Quote of the Week: "Don't learn to do, but learn in doing. Let your falls not be on a prepared ground, but let them be bona fide falls in the rough and tumble of the world." - Samuel Butler

Prices Stacking Higher
6/11/2007
William Hoffman
Associate Editor

Warehouses are filling up faster and prices for distribution centers appear to be stacking up just as rapidly as shippers look for space to mitigate risks of disruption to their ever-lengthening supply chains.

Commercial real estate developer ProLogis' survey of the top 30 U.S. warehousing markets showed asking rents rose 2 percent in the first quarter this year, for an annualized increase of 8 percent. That's up from 7.5 percent growth in asking rents during 2006, or roughly double the overall rate of inflation, and the latest sign that costs for shippers are scaling up across the supply chain.

ProLogis' survey covers all providers surveyed in the top 30 markets, not just ProLogis' properties. Part of the upward pressure is simply a function of supply and demand - the survey found first quarter 2007 vacancies in the top markets averaged 7.5 percent, down slightly from 7.6 percent in fourth quarter 2006, and 8.25 percent in first quarter 2006.

But experts say broader changes also may be at work on warehouse rents and leases.

Shippers are anxious about the risks of supply chain disruption from longer transit times and more stops in more unfamiliar foreign territories during transit. Some are building up safety stocks of components and even finished goods or pushing inventory into wholesale supply chains. Both those strategies place more demand on warehouse space.

John H. Boyd, president and CEO of warehouse site selection consultant The Boyd Co., said he's seeing more shippers build up inventories throughout their supply chains to reduce risk of disruption. They are relying on advanced inventory management technologies to keep better track of goods in storage and transit. "Logistics has become a very sophisticated and mature industry and technology is allowing them to do more," Boyd said.

A.J. Wilson, senior vice president, sales and marketing at e*Fill America, a warehouse network provider, says warehouse prices have gone up "exponentially" in recent years. The company's operators cited 10 to 15 percent annual growth among third-party logistics providers hungry for warehouse space as the prime reason for the real estate price inflation, rather than inventory redeployments, Wilson said.

Boyd noted an escalation of warehouse real estate prices that could underlie some of the increase in rents. Land that went for $4 or $6 per square foot four years ago in industrial North Las Vegas, Nev., climbed to $10 a foot starting 18 months ago, he said. Rents are still climbing faster than inflation not only in popular distribution markets such as Los Angeles and California's Inland Empire, but in secondary inland markets such as Phoenix and Salt Lake City.

Another factor could be the proliferation of transloading and deconsolidation centers away from congested ports that encourages more distributed warehousing. Boyd cited the increasing frequency of Canadian manufacturers looking for warehouse space near their U.S. customers, as well as the steadily growing influence of NAFTA-oriented shippers extending their distribution networks across the continent.

 Leonard Sahling, first vice president, research, at ProLogis Research, said he didn't doubt shippers redeploying their stocks to reduce disruption risks was one factor increasing warehouse demand generally, but that underlying trends of demand and supply still trumped.

Sahling said the slowing U.S. economy may take some of the pressure off warehouse prices. But it won't happen in lock-step with the economy, and other factors, such as renewed U.S. manufacturing export demand, could counter any downward trend.

Sahling said it typically takes a company three months to look for distribution space and move into a site. If the U.S. economy continues to slump, that could show up in lower warehouse rents as soon as the third quarter of 2007. But if, as many expect, the economy recovers, warehouse prices likely will rise near their present rates. "Our sense is that rents will continue to rise over 2007 but probably not by as much as they did last year," he said.

But the direction of goods traffic may have plenty to do with the direction of pricing. 

"The big elephant in the room is China," said Boyd.

While rents are growing more than double the rate of inflation, demand for warehouse space is booming with the explosion of global trade in spite of the U.S. domestic slowdown. Where 400,000 square feet was considered mammoth for warehouses five years ago, said Boyd, sites of more than a million square feet are being snapped up quickly.

Logistics Costs Are at 9.9% of GDP  

Though 2006 was expected to be the year US logistics costs returned to double digits as a percentage of Gross Domestic Product, the $1,305 billion tab came up just a tenth of a percentage point short of 10%. - Logistics Today

In announcing how the US economy fared relative to its logistics spending, Rosalyn Wilson pointed out business logistics costs rose by over 11%, adding $130 billion to the 2005 record level of $1,174 billion. 

The 18th Annual State of Logistics Report, sponsored by the Council of Supply Chain Management Professionals (CSCMP) included specific breakouts for each mode and category of logistics spending. Transportation-related spending dominates the numbers with over $800 billion in total. Three-fourths of that figure comes from motor carriage.

"The volume of freight being moved is meeting and even exceeding estimates," said Wilson. U.S. ports handled an additional 2.1 million twenty-foot-equivalent-units (TEUs) for an 8% increase in 2006. Over the last three years, she added, container volumes have gone up 30%.

Rails handled a record 9.4 million containers and air freight services to and from Asia helped push freight-ton-miles up by 4.6%.

Despite large volume increases, revenues for carriers weren't as strong. Weakening demand and greater capacity in the motor carrier segment led to intense competition for available freight and held down rates. High fuel prices did push up fuel surcharges, which, in many cases, accounted for the rise in revenues. But smaller carriers, struggling for freight, often didn't have the leverage to hold fuel surcharges. 

Inventories have been rising, though the inventory-sales ratio indicates they are moving, not accumulating. There's just more going through the system and it's being held at different places in the supply chain, indicates Wilson.

Retail Container Traffic Will Be a Record-Breaker in August  

Volumes are predicted to fall slightly in September before moving into the traditional peak season beginning in October.  - Logistics Today

The National Retail Federation (NRF) and Global Insight monthly Port Tracker report forecasts container traffic at 1.53 million TEUs (twenty-foot equivalent units) in August. If that figure is reached, it will shatter the previous record, last October's 1.51 million TEUs. September volume is projected at 1.49 TEUs.

"Summer is only starting, but retailers are already looking ahead to the holiday season and the logistics of making sure merchandise is on the shelves when consumers come looking for it," says Erik Autor, vice president and International Trade Counsel of the NRF.  "The holiday season is the most important part of the year for our industry, so it's essential that we start looking at these numbers and watching for any problems as early as possible."

For the moment there are no problems, as all of the U.S. ports covered by the survey are running without congestion from the harbor to the gate. "Though rail performance deteriorated slightly in May," observes Paul Bingham, Global Insight Economist, "pressure on intermodal train operations has eased." He observes that although container traffic is growing, it is doing so at a slower pace than last year at the same time. On that basis he predicts that the system will have enough capacity to deliver "acceptable performance over the next six months."

Projections are based on data from the West Coast Ports of Los Angeles/Long Beach, Oakland, Tacoma and Seattle; East Coast Ports of New York/New Jersey, Hampton Roads, Charleston and Savannah; and the Gulf Port of Houston.

Canadian industries halt four straight quarters of decline to open 2007 - Canadian industries slightly increased the use of their production capacity during the first quarter of 2007, ending four straight quarters of decline. Capacity utilization edged up to 83 percent from 82.4 percent in the fourth quarter of 2006. The industrial capacity utilization rate is the ratio of an industry's actual output to its estimated potential output. Production rose slightly in the large manufacturing sector, but capacity use remained unchanged, tempering the first-quarter increase. (Canadian Business)

U.S. trade deficit narrows in April - The U.S. trade deficit narrowed by 6.2% in April as exports surged to a record, the Commerce Department said Friday. The trade gap of $58.5 billion was below the $63.5 billion forecast by economists, Bloomberg reported. The March trade gap was $62.4 billion, down from an originally reported $63.9 billion. (Bloomberg)

Crude oil tumbles $2 per barrel - Crude oil plunged more than $2 a barrel from a nine-month high on concern that rising interest rates may lead to slower growth in demand, Bloomberg reported Friday. Benchmark light sweet crude oil futures for July delivery fell $2.17, or 3.2%, to close the week at $64.76 a barrel on the New York Mercantile Exchange, Bloomberg said. It was the lowest closing price since May 31, while Thursday's closing price had been the highest since Sept. 7. (Transport Topics)

Diesel Slips to $2.792
6/11/2007
Thomas L. Gallagher
Web Editor, Traffic World

The average retail price for a gallon of diesel fuel fell just seven-tenths of a cent to $2.792 this week, according to the U.S. Energy Information Administration.

As the retail price fell for the second week in a row, the price of crude oil tumbled off a nine-month high of $66.93 to $64.76 on Friday on the New York Mercantile Exchange. The last time crude oil topped $70 was in September.

Diesel retailers on the Gulf Coast, the lowest priced region of the country, were getting $2.742 a gallon, down seven-tenths of a cent from last week and down 10.6 cents from a year ago.

Prices fell furthest in the Rocky Mountains, sliding 2.1 cents to $2.937, or 10.4 cents below year-ago levels.

The biggest increase in the country was in California. Diesel rose 2.5 cents to $2.997, still 22 cents below last year's mark. The country's most populous state helped to boost the average price in the West Coast region to $2.941, up 1 cent from last week and 20.8 cents below the region's average price last year.

Swift Into Mexico
6/11/2007
John Gallagher
Associate Editor, Traffic World

Barely a month after taking back the reins of the nation's sixth-largest trucking company, Swift Transportation's Jerry Moyes is already blazing a faster route south of the border to grab market share from his competitors.

Moyes, who finalized his $2.6 billion buyout of Swift on May 10, surprised some in the trucking industry with his plans to focus on internal operations rather than immediately jump onto the acquisitions track to build his $3.2 billion truckload operation.

The company's first major move after Moyes' return follows that strategy. Swift's wholly owned Mexican subsidiary, Trans-Mex, became one of the first Mexican trucking companies to fully integrate into the U.S. Customs and Border Protection's Automated Commercial Environment to speed crossborder transportation.

"Tying our Trans-Mex business information systems to ACE not only provides our customers with tangible benefits such as faster customs clearances, it also supports the Department of Homeland Security's dual mission to facilitate legitimate trade and secure our nation's borders," Moyes said.

"Because Trans-Mex moves hundreds of shipments across the border every business day, a significant amount of paperwork was required under the old system. ACE changes all that, completely automating the truck manifest inspection process."

Swift's biggest advantage has been the company's ability to master a computer system that has been beset by glitches and integration problems for more than two years.

The rollout of ACE, part of a multiyear modernization effort by CBP to automate the flow of information between trucks and customs at the border has been postponed several times during its $3 billion makeover.

Beginning April 19, all motor carriers were required to electronically submit manifests detailing cargo and carrier information to CBP prior to arrival at all southern U.S. land border ports of entry, where 21,000 trucks cross each day.

Until then, truck drivers arrived at the border and presented CBP officers with a paper manifest that details information on the cargo being transported, the truck and trailer carrying the cargo and the driver. "The manifest must then be processed by CBP while the driver waits," according to CBP. "However, when a carrier files an electronic manifest, CBP officers can begin processing the truck" hours before it arrives at the border, the agency said.

A preliminary study by the American Transportation Research Institute in March found that physically crossing an international border into the United States was smoother through the ACE program despite significant startup labor and equipment costs. Some small carriers found the startup costs to be considerable, while medium and large carriers found net operational benefits.

But an inability of carriers large and small to tap into the Web-based ACE system had caused significant delays at southern borders during the last two months, said Swift spokesman David Berry. "So all of the Trans-Mex trucks have been breezing through customs while others were stuck."

Swift was able to steer clear of the problem by providing Trans-Mex with the resources to hook directly into CBP's computer system rather than going through the Web portal. "We brought in one of our guys in the field to right the ship," Berry said.

"Programs like these that expedite trade particularly benefit Swift and Trans-Mex customers, because Swift is the only U.S. carrier that owns 100 percent of a Mexican carrier, which allows us this seamless capability," Moyes said.

Trans-Mex now will provide CBP shipment information electronically through an electronic data interchange connection as well as information on the vehicle and the Trans-Mex driver, Swift said. "CBP can now quickly verify the legitimacy of vehicles and drivers and run the shipping data through electronic filters to make inspection selections, allowing the selections to be determined before a shipment reaches the border. Goods not selected for inspection and that comply with U.S. laws can be expedited."

Although Swift handles less than 3 percent of the 3.2 million crossings from Mexico each year, it considers Mexico ripe for substantial growth, especially because of the tie to ACE.

"We don't have to pay a third party, we have much more accurate and quicker handoff of data and necessary clearance, and can speed up the crossing process," Berry said. "And our information can be more accurate - that builds up our credibility with customers and with the border patrol."

Celadon Acquires Air Road
6/5/2007
Thomas L. Gallagher
Web Editor

Celadon purchased this week the truckload business as well as many of the tractors and trailers of Air Road Express. Air Road will continue to operate its less-than-truckload business independently.

Celadon paid just under $3 million for the assets of the Indianapolis-based operation, which generated approximately $26 million in revenue last year.

Celadon said the goal of the purchase was to expand its customer base and add density to its primary traffic lanes. The Indianapolis-based long-haul truckload carrier will also gain a crew of experienced drivers.

"We expect to integrate the acquired operations promptly," said Steve Russell, chairman and CEO of Celadon. "As part of the integration process, we expect to optimize the combined customer, driver, and equipment base to improve asset productivity." Russell said he expects the new operations to add to Celadon's profit as early as September this year.

ProLogis Acquires Land Near BNSF
6/11/2007
Thomas L. Gallagher
Web Editor

ProLogis, the world's largest owner, manager and developer of distribution facilities, acquired 184 acres in Wilmington, Ill., for a distribution park that will serve a nearby BNSF intermodal facility.

ProLogis is building the park at the former Joliet Arsenal 60 miles southwest of Chicago and has optioned an additional 591 acres at the same location. In the first phase of development, the company will invest $120 million to make 3.2 million square feet of industrial space available. With a mix of inventory and build-to-suit facilities, the first phase will be completed by the first half of 2008, ProLogis said. Further plans call for developing an additional 6.8 million square feet of warehouse space.

The site for ProLogis Park Arsenal is a former U.S. Army munitions plant that opened at the start of World War II. The plant closed in the early 1990s and has since undergone an extensive remediation program. The opening of the BNSF intermodal facility was a key milestone in the area's transformation into an industrial, logistics and distribution center.

"BNSF's intermodal facility is a vital link in the North American supply chain," said Doug Kiersey, ProLogis senior vice president and regional director of capital deployment. "It serves as a key distribution hub for containerized goods flowing from West Coast seaports through the inland port of Chicago to markets throughout the eastern third of the U.S. Over time it will play an even greater role, as BNSF proceeds with plans to expand the capacity of its rail network serving Chicago."

Shippers Stretching the Dollar
6/11/2007
William Hoffman
Associate Editor

Logistics costs to U.S. shippers in 2006 grew faster than the nation's economy for the third straight year, rising to 9.9 percent of GDP from 9.4 percent in 2005 in a sign that higher costs across the distribution chain have all but wiped out nearly a decade's worth of improvements in logistics efficiency.

The 18th annual State of Logistics report from the Council of Supply Chain Management Professionals showed transportation costs grew 9.5 percent and were up across all modes and that inventory and other costs expanded even faster in 2006 even though a slowdown in the larger American economy was taking hold.

 Shippers moved into 2007 with depressed U.S. housing and automotive industries, and first quarter GDP growth an anemic 0.6 percent, yet without relief from freight costs that reversed recent downward trends.

Rosalyn Wilson, an independent transportation consultant and author of the report, said the figures suggest shippers are feeling the financial impact of the globalization of manufacturing and trade, with far-flung sourcing, sales and factory work extending transportation lines and adding new complexity to supply networks.

"Business as usual isn't really business as usual," Wilson said.

U.S. business spent a record $1.305 trillion in transportation and logistics last year, an increase of 11.1 percent, or $130 billion, over 2005. The growth was the second straight double-digit increase in logistics costs, although it was slower than the 14.4 percent surge of 2005.

Transportation spending growth also eased after a 13.3 percent increase the year before, but with economic growth also slowing, the 9.5 percent increase in moving the goods meant transportation costs as a percentage of GDP widened to 6.1 percent in 2006 after several years of narrowing. The figure was up from 5.9 percent in 2005 and from the most recent low of 5.5 percent in 2003.

There were also strong signs that shippers are paying to mitigate the disruption risks posed by longer, more complex supply chains, in part by holding more safety stock. Inventory as a percentage of GDP reached 3.4 percent in 2006, up from 3.1 percent in 2005 and the highest it has been since that figure reached 3.8 in 2000.

Wilson said the cost of carrying inventory grew as interest rates rose and warehousing costs expanded even as shippers made more use of distribution centers at the heart of changing supply networks. "Weak demand in some sectors led to inventory buildups, while changing approaches to managing inventory also impacted the level of inventory in the system, as well as where it is held in the supply chain," she said.

They're also pushing more inventory onto wholesalers, whose holdings rose 9.5 percent in 2006, compared with retail inventories that were up 2.8 percent.

"Headlines proclaiming historically low inventories held by mega-retailers are not indicative of actual inventory reductions, but rather a shift in the placement of and delivery methods for that inventory. Suppliers now have to hold inventory in various segments of the supply chain to meet the just-when-we-need-it demand of retailers," said Wilson.

"The wholesalers I talked to said that they were not holding inventory that they did not expect to move, they were just holding more of it longer than they had in the past," said Wilson.

And, she said, transportation logistics costs are bound to rise as shippers and logistics providers increasingly move into less developed areas of the world that lack the infrastructure for seamless movement of freight. Products that move smoothly across the United States (and more recently through Europe, with monetary and economic union) must make more stops through developing economies in China and India.

 Larger economic trends of the last couple of decades suggest a freight economy in transition.

Inventory carrying costs that declined some 35 percent as a percentage of GDP over 15 years reversed that trend over the past five. Transportation costs as a percentage of GDP shrank 6 percent between 1986 and 2006; logistics costs declined 20 percent; and now both are back on the rise.

Although logistics costs remained below 10 percent as a portion of nominal GDP for the sixth straight year, the 35 percent over the last five years leaves logistics close to exceeding double digits for the first time since 2000. And logistics costs now have increased faster than GDP for three years in a row.

"The good news is that this does not necessarily mean that we are doing something wrong," Wilson said. "Rather, it reflects that we doing things differently. ... Managing logistics in today's complex global environment costs more."

Still, a longer slowdown in the U.S. economy could be a powerful counter to growing logistics costs.

Wilson said competition, excess capacity and slackening demand held down trucking rates to the point where many carriers would have reported flat revenue but for fuel surcharges. And although it would take years for the effects to be felt, America's inland waterways system, once a model for the world, could enjoy a renaissance if long delayed legislation (the Water Resources Development Act) provides funds to modernize the country's decrepit system of locks and dams. And technology continues to make headway in identifying and cutting logistics costs.

Wilson said core pricing across modes remained relatively soft, with competition holding down price increases in trucking and the search for freight by truckers keeping rail rates from rising more rapidly. But costs for shippers rose nevertheless as fuel prices stayed high, even if they were somewhat more stable than they had been over the previous two years.

"Fuel surcharges became the major component of the revenue increases for freight carriers," said Wilson. 

Even with overall tonnage down 1.3 percent in 2006 - the first decline in many years, according to Wilson - trucking companies managed to show revenue gains.

Trucking costs for shippers were up some $52 billion, or 8.8 percent, over 2005, but "but fuel surcharges were often the only thing that ensured revenue growth" for the truckers.

But rail spending grew faster, with rail transportation costs up 12 percent in 2006.

Total freight volumes set another record, up 4.5 percent to 1.77 trillion ton-miles. Carloadings were up 3.1 percent (the ninth consecutive increase), while intermodal loadings rose 5 percent. Rail revenue did even better, up 13 percent of $5.8 billion; rails have improved their freight revenue 28.6 percent since 2004, leading to a bubble of speculation that private equity investors might swoop in and squeeze out some profits for themselves.

Air freight revenue grew 7.6 percent, or $3 billion, in 2006, a slowdown from the 17.6 percent gain of 2005. Overall ton-miles increased 4.4 percent in 2006, and 22 percent since 2000.

Third-party logistics providers are the fastest growing segment of the market. Forwarder revenue increased to $28 billion in 2006 from $22 billion a year earlier, and Wilson said the growth is strongest among "midsize 3PLs who are catering to midsize companies who are putting more of their logistics dollar into the contract market."

 Wilson said that behind the raw numbers are encouraging signs of a transportation logistics sector finding new ways to meet service demands without exploding costs.

Technology is maturing to meet the needs of extended supply chains. Wilson said more shippers are investing in global trade compliance systems that automate the customs and security requirements of the many new trading nations. Technology is helping calculate container load mixes from source to destination to minimize deconsolidation and transloading. Some 50 years after its birth at the port of New York, containerization now accounts for some 75 percent of freight movement, Wilson said, and will probably top 90 percent in decade ahead.

Much of the improvement in supply chain management over the past five years came from improved visibility and management of inventory, especially in transit. "We've really dramatically increased our ability to know where our products are and to efficiently deploy them," she said.

June 2007

fastlane
¿que pasa?
By Clifford F. Lynch

Thirteen years after NAFTA, Mexican truckers are still stuck in idle, barred from making deliveries outside U.S. commercial zones that extend roughly 25 miles along the border.

The North American Free Trade Agreement (NAFTA) was supposed to give Mexican truckers full and free access to U.S. highways. But 13 years after the agreement took effect, Mexican truckers are still stuck in idle, barred from making deliveries outside U.S. commercial zones that extend roughly 25 miles along the border.

Under the original schedule, NAFTA would have opened U.S. roadways to both Canadian and Mexican truckers on Jan. 1, 2000. In 1995, however, the Clinton administration put the trucking provisions of NAFTA on hold-but only for Mexican truckers-citing concerns about the trucks' ability to meet U.S. safety standards.

In 2001, Congress enacted legislation requiring U.S. government agencies to meet 22 safety requirements before Mexican truckers would be allowed to travel beyond the commercial zones. The following year, Transportation Secretary Norman Mineta confirmed that those requirements had been met. Legal challenges, however, kept the initiative tied up in court until 2004, when the U.S. Supreme Court resolved the matter, ruling that Mexican truckers should be allowed into the United States.

This past February, the Department of Transportation (DOT) finally announced a one-year pilot program that will allow selected Mexican carriers to make deliveries beyond the U.S. commercial zones. To participate, truckers must pass a safety audit by U.S. inspectors, including a complete review of driver records, insurance policies, drug and alcohol testing programs, and vehicle inspection records.

Thirteen years after NAFTA became law, that seems appropriate to me, particularly since thousands of Canadian trucks move freely around the United States. Besides, the United States has spent more than $500 million since 1995 to improve inspection stations on the southern border and to pay for more than 600 truck inspectors.

The benefits of NAFTA are pretty clear. In 2006, imports and exports between the United States and Canada totaled $534 billion, and U.S.-Mexico trade totaled $332 billion. Every day, $2.4 billion in trade moves between the three countries.

In spite of those demonstrated benefits, the outcry from politicians and special interest groups continues. A few recent examples:

• Sen. Dianne Feinstein has opened an inquiry into the impact of Mexican trucks on air quality and safety.
• The Owner-Operator Independent Drivers Association (OOIDA) has testified before a Senate committee that the DOT has not properly addressed safety and security concerns.
• In April, the Teamsters Union, Public Citizen, the Sierra Club, and the Environmental Law Foundation filed suit in federal court to block the pilot program.
• The John Birch Society, a group with no apparent transportation ties, has launched a protest, citing security concerns about "allowing unregulated shipments to move freely on our highways."
• In perhaps the most appalling move of all, the Senate slipped an amendment to halt the pilot program into the Iraq appropriations bill, which was subsequently vetoed by the president.

Safety should be our foremost consideration, and in my opinion, the DOT pilot program more than adequately addresses it. If that does not prove to be the case, we can deal with it then; but let's not create a safety or environmental straw man simply to satisfy special interest groups. And let's not violate the spirit of NAFTA because of congressional concerns about illegal immigrants. This is a totally separate issue.

I'm not a foreign relations expert, but you don't need to be one to understand that we should treat both of our NAFTA partners, Canada and Mexico, equally.

We have bigger fish to fry in this industry. Let's move on.

GAO RELEASES REPORT ON SAFESTAT

The U.S. Government Accountability Office (GAO) yesterday issued its report to Congress on SafeStat, which is used by the Federal Motor Carrier Safety Administration (FMCSA) as an evaluation tool to identify motor carriers that pose high crash risks for compliance reviews. Although SafeStat was found to be 83 percent better than randomly selecting motor carriers, GAO determined that a statistical (binomial regression) model could increase FMCSA's ability to spot high-risk motor carriers by 9 percent. GAO recommended that FMCSA adopt the use of the regression model at least until the agency completes its planned overhaul of compliance intervention strategies under the Comprehensive Safety Analysis 2010 program. GAO did acknowledge FMCSA's on-going efforts to improve data quality and to implement measures to correct inaccurate data. However, in regards to a long-standing problem of late-reported, incomplete and inaccurate data reported to FMCSA by the states, GAO reported mixed findings. There would have been 6 percent more motor carriers classified as high crash risks if the states filed all crash data within the prescribed 90 days. As for completeness, GAO determined that data for about 21 percent of the crashes had problems that hampered linking crashes to motor carriers. Also, studies of 14 states by the University of Michigan Transportation Research Institute found widespread incorrect reporting of crash data raising accuracy concerns. A copy of the report can be found at www.gao.gov/cgi-bin/getrpt?GAO-07-585.  

25 Percent of U.S. Manufacturers Will Shift a Third of Production Overseas if Conditions Persist
From AMR Research

A looming U.S. manufacturing crisis poses a threat to the U.S. economy and national security, according to a new report released today by AMR Research, the National Association of Manufacturers, and its Manufacturing Institute. The report reveals that as a result of the increase in the cost and availability of chemicals--a vital raw material for most manufacturers--25% of U.S. manufacturers will move some production overseas if current conditions persist. Across all companies that plan to move production offshore, the average amount of production shifted will be 32%.

The report titled, "The Hidden Backbone of U.S. Manufacturing," is based on findings from a survey of 165 U.S. manufacturing companies ranging in size from 100 employees to more than 50,000. The report notes that in a global economy, big cost increases in any local or regional commodity, like chemicals, can make it difficult to manufacture profitably from a U.S. base because competition from overseas makes it nearly impossible to pass those cost increases on to customers. For large companies this problem can be solved by moving production offshore or at least sourcing from offshore suppliers. For smaller companies it may not be so easy.

Chemicals are often a misunderstood input into most of the products used in the U.S. each day--from diapers and crayons to computers and pharmaceuticals. 90% of manufacturers surveyed see the cost of materials sourced from the chemical industry increasing. The impact of rising costs is severe given that most manufacturers depend on chemicals for some form of production and, as a raw material expense, chemical costs are a key driver of profitability. In fact, 55% overall have significant, direct dependence for production and 73% of food, medicine, and other process manufacturing operations rely on chemicals.
"The most immediate and obvious risk is to the resilience and competitiveness of U.S. manufacturing, and with it millions of jobs and domestic production. But less obvious, and more troubling, is the consequence of an over reliance on offshore suppliers--our inability to respond effectively to a national crisis such as an earthquake, pandemic, or terrorist attack," said Kevin O'Marah, senior vice president at AMR Research and co-author of the report.

The report adds that there is little alternative for manufacturers as 50% say that materials sourced from the chemical industry are impossible to replace and a remaining 40% add that alternatives are available but at a far greater cost. As chemical inputs are both difficult to replace and invisible to consumers, margin pressures on U.S. based manufacturing are severe.

"Chemicals are a critical link in the supply chain for two-thirds of U.S. manufacturers, but America's chemical industry is threatened by rising domestic natural gas costs. At stake is not only the future health of chemical manufacturing firms, but also the thousands of companies that use their chemicals to make everything from crayons to computers. America needs a robust energy strategy to ensure affordable supplies, future development and greater efficiency," said NAM President and CEO John Engler.
http://xmail.kellerpubs.com/lt.php?id=KUoIDwIKVAkPB0VXDlROUANaDQ%3D%3D

Trucking Activity Declines in May
6/13/2007
Thomas L. Gallagher
Web Editor

Business in the trucking industry declined in May amid general expansion in the economy, according to reports from the twelve Federal Reserve Banks.

Overall economic activity continued to expand from mid-April through May, the Fed said. All twelve Districts reported some growth from modest to moderately strong. None reported a slowdown.

With the exception of trucking, growth in the service industries generally has been positive. In the trucking and shipping industry, though, sluggish demand or declines were noted in half the Districts. Dallas was the only District to mention a pickup in the trucking business.

Although declines were widely reported in the trucking industry, consumer spending and retail sales were generally up in late April and May. Manufacturing activity was up in a majority of Districts. There was weakness among manufacturers producing for the residential construction industry but strength among machinery and equipment manufacturers in several Districts. Auto sales have not picked up.

There was continuing weakness in residential real estate and construction but increasing strength in the commercial real estate sector, including both office and industrial space. An early spring frost harmed some winter wheat, and drought conditions caused problems in the Southeast and the far West. Oil and gas exploration increased in recent months, but coal production was down.

Producer Price Index Rises
6/14/2007
Thomas L. Gallagher
Web Editor

The Producer Price Index for Finished Goods increased 0.9 percent in May, seasonally adjusted, the Bureau of Labor Statistics of the U.S. Department of Labor reported June 14. 

The fourth consecutive monthly advance indicates increasing demand. The PPI edged up 0.7 percent in April after rising 1 percent in March. February's increase of 1.3 percent followed a 0.6 percent decline in January.

Core inflation seems well within bounds as the index for finished goods excluding foods and energy moved up just 0.2 percent in May after remaining unchanged in April. 

Among finished goods, the index for consumer goods less foods and energy moved up 0.3 percent in May after inching down 0.1 percent in the previous month. The largest increase in prices was for energy goods, which rose 4.1 percent in May after a 3.4 percent increase in April. 

The index for consumer foods decreased 0.2 percent in May after a 0.4 percent increase in April.  Capital equipment prices edged up 0.1 percent for the second consecutive month.

RedPrairie Integrates Fleet, Warehouse
6/14/2007
Thomas L. Gallagher
Web Editor

RedPrairie integrated recently acquired Fleet Management with its Warehouse Management suite.

The technological fusion enables distributors and others with dedicated fleets to seamlessly move products from the shipping dock directly to their customers. It processes returns, non-deliverables, and the disposition of reusable assets such as shipping containers, racks and totes.

Local distributors and retailers operating home delivery fleets have to synchronize their pick sequencing, packaging and staging with their fleet routing. They also need to dynamically deal with last minute changes.

"In the past, distributors used manual procedures or 'siloed' systems to manage distribution and fleet operations. This caused disconnects that were inherently inefficient and could lead to customer service problems," said Tom Kozenski, RedPrairie vice president product strategy.

Impact of STB's Antitrust Decision
6/11/2007
Colin Barrett
President of Barrett Transportation Consultants

Q:
What impact do you see from the Surface Transportation Board's decision to withdraw antitrust immunity from all motor carrier rate bureaus, including the National Classification Committee, the Household Goods Carriers Bureau Committee of the American Movers Conference, the National Bus Traffic Association and the regional rate bureaus?

A:
Well, the spirit of Harry Truman is probably pretty happy. Then-President Truman vetoed the Reed-Bulwinkle Act, which first conferred the immunity, only to be overridden by Congress.

I expect there are some antitrust lawyers who are also pretty gleeful. Some eager beaver in the Justice Department's Antitrust Division is sure to sooner or later initiate suit against what I'm certain will be continuing activities of the NCC and the rate bureaus, and antitrust cases can generate really big bucks for lawyers.

Quite a lot of shippers are likely satisfied, too. The major shipper groups - perhaps mindful of former Interstate Commerce Commission Chairman Darius Gaskins' long-ago comment that "a shipper who supports rate bureaus is like a turkey that supports Thanksgiving" - opposed renewal of antitrust immunity for the bureaus.

So at least one ghost and a bunch of other living folks will have some warm fuzzies. A few others, mainly lower-echelon employees of some of the bureaus, will find their job security isn't all they'd hoped.

And that's about the sum total of what I see. Otherwise I expect business in the trucking industry to go on with scarcely a ripple.

To be sure, there was once a day when the bureaus pretty much ruled the highways. They set rates with unabashed monopolistic control and exerted heavy pressure on any carrier rash enough to defy their domination.

Over the past three decades of deregulation, though, their influence has been steadily dwindling, to the point that their activities - certainly any activities that require antitrust immunity - are largely irrelevant to the industry.

In truckload service the irrelevance is almost total. The National Motor Freight Classification and the bureau-set class rates simply aren't used. Truckload carriers do use mileage guides and the NCC-established uniform bill of lading, but antitrust immunity isn't needed for them.

The NMFC and collectively established class rates such as the CzarLite scale are commonly used by less-than-truckload carriers. But there's already heavy-duty competition in this sector through discounting, and plenty of alternatives. For instance, the big LTL carriers already encourage smaller competitors to make use of their own rate structures, an invitation that's often accepted.

Besides, as William F. Pugh, executive director of the National Motor Freight Traffic Association (it runs NCC), said after the STB decision, "classification will be continued," although with perhaps some changes in the rating methodology. Daniel Slaton, a top official at SMC3, which publishes CzarLite, promised that, too, will live on with, again, a revised development approach.

Ramifications may be a bit more far-reaching among household goods movers. But a lot of van lines already don't use the HHGCB scale for line-haul service. HHGCB-set accessorial charges, such as storage and the like, are more commonly used, but I see nothing stopping the bureau from continuing to publish "guidelines" for carriers to apply if they choose, so long as it's careful how they're set.

I'm not knowledgeable enough about passenger transportation to evaluate how (or even if) the action will affect the bus industry. NBTA officials fear it will adversely impact smaller, local lines, and perhaps it will do that to a few that have competitive operations. I doubt, though, that the effects will be widespread.

STB made a really big deal about doing away with collectively established general rate increases. Rubbish. Me-too pricing, which the courts say isn't an antitrust violation, is going to handle this just fine - which is pretty much how things have been working the past few years anyway. You'll see little by way of substantive change.

Indeed, the board's enthusiastic predictions of a more competitive industry strike me as so much political bombast. It bemoaned the plight of the small or occasional shipper, the shipper who doesn't "shop around" for rates, etc. Well, they'll still pay the same top dollar they've been paying; even if the bureaus vanished tomorrow it wouldn't make them any bigger, any less occasional or any smarter.

And will the action give shippers a greater voice in such things as classification decisions, as some shipper officials eagerly anticipate? I'd think less voice, if anything; it's been STB oversight that has required increased shipper participation in NCC actions, and the board has just ruled itself out of the picture. More shipper involvement would aggravate, not diminish, the risks of antitrust violation.

Antitrust immunity for motor rate bureaus has been mostly a relic of a bygone era of the industry. And as with most relics, its formal termination is little more than a belated recognition of what the real world has already determined is largely inconsequential to contemporary practices. Sic transit gloria nil.