Month: April 2020

Third-party logistics providers engaged in international trade are facing the difficult decision of whether to thin staff or even close altogether in the face of a prolonged economic downturn caused by the coronavirus pandemic.

“We are in a tough spot,” Gabriel Rodriquez, president of Doral, Florida-based A Customs Brokerage, told American Shipper. “Situations like this will likely cause the closure, consolidation or mergers of smaller businesses that simply do not have the means to withstand this sustained drop in business.”

Rodriguez, who also is an officer with the Florida Customs Brokers and Forwarders Association,   has not yet heard of any layoffs among the highly competitive Florida community of customs brokers and forwarders firms. “However, I would anticipate that as the coming days and weeks go by and the reality of the impact the virus is having on trade is felt that we will start to see a larger number of employees affected by companies instituting these measures,” he said.

Lance Malesh, chief commercial officer of Philadelphia-based third-party logistics services provider BDP International, said how the COVID-19 pandemic ultimately affects individual firms — no matter how large or small — will largely depend on how diverse their business portfolio is.

“If any 3PL is heavily focused in the retail and automotive sectors, they will likely see a more significant impact than those in other sectors, such as health care,” Malesh said.

With the exception of health care, as well as food and household product imports, overall shipping volumes are declining as the coronavirus’s impact ramps up across the nation.

“For the general broker/forwarder, volumes are down, staff is teleworking, and the uncertainty is making forecasting very difficult,” Rodriguez said.

As COVID-19 risk exposure continues to dent commercial activity in the U.S., however, Malesh expects most 3PLs will consider it necessary to institute cost-reduction measures across their organizations. “Layoffs, furloughs, salary reductions and suspension of nonessential programs will all be on the table,” he said.

“This is an unprecedented event and no one has a perfect game plan, but you have to pay attention to your current liquidity, as well as trying to predict what your future liquidity needs will be if the crisis extends into 2021,” Malesh said.

The country’s small customs brokers and forwarders may be hardest hit by the pandemic in the months ahead.

According to a U.S. Chamber of Commerce and MetLife survey conducted March 25-28, one in four small businesses said they would permanently close in two months or less if the economic downturn continues. One in 10 is less than a month away from going out of business, the survey said.

“This is an ever-evolving story and I don’t believe anyone has any real answers since none of us has ever experienced anything like it,” said Albert Saphir of ABS Consulting, a longtime consultant to many small and midsize customs brokers and freight forwarders, based in Weston, Florida. “So, any estimates and reports out there are at best estimates by organizations trying to figure this out.”

Saphir expects 3PLs of all sizes will first consider layoffs and furloughs before closing their doors outright. “It is the one item that is a flexible expense and likely the way for small and large companies to survive,” he said.

Brandon Fried, executive director of the Washington-based Airforwarders Association, said he recently polled his membership and 65% of firms that responded said they report layoffs are either imminent or underway.

Safety nets

A glimmer of hope for a multitude of U.S. customs brokers and forwarders is the $350 billion small business support package in the recently enacted $2 trillion Coronavirus Aid, Relief, and Economic Security (CARES) Act. This support includes special loans and financial aid, and suspension of payroll taxes for small businesses.

“While we are thankful that Congress recently passed the CARES Act and specifically its Paycheck Protection Program and the Economic Industry Disaster Loan Program, we are concerned that the relief provided will be insufficient for the financial needs of the freight forwarding and related industries in the long run,” Fried said.

Applying for CARES Act financial programs, however, remains a fraught administrative process as the banks try to figure out how to administer them.

“I don’t believe it is easy for small companies, or larger ones for that matter, to keep all employees and get emergency funding from the relief programs,” Saphir said. “This seems to be a complicated and time-intensive process, and I don’t think small companies have the resources to try and figure this out.”

The National Customs Brokers and Forwarders Association of America (NCBFAA) has provided its members with information about how they might take advantage of the CARES Act’s small-business benefits.

In addition to sustaining overhead costs, many customs brokers and forwarders have traditionally advanced funds for their shipper clients to cover freight and import duties.

“We are halting the advance of these funds and many carriers are now asking for prepayment of freight to avoid accumulating open balances,” Rodriguez said.

“The White House has held firm in not providing any relief on the payment of duties,” he added.

NCBFAA President Amy Magnus, who also serves as director of customs affairs and compliance for Saint Albans, Vermont-based A.N. Deringer, said even before the pandemic many customs brokers had stopped advancing funds to cover import duties to protect their cash flows, instructing their importer clients to make those payments directly to U.S. Customs and Border Protection (CBP) through the Automated Clearinghouse (ACH) program.

“Even now, CBP is processing ACH account requests as quickly as possible,” Magnus said.

She credited the agency for its support of the customs brokerage industry during the COVID-19 supply chain upheaval.

“CBP has been very mindful of our concerns and has asked us how they can help,” Magnus said. “We’re aligned here. Customs is really partnering in this regard.”

Some large 3PLs, such as CEVA Logistics (OTCMKTS: CVLGF) and DHL Global Forwarding (OTCMKTS: DPSGY), have recently taken the extraordinary measure of declaring force majeure with regard to their carrier and logistics services contracts. This action, which may be used during times of national emergencies or industry crises, allows these companies to adjust their rates and services to meet the global COVID-19 supply chain disruptions.

Layoff impacts

The two most important aspects of successful non-asset-based third-party logistics providers are their information technology and people. One without the other is generally useless when it comes to managing complex supply chains.

That’s why for most 3PL owners and managers it is a gut-wrenching decision to figure out which staff to furlough or lay off, if the coronavirus continues to hamper the U.S. economy, and be able to adequately respond to the recovery.

“The risk is twofold,” Malesh said. “You want to manage the business in the most responsible fiscal manner possible, while not impacting the service levels that we provide our clients. “Secondly, you want to make sure you are prepared if there is a V-shaped recovery and that you have the staff on board to keep the clients’ supply chains running.”

“I believe trade will continue to flow and brokers will continue to be needed, perhaps more than ever before,” Magnus said. “Importers continue to have gaps in their knowledge, which brokers can fill.”

She noted how some importers are shifting to products that are used to combat the COVID-19 pandemic, such as the personal protective gear for the nation’s health care workers. Customs brokers, which regularly interface with the U.S. Food and Drug Administration on these imports, can assist these importers on how to bring these goods quickly and compliantly into the country.

For the immediate future, U.S. cross-border supply chain managers should expect a rough road ahead in terms of their business.

“We need to assume that it will be some time before things even remotely come back to where we were before,” Saphir said. “It will eventually be a gradually improving business, but in my mind it is not going to happen overnight or very soon.”

The views expressed here are solely those of the author and do not necessarily represent the views of FreightWaves or its affiliates. 

An old quip in transportation management is that passengers are freight that complain. But what about giving freight the window seats? In these challenging times it takes imaginative ideas to keep freight shipments moving along their supply chains. It also makes sense for carriers to use their conveyances in as many ways as they can to mitigate the fixed costs of their operations. If the conveyance is parked it is only incurring costs; but if it is moving it is able to earn revenue to mitigate some (though preferably all) of those fixed costs. Economists call it loss minimization when operating at a loss while covering at least some fixed costs. In other words, it is better to stay in business and be out of pocket for just some of the fixed costs than to shut down business and incur the entire amount. Loss minimization is a good strategy when a carrier is faced with fixed costs (e.g., leases and other contracts) that cannot be cancelled easily or if it simply wants to try to ride-out a downturn in business.

Some passenger airlines recently put loss minimization strategies into action when they turned their airplanes into makeshift air freighters. Falling passenger demand due to travel bans to/from China and Europe and 14-day self-quarantine requirements at several domestic destinations mean that passenger airplanes can either be parked or used to carry freight. Passengers may be grounded but the substantial amount of freight that travels along global supply chains in the bellies of those airplanes still needs to move somehow. Without luggage in the belly space there is now even more room for freight.

American Airlines reentered the all-cargo market on March 20, 2020 when it began offering scheduled service from Dallas/Fort Worth International Airport (DFW) to Frankfurt Airport (FRA). Freight is carried in the belly of its wide-body Boeing 777-300s. While the cargo capacity of this aircraft is about 100,000 pounds, the inaugural outbound trip carried 37,000 pounds and the return trip carried 60,000. Fully loaded this aircraft has 14 positions for palletized freight. The last time the airline did this kind of work was with Boeing 747 freighters back in 1984. But the rise of the cargo integrators (i.e., FedEx, UPS and DHL) squeezed many passenger airlines out of the all-cargo market. Of course, with backlogs in the air cargo industry due to China’s restarting production and transportation after the COVID-19 shutdown earlier this year, there are cargo opportunities for passenger airlines that have the appropriate routes. American Airlines will provide its DFW-FRA round-trips into early April in order to see how the scheduled service is working.

Typically, about 500 passenger flights per day travel between the United States and Europe and 50-60% of the total air freight along these routes is carried in the bellies of those airplanes and not on air freighters. Since the air cargo integrators cannot pick up all that capacity it makes sense for the passenger airlines to try to keep some of their airplanes flying in order to keep the freight moving.

Delta Airlines re-entered the all-cargo market on March 16, 2020 when it began offering charter service for both domestic and international air cargo. Delta, after its merger with Northwest Airlines in 2009, sold off its Boeing 747 freighters. Today, its Boeing 777-200/300s and Airbus A350-900s are the most likely choices for air cargo forwarders requesting capacity. Of course, Delta noted that other types of airplanes in its fleet are also eligible to charter for cargo services. On March 23, 2020 United Airlines announced a similar plan to use its passenger airplanes to move freight though domestic hubs and into Europe and Asia. Finally, Southwest Airlines, while reducing its scheduled flights by 40%, began offering all-cargo charters on April 2, 2020.

What about giving freight the window seats? Putting freight in the belly is one thing but putting freight onto passenger seats secured by standard netting would provide even more capacity. While the U.S. Federal Aviation Administration (FAA) has not approved that option, some European airlines have already started the practice. Lufthansa carried 30 tons of medical supplies from Shanghai to Frankfurt on March 25, 2020. Its Airbus A330 had freight in its belly, on its seats and even in the overhead compartments. Of course, Lufthansa’s cargo division operates seven B-777 and six MD-11 freighters, but there is enough cargo demand right now to validate using passenger airplanes to do the work.

Emergencies such as the COVID-19 pandemic tend to bring out either the best or the worst in people. The airlines, while under a lot of financial stress right now, are showing their customers their best.

Keep ‘em flying!

The Justice Department on Saturday announced that it will not challenge the joint logistics activities of five large American medical supplies manufacturers to accelerate the distribution of protective gear during the U.S. coronavirus outbreak.

McKesson Corp. (NYSE: MCK), Owens & Minor (NYSE: OMI), Cardinal Health (NYSE: CAH), Medline Industries and Henry Schein (NASDAQ: HSIC) on March 24 asked the Justice Department for an expedited antitrust legal review of their collaboration, including working together on international sourcing, logistics and airlift operations, during the health crisis.  

“These medical supplies distributors should be applauded for their efforts to both assist the United States in responding to the COVID-19 pandemic and stay within the bounds of antitrust law,” said U.S. Assistant Attorney General Makan Delrahim in a statement.

The medical supplies distribution collaboration is part of an emergency response plan initiated by the Federal Emergency Management Agency (FEMA) and U.S. Health and Human Services (HHS) Department in late March to rapidly address a national shortage of protective medical gear, such as face masks, gowns and gloves, as well as medicines, for hospitals dealing with highly contagious coronavirus patients.

The Justice Department completed its review and approval of the collaboration in days — a process that ordinarily takes months.

“The requesting parties have represented that they are working together to expand existing capacity and bring goods to communities in need,” the Justice Department said in its 11-page approval letter to the five companies. “The proposed conduct is limited in scope and duration, necessary to address COVID-19-related scarcity, and will not extend beyond what is required to facilitate the availability of needed supplies. Based on these representations and given the current circumstances, it appears as if the procompetitive aspects of any arrangement far outweigh any potential harm.”

As reported by FreightWaves/American Shipper, the collaborative efforts by the medical suppliers got underway a week and a half ago with the first “Project Airbridge” flights from China to deliver large volumes of personal protective gear to COVID-19 hot spots throughout the U.S.

The health care distributors are participating in FEMA’s Supply Chain Stabilization Task Force, which is working to preserve, procure, manufacture and accelerate delivery of critical medical supplies to coronavirus hot spots around the nation.

The Justice Department letter provided more details about what the private companies are doing to help the federal government with its logistics response. Their mission includes:

• Helping FEMA and foreign governments address bottlenecks at existing foreign suppliers;
• Helping FEMA and HHS identify and qualify new sources of supply;
• Helping the agencies identify and monitor areas of increased demand for supplies and medications;
• Expediting distribution of supplies and medications to FEMA-designated COVID-19 locations;
• Helping FEMA and HHS understand competitive prices for supplies and medications;
• Helping negotiate competitive prices; and
• Providing FEMA and HHS with claims data and other data.

Atlas Air is one of the all-cargo airlines participating in Project Airbridge. It has operated three flights so far — two from China and one from Malaysia carrying supplies to New York City and Chicago.

The Purchase, New York-based carrier has also been busy with other relief efforts. It is flying Boeing 747 freighters for the Frontline Responders Fund, a GoFundMe project assisted by Flexport.org, the nonprofit arm of freight forwarder Flexport. On Thursday, Atlas Air operated a dedicated charter containing 65 tons of personal protective equipment, including 16,000 hazmat suits, for medical systems in the San Francisco Bay area. The shipment originated in Shanghai.

Atlas Air also operated a B747-400 filled with personal protective equipment donated by a customer to Spain in March and worked with Airlink to organize the shipment of seven tons of surgical masks and other equipment from Shanghai to Los Angeles.

(Eric Kulisch contributed to this story.)

Damco’s new head of the Americas, Mike Meierkort, has been on the job for only a week, and his logistics mettle is already being put to the test.

Meierkort stepped into his new role as the COVID-19 pandemic rapidly spread across the U.S. and quickly scrambled many shippers’ international supply chains. But he had confidence in the business resiliency program that Damco had already put in place to deal with such a disruption.

Although a COVID-19 pandemic was not on anyone’s radar, Damco spent the past 18 months developing a business resiliency platform to continue optimally managing its operations and services during manmade and natural disasters anywhere in the world.

“No one has a playbook for something like the pandemic,” Meierkort told American Shipper in a telephone interview from his home office in Chicago on Thursday. “Our business resiliency program was the closest thing to having a playbook, which made us better prepared for this disruption.”

Part of that program included having the procedures and information technology in place to allow employees to continue their jobs no matter the situation.

“We created processes and communications, as well as the tools to assess risk, to proactively manage disruptions internally and externally with our customers,” Meierkort said. “We were ready when we sent our people home to work.”

Damco’s business resiliency platform also allows it to quickly roll out logistics services whenever and wherever to help mitigate shippers’ risk during emergencies.

Damco CEO Saskia Groen-in’t-Woud also expressed confidence that Meierkort, a 32-year logistics industry veteran, could keep the company’s operations and logistics services steady during the pandemic. Prior to joining Damco, he held senior management roles at Livingston International, and before that with Panalpina and Vanguard Logistics.

Two weeks ago, Damco began a nationwide rollout of its Cargo Rescue Program, in partnership with IMS Transport. The program includes two container logistics service offerings to help ease congestion at U.S. ports of entry due to the pandemic.

Under the Cargo Rescue Program’s “Park and Save” offering, Damco will pull U.S. Customs-cleared import containers from marine terminals and store them on their chassis at a secure location until the customer is ready to receive them.

Meierkort said this service saves shippers from having to keep their containers at the marine terminals, which over time results in costly detention charges.

Damco took its Park and Save offering a step further by providing shippers a “Strip and Store” service, in which freight is removed from containers and stored in a warehouse until it’s ready for delivery by truck to the customer. Container and chassis demurrage fees are eliminated, since the equipment can be rapidly returned to the ocean carriers and marine terminals, Meierkort said.

“This service will be a benefit anywhere you experience a major chokepoint, be it a West Coast or East Coast marine terminal, or an interior railhead like Chicago,” he said. “We’re helping those ecosystems by pulling those containers out.”

Meierkort said Damco’s Cargo Rescue Program is just beginning to gain notice from shippers, particularly in the consumer retail and lifestyle space.

“We have enough space through our warehouses and those of our strategic partners to accommodate this service for the long haul,” he said.

In recent weeks, Damco also stepped up its use of charters to airlift much-needed medical supplies from China to the U.S.

“Last week we oversaw an air shipment of 7.8 million face masks from Shanghai to Los Angeles,” Meierkort said. “We have several more air shipments like this in the works.”

In 2018, Damco’s supply chain business became part of A.P. Moller-Maersk (OTSMKTS: AMKBY), but it remains a separate operating entity with its own brand.

“Today, we’re in every major market, seaport and airport in the world,” Meierkort said. “We know how to deal with challenging times like this.”

The International Federation of Freight Forwarders Association (FIATA), which globally represents an industry of about 40,000 forwarding and logistics firms, is urging ocean carriers to review their container demurrage and detention charges to ensure that they are not unreasonably applied during the coronavirus pandemic.

Demurrage pertains to the time an import container sits in a container terminal, with carriers responsible for collecting penalties on behalf of the marine terminals, while detention relates to shippers holding containers for too long outside the marine terminals.

The purpose of these charges, which generally range from $150 to $350 per container per day in the U.S., is to incentivize a quick turnaround of container equipment by shippers to the carriers.

“FIATA calls upon shipping lines and terminals to exercise restraint in their demurrage and detention charges and practices, taking into consideration the unprecedented difficulties faced by the freight forwarding industry and other stakeholders amid disruptions in the supply chain,” the Switzerland-based organization said in a Wednesday statement.

FIATA praised the ocean carrier industry for waiving certain demurrage and detention charges during the extended Chinese New Year holiday due to the COVID-19 outbreak in China.

However, in other parts of the world, shippers and their transportation intermediaries are now finding it increasingly difficult to retrieve and drop off containers at marine terminals without incurring these charges due to unscheduled COVID-19-related terminal slowdowns or temporary closures.

The reasonable assessment of demurrage and detention charges, even before the spread of COVID-19, was a hot-button issue for shippers, forwarders and their drayage service providers.

“There is no logic in enforcing a charge which is supposed to motivate the importer to pick up, or return, a container in a timely manner if the port or terminal is not able to comply with the delivery request,” said Jens Roemer, FIATA’s Working Group Sea chairman, in a statement last November.

With myriad government lockdowns and restrictions to control the spread of COVID-19, forwarders are doing their best to quickly load and unload containers to limit detention and demurrage charges from the ocean carriers and marine terminals, FIATA said.

“Our agriculture and forest products exporters are still facing an onslaught of demurrage and detention charges, even with all the blank sailings by the carriers,” said Peter Friedmann, executive director of the Agriculture Transportation Coalition (AgTC), based in Washington. “Terminals are closed or have limited hours, carriers come in off-schedule, state governments are restricting ‘non-essential’ cargo supply chains, often leading to inability to meet free-time requirements.”

FIATA said it supports the U.S. Federal Maritime Commission’s (FMC) recently proposed rule, which provides guidance under the Shipping Act on what the agency will consider to be fair and reasonable practices for ocean carriers and marine terminals to assess demurrage and detention fees on shippers.

In a March 16 letter, 67 American shipper groups urged the FMC to finalize the rule, which they say is especially important during the COVID-19 pandemic. The FMC said last Thursday it plans to finalize the rule soon.

Friedmann, whose association was one of the signatories to the letter, said “it’s unconscionable that it has taken the commission six months to review the overwhelmingly supportive comments on the proposed rule.”

He told American Shipper the AgTC and other associations had recently asked the White House to intervene and generate some urgency at the FMC to finalize the demurrage and detention practices rule.

BMW Group has announced that it will adopt blockchain to improve transparency across its global supply chain, specifically targeted at the parts and raw materials procurement segment. 

A blockchain network, in essence, is a decentralized and immutable ledger that helps store information effectively. It does this by making every stakeholder within the network equally responsible as ‘custodians of the data’ that flows within it. Enabling collective liability fosters transparency within the ecosystem, as every stakeholder in the chain is now privy to all the information that flows through the network. 

For a massive entity like BMW, using blockchain can help optimize its operations and increase traceability in its supply chain, while also making sure the data being shared is tamper-proof. “In 2019, we conducted a successful pilot project to purchase front lights. This year, we want to expand the project to a large number of other suppliers,” said Andreas Wendt, a member of the Board of Management of BMW AG responsible for the purchasing and supplier network.

Understanding the provenance of components is vital for an original equipment manufacturer (OEM). The occurrence of faulty auto parts on a vehicle is disastrous for the company’s bottom line and reputation, because it can cause accidents and will lead to a mass recall – complicating the relationship between owners and the OEM. 

Until recently, the usual practice was for OEMs and their suppliers to store and manage their data in their separate IT systems. This often led stakeholders in the auto supply chain to work in silos, lacking any forms of consistent communication between each other. 

BMW is working to make the environment more collaborative by initiating the PartChain project, which will ensure “seamless traceability of components and provide immediate data transparency in complex supply chains for all partners involved going forward.” PartChain works on blockchain technology and will enable tamper-proof and consistently verifiable collection and transaction of data in BMW’s supply chain. 

The 2019 parts tracking via blockchain was a start; it involved BMW’s plants in Spartanburg, South Carolina and Dingolfing, Germany, as well as three locations of its supplier, Automotive Lighting. BMW now plans to build on to the pilot, eventually reaching a point where the company can have complete traceability of critical raw materials – from mines to smelters. Right now, however, the platform will be rolled out to about 10 suppliers.

“This move is designed to take the digitalization of purchasing at the BMW Group to the next level. Our vision is to create an open platform that will allow data within supply chains to be exchanged and shared safely and anonymized across the industry,” said Wendt. 

BMW had also initiated a consortium called the Mobility Open Blockchain Initiative (MOBI) in 2018, which brings together 120 companies from the automotive, mobility and technology sectors. MOBI engages all the different stakeholders within the consortium to create common standards and control models needed for blockchain to break through in the mobility sector. “We want to share our PartChain approach with the initiative and invite interested companies to join the initiative,” said Wendt.