HOW HOME DEPOT AND AMERICA’S LARGEST SHIPPERS BUILD GREAT CARRIER RELATIONSHIPS

With transportation prices low and consumer expectations high, The Home Depot and other big U.S. shippers are forging carrier partnerships based more upon predictable service reliability and alignment with corporate objectives than upon sheer short-term dollar savings.

Echoing thoughts expressed by leaders of Walmart, IKEA and the two top U.S. shipper groups, Michelle D. Livingstone, The Home Depot’s vice president of Transportation, says price is not the No. 1 factor in carrier selection.

“We’ve placed a very large emphasis on service, and that’s been our mantra for the last few years,” says Livingstone, who oversees movement of all inbound and outbound shipments for the nation’s largest home improvement retailer, with more than 2,200 U.S. stores.

“We really like to think that we walk our talk with the way we have developed a carrier scorecard to be able to track performance across the different metrics that we’re passionate about,’ says Livingstone, who notes that The Home Depot’s management of domestic carriers closely mirrors how international carriers are handled.

“We are passionate about on-time delivery, we are passionate about booking reliability, and, on the international side, about EDI (electronic data interchange) commitment and compliance,” she says. “And, on the international side, billing accuracy is also one of our metrics.

“Those are the primary ones,” Livingstone adds. “But, of course, there are always the subjective ones that don’t appear on the scorecard, like who really steps up when we’re in need of additional capacity, who brings us innovative ideas, who helps us reduce our costs by identifying areas of opportunity.”

Livingstone says The Home Depot, based in suburban Atlanta, has developed an objective “rack-and-stack” approach to evaluating carrier performance, with domestic and international carrier partners informed weekly as to how they are doing in relation to The Home Depot’s goals and as compared to their competitors.

“There can absolutely be no surprises in terms of if we have a difficult conversation regarding on-time service or any of the components, because everybody knows how they are performing against our target and against their competition,” says Livingstone, who has been a supply-chain executive for more than 30 years and serves on boards of such groups as the Intermodal Transportation Institute of the University of Denver and the environmental-stewardship-focused Coalition for Responsible Transportation.

Wal-Mart Stores Inc., the world’s biggest retailer, with more than 10,000 stores globally, also places an emphasis on partnership when engaging with carriers.

“When Walmart chooses a carrier partnership, we look for companies who provide outstanding service, effective communication, and for a company that will exemplify Walmart’s mission to ‘Save people money so they can live better,’” says Kevin X. Jones, vice president of Inbound Transportation for the Bentonville, Ark.-based mega-retailer.

At IKEA, the world’s largest furniture retailer, with more than 350 stores in 43 countries, carrier collaboration and numerous factors not directly related to cost are keys as well.

“IKEA wants to grow together with suppliers who have a strategic fit, which means we have shared business models and values,” says Mona Astra Liss, U.S. Corporate Public Relations director for the Conshohocken, Pa.-based IKEA North America Services LLC unit of the Swedish company.

“IKEA strives for long-term partnerships with suppliers to secure efficient production and continuous development,” Liss says.

“IKEA is unique in that it owns its entire value chain. IKEA is dedicated to delivering the best product at the best possible price. To support this, IKEA works with a comprehensive value-chain strategy that includes raw material sourcing, transport, product design, packaging, delivery and logistics.”

Consistent with IKEA’s active social initiatives, transportation providers to IKEA are subject to a broad-reaching supplier code.

“IKEA has a world-class code of conduct for suppliers—IWAY (short for IKEA Way)—and a very ambitious verification system,” Liss adds. “IWAY is based on values and principles for human rights, environmental protection, legal compliance and worker safety. IWAY directly applies to all first-tier IKEA suppliers who, in turn, are responsible for ensuring that their sub-suppliers acknowledge, understand and meet the IWAY requirements.”

Service upon which shippers can unfailingly depend is the No. 1 determiner in carrier selection, according to Jonathan Gold, vice president for Supply Chain and Customs Policy at the National Retail Federation, the world’s largest retail trade association, with some 13,000 members in a full spectrum of industry sectors from more than 40 countries.

“The most important factor for shippers of all sizes is the service reliability of the carrier,” Gold says. “Shippers, especially retailers, need a predictable supply chain in order to maintain an efficient supply chain, which includes inventory management.

“This is not limited to vessel arrival time, but all of the other services needed to get the container where it needs to be,” he says. “If one area falters, it impacts the entire supply chain. As such, productivity is another critical issue for shippers to consider when dealing with their carriers.

“While the ocean carriers are moving to larger and larger vessels, there is a question as to whether the ports and other related services are actually prepared to handle those vessels or will we see new problems with getting containers from the port?” Gold continues.

Predictable, reasonable pricing is a significant consideration, too, Gold adds, highlighting that price paid should consistently equate to service delivered.

“Shippers want to know that they are getting actual service levels that they expect,” he says. “Finally, customer service is always a consideration. While carriers are cutting costs to save money, they are sometimes doing this at the expense of customer service to support the shipper.”

Indeed, balancing cost and service is critical, according to Bruce Carlton, president and chief executive officer of The National Industrial Transportation League, the nation’s oldest and largest transportation association, billed as “the Shippers’ Voice since 1907,” with current membership encompassing 700 companies.

“Shippers have always looked to that combination of price and service that fits their needs—and budget,” Carlton says. “Price is just that—how much? For some years now, rates have been depressed; I haven’t heard any shipper complaining about shipping rates in a long time. But the service parameters have become more complex over time.

“Probably the biggest source of friction is missed delivery dates, and the more time-sensitive the commodity, the more friction generated,” Carlton adds. “Many shippers have scorecards on their carriers that rate them on a number of service components: timeliness, damage, information systems and so on.”

Environmental considerations also are important, according to Carlton.

“We’re seeing more shippers—especially the more visible, large shipper accounts—seeking readouts on the carriers’ carbon footprint and other sustainability measures,” he notes.
And there are other concerns that factor into the equation.

“Here in the United States, there is still a mix of information and confusion on container chassis,” Carlton says. “The (ocean) carriers’ transition out of providing chassis for their customers appears to be a work in progress at best. Lastly, shippers are waiting to see if the new global alliances—P3, G6 and CKYHE—will have any consequences for them once they are up and running.

“Shippers and carriers might have an old relationship, but it’s anything but static,” Carlton says. “There are always new elements and new challenges for both.”

TRENDS AND OPTIMISM IN THE PROJECT CARGO MARKET

Air Products and Chemicals Inc. serves more than 30 industries in 50-plus countries, supplying “industrial gases, performance materials, equipment and technology.” When the world’s largest supplier of hydrogen and helium needed a site to manufacture its liquefied natural gas heat exchangers, it located its facility just outside the gate of Port Manatee, Florida.

Headquartered in Allentown, Pennsylvania, the company exemplifies a trend gaining steam in the project cargo industry: locating facilities that produce overweight, over-dimensional units in closer proximity to the docks from which they may be exported.

Dedicated in January, the Air Products facility is gearing up to make units weighing 500 tons or more apiece that can be put on special trucks, taken a mile or so to port berths for loading on ships, then transported to customers throughout the world.

John McGlade, Air Products’ chief executive officer, is quick to note that the near-dock location of the company’s second major heat exchanger plant averts inland transport concerns and expenses related to moving the mammoth units from its factory in Wilkes-Barre, Pa., to the closest export terminal.

Demand for ocean transport of project cargos is anticipated to be on the upswing, with carriers serving the heavy-lift market optimizing lifting capabilities while increasing flexibility through deployment of multipurpose vessels.

Executives of most major project carriers seem to be in agreement that improving global economic conditions are spurring an eagerly awaited rise in the call for moving over-dimensional cargo, but enthusiasm nonetheless remains somewhat tempered.

“While we still see challenging market conditions in the break-bulk and heavy-lift market, in the past months optimism has started to grow,” says Ulrich Ulrichs, chief operating officer of Hamburg, Germany-based Rickmers-Linie, which has 18 specialized multipurpose heavy-lift vessels in permanent operation.

Activity increases are particularly noticeable in trades from Asia to South America and from the United States and Europe to the Middle East, according to Ulrichs, who notes that Rickmers’ westbound ’round-the-world service, initiated in March 2013, is now running on nearly a monthly frequency, and its eastbound Pearl String is operating with 10 vessels, up from nine, allowing maintenance of fortnightly frequency even with the company’s slow-steaming policy.

Hopeful that a project backlog caused by the worldwide financial crisis will experience some alleviation in 2014 and 2015, Ulrichs says Rickmers looks forward to delivery by early 2015 of two new vessels for its service from Europe to the Middle East and India. Consistent with industry trends, these new ships will feature enhanced fuel efficiency plus powerful shipboard cranes capable of combining to lift cargo units of as many as 900 metric tons.

For his optimism, Ulrichs cites a recent Drewry Shipping Consultants Ltd. forecast, which indicates an average annual growth rate of 3 percent for multipurpose vessel volumes through 2017. That forecast comes after a series of comparatively dreary prognostications.

Leer, Germany-based BBC Chartering, which operates 150 vessels serving the multipurpose and heavy-lift market, is well into multiple new building programs for delivery of “ecoships” that facilitate both optimum speed and fuel utilization.

“New developments in project cargo vessels aim at optimizing cargo-handling productivity and voyage efficiency,” says Raymond Fisch, BBC Chartering’s senior vice president for Public Relations, Corporate Communications and Group Marketing.

The company has completed its BBC Congo series, with seven vessels good for 17,000 deadweight tons—a measure of how much weight the ship can safely carry—each with two cranes combining for 500-metric-ton lifting capacity. Also completed were its BBC Everest series of eight 9,300-deadweight-ton ships, each with combined lifting capacity of 700 metric tons; and, by the end of 2013, nine of 14 vessels in the BBC Amber series of 14,800-deadweight-ton ships, each offering combined lifting capability of 800 metric tons.

According to Fisch, Asia remains the hotbed of project cargo activity, plus North America and Europe are busy exporting heavy lifts to developing markets such as South America and Africa, and he describes the trade within Europe as “lively” as well.

Fisch observes that clients are tending more and more these days to rely upon a single source for shipping solutions—which may combine regional cargo consolidation with overseas transport, dedicated shuttles or offshore floating storage and feedering—and this is requiring that carriers bolster their project management capabilities.

Another trend cited by Fisch is greater risk awareness on the part of clients, with an increased focus upon occupational health, safety, environmental and quality-management issues throughout the execution of a shipping project.

Torin Swartout, vice president of the Spliethoff USA unit of Amsterdam-based Spliethoff Group, which operates more than 100 multipurpose, heavy-lift and roll-on/roll-off vessels, notes that safety, transit time, energy reduction and cost-cutting benefits are all being achieved with moves toward vessels that can run on liquefied natural gas and with direct services such as one being initiated this spring by Spliethoff between the Great Lakes and Europe. That scheduled service, operating from the Port of Cleveland and using the St. Lawrence Seaway, is to handle heavy-lifts as well as containers.

“We see the big pieces getting even bigger and heavier, and everything that can be containerized being shipped on liner services,” Swartout says, relating these trends to the startup of the Great Lakes-Europe service and to the recent building by Spliethoff Group member BigLift Shipping of the Happy Sky, with a combined lifting capacity of a whopping 1,800 metric tons. “We see increased demand for larger and heavier cargos, as well as more requests for scheduled services for smaller projects that have containerized cargo included.”

Energy-related projects represent a significant sector of Spliethoff’s business, from oil and gas industry components heading from Asia to the Americas to wind-power units going from Europe to the Great Lakes, according to Swartout.

“Concerns for the environment and new regulations for energy production have been a driving force in updating power production facilities,” he says, “and at the same time, the growing demand for power means more oil and gas projects.”

Brent Berg, Houston-based managing director of Thorco Shipping A/S, says that while wind, solar and wave technologies are “great ideas,” projects related to oil and gas will continue to be primary in providing project cargo opportunities—including equipment for new refineries and for extracting natural gas from recent finds, as well as green-lighted undertakings that had been put on hold while global economic uncertainty lingered.

In July 2013, Thorco Shipping merged with Clipper Projects, continuing under the Thorco name, with headquarters in Copenhagen and a 90-vessel fleet. For Berg, it’s great timing. “I think 2014 is going to be a really refreshing, fun year,” he says, opining that the upturn is beginning in the traditional seven-year cycle for project cargo activity.

Berg believes the days of big investments by carriers in heavy-lift-specific vessels are likely over, with the emphasis now on combination ships that are able to handle a variety of cargo types, including containers. And ship designs are continuing to move away from traditional bows to those that help to reduce fuel consumption.

Charles Atkinson, Baltimore-based national sales manager for Bahri General Cargo, notes that his company, formerly known as National Shipping Co. of Saudi Arabia, anticipates spring delivery of its sixth new “RoCon” roll-on/roll-off container vessel. He says this should be propitiously timed with demand growth in the Middle East, in particular in Saudi Arabia, where some $77 billion in infrastructure investments are under way.

“For the Middle East area,” Atkinson says, “there is an ever-growing demand for project-savvy carriers offering various alternatives.”