Feb 05

SOLAS Delay Requested By US Exporters

Source:  JOC.com

Saying it will be impossible to implement the SOLAS container weight rule by July 1 without severely disrupting trade, U.S. exporters are calling on the Coast Guard to delay the rule until it can be amended and determined that they won’t face a competitive disadvantage against foreign exporters.

Following a Wednesday meeting in Atlanta attended by 60 exporters and the U.S. head of a large container line, the head of an agriculture shippers group said it was clear it would be impossible not to disrupt trade while meeting the rule’s requirement that a shipper-signed weight, the verified gross mass, is given to the carrier and marine terminal sufficiently in advance of vessel stowage to allow stowage plans to be created.

“We cannot put U.S. exporters at a greater competitive disadvantage than they already are due to the high price of the U.S.  dollar,” Peter Friedmann, executive director of the group, the Washington-based Agriculture Transportation Coalition, told JOC.com.

Friedmann said the group was calling on the Coast Guard to delay implementation much the same way the Secretary of Homeland Security delayed implementation of the 100 percent scanning requirement for all inbound containers as mandated under the 2006 Safe Ports Act. He said the rule should not be implemented in the U.S. until it is determined that implementation would put U.S. exporters on a level playing field with other exporters. At the very least the rule should be put off until July 1, 2017, he said.

Under the amendment to the Safety of Life at Sea, or SOLAS, convention originally approved in 2014, individual nations that are party to SOLAS will implement the rule according to their own guidelines, ensuring that the core requirements that shippers provide a VGM based on actual weighing of the cargo, and that carriers and terminals do not load a container for which no weight has been provided — are met. (An extensive and up to date Q&A about the rule is available on JOC.com here. A link to the JOC’s complete coverage of this issue is here.)

“We believe the U.S. Coast Guard should decree that it will not implement this and instruct the terminals not to implement it until such time that all the stakeholders are satisfied that this will not to disrupt export commerce,” Friedmann said.

The issue has been raised by Friedmann’s group on Capitol Hill and members of Congress are starting to look into the issue. “There’s growing interest in global container weight and it’s something that both Representative Hunter and the subcommittee will continue evaluating. With the competing interests involved, it’s important to fully understand all the arguments to determine the best way ahead. And that’s something we’re in the process of doing,” said Joe Kasper, chief of staff to Duncan Hunter, R-Calif, chairman of the Coast Guard and Maritime Transportation Subcommittee.

“The Commerce Committee is making inquiries about the impact of the mandate,” said Frederick Hill, communications director for Sen. John Thune, R-S.D., chairman of the Commerce, Science and Transportation Committee. Thune has been a strong supporter of agricultural exporters, having pushed for faster responses to shippers’ rail complaints via a Surface Transportation Board reform bill and highlighting late last year how U.S. West Coast port congestion was crippling outbound shipments. He was also instrumental in pushing the Department of Transportation to create metrics on port productivity.

The U.S. Coast Guard is expected this month to issue guidelines on how the rule will be implemented, but it’s unclear how far they will go in addressing the range of outstanding logistics issues. But the World Shipping Council, the Washington-based trade group representing container lines globally, said unlike in the Safe Ports Act, which authorizes the Homeland Security secretary to postpone the scanning rule, nothing in the law behind the container weight mandate allows for a delay in implementation.

“The Secretary of (the Department of Homeland Security) is authorized to postpone implementation of the 100 percent scanning provision if he/she determines that it cannot be successfully implemented. There is no similar provision in the SOLAS amendments,” John Butler, CEO of the World Shipping Council, told JOC.com in an email on Thursday. “More to the point, nobody can seriously make the case that in 2016 it is unreasonable to require a shipper to accurately describe the weight of a loaded container that it introduces into international commerce. We don’t know of any other shippers that are making such a claim.”

To the point that the rule shouldn’t be implemented in the U.S. until other countries have implemented it, Butler said: “SOLAS is a safety convention; it does not allow member countries to ignore safety on the grounds of economic considerations.”

Having recently called the SOLAS rule a “fiasco,” Friedmann stepped up criticism of the rule and the process that led to its adoption by the Maritime Safety Committee of the International Maritime Organization, the London-based United Nations agency. He said U.S. shippers and terminals had no role in the development of the rule, which will impact container supply chains back to the origin hundreds or thousands of miles from the seaport from which the container left.

The rule requires the shipper named on the bill of lading to physically weigh the cargo — or have a designated representative do it — using one of two methods (either weighing the contents of the container and adding it to the unladen weight of the container, or weighing the sealed container and its contents as one), and to submit a signed VGM to the carrier. The rule makes it illegal for the carrier and terminal to load a container onto a ship for which no VGM has been received and requires they use the VGM in building the vessel stowage plan.

Among the key emerging issues is the time it will take to obtain the VGM and get it to the carrier with enough advanced notice for it to be used in the stowage plan. Other issues include how the VGM will get into the hands of the carrier given that manual documentation is used for an estimated half of the roughly 300,000 containers shipped daily on a global basis, according to the online container portal Inttra. Still further issues surround the question of whether terminals will allow containers unaccompanied by a VGM into their facilities.

“There were many parties who were never engaged in the development of this rule, including the marine terminals — they were never part of this discussion — and the shippers were never part of the discussions,” Friedmann said.

Prior press releases indicated that a few different non-governmental groups other than the World Shipping Council were involved in discussions at the IMO over five years leading to the adoption of the container weight rule. One group, the Global Shippers Forum, has the head of the U.S.-based National Industrial Transportation League on its board. Another group that was involved, International Cargo Handlers Association, has some terminals as members.

But that said, based on the large and growing number of questions from shippers, carriers, terminals and other parties about how the rule will get implemented with less than a half a year before it takes effect, it seems clear that the preparation was inadequate. As time has gone on, the confusion and the list of questions only seems to grow, with only bits and pieces of clarity coming from carriers or other parties.

In an interview with JOC.com on Wednesday, Friedmann went further, suggesting that given the hurdles to get it implemented, there was no compelling rationale for the rule to begin with. He said scant evidence of problems associated with overweight containers has been presented and he said there was just one vessel casualty, that of the MSC Napoli, which was scuttled in the English Channel in 2007, that has been cited as rationale for the rule. Though the U.K. coast guard found many containers to be overweight and noted in its report that “…The stresses acting upon a container ship’s hull cannot be accurately controlled unless containers are weighed before embarkation,” Friedmann said it was “inconclusive” that overweight containers were the actual cause of the accident.

“The creation of this rule was done without any problem identified. Why do we have this rule?” Friedmann said.

“Representatives of over 160 governments who carefully considered the issue for the last five years disagree,” Butler said. “The decision by the SOLAS parties to adopt the rule was based on multiple sources of information indicating that misdeclared containers are prevalent and dangerous. That decision was made two years ago after extensive discussion.”

“It is not open for reconsideration,” Butler said. “This is now the law, and the job at hand is to make sure it is implemented.”

Some say the issue of overweight containers has long been an issue for carriers. Even the founder of containerization, Malcom McLean, understood the danger. According to William Gotimer, McLean’s personal and business attorney and general counsel for all his transportation companies from 1991 until McLean’s passing in 2001, overweight containers were a big issue for the Sea-Land Service Inc. founder.

“Malcom McLean had a visceral sentiment on the issue of overweight containers. He strongly believed they were dangerous on the road and in the port,” Gotimer said. “I believe it stemmed from an accident he either once had or knew of where the driver was unable to control the load due to its weight. He had me speak with each of the various transportation departments of the states up and down the eastern seaboard to seek their support to limit overweight containers citing the constant damage overweight loads were doing on the roads.”

Gotimer said McLean refused to accept even legally overweight containers on his Trailer Bridge barge service to Puerto Rico. He was concerned not just about a container being overstuffed, but those handling it, including the truckers and dockworkers, not knowing it was overweight and being put in harm’s way as a result. He said the issue stemmed from the switch from commodity pricing for containers to container pricing, i.e. the rate became based on the container irrespective of what was inside it. That created “a great incentive to overstuff it, and an incentive to lie about what was in it.”

Contact Peter Tirschwell at peter.tirschwell@ihs.com and follow him on Twitter: @petertirschwell.

 

Jan 27

SOLAS Container Weighing Rule Update 2016-1-27

Source:  JOC.com

When a container without a signed weight declaration shows up at a marine terminal as of July 1, when a new SOLAS rule takes effect, what happens next? Will the terminal allow the container in, hoping that the weight will arrive in time for the container to be handled and loaded without having to be pulled aside? Or does the terminal avoid the risk, telling the carrier and its customer that containers without the Verified Gross Mass won’t be allowed in under any circumstances?

That and many other unresolved issues are raising anxiety levels among shippers, carriers and terminals as the implementation date is just a few months away.

U.S. exporters say the amendment to the SOLAS convention requiring shippers to provide a signed, certified weight to the ocean carrier and terminal is unworkable. They are asking how a shipper can be held responsible for the weight of a container whose tare weight, or unloaded weight, may be inaccurate, especially if the shipper never sees the container in cases where it’s loaded at a transload facility, possibly thousands of miles away from the exporter’s point of origin.

“It’s a fiasco,” said Peter Friedmann, executive director of the Agriculture Transportation Coalition, a group representing roughly 2,000 shippers. “Everyone who knows about how cargo moves from the origin and onto a ship knows that this thing is absolutely unworkable and will create unbelievable congestion unless minds who are familiar with how cargo moves are allowed to intercede.”

Friedmann said the SOLAS issue was a bigger issue than merging container lines and shipping alliances, noting that virtually all agricultural exports — 75 percent to 80 percent of all U.S. outbound container shipments — would be affected.

Key to the discussion of how the SOLAS rule will be implemented involves what will happen at the terminal gate when containers arrive. If terminals bar entry to containers for which a VGM hasn’t been provided, there could be significant disruption to trade flows. All parties appear to be waiting on the U.S. Coast Guard to issue guidelines, which are expected to be published in February.

Eleven U.S. terminals have told one of the large container lines that they will refuse to admit containers that arrive at the gate unaccompanied by a signed VGM provided by the shipper. Thus it would appear that a number of terminals are adapting, or at least hoping to adapt, the position statedby Maher Terminals at New York-New Jersey in December, which was that after July 1 it won’t admit any container for which a VGM has not already been received via electronic means. That position puts the onus on the carrier to obtain the VGM from the shipper earlier in the process, which could create difficulties for carriers in facilitating the flow of its customers’ cargo and amounted to a stake in the ground that one carrier executive said “doesn’t appear to be consultative.”

The story is likely far from over, as the carrier that was told by the 11 terminals that containers would get turned away said, “we as a carrier will probably ask” the terminals to be flexible. Flexibility in essence means allowing containers into the terminal without the VGM. And given that the carriers are the main customers of the terminals, it remains an open question whether those terminals will be uncompromising in sticking to the position of no-VGM, no entry. Indeed, three other U.S. terminals told the carrier that they would accept containers without the VGM with the understanding that such containers can’t be loaded as that would be a violation of U.S. law under the SOLAS rule.

“What does a terminal operator do when a box shows up and doesn’t have the right information in order to validate the weight? That is where a lot of the discussion takes place,” Ron Widdows, the former APL CEO who is now a consultant and chairman of the World Shipping Council, the trade group representing container lines, told JOC.com in an interview this month. “Is a terminal going to take the box and then seek to get the information? Or are they going to reject the box at the gate for the lack of the information? There seem to be different views on how the terminal operators are going to behave in that regard.”

The terminals’ position stems in part from their fear of congestion stemming from having to pull out and sequester containers for which a VGM has not been received, which would require additional storage space and handling costs that the terminal might have to absorb, and perhaps more importantly, interfere with the increasingly difficult task of handling the surges of containers coming moving on and off mega-ships. Anything that could create exceptions, that is, situations where containers can’t be loaded and where documentation or other issues need to get resolved, is a red flag for terminals. One senior carrier executive suggested that some terminals will take a wait and see approach, possibly allowing in some containers without the VGM, but watching carefully to see the number of exceptions and additional handling that is created.

Also, few terminals so far seem to believe there is a viable business model in conducting weighing on behalf of shippers and charging them a fee, given the requirement to invest in weighing equipment and find space for the weighing process and associated storage. In its announcement in December, Maher said it would not offer weighing services and one senior carrier executive told JOC.com this week that he “is not seeing terminals lining up” to provide weighing services even if it would create an additional revenue steam. One senior terminal executive said his company fears that what starts as a revenue generating service could end up creating no revenue gains as a result of tough negotiations with carriers that could end up with terminals swallowing the associated costs.

A terminal’s refusal to admit a container arriving without a VGM places the burden on the carrier to ensure that its shipper provides the VGM sufficiently in advance to avoid the container being turned away at the gate. The burden is especially heavy given that only some shippers submit documentation electronically, while many others submit documentation via fax or in hard copy form. According to the ocean container portal Inttra, approximately 300,000 container weights will need to be certified each day globally, and roughly half of all booking requests and shipping instruction submissions each day are non-digital currently.

Indeed, sensing an impending disruption to trade once the rule takes effect, some are saying that implementation of the VGM rule needs to serve as a catalyst globally to convert more documentation to electronic form.

“The carriers themselves, and their IT linkages, their EDI connections to their customers, becomes the most efficient means” of conveying the VGM information, Widdows said. “Not all customers interact electronically, you still have customers that send information by fax or a variety of different ways, but the most efficient system is getting that electronic, EDI connectivity to be a much more significant percentage of the business. That is going to ensure a more timely movement of the information and provide some consistency.”

One carrier serving the U.S. market said that all VGMs will need to be sent by shippers to the carrier electronically, thus indicating — if that carrier and others hold to that in practice — that the rule may already be having an effect on converting shipper-carrier interactions to electronic means.

Under the SOLAS rule, the VGM needs to be used for stowage planning and the carrier and terminal operator are barred from loading a container for which a VGM hasn’t been received. Normally there is a two to three day cutoff in advance of vessel loading for containers to arrive at the terminal. But the ocean carrier compiles the load list one day after the cargo in-gate cutoff, so that theoretically leaves a day after a container arrives at the terminal for the VGM to be received. If it’s not received by the time of loading, one carrier said, the terminals would have the ability to assess fees for any re-handling and storage of the container until the VGM is received, thus creating an additional revenue stream.

But for agriculture shippers, the issues in some cases go back further into the supply chain. For example, given that the shipper is legally responsible for providing the verified gross mass, how can the shipper know what the weight is if its cargo is loaded at a transload facility near the port by a third party?

Exporters are asking, for example, what variances to the declared VGM will the U.S. Coast Guard, the agency implementing the rule in the U.S., accept for inspections? Exporters say that the tare weight, or unloaded weight of the container, which is stenciled on the side of every container, can vary significantly from the actual weight of the container. Thus shippers should not have to be responsible for certifying the tare weight of the container under Method 2 of SOLAS, which allows the VGM to be calculated from the contents of the container weighed separately, and added to the tare weight of the container. Export transload facilities, which take cotton, soybeans, grain, or other agricultural commodities that arrive by rail or truck and transfer them to containers, are high volume operations where the containers are picked, packed and sent to the marine terminal in rapid succession. Agricultural shipper representatives said this makes it almost impossible for the VGM to be provided soon enough in the process to avoid disruption at the ports.

Friedmann said the AgTC has raised the issue with the Federal Maritime Commission and with members of Congress, describing why it feels the rule is unworkable but also expressing the fear that other exporting nations may not enforce the rule to the degree the U.S. does, creating a competitive disadvantage for U.S. exporters.

“If you want to see ports gummed up as they were two years ago, with the West Coast labor issue, just wait until the end of June when this new container weight certification goes into place and carriers begin to reject cargo.”

Contact Peter Tirschwell at peter.tirschwell@ihs.com and follow him on Twitter: @petertirschwell.

Jan 23

Container Weighing Rules for 2016: Background

Source:  JOC

Background:

Effective July 1, 2016, any container leaving from any port in the world must be accompanied by a shipping document signed either electronically or in hard copy by the shipper on the bill of lading listing the verified gross mass of a container in order to be loaded onto a ship. The mandate from the International Maritime Organization under the Safety of Life at Sea (SOLAS) convention comes after misdeclared weights contributed to maritime casualties such as the breakup and subsequent beaching of the MSC Napoli on the southern U.K. coast in 2007 and the partial capsizing a feeder ship in the Spanish port of Algeciras in June, 2015.

The weighing must be done in one of two approved ways, called Option 1 and Option 2, on scales calibrated and certified to the national standards of the country where the weighing was performed. Many of finer points of the new regulation have not yet been finalized, such as enforcement, and what happens to a container that arrives at a port without the necessary documentation or if the VGM (verified gross mass) declaration for a container turns out to be false or incorrect.

 

Jan 13

Possible Service Impacts of Carrier Mergers in 2016

From JOC.com

With two and possibly three mergers or acquisitions among container lines scheduled to occur this year, beneficial cargo owners are wondering how their supply chains will be impacted.

French carrier CMA CGM will acquire Singapore’s NOL for about $2.4 billion; the Chinese government has approved the merger of Cosco and China Shipping Container Lines into a single entity called Cosco Shipping Group; and the South Korean government has been encouraging Hanjin Shipping and Hyundai Merchant Marine to engage in some kind of consolidation.

The merger of some or all of these lines could be the start of a wave of mergers that would reshape the mostly money-losing and overtonnaged shipping sector. BCOs are divided on the impact of more consolidation. Some think it will help provide stability and better services, while others worry about the impact on competition.

“Capacity is out of control right now, and we could wind up seeing as few as six to eight carriers,” said Pat Moffett, vice president of global logistics at electronics company VOXX International. “If the carriers handle it right, they will improve their services and balance their rates so that everyone can reach a comfortable level.”

In the long run, Moffett said shippers may be better off with stable freight rates, even if they rise over time, rather than the kind of volatility of the last year or two. “When rates drop 30 percent, carriers can’t expect to get the whole megillah back in six months,” he said. The consolidation of the fragmented industry into a few major carriers wouldn’t result in a global monopoly, because they’d still be in stiff competition with each other, Moffett added.

Other shippers disagree. “More services, more differentiation of the market is better than less in terms of the steamship line business,” said Alison Leavitt, managing director of the Wine & Spirits Shippers Association and a participant in this issue’s Shipper Roundtable that begins on page 6. “As steamship lines merge or consolidate, it cuts down on the options. Our preference is that there are a lot of options in the marketplace and that steamship lines have freight rates that keep them viable. Unfortunately, that’s not necessarily the case right now, so I think the mergers and acquisitions will continue.”

Lars Jensen, CEO of research firm SeaIntel Maritime Analysis in Copenhagen, said he’s not surprised by the merger activity. “I have been saying that by 2020 there will be only eight big carriers, and this is gradually what is beginning to unfold,” he said. “It will take a long time.” He said the CMA CGM-NOL consolidation and the merger of the two Chinese carriers will result in a shakeup of the five major vessel-sharing alliances.

Over the next year, one of BCOs’ biggest concerns is the reconfiguration of the major alliances resulting from mergers. APL, which will keep its name, will remain in the G6 Alliance through 2016, but will eventually withdraw and become a member of the Ocean Three Alliance as part of CMA CGM.

The new Cosco-CSCL entity could join the Ocean Three, which consists of China Shipping, CMA CGM and United Arab Shipping Co., or it could remain in the CKYHE Alliance of Cosco, “K” Line, Yang Ming, Hanjin and Evergreen Line.

“All of the carriers talking about mergers are in different alliances, so what happens to the alliances? Whose ships come out? Whose ships stay in?” said Greg Boyle, director of forwarding and distribution for Philips and another participant of this year’s Shipper Roundtable. “When we do our allocations, it’s based on carrier first, but then alliance second. So we have to make sure that we have alliance coverage. And now you’re talking about redoing almost every major alliance in the industry. That’s very concerning.”

Boyle is worried about the transition period during which the mergers take place and the alliances are reshaped. “It’s a matter of timing, how quickly and efficiently they can do the merger and bring the extra benefits to the market,” he said. “It’s not a matter of whether we see them as good or bad. We just see them as how quickly they can incorporate the new company.”

Another shipper’s strategy for coping with the reshaping of the industry is to stay in touch with the carriers it has always worked with. “We stay pretty close to what’s happening with each of the five carriers we do business with, in terms of the district they serve and any kind of speed constraints that may result from vessel-sharing alliances,” said Susan Pellechio, vice president of transportation and supplier collaboration at Staples, and the third member of the Shipper Roundtable. “We’ll stay on top of the mergers during the course of the year, which helps us protect the house. Obviously, there will be ripple effects from any period of consolidation and vessel-sharing, so we’ll be speaking to some new providers as well. But given the volume of containers we move on an annual basis and the reliability of our freight, we’re in pretty good stead.”

Contact Peter Leach at peter.leach@ihs.com and follow him on Twitter: @petertleach.

Dec 03

Container Weighing Rule update: 2015-12-3

| Dec 02, 2015 6:00AM EST – JOC

Only 30 percent of shippers and forwarders surveyed by Inttra say they and their customers will be prepared for the July 1 start of new global regulations requiring containers to be weighed before they’re loaded onto ships.

“We are six months away from the change taking place and a majority of survey participants said they had their doubts or that their company or customers would not be prepared,” Inna Kuznetsova, president of Inttra Marketplace, told JOC.com.

Forty-eight percent of the 410 Inttra customers who responded to the survey said they “have their doubts” about whether they or their customer will be ready. Another 10 percent said they won’t be ready.

Sixty-six percent said they expect the new rules to produce moderate or major disruptions. Inttra’s customers include more than 50 carriers and 110,000 shippers and forwarders. The company provides electronic booking and shipping instructions for more than one-fourth of all container movements.

The new container-weighing requirement adopted by the International Maritime Organization asamendments to the International Convention for the Safety of Life at Sea are aimed at misstatement of container weights, which can create deadly hazards aboard ship, in ports, and on highways.

Compliance with the new rules will require companies to alter business practices, Kuznetsova said.

For example, the various parties must agree on when the weight certification should be provided. Submitting it when the box is booked is too early for the shipper or forwarder, who may not yet know the container’s exact weight. Waiting until the shipping instruction is provided is too late for the carrier to incorporate the information into its vessel stowage plan.

“Things like these are part of the business processes, and they have a lot of impact on how shippers and forwarders and carriers and terminal operators structure their work,” Kuznetsova said.

She said the new rules will require adjustments to electronic messages, and could prove especially challenging for companies that still use faxes and phone calls for shipping documentation.

Cargo interests and container lines  have been working to try to head off problems and develop best practices for dealing with the new rules. The Agriculture Transportation Coalition and the Transpacific Stabilization Agreement have created a working committee comprising 25 shippers and motor carriers from AgTC, eight container lines, and three software providers.

Inttra has launched eVGM, a working group of companies, and an online discussion group open to all shipping professionals. The working and the discussion groups are focused on standards and processes to ease the transition, and to pave the way for digital technology to adapt to the new rules requiring verification and certification of containers’ “verified gross mass.”

Kuznetsova said members of the working group include APL, BDP International, CEVA, Damco, Hapag Lloyd, Hamburg Sud, Kuehne + Nagel, United Arab Shipping Co., and other Inttra customers, and that the discussion group has more than 100 participants.

“An e-commerce solution is necessary to minimize the impact of the reporting requirements which otherwise would result in a slow and costly process,” said BDP Vice President John Clark.

Kuznetsova emphasized that the online discussion group’s participants will be separate from Inttra’s market development, and that participants will not be required to work with a specific vendor to comply with the new rules.

“Some have said that SOLAS VGM could be to the ocean shipping industry what Y2K was to the broader business world,” Kuznetsova said.  “These survey results are consistent with that, as they reflect concerns over potential disruption and lack of preparedness. We believe that coordinated action can facilitate a smooth transition.”

Contact Joseph Bonney at joseph.bonney@ihs.com and follow him on Twitter: @JosephBonney.

Nov 19

Panama Canal Backlog Update 2015-11-19

| Nov 18, 2015 3:33PM EST JOC

The vessel backlog that’s plagued the Panama Canal since mid-October remains above normal levels, but canal authority officials say wait times are now diminishing since they started taking steps to expedite traffic through the waterway.

The number of vessels awaiting transit has been reduced significantly over the past month, according to data from AIS Live, a sister product of JOC.com within IHS. On Wednesday there were 10 vessels in transit and 16 vessels at anchor: 12 on the Atlantic and four on the Pacific side. That’s down considerably since the prior two weeks when AIS Live data showed at least 20 vessels at anchor on either side of the canal.

According to canal authority officials, the recent delays are largely the result of an influx of larger-than-average vessels, unseasonably high traffic to the U.S. West Coast and weather conditions related to the El Nino drought. Measures meant to expedite traffic have been cutting down wait times, they said, even if the backlog remains higher than average. The Panama Canal Authority didn’t respond to JOC.com queries on when the backlog was expected to end.

The canal authority on Monday announced plans to increase its efforts to crackdown on the congestion. As of Friday, the canal authority said, only six slots — instead of the eight typically available — will be offered to regular vessels with beams under 91 feet. The just-in-time transit service will also be limited to one vessel in each direction for super and regular vessels.

A suspension on booking slots for vessels less than 300 feet in length was instituted, but has since been lifted and the number of slots for those vessels has returned to normal, the canal authority said.

The latest measures come just a week after the canal authority postponed all non-critical maintenance work at canal locks, modified its booking system, canceled draft restrictions and assigned additional crews to operate tugs, locomotives and locks.

“We are working hard to improve the situation and are making steady progress, but it is slow,” Panama Canal Administrator and CEO Jorge L. Quijano said in a statement last week. “And we will do more to address the issue as quickly as possible for our valued customers.”

The congestion began to mount last month, according to freight forwarder OEC Group.

“Beginning in mid-October, the Panama Canal began experiencing congestion issues on both the Atlantic and Pacific sides,” freight forwarder OEC Group said in a message to customers in early November.

Cosco told customers last week that a number of vessels have been delayed or otherwise impacted by the congestion. Two weeks ago, the carrier announced one ship, the Cosco Auckland, faced a 10-day delay. Last week, the Cosco Boston faces a similar nine-day delay.

Meanwhile, CMA CGM has announced plans to cancel its Manhattan Bridge Service to the Port of New York-New Jersey and Virginia for the Nov. 4 sailing of the vessel Amalthea on its Vespucci service rotation “due to operational issues resulting from delays in transiting the Panama Canal.”

But it’s not just vessel delays that are plaguing the canal, currently undergoing a $5.25 billion expansion project. The project is expected to be completed by April, but some of the newly installed locks have begun to leak and repairs will be more extensive than previously indicated, authorities have said, leaving the date for their completion uncertain.

The expanded canal will allow container ships capable of carrying more than 11,000 20-foot-equivalent units to transit the waterway, more than twice the vessel size that can pass through the existing locks.

Quijano has assured shipping leaders that the canal’s new, larger locks should open on schedule. The nation’s foreign ministry already has sent invitations to some 70 heads of state for the opening ceremony.

Despite some claims from shippers and carriers alike that repairs to the newly constructed canal locks that are now leaking water were behind the delays, the canal authority said last week that was not the case.

“The greater demand is attributed, in part, to traffic diverted from the U.S. West Coast and a higher-than-normal volume of ships that require additional security measures, such as tankers and gas carriers,” the authority said in a statement.

The canal faced a similar backlog in March and April that was pegged to the lingering effects of U.S. West Coast port congestion tied to slowdowns during protracted contract negotiations between theInternational Longshore and Warehouse Union and the Pacific Maritime Association, which represents employers.

The canal has additionally seen a higher percentage of large and deep-draft vessels, which also affects transit time, the authority said.

Weather has also been a factor, the authority said. Various reports have cited adverse weather conditions in the area as El Nino has reduced rainfall and lowered the water levels of the Gatun and Alhajuela lakes, which feed water to the canal’s locks. The canal authority in September announced plans to restrict the size of vessel drafts passing through the waterway for the first time since 1998, but the restrictions were suspended after some rainfall helped raise water levels.

Fog, too, has played a part, the authority said. “In the month of October alone, fog delayed 107 vessels.”

Despite so many factors out of the authority’s control, Quijano said his team will continue to tackle the congestion.

“We have taken, and will continue to implement, measures to speed traffic and reduce wait times,” Quijano said.

Contact Reynolds Hutchins at reynolds.hutchins@ihs.com and follow him on Twitter: @Hutchins_JOC.

 

Nov 17

How have the U.S. Inventory-to-Sales Ratios affected Import Freight Rates

November 17, 2015

U.S. Inventory-to-Sales Ratios historically impact the importing community. As 2010 came to a close, the U.S. Inventory-to-Sales Ratios were at historic lows. The economy was bruised from the recession. Purchasing managers had never seen a recession such as the one the economy had experienced. Forecasting demand was impossible. Purchasing managers held purchasing to a minimum in 2010, but by Christmas, consumer spending began waking up. The combination of historically low inventories pre-Christmas 2010 and an unexpected pickup in spending that same Christmas led to a buying binge by Purchasing Managers in the first quarter of 2011.

In January 2011, I called 75 importers in the Denver area. I remember every importer sounding giddy with unexpected customer orders! They were frantically placing orders with their overseas suppliers. I quickly called my shipping division and alerted them to expect a severe pickup in container bookings at the end of February and well into the 2nd quarter. Not only had the importers been operating with low inventory, but the steamship lines had parked vessels and were “slow steaming”. Demand was going to hit a shipping industry that had laid off equipment and people.

What ensued in 2011 was a series of rate increases as high as $1800.00 per 40′ container from January to November of that year. Not only did rates go up, but space was so tight, in some cases it took 3 weeks to get onto a ship. Thankfully, due to our early sensing of this issue in January, we had not only locked in fixed rates for many of our customers, but we had locked in space, avoiding the rate spikes and delayed shipments.

As we head into the end of 2015, we are experiencing the exact opposite of 2010-2011. We have historically high inventories that grew even more in October. The inventory of mega-ships are adding to capacity in the market, and consumer spending has slowed. Unless we have some Black Swan event, this should keep containerized freight rates at the lower end of the range through at least mid-2016. We should also not experience capacity and lift issues.

Below is this month’s release of the U.S. Inventory-to-Sales Ratios and an analysis by the JOC.

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Piles of warehoused goods don’t seem to be shrinking that fast, despite the much ballyhooed destocking of U.S. inventory. Data released by the U.S. Census Bureau Nov. 13 show U.S. total inventories, both total inventories and retail stocks, rose in September from August.

That could mean lower than expected U.S. freight demand, at least for long-haul domestic carriers, in the fourth quarter, though carriers specializing in smaller shipments could make gains, along with local and regional hauling companies that can replenish stores rapidly in small lots.

Slower than expected sales kept inventories high at major retailers in the third quarter.

At Macy’s, inventories rose 4.6 percent year-over-year. “We will need to liquidate this inventory in the fourth quarter so that we can maintain the flow of fresh, new merchandise,” Karen M. Hoguet, the retailer’s CFO, told Wall Street analysts in a conference call transcribed by Seeking Alpha.

Other retailers, such as JC Penney’s, are bolstering inventories to prevent “stock outs” that hurt sales during last year’s holiday season from repeating. “We made a strategic decision to invest in inventory,” Ed Records, Penney’s CFO, told analysts, raising inventory 9.3 percent.

Total U.S. business inventories rose by $5.1 billion in September to $1.82 trillion, a 2.5 percent annualized increase that pushed the U.S. inventory-to-sales ratio up to 1.38, compared with 1.37 in August, the Census Bureau said. Last September the inventory-to-sales ratio was 1.31.

For U.S. retailers, inventories rose 0.8 percent from August and 5.1 percent year-over-year to $584.3 billion, pushing the retail inventory-to-sales ratio up from 1.47 to 1.48. In September 2014, the retail ratio was 1.43. The ratio has ranged between 1.45 and 1.48 throughout this year.

Total U.S. business sales were essentially flat with August in September at $1.32 trillion, down 2.8 percent from September 2014, while retail sales were flat at $477 billion, according to the seasonally adjusted Census figures. In October, retail sales rose 0.1 percent to $447.2 billion.

For truckload and intermodal operators, high inventory levels mean diminished or weaker demand. In September and October of 2014, intermodal container volumes rose 4.5 and 4.9 percent, respectively, according to data from the American Association of Railroads. This year, intermodal volume rose 1.6 percent in September and dropped 1.4 percent in October.

For-hire truck tonnage rose 0.7 percent in September, but American Trucking Associations Chief Economist Bob Costello warned that high level of inventories throughout the supply chain “could have a negative impact on truck freight volumes” for U.S. carriers in the fourth quarter.

High levels of excess inventory have a ripple effect across supply chains and transportation networks. As the need to reorder merchandise or components drops, so does port activity. For example, imports rose only 3 percent in October at Georgia’s port of Savannah, which saw double-digit growth in containerized imports for much of the year. Containerized imports in Los Angeles, the largest U.S. container port, fell 3.3 percent year-over-year in October.

U.S. containerized imports peaked in July at 1,781,373 20-foot-equivalent-unit containers, according to JOC Senior Economist Mario O. Moreno, who last week scaled back his forecast for U.S. containerized imports this year to 5.4 percent from his previous forecast of 6.6 percent.

This year’s inventory bulge can be traced to the West Coast port labor dispute that practically shut down ports from Southern California to Washington state from November through March. U.S. sales-to-inventory ratios jumped significantly during that period, with the retail ratio rising from 1.42 in November to 1.47 in February. The ratio has been stuck between 1.45 and 1.48 since.

The increase in retail inventory in September also may reflect some shift of inventory within supply chains, as goods flow from manufacturers and suppliers in the U.S. through third-party warehouses and wholesalers to retail distribution centers and stores and eventually consumers.

Manufacturing inventories fell $2.4 billion to $645.1 billion, with the manufacturing inventory-to-sales ratio flat at 1.35. Merchant wholesaler inventories rose 0.5 percent to $588.1 billion, and the wholesaler inventory-to-sales ratio in September was flat at 1.31.

It’s going to take some time —  and possibly steep discount sales —  to bring those retail inventory levels down to the point where replenishment stimulates long-haul freight demand. In a story last week, Reuters estimated it would take retailers 1.38 months to clear through inventories with sales at September’s pace. The third-quarter inventory buildup could make fourth-quarter shipping demand seem flatter.

Carriers that handle smaller shipments — such as less-than-truckload carriers — may see some benefit, however, as shippers replenish goods in smaller lots from regional DCs or nearby warehouses. YRC Freight believes cautious shippers are more likely to restock in small bites, rather than big gulps, until consumers open their wallets wider. That could mean a larger number of smaller, palletized shipments moving in fast-cycle replenishment, the company said.

“Demand for LTL, parcel and expedited services are typically strong in Q4, but these services will be even more popular in the two remaining months of 2015,” the carrier said in a statement. “Until U.S. businesses experience sell-through of current inventories, the marketplace will remain in this cycle. Reorder cycles will be abnormal, and the use of LTL should increase.”

For a truckload carrier the trailer may be half empty, but for an LTL operator, it’s half full.

Contact William B. Cassidy at bill.cassidy@ihs.com and follow him on Twitter: @wbcassidy_joc

Oct 19

Create a Culture of Supply Chain and Leadership Excellence with the Tools and Training of Transformance Advisors

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If you want to spread the culture of Supply Chain and Leadership Excellence in your organization, consider these classes, workshops and online tools offered by Transformance Advisors.

The Lean workshop is a great source of inspiration. The format allows everyone to participant and gain insights into areas of opportunity for their lean transformation – whether just getting started or making course corrections to an established program.

The Alignment workshop provides a great opportunity to share and debate the challenges with getting everyone committed to the same objectives. It’s a chance for participants to share experiences when alignment was achieved and the challenges, and even disasters, that occur when people are not aligned on common goals.

 The Fresh Connection simulation is the best tool I have seen for gaining an understanding of how decisions by various functional areas are intertwined with other areas and have a direct impact on ROI.

The Hybrid Supply Chain teaches your staff the of components of supply chain, then allows them to practice their new skills with the simulation technology of The Fresh Connection. All of this is taught with convenience and flexibility in mind using the “flipped classroom” model.

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Oct 05

Import Lead Time Improvement

by Hugh Finerty

What percentage of your foreign sourced orders, shipped by ocean carrier, arrive at your warehouse within two days of your original plan? In supply chain language, this difference from actual vs planned is referred to as “variance”.

The answer I get from most companies is pretty bleak. It is often accompanied by a fascial expression of frustration and exasperation. This is a common experience of most organizations sourcing overseas.

The largest of companies have been attacking this specific variance issue. Larger staff, sourcing staff located in the foreign countries, technology and Lean type of process improvements, all contribute to the reduction in the delivery time variances.

But, even the larger firms are struggling to eliminate the last few days of variance in the extended supply chain.

The Cost of Variance in the Extended Supply Chain

When I ask companies about the implications of this variance, I can sense the blood pressure rising, pupils dilating and memories of very unpleasant conversations and failed initiatives.

The answers include lost customers, lost orders, reduced orders, air freight costs to meet order delivery dates, low customer satisfaction scores, substitution costs, high levels of safety stock, costly inventory levels, replenishment whipsaws, multiple re-planning meetings, rescheduling manufacturing runs,  excessive time spent tracing orders and communicating changes, stresses on relationships with suppliers, stress on internal staff, cost of switching suppliers etc…

When these implications are summed, the cost of lead time variance in the extended supply chain crosses functional and organizational boundaries, and can overwhelm any margin the organization planned to achieve by sourcing off-shore.

Where to Begin

In the logistics segment of the extended supply chain, there are more variables than with an on-shore sourcing point. Identifying and categorizing these variables is a good starting point. These should include categories such as: controllable, uncontrollable, predictable, unpredictable, high risk, medium risk, low risk.

I like using a Lean tool called Value Stream Mapping to help me identify the activities along the logistics process. Once I have the process mapped, I can begin my analysis, assessment and design tasks.

Within each activity, I can now analyze the partners handling that activity, identify the controllable and uncontrollable risks, the predictable and unpredictable risks, current KPI’s, the visibility to the organization of that activity, categorize each activity based on its impact on the process, and identify which activities are having the greatest negative impact on achieving the on-time delivery goals.

Once this analysis and assessment is complete, we can begin adjusting the logistics structure to meet on-time delivery goals.

The solution often includes some scorecarding tools that will bring the suppliers into compliance on cargo tendering, technology tools that enhance visibility of the lifecycle of the order, partnership configurations to leverage core competencies and technology, and “leaning out” relevant processes.

Learn More

These are highly achievable goals that have significant impacts on ROI , customer satisfaction and staff morale. To explore this topic in more detail and as it applies to your organization, please email me at hugh@hughfinerty.com or go to www.hughfinerty.com.