Surviving the Logistics Landscape 2018 APICS VANCOUVER SUMMIT CONFERENCE November 1, 2018 Philip Davies
Outline 1. How did we get here? Evolution of: Shipping Lines Railways Trucking 2. Recent Supply Chain Disruptions 3. Strategies for Survival
Shipping Lines
Jan-10 Apr-10 Jul-10 Oct-10 Jan-11 Apr-11 Jul-11 Oct-11 Jan-12 Apr-12 Jul-12 Oct-12 Jan-13 Apr-13 Jul-13 Oct-13 Jan-14 Apr-14 Jul-14 Oct-14 Jan-15 Apr-15 Jul-15 Oct-15 Jan-16 Apr-16 Jul-16 Oct-16 Jan-17 June 2008 = 100 Shipping Line Rates 140 TSA Revenue Index June 2008 = 100 120 100 80 60 40 20 0 USWC USEC/Gulf
Shipping Line Returns Hanjin Shipping declared bankruptcy August 31, 2016
Shipping Alliances
US $ Millions Class 1 Railways $25.0 North American Class 1 Railway Revenues 2017 $20.0 $15.0 $10.0 $5.0 $0.0 UP BNSF CSX NS CN CP KCS
The Hunter Harrison Effect CN 1998 to 2010 CP 2012 to 2017 CSX 2017 Precision Railroading Focus on cost reduction and financial returns. Shipper perspective: Doing less with less.
US$ per carload Class 1 Railways $1,600 Western Class 1 Railways Intermodal Revenue per Carload $1,400 $1,200 $1,000 $800 $600 $400 $200 $- 2017 2016 2015 2014 2013 2012 2011 2010 2009 2008 2007 2006 2005 2004 2003 2002 2001 CP Revenue/Carload US$ UP Revenue/Carload US$ CN Revenue/Carload US$ BNSF Revenue/Carload US$
Jan-00 Jul-00 Jan-01 Jul-01 Jan-02 Jul-02 Jan-03 Jul-03 Jan-04 Jul-04 Jan-05 Jul-05 Jan-06 Jul-06 Jan-07 Jul-07 Jan-08 Jul-08 Jan-09 Jul-09 Jan-10 Jul-10 Jan-11 Jul-11 Jan-12 Jul-12 Jan-13 Jul-13 Jan-14 Jul-14 Jan-15 Jul-15 Jan-16 Jul-16 Jan-17 Jul-17 Jan-18 Jul-18 June 1996 = 100 Trucking 180 U.S. Long Haul Trucking Producer Price Index 2000-2018 160 140 120 100 80 60 40 20 0
Disruptive Events Panama Canal expansion June 2016. Hunter Harrison CSX restructuring March 2017. Electronic logging device requirements for trucking Hours of Service December 2017. Surge in bunker fuel prices. U.S. tariffs on Chinese goods.
2018 April-May: Annual U.S. Transpacific contract prices down $100 per FEU. May: Emergency bunker fuel surcharges. June: Import surge to avoid tariffs. July-August: Cancelled services, contract cargo rolled and spot rates soar. August-September: Shipping lines deploy extra-loaders.
2018 September: Increased tariffs announced. October: Shipping lines blank voyages and spot rates remain high. Total US imports for 2018 are up 4.6 percent through August to 15.8 million TEUs, according to PIERS.
Trans-Pacific Spot Rates
US$ per FEU High Shipping Line Fuel Surcharges $900 Bunker Adjustment Factor and Low Sulfur Surcharges 3Q 2018 $800 $700 $600 $500 $400 Low Sulfur Surcharge Bunker Adjustment Factor $300 $200 $100 $0 U.S. West Coast U.S. East Coast IPI U.S. West Coast
CSX Restructuring October 2017: CSX eliminated domestic intermodal service on 327 origin-and-destination pairs. 2018: CSX ceased domestic intermodal service to Detroit, slashed 192 interline pairs through its UMAX program with Union Pacific Railroad, and condensed its steel-wheel interchange program affecting cargo owners in Baltimore, Philadelphia, Boston, and the Ohio cities of Cleveland, Cincinnati. Additional service cuts will eliminate more than 230 domestic intermodal and 65 international intermodal origin-and-destination pairs on Jan. 3, 2019.
Rail Capacity and Surcharges U.S. domestic intermodal spot rates were up 53 percent year over year in May 2018. Union Pacific 2018 intermodal capacity in Southern California fully committed by July. Union Pacific surcharges on excess containers $1,200 to $1400 from Los Angeles, $850 to $1,050 from Lathrop-Oakland, and $650 to $850 in Seattle, El Paso, Laredo and San Antonio, Texas.
Trucking Capacity and Rates Contract carriage truckload rates have climbed between 10 percent and 15 percent in dry-van, refrigerated, and flatbed/over-dimensional truckload this year. Capacity shortages on specific lanes affected by ELD implementation. Driver wages rising.
Future Uncertainties Long term impact of tariffs. Stability and pricing power of shipping alliances. Long term costs of low sulfur bunker fuel (January 1, 2020). Potential policy responses (anti-trust mandate of U.S. Federal Maritime Commission). Future railway restructuring (UP to embrace Precision Railroading within two years.) Impact of ELD implementation on trucking rates and capacity in Canada.
Potential Strategies Limit exposure to transportation costs in contract terms for inputs and products. Balance between short to medium term contracts and spot market for transportation procurement. Increased use of freight forwarders ( NVOCC s ) to manage complexity. Tactical lane by lane bidding for truck services. Collaboration with other shippers to fill mutual gaps in lanes with capacity and backhauls. Shipper of choice for trucking firms cooperation and long term relationships.
Surviving the Logistics Landscape Contact Information: Philip Davies, Principal 1101 1205 West Hasting Street Vancouver BC V6E 4T7 Email: pdavies@dtci.ca Phone: 604 764-9303 Website: dtci.ca