LSCMS Blog

Apple has recently revealed its list of global suppliers for the first time, vowing to deal with worker abuses and deflect criticism of its ignorance to poor working conditions in a mostly Asian supply chain.

Unveiling the names of the 156 companies of the company’s supply chain was an unusual move for Apple, which is known to be notoriously secretive.

Its recent supply chain audit also revealed that only 38% of the company’s suppliers adhered to its internal standard of a 60-hour, 6-day work week.

Ishan Palit, CEO of the product services division at TÜV SÜD, a provider of testing, inspection and certification services, shared that this revelation demonstrated the “severity and prevalence of inhumane working conditions within the global supply chains and the drastic requirement for immediate action”.

Yet, this move by Apple also placed the spotlight on the challenges of securing supply chain integrity, recognising that there’s a need to take control.

So what are some lessons that the supply chain industry can learn from this unprecedented move by Apple?

According to Palit “Standards such as SA8000® and BSCI have developed into effective tools to address these issues in a balanced and human manner, allowing organisations to educate the young workers and re-integrate them into society,” he said.

Palit also added that putting in place such a standard to conduct on-site audits to ensure compliance from factories is necessary. Improvements and corrections can then be identified and put into practice, which brings social, branding, productivity and risk management benefits.

“For example, it ensures workers’ health and safety, which helps boosts production efficiency, facilitates further penetration into international markets, and protects brands against the often irreparable consequences of a scandal,” he said.

Shipping containers from Afghanistan have arrived in Canada, filled with rocks and sand instead of the cargo loaded by departing Canadian troops, reports the Ottawa Citizen.

Canadian Forces said the contents of the containers loaded with ammunition and uniforms were not among the missing equipment and the missing items involved were “non-critical” such as tires, tools and tents.

“The Canadian Forces have had and continue to face missing but non-critical equipment in certain sea containers being transported from Afghanistan to Canada, by chartered vessel,” Lieutenant-Commander John Nethercott told the Ottawa Citizen.

“Some containers have arrived in Canada missing equipment, all of which is non-critical. The missing equipment was replaced by rocks and other weight so the loss would not be noticed until the containers were opened,” he said.

Canada’s defence department granted a contract to move the containers from Afghanistan to Pakistan to AJ Maritime, a Montreal-based freight forwarding firm and in what some would construe as a somewhat ludicrous response, AJ Maritime president Alda Rodrigues was quoted as saying that “There is pilfering going on, but that’s normal in that part of the world, I’ve always sent my cargo in convoys with guards, and I’ve always taken care of the cargo, but as I said, you never know. Nobody is safe there.”

It is understood the remaining 446 containers were supposed to exit Afghanistan’s southeastern border post at Spin Boldak, then cross the deserts of Balochistan to the Port of Karachi

In the latest Drewry report, it was mentioned that shippers should not lose sleep over the recent, short-lived jump in spot rates, but ought instead focus on ways to mitigate the risk of another sudden capacity crunch later in the year, urges Drewry Maritime Research.

Freight rates on east-west trades have been in the ascendancy of late. Drewry’s Hong Kong-Los Angeles container rate benchmark, as published in the Container Freight Rate Insight, leapt 28 percent in the first week of the year. The benchmark rose US$396 to US$1,832 per forty-foot container (FEU) and successfully sustained this level into the second week. Transpacific Stabilisation Agreement (TSA) carriers have been successful in forcing through their intended US$400 per FEU rate increases.

Shipping lines have had similar success on the Asia-Europe trade. The World Container Index (WCI) benchmark rate between Shanghai and Rotterdam soared 41 percent in the first two weeks of January to US$1,335 per FEU. The increase of US$391 per FEU was in line with carriers’ intended peak season surcharge (PSS) of US$400 per FEU. The WCI is a joint venture between Drewry and exchange specialist Cleartrade.

Buoyant shipping volumes in advance of Lunar New Year factory closures in Asia have filled ships to bursting, causing most carriers to roll containers. Some shipping lines have reported load factors in excess of 100 percent, so emboldening aggressive rate hikes.

“The big question on everyone’s minds is how sustained the rates revival will prove and what this means for 2012 transpacific contract rates?” asked Martin Dixon, research manager of Drewry’s Container Freight Rate Insight. “Once the pre-Chinese New Year rush recedes later this month spot rates will retreat back to December levels, unless carriers take action to remove surplus capacity from the trade. Shippers would be well advised to wait a few weeks before commencing contract negotiations.”

Most transpacific freight contracts run from May to April. In 2011 shippers and carriers settled at contract rates at or below the previous year’s level. However, this year shippers can expect to secure much lower shipping costs given the weak state of the container shipping market.

For instance, Drewry’s Hong Kong-Los Angeles container rate benchmark had declined 27 percent between the first week of May and the end of 2011. The spot market is often a strong lead indicator of prevailing contract rates.

“However, shippers should beware,” cautioned Dixon. “Locking carriers into low freight rates today may hinder surety of supply in the future.”

Drewry expects freight rates to rise sharply in the second half of the year as cash-burn forces carriers to slash capacity.

“A repeat of 2010 seems inevitable, when freight rates rose and space availability was highly restricted,” added Dixon. “Drewry strongly recommends shippers look at the benefits of index-linked contracts to mitigate these dangers.”

Prior to the recent bounce in pricing, east-west freight rates had been in free fall. Drewry’s East-West Freight Rate Index, a weighted average across key Asia-Europe, transpacific and transatlantic trade routes, had declined 38 percent in the 12 months to November 2011. However, other indices published in Drewry’s Container Freight Rate Insight suggest that some regions of the world have proved more stable than others. For instance, Drewry’s Intra-Asia Freight Rate Index lost just six percent through 2011 and gained four percent in the four months to November 2011.

“Few trades can claim this level of sustained stability,” observed Dixon. “Despite cascading tonnage from other overburdened trades, rates on Asian regional trades have remained remarkably stable thanks to burgeoning traffic growth.”

It took low-cost long-haul carrier AirAsia X four years to secure the right to serve Sydney, and the carrier is now putting the matter behind it following its confirmation it will serve the Australian city from Kuala Lumpur with a daily service from 01-Apr-2012, with the likelihood of a double daily to follow. Another Australian city will later be added, to reach its goal of serving five Australian cities by the end of 2013. Also on the carrier’s expansion list is increased services to its existing Asian destinations, many of which are not served daily.

While the Sydney route progressed in likelihood following restrictions being lifted in Jun-2011, the route became a certainty after start-up competitor and Singapore Airlines subsidiary, Scoot said it would make Sydney its first destination from the middle of this year. The possibility of Malaysia letting a competitor based in Singapore, its fierce rival, serve Sydney before a Malaysian low-cost carrier was simply unacceptable!

Preliminary traffic figures released by the Association of Asia Pacific Airlines (AAPA) for November showed international air passenger travel continues to increase while air freight markets remain weak.

Airlines based in Asia Pacific carried 15.7 million international passengers in November 2011, a 4% increase as compared to the same month in 2010.

International air cargo traffic demand, however, suffered a decline in November as a result of continued moderation in expert and import markets. A 6.5% decline in cargo traffic for the month of November 2011 was found, compared to last year.

Andrew Herdman, AAPA director general, said, “Given unresolved concerns about the Eurozone debt crisis, and wider uncertainty about the global economic outlook for 2012, Asian carriers are bracing themselves for another tough year ahead. Nevertheless, the region’s carriers are still relatively well placed to benefit from future growth opportunities, and the outlook for the longer term remains positive, as evidenced by fleet expansion plans and the establishment of new business ventures.”

Figures from the Hong Kong Marine Department show the port handled 24.4 million TEU in 2011, an increase of three per cent from 23.7 million in 2010, December’s figures showed a 1.4 per cent increase to two million TEU from the same month the previous year.

Singapore’s Maritime and Port Authority reported a 5.3 per cent increase in container movement in 2011, having handled 29.9 million TEU compared to 28.4 million TEU in 2010. December container volumes are expected to increase 11 per cent to 2.6 million TEU year on year making the island state the 2nd busiest port in the world after Shanghai.

Singapore Customs will make it compulsory for declarations of all exports to be submitted before they leave Singapore by 1 April 2013.

Known as Advance Export Declaration (AED), it aims to strengthen supply chain security and align its export declaration practices with international norms.

With the implementation of this initiative on 1 April, companies will be given 18 months, till 1 October 2014 to adjust and comply fully with the requirements set.

Presently, only the exports of controlled items or exports by land require declarations to be submitted in advance and this new rule is a big change in the current process where shipment declerations would only need to be made after a shipment has left Singapore.

Singapore Customs’ director general Fong Yong Kian said the AED will help Singapore become a trusted and secure global trade hub, and assist a more effective trade facilitation.

Steven Lee, chairman of the Singapore Air Cargo Agents Association agreed, adding: “The AED will definitely provide additional protection to the aviation industry from the security perspective. It will enhance the status of Singapore as a free port in terms of higher security and safety, which will promote more cargo flows via Singapore as a regional hub.”

China’s financial hub, Shanghai, has remained the world’s busiest container port for a second year, the city government said. The port saw its container throughput hit a record of 30 million standard 20-foot units this year, after it become the No.1 container port and handled 29.07 million units last year, boosted by international trade, the government said in a statement on its website.

The city aims to become an influential financing and shipping hub by 2020 and has rolled out a number of financial products to help exporters and shipping companies manage growing volatility in freight rates.

The Shanghai Shipping Exchange for example,  plans to expand its shipping derivatives market over the next few years after it launched derivatives based on container freight this year.

The final rule for truck drivers’ hours-of-service (HOS) was issued by the Department of Transportation’s Federal Motor Carrier Safety Administration (FMCSA) earlier this week.

The rules changes have received mixed reviews in terms of their potential impact, in terms of its potential for an increase in the cost of doing business, as well as questions from trucking industry stakeholders as to whether or not these rules need to be changed from their current version, which have been in effect since 2004.

The final HOS rule is comprised of the following, according to FMCSA:

-the maximum number of hours a truck driver can work within a week has been reduced by 12 hours from 82 to 70;

-truck drivers cannot drive after working eight hours without first taking a break of at least 30 minutes, and drivers can take the 30-minute break whenever they need rest during the eight-hour window;

-the final rule retains the current 11-hour daily driving limit (the FMCSA was considering lowering it to 10 hours) and will continue to conduct data analysis and research to further examine any risks associated with the 11 hours of driving time;

-truckers who maximize their weekly work hours to take at least two nights’ rest when their 24-hour body clock demands sleep the most—from 1:00 a.m. to 5:00 a.m. This rest requirement is part of the rule’s “34-hour restart” provision that allows drivers to restart the clock on their work week by taking at least 34 consecutive hours off-duty. The final rule allows drivers to use the restart provision only once during a seven-day period; and

- carriers that allow drivers to exceed the 11-hour driving limit by 3 or more hours could be fined $11,000 per offense, and drivers could face civil penalties of up to $2,750 for each offense.

FMCSA officials said that commercial truck drivers and companies must comply with the HOS final rule by July 1, 2013

“Trucking is a difficult job, and a big rig can be deadly when a driver is tired and overworked,” said Transportation Secretary Ray LaHood in a statement. “This final rule will help prevent fatigue-related truck crashes and save lives. Truck drivers deserve a work environment that allows them to perform their jobs safely.”

As has been the case over the last year, the debate over HOS regulations has been somewhat polarizing.

On one side are safety advocates that maintain making these changes is the right and safe thing to do. 

The American Trucking Association has howver blasted the final HOS rule. In a statement by it’s President, he was reported as syaing “What is surprising and new to us is that for the first time in the agency’s history, FMCSA has chosen to eschew a stream of positive safety data and cave in to a vocal anti-truck minority and issue a rule that will have no positive impact on safety. From the beginning of this process in October 2009, the agency set itself on a course to fix a rule that’s not only not broken, but by all objective accounts is working to improve highway safety. Unfortunately, along the way, FMCSA twisted data and, as part of this final rule, is using unjustified causal estimates to justify unnecessary changes.”

Michael A. Regan, president of TranzAct Technologies, chairman of the NASSTRAC Advocacy Committee, and point man for the planned February 1 Washington, D.C. “fly-in,” entitled Stand Up For Trucking, which will lobby Washington policy makers and legislators on the importance of maintaining and improving productivity in the trucking industry, said in an interview that this ruling will present major challenges for the shippers’ supply chains but noted it also cold have been worse.

“It is not as bad as it could have been,” said Regan, “and I don’t think it is over yet. One thing that is going to be very difficult is the change in the restart provision, which will present a very interesting dynamic for scheduling. There is a real incongruity in this decision and that is that the FMCSA says it wants to make the roads safer; as part of that you need to deal with congestion. Yet this rule is structured to maximize congestion after 5 p.m.”

At the end of the day, these rules will increase congestion, costs, and emissions in the interest of safety. Whether they are too excessive remains to be seen and will certainly be a point debated at length over the next 18 months to implementation.

Air pilot training school Alpha Aviation Group Philippines said it plans to expand operations in the Philippines to exploit the burgeoning demand in the low-cost carrier market, reports Manila’s Philippine Star.

Currently eighty per cent of its graduates fly with Airphil Express, Cebu Pacific, Zest Air and SEAir. International clients also include Air Arabia and Jet Airways, said the report but this expansion could see the school supply pilots to fly for other regional airlines. Like it has done in the maritime sector, qualified pilots from the Philippines could help drive down salaries of pilots for carriers like Tiger, Jetstar and the new low-cost offering from Qantas.

“We have invested in the state-of-the-art Airbus A320 Level D full flight simulator,” said Kunal Sharma, chief operating officer of the flight school at the Clark Freeport Zone in Pampanga.

“This is a multimillion-dollar investment that demonstrates our commitment to the Philippines, Philippine aviation, and training Filipinos for high-paying, professionally fulfilling jobs,” Mr Sharma said.

The company, which operates an Airbus A320 simulator at its four-bay simulator facility, is banking on the projected growth of the local commercial aviation industry. The new flight simulator will provide the company with the capability to deliver 6,000 hours of training annually – enough to train 300 new pilots.

Alpha Aviation Group commenced operation in 2006, and claims to be the world’s largest provider of Multi-crew Pilot License (MPL) pilots. The sector is currently driven by stiff competition among an expanding field of budget airlines, and an equally bullish regional market.

“Graduates of Alpha Aviation Group have established successful careers in the aviation industry. The training we provide is based on international standards, which prepares cadets to work anywhere in the globe,” said Capt Andrew McKenchnie, chief training officer.