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Deconstruction of the Value Chain

Deconstruction of the Value Chain

Why Large Shipping Lines Should Think About Asset-Sharing

In the past, companies have tried to optimize and unearth efficiency gains through value chain integration. Reason was that it is easier to communicate and optimize within a company than with external partners. Examples from container logistics include Maersk Line acquiring Damco as part of the P&O Nedlloyd acquisition and Amazon aiming to consolidate the entire value chain from factory to last mile delivery. 

In the literature, the explanations focus on lower transaction costs when communicating within an organization compared to the outside and the risk of “hold-ups” is better manageable if you can observe the entire value chain compared to just a small fraction. 

Extrapolation: You can argue that these factors and risks are the only reason why we have companies at all, those are basically just a way for humans to work together and communicate efficiently. In a sense, a company is just a collection of specialists who work together on a “platform” called a company. 

Technology Reduces Those Underlying Costs and Risks

Today, technology and digital platforms reduce transaction costs and remove risks. This makes the traditional “company borders” obsolete. We see that in the “gig” economy where specialists (from highly paid professionals such as lawyers and consultant to poorly paid uneducated “hands”) chose not to get a job in a company but instead offer their workforce on platforms – think of Uber, Fiverr and even Deliveroo. Interestingly, this does not quite fit into the B2B vs B2C vs C2C logic of the past but is rather P2B (“Platform-to-B”) or P2C: As a company or as a consumer I only need to join a platform to get access to a wide range of services without further need to search, compare or contract. 

“Traditional” B2B Markets Follow the Trend

We see the same happening in B2B! M&A activity will not remain the only logical way to increase efficiency along the value chain and to achieve economies of scale. Instead, platforms and digital technologies allow companies (no matter how small or specialised) to work together across company borders. On successful platforms, this is powered not only by efficient online processes, but supported by platform activities that increase trust such as peer reviews, performance information or payment handling. 

An industry perspective: “a simulated large, consolidated company” which operates equipment in an efficient, market-driven pool. Other examples that come to mind are platforms focused on the optimization of hinterland intermodal moves—improving communication between container carriers, freight forwarders, and trucker. 

Future: We Expect This Along the Entire Transportation Value Chain

Thinking about the future of shipping industry, we will see further deconstruction happening. Multiple “neutral” platforms will link together specialized actors along the value chain. Actors on the value chain will be much more specialized than today and instead of  seeing mega carriers covering the transport chain end-to-end, we’ll have actors such as equipment owner, vessel owner, vessel operator, slot marketer, agents in POL and POD, equipment tracking technology, ports, terminal, truckers, depots… 

An example: from an economic viewpoint (and when removing transaction costs / communication barriers and “holdup risks”) it makes only very little sense have “vessel operation” and “equipment ownership” done by the same party. In the case of equipment: Managing a pool allows you to balance out company-specific imbalances and reduce empty container moves! Container Leasing companies are a prime example where this already happens. 

Of course, this does not need to be fragmented down to the individual micro-service at all stages. Thinking back to our example before, that would mean that we don’t even have companies here anymore but just individual freelancers. Such companies can then also contribute 2, 3, 4 steps but we think the underlying logic is important: Deconsolidation makes sense! 

Additionally, there will be some clients who prefer buying from a consolidated entity instead of plugging-and-playing services on a platform. Consider a large shipper who wants to have a reliable long-term contract with stable rates and a single-point of contact -> this role will still exist and also create value (as they cater to a specific demand). Here you’ll also find strong “consumer” / “client” facing brand names such as Maersk. However, the way this “consolidator” then provides the service will change completely from an inhouse solution to an “on demand platform solution”. 

What we see in shipping is that fully integrated liners act like a “one-stop-shop” and try to offer everything even though their core business is ocean freight. Why shouldn’t forwarders or shippers bring their own containers and only book the vessel slot? When shippers bring their own boxes, containers are so-called shippers owned containers, SOC container in short. Such containers increase flexibility and create a win-win for shippers and carriers: Forwarders save demurrage charges, while carriers avoid time-consuming planning and can focus on what they’re good at: moving goods between continents and the sale of vessel slots! 

More and more shipping companies increase their SOC activities because online platforms provide them with access to global capacity and streamline processes of booking containers separately to the vessel slot. 

Container xChange is an example of how companies can work together on a neutral platform and share capabilities/ assets. It is not necessary anymore to take over your competitor to leverage a shared equipment pool of containers. More than 300 companies use this chance to access to world market and to have eyes and ears across the entire globe. It is also possible to add further services from 3rd parties to a transaction such as container insurance or surveying to further driving down transaction costs. Apart from efficient processes, transaction costs are further reduced through secure payment handling, partner reviews, performance, and issue resolution by the always on support. 

No Need to Run the Race for Integration 

You can stop the “race to be the largest and most integrated actor”, in the future of shipping you’ll need to be super specialized and able to play multiple platforms instead. In a corporate finance viewpoint there will be no more “conglomerate cover-up”, every activity needs to be performed at par with or better than the best. Because markets will be so efficient, that customers are not willing to pay for sub-par parts of products anymore. 

How Do You Prepare for The Future of Shipping?

What does this all mean for you? Firms should ensure they are preparing for an eco-system future—or what “eco-systematisation” will mean for them. Specifically, they need to dedicate resources to understanding which services are available, as the landscape is evolving quickly. More and more platforms are evolving that might evolve into an eco- system services—just think of Alibaba and WeChat. They need to decide what they are really distinctive at and exit or source marginal activities. While this has always been a good idea and strategic exercise, it is becoming more important than ever (examples could be COSCOs divestment of its shipbuilding/shipyard arm).

And finally, they need to create plug and play architectures, not just in a technical sense, but also in how they contract (e.g., shorter duration). And in some cases, they may need to organize themselves into a set of discrete internal services to allow inter-operability with the external market. Zapier is a really good example for pushing plug and play architectures, it basically is an online service that “connects” distinct services to provide additional user value. Easyjet is a good example for an “unbundling” of services into micro-services: You can book everything, but you don’t have to—that aligns very well with the market and is profitable in itself! 

Giving Customers Choice: The Power of Personalized Delivery in the Age of Amazon

The past five years have paved the way for a new age of retail — where stores have become omnichannel-driven showrooms, checkout has become as simple as a flick of the phone, and teeming competition has driven retailers to create curated experiences for their customers. 

Most fingers point at the e-commerce giants, Amazon in particular, for putting pressure on brick-and-mortar stores to compete on convenience and personalization. Particularly around delivery, Amazon changed the game with two-day shipping for Prime members. As retailers have fought back by leveraging their physical footprints to improve fulfillment times with offerings like click and collect, Amazon upped the ante with one-day delivery. 

There’s no doubt about one thing: increasing consumer demand for convenience is as important as it’s ever been. The focus has been on enabling same- and next-day delivery, but that’s also been putting retailers under enormous strain and compressing already thin margins. 

If you’re solely focused on matching Amazon’s one-day shipping promise, you’re missing the bigger picture. Consumers want more than same-day, next-day, or scheduled deliveries – they want the freedom to choose

There’s no one-size-fits-all solution. Capgemini found that 73% of consumers think receiving a delivery in a convenient time slot is more important than receiving it quickly. It ultimately comes down to a question of time vs. money. Sometimes customers are willing to pay for something to be delivered in a few hours, and sometimes they’d rather save money and receive it in a week.

Instead of focusing on keeping up with Amazon’s expedited shipping, retailers need to focus on building better customer experiences. From a delivery standpoint, this means creating a logistics infrastructure that can reliably deliver orders when buyers want them delivered. This is accomplished by leveraging multiple delivery models and creating a reliable set of options that includes urgent, same-day, next-day, and more. 

For retailers determined to stay competitive, partnering with innovative providers for home delivery and last-mile logistics can add optionality while avoiding the challenges of building out owned asset networks or expanding service with traditional parcel networks.  

The bottom line is this: consumers want what they want, when they want it. The maturation of e-commerce has ushered in an era of personalization at scale and growing customer demand for convenient, flexible shopping experiences. Next-day and same-day delivery sit at the center, but customers are ultimately focused on choosing the right fulfillment option for each and every order.

Otherwise, they’ll leave and find the retailer who can. 

Will Walker is the Enterprise Manager at Roadie, the first on-the-way delivery service that connects people and businesses that have items to send with drivers already heading in the right direction. Roadie works with top retailers, airlines, and grocers for a faster, more efficient, and more scalable solution for same-day and last-mile deliveries nationwide. With over 120,000 drivers, the company has delivered to more than 11,000 cities and towns nationwide — a larger footprint than Amazon Prime.

seasonal

UPS Beefs Up Seasonal Employees for Holiday Preparations

With the holidays quickly approaching, UPS begins preparations for the inevitable increase in demand by recruiting an estimated 100,000 full and parttime seasonal workers. The positions available include package handlers, drivers and driver-helpers offering competitive incentives to qualified seasonal workers. Among benefits highlighted include the company’s Earn and Learn program which offers students up to $1,300 towards college expenses, healthcare, and retirement benefits.

“We expect another record Peak season this year, with daily package deliveries nearly doubling compared to our average of 20 million per day,” said Jim Barber, chief operating officer.  “In order to make that happen, once again we’re recruiting about 100,000 people for some of the country’s best seasonal jobs.”

UPS reports that about 35 percent of their seasonal packaging handler employees were eventually recognized and named permanent staff members. Other seasonal employees, such as Mercy Alvarado, benefit from the UPS-employee relationship years following the initial hire.

“I started my UPS career as a seasonal driver helper in part because the company’s tuition reimbursement program offered an opportunity to continue my education,” Alvarado said. “Since then I’ve not only completed my associate’s and bachelor’s degrees, I’ve been promoted twice and am now a full-time supervisor. UPS is the place where I plan to retire someday, and I’ll always be thankful for this amazing job and opportunity.”

Other seasonal employees hired by UPS support operations at temporary facilities designated specifically for demanding shipping waves reported during the holidays and other peak seasons.

tt club

TT CLUB SUPPORTS CONTAINER LINE MOVES TO PUNISH “MIS-DECLARERS”

The international transport and logistics industry’s leading provider of insurance and related risk management services is applauding a number of container lines for recently announcing measures to discourage shippers from mis-declaring hazardous cargoes, which is a practice strongly suspected as being either the cause of, or at least contributory to, a spate of recent container ship fires.

TT Club says it welcomes such initiatives by liner operators as the international transport insurer has growing concerns about the lax cargo packing practices and erroneous, sometimes fraudulent, declaration of cargoes. Under the banners “Cargo Integrity” and #Fit4Freight, TT Club has been collaborating with stakeholders through the freight supply chain to highlight ongoing risks, including severe ship fires, arising from poorly packed and declared cargo.

“Clearly, the shipper has primary responsibility to declare fully and honestly so that carriers are able to take appropriate actions to achieve safe transport,” explains Peregrine Storrs-Fox, TT Club’s Risk Management director. “Since this is not always the case, carriers have to put in place increasingly sophisticated and costly control mechanisms to ‘know their customers,’ screen booking information and physically inspect shipments. Equally, carriers have the opportunity to review any barriers to accurate shipment declaration, including minimizing any unnecessary restrictions and surcharges.”

Penalizing shippers where deficiencies are found should be applauded, contends Storrs-Fox, who adds that “government enforcement agencies are encouraged to take appropriate action under national or international regulations to deter poor practices further.”

 TT Club’s Cargo Integrity campaign seeks not only to promote awareness of good practice but also to reveal the plethora of influences from both direct and indirect stakeholders within the supply chain that result in behaviors leading to dangerous incidents on land or at sea.

 “A key element of the campaign is to identify levers–both sticks and carrots–that are available to improve a safety culture in container transport,” Storrs-Fox says, “including considering unintended consequences inherent in trading arrangements or fiscal/security interventions and the possibilities presented by technological innovation.”

intermodal

HOW TO BE AN INTERMODAL SHIPPER OF CHOICE

Fluctuating capacity and freight rates along with increased focus on efficiency and sustainability have led to substantial growth in the intermodal market in recent years. As more companies now compete for intermodal capacity at competitive rates, it is important for shippers to set themselves apart from the competition by being attractive partners to their intermodal carriers. 

By being a “shipper of choice” and implementing flexible and efficient practices, companies can build collaborative, mutually beneficial relationships with their intermodal carriers. This better positions them to secure capacity at stable, competitive pricing and enhance service levels and improve overall performance. 

Why It’s Important to be an “Intermodal Shipper of Choice” 

While being a “shipper of choice” has been a hot topic in recent years, the focus has primarily been placed on over-the-road shipping. And while there are many similarities between the two modes, there are also some nuances that must be considered to be an “intermodal shipper of choice” in particular. 

First, because loads are tied to the equipment instead of to an individual driver, there must be an equal (if not greater) focus on equipment management and efficiency in addition to driver efficiency. By placing equal focus on implementing “carrier-friendly” tactics for intermodal freight, shippers can strengthen carrier relationships and better control costs. This, in turn, ensures enhanced intermodal service performance–increasing the ROI of utilizing the mode.

Here are some strategies organizations can use to become an intermodal shipper of choice:

Engage in annual renewals with incumbent carriers rather than annual RFPs. While annual RFPs can yield savings, they also increase uncertainty and risk for both shippers and carriers. By focusing on long-term commitments with incumbent carriers through annual renewals, shippers and their core carriers can continuously foster a relationship of mutual trust and ongoing success. Through this relationship, the carrier and its drivers become intimately familiar with the shipper’s network, freight and business, and the shipper gets to know the carrier’s operations and the drivers responsible for picking up and delivering their loads.

Accurately forecast freight volumes. The ability to forecast freight volumes and seasonal swings allows shippers and carriers to proactively plan (and reposition) equipment and drivers to provide adequate capacity. Sharing this information not only helps provide more consistent service but can be beneficial for both sides on an ongoing basis. 

Consistent freight volumes. Having consistent volume spread out throughout the week, month or year makes appointment scheduling and equipment planning easier for the carrier. And if shippers do ship heavier at certain times, it is important to set and manage expectations with carriers. 

Equipment pool requirements in line with volume. Pool requirements that are in line with volume allow shippers to turn boxes on a regular basis and keep loads moving at a consistent pace. This helps maximize equipment utilization while minimizing equipment costs.

Inbound and outbound volume. Setting consistent inbound and outbound volume out of facilities allows drivers to pick up loads immediately following a drop-off. This reduces empty miles and improves both driver and equipment utilization. These efficiencies will ultimately result in better rates from carriers. 

Utilize drop and hook freight capabilities. Drivers want to be able to get in and out of a facility in an efficient manner, at any time. Drop and hook freight capabilities create load flexibility, reducing congestion in the yard and maximizing driver utilization by minimizing detention time. 

Flexible pick-up and delivery appointments. For customers that require pick-up and delivery appointments, it is important to make them as flexible as possible. This drives further efficiencies for both the carrier and the shipper.

Reasonable payment terms. Shippers should have timely freight payment terms (often 30 days or fewer) and keep to those terms. It is also important to have a system in place to quickly resolve any discrepancies.

Provide driver amenities at the facilities. By providing driver amenities at their facilities (such as bathrooms or waiting lounges), shippers help make the pick-up and delivery process easier and more comfortable. These simple comforts show that the shipper views the carrier (and its drivers) as a valuable part of their operations versus a commodity. 

Utilize facilities in close proximity to intermodal terminals. Facilities that are located near intermodal rail terminals allow rail to be a more competitive option for a shipper. While this is not always possible, shippers looking to build new facilities should consider placing them near rail ramps in order to take advantage of more intermodal opportunities. 

Intermodal Presents Significant Opportunity for Shippers

Intermodal continues to be a cost-effective, efficient and sustainable way to move freight and should be a key piece of any strategic modal mix. And as more shippers compete for capacity and competitive rates, it’s important for shippers to best position themselves to be attractive partners to intermodal carriers. This will allow them to better take advantage of intermodal while helping to control costs and enhance service performance. 

__________________________________________________

Doug Punzel is president of Celtic Intermodal, Transplace’s intermodal business unit. David Marsh serves as Celtic Intermodal’s chief operating officer and helps oversee all daily operations. 

TMS

Signs You’re Ready for a Transportation Management System and What to Look For in Finding the Right One

The transportation management system (TMS) market is growing globally, and for good reason. Common objectives like controlling costs, establishing internal efficiencies and managing capacity restrictions have established the need for technology that provides uninterrupted visibility across the supply chain and helps streamline operations.

In fact, in Gartner’s first Market Guide for Real-Time Visibility Providers, published November 2018, supply chain leaders surveyed for the report ranked visibility as the highest priority in the supply chain.

But it’s not simply a given.

Especially in today’s volatile global trade climate, having a TMS in place can ease the burden on transportation leaders to ensure goods get to their destination on time without crippling costs. The modern supply chain requires the flexibility and scalability provided by transportation management systems.

Knowing when a TMS is right for your business

A growing business means more robust transportation needs. Being equipped to manage the increased volume and complexity is crucial, especially as you onboard new customers, some of which likely have strict retail compliance policies that can result in fines and penalties for not following suit.

Greater complexity in your transportation needs also means the need for greater visibility. If you can’t confidently say you know where all of your shipments are at a given time, it’s time to consider a TMS. Implementing a TMS arms your business with visibility and provides the real-time information needed to also keep customers informed. That access to real time data and insight is not merely a nice to have, as it was in the past. With trade volatility on the rise, the ability to stay informed and to make quick pivots is imperative. Those who can accurately see the whole picture at the click of a button will surpass the competition as they rush to make less informed decisions.

In addition to business growth and the complexity that comes with it, a TMS is an especially crucial tool to have in place if your business is considering M&A activity. As shippers are suddenly faced with the myriad challenges that comes with integrating disparate systems, having a TMS in place serves as a binding source for systems and data.

I know I need a solution. What now?

TMS solutions have become more robust and powerful over time while also decreasing in price. This has made them more accessible to companies of all sizes, especially given the ability to get them up and running quickly thanks to cloud-based software.

A few questions to consider as you think about which kind of TMS to purchase are: What key pain points am I hoping to address? Do I want a standalone TMS solution or a TMS and a 3PL that can I partner with to manage my logistics needs? And how do I ensure disparate systems are cohesively integrated?

Businesses will commonly implement a TMS to increase supply chain visibility and operational efficiency, integrate disparate and/or legacy systems, optimize costs and have access to detailed analytics and reporting. To achieve these goals, you’ll want a solution that includes the following:

-End-to-end automation and dynamic collaboration so you can seamlessly manage your entire supply network, across all modes;

-Detailed shipment visibility providing insight around pricing and load management to ensure your shipments are delivered on time and on budget;

-Actionable business intelligence and analytics that can provide the immediate insight needed to make better shipping decisions;

-A healthy carrier network of local, regional, and national multimodal carriers to provide services on a shipment-by-shipment basis or dedicated lane opportunities. If you opt for a managed TMS, your provider can help you pinpoint more efficient routes, cost reductions and opportunities to explore new markets versus needing to do that work internally.

As transportation management technology has advanced in recent years, the price of transportation management systems has dropped, offering businesses of all sizes the opportunity to take advantage of the myriad benefits. From providing an unprecedented level of visibility to compelling opportunities for cost savings and increasing operational efficiency, the decision to adopt a TMS in today’s uncertain global trade environment should be an easy one.

Ross Spanier is senior vice president of operations at GlobalTranz, a leading technology and third-party logistics solutions company providing award-winning Transportation Management System (TMS) products to shippers, logistics service providers and carriers.

BSY ASSOCIATES MARKS 45 YEARS AS MARKETING COMMUNICATIONS FIRM FOR TRADE INDUSTRY

Forty-five years ago, Barbara Spector Yeninas made the leap from maritime journalist to owner of a public relations agency aimed at the industry at a time when females were rarely seen on the waterfront.

Today, Cranford, New Jersey-based BSY Associates Inc. is not only an award-winning PR and advertising agency but an industry event planner, association manager and crisis-communications specialist.

“At industry events, I would be the only woman in attendance—not an enviable position when the only other female around was the entertainment, usually a stripper,” Yeninas recently recalled. “To say that political correctness was not a priority then would be an understatement.”

Think about this: Yeninas decided to fill a PR need she recognized during her daily newspaper career on Aug. 1, 1974, when Jennifer and Michael were the most popular baby name; the number one song was “Annie’s Song” by John Denver; and Richard Nixon was still eight days away from resigning as president.

 “We started as a communications company explaining and covering the nascent container shipping revolution as it was unfolding before our eyes,” says Yeninas. “… I saw a role for what we could provide. This is a meat-and-potatoes industry and those involved were making decisions about billions of dollars of investment in ships, equipment, terminals and training. They did not have the time or inclination to get involved in the nuances of promoting themselves. We were there to do so. I hitched up my skirts and went for it.”

Here’s to another 45, Barbara!

Port Houston City Docks Confirmed for Universal Africa Lines Service

Port Houston’s City Docks have been officially selected by Universal Africa Lines (UAL) as part of their U.S. Gulf/Mexico to West Africa liner service following the success of the first vessel call of MV MarMalaita last week. Port of Houston was specifically selected because of the availability for project cargoes and berths, adding flexibility to the ocean carrier’s multipurpose fleet.

“Port Houston is excited about our new partnership with UAL and that they are entrusting us with their services here at the port’s city docks,” said Dominic Sun, Director of Trade Development for Port
Houston. “We look forward to working with UAL in providing them, along with their ultimate customers, with the best customer experience possible here at Port Houston.”

UAL boasts a robust fleet consisting of over 4,000 containers ranging from reefers and high cubes, to open tops and flat racks. All fully capable of providing a multitude of shipping options. Additionally, UAL currently conducts between two and three sailings monthly from Houston while focusing on the oil and gas industries and providing logistics solutions for clients shipping to hard-to-reach regions.

“UAL is grateful for the partnership we have been able to establish with Port Houston and thank everyone involved for their efforts during this transition; we are looking forward to a long-lasting
relationship that offers growth potential for UAL,” said Dianna Knight, President UAL America. “UAL America, on behalf of Universal Africa Lines, will continue to provide the paramount level of customer service that our clients have grown accustomed to; we are confident this move will help with our vessel turnaround time while operating in a safe environment.”

Source: Port of Houston

e-commerce

Shipping Solutions Keep Pace with E-Commerce’s Global Reach

I recently came across a study in which 80 percent of executives from leading U.S. e-commerce companies said they considered expansion to international markets “critical” to future growth.  The survey also revealed that Canada, Western Europe and Asia account for most international sales from U.S. websites, followed by China and Japan.  

These findings are indicative of the “no-turning-back” mentality taking place among retailers, as the reality of the growing global e-commerce marketplace takes hold. U.S. retailers now look beyond their borders and see a world in which 80 percent of B2C e-commerce sales are taking place outside of North America, and in which consumers are increasingly open to shopping across borders.

International e-commerce sales have become so pervasive in fact, almost 60 percent of shoppers say they made an international purchase in the past six months. That number jumps to almost 63 percent for European consumers, and 58 percent for Asia-Pacific shoppers.

This is especially true within the lucrative U.S./Canada trade relationship, with as much as one-third of Canadian e-commerce purchases going to U.S. sites, and more than 60 percent of Canadians having made an international purchase in the last six months. 

Today consumers across the globe, including in emerging and developing countries, have unprecedented access to brands and product selections online. Consider, for example, that 75 percent of online shoppers in India and 61 percent of shoppers in Nigeria have made international purchases. It’s no wonder then the value of retail e-commerce is surging and projected to be valued at almost $5 trillion by 2021, just two years from now.

For smart retailers, the customers are there. The challenge is to connect with consumers in a way that aligns with their local customs and expectations to localize transactions and fine-tune the customer experience. And, since ensuring seamless deliveries is an important part of any customer experience, it’s essential to understand that international logistics resources are possible today that were unthinkable just a few years ago.

Meeting customer expectations – in every country

In thinking about satisfying expectations, a retailer will come to understand that the world’s consumers essentially want the same things when shopping online:  

  • Consistent inventory across all channels
  • Detailed product information 
  • Site navigation in their native languages
  • Prices listed in local currencies
  • Online payment/currency-conversion capability
  • Access to rebates and other savings incentives
  • Fast delivery – what they want, delivered when they want it.

A retailer must dedicate time to market research as a way to understand consumer preferences and dislikes.  You need to make sure there’s demand for your product, determine who your competitors are, and then find your competitive advantage. A good logistics strategy will be an integral part of that competitive advantage because seamless, on-time deliveries – and hassle-free returns – are among the most important deliverables for consumers all over the world.  

PriceWaterhouse Cooper’s 2019 Global Consumer Insights Survey asked consumers in 27 countries about their shipment expectations. Among the more interesting findings, is the impact mega-retailers including Amazon, Alibaba and Net-a-Porter have had in defining global consumer expectations. Global consumer expectations include free shipping (72 percent), free return shipping (65 percent), package tracking (54 percent) and same-day delivery (50 percent).

To accommodate these globally-shared expectations, international retailers are building logistics strategies that create the “look and feel” of a domestic delivery – despite being an ocean or a continent away.  Italian customers don’t really care if customs delays affected a shipment leaving the United States, or that bad weather over the Atlantic forced a shipment to be re-routed. They just want their packages delivered on time, as promised. Every time.

Behind the scenes, logistics providers are working to expand their international footprints, to ensure capabilities are in place to help businesses meet their delivery promises.  For example, my company recently announced a $1B investment in the future, including a new national hub set to open in Toronto in 2021.  You’ll find similar developments happening around the world.

Technology and innovation are also allowing logistics companies to provide levels of service that were unthinkable as recently as a few years ago. Some of those solutions include: 

-Customized solutions. Shipping companies can support a retailer by providing a wide range of options to build the best solution for a particular customer’s needs. Shippers have traditionally been bound by rigid carrier schedules; today, a solution can meet a specific need. For example, a shipment traveling from southern California to Ontario would benefit from direct linehaul service to the border, followed by induction into a Canadian distribution center. The direct linehaul could conceivably shave two to three days from a “traditional” Canada-bound schedule.

-Different modes of transportation. Hybrid solutions might integrate ground service with a rail or air component, depending on a particular situation. In fact, 2018 was a particularly strong year for intermodal volume on U.S. railroad, according to the Journal of Commerce.

-Expedited service. For shipments to Europe, Asia, Latin America, or even across North America, a retailer can take advantage of unprecedented expedited air solutions. We used to think of “expedited” as a solution reserved for extreme emergencies, but today, retailers increasingly rely on expedited air solutions because of its guaranteed, anywhere/anytime capabilities.

-Cross-border expertise. Efficiencies in customs management now make it possible for shipments to move swiftly across international borders. Experienced providers will ensure maximum efficiency in the clearance process, including assignment of the proper tariff classification code. Getting the tariff classification correct is important because an incorrect classification will delay a shipment, and shippers might pay a higher rate of duty. A report by the Auditor General of Canada found 20 percent of shipments arrive at the border with an improper code assigned! And since tariff classification is used to determine eligibility for free trade agreement benefits, an incorrect classification could cause the shipper to miss out on those savings as well.

E-commerce truly is the engine of future retail growth. And thanks to innovations in transportation efficiency, your access to the world’s customers has never been easier.

BREAKING BAD TRADE: FENTANYL FROM CHINA

The Real Poison Pill in U.S.-China Trade

Following a historic dinner between President Trump and President Xi last December in Argentina on the margins of the G20 Summit, many of us awaited news on tariffs. We were surprised when, as part of a trade announcement, President Trump hailed a commitment from China to step up its regulatory oversight of fentanyl, the opioid that the Centers for Disease Control says has caused a “third wave” of drug-related overdose deaths in the United States.

It seems the seedy underbelly of e-commerce involves a steady stream of online purchases of deadly variants of the drug fentanyl, made in China and shipped to American doorsteps through the U.S. postal service.

Deadly Parcels from China

Fatal drug overdoses have doubled over the last decade, rising from 36,010 in 2007 to 70,237 in 2017. Synthetic opioids other than methadone – mainly fentanyl – now account for 40 percent of all drug overdose deaths and 60 percent of opioid overdose deaths.

China is the primary source of illicit fentanyl, fentanyl analogues, and fentanyl precursor chemicals in the United States. According to U.S. Customs and Border Protection, almost 80 percent of fentanyl seized in 2017 was interdicted at U.S. Postal Service and express consignment carrier facilities, having been shipped in small quantities from China.

Fentanyl precursors are also shipped from China to Mexico, and to a lesser degree Canada, before being synthesized, often mixed with heroin or cocaine, repackaged, and then trafficked over U.S. land borders in the southwest.

Fentanyl third wave of overdoses

STOP

Last March, the White House stepped up its campaign against opioid abuse, seeking to address factors driving both demand and supply. The Initiative to Stop Opioid Abuse (referred to as STOP) includes education programs, measures to curb over-prescription, expanded access to treatment and recovery, and – a focus on cutting off the flow of illicit drugs from China.

According to Homeland Security, more fentanyl in larger volumes is seized at land crossings, but the fentanyl seized from mail and express consignment carrier facilities is far more potent with purities of over 90 percent versus Mexico-sourced fentanyl that is often diluted to less than 10 percent.

The president’s initiative would require the postal service to provide advance electronic data for 90 percent of all international mail shipments within the next two years, offering data that will help law enforcement identify and seize illegal substances shipped through mail. Private shippers such as UPS and FedEx routinely require such electronic data.

The administration is also scaling up the Department of Justice’s “darknet” enforcement efforts. Fentanyl in its various forms is relatively cheap and easy to buy from China online paying with cryptocurrencies, or even credit cards or money transfers.

fentanyl shipments from China

Over One Million Pills a Day – In One Factory in China

China has grown to become the largest mass producer of generic drugs and pharmaceutical ingredients in the world with over 5,000 pharmaceutical manufacturers. Upwards of 90 percent of the active pharmaceutical ingredients used in U.S. production of finished dosage forms of medical pharmaceuticals is imported from just two countries: India and China.

In addition, China has over 160,000 chemical producers and hundreds of thousands of pharmaceutical and chemicals distributors. The explosion in volume and number of producers has far outstripped China’s FDA (CFDA) from adequately regulating and monitoring them.

Faster Than Can Be Regulated

Unlike opioids derived from the poppy plant, fentanyl is a synthetic painkiller produced in a laboratory. It is 50 times more potent than heroine and 50-100 times more potent than morphine. Inhaling just two milligrams of pure fentanyl can be lethal.

In the United States, most fentanyl products are classified either as Schedule I chemicals, those that have no accepted medical use and high potential for abuse, or as Schedule II chemicals, those with medical use but only available through a non-refillable prescription.

Fentanyl’s molecular structure can be easily modified to create new derivatives, putting regulators constantly behind in evaluating and classifying each new variant one-by-one. From furanyl fentanyl, acetyl fentanyl, acryl fentanyl, to carfentanil — to name just a few — fentanyl has hundreds of analogues that differ slightly from the original, enabling criminal producers to operate in a gray territory while regulators struggle to ban the new substances. Legislation passed in 2017 now allows U.S. FDA to schedule fentanyl analogues immediately on a temporary basis while the agency conducts its investigations.

President Trump has urged President Xi to implement a similar approach. China currently controls around 25 types of fentanyl-related products. President Trump wants China to establish fentanyl as its own class of controlled substances, restricting all fentanyl analogues, including future fentanyl-like substances. Doing so would be a start.

Busting Drug Trade

Such a commitment by China is not, however, likely to put a dent in its fentanyl exports to the United States absent real enforcement. In recent years, CFDA has imposed stricter licensing requirements for pharmaceutical and chemical producers, but diversion, adulteration, and clandestine production remain significant problems.

“Chinese chemical manufacturers export a range of fentanyl products to the United States, including raw fentanyl, fentanyl precursors, fentanyl analogues, fentanyl-laced counterfeit prescription drugs like oxycodone, and pill presses and other machinery necessary for fentanyl production.” — U.S China Economic and Security Review Commission Staff Research Report

CFDA has undergone several reorganizations in the last few years. In the most recent, some of its regulatory responsibilities have devolved to provinces and counties with little accountability. Pre-marketing approvals will be managed separately from post-market inspections and surveillance. With just a little over 2,000 inspectors, authorities have little hope of effectively overseeing legal compliance, let alone spotting even a fraction of criminal activity.

The central government has assisted U.S. drug and law enforcement agencies, sharing information and intelligence that helps U.S. agencies target Chinese nationals trafficking illicit drugs in the United States. To alleviate the free flow of fentanyl from China, the Chinese government should also prosecute transnational criminals operating in China in high-profile cases with severe penalties.

Soybeans, Tech Transfer, and Fentanyl

Trade talks over soybeans and intellectual property protections for American technologies seem an unlikely setting for addressing illicit trade in deadly fentanyl.

There are some in the United States who are frustrated with this administration’s willingness to toss out the traditional trade policy playbook, but this is one case where it can welcomed by everyone.

 

 

Interested to read about fentanyl trade in more detail?

See two key reports produced by U.S.-China Economic and Security Review Commission analyst Sean O’Connor: Fentanyl: China’s Deadly Export to the United States, February 2017 and Fentanyl Flows from China: An Update, November 2018

Andrea Durkin is the Editor-in-Chief of TradeVistas and Founder of Sparkplug, LLC. Ms. Durkin previously served as a U.S. Government trade negotiator and has proudly taught international trade policy and negotiations for the last fourteen years as an Adjunct Professor at Georgetown University’s Master of Science in Foreign Service program.

This article originally appeared on TradeVistas.org. Republished with permission.