of raw materials while the U.S. dollar was weaker led to the run-up in the index. Typically, we would say that the global economic environment would be showing signs of volatility and weakness as the index drops. But, there is also a relationship between the unusually high capacity levels in the maritime industry and the function of the index. There may be more supply/demand dynamics affecting the index than normal--bringing the index down.

There is also one other factor that could be sending the index downward--the typical January lull in retail orders and the pending Chinese New Year (when much manufacturing and the movement of goods slows) could be playing a larger role.

As we move further into February, it will become clearer whether this is an unexpected weakening of global economic activity--or just a function of seasonality and supply side dynamics. Learn more at: http://seekingalpha.com/article/186431-baltic-dry-index-continues-to-drop.

What are earnings reports in the Transportation Sector telling us? (02/10/2010)

Thus far, several large companies in the transportation sector have reported earnings. From those reports, it is possible to get an early indication of some of the global economic conditions and possible insights into their direction.

Global volumes appear to be strong in the Asia to Europe trade lanes, and slightly improving in the Asia to U.S. lanes. U.S. to Asia trade has been strong of late as the U.S. dollar remained weak against most currencies. Recent strengthening of the dollar has slowed some of that trade--but prices in the maritime sector remain strong in those lanes.

U.S. domestic activity is “improving” but seems to remain weak according to the truckload providers that have reported thus far. Pricing pressure remains but supply chain managers are starting to feel higher prices in most modes as the economy slowly improves.

For the outlook, most of the transportation companies remain optimistic that volumes will begin improvement in the latter part of the second quarter and into the traditional peak third quarter. Much of the rebuilding of transportation activity rests with the health of the retail sector, and its need to rebuild inventories. If the U.S. consumer shows a stronger resilience in February, more inventory rebuilding activity will occur--and general activity for manufacturers and transportation companies will respond with growth. Given the uncertainty in global economic markets, there seems to remain a tremendous amount of conservatism in the business environment--one that may be tough to overcome with the “hits and misses” of the daily economic report.

Beneath the surface: Retail sales report for January shows strong management practices (02/10/2010)

On the surface, the retail sector is showing positive year-over-year business growth in the 2.5% range for the month of January. This is positive in what might have been an otherwise lackluster January for the sector. And, looking at how retailers have managed their business through the second half of 2009, many are reporting fourth quarter earnings that exceed expectations--some by a significant amount. It is a testament to the sophistication of the supply chain and the strong management practices that these companies have put in place to handle one of the worst economic recessions in decades.

There are several items to consider as we look at the sector and the period ahead. Retailers continue to focus on inventory management and maximizing their supply chain focus on minimizing Total Landed Cost. That, along with continuing to maintain low inventory levels in a fairly weak demand market [despite 2.5% growth in January, this was an improvement over January 2009 which was 5.7% worse than January of 2008--which tempers the January 2010 growth a bit]. So, many have done quite well in keeping inventory levels low as demand somewhat struggles to fully return, and profitability has improved as a result.

Looking ahead, many of the nation’s largest retailers have offered an optimistic view of 2010 and growth prospects for the year--even if jobless rates remain low and the consumer is slower to return to active spending. January results illustrated the resilience of certain markets and those that had been struggling found some pockets of strength. These increases in volume can be described by looking at consumer spending trends. For example, the teen clothing segment was hit fairly hard over the past six months--but likely rebounded in January as teens were suddenly able to use their Christmas gift cards to make discretionary purchases. As we move forward in 2010, these types of anomalies will continue to surface throughout the market--making it a little difficult to rely on demand planning accuracy. Uncover more details at: http://sanfrancisco.bizjournals.com/sanfrancisco/stories/2010/02/01/daily58.html.

Managing supply chain risk in an uncertain marketplace (02/10/2010)

A number of surveys are showing that managing supply chain risk is still one of the top concerns for supply chain managers going into 2010. The trauma that the economic recession laid at the feet of supply chain managers over the past 24 months has helped to usher in this significant conservatism. Financial managers and those worried about liquidity are still reeling from the experiences of early 2009, where inventory levels were high coming out of the fourth quarter of 2008 and demand began to plummet.

Managing through this next period will require a lot of flexibility in the corporate supply chain, and managing on Total Landed Cost will remain important. Managers are concerned about managing risk against wild swings in currency exchange rates, fuel prices, the health of their parts and raw materials suppliers, and the strength of their supply chain partners to get through potential disruptions in business activities. If geopolitical uncertainty is added to the list of concerns and threats of sweeping legislation that could create opportunities, or add complexity, the broader risks of managing through this “recovery period” will remain center-focused.

A number of companies are using this period of recovery to make investments in technology and software to keep overhead costs low, until some of the volatility is removed from the marketplace. As new technologies become part of the recovery process, this actually provides supply chain managers with an opportunity to improve their risk management capabilities. Moving further upstream in the supply chain and toward effective demand planning resources, this recovery period will change the way business is conducted in the future. Unfold more details at: http://www.earthtimes.org/articles/show/mfgwatch-survey-manufacturers-continue-to,1136970.shtml.

Foreclosures and the housing market--Key indicator for the markets (02/03/2010)

Analysts point to a decline in the housing markets in 2007 as the tipping point for the economy, and the onset of the global recession. When housing markets are healthy, construction activity drives manufacturing, services, and banking to a large degree.

Remodeling strength at the same time (sales of existing homes) helps drive retail sales.

Economists show that the residential housing market can account for as much as 7.5% of total GDP--which would put the total impact in real dollars at almost $1.1 trillion. That doesn't account for the role that housing valuation has on consumer credit (consumers using home equity to borrow additional funds for durable goods spending, etc.). Market analysts this week estimate that the number of foreclosures will continue to increase in the first half of the year, largely due to the jobless rate which continues to climb (even if the decline appears to be slowing). It is important to remember that housing market activity varies widely based on geographic location. Retailers and manufacturers can prosper in these areas--and reports by retailers show that geographic dispersion of activity.

It is important to keep the relationship between the unemployment rate (including the "effective unemployment rate" which is approaching 18%) and the housing market. These are two key indicators--housing being one of the leading indicators and joblessness being a lagging indicator of economic health. Find out more at: http://www.cnbc.com/id/35055884

Driver texting ban--No impact on safe professional drivers (02/03/2010)

As is typically the case, by the time the Federal Government institutes a mandate, the commercial industry is usually several years ahead of the process.

Safe driving is one of the key hallmarks of most commercial trucking operations.

For large corporate providers of over-the-road service, it is not only critical in keeping insurance and incident costs down, it is important in protecting the professional drivers that are the backbone of the industry and the impact on their families from a hazardous event.

Companies like YRCW boast the utmost of safety and have produced multiple million-mile drivers without incidents. YRCW is one of the few to have a 5 million miler without an incident.

The regulation will not impact operations or the process by which drivers are communicated with for most professional companies.

Many of them have multiple methods of communication and will not experience any challenges with this law. Learn more at: http://www.examiner.com/x-15044-Truck- Industry-Examiner~y2010m1d27-OOIDA-Supports-Ban-on-Texting-but-Questions- DOTs-Process

President's State of Union Address promises change for international business (02/03/2010)

President Obama sent shockwaves through the markets for companies that conduct business globally. Some are likely to benefit as he promised to double exports from the United States to foreign countries using trade pacts with South Korea, Panama, and Columbia--as examples.

Part of this focus would capitalize on the United States' rich sources of natural resources and food production. Some in the transportation industry will benefit as a result.

On the flip side of the international business equation, he also threw some cold water on markets by suggesting that additional taxes would come on companies that "outsource jobs" to foreign countries. This is a proposal that has been bantered about in Congress over the last year, and has typically faced bi-partisan challenges. Pro-business groups believe it would slow growth and create a form of isolationism with some key global trading partners. Proponents believe it would help to spur both the manufacturing and services sectors in the U.S.--creating jobs in the process and helping the general economy.

In both cases, each piece of legislation would likely face a tough Congressional battle-- and much is at stake.

When legislation actually hits the floor of Congress, it is likely to look much different than what was announced last night by the President--and will be significantly less significant if a bill actually gets to his desk for signature. Read further at: http://www.reuters.com/article/idUSTRE60R4KB20100128?type=politicsNews

Pickens' plan gets a boost from President's outlook for 2010 (02/03/2010)

Boone Pickens has been a proponent of moving more heavy commercial vehicles to natural gas--reducing the demand for diesel and reducing the country's reliance on foreign sources of oil.

President Obama's speech on Wednesday of last week provided enough of a hint as to the administration's direction for 2010 that the supports of Pickens are jumping for joy.

Several key producers of natural gas took comments in the speech as positive for their prospects in 2010 and beyond, and that natural gas would become one of the key sources of energy as a result.

Although some of the first adopters of natural gas fuels for commercial size vehicles will come in the mass transit industry, there are many companies beginning to experiment with implementing a more comprehensive natural gas program for their vehicles. But, the investment required to build a comprehensive program (from refilling stations to maintenance facilities, mechanics, parts suppliers, etc.) will take years to perfect to make a sizeable dent in the demand for diesel.

If the government provides incentives for companies to more aggressively pursue alternative fuels to diesel, it may speed the process. But for now, the conversion will be slow despite strong efforts by major providers to conduct research and development on those new technologies. Check out more at: http://www.ibj.com/pickens-naturalgas-planmay- prove-boon-to-truck-builders/PARAMS/article/15940

Oil prices generally falling despite drop in national inventory levels--dollar at play (01/27/2010)

The market has witnessed oil prices steadily inching their way into the $80 dollar per barrel range over the last quarter. Higher demand for heating oil, seasonal holiday travel, and a drop in U.S. crude inventory prices helped to increase the price to higher levels. However, the price for oil now seems to be running counter to demand dynamics, falling in the past week despite dropping crude inventory levels by 1.8 million barrels in the U.S. Analysts believe that a strengthening U.S. dollar could be more at play.

The IEA (International Energy Association) and other analysts watching oil prices still generally anticipate that the average price per barrel will approach $90 by the end of the year--despite varied views on how strong and aggressive global economic recovery will come.

Given how pivotal a role the value of the U.S. dollar plays in the price being paid for oil, conditions outside of primary supply and demand can force prices to swing wildly. In early 2008, it was not uncommon for oil to fluctuate as much as $10 in daily trading. We do not see that much volatility in the price of oil today. But, the impact on supply chain managers is significant between oil prices at $60 a barrel versus $100 a barrel--and key decisions have to be made concerning sourcing and distribution if the price continues on an upward trend. Understanding what is driving the price of oil is half of the battle in understanding where prices may ultimately go.

China--a tale of growth, opportunity, and fear (01/27/2010)

China’s banking industry has been hit with two preliminary moves by its Central Bank to slow lending and stem the threat posed by inflation. China’s economy has hit a strong stride in the second half of 2009, “expanding 10.7% in the fourth quarter from a year earlier, picking up from 9.1% in the third quarter and bringing full-year growth to 8.7%” according to the Wall Street Journal (WSJ). Reports released just last week on inflation told a worrisome tale: “consumer prices in December rose 1.9% from a year earlier, accelerating sharply from the 0.6% rise in November, which followed nine months of declines. The producer price index in December rose 1.7% from a year earlier, well above expectations for a 0.5% rise and reversing November's 2.1% drop”, again according to the WSJ.

The Central Bank has increased a key interest rate for loans to banks, making it more expensive to get funds for lending to consumers and businesses. It also increased the amount of cash the bank must hold in reserve--further tightening debt ratios and limiting spending. For U.S. companies, the impact may come in both positive and negative measures. As costs for Chinese companies increase as a result of inflation, there may also be an increase in the price of goods purchased from them. There are also some concerns that the Chinese economy may have to be slowed enough that some of the consumer spending on autos and other household items that have helped to spur some U.S. export activity may also slow. This is a situation to be watched over the next several months. It could affect liquidity for Chinese companies thereby reducing investments in growth initiatives, foreign investments, and credit terms with the U.S. import market.

Pickens believes alternative fuel bill can pass by summer (01/27/2010)

Billionaire businessman Boone Pickens said last week that his proposal to provide tax incentives to promote the use of natural gas vehicles in both private and public applications could have enough bi-partisan support to pass by this summer. The plan would provide incentives to purchasers of natural gas vehicles and offer significant tax breaks to refueling stations to build the infrastructure to support the build out of this plan.

Analysts admit that the plan, when fully implemented, will create new industry and economic expansion at the same time it reduces emissions and diverts some of the reliance on foreign oil to more plentiful North American sourced types of fuel. Opinions obviously differ on the viability of the plan, the ability to get enough incentives for consumers to take the risk of purchasing one of these vehicles, and the support from companies that operate heavier duty vehicles to adopt the technology and start using the fuel.

For manufacturers that use natural gas as a key energy input, prices will increase slightly--offset by what many hope is a drop in heating oil and gasoline/diesel fuel costs as demand drops for oil. There will be much more on this plan over the next several months as Democratic and Republican sponsors bring it to the floor of Congress.

Maritime sector looking for price increases in 2010 (01/27/2010)

The maritime sector has had a difficult time weathering the global recession--especially through the latter part of 2008 and throughout all of 2009. Many companies in the sector are struggling to trim costs enough to retain current service levels and many lanes and frequency of sailings have been cut.

In this link, different maritime companies have begun to message to the marketplace that they are considering price increases on container shipping to and from certain locations. These price increases are being taken at a time when capacity is still outstripping demand, and fuel costs have begun to inch upward closer to $80 per barrel. Several executives in the sector have stated that they see the relationship between capacity and demand stabilizing late in 2010, and material growth will likely not set in until 2011.

For past Industry Insights articles, please visit the Industry Insights Archive.

Oil spikes on heating oil demand and trouble in Russia (01/20/2010)

Oil hit $83 dollars a barrel last week in trading as energy demand rose 21% over the prior year and an Arctic Clipper had just started its path southward. Analysts also were watching the situation in Europe and a dispute between Russia and Belarus carefully for impacts to supply. Further demand pressure was also building as several key economic indicators in the U.S. and China showed promise that material economic recovery was truly underway. All of these conditions helped to send the price per barrel up almost $13 dollars in just over a week.

Analysts believe that there is a tremendous amount of speculation building back into the price of oil. They point out that the price per barrel was only $35 last year at this time, during a period when cold weather concerns around the world were also affecting prices.

Looking forward, the price of oil and volatility in the market should be a significant concern. Demand for oil in China continues to increase and the rest of the globe has begun to recover. Prices will recede slightly once the tough winter season is over and heating oil demand subsides, but could get replaced by growing economic activity and increased general demand. The speculator market will also play a role in keeping prices higher.

American Trucking Associations (ATA) truck tonnage index improving--slightly (01/20/2010)

A key measure of tonnage running through the total trucking industry showed modest month-over-month improvement, rising 2.7% between October and November. That increase was only overshadowed slightly by a year-over-year decline in November--2008 being a bit stronger than 2009.

The ATA index measures total tonnage across all modes and forms of trucking. Each sub-sector in the industry would report slightly different results.

Looking forward, there are a number of challenges expected in the year ahead--most of it corresponding to an uncertain period of growth and contraction in the retail and manufacturing sectors. Bob Costello, Chief Economist and Vice President for the ATA, raised this caution in the ATA report, saying that there was still a lot of questions about the economy and the sustainability of the recovery.

Baltic Dry Index softens after two month decline (01/20/2010)

The Baltic Dry Index is one of the most watched economic indicators on the globe, having been key in predicting economic activity since the late 1700s. The index helps to gauge economic activity by measuring the price to ship a number of key commodities in the top trade lanes in the world.

After showing a strong run-up in the index over the year, coming off of a low of 678 during the fall of 2009 (after the oil market started to plummet), the index has scrapped its way back to 3,200. Importantly, the index has fallen over the past several months as commodity purchases in China have slowed after the summer stockpiling of raw materials by manufacturers.

The index tells us that the international shipping market and economy is generally in a holding pattern, waiting on real economic recovery in the U.S. sometime in 2010. Early increases in the index show that raw material inputs are moving into the manufacturing supply chain far upstream. Manufacturing output would begin to flow out of these processes over the first quarter as companies rebuild inventories coming out of the fall shopping season.

Air screening security to get attention in 2010 (01/20/2010)

One element that will certainly change in 2010 is the amount of vigor that the Obama Administration will place on securing the nation's skies. The close call on Christmas Day from the Detroit bomber that attempted to bring down a plane with a small, but high explosive, only added to the urgency to get changes made that will tighten security.

As a result of this attempt and threats to the U.S. by other terrorist organizations, there will be an intense overhaul of the security systems that currently screen both passenger and cargo that ride on aircraft.

A clear challenge in this may be the delays and cost associated with meeting new security requirements imposed by the TSA (Transportation Security Administration). Supply chain managers will have to adjust cycle times to address the changes that might come as new screening rules are imposed. Some may also opt to utilize high-speed ground truck transportation as a viable alternative if the system really bogs down.

Eventually, the industry will adapt practices and adjust to increase and improve clearance of cargo. Until then, shippers will have to keep their options open as rules tighten.

EU report signals near source manufacturing trend spreading worldwide (01/12/2010)

A study from the EU shows that 1 in 7 manufacturers moved some production back to the EU as commodity, transportation, and currency price fluctuations occurred over the past two years. The U.S. is experiencing similar trends in that companies are weighing the option of producing more merchandise closer to the markets in which it is consumed. Until now, that trend seemed to be relegated to the U.S. market--but this recent study confirms that this phenomenon may be happening around the world.

One of the few certainties in 2010 is that companies will be confronting continued volatility and uncertainty. This will force many to approach 2010 from a "risk aversion" perspective. Setting up multiple sourcing markets is a trend that helps in mitigating risk and reducing exposure to significant shifts in everything from oil prices to currency and commodity prices. Now that the YRC Worldwide Jan. 6 Insight / draft 2 /January 4, 2010 threat of trade wars also seems to be taking on a more prominent role in geopolitics, additional risk is being thrown into the mix. Supply chain managers will need to keep flexibility and visibility as key hallmarks of a successful supply chain operation.

Air cargo remained strong towards the end of 2009 (01/12/2010)

Air cargo got a boost from retailers and manufacturers using smaller shipment sizes moving extremely fast--creating demand for international air cargo in the process. One of the key questions heading into 2010 is the sustainability of the international air cargo business.

One theory suggests that as demand slows in early 2010 (part of a typical annual cycle), the time to replenish inventory stock will extend--and allow for different forms of slower modes of transportation (maritime, rail, etc.). As supply chain managers have more time to replenish inventory, various forms of transportation open up to them. The only trend that would reverse this is if managers opt to replenish with unusually small orders of merchandise. This would reduce shipment sizes and create more demand for the air cargo mode. As a result of recent increases in demand, pricing for the international air cargo market has strengthened. However, there is a high likelihood that these prices may not hold early in 2010.

Diesel prices set to increase in 2010--but by how much? (01/12/2010)

Supply chain managers know that one of the biggest costs they confront is the impact of fuel costs on the supply chain and total landed cost of moving products around the world. In 2008, this impact became glaringly clear as the price per barrel shot up to $147 only to crash back to $35 by early 2009. It affects everything from sourcing strategy to retail pricing actions.

For 2010, increased global economic activity would easily suggest that oil prices will ultimately increase with demand. Analysts are predicting the full impact of the price of oil, refining capacity, and demand on the price of spot and pump diesel, suggesting that it will likely still remain under $3.00 per gallon through most of 2010. This may be conservatively low given that current demand is still weak and the price of oil has inched up to nearly $80 per barrel. Any disruptions in supply (hurricanes, conflict, terrorism, etc.) would send prices much higher quicker. The price of fuel is a factor that must be watched closely by supply chain managers in 2010--and volatility in this segment is surely to follow.

Innovation in packaging to be popular in 2010 (01/12/2010)

Once the primary thrust of global economic recovery has firmly taken root in 2010, supply chain managers will begin to once again start considering innovation to help contain costs as expansion starts. Rather than resort to simply replacing pre-recession operations, many will consider new approaches to inventory management, transportation, and packaging. Innovation in packaging is not a new trend, but one that will gain momentum once capital investment is available. The innovative collapsible container is just one of many new concepts that will likely start to hit the marketplace in the early part of 2010. Worldwide, recovery will spur new thinking--which will allow more new concepts to see current markets.

Ocean shipping industry next on climate curb list of industries to regulate (12/16/2009)

Although relatively untouched by regulators on a global scale, the ocean shipping industry is likely to get targeted after the UN Summit on Climate Change. Environmental groups have targeted the deep sea shipping industry as being one of the larger polluters in the industry but have not been successful in getting tougher regulations passed on the industry.

Geographic activities such as those in the LA basin have forced maritime carriers to change operations when in port, but there is little regulatory activity against the sector on the open seas. Regulators want to change that and impose carbon emission taxes on carriers to try and provide incentive for them to make modifications in equipment or processes to reduce emissions.

The impact on the transportation industry will come through higher fees for the deep sea shipping component of the movement of goods to or from the U.S. Whereas nothing thus far is imminent, there is enough interest in getting change occurring that there are likely to be some pressures placed on maritime carriers in the near future. Supply chain managers should be wary of potential impacts from any environmental control legislations or geographic taxes imposed on those providers in various transportation sectors

Global supply chain in focus for economic revival (12/16/2009)

Experts are focused on the health of the global supply chain and its implications on the health of global economic recovery. In order for recovery to be sustainable, the global supply chain must get well--with trade happening at a brisk pace in both import and export directions. For that to happen, uncertainty must be taken out of the markets.

For instance, a stable dollar, reduction in regulatory activity, and controlled Federal deficit will help to instill more confidence in the market. With that stability would follow job creation and an improving global supply chain environment. Without this, job growth will suffer, inventories will remain lower, demand will be more unpredictable, and businesses will continue to operate on a conservative basis.

Many do not give enough credence to the impact that pending U.S. Federal regulatory activity has on the marketplace. Businesses are concerned that potential healthcare and cap-and-trade legislation will have a negative impact on operating costs--forcing many of them to delay growth activities. As a result, the contract labor industry is booming of late and many companies are opting for temporary labor as a means for getting through this period of uncertainty.

Supply chain managers will need to keep flexibility in their operational models. Watching the dollar, oil prices, business cap ex spending, and credit markets will help to forecast when solid recovery will occur. Shortly thereafter, unemployment will begin to materially fall and the demand market for most products and services will become more stable. At that point, the global supply chain will smooth out and more long-term planning activities can take place without too much concern. That might not happen in 2010. An improving economic condition may usher in more governmental regulation--which could have an opposite effect on growth.

Tests on new air freighter engines proves successful--larger 747-8 closer to market ready (12/16/2009)

A new generation of air cargo planes will be ushered in through the Boeing 747-8--a larger, more fuel efficient, and quieter plane for long-range cargo movement. The key to the new craft will be the four GE engines that power it. The latest tests in the process of getting the craft ready for commercial use worked successfully.

Despite the economic slowdown, some of the most rapidly growing markets in the world are being served on the front end by air cargo. And despite concerns over air cargo use during the most recent global economic downturn, the partnerships between international air cargo providers and U.S. domestic high-speed ground networks is helping to close inventory gaps at a time when businesses are watching excess stock closely.

Air cargo will still play a role in the global supply chain. And, as demand remains uncertain, it is likely that more air cargo services will be used in the future for the first leg of an international cargo move (smaller shipments moving at a faster transit time).

Maritime industry still struggling with overcapacity (12/16/2009)

A UN report issued last week reiterated what many supply chain managers already knew: the global maritime shipping industry is still fighting overcapacity conditions. Global trade shipped by maritime services is expected to be down for 2009 by 1.4%. This has hit the industry hard as countless numbers of containers sit idle in ports around the world. With new ships expected to be delivered in 2010, the capacity situation is not expected to get materially better until 2011. Demand for shipping services is expected to increase by 2% in 2010--far short of the volume needed to remove capacity from the system.

As a result, the shipping industry has been working with shippers to improve prices. Further, many providers in the sector have been reducing the number of sailings to compensate for lower demand--effectively creating spot capacity issues around the world. In some lanes, finding available capacity is getting tougher and will continue to do so until competition finds those situations and fills the need with additional sailings. As the U.S. export market improved with a drop in the dollar, some export lanes have tightened over the past six months

Napolitano asks Congress for cargo screening extension (12/08/2009)

After looking at the cost impact of screening 100% of inbound cargo into the United States, Homeland Security Secretary Janet Napolitano has said that she will go to Congress and request an extension beyond the 2012 deadline.

The agency has conducted a study that suggested a cost of more than $168 billion to make the necessary improvements to ports and technology to get to 100$ screening of all cargo (over 10 million containers a year).

According to the Secretary, the technology to make this feasible is not even available at this stage.

Without giving a hint as to the length of the extension on this program, the agency will take some interim (unspecified) steps to increase security for some of the inbound cargo from the most insecure markets. However, even in markets like China where the concern over security is shared, lack of technology and infrastructure creates an extra difficult environment for ensuring that even this market is a safe origination point.

Further details will emerge on this development as the Secretary gets her proposal in front of Congress.

Air cargo volumes improve according to the International Air Transport Association (IATA) (12/08/2009)

Air cargo volumes have surprisingly improved amid a global economy that has many companies looking to strip extra costs out of the supply chain.

A combination of unpredictable demand and low business inventories has created an express market for global air cargo that seems to be getting stronger. The IATA reported that cargo volumes were just .5% shy of levels last year--which is an improvement over the previous quarter's trends.

One important note that the IATA made in their report is that the industry has gotten more efficient through capacity reductions and cost cutting measures.

That has led to an improvement in load factor for the industry--increasing profits and helping to stabilize some of the providers that were struggling in the recession.

Charter rates for cargo craft from China have increased substantially as a result of the tightening capacity, but will likely trail off early next year as volumes and urgency reduce in January and February.

H1N1 impacts productivity--absenteeism up (12/08/2009)

There was much speculation on the impact of H1N1 on the marketplace and many analysts really did not expect much fallout.

But a report by the Labor Department suggests that in the transportation industry alone, absenteeism due to illness increased from 15 to 17 days this fall over last year.

This is a 4% increase in the number of work days missed due to short-term illness (this excludes missed days due to injury or disability).

H1N1 has spread quickly to all parts of the U.S. with estimated cases now in the tens of millions worldwide.

Although the threat of death due to the illness is not worse than the traditional flu, the number of days it takes to recover from the H1N1 flu is greater--and creates a greater impact on productivity.

Transportation is not the only industry that has been hit hard. All segments of the U.S. have been impacted by an increase in absenteeism as a result of the H1N1 flu pandemic. In a period of cost-cutting measures and downsizing, companies have been forced to take steps to handle significant losses of productivity due to absenteeism. This will continue well into the early part of 2010 as the flu continues to run its course through the global community.

"Cyber Monday" provides optimism for retailers (12/08/2009)

Despite the lackluster total retail sales figures for the brick-and-mortar retail sector, the online retailing season has remained strong and continues to grow.

Sales on the busiest one-day online selling day of the year were up 5% over last year, coming in at more than $887 million on this "Cyber Monday." The growth of online sales has put a twist on the global supply chain--online sales now account for such a significant portion of the holiday shopping season that it creates a whole new distribution model of importance.

Given the different types of distribution models that are being employed by e-tailers, suppliers and traditional retailers have to put upstream and downstream systems in place to handle this shift.

For instance, given the amount of online retailing that is being done, reverse logistics processes are required to handle the growing number of returns that will come from residential properties.

In addition, on the heavyweight side of the equation, this shift allows e-tailers to take advantage of pooling and centralized distribution options to streamline costs. Some are incorporating supplier-to-consumer models where the e-tailer becomes almost a broker and storefront for the wholesale distribution of goods--even if they are private labeled as the e-tailer's own brand.

Analysts concerned about the health of U.S. ports (12/08/2009)

Industry analysts are working on projections of volume that might hit U.S. ports in the next year to determine just how serious the impact from the economy vs. port competition is.

There are some that believe the impact from the economy is the primary cause of a drop in container volumes and that the ports are largely seeing reductions in line with their relative market share of the total U.S. inbound volumes.

Others suggest that there could be a change in distribution patterns and competition between the ports that are affecting the various port volumes.

For instance, there is some concern that the widening of the Panama Canal will have an impact on the West Coast ports--especially for goods destined for the Midwest and Eastern regions within the United States. With port improvement projects everywhere from Texas to Georgia, competition for volumes against the West Coast are strong. But, the economic impact and the downturn in the economy is also a factor.

The U.S. dollar has dropped significantly against many foreign currencies, the Yen being one of those. As goods from Japan have become more expensive to import, some near-sourcing trends are occurring--which moves production to Mexico or deeper into the U.S. This all affects the volumes of containers hitting the ports.

Once the economy begins to recover in earnest, the true port trends will emerge, and it will be clearer as to whether the current downturn is primarily a function of the recession or a permanent response to shifting distribution patterns.

Baltic Dry Index giving analysts real challenge in interpreting it (11/24/2009)

The Baltic Dry Index (BDI), a key barometer of global transportation activity and strength of general economic demand, hit its highest level of 2009 this past week. Analysts are perplexed by this rise in the index because of the imbalance between the amount of capacity available in the industry and the demand chasing it. One analyst has called the current BDI a "bubble", one that has thrown off the historic value in using it to predict general economic activity.

Given the forecast for deliveries of new vessels in 2010, the capacity issue is likely to make the situation worse for global maritime service. The current run-up in the BDI is evidently being driven by spot pricing increases in lanes with heavy commodity activity. Additionally, many maritime providers have signaled that if they are unable to get pricing help from shippers--they will likely go under. That has helped to create an artificial rise in the BDI (which measures the cost to move goods)--which analysts believe is adding to the potential that this is merely a bubble--and not real demand activity.

Energy boom about to provide next boost to economic activity (11/24/2009)

With or without the administration's investment into the alternative energy industry, there is enough momentum being built behind new solar energy technologies that private industry is beginning to get behind it. For too long, the high cost of entry into technologies like solar power (for the average consumer) was prohibitive. With state and government subsidies that are now helping consumers off-set the initial cost of installing solar power systems, a new industry is emerging.

Companies that used to be involved in manufacturing for the automotive industry are finding that they can easily retool their systems to handle the production of solar energy systems. Further, the workforce that used to handle the tolerances for automotives can easily adapt to the production demands of this new industry.

For the general economy, this will be a good boost to the industry--one that should create a number of jobs nationwide--once the industry is fully expanding. This will add a level of new density to current distribution patterns in the U.S. and an increase in higher-level transportation services demands for carriers (many of these new items will require special handling). If Congress passes Energy legislation, this expansion of energy technology production will increase exponentially.

Gasoline and oil prices are lower--but volatility remains (11/24/2009)

General prices for gasoline, diesel, and oil are all lower on concerns about dropping demand. Despite the global increase in economic activity going into the holiday season, an unseasonably mild fall and a rising U.S. unemployment rate is continuing to put pressure on demand. Lower fuel prices are good news for retailers and industries that rely on discretionary income for sales--and hopefully that will remain throughout the end of the seasonal shopping period.

But, analysts believe that the volatility in the oil markets will remain. With challenges and unrest in the Middle East growing and a quick drop in Northeast temperatures likely in the next few weeks, oil prices will get more volatile.

There is also a significant impact in oil prices from the weak U.S. dollar. As the dollar fluctuates, so does the price of oil.

Given the volatility in all of these factors, the investment community that moves in and out of commodities like oil can add another layer of speculation onto the market. For shippers and transportation providers, the volatility in fuel costs are likely to be built into supply chain decision-making to keep costs lower for all partners in the supply chain.

Intermodal volumes fall in the latest weekly measure (11/24/2009)

Rail intermodal activity has dropped in the last week as shippers opt for smaller size shipments and a faster moving supply chain. Business inventories are still extremely low by most measures. Coupled with concerns on carrying too much inventory into 2010 (for cash flow and liquidity issues), businesses are handling shortages and stock-out situations cautiously. Rather than moving large bulk shipments to fill distribution centers and warehouses, these businesses are relying on fast moving shipments of small quantities to fill those short-term needs.

There is also the impact from a reduced use of containerized cargo in the most recent weeks. Much of the coastal activity has continued to slow (which is normal even in a high-output economic cycle). This reduction in volume is compounded by the global economic slowdown and the general weakness in the maritime industry.

Reports suggest that air cargo charter rates out of Asia are skyrocketing in recent weeks--suggesting that the high-speed, small-sized shipping strategy is likely taking hold in the near term. Analysts believe that intermodal growth will likely resume once again mid-2010 as supply chain lead times grow and economic activity becomes more predictable.

Baltic Dry Index giving analysts real challenge in interpreting it (11/24/2009)

Energy boom about to provide next boost to economic activity (11/24/2009)

Gasoline and oil prices are lower--but volatility remains (11/24/2009)

There is also a significant impact in oil prices from the weak U.S. dollar. As the dollar fluctuates, so does the price of oil.

Intermodal volumes fall in the latest weekly measure (11/24/2009)

September Freight Index Drops (11/18/2009)

After three strait months of positive activity, the Department of Transportation's Freight Services Index fell 0.5 percent in September from its August level. The index is currently at 95.7, which is down more than 15% from its historic peak of 112.9 reached in May of 2006.

There is speculation that retailer strategies going into the holiday season may be showing up in the figures. Retailers have signaled that they will go into the season lighter in inventory than in previous years. And, after carrying heavier inventory loads through the summer, many will try to get through the early part of the season on small increases to existing inventories. What this could set up is a bit of a scramble after Thanksgiving if sales are much stronger than had been anticipated. Retailers may be looking for quick order refills of smaller quantities of items to get through the Christmas shopping season.

Tangible Benefits of a Paperless Supply Chain (11/18/2009)

Companies that have embraced the green movement and have attempted to get to a "paperless supply chain" are finding that their efforts have multiple payoffs. One of the direct benefits that they see is an improvement in supply chain visibility as a result of the move. Since all of the paper documentation is moved into electronic form, it is more easily tracked by databases and monitoring tools. Once companies can get over the initial investment required to get the system in place, the direct return on investment (resulting from less handling of documents, storage, and the lack of efficiency that comes from having to re-key important data) moves right to the bottom line on profitability. And then, there is also the green benefit from taking on the exercise altogether. If carbon emission legislation is passed in Congress, it will force companies to document and catalog the impact of supply chain operations on carbon emissions. Tracking and data management will be important in meeting these requirements.

Supply chain managers know of the importance and advantages that visibility can provide them. Everything from the scheduling of personnel to inventory management and tracking is improved when full visibility is gained throughout the supply chain.

Oil still continues to hover in the $80 per barrel range (11/18/2009)

The impact of the dollar on oil prices is becoming more pronounced by the week. The dollar improved over a bundle of currencies and oil prices lost near $3 a barrel. There is a theory that the demand destruction forecast from the International Energy Agency (IEA) has many analysts worried about the demand for oil in 2010. That has put some pressure on prices.

But several media outlets reported last week that an investigation had uncovered some potential downplaying of the "peak oil" theory by the IEA. The accusation is that several prominent governments (including the United States) put political pressure on the IEA to keep comments about the risk of peak oil more positive. Peak oil is the theory that the world has a limited supply of oil reserves and that the amount of easy-to-reach oil is depleting fast. Peak oil theory suggests that supply of inexpensive oil will soon be surpassed by demand--and that the only two options for getting out of the situation is to increase production of expensive oil (deep ocean wells or oil that needs much refinement) or broad proliferation of alternative fuel cells and sources.

As we know, the commentary and tone of reports by large agencies like the Fed, Global Central Banks, and the IEA can move markets. As the IEA changed its tone on peak oil discussions, it gave the market more optimism that there are adequate oil stocks--and the price remains under pressure. This report has yet to affect oil markets and frankly, the world is waiting for the IEA to officially respond to the accusations.

New Airbus A330--200F Air Cargo Freighter has made Maiden Voyage (11/18/2009)

A new competitor under the Airbus brand for the Boeing 737 freighter was tested on a maiden voyage last week--and is likely to be ready for production shortly. The A330 is built to be a medium range air cargo craft with improved fuel economy. Airbus is competing with Boeing for several key contracts--among which is a large tanker deal for the U.S. military using a variation of the A330-200F. One of the most important aspects of this development is that Airbus is planning to produce the majority of the craft destined for the U.S. market--in the U.S. This is obviously not always a requirement for most contracts, but for a U.S. defense contract, it would be a wise move by Airbus (if not required).

Boeing has also been forced over the last several years to move some production to markets that are awarding it large contracts. China has been one of the most aggressive purchasers of aircraft to support its hyper growth and inner provincial expansion (using air cargo services until rail and highway infrastructure can be completed). Given the thousands of parts that go into the manufacturing of an aircraft, this will change the distribution patterns for supply chains that feed the aerospace industry

Oil continues to hover in the $80 per barrel range (11/10/2009)

Oil prices have been impacted by several different factors, among which are the weaker U.S. dollar, a growing Chinese market for oil, and speculatory trading on hopes for broader global economic recovery. Despite U.S. stockpiles of oil fluctuating only slightly against current demand, the price of oil continues a slow upward climb--eclipsing the $80 mark late in October. Analysts believe that the price of oil is at about the right level given the relationship between supply and weak global demand. But, with each positive economic story that portrays an improving global economy, oil futures seem to move upward whether or not true demand has increased. Nonetheless, energy prices are increasing steadily.

Getting ready for the coming regulatory environment and the green supply chain (11/10/2009)

Industry Week has written an excellent article on an issue that has written about in-depth in Industry Insights--the coming wave of Energy legislation and a push for sustainability. With Congressional committees getting a new Energy Policy ready for the broader House to vote on, the impact of this pending legislation on supply chain managers could be profound. Depending on how much of the extended supply chain is included in a company's carbon footprint; the management of this aspect of the corporation could be of great competitive advantage. Essentially, there will be two categories of companies in the new era of carbon reduction policy: those that make moves because they are forced into compliance, and those that will take on the challenge and find every ounce of competitive advantage to wring out of the supply chain as a result. Sourcing and supply chain decisions will carry more weight in the hierarchy of corporate priorities if this legislation is passed as currently written. Managers need to take note and get help from partners wherever they can.

Contingency planning in the supply chain against the flu (11/10/2009)

Warnings about the flu pandemic have been prevalent in mass media outlets for the last year or more. And whereas there has been a primary concern over the health of citizens that contract the H1N1 strain of the flu, there is a great underlying impact from the flu that apparently has most global businesses taking note. Of great concern is the impact to productivity and possible supply chain disruptions as a result of employee absenteeism.

Current outbreaks of the flu are having a strain on families. Most children that get the flu are reportedly being forced to miss multiple days of school. In the modern household where most parents must work, that leaves many without an option but to miss significant amounts of work to tend to sick members of the family. As absenteeism increases in workforces that are already strained via staffing reductions, it becomes clearer that companies need strong contingency planning steps in place to combat what could be extended absences for illness. It appears that more than 68% of corporations in the U.K. have contingency planning steps in their supply chains in the event of broad flu-based disruptions.

Rail industry looking for light at the end of the tunnel (11/10/2009)

On the heels of Warren Buffet's gamble that the rail industry will see positive signs of growth in the years to come, the industry was less than excited about the current state of affairs in volume. Weekly traffic is still in a declining position despite much easier year-over-year comparisons. "Carloads were down 13.7% while intermodal traffic was down 15.5%" according to Seeking Alpha. Retailers are going into the fall season with inventory levels lighter than in previous years, and are generally trying to limit stocks going into 2010. That likely creates a market environment of smaller shipments moving much quicker through the supply chain, to meet immediate demand without creating an overstock situation. Manufacturers are still reporting stronger activity as is evidenced by the PMI readings this past month. But, most of the heavy raw material movements of goods took place earlier in the third quarter, and have now slowed as stockpiles of material grew. This is the case in China where stockpiles have grown inordinately with demand. In all, these conditions create a tough market condition for the rail sector and the full-carloads they typically carry.

Baltic Dry Index holding steady at 3,200 (11/10/2009)

One of the key indexes watched by economists worldwide is the Baltic Dry Index (BDI). The BDI provides a strong snapshot of global demand for raw materials used in human consumption and manufacturing. Theoretically (and historically), the BDI has been one of the earliest indicators of economic activity. Most of the commodities being measured in the BDI are used in early-stage manufacturing processes and indicate the likely direction of activity ahead.

The BDI is currently hovering around 3,200 points, up from its low of @620 points earlier this year, and a high of over 11,000 last summer. The positive trend increase in the BDI is perhaps the best sort of news one can capture from the current reading. Given that the overall index is still well below even the midpoint in the readings history, it shows that tremendous weakness still exists in the global economy.

Impacting the index could be a view that China provided to the market this week. The Chinese Government will withhold any future stimulus funds from several key raw material industries (steel being one of them) because of significant stockpiling and hoarding of stocks. With global demand dropping of late, the outlook for these commodities is uncertain--and likely reflected in the core BDI readings

As economy rebounds--what do supply chain managers focus on? (10/28/2009)

There is a tremendous amount of debate over the timing and speed of economic recovery. If one asks ten different economists, there are likely to be at least 5 different philosophies (everyone has at least one mentor!). All joking aside, the views of where the economy is, and where it is headed, are complex and varied. But supply chain managers know that at some point, recovery will be significant enough that they will have to take their first moves during this new period.

Analysts are beginning to speculate that there will be a new wave of spending on technology to manage complex supply chain challenges. Given the continued volatility of the marketplace and the risks that managers of all businesses face, the need to do more with fewer resources will remain--well after economic recovery begins. This is the primary driver of a need to use technology and CRM tools to improve management of systems and data. Added to this recovery challenge could be the regulatory compliance demands placed on supply chain managers if Energy Legislation is passed. These pressures will continue to force technology investment and innovation to remain current, competitive, compliant, and efficient.

Pirates attack more vessels in the Gulf of Aden (10/28/2009)

Vessels under different flags are still being targeted by Somali Pirates in the heavily traveled Gulf of Aden and surrounding sea-lanes off the coast of Somalia. There were more than 306 attacks in the first nine months of 2009--up from the entire 2008 yearly total of 293.

U.N. security vessels are trying to protect the region, but there are over one million square miles of sea area to try and cover. The nearest U.N. ship to the MV Al Khaliq (the latest pirate attack which took 24 sailors on board prisoner), was more than 8 hours from the area.

As the monsoon season eased in the region in August, the number of attacks increased shortly thereafter. Some of the new vessels that the U.S. Navy is placing into service are higher-speed attack vessels that can cover broader distances. This will help in providing aid and support. But, there is still such a vast area to patrol that it will be difficult to ensure the safety of all vessels. Therefore, shipping companies are still being forced to consider the risks of shipping through the Gulf of Aden and surrounding areas. Costs will go up for these shipments if the price of insurance continues to adjust with every major attack like the MV Al Khaliq.

Peak oil debate starting to rage once again despite recent finds of significant oil (10/28/2009)

If the old adage, "where there's smoke--there's fire" were to hold true, we would suggest that the spike in oil prices over the past two months is a signal that peak oil concerns have returned. And indeed, one only needs to take a browse through the internet to see the hundreds of stories starting to pop up regarding the theory of peak oil.

The concept of peak oil says that oil production will hit a point at which supplies are dwindling and no more daily production can be added--at the same time that demand continues to grow. But, over the past couple of months, we have also seen significant news of major oil discoveries (most of which are in deep sea regions). The promise of these new stockpiles should put the peak oil theorists to shame and quiet the entire debate down, but there is a catch. New oil finds are not cheap for extraction or refinement. Pulling oil from thousands of feet under the sea or out of shale rock or tar sands requires more energy and cost to accomplish. So, prices are seemingly going to go up commensurate with the cost to extract. And indeed, the "cheap oil" is indeed beginning to show signs of running short on supply.

But, with oil at $80 per barrel on very weak demand and the developing BRIC nations (Brazil, Russia, India, and China) seeing demand for oil increase, it is not inconceivable that we could see oil prices return to the $100 mark in the near future. In fact, many analysts are predicting that oil levels in 2010 could in fact easily move into the $90-$110 (U.S.) range (without any significant shocks to supply such as hurricanes, conflict, or geopolitical tension).

Risk and uncertainty lead supply chain managers to pool efforts (10/28/2009)

A report published by RSR Research shows that supply chain managers are indeed worried about the challenges that have hit the industry in the past 18 months. Since the beginning of the recession, procurement officers and supply chain managers have watched oil spike to $147(U.S.) a barrel, have watched the U.S. dollar fluctuate wildly, have fought raw materials costs that fluctuated, worried about liquidity and cash flow, and have seen supply chain partners expand and contract. In all, the challenges have been enormous and some of the solutions that were pursued created enough massive change that managing risk is going to be a key strategy for 2010.

As part of this study, it was also found that supply chain managers may look to a few good partners with a broad set of strategic skills and capacity reach to help mitigate risk. In order to be ahead of possible changes in the marketplace, managers need flexibility to rapidly make adjustments to distribution patterns and the flow of goods, volumes, and locations in order to remain cost efficient and competitive. So, flexibility, visibility, close communications, and interactivity with partners are the keys in reducing waste in both time and cost. By pooling efforts between partners, much more can be accomplished--and the risks posed by the marketplace are dealt with easier.

Port volumes to remain weak despite economic improvement (10/28/2009)

U.S. ports are expected to channel 16% less volume through U.S. ports, the lowest since the 2004 annual total (a year in which the West Coast experienced a series of port closures). Analysis in the report suggests that the forecast for the rest of 2009 has been revised multiple times. This positive sign for economists would suggest that pricing and capacity will tighten slightly--especially for shipments where return voyages are delayed by unexpected capacity usage and the repositioning of assets is difficult to do.

Distribution patterns are a bit messed up right now because of the value of the U.S. dollar. Unexpected demand for U.S. products is coming at a time when typically the transportation industry is not experiencing a lot of outbound shipping. Further, this year as in the last several years, the U.S. has not experienced a full peak season like those traditional ones in the early 2000's. With unexpected demand coming from different directions, the distribution of goods to different ports can swing the demand for individual vessels. The report said that there have been times reported, even during this drastically lower shipping season, that capacity was now getting hard to find at times. This was largely because of a flash of volume leaving a port at an unexpected time--a function of a low U.S. dollar and certain countries using the opportunity to stockpile goods while the exchange rate has U.S. goods highly discounted.

Freight Index Rises Slightly in August (10/21/2009)

The Department of Transportation issues a Freight Transportation Services Index, which is a lagging indictor of activity in the freight transportation sector. For August, the index rose 0.7 percent from its July level which was the second consecutive monthly increase. The Cash for Clunkers program had added a significant boost to early-stage manufacturing activity in August--which obviously helped to boost the index. There would have also been some early stocking of merchandise going into the fall retail season during this time. Analysts are going to have to wait and see if the index softens in September (due to be issued by November 15) before it can be determined if the sector is indeed seeing sustainable economic recovery.

One of the key drivers of transportation activity, the Purchasing Manufacturers Index (PMI), showed that manufacturing activity reversed in September and softened against weak market demand.

Baltic Dry Index Continues its Weak Performance--Signals Weak Dry Bulk Market Ahead (10/21/2009)

The Baltic Dry Index (BDI) continues to fall off of its record high last year of 11,793, dropping significantly to current levels of approximately 2,646. Overcapacity and the obvious weakness in global demand has led to the plummeting of shipping prices--despite efforts by the industry to raise those prices of late.

There is some interesting dynamics shaping up for the commodities trade industry. China and several other producer nations are opting to take advantage of the buying opportunity while the U.S. dollar is so weak, stockpiling raw materials whenever possible. The trends of building supply continue for oil, copper, and steal as China and India continue to leverage the weak U.S. dollar. But this trend has yet to really impact the amount of goods moving worldwide in key shipping lanes--hence the BDI remains weak.

Analysts watching the index are suggesting that it has begun to trend upward in the last week slightly, gaining less than 100 points. Considering that the index is so far off of levels achieved just last year, it helps to clarify what many economists see: that the global economy is still struggling to find solid footing despite areas of improvement.

Companies Uncertain About Impact of Energy Legislation on the Supply Chain (10/21/2009)

As the so-called "cap and trade" legislation heats up in Congressional committees, there is a heavy effect on companies that are scrambling to understand what the new regulation might mean for their supply chain.

Two different congressional bills are moving to committee for compromise and further work--a step required prior to sending a final bill for either a vote in the House or Senate. But even before then, companies are beginning to do analysis to understand what a potential bill could mean for their business.

Because the legislation would cap the total carbon output of a company (looking at its total carbon footprint), everything in the supply chain will ultimately be under scrutiny and consideration. It is the extended parts of the supply chain (sourcing location, transportation mode choices, manufacturing processes, packaging, etc.) that will come into sharp focus for corporations. Everywhere and in any way possible, companies will be looking for solutions that extract every ounce of "green efficiency" out of their supply chain. Along with the cost savings that must be planned for, the investment to get a company into those areas of green savings will be a core challenge coming off of one of the toughest economic conditions since the Great Depression.

Regardless of the type of bill ultimately passed, many analysts believe that there is enough global momentum behind this type of effort that something will eventually get through. Companies that want to be on the leading edge will begin looking to their supply chain as a source for gaining green efficiencies--and will begin making those changes.

Top 10 Trends for Supply Chain Management in 2010 (10/21/2009)

The University of Tennessee (as reported by Supply Chain Digest) conducted a study to understand the top supply chain trends that will be faced by managers in 2010. The ten, summarized, are: measurement and monitoring, collaboration, lean logistics, managing complexity, improved technology for visibility, optimization, globalization, sustainability, managing risks, and freeing working capital. Full descriptions for these areas are listed in the article at the link below.

Driving these trends is a series of changing market conditions that appear to be continuing in 2010. First, the U.S. dollar will remain weaker against global currency in 2010, affecting sourcing decisions and the movement of goods. Second, there are continued needs to optimize supply chain management activities to lower total landed cost for items procured anywhere. Third, many economists (including those at the Federal Reserve) are suggesting that the economic recovery will likely be a long and drawn out one. Therefore, and fourth on our list of drivers of change, is the need for companies to keep liquidity in mind as they manage their supply chains. Unless stockpiling raw materials or goods makes the utmost sense, supply chains are more likely to remain inventory lean going into 2010. Retailers are especially keen to this notion and are working to limit the amount of carry-over they take into 2010.

Looking forward, the ten trends that were highlighted by the University of Tennessee study should be a good barometer for the types of capital investment that companies will make as the economy recovers. Spending on technology and systems improvement will likely be at the top of the list of priorities (especially as one considers the impact that new Energy Legislation could have on supply chain management).

Clean Energy Bill Gets Much Attention in Washington--Supply Chain Beware (10/14/2009)

More than 100 executives supporting clean air legislation met with the White House last week to instill a sense of urgency on the Obama Administration to quickly get legislation in place. The main thrust of the meeting was to convince the White House that a good bill will get bipartisan and private sector support--a much needed win for the administration. According to this group, either the House or Senate bill would provide the much needed impetus for getting job growth started again in the US. The management, administration, maintenance, and development of clean air technologies and the regulatory requirements to be compliant will create tens of thousands of jobs in their estimation. There is another school of thought that has little momentum behind it that worries of the pressure that this will place on companies to remain compliant. In their estimation, this forcing of increased costs and the required investment to remain compliant will force job reductions in many cases. This has been the reluctance of China and India to enforce similar legislation. The US administration would like to have a solid bill before Congress by the December meeting in Copenhagen in the U.N.

Climate Talks
Having a bill on the table would allow the Obama Administration to place pressure back on China, India, and other developing nations to get similar acts in place. If they do not, many US businesses worry that they will be at a further cost disadvantage against international competitors if the US passes a bill forcing tighter controls and restrictions on carbon emissions.

Study Says that Supply Chain Accounts Receivable Improved in September (10/14/2009)

A Cortera study measuring responses from 350,000 manufacturers, distributors & wholesalers, retailers, services, and transportation companies showed that the pressure on Accounts Receivable and cash flow improved in September. Companies are reporting that AR aging is improving for many suppliers--which provide them with additional funds for re-investing in the company and/or posting improved profits. Coupling this report with some of the corporate earnings reports for the third quarter, it appears as though US business has done a great job of adjusting cost structures to the current level of economic activity. Companies are not necessarily experiencing growth, but the decline in activity has stopped and cost containment activities have flattened. Economists, looking back at historical recession trends, suggest that there will be pockets of new investment and M&A activity for those sectors that are experiencing improved operating conditions. The Cortera study would suggest that balance sheets are now "cleaning up", making M&A activity more palatable and feasible. That would especially hold true while valuations are at historic lows for some strong companies with good market positions.

Study Highlights the Trends in Supply Chain Management (10/14/2009)

The 16th annual 2009 3PL Provider CEO Perspective study conducted by Dr. Robert Lieb, professor of supply chain management, College of Business Administration at Northeastern University, suggests that the global recession is still having a fundamental and lasting effect on supply chain strategy. Companies surveyed said that there will be continuous pressure to find sourcing that has flexibility in it as a core component--flexibility which will allow supply chain managers to react and adapt to changing economic conditions. One aspect of the study focused on the role of Lean Logistics vs. the need to offset rising fuel prices. One of the solutions in offsetting an oil price spike is to source closer to consumption. But, this entails multiple sourcing partners in multiple markets--as the study states: "the antithesis of lean." Yet, cost control and the need to optimize the supply chain on Total Landed Cost while maintaining best in class customer service is still paramount.

Baltic Dry Index Moves Up as Global Demand for Raw Materials Increases (10/14/2009)

The Baltic Dry Index (BDI) has broken a 14 week downward trend, moving up in the latest week to approach the 2,500 mark. This is still much lower than the peaks it reached above 14,000 earlier in 2009, but shows an interesting directional pattern for the index. The BDI, since it tracks the prices for shipping key materials through 25 shipping lanes worldwide, is one of the primary early indicators of economic activity. But things are changing. Since the US used to be the center for trade worldwide, when the BDI improved it was fairly accurate to say that the US economy would lag, but follow. Now, with China, India, Australia, Germany, Brazil, and even Russia playing a bigger role in global trade (and growing in trade between each other), the reliance on the US for a robust economic recovery may not be a prerequisite.

The items moving the BDI right now are largely shipments of copper, aluminum, some steel and other raw materials used in infrastructure and manufacturing. These items are not necessarily destined for the US, some of it is being exported from the US because of the weak US dollar--goods are cheap from the US. China was also reportedly stockpiling commodities while prices were low. Stockpiles of copper, oil, food products, and materials that go into the making of steel are in being purchased and stored for use in later manufacturing activities when the global economy truly rebounds. Therefore, the BDI shows an improving trend, but it may be moving without the US economy for the first time in a long while (the BDI is one of the oldest indexes--originating in the late 1700's).

Orders for New Equipment Still Track Well Off of 2008 Levels--Despite Late Improvement (10/14/2009)

The economy is improving in a number of segments (depending on who you listen to). Some of the most recent economic indicators are showing improvement--some even to the degree that there is recovery minded activity happening (note the improvement in manufacturing and services industries in the July--September timeframe). But according to a talk given last week on the "state of the materials handling and supply chain software industries" at the fall meetings of the Material Handling Industry of America, demand for new equipment is still lagging last year. New orders are down 45% year-over-year. Some concerns on the equipment market rebounding surround the prospect of using capital investment at a time when lending is tighter, rates are more aggressive for those without preferred credit, and the prospect of taking on additional cash flow risk is not wise. However, there is some optimism that some companies may opt to use improved mechanical technologies to keep labor costs lower (automation instead of re-hiring). That would provide a bump for orders of new equipment. The industry is not predicting a strong rebound until at least 2011.

Inventory Issues: to Bulk up or stay Lean? (10/06/2009)

One could suggest that the answer to the question of whether to warehouse or stay lean on inventory management would be a fairly straightforward one: lean is better. But events over the past year and a half have shown that there isn't a one-size-fits-all approach to inventory management--and it needs to remain fluid to business and market dynamics. The real key may rest more in the flexibility of the supply chain to adapt to changing financial and operational pressures. For instance, last year when fuel costs were up 25-30% and the US dollar was strong, it was cheaper to bulk order inventory and move it in larger shipments --warehousing the excess inventory. But shortly following, demand plummeted, the US dollar dropped and cash flow became the prominent near term objective. Liquidating inventory and keeping order quantities lean seemed to be the going concern--and it largely continues today. Neither strategy is wrong, nor is it right. And, one size certainly does not fit all. Each company has its own unique set of strategies and situations that make one strategy fit better with its overall corporate objectives.

But, it is important to understand that all companies have been hit with the same market influences of the dollar and cost of capital, fuel costs, and varying degrees of liquidity and demand concerns. All supply chain managers therefore have a need to remain flexible so that they can react to C-Level directives and objectives as they, and a fluid marketplace, continue to change and evolve.

US Automakers Experience Mix of Declines in Sales Volumes in September (10/07/2009)

The annual sales rate for vehicles in the US has dropped over earlier estimates to less than 9.3 million vehicles according to a Bloomberg report. Sales of vehicles in China are expected to be more than 12 million on the year, making it the most active market for new car sales in the world. US automakers had expected some drop-off in auto sales coming out of the strong Cash for Clunkers program earlier in the third quarter, but the decline is more than analysts had expected. Without calling out specific companies, the group of companies operating in the US reported a range of declines in year over year sales from -5% to -47%. The ISM's report on business suggested that automotive parts makers were seeing an increase in automotive activity--but that was largely from the significant draw-down in inventory that occurred during the 700,000 unit Cash for Clunkers sales program. Once that immediate need for replenishment of stock is taken care of, the auto parts manufacturers will be subject to the same sales decline numbers as being reported by the automakers.

One promising trend for the sector is the volume of sales being experienced in China as a result of its economic recovery and growing middle class. In addition, Chinese consumers are finding that American made vehicles have a sharp brand preference advantage against many other makes--and that could spur continuous growth as long as the current threat of a trade war is kept at bay.

Airlines Raise Money as Passenger Lag Period Approaches (10/06/2009)

Four major US airlines have issued additional shares of stock to raise cash for operations going into what is traditionally a slower period of passenger traffic. To the degree that these airlines also provide cargo services in the bellies of the passenger planes, supply chain managers need to pay attention to the potential reduction in available space if the airlines continue to cut back on lane service or flight frequency during this period. Businesses have largely gone into the holiday shopping season with much lighter inventories, and some will resort to smaller, high-speed shipping services to fill stock-outs (so as to not carry-over significant 'dead' inventory into 2010). If the economy continues to bump along at this lackluster pace, businesses will keep travel and entertainment expenditures in check--affecting airline passenger density.

US Ports: West Coast Avoids Labor Showdown, East Coast Ports Still Gaining Share (10/06/2009)

The United States Maritime Alliance (USMA) and International Longshoreman's Association (ILA) have agreed to a two year extension on the current contract amid a nationwide volume decline in port activity. Both sides felt that in the current environment, it was best to postpone potentially more volatile negotiations until business conditions improved. Activity throughout all US maritime ports is far down over historical volumes--a sign that the global recession is going to continue to take a toll on business through at least the end of 2009.

In a separate note from several different sources, the port volumes between coasts continue to fluctuate. Several analysts have suggested that this is a sign that the east coast continues to take share from the West. But there are likely a number of factors that are changing the volume of imports and exports out of the nation's ports. With imports down and a low US dollar making US exports more attractive, there is a change in distribution patterns that have allowed some ports to benefit as a result. It appears as though they are taking share, but it is largely being driven by these changing patterns. As economic recovery improves and importing once again begins to show signs of life, there will be an increase in the volumes hitting the lower West Coast ports as a result.

Greening of the Supply Chain--Optional or Mandatory? (10/06/2009)

There have been significant numbers of studies conducted on the greening of the supply chain and the myriad of ways in which sustainability can be impacted by supply chain management. Some studies suggest that the sustainability role of supply chain managers will be the biggest trend in the industry in 2010. Indeed, there are some ways in which the sustainability improvements that can be made in the supply chain transfer directly to the bottom line and have become "mandatory" for most managers. Everywhere that additional costs can be squeezed is of the utmost importance to the C-level executive--and it falls on the shoulders of the supply chain manager to affect change to gain those efficiencies. But, if Congress passes its proposed energy bill, which appears to be gaining much momentum as it moves to the floor of the Senate, there could be even more focus and attention on the supply chain and the changes that must be done to help the company meet new compliance standards.

Because of these conditions, the role of supply chain management and its impact on corporate sustainability efforts will be critical in 2010 and beyond--as many are just now finding out. It will no longer be acceptable to look at "green" and "sustainability" from afar and think about those concepts as a "nice to have". It will now be a critical part of job models and the makeup of daily life in managing a supply chain.

Inventory Issues: to Bulk up or stay Lean? (09/30/2009)

Over the past several weeks, there have been significant announcements all over the globe on the potential finds of huge stockpiles of oil. This has shot a dagger into the "peak oil" prognosticators and has the proponents of traditional fossil fuels jumping for joy. But, will these finds of more than 10 billion barrels of new potential crude affect the oil markets? The challenge with these finds is that they are in difficult to reach portions of the ocean (spread all over the world). The oil that would be easier (hence less expensive to extract) is indeed going to eventually run dry. What that leaves is a stockpile of oil that is significantly more expensive to extract--affecting profitability for oil companies and likely translating into higher prices for oil. The speed at which this new production can come online and make a significant impact is being measured in 5 to 10 year increments. Analysts speculate that the development of alternative fuels will take much longer than expected to have a material impact on fossil fuel consumption and increasing production costs for new oil developments will lead to triple-digit oil in the near future. Again, volatility is the key and managing through what is likely to be a highly unpredictable 2010 oil market will be a key facet of supply chain manager's decision matrix in the near future.

Oil Finds May not Ease Worries over Triple-Digit Oil Prices (09/30/2009)

Air Cargo Industry Financial Situation Fluctuates Across the Spectrum (09/30/2009)

The total air cargo industry is forecast to lose more than $10 billion in 2009 globally--and could approach $19 billion if demand does not start to create new streams of volume. But the impact on the industry fluctuates wildly across the spectrum. Passenger airlines are having a tough time in getting cargo volumes up to a level that supports the assets and lanes that they have to fill. Load factor for these airlines remains very low and a number of state-run airlines in countries like France, Japan, and Germany are looking for government aid to remain viable.

The all-cargo airlines and small package lines are faring better through this tough economic time. Some reported stronger volumes and profits as the economies in China, Australia, and Germany have begun to improve. These volumes are still at extreme lows, but are coming off of the "trough" in volume. Lastly, the small package air cargo providers are experiencing some improvement because of the business inventory carrying trends that prevail in the marketplace. With an uncertain Christmas season approaching, businesses are going into the season much lighter on inventory than in year's past. This could foster some small-order stock gap filling if demand does indeed pick up slightly.

Drop on Oil Demand Worries Economists about Recovery (09/30/2009)

Oil has been fluctuating between $66 and $74 a barrel over the past several weeks, a volatility ride of manageable proportions compared to the $10 and $20 per barrel swings last summer. But the change in demand speculation (oil prices sold off on fears of weaker fall demand) leaves some significant room for debate. US stockpiles of commercial fuel spiked by 2.8 million barrels in the US in the latest weekly estimate, analysts had expected economic recovery to provide a nice boost in demand and prices would escalate with them. This was not the case. This drop in activity by companies that consume oil as a primary base material sent the market into a quandary with analysts questioning the perceived strength of the bottoming of the economy--and how real it is. This is a peak retail season period that the US economy is entering, and it should be a time of heightened activity. September is traditionally when retail sales start to see increases in activity (followed by a short drop off in October) leading up to the Thanksgiving weekend and the start of the seasonal shopping period. But that doesn't seem to be the case for now. The US dollar weakness is also helping to bolster oil prices--so there is a sense that the price for oil could be even lower than current levels if the dollar were to strengthen.

Understanding of Supply Chain Importance More Prevalent Than Ever (09/30/2009)

If there is one thing that the recession has taught nearly every C-level manager it is the importance of the supply chain. New research suggests that more than ever, corporate leadership understands that managing costs and optimizing the supply chain for effectiveness and efficiency is a critical undertaking in ensuring success. Not only do managers understand that the supply chain can provide ample cost savings opportunities, but it can also be a strong provider of revenue generating opportunities if managed correctly. The undertones of this should be positive for those that manage supply chains. As soon as the economy does recover, some of the earliest capex spending is expected to be in the supply chain arena--to build in new sophistication and ease complexity, increase visibility, and reduce inventory. In addition, the notion of risk management importance has grown with the need to get through the recession of late--and that will only increase in importance as we move into 2010 and beyond.

US Housing Sales Drop Unexpectedly in August 2.7% (09/30/2009)

Another odd reversal of economic activity sent analysts scrambling to figure out what to make of the situation. US housing sales dropped unexpectedly for the first time since March, falling 2.7%. Analysts had expected that the trend in housing would continue despite the curtailment of several government programs aimed at stimulating new sales and refinancing. The housing market is important to the US economy because it provides several different types of stimulus. First, it provides consumers with equity if their home appreciates--allowing them to borrow against that equity for other types of purchases. So, not only does the economy benefit from the purchase of that home and all of the products that went into building it, but it also benefits when these homeowners purchase additional home furnishings and durable goods with the equity in the home. Second, and as mentioned, the number of products that go into the building of a new home and the furnishing of that home is significant. The housing market affects such a large portion of the broader economy that it can be traced back as one of (if not the single) root cause of the current recession. Therefore, seeing that new housing starts are down, at a time when they should be increasing if economic recovery is indeed happening gives a lot of economists reason to question the strength of the recovery.

Changing Supply Chain Strategies Help Companies Weather Economic Downturn (09/23/2009)

Companies are turning to their supply chain more often for relief from the economic downturn. A recent survey by the Council of Supply Chain Management Professionals (CSCMP) and Michigan State University (MSU) showed that managers were turning to their supply chain for significant cost savings as economic conditions change. Changes in the value of the US dollar have created opportunities to maximize sourcing strategies by blending different global regions for acquiring goods. Today’s supply chain managers are using changes in distribution strategies, inbound routing, demand management, and sourcing to optimize where, when, and how they move goods through their supply chain – all of it reacting to the changes in economic conditions.

Consolidation of OEM Manufacturing pool Being Suggested as a Supply Chain Strategy (09/23/2009)

At a time when economic challenges create the need to optimize the supply chain, one strategy that a few small and medium sized companies are using is a consolidation of OEM manufacturers approach. The notion is to find suppliers that are of a similar size to these smaller buyers of OEM products – to get more attention and increase the willingness of the OEM supplier to modify manufacturing techniques and raw material inputs to improve product quality. In addition, since there is a supply surplus in the global marketplace (too many suppliers chasing too few demand orders), many of these small and medium sized OEM manufacturers have been willing to take on more of the packaging and value-added services to improve speed to market and reduce overall costs for handling and other product management costs.

Deep Sea Shipping Industry Loses $6 Billion in First Half of 2009 (09/23/2009)

The world’s deep sea shipping industry continues to feel the impact of the global recession on business volumes. According to Lloyds, the industry has already lost more than $6 billion in the first half of 2009 on plummeting business demand. As a result, global pricing for capacity has dropped well below profitable operating levels for most of the year; and providers of deep sea shipping services have indicated that they believe this trend will continue well into 2010 and perhaps into 2011. The challenge is an over-buying of new ships over the past five years. Photos of the waters off the coast of Singapore show the impact of the current downturn in deep sea shipping. Hundreds of ships (called the ghost fleet) sit off the coast waiting for loads to send them to their next destination. See dailymail.co.uk for photo.

Cargo Screening Rules to Make it Difficult for Forwarders (09/23/2009)

Forwarders are saying that it will be “nearly impossible” to meet the imposed deadlines to scan 100% of cargo riding on cargo aircraft because of a lack of adequate technology or the funds to acquire those scanning tools. Many forwarders in the industry are asking Congress to consider a familiar ‘known shipper’ approach in which supply chain shippers get certified as reliable before they can ship via air cargo. The TSA is not likely to accept the change, but may have to relax the compliance mandate in order to get companies to comply with the deadline for screening cargo. August of 2010 is the deadline imposed by the rule changes to have 100% of the air cargo moving on the nation’s aircraft scanned for dangerous material.

Rail Cargo Companies Say Recession is “Bottoming” (09/23/2009)

A meeting of the nation’s freight rail sector said that they have enough evidence to suggest that the recession has found a bottom and that the contraction in economic activity should reverse. Having offered this insight , they did suggest that from their perspective, the climb out of the economic doldrums would be a long and steady one. The rail sector is subjected to a number of counter-cyclical drivers of activity spanning energy demand, food processing and seasonal harvests, auto sales, and general import and export activity. This cyclicality is made worse when inventories are low and manufacturers and retailers are being conservative with replenishment. Many companies are opting for smaller shipments, moving faster to fill stock-outs. It may increase the transportation cost, but it reduces cost of capital from carrying inventory and improves cash flow at a time when liquidity is a primary concern for companies.

Test in the E.U. to Secure the Pharmaceutical Supply Chain (09/16/2009)

Multiple tests of RFID technology are being conducted worldwide with one of the primary objectives being the need to secure high valued goods. A beta test of RFID technology being used in the cross-border tracking and tracing of pharmaceutical drugs has concluded with the results being positive for effectively and affordably securing the supply chain for these high value goods. The United States has put a focus on securing the pharmaceutical supply chain – especially in the “samples” market. But securing the supply chain goes far beyond just the health care industry, high tech and electronic goods are expensive to replace if they are stolen or damaged in transit – and many companies are working on various scanning technologies to help secure the supply chain. In addition, there are transportation providers that offer secure systems to accomplish some of the same benefits.

With many companies considering capex options as the economy comes out of recession, RFID and similar technologies will be high on the list of alternatives for many of them--as a means of looking toward the future and investing in a solution that will provide ROI in the long term. As beta tests such as this provide tangible case study results for analysis, the rate of adoption of these technologies will speed up. This is especially true in situations in which new adopters increase demand for products and services in the sector – ultimately creating more competition and eventually a reduction in prices for the technology.

End-to-End Supply Chain Efficiency the Key to Effective Management (09/16/2009)

An interesting piece written in an Australian publication illustrated a study conducted across five members of an interwoven supply chain. In each of the companies in the linked supply chain, none exceeded 75% efficiency in their use of raw materials used in the manufacture of products. The result? The end-to-end supply chain had only a 30% efficiency rating because of the situation. Through collaboration and visibility into the waste, and coordination between the five partners across this single end-to-end supply chain, the waste could be reduced – thereby reducing costs throughout the supply chain for all. The approach is complex, but technologies are making it easier for collaboration to happen across supply chain partners.

U.S. Warns Maritime Industry of Increased Risk in Somali Waters (09/16/2009)

US authorities have warned owners of maritime shipping companies that the number and intensity of piracy acts will increase over the next several months as the South Asia monsoon season subsides. The recent monsoon season makes it difficult for the small, fast attack craft that are favored vessels of pirates in the region to navigate the local waters. With the storm seas reducing in intensity, there is a high likelihood that attacks will increase. Insurance rates for ships traveling through the region are likely to increase as a result. This was mentioned in the Industry Insights piece several weeks ago, yet the official warning is just now coming out to providers of maritime transportation. A number of countries still have naval vessels in the area escorting their country-flagged vessels through the toughest region. The US has naval helicopters in the area as well – they can cover more sea area faster. A recent run-in with pirates found the first surface to air contact between a US military aircraft and Somali pirates. This could signal where these confrontations might go if allowed to elevate.

Air Cargo Providers are Restructuring Operations to Handle Downturn (09/16/2009)

Although seeing slight signs of improvement worldwide, the air cargo industry is still reeling from the global economic slowdown. As a result, many continue to make deep cuts in operating staff and have further reduced capacity as a result. In one of the latest moves to stem operating losses and improve operating profits, one consortium has opted to raise rates between 20-30% as a result of the downturn. KLM/Air France still face significant challenges from an operating perspective and will take steps to restructure their air cargo units as well as increase their base rates for service. This comes as the rest of the industry continues to consolidate operations. With businesses opting to keep inventories low even as recovery starts, air cargo should be playing a larger role in the overall supply chain. But thus far, the reduction in volumes is so significant that this trend has not had a material impact – enough so to pull the industry completely out of recessionary levels of operating volumes.

Automotive Market Expected to Overtake US in 2009 (09/16/2009)

A report out suggests that China’s automotive market will surpass that of the United States in 2009. The Chinese will sell more than 12 million new vehicles as a result of strong government stimulus activity in the early part of the year – spurring manufacturing activity. The government also took steps to make consumer lending easier, which has allowed many Chinese families that could not afford to consider a new vehicle now able to do so. The result of this trend is a scramble by every major automotive company to win their share of this market.

US brands are fortunate, because they have found favor with the Chinese consumer. Buick shares one of the strongest love fests with consumers in China and GM, Ford, and Chrysler have all had their share of success. The deep question comes in trying to understand how this demand will affect the supply chain. Many of the vehicles that the country will purchase could come from the China markets themselves. However, there will still be a significant amount of the vehicles that are sold in China, made largely out of US components. It begins to act much like a role reversal from the past several decades in which much of the Asian or European automakers sourced their finished vehicles and parts/components from their home country. The impact of this shift in consumer purchasing will be enough to alter distribution patterns and the rest of the US supply chain for automotive manufacturers.

Baltic Dry Index Continues to Fluctuate (09/02/2009)

The Baltic Dry Index is one of the key gauges that is used as a leading indicator of global economic activity. The index realistically provides insight into the early stages of materials that moving in the top 20 trade lanes. As raw materials and shipments begin to increase in volume, the index (a measure of maritime shipping prices in those lanes) will increase--suggesting that demand is beginning to catch supply.

The current index has lost more than 43% since just early June. Volatility has been a hallmark of the index since the latter part of 2008--which reflects the uncertainty in the broader global economy. The latest readings on the index would suggest that economic activity in the more robust global markets could be slowing as the peak season for those producer markets move from raw material inputs to finished goods output. The weaker US economy along with China's consumption of much more of its production than before the recession, much of the raw material inputs have not cycled back through the supply chain to result in a stronger export market.

Japan Still Facing Deflation and Jobless Threat (09/02/2009)

Economic figures being released from Japan on the 27th suggest that the country is falling deeper into a deflationary period--which is difficult on economic recovery prospects. Japan's Consumer Price Index has dropped another 2.2% in July. The risk from deflationary conditions occurs when companies are forced to sell products well below cost in order to stimulate cash flow. Yet, this condition creates a tough situation because the profitability of those products and services is lacking and companies largely move to significant losses. Japan has seen strong economic growth over the last quarter--but the unemployment rate is about to hit a high of 5.7% (very high for the Japanese economy). Again, deflation is to blame. Despite strong sales, corporations don't have the profitability to sustain their workforces, thus layoffs ensue--ultimately leading to pressure to sustain growth. To the degree that the US dollar remains stronger against the yen, Japanese products are cheaper now than they have been for some time--which creates tougher competition for Chinese, Indian, Mexican, and US products and services.

Somalia Pirate Attacks Continue--First Firing on a US Military Aircraft (09/02/2009)

For the first time since pirate attacks stepped up in the Gulf of Aden, pirates fired a "heavy caliber" weapon at a US Naval Helicopter flying a surveillance mission over the Taiwanese flagged Win Far, a vessel hijacked in April and now being used as a staging craft for pirates in the region. The US aircraft was not hit and no further incident occurred. The South Asia Monsoon season is now over and pirate activity is expected to increase as a result. Many of the quick-strike small vessels that the Somali Pirates use cannot navigate in high seas during the storm season. With calmer seas, activity will increase. The threat to supply chain disruptions will now increase as a result--especially for those shippers sending cargo between Asia and Europe via the Suez. Insurance rates and delays could be a factor in the coming weeks if activity increases.

A strong UN contingent force and a number of foreign flagged craft are now working the million square-mile region off the coast of Somalia. But the region and the number of ships is far too large to protect every vessel. Now that the US craft was fired upon, expect the number of engagements to increase. The Russian Navy is now also sailing the region, and it will not use as much restraint as is seen with NATO flagged craft. This will be a region to watch going into the fall.

Supply Chain Risk Management Remains a Top Priority for Successful Companies (09/02/2009)

Companies now realize the criticality of the supply chain in ensuring chances of business success. But, the last two years have proven just how critical managing risk can be in safeguarding that there are no major disruptions in the supply chain and that everything is optimized. With wild fluctuations in currency, oil prices, supplier liquidity issues, and general uncertainty and geopolitical tension--supply chain managers are being forced to take risk management as a primary focus. Working closely with purchasing and procurement divisions (for those companies with separate departments), supply chain managers have to wade through the myriad of challenges that come as a result of managing a global or domestic supply chain. Utilizing partners to accomplish this is also crucial to ensure that supply chain managers are taking advantage of every opportunity.

Twitter Becoming a Solid Supply Chain Manager Tool (09/02/2009)

Logistics Manager Magazine is now providing a Twitter-based job posting service as another means of informing job seekers of opportunities. As a medium for information, more supply chain managers are finding their way to Twitter, although the percent of users in relation to the total number of supply chain managers is still relatively low. A number of sources of supply chain information have now moved to Twitter as a means of reaching a new audience of readers. Supply Chain Brain, Purchasing Manager, Outsourced Logistics and many other trade pubs are now posting "tweets" on Twitter.

Cap and Trade to Get Strong Debate in September (08/26/2009)

Congress will reconsider legislation aimed at energy conservation and the "greening" of America upon its return in September. With both houses in different stages of submitting their own versions of the bill, cap and trade legislation appears to be at the heart of both. This legislation would create limits to the amount of carbon emissions that companies will be allowed to emit. As a means of offsetting these emission limits without having to re-design business operations to be more compliant, permits are proposed for "trade" such that these companies can become compliant by paying a premium (or market value) for these permits. Supply Chains are expected to be impacted significantly as a result of this legislation because the net result of the legislation is likely an increase in the cost of doing business.

Japan Air and Nippon to Merge Certain Air Code Share Operations (08/26/2009)

Two of Asia's primary airlines will merge their current code share air cargo programs to cut costs and gain operating efficiencies in one of the worst global recessions to hit the international air cargo industry in decades. The announcement of the proposed merger still must pass Japanese government scrutiny, but is expected to face little headwind in the face of significant losses by both airlines. The two companies must find more than $2 billion in synergies to match operating business volumes. This will reduce capacity in the region and add an element of price increases for shippers using air cargo services in and out of Asia.

Baltic Dry Index Drops 8.7% in the Past Week (08/26/2009)

Asian markets are off on dropping demand from the US as consumer confidence and unemployment rise in the latest economic data. The Baltic Dry Index, a key measure of international shipping costs, lost more than 8.7% in the last week. This drop sent stocks of maritime deep sea shipping providers in Asia plummeting - assuming that they will be among the hardest hit companies in the Asian region as a result of a weaker economic outlook for the remainder of 2009.

Supply Chain Risk - the New Primary Focus? (08/26/2009)

Managing risk has been a key tenet of business management for centuries. But fully understanding the role of managing supply chain risk has really set in over the past three years as supply chain managers have been confronted with some of the most rapidly changing business dynamics in modern history. From fluctuating raw material inputs to record spikes in oil prices and volatile exchange rates, supply chain managers have been in the cross-hairs of reacting to these changes and building in supply chain flexibility to roll with these impacts. With business inventory levels at record lows, supply chain risk has increased because the replenishment window has reduced substantially. As a result, many industry watchers are saying that managing risk in the supply chain has become the primary focus for many corporations, perhaps higher than "lean efforts" alone. Obviously, the most successful supply chain management strategies have the right mix of both principles - creating a push for true optimization across the entire supply chain.

Item-Level RFID Adoption and the Supply Chain (08/26/2009)

Despite the slower-than-expected adoption rates experienced by the industry, few will argue that RFID will ultimately be one of the key components of a successful retail supply chain management system. As time passes, companies are finding ways to get a positive ROI on their investment in the technology and over time, the number of these success stories will grow. With reductions in staffing levels from 2007 to 2009 and perhaps into 2010, many companies will come out of the recession deciding to invest in technologies instead of returning staffing to pre-recession levels.

RFID is one of the technologies that are likely to get more attention and broader adoption as a result. And, one of the winning trends in RFID is the item-level management systems approach. Tracking specific items (not at the SKU level - but the individual item level) will help across a broad set of departments ranging from product security to stock replenishment and purchasing - all the way through to accounting and auditing. Partners that participate throughout the supply chain will need to understand and invest in ways to support these item-level RFID systems and the transfer, sharing, and security of information collected throughout.

Bureau of Transportation Statistics Freight Transportation Services Index Remains Low (08/12/2009)

The Freight Transportation Services Index for June showed that the index remained at a 12 year low, and was flat from its level in May. The index came in at 94.0, down nearly 17% from a high of 112.9 in 2006 and down more than 6.3% since the beginning of the year. The index uses the year 2000 as its baseline and measures transportation services activity from over-the-road, air cargo, inland waterways, rail, and pipeline transportation industries. The index is expected to improve slightly in the July to August period on seasonally adjusted figures - driven primarily by import / export activity and the movement of raw, bulk materials.

Business Inventories Suggest Continued Lean Supply Chain Activity (08/12/2009)

US businesses continue to lean out their supply chains according to a report by the Commerce Department, showing that inventories fell 1.1% in June - the eighth consecutive month of inventory declines. Across types of business, retailers dropped inventories by 1.0%, manufacturers by .8%, and wholesalers by 1.7% in the period. A number of retailers have dropped the number of SKU's that they are carrying, making some of the supply chain easier to manage. With business inventories so low, several theorists speculate that when the rise in economic activity happens, there will be a scramble to replenish inventories. Expedited services and air cargo may come into vogue as supply chain managers continue to manage the tradeoff between the risk of stock-outs and missed sales versus unwieldy inventory levels in an uncertain economic environment.

Elliott to Push for Anti-Trust Changes for Commercial Rail - Could Affect Pricing Activity (08/12/2009)

A bill which would eliminate commercial railroad companies from anti-trust exemption will likely be included in a September hearing. Daniel R. Elliott III, President Obama's candidate to head the Surface Transportation Board, suggested the bill as a means to usher in a new era of doing business in the nation's commercial rail sector. Democratic Congressional members are also taking on the issue of commercial rail pricing and merger oversight from several different directions, and could have a bill in front of Congress by the end of the year. At a minimum, it appears as though the Surface Transportation Board will go through a restructure if Senators are successful in getting approval to do so.

Shipper Associations are hopeful that this restructuring of the oversight board could ultimately lead to a change in the manner in which competition and pricing is improved in the sector - in the long term. In contrast, Rail providers feel that the current system has worked since the 1980's deregulation period and rail providers have significant competition between both each other and alternative modes to create the types of free market checks and balances that regulators are searching for. They suggest leaving the current system unchanged. The bill will be debated further in hearings that will commence after the fall congressional break.

H1N1 and the Supply Chain - Will it disrupt it? (08/12/2009)

There is widespread speculation on the role that the H1N1 flu virus will play on global supply chains as the flu season in the Western Hemisphere kicks off in the next month. CDC officials have begun to counsel businesses and public organizations (such as school systems) not to close down as cases of the virus begin to show up this fall. Many organizations have crisis operations policies in place to handle broad employee absences and the resulting impact on operations, but many still need to review these programs with a pandemic focus in mind.

Given the attention that the H1N1 virus is receiving, the onset of infections this fall will result in business interruptions - much of which from overreaction. Although not an entirely equal comparison, the cost of SARS on the global economy by 2003 was well over $30 billion in lost productivity - and SARS was relatively contained to the Asian Region. H1N1 is already a global phenomenon, and if projections are correct, will be at its height this fall. Mexican officials estimate that the virus cost it more than $2.3 billion in tourism revenue already in 2009. Supply Chain managers should be reviewing their contingency plans in the event that their organization, suppliers, or partners suffer from lost productivity during the fall flu season.

Read the "H1N1 Flu (Swine Flu) Update and Information for YRCW Employees.

A Weak US Dollar Could Affect Sourcing Strategy (08/12/2009)

A number of analysts are speculating that increasing Federal debt, more rapidly recovering international markets, and risk hedging strategies from the investment community will keep pressure on the US dollar in the medium and long term. As was the case in Q2/Q3 of 2008, the value of the dollar will affect a number of items - most notably sourcing strategy and energy costs. As the US dollar reduces in value, foreign-produced goods become more expensive. Part of the run-up in oil prices in the spike of 2008 was due, in-part, to a weak US dollar purchasing foreign oil.

For the global supply chain, the combination of higher prices for oil and a weak US dollar are only offset by extremely weak maritime rates at present. These conditions are forcing sourcing managers to reconsider their strategies for acquiring goods. In many cases, instability in Mexico has limited the number of sourcing alternatives that are available, but many importers are re-considering near sourcing in the United States as a viable part of the supply chain sourcing mix. At this stage, the most definitive observation is that the supply chain must remain flexible enough to give sourcing and purchasing options. And, it must be able to quickly react to changes in sourcing strategy and distribution patterns. That appears to be the case for the most competitive companies.

Government Approves Short-Term Funding Fix for Highway Trust Fund (08/05/2009)

Congress has approved a $7 billion short-term budget supplement for the Highway Trust Fund. This fund is used to provide $40 billion in annual funding to states to improve highways and bridges in the country, and was on track to be bankrupt by late August or September. Gasoline tax revenues have been dropping as US consumers purchase less gasoline, which has created a budget deficit in the trust fund. Without a major, new, funding strategy in place there were projected to be no new funding mechanisms in place to continue money flows to states for repairs and upgrades. The interim funding bridge will continue to keep projects on track – several of them being critical to relieving congestion in key metropolitan areas. The fund is a critical component in keeping the US national highway infrastructure suitable for the movement of goods and in keeping domestic supply chains moving.

IATA Says Outlook for Air Cargo Industry Looks "Bleak" (08/05/2009)

In a statement that has sent reverberations through the air cargo industry, the head of the IATA said that "these are extremely challenging times for airlines. There are no signs of an early economic recovery. Airlines are seeing international revenue falls of up to 30 percent at the start of the busy June-August period when airlines traditionally make their money. The outlook remains bleak," IATA Director-General Giovanni Bisignani said in speaking with Reuters. Air Cargo volumes were down nearly 17% in June, the 13th consecutive month of year-over-year declines.

Credit Managers Index Shows Modest Improvements – But Much More Needed (08/05/2009)

For the sixth straight month, the Credit Manager's Index has indicated that there is growth in the availability of capital. The recovery in the index started in February of this year, supporting the notion that the economy was beginning to show signs of a rebound and some sporadic "green shoots." Since that time, the index continues to suggest those green shoots continue and that modest and broader recovery is slowly underway. The index has also moved much closer to the equilibrium point of 50, which would signal that general economic expansion is taking place. The reading for July is now at 48, up 1.6 points from June's reading of 46.4. The importance of the Credit Manager's Index is it shows the willingness of companies to seek credit to support business expansion efforts. That expansion could simply mean the purchasing of additional inventory, or it could signal capital investment in new equipment and physical business expansion. One caution the report did mention is the willingness to seek credit may not be necessarily met with willingness on behalf of lenders to support that need. It appears as though the banking industry is still placing a firm hold on lending – a view that may not change anytime soon.

Deflation Pressure Hits Key Markets in Eurozone and Japan (08/05/2009)

A significant drop in consumer prices has hit the Eurozone (the economic engine in the EU) and Japan – two of the primary drivers of economic growth for Europe and Asia. Deflation worries had eased in the early part of the second quarter as early economic activity had sent prices slightly higher, actually encouraging central bank officials in several regions on the globe to consider interest rate hikes to stem an inflation worry. With the latest figures from these two regions suggesting that economies have cooled enough to create price wars and deflationary pressure, fears of an overheating economy have shifted now to one of a double-dip recession. As companies attempt to shore up falling sales volumes, they dig deeper into discounting to try and stimulate sales. This drop in price places pressure on profits and adds to the financial challenges of these companies. Most of the Central Banks worldwide have dropped interest rates as far as they can to stimulate growth – many of the traditional tools to spur growth have been exhausted. The Eurozone and Japan markets should be monitored closely to see what impact that has on global trade competition if prices for products are driven downward and the deflationary pressure spreads.

Industry Term Definition: Baltic Dry Index (08/05/2009)

The Baltic Dry Index (BDI) is a frequently used metric in the transportation industry to gauge economic activity and predict demand for raw material inputs into manufacturing and consumption cycles. The BDI is one of the oldest metrics used in transportation and traces its roots back to Virginia and Baltick Coffeehouse in London – in 1744. But few people really understand what the index measures. The BDI measures the cost of moving bulk goods in 26 different shipping routes across three major categories of bulk shipping vessels (Handymax, Panamax, and Capesize). The goods included in this index range from coal to Iron ore and grains.
Since the BDI measures the cost of moving items from market to market, it provides a relative view of capacity vs. demand relationships at work in the industry. Since many of the goods measured in the index are primary inputs into manufacturing and consumption, strong index readings usually suggest that economic activity will increase. There are debates as to how far in advance the index provides insight into coming economic activity, but the typical cycle is between six and ten weeks from raw input to economic impact.

When will an Over-the-Road Driver Shortage Return?

It seems inconceivable to discuss truck driver shortages at a time when industry volumes are weak. However, the American Trucking Associations is still predicting that driver shortages will start to play a factor in capacity availability as early as the end of 2010. Some of the factors that might lead to this shortage include: increasing demand for more over-the-road transportation over the next ten years, early retirements of drivers during the economic recession, restarting of the housing construction market (pulling drivers into jobs closer to home), and the reduction of capacity over the past 18 months. Supply chain managers need to ensure that they have ample capacity in place to handle the increase in demand surely coming. Drive on over to read the rest of the story.

Baltic Dry Index Fluctuation Shows Volatility in Markets

The Baltic Dry Index, a leading indicator of early stage manufacturing activity, has steadily risen since the beginning of 2009 - being driven primarily by heavy manufacturing recovery in China. Lately, the index has been facing a volatile environment (since the beginning of July) swinging more than 3-4% in both positive and negative directions on a daily basis. In recent weeks, congestion at Chinese ports and fears of over-buying of core raw materials has slowed demand for the basic raw material commodities that drive the index. Wall Street had hoped that the index was an accurate barometer for economic recovery, and are now skeptical that the data is representing true recovery. Although there are "green shoots" of improvement in the US economy, underlying fundamentals that drive economic expansion are still "bottoming out" (consumer spending, unemployment, housing construction, manufacturing, retail, etc.). Track down more info.

U.S. Ports Still Bracing for Tough Second Half of 2009

The report from the Nation's sea ports is still of concern. The LA Basin ports of Los Angeles and Long Beach are projecting fewer than 12.3 million TEUs will flow through the ports in 2009, down 22% from their peak of 15.8 million TEUs just three years ago. Container activity at the Los Angeles/Long Beach port complex peaked in 2006 in the midst of an economic expansion period and increased import activity from Asia. Aside from dramatic impacts on the West Coast ports from the global economic recession, competition from improved ports in the Gulf and East Coast regions, changing trade patterns and increased cost due to regulatory activity and taxes has also contributed to weaker 2009 activity. The deep sea shipping industry is in lockstep with port activity forecasts, projecting that the industry will lose more than $20 billion in worldwide revenues in 2009. At current projected global economic recovery rates and the estimated maritime overcapacity situation, the deep sea shipping industry is projecting that 2010 will remain difficult for providers of ocean shipping services. Navigate on over to find out more.

Oil Prices Spike on Economic Recovery Hopes

One of the by-products of economic recovery is the commensurate rise of energy prices. A spate of positive economic news has given investors some confidence that recovery is near enough to project oil demand will increase as consumption increases. Over the past week and a half, oil prices have spiked to hover in the mid to high sixty dollars a barrel price. In 2008, the summer oil spike that sent per barrel oil to $145 affected supply chain management around the world. Prudent purchasing managers gave the impact of fuel costs a greater percentage of influence on sourcing decisions. Given that the spike of 2008 was just a year ago, the impact of that event is still fresh in the minds of business people all over the world. As oil prices become more volatile and daily swings in price increase, those memories return. OPEC is still setting a range of $75 to $90 per barrel as a target price for oil. With trillions of dollars of investment funds worldwide "on the sidelines," the potential for a speculation run-up in oil prices exists. Couple this with increasing new car sales in China and an emerging consumer market in India and Brazil, and odds increase that oil price volatility will remain. Explore further.

Rail Industry Experiencing Slowing Declines

Despite volumes on US freight railroads being down nearly 18% year-over-year, the rate of weakness in the sector is improving. Many of the raw material commodities that the nation's freight rail industry carries showed slight improvement in the month-to-date July period. Slightly increasing manufacturing activity helped increase the amount of bulk raw material movement in the country. In addition, farmers moved last-year's grain overstocks onto the open market to make way for this year's harvest - adding volume to the rail system. Intermodal volumes are showing some hints of improvement, but are down slightly more than bulk car loadings. This is likely a result of lower consumer consumption and a push for higher bulk raw material exports. Monitoring all sectors of the transportation industry provides for leading economic indicators. Given the rail report for mid-July, the early stage inputs into the manufacturing process are showing signs of improvement - albeit slowly. Get on track here.

Supply Chain News: Creating Tax-Efficient Supply Chains

The topic has been around for quite awhile, but the subject of "tax efficient" supply chains is still one that is relatively little understood by most supply chain professionals? What is a tax efficient supply chain? The most simple definition is that a tax-efficient supply chain is one that maximizes the after tax profits of the corporation. The reality is that most companies look at designing the lowest cost supply chain networks, but often do not take into considering, in detail, the tax implications of that design, meaning the lowest cost design may not be the one that maximizes after tax profits.

Globalization Drives Need: Supply chain tax efficiency is of small interest for companies that operate primarily in a single domestic market. But with the explosion in global trade over the past two decades, for both sourcing and market expansion, issues such as tax rates, where value and profits are generated, and how product actually flows can have a huge impact on profitability.

Transportation Bill Delay Will Hurt Small Businesses, ARTBA Leader Tells Congress (ARTBA)

Significant new investments that accompany a timely reauthorization of the nation's surface transportation programs could greatly benefit small businesses by helping reduce the labor and delay costs associated with ever-growing traffic congestion, a Maryland specialty infrastructure contractor July 16 told the House Small Business Investigations and Oversight Subcommittee.

Bulk ocean freight index spikes (purchasing.com)

The Baltic Exchange's Capesize Index spiked in June to levels not seen since last September and more than 10 times the index's reading in early December, fueling concerns over the volatility of such indexes and their use in making supply chain decisions. According to various market sources, increased demand and congestion at Chinese ports lately driven by speculation that iron ore prices will drop soon pushed the Capesize index above 8,000 on June 3 before dipping and then leveling at 7,500 in mid-June. The index has been below 2,000 as recently as early April and was in the 800 range in December.The dramatic spike in the index, which measures shipping costs based on demand vs. capacity for capsize shipping vessels specifically, has been attributed to congestion at Chinese ports where demand for low-cost iron ore has increased. According to a Reuters report, there were an estimated 80 Capesize ships waiting off China to load, which represents close to 10% of the total Capesize fleet.

Maritime Issues and Sovereignty Disputes in East Asia (Scot Marciel, Senate Foreign Relations Committee, Washington, DC - transcript)

"Chairman Webb and Members of the Committee, I am pleased to testify before you today on maritime and sovereignty issues in East Asia. The sea lanes that run through East Asia are some of the world's busiest and most strategically important. They serve as the prime arteries of trade that have fueled the tremendous economic growth of the region and brought prosperity to the U.S. economy as well. Billions of dollars of commerce -- much of Asia's trade with the world, including the United States – flows annually through those waters. Over half of the world's merchant fleet by tonnage sails through the South China Sea alone each year.The United States has long had a vital interest in maintaining stability, freedom of navigation, and the right to lawful commercial activity in East Asia's waterways. For decades, active U.S. engagement in East Asia, including the forward-deployed presence of U.S. forces, has been a central factor in keeping the peace and preserving those interests. That continues to be true today. Through diplomacy, commerce, and our military presence, we have protected vital U.S. interests. Our relationships with our allies remain strong, the region is at peace, and – as you know well -- the U.S. Navy continues to carry out the full range of missions necessary to protect our country and preserve our interests."

Industry expectations up and down, down and up - IATA (Aircargo Asia Pacific)

The airline industry continues to face weak passenger and freight revenues and rising unit costs, according to the latest survey by the International Air Transport Association (IATA), but with significant changes in attitude and predictions by individual industry sectors compared to previous surveys.

Reported net profitability (losses) for Q2 and expectations for the next 12 months have deteriorated from the previous survey in April, with more than 88 per cent of respondents reporting profitability had fallen in the past three months and the majority expecting a further decline over the rest of the year. On the up side, expectations for cargo volumes over the next 12 months have swung from negative in April to a net positive in this survey, reflecting expectations of a world trade recovery, while passenger markets have deteriorated further since the last survey with only a smaller net balance expecting improvement over the coming year.

Transportation Bill Delay Will Hurt Small Businesses, ARTBA Leader Tells Congress (ARTBA)

Bulk ocean freight index spikes (purchasing.com)

Maritime Issues and Sovereignty Disputes in East Asia (Scot Marciel, Senate Foreign Relations Committee, Washington, DC - transcript)

Industry expectations up and down, down and up - IATA (Aircargo Asia Pacific)

Shipping lines plan to avoid losses by rate rises (Financial Times)

The main container shipping lines serving the transpacific route between Asia and the US said they plan to raise rates and seek renegotiation of recent contracts in a move to avoid suffering what they say would be substantial losses. The 14-member Transpacific Stabilization Agreement (TSA) said the shipping lines had agreed to a "voluntary guideline" for a sharp increase of $500 for carrying a standard 40-foot container box, which would represent a 50 per cent rise on current rates. In addition, the lines plan to raise fuel levies and may add peak season surcharges to take advantage of an expected rise in cargo shipments during July and August as the US stocks up inventories for the school and holiday seasons towards the end of the year. "In certain cases, it will be necessary for lines to engage with shippers in a renegotiation of contracts that do not provide for some of the interim rate adjustment," the group said Read more.

Leaner use of logistics keeps supplies moving (Financial Times)

The past few years have brought strong increases in revenue for the transport and logistics sector; it has enjoyed double-digit growth for most of this decade, according to PwC, the professional services firm. The current break in growth, as the economic downturn hits, may well prove temporary, but in the meantime, logistics and distribution managers - and the third-party logistics companies that carry an increasing percentage of the world's goods - face pressures to contain costs and drive efficiencies throughout the supply chain. At the same time companies, especially those in retail, want to reduce their stock holdings. But they also want to avoid shortages and disappointed customers. "There are increasing demands on the supply chain at the moment, both internally and externally," explains Danny Bagge, associate director for the retail supply chain at IBM Global Business Services. "Externally, there is huge pressure from retail to move material through the supply chain more quickly and with fewer people. But retail logistics people are saying they can't reduce costs any more, they have taken out everything they can. A couple of years ago the supply chain discussion was 'let's buy lots, put it in a warehouse and then sell it'," says Mr Bagge. "You can't do that now, cash is king. It's now about buying smaller quantities, seeing what is selling, and then buying to order." Read more.

June 2009 Manufacturing ISM Report On Business (Institute for Supply Management)

Economic activity in the manufacturing sector failed to grow in June for the 17th consecutive month, while the overall economy grew for the second consecutive month following seven months of decline, say the nation's supply executives in the latest Manufacturing ISM Report On Business(r). The report was issued by Norbert J. Ore, CPSM, C.P.M., chair of the Institute for Supply Management(tm) Manufacturing Business Survey Committee. "Manufacturing continues to contract at a slower rate, but the trends in the indexes are encouraging as seven of 18 industries reported growth in June. Most encouraging is the gain in the Production Index, which is up 12.1 percentage points in the last two months to 52.5 percent. Aggressive inventory reduction continues and indications are that the de-stocking cycle is at or near the end in most industries, as the Customers' Inventories Index remained below 50 percent for the third consecutive month. The Prices Index was unchanged from May, indicating that the supply/demand balance is improving. Overall, a slow recovery for manufacturing is forming based on the current trends in the ISM data." PERFORMANCE BY INDUSTRY Seven of the 18 manufacturing industries reported growth in June. These industries - listed in order - are: Petroleum & Coal Products; Printing & Related Support Activities; Wood Products; Nonmetallic Mineral Products; Miscellaneous Manufacturing; Chemical Products; and Primary Metals. The industries reporting contraction in June - listed in order - are: Apparel, Leather & Allied Products; Furniture & Related Products; Machinery; Computer & Electronic Products; Electrical Equipment, Appliances & Components; Plastics & Rubber Products; Textile Mills; Transportation Equipment; Food, Beverage & Tobacco Products; and Fabricated Metal Products. Read more.

Baltic index hits fresh 6-week low, demand soft (Reuters)

The Baltic Exchange's main sea freight index .BADI, which tracks rates to ship dry commodities, hit a fresh six-week low on Thursday with a lack of strong interest for cargoes weighing on the market. Port congestion off China's coast has eased in recent weeks freeing up Capesize vessels and helping to drag the Baltic index lower. Overall commodity imports by China are poised to drop from record highs in the first half of 2009. "There's a complete lack of activity and an absence of interest. It seems as if the summer lull has come early," said a London-based shipbroker. A glut of new vessels is expected to hit the market in the second half of the year and is likely to weigh on freight rates given weak global appetite for commodities and an economic slowdown, analysts said. Read more.

European Shipping industry to feel heat over CO2 emissions (Reuters UK)

Failure by the U.N.'s shipping agency to come up with bold enough proposals to address carbon emissions by the industry could compel the European Union to impose solutions directly. Delegates from nearly 100 member state countries will convene in London next week for a meeting of the International Maritime Organization's (IMO) marine environment protection committee. Formulating a position on cutting carbon dioxide (CO2) emissions is set to top the agenda. Peter Hinchliffe, marine director with the International Chamber of Shipping (ICS) which represents 75 percent of the global industry, said he expected a "roadmap" would be reached. "I am absolutely confident that we are going to end up with a useful solution and something which is going to be powerful enough for the (IMO's) secretary general to sell to UNFCCC," he said referring to the U.N. Framework Convention on Climate Change. But there are worries of opposition from countries such as China and India. The Group of Eight powers agreed Wednesday to try to limit global warming to 2 degrees Celsius and cut its greenhouse gas emissions by 80 percent, but failed to persuade China and India to join in a bid to halve world emissions by 2050. "Some countries may think if they go along with legally binding instruments they risk weakening their negotiation platform for Copenhagen," said a senior delegate attending next week's meeting. Read more.

Hong Kong's air cargo decline slows (Argus)

The drop in air cargo throughput via Hong Kong slowed to its smallest level this year, suggesting the slowdown of this sector of the aviation market may have bottomed out. Air cargo exports fell 18.1% in June from a year earlier to 96,764,739t, according to Hong Kong Air Cargo Terminals, which handles 80% of air freight moving through the territory. Exports were up 6.8% from May. The air cargo data is among the first indicators released each month of the state of Asia-Pacific's aviation sector. Shipments to Europe and Japan fell by about 25% against a more than 30% fall in May. Exports to North America dropped by 20% versus a 21% fall the previous month and a more than 31% drop in April. Read more.

DOT calls on Congress for $20 billion to keep surface transportation funded through March 2011 (Logistics Management)

At a time when funding for surface transportation programs is scarce, the Obama administration released a plan to keep programs in the black until March 2011, according to various media reports. The main takeaways of the plan include a request to take $20 billion in revenue from the United States General Treasury Fund into a federal trust for highway and transit infrastructure projects, according to a Reuters report.

This news follows reports from last month indicating that the Highway Trust Fund (HTF) is again on the verge of insolvency and will require up to $7 billion to remain fully funded through 2009. The HTF is the federal government's primary source for financing highway, bridge, and transit projects, and it is largely funded by the motor fuel federal tax, which is 18.4 cents per gallon for gasoline and 24.4 cents for diesel and has not been raised since 1993. One main reason for the HTF's dwindling financial resources is that Americans are driving fewer miles, as evidenced by Americans driving 90 million fewer miles year-over-year in fiscal 2008.

Gloomy Announcements Raise Questions Over Supposed 'Green Shoots' of Recovery (Datamonitor)

Declines in the Baltic Dry Index and international air cargo volumes, along with forecasts of weak crude oil demand until 2012, have raised questions over various claims of a quicker-than-expected global economic recovery. Despite the recent rally in the stock market brought on by these claims, these new announcements indicate that a full recovery is still a long way off. Highlighting the continuing weak global demand for commodities, the Baltic Dry Index (BDI), an index tracking the cost of transporting commodities on international trade routes, fell by 9% for the week ending June 27, 2009, its biggest decline since the week ending April 3, 2009.

BTS says surface trade with Mexico and Canada down 33.1 percent in April (Logistics Management)

Trade using surface transportation between the United States and its North American Free Trade Agreement (NAFTA) partners Canada and Mexico was down 33.1 percent in April 2009 compared to April 2008, falling to $49.7 billion, according to data released by the United States Department of Transportation's Bureau of Transportation Statistics (BTS). This output, according to the BTS, represents the fourth consecutive month with a yearly decline greater than 27 percent.

Surface transportation, according to the BTS, is comprised mainly of freight movements by truck, trail, and pipeline, and nearly 90 percent of U.S. trade by value with Canada and Mexico moves by land. The BTS reported that the value of U.S. surface transportation trade with Canada and Mexico in March was down 6.5 percent in April 2009 compared to April 2004 and up 17.4 percent compared to April 1999. Imports in April were up 19.5 percent compared to April 1999, while exports were up 24.9 percent, according to the BTS.

Oil Falls, Gasoline Drops to 5-Week Low as U.S. Payrolls Slip (Bloomberg)

Crude oil fell and gasoline slipped to a five-week low on a report showing the U.S. unemployment rate rose last month, a signal that fuel demand in the world's largest energy-consuming country will be slow to rebound. Oil dropped more than $2 a barrel after the Labor Department said that employers cut 467,000 jobs in June. The jobless rate jumped to 9.5 percent, the highest since 1983, from 9.4 percent. U.S. fuel supplies increased last week by more than analysts forecast. "The employment numbers show that the economy is still in distress," said Michael Fitzpatrick, a vice president for energy at MF Global Ltd. in New York. "We are trading on the market fundamentals as we approach the holiday weekend, and they point to lower prices."

Staying airborne through global economic turbulence (BusinessDay)

TONY Tyler, CEO of Cathay Pacific and recently appointed chairman of the International Air Transport Association (Iata), said recently that "both passenger and cargo traffic worldwide have taken a huge hit due to the weak economy, and the industry is expected to make a $9 billion loss, I think, was the last estimate. Then there is the rising fuel price, which is a major concern," Tyler says. He says conditions now are the worst that the industry has faced in decades. "The role of Iata is to help the industry survive the storm," says Tyler.

Retailer transforms supply chain with RFID (Logistics Manager)

International apparel retailer Charles Vögele has implemented a Merchandise Visibility system in a move to RFID-enable its whole supply chain. The system will cover point-of-manufacture to point-of-sale, using standard EPC Gen 2 labels. It is the first standards-based system to RFID-enable a retailer's entire supply chain. The system is designed to help retailers to streamline their supply chains by applying smart tags to apparel merchandise at point-of-manufacture, and reading the tags throughout the logistics operations and into the store.

Survey: Wholesalers, Manufacturers Expect End of Year Recovery (MDM.com)

Manufacturers and wholesalers are starting to see positive signs for economic recovery, according to the third annual RSM McGladrey Manufacturing and Wholesale Distribution National Survey. Respondents to the survey say they expect their companies to rebound from the current recession beginning in late 2009 (46%) and early 2010 (44%). In general, companies predict an earlier rebound for their own businesses than for their industry or the U.S. economy.

US economy adapting quickly to new market conditions (Money Management)

The US economy has responded a lot quicker to the changed global economic situation than its European allies, Schroders head of US equities Jonathan Armitage said. "We are looking at recovery in the US and stagnation in continental Europe," he told Money Management. "The US was the first into the economic crisis and I still think they will be the first out of it." Armitage said while the slowdown in the US was brutal, its ability to adjust to the new market conditions illustrated the underlying strength of the US economy. "It is [a testament to] the flexibility of the US market," he said. The US consumer has a rational head and the rise in the savings rates is an indication that they have adjusted to the new market conditions.

White House Says Transportation System Overhaul Must Wait (Washington Post)

After rejecting criticism that it is taking on too much, the Obama administration has identified one area where ambitious reforms will have to wait: overhauling the nation's aging, congested and carbon-emitting transportation system. The current six-year, $286 billion transportation spending plan expires in October, and House members have worked for months to produce a 775-page, $500 billion bill that would create a new fund for road repairs, increase funding for rail and public transit and include reforms meant to wean the country from fossil fuels. But it became clear at a contentious Senate hearing yesterday that the half-trillion-dollar question is how to pay for the bill. The 18.4-cent federal gas tax has not been raised since 1993, and revenue from it falls increasingly short every year because of inflation and the shift to more fuel-efficient cars.

Air cargo drops in May, recovery still far off-IATA (Reuters UK)

Demand for cross-border air freight dropped 17.4 percent year-on-year in May, suggesting international trade is still a long way from recovery, a global airlines body said on Thursday. The International Air Transport Association (IATA) said that passenger demand fell a more modest 9.3 percent year-on-year in May, and repeated its view that for airlines, "this crisis is the worst we have ever seen. We have lost several years of growth and yields are under severe pressure. Airlines are in survival mode. Cutting costs and conserving cash are the priorities," Giovanni Bisignani, IATA's director-general, said in a statement. The latest reading of international air traffic includes the first estimate of the impact of H1N1 flu on airline travel.

China defends export policies against WTO complaint (Reuters)

China on Wednesday rejected U.S. and European charges that its restrictions on raw materials exports violate international trade rules, saying that its policies were in keeping with WTO regulations. The European Union and the United States said on Tuesday they were taking a complaint to the World Trade Organization over China's export curbs on some industrial raw materials used in steel, cars, microchips, planes and other products.

Somali Pirate Attacks Boost Shipping Insurance Rates (Bloomberg)

The cost of piracy insurance has risen by as much as 100 percent after attacks on ships off the Horn of Africa surged, insurance broker Marsh said. Attacks on large commercial vessels such as the Sirius Star, a Saudi oil supertanker that was released in January, almost two months after it was hijacked with a cargo of 2 million barrels of oil, have spurred premiums and demand for coverage. Piracy "is a pretty challenging piece of risk to underwrite," Marcus Baker, head of marine insurance at Marsh in London, said in a telephone interview. "These pirates are attacking up to 700 miles off shore. We had ships that were quoted at 0.05 percent on their value for a trip through the Gulf of Aden in the middle of last year, and we have had other ships recently quoted at 0.1 percent for the same trip," Baker said.

State of Logistics 2009 (Supply Chain Digest)

The "headline news," not surprisingly, is that total US logistics spend for the year dropped $49 billion in 2008 to $1.3 trillion, though that was still the second highest absolute number on record. Perhaps more meaningful than the total spend was the drop down to 9.4% of total gross domestic product (GDP), after being over 10% in 2007. The "cost of logistics" is made up of several components:

Carrying costs, including the cost of inventory and distribution/warehousing expenses
Transportation costs
Shipper-related costs (not sure, but it is a very small percentage of the total)
Logistics administrative costs, including IT, management and more

Leading U.S. Supply Chain Programs, 2009 (AMR Research)

AMR Research has just completed its first dual industry and academic study of U.S.-based university programs focused on supply chain management. 126 companies responded to the industry survey, and 19 universities provided significant program detail for analysis. The assessment showed many strong programs, with innovative teaching approaches and relevant research being conducted. Unfortunately, most universities are only partially meeting the most pressing needs from industry, with supply chain programs on average teaching only 5 of 11 academic areas needed, inconsistently applying supply chain technology, and not ensuring sufficient applied knowledge transfer. AMR Research's growing body of research on talent development and organizational design highlights the increasing number of capabilities that a supply chain management professional needs early in his/her career. In "Supply Chain Talent: The State of the Discipline," they outlined 11 key components, or what they call talent attribute stations, of an advanced supply chain. Read More

U.S. trade freeze could be slowly thawing (Reuters)

After months of little U.S. action on trade, there are signs the issue could become more important for President Barack Obama, who heads to Italy in early July to meet with major trading partners. "We've got to stop talking about trade as on the second page of the agenda, and put it on the first page of the agenda, along with the stimulus, education and healthcare," U.S. Trade Representative Ron Kirk said recently. Trade has long been a divisive issue for Democrats, many of whom blame trade deals like the North American Free Trade Agreement for manufacturing job losses. Obama, who criticized NAFTA during last year's campaign, has moved slowly to build a new bipartisan consensus on trade while pushing more forcefully on domestic concerns like health care reform and climate change legislation Read More

Oberstar transportation bill tops $500 billion and he says will create or sustain 6 million jobs (DL - Online)

A new six-year $500 billion federal transportation bill creates or sustains 6 million jobs, says chief author U.S. Rep. Jim Oberstar, DFL-8th District. Oberstar, chairman of the U.S. House Transportation and Infrastructure Committee, unveiled Thursday the "blueprint for investment and reform" for the new six-year federal appropriations bill for highways, bridges, rail and transit Surface Transportation Authorization Act. The bill spends $450 billion over six years, a 38 percent increase over the current $426 billion multi-year surface transportation legislation. It also provides an additional $50 billion to develop 11 authorized high-speed rail corridors linking major metropolitan regions. Read more

FedEx Posts Quarterly Loss of $876 Million (NY Times / AP)

FedEx posted a loss of $876 million in the quarter as consumers and businesses sent fewer packages and the company took more than $1 billion in one-time charges. FedEx said it expected a rough ride for some time. FedEx lost $876 million, or $2.82 a share in its fiscal fourth quarter, ended May 31, compared with a loss of $241 million, or 78 cents a share, in the period a year earlier. The company took a $900 million write-down related to the 2004 purchase of Kinko's -- now known as FedEx Office -- and $90 million in charges related to a September 2006 acquisition of a trucking company and its affiliates. Read more.

FedEx launches campaign against UPS over FAA bill (Reuters)

FedEx Corp launched a campaign on Tuesday attacking main rival United Parcel Service Inc. over a bill in Congress that FedEx said amounts to a bailout for UPS. The Internet campaign at www.brownbailout.com attacks Atlanta-based UPS over a reauthorization bill for the Federal Aviation Administration that was passed by the U.S. House of Representatives in May and awaits Senate approval. FedEx has previously taken issue with a provision in that bill -- that would have FedEx employees covered by the National Labor Relations Act instead of the Railway Labor Act -- which would make it easier for the Memphis-based company's employees to unionize locally instead of holding a nationwide vote. Read more.

White Paper: The Global Infrastructure Boom of 2009-2015 (Journal of Commerce)

In response to the financial crisis of 2008, governments around the world have pledged to spend trillions of dollars over the next few years on what is loosely called "infrastructure" and what amounts to the biggest global build-out of physical economic assets in the history of man. This global infrastructure boom will intensively unfold between 2009 and 2015 and will transform how the world looks, gets educated, moves goods and services, creates wealth, treats the sick, cares for the poor, powers its homes and businesses, and wages war. Read more.

Economy derails freight trains (Grand Junction Daily Sentinel)

Union Pacific down 21 percent in first quarter; 5,200 employees furloughed. Union Pacific officials say boxcars, locomotives and employees are being idled until this country's economic engine chugs back to life. "Times are tough with us and really the entire freight-rail industry because of the recession," said Mark Davis, Union Pacific spokesman. System-wide, Union Pacific said it has 1,900 locomotives and 66,000 freight cars in mothballs. In addition, the company has 5,200 employees who have been furloughed, Davis said. "For the first quarter (of 2009) we were down 21 percent system-wide," Davis said. The amount of coal being carried on the rails is down 10 percent. Transporting of agriculture products is down 12 percent. Industrial products, such as lumber and cement, are down 27 percent, and automotive transport (new cars and parts) is down 48 percent. Read more.

Website Offers New Features for the Logistics and Supply Chain Industry (PrWeb)

www.logjobs.com has announced enhanced functionality on its websites for job seekers, employers and recruiters through extensive use of Web 2.0 technologies that facilitate information and communication. For job seekers, the site features a permanent and contract job and resume board integrated with a custom-built professional networking site. Job seekers can search logistics and supply chain jobs by ZIP, sort by date and utilize an exclusive section for contract-based jobs. Job seekers can also earn referral commissions by recommending qualified candidates on select jobs as they search. Read more.

Hong Kong's air cargo traffic drops 17.6 percent (AFP)

Air cargo shipped through Hong Kong dropped 17.6 percent year-on-year in May, the city's airport authority said, as the global downturn continued to slash demand for goods made in southern China. "The negative performance reflected largely the impact of continuing global recession and the new but serious impact of influenza A(H1N1) virus, further weakening the aviation market and resulting in airlines reducing flight frequencies," said Airport Authority chief executive officer Stanley Hui. Read more.

Can You Have a Lean-Green-Global Supply Chain? (Industry Week)

Companies that have large, extended supply chains can capitalize on cost savings and improved profitability by looking at the synergies involved in being green while operating in a manner that continues to stress leanness. Companies are understandably focused on sustaining profits by cutting costs and jobs. The push to implement environmentally driven processes and programs may be fading from your company's priorities in the quest for survival. However, there is opportunity for green (environmental) initiatives to lead to profitability (cash). This is where the idea of lean comes in. Business leaders that have large, extended supply chains can capitalize on cost savings and improved profitability by looking at the synergies involved in being green while operating in a manner that continues to stress leanness. Lean thinking helps firms focus on non-value adding activities, and strives to reduce waste. Read more.

Using the Baltic Dry Index as Predictive Tool for the U.S. Stock Market

Many investors and traders see the Baltic Dry Index as a leading economic indicator and looking back at its rise in February and March, it certainly seemed to accurately predict the powerful bear market rally that took off after the March 6th lows.

The index tracks dry bulk cargo vessels used for transporting commodities like iron ore coal and agricultural products. And what it really measures is shipping demand against the worldwide available capacity on dry bulk ships.

Here's how it works and what it might mean going forward.

By John Nyaradi, TradingMarkets.com, May 2009

FedEx to take Q4 $900 million charge as recession bites--$90 million for Watkins

FedEx Corp said that it would record a fourth-quarter impairment charge of $900 million related to two acquisitions that have been hit by weak economic conditions. The majority of the charge is related to Kinko's, which FedEx bought in 2004 and has been seen as a disappointment by the package delivery giant.

The remaining $90 million of the goodwill charge is related to the acquisition of less-than-truckload company Watkins Motor Lines -- now known as FedEx National LTL -- in 2006.

By James Pethokoukis, Reuters, 6/3/2009

Confidence starting to return to logistics market

The latest results of Ti's Global Logistics Business Confidence Index have shown a significant return of optimism to the market. Although the index weakened slightly in April from +1.05 to -4.43, there was far more positive sentiment about the future.

By It Reseller Magazine, 6/4/2009

Norfolk Southern CEO: New Railroad Rules Could Cost Jobs

Norfolk Southern Corp. will have little choice but to further cut jobs and capital spending if new regulations cap its ability to raise prices, the railroad's top executive said Wednesday. "We can shrink our way to profitability" in a worst-case scenario, Chief Executive Wick Moorman said. "It is not beyond the realm of conjecture that (advocates for new federal railroad regulation) would push us there."

The top freight railroads, including Burlington Northern Santa Fe Corp. (BNI), Union Pacific Corp. (UNP), CSX Corp. (CSX) and Norfolk Southern, have been enjoying substantial pricing power despite severely depressed freight demand amid the economic downturn. But the trend has fueled a backlash from some railroad customers and heightened calls for Congress to tighten industry regulation.

By Bob Sechler, DOW JONES NEWSWIRES, 6/3,2009

May 2009 Manufacturing ISM Report On Business

New Orders Growing; Production, Employment and Inventories Contracting; Prices Falling; Supplier Deliveries Faster

Economic activity in the manufacturing sector failed to grow in May for the 16th consecutive month, while the overall economy grew for the first time following seven months of decline, say the nation's supply executives in the latest Manufacturing ISM Report On Business(r).

The entire report is available at the link below.

Mexico Gets Serious in the U.S. Crossborder Trucking Fight

Mexico is ramping up the pressure on the United States to get the Americans to live up to terms of the NAFTA fine print that allows Mexican truckers to operate in this country. The latest squeeze is a $6 billion lawsuit against the U.S. government because of its refusal to allow Mexican-domiciled trucks into this country beyond the current 25-mile free trade zone at the southern border.

The article provides good analysis on the issue.

By: John Schulz, Published at: online.wsj.com; 6/3/2009

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