NEW LTL SURCHARGE

Beginning this summer, many shippers began noticing a new surcharge added to their LTL freight invoices. The “California Compliance Surcharge” was first instituted by ABF and Old Dominion, but has since been adopted by most LTL carriers operating in the state.

The charges was added in response to new regulations in California labor laws that require truck drivers to be paid for their down time, such as meals, refueling, detention, etc, instead of just for miles driven.

This charge applies to any shipments that originate in or are destined to a point in California, and are NOT subject to any discounts that the shipper may have with that carrier.

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NEW WEIGHT REGS FOR OCEAN SHIPMENTS

Effective July 1, a new international law passed by the International Maritime Organization will go into effect, as the SOLAS (Safety of Life at Sea) Act will require that shippers provide a verified gross weight for all containers in international trade.

Containers without this certified weight will not be accepted for ocean transport. The containers will then have to be weighed at the port and a charge for this may be passed on to the shipper. Fines for non-compliance will vary from country to country and could range from fines to imprisonment.

Most countries seem to be adopting a tolerance level of 5% allowance in the reported weight. The two commonly accepted methods to achieve the VGM (verified gross mass) are detailed on the attached link.

How To Meet Container Weight Mandate

10 Interesting Facts About Rail Freight

When we think of logistics, trucks are often the first thing people picture. While trucks excel in time-sensitive delivery over short distances, rail is the unsung hero of the U.S. freight system.

Here are some interesting facts about rail freight in the United States, provided by the U.S. Department of Transportation, the Association of American Railroads, and the Transportation Research Forum.

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Small Package Stealth Increases

Both Fed Ex and UPS have announced their annual general rate increases for 2016, with Fed Ex taking a 4.9% increase on both air and ground on 1/4/16, while UPS is taking a 4.9% on ground and a 5.2% increase on air shipments effective 12/28/15. However, both carriers have or will be increasing rates in other, less obvious ways. For example, last year, both carriers implemented dimensional pricing on all ground packages in addition to their general rate increases.

Just recently, Fed Ex has quietly adjusted their fuel surcharge upwards. Effective with 11/2/15 new fuel surcharge tables went into effect that increased the air fuel surcharge by 1.5% and the ground fuel surcharge by 1%. To be fair, this brings Fed Ex up closer to where UPS already was, with Fed Ex still being .25% lower on air and 2.5% lower on ground packages. This increase affects all Fed Ex shippers, unless they have a specific fuel table built into their contract (and that is very rare). Most shippers who have a fuel concession, have it in the form of a discount off the fuel surcharge, say 15% for example, so although the 15% discount is retained, the base fuel it is taken off of, has still gone up.

UPS on the other hand, will implement a new accessorial charge effective 1/4/16. Any third party billed shipment will be assessed a service charge of 2.5% of the billed amount. A third party shipment is one where the paying party is neither the shipper nor receiver of the package. This will have a big effect on vendors who may ship a product direct to their customer from the manufacturer instead of their own warehouse.

So far, there is no word from Fed Ex if they will implement a similar rule. Perhaps they are waiting to see what kind of pushback UPS gets, or perhaps they may use it as a selling point to get large third party shippers such as retailers to defect to Fed Ex.

Ocean Rate Wars

Ocean container rates have fallen to historic lows in many lanes this summer as carriers battle for containers to fill their ships. As an example, in early July the Los Angeles to Shanghai spot rate for a 40’ container fell to $611 which included the fuel surcharge (bunker). That same $611 would not take that container very far over the road in the U.S. from the Los Angeles port, but half way around the world is a different story. The Asia to Europe lanes have been even worse, with carriers hauling containers below their break-even point since February according to some sources.

Ironically much of this damage is self-inflicted as simple supply and demand factors come into play. Ocean carriers are taking delivery of ever-larger super ships that can carrier up to 20,000 TEU’s (20’ containers) almost double the size of ships in common use a few years ago. These mega-ships can only be used in high volume lanes, primarily out of Asia, so the 10,000 TEU ships then cascade down to secondary lanes that previously used 7,000 TEU ships and so on. The end result is an increase in capacity at a time when the global economy is only slightly growing or stagnant depending on the countries involved.

The solution to the problem would be for carriers to take capacity out of their system, either by having fewer sailings in problem lanes and/or taking older ships out of service. The problem with this option is that none of the carriers wants to give up market share to their competitors, so instead everyone suffers on the carrier side, while shippers enjoy a windfall to their budgets.

There have been some attempts at rationality, with carriers cancelling a few sailings out of Asia and bumping cargo to following sailings, and attempts at GRI’s (General Rate Increases), none of which have held for very long. With average load factors of only around 83% carriers still have a way to go, but it should also be noted that some lanes have held up fairly well, rate wise, for example the Europe to N.America lanes.

Fun With Fuel

As anyone who drives a vehicle can attest to, the price of gasoline has fallen dramatically since the end of 2014. In the transportation industry, diesel fuel prices have also fallen, though not as dramatically as gasoline. Yet earlier this year, as the Dept of Energy (DOE) national average price was falling week by week, LTL and small parcel carrier fuel surcharges suddenly jumped. How could this be?

Back in the 1990’s when fuel prices suddenly escalated, carriers instituted the fuel surcharges with the idea that the sudden increases in costs due to fuel would be 'passed through' to the shipper, based on the weekly DOE average price. Therefore the surcharge would rise or fall with the price of diesel. Over the years however, the surcharge has morphed into a revenue source for the carriers more than a simple cost pass through. So when diesel prices took a sharp downturn, many carriers were faced with declining revenues because of the smaller surcharges. In fact, several carriers and Wall Street analysts cited declining fuel surcharges in a potential reduction of quarterly carrier earnings.

To make up for this loss, many of the LTL carriers quietly adjusted their fuel surcharge tables in February with the result that their fuel surcharges went up between 1-3 percent during a period when the diesel prices were declining or holding steady. As a defense, many carriers noted that they were also adjusting the higher end of their surcharge tables, so that if diesel does again go up to $4.00 per gallon, the surcharge will be less than it was in 2013. In effect the carriers are flattening out the surcharge schedule, so that the fuel surcharge does not increase, nor decrease as dramatically with wild fluctuations in fuel price.

Further evidence that fuel surcharges do not truly reflect a “pass through” mentality is the fact that the surcharge itself is based on freight charges paid, not necessarily the amount of fuel the carrier uses. For example, take two shippers located in the same city, shipping the same product. Shipper #1 has a 75% discount based on their volume. Shipper #2 is four times the size and therefore has an 85% discount. If both shippers send out a 1,000 lb. shipment from their plant in Chicago to a customer in Atlanta, Shipper #1 will pay a larger fuel surcharge, as his net freight charge will be greater than shipper #2. Yet, the amount of fuel for the carrier to haul the identical sized shipments from the same point to the same point is the same. Rail shippers grappled with the same issue, until the Surface Transportation Board ordered the railroads to base their fuel surcharges off of mileage, not how much in freight the shipper paid. Perhaps someday, LTL carriers will do the same.

West Coast Port Congestion Likely To Persist

Many industry analysts are now saying that congestion at the U.S. West Coast ports, in particular Los Angeles/Long Beach will persist well into 2015. Some shippers are reporting delays of 2-4 weeks to move containers through the port and onward to their inland destinations. Some retailers are now noticing an effect on stock levels, with fitness retailer Lululemon estimating that the port problems will cost it $10 million this year. Additionally, U.S. agricultural exports have been hurt as some shipments are arriving in Asia spoiled and unusable. The port congestion is the worse since the dockworkers strike back in 2002 and is result of a perfect storm of issues:

Labor Problems: The Dockworkers have been working without a contract since July. At first things continued on pretty much as normal while negotiations continued, but in the last two months slowdowns have occurred.

Chassis Problems: Ocean carries stopped supplying wheeled chassis for road transport of containers at U.S. ports this year (N. America was the only place in the world where the ocean carriers still supplied the chassis). This has resulted in truck carriers or third parties having to step in and supply the chassis, with truckers often having to return empty chassis to the terminal they originated from. Interested parties are working on establishing a ‘grey pool’ which would allow chassis to be used and mixed freely at any port terminal, which should help this problem in the future.

Rail Congestion: The railroads have had to deal with increased traffic of all sorts across their systems with the result being a shortage of crews and/or locomotives to move intermodal trains out of the port areas on a timely basis.

Larger Ships: Ocean carriers are deploying larger than ever container ships. Ships previously held 8,000 TEUs (twenty foot equivalent units) and now hold 13,000 with 18,000 TEU ships on the horizon. Ports have to deal with fewer arrivals, but now must offload twice the amount of containers in a short period of time.

Drayage Problems: All of the above have made it almost impossible for drayage drivers to get in and out of the port terminals in a reasonable amount of time, with many only able to make one turn a day versus two or three previously. As the drivers get paid per trip, this has made them an unhappy group. Additionally labor issues (contractor vs. employee issues) have resulted in driver shortages at some dray companies.

The Economy: On top of everything else, freight volume has been up this year due to an increasingly healthy economy.

The only possible winners in this situation may be the East Coast ports, as more shippers begin to route Asian imports to alternative ports. The opening of the enlarged Panama Canal in early 2016 will also allow larger ships to transit to the East Coast, provided those ports are able to handle the larger ships, which remains to be seen. The Canadian west coast ports of Vancouver and Prince Rupert have also seen increases, though both have a limit as too how much extra traffic they can take on.

UPS and FedEx Announce DIM Weight Changes

Recently both of the big two parcel giants, Fed Ex and UPS announced that they will make changes in their assessment of dimensional weights on packages moving in ground service. Currently, only ground packages greater than 3 cubic feet are subject to dimensional weight (DIM weight) guidelines. Starting with the implementation of the 2015 base rates, both carriers will now implement DIM weight pricing on ALL packages moving in ground service, based on a DIM factor of 166 for domestic shipments.

For example, a 12”x12”x12” box weighing 8 lbs. is shipped in ground service. Currently that shipment would be rated at the 8 lb. rate, which is $9.57 via Fed Ex for Zone 4, before any discounts or fuel are added. Under the new pricing structure, that shipment would now be rated as an 11 lb. shipment (12x12x12 = 1728 cubic inches, divided by 166 = 10.4 lbs, rounded up to 11) and the new shipment charge would be $9.95 about a 4% increase in costs. Conversely, if this same box weighed 15 lbs, then the actual weight of 15 lbs. would be used for rating purposes, not the DIM weight of 11 lbs (the higher of the actual vs. the DIM weight is always used).

UPS cited the growth of e-commerce as one of the reasons for the change as many vendors are shipping products to the consumer in boxes with lots of ‘empty space’ filled with bubble wrap, wadded up paper or cardboard which has resulted in a decrease in the average package density for UPS. Adoption of the DIM weight rule should force companies to look at their packaging and develop ways to reduce excessive packaging in order to keep their shipping costs from increasing. As an example, a company that now stocks and utilizes 5 standard carton sizes may now have to stock and use 10 different sized packages in order to optimize packaging and keep shipping costs in line.

As noted, these increases will become effective with the 2015 rate increases (a base rate increase separate from the above) which will be 1/1/15 for Fed Ex and 12/29/14 for UPS. The carriers announced the change now, so that affected shippers have time to adjust and if needed work with UPS and Fed Ex packaging experts to help them achieve more efficient packaging.

Peak Season Surcharge Coming For Small Package?

The past Christmas Holiday season was one to forget for UPS and to a lesser extent Fed Ex as thousands of holiday purchases arrived after the big day, and UPS was labeled as the Grinch that stole Christmas by some of the mainstream media. However, a good deal of the blame can also be assigned to online retailers, many of whom promoted next day delivery in time for Christmas on purchases made as late as 11 PM on December 23.

As a result UPS delivered over 31 million packages on 12/23, a 13% increase from 2012. UPS’ peak day was also December 23, six days later than forecasted and 7.5% over UPS’ expectations. As a result UPS had to hire 30,000 more temporary workers than expected to handle the surge, bringing a total of 85,000 seasonal employees on board.

The end result of these extra costs was that while UPS domestic revenue was up 4.2% over the same period in 2012, operating profit dropped 12.9%, meaning that the holidays cost UPS about $178 million in earnings.

Implementation of a “Peak Season Surcharge” may be one answer to this problem in the future. In this way extra costs incurred by hiring additional, inexperienced workers and buying outside transportation capacity would be passed on to shippers. Ocean carriers have instituted peak season surcharges for many years, starting in late Summer and extending through Autumn on shipments made from the Far East to North America as retailers begin to ship their Christmas inventory. The concept is as simple as supply and demand, with shippers having to pay more in times of great demand for capacity. At this point, neither UPS or Fed Ex has hinted on what route they will take on Peak Season Surcharges and any announcement is most likely 6 months or more away.

States Seek To Cover Highway Funding Gaps

The Highway Trust Fund, the main source of Federal highway funding, is projected to go insolvent in a few short years. The problem is that the current tax (18.4 cents per gallon of gas and 24.4 cents per gallon of diesel) has not been increased since 1993. Since that time, inflation has cut about 7 cents from the funds buying power, and many highways built in the 1950’s through the 1970’s now are in desperate need of renewal or replacement. In addition, many vehicles are more fuel efficient than ever, so in effect the driver is paying less tax while driving the same or more miles and causing the same amount of wear and tear on the roadway. Many industry groups including the ATA and the US Chamber of Commerce have supported an increase in the tax as long as the proceeds go to highway uses, but Congress is reluctant to raise any tax at this point, even if its’ main beneficiaries support it.

This has lead to several states having to take matters into their own hands in order to fund highway improvements. Virginia this year changed its’ state gasoline tax from 17.5 cents per gallon to a 3.5% tax on the wholesale price of gasoline and 6% on the wholesale diesel price. In this way the tax will increase with inflation as the price of fuel increases. The state expects to raise an additional $6 billion in transportation funding over the next 5 years.

Other states have simply raised their tax per gallon, such as Wyoming (10 cents per gallon), Maryland (3.5 cents per gallon), Vermont (5.9 cents per gallon) along with similar increases by California, Georgia and North Carolina.

Perhaps the most innovative, and controversial plan is that proposed by Oregon, which is looking at taxing drivers by the number of miles they drive instead of how much fuel they purchase. The state is looking at starting up a pilot program in 2015 in which monitors would be attached to vehicles to register the number of miles driven. Owners would be charged a tax of 1.5 cents per mile instead of the present 30 cents per gallon in that state. As might be expected the program has generated opposition from those opposed to Big Brother watching over their driving habits, as well as opposition from hybrid owners who would now pay the same highway taxes as someone driving a gas-guzzler.

Increase in Port Fees at LA/Long Beach

The ports of Los Angeles and Long Beach recently enacted an 8.1% increase in the traffic mitigation fee, more commonly known as the Pier Pass Fee.

Effective August 21, 2013 the fee for a 20’ container (TEU) increased $5 to $66.50 and the fee for a 40’ container increased $10 to $133. The fees are changed from time to time based on changes in maritime labor costs, and the Pacific Maritime Association announced an 8.2% increase in wages and benefits for the 2013-14 contract year.

The Pier Pass fee helps to pay for the extended night and Saturday operation of the marine terminals to relieve daytime congestion in and around the ports and provide a financial incentive for carriers to move cargo in the off-peak hours.

Shippers moving freight through these ports should expect to see the increase applied by their freight forwarders to their invoices for shipments on or after 8/21.

New HOS Rules May Impact Truck Costs

Effective with July 1, 2013 new Hours of Service (HOS) rules will go into effect for truck drivers in the United States. The two changes are:

34 Hour Re-Start: In order to reset and start a new work week (either 60 hours in 7 days or 70 hours in 8 days) a driver must be off duty for 34 consecutive hours and those 34 hours must contain two consecutive 1am to 5am periods.

Rest Break: A driver may not drive more than 8 hours without first taking a 30 minute rest period.

These changes have been hotly contested between industry and safety groups and were postponed from their original effective date, but now seem more likely to go into effect with July 1. Trucking companies are warning that the new rules will cut driver productivity and therefore drive up costs that will ultimately be passed down to shippers. Carriers and shippers that will most likely be affected are those that utilize long haul, over the road truck transportation. Less likely to feel the pain are those that use primarily regional TL carriers, intermodal or LTL transportation where one driver is not transporting the shipment the entire distance or the distance is driveable within one work day.

More on the HOS rules can be found at: http://www.fmcsa.dot.gov/rules-regulations/topics/hos/index.htm

Customs Raises Informal Entry Limits

Effective with January 7, 2013, U.S. Customs & Border Protection (CBP) has raised the value limit for informal entries to $2,500 (value of the imported goods in US dollars) from the previous limit of $2,000.

Prior to 1/7/13, any shipments over $2,000 in value entering the U.S. had to move under a formal entry which required a surety bond and the completion of an entry summary (Form 7501) and pay a minimum merchandise processing fee (MPF) to Customs of $25.

Now, more small import shipments will qualify as informal entries which eliminates the need for a surety bond, is subject to a lower MPF of only $2 (if filing is done electronically) and expedites the customs clearance process.

The new rule also allows certain commodities that previously were exempt from the $2,000 informal entry limit, such as textiles, plastics and footwear, to now be allowed under the new $2,500 limit.

Hazmat Descriptions

Effective with 1/1/13 the order of hazardous materials descriptions to be shown on bills of lading has been changed. In order to comply with the International Maritime Dangerous Goods Act (IMDG), the previous sequences may no longer be used and 49 CFR 172.202(b) now requires that the basic information be shown as follows:

UN#, Proper Shipping Name, Hazard Class and Division, Packing Group

For example: UN1263, Paint, 3, PGII (The old sequence would have been Paint, 3, UN1263, PGII).

The second change, under 49 CFR 172.604, requires additional information now be provided when utilizing an outside party for Emergency Response Information, such as Chemtrec, Chemtel, Infotrac or 3E Company. Now, in addition to the telephone number of the ERI company, either the name of the company that subscribes with the ERI or their contract number must be shown along with the ERI’s phone number.

For example: Emergency Response Phone 1-800-XXX-XXXX Contract #12345 or Emergency Response Phone 1-800-XXX-XXXX ABC Paint Mfg. Co.

Shippers using pre-printed BOL’s should make the necessary adjustments to their systems. Most of the larger carriers have qualified hazmat personnel on hand who can assist you or answer any further questions you may have.

LTL Pallet Classifications

In our September news item we listed some of the recent changes in LTL class ratings made in the NMFC to be effective 12/1/12.
One of these was pallets and has generated some confusion in the shipping world. The November 2012 issue of Logistics Management magazine featured an article (page 18) on the change in the classification for pallets. The author of the article correctly pointed out that the classification for pallets has been changed from a class 70 rating to a new rating based on density which would carry a rating of anywhere from class 60 up to class 400. This in itself is correct.

However, the author then went on to say that this would cause shippers a great deal of pain as they would now have to determine the density and class of pallets that are a part of a shipment and list them out on their BOL separately.

This is NOT the case. The new rating only applies on shipments of just pallets or skids, new or used, by themselves and not carrying any other freight, the same as the old rating of class 70 did. For “normal” LTL shipments of articles that are made on pallets, the weight of the pallet is to be included in the total weight of the shipment and rated at the class applicable to the commodities in the shipment, as has always been the case per Item 640 of the NMFC. There is no need to break out the pallet weight and rate the pallets based on their density.

Further information on this subject is available at: http://www.nmfta.org/Dockets/Docket%202012-3/2012-3%20Subject%2010/2012_3_S10_Analysis.pdf

LTL Accessorial Charges

YRC Freight recently made changes to its’ rules tariff as to the application of certain accessorial charges often performed at the consignee’s end including lift gate delivery, residential delivery, sort and segregate and limited access delivery. Per YRC, effective 8/28/12:

“When required, these charges will be assessed to the payer of the freight charges according to the linehaul terms unless otherwise noted on the bill of lading. YRC Freight will not call for authorization before providing these services. If these accessorials are addressed in your contract, this change will not take precedence over your contract. Prepaid shippers may mark the bill of lading with ‘delivery lift gate – collect’ or other similar verbiage should they want specific delivery services performed and charged to the consignee.”

In the past if the carrier arrived at the consignee’s place of business and the consignee requested an additional service be performed and the carrier performed the service, often times the shipper would indicate that they would not pay for such service and that the carrier should bill the consignee, which was at times done with little success. This change means that if the bill of lading is marked prepaid, that ALL charges will be paid by the shipper, just as if the bill of lading is marked collect, then the consignee will be responsible for all charges. Otherwise, a shipper must now notate their BOL to request that a specific accessorial charge be billed to the consignee and not to them.

Though new for YRC, some other carriers have already established such provisions in their rules tariff, such as Estes Express.

Recent Classification Changes

The Commodity Classifications Standards Board of the NMFTA held a public meeting on Sept. 10 and voted on several changes to the NMFC (National Motor Freight Classification). The NMFC is used to determine the class for the rating of LTL shipments (the higher the class, the higher the freight rate). All of the following changes that were approved will be published with an effective date of December 1, 2012.

Perhaps the most notable change was in the classification of Computer Equipment under item 116030. Previously this mostly moved at class 92.5 under 116030-01 (released to a value of no more than $5.00 per pound, although higher valuations were available at classes 150 and 250). Under the new classification, this commodity will now move to a density based rating with the lowest possible class being 60 (at a density of 30 pounds or greater per cubic foot) up to a highest possible class of 400 (density under 1 pcf).

Other commodity classifications changed (NMFC # in brackets):

Cloth or Fabric, non woven (49160, 49164): Was classes 77-400; now classes 60-400.
Cable Terminals, Housings, Boxes (62160): Was class 77; now classes 60-400.
Fibre Optic Cable (57770): Was class 100; now classes 85-300.
Wallpaper or Wall Coverings (71080, 151540, 151560, 151570, 151580, 151600): Was classes 55-70; now classes 60-125.
Ceiling or Interior Moldings or Patterns (36000, 36010, 36020, 36850): Was classes 60-125; now 55-150.
Pallets or Skids (150390): Was classes 92-150; now classes 60-400.
Duffel Bags (20600): Was classes 85-100; now classes 70-400.
Tables, folding leg or with metal legs KD (82075, 82165): Was class 70; now classes 60-400.
In addition, the following items were eliminated from the NMFC, account of being obsolete:

Paper Winding Cores (41130)
Transformer Shipping Containers (41440)
Textile Machine Card Flats (131050)
Forage Grain Sprouting Outfits (147510)
Mine Field Marking Outfits (147750)
Further details on all of the above changes can be found at: http://www.nmfta.org/Pages/PublicDocketFiles2012-3.aspx