Monday, February 22, 2010

2 Signs That Show Manufacturing Recovery Growth

While people have heard about the economy improving, many are still wondering why our job growth hasn't happened yet. When economies come out of recessions, it is normal that job growth lags behind. Companies begin to have volume pick up, but there are two reasons they don't want to hire anyone just yet....

  • Most companies have had losses in previous months and need to keep the labor force "lean" in order to raise profits;

  • Most companies don't want to hire additional people until they feel comfortable that a recovery is here to stay;

Keeping these two principles above in mind, here are a couple of indicators that would lead us to believe that the economy IS making a slow but steady recovery that is sustainable.

Consumer Price Index Grows in January

The consumer price index rose 0.2% in January, the fifth consecutive increase, the Labor Department said Friday.

The CPI increase followed a 0.2% gain in December. The so-called core CPI, which excludes food and energy, fell 0.1%, the first decrease in that index since 1982.

The increase was lower than economists’ forecasts of 0.3%, Bloomberg reported. Energy prices jumped 2.8%.

The CPI is the government’s broadest gauge of costs for goods and services. Almost 60% of the CPI covers prices consumers pay for services.

If consumer prices are climbing, it could reflect an increase in demand for consumer goods, which increases the demand for trucking services.

New York Manufacturing Index Rises

Manufacturing activity in the New York region grew this month at the fastest pace in four months, the Federal Reserve Bank of New York said Tuesday.

The regional Fed’s “Empire State Index,” generally the first economic indicator in a given month, rose to a 24.6 reading, from 15.9 in January, the regional Fed said.

Readings above zero indicate expansion, while below that shows contraction.

The index was higher than economists’ forecasts of an 18 reading, Bloomberg reported.

Manufacturing is one of trucking’s largest and most important customer.

So What Does All This Have to Do With Transportation??

Transportation is all about supply and demand. The "Good Ole Days" of multiple carriers fighting over freight at discounted rates may be coming to an end. Many companies did not survive the recession and there are fewer trucks to go around. Financing is still enormously difficult for existing companies to purchase more equipment.

The Result?? The Perfect Storm

If the economy takes off, we're probably going to have a period where there simply aren't enough trucks to go around. Trucks are going to go the highest bidder, so they can recover from the past few months of dismal earnings and losses.

Be prepared today to lock in rates whenever you can. You may be better off by offering a slightly higher rate to carriers today, rather than waiting later when you can't find any capacity.

By taking some pro-active steps, the smart transportation manager may have to give a little today to protect his/her company's costs tomorrow.

Monday, February 15, 2010

Cass Freight Index - Where Do We Stand Now?

The Cass Freight Index is the benchmark as to what is going on in the transportation industry. To make the Cass Freight Index simple, it basically uses January 1990 as the benchmark, or a value of 1.00. The index measures overall freight activity.

January saw a light drop in both expenditures for freight and also the number of shipments. Historically, however, January normally does drop off. The important item is that the overall January year over year comparison shows that the freight index was up 5.6%.

According to Modern Materials Handling, here are some other freight indicators:

* US trade deficit for December 2009 was at its highest level in a year at $40.2 billion - exports were at $182.9 billion;

* The US Commerce Department announced US factory orders rose 1% in December for its eighth gain in 9 months;

* The Institute of Supply Mangement's Manufacturing Index hit 58.4 in January, the fifth straight month indicating expansion. A value of 50 indicates zero growth.

* The Port Tracker report from the National Retail Federation and Hackett Associates indicates that import cargo volume at US containers ports could be up by 25% year over year for the first half of 2010.

Overall, there are a few mixed signals, but growth is occuring in many of the indicators.

Photo courtesy of Rafael Vila, Auburndale, FL.

Monday, February 8, 2010

5 Myths About How to Create Jobs

What's in store for 2010?? Will manufacturing bring back all those jobs that were lost during the recession? Here's a great article from the Washington Post that gives great insight.

By James Manyika and Byron Auguste
Sunday, February 7, 2010

With the unemployment rate in the United States lingering just below 10 percent and the midterm elections just nine months away, job creation has become the top priority in Washington. President Obama has called for transferring $30 billion in repaid bank bailout money to a small-business lending fund, saying, "Jobs will be our number one focus in 2010, and we're going to start where most new jobs do, with small business." The fund is among several measures -- tax incentives, infrastructure projects, efforts to increase exports -- that the White House has proposed to help boost employment. As Americans consider the various approaches, we must have realistic expectations. We need to debunk some myths about what it takes to stimulate job growth.
This Story

1. Surely there's a quick fix.

Oh, were only that the case. The scale of the challenge is enormous. Quick action is important, but remember that the U.S. economy has lost more than 7 million jobs in the past two years. The country would need to create more than 200,000 net new jobs each month for the next seven years to get unemployment back to what was once considered a normal 5 percent. Quick fixes focused on 2010 alone won't be enough.
Of course, the right mix of government policies can help. But even if Obama's proposals were enacted right away and they accomplished all that he hopes, that would at best represent a good start. America's jobs challenge is a multiyear marathon, not a sprint.

2. The key to boosting employment quickly is to help small businesses.

New jobs come from both small and big businesses. From 1987 through 2005, nearly a third of the net new jobs were created by businesses that each employed more than 500 workers. By 2005, these big companies accounted for about half of the country's total employment, although they made up less than 1 percent of all U.S. firms.

But a look at the past two economic booms shows that the pace of job creation depends on more than the size of the businesses. During the economic expansion of the 1990s, large U.S. multinational corporations -- which employ an average of about 1,000 workers each in the United States -- created jobs more rapidly than other companies. This was because they dominated computer and electronics manufacturing, the sector that drove much of that boom. During the more recent expansion of 2002-2007, most of the net new jobs came from local service sectors, such as health care, construction and real estate -- which comprise both large and small businesses.

3. High-tech jobs will solve the problem.

There is a lot of talk these days about green businesses, biotechnology and other emerging industries that will create the jobs of the future. While they are obviously part of the solution, these industries are too small to create the millions of jobs that are needed right away. The semiconductor and biotech industries, for instance, each employ less than one-half of 1 percent of U.S. workers; clean-technology workers, such as those who design and make wind turbines and solar panels, account for 0.6 percent of the workforce.

We'll be able to generate significant numbers of new jobs only by spurring broad-based job growth across the economy, particularly in big sectors such as retail, wholesale, business services and health care. High-tech innovations will help employment grow over the long term, as new technology spreads throughout the economy and transforms other, larger sectors. For example, while the semiconductor industry alone doesn't account for much U.S. employment, the computer revolution has fueled the growth of other industries such as retail and finance; similarly, the clean-technology business by itself doesn't employ many people, but its developments could transform a big sector such as energy, creating new business models and new jobs.

4. Higher productivity -- when an economy produces more goods and services per worker -- kills jobs.

Not so. While productivity growth means that individual companies may need fewer employees in the short term, it spurs long-term gains in the economy as a whole. Since the industrial revolution, increasing worker productivity has brought rising incomes, higher profits and lower prices. These forces stimulate demand for consumer goods and services and for new plants and equipment -- fostering, in turn, industry expansion and job creation.

Take cellphones. Even 15 years ago, they were big, unwieldy, expensive and worked only in limited coverage areas. But as new technologies enabled workers to produce phones and provide service more cheaply, the industry took off. Cellphones are now ubiquitous, and this has created jobs not just among phonemakers but also among retailers, service providers and a new industry of developing and selling applications for cellphones.

5. Increasing exports will revive manufacturing employment.

Maybe for some companies in some industries, but not for the economy overall. While it's painful to accept, reducing unemployment is not mainly about regaining the jobs that have been lost. Sure, rising exports will cause some factories to scale up again, and many laid-off workers will be called back. But most new job growth will come from other sectors.

History shows that recessions -- particularly those following a financial crisis -- accelerate the growth or decline already underway in industries. In this recession, for example, the auto, financial services and residential real estate industries have contracted significantly and won't regain their peak employment anytime soon.

An increase in exports may stem -- but will not reverse -- the multidecade decline in manufacturing employment. In today's developed economies, net growth in new jobs doesn't come from manufacturing; it comes from service industries. Fortunately, boosting exports creates jobs in supporting service industries, such as design, trucking, shipping and logistics.

For a link to this article and the Washington Post, click here

Monday, February 1, 2010

How Will Slower Ships Affect YOUR Transportation Department?

Below is an article from the Journal of Commerce regarding ocean shipping. So what if your company doesn't utlize imports... why should you care??

Think about this for a second or two. The ramifications are like a bell going off loudly. If it takes several more days - possibly another week or longer - to get shipments in, then companies are going to be forced to store more inventory. If, in the near future, companies need to store more in warehouses, the cost of storage will go up due to supply and demand. That means YOUR cost will be going up!

What are some other ramifications??? In order to be more competitive, could this possibly mean that there will be less shipping overseas and more manufacturing in the US??? That is a question that you may want to consider, which is good news for most manufacturers. Bad news for Yang Ming, Costco and others, but good news for US manufacturers who are ready to step up.

US manufucturers may want to keep in the back of their minds that eventually this will lead to more rail and truckload shipments - less from the ports.

You can read the article and come to your own conclusion - but here is a chance for you to dust off that crystal ball!!

Slow Boat From China
Joseph Bonney and Peter T. Leach

With vessel speeds slowing down, lengthy supply chains have gotten a few days longer
Manufacturers and retailers looking to cut shipping costs by slowing their supply chains are finding unlikely new supporters of the strategy: the ocean container lines that carry the overwhelming majority of goods in international trade.

Financially strapped ocean carriers are cutting fuel costs by reducing vessel speeds on a growing number of long routes, and the impact of what’s called slow steaming is starting to reverberate across supply chains. Even amid a halting recovery, the economy is very literally slowing down on the water, with dozens of routes — mostly those out of Asia — extended by several days, and some shippers say they are having to adjust inventories to the changing service patterns.
Shippers may have to get used to it. Carriers say what began as a cost-saving strategy will likely last into any recovery in global trade when carriers and regulators see the environmental benefits of slower speeds.

“I think the advent of slow-steaming on the trans-Pacific is an unavoidable outcome of the economics today,” said Ron Widdows, group president and CEO of Neptune Orient Lines, the Singapore-based parent of APL. “It has become quite a usual occurrence in other trades. But I think it is a glimpse of the future in the way this industry is going to have to operate, because of the need to reduce emissions.”

Jorgen Harling, vice president of global network design at Maersk Line, said engine speeds and vessel emissions “are 100 percent correlated.” He said slow steaming “is now becoming the industry standard, and everybody is getting used to it. I think we are entering a new era.”

Slow steaming — sailing 25-knot vessels at 20 to 22 knots — became standard practice on long Asia-Europe routes last fall as carriers sought to control costs and find gainful employment for some of the 700-plus container ships laid up around the world.

During the last three months, slow steaming has spread to trans-Pacific voyages, adding up to three days to the 11 or 12 days that most vessels required to sail from their last Asian port to their first inbound port on the U.S. West Coast. Ships also have been slowed on long intra-Asia routes and in other services.

The four-carrier CKYH alliance — Cosco, “K” Line, Yang Ming and Hanjin Shipping — announced last week it will extend slow steaming across its Asia-Europe service, using it on six loops before the first half of this year.

AXS-Alphaliner, the Paris-based consulting group, counts 64 long-haul routes that have gone beyond slow steaming to “extra-slow steaming,” at 17 to 19 knots. On some backhauls, carriers are going a step further with “super-slow steaming,” lumbering along at 14 to 16 knots or even slower.
That produces significant cost savings, but the impact for the carriers goes beyond the fuel costs. Keeping a ship on the ocean for three days beyond a 12-day trip keeps the vessel from taking on new loadings during that time, potentially cutting revenue opportunities but also effectively reducing capacity just as the carriers are trying to keep a lid on space.

For shippers, the new era means more slack in their supply chains — and the possibility of higher inventories and other adjustments to logistics networks that may already have been overhauled in the downturn. Complaints about slow-steaming have been muted, however, with many saying it is a business imperative for a shipping industry facing billions of dollars in losses.

“It’s not the most desirable thing for us, but we understand the environment in which the steamship lines are operating,” said Delinda Arnold, production control manager for overseas parts procurement at Toyota Motor Manufacturing in Georgetown, Ky.

Arnold said slower transits have added 1 ½ to two days to lead times for containerized parts and components that Toyota imports via the West Coast to meet tight production schedules at its Kentucky assembly plant. She said the automaker has made marginal increases to inventories but has encountered no serious problems.

But Bjorn Van Jensen, vice president for global freight and logistics services at Electrolux in Singapore, said if super slow steaming becomes widespread, shippers “will start looking for significant rate reductions, since carriers’ fuel savings will be enormous and shippers will not sit back and watch service levels deteriorate without sharing in the benefits.”

Jensen said if carriers add more than a week to transit times, Electrolux may have to plan to keep more safety stock at some locations.

“A transit time change of up to a week, on the other hand, is not going to make much difference, since we have been coping for years with carriers’ horrible schedule accuracy anyway, and so a certain buffer is obviously built into the system,” he said. “In this respect, slow steaming may not actually be a bad thing, since presumably it will leave carriers with a speed buffer that can be used to at least improve on schedule reliability.”

Some terminal operators say they welcome slow steaming because it could make vessel schedules more reliable. When ships fall behind schedule and arrive in port in bunches, terminals struggle with congestion and higher labor costs. If necessary, a slow steaming vessel could make up for lost time by temporarily increasing its speed.

Arnold said Toyota’s carriers have told the automaker they don’t plan to boost trans-Pacific vessel speeds to make up for rough weather or other unexpected delays. She said that could require some imports to be shifted from rail to truck or, in extreme cases, air freight, to avoid supply chain interruptions. “That’s something we would have to absorb,” she said.

Although some shippers have complained that carriers failed to provide enough notice of their switch to slow steaming, Arnold said that wasn’t an issue for Toyota.

Container ship lines have billions of reasons to slow their ships.

Their worldwide losses for 2009 were estimated at close to $20 billion, and more red ink is likely this year. Carriers began experimenting with slow steaming when bunker fuel prices spiked in 2008 to about $600 a ton. After dipping early last year, bunker costs have risen since June to about $500 a ton.

Carriers have offset some of the increased costs through surcharges, but cargo demand remains weak. Drewry Shipping Consultants forecasts a 3.7 percent in global volume this year after a 10.3 percent drop in 2008, but vessel capacity continues to increase. Shipyard order books include capacity amounting to nearly one-third of the existing fleet.

ASX-Alphaliner estimated at the start of the year that extra-slow steaming has reduced the vessel surplus by absorbing 2.4 percent of world container ship capacity — the equivalent of 47 vessels with capacities of 3,000 to 13,000 TEUs that otherwise would be idle. In recent weeks, carriers have slowed additional vessels. AXS-Alphaliner said 12 Asia-West Coast routes have been slowed, representing 32 percent of trans-Pacific strings.

At $500-a-ton bunker prices, carriers can save 5 to 7 percent by operating vessels at 17 to 19 knots instead of at full speed, AXS-Alphaliner estimates. For a typical Asia-Europe service with 8,500-TEU vessels, that could amount to $15 million to $20 million a year.

The ocean carriers are not alone in taking speed into account in managing capacity.
Major U.S. railroads generally saw their network velocity slow down in the second half of 2009 as they parked cars and increased what the railroads call terminal dwell time amid a double-digit decline in freight demand.

Some large trucking companies have put speed limiters on engines to keep top speeds on trucks at around 62 to 65 miles per hour, a fuel-saving tactic. The American Trucking Associations supports mandatory speed limiting devices set at 65 miles per hour for trucks, but independent truckers oppose the limit, in part because it could cut into loads and revenue.

One the water, slow steaming takes a variety of forms. A few carriers have kept the same number of ships but slowed speed by reducing port calls, but that’s unpopular with shippers forced to find alternatives. Most carriers have slowed schedules by adding one or two ships to a service string.

Maersk’s Harling said the Danish carrier has slowed its vessels on virtually all long-haul routes, but that it doesn’t make sense everywhere. “You need long distances,” he said. “On an intra-Caribbean service with three ships, adding one ship would bring havoc to the schedule.”

On its longer routes, Maersk typically adds one vessel to a string, maintaining weekly service but stretching the round-trip voyage by adding two days on the head-haul segment and five days on the return trip. A ship that sails 19 knots on the busiest half of the voyage may average 15 knots on the backhaul.

Slow steaming represents an about-face from carriers’ long-standing emphasis on speed. For decades, carriers trumpeted their fast ships and speedy transits, and shippers shopped for the quickest way to supply their just-in-time networks.Mark Page, director of liner shipping at Drewry Shipping Consultants, said the effect of slower ships on supply chains highlights a critical gap for the container carriers. “Carriers haven’t properly priced added speed,” he said. Page said there could be an opportunity for carriers to take a cue from FedEx and UPS and charge higher rates for routes with faster transit times.

John Isbell, vice president of Starboard Alliance and former director of corporate logistics at Nike, believes carriers eventually will rediscover the virtues of fast transits. “As soon as demand gets back to the level of a few years ago, those ships will speed up,” he said. “If demand gets back to 2007 levels, carriers will be looking at ways of loading as many boxes as they can as fast as they can.”

NOL’s Widdows concedes if business were rosy, carriers probably would be going full speed ahead. “Right now, slow steaming is driven by costs,” he said. “There are only a few ways you can reduce the costs of running ships. You can lay them up, but there’s a limit to the amount of that you can do. Or you can slow them down, which has quite a substantial impact in reducing costs, but it obviously has some tradeoffs in terms of the service structure.

“The good news is that most customers are more focused on reliability and consistency than they are on transit time per se,” Widdows said. “Obviously, this will have an impact on supply chains. Some shippers understand this very clearly. This is the way forward into the future. The sooner our industry moves in that direction, the better off we will be relative to our environmental impact.”

He said environmental concerns would be the long-term driver of slower vessel speeds.
“Our future is driving lower emissions and the only way we have to do that is to lessen the amount of fuel we burn, and that means we’ve got to slow the assets down,” he said.

The environmental benefits and fuel savings eventually will require more investment, he said. When ships sail at slower speeds, more are required to maintain service. That’s no problem now, with some 560 vessels idle. But Widdows said when cargo demand recovers, carriers will have to expand their fleets.

“Cycle this forward five or six years and it will mean that every time one of us wants to start a new trans-Pacific service, it will be a six- or seven-ship loop instead of a five-ship loop,” Widdows said.

“The level of investment that’s required to serve the market is already very large. The investment will get larger,” he said. “Therefore, this industry will have to figure out a better pricing model. Emissions, cap-and-trade, levies — whatever comes is going to increase the cost to this industry. We’ve got to find a better model for a sustainable way of pricing our product to enable that ongoing investment. This is not an industry that’s figured out that mousetrap yet.”

For a link to the Journal and Commerce, click here