<![CDATA[ Maersk’s sale of its oil tanker division reflects changing strategy ]]> AP-Moller Maersk (Maersk) has sold its oil tanker business to APMH Invest A/S, a company which is essentially a vehicle for the Moller family.

AP-Moller Maersk (Maersk) has sold its oil tanker business to APMH Invest A/S, a company which is essentially a vehicle for the Moller family. Bearing in mind that the Moller family is the largest shareholder in Maersk, this appears at first glance rather confusing.

The price agreed was US$1.17bn but with the notable addition of an ‘on-sale adjustment’ of a further $200m if the assets of the company are sold on at a higher than expected price. This latter part of the agreement says a lot. The tanker business has been volatile for a number of years, swinging from profit to loss and back again. Estimating a value for such an operation is difficult.

The publically articulated logic behind the move is essentially the same as the sale of the oil business, that is a move away from energy-related markets to focus exclusively on container shipping and, presumably, related areas such as freight forwarding. As regards the oil tanker business it also removes a source of volatility and complexity from the corporate portfolio of Maersk. The latter reason alone could be a driver for the sale. However, it might be asked why Maersk did not simply sell the company to an external buyer.  

In an interview with Lloyds List, Robert Uggla, CEO of the family holding company said that the change in ownership offered the opportunity to create a more “agile” management structure for the tanker business as well as a type of asset that would complement the family’s investment portfolio. Of course, it also makes strategic changes easier, such as a change of ownership.

More importantly, it reflects strategic evolution at Maersk.

The company not only wishes to focus on shipping, it wants to be more like a systems-driven logistics service provider optimising assets and volumes in a capital-intensive network. It also wants to appear less like a trading company, which many shipping lines still resemble despite their size. A comparison might be made with UPS which is very much driven by the need to optimise the utilisation of its air hubs and aircraft. At first glance this might not appear so important, however it would change the nature of Maersk as a company if it can be implemented. Also, if this is correct, the question does arise, what other businesses do not fit in Maersk’s portfolio? 

Source: Transport Intelligence, September 21, 2017

Author: Thomas Cullen

<![CDATA[ FedEx chief says ‘we will come out stronger’ after $300m cyber attack ]]> The NotPetya attack caused $300m of damage to TNT, but FedEx’s Q2 results remained solid.

FedEx believes the the cyber attack which hit its subsidiary TNT will cost $300m.

It’s the same amount fellow sufferer Maersk attributed to the NotPetya attack.

The attack hit the company in several ways financially, predominantly through lost revenue, but also via third-party costs for recovery, and a higher tax rate owing to reduced international earnings.

However, chairman Fred Smith said: “I strongly believe FedEx will emerge from the cyberattack as an even stronger, more resourceful company.”

While the intra-Europe business recovered quickly, higher-yielding international shipments were hit harder – and continue to be so, said FedEx yesterday. Full IT capabilities should be restored by the end of this month.

“It is taking longer to restore our international business due to the complexity of clearance systems and business processes,” said CFO Alan Graf in an earnings call yesterday.

“We are now focused on finalising the restoration of certain key customer specific, specialised solutions and systems in time for the peak season.”

Other expenses from the attack, which hit the first-quarter operating income, included enhancing the IT infrastructure, as well as extra staff and provisions to aid recovery.

“While significant progress has been made on restoration of our operations and IT systems, TNT revenues, volumes and profits remained below pre-attack levels,” admitted Mr Graf.

“As we look ahead to the remainder of FY18, we expect to experience ongoing but diminishing financial impacts from the cyberattack in the form of lower revenues and higher investments to further improve and strengthen our IT infrastructure.”

FedEx said it was reconsidering an insurance policy to cover cyber attacks, as policies were improving. “For a long period of time it was very thin, it didn’t cover a lot of things.”

The attack was the result of a nation state attacking Ukraine and companies which do business there, revealed Rob Carter, CIO. “It is widely believed that these were weaponised cyber tools stolen from the US government.”

There was, however, an upside. Not only has TNT’s security “much improved”, but it has also accelerated the integration of TNT and FedEx, expected to be complete by 2020.

Customer retention at TNT was helped by the FedEx air network and TNT European road network, said Dave Bronczek, president, noting the new 777 intercontinental flight as well as its 757 service from Stansted to Geneva. The company also accelerated planned upgrades at Liege.

“As a result of this crisis, we have emerged stronger,” said Mr Bronczek.

Overall, the integrator said, it was seeing improvements in the global economy, with the best trade volume growth since 2011, and FedEx’s forecast for the year was “mostly unchanged”.

In US domestic express, yield per package – excluding fuel surcharges – rose 4% in the first quarter. Despite the cyber attack, international export package revenue rose 4%. Ground volumes and yields grew, aided by the growth in ecommerce.

In FedEx Freight, results were “outstanding”, with revenue per LTL shipment up 4.9% and operating income up 30% to $176m. Operating margin rose 10%.

As usual, the integrator announced rate rises for January, of 4.9%

But first it must get through the peak season.

FedEx is hiring an additional 50,000 staff and has increased working hours for existing employees, saying it has taken a “surgical approach”. Peak charges will only affect oversized packages. And customers will have an increase in pick-up and drop-off services, with 8,000 recently added Walgreens locations.

FedEx is also expanding its fulfilment capabilities. It opened its first facility in February, its second in June, with another in California this month. It is aimed at companies which manage between 50 and 2,000 orders a day.

Total revenue for FedEx in its first quarter was $15.3bn, up 4% from a year earlier. Operating expenses rose 6%, while total operating income fell 12% to $1.1bn. It resulted in net income down 17% to $596m.

You can see the full results here, and the earnings call on Seeking Alpha here.

Author: Alex Lennane

Source: The Loadstar

FedEx chief says ‘we will come out stronger’ after $300m cyber attack


<![CDATA[ Royal Mail continues to wrestle with its pension costs ]]> Royal Mail is suffering from the problem common to all postal monopolies, big pension liabilities.

Royal Mail is suffering from the problem common to all postal monopolies, big pension liabilities.

The threat of strikes at the UK mail and e-commerce logistics provider has arisen again over attempts to reform the pension scheme. With characteristic rhetoric, the head of the Communication Workers trade union has promised to “smash Royal Mail to bits”. A ballot is being held for strike action, although this does not mean a strike is inevitable.

The problem is that the annual contribution by the company into the present pension structure is set to double over the next few years, from its present £400m. This would obviously depress profits in a market environment which is far from easy.

Such problems are not unique. Deutsche Post suffered from continuing disputes with the Verdi union several years ago. Although this was predominantly about direct pay rather than pensions it was heavily influenced by Deutsche Post’s restructuring in the face of declining mail volumes and the need to adapt to e-commerce. The pension deficit of the United States Postal Service is vast and the organisation struggles to pay the many billions in annual contribution required.   

The pensions liabilities of Royal Mail were also vast. However, proceeds of the privatisation of the former state monopoly were in part used to reduce the pension fund deficit. Yet still the fund is a burden to Royal Mail.

The company has struggled to grow out of its legacy problems. It has grown and sustained its margins in the face of a shrinking physical mail market. Productivity has risen, with many operations increasingly automated, although the key ‘last mile’ activity remains labour intensive. However, growth from e-commerce has been moderate and insufficiently profitable to support the continuing demands.

What the story of Royal Mail illustrates is how to manage these issues. The pension fund is a problem for the workers, management and shareholders of Royal Mail, not for the British taxpayer. The privatisation of Royal Mail is an example to other nations struggling with the liabilities of their postal monopolies.

Source: Transport Intelligence, September 19, 2017

Author: Thomas Cullen

<![CDATA[ Will the UK’s existing trade arrangements with non-EU countries be replicated after Brexit? ]]> The UK government believes that it will be able to replicate existing preferential trade arrangements with non-EU countries following Brexit, and that the process of seeking continuity will be a technical one, not a renegotiation. Is this reality or is the government overconfident?

The UK government believes that it will be able to replicate existing preferential trade arrangements with non-EU countries following Brexit, and that the process of seeking continuity will be a technical one, not a renegotiation. Is this reality or is the government overconfident?

In the Agility Mid-Year Emerging Markets Review 2017, compiled by Ti in partnership with Agility, it states that the UK government will attempt to take a copy-and-paste approach to its non-EU trade arrangements. It is argued that for some emerging markets, this would provide welcome stability, but for others, it is possible that trade disputes may arise over tariffs on certain products (most likely agricultural goods), while tariff rate quota arrangements could also necessitate three-way negotiation between the UK, EU and third parties. In other words, replication may not be as straightforward as it seems.

The UK, through the EU, currently has more than 750 international arrangements with 168 non-EU countries, include 295 relating to trade.

In a research paper, the UK Trade Policy Observatory of the University of Sussex suggests that replication may not simply be a technical exercise: “The post B-day [Brexit day] relationship with countries that have FTAs with the EU may paradoxically be easier because they may be more relaxed about informally discussing allowing the existing bilateral arrangements to continue beyond B-day while a formal FTA or similar agreement is drawn up. Such goodwill is likely to be a function of political factors as well as of whether or not the partner country involved thinks it will benefit from reverting to MFN. Hence the final outcomes are likely to vary across partners.”

In a BuzzFeed article, Allie Renison, head of Europe and trade policy at the Institute of Directors, comments: “The question over how much politics enters the fray in converting these agreements depends on the degree of integration the third countries have with the EU.

“Most of its existing trade agreements should be a more technically straightforward case of replication with the third country, particularly the older ones where the scope is limited.

“However, Turkey and the EEA countries (Norway, Iceland, and Liechtenstein) are bound to be more difficult and would be more likely to warrant the involvement of the EU, because of the customs union Turkey has, and the EEA agreement – where our relationship to the EU’s customs union and EEA law going forward is still far from clear.”

In the same article, Sam Lowe, a London-based trade analyst, states: “It is far from merely a technical process. While countries have so far appeared keen to use the existing EU agreement as a template, many will push for further concessions from the UK – indeed, in my opinion, it would be negligent on their part if they didn’t; they are unlikely to ever have this much leverage over the UK again. We have already seen this happening with South Africa pushing for a renegotiation of agriculture quotas and food hygiene standards.”

In a joint news conference with British Prime Minister Theresa May on September 18, Canadian Prime Minister Justin Trudeau remarked that Canada’s existing trade agreement negotiated with the EU, CETA, would “form the basis for the way we move forward in the post-Brexit world”. He called for a “seamless transition”, but also noted that “there will obviously be opportunities for us to look at particular details that could be improved upon for the specific needs and opportunities in the bilateral relationship between the U.K. and Canada.”

Evidently, this model of wanting to ‘tweak’ existing agreements seems to be catching on.

As concluded in the Agility Mid-Year Emerging Markets Review 2017, the situation is fluid and uncertain. It may be that even relatively small emerging economies may be able to punch above their economic weight and sign highly favourable trade deals with the UK if British politicians are desperate to make Brexit appear a success.

Source: Transport Intelligence, September 19, 2017

Author: David Buckby


In partnership with Agility, Ti is asking supply chain professionals to give their view on Brexit’s impact on emerging markets in this year’s Agility Emerging Markets Logistics Index survey. The results will be published freely alongside the rest of the Index at the start of next year, revealing the views of the industry on the most pressing supply chain issues in emerging markets.

<![CDATA[ Tesla about to demonstrate its electric truck ]]> Tesla is planning to bring an electrically powered truck to the market in October, according to the company’s CEO Elon Musk.

Tesla is planning to bring an electrically powered truck to the market in October, according to the company’s CEO Elon Musk.

Using the slightly unorthodox means of Twitter, he stated that: “Tesla Semi truck unveil & test ride tentatively scheduled for Oct 26th in Hawthorne”.

The vehicle is in the US class 8 category which is the largest type of truck and generally uses a semi-trailer.

In previous statements, Tesla has outlined a wish to build both a “heavy duty truck” and a “high passenger density urban transit”, which is presumably a bus of some sort.

Although Tesla has not made a definitive statement about the capability of its new truck, Reuters appears to have been briefed by the company last month to the effect that the vehicle would have a range of 200-300 miles. It is suggested that Tesla has been in discussions with large truck operators in the US in order to understand their requirements. What seems to be emerging is that Tesla will operate a large articulated vehicle for daily routes rather than multi-day long-haul operations. Of course, this is shaped by the need to recharge the batteries, at what will presumably be a recharging station of considerable size, although a logistics service provider’s truck depot would possibly be a viable location for such a capability.

The prospect of electric heavy trucks ought not to be dismissed lightly. Already, ‘last-mile’ operations are introducing electric vehicles, with Deutsche Post DHL going so far as to introduce its own design of a delivery van powered by batteries and a bespoke electric motor.

With a trend for city authorities to either tax or ban diesel vehicles from urban centres, the need to offer alternatives to diesel is becoming urgent. Large trucks are vital in supplying retail locations in urban centres and electric powered vehicles would appear to offer real advantages for these types of operations.

Over recent months, the German car industry has become frantically worried about the impact of electric cars on their business. Perhaps vehicle manufacturers ought to start worrying about their commercial vehicles businesses too.

Source: Transport Intelligence, September 14, 2017

Author: Thomas Cullen

<![CDATA[ UK Government gets in gear by investing £100m in autonomous vehicle technology ]]> The UK Government has launched MERIDIAN, a new government-backed and industry-led hub for the development of Connected and Autonomous Vehicle technology.

Last week the UK Government launched MERIDIAN, new government-backed and industry-led hub for the development of Connected and Autonomous Vehicle (CAV) technology. Funded jointly through industry players and the Government’s £100m CAV investment scheme, MERIDIAN should cultivate a “cluster of excellence” around driverless vehicle testing, with the M40 corridor between Coventry and London the focal point of testing the vehicles. The announcement of Meridian coincides with the publication of a Global Market Value report, which forecasts that the worldwide market for CAV technologies could be worth £907bn by 2035. 

Being a major contributor to the UK’s economic growth, it comes as no surprise that the UK Government is pouring considerable investments to help the automotive sector to continue to thrive. The Government expects that the early adoption of these technologies is likely to bring considerable economic benefits to the UK and enable the country to export these new transport solutions to the rest of the world. The platform represents a continuation of the Government’s commitment over the last few years to support the development of CAV technology through a number of initiatives.

As automakers and tech companies are racing to develop the technology, Governments are also clearing the way for the automotive industry by adapting legislation to the new technology. In May this year, Germany adopted the self-driving vehicles law which broadly legalises self-driving cars as long as a licensed driver is behind the wheel. Last week, the testing of autonomous cars has also been given a big push in the US with the passing of a bill that essentially gives the US Government, rather than individual states, responsibility for autonomous cars. The law, once passed by the Senate, would effectively allow autonomous testing in all US states, with companies allowed to run up to 100,000 permitted self-driving vehicles, initially without meeting existing safety standards. The idea behind the proposed bill is to speed things up for autonomous vehicle development.

Nonetheless, despite some advances in this area, it seems that the technology will outpace the regulation built around it. The reason why regulations fail to keep up is because of the ethical issues surrounding this technology and in particular the difficulty in deciding who is responsible for crashes. The importance of the safety issue has been confirmed in numerous surveys which underline the mixed public perception of the concept of self-driving.

Still, the technology has advanced so much that it is unlikely it will be held back by consumers’ anxiety about driverless vehicles. And more importantly, it should be expected that exposure to these types of vehicles will eventually increase comfort with the concept.

If this brief has been of interest you might also like to download Ti’s European Road Freight Transport 2016 report. It includes profiles of 20 European countries, as well as the region’s largest road freight operators. In addition, included in the report are Ti’s unique market sizing and forecasts, broken down by domestic and international road freight, for each European country.

Source: Transport Intelligence, 14th September 2017

Author: Violeta Keckarovska

<![CDATA[ Express market grows 8.5% in 2016 ]]> Ti’s latest Express and Small Parcels report shows continued fundamental strength in the sector with 8.5% growth in 2016.

Ti’s latest Express and Small Parcels report shows continued fundamental strength in the sector. Global growth in real terms of 8.5% meant 2016 was the strongest year for the market over the past five years. The domestic market grew by 9.3%, with the international market growing by 5.4%.

Adapting to changing market conditions has been key to taking advantage of growth. Since the mid-2000s, major express providers have looked to develop B2C capabilities, a change from their home in the B2B market. B2B delivery is a higher value, more premium service, which has showed steady growth for many years. Numerous reports suggest that (certainly in developed markets) there is an approximate one-to-one relationship between B2B parcel volume growth and real GDP growth. It is therefore B2C volumes, driven by e-commerce, that were the key contributor to the strong growth in the market in 2016.

Nowhere is this trend seen more emphatically than in China, with real growth in the overall market of over 25%. The last couple of years have seen the bigger players fighting to gain market share. YTO Express, STO Express, ZTO Express and SF Express have all sought public backing over the last couple of years, in attempts to gain investment to expand their operational capabilities.

In Europe, the interconnectedness of the market sets it apart. Domestic and international volume growth rates are more closely matched in 2016 than in any other region. The maturity of the major markets means less growth is seen on a domestic level. Meanwhile the EU’s single market allows for strong cross-border trade.

The difference between domestic and international growth rates is slightly wider in North America. Its key distinguishing factor is the strength of the US internal market, which means that the domestic market makes up nearly 90% of the parcel market in North America.

Over a four-year horizon, Ti is forecasting the global express and small parcels market to grow at a real compound annual growth rate (CAGR) of 8.2%. This remains within the range of growth rates seen in the past five years (between 7.1% and 8.5%).

In the international market, cross-border e-commerce sales in industries such as beauty & cosmetics, pet care, food and beverages and sporting goods have significant potential for growth.

Furthermore,  if economic growth can sustain the improved rates seen in 2017, domestic B2B markets are likely to see stronger growth.

The market as a whole has experienced fundamental changes over the past 30 years and new trends are set to change the market in the future. Express providers have invested significantly in technology and have had to expand networks and then adapt them to match the changing marketplace. Further disruptive forces specific to the sector, as well as wider trends such as population growth, changing energy supplies and the geography of supply chains are set to play a part in affecting growth the longer term.

Source: Transport Intelligence, September 12, 2017

Author: Andy Ralls

To find out more about the 2017 Global Express and Small Parcels Report, or Ti’s expertise in the express and small parcels market, including analysis of its market size and forecasts, strategies of the major providers, analysis of technologies in the industry and more, click here or contact Ti’s Business Development Manager, Michael Clover.

<![CDATA[ Japan Post equity sale hampered by Toll experience ]]> The Japanese government is selling off another large slice of Japan Post.

The Japanese government is selling off another large slice of Japan Post.

Although the price of the individual shares will be announced on September 24, the sale should generate around ¥1.3 tn, approximately US$12bn in dollar terms. Representing 990m shares, this is around 22% of the equity of the company.

Japan Post Holdings is huge, with a revenue of ¥13.3 tn in financial year 2016, however much of this is accounted for by the banking and insurance arms of the business. Japan Post itself had a revenue of ¥3.7 tn and an ordinary income – essentially operating profit – of ¥52.2bn, the latter being an increase of 23%. However, net profit fell into negative territory. The latter was driven by the write down in the value of Toll Group, something which took over ¥500bn off the company’s balance sheet.

The heart of Japan Post’s problem is how to find growth. Press comment around the share sale concentrated largely on the poor performance of the share price, which is presently below that of the Initial Public Offering in 2015. It is believed that the company has only mediocre growth prospects.

The write-offs around Toll however, disguise a reasonably stable business in Japan aided by its huge financial divisions. The company ought to be able to rectify the problems at Toll Group which had been profitable and growing, if a little volatile, before Japan Post bought it. Indeed, the ability of Japan Post to buy and operate such acquisitions is fundamental to its prospects. With Japan being a mature market, it needs to expand internationally. Japan Post is about to roll out a three-year growth strategy which will include its ideas for the future of Toll and its possible future acquisitions. It also needs to roll out e-commerce related logistics capabilities at a global level to complement its attempts to purchase companies outside Japan.  If it is not capable of doing this, it will be little more than an investment vehicle for Asia Pacific logistics operations.

Source: Transport Intelligence, September 12, 2017

Author: Thomas Cullen

<![CDATA[ New Ti report suggests strongest growth to be found in high-end express products ]]> Ti’s latest report has revealed a strong momentum towards the use of premium services by shippers driven not least by the increasing demands of e-commerce customers.

A global survey of express users and carriers contained in Ti’s latest report, Global Express Parcels 2017, has revealed a strong momentum towards the use of premium services by shippers driven not least by the increasing demands of e-commerce customers.

Firstly, when asked whether they were seeing a change in the mode used to move parcels, the largest proportion of respondents indicated that they were experiencing a net shift from road to air. This is attributed to the increasing time sensitivity of the sector and the rise of cross-border e-commerce.

It also seems that express carriers will need to gear their operations up for more same day deliveries. The survey indicated highest levels of growth will occur in the premium same day delivery segment of the market, followed by growth in next day deliveries. Deferred, economy volumes were, however, expected to decline.

Which sectors will offer the best prospects for volume growth? Ti’s survey suggests that e-commerce is by far and away the most important to the industry, a situation which will continue for the foreseeable future, with 75% of respondents selecting it as their first choice. e-commerce was followed by high tech and, interestingly, perishables. Given Amazon’s entry into this latter sector through its development of specialized packaging, this could become an even more important battleground for express carriers.

John Manners-Bell, Ti’s CEO and a contributor to the report, commented: ‘It seems that the time sensitivity being demanded by users of express parcels services is increasing in line with the ‘on-demand’ economy and driven by e-commerce. The shift to air is no doubt being reinforced by the stronger global economy which is good news for international express players. What is not so good for the market leaders, however, is another finding of the survey which reveals the perception that conventional/legacy courier express and parcel providers will lose volume share to other parties such as Amazon or Alibaba.’

Source: Transport Intelligence

To understand more about the Express & Small Parcels sector, download Ti’s new report Global Express & Small Parcels 2017 For more information or a sample of the report please contact Charlie Holden cholden@ti-insight.com

<![CDATA[ Carriers push up air freight rates as demand remains strong ]]> Airlines are hiking air freight rates “significantly” as demand remains strong, and it could grow further.

Airlines are hiking air freight rates “significantly” as demand remains strong, and it could grow further.

Yesterday, Lufthansa Cargo announced that its net cargo rates in western Europe would rise between 5% and 10% from October 1, and even higher in other regions.

In a note to customers, it said: “The demand in the airfreight industry has increased noticeably. We expect this trend to continue and anticipate a renewed increase in demand in the fall.”

Pointing to its anticipated rate rise in Europe, it added that, “depending on the route, [it could be] significantly more than that. The rate adjustment will occur gradually and on a region by region basis”.

One senior air freight industry executive commented: “In general, the market is indeed strong enough for that. But I have grown wary of these general announcements, as many have fallen through.”

He added: “A better way is to act and negotiate with customers. If it takes place then it’s great, but these announcements typically don’t mean a lot, by historical track record.”

However, indications show that there is likely to be a strong end to the year for carriers, while for forwarders, it will depend on whether they can pass on rising costs to customers.

“Rates are going north, and it isn’t even busy for the peak period yet,” said one air freight forwarder.

“The air freight market is very busy and congested in some areas. Also China is about to get very busy with the launch of the new iPhones, and lots of other tech products seeping into the market. And that’s without ecommerce, which will get very busy on air freight.”

Executives indicate that transpacific eastbound is gearing up for a very busy December, owing to an anticipated e-commerce rush. One charter executive told The Loadstar that while some charters had been cancelled for the first half of this month as scheduled airlines introduced more capacity and air freight rates fell slightly, the market was beginning to move again.

“Generally speaking, carriers are getting very excited.  Week three will be interesting, and we’ll find out if there really is a squeeze. The first people to hold back are charterers, so they did exercise some cancellations when there was more scheduled capacity.

“But for December, it is very hard to get access. One carrier told us to take whatever we can get as there is no spare capacity. December will be strong, which is unusual for the transpacific.

“We locked in capacity for it in April, and locked in the main peak in June and July. This year, the market should go right into December.”

Along with higher rates, fuel prices have also risen. Emirates announced yesterday it is changing its fuel surcharge from September 11. The jet fuel price has risen significantly in the last week, increasing 18.3 points between August 25 and September 1.

Emirates was one for the first carriers to axe a fuel surcharge and move towards all-in rates, but reversed the policy in April, after just two years, claiming its new methodology would “better reflect the reality and impact of fuel costs”.

Forwarders and shippers expressed some scepticism at the time, believing the policy reversal was owing to poor market conditions.

One air freight executive told The Loadstar yesterday: “I don’t believe in surcharges. If a carrier wants to increase rates and risk load factor, then be a man about it and do it. But I think it is better to just purely follow supply and demand, instead of via these ambiguous surcharge schemes.”

Source: The Loadstar, September 6, 2017

Author: Alex Lennane

Carriers push up air freight rates as demand remains strong