The Wreck of the APL Panama

To help those not familiar with logistics understand what happens in global maritime trade, I prepared the case study of the wreck of the APL Panama.

Full text of the speech.
It was December 25 2005, and a beautiful clear Christmas day. The waves on the Pacific were unusually quiet and the visibility perfect as Polish born First Officer Motusic waited on the bridge for Croation Captain Bronko to take over the helm as they approached the port of Ensenada Mexico. The APL Panama, (roughly the same size as the Titanic), was a container ship loaded with thousands of containers full of flat panel televisions, silken underwear, Apple Ipods, Nike running shoes, and Nissan automobile parts. With a tiny Burmese crew, she was completing her regular rotation from China, Japan and Taiwan, to ports in the United States and Mexico.
“It’s 5:00 pm and where is the captain”? Motusic mused from his lone position at the helm up on the bridge. He was uncomfortable being in the position of responsibility with a ship racing into port with no knowledge of the safe passage into the harbor. He had already made 2 calls to the captain’s cabin, but the drunken souse still hadn’t made it to the bridge.
They were less than 100 miles south of San Diego, and 1 hour early for their appointment with the port pilot who would guide them through the unpredictable channel into the harbor at Ensenada.
Feeling panicky, Motusic made a second call over the radio for the port pilot. He had no idea where the safe channel was, and his ship needed at least 50 feet of water in order to stay afloat. It was the port pilot’s job to come out from the port and meet every ship while it was still out in deep waters and help the captain guide it safely into port. Matusic was glad when the radio crackled announcing that the port pilot was coming.
At 5:42pm Captain Branko weaved and stumbled up into the bridge. Steadying himself and hanging onto the door, the Captain waited for the port pilot.
Port Pilot Ramírez said he was leaving the port to meet the vessel when they spotted the monstrous ship heading across the harbor's entrance channel and aiming straight for the shore.
“I saw the lights and I couldn't believe it, I just couldn't believe it,” said Ramírez. “I told the tugboats, 'Leave the port, because the ship is about to run aground.' ”
On Christmas day, Conelep beach was a beautiful deserted place. A few residents enjoyed the peace and tranquility. Seagulls wheeling in the sky, the music of the surf, were drowned out by the rumble of the APL Panama as she approached shore.

First Officer Motusic noted that the captain was slow to react as he pointed out the buoys marking the channel's entrance, and the arriving pilot vessel. "The captain was all the time looking ahead, and he said, 'I still cannot see the pilot. Where is the pilot?' I told him and pointed, 'Captain, there is the pilot, there is the pilot!' ". The captain gave the order "hard to port wheel"! Then, the pilot called and warned, "Captain, you are going to shallow waters,". Minutes later, the APL Panama drove headlong onto Conelep beach burying her bow 20 feet deep in the sand.
Testimony
In sworn testimony later, there were no equipment failures; only human error and possibly a little tequila that led to the grounding. At 6:12 p.m., on an evening with good visibility, light breezes, smooth seas, The APL Panama ran aground in the surf, off a wide sandy beach.
“The cause of the grounding was neither the wind, nor the current nor the visibility, nor the tide,” Port Pilot Ramírez said. “All of the conditions for entering the port were normal.”
"In my view it was too high speed," said Motusic. "My opinion is that the Capt. did not come to the bridge on time." Motusic's declarations and those of Captain Branko, paint a vivid picture of the half hour before the grounding and the desperately futile last-minute maneuvers.
Motusic, in testimony said he tried to call the port pilot on the radio from 4 p.m. to 5:30 p.m. "but without success." As they approached the port, Motusic said he called the captain twice from the bridge. But Captain Branko did not show up to take command until 5:42 p.m.
Under questioning from Ensenada's harbor master, Branko said it was his 4th time entering the Port of Ensenada, and that all the equipment on board was functioning. It was not until 6:05 p.m. that he realized the vessel was in danger, he said. Seven minutes later it ran aground.
As is the practice in ports worldwide, ships are required to enter the Port of Ensenada with a pilot on board. The pilot meets the vessel at an offshore location, 2 miles W. of the port entrance. Port officials say their records show the pilot was scheduled to meet APL Panama at 7 p.m. Capt. Branko, said the crew told the ship's agent in Ensenada at noon the ship would arrive at 6 p.m.

Consequences
Within days, 5000 people were laid off at a Nissan plant while they scrambled to find an alternate source of parts. Nissan’s just in time manufacturing process didn’t allow for ships to run aground.
As the days turned into weeks, tempers frayed. Sandra Newman, whose husband had accepted a transfer from Taiwan to a position in the Mequiladora region of Mexico had a container full of their furniture, household effects and baby clothes. “I need my stuff” Sandra fumed.
Flat panel televisions from China were to have been on the shelves for Christmas, but had been delayed in production by the lack of critical parts from New Orleans. But the storm that battered New Orleans had made it impossible. Now ocean shipping incompetence would add to the delays of a global supply chain.
But in ENSENADA, a party developed. The crowds gathered to gawk at the wounded giant occupying ¼ mile of their beach while salvage workers plotted ways to float the vessel. The surrounding scene evoked a crowded plaza on a holiday, with vendors selling candy, families sharing picnics, couples holding hands. "It was like a giant party that you don't need an invitation to," said Arcelia Paz. "It was like Mardi Gras." The Mexican Military had to be called in to keep order.

Salvage
Initially after the wreck, precious moments were lost because the ship's captain refused assistance. That would mean it was salvage” and would prompt a host of legal problems. The waves and currents were pushing the ship into the shore, and by the next morning, it was parallel to the beach and much more difficult to move. By this time 6 massive ocean tugs with a combined 80,000 HP were unable to budge her.
Other ideas for freeing the ship didn’t work either, and the world’s most powerful helicopter a Soviet MIL-26 was engaged to begin lifting the containers off the ship. Realizing that this would not go fast enough, a road and temporary quay were built out to the ship so that a massive crane could be installed to assist in removing the containers.
As the weeks turned into months, a massive dredging boat was brought in to start digging a channel alongside the ship to allow her to be refloated. Finally on March 10, after 75 days on the beach, the APL Panama came free. Because the grounding was ruled an accident, Captain Branko and First Officer Motusic were allowed to leave Mexico, but the Mexican equivalent of the Environmental Protection Agency, fearing damage to Conelep beach legally seized the ship as collateral for cleanup costs.
During the time the APL Panama was beached, the Queen Mary II, currently the worlds biggest and most luxurious cruise liner, paid a stop to Ensenada. Guests sipping champagne along the port rail could ponder the dangers involved in the shipping business.

Conclusion
Today, the APL Panama sits in Ensenada harbor where she intended to be on Christmas day. The lawyers are filing lawsuits apportioning blame. The containers that were on her have been removed. The auto parts have allowed Nissan to resume production, the flat panel televisions will be sold for Christmas next year. Sandra Newman has her furniture, but the helicopter lifting the container off the ship, dropped it while it was still 10 feet off the ground. This didn’t do the dining room suite any good. Sandra can be glad that it only fell from 10 feet.
The ILWU (International Longshore & Warehouse Union) found the plight of the APL Panama sweet revenge. Their dispute with US West coast ports had shut the nation’s shipping down for several weeks during the Christmas rush in 2003 until President Bush ordered them back to work. Because of this labor uncertainty and the fact that Mexico’s ports were not unionized, shippers had been diverting an increasing amount of their cargo into the United States via Mexico rather than using traditional West Coast ports like Los Angeles. The ILWU trumpeted the plight of the APL Panama as a reason shippers should come back to US West Coast ports. A job in the ILWU is one of the last few places where a blue collar worker can make over $150,000 per year. Of course in Mexico dock workers only make a fraction of that.
With her propeller damaged, and inspectors examining her to see if the massive forces involved in pulling her free have weakened her backbone, APL Panama isn't going anywhere soon. In addition, Mexican authorities won't allow the vessel to leave until the beach where it was stranded is restored.
Story books are full of legends of pirates and ship wrecks from bygone days. Even though ship wrecks today are much more massive, they don’t seem to have the same mystique.
So the next time you go to pick up a flat screen TV and find out the store is out of stock and won’t receive any more, you’ll know there is more to the story than the store clerk can tell you. Cargo Law, a publication of the international shipping community has only one thing to say. “Ship happens”.

Delphi Bankruptcy

Death Blow to the UAW and Organized Labor?

It’s been almost 70 years since the Battle of the Overpass started Henry Ford and the auto industry down a collision path with organized labor and the UAW.  For many years America’s unchallenged industrial might, churning out the worlds most advanced products, was a rising tide that lifted all boats.  The UAW, going along for the ride, was able to extract excellent wages and benefits for its employees.  But the closing of the 20th century and the dawning of the 21st century brought on a fierce global competitiveness that slaughters every business with a cost structure out of line with its competitors.

It was into this challenging environment that Delphi was born, a child of General Motors in 1999.  Right from the start, Delphi was saddled with GM labor entitlements that GM knew to be unsustainable.  Last year, Delphi’s new UAW labor agreement set out a 2 tier wage structure with wages for new hires more in line with the Tier 1 competition, but grandfathered existing employees into the richer legacy programs.  Delphi just needed enough time to retire all the high priced help.  But, competitors didn’t allow Delphi this luxury and on Oct 8, Delphi went into Chapter 11 bankruptcy protection.  Steve Miller’s plans for Delphi to emerge from Chapter 11 call for painful concessions from the union.  

These concessions are not of the piddling few percent the UAW and Delphi have become accustomed to haggling over.  They are the kinds of discounts that customers of General Motors have been demanding lately before they will walk out of the showroom with a new set of wheels.  

The UAW union has been strangely silent as salvo after salvo of Delphi bad news has hit them.  With the vacuum left by the union silence, workers are taking matters into their own hands, with union-like splinter and dissenter groups like www.futureoftheunion.com operating outside of the auspices of the UAW.  Under normal circumstances ignoring these dissenters works, but these are no ordinary times.  Rank and file workers are using the speed of the internet to organize themselves much faster than the UAW can react.  Once the UAW’s base deserts them, alternative organizing strategies cannot be stopped.  

In 1990, the Soviet Union and the Warsaw pact lost control of its citizens with the end result being their collapse and the fall of the Berlin wall.  While I don’t draw any parallels other than control of a deteriorating situation, the UAW is losing control of its members as well, and the end result will take down the leadership of the UAW.  

On one hand it may be good for the UAW to collapse, but in a vacuum, unexpected things happen.  The General, Ford and Daimler Chrysler would also be in play.  With the UAW in place, you know who you are negotiating with, but if the UAW collapses, chaos will reign for a time.  Steve Miller is playing a high stakes poker game, with the future of the US auto industry.  Let’s hope he and labor are able to come up with a handful of aces.

Katrina vs Logistics

Katrina sure woke up the political establishment, and handed George Bush an unexpected challenge.  The president that got such good marks for his handling of the September 11th disaster, didn’t get such glowing reviews from the Katrina worriers.  Granted, there didn’t seem to be any Rudy Giuliani helping Bush look good in New Orleans.  Even if this signals the end of the Bush era as some political opinion writers seem to think, we in the logistics area should be careful.  We might not like what happens next.  

The Highway Bill passed and signed into law by Bush before Katrina has been roundly criticized as being laden with political pork.  While I am concerned with some of the excessive spending this bill entails, I am also very concerned about our sagging transportation infrastructure.  Its not just our highways that are creaking, our rail and ocean port infrastructure are also being strained to the breaking point.  Now some political budget hawks are suggesting that the $200 billion “Katrina Get Well Present” be financed by cutting from the highway bill.  I am definitely for responsible debt management, but our highway infrastructure, especially in the high density corridors is sadly needing a jolt in the arm.   I urge Congress to be carefully weigh the knee jerk temptation of stealing from our highways to pay off Katrina ….

Rise and Fall of Organized Labor in Logistics

The plight of organized labor in logistics:  On one hand, it couldn’t be any worse.  The number of unionized truckers in the United States has been on a continuous decline for years.  Of the strong unionized LTL carriers, only Yellow Freight and Roadway are left.  The new super regional LTL carriers like Fed-Ex Freight are all non-union.  The once mighty Teamsters who at one time organized almost the entire trucking industry, are a shadow of their former selves.  

On the other hand, unions are doing quite well thank you - in the ports.  Those with Asian importing responsibility recall with horror the West Coast ports strikes.  In the ports, unions hold a very large stick over the head of the entire economy.  

Because of the prohibitive cost of organizing new workers, and the fast changing nature of today’s economy, it appears that labor’s fortunes are tied to massive stable infrastructure (ports) where longshoremen have a tight grip on the work, and non competitive parts of the economy (government employees) where they are also doing quite well.  The only threat that longshore employees at US ports face is the competition from ports in Canada and Mexico and due to the additional transportation costs involved, this is very limited.  

In spite of this limited success, globalization and competition is really killing organized labor in logistics related fields.  The breakup of the AFL-CIO won’t help.  Union leaders that plan on increasing membership might be better served solving the riddle of Jimmy Hoffa…..     (See also http://www.radbourneconsulting.com)    

Securing the Global Supply Chain

Attacks in London show us that the war on terror isn't won yet.  I leave it to others to poke holes in Britains easy access to foreigners, but it is clear that terrorists still have the will and the means to continue their ways.  Note that attacks continue to probe weaknesses in passenger security.  This too is where most of the tax dollars are being spent, with over 95% being allocated to passenger security.

But, we still have a long way to go before the global supply chain is secure.  Its only  a matter of time before some crazies get lucky and are able to hit the US through its supply chain.  I agree with the US government strategy of identifying suspect containers before they leave foreign ports as defined by the Container Security Initiative, and partnering with shippers via Customs Trade Partnership Against Terrorism, but these programs are moving very slowly and being funded very meagerly compared with airline passenger security.

If Timothy McVeigh was able to bring down the Federal building in Oklahoma City with a couple of thousand lbs of nitrogen fertilizer, just think what one ocean container full of 40,000 lbs of the material would do detonated in rush hour traffic on the Golden Gate bridge in Southern California.     (See also http://www.radbourneconsulting.com)    

Lengthening Supply Chains

As companies have gone global with their sourcing, supply chains have lengthened as more and more product is imported from locations on the opposite corners of the earth.  

This lengthened supply chain has required an increased level of inventory to operate.   On an overall basis, this affect has slowed the steady decline in inventory levels that has been the norm for the last few years.  This trend of increasing inventory will continue until the costs of doing business globally meet the costs of doing business locally.     (See also http://www.radbourneconsulting.com)    

Global Trade

Global trade is the currency of prosperity these days.  The Chinese know it very well, and the Europeans also tried to cash in with the creation of the EU.  Sadly for Europe, their definition of free and fair trade is still very limited.  I wish them success as they try to balance the social contract of Western Europe with the global competitive nature of business these days.

The US, rather than take a back seat to the EU has gone overboard in liberalizing trade with countries that have worked with the USA.  CAFTA and numerous other free trade agreements on the horizon make certain the US won't lose the lead anytime soon.     (See also http://www.radbourneconsulting.com)    

RFID

It really doesn't matter that Wal Mart and the Department of Defence have mandated RFID.  Sure, they have created a speculative bubble for the tech sector reminiscent of the days before the dot com crash, but RFID won't really take off until there is a business case generating a return on investment.   (See also http://www.radbourneconsulting.com)    

Domestic Transportation

Sure truckers are making money today, but they are not going to invest in more equipment and expand their operations until some certainty exists in the DOT hours of service rules that they all run by.  (See also http://www.radbourneconsulting.com)