CONTAINERSHIP OVER SUPPLY

A catastrophe waiting to happen.  From American Shipper--
Containership oversupply to continue

Monday, December 30, 2013

By Chris Dupin

The amount of capacity on idle, unemployed containerships reached reached 718,000 TEU in mid-December, according to Alphaliner, and "is expected to continue to rise until the end of March, as the current excess supply is aggravated by accelerating vessel deliveries due in the first half of 2014." Idle capacity averaged 595,000 TEU this year compared to 651,000 TEU in 2012, it said. The information service forecasts that the idle fleet will not be eliminated in 2014 and 2015.
In the most recent edition of its weekly newsletter, Alphaliner said, "Although demand is expected to pick up in April, as several East-West services withdrawn for the winter slack season are reinstated, it will not be sufficient to absorb all of the excess supply."
It forecasts that the world container fleet, with capacity of 17.3 million TEU at the end of this year, will gain 1.62 million TEU of new capacity in 2014 and 1.76 million TEU of in 2015.

SEGMENTATION

Sometimes a two-step #supplychainsegmentation is needed.  One segmenting may not be enough. 

3PL SEGMENTATION

#3PLsegmentation creates tailored, successful value propositions.

3PL STRATEGY

How many #3PLs have a strategy?  A strategy is more than getting more customers.  How many have explained the strategy to their employees?

SEGMENTATION FOR 3PLs AND LOGISTICS SERVICE PROVIDERS

Segmentation can help 3PLs and other logistics service providers to--

1) Improve your service offering

2) Focus your marketing message for each segment

3) Enable your sales force to pursue better opportunities, increase sales, improve customer retention, and increase revenues

4) Obtain higher quality customers and revenues

MEGA SHIPS

The new mega ships / container ships are longer than an aircraft carrier.  How will carriers fill them?

SUPPLY CHAIN SEGMENTATION

Supply chain segmentation can be done a needs-based, value-based, or cost-based approach.

SUPPLY CHAIN RISK

Interesting--
Article from Forbes.

http://www.forbes.com/sites/loracecere/2013/12/19/a-riskier-proposition/

CHINA CLARIFIES VAT

FROM AMERICAN SHIPPER--

China clarifies VAT tax Friday, December 20, 2013 By Chris Dupin China has issued a new document to clarify value-added tax measures that went into effect in Aug. 1, exempting shipping transportation from the law. The measures had caused concern in the shipping and logistics industry both here and in China. Federal Maritime Commissioner William P. Doyle said the VAT was discussed in October in Chicago at a bilateral maritime consultation meeting that the U.S. and China hold each year. In August, the National Industrial Transportation League, told the FMC, the Department of State and the U.S. Maritime Administration that the VAT “has created much confusion as to its application and resulting impacts, especially on freight moving between the two countries." Carlton said China was saying the 6-percent VAT is applicable to domestic shipping, logistics and freight forwarding in China and not specifically to international ocean freight; there were reports that “some ocean carriers and non-vessel operating common carriers (NVOCCs) are simply passing on the tax to their customers in the form of surcharges or service charges even when the freight charges have been 'pre-paid.'" In a presentation in October to the World Congress of FIATA, the International Federation of Freight Forwarders Associations, Yuntao Yang, the general counsel at Sinotrans and CSC Holdings, said the VAT had increased the burden to freight forwarders and that “numbers of freight forwarders are in danger of deficit due to the increased tax payment.” The FMC said that on Dec. 13, China released a document Circular 106, which supersedes the original document on the VAT effective Jan. 1, 2014. "Now that the Circular 106 has been issued, I would like to hear from industry stakeholders their thoughts regarding this latest development in response to their concerns," Doyle said. The FMC posted the following unofficial summary of Circular 106 posted on its website: The China Ministry of Finance (MOF) and the State Administration of Taxation (SAT) have now jointly agreed to exempt shipping transportation from their recently implemented VAT law. It is understood the exemption will be retroactive to 1 August 2013, when the current arrangements first came into effect. A joint circular (Caishui 2013 No 106) has been issued by the MOF and SAT explaining the exemption. Circular 106 removes the unequal tax treatment of foreign shipping companies. Chinese law requires foreign shipping companies to use either wholly-owned subsidiaries or third-party agents to collect ocean freight, while Chinese shipping companies can charge shippers directly without engaging a freight forwarder. Under the previous Business Tax regime, freight forwarders were allowed to deduct international freight from their taxable income. However, under Circular 37, this deduction is no longer permitted. Instead, starting from Aug. 1, 2013, they are required to pay a 6-percent VAT charge, as well as local surcharges (including the urban maintenance and construction tax, education levy and local education levy) on gross proceeds collected from clients, which means the foreign shipping companies end up bearing more tax burden than Chinese shipping companies. In attachment 2 of Circular 106, the deduction of international freight from the taxable income of freight forwarders is allowed, which draws the cost of foreign shipping companies back to the same level as domestic shipping companies. A press release on the FMC website provides additional information including a link to the Chinese language document. Richard Gluck, an attorney at Garvey Schubert Barer, said his assistant and translator tells him “the Chinese language document does not spell out any specifics about the VAT exemption. So, I think it is safe to say that details are still to be published.”

OCEAN SHIPPING OVERCAPACITY

Carriers made the overcapacity problem that scares them. 

From American Shippper--
Drewry says carriers 'spooked' by overcapacity

Thursday, December 19, 2013

By Chris Dupin

In a new analysis, Drewry Supply Chain Advisors has found that "carriers continue to be spooked by the specter of imminent big ship deliveries and so are fighting to hold onto market share.
"This market behavior will put further pressure on freight rates through 2014."
It added that the issue really comes down to a lack of demand and an overabundance of supply.
Another container shipping analyst, Alphaliner, noted in the November 26 issue of its weekly newsletter that the three largest container carriers — Maersk, MSC and CMA CGM — have on order capacity equal to 15.6 percent of their current combined fleet; the next 18 largest carriers have orders equal to 19.8 percent of their existing fleet.
"Despite the challenge they face, the second-tier carriers continue to have a strong appetite for new capacity in their bid to lower operating costs to match the scale economies enjoyed by the largest carriers, and they continue to forge new capacity alliances in this respect," Alphaliner wrote.
Drewry said, "At a trade-route level, carriers have been relatively successful in matching supply with traffic growth, helped by some improvement in overall demand levels. However, they have generally failed to turn this advantage into stronger pricing."
As a result, Drewry said, "there is an increasing disconnect between market fundamentals and freight rates. Despite respectable load factors, carriers are struggling to achieve sustainable rate rises on the spot market and this is strengthening cargo owners’ hand in contract rate negotiations."
Drewry's own Global Freight Index, a weighted average across all main trades excluding Intra-Asia, recovered in November, following two consecutive months of decline. It was up 10 percent over October to $1,957 per 40 foot container.
It attributed that increase to enforcement of general rate increases on several Asia-origin trades, but said "how sustainable these increases prove to be remains open to question with peak season now fully concluded."

OCEAN SHIPPING ALLIANCES

Same Players, Different Rules: FMC examines shipping alliances Wednesday, December 18, 2013 By Chris Dupin Members of the U.S. Federal Maritime Commission met with regulators from China and the European Commission on Tuesday as all three review plans by container shipping companies to form new or expanded mega-alliances. While most of the discussions were held privately by the regulators, FMC Chairman Mario Cordero and members of the delegations from China and Europe spoke briefly about their regulatory summit publicly at the end of the day and in interviews with members of the press. The summit was early on billed as a global regulatory summit on the P3 Alliance, but was a general discussion of shipping regulation. Cordero, a self described Los Angeles Dodgers fan, compared the meeting to a group of baseball umpires from different leagues meeting and talking with each other. “We did not make any calls today; no one was thrown out of the game. Our respective leagues have different rules, but we have the same players,” he noted. Cordero said he called the summit “given the rapidly changing face of the maritime sector, which demands out of the box thinking.” Maersk, MSC and CMA CGM, the world’s three largest container liner companies, announced in June plans to form the P3 alliance, a vessel-sharing partnership, which they hope to implement in the second quarter of next year. Since then, the so-called G6 vessel-sharing alliance has announced plans to expand into the Asia-West Coast and the transatlantic trades in the second quarter of 2014 in addition to the Asia-Europe and Asia-East Coast trades, where the G6 carriers (APL, Hapag-Lloyd, Hyundai Merchant Marine, MOL, NYK and OOCL) cooperate today. “Scope and size of changes taking place require that governments dialogue and share their views on global regulatory challenges and impacts on the industry,” said Cordero. He also noted an executive order issued by President Obama last year encouraged international regulatory cooperation. The objective of the meeting was for the different country’s agencies to share expertise and gain insight from each other, and that objective was met, said Cordero. Li Hongyin, deputy director-general of the Bureau of Water Transport, Ministry of Transport, headed up the Chinese delegation. Alliances such as the P3 are reviewed by both the Ministry of Commerce and Ministry of Transport in China. Jason Wang, secretary of the Shanghai Shipping Exchange, who also acted as translator for Li, said the Chinese government, like the FMC, has asked the P3 carriers for additional information as part of its review. Li said that “Chinese shippers are very concerned about this mega alliance” and that the ministry has gotten some feedback from the China Shippers Association. (Earlier this month, the Asian Shippers Council stated that the one of its members, the China Shippers Association, has raised concerns with Chinese regulators including the State Development and Reform Commission, the Ministry of Transportation and the Ministry of Commerce, "asking them to intervene to block the formation of P3 in accordance with China's antitrust law.") Li said the Ministry of Transport requests the P3 and other carriers to file their vessel sharing agreements, rate agreements and other agreements with the ministry, and that “no alliance is allowed to damage fair competition. If we get complaints from other market players, we can start an investigation immediately. “According to Chinese law, if the alliance has a market share exceeding 30 percent for one individual trade lane for one consecutive year, we will also start our investigation.” Li said that his personal understanding was that there is no quantitative standard for determining “damage,” but that his view was that if an alliance can to some extent control the rates of one trade lane, that would be deemed as damage and harmful to other market competitors. COSCO, China’s largest shipping company, is a member of the CKYH alliance with with “K” Line, Yang Ming and Hanjin. Asked if the CKYH alliance might expand to be on a more equal footing with the P3 or G6 alliance, Li said such a decision would not be made by the government — “whether to form an alliance or expand an alliance is completely decided by the enterprise itself.”

SUPPLY CHAIN DESIGN

Segmentation present a better way for #SupplyChainDesign because it is targeted to meet company strategic goals.

FEDERAL MARITIME COMMISSION ON P3 SUMMIT

FMC will hold regulatory summit Tuesday FROM AMERICAN SHIPPER Monday, December 16, 2013 By Chris Dupin The Federal Maritime Commission will hold its Global Regulatory Summit on shipping Dec. 17. The agency confirmed regulators from the People’s Republic of China (PRC) and the European Union will attend and said commissioners will discuss global regulatory issues including carrier alliances, vessel-sharing agreements, and the impact of operational agreements on international trade. The London-based consultants Drewry said in the current issue of its Container Insight Weekly, "The current ocean carrier drive for greater economies of scale through bigger alliances has far reaching consequences for the container industry that regulatory authorities will find difficult to agree on during their forthcoming meeting.” Mario Cordero, chairman of the FMC, originally called for the summit in October to discuss plans by Maersk, MSC and CMA CGM, the world's three largest carriers, to begin operating what they call the P3 Network in the Asia-Europe, transpacific and transatlantic trades in the second quarter of next year. Since then, the so-called G6 vessel-sharing alliance has announced plans to expand into the Asia-West Coast and the transatlantic trades in the second quarter of 2014 in addition to the Asia-Europe and Asia-East Coast trades where the G6 carriers (APL, Hapag-Lloyd, Hyundai Merchant Marine, MOL, NYK and OOCL) cooperate today. "We welcome the exchange of views with our regulatory counterparts,” said Cordero. "The shipping industry is dynamic as evidenced by the changing nature of agreements. The effects of these trends will have global implications that demand an international understanding of our changing industry." Ashley Craig, a Washington, D.C.-based partner with the law firm Venable, said he was “inclined to say, at this moment, I don't see the commission seeking an injunction on the P3." At remarks before the Washington, D.C, chapter of the Propeller Club last week, he said he felt Cordero was "potentially telegraphing to carriers, shippers and other stakeholders that the FMC was not going to try and dismantle this thing (the P3), but will probably try to strike a balance, getting the carriers to agree to more clarity, but letting the agreement take effect." Drewry said, “The G6 Alliance’s proposed expansion into the Asia/West Coast North America and North Europe/East Coast North America trade lanes in 2Q 2014 is just another step in the current process of ocean carrier schedule rationalization. More is set to come, including the merging of services, should it be approved by regulatory authorities. Greater economies of scale are required to compete against the P3 alliance and/or make a profit, not just improved frequency.” Drewry continued, “G6’s proposed alliance expansion gives the regulatory authorities much to think about, therefore, and it is far from clear if it will be approved." It said its view is that "the advantages gained through the creation of bigger alliances will outweigh the disadvantages. Shippers will get a better service, and there will still be room for sufficient service differentiation between ocean carriers.” For his part, Craig said, "From what I can put together, the PRC is digging in a bit here and likely to insist their carriers' interests are included in some way and, if not, they are going to call for substantive change or some sort of oversight." While most of the summit will be held in private, the FMC said “the public is invited to attend the closing remarks at 4:00 in the FMC Main Hearing Room."

SEGMENTATION APPLICATIONS

#SupplyChainSegmenation can be used for important company issues, including--

• Differing markets
• Customer portfolios
• Product portfolios
• Inventory yield
• Omnichannel sales
• Global operations
• Supply chain risk

 

Segmenting Supply Chains

Supply chain segmentation can create value, counter the monolithic supply chain, and streamline the tactical chaos and noise.

 

 

SUPPLY CHAIN RISK

#Supplychainrisk is created by holes in the flow of products and information, with gaps in processes, and by lack of proper technology.

SUPPLY CHAIN METRICS

The best #supplychainmetrics reflect what is important to top management. 

DUE DILIGENCE

Supply chain #duediligence is about more than accounting information or logistics contracts. 

SEGMENTATION

Some firms realize that cost-based analyses only do so much—and leave much unanswered, including the shortcomings in being able to truly track costs directly to parts of the business and to customers.  Those approaches do not adequate to address product or customer portfolios, inventory yield, omnichannel, inconsistent performance, and other important issues, The supply chain, no matter how defined, touches every part of their businesses, both external and internal.  Value based supply chain segmentation presents a way to better understand and to assess the business.

 

SUPPLY CHAIN SEGMENTATION

Supply chain segmentation is a superior best practice.  It should be done on value, not on cost of service.  www.ltdmgmt.com

SUPPLY CHAIN RISK

Risk / disruption is caused by and increased by internal factors, as well as external ones. Many companies confuse insurance with supply chain risk mitigation.  Also, many companies have no risk mitigation program.

WTO Global Trade

New global trade deal. What does this mean to global logistics?  What does it mean to those predicting increased onshoring?   http://www.bbc.co.uk/news/business-25274889

NETWORK OPTIMIZATION

How frequently should a company review its network?  With growth, customer changes, supplier changes, product changes, geography changes, service requirements, etc?  Every five years?  Or?

CYCLE TIME COMPRESSION

Supply chain cycle time compression and lean logistic share much in common as to goals and approach.  Agree?

LOGISTICS PARKS

This article may be of interest.  While it is targeted for a specific region of the world, it should still be of value for logistics parks, regardless of location.
http://www.ltdmgmt.com/logistics-infastructure.asp

TECHNOLOGY

Technology is a process enabler.  If there are process problems, then many benefits of technology go unused.  This is especially true with international and global supply chains with their length, number of participants, and complexity.

OUTSOURCING

Is there one dominant reason that logistics outsourcing arrangements do not succeed as planned by both the buyer and seller?

WAREHOUSING

How large a warehouse and how many SKUs does it take to go from wide-aisle to narrow aisle?

CORPORATE COMMUNICATIONS ISSUE

Logistics and traffic people talk rates per hundredweight, cubic meter, metric ton, container, trailer, or some other version.  None of that translates into how C-levels view costs.

FREIGHT

For shippers, what is the biggest freight cost issue now?  What do you see as the biggest issue twelve months from now?

P3

Shipper groups worldwide express concern about P3.  Read more at--

http://www.americanshipper.com/main/ASD/55790.aspx 

ORGANIZATIONS

Organizations are built from the inside out.  It is all about the organization. If it were really about the customer, as claimed, it would be built outside-in.

SC PROCESS

An underlying problem to effective supply chain management is organizing by function--traffic, warehousing, etc--and not by process.

RAILROADS

Railroads, to varying degrees, have always had an amount of monopolistic position.  Was deregulation of RRs a viable economic effort or wishful thinking?

ARTICLES

We have more than 70 articles on logistics / supply chain management at our website.  These have appeared in print and at websites world wide.  Please visit   www.ltdmgmt.com

BUYERS KNOWING WHAT THEY BUY? OR NOT?

How many buyers of logistics services that chase cheap prices really know what they are buying?

INVENTORY

The purpose of inventory is to buffer uncertainty. That said, why do companies carry more inventory beyond what is needed for uncertainty?  Do they like being inventory rich and cash poor?

YRC

YRC (Yellow-Roadway) has many financial and operating problems.  What do you think the short-term and long-term future is for YRC?

CONFERENCE SPEAKER

LTD people speak at conferences worldwide. Whatever the logistics or supply chain topic.  Our presentations are well received because we know logistics / SCM from real-world experience.  We know what we are talking about.

OMNICHANNEL AND GLOBAL SUPPLY CHAIN MANAGEMENT

Both require effective, working processes and great technology in order to be successfully managed.

LTD Management

Have Laptop, Will Travel.

 

How Do You Price Long Term Ocean Contracts?

Does the Shanghai Containerized Freight Index have any value in ocean service contracts?  How do SCFI's spot rates have meaning to pricing for a long term contract?  Is there an index that is useful for rate contracts?

We work with 3PLs who want to provide a 4PL service.

Transportation

There has been much written over the years about a driver shortage in trucking.  But it has not translated into significant rate increases.  Why?

Pending Container Shipping Chaos?

Look at what has and is happening.  Three largest container lines are in an alliance.  How will they fill ships?  Now mega-ships with 18,000 TEU capacity.  How will they fill ships?  Despite announcements of rate increases, little sticks beyond some spot rates.  Selling ships and leasing them back is a balance sheet accounting trick that looks good but does not change market dynamics. Supply of capacity exceeds demand.  Are we looking at another round of laying up significant tonnage to bring stability and to increase rates, similar to 2009?  Will the banks give them any choice but to do it?

IMPACT OF CONTAINER LINES ON SUPPLY CHAINS

Go to https://plus.google.com/b/112459437102478926629/+Ltdmgmt/posts#+Ltdmgmt/posts to read an overview of my article, GLOBAL SUPPLY CHAIN EROSION. 

Warehouses

How many logistics executives manage warehouses that were never meant to be warehouses?  The buildings were not designed for that function or they were designed for some other function?  Tip of the hat to the managers who have to work with that kind of impediment.

Global SCM

GLOBAL SUPPLY CHAIN PERFORMANCE EROSION, by Tom Craig, CEO, LTD Management. As trade has grown into a global business, ocean transport has grown in importance. At the same time, the shipping landscape has continued to change. The result is that performance and service levels are inconsistent, unpredictable, and eroding. Despite this, there are corrective actions shippers can take to ensure smoother sailing and a more consistent delivery of their product. To read more, click on http://www.scmr.com/article/global_supply_chain_performance_erosion.

Meeting C-level Expectations

Supply chain segmentation is required to deal with product portfolio, brand and private labels, product assortment, inventory yield, and short shelf life--issues important to C-levels. This is much more than omnichannel. Tiered supply chain approaches are required.

Read the November issue of Supply Chain Management Review for my article, "Global Supply Chain Performance Erosion".

Where I hear supply chain "optimization" I feel I am hearing someone who is a software salesman or someone else who never worked in supply chain management.

How many logistics / supply chain people wish they could make significant changes in their organization and operations?  And that speaks volumes about the difference between what "they" say and the real world.

Lean Logistics

The real impact for lean logistics is with the international activity.  That is where the wastes of time and inventory are most significant.  Instead too much lean is about the "four walls".

 

Supply Chain / Logistics Collaboration

Too often what is called collaboration is the 800 pound gorilla bullying others to do it is way.  http://www.ltdmgmt.com

Outsourcing Logistics

Outsourcing selection is based off low price bids for RFPs.  Using price instead of value for bid decision often creates the underlying reason that outsourcing is not successful.

MNCs

From blog by Hardvard Business Review--
http://blogs.hbr.org/2013/10/are-multinationals-becoming-less-global/?utm_source=Socialflow&utm_medium=Tweet&utm_campaign=Socialflow

#Incoterms

It is interesting how many people involved with export / import do not know and understand Incoterms.

Concentration of Power in Container Lines

Maersk, MSC, and CMA--the three largest container lines in the world--will work together on their P3 Network.  Can this be good for the shipping industry with such concentration of economic power?  How is this not an antitrust matter and violation?

Firms have supply chain they deserve

Many companies have the supply chain they deserve.   Think about it.

Operation

If you could change one thing in your supply chain operation, what would it be?

Organization

If you could change one thing in your supply chain organization, what would it be?

What do you think is the biggest challenge to effective supply chain management?  Does the challenge change if you are talking "domestic" vs international SCM?

Technology cannot fix a flawed supply chain process.

Two Big SCM Issues

The two biggest issues for supply chain effectiveness are time and the internal / company organization.  Agree?

Cost versus Service

Supply chain management is about balancing between service and costs.  Too often, C-levels talk service during the month and then talk cost when the books are closed at the end of the month.

Supply Chain Complexity

Supply chains are not linear.  Supply chains within supply chains.  The complexity increases significantly as the number of plants, suppliers, and customers increase.   Global supply chains.  What are the best ways to direct and manage complex supply chains?

Welcome

This is the place to discuss logistics and supply chain topics.  No matter where you are or what your issue, join in.  We want to talk about real world situations.