Mexico Flexes Its Infrastructure Muscle

When US companies tapped into the Mexican logistics market some 12 years ago, little did they suspect they were about to hit a gold mine.

Every company that set up shop in the 1990s is thriving. Bilateral trade under the North American Free Trade Agreement (NAFTA) increased ten-fold, opening the way for efficient operations, something customers demanded right from the start.

One noteworthy success is that of Schneider Logistics.

Mexico CEO Armando Beltran, has been with Schneider Mexico from the start. He has seen his operations grow from five employees to nearly one hundred today. “All our personnel have a superior level of experience,” he says as he surveys co-workers and account executives.

Beltran has made every effort to attract new business while maintaining high service levels for existing customers. Most shippers now prefer using intermodal services to move freight into the Mexico-US market with an eye to the future cast on growing a presence in Canada.

During the time Schneider has grown its business, railroad company Kansas City Southern (KCS) moved to revamp the older Mexican railroads. It is now delivering to customers like Schneider greatly improved service that makes life easier for logistics operators moving containerized cargo across borders. The service is speedier because there’s no need for unloading and reloading at the border, as previously governmentally demanded.

“We now make direct train movements from the US to Mexico, breaking up cargo inside Mexico, and vice versa,” explains Beltran. “We have developed a very good relationship with KCS to be able to further take advantage of their services.”

Schneider Mexico appreciates the improvements KCS has made, particularly compared to the services offered by former owner Transportacion Ferroviaria Mexicana (TFM). Beltran observes that KCS has not stinted on its investment and the upgraded service is noteworthy.

Additions to the number of locations used by Schneider have also grown. Distribution points are being developed inland. For example, strategically located San Luis Potosi now has a logistic park where a railroad spur has been developed. It is an ideal point for container redistribution as well as making and breaking bulk.

“We are unloading at this port,” explains Beltran. “From there we redistribute to Mexico City and as far as Toluca,” a city 60 miles southwest of Mexico City.

Recalling the stress railroad service caused Schneider in the past adds significance to what the shipper now receives from KCS. For Beltran it has changed the face of merchandise movement. “I have been here for 15 years,” he claims, “and attempted to establish this kind of service three times in that period. At last, this third time we are moving with confidence because of the improved services in moving auto parts and appliances. This is the sort of merchandise that has to be handled with care. Now the railroad service works.”

The improvement in transportation has given Schneider a chance to lock horns with others in the US and Canada. “This gives a great competitive advantage,” he boasts, “and the capability to penetrate new market niches.”

Schneider has an established policy to outsource redistribution to outside Mexican carriers and the company has developed a trusting relationship with several. In fact Schneider extended public recognition to such partners during its September 11 Carrier Recognition Conference in Green Bay, WI. Winning Mexican carriers were HG (El Milagro CP) of Mexico and Caravan Logistics. Thirty other US carriers were honored during the ceremony. What was significant was this was the first time recognition was given to non-US carriers.

At the conference, Bob Miller, vice president for Schneider Logistics Supply Chain Management acknowledged the companies saying, “they are true partners with us in meeting and exceeding customers’ needs.”

Something that recently shook up the transborder carrier industry was the introduction by the US Department of Homeland Security of the e-manifest. Many carriers had procrastinated on meeting the regulations since they had been given a great deal of leeway to come into compliance.

Yet, to Beltran and Schneider Mexico this was “not an issue either for us or our customers. We had worked to meet the regulations long before they became effective.”

As with its competitors Schneider is seeking to operate in a global market. It recently opened offices in Shanghai, China, with the idea of transporting ocean freight to ports of the NAFTA nations. Beltran has already visited those offshore offices in order to institute contact with those Chinese operators aiming to establish links to operations on the American Continent. For some time Schneider has had a presence in Europe in Holland and within the Czech Republic.

“Little by little Schneider has been reaching out to other countries to offer logistics solutions,” says Beltran of the company’s philosophy of one step at a time.

There are future thoughts to move southwards. Beltran sees potential in the Central and South American markets although only Argentina, Brazil and Chile have developed sufficient infrastructure to bring them into consideration. But, Beltran adds, the company is not yet ready for that kind of expansion. That is particularly true of the closer Central American market, which remains underdeveloped.

In the meantime the Mexican market continues to grow. Beltran now enjoys office space at the plush Santa Fe corporate community on the outskirts of Mexico City, having moved from lesser quarters north of Mexico City at the industrial hub of Tlalnepantla.

Mexico continues to be a good market because, despite the presence of many competing world-class logistics operators. “There’s still a great lack of good logistics and transportation here,” he reflects, which only gives Schneider a tighter grip on its many market niches.

Beltran knows that his strength lies in keeping Schneider’s third party Mexican carriers on the move, deliver to customers what he claims to be his sole merchandise: “The only thing we sell is service.” LT Mexican Trucks Are Rolling Across the US

SECURITY AND REGULATIONS
Mexican Trucks Are Rolling Across the US

As the first Mexican trucks rolled across the border to deliver loads in New York and South Carolina, Congress moved to halt the program. Transportes Olympic, based in Monterrey, Nuevo León, carried the first shipments, steel construction material, past the 25-mile previously restricted border zone. The two trucks then picked up similar freight in Arkansas and Alabama and moved it back south, past the US-Mexico border.

Under terms of the North American Free Trade Agreement (NAFTA), such unrestricted access was to begin in 1995. The border did not open due to protracted lawsuits and negotiations that sought to forbid the movement of the Mexican trucks north of the limited zone. Within that zone loads were transferred to US carriers to complete delivery within the country. Estimates of the transportation costs of these drop-and-hook operations run as high as $400 million annually that might be saved through this program.

Initially in addition to Transportes Olympic’s two trucks, the US Department of Transportation’s (DOT) Federal Motor Carrier Safety Administration has authorized Transportes Rafa of Tijuana, Baja California two trucks and Mexico City’s Padilla to operate five trucks.

Reports are that as many as 25 Mexican carriers will be added each month until 100 are authorized. It’s anticipated that ultimately 1,000 trucks may be operating under the yearlong pilot program. During the test period 100 US-based carriers will be allowed to travel throughout Mexico. The first to receive authorization from the Mexican government is Stagecoach Cartage & Distribution of El Paso, TX.

Continuing in opposition, the Owner- Operator Independent Drivers Association asked the US House of Representatives and the US Senate to take immediate action against the Mexican trucking pilot program. Teamsters President Jim Hoffa said the union will also lobby to cut its funding by pressing Congress to stop the program.

Accusing the Bush Administration of rushing to implement a pilot program to allow Mexican trucks to operate in the US as required under NAFTA, the US Senate approved an amendment to the 2008 transportation spending bill that cuts funding for the test. The House of Representatives passed similar legislation.

Senator Byron Dorgan (D-ND) said the DOT authorized the program too quickly, particularly in view of a report that found a number of problems with Mexican truck safety records. Supporting the test, Senator John Kyl (R-AZ) said that it would be worth giving the program a chance because it is more efficient and less costly for American consumers if the Mexican trucks can travel in the US.

President Bush had threatened to veto spending bills which exceeded budget limits the Administration had put on domestic programs.

The transportation spending bill included highway projects, grants for airport expansion and community centers, housing projects and economic development projects. In part, the Bush Administration proposed cutting $765 million from the $3.5 billion budget for airport improvement grants.

Teamsters General President James Hoffa praised the Senate vote, calling the Bush Administration’s action opening the border to Mexican trucks “illegal” and “reckless.” He commented, “We don’t want to share our highways with dangerous trucks from Mexico.” Hoffa said that since the congressional action only blocks funding for a year, the Teamsters would continue to fight against the program.

In his comments, issued September 11th, Hoffa linked the issue to the 9/11 terror attacks saying, “I’m sure every American is relieved that the Senate voted to make sure that potential threats to national security aren’t allowed to travel freely on our highways.”

Time to Renew Frequent Border- Crossing Memberships

A large number of carrier five-year credentials for moving across the Canada- US border are soon due to expire. The FAST (Free and Secure Trade) program facilitates border crossing for pre-approved, low-risk commercial shippers. It provides expedited processing for those who have completed background checks and a variety of other requirements for eligibility.

The Canada Border Services Agency and US Customs and Border Protection (CBP) are now accepting renewal applications from those participating in the Northern Border FAST Commercial Driver Program. For Canadians it’s called the Frequent-Crosser Program. Renewals for the Southern Border FAST program aren’t scheduled to begin until 2009. CBP says there are more than 87,000 North American truck drivers enrolled in the program.

There are several factors, among others, CBP suggests those renewing should bear in mind: No five-year renewal application will be accepted if received more than 90- days before the date of expiration printed on the member’s existing credential. Applicants are subject to re-vetting as part of the re-application process and must wait for a conditional approval letter before scheduling an appointment for interview, biometric collection and re-credentialing. Old credentials must be surrendered at time of re-credentialing.

It’s suggested by CBP that the FAST identification card may become an alternative document for acceptance under the Western Hemisphere Travel Initiative that requires travelers to show proof of identity and citizenship when entering or reentering the US by land or sea.

“By demonstrating that they are lowrisk, FAST drivers help CBP immensely to temper facilitation with security and thus focus greater scrutiny on high-risk cargo,” says W. Ralph Basham CBP Commissioner. ”We encourage FAST drivers to renew their memberships in this important program."

EXPEDITED & EXPRESS
5 Year Contract for UPS

Pending ratification by International Brotherhood of Teamsters (IBT) members, the union and UPS have a fiveyear contract that takes effect August 1, 2008, when the current contract expires.

The tentative agreement covers wages and healthcare and pensions for the 240,000 unionized UPS workers.

Under the agreement, UPS will be allowed to withdraw employees from the Central States multi-employer pension plan and establish a jointly trusteed single- employer pension plan for that group. UPS will make a $6.1 billion pre-tax payment to the Central States plan in connection with its withdrawal.

“We made it very clear to the company that we needed to reach a tentative agreement by October 1,” said Jim Hoffa, Teamsters general president. One rationale for the early deadline, explained Hoffa, was new pension rules that take effect January 1, 2008, which the union says could adversely affect members. Schenker Launches a New Courier Division in Canada

Schenker Launches a New Courier Division in Canada
The announcement follows the integration of BAX Global into the logistics provider’s stable. The new Courier Division will be launched in the fourth quarter of the year. The aim for Schenker is to provide a complete door-to-door transportation and logistics services offering. As it explains it now provides solutions for everything from skid to package shipping. The company now offers trans-border, domestic and international service for both courier integrated and heavyweight shipments. Schenker claims to be the 2nd largest provider of logistics services in Canada with annual sales of more than $1 billion.

Kathy Kropf who has been managing director of Canadian World Wide Sales for FedEx Canada will head Schenker’s new Courier Division. Schenker is part of DB Logistics, the Transportation and Logistics Division of Deutsche Bahn AG. Despite a Slower US Economy Income is Higher for FedEx

Despite a Slower US Economy Income is Higher for FedEx
First quarter profits are up 4%, but full year earnings are expected to tumble by 4%. Noting that the company increased its revenue and earnings against what he calls a “sluggish US economy,” FedEx Corp. chairman. president and CEO, Frederick W. Smith, noted, “Outside the US the economy is generally solid, contributing to the growth in our international express shipments. I continue to believe that FedEx will, over the long-term, reap the rewards of our strategy of investing in key growth markets and strengthening and expanding our worldwide networks.”

General consolidated numbers: Overall revenues were up 8%, at $9.20 billion this year compared to last year’s $8.55 billion. Operating income was up at $814 million, plus 4%, over $784 million year over year. Net income was up 4% at $494 million over $475 million in 2006. However, operating margins were down from last year’s 9.2% at 8.8%.

FedEx has realigned its Kinko operations whose income was flat for the quarter. It is now in the FedEx Services segment that also includes FedEx Global Supply Chain Services and FedEx Customer Information Services. The company notes that revenue from Kinko copy products declined, offsetting higher package acceptance fees and income from newer locations. The company opened 90 centers during the quarter.

International business helped FedEx Express grow its revenues 4% from last year’s $5.64 billion to $5.89 billion. Operating income grew 9% to $519 million from $475 million. Operating margin for the quarter was 8.8% this year compared to last year’s 8.4%. International Priority shipments grew 9% for the quarter, while US domestic package volumes and revenues declined 1%. Average daily international package shipment volumes grew 6% in the quarter.

FedEx Ground average daily package volumes grew 10% in the quarter. The gain was attributed to growth in commercial business and continued strong FedEx Home Delivery service. For the quarter, the segment had revenues of $1.62 billion up 14% from last year’s $1.42 billion. Operating income was $190 million, a climb of 19% from $159 million year over year. Operating margins this year were 11.7%. They were 11.2% last year. FedEx Freight and its recently acquired Watkins Motor Freight—rebranded as FedEx National LTL—reduced its standard regional less than truckload (LTL) fuel surcharge by 25%, which had a negative effect on revenues for the segment. The expectation is that in the long run the reduction will lend competitive strength to

FedEx Freight and drive incremental volumes. Despite the reduction, revenues for the segment were $1.23 billion, up 22% from last year’s $1.01 billion. However, operating income declined 30% from $150 million last year to $105 million this year. Last year’s operating margin was 14.8%. This year it was 8.5%.

Air Freight
UPS and Polar to Expand Japanese Air Operations

UPS and Polar to Expand Japanese Air Operations The expedited package carrier will have the authority to operate six daily flights between the US and Nagoya, Japan. Polar gets a boost for its Asian air freight options.

The US Departments of State and Transportation reached the agreement that will allow UPS and other air carriers to expand air operations to and from Japan. The agreement lets UPS and Polar Air Cargo, a unit of Atlas Air Worldwide Holdings Inc., take advantage of these increased frequencies.

The UPS flights are in addition to the daily service it presently has to Tokyo and Osaka. “The new access that comes with this landmark agreement will allow UPS to better serve customers in Japan and around the world,” says UPS International president Alan Gershenhorn, “and gain an even stronger foothold in the region.”

UPS spokesman Norman Black said the new flights are expected to be added this fall. They will also allow connecting cargo service to the new UPS in Shanghai. UPS has been expanding its operations in Japan since buying out its joint-venture partner there in 2004.

In addition to an existing six weekly frequencies to Tokyo with related service to one destination beyond Japan, Polar has been granted another six frequencies to Japan, excluding Tokyo, with the right to fly to two foreign destinations beyond this new point. Including the new rights, Polar can now serve a combined total of 12 frequencies in Japan and 18 frequencies beyond. Polar will also have the latitude to choose the new destination in Japan, as well as the points outside of the country.

"North Asia—particularly Korea, China and Japan—has been a significant area of development for Polar,” said Randy Clark, COO of Polar. “Now that we’ve been approved for additional frequencies and beyond rights to Japan, we look forward to continuing Polar’s growth.” Lufthansa and DHL Launch a New Cargo Airline

Lufthansa and DHL Launch a New Cargo Airline
The initial focus will be to transport air freight and express shipments into and out of Asia from Europe. This is a 50-50 venture with the two companies alone responsible for warehousing and transshipping from the Lepzig/Halle Airport, at which it will be based. Lufthansa Cargo and DHL Express will be using the cargo capacities of the eleven new Boeing 777-200LRF aircraft, the first of which is scheduled for delivery in February 2009. The planes will be leased. The airline itself is scheduled to begin operations in April 2009.

The yet-to-be-named airline will gradually expand its route network. It will fly to Singapore, Bangkok, Dubai, Bombay, Shanghai, Hong Kong, Seoul, Nagoya, Almaty, East Midlands and Milan weekdays. On weekends, it will fly to Shanghai, Astana, Singapore, Bangkok, Sharjah, Hong Kong, Chicago and New York.

Carsten Spohr, Lufthansa Cargo AG chairman notes, “Joint utilization of aircraft capacities will enable us to harness growth opportunities cost-efficiently. DHL will be commercially responsible for operating the express network with additional cargo from Lufthansa Cargo on weekdays. Flight schedules at weekends will suit the customer requirements of Lufthansa Cargo with onload freight on those flights from DHL.”

For its part, Charles Graham, CEO Aviation DHL Express, adds, “With the new joint company, we will further improve express service between Europe and the Asia growth markets. We are thereby augmenting our global air network strategy. Our customers will profit from more capacities, better transit times and higher quality all round.”

Maritime
Los Angeles/Long Beach Require Truck Tags

PierPass Inc. announced that marine container terminals at the ports of Los Angeles and Long Beach will require trucks to be equipped with Truck Tags to gain access to the terminals beginning December 1, 2007.

The Truck Tag program is part of a proactive effort by terminal operators to meet US Department of Homeland Security and US Coast Guard guidelines, said PierPass. Truck Tag uses a radio frequency identification (RFID) tag to identify the vehicle. The RFID tags are installed on the driverside mirror and automatically read at the terminal gate. The driver’s commercial drivers license will also be checked to ensure the driver is authorized by the carrier to enter the port facility on its behalf.

According to the ports, there are 180,000 truck deliveries to and from the marine terminals each week. Canada Port Workers Require Security Clearance

Canada Port Workers Require Security Clearance
As of December 15, 2007, workers at selected Canadian ports will require clearances under the Marine Transportation Security Clearance Program announced last year. Calling it an important step towards enhancing Canada’s marine security, Lawrence Cannon, Minister of Transport, Infrastructure and Communities, noted the program builds upon international requirements and Canada’s Transportation Security Regulations. “The program will further secure Canada’s ports against terrorist and organized crime activities while ensuring the continued competitiveness of [Canada’s] marine industry in an increasingly global environment,” he said.

Marine workers who perform certain duties or who have access to certain restricted areas will be required to have a security clearance. These include: marine facilities that contain the central controls for security and surveillance equipment; areas that contain the central lighting system controls; areas designated for loading and unloading cargo and ships’ stores at cruise ship terminals; and land adjacent to vessels interfacing with cruise ship terminals.

In its initial stage, the program covers the ports of Montreal, Halifax, Vancouver, Fraser River and North Fraser River and the control centers of the St. Lawrence Seaway Management Corporation. The second phase will extend the requirements to the ports of Prince Rupert, Victoria, Windsor, Toronto, Hamilton, Quebec, Saint John, and St. John’s. That phase is scheduled to be implemented December 15, 2008.

Transpacific Growth Sustainable, Rates Aren’t
Growth remains healthy, say members of the Transpacific Stabilization Agreement. Asia-US liftings for the members of the Transpacific Stabilization Agreement (TSA) totaled 480,000 fortyfoot- equivalent-units (FEUs) in July, up 8.6% from a year earlier. Cargo volumes were up in the first half (7.1%) reflecting a 6.3% increase in West Coast and 9.9% increase in East Coast destinations. Carriers wee forecasting a 7% to 8% growth for the full year.

“While growth has moderated a bit, first half year over year growth remains healthy and we continue to hear from our customers that their projections for the balance of 2007 and into early 2008 are for the current growth trend to continue,” said Ronald D Widdows, chairman of TSA.

“Specific importers and retailers may be seeing some softness in their sales, but at the same time, others are experiencing robust growth,” he continued. “It is clearly too early to conclude to what extent recent volatility in the US financial markets will affect the transpacific market. Based on current views, we do not see a situation developing that curtails growth to a material degree.”

TSA is forecasting 5.2% capacity growth in 2008 for its members and 6.3% for the trade overall. TSA lines anticipate demand pressures in 2008 will be most acute in the East Coast-all-water market as shippers plan for contingencies during the upcoming West Coast longshore contract negotiations. In addition, some shippers may also move ship dates ahead and create a spike in volumes before the expiration of the current longshore contract.

West Coast local rates remained relatively flat and intermodal rates increased by an average of $300-$350 per FEU in the 2006-2007 contracts. East Coast allwater rates rose $100-$150 per FEU, well below the level required to have the industry operating at a profitable level, according to Widdows. Those cost pressures haven’t gone away, he said, and for many cost elements, the pressures have continued to escalate. He urged carriers to give shippers greater transparency into their cost factors. TSA didn’t offer any projections on rate increases, but it is clear from Widdows’ comments the carriers view the current rate levels as unsustainable.

TSA carriers include: American President Lines, CMA-CGM, COSCO Container Lines, Evergreen Line, Hanjin Shipping Co., Hapag-Lloyd Container Lines, Hyundai Merchant Marine, Kawasaki Kisen Kaisha Ltd. (K-Line), Mediterranean Shipping Co., Mitsui OSK Lines, Nippon Yusen Kaisha (NYK Line), Yangming Marine Transport, and Zim Integrated Shipping Services.

Signing for the port was Hans Smits, CEO of the Port of Rotterdam Authority. Representatives of the consortium partners, DP World, APL, Mitsui OSK Lines, Hyundai Merchant Marine, and CMACGM, were also present for the signing.

“The new Maasvlakte 2 provides a high quality site,” said Smits. “Such new terminal locations are very scarce in Europe and this will be even more the case in the next decades.”

The agreement calls for partners to be able to fill the new terminal, deliver both financially and operationally, while optimizing hinterland connectivity as part of the effort to reduce environmental impact of container traffic, Smits continued. The agreement for the operation of the terminal was originally announced on July 12, 2007. The terminal will have a 1,900 meter (1.18 mile) deep-sea quay with a depth of 20 meters (65.6 feet). Capacity will be an estimated 4 million twenty-foot-equivalent units (TEUs). The terminal will be phased into operation from 2013.

Suez Income is Up, The Panama Breaks New Ground
The world’s two major canal waterways are enjoying robust business and brighter futures. For its part, the Suez Canal had a very good year, with income of $4.16 billion (US) for its fiscal year that ended in June. That figure was up 17% over the 2005-2006 year. As the new fiscal year began and the first month’s official data was released, July showed a healthy 22.5% jump year-over-year, with income of $406.3 million.

Work has now begun on the expansion of the Panama Canal that’s aimed at doubling the waterway’s capacity by its projected completion in 2014. As the Panama Canal Authority (ACP) notes, it serves more than 144 different transportation routes for the entire globe, connecting major trading arteries, providing safe, time-saving and secure passage for all vessels.

The $5.2 billion project will allow passage of longer, wider vessels than are now able to transit the Canal. The first construction project is a dry excavation that marks the beginning of creation of the new Pacific Locks access channel.

The Panama Canal was opened in 1914 and was built at a cost of $375 million. During its construction, some 25,000 lives were lost. In reflecting back, Alberto Alemán Zubieta, ACP administrator/CEO, said, “It is truly an honor to lead this great organization. We all know about those who risked so much and tried so hard to build the Canal more than 100 years ago. As we dig, as we build, as we expand the Canal, we will be thinking of those pioneers while also looking to the future.”