Posts in category: News Coverage

As everyone knows, the price of fuel has been, and will likely continue to be, on the rise. The increases/fluctuations in jet fuel and highway diesel prices contribute to more than just carriers’ fuel tables. Back in February 2017, the fuel table calculations were changed from monthly to weekly. This allowed for fluctuations in surcharges due to the volatile fuel prices. Both major carriers (FedEx and UPS) have specific “bands” that connect ranges of fuel prices with a surcharge percentage. Similar to how we see fluctuation in gas prices, these bands allow for fluctuations without seeing skyrocketing costs for their customers. However, the beauty of these bands for both small parcel carriers is that even with the volatile fuel prices, they won’t take a hit to their bottom lines.

Both major small parcel carriers calculate the fuel surcharge percentage based on the national average fuel price published by the US Energy Information Administrations from two weeks prior, which means there is a lag between the index and the carriers’ fuel surcharges. This year alone, the major carriers have collectively raised rates numerous times. Fuel is typically evaluated on the net package charge plus any transportation related charges/surcharges. Each carrier has separate accessorials that get factored into the calculation as well. See the tables below for perspective on the carriers and their applicable accessorials.

FedEx and UPS tend to stay hand in hand with their surcharges for both Express and Ground. As one goes up, so does the other. The variance between the two is consistent within a percentage point.

So, what does all this mean when it comes to calculating fuel and savings to the bottom line?

Let’s Take a Hypothetical Situation

Say we have a Ground package that is 50 pounds, Zone 8, list rate $90.00, with a residential accessorial of $3.75 and a delivery area surcharge of $4.25. The shipper has a 20% base package discount, no discounts on accessorials, and has a 10% discount on fuel. The Fuel Surcharge percentage for this package is 6.25%.

The basic calculation is (Net Freight + Applicable Accessorials) X Fuel Surcharge %. With the above information:

$90.00 (list rate)

– $18.00 (base package discount)

$72.00 (net freight)

+ $3.75 (residential surcharge)

+ $4.25 (delivery area surcharge)

$80.00 x 6.25% = $5.00 (gross fuel surcharge)

Now we need to take the discount of 10% off the $5.00- $0.50 = $4.50. The total cost of the package is now $84.50 (net freight + accessorials + net fuel surcharge).

Now that you know a little more about how fuel is calculated, what can YOU do?

Review your current small parcel carrier contracts and the discounts currently listed.
Negotiate discounts not only on fuel, but transportation related accessorials and net freight discounts to reduce the overall impact.
Evaluate a multi-carrier strategy or evaluate a single source with extra volume discounts.
Be informed about carrier changes.
>UPS already increased their Ground FSC indices by 50 points in June. In October, both Domestic Air and Ground went up 25 points again.

>FedEx already increased their domestic air indices by 75 points in September AND made changes to import and export to mirror UPS’ pricing.

>Will the carriers increase the indices by the time the GRI rolls around? My suspicion is they will reduce fuel, increase transportation charges, and level out the GRI.

Kaitlyn Parsons is a Manager of Parcel Audit at enVista and is responsible for preparing audit metrics both internally and externally, in addition to overseeing the analyst team responsible for auditing billions of dollars in enVista’s customers’ small-parcel spend. Prior to her role as manager, she held various positions at enVista, including transportation analyst and parcel audit and team lead.

Despite the disparate levels of sophistication between cold chains in developed markets versus those in emerging ones, the common goals are generally the same: maintain food safety standards and protect brand reputation, reduce operating costs, and keep pace with changing consumer demands, which includes online grocery shopping and home delivery.

The cold storage sector is tasked with meeting all of these requirements, which is driving significant changes across the board.

Taking a Global View

Emergent Cold, a newer cold storage provider that was founded by industry veterans, operates facilities in both developed markets, such as Australia and New Zealand, as well as emerging ones like Vietnam. This gives the company a unique view into the global cold chain.

In emerging markets, the lack of infrastructure is one of the biggest challenges for the food industry, says chief operations officer West Hutchison.

“There are a lot of markets around the world that have no temperature-controlled infrastructure at all,” he says, or they are “mom-and-pop companies that maybe don’t have some of the design experience and security systems in place from a physical facility perspective or IT perspective.”

While the construction of the physical infrastructure is underway, Emergent is working with enVista, a global consulting and software solutions firm, to build an overall IT suite that ensures it will be able to track-and-trace products that are in its care custody and control.

While regulations in the United States require the capture of “one up and one down traceability,” so that if there’s a request for that data, the appropriate party can respond, in New Zealand, the regulations are even more stringent, notes Hutchison. In particular, the data must be “pushed” to regulators.

These variances in both the physical infrastructure and country-specific regulations make it a necessity to implement a robust and comprehensive IT solution that can be applied globally. It also provides a foundation for continued growth across multiple global regions.

Different Markets, Different Labor Issues

Mike Rader, managing partner at enVista, notes that labor issues are also different in emerging markets like Vietnam compared to developed markets.

For example, the adoption of technology lags, in part, because it’s simply cheaper to hire people and maintain paper-intensive processes.

“It’s going to be interesting to see how receptive they are as we roll out technology solutions in emerging markets, especially Vietnam,” he says.

In many developed markets, though, labor availability is tight, and attracting workers to the cold storage sector can be even tougher, given the generally harsh environment.

According to Hutchison, Emergent’s philosophy is “to have fewer, but more highly compensated associates, through a blend of automation and performance-based pay packages.

“As we look at our facilities, there are a lot of opportunities for automation. AS/RS facilities have been around forever, but they are getting a lot more capable of performing lower-level tasks such as layer picking and case picking,” he says, adding that even the use of automated guided vehicles (AGVs) can have a positive impact in a tight labor market

When Luxottica Group S.p.A. decided to build a new 713,000-square-foot distribution center in McDonough, Ga., the Italian manufacturer and retailer of eyewear, accessories and fashion had three primary goals, according to Massimo Sapone, the senior vice president of logistics and planning for North America.

The first was to consolidate locations in Georgia, Ohio and California into one North American hub that handled all of Luxottica’s brands and provided one face to the customer. But, it wasn’t just a consolidation of Luxottica’s order fulfillment operations.

Take an inside look into Luxottica’s new fulfillment center

In addition to the distribution hub, the McDonough campus features four buildings totaling 1.1 million square feet, including a 50,000-square-foot aftersales distribution center for processing returns and a center for sourcing and planning. In all, 2,000 employees support the logistics and ophthalmic manufacturing operations.

The second was to improve speed to market. “The idea is that we want to be simpler and faster, and we can do that through consolidation of our facilities and the simplification of our processes,” Sapone says.

Third, they put in one place manufacturing and distribution processes, a move that would position Luxottica as the industry leader in customer service. “Our ambition is to gain the No. 1 operation in our industry, and I believe we are already pulling away from our competitors,” Sapone notes.

It is a unique facility, essentially three 238,000-square-foot facilities with 12-foot ceilings stacked on top of one another. The three levels—unusual in North America but more common in Europe—connect with a high-speed elevator and conveyor for lighter weight loads and two heavy-duty freight elevators for heavier pallet loads. Putaway, replenishment and picking operations are directed by a warehouse management system (WMS), RF scanning and lights, depending on the process. The facility also features an extensive conveyor and sortation system, a put wall area and automated packaging for small and medium-sized orders. As part of this project, Luxottica also implemented SAP in McDonough—its global enterprise resource planning (ERP) platform.

At the moment, the ground floor handles receiving and shipping along with order fulfillment processes for a common pool of frames for Luxottica’s wholesale and e-commerce eyewear businesses. The second floor is the manufacturing lab, where prescription lenses are created and married with frames that are stored there to support the lens business. The third floor is reserved for Oakley branded apparel, footwear and accessories—Luxottica and Oakley eyewear are on the first floor.

A facility with 12-foot ceilings might seem unusual in an era when most DCs are more than 30 feet tall or higher. But Vince Pusateri, the senior director of engineering and network strategy for North America, notes that given the size of the products handled in the eyewear business, the ability to efficiently store and pick about 55,000 SKUs in the facility is more important than ceiling height.

“This was a giant project that we launched in 2016, building the campus from scratch,” adds Sapone. “But we now have a distribution facility that enables our business model and allows us to service almost 6,000 stores from one location.”

Made in Luxottica
Luxottica is a leader in the design, manufacture and distribution of fashion, luxury and sports eyewear. According to the company, its portfolio includes proprietary brands such as Ray-Ban, Oakley, Vogue Eyewear, Persol, Oliver Peoples and Alain Mikli. It also licenses brands, including Giorgio Armani, Burberry, Bulgari, Chanel, Coach, Dolce&Gabbana, Ferrari, Michael Kors, Prada, Ralph Lauren, Tiffany & Co., Valentino and Versace.

The group’s global wholesale distribution network covers more than 150 countries and is complemented by a global retail network of approximately 9,000 stores, with LensCrafters and Pearle Vision in North America; OPSM and LensCrafters in Asia-Pacific; GMO and Óticas Carol in Latin America; Salmoiraghi & Viganò in Italy; and Sunglass Hut worldwide. In 2017, with approximately 85,000 employees, Luxottica posted net sales of more than $10.4 billion.

The head of Daimler Trucks has questioned, but not completely written off, the business case for heavy-duty truck platooning in light of other emerging technologies and fuel gains from new combination vehicles operating independently.

Tests using combinations of the latest aerodynamic tractors and trailers showed the gains in miles per gallon were “not as high as expected,” said Martin Daum, head of Daimler AG’s trucks and buses divisions. He delivered his comments during the recent IAA Commercial Vehicles show in Hanover, Germany.

“When it comes to automated vehicle technology, there is a very compelling business case for these systems,” Daum said. “However, platooning might not be the holy grail we initially thought. Therefore, I am a little bit critical of platooning today.

“But at Daimler, we will continue testing this technology and see where it eventually leads us.”

The earliest tests of two closely spaced Class 8 trucks and trailers in a platoon — whose braking and acceleration are linked through software and wireless communications, while steering remains manual — showed gains in fuel efficiencies of about 4% for the lead vehicle and about 10% for the trailing truck.

Meanwhile, in the United States, one group of researchers is looking into an autonomously controlled platoon.

The American Center for Mobility at Willow Run announced organizations representing defense, academia and the public sector will research and test automated convoy platooning during a two-year study that will feature military and commercial trucks in a closed environment and on public roads.

The study will analyze controlling vehicles’ throttle, brake and steering autonomously while maximizing fuel efficiency and safety, according to the Ypsilanti Township, Mich.-based nonprofit, which is one of 10 U.S. Department of Transportation-designated automated vehicle proving grounds.

“Truck platooning will pay safety and environmental benefits that we can only begin to imagine,” Kirk Steudle, director of the Michigan Department of Transportation, said in a statement. Steudle also is ACM’s interim CEO.

At the same time, a European consortium called Ensemble is getting underway to demonstrate multibrand truck platooning on public roads in 2021.

DAF, Daimler Trucks, Iveco, Man and Scania, and Volvo Trucks and Renault Trucks, are involved in the project, according to Ertico, the European intelligent transportation systems public-private partnership.

Significant advances in platooning technology have been made in the past decade; however, a multibrand approach is now required, according to Brussels-based Ertico.

The main benefits from platooning are the cost savings in fuel and some relatively easy miles for the driver in the trailing truck, said Eric Grice, project manager of transportation solutions consulting for enVista, a supply chain consulting and IT services firm, based in Carmel, Ind.

For a shipper with a private fleet or dedicated contract carrier covering long distances, platooning makes sense, he said.

“There will definitely be a perceived operational cost from planning and coordination of drivers and routes to get them traveling together at the same time within service hours and having the same breaks, etc.,” he said.

“As far as shippers choosing from the common carrier pool, in the end it comes down to pricing in most cases. If carriers are able to effectively use platooning to reduce their overall costs and pass those along to shippers, then they will have a competitive advantage and be able to acquire additional business,” Grice said.

In the meantime, if it makes sense to platoon two trucks over a long distance, it also might make sense to run double or triple trailers pulled by a single truck over a long distance — an option blocked in many areas by regulations, another consultant said.

“You can find an argument in there for something that is less technologically challenging,” said Rick Mihelic, president of Mihelic Vehicle Consulting in Lewisville, Texas. “But there is more of an investing sexiness to platooning, which is on the verge of becoming a reality. There are prototypes out already, but production use of it is still a little ways off.

“I was kind of surprised that Daimler came out and said that. I would agree it is getting harder and harder to make a single tractor-trailer combination better aerodynamically. We have had 10 to 15 years of refinement in the aerodynamics.”

But Mihelic said data he collected when involved in tests that platooned the ultra-sleek Super Trucks developed in a U.S. Department of Energy program showed double-digit gains in fuel efficiency were possible.

Other companies involved in commercializing platooning did not respond to a request for comment.

As peak season nears, EnVista’s Senior Project Manager Mark Taylor gave FUEL 2018 attendees his best tips to navigate the sea of surcharges that lies ahead.

As FreightWaves reported in September, the parcel market has largely been focused on commercial shipments between businesses. However, the last 15 years has seen a dramatic shift in the industry, as the emergence of e-commerce within retail has forced parcel delivery companies like UPS (NYSE: UPS) and FedEx (NYSE: FDX) to rethink their delivery network. The majority of the growth in the parcel industry is now being driven by rising demand for e-commerce, bringing along with it added demand for last-mile residential deliveries.

Retail and e-commerce activity peaks during the holiday months of November and December, and has posed challenges to parcel carriers as they attempt to make tight delivery deadlines during this time period. Last year, UPS alone delivered roughly 700 million packages during peak season, so it’s safe to say that surcharges can add up quickly.

“Even if you’ve negotiated your residential or handling surcharges, that’s invalid during peak season,” Taylor warned. “Surcharges are additive to regular surcharges of the same name. For example, there is both an additional handling surcharge and a peak additional handling surcharge,” he noted.

Incentives on non-peak surcharges also do not carry over to their corresponding peak charges, i.e. a 30% incentive on additional handling does not mean 30% on peak additional handling, Taylor explained.

Additionally, Taylor noted that, for a second year in a row, FedEx will not apply peak season surcharges for residential shipments. The company’s executive vice president and chief marketing and communications officer, Raj Subramaniam stated that “FedEx is demonstrating support for these loyal customers during this critical time frame by not adding additional residential peak surcharges, except for situations where the shipments are oversized, unauthorized or necessitate additional handling.”

Just last month, UPS announced that it expects to hire about 100,000 seasonal employees to support the anticipated surge in package volume that will begin in November and continue through January 2019. E-commerce is projected to continue its strong growth during the holiday season, and the company regularly ramps up hiring to accommodate the peak months.

To facilitate this, UPS brings on additional workers during the peak season to help with sorting and delivering packages.

“Every year, we deliver the holidays for millions of customers,” said Jim Barber, chief operating officer. “In order to make that happen, we also deliver thousands of great seasonal jobs at our facilities across the country.”

Taylor advised audience members to offer a special discount on e-commerce for shipping prior to peak or to hold a Cyber Monday event in order to shift demand outside of peak shipping windows. In negotiating prices, Taylor suggested evaluating by analyzing the costs of your program by service level and surcharges, sorting by the highest costs in your program, and ultimately trying to determine your specific impact for peak surcharges ahead of the holiday season.

For the second year, consulting firm enVista held its Fuel client conference last week in Chicago, expanding beyond its transportation focus in the inaugural event to more general supply chain topics, drawing some 130 attendees.

That’s a very impressive number for a show in just its second year, especially in the consulting world where such client conferences are uncommon. Hard charging enVista CEO Jim Barnes has seen rapid growth of the company over many years now, and this event was a manifestation of that success.

I was there for just one day of the two-day event, but moderated a panel discussion (see below) and attended some good sessions, which I will summarize here.
Gilmore Says….

CSCMP CEO Rick Blasgen kicked off the first day as he did for Fuel 2017 with a highlights of the 2018 State of Logistics report, released in June by CSCMP and consulting firm ATKearney.

Blasgen walked past me on the way up to the podium, and joked he hoped he wouldn’t put me to sleep. No need to worry there – CSCMP and Kearney have put together a winning presentation that Blasgen moves through swiftly, bordering on too quickly but not quite crossing that line, with the result being entertaining and effective.

Of course, we covered the report in detail when it was released (see State of the Logistics Union 2018), but it’s worth covering some of Blasgen’s presentation as a refresher and for some updated info.

I like Blasgen’s metaphor (or is it a simile?) that the supply chain acts like a shock absorber, buffering companies between what the plan is and what actually happens, moving smoothly through the unavoidable pot holes along the journey.

We all know freight costs are soaring, and Blasgen noted spot market truckload rates were up an incredible 30% by the end of 2017, a spike we simply haven’t seen before. Is one answer finally some more collaboration on freight moves? Maybe, Blasgen said, but noted one dictionary definition of collaboration is “cooperating with an enemy that has invaded your country.” You know, that might just summarize the state of things.

US logistics cost were 7.7% of GDP in 2017. That compares to about 18% of GDP in China, 13% in Europe, and 11% in Japan, so the US is doing something right despite obviously aging infrastructure. Costs as a percent of GDP are down 10% versus 2006, and an amazing 30% since 1990. That is real progress.

Blasgen cited a factoid I had not had not ever heard: a Bain & Co. analysis that found companies with sophisticated supply chains generate profits 12 times greater than average companies do. Can that be right? Will dig into that one later.

Next up was a panel discussion on “unified commerce” led by Barnes, with panelists Carey Lowry of Spencer’s, Mike Racer of Sephora, Jeff Starecheski of CVS, and Colin Yankee of Tractor Supply Company – all supply chain and logistics execs of one kind or another.

Panel discussions are very difficult to summarize, especially when the topics of discussion are wide ranging, as was the case here. I’ll do my best to pick out some highlights.

I will start with this: when Tractor Supply’s Yankee wanted to improve the retailer’s efulfillment process, he want down and worked like an associate in the packing/shipping area for a few hours. That’s the kind of hands on approach probably a lot more supply chain execs should take from time to time, if not regularly.