Posts Tagged ‘global trade’

Did you know the Fuel Surcharge you pay on every load doesn’t cover the out-of -pocket costs of higher fuel cost to your carriers?

Thursday, March 24th, 2011

Why? Fuel surcharge formulas are based on a loaded mile formula. All empty miles run between the terminal and your loading site, such as miles from the carrier’s last delivery to you or miles to the terminal for equipment repairs or tank cleaning, are not included in the fuel surcharge calculation.  As a result, the carrier has added fuel costs for those empty miles. Sure, when you contracted with the carriers, they built in some fuel recovery number for empty miles.  However, recent fuel cost increases (the time from when you negotiated your contracts until now) are not included in those calculations.

What does this mean to you? Let’s review a few examples. Say, during the time of your last contract negotiation, fuel costs increased by $1.50/gallon.  What added cost does that represent?   The average truckload carrier – either dry van or bulk – wants a minimum per-truck revenue of $200K to $225K.   Assuming a modest 10% empty mile to loaded mile ratio for TL van freight and 20% for bulk freight, unrecovered fuel costs is $2,769 for dry van carriers and $5,538 for bulk truck carriers. (Click View Graph below for more)

How do you effectively negotiate during any price increase discussion? Know your carriers empty mile ratio and average truck miles per gallon before you meet. Also, look back at your current contract effective date. Knowing what the fuel price was during your last contract renewal, along with your carrier’s empty mile ratio and average MPG/truck, will enable you to calculate your fuel cost impact on your carriers. You can also be a good partner to your carriers by putting actions in place to minimize empty miles and fuel waste.   As example, initiate a no idle rule at your plant during wait time to load.


Logistics Outsourcing: Does it make sense for everyone?

Wednesday, June 2nd, 2010

Each company must look to its strengths to answer this question for itself. But the answer is likely to be yes ….to some extent.

Two questions help to begin to frame the answer are: 1) what expertise and capabilities should we have in-house based on our size and the criticality for each logistics function? And 2) what really are our strengths today for each function and each mode and are any gaps best filled by Outsourcing?

Smaller companies with less than 5-10,000 shipments per year will often Outsource the full logistics function to a 3rd party provider (3PL). It simply is not cost efficient to have experts across all functions like procurement, execution, payment, regulatory compliance, etc.  and across all modes from truck to rail to ocean. For medium size, and even large shippers the answer often comes down to looking at its operation mode-by-mode. Some very large domestic shippers who only do several thousand international shipments per year recognize that the complexities of those shipments require an understanding of markets, processes, regulations, etc. that is better handled by experts who do that for many shippers. Companies that may have large packaged truck operations but smaller bulk truck needs, or vice versa, will often carve out that mode for Outsource experts to manage. The same is true across all truck, rail, and intermodal operations.

An especially useful area of Outsourcing for companies of all sizes can be Freight Procurement.  Outsource providers bring: 1) purchasing power, 2) market expertise, and 3) systems and tools that a single shipper cannot hope to match. 3PLs have staff that is constantly in the market both for themselves and for their Freight Procurement customers. This allows them to see changing trends in price and capacity across regions. This valuable knowledge is coupled with the use of automated tools that create competition for the shipper and often allow carriers to see how their Bids are stacking up. This ensures the best matching of carrier capacities/strategies with the needs/strategies of the shippers.  These Outsource Procurement engagements often start with a Benchmarking exercise that highlights the potential of having an automated bid done in conjunction with the Outsource partner.

The logistics process with the most hassles, Freight Audit & Payment, is also often Outsourced to save internal staff resources. Especially coupled with a Transportation Management System the process can be automated and exceptions, the bane of the process, significantly reduced.

For processes/functions/expertise that makes sense to keep in-house for medium and especially large shippers there is still an Outsource decision to make…..where do we get the support systems needed by our staff for procurement, for shipment execution (Transportation Management Systems – TMS), for global trade management, etc.   Some 3PLs, such as CLX, use these systems as well as sell and implement them with larger shippers. The very good news here is that the seller/implementer is fully vested in ensuring a good product that is well maintained.

As with many questions in Logistics, the answer to “Should we Outsource?”  comes down to “it depends”.  But I think you will find that in most cases the decision will not be to Outsource or not, but rather, what functions, processes, and modes does it make sense to Outsource.

Addressing the Inventory Challenges Posed by Global Supply Chains

Tuesday, September 15th, 2009

Good news! World trade may be rebounding.  According to the World Bank, 18 countries reported their trade data for the month of June exhibited an increase in imports and exports. This is the first identified trade increase after five months of severely depressed world trade.

As trade collapsed earlier this year, companies accelerated the depletion of excessive inventories adjusting their outlook to one of  a sustained business downturn. Once inventories were stabilized at new lower levels, market analysts predicted that some trade recovery would likely follow.  So lies the question:  “Is this recent positive trend just a spike or does it reflect a real turning point, with continued growth to follow?”

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This is not the first time (it”s just received more attention because of the magnitude of this economic crisis) that chemical manufacturers and supply chain managers have been confronted with the inventory issues: when to replenish and to what level. It is a question not easily answered.

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Impact of the Global Supply Chain on Inventory

The global supply chain is inherently a process of many handoffs to a variety of service providers who must expertly and timely execute their functional responsibilities to ensure the successful coordination of an international shipment. Assuming no major bottlenecks occur during the management of these handoffs, the timeline from order shipment to customer delivery of chemical products could take weeks, unlike a road or rail delivery that can be fulfilled in a matter of hours or days. The longer delivery time span for an international shipment naturally results in an increase of  inventory in transit and greater working capital exposure.

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While logistic managers may not be able to accurately predict the ebbs and flow of their global trade to determine future inventory levels, specific transportation management strategies can help minimize and/or control inventory build as global supply chains get longer and more complex.


Web-based transportation management systems, for example, offer a degree of control over supply chain operations that can result in more accurately predicting restocking points and managing inventory levels.  By providing real-time visibility of supply chain activities involving customs brokers, freight forwarders, ocean carriers and logistics service providers, On-Demand Global Transportation Management Systems (GTMS) help logistic managers to monitor unscheduled delays that inevitably occur in the long chain of events. Through optimized event management, key logistics personnel are automatically alerted to shipment delays along the extended supply chain, enabling corrective actions to occur sooner to reduce the length of delays and to keep the chain of events on schedule.

Using the tools offered by an On-Demand Global TMS, international managers can proactively optimize operations to:

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  • Reduce cycle times
  • Eliminate excess inventory build
  • Reduce supply variability and safety stock
  • Minimize expedited shipments
  • Reduce stock-outs

As On-Demand Global TMS capabilities expand to support international (import/export) operations, chemical companies have now begun to automate their often manual international supply chain processes to include: freight tendering, compliance, and other logistic processes.  Through better event management and online visibility into logistic operations, businesses can more consistently balance inventories, whether the world economy is trending up, contracting or remaining stable.


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