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The Heat Turns Up on Airline Emissions

By Karen E. Thuermer

Published in Air Freight Management, October 2012

As if the continuing global recession is not enough to create havoc within the air cargo industry, the issue on how to address environmental sustainability has resulted in an ugly debate.
At the heart of the matter is European Union legislation that incorporated aviation into the European Union Emissions Trading Scheme (EU ETS), effective Jan. 1, 2012.
The EU ETS was launched in 2005 to combat climate change. A major pillar of EU climate policy, the EU ETS is the first large emissions trading scheme in the world.
According to the ETS, airline emissions will be capped at 97% of their average 2004-2006 levels in 2012 and at 95% from 2013. Airlines will receive 85% of their emissions allowance for free in 2012 and will have to buy, at auction, the other 15%. This reduces to 82% for 2013-2020. Another 15% of allowances will be auctioned each year.
From 2013, the remaining 3% of allowances will be allocated to a special reserve for distribution to fast growing airlines (such as those from emerging economies) and new entrants to the market. Allowances can be bought and sold across the European Union. Airlines can buy credits from other industries but can only sell to other airlines.
The legal validity of the EU ETS has been challenged by Airlines for America (A4A), formerly known as the Air Transport Association of America. Its challenge is supported by the International Air Transport Association (IATA) and the National Airlines Council of Canada (NACC).
A4A reports that its members are complying “under protest” with the EU ETS.
“We still believe the EU ETS violates international law, including the sovereignty of the United States and imposes an illegal, exorbitant and counterproductive tax on U.S. citizens, diverting U.S. dollars and threatening thousands upon thousands of jobs,” A4A wrote in a statement.
A4A contended that none of the monies collected by the Europeans are required to be used for environmental purposes. “By contrast, the initiatives that the U.S. airlines are undertaking are resulting in real environmental improvements,” it stated.
In June, IATA, which represents 240 airlines worldwide, reiterated its call for the EU to drop its “unilateral and extra-territorial” scheme. Tony Tyler, IATA Director General and CEO, criticized the EU ETS as not being “a stepping stone” to meeting global environmental targets, but rather a “polarizing obstacle that is preventing real progress.”
He suggested that a global solution, negotiated through the International Civil Aviation Organization (ICAO), be agreed upon in 2013, and states that such proposals exist today.
At the heart of the opposition is the fact the EU levy on airlines is calculated based on carbon emissions for entire flights, not just the travel over Europe. The majority of airlines with operations to, from and within the EU are now required to monitor and report their emissions and to surrender emission allowances for any flights to and from EU airports.
Meanwhile, airlines in more than 20 countries, including the United States, China, Russia and Japan, have submitted their required baseline emissions data by the March 31, 2011 deadline. Eight Chinese and two India carriers did not comply, meaning that more than 99 percent of major airlines have complied with the first step of the EU ETS. China forbids its carriers to participate in the scheme.

Opposition Rancor

U.S. opponents did file a lawsuit disputing the inclusion of U.S. airlines in ETS. They cited that the ETS violated well established principles of customary international law by applying to aviation in third countries’ airspace and over the high seas, the Chicago Convention, the Kyoto Protocol, the EU-US Open Skies Agreement, and that such extra-jurisdictional matters should be regulated by ICAO.
While the lawsuit was dropped in March after a two-year battle against the UK government that was designated a “competent authority” responsible for administering the EU ETS, the A4A continues to dispute the ETS and states that U.S. government opposition “is crucial to bringing the EU back to the global negotiating table.” A4A President and CEO Nicholas Calio further stated that the Obama administration, the U.S. Congress and the world’s governments were now united in their opposition to the application of the EU ETS to international aviation and urged for accelerated work to reverse “this unilateral tax”.
“Our legal action was critical in bringing to light that the EU ETS violates international law and is an exorbitant money grab, which are now key points in the governments’ unified opposition to the scheme. There is a clear path for the United States to force the EU to halt the scheme and protect US sovereignty, American consumers, jobs and international law,” Mr. Calio said.
A trade war may be brewing over the issue. Russia was the first country to take a shot at the EU aviation emissions scheme. China is in great opposition to the scheme. U.S politicians in the House of Representatives have called on President Obama to take more forceful steps against the EU over the ETS and demanded officials from the State and Transportation departments to formally launch an Article 84 challenge at ICAO.
While EU Climate Action Commissioner Connie Hedegaard has reiterated Europe’s preference for a global agreement through ICAO, she added that it would have to deliver real emissions reductions from the aviation industry and could not be based on voluntary goals.
“Countries have until April 2013, when the first payments are due to the European system, to reach a global compromise,” she added.

Demonstrative Efforts

Meanwhile, efforts are continuing to make aircraft more environmentally sustainable. In 2011, airlines received approval to fly on biofuels. While very small quantities of sustainable aviation biofuel are available to airlines today, groups like the ICAO hope that governments will provide assistance so that producers will be able to deliver the quantities needed at a price comparable to traditional jet fuel, while continuing to meet sustainability criteria.
In June, the ICAO set out to show how biofuels-powered flights could be the norm with the right government assistance. With support from the Air Transport Group (ATAG), ICAO launched a special Rio+20 global initiative dubbed “Flightpath to a Sustainable Future” that consisted of a first-ever series of connecting flights powered by sustainable alternative fuels.
During this first “Flightpath”, ICAO Secretary General Raymond Benjamin traveled from Montréal to Rio de Janeiro for the United Nations Conference on Sustainable Development, known as Rio+20. Airline partners included Porter Airlines, Air Canada, Aeroméxico and GOL, and aircraft partners included Bombardier, Airbus and Boeing.


Dusk and Dawn for the U.S. Air Forwarders Market

By Karen E. Thuermer

Published in Air Freight Management, October 2012

The air freight industry in the United States continues to be in a state of flux as that nation’s economy struggles to rebound and pull out of what has become known as the Great Recession. Unfortunately, most air freight forwarders with operations in the United States see economic conditions as a series of stops and false starts.
John Hill, executive vice president of Lima, Pennsylvania-headquartered Pilot Freight Services, refers to economic conditions as “very sluggish.”
“Even overseas there is not super growth right now,” he says. “What remains the largest segment in North America are basically imports to Asia.”
Most forwarders indicate little optimism for growth, at least for the immediate future.
“It’s all about Europe having a cold, and us sneezing,” says Brandon Fried, executive director of Washington, DC-based Air Forwarders Association. “Security used to be the No. 1 issue among air freight forwarders, but now it’s the global economy.”
He contends that once the European crisis is abated, business will pick up. “But that will take some time,” he adds.
The U.S. Presidential elections are not expected to have any impact, other than to cause companies to hold off on investments until they see what the outcome will be.
“There’s a lot of money on the sidelines,” says Matt Parrott, director of transportation for St. Albans, Vermont-headquartered A.N. Deringer. “I think a lot of companies are unwilling to spend because the U.S. Dollar is still so weak and the U.S. deficit is so high.”
The financial crisis and uncertainly of the Euro only exacerbates the problem, economic experts say.

Impact on Carriers/Air Freight

Air freight is often regarded a leading economic indicator as to where markets are headed.
The long and complicated Great Recession has resulted in air carriers grounding much of their wide body fleets. Prior to that, high fuel prices caused carriers to downsize fleets. European and North American carriers, particularly, are now flying smaller aircraft on most second tier routes.
“This means that, whereas carriers might have once had positions for 15 or 16 cargo pallets on board an aircraft, today some do not have pallet positions at all,” Mr. Fried contends.
Nevertheless, the air freight business in North America has been tenuous for some time. Long gone are carriers such as Emery and BAX Global that offered upper deck capacity.
“Heavy weight cargo lift in North America doesn’t exist the way it used to,” says Mr. Hill. “What’s left are basically integrated carriers that would rather fly envelops than cargo because the yield is so much better.”
And now with less belly capacity available on airlines due to their use of smaller, narrower bodied aircraft, and the fact they offer fewer flights, forwarders and their customers are faced with fewer air options.
All combined, forwarders contend these factors have eliminated a fast forwarding network.
“There’s not a lot of growth as far as expedited transportation is concerned,” Mr. Hill remarks. “Everyone is pulling back and it seems no one is willing to put up an entire network for air cargo.”
A developing trend, however, is the move away from airlines’ use of regional commuter carriers operating smaller regional aircraft on point-to-point routes. Delta, for one, is starting to get out of those agreements and serve cities with bigger aircraft.
“We are seeing a return of larger planes to smaller destinations, particularly where it is economical,” Mr. Fried says.

Transport Shifts

Still global economic woes are causing many traditional air shippers to question the use of air freight in their supply chain.
“We see ocean freight growing in response to the need to trim transportation spend,” observes Mr. Zablocki. Consequently, many have adjusted their production and delivery schedules accordingly to avoid the high cost of air freight.
“Many shippers are beefing up stock because the cost of carrying inventory is cheaper than the cost of air freight,” remarks Mr. Parrott.
To cut costs, many forwarders are now booking cargo as sea freight and using ground transportation for domestic deliveries.
“Some are utilizing more innovative air-sea schemes to make up for time differences,” Mr. Fried adds. “Forwarders are even starting to look at ground transportation as a viable option for shipping valuable goods that are usually transported by air.”
Perhaps a sign of tenuous times is the recent move by more and more shippers to bid their business to take advantage of current air cargo rates to build a hedge against what they see could be an uncertain future.
“Many have commoditized their approach to buying transportation services, putting price ahead of all concerns for managing their supply chain,” Mr. Zablocki observes.
While this practice may be understandable in today’s economy, Mr. Zablocki states that he’s concerned about its effect on airlines that are struggling to stay solvent. “The industry could be looking at challenges ahead with capacity reductions,” he says.

Air freight forwarders have already spun their wheels to quickly reinventing their business and become masters at supply chain management. Some, like Pilot Freight Services — once known as Pilot Air Freight, now offer customized programs and solutions that streamline its customers’ operations, and improve efficiencies and responsiveness across their entire supply chain. That means combining efficient transport services with warehouse space, strong vendor relationships, and advanced IT systems.
A.N. Deringer offers value added services to customer, and bundles freight forwarding services with its customs house brokerage and distribution services.
“We look for ways to provide more service and reduce their total logistics costs,” Mr. Parrott says. “Our Custom House brokerage product is our lead product. We try to amplify that with all of our services.”
Mr. Fried points out that smaller forwarders also have found ways to survive in today’s tough market conditions by thinking outside of the box to exploit areas that are underserved by the big players.
One example, he says, is the trade show business. “It’s an area that companies like FedEx and UPS don’t like,” he remarks. “They might like the freight business, but not waiting around the trade show floor and providing the degree of service this business requires. It also does not fit into their hub and spoke network.”
Perhaps when the dust settles and the Great Global Recession is banned to the history books, the industry will find a forwarders market that is quite different. After all, out of the ashes the Phoenix must rise, and with it comes new opportunities. Forwarders have always known they must innovate or perish.

Bosch in South Africa indicative of global auto industry

9/28/2011Bosch in South Africa indicative of global auto industryBy Karen E. Thuermer, AJOT

South Africa’s automotive industry is a global, turbo-charged engine for the manufacturing and export of vehicles and components. The sector accounts for about 10 percent of South Africa’s exports, making it a crucial cog in the economy.

South Africa currently exports vehicles to over 70 countries, mainly Japan (around 29 percent of the value of total exports), Australia (20 percent), the UK (12 percent) and the US (11 percent). African export destinations include Algeria, Zimbabwe and Nigeria.

While South Africa can be regarded a minor contributor of global vehicle production, locally the sector is a giant. The government estimates it contributes about 7.5 percent to the country’s gross domestic product (GDP) and employs some 36,000 people. In fact, new vehicle sales there in recent years have made South Africa one of the best performing automobile markets in the world

One reason for this may be the fact it’s very expensive to import cars into South Africa. Besides the high cost of shipping vehicles all the way to South Africa, a value-added tax of 14 percent is applied to new cars, in addition to a 36 percent customs duty tax.
Consequently, auto manufacturers such as Volkswagen, Daimler AG, BMW, Renalt-Nissan, Toyota, Ford and GM have invested in plants there. Each has benefited from South Africa’s growing market. In fact, last year the auto industry was one of South Africa’s bright spots in its economy.

According to figures reported by Bloomberg News, last year car companies produced 472,049 vehicles in South Africa, up 26 percent over 2009. The government’s goal is for 1 million cars to be produced there by 2020.

If achieved, this would be a boon for components manufacturers that benefit from the local and export market.

The National Association of Automotive Component and Allied Manufacturers (Naacam) reports that component exports ticked up 10 percent in rand terms – and about 15 percent in volume – in the first quarter of the year, compared with the first quarter of last year.

Component sales to local vehicle manufacturers were also up around 10 percent, while sales to the aftermarket declined as the trend moves from repairing old vehicles to buying new vehicles.

This is good news for a country where exports, in general, are falling and manufacturers continue to shed jobs.

Robert Bosch South Africa Enter Robert Bosch South Africa (RBSA), a regional branch of the Bosch Group, the world’s biggest private industrial corporations and where automotive technology is one of the biggest corporate divisions in the World Wide Bosch Group. Bosch is the world’s largest manufacturer of automotive parts and systems.

In South Africa, Bosch is one of several auto components manufacturers. Others include Arvin Exhaust, Bloxwitch, Corning, and Senior Flexonics. All located to South Africa to take advantage of low production costs, coupled with access to new markets as a result of trade agreements with the European Union and the Southern African Development Community free trade area.

Despite today’s economic climate where talk of another recession is on everyone’s lips, Dr. Steffan Hoffmann, managing director of Robert Bosch (Pty) Ltd in South Africa feels more positive, especially as it relates to his country’s auto industry.

This AJOT reporter spoke with Dr. Hoffmann in a recent telephone interview to follow up on a visit to the Bosch plant in Brits, North West Province, South Africa late last year.

The Bosch division also has operations in Midrand, in central Gauteng Province.

While Dr. Hoffmann did not offer updated sales figures, last year he revealed that the Bosch division did 1.4 million Rand, or about US $190 million, in sales in 2009.

He explained that Robert Bosch (Pty) Ltd manufacturers starters, alternators, electrical harnesses, drives, chassis systems, brakes, security systems, and parts for the automotive aftermarket, in addition to non-related items such as power tools, and solar /thermal systems for hot water heaters. It also manufactures home appliances in joint venture with Siemens.

“Our non-auto business started in 2010,” he explained.

It’s at the Brits site where electronics manufacturing is done. The plant there is roughly 18,300 square feet in size. Among its customers are GM, Ford and Polaris.

“Manufacturing at this site is dominated by energy management and security systems,” Dr. Hoffmann said. “Much of the work is in joint venture with local customers.”

Driving much of the business, he revealed, is a big price increase in electrical parts. “The goal is to make $50 million in this sector by 2014,” he added.

Purchasing Issues Most of the purchasing for parts that go into manufacturing Robert Bosch (Pty) Ltd’s products in South Africa is done by Bosch Germany. It also uses some local suppliers. Worldwide, Bosch’s total purchasing volume across all product lines is nearly US $32.8 billion and totals 4.3 million tons of freight each year, according to Bosch’s corporate website.

“They have a large purchasing department,” Dr. Hoffmann explained. The logistics is handled by Schenkers.

By working as a single department for the entire company worldwide, Bosch Germany buys items in bulk then ships them accordingly to supply each plant.

“The purchasing department plans the shipments on a monthly basis, but the window on planning is done on a three-month basis,” Dr. Hoffmann explained.

This is because a shortage of components can impact production. Consequently, the South African operation needs to carry more stock to balance out lead times, although it receives deliveries daily.

“There’s always a mix of central and local purchase ordering,” he continued. “But we obviously get a lot of components from Bosch plants all over the world. They have third party suppliers in Europe, Asia, China, India, as well as locally.”

Of those components, Bosch purchases for its South Africa plants, approximately 70 percent come from China and 20 percent are supplied locally. For the auto industry, the majority of imported components come from Europe due to the fact BMW, Mercedes, and Volkswagen have a major presence there.

“The model of cars manufactured in South Africa typically is part of a worldwide platform,” Dr. Hoffmann commented.

Those imported components are shipped to South Africa by containership. Most come through the Port of Durban, South Africa’s largest seaport. But other ports, such as Port Elizabeth, are also utilized.

There’s also talk down the road of one day using a seaport outside of South Africa in Mozambique or Namibia,” Dr. Hoffmann added. “But we’re not there yet.”

One reason is because Durban is one of the most expensive ports in the world to utilize.

Meanwhile, he stressed how there’s not enough purchasing being done from local suppliers.

We’re working on changing that, but it often requires developing those supplier relations ourselves.”

Purchasing locally not only helps South African manufacturers, but saves time and delivery costs.

All materials are collected from the local suppliers’ premises.

“This gives us the advantage of allowing us to bundle orders,” he revealed. “We work together with highly qualified contracted carriers here, and give them responsibility for the entire region.”

Networking between Bosch, the supplier and the carrier is managed via Web EDI (electronic data interchange), from the call-off to the goods receipt.

But first it takes place inside of our heads,” Dr. Hoffmann said. “A multitude of solution models and variants in networking and assignment of tasks has been developed. The really good ideas only work in close co-operation with our partners.”

There’s another issue Bosch faces when sourcing parts locally, one that can be common to any industry. Suppliers and their manufacturers use shortages to increase prices.

Many do not want to inventory,” he said.The problem is only exacerbated by recent disruptions to the supply of steel due to a dispute between Kumba Iron Ore and ArcelorMittal South Africa. In this respect, Dr. Hoffmann pointed out, the global system of purchasing helps out a lot. “We are limited here,” he said.

Export, Labor Issues When asked if Bosch South Africa exports any of its auto components to other countries, Dr. Hoffmann remarked that it is minimal. What the company does export, goes exclusively to Europe. We used to export more, as did the whole country,” he said.

For example, in the past the majority of catalytic converters worldwide came from South Africa due to the fact that 80 percent of worldwide platinum is mined there. Generally, each catalytic converter contains three to seven ounces of platinum.

Leather seats were also a big auto component exported from South Africa.

But as Dr. Hoffmann explained, the issue is more about being a reliable supplier. The fact there are so many unions in South Africa has translated into many production stoppages caused by strikes and labor disruptions.

There’s a national union that represents auto workers, and others dealing with the seaports, the trucking industry, and others,” he said. “Things got so bad that in a typical year, we were looking at at least two to three major disruptions from somewhere.”

Of course, Dr. Hoffmann attributes this, in part, to South Africa’s history of Apartheid when labor strikes were the only way workers could express themselves.

Things have been relatively quiet for close to three years,” he said.

Increasing Investment One positive trend affecting automotive industry in particular has been the massive investment original equipment makers (OEMs) have been making in South Africa.

Five years ago, an OEM might have considered locating elsewhere,” Dr. Hoffmann said. “But today, virtually every major OEM is here.” More so, they are growing their investments and upgrading their manufacturing plants. Ford Motor Company, for example, announced in June the completion of a two-year, US$500-million upgrade of its manufacturing and assembly plants in South Africa to enable it to produce and export its new Ranger diesel pickup trucks to 148 countries, mostly in Africa and Asia.

This solidifies South Africa’s role as a key operation in Ford’s global manufacturing footprint,” Ford executive vice-president and CFO Lewis Booth said in a statement.

In fact, Ford’s Struandale, Port Elizabeth engine plant has been extensively upgraded and is now capable of producing 75,000 engines and 220,000 engine component kits a year. Its Silverton, Pretoria vehicle assembly plant has also been expanded and is now capable of producing 110,000 vehicles a year. With about 10 percent of market share in South Africa, Ford trails Toyota, Volkswagen and GM. But, as executives report, Ford’s South Africa investment was not just aimed at growing local market share, its about transforming its South African operations from a domestic to global manufacturing site.

Ford’s news may not impact Bosch, but it is reason enough for Dr. Hoffmann to remain optimistic on the region and South Africa’s future.

Intermodal Rail Comes of Age in Northwest Ohio, American Journal of Transportation, 9/28/2011

9/28/2011Intermodal rail comes of age in Northwest OhioThe opening of CXS’s intermodal terminal in Northwest Ohio clears the way for rail shipments from East Coast ports to the Midwest.

By Karen E. Thuermer, AJOT

Blow your train whistles! CSX’s Northwest Ohio Intermodal Terminal is running full steam ahead.  Shippers can now take advantage of yet another intermodal rail terminal that offers efficiencies and speed to markets in the Midwest and beyond.

In June, CSX Transportation celebrated the grand opening of its Northwest Ohio Intermodal Terminal, located in North Baltimore, Ohio between Findlay and Toledo.

It’s one of several terminals in CSX’s public-private partnership National Gateway project with the federal government that will ultimately clear 61 obstructions, thereby allowing CSX to run double-stack rail, and build and expand six intermodal facilities within CSX’s network.

That network expands North Carolina, Virginia, Maryland, West Virginia, Pennsylvania, Ohio and Washington, D.C.

“We run about 26 trains daily in and out of the terminal and do about 1,500 lifts a day,” Drew Glassman, CSX assistant vice president of Intermodal marketing, revealed to this AJOT reporter in a telephone interview upon his return from the new terminal that same day.

He expects those amounts to be more once the entire National Gateway system is fully up and running, and CSX moves from a point-to-point network to one that operates like a hub and spoke.

“This will allow to us to add hundreds of connection points across our network,” Glassman explained. “Before, where we may not have been able to run full trains from a point like Columbus and different points across the network, we are now able to have a whole train load from Northwest Ohio go to points in the Ohio Valley and beyond.”

Glassman described the network as akin to what air carriers like FedEx or Delta have been doing with their systems for years.

“If you fly into Delta’s Atlanta hub, for example, you can go anywhere,” he said. FedEx’s use of Memphis is another example.

CSX offers a similar concept in which, through its northern tier, shippers can utilize hubs at its Chambersburg, PA; Syracuse, NY, and Northwest Ohio terminals and spring smaller trainloads to other markets. 

“What this means to CSX customers is an improvement to connectivity and efficiency,” he said. “Once you get into Northwest Ohio you can get access to our entire network. We can build high density trains that can be sent out West as far as California, and do the reverse when shipments come East.”

When the railroad has enough density of cargo for a particular route, it can still run a full train point-to-point.

What the National Gateway initiative offers the CSX network is the ability to add double stack capacity from mid Atlantic ports into the Ohio valley via Northwest Ohio.

Seaport and By Pass Connections The Port of Baltimore is part of the National Gateway initiative, where a new CSX intermodal terminal is also scheduled to be built between Baltimore and Washington, D.C. to offer better connectivity to its domestic system.

Whereas today, CSX serves nine different markets from its network from the Port of Baltimore (in addition to connecting to the western railroads), when the National Gateway is fully implemented and all services are phased in, CSX will be able to service nine additional markets and 80 million additional consumers that are not rail served out of the Port of Baltimore today.

Those markets, and phase in periods are: Cincinnati, Louisville, Indianapolis, and Buffalo, 2012; Atlanta, Charlotte, Memphis, and Pittsburgh, 2014.

While CSX has a large presence with the Ports of Savannah and Charleston, these Ports do not connect as well through the National Gateway.

“They tend to be more Atlantic-centric in the South,” Glassman said.

But Glassman stresses how important the Port of New York and New Jersey is to its network since it operates as CSX’s biggest import-export port out of the East Coast. This is significant since transcontinental shippers benefit most from CSX’s connectivity thanks to the National Gateway and Northwest Ohio terminal. “One of the advantages to Northwest Ohio is that it allows us to bypass Chicago, which is very congested and has a lot of complexities related to interchanging freight,” Glassman added.

CSX is also able to partner with Union Pacific (UP) and Burlington Northern Santa Fe (BNSF) railroads and bypass Chicago and go straight into Northwest Ohio.

“Shippers are able to get this kind of connectivity into smaller markets, but also are now able to get a high density and connectivity by shipping back to Northwest Ohio where the train is ‘re-densified’ and the containers are put on their way East or West,” Glassman remarked. “We also serve the function of offering local service out of Northwest Ohio.”

Ample Containers Whereas when the economy was flying, containers came in short supply, today’s slower economy has put less pressure on the need for ample containers. But given the fact the railroad is ramping up business, and more and more customers are using rail to save cost and take advantage of its new efficiencies, CSX is investing in a new domestic interline container program called UMAX.

UMAX, which is in partnership with UP, was launched in March 2010 to expand market access and capacity across a nationwide intermodal network.

“We have been adding significantly to that fleet over the last year, and have added almost 4,000 containers this year alone,” Glassman revealed. “We are up to about 30,000 containers.”

Private customers such as JB Hunt and Schneider have also been adding into their fleet, as have international steamship lines.

Although Glassman acknowledges the down economy and diminished import trade, he points out that CSX’s domestic business continues to grow even through this year.

“I think this is because people are making economic choices and use a greener alternative to trucking,” he said. “We have most definitely benefited from the tighter times.”

Reliable, Robust Helping the system further, Glassman stressed how the intermodal terminal in Northwest Ohio is not only improving CSX’s transit times; it is improving its reliability.

“Our connections are much better because we now have multiple departures to destinations,” he said. “So if freight gets behind, it has a better chance of catching up.”

Reliability has always been an issue within the railway system, and a reason shippers hesitated to use rail in the past. But since CSX’s Northwest Ohio terminal is, for the most part, a one connection point across the northern tier of the CSX network, there’s fewer opportunities for freight delays.

“Normally freight has to make two or three connections, which allows more opportunity for things to go wrong,” Glassman related. “It’s the same in the airline industry.”

What will help even more will be when a density of freight builds up, and CSX will have the option of running freight point-to-point without stopping in Northwest Ohio.

Competitor Norfolk Southern (NS) is working to offer the same advantages with its Heartland Corridor, which Glassman described as “a great project and big investment in public private partnership between NS, several states, and the federal government.

“The goal there is to get more connectivity out of the Port of Virginia into Columbus, which is where it is primarily oriented,” he said.

It, too, increases NS’s capacity capabilities on that line, like National Gateway does for CSX.  But from a capacity perspective, Glassman stressed that National Gateway also goes through Virginia and Baltimore.

“Where we feel we really have an advantage is with the Northwest Ohio terminal as an anchor to our pipeline into the Mid Atlantic,” Glassman stressed. “We think that distribution network is our competitive advantage. It’s not just having the clearances, but also that robust distribution network to go with it.”

The Northwest Ohio terminal is also expected to result in a boom in distribution warehouse development in North Baltimore, Ohio and the region. Already, the town of North Baltimore, which partnered in helping CSX locate its facility there, has zoned thousands of acres for commercial and industrial parks.

CSX terminals in other locations, such as Chambersburg, PA, had a similar affect. As a result of the Chambersburg terminal, scores of distribution sites grew up off of Interstate 81.

Panama Canal Impact Going forward, another boom for CSX and its National Gateway project will be the Panama Canal expansion, to be completed in 2014. Overall, CSX executives are convinced that the National Gateway project in Northwest Ohio will allow the railroad to compete effectively for the additional freight that will come into East Coast seaports.

While CSX executives are very vocal about how very excited they are to work with the steamship lines in moving their freight inland from the ports, Glassman emphasized how ports on the East Coast still have to make more investment in anticipation of larger ships coming through the widened Panama Canal in order to make it possible for the bigger ships to arrive.

He revealed, however, that CSX has already seen a shift over the last five years of freight coming into the East Coast versus the West Coast due to other factors.

“We are ready to serve both legs of that because we serve freight coming from the West as well as from the East,” he added.

Short Sea Implications The new Northwest Ohio terminal could also impact the possibility of developing short sea shipping on the Great Lakes.

For years, Europe has benefited from a system of short sea shipping networks. But the idea has never caught on at one of North America’s great water networks. The reason: the system of locks, the St. Lawrence Seaway, and the seasonality of the water system, i.e. cold winters that make it such that the waterway can only be open from mid March to late December.

But Paul Toth, president and CEO of the Toledo Lucas County Port Authority told this AJOT reporter that he believes there are economic and efficiency benefits to offering short sea on the Great Lakes.  The Port of Toledo could, especially, benefit from the CSX Northwest Ohio terminal since it is not that far away. 

“From a strategic standpoint, the Port has looked at how the North Baltimore facility could impact us,” he said. “In the last 18 months we have spent around $15 million in upgrading rail access, buying new cranes and equipment that could handle container movements.”

Those cranes are not the container variety, but instead mobile harbor crane that can be used for the port’s traditional break and break bulk materials.

“But they can also handle containers,” Toth said. “We have always strongly believed that once CSX was up and fully operational that it would create an opportunity for us to move containers by short sea — both inbound and outbound.”

While no container shipments have occurred yet on Lake Erie, Toth reveals his port has received ships from overseas.

“We’ve had a couple of ships from Spain this spring that brought in large wind turbine blades, cells and their hubs,” he revealed. “The challenge with the Great Lakes is the St. Lawrence Seaway and the locks limit the type of ships that you can bring in. But the whole theory is that a large containership could be brought to big container ports like Montreal or Halifax, then transfer those containers to smaller vessels capable of handling up to 1,000 containers that can come in and out of the Seaway.”

Not only would this be an efficient way of shipping, it would be far more “greener” than trucking the shipments those long distances.

“We can use our port to off load containers,” Toth continued. “On the inbound side, we can distribute directly out of the port by truck, or put them on rail, and send them to the CSX facility in North Baltimore where they can be broken down for further shipment.”

The Port of Toledo offers direct access to the North Baltimore terminal since CSX rail comes directly to the port.

Toth also sees the same advantages on the outbound.

“There could be a company in Toronto that needs a container coming from China. It could come into the West Coast by rail to North Baltimore, get transferred to our port and then put on a short sea ship and sent to Toronto,” he said.

Toth is convinced there is an opportunity because of the way CSX has developed the Northwest Ohio facility to take advantage of short sea shipping on the Great Lakes.

Although the St. Lawrence Seaway is shut down from the end of December to the middle of March, Toth emphasized how these two or so months fall smack in the middle of the slowest time for moving containers worldwide.

“So we still think a viable container service nine or 10 months a year can work well out of the Great Lakes,” he said.

Currently, the Port is working on a freight movement study with the State of Ohio to understand how products are moving literally by all modes and what opportunities there are to take advantage of that movement.

In the meantime, the Port of Toledo has purchased 182 acres of land, which would more than double the size of the port. While the port, which opened its general cargo facility in 1955, has up to now only been served by CSX, the new property will also offer access to NS rail.

“The property is also right next to our existing property,” Toth said.  Just recently, the Port installed enough rail to accommodate a full unit train that can tie into NS. The Port is also investing about $20 million in the property so that by late 2012 it will be able to start handling shipments at that facility as well.

Just like CSX’s North Baltimore terminal, Toth points out how Toledo is geographically in a unique position because of its close proximity to Chicago, Columbus, Cleveland, and Indianapolis. Northwest Ohio is also in the middle of a very large population, and at the crossroads of I-75, which goes from Canada to Florida, and I-80-90, which runs from the East to the West Coast.

Three Class 1 railroads (CSX, NS, and CN), in particular, have access to the Port of Toledo.

“We enjoy a great partnership with our port operator,” Toth added. “We had a 15 percent increase in freight last year, and are experiencing the same this year. We are riding a high wave right now and making investments in our future.”


Up in the Air

As appeared in FDI magazine, December/January 2012


By Karen E. Thuermer



When the Hesse Administration High Court in Germany put an end to scheduled nighttime flights at Frankfurt Airport, the news came as a big blow to Lufthansa Cargo.  The carrier had planned for 10 night flights on its winter schedule, beginning October 30.

Karl Ulrich Garnadt, Chairman of the Executive Board and CEO of Lufthansa Cargo, sees the resulting consequences for the carrier as “quite severe.”

“We don’t know how our customers will react, but we expect a double digit impact,” Mr Garnadt says.

He sees the provisional night-flight ban in Frankfurt as a drastic signal for the German logistics industry.

“As an export world champion, Germany is reliant on dependable connections to ship airfreight to destinations around the globe,” he says. “Frankfurt Airport plays, in that respect, a highly important role since around 40% of German exports are transported by air.”

 Mr Garnadt also predicts the decision will impact companies in Frankfurt and the Rhineland industrial area that depend on night flights to give them a competitive logistics solution.

 “By loosing night flights, the quality of Frankfurt as a logistics hub will have an impact on investment decisions by companies,” Mr Garnadt proclaims.

Airports are economic drivers, and those handling cargo are powerful engines for local economic growth, particularly in attracting manufacturers and logistics operators who depend on fast transport service.

         This fact is so poignant that Dr. John Kasarda, professor at the Kenan-Flagler Business School at the University of North Carolina-Chapel Hill, has named the concept “Aerotropolis” to describe an aviation-oriented economic region that has an airport as its cornerstone.

         Two cities in the United States exemplify this point: Memphis, Tennessee, home to Federal Express; and Louisville, Kentucky, the world hub for UPS.

         FedEx has grown into a worldwide power, and its Memphis hub has made the city a magnet for businesses that thrive on time-critical transportation. From Memphis, FedEx can deliver to any North American location within 24 hours and to most major global cities within 48 hours.

         Among the companies locating in Memphis to capitalize on these advantages are Johnson & Johnson and Pfizer. Both have major logistics centers in Memphis.

         Zappos.com, one of the largest on-line shoe stores in the world, moved its fulfillment center in 2006 to Louisville to be close to the UPS world hub.

That hub, dubbed Worldport, currently turns over 130 aircraft and processes around 1.5 million packages a day.  

 “From there, and with the help of UPS, we were able to serve areas with population density, and the US lower 48 states with next day or two day delivery,” says Craig Adkins, Zappos.com vice president of services and operations.

As a result, Zappos sales grew from $597 million in 2006 to $840 million one year — an amazing 40 percent jump.

          Nevertheless, Dr. Kasarda points out airports in the US are treated as nuisances to be controlled, unlike their counterparts in Asia and the Middle East where they are regarded primary infrastructure assets for their cities and nations to compete in the globally-connected, speed-driven economy. 

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