THE CURRENT PROBLEM OF THE FREIGHT FORWARDING SECTOR

“The shipping containers prices have skyrocket”

I would like to share with you some actual information about the freight forwarding sector. Actually, I’m doing an internship in an international shipping company, and I found interesting to share with you some relevant information about the actual moment of the sector which is also related with this subject.

Regarding the Shanghai index, the container cost has been reached an average of 2.900$ for 20-foot containers. It is 3 times more expensive than January 2020.

Type of containerJanuary 2015January 2020February 2021
20 foot450$1.000$2.900$
40 foot 1.800$5.200$

From the financial crises of 2008, the shipping companies have maintained a very cheap price for the freight of containers, trying to fight against the economic recession. But after the coronavirus crisis this price has been multiplied, and many economists argue that the prices from before will never come back.

One of the reasons of this price increasement is because most of the containers are stocked in China. China receives more empty containers for their exportations than full containers for their importations. Therefore, there is a bottle neck that block a fluent motion of containers and cause an increasement of the prices. Furthermore, during the Chinese New Year holiday, the majority of the factories shut down for two weeks, so the movement of containers has been heavily affected. For this reason, many companies wait for weeks for containers and are paying premium rates to get them faster, causing shipping costs to skyrocket.

A part of that, it is also true that today there is a major demand than offer provoked by a high increasement of the e-commerce companies. Day to day, there are more and more companies that want to import and export goods, but there are not enough containers for all of them. Therefore, it is absolutely understandable the increment of prices due to the increment of the demand.

Many economists argue that the prices of shipping containers are starting to stabilize, but they also maintain that prices will never be as years before. Some experts say that the freight forwarding companies have an agreement for maintaining these high prices, so, perhaps the golden age of import and export of goods is over.

More information:

https://www.eleconomista.es/empresas-finanzas/noticias/11049734/02/21/El-precio-del-transporte-maritimo-se-triplica-y-no-volvera-al-nivel-preCovid.html

Massive problem to luxurious brands:Excess inventory?

The impact of Covid-19

Luxurious brands are facing a significant challenge under the Covid-19. The demand declined massively since the outbreak in 2020  with a big loss in sales in the high-growth market of China. What is worse, the travel restrictions across Europe and the US causes a drop in demand. For example, the store closures in Italy indicated that Chinese shoppers are not allowed to purchase at the level before crisis. This has led to the main problem to luxurious brand likely.

Under the pandemic: The empty street in Barcelona

Few customers in luxurious brand stores

When I was traveling to Madrid in September 2020, I noticed that the tourists declined massively, which I could see the main street is not as crowded as before. Moreover, there was always long waiting line in front of the luxurious stores but it is totally different now. What I saw was few customers with some employees, which amazed me a lot and made me realized how the crisis damage the each industry. I believed the excess inventory must be much more after the pandemic, so where are they delivered?

There were lots of customers shopping at Louis Vuitton before the Covid-19

Burned them rather than the discount

Unlike fast-fashion brands, the luxury brands have a high conscious on the product value. In order to protect the brand image, some luxury companies refused to give the discount on the products. In stead, they burned the excess inventory. For example, Burberry destroyed excess clothes, perfume and accessories worth £28.6 million in 2018. Under the government intervention, other brands like Louis Vuitton and Dior made a commitment to stop burning excess products. Moreover, French government has required domestic brands to recycle or donate any products they intended to destroy, which aimed to make it sustainable.

Where inventory should be delivered now?

“Nobody really knows.” By Credit Suisse sell-side analyst Guillaume Gauvillé

Seasonality dominates not only ready-to-wear brands but also luxury brands. Normally, some luxury companies deliver off-season products to the outlet malls such us La Roca Village in Barcelona or Bicester Village in London, which is the main way to deal with the excess inventory. However, the leader brand like Louis Vuitton, Chanel, Dior do not give sales in outlet and even in stores. They tried to redistribute inventory to the region which could help assuage but the effect seemed to be limited because the pandemic damaged all over the world.

Therefore, inventory management could cause problems for most luxury brands in 2021. Additionally, the other challenge will be navigating the potential impact on their positioning and how they are viewed by consumers.

Gucci store in La Roca Village

Inventory Costs – Pillage & Ullage

Watching the video about Inventory Management from Mal Walker I stumbled across two terms I have never heard before and which aroused my curiosity – Pillage and Ullage.

Inventory Management – An Introduction with Mal Walker

While Ullage describes the unexplained loss or damage of goods, Pillage characterizes the actual theft. The annual cost of inventory theft is around $15 billion for warehouses, manufacturers and shippers and therefore needs to be considered in an inventory cost calculation. I didn’t expect this number to be this large because of the highly advanced security standards implemented in all the companies I visited in Germany. The word security refers to the condition of a closed system (like a warehouse) being protected from intentional intrusion and harm from the outside. But what if the harm does not come from the outside?

The Article: “Prevent Theft in your Warehouse” offers small insights about two contract delivery drivers working for Amazon, who routinely stole goods from their employer for at least 6 years. The two drivers, who also happen to be roommates, later sold the stolen goods to two frauded pawn shops and received $4 Million from them. The pawn shops actually sold the goods again on Amazon, as third party sellers and generated over $10 million. Full information about the Amazon theft ring can be obtained here.

In industrial security there is a 10 / 80 / 10 rule, which implies that 10% of your employees will never steal from you, 80% can be motivated to steal or not to steal and the remaining 10% will steal whenever they can. It is important to focus on the 80% and motivate them not to steal by reducing the opportunities and therefore the temptation on one hand and making sure the employee feels appreciated both personally and financially on the other hand. If you are looking for in-depth information about industrial & warehouse security I recommend this paper from Cisco-Eagle.

THe magic of Christmas Supply Chain Management

When we were asked to write a post on any logistics topic which intrigued us, a question which I had since a child popped into my mind. If we were to be Santa, how could we coordinate the Christmas deliveries? All kids are going to bed and await anxious the next morning to open their present laying under the Christmas tree. No mistakes can be made, all presents have to be delivered and we just have one night to do it. If we were to be Santa Claus, would it be possible? This is a question we all could have asked ourselves on a Christmas Eve as a child, as an adult or as a logistics manager.

So lets face the premises of our logistics problem.

  • 25,8% of the world population are children, so we have a total of 2.024.784.000 children, from those 31.2% are Christians , which mean we have a total of 631.732.608 clients to serve
  • We have one night to deliver. Due to time zones difference (like if we were Phileas Fogg) , we have a total of 22 hours to deliver each house
  • An archetypical Christmas present weights more or less 1 kg and is 50cm long, 30cm wide and 20cm deep, and we assume one kids receives 2 presents on average, so we need to deliver 1.227.465.216 packages.

Premises set, how could we, as very joyful Christmas manager elves, set a Supply Chain which could face this ultimate problem?

So first, lets talk about storing. With just one factory in the North Pole we would need to supply all the present. Well, certainly, the North Pole is not the best location from a logistics perspective, but we can’t change it. So if a present is 30.000 cm³ and weights 1kg; and let’s assume we can store 10 present piled up and, as we are magical elves, don’t need any hallways, how big is our warehouse. Well our floor has to be 12.274.652 sqm and at least 3m high. Is this realistic? Sure thing! Amazon has 150 fulfilment centres (this is how they call their logistics hubs), with an average surface of 147.000 sqm. Therefore, a total storage surface of 22.125.000 sqm; more than Santa.

And now the next step in our supply chain, how do we distribute all packages from the North Pole to each home. Critics will say one single reindeer-powered sleight would not suffice, so lets try to answer them by their terms: truck, plane or ship? An average truck has a cargo capacity of 35 m³. By our calculations, in one truck Santa could fit more or less 1200 presents. That would mean, Santa’s fleet would need a total of 1.022.887. trucks for delivery. If we compare it to the roads of the EU, this number looks small. Only inside the EU borders there are 4.315.718 truck operating. And what about planes? Well, the biggest cargo plane is the Antonov An-225 Mriya, with a cargo space of 1.300 m³ and cargo capacity for 250.000 kg. This would mean we can load 44.000 packages, which would have a weight of 44.000kg. Summing up, Santa´s plane fleet would need 27.897 Antonov An-225 Mriya planes; a pity there is only one of those in the whole globe. Last but not least, ships. The biggest cargo ship available is the HMM Algeciras, with a cargo capacity of 24.000 TEU and a length of 399.9m and depth of 33.2m. In each TEU – container (6.1 m length, 2.44 m width and 2.59 m height) we can fit 33.2 m³ of load. This would mean 1106 presents per container. So in a HMM Algeciras ship the total number of presents would be 26.544.000. packages. This leads to the result that the naval fleet of Santa consists of 47 HMM Algeciras ships to serve the 1.227.465.216. packages.

So we can store and move the presents. But how can we distribute them? Well, we need some reinforcements. Let’s assume Santa asks for some help from his friend Jeff. Based on Amazon’s statistics a rider delivers between 30 and 50 packages a day. So an average of 40 a day in an 8-hour shift. Therefore, we would need 30.686.630. drivers to deliver to each endpoint all the packages. This is more or less the population of countries such as Mozambique or Nepal.

To sum up, lets grab our initial question. Is it possible to deliver the needed amount of presents in one single night if we exclude magical interferences from the operation’s problem? Well, my personal guess is YES. If you coordinate deliveries very tight and have the needed assets it could be possibly done. But how does Santa manage this each year? Well, that’s the magic of Christmas Supply Chain Management!

FOR MORE INFORMATION:
https://theloadstar.com/wp-content/uploads/CILT-interview-with-Santa-Claus.pdf
https://visual.ly/community/Infographics/business/logistics-santa-claus
https://www.goship.com/blog/the-logistics-behind-santa-claus/
https://www.dailymail.co.uk/sciencetech/article-2521973/The-science-Santa-Mr-Claus-eat-150-BILLION-calories-visit-5-556-houses-SE

Fuel cards for fleet operations

In the logistics sector, the fleet operations plays a big part. Vehicles used by companies in this sector can reach hundreds or even more. So, the management in the use of funds in this department can be challenging. Large funds are used for petrol. Imagine yourself as a manager in this department. With the huge number of vehicles and drivers, it is not surprising if you get confused about monitoring whether the petrol allowance you gave to your drivers was used for petrol or not.

Thus, there’s a need for a system to improve the accounting for the fund for petrol. One of the systems is the fuel card. I used to work in the fuel card department. I learned a lot about the benefits of using it. Using fuel card, companies can request for monthly statements showing the date of transaction, amount of fuel purchases (and other services available at the fuel station) and balance of the card. The fuel card has many features such as monthly consumption limits. And also, it can be assigned for a particular vehicle or general use (several vehicles).

In this photo, I was topping up customers’ fuel cards

Despite the systemized use of the fuel card, the fleet operation manager may need to assign a staff member to monitor the cards because it can be used incorrectly. For example, the driver can negotiate with the petrol filler. The filler will swipe the card for 100 euros but pump for 50 euros worth of petrol and the remaining amount can be negotiated between the driver and the filler. This is just one of the irregularities I discovered in my work experience in the fuel card department.

Proper use of petrol cards are very important not only to help with accounting and reporting but also because in some governments like the UK which offer VAT refunds for fuel purchases used for business purposes also have a stake in fuel card fraud detection and prevention. So, if the use of the card is wrong, the bottom line is that the government is defrauded out of the tax that should have been paid for the fuel.

LOW STOCK IN EXPENSIVE RENTAL AREAS IN VALENCIA

Personal thoughts

I am from Valencia, and before Covid-19 changed our lives I used to go to the cinema once per week, at the ABC cinemas in Calle Colón in the center of Valencia. When I left the cinema at midnight, I realized that the street was plenty of trucks, unloading mercancy to all the shops of the street.

Analyzing the rental price

First of all, I start doing research about the prices of the rental in Calle Colon and surroundings. The Colon street or “Golden Mile” is the prime zone in Valencia, with 80 €/m2/month to 130 €/m2/month. The avarage surface of the commercial establishments goes since 200 to 400 square meters. For example, to understand the dimension of the number, If you have a store in Colon street with 150 m2 you are paying 15.750 €/month only in the rent.

Decentralized logistic centers / Short restock cycles

All these shops used to have a logistic center in other part of Valencia, commonly in villages near to the city. The price of the square meter in this zones could be 5 times lower than in the city center.

All things considered, it is more profitable for them to pay more to the transport companies to restock two or three times per week. They cannot afford to store many items in their commercial facilities. That facts explain that the majority of the nights Colon street is full of trucks doing unload task to all the stores.

DRUNI example

This is a perfumery store, is allocated near to the Colon street, in an expensive zone too. I was there a few months ago, and I realized that in the stores shelves there was only 2 or 3 items of each cologne.

This store have the logistic center in Alberic, a small village in the south of Valencia. They restock 2 or 3 times per week. With this technique they can offer more vairety of items but in less quantity.

If they run out of a specific product they will check if there are some available in surroundings stores of Druni. This technique allow to have a few but enough product in each store. If you have the bad luck that they do not have the product that you want in any of the near stores, they will ask for the product to the logistic center and in two business days you will have it in the store.

As you can see in the picture, they have many stores in the city center of Valencia, so it is easy to find any kind of druni product.

Do Boeing manufactures its own engines?

Photo by Manfred Irmer on Pexels.com

I always felt interested in figuring out how things are done. And when I saw these complex heavy machines that can take to the skies, I wondered how do they manage to build such a thing. Well, after a few hours of research, I realized that one company itself is not capable of manufacturing all the necessary parts and build an airplane their own.

Photo by Pixabay on Pexels.com

One of the most important parts of an aircraft is its engine, and yes Boeing alone does not manufacture its own engines. They have to rely on its suppliers to get the job done when talking about these components. Pratt & Whitney is one of Boeing’s main engines supplier and there are some other important providers within the supply chain like Tool Gauge, who produces some metal parts used in the engine.

But why does not Boeing manufactures its own engines? what is the main reason behind this?

Well, the main reason is because producing an engine is a highly complex and specialized job, therefore you need a lot of experience and high capacity to deliver a high quality product at an affordable cost, and at the right time. It seems that the aerospace supply chain is quite complex, here is an article that explains how this industry is changing due to emerging markets like China and Latin America, and how important its supply chain is to reduce costs and deliver a high quality service, see article.

And if Boeing wanted to start manufacturing its own engines, they would have to invest a lot of money in training its employees, hiring new people, acquiring new machinery, and all of the important tasks related to setting up an aircraft engine factory. In the video below you can see a further explanation on why companies like Boeing and Airbus keep relying on their suppliers.