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Just-in-time—barely
New challenges call for shipping savvy
By Ken Mark
Just-in-time delivery, the clockwork mechanism that makes global logistics chime, is starting to hit the wall. It’s not broken, but it shows serious signs of bending.
The problems are many—post 9/11 security concerns, the surge in Asian imports taking up capacity, inadequate transportation infrastructure, increasing government regulation, rising fuel prices and insurance rates.
There’s also a lack of a national transportation strategy. And the impact on the trading community is clear—higher operating costs, more delays and increased non-value-added activities required to simply comply with the endless stream of new regulations.
“Whatever delivery schedule we have in the book, we now just add an extra week,” said Karin Eisen, Mississauga, Ont.-based corporate manager of customs & transportation with Panasonic Canada Inc., at a recent conference in Toronto held by I.E. Canada (Canadian Association of Importers and Exporters).
Until infrastructural improvements kick in (a new bridge at Windsor could take up to 10 years) shippers will have to deal with congestion at ports, on the rails and highways, and of course, border crossings.
To balance increased costs while maintaining customer service, procurement professionals and logistics managers must plan extra carefully, examine alternative routings and deploy technology more creatively.
Maximum capacity
The newest poster child of Canada’s beleaguered transportation system is the tangle of Asian imports from Vancouver to Toronto. Capacity is maxing out. Immediate solutions may require bringing back some old ideas.
“In the 1990s, shippers closed down distribution centres in Western Canada and centralized distribution in the Toronto area, and then shipped goods back out west,” says Lori McCreight, Concord, Ont.-based general manager with National Fast Freight Inc.
“Now we are hearing about shippers moving at least some of their Asian imports by rail to new distribution centres in Calgary and Edmonton to break down loads, and shipping goods by truck to Western Canada and even Toronto.”
Just-in-case inventory is another old idea that is new again. “Our members are finding that more companies are stocking goods to offset the impact of delivery delays,” says George Kuhn, Toronto-based executive director of the Canadian International Freight Forwarders Association (CIFFA).
Alternative routings that bypass west coast ports are looking more attractive. For example, the Hudson’s Bay Co. has sent shipments of Chinese-made patio furniture through the Panama Canal to east coast ports. Halifax is trying to reposition itself as a more convenient distribution point for delivering Asian products to major North American markets.
The erosion of just-in-time delivery reliability has also resulted in a sea change in shipper attitudes. “In the 1990s when there was excess industry capacity, shippers were able to drive down rates,” says John Ferguson, Fort Erie, Ont.-based, chief marketing officer with PBB Global Logistics Inc.
“Now they’re placing greater emphasis on carrier capacity availability, especially during peak periods. Rather than resorting to rate shopping in the spot market, more shippers are coming to us with requests such as, ‘We have these volumes in these lanes at these times, can you assure us prices and capacity to meet those needs?’”
With such overcapacity, rates are expected to rise four to seven per cent this year. The higher level relates to air cargo carriers. In the wake of disappearing carrier overcapacity, the rate boosts are likely to stick.
However, carriers such as National Fast Freight Inc. are making extensive use of technology to ensure the reasons behind its increases are transparent and persuasive. “We don’t ask for across-the-board hikes,” says McCreight. “This year our increases will range from zero to 12 per cent, depending on the lane and customers involved.
“For individual shippers, we look at freight density and volume. We have introduced a sophisticated business analysis and reporting tool on top of our transportation management system solution that outlines close to real-time key performance indicators and relevant direct costs, most of which we share with customers through a secure Web portal. So when we ask for an increase, they know exactly where we are coming from.”
Hours of service
The definition of peak periods is also changing. “Before, our busiest season began after Labour Day when stores began to build stock for the fall and Christmas seasons. But now we are seeing shippers starting to move goods as early as mid-July,” says Tony Trichilo, president of Vitran Express Canada Inc. in Concord, Ont.
The combination of carrier innovations such as time-definite deliveries and increased shipper sophistication has yielded more planning options. “Time-definite, mode-neutral service provides an increased comfort level for shippers,” says Lincoln Garraway, Mississauga, Ont.-based sales director with BAX Global Canada Inc.
“They can now focus more attention on targeting which shipments actually require premium-priced delivery. For example, we recently helped a major Canadian aerospace manufacturer achieve double-digit percentage transportation cost savings. Before, they shipped everything by air. However, we moved many of their shipments using other modes at reliable levels of service and reserving air for only those that truly needed it.”
Uncertainties related to cross-border shipments continue to bedevil just-in-time deliveries. Adding to the pressures of inadequate bridge and access road infrastructure is the lack of staffing.
For example, New York State Attorney General, Eliot Spitzer has charged that there aren’t enough FDA inspectors on duty during weekends, so the efficiency of border security procedures is severely reduced.
Border crossing congestion may soon morph from a mild irritation to a major headache when Canada follows the US in passing driver hours-of-service legislation. The time that drivers spend waiting in line at border crossings will push up the cost of shipping goods to the US, since those delays will cut into their hours of service limits.
Added costs already exist. “Carriers have become much more selective about accepting loads for US,” says Yves Gagnon, president of IT Logistics in Laval, Que. “They want to be sure that back-haul opportunities are in place before they leave. US-bound shipments involve higher rates. Some carriers break them out separately as security-related surcharges.”
The electronic transmission of pre-arrival shipment initiatives from both Canadian and US customs authorities is also shaking up procedures. “Increasingly complex trade regulations and legislation, the rising bar in technology as well as greater risks, fines and penalties for inaccurate filings and non-compliance are creating real barriers to entry to those wanting to become customs brokers,” says PBB’s Ferguson.
Driver shortage
The shortage of qualified drivers remains a problem that refuses to go away. “We seem to spend more of our time marketing to drivers—retaining or recruiting them, than we do to customers,” he adds.
Bureaucratic logjams are causing the pool of drivers eligible for cross-border deliveries to shrink. Under the US CBP’s (Customs & Border Protection’s) Trade Act, all drivers with line release loads (line release referring to speedier processing) must have FAST cards by May 1, 2005 or risk being returned to Canada.
However, David Bradley, president of the Ontario Trucking Association, claims there are not enough Canadian drivers registered because enrolments centres have been unable to qualify drivers fast enough.
However, technology may help to break up some of the logjam. In late January, Robert Bonner, CBP Commissioner, announced that he was ready to introduce C-TPAT Plus, which would provide “no inspection upon arrival—immediate release” for low-risk shippers using technology that can detect and record whether tampering has occurred with a container seal after being affixed at the point of origin.
Nevertheless, some carriers have developed innovative solutions for facilitating cross-border movements. For example, UPS Logistics offers a Trade Direct Cross Border (TDCB) service that consolidates north- and south-bound shipments between Canada and the US.
“For Montreal-based garment maker, Tribal Sportswear, we transport truckload shipments of its products, clear customs and drop them off at our distribution centre in Champlain NY,” says Donald Tardif, director of brokerage products with UPS Logistics in Montreal.
“There, workers prepare shipments according to individual retailer’s specifications (Tribal has 1,800 US-based customers). Some want garments placed on hangers and roller racks so they can be moved right off the truck and on to the show rooms. Others prefer items to be boxed.”
Either way, from Champlain, the shipments become US domestic deliveries. “In this way, we help Tribal save money on shipping and customs clearance charges for what used to be a very large number of small, southbound packages.”
To cope with the complexities of cross-border shipments, some shippers are opting for one-stop shopping with a singled integrated logistics services provider. It may be as simple as designating a carrier as the preferred LTL (less-than-truckload) carrier to facilitate tracking and tracing, since the loads are carried internally within the company without any external handoffs.
“Last fall, we participated in a PBB China trade mission because of its extensive network over there,” says Matt Miller, business development manager for vending machine maker, Beaver Machine Corp., in Newmarket, Ont.
“We needed extra help, especially for arranging appointments with potential suppliers because it was our first trip to China. In fact, we’re expecting a container of components for one of our products from a company we met.
In all, we make 25 different products and expect imports from China will expand. We have now asked PBB to take care of all our inbound shipments. Before, almost all of our components were made here in Canada.”
Whether it’s opting for a single-source provider, adjusting transportation routes or relocating distribution centres, shippers must continue struggling to beat the clock. b2b
Ken Mark is a Toronto-based freelance writer focused on logistics, technology and business.
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