Dear Friend:

As we come to the end of the first quarter of 2010, a lot has happened in the area of transportation and logistics that can have a profound impact on a company’s bottom line. Depending on how a company reacts to the information, this can be positive or negative. With that in mind, we have created this special supplement entitled “Logistics Strategies Quarterly Review”.

We want our readers to be thoroughly informed so they have all of the tools necessary to make the right decisions to positively impact their business’ bottom line. Information is power and it is our goal to make sure all of our readers are informed consumers.

Please take the time to read this special supplement in its entirety. And after you do, we would love to hear from you to get your opinions, insights and questions on any of the stories contained herein. After all it is for you, our readers that we create our newsletter and we always want to make sure it benefits you. Please send your thoughts to tnuzio@icclogistics.com or reply to this email.

Tony Nuzio

From the “you’ve got to be kidding me file” comes the story of Mr. Gianluigi Aponte, CEO of Mediterranean Shipping Company. At a recent speech he gave to the Financial Times, Mr. Aponte claimed that the recent financial woes of the ocean carriers, “the deepest crisis in history” as he put it, was caused solely by the shippers who exploited overcapacity in the industry to drive down ocean freight rates.

I hate to break the news to Mr. Aponte but the steamship lines could have said no to the shippers’ rate reduction requests if the rates were below the ocean carriers’ out of pocket costs. The issue of overcapacity and under capacity and resulting lower and higher freight costs has been a fact of life for the past 30 years since economic deregulation of the transportation industry. The pendulum swings from the shipper’s advantage to the carrier’s advantage and back again.

It makes no sense to blame the shippers for the company’s poor financial condition because without the shippers Mr. Aponte and other ocean carriers would not have a business. You can always point the finger at someone else for a company’s financial failure; however there are many successful and profitable transportation businesses that know where to draw the line when it comes to reducing prices. Many savvy transportation companies welcome the loss of unprofitable business which they are more than happy to have their competition handle. After all, if a carrier is going to have financial trouble, it’s better to be your competitor’s problem and not yours.

On the other side of the coin, Steve Fishman, CEO of Big Lots claims that “the shipping companies have decided they haven’t made the kind of money they want to make over the past year whether they have contracts with you or they don’t have contracts with you”. Meaning, you guessed it the ocean freight rates are going up and going up quite significantly. So apparently Mr. Aponte and many of the other ocean carriers are now seeing the pendulum swinging in their direction with higher freight rates to offset their prior losses. It was just a matter of time!

Tony Nuzio

A recent report in “Trans Digest” the monthly publication of the Transportation and Logistics Council, indicates that cargo theft increased in 2009 compared with 2008 levels. We cannot believe that anyone is surprised by this fact considering the very poor worldwide economy.

The increase in thefts in 2009 over the prior year was a significant 12% according to FreightWatch International. There were a total of 859 major thefts of full truckloads of freight as well as truck hijackings. Of course, electronics led the list of stolen products because of their value and ease of sale. Electronics thefts accounted for 23% of total losses, which was followed by thefts of food and drink shipments which we also believe is a direct result of the current economy. While pharmaceutical thefts made up only 5 percent of 2009 cargo theft incidents, the commodity made up the largest loss per theft by value with an average of $4 million per incident. One incident of theft alone accounted for over $37 million in losses. As President Clinton once told us, it’s the economy, stupid!

Tony Nuzio

After this recent or current — depending on how you see it, “Great Recession”, there is an awful lot of optimism that the term “Outsourcing” a/k/a “China” may very well become “Near-Sourcing” in the very near future.

Yes, after all of the horrible financial reports from manufacturers, retailers, distributors and the transportation carriers in all modes, the industry is facing increased volatilities that will result in higher freight rates now and into the foreseeable future. Higher costs for fuel and a re-thinking of how far a company’s supply chain should be stretched are just some of the issues facing American businesses. Are we finally coming to our senses here in America?

Adding to this is a force that no company will be able to stop, and that is the effect of a company’s carbon footprint and its ability to compete for business in the future. Stay awake American businesses, if you do not currently have a “green initiative” within your organization you will be forced to have one real soon. The most successful companies have always measured the bottom line in any business decision they have made. What that means is that they look at every piece of the transaction to make sure it makes sense both operationally and financially. This analysis should also include other factors of great importance such as its impact on total “customer satisfaction”. WOW, now that’s an interesting term!

What is the value of having a product the customer is clamoring for; a product that is supposed to be environmentally sound; and one that should meet and hopefully exceed all safety standards, if after delivery the ultimate customer is totally dissatisfied? You need go no further than the recent Consumer Product Safety recalls of baby cribs to see the devastating impact product inferiority has. Can you say Toyota? We are not suggesting that products made overseas are inferior to products made in North America, but what we are saying is that perhaps its time to revaluate our international supply chains to see if they still make sense. Did we decide to outsource manufacturing thousands of miles from home to reduce costs but perhaps forgot to ensure our customer’s needs were totally met? There is no doubt that some American businesses may have taken their eye off the ball when it comes to evaluating their entire supply chain. Perhaps it is time to re-evaluate our supply chain to determine what the best possible option is. And that option may be to reign in our supply chains to be closer to home. Sometimes it just makes sense to buck the trend.

Tony Nuzio

This may be a real sign that we are not completely out of the current recession. UPS, the company known for precision costing models, recently has made a decision to furlough 300 pilots or 11 percent of its 2800 member force. Is UPS seeing something we don’t see? On another front UPS is in talks with the Independent Pilots Association to gain cost concessions, that if received, would remove the need for at least some of the layoffs.

The company has been involved in a very aggressive cost cutting program looking to cut over $131 Million in operating costs. UPS’ executives anticipate a very gradual recovery in the economy and a continued need for belt tightening according to UPS Airlines President, Bob Lekites.

UPS, over the past two years, has taken many steps to eliminate $1.4 Billion in costs. This includes the elimination of over 1800 management and administrative jobs to streamline their domestic US small package business. Having said this, keep your eye on UPS’ profits as we believe you will see some significant profit gains in their upcoming financial report. UPS’ nemesis, FedEx just reported Fiscal 3rd quarter profits were up 146% to a whopping $239 Million. By some estimates UPS and FedEx lost over 1 million packages a day just due to the recession. With that being the case the only way they can gain new business is to take it away from their competition. Another way they can improve their bottom line is through General Rate Increases which both carriers took in January, 2010. Based on the considerable profit earned by FedEx we can expect that UPS will improve their profits substantially as well.

The Bottom Line: Parcel shippers should be seeking parcel negotiation consultants who can assist them with reducing their overall parcel shipping costs – a task that is best left to the experts!

Tony Nuzio

It was eight years ago that the Kroger Company created its new design for grocery distribution, and today it is fully operational. It uses multiple system suppliers but yet the results are staggering. In the “old days” Kroger would move pallets with traditional fork lifts then store the pallets in racks. When it came to creating mixed pallets of a variety of food items, they did it the old fashioned way, they used manual labor.

The new system however allows Kroger to put away full pallets, then break them down and rebuild them into delivery ready store pallets according to how the product will be displayed on the store shelves. Under this new system, Kroger now processes approximately 110,000 cases per day with a capacity of 160,000 cases daily. Kroger measures their success in a number of ways in addition to cost savings, including the accuracy of orders, the reduction in product damage, better utilization of cube in their delivery trucks and trailers but most importantly, their customers get what they want, when they want it at the price they want to pay.

The message here is that all companies whether large or small should be looking at ways to improve their processes. As one of our Supply Chain Consultant friends recently put it, “many companies do not even know they have a problem until we show it to them”.

So why not call in a supply chain or transportation consultant. Have them take a look around with a no cost-no obligation analysis to see what can be done to enhance your business. And remember, it’s not always about lower costs.

Tony Nuzio

There is certainly something to be said about consolidating the number of freight carriers a company utilizes. This is becoming more and more evident each day as companies attempt to reduce their overall transportation costs by putting all their freight on one carrier’s trucks. This is especially true when it comes to a shipper’s small parcel as well as their LTL business. In this case the shipper really only has two choices, UPS or FedEx.

While conceptually we have no problem with “single sourcing”, we strongly recommend that the shipper perform its own due diligence to make sure the rates the shipper obtains for single sourcing its business is the best rate level for each service had it been priced separately. You never want to rob Peter to pay Paul. If the shipper cannot make that assessment it should go back to the drawing board and thoroughly research all of the competition. Shippers should not be lulled into a false sense of security that just because they consolidated all of their shipping activity with one of the major transportation companies that they in fact have the best deal either operationally or financially.

We would also like to point out that shippers should not give up any of their rights when they single source their business. We are talking specifically about refunds for Guaranteed Service Failures. As we all know UPS and FedEx guarantee many of their services and will pay refunds for these service failures ONLY if they are claimed by the shipper or the shipper’s representative. Why then do shippers cave in when signing these agreements and agree to waive their rights to file for these refunds?

It is true that both carriers have a 98% on time record, however, what company can afford to give up 2% of their parcel carrier spend by agreeing to waive their right to filing for refunds? On another note, we have heard reports recently that some sales representatives of these carriers are refusing to work with independent consultants who are contracted by the shippers to help improve their parcel spend. This is absolutely not the case. In addition some representatives of these carriers are telling shippers that certain services and fees are not able to be discounted. Again, this may not be true. Everyone already knows that UPS and FedEx are two of the largest and most successful transportation companies in the nation. They did not get there because they are ripping off the shipping public. What we are saying however is “Caveat Emptor” which means “Let the buyer beware”. Every shipper has the right to retain business consultants to work as intermediaries on the shipper’s behalf and they should never be intimidated by the carriers not to use such consultants.

Tony Nuzio

Over the past several years, most “C” level executives have been focusing their attention on earnings per share as well as managing corporate risk from all possible contingencies. Today, those same corporate executives are looking at all possibilities to greatly reduce expenses as a way to improve profitability and for some companies, to guarantee survival. For many companies 2009 has been the year of “decision paralysis.” For those companies to survive in 2010, long term cost cutting initiatives must be implemented. Many “C” level executives are now hearing from their financial institutions that leaner and greener Supply Chains are essential to obtaining financing in the future.

One of the major areas for enhancing a company’s bottom line is Supply Chain Management profit improvement initiatives. Not only is this an area for tremendous potential cost cutting, it also presents a great opportunity for companies to reduce risk which is critical in today’s business environment. There needs to be a plan of action for the entire Supply Chain’s improvement in terms of cost reduction and process improvements. One of the key areas in this process is to identify strategic sourcing and business partners so the company can achieve its desired results.

The first step is to understand how the company’s current Supply Chain stacks up against the competition. This means understanding every facet of the operation including the company’s current product sourcing outlets, its transportation, warehousing and distribution network, as well as inventory control and customer service operations and expectations. Every company operates its Supply Chain somewhat differently and in many cases without a great deal of up-front analysis as to what is the best Supply Chain environment for the company. The way to start is to identify what’s best for the company’s customers! “World Class” Supply Chains are built from the back end, (the customer), to the front end, (the supplier) and throughout the Supply Chain process are constant checks and balances that focus on customer satisfaction, corporate controls and profitability.

The goal is to cut costs out of the Supply Chain, not on a one time basis, but continually. At the same time companies must keep focused on what their customer expects and must make sure it meets and ultimately exceeds their customers’ expectations year after year. Knowing how a company’s direct competitor’s Supply Chain functions is also critical.

Companies have to start identifying all of the costs associated with the Supply Chain by category. Identify all possible strategic sources of product supply and ascertain which option leads to the best sourcing partners with the lowest landed product costs. Once this information is identified, companies must place the Supply Chain logistics pipeline in place that assures prompt and efficient delivery of the goods to its customers again, at the lowest landed costs. But remember, cutting costs out of the Supply Chain without creating greater customer satisfaction is a recipe for disaster.

Take the time to analyze the basic operation as follows:

• Ascertain the true and actual costs for every category of the Supply Chain spend.

• Identify what the corporate wide spend currently is for each of these categories. Are there any opportunities to improve pricing leverage with any of the company’s suppliers?

• What are the top selling products? Will they be the same in the future? If not, what are the characteristic differences between the current top selling items and those of the future? How does the difference in product characteristics affect the cost of the product through every facet of the Supply Chain?

• Which suppliers represent the “BEST” overall “Partner” for the company and more importantly, the effect they will have on the ultimate customer?

This costing analysis is critical and will go a long way towards identifying ALL of the associated costs related to the complete Supply Chain. Unfortunately, it is a step that many companies overlook.

TRANSDIGEST-Volume XIV, Issue No. 140, October 2009

Tony Nuzio

There are many in the world of transportation and logistics that are grateful that 2009 is finally coming to an end. Many shippers and carriers have endured a very tough year with the recession of 2008/2009 still wreaking havoc on their businesses as this year comes to a close. As many experts have stated, this economy is the worst since the Great Depression and there are few that would argue with that commentary.

For many companies however the tremendous downturn in business has created an environment where corporate management has “taken the bull by the horns” and made decisions to look at cost cutting as the key to survival. Many companies seized the financial crisis as an opportunity to take excess costs out of their businesses to create a leaner operating environment. Some companies used their excess operating resources to seek mergers and acquisitions to position them for tremendous growth in the future. On the other hand, we have witnessed many other companies where there was a total paralysis of decision making on the part of both middle management as well as top management to make tough decisions to change the status quo. Many of these companies are still reeling financially from the negative impact of doing nothing and hoping that business will improve in 2010 and all will be well. We just hope it’s not too late for these companies.

2009 was also a year in which every aspect of the supply chain should have come under scrutiny to make sure all of the pieces were working harmoniously and to the advantage of all of the stakeholders including the internal and external customer base. In addition, all aspects of the supply chain should have been reviewed to ensure that costs were consistent with current metrics based on the services rendered and current market conditions. What better way to ensure a company’s financial future than to focus on what the customer wants and making sure a company delivers that product or service on a consistent basis! All successful companies consistently monitor the value they present to the customer. After all, without the customer there is no business.

2009 brought with it some major reductions in freight costs for shippers. The major ocean carriers reduced their rates several times in the second half of the year. They had to because the volume of cargo moving to the US was down considerably. These same ocean carriers have literally parked hundreds of ocean-going vessels because there just was not enough cargo to make it worthwhile to move those ships. In the LTL arena we saw a 90/90 deal come in the fourth quarter of 2009. That is 90% freight rate discounts for the final 90 day period of 2009. What does that tell you about carrier over capacity? The push for all freight carriers in 2009 was for market share with very little regard for profit. With limited freight available to all freight carriers the best way to secure additional revenue was to offer extremely competitive rates to lure shippers away from the competition.

By some estimates the major parcel carriers UPS and FedEx lost close to a million packages a day, again just due to the downturn in the economy. So the only way for these carriers to gain business was to “steal” it away from the competition. They targeted accounts they wanted to gain and went after them very aggressively on pricing and also attempted to offer “bundling” solutions which involved not only the parcel business they were attempting to obtain, but also to gain traffic for their nationwide LTL operations. For some shippers this exercise resulted in considerable cost savings. Other companies were not as fortunate. Many signed on thinking the bundling had to be the best deal they could get when in reality the offerings were not as aggressive as they should have been. Unfortunately, most shippers are not in a position to measure the cost savings opportunities because they had no benchmarks to match the offerings to. That is why the use of consultants to analyze contractual price offerings from all carriers is growing in popularity.

On the other side of the coin, many companies refused to even discuss rate negotiations with their freight carriers for fear the carrier would not look on the shipper in a favorable manner and would only come back to increase their rates when the economy turns around. This fear resulted in a great deal of the decision paralysis we mentioned earlier. The real issue is the fact that many shippers do not understand freight carrier pricing levels and cannot assess whether they are getting a good deal or a raw deal. There is a tremendous need for the shipping public to get deeper into discussions with their freight carriers on a “longevity solution” to their business relationships.

When we speak of longevity solutions we are talking about building strategic partnerships between shippers and freight carriers which benefit both parties for the long term. Shippers and carriers alike should always approach their relationship with the future in mind. Unfortunately for too many shippers and freight carriers this is not the case. Many are looking for the short term financial rewards they can reap without any regard to the future business relationship. This short sighted approach ends up costing the carrier and the shipper dearly when they are forced to make changes because of poor service or rates that ultimately are not competitive.

Enough about 2009! Let’s take a look at what we can expect in 2010.

All shippers will see freight rate increases primarily in January of 2010. Many carriers have already announced the specific dates for these increases. For years now the freight carriers in the trucking and parcel industry have raised their rates approximately 5- 6% each year. Just imagine the compounding effect of those rate increases over the years. And while the overall impact of these rate increases as reported by the freight carriers is 5-6%, many of the rates are increased at a much higher level. Many shippers however remain unaware that there are solutions to just accepting these increase as offered. Again, the real issue is the lack of knowledge on the part of the shipper to carrier rate structures and cost efficiencies that can be negotiated to reduce or eliminate these general rate increases.

Freight carriers need to operate at a profit to maintain the service levels they provide and to obviously invest in new equipment and technologies. However, shippers on the other hand need to better understand these rate increases and how they impact their business. Remember no two carriers have the same base rate levels so deciding which carrier to use based on the carriers’ discount offering means nothing. Shippers should ask their freight carriers to provide an impact analysis of any freight rate increase the carrier is proposing. Remember however in some cases these are across the board increases and if the shipper does not balk, the increase will be swift and automatic.

Along with rate increases in 2010 there is a good possibility that we will witness some additional carrier bankruptcies as well as a handful of mergers and acquisitions. The more the freight carrier supply shrinks the higher the cost of doing business with the carriers that remain. This was a fear expressed in the early 1980’s when deregulation first came into existence but may now finally become a reality. Many shippers have walked away from carriers that appear to be in financial trouble. While many agree with this concept the reality is that the carrier’s financial condition should be monitored even in good times. By diverting freight from carriers that appear to be in financial trouble, shippers just speed up the bankruptcy process. How many shippers really know the current financial condition of the carriers they are using?

2010 will also be the year when companies will have to make decisions to operate leaner, meaner and greener! Yes, green is in and it is here to stay. Shippers will see many more demands from their customers to PROVE they are reducing their overall carbon footprint. The major retailers are already aggressively adopting scoring methods to measure the impact of these reductions and if the suppliers cannot meet the standards they will be dropped as a supplier. Just go to the Wal-Mart website to see what demands they are placing on their suppliers. Consolidating the number of freight carriers utilized to make the carrier loads more efficient will certainly be considered a green initiative. It could also spell lower freight costs by providing fewer carriers with more business, certainly a benefit to shipper, carrier and customer. A winning combination if ever we heard one!

As we enter 2010 we want to thank each and every one of you for allowing us to present our monthly newsletter these past few years. We thank you for your comments and your criticisms as both will help us to make this publication more valuable in the future. Next month we have a real treat in store for you. We will be providing a special supplement to Logistics Strategies written by Jack Mitchell, president of Parcel Appraisal and Negotiations Consulting Group and ICC’s Strategic Business Partner. Jack will be providing a comprehensive analysis and breakdown of both the UPS and FedEx general rate increases which will become effective on January 4, 2010. You won’t want to miss this in depth analysis because you will finally have a complete understanding of what the actual numbers will mean to your business.

Wishing you and your family all the best in 2010!

Tony Nuzio

Much has been written about the state of our economy as we end 2009 and look ahead to 2010. 2009 will go down as the year of survival for many companies who have fought the good fight but for others it has been the year of decision paralysis; we hope it is not too late for those companies to survive. 2010 will be an interesting year because our Washington leaders have told us that the recession is “officially” over, however everything we see leads us to believe otherwise.

In fighting the good fight in 2009, many companies have strengthened their relationships with their core suppliers. This will go a long way towards ensuring these companies economic viability well into the future. A good part of this strengthening has been cost reduction and service improvement initiatives. Cost reductions are critical for all businesses, however companies must make sure they never sacrifice service for costs.

In the selection process for transportation service providers there is much more to the relationship than just moving freight from point A to point B and while cost is obviously one of the key factors in the relationship, it is not the most important one. Now the real task is to convince corporate management that this is the case. Here are a few examples to prove that perceived cost is not the most critical element in a supplier/customer relationship:

· A furniture manufacturer negotiated extremely low LTL rates and decided to ship a bulk of its furniture via LTL carriers. While the rate per one hundred pounds was favorable to the manufacturer the product itself was not conducive to the LTL shipping environment. The manufacturer experienced considerable product damage and many unhappy customers. The real question the manufacturer should have asked is what was the true and total cost, not what it appeared to be.

· A distributor negotiated extremely favorable Truckload rates involving stop offs in transit to deliver its products to their customers. Part of the negotiation was to include delivery appointments to be made by the carrier in advance of delivery to the customer. Unfortunately, the carrier did not totally fulfill its obligations and in many instances just showed up at the customers’ door with the product without making the delivery appointment. Many of the customers could not accept the freight without the appointment being made and refused the shipments. Those shipments would have to be placed in storage and the distributor would now have a customer service nightmare on their hands. To make things more complicated, on a shipment with three stops, if the first customer refused the shipment, the remaining customers’ deliveries on that same truck would obviously be late. Now there are three unhappy customers. Again, what was the true cost to serve?

· A shipper needed to send a machine back the manufacturer for repair. It decided to utilize the LTL carrier that had the lowest rate. The actual value of the machine was in excess of $1 million. The machine was damaged in transit and the shipper filed a claim in the amount of $165,000. The claim was declined by the carrier because it’s liability for “Used” equipment was only ten cents per pound. The shipper was paid $1800 for the claim and had to absorb the balance of the loss.

Over and over again we see companies basing decisions on what appears to be an attractive discount pricing program. The reality is there is much more to the selection process for transportation service providers and it is incumbent on the shipping community to fully understand what the true cost to serve actually is.

Tony Nuzio