Software and Services: Are you still in the game?

With Uber Otto’s self-driving truck completing the first commercial trip this past October, we are prompted once again to think about technology and why it is essential for companies, in all industries, to innovate and evolve just to stay in the game with new industry players. In logistics, a field not known for its innovation, things are finally starting to change.

For many years now, members of the transportation industry in the United States have been content utilizing technology to track shipments in transit, invoice customers immediately upon delivery and use scanners and emails as an effective method of data sharing. Nevertheless, technology in logistics should go further than the simple use of a Transportation Management System (TMS), an Enterprise Resource Planning (ERP) system or even a Warehouse Management System (WMS); all wonderful tools that help with process standardization, metrics, and data control but do little to keep costs down if you lack know-how or do not use all of the systems bells and whistles. 

Companies in the transportation industry, and even those outside of it, are realizing than there isn’t a “one size fits all” type of system out there and they are taking it upon themselves to develop technology that will not only make their operation more efficient, but also will curb head count and provide a return on investment. The use of “Cloud Technology” as a tool for storing and sharing data instantly without the capital investment in hardware and server rooms is one of the easiest steps to take into a new era.

Augmented reality, a technology that superimposes a computer-generated sensory input such as sound, video, graphics, or GPS data into a user’s real view of the world—think Pokemon Go—brings to light the possibilities for the use of such technology in supply chain. Just imagine a pick-and-pack operation where warehouse employees not only have their pick orders right in front of their eyes, as soon as your customer hits “enter,” but they can also see an image of what the standard pack should look like and the shortest route through the aisles to complete that order. In consolidation centers, the same technology can be used to configure the best way to load a container by capturing with smart glasses an image of the product you have, using the technology to calculate the weight and dimensions and have it spit out a visual load configuration at the point of loading, thus increasing cubic volume, reducing loading times, and possibly damage claims.

When you ask shippers for a forecast, most will give you a vague idea of what their month or year will look like, but when you compare it to reality you realize that their forecast is no more certain than your guess of what the season will look like. Utilizing “Big Data” for demand and capacity forecasting can have a huge impact in seasonal pricing, optimizing equipment utilization, and providing prime shipping times as well as honing dock utilization. When you consider all the information being gathered all the time by the multiple devices a person uses throughout the day and how little of that information is currently used to make strategic decisions, you will see the impact Big Data can have for those companies that can to go under the iceberg and analyze relevant information in a matter of minutes. Utilizing said information to think outside the box is what has marked Amazon, Uber, and Google as major tech players. Who would have thought that warehouse space could be bought on a peer-to-peer marketplace where you can share excess warehouse capacity or buy commercial storage for a couple of days or hours and use it as a fulfillment center? Or that you could use ground-based robots to make last-mile deliveries to consumers?

It is well known that technology does not move at the same pace in every country, and the use of drones, robots, and autonomous vehicles seem years away of being the choice du jour to support supply chains everywhere. There are still regulatory barriers, safety issues, and other challenges that need to be addressed before this can happen, but one cannot make the mistake of falling behind on technology efforts or assuming it will never happen. Technology has the potential to significantly improve delivery times and reduce costs in the long run, the question is, what can you do now that will create a stable platform for tomorrow? Is it time for you to invest in your own technological development department or will you go with one of the many companies offering made-to-order tech solutions?

What you need to know about needs

If you have ever been in a relationship of any sort, you know relationships take work. You need to take the time to know your partner: what do they like? What makes them tick? Working with a carrier or a third party logistics (3PL) provider is no different. Each transportation company has their own priorities, such as: desirable routes or improved cash flow; most importantly priorities are constantly changing and they are for the most part different for each company. Does your partner need to make a name for themselves? Are they running empty and need freight back. Do they need to breach a new market?

Abraham Harold Maslow is best known for his “Hierarchy of Needs” theory. In summary, his theory suggest that the most basic level of needs must be met before the individual will strongly desire the secondary or higher level of needs. Maslow was talking about individuals but I believe the theory can also be applied to companies. Companies must first focus on how to stay in business (basic need) before they start thinking about who they are doing business with (security) and thinking about their reputation or their share of the market. Knowing your carrier or 3PL needs will help you time your proposals so you can get the best result.

Part of a successful relationship is also knowing your own needs. Do you need industry specific equipment? Is delivery time important to you? You may want to pay the lowest price but you need it to be right for you and your customers. It is important to distinguish the needs from the wants and decide accordingly. Moreover, it is imperative that you help your customers differentiate between their needs and wants by asking leading questions, what have some of your main problems been this quarter? What do you regularly struggle with? If you could change one thing about your current provider what would it be?

Lastly, don’t forget that needs change. It may take a week or a year to find your partner’s needs, but you should not relax once you obtain your first lead. Keep in mind that customers that feel like they are only working on a transactional basis with your company will make it harder to reach the level of knowledge required to establish a successful long term relationship.  Once the relationship has been established it is advisable to maintain a constant and effective monitoring of performance and customer feedback to be able to adjust accordingly in a timely manner.  

Top 6 differences in transportation costs between Mexico & U.S.A

Have you ever received a quote from a carrier to transport material from point A in the United States to Point B in Mexico and upon receiving the quote you realize that you are being quoted well over $3.00 USD per mile? Your initial thought is, this is absurd! How am I going to pay over $3.00 USD a mile to have this shipment delivered to the final destination in Mexico! I am being ripped off!! Well…think again.

There are many differences when calculating transportation costs in the U.S. versus costs in Mexico, yet many U.S. based brokers expect to see the same rates per mile they see in the U.S. for cross-border shipments. The reality is that the rate per mile is significantly higher and there are several factors that can help you make sense of the rate you are being quoted.

Logistics Performance Index (LPI)

World Bank has developed an index, named the Logistics Performance Index (LPI) that helps “grade” logistics performance of 160 countries from across the globe. The index grades these countries based on the following factors:

• Quality of the transportation related infrastructure (Ports, information technology, roads)
• Competence and quality of logistics services (transport operators and customs brokers)
• Ease of arranging competitively priced shipments
• Ability to effectively track and trace shipments
• Timeliness of shipments reaching destination within the established or expected delivery times.
• Efficiency of the clearance process (Ex. Speed, simplicity and predictability of formalities).

Having advanced infrastructure helps keep transportation costs down, allowing the carriers to pass a lower cost to shippers and brokers. The table and graph below shows an LPI chart comparing scores between the U.S. and Mexico. As you can observe, the U.S. has a better ranking than Mexico which translates to lower freight costs.

Road Infrastructure

Mexico is currently undergoing major road improvements to facilitate the flow of goods traveling to and from the country through all major Entry Ports. Between 2013 and 2018 there will be a total of 45.22 billion pesos invested to enhance the Mexican transportation network which amounts to about 2.66 billion dollars. When you request a quote from a Mexico carrier, they factor in the time that is invested to travel those miles, whether a scouting service has to be used to evaluate the route prior to sending the shipment, if the route is safe to travel after dusk, the wear and tear their equipment will suffer, and whether the route allows them to travel via toll roads (they are known for being safer routes). A U.S. carrier rarely has to worry about the roads being in unsafe conditions and can plan its routing with confidence from behind a computer by calculating the number of miles and the driver’s hours of operation.

Logistics Competence

Logistics competence also plays a huge role in determining the cost of the freight. The trucking industry in Mexico does not have nearly as much regulation as the U.S. which complicates the process to select carriers. In order to comply with service requirements, a broker must do their due diligence in selecting a carrier that has the technology platform and business practices that allow them to serve customers with high standards. Contrary to the U.S., the prices offered by different carriers for the same route could vary greatly. Much is linked to the volume each carrier serves and the tools they have invested in to make them more efficient. You would think that better tools could improve their operating cost by making them more efficient, but they assume the client is ultimately benefiting from the tools (as much as they are) and pass the cost to the client. This causes a higher cost for the shipper or broker for tools that one would consider standard in the U.S. such as tracking, transportation management systems, GPS, etc. To make things more interesting, Mexico carriers are very inclined to provide a more competitive rate to a shipper or broker that they have a great relationship with. You can often see the same carrier quoting two very different rates to different companies for the same route. The difference? Company A has invested in the relationship by taking the time to schedule periodic office visits, personal and business conversations over lunch, on-site meetings at their locations, resource sharing in terms of know-how and training and of course a steady volume. Company B may be a first time client or someone whose only bargaining chip is to provide them with ongoing business.

Security

When you think about “securing” your load in Mexico your thoughts are most likely focused on cargo insurance. Maybe you will think about the possibility of your load being stolen or the driver having an accident and you will request at least the same coverage you receive in the U.S. The reality is that cargo insurance is not required by law in Mexico and carriers will charge clients a premium for it, increasing your overall rate. The launch of government initiatives to secure the supply chain (such as C-TPAT or NEEC) place additional pressure on carriers to invest in infrastructure to protect their shipments. Investing in security guards for carrier’ yards, security cameras, tracking devices for tractors and trailers, K9 inspections, surveillance escorts, and background checks for drivers may not be at the top of your checklist when asking for a quote, but they are a necessary evil for many carriers and a portion of that investment will once again be included in your rate.

Supply and Demand

The supply and demand curve is more predictable in the U.S. versus Mexico. The use of load boards to secure round trips before accepting the first leg of the trip offers a tremendous advantage to U.S. carriers making them more efficient and reducing the number of empty miles that the client has to pay for. The use of technological platforms further allows them to ascertain what the market rate for a particular lane is reinforcing on-going rates. It is very common for a U.S. carrier to try to increase an established long term rate due to fluctuating “market conditions”.   If they receive data informing them that a lane pays $3,000 USD consistently, they will take no less. In Mexico, technological platforms for carriers are close to inexistent. The lack of a market rate forces carriers to rely on what they hear other carriers are charging. On the other hand, they are more likely to keep a year round rate if they have a good relationship with their client, they get paid on time and are treated with respect. Seasonal peaks are another driver of price increases. Because growers are willing to pay top dollar to have their time sensitive produce moved right away, you have to consider produce and other seasonal products into your planning and be prepared to pay extra during certain months or risk having your shipment go to the bottom of the priorities pile.

Diesel Rates

If you have previous experience working with carriers you will notice that fuel in the U.S. fluctuates up or down, while fuel in Mexico only goes up. Even though the National Chamber of Cargo Auto Transportation previously tried to implement Fuel Surcharges (FSC) in Mexico (CPAC), Mexico carriers do not charge a FSC and are more likely to provide you with an “all in” long term rate. Until April of 2016, fuel prices in Mexico were regulated solely by Pemex, a state-owned government managed Petroleum Company with no competition. With the energy reform that went into effect in April, private international petroleum companies will be allowed into the Mexican market boosting competition and hopefully decreasing the cost of fuel in Mexico. Since the current price per gallon is on average 20% higher than in the U.S. market, it may take a while before the price of fuel is close to what you would expect from your U.S. carrier.

Like any other industry, in transportation, the cost of doing business is passed on to clients. In this instance low Mexican labor cost does not equal low Mexican transportation costs. Until such time as Mexico’s infrastructure has reached an LPI ranking closer to that of the U.S. you can expect your price per mile to be higher than what you see domestically. While it is tempting to try to negotiate your rates to something that would be considered an “acceptable” price per mile in the U.S. keep in mind your responsibility as a broker, freight forwarder or shipper to support the work of international carriers and recognize that their proposal may not be so absurd after all if you consider the costs involved.

 

Joint Cargo Clearance, the next step in Customs Clearance

On July 25, 2016, U.S. Customs and Border Protection (CBP) announced an innovative concept in which CBP and the Servicio de Administración Tributaria (SAT), the Mexican tax administration service,  will perform joint cargo clearance and examinations at the U.S. Customs Port of Nogales, Arizona for 120 days. By conducting joint cargo processing, CBP and SAT will reduce cargo inspections and wait-times at the border. These reduced wait-times will lower the cost of doing business in the region, as well as, enhance national security for the United States and Mexico.

The announcement came as an invitation for manufacturing companies currently certified in the Customs-Trade Partnership Against Terrorism (C-TPAT) to try the pilot program which is expanding to additional Ports of Entry. To participate, both the manufacturing company and its transportation partner must be approved to use the “FAST LANE”. Additionally, the manufacturing company must register for the pilot program with the Consejo Nacional de la Industria Maquiladora y Manufacturera de Exportacion (INDEX), the Mexican National Council for the Free Trade Manufacturing and Export Industry, which is tasked with monitoring participation and results.

The program can be seen as an incentive for companies which are currently not participating in C-TPAT or the equivalent Authorized Economic Operator (AEO) programs to support a perimeter approach to security and experience added benefits. It is also another step towards mutual recognition and acceptance of trusted trader programs while the U.S. pursues the implementation of the International Trade Data System (ITDS). ITDS, a system which will allows international traders to submit documents required by CBP and its partner government agencies through a “single window.”

The future of customs clearance looks promising as collaborative, intergovernmental programs are established that are designed to address security threats while allowing for the streamlined movement of goods and people across a shared border.

Mexico, the neighbor next door

The United States – Mexico Border is approximately 1,989 miles long. With 330 ports of entry, it is the most frequently crossed controlled international boundary in the world. The proximity of these two countries allows shipments anywhere in the U.S. to reach Mexico within 2 - 3 days rather than the 4 - 6 weeks needed to get products from Asia. Yet there are many differences between the countries that are often overlooked. The culture, accounting principles and logistics are a few good examples relevant to good international business practices. Focusing on logistics, below are some insights and considerations to get your business started with shipping into Mexico successfully.

    1. International shipping is 80% preparation, 20% execution.

First, you need to have a clear road map of the supply chain. Who are the parties involved and what is their role? Is everyone aware of what they are supposed to do and when they are supposed to do it? If this is your first shipment you will want to have at least one conference call with all the players where you go over everyone’s responsibilities and review that all tasks are accounted for and assigned. I recommend having a checklist with all the required documents, and assigning each document to a person or team.

     2. Know your product.

No one knows your product like you do, Customs Brokers will ask many questions about your product (if they do not you should be worried), and the more information you can provide, the more accurate your Customs declaration will be, saving you from hassles along the road. There are items which are regulated by Customs and require permits before being imported or exported, is your product one of them? Letting your Carrier know ahead of time if your product can be transloaded or if it should be tarped will allow them to prepare for the trip and prevent delays at the border.

    3. Know what you are getting into.

Do you know the International Commercial Terms (Incoterms) for the shipment? If you will be responsible for the shipment to the border it is important to know if you are also expected to act as the exporter of record. Is the shipment DDP? Even though the seller bears the risks and costs to the place of destination they will still need to work with the importer of record to complete the importation of the goods. Is your shipment in compliance with the Mexican tributary agency (SAT) or are your inadvertently setting up your company as a Mexican entity?

    4. Know who you are working with.

Always make sure that you are working with a reputable company. Regulation of transportation carriers in Mexico is less constrictive than in the U.S. The knowledge you acquire can be the difference between a successful relationship between you and your customer or loss of business and revenue. Do not be afraid to ask your partners for recommendations ranging from the best time to cross the border to current security practices of international shipments.

The main point to remember is that Mexico's proximity to the U.S. does not mean that industry practices are standardized across the Border. Due diligence now can mean peace of mind later.