The ball is in our court

This column appeared in the April/May issue of Logistics & Materials Handling.
The ball has been put into the logistics industry’s court. For some years now, we have been urging government not just for more investment in transport and logistics, but also for better targeted investment – investment that will produce the best returns. We have also argued for better planning and better coordination between the three levels of government in Australia.
We gained some success when the Labor Government set up Infrastructure Australia (IA) as a statutory body in 2008, but it required several years of detailed work before IA could produce a comprehensive priorities list in a report to the Government – its 15-year infrastructure plan. Late last year, the Coalition
Government responded to that report in a statement that was welcomed by the logistics industry, and the Australian Logistics Council in particular.
Prime Minister Malcolm Turnbull agreed to something that has been at the forefront of the ALC’s wishlist – the development of a national freight and supply chain strategy. It was the core recommendation of the ALC’s 2016 election priorities document – ‘Getting the Supply Chain Right’.
So it is now critical that the industry plays a central role in the development of that strategy.
The ball is in our court. If we sit on our hands and presume that governments, the general public and narrow industry interests will get it right, we will be sadly disappointed.
The Prime Minister said, “Money alone is not the answer. We need to get better at planning and building the infrastructure, and to do that we have to work together – all governments, industry, stakeholders, consumers and citizens. And we must take a much longer view, rather than the short-term one driven, of course, by election cycles.”
He is quite right. But all too often lofty sentiments get watered down and sidetracked.
One of the critical questions will be the emphasis given to the various parts of the fairly finite infrastructure cake: transport (comprising road, rail, sea and air, with each of them divided into freight and passenger); telecommunications; water; energy; and buildings (particularly schools, hospitals and sportsgrounds).
Unless the logistics industry makes its voice heard, there is a danger that the strategy will emerge with the wrong balance. We know freight does not vote. It means that we start with a proclivity to favour public transport over freight, and to favour buildings over other infrastructure.
There is also a danger that the money for transport will geographically follow the votes rather than the freight.
It is imperative that the logistics industry and its premier voice, the Australian Logistics Council (ALC), put forward sound suggestions for the national strategy.
The ALC has always believed in taking the long view, so it is pleasing to see the Prime Minister stating that the national strategy must do the same. The ALC has always believed in only putting to government soundly argued, evidence-based submissions. This is because our members span the entire supply chain, incorporating road, rail, sea, air, sea ports and intermodal ports, so we are not interested in special pleading. That being the case, our input should be well received – but we cannot take that for granted.
Though the logistics industry impacts every business and consumer in the nation, it is often seen as one removed. People look at the parcel, not the truck, carriage or aircraft belly that delivered it.
We will have to make greater efforts to communicate the importance of our industry to the wider public.
The logistics and transport industries employ 1.2 million Australians and represent 8.6 per cent of the economy. We need to impress this upon the public as well as the people who will develop the national strategy. We also have to stress that the freight task will almost treble by 2050.
Taking the long view and getting coordination between the three levels of government in Australia have been almost intractable problems, so it was pleasing to see the Prime Minister’s intention to tackle them. The ALC’s ‘Getting the Supply Chain Right’ document said the Federal Government, “in partnership with the states and territories, should establish effective corridor protection mechanisms from urban encroachment or incompatible land uses to ensure the timely preservation of surface, subterranean and air corridors and strategic sites for future infrastructure priorities.”
The ALC is determined to not waste this opportunity – for the good of our industry and our nation and its people and businesses. The ALC’s annual Forum in 2017 in Melbourne had the development of the national freight and supply chain strategy as its theme. Taking the industry’s views and resolutions on the strategy from the Forum to government will be the main task of the ALC in 2017.
Experience has show that promoting good policy over bad – but popular – policy is a continuous task. But it has borne fruit in the past and we are determined to keep government accountable to deliver on the sentiments in the Prime Minister’s statement in the future.

Think differently

This interview first appeared in the February/March 2017 issue of Logistics & Materials Handling.
Global megatrends such as globalisation, urbanisation and digitisation are forcing Australian logistics businesses to commit to a new, much more comprehensive mindset.
In a move to renew the company’s focus on innovation and future growth, Linfox founded a stand-alone Development, Strategy and Innovation (DSI) business unit in late 2015. A year on, Logistics & Materials Handling spoke to Chris Hemstrom, head of the ambitious project, about the essence of innovation and the role of creativity in modern business.
Q: It’s been a little more than year now since you became head of Linfox’s new DSI unit. In a time where the term innovation is seemingly losing traction – the Prime Minister’s 2016 Innovation Initiative was deemed too elitist to be successful, for instance – how do you ensure people understand what you’re trying to achieve?
A: That’s an interesting question. To move away from that innovation buzzword, I’d like to think of DSI as an organisational development tool. Our goal is surprisingly simple: to make sure we are delivering value to our client base. Our strategy is therefore much more focused on understanding our customers, their requirements, and how we can best help them than on innovation per se or simply acquiring more business. In fact, you may be surprised to learn that Linfox has shrunk the number of customers we have by almost two-thirds since the GFC (Global Financial Crisis, ed.), while the business has grown quite substantially in terms of its scale. In focusing on fewer customers, we’ve been able to create more value for and grow with our existing ones.
Q: Surely that doesn’t mean you’re not open for new business?
A: No. All we do within the DSI team is look differently at the concept of business development. Part of the reason why DSI was formed was to help scan the market, help identify work with potential new customers and understand what it is they’re after, of course. But we don’t approach it in a transactional way where we create a new service and then try to sell it as much as possible. Rather, we try and understand where there might be a gap in the market, where there might be a problem that someone else hasn’t been able to solve but that we might be able to handle. We look at that both from the perspective of deploying our existing capabilities and services as well as building new capabilities.
Q: Can you give us a more concrete example of that process?
A: One area that we’ve done a lot of work in, for example, is developing and deploying efficient warehouse management systems. We have a long-standing relationship with SAP here, which has a very sophisticated core technology that has been developed over a long period of time. At Linfox, we’ve got special expertise in how to run warehouses and how to deploy their systems, so together with some external suppliers, we have created some very efficient routines, if you like, to make modern warehouses more efficient. In fact, in a first for Linfox, we’ve recently secured two contracts to provide SAP warehouse management system maintenance, support and rollout services to two customer sites – I think many 3PLs are not quite as engaged in the R&D side of things as we are.
Q: So it’s more about the way you approach a problem – a mindset issue, if you will?
A: Precisely. We’re using the design thinking process developed by the Hasso Plattner Institute (HPI) at the University of Potsdam, Germany, and Stanford University, or at least the methodology behind it. It was originally intended as an innovation method for products and services, but has advanced to a completely new way of seeing people in relation to work, of imagining the concept of work and of posing questions about how we want to live, learn and work in the 21st century. To translate it back to what we do, we’re basically saying ‘we want to understand how we can work at the leading edge of technology and bring new efficiencies into our businesses instead of just taking what we’re offered.
Q: That’s quite an academic approach for a privately owned logistics business. Do you sometimes think you are doing everyone else’s work?
A: No. We’re an early mover who is actively bringing promising technology companies into the transport space – that’s all. Without us bringing some of them into the market, they probably wouldn’t have arrived yet. I suppose when you’re a leading player, you need to go down that path to keep moving. If you lead and keep leading while everyone else is trying to get to where you were two years ago, you always have an edge. At the same time you help bring up the standards of the industry at large. I’m hoping we are, anyway.
Q: In that context, does the push of disruptors like Amazon or Uber in the logistics space worry you?
A: We do recognise that the world is changing very quickly. Every day now you’re reading about Amazon and how it’s going to take over the world, and you’re reading about Uber and how it’s going to take over part of the transport chain. What we’re saying is that that may be true, but we’re still in the game. We think we’ve got some different ideas that could add value. To get that across, we have quite an extensive program of talking to our customers and to prospective new customers – not in a sales-y sort of way, just to learn about their problems – which we call our discovery process. Again, it’s not a sales program. It’s a program of understanding how industry is changing. Quite often it’s us that instigate change by just asking the question. That’s probably why I am not all too worried about Uber at the moment.
Q: You are not standing still either, though. Linfox has recently launched a multi-million dollar partnership with Monash University to advance the transport industry’s innovation agenda and provide more education opportunities for the Linfox team. A result of the work DSI has done?
A: It’s been a team result of course, supported by DSI. The Monash University partnership is a critical part of a longer-term strategy for the business to make sure that there is a structured education program for everyone that works in the business, because we believe it will bring value to the customer at the end.
Q: So it’s not just a leadership program, to pick up on the elitist debate once again?
A: Absolutely not, no. Linfox College, our current internal education program, already touches everyone in the business, and our ambition is to expand on that. In fact, Linfox College allows family members to be educated as well as part of the program. There’s quite a substantial array of different courses for them. What we’re trying to do with Monash simply adds more pillars to the program, so we can enable people to go up from doing employment-based courses or single unit courses to Bachelor’s or Master’s degrees, or even PhDs where that’s relevant. But, at the same time, we also get access to the expertise within the university system, and Monash is, as you’re well aware, one of the top universities, not only in the country, but globally. Being able to get access to its research team and its ways of looking at the world will also help us in our innovation and R&D agenda.

Found in translation – Exporting the Australian logistics mindset

This article first appeared in the February/March 2017 issue of Logistics & Materials Handling.
Three Australian logistics veterans have been tasked with rethinking Japan’s supply chain strategy, mixing the traditional and the modern to achieve unprecedented growth.
Even when you’re the biggest name in your market, that’s no reason to rest on your laurels. While Coca-Cola is the market leader for beverages in Japan, there are five other major players vying for a share of the action. Market pricing has been declining steadily over the past 16 years, putting a squeeze on margins and forcing beverage suppliers to stay vigilant to remain relevant. According to Bruce Herbert, Chief Supply Chain Officer at Coca-Cola East Japan (CCEJ), consolidation and diversification have been key strategies for many in the industry. “Coke in Japan is not just carbonated drinks, over half our volume is sugar-free teas, coffee and water,” he says. “A very strong innovation and new product pipeline has to be filled every year from our own plants and a network of contract packers.”
Covering over half of Japan and serving a population of 60 million, Coca-Cola distributor CCEJ is in a constant state of metamorphosis, always looking for ways to increase efficiency and cut costs. The US$6 billion ($8.2 billion) bottler was originally formed in 2013 through the merging of four smaller bottlers and has since absorbed a fifth one. It will soon merge with Japan’s next biggest beverage distributor – Coca-Cola West – and cover some 90 per cent of the market. Set to take place in 2017, the merger will increase the company’s value to US$10 billion ($13.7 billion) and increase its assets from eight factories to 17, 250 sales warehouses from 150, and 800,000 vending machines from 400,000 and 3,500 daily semi-trailer loads shifted per day from 2,000.
CCEJ recruited supply chain experts from around the world, including Bruce, to come to Japan and lend their expertise and, as a result, has been hugely successful in cutting costs and increasing profit. Bruce is joined by two other Australian supply chain experts, cherry-picked for their knowledge of the beverage and retail industries with decades of experience working with supply chains in Australia, Asia and Africa – Edward Walters, now Senior Executive Officer, Planning, Logistics & Distribution at CCEJ; and Distribution Transformation Manager, David Sim.
The Japanese market has presented a challenge, thanks to the country’s complex traditional business etiquette, though Bruce found its workforce’s strong work ethic and customer service to be worthy of admiration. “In Australia we take for granted that change and improvement are part of working life,” he says. “Especially at [Coca-Cola’s Australian-based bottler, ed.] Amatil, where supply chain transformation has been progressing since the mid-90s and many world-leading initiatives were started. Coming to a business which was effectively five small Japanese businesses just three years ago, I have realised just how far ahead some of those things we were doing in Australia were.
“In one way we have a big advantage of having lived in what will be ‘the future state’ for the supply chain here. Of course, there are many things to be learnt from the Japan model as well, but knowing that changes needed here have worked elsewhere gives us a big head start.
“I respect the Japanese working style. My Japanese colleagues are extremely hardworking and focused on detail, in a way that most Australians would find very challenging. Workers regularly work very late in the office, never hesitate to stay back or work over weekends and don’t give up on a problem. So much so that Government and companies are focused on encouraging people to relax more and take more time off, take more holidays etc. – this is definitely not a problem in Australia.”
The Japanese approach to life in general, including even how seemingly ‘logical’ issues are approached is quite different to the West, according to Bruce. “Not better or worse, but different,” he adds. “Whilst basic human reactions and motivations are the same, the way they express themselves is different. Relationships are much more important and sensitive here, as is loyalty to the business or community. All of these things translate into business culture and relationships.”
In some aspects, Australia’s logistics sector could benefit from observing the Japanese workplace, says Bruce. In particular, he believes that the value placed on quality and customer service in Japan would do wonders for Australian business. “Japan is surely the most quality-focused country on earth, and customer service is seen as an extension of quality,” he says. “Near enough is not good enough, perfection is sought after and worked towards at every level. It is deeply ingrained into everyday life – I don’t think we would ever have to ‘train’ for customer service as it is intrinsically understood. This often leads to failures by multi-national companies who don’t understand what Japanese consumers and customers expect. Likewise: quality. Australian businesses may be more ‘lean’ but often do so at the cost of customer service and quality.”
CCEJ looked at successful logistics strategies in use around the developed world when searching for ideas to rejuvenate their own approach and, according to Bruce, flexibility and a laid-back Australian style have been instrumental in ‘cracking the code’ for the company’s logistics strategy. “I think openness to different ideas has been key,” he shares.
“I experienced some changes put in place here earlier by some of our colleagues from the US, but many of them did not work as they were simply ‘cut and pasted’ ideas from the US. Aussies may be proud of their country, but they usually don’t expect that they have all the answers.”
Edward likens the challenge of solving CCEJ’s issues to the task of unravelling a badly tangled set of Christmas lights – difficult to unravel without breaking a light and stopping the business. “We discovered that, over many years on the quest to providing high service and quality, network efficiency at CCEJ had been eroded severely,” Bruce adds. “This had happened steadily and high transport, warehouse and other costs had been accepted as ‘normal’. As there was little benchmarking of supply chain costs outside Japan, and since the costs were not easily ‘visible’, they had not been tackled by investment or progressive change either and a gap grew between global practice and Japan Coca-Cola practice.”
In order to ‘crack the code’, Bruce shares that two major changes needed to be introduced. “First was a painful implementation of a new SAP ERP system which replaced multiple legacy systems and gave central visibility to live data,” he says. “Second was more instinctive – we cut inventory by about 20 per cent – a very brave move in Japan – and thereby decongested the network, eliminating double handling, waiting times, extra transport and product write-off.”
A third big change, which is currently in progress, involves moving inventory upstream, closing small sales centres and cross-docking others, together with possible investment in new warehouses at plants and picking automation. CCEJ is already seeing positive results from the change, with over 25 billion JPY ($290 million) supply chain savings both from manufacturing and logistics/distribution improvement since its inception in 2013.“This year, heavy transport cost is down 20 per cent and write-offs are down 50 per cent,” Bruce shares. “So we are already almost halfway to the long-term cost reduction goal after just one year.” The 2017 merger of Coca-Cola East Japan and Coca-Cola West is expected to create opportunities for further savings.
Bruce attributes his team’s success to a combination of factors, from slow and cautious implementation of changes to constant re-evaluation of direction. “We didn’t approach this as a ‘project’,” he says. “We tackled this as a management challenge – to implement changes, monitor them closely and adjust as we went along. In that way the original ‘plans’ were gradually changed – with successes amplified and failures dropped quickly. Good real-time data access and manipulation was crucial here.
“Thanks to methodical and detailed execution of strategies by our team here, the changes we made to inventory levels, planning processes, truck routing, pallet configurations etc. were executed without impacting customers or quality. This meant that the costs we saved were not lost in upset customers or lost sales, but could flow directly to the bottom line.
“We discovered a clear and costly link between inventory levels and transport costs, which had never been uncovered before. I’d like to say we found this by a big analytical study, but actually it only became clear by trial and error – which is why an army of experts and analysts had failed to find it before.”
CCEJ now encourages its employees to make suggestions for improvement of processes, and implements over 100,000 small innovation ideas per year on ways to improve quality, safety, service and cost.
The notoriously rigid traditional Japanese business culture presented a particular challenge for the CCEJ supply chain team, Bruce explains, though they were still able to achieve “massive change and results” thanks to their measured approach. “Resistance to change remains a constant both within the business and with customers and some suppliers,” he says.
“This is largely due to the extremely high standards set by customers and consumers and fear of making big mistakes. We were able to overcome this by making many small progressive changes, and avoiding – for the most part – big bang or sudden, unplanned change.”
Bruce believes that if applied in Australia, his team’s strategy could result in similarly positive outcomes. “The approach we have taken here has been based on numerics and data combined with good management routines, not just ‘hardware’,” he shares. “It can therefore be applied anywhere, to any problems.”
The CCEJ supply chain team have developed their own version of the revered – though oft-misunderstood – ‘Kaizen’ (kai: change, zen: good) business philosophy whereby big changes can be achieved through small, continuous improvements in all aspects of business. They are confident this method could be applied with success in any business environment. Bruce adds, “All I know is that after 35 years in this game there has never been a change as big and fast as what this team has achieved here in Japan this year.”

Let’s have a mature, calm conversation about driverless trucks and drone deliveries

If we are to believe the headlines, then driverless trucks and drones are about to revolutionise delivery transport. But how close are these developments, really?
These developments will likely be academic for years to come. There is more value in looking at what we can do now to improve efficiency with technology and processes which are already available.
Don’t get me wrong – technology will eventually have a huge impact and bring improvements. But we need to bring a healthy scepticism to the big claims currently being made.
Consider an extraordinary recent claim from a Stanford economist predicting petrol vehicles will vanish within eight years – what are we to make of such bold predictions, aside from its click-bait headline? The oil industry is a global behemoth, and internal combustion vehicles currently have a massive edge on power, distance, reliability and price point. Something incredible will need to happen to see all internal combustion engines replaced by electric vehicles with competitive prices and performance in a mere eight years.
Other headlines suggest we soon won’t need drivers at all. I think there needs to be an honest, mature conversation about self-driving vehicles.
The supposed economic gains raise as many questions as answers. We don’t know what the price point for purchasing a self-driving vehicle will be. We don’t know how the regulators will deal with them, don’t know the running costs (though there are claims they will cut down on fuel costs), and don’t know how insurers will view them.
The human factor is the big question. The driver is an expensive part of delivery transport, alongside fuel. If these vehicles require ‘babysitters’ who may be called upon to take control, then they need to be qualified drivers, with the appropriate licences and the appropriate pay levels. If a human is required to be present in a driverless vehicle, how deep will the cost savings be?
The most obvious use for self-driving vehicles is long-haul freight. There have been some fascinating moves, including a self-driving truck delivering Budweiser in the USA. Uber Technologies Inc. and Anheuser-Busch InBev NV collaborated to have an 18-wheeler travel 180 miles with a driver present in the sleeper cab, to make the first commercial delivery using the technology. Volvo also demonstrated a self-driving truck last year, on a short journey in a Swedish underground mine.
Before we get too excited about the self-driving capabilities, Gartner offers an interesting statistic – the IT research house predicts less than one per cent of long-haul freight will be carried by driverless trucks by 2021. This is a long-term game.
While we must monitor these developments, will there be any benefit in being an early adopter? There are many examples in business where it has paid to be conservative, let the early adopters make the early mistakes, and wait until prices come down. These vehicles may require a huge investment and still require somebody on board. We don’t even know what the regulators will do with this technology, though it’s bound to become political.
Safety concerns and potential widespread job losses will fuel much debate and we can expect heavy regulatory involvement.
Transport is statistically one of the most dangerous industries in Australia and worldwide – so we all have to work harder on safety. Self-driving vehicles could potentially make big in-roads into safety, but this seems most plausible on long haul, interstate routes, which are more predictable.
Self-driving vehicles in built-up, metro areas is another thing. Will people, and therefore governments, ever accept driverless semi-trailers or B-doubles in built-up areas?
Early research suggests widespread distrust of self-driving vehicles. A US survey of over 2,000 people found over 75 per cent thought they would never own a self-driving car. Everybody knows how technology can ‘crash’, how it can be hacked and corrupted. Those promoting self-driving vehicles need to persuade the public and the politicians they are safe.
Consider it this way: would you put your child in a self-driving car, on their own, without any other human supervision, for them to be driven to school?
Any incident involving a self-driving vehicle anywhere in the world will be headline news. The potential for PR disaster is huge. Yet we’ve lived with human error for a long time. We may not like it, but we understand it. Will people ever be so understanding of computer error?
Drones are another fascinating development, with Amazon investing in the technology. Drones have huge potential for parcel delivery, but don’t do away with your delivery fleets just yet.
The commercial application of drones faces considerable hurdles around airspace and public safety. Some of these drones weigh 25kg – add payload, and that’s a considerable weight to fly over built-up areas. If drones can achieve air clearance and cover off all safety problems, some serious number crunching will need to ascertain whether several drones controlled by people are more cost-efficient than a driver who may carry dozens of parcels in a van.
In my 30+ years in transport I’ve seen many innovations, which should have made bigger impact on efficiency: mobile communications, telematics, vehicle and parcel monitoring, and insourcing. Yet transport remains a top-five cost of doing business, and a continual source of angst in the supply chain.
Many companies could revolutionise their transport right now. Without any massive investment in technology or personnel, most transport divisions could cut their running costs by 10–15 per cent – just by being smarter in how they use their technology and personnel.
There needs to be more focus on what we’ve got. Properly utilising existing technology would be a huge step forward for many organisations.
Doing so would not just deliver immediate benefits, it provides clear thinking on these breakthrough technologies when they finally do become available – any organisation which clearly understands its costs and efficiencies is bound to make the best decisions on future investments.
Walter Scremin is General Manager of Ontime Delivery Solutions.

A Private Port – The outlook for Australian logistics

This article first appeared in the February/March 2017 issue of Logistics & Materials Handling
The privatisation of the Port of Melbourne in late 2016 will have major economic and infrastructural implications for the city, Victoria and the country for the next half-century. For the region’s logistics industry, it will be anything but business as usual.
Australia’s largest container and general cargo port, the Port of Melbourne, was recently leased for 50 years to a private syndicate, the Lonsdale Consortium. Victoria’s logistics industry is set to benefit from massive investment by the new owners to improve the Port’s efficiency and increase its capacity.
The deal follows the privatisation of the east coast’s other major marine transport hubs, the ports of Brisbane, Botany Bay, Kembla and Newcastle, in recent years. The Victorian gateway handles the bulk of Australia’s freight task and, as such, the agreement will impact the region’s logistics industry at every level, in the region and across the country.
The successful bidders secured the lease in September 2016 in a deal worth $9.7 billion, and promptly took control of the Port of Melbourne on 31 October. Having expected to settle around the $7 billion mark, the Victorian Government was pleased with the result, vowing to invest the money on improving the region’s transportation links. Along with an additional, expected-though-disputed 15 per cent top up from the Federal Government under the asset recycling agreement, Victoria’s $11 billion windfall will have massive implications for its trade, transport and infrastructure ambitions.
Several projects have already been earmarked for investment with the proceeds of the sale, each aimed at relieving transport woes around the region. Lease proceeds going to the Victorian Transport Fund will be allocated to improved rail and vehicular access to the Port and the removal of 50 of the area’s worst level crossings to ease urban traffic congestion. Also to receive funds is a major urban rail project, Melbourne Metro, designed to ease commuter congestion on highways, and the ‘Western Distributor’, a five-kilometre toll road to link the West Gate Freeway at Yarraville in Melbourne with CityLink at Docklands, allegedly taking 6,000 trucks per day off the West Gate Bridge.
At the time of the sale, ALC Managing Director Michael Kilgariff voiced his support for major investment in logistics infrastructure. “Infrastructure Australia has predicted the volume of containerised trade going through our ports and airports will increase by 165 per cent from 2011 to 2031,” he said. “This significant growth underscores a need for all governments, including Victoria, to invest in appropriate national infrastructure to ensure our landside infrastructure can keep pace with waterside growth.
“Now is the time to get Victoria’s supply chains right by investing in the State’s logistics infrastructure to maximise the Port’s future potential.”
Tim Pallas MP, Treasurer of Victoria, has given assurances that the money obtained from the lease sale will directly benefit road users, and commercial vehicles in particular. “The Victorian Government is already working to take thousands of trucks off the West Gate Bridge and to the Port of Melbourne by a new dedicated road link, easing congestion for city-bound traffic,” he wrote in an official release. He has, however, already expressed concerns over funding and the politics of progress after the Federal Government refused to offer the full 15 per-cent asset recycling scheme top-up payment. Nonetheless, it would appear that, at least for the near future and the current government, the coffers are full and investment is possible.
On the other side of the transaction, the Lonsdale Consortium, comprising the Future Fund, QIC, Global Infrastructure Partners and OMERS, has secured a valuable deal. For their money, they have gained control over Australia’s largest and busiest container, automotive and general cargo port, and the 3,000 vessels that visit each year handling 36 per cent of the country’s container trade.
In addition, the deal specifies that the State will be required to pay compensation if a second container port in the region is constructed within the 15 years of the lease’s commencement.
Some observers worry that in order to recoup their cash, the Consortium will hike up fees and rents as soon as an agreed 15-year fee freeze period has expired, resulting in a loss for the Port’s users and, indirectly, consumers. ANL Container Line Managing Director John Lines warned at the time of the sale that port users and the broader Victorian community would soon feel the squeeze. “Port and other State asset privatisations are a tax by stealth which will be paid over decades to come,” he told Lloyd’s List Australia. “If we look at the numbers for Melbourne and do some very simple calculations, the Port made EBIT in 2014–15 of $121 million which at the sale price of $9.7 billion for a 50-year lease, is $195 million per year just to get their money back, let alone make a good investment return. So the only way is up for prices. There is some comfort in the 15-year price cap in the lease agreement but after that, for another 35 years, it will be open slather…and we will all be paying dearly for it.”
The Victorian Transport Association (VTA), meanwhile, has advocated the private lease, welcoming the infrastructure improvements to come as a result. “The VTA played a significant role in the process behind leasing the Port of Melbourne, through numerous submissions, appearances before the Upper House lease inquiry and advocating for transport projects lease proceeds,” said VTA CEO, Peter Anderson. “The windfall from the lease will fund projects through the Victorian Transport Fund, such as strengthening roads and bridges to accommodate high productivity freight vehicles.
“It was also notable that through our efforts, the legislation was modified to address the major concerns we had about protections at the port, giving operators certainty against excessive price hikes.”
As the Lonsdale Consortium and Victorian Government congratulate themselves on a job well done, thoughts must move to the realities of a privatised Port for the thousands who pass through it each day.
In return for the anticipated rise in fees, port users will ideally benefit from the spoils of a transition from state ownership to private management, including increased efficiency, faster decision- and change-making powers thanks to a less bureaucratic system and investment in facilities.
In reaction to a once-popular opinion favouring government intervention, Harvard Professor of Economics, Andrei Schleifer, stated in his much-cited 1998 paper State Versus Private Ownership that capitalism limited by government regulation – not socialism – should be the answer. “Private ownership should generally be preferred to public ownership when the incentives to innovate and to contain costs must be strong,” he wrote. “Many of the concerns that private firms fail to address ‘social goals’ can be addressed through government contracting and regulation, without resort to government ownership.” Schleifer’s vision, however, relies on the absence of monopoly, a fact that the Lonsdale Consortium’s contenders for the lease will now be keenly aware of, though the Victorian Government will retain responsibility for some aspects of port business – notably safety and environmental regulation.
According to former ports boss Michal Frydrych, while privatisation or leasing of terminals and port operations can be beneficial, selling or leasing entire ports can lead to serious abuse of power. “I have always operated on the premise that ports are vital to development of countries and should play a supporting role to the rest of the economy,” he wrote. “We cannot have expensive ports with limiting power over other port developments. We need ports in correct places, practical and managed by port people.
“Ports are far too important to be used for quick cash to be used to build bridges that should have been built anyway.”
The privatisation of the Port may lead to an increased cost of business for its users, with owners pursuing profitability and shareholder interests. Already it seems likely that a levy introduced by the Victorian Government in 2012 to improve infrastructure around the port and increase supply chain efficiency, the ‘Port Licence Fee’, will continue to be collected beyond its original projected end date of 2022. Peter Van Duyn, Maritime Logistics Expert at the Institute for Supply Chain and Logistics at Victoria University, warned in late 2016 that the ‘temporary’ charge is likely to be collected until the end of the lease agreement. “The Port Licence Fee, which currently contributes approximately $80 million per year to the Port’s coffers and is CPI indexed…was originally meant to be levied for a duration of about 10 years, or until it had raised $1 billion,” he wrote. “It looks like importers and exporters are now stuck with this fee for the next 50 years.”
There are big changes ahead for the Port of Melbourne. Over the next 50 years, the Lonsdale Consortium will be responsible for the success, or failure, of Australia’s most important port and its many dependents. So far, many promises have been made, but it shall soon become clear whether the Lonsdale Consortium will deliver, or if the people of Victoria are being taken for a ride.
Air logistics – outlook
The Port of Melbourne lease is not likely to have a dramatic, direct impact on the region’s air logistics industry. Indirectly, though, it is sure to benefit from the upgrade projects and investment in other parts of the region, with shorter Port-to-airport times thanks to reduced road congestion, the construction of dedicated freight routes and the reduction of commuter traffic if a metro system is developed. Additionally, with members of the Lonsdale Consortium holding stakes in Melbourne Airport, the region’s air cargo hub may well figure in the group’s long-term vision for Victorian logistics.
Marine logistics – outlook
Set to benefit most from improved efficiencies in processes in the Port of Melbourne, marine logistics is also positioned to take the brunt of added fees. With no second container port in the area to help deal with the projected doubling of freight volume in the next decade, and with a 15-year block on the construction of a new one, the Port of Melbourne will continue to face the massive task alone, with some operators worrying they will be at the mercy of the owners’ management, rules and fees. ANL Container Line Managing Director, John Lines, expressed serious concerns about the privatisation, for example: “Ports are big, lumpy bits of vital infrastructure for each region and, being a natural monopoly, are best owned by the state. The prices paid to cash-strapped governments are no doubt attractive but these prices can only be recouped by the purchaser by increased flows or increased prices and only one of these, prices, is under their control,” he says. “These extra costs will flow through the whole economy.”
Rail logistics – outlook
Rail logistics are set to benefit from the privatisation of the Port of Melbourne, both directly and indirectly. Russell Smith, Partner at Global Infrastructure Partners (GIP), part of the winning Lonsdale Consortium, advised at the time of purchase that the group has plans to use its experience in managing port and rail assets to make the rail logistics chain from regional NSW and Victoria into the Port more efficient and pricing more competitive with other ports. “GIP looks forward to bringing to bear our strong port and rail industry expertise to drive forward the efficiency and capacity of the Port of Melbourne and focus on the necessary transformational change in the road/rail mix servicing the freight task,” he commented.
Some proceeds from the sale are to be directed towards developing better rail infrastructure in anticipation of growing freight volume. At the time of the purchase, ALC Managing Director, Michael Kilgariff, commented on the importance of investment in road and rail infrastructure linking the port to the wider transport network, including the development of an inter-modal terminal. “This includes an appropriate investment of the $58 million set aside for the port rail shuttle, which has been on hold while the port lease transaction was finalised,” he said. “Investment must incorporate all modes of transport, including short-haul rail, which needs to play a greater role into the future as our ports continue to move greater numbers of containers each year.”
Road logistics – outlook
If planned infrastructure developments come to fruition, fleets will benefit from better port access and traffic conditions, avoiding the overloaded West Gate Bridge thanks to the ‘Western Distributor’ project. “An appropriately regulated port, supported by efficient road and rail links, is vital to sustaining the Victorian economy and driving productivity improvement across the supply chain,” said ALC Managing Director Michael Kilgariff. Beyond the port, improved infrastructure in the region funded by the sale will contribute to more efficient journeys, directly through the removal of level crossings, and indirectly by getting cars off the road and people onto a city-wide metro system.
Sources: Lloyd’s List Australia, Shleifer, A. (1998) ‘State Versus Private Ownership’. Ferrier Hodgson (2014) Transport and Logistics Insights: The road ahead. AFR (2016) Record $11b Port of Melbourne sale rides infrastructure boom. Infrastructure Victoria (2016) Advice…on options to secure Victoria’s future ports capacity.
 

Ports forging new alliances to meet challenges of shipping industry consolidation

After decades of rivalry, regional shipping ports are joining forces in an effort to make themselves more attractive to the world’s top ocean carriers.
The trend has been sparked by consolidation in the shipping industry which threatens to cut some ports out of lucrative global trade routes. Earlier this year, the world’s largest shipping companies formed three alliances which, together, will control around 90 per cent of global shipping traffic.
The alliances plan to save costs and improve efficiencies by packing more cargo onto larger vessels. As a result many are likely to make fewer stops, thereby bypassing some ports altogether.
In response, port operators are scrambling to retain their traffic and find ways to increase operations in this changing market. As well as examining every facet of their operations, many are considering forming commercial relationships with other ports in their region.
Creating new port agreements
The new agreements between port operators are being facilitated by the sharing of information about current operations and future plans. This is allowing aligned ports to understand where others are making investments and guide their own future spending.
Rather than simply competing with every other port in their region, some operators are seeing value in specialising in the types of cargo they handle while leaving other types to another port. For example, Port A may opt to invest in its container handling capabilities under an agreement with Port B that will vie for mixed cargo shipments.
Such specialisation is attractive for port operators as it allows them to create a point of difference when negotiating with shipping companies. The operators can also make capital investments safe in the knowledge that they will not be competing with other nearby ports for the same types of shipments.
The forging of mutually beneficial agreements with other ports will rely on the sharing of accurate data about operations. Rather than keeping their cards close to their chest as has been traditional, operators must be prepared to reveal details of everything from throughput rates and productivity to vessel turnaround times and equipment utilisation.
Some agreements between operators could lead to official alliances under which multiple ports are combined under a single agreement. This would result in further improvements in productivity and the sharing of back-end processes.
In this scenario, the Terminal Operating System (TOS) used within each port becomes critical. It must be able to handle the now specialised cargo moving through the facility as well as provide accurate data for shipping companies.
Ideally, the same TOS will be used in each port location, allowing seamless sharing of data and the streamlining of administrative workflows.
Boosting appeal for shipping companies
As well as creating new working relationships with other ports, operators must also ensure they are making themselves as appealing as possible to the shipping companies. The companies must be confident their vessels can be loaded and unloaded swiftly and administrative processes handled with the minimum of fuss.
Here, the TOS again plays a critical role. Firstly, the TOS is used to accurately plan shipping movements to ensure vessels are not forced to wait for long periods for a berth to become available. Shipping companies can plan their journey times to ensure minimum turnaround times are achieved as often as possible.
Secondly, the TOS will aid the management of any warehousing facilities made available to shipping companies for storage of goods prior to or post journey.
Some port operators are also looking at making investments in their facilities to better accommodate the larger vessels now being used. Improvements can include dredging channels and installing larger cranes. Such investments can be coordinated with other port partners to ensure duplication is avoided and a financial return is achieved.
By taking such steps and creating working agreements with former rivals, port operators will be in a much better position to retain and grow their shipping traffic. Those that choose not to follow such a path risk losing their business as shipping companies opt to use specialised facilities with efficient processes in place.
The global shipping industry will continue to evolve and it is vital that port operators constantly examine and develop their facilities to ensure they match market demands.
Kaustubh Dalvi is President of Global Business Development at Logistics Jade Software.

Robotics to be biggest supply chain disruptor

Robotics will cause the most disruption in the supply chain in the next five years, according to a study carried out by the University of Tennessee’s Knoxville’s Global Supply Chain Institute, as first reported by Modern Materials Handling.
The study looked at the anticipated impact of five technologies on the supply chain on the next five years: 3D printing, driverless vehicles, drones, robotics and wearable technology, assessing the current and potential use of these technologies as well as the benefits and barriers to using them.
“Robotics have been around for more than 50 years, but they have become dramatically more dynamic in the last five,” said Paul Dittmann, Executive Director of the Global Supply Chain Institute and the paper’s author. “They are no longer stationary, blind, expensive and unintelligent but can work alongside people and learn as jobs change.”
3D printing was deemed to be the least viable technology in the short term, though the study acknowledged that it has the potential to eliminate the supply chain completely if costs can be reduced and usable materials expanded.
“We are at a turning point in the industry where disruptive innovation is required to meet the exponentially growing customer expectations,” said Danny Halim, Vice President – Distribution and 3PL Strategies at JDA Software, one of the sponsors of the white paper.

Digital innovation to support future supply chains

Companies are embracing digital innovation as a tool to help them manage future supply chains, as found by a recent global study carried out by the Economist Intelligence Unit (EIU) in collaboration with Standard Chartered Bank.
The study surveyed individuals in senior executive, senior management and C-level or board roles in 13 countries in early 2017.
The report found that companies will pursue a stronger embrace of innovation over the next five years to help their businesses adapt to potential disruptions and intensifying competition.
‘Rebooting supply chains: Shorter, smarter and more sustainable?’ found that 93 per cent of companies surveyed recognise the importance of innovation in supply-chain management.
Furthermore, 55 per cent of companies described digitisation as either an important or very important five-year objective for their supply chains.
Companies also reported a need for greater visibility across their sourcing networks, with 54 per cent stating that achieving complete transparency about where and how their products are made is an important or very important goal.
Companies expect operational improvements and innovations will help them reduce the length and complexity of their supply chains. Forty-nine per cent of respondents said they expect their supply chains to become shorter and simpler in the next five years.
However, the study concluded that shorter supply chains may not necessarily be more simple, particularly for consumer-facing industries, where customisation and personalisation are becoming important trends.
Kevin Plumberg, Editor of the report, said, “We don’t expect supply-chain complexity to relent anytime soon when it comes to doing business internationally. However, digitisation of supply-chain information, increased transparency and more internal collaboration between functions can help companies with global supply chains become more efficient and effective.”
 

Good investment, bad investment

This column first appeared in the February/March 217 issue of Logistics & Materials Handling Magazine.
There has been much talk recently about budget repair and ‘good’ and ‘bad’ debt. It comes at a time when government debt and interest rates are very low by historical standards, and when Australian governments still have excellent credit ratings compared to other countries. In that environment, surely it would be a good time to borrow to fund infrastructure?
It is an important question, but it carries the danger of over-simplification: The oversimplification is the suggestion that all borrowing for spending on infrastructure is ‘good’ and all borrowing for other purposes is ‘bad’.
In reality, however, it is more important that any borrowing or, indeed, any spending by government, be a good investment, whether it is spent on infrastructure, on one hand, or on education or health, on the other.
The tale of the two trains illustrates the point. One train is the Very Fast Train between Sydney-Canberra and Melbourne for passengers.
The other is the Inland Rail Project between Melbourne and Brisbane for freight.
The former is glamorous and attractive to people who might use it, but has an extremely weak economic case, particularly as the route is already well served by air, something which will only get better with the building of Sydney’s second airport.
The latter gets little public attention and very few people will actually travel on it, but its economic case is convincingly sound and ultimately it will greatly benefit many people.
Alas, freight does not vote, even if its efficient delivery improves the lives of those who do.
To build the former would be worse than useless. It would take valuable resources away from more worthwhile ones. Recently, the respected Grattan Institute produced some sobering and disheartening research on how badly Australia evaluates transport infrastructure. It looked at all 836 projects that cost $20 million or more since 2001. Premature announcements – when a politician promises to build a road, bridge or rail line without a funding commitment, often in the run-up to an election – caused three-quarters of the $28 billion in cost overruns, yet they comprised less than a third of the projects, the research found.
In short, when proper analysis is done before a commitment is given, projects generally run on time and on budget. The Grattan Institute said, “All main political parties have committed to sound planning of infrastructure, and to making decisions with broad social benefit, yet in practice they continue to promise projects that Infrastructure Australia (IA) has not evaluated or has already found to be not worth building.”
The Australian Logistics Council (ALC) has long supported IA and the need to do proper cost-benefit analyses, particularly as infrastructure funds are getting harder to find and the freight task in Australia is growing rapidly.
The ALC has a major role in making the public aware not only of the need to build the infrastructure required, but also of the need to avoid diverting precious funds into projects that have low or even negative economic return.
Ultimately, politicians in a democracy must make the decisions on what infrastructure to build. However, by ensuring the information is out there on how wasteful and irresponsible bad decisions can be, they can be constrained from making them.
Former Infrastructure Minister and Deputy Prime Minister John Anderson has made a spirited case for the Inland Rail Project because IA has, on the most conservative projections, proved its economic value. Even such an obvious candidate as Inland Rail – connecting not just Melbourne and Brisbane but also, via Parkes, Adelaide, Darwin and Perth – faces political difficulty through lack of national coordination.
Anderson’s environmental and safety case for Inland Rail was also impressive, but without a national strategic context the argument is in danger of being lost.
Of course, Australia faces an extra difficulty beyond identifying economically sound infrastructure projects: a three-tier federal system of government – each having the capacity to make things difficult for the development of national infrastructure.
Local governments can impose load limits and curfews on their roads to appease their ratepayers, but at a cost to the national supply chain. They can also oppose freight-related proposals and allow development in places that should be preserved for future transport corridors.
A classic example is the opposition to the development of the Moorebank Intermodal Terminal in Western Sydney.
State governments can also change land uses and produce transport plans that end at their borders with the aim of serving their own cities and towns, without reference to national freight requirements.
This state of affairs cries out for the development of a coordinated national freight and supply chain strategy to embrace not only new infrastructure but also the uniform regulation of all transport modes to reduce compliance costs.
When people bemoan the lack of national productivity reform, the logical industry to take on a national focus is Australia’s freight industry, which represents 8.6 per cent of the national economy.
It obviously has to be led by the Federal Government, which raises about 70 per cent of revenue in Australia. If it lacks constitutional power to legislate, it can use its financial power to persuade. It can also persuade the states to rein in local governments’ predilection for ratepayer interests over national freight needs.
Some progress has been made with the National Heavy Vehicle Regulator whereby a national scheme has begun using mirror state-by-state legislation.
Last year, further progress was made with the abolition of the Road Safety
Remuneration Tribunal, something ALC opposed from the beginning. The tribunal had less to do with road safety than with being an industrial-relations exercise on driver pay. Progress like this, however incremental, requires sustained, industry-wide, evidence-based advocacy. But there is a long way to go.
The crying need for a national freight and supply chain strategy has prompted ALC to make the theme of its annual ALC Forum this year: Getting the Supply Chain Right. This is not about ‘players’ in an industry. It is a highlevel, intelligent discussion about national functionality. In the past, the ideas emerging from the Forum have significantly influenced national thinking, and will continue to do so.
When issues are fleshed out in detail the results usually carry more weight.
A national freight and supply chain strategy must also deal with financing.
Corridors cannot be preserved and bottlenecks removed without money. There is no point in building a grand piece of infrastructure if the linking bits are missing.
In 2014 and 2015, ALC and others were promoting the use of ‘asset recycling’ as a means of getting more into the infrastructure funding pool. The idea was that governments would sell existing working assets and then use the money to invest in new infrastructure where the private sector was not willing or able to.
The advantage of governments doing start-ups is that it can get the finance using low interest rates and high credit ratings. It can sustain the great risk in any new infrastructure project. But once built and functioning, the government is often not especially good at running such infrastructure. Rules-based bureaucracies avoid risk, cover their patch and are not especially interested in seizing opportunities to innovate and expand. At that stage, governments should sell and use the money for the next initiative.
A national freight and supply chain strategy would provide a better framework for asset recycling.
The ALC has constantly urged that the provision of supply-chain infrastructure and logistics be above politics. The supply chain is national – the freight task is national. It does not stop at state borders and it requires vision that can be delivered by a national freight and supply chain strategy.

Amazon: logistics industry should employ from outside

At the Transport Logistics show in Munich in early May, Bernd Schwenger, Director of Amazon Logistics and General Manager of Amazon Deutschland Transport, stated that in order to keep up with the pace of change in the industry, recruiters will need to look at other sectors.
Schwenger added that Amazon differs in its approach to talent when compared to conventional logistics companies, due to its customer-centric focus, The Loadstar reported.
“Everything we do comes from the customer,” he said. “I don’t like this term ‘supply chain’, because for Amazon it is very much a ‘demand chain’. It’s very important to work backwards from the customers’ perspective – logistics needs to approach and interact with the customer. We have to understand what they want and how we integrate with that.
As a result, he shared, 70 per cent of Schwenger’s team – including him – comes from an operational research and mathematics background, while just 30 per cent brings logistics experience.
“But I’m learning a huge amount from the tech people, and I would say it is much easier to teach them about logistics than vice versa,” he added.
The CEO of Panalpina, Stefan Karlan, was also taking part in the panel discussion. He said, “We might soon be able to handle shipments without any human involvement, but you will still need humans with logistics experience to deal with customers and supply chain exceptions.”
Ryan Petersen, CEO of San Francisco-based freight forwarder Flexport, said his company’s talent attraction strategy “simply focused on hiring super-smart people,” with logistics proficiency a later consideration.
“If we do employ people from the logistics industry, we generally tend to go for those with limited experience, because we don’t want people locked in the old ways,” Petersen said.

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