Far East & Indian sub-cont westbound (import) rates/space/equipment – Carriers are now announcing winter schedules as demand slackens off towards Christmas and the  Grand Alliance has withdrawn its Loop D sailings until further notice on the Asia to Europe trade. Maersk have introduced a new daily sailing product with late cut-off times at origin ports aimed at improving transportation times at Europe’s main ports of Rotterdam, Bremerhaven and Felixstowe. Whilst this new daily service has slower transit times deliveries can be any day of the week. The service is supported with money-back guarantee of up to US$300 per container depending on the number of days late. This new daily service is being studied to assess the benefits to clients.

Flooding in Bangkok, Thailand has badly affected the Old Port. Clients are advised to deliver their cargo to Laem Chabang until the flood waters recede.

Supply still exceeds demand and this downward pressure is forcing further rate reductions in November that are adding to losses reported by the shipping lines in quarters 3 and 4, 2011.

Far East & Indian sub-cont eastbound rates/space/equipment (exports) – Ocean freight rates remain at an all-time low. Whilst there has been an increase in exports of scrap products (metals, plastics and paper) most containers are being returned empty.

UK Terminal Handling charges – generally £120 per container except Maersk and SafMarine (£131), Hanjin and MSC (£125) and K-Line (£122).

Heavyweight Container Surcharges - continue for westbound traffic only with each carrier having slightly different weight break points. It should be noted that this surcharge is not part of any ‘all-inclusive’ rate.

North China 20ft Equipment Premium (westbound only) – This charge is applied by all lines but only on 20ft containers ex Dalian, Qingdao, Tianjin, Xingang, Yantai and Lianyungang at $250 per 20ft container. NB. This charge is not included in all-inclusive rates.

Suez Canal Surcharge – remains at $25 per TEU except Evergreen ($47 per TEU) and CSAV ($50 per TEU). This charge is not included in all-inclusive rates.

Gulf of Aden Emergency Risk Surcharge – this surcharge is now $55 per TEU.

UK Landside Charges/Haulage/Fuel/Port Congestion – Fuel Surcharge remains at 25.5% (against a base price of £0.90 ppl) on most published indices reflecting the continuing high price of diesel.

Airfreight – fuel/security surcharges are expected to continue for the foreseeable future and means that we have reasonable airfreight rate stability. Fuel and security surcharge are:

Hong Kong     HK$8.40 (combined) per Kg

Shanghai       CNY9.20 (combined) per Kg.

Kevin Fryer 11^th November 2011.

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Far East & Indian sub-cont westbound (import) rates/space/equipment – It is pleasing to report that carriers have postponed intended rate increases for July 2011. Whilst there are some equipment shortages in China and Malaysian ports slow steaming continues to affect equipment turnaround times. Supply still exceeds demand and thus it is very difficult for carriers to push through rate increases.

Whilst 2010 saw record profits for carriers 2011 to date is witnessing significant losses such that several carriers are considering emergency measures and the removal of vessels. It is clear however that present low rates are not sustainable and it is inevitable that significant increases will have to be made in the near future.

Far East & Indian sub-cont eastbound rates/space/equipment (exports) – Exports rates remain extremely low with many containers being returned to the Far East empty and this adds to carriers losses.

UK Terminal Handling charges – generally remain at £120 except Maersk and SafMarine where THC is £131 per container and MSC where THC is £125 per container.

Heavyweight Container Surcharges – continue for westbound traffic only with each carrier having slightly different weight break points. It should be noted that this surcharge is not part of any ‘all-inclusive’ rate.

North China 20ft Equipment Premium (westbound only) – This charge continues to be applied by all lines on 20ft containers ex Dalian, Qingdao, Tianjin, Xingang, Yantai and Lianyungang at $250 per 20ft container only.

Suez Canal Surcharge – remains at $25 per TEU except Evergreen ($47 per TEU).

Gulf of Aden Emergency Risk Surcharge – this surcharge is now $55 per TEU.

Equipment Inspection Fee – Hapag Lloyd has introduced a surcharge of £6.00 per container as the result of packaging being dumped inside ‘empty’, returned containers. No other carrier has yet applied this surcharge.

UK Landside Charges/Haulage/Fuel/Port Congestion – Fuel Surcharge remains at 25.5% (against a base price of £0.90 ppl) on most published indices.

An infrastructure charge of £3.00 per container continues at Southampton.

Proposed ‘No-show’ fee – over booking and inaccurate booking and lateness in arrival of containers at port are likely to face cancellation fees of around $100 per container. It is not expected that this cancellation charge will introduced until the capacity issue is addressed.

Airfreight – fuel/security surcharges are expected to continue. Current rates:

Hong Kong  8.80 HK$ (combined) per kg.

Shanghai     9.20 CNY (combined) per kg.

Kevin Fryer 16th July 2011.

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The Royal Society for the Prevention of Accidents has called for all work-related road crashes that involve the need for medical intervention or a visit to A&E to be fully investigated and recorded.

Under current legislation (RIDDOR -the Reporting of Injuries, Diseases and Dangerous Occurrences Regulations 1995) any work related incidents resulting in an employee taking 3 days or more off work must be reported to the HSE. However road incidents involving at-work drivers are specifically excluded from the RIDDOR regulations, and RoSPA wants to see that change.

RoSPA believes that employers should be required to investigate and keep internal records of all injuries requiring A&E attendance or medical intervention, including injury from work-related road crashes. HSE on the other hand state that the police are responsible for enforcing road traffic law and therefore responsible for investigating incidents that may lead to prosecution under H&S/Duty of Care legislation.

It is thought to be unlikely that HSE will change their stance and agree to take on a greater work load in the current economic climate. The issue is that no one really knows the true level of road deaths and injuries from work-related road crashes.

The latest figures available from Dept of Transport are for 2009 and show that a total of 24,054 vehicles were involved in fatal and serious accidents in the UK. Road safety experts estimate that a third of the deaths on UK roads are connected to at-work drivers, potentially putting the death toll at around 750 people. Conversely official statistics from HSE for 2009 show that there were 152 workers fatally injured and reported under RIDDOR.

With such a significant apparent difference in death tolls it seems that RoSPA are making a valid point and that an employer should be recording any such incidents within their workforce regardless of the legislative need to do so.

At first thought you wouldn’t automatically link Corporate Social Responsibility (CSR) with cost control, as reducing cost is certainly not the primary goal of a CSR programme. However within a fleet environment CSR and cost control go hand in hand.

A core focus with fleet operations in terms of Corporate Social Responsibility is centered on the environmental impact of its vehicles. Placing a limit on the amount of CO2 emissions being produced is not only beneficial to the environment, but will also lower the benefit in kind tax burden for the employee and a lower National Insurance Contribution (Class 1A) for the employer. In addition, if a business can limit its emissions below 110g/km it will result in the writing down allowance being accelerated to 100% in year one. Therefore if an organisation purchases such low CO2 cars this reduces their Corporation Tax liability, or if they are funding via operating lease, the benefit will be conferred to the business in a lower rental charge, as the lessor will pass the benefit on within the finance element of the rental itself.

As a general rule of thumb, the lower the CO2 emissions of the vehicle, the better the fuel economy, which also provides further cost reductions. This is particularly relevant at the moment as fuel prices are at an unprecedented high. In the last 12 months alone the national average retail price of diesel has risen by 17.2%.

Further fuel savings are achievable through behavioural management in training staff to adopt the key rules of eco-driving. Studies have proven that fuel consumption can be reduced by more than 10%. However it is believed that incentives for drivers will be required to maximise the potential savings, which normally requires a considerable administration burden to be taken on.

If health and safety is part of your CSR strategy, an effective road risk management programme will have a positive cost impact on insurance premiums, limit the loss of accidental damage excesses, reduce down time of vehicles through repair and ultimately creative a more effective work force.

When it comes to employing strategies to implement a cohesive CSR and cost control programme, a holistic approach needs to be taken which evaluates all the different areas of cost of ownership within the corporate departments responsible for procurement of fleet vehicles. Effective advice and guidance for fleet drivers is also essential to achieve optimum CSR and cost reduction benefits. If you do not have the appropriate cost, purchase and supply management expertise in house, it is worth researching the market place for experts who can offer unbiased and objective advice pertinent to a business’s specific culture.

Click here to download the free Fleet Cost Management Delighted Client Guide

In the last 18 months, ERA Fleet Cost Management has identified savings of over £1.6m whilst increasing efficiency and adding value to our clients.

The following is a small sample of recent fleet projects undertaken by ERA Fleet Cost Management that demonstrates the cost and efficiency improvements that this approach delivers.

Click here to download a copy of the Fleet Cost Management Guide

Diesel fuel now represents up to 40% of the cost of operating transport fleets, and should therefore be an area attracting serious attention to anybody responsible for the costs of such an operation. However, there remains very little understanding of how the fuel markets actually work, and therefore establishing whether best prices are being achieved.

Nevertheless, the largest part of the cost is in duty, and nobody has yet successfully negotiated a decrease with the Chancellor of the Exchequer! After allowing for the net price of diesel being set on international markets (Rotterdam) and duty, the net sums available on which to base negotiations with fuel suppliers are limited. Typically, the pump price in the UK averages at about 6 pence per litre over the Rotterdam price. Whilst a couple of pence price reduction can be significant in absolute terms, in percentages, it has only a small effect on that 40% !

Some managers (probably a minority) have invested more time in investigating the potential to achieve reductions in actual consumption. In many cases, such attention has resulted in short term initiatives, for example in trying alternative fuels, or driver training programmes. Very few have however, been matched to long-term management and monitoring programmes with continued actions to ensure that short term gains are maintained. There almost needs to be a leap of faith in investing up-front in more expensive fuels or intensive driver training such as the SAFED programme, without any guarantee of long term gain.

It is easy to measure short term improvements on the same day that a driver is trained, but what is really happening 6 months down the road, when other priorities are demanding management attention at the operational level. The Freight Best Practice Programme has identified that a typical 10% consumption saving on the training day can have disappeared within half a year unless there is a rigorous programme of monitoring and appropriate intervention. But how many companies have the operational commitment or the in-house expertise to do this effectively ? Nevertheless, with a 10% long term savings goal, who can afford not to be doing so.

Fortunately, Expense Reduction Analysts are now able to include a review of fuel consumption in road transport fuel projects. This means that we can create an accurate benchmark of current consumption to give a firm basis on which to measure any future savings. Our objective  market expertise means that we can give an independent view of what is on offer and facilitate and monitor  the effective implementation of any consumption project.

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The Department for Transport has recently published its annual Road Freight Transport Statistics Bulletin 2009, and interpreting the figures provides a fascinating analysis of the changes occurring in the Distribution Sector. This year’s publication is significant in that not only does it show the impact of recession when compared with 2008, but also as the 20^th edition, showing the fundamental changes over two decades.

Unsurprisingly, total tonnage uplifted declined markedly in 2009 compared to the previous year, but the balance of goods moved between different sectors has continued recent trends.  The volume of food and drink products has been at a stable 370 million tonnes for three years, after a fairly constant upward trend, whereas all other categories declined, noticeably Bulk Products, which fell from 620 million tonnes to 440 million tonnes year on year. Perhaps worryingly for British Manufacturing, this compares with levels of over 600 million tonnes being uplifted in this sector even during the recession years of the early nineteen nineties.

Analysis of usage by vehicle type shows artics moving 58% of goods compared to just 40% in 1989.  Not only does this show the impact of increased vehicle weights on improving efficiencies, but also goes some way to explain why unit haulage rates have failed to keep pace with inflation, whilst still allowing haulage businesses to continue.

However, from a cost analysts’ perspective, the most interesting statistic must be the change in the proportion of goods being moved by own-account vehicles versus 3^rd party hire and reward hauliers. In 1989, hire and reward operators uplifted 60% of goods (by weight), declining slightly to 57% in 1991 as the recession bit. However, with a trend for more companies outsourcing logistics functions, this then peaked to 67% in 2001. A gradual decline to 61% in 2007 has then been followed by big drops to 51% in 2009. Actual volumes for the hire and reward centre have dropped from a peak of 1,145m tonnes in 2007 to just 723m tonnes in 2009 – a 47% drop ! Undoubtedly, the impact has been large numbers of providers disappearing from the scene with record administrations and insolvencies in the sector, and the survivors following rigorous cost cutting programmes and capacity reductions. For the future, however, from the service procurors perspective, this means reduced competition as hopefully volumes begin to recover.

Although the own account sector suffered a small volume reduction to 699 million tonnes, this was still the third highest volume moved in this sector since 1989. However, the sector moved its goods further than any previous year and therefore recorded its highest ever tonne kilometre measure. The re-emergence of the own account sector must be a relief to suppliers of fleet services: our internal data shows that margins charged on fleet supplies (eg fuel, tyres, maintenance, fleet insurance, etc.) are consistently higher than being achieved by the same suppliers to the hire and reward sector.

Therefore, despite the fact that own account operators are working their fleets harder, there are still major opportunities to improve their cost base through detailed effective procurement reviews.

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What’s the issue ?

EU Directive 2009/30/EC introduces a requirement that, from 1^st January 2011, all gas oil (commonly known in the UK as ‘red diesel’) marketed for use in non-road mobile machinery (NRMM) must contain no more than 10 milligrams of sulphur per kilogram of fuel (virtually ‘sulphur free’). NRMM includes tractors, other agricultural equipment, forestry equipment, construction equipment, forklifts, portable generators, railway engines, and inland waterway vessels. In the case of gas oil for use in rail vehicles the introduction of sulphur free gas oil will be one year later (1^st January 2012).

Why will this cause confusion?

The new specification applies to NRMM, and not other Gasoil uses such as heating boiler-fuel, static plant, etc. Therefore companies who currently use the existing specification Gasoil will have to decide on how to order their fuel after 1^st January. Their consideration will need to take into account what the intentions are of their incumbent suppliers. Some suppliers have already stated that in order to meet the NRMM requirement, they will supply Road-specification diesel (which already meets the requirement) as Gasoil, after adding red dye in order for it to have Gasoil duty rates applied. Moreover, some have also indicated that they will discontinue supply of non-NRMM.

However, Road-specification diesel has by law to include a proportion of bio-diesel (min 3.5%, and up to 7%) This has a serious impact both for the storage of the product, and potentially its use in older equipment and associated maintenance regimes. We have also had anecdotal evidence of firing problems when bio-diesel or bio-gasoil has been used in older boilers.

“Bio” fuels present particular problems for storage and fuel-lines and filters, because of a tendency for algae growth. They are also reportedly more aggressive in degrading seals, gaskets, etc.

What are the effects on my fuel pricing?

On the international markets, Road-specification diesel is currently about 1 pence per litre more expensive than Gasoil (before duty is applied). We can therefore assume that NRMM Gasoil will be at least 1 pence per litre more than current supply, irrespective of any commodity market price variations. Users will also need to budget for increased costs of service and maintenance.

What should we be doing now?

Users of older equipment would be well advised to test whether it can operate successfully with a bio-blend. If not, a plan needs to be in place to ensure that supply of the older specification Gasoil will be available from either their current supplier or alternatives.

Where maintenance is undertaken in-house, consideration needs to be given to reviewing service and inspection intervals, and additional maintenance action that may be needed to discourage, and if necessary, flush algae development in fuel tanks, lines and filters.

Mixed application users (ie a combination of mobile plant, static plant, and/or heating boilers), may wish to give consideration to having two sets of storage equipment for the different uses, especially if they have older equipment with reasonable economic life left.

Where equipment is in use, which is found to be unsuitable for a bio blend, processes need to be in place to ensure that all staff who order fuel understand the differences in Gasoil, and which specification needs to be delivered.

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Price inflation in some of the key operating costs for Logistics service providers is manifesting in price increases to customers.  Coupled with this, providers are becoming more inclined to push for these increases in some markets because the recession has taken a lot of capacity out of provision, and the continuing lack of readily available investment capital is constraining any growth in physical provision.

For example, there have been numerous reports in recent weeks heralding the return of pre-crisis, global trading activity. Indeed, two key airports, Hong Kong and Frankfurt, have reported record monthly Air Cargo volumes in May with year on year growth at around the 40% mark. It is also anticipated that Ocean Container import volumes into the USA for 2010 will match 2008 levels. While this news is encouraging for the global economy and, in particular, Asian markets, where confidence is growing, there still remains uncertainty around economic prospects in the European and US markets. For cargo shippers this means that it is as important as ever to review transport expenditure. Focus on improving service and rates while some capacity is still available makes great sense. Action now will also make dealing with the impact of potential capacity constraints in the future that much easier to manage.

Within the UK, anecdotal evidence from what we would regard as upper tier (in terms of service capability) providers indicates that they have been busier in the first half of 2010 than has been the case for many years. Similarly, although new LGV registrations have still not recovered, trailer manufacturers are reporting significantly fuller order books, and some are investing in additional manufacturing capacity. Ironically, although one trailer manufacturer is currently reporting that their UK facility is under threat because of overall reduced demand across Europe, the UK plant’s domestic order book is now significantly higher than this time last year.

Undoubtedly, the web has caused a major change in distribution patterns. The knock-on effect is that both client companies and logistics providers are having to learn to adapt at a faster rate than ever, and some are more successful in this than others. Consequently, although pricing from incumbent suppliers may be competitive for your business profile 12 months ago, that may no longer be the case. Not only are providers having to change, but purchaser’s staff need to build new levels of market knowledge as to who is providing what, and who can meet their needs competitively going forward.

The one sector of the Logistics business where we are seeing increased capacity availability within the UK is Warehousing. Our Logistics Team held their quarterly meeting in the North Midlands last week, and remarked on the availability of vacant properties on what has been regarded as one of the prime distribution estates for several years.  Despite the best efforts of property agents, travelling around the country, we cannot fail to see the proliferation of properties to let.  Even in those areas of previously insatiable demand in the golden triangle, properties lie vacant.  The availability of warehousing property is in our view a reflection of the overall depressed demand for storage and handling facilities. Our dealings with full-service providers also shows that many are finding they have more free space on offer.

Stock costs money both in terms of cash flow and storage costs.  The better organisations are actively managing stock levels and, as a minimum, ensuring that they mirror any downturn in sales, aided by sophisticated I.T. packages that allow total visibility of stock and demand throughout the supply chain.

The implications of this are that, for those looking to acquire property or already in situ, rents should remain competitive to attract and retain tenants. Shorter term lease commitments and attractive rental rates are available with the opportunity for further negotiation.

For those who have contracted out their warehousing and storage activity, or looking to change distribution networks, or even flex capacity to reflect growth demands without capital commitment, storage and handling rates remain competitive.  However the main message for these companies is that they should ensure that any storage arrangement is flexible with no long term commitments that may not match the future needs of their business.

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The consequences are that:

1/ The net cost of the bio element in mixes (for eg, normal pump diesel already includes up to 5% bio) is increasingly dramatically, as a result of the reduced duty rate being withdrawn, and,

2/ The wholesale costs of the bio elements (known as FAME in the trade) are rising faster than mineral based fuels, because the legislation requiring the minimum percentage is European wide, and market traders are taking advantage of a possible supply shortage.

Fuel oil suppliers are being very cagey on the final impact on prices, but based on wholesale market prices at the beginning of March, the combined effect of market rates plus duty subsidy removal willequate to an additional 1.5 pence per litre on pump prices over the official duty increase due on 1^st April.

General market commentary is fairly unanimous that fuel oil prices will rise significantly anyway this year, as the far-eastern economies begin further economic growth. Combined with all the legislative and duty changes on the 1^st April, we can look forward to fuel costs being significantly higher by the year end.

Mitigation measures, whether through technology, modifiying driver behavious, or smarter purchasing will no doubt become of greater priority as the increase bite !

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