Outsourced Logistics 200808

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August 2008 A Penton Media Publication outsourced-logistics.com Also in this issue: Cross Docking On the Rise Logistics Helps Pork Breeding Connecting With Customers to Help Their Customers Asset Based vs. Resource Rich Reconnecting With Your Network Is it time to reconsider your off-shore strategy?

Transcript of Outsourced Logistics 200808

Page 1: Outsourced Logistics 200808

A u g u s t 2 0 0 8

A Penton Media Publication outsourced-logistics.com

Also in this issue:

Cross Docking On the Rise

Logistics Helps Pork Breeding

Connecting With Customers to Help Their Customers

Asset Based vs. Resource Rich

Also in this issue:

Reconnecting With Your Network Is it time to reconsider

your off-shore strategy?

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A New Paradigm in Logistics Outsourcing

at an inflexion point and that this is the beginning of an explosion in spending on logistics outsourcing.

A third metric is the breadth of spending on logistics services. For years, “transportation services” was the prin-cipal candidate for outsourcing. In recent years there has been dramatic growth in spending on third party provid-ers and on warehouse services. It is clear that as compa-nies make the move to outsourcing their decisions impact an array of Outsourced Logistics options.

Our research also shows that outsourcing knows no geographic boundaries. It is no secret that companies source raw materials, finished goods and services from around the world. Our new editorial lineup reflects the global nature of outsourcing in several ways. We have contributors who offer a Euro-centric, Sino-centric or Latin American view of outsourcing. We have features dealing with 3PLs in China, compliance issues in the European Union and transparent global Outsourced Logistics networks, to name a few. When we speak the language of logistics outsourcing, we may communi-

cate in English, but be speaking in the tongues of the global market.

The market is changed and so is our magazine. We continue to write and editorialize about traditional logistics and SCM topics, but now we take a broader view. Our intent is to provide the community of manufacturers, 3PLs and logistics services providers with reliable information, useful case studies, and a forum for the discussion of best practices.

There is indeed a new paradigm, in the market and in our magazine. It is called Outsourced Logistics.

In recent years there has been a significant evolution in the use of logistics outsourcing in supply chain management. What was formerly an ad hoc deci-sion to hire a transportation provider or 3PL is now

a transformative business practice. What was a business transaction is now a strategic business decision. What used to be ”contract logistics” has become Outsourced Logistics.

This magazine, Outsourced Logistics, is evolved from Logistics Today, and is edited to reflect the new paradigm in logistics outsourcing. Content of Outsourced Logistics is a mix of articles, features and stories about operations and strategy, logistics services and global markets. Our intent is to deliver useful content and to stimulate con-versation among the community of logistics management decision makers. Our message to our fellow community members is not as much the “how to” of global logistics outsourcing, but the “why” these are sound business practices.

Our decision to re-focus our magazine and website is based on an analysis of over 15 years of data, extend-ing back at least to the early 1990’s. References like Cap Gemini, Armstrong and Associates, our own “Strategic Decision-Making in Supply Chain Management” and other sources document clearly the move-ment of companies in three important areas. The first indicator is the grow-ing number of companies the data showed were and are using outsourc-ing to replace existing services. These companies use outsourcing not only as replacements but also as a way to enter new markets or to support new product introductions. Outsourcing is more than just cost savings.

A second indicator is the hundreds of billions of dollars being spent annu-ally on outsourcing. In 2008 the num-ber is forecast to be well north of US $130 billion. And while that number is significant, indicators are that we are

Outsourced Logistics | August 2008 | 1

David H. Colby, Publisher, [email protected]

Publishers Page

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8Global Markets

Perspective on Outsourcing to China and India

Community VoiceAsia-Pacific Leveling

After Soaring Growth

14Operations

Why is this Pig Smiling?

Community VoiceOutsourcing to a Sustainable 3PL

41Logistics Services

TNT Express Volumes Down

Community VoiceCalderwood: When the Middleman

Doesn't Pay

Features22

Global StrategyIs It Time to Reconsider

Your Off-Shore Strategy?

Extended supply chains have many moving parts in manufacturing and

logistics that require regular maintenance.

28OperationsCustomers Helping Customers Helping Customers

Third party suppliers collaborate with technology suppliers to be able to offer their customers the best trade solutions possible.

32Logistics ServicesAsset-Based vs. Resource RichUsers and logistics service providers focus on execution.

36Field Report2008 Cross-Docking Trends ReportMore companies are finding cross-docking must play an integral part in their distribution model.

483PL File BDP International, Inc.

Departments1 Publisher's Letter A New Paradigm in Logistics Outsourcing 7 Editorial Contractions and Distractions

47 Classifieds Advertiser Index

Outsourced Logistics | August 2008 | 3

Augus t 2008 Vo lume 1 , Number 3

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Have you heard?

Outsourced-Logistics.comis more than just a

companion site to the

magazine. It is the online

logistics daily, providing

news, decision-making tools

and information resources

for logistics professionals.

· Daily News Features on the industry

· White Papers

· Webcasts

· Current and Past Issues

· Forums/Rate’em & Rank’em

Outsourced Logistics (ISSN 1547-1438) is published monthly by Penton Media, Inc., 9800 Metcalf Ave., Overland Park, KS 66212-2216.

The magazine is sent to qualified management in the field of logistics.Periodicals postage paid at Shawnee Mission, KS and at additional mailing offices.

Can. GST #R126431964. Publications Mail Agreement # 40026880. POSTMASTER: Send address changes to

Outsourced Logistics, P.O. Box 2113, Skokie, IL 60076-7813.

Printed in U.S.A. Copyright © 2008 by Penton Media Inc.

Send editorial correspondence to: Editor, Outsourced Logistics, 1300 E. 9th Street, Cleveland, OH 44114-1503, or [email protected]

For information on obtaining reprints:Contact Penton Reprints at [email protected]

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Out-of-print copies are available as positive microfilm and can be ordered from National Archive Publishing Co. (NAPC) 300 N. Zeeb Road, P.O. Box 998, Ann Arbor MI 48106-0998.

Editorial

Publishing Director David H. ColbyeMedia Market Development Manager Jason Washburn

Circulation Manager Tyler MotsingerProduction Coordinator Rachel KlikaCustom Media Group Terrence Grogan

Bob MacArthur Senior VP Industrial Group

Chief Executive Officer John [email protected]

Chief Financial Officer Jean B. [email protected]

Chief Revenue Officer Darrell [email protected]

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Chief EditorPerry A. Trunick

Senior EditorRoger Morton

Professional Contributors James A. Calderwood

DesignArt Director Bill Szilagyi

Business

EASTERN REGION Mike Antell, Phone: 978.282.5625, Fax: 978.282.9749, [email protected]

CENTRAL REGION. Terry Davis, Phone: 404.325.9037 Fax: 404.325.6737, [email protected]

WESTERN REGION Christopher Hartnett, Phone: 832.237.4004 Fax: 832.237.4114, [email protected]

FLORIDA Bob Eck, Phone: 352-391-5577, [email protected]

ENGLAND Paul Barrett, Mark Whiteacre, David Moore Phone: 44-1268-711-560, Fax: 44-1268-711-567FRANCE Fabio Lancellotti, Phone: 331-4294-0244, Fax: 331-4387-2729

ITALY Cesare Casiraghi, Phone: 39-31-261407, Fax: 39-31-261380BELGIUM, HOLLAND Peter Sanders, Phone: 31-299-671303, Fax: 31-299-671500

TOKYO Yoshinori Ikeda, Phone: 813-3661-6138, Fax: 813-3661-6139SEOUL, KOREA Young Sang Jo, Phone: 822-739-7840-2, Fax: 822-732-3662

TAIWAN Charles Liu, Phone: 886-2-707-5829, Fax: 886-2-707-5825CHINA Ballycastle Trading, Inc. Ltd., Phone: 852-524-7256, Fax: 852-524-7027

INDIA Shivaji Bhattacharjee Phone: 91-11-268-7005, Fax: 91-11-2652-6055SINGAPORE Mike Seah, Phone: 65-299-0413, Fax: 65-758-7850 or 65-296-6629

Sales

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How is this performance possible? OceanGuaranteed combines the power of two industry leaders – APL Logistics and Con-way Freight. The result: faster LCL shipments, and single-provider convenience,accountability and invoicing. Pricing is simple: Enjoy the same per-kilo rates from origins in China, Japan, Singapore, South Korea and Taiwan to any U.S. ZIP Code location. With savings as much as 75% compared to airfreight.

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It’s sometimes difficult to separate which corporate and industry moves are driven by the times and which are the drivers.

Arguably, DHL was driven to an alliance with UPS to mitigate massive US losses. Close on the heels of that an-nouncement came the rumor that FedEx was pursuing TNT. Ceva, which had acquired Eagle Global Logistics (EGL) in 2007, announced a management restructuring. Crane Worldwide, led by the former CEO and founder of EGL, announced it would launch as “an international company with a North American headquarters.”

The list goes on, but is there a trend emerging? DHL could have exited the US domestic market and

become more like TNT with its arm’s length approach to connect North American shippers and consignees to its international network. It chose to stay rooted in a mar-ket it says is important to its global network but which

has been financially painful. That keeps alive a third

choice in domestic express services. It

also shows that even the most virulent com-petitors can find reason to coop-erate.

Could FedEx be looking at its

own network n e e d s

a n d

reaching the conclusion that it doesn't have to own every-thing to succeed? An alliance with TNT could strengthen FedEx’s global position without a massive outlay of cash at a time when its core domestic market is suffering and the US dollar makes any overseas acquisition much more expensive. For TNT, it could provide greater density on its network and help balance some of its own market fluctua-tions And, of course, it could be the engagement before a wedding.

Ceva, which was feeling the gap in its service portfolio where Wilson had been when it was part of TNT rescued EGL from a takeover attempt by former CEO Jim Crane. Its new management structure may have taken a page from its strategic plan from TNT days. It has now integrated its contract logistics and freight management services under region managers rather than separate functional units. This allows local market forces to play freely, driving those services region by region.

Crane Worldwide is launching as a pure-play freight forwarder. It doesn’t want to be drawn into too many non-core areas and take on unfamiliar functions or incompat-ible IT platforms. It may be a slight over-reaction to the recent history of its senior executives, but the message is clear: focus on the core. That will certainly be necessary for survival as a start up in a difficult market.

In the US motor carrier market, YRC Worldwide may be forced to take a step many expected when it first acquired Roadway Express and combine the operations of Yellow Freight and Roadway. The rationale for two national LTL networks appears to have expired. As it builds out its ca-pabilities in regional LTL, it is facing some established and some newly expanding competition.

Underlying so many of these moves is a focus on “core.” What makes up that definition will vary with the culture of each company. It seems the companies most likely to suc-ceed in this evolving logistics market aren’t allowing them-selves to be distracted from what made them a player in the first place. This could help avoid some catastrophic contraction in the industry, a prospect that would be very disruptive for everyone.

Editorial

Contractions and Distractions

Outsourced Logistics | August 2008 | 7

Perry A. Trunick, chief editor, [email protected]

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Perspective on Outsourcing to China and India

nomic hubs are already exhibiting problems with overcrowding, traffic conges-

tion, air pollution and rising costs. Skilled labor and raw ma-

terials are particularly affected. Companies with substantial size in China are extending their reach into the interior by forming partnerships to lessen some of the impacts of these problems.Though China has shown a will-

ingness to address issues of quality and safety con-cerns, companies are putting greater significance to the need for risk mitigation. Other positive signs of China’s response to business needs include major in-vestments over the last 10 years and changes in laws that encourage a business culture that fosters growth. Today, only about a third of the Chinese economy is state owned. These and other reforms have allowed China to double its share of global manufacturing

Though not a new phe-nomenon, it is now pos-sible to analyze and qual-ify the processes that have

made overseas outsourcing success-ful and profitable, write the analysts at Capgemini. The report, Outsourcing to China and India: A North American Perspective, notes that, in fact, some North American companies have been outsourcing to China for as much as 40 years. However, experience in India is much more recent.

With India, much of the outsourcing has been in the area of information technology. Supply chain pro-cesses related to manufacturing are a challenge and an obstacle for North American companies.

Chinese infrastructure has proven to be a chal-lenge as operations move away from the economic hubs along the coasts and into the less developed areas of China’s interior. The rapidly developing eco-

Global Markets

From a Report by Capgemini, in collaboration with ProLogis

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and moved through the ports of Hong Kong, Tianjin, Shenzhen and Shanghai. Among the chal-lenges on outbound shipments, companies cited lack of standards on pallet loading, dock heights, and truck size. In addition, the need for greater vis-ibility along the supply chain was also mentioned.

While many companies operating in China see potential for increased investments there, they are also looking to countries like Vietnam, Thailand and in Latin America as ways to mitigate some of their risks and shorten the supply chain cycle time.

Meanwhile in India, the services industry has become the country’s largest sector. It’s more mod-est [than China] GDP growth rate of 8% per year should remain reasonably constant.

Foreign direct investment levels are low com-pared with China, however, analysts expect the Indian government to continue to seek ways to in-crease investment.

As in China, the fast-growing consumer market is changing companies’ views of India as just a low-cost manufacturing site. But economic and political factors could hinder this. Poor infrastructure may delay foreign manufacturing investments. Despite the government’s more favorable views on foreign investment, there are still restrictions in some of the fastest growing industries.

Taxes are a major issue in India. Corporate tax rates are high, with a basic rate around 35%. There are also taxes by state and for interstate commerce.

Because logistics and outsourcing within India can be a challenge, some of the companies respond-ing to the survey indicated they handled their own manufacturing and did production planning in the US and communicated the resulting plans to opera-tions centers in India.

Success in India requires developing a good knowledge of state-level taxes as well as the infra-structure limits.

Capgemini provides consulting, technology and out-sourcing services. Global revenues for 2007 were €8.7 billion. It employs 83,000 people worldwide.

output as most wealthy Western countries see man-ufacturing output decline.

Since 2003, two years after it joined the World Trade Organization (WTO), China’s gross domestic product (GDP) exhibited 10% growth each year. While that growth is expected to continue, it will be at a somewhat slower pace.

As China’s economy grows, so does its consuming population. One major consumer products com-pany reports it no longer uses China merely as low-cost production, instead, it has shifted production of products bound for North America and other markets to other low-cost locations. Its China-based production serves the Chinese consuming market.

Wage inflation in the urban hubs, mostly located along the eastern coastal regions, has led to China manufacturing wages outstripping the Philippines and Indonesia in terms of average manufacturing wage. Though costs are lower in the interior of China, the infrastructure limits the opportunity for North American companies to take advantage of those lower costs.

Another factor affecting the growing use of China as a manufacturing source is the rise of protection-ism in the US and Europe. The substantial trade surplus China enjoys with the US is a growing con-cern for many as it drives pressure on the Chinese government to revalue its currency.

Of North American companies surveyed, many of those with operations in China said they shared planning responsibilities, with final execution of weekly and daily planning taking place in China.

Added to the need for logistics skills is the mat-ter of cultural issues. Many companies attribute their success in China to efforts to understand and respect local culture. The sooner their staff became localized, particularly when Chinese nationals were bilingual and educated in American business prac-tices, the sooner performance improved.

For outbound flows from China, most North American companies surveyed used ocean freight

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Jim Crane, founder and former CEO of Eagle Global Logistics, has assembled an executive team and will launch Crane Worldwide Logistics beginning this month. Joining Crane, who will be chairman of the new freight forwarding firm based in Houston, will be John Magee as CEO and Keith Winters as chief operating officer. Magee said, “During the past 12 months that EGL/Ceva man-dated that I not compete in the logistics industry, we have been able to research acquisitions of some of the most ef-fective supply chain companies in the industry.”

Crane Worldwide Logistics will ultimately operate globally with company-owned operations in more than 40 countries, said the announcement. The company ex-pects to have 4,000 employees worldwide over the next five to seven years and also expects to gener-ate over $1 billion in revenue in that period.

Crane and a team of senior executives led an unsuccessful bid to acquire EGL in 2007. Along with General Atlantic LLC, the group offered $1.2 billion, at the time a 21% premium over the December 26, 2006 closing price for EGL stock. Revenues reported for the year prior to the buyout offer were $3.1 billion.

General Atlantic withdrew its participation in the buy-out “due to an expected shortfall in EGL’s fourth quarter 2006 results.” At the time, Crane announced to Eagle’s board that he would pursue other equity sources and mount a revised offer.

Ceva Logistics, itself owned by an equity firm Apollo Management after its sale by TNT, mounted a successful bid for EGL, completing the $2 billion acquisition on August 2, 2007.

Reporting financial results later that year, John Pattullo, CEO, noted, “We are a new company comprised of for-mer TNT Logistics and EGL and we already behave as a single, integrated entity.”

The company reported EGL revenues of €1,962 million for the nine months ended September 30, 2007, up 4.9% over the prior year period. In a presentation later that year, Pattullo described Ceva’s presence in Europe, the Americas and the Asia Pacific, saying revenues of roughly €6 billion (nearly $8 billion) were divided between the regions as 48% from Europe, 32% from the Americas and 20% from Asia Pacific.

In 2008, Ceva reported its first full-year results. Pro forma earnings for 2007, before interest, taxes, depre-ciation and amortization, were €284.8 million ($419 mil-lion). Though the EGL merger had not been completed

until late in 2007, the company estimated that if it had occurred on January 1, 2006, the comparable earnings would have been €182.5 million. On that basis, Ceva es-timated 2007 revenues increased 4.5%. Pattullo said the merger of Ceva’s contact logistics and EGL’s freight manage-ment operations was a key driver in its financial results.

Crane Forms Logistics Company

Russia’s Air Cargo Forecast to Outgrow All Other Regions

Drawing on a number of research reports as well as internal

figures, Denis Ilyin, senior vice president for strategy and com-

mercial of AirBridgeCargo (ABC) Airlines, part of the Volga-Dnepr

Group, says Russia’s present share of

1.4% of the total $80 billion global air

cargo market will grow to 8% in 2015

at $8.4 billion and 16% by 2030, to

$25.6 billion.

Speaking at the Russia & CIS

Aircraft Conference in Moscow, Ilyin claimed that, “Despite a certain

decrease in the passenger air market, global air cargo is constantly

developing and average annual growth up to 2025 is forecast at

between 5.4% and 7.1%. Russia can and will benefit strongly from

this. Airfreight growth in Russia over the next 17 years is forecast

to be greater than that for North America, Europe-Middle East,

Intra-Europe, Europe-Africa, Europe-North America, Latin America-

Europe and Latin America-North America.”

Using Volga-Dnepr statistics, Ilyin estimates that there will be

8-10% growth in demand for ramp aircraft to 2020. He sees that

as traffic grows capacity needs will be met by freighters to be built

both by Russian and Western manufacturers. For example, 21 large

freighters are handling Russia’s current scheduled cargo service

market needs. By 2020, Ilyin forecasts a need for 76 freighters

which will include 25 Boeing 747s.

Supporting the growth is development of two hubs. One

in Moscow that Ilyin says offers natural connections with the

Middle East, Indian Subcontinent and Southeast Asia. The other at

Krasnoyarsk in Russia’s Far East, that he characterizes as being

in the center of major trade lanes that connect the US, Europe and

Canada with China, Japan and Southeast Asia by means of cross-

polar and trans-Siberian routes.

Launched by Volga-Dnepr Group in 2006, ABC is the first all

cargo Russian airline to operate scheduled services in Europe,

Russia and Asia. It expects to initiate scheduled services to North

America this year.

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real pan-China player yet,” said Wong. Firms are still competing on price rather than quality of service.

Road transport accounts for 76% of total transport and since 75% of all main highways in China are toll roads, tolls account for 30% to 40% of costs. In addition, 70% of all accidents and 50% of all road injuries and deaths are related to overloaded trucks.

Airlines to Pay Criminal Cargo Price Fixing Fines

These major international airlines have agreed with the US Department of Justice (DOJ) to plead guilty and pay criminal fines totaling $504 million for participating in a multi-year conspiracy to fix prices for air cargo rates. All plea agreements are subject to court approval.

Specifically, the airlines and their fines are Air France-KLM (counted as two), $350 million; Cathay Pacific, $60 million; Martinair, $42 million; and SAS Cargo, $52 million. The DOJ notes that if the court imposes the $305 million fine on Air France-KLM it will be one of the largest criminal fines it has ever obtained.

In its discussion of the case, the DOJ said, “The airlines each engaged in a conspiracy to suppress and eliminate competition by fixing the cargo rates charged to customers for international air shipments. The charged conduct affected billions of dollars of consumer and other goods–including produce, clothing, electronics and medicines–shipped by these airlines and their competitors in the air cargo industry. The companies have each agreed to cooperate with the Department’s ongoing investigation.”

These actions are part of an ongoing investigation by the DOJ. Other international carriers have previously pled guilty and paid fines as a result of the investigation. In April, Japan Airlines agreed to pay a $110 million fine for its price fixing. Prior to that, Qantas, British Airways and Korean Air had also pled guilty and paid fines. In reaction to the investigation, both Air Canada and El Al have set aside funds for possible settlements.

In discussing these actions, Kevin J. O’Connor, Associate Attorney General at the DOJ said, “Millions of American consumers and thousands of businesses–from the corner store to the biggest corporation–rely on the air transportation industry to provide the products we buy, sell, and use every day. This price-fixing conspiracy undermines our economy and harms the American people who, due to lack of true competition in this area, end up footing the bill.”

The Continuing Challenge of Doing Business in China

“China’s economic growth has made a major impact on the global logistics and transportation industries,” says Yansheng Zhang, director of the Chinese Mainland’s Institute of International Economic Research. Of the top 30 ports in the world in 2007, 10 were on the Chinese Mainland, he adds.

Anthony Lau, president of the CILT in Hong Kong, noted that the Chinese mainland’s rapid growth has increased Hong Kong’s importance as a gateway between East and West. Stanley Hui, CEO of the Hong Kong Airport Authority added that half the world’s population is within five hours’ flying time of Hong Kong, making it an ideal transshipment point. Supporting his statement, Hui noted cargo throughput at Hong Kong’s airport was 3.74 million tonnes in 2007, up 4.5% over 2006.

Speaking of mergers and acquisitions, Nick Gowlland, head of transport and logistics with NM Rothschilds & Sons (Hong Kong), noted that while Europe accounted for 40% of the global logistics market and the US 37%, Asia outside China only accounts for 14% and China 9%. This suggests tremendous pent up demand, he said.

Vincent Wong, former joint managing director with Kerry Logistics Network Limited (Hong Kong), noted that China’s logistics industry is worth US$ 500 billion a year and is growing at about 25%. Third-party logistics providers have only been able to penetrate about 3% of the market, according to Wong. This share could increase to US$ 32 billion by 2010, but on low margins of 5% to 10%.

Principal services provided by logistics services companies include transport, warehousing, customs clearance and forwarding.

The challenges of doing business in China are formidable, said Wong. Mainland firms prefer to keep their logistics operations in-house and regard logistics as a way of reducing direct costs rather than improving supply chain efficiencies, he pointed out. Competition is ferocious, with over one million registered logistics services providers in the People’s Republic of China of which 90% are small- and medium-sized companies.

There are 850,000 trucking companies on the Mainland with an average of 1.4 vehicles per company, continued Wong. The international express deliveries sector is dominated by a few providers: DHL and Sinotrans (38% of the market), EMS (30%), FedEx and Datian (16%) and TNT-Marchplus (6%).

“The market remains extremely fragmented with no

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The condition of US and European markets is af-fecting export growth from the Asia-Pacific region and, though the region will continue to see mod-

erate growth in 2008, growth will slow from the multi-year high growth rates it has seen.

While exports from the region will be undermined by the decelerating economies in the US and Europe, intra-Asia demand will support exports within the region. On the import side, the region’s import position will be inflated by high global commodity prices.

China is expected to slow as authorities implement more aggressive tightening measures in the second half of the year, with potential risks of a hard landing accentuated by unresolved structural imbalances in the economy. Impetus in regional growth will shift to recovering domestic demand, with the resilience of in-vestment and consumption remaining the key variable in the near-term outlook.

The exposure of the region’s financial system to the subprime loan crisis so far remains limited. The de-clared exposure of Asian banks to subprime loan losses remains comparatively limited, while property price in-flation has been broadly in line with fundamentals, with the possible exception of heated real estate markets in Australia and New Zealand.

Continued, if softened, business investment should support consumer spending as employment and in-come growth remains stable.

Given the current balance of forces, aggregate growth in Asia, excluding Japan, should slow to 7.2% in 2008 from the 13-year high of 8% hit in 2007.

Accelerating inflation remains a key risk in the outlook for the Asia-Pacific region. Inflation has surged amid intensifying supply constraints in the context of robust domestic demand growth. Rising input costs, compounded by wage inflation, will exert pressure on company profit margins, while higher staple prices will undermine household purchasing power. Fiscal strain could be exerted in countries that operate extensive subsidy systems, reducing resources for public investment while monetary tightening targeted at demand pressures also fuels inflation.

Export dependency increases exposure to a pro-longed US downturn. Undeniably, the region’s growth still remains skewed to exports and to demand sourced outside the region. Much has been made about rising volumes in inter-regional trade anchored on the emerg-ing markets of China and India. Nevertheless, the inter-regional production chain that this trade reflects re-mains overwhelmingly dependent on the United States and Europe as the source of final-stage demand, even as consumer markets in India and China grow. Any severe or prolonged downturn in US demand would result in an attrition of growth, with the risks exacerbated if the G3 economies enter a synchronized downturn.

Global Insight provides economic, financial, and po-litical coverage of countries, regions, and industries —covering over 200 countries and spanning more than approximately 170 industries—using a unique combi-nation of expertise, models, data, and software within a common analytical framework to support planning and decision making. The company has 700 employees, and 25 offices in 14 countries covering North and South America, Europe, Africa, the Middle East, and Asia.

Global Markets

Community VoiceAsia-Pacific Leveling After Soaring Growth By Global Insights

Top 5 Exporting CountriesReal Exports to the United States (Percentage Change)

Exporting Country 2000 2002 2007 2008 2009

China 24.5 31.2 11.0 -0.7 9.7

Germany 11.8 3.6 -4.8 -2.0 4.8

Japan 8.5 -0.1 -3.6 -6.8 2.6

France 17.9 -4.7 0.9 -3.1 4.2

United Kingdom 6.5 -2.3 -3.6 -2.9 2.8

Containerized Shipments (Millions of twenty-foot-equivalent units)

Lane 2004 2007 2008 2009 2010

Far East to Europe 8.8 14.2 15.9 17.2 18.6

Far East to North America 10.6 13.7 13.6 14.5 15.9

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agilitylogistics.com

Hans MiedemaRegional Support Leader

Agility Global Account Team

When does Agility’s Hans Miedema consider a job done? When he successfully executes critical gas turbine shipments for his global energy customer? When he applies Lean Six Sigma Methodology to eliminate defects for his clients in Eastern Europe and India? For Hans, and more than 32,000 other Agility employees in over 100 countries around the world, success isn’t measured in parts assembled or products shipped. Success occurs when our partners achieve their goals. It’s an intimate approach to logistics that demands individual attention and personal ownership. It’s how Hans Miedema brings Agility to supply chain challenges.

YOU NEED TO SOURCE FROM EMERGING MARKETS.

YOU NEED HANS MIEDEMA.

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Smiling?By Roger Morton

“Our core competency is swine genet-ics,” says Ole Torgesen, PIC (Pig Improvement Company) USA

Transport Logistics Manager. “We used to have our own fleet and drivers, but we realized that transportation was not our specialty and it would probably be better for us to outsource it to someone else.”

As the company explains, PIC USA is the leading sup-plier of breeding stock in the US and the largest world-wide. Founded in 1973 in Spring Green, WI, it is now headquartered in Hendersonville, TN. Today more than 2,000 family farms, cooperatives, contracted multipliers and integrated pork systems in the US are PIC USA cus-tomers, including 23 of the largest 30 US producers.

As with other verticals the pork industry has under-gone significant consolidation resulting in fewer but

Why is this pig

Changing third party suppliers paid off

with safer and more humane delivery for this leading supplier of pork

breeding stock.

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They were all about growing.”Mike Oetjen, vice president, Integrated

Logistics, NationaLease, explains that PIC USA really needed to improve their sys-tem design. Any time an animal spends less time in transit it will be in better shape and the chance for injury is less-ened. “Due to the former supplier’s inflex-ibility,” he notes, “there were too many

deaths on arrivals; too many cripples, and the integrity of the animals was not being maintained as well as possible. One animal on a truck could be worth $25,000. The best breeding stock will start a genetic line that will produce the best animals over time.”

NationaLease did a site location study as well as a rout-ing and scheduling analysis. It performs trailer configura-tion and load building for the company. The site location study revealed that PIC USA was too far away from source farms. In revamping the transportation system, domicile locations for distribution hubs were placed closer to source

larger pork producers. In order to meet customer needs PIC USA has reconfig-ured its source farms and now has fewer but larger sources geographically closer to producer systems.

With a refreshed business model, PIC USA moved from a centralized trans-portation system hauling large volumes of lower priced animals to a decentral-ized system hauling relatively low numbers of high priced animals. Although its original outsourced transportation supplier was able to improve efficiencies and save on costs, it wasn’t flexible enough to meet PIC USA’s new business requirements.

The producer’s search for a different supplier of logistics services led it to select NationaLease, a full service organiza-tion with more than 700 locations throughout the US and Canada. “Our main production areas had changed,” claims Torgesen, “but the logistics company didn’t want to accom-modate that by decentralizing and right-sizing the fleet.

A Key Advantage

3924 Clock Pointe Trail, Suite 101Stow, OH 44224 USA Phone: (330) 923 5080www.interchez.com

Turn to the pros at InterChez as your company prepares

for the global market.

InterChez presents an extensive lineup of capabilities from state-of-the-art global logistics management to complete linguistics services.

Don’t risk your bottom line before understanding the complete picture of international business.

Miles per pig delivered has been

cut 11%, from nine miles to eight,

resulting in an annual savings

of $80,000.

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has saved PIC USA another $50,000 an-nually. With its previous logistics firm, PIC USA was able to recover 47% of transportation costs. Using NationaLease, the company is recovering 87% of the transportation costs and Torgesen expects further efficiency improvements.

farms. This drives cost out simply because less fuel is needed. More importantly, the animals now spend less time in transit.

NationaLease merged with AmeriQuest in December 2006. With the combina-tion, Oetjen is able to reach out to a num-ber of members of the ownership of the company. In the case of PIC USA, for example Oetjen involved West Brothers Transportation Services of Raleigh-Durham, NC to hire the drivers and pro-vide all fleet needs, including leasing, customized maintenance, finance leasing, asset services, distribution routing and analysis technology, business manage-ment, and fuel and fleet support. He also utilizes the services of two other members of the ownership body of the company, Brown NationaLease, headquartered in Des Moines, IA and FirstLease, headquar-tered in Norcross, GA. A special service NationaLease has been able to provide the breeder is a biosecurity program from Corcentric, a wholly-owned subsidiary of AmeriQuest.

“NationaLease has been very flexible, changing as our needs have changed,” says Torgesen. Miles per pig delivered has been cut 11%, from nine miles to eight, resulting in an annual savings of $80,000. The reduction in trailers and power units

How the Biosecurity Program Works

Originally developed for Cargill, another NationaLease customer, the

proprietary automated system was customized to meet specific PIC USA

requirements. Oetjen explains the program manages the driver, trailer, tractor

and all of movements. “The driver can’t use a trailer that’s been used for delivery

to a production facility until it has been disinfected, dried and ‘baked’—a new

term in the industry—to remove any bacteria.”

The program doesn’t permit trailer movement from one producer to the next

until it is cleaned. The driver is required a certain amount of down time and

must take a shower and have a clean uniform. “The truck has to be disinfected

and can only be matched to a trailer that’s been disinfected and those can

only be matched to a driver that’s had downtime,” notes Oetjen. “If any one of

those is out of kilter, it will red flag it and the trailer can’t go. Obviously that

helps prevent the transfer of disease from one producer to the next. Typically

infection will be picked up in a processing plant because you have deliveries

from a variety of sources. Our trucks go back to their domicile locations where

they undergo what we call the ‘washout.’ We moved our domiciles to be closer

to source farms and closer to our washout facilities.”

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tion, processing, diagnostics, routing transportation and delivery.” All of its functions will be consolidated under the direction of the chief operating officer. Intelligent Mail Barcode now moves from development to imple-mentation and is scheduled to move into USPS functions in May 2009.

“The Postal Service has been evolv-ing to meet the needs of our custom-ers for more than 200 years. These changes are an important continuation of that tradition as they will enhance our customer service and position us where we should be in the competitive marketplace,” commented Potter.

more competitive with private shipping com-

panies.With the realignment

there are two strategic focuses for USPS. In one, all major ship-ping and mailing products are now in one division. The other is claimed to “represent the voice of the customer, giving priority to the interests of busi-ness and individual mailers.”

Looking to the future, the USPS’ Intelligent Mail Barcode will become “the technical foundation of mail oper-ations—acceptance, payment, verifica-

Citing recent changes in federal law, Postmaster General John E. Potter an-nounced what he calls “a sea change for some” as the United States Postal Service (USPS) realigned several of its core func-tions. The change in fed-eral law he refers to is the Postal Accountability and Enhancement Act of 2006. The new law’s intent is to streamline the way the USPS sets prices. It also adds a degree of flexibility in the way it prices package shipping to make it

New

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08

No need to be re-

minded that oil prices

are higher than ever.

Although some of

these ideas may be

familiar, if even one is

effectively applied, real dollars may be saved. Shared here by

Ryder System, Inc. these simple strategies are aimed at mitigat-

ing the impact of rising fuel costs. These operating practices can

be implemented immediately to improve fleet fuel efficiency.

1. Train drivers to practice fuel-efficient driving techniques:

Speed is the largest single factor impacting large-truck fuel

economy. Simply reducing speed from 65mph to 55mph can

result in an improvement in miles per gallon of as much as 22%.

2. . Improve tire maintenance: Correct tire pressure, align-

ment and frequent tire maintenance have a significant impact on

fuel economy. Have drivers check for visual defects before start-

ing work each day and use the recommended inflation pressure

provided by the tire manufacturer.

3. Specify fuel-efficient equipment: New engine technolo-

gies, improved aerodynamics and weight-saving designs are

available to improve the fuel economy of today’s fleets. Ryder, for

example, has a line of RydeGreen vehicles that include several

“green” features designed to reduce fuel consumption, including

2007 engine technology, an auxiliary power unit to reduce idling,

frame-side fairings to reduce wind resistance, an automated

direct drive transmission and fuel efficient drive tires.

4. Implement an ongoing preventive maintenance program:

A well-maintained vehicle is a more fuel-efficient vehicle. Consider

outsourcing maintenance of the fleet to an experienced third-

party provider, or at least make sure the fleet is on a scheduled

maintenance program for even the most routine care to optimize

performance.

5. . Leverage technology: Take advantage of new telematics

and onboard diagnostics systems that help fleet owners analyze

fuel purchases, optimize routes and monitor idle time and vehicle

performance—all which mitigate rising fuel costs.

6. Integrate real-time inventory visibility in the warehouse:

Leverage innovative technology to streamline and improve the ac-

curacy of inventory levels and reduce unnecessary trips.

7. Optimize distribution networks: Establish regional distribu-

tion centers to serve customers on demand and optimize and

consolidate routes, reducing the number of loads to require fewer

trips and less idling.

8. Consider a dedicated fleet solution: Control routes, fuel

consumption and idle time with dedicated assets, drivers and

strategic route planning.

9. Improve transportation management: Coordinate supplier

shipments to consolidate freight costs and negotiate better rates

and leverage multiple modes.

10. Ryder, a provider of leading-edge transportation, logistics

and supply chain management solutions worldwide, offers a Pro-

TREAD driver training program that includes a specific module on

fuel management. It is available at www.rydersafetyservices.com.

10 Steps toTake for Fuel Savings

The US Postal Service Restructures for Better Service

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New

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08 An Attack on Traffic Congestion

The US Department of Transportation (DOT) is joining with the California Department of Transportation (Caltrans) in a test of Intelligent Transportation Systems (ITS) technology aimed at reducing traffic con-gestion. The $12.4 million public-private partnership is part of DOT’s SafeTrip-21 initiative established to “reduce gridlock and traffic-related fatalities and injuries on America’s roadways,” according to the agency. The ITS technology to be tested includes Global Positioning System (GPS)-equipped cellular telephones that will be used by as many as 10,000 vol-unteer commuters and transit vehicles. They will transmit data from roads in a 200-mile radius within the San Francisco Bay area to traffic manage-ment centers.

Data gathered by these resources will be used to help Bay Area com-muters make smart travel choices to avoid congestion. The DOT explains that technologies will be merged to create a “consumer friendly platform” that will offer trip planning and travel information; safety advisories; on-board displays of commuter rail and transit bus connections; electronic toll collection, parking reservations and payment services. Development of a Vehicle Infrastructure Integration system utilizing WiFi and Dedicated Short Range Communications is part of the program.

Paul Brubaker, administrator of DOT’s Research and Innovative Technology Administration (RITA), claims that, “America has the ability—right now—to radically change our driving experience using innovations that exist today. As one of the communities selected last August to par-ticipate in the Department’s Urban Partnership program, San Francisco al-ready has shown its commitment to using innovative approaches to reduce traffic congestion. Now, the Bay Area will become the site of one of the world’s largest field-tests of Intelligent Transportation Systems technology.”

CSX Launches a National GatewayThe $700 million public-private infrastructure project will

create a freight transportation link between Mid-Atlantic ports

and the Midwest. The project was announced at the Dublin, OH

offices of Pacer International, a CSX customer. While an expanded

intermodal yard in the Columbus area is part of the overall plan,

the National Gateway will actually pass Ohio’s capitol city. A

second intermodal facility within Ohio would be built at Marion,

OH. Estimates are that the two terminals would cost CSX $130

million. The State of Ohio is expected to contribute $190 million

to the project.

CSX has committed $300 million to the National Gateway proj-

ect and will work with state and federal governmental entities to

create necessary double-stack clearance along the entire route.

At present, many overpasses along the route can only handle

single-stacked trains. The six states are Maryland, Virginia, North

Carolina, Pennsylvania, Ohio and West Virginia.

The three existing rail corridors to be upgraded are: The

I-70/I-76 Corridor between Washington, D.C. and northwest

Ohio; the I-95 Corridor between North Carolina and Baltimore via

Washington, D.C.; and the Carolina Corridor between Wilmington

and Charlotte, North Carolina.

The National Gateway is larger than the Heartland Corridor, a

$150 million double-stack project that involves Norfolk Southern.

A significant event for that project took place in March when the

Columbus-based Rickenbacker Terminal opened. When com-

pleted in 2010, rail freight along the Heartland Corridor will move

from Virginia Ports on to Columbus and from there to Chicago.

Michael J. Ward, CSX chairman, president and CEO, observed

that both his railroad and Norfolk Southern see Central Ohio as a

key area for logistics developments. “More and more the nation

is becoming aware of the tremendous safety, economic and en-

vironmental benefits that railroads create,” he claims. “Our trains

can move a ton of freight 423 miles on a single gallon of fuel, and

one train can carry the load of more than 280 trucks. The National

Gateway leverages those benefits to the fullest by combining the

resources and expertise of the public and private sectors.”

Operations

Schnieder Logistics Grows Its Network

The new Regional Logistics Center (RLC) in Toronto is it first outside the US. The expanded brokerage service in Canada is part of a move begun with the opening of a Schneider Logistics RLC in 2005. Since then, the company has added the service centers in Atlanta, Dallas and Reno, and moved its first RLC from Evanston, IL to Chicago. All told, Schneider Logistics has a network of more than 10,000 third-party carriers.

The business model is one that permits a Schneider RLC customer to interact with a s ingle sales representative who then matches the shipping need to the best transportation mode. “With the addition of our new Toronto-based RLC, we expand our ability to provide the best shipping solutions for our customers while growing our relat ionships with independent transportation providers,” says Mitch Weckop, general manager of transportation for Schneider Logistics.

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At Toyota, we’re doing as much for the environment as we are for material handling. For every innovation like our System of Active Stability™ (SAS) that revolutionized operator safety, there are innovative accomplishments in conservation.

Our zero-landfi ll manufacturing process has eliminated landfill waste disposal and increased our recycling by 70%. We’ve reduced our CO2 emissions at our manufacturing plants by 120,000 tons—that’s roughly equivalent to planting 45,000 trees. We’ve implemented more than 1,700 energy-saving measures companywide. And most recently, Toyota introduced the cleanest I.C. lift truck in the world.

Number one with people. Number one with the planet. No wonder Toyota is Earth’s #1 lift truck.

PROTECTING THE DRIVER WAS ONLY THE BEGINNING.

8 0 0 - 2 2 6 - 0 0 0 9 • t o y o t a f o r k l i f t . c o m

All Toyota 8-Series models count as 0.6 g/bhp-hr (0.8 g/kW-hr) HC+NOx towards California’s end-user fl eet average calculation—measures do not apply to diesel confi gured models. Contact your local dealer for additional information.

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Outsourcing to a Sustainable 3PL By Brewster Smith

Corporate Sustainability has recently gained significant traction in both the public and private sectors evidenced by the environmental marketing campaigns

of Wal-Mart and British Petroleum, recent Nobel Prize recipients and increased venture capital funding for sustainable business services. Although sustainability is an evolving business discipline, the concept of being environmentally responsible is not a novel idea and it can be understood, in its most basic form, as the practice of profitable environmental stewardship.

Implementing and maintaining a sustainable business, however, is more complex than the above definition would suggest. For starters, a common practice among sustainable businesses is working with a community of suppliers and/or trade partners that demonstrate environmental stewardship. For example, if an organization is considering outsourcing their inbound or outbound transportation business, they should seek out a prospective 3PL that is working to implement fleet management techniques that will reduce carbon dioxide and nitrous oxide emissions. There are specific technologies that 3PL organizations have implemented to optimize fuel economy and/or improve their environmental stewardship record (detailed below) and organizations looking to outsource a logistics function should ensure that some or all of these best practices are demonstrated by a prospective 3PL.

Single Wide-Based Tires 1

There is a new generation of single wide-base tires and wheels which are lighter than the two standard tire configuration. Moreover, single wide-based tires generate less rolling resistance and aerodynamic drag than traditional combination tires thereby reducing truck energy use and overall fuel consumption. The EPA has reported that “by using wide-base tires, a combination long-haul truck could save over 400 gallons of fuel per year and cut CO2 emissions by more than four metric tons annually.”

Tractor-Trailer Aerodynamics 1

In a separate study, the EPA has found that through the use of aerodynamic devices such as tractor

roof fairings, cab extenders and side fairings, fleet organizations can reduce wind resistance thereby improving overall fuel economy. As a result, aerodynamic devices can eliminate over 5 metric tons of CO2 emissions compared to a traditional tractor-trailer combination not equipped with this technology.

Wireless Smog Emissions Testing 2

Many fleet organizations are investing in telematics solutions to wirelessly and real-time manage the vehicle and electrical integrity of their vehicles. One telematics vendor enables fleet organizations to conduct wireless and remote smog checks through a vehicle diagnostic device which installs directly into the engine.

The South Coast Air Quality Management District—a 3rd party enforcement agency in southern CA, conducted a study of a 1,100 vehicle fleet getting remote smog checks. The results suggest that there could be a 700% reduction in CO2 emissions from 2007-2014 via routine, wireless smog checks.

The caveat with this technology is that currently is only available for light duty vehicles. The California Air Resources Board is working on smog checks for heavy duty vehicles but it is still in development.

As companies seek to become high performers by outsourcing any or all of their logistics functions, it will behoove them to investigate (via the traditional RFI/RFP process) how a prospective 3PL is practicing environmental stewardship through the above mentioned business practices. Eventually, environmental stewardship may no longer be an option and could potentially migrate from being a cool business trend to a mandatory business law.

Brewster Smith is a Senior Manager in Accenture’s Supply Chain Management practice, based in Washington, DC. His background is in fleet asset management as well as transportation, inventory and network.

References1 U.S. Environmental Protection Agency – Office of Transportation and Air Quality2 Networkcar: A subsidiary of Hughes Telematics

OperationsCommunity Voice

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Prince Rupert

COSCO Delivers2 Weekly Sailings to Prince Rupert

Direct calls fromNorth China East CanadaEast China Prince RupertSouth China Midwest US

COSCO is the first carrier to provide two sail-ings weekly from China and Yokomaha toPrince Rupert. COSCO has listened to themarket feed back and based on the successof one weekly service, COSCO has introduceda second weekly service. COSCO will now shipHong Kong, South China, East China andNorth China cargoes, including Yokohama toNorth America via Prince Rupert.

Shorten your supply chain, reduce your over-head and experience the congestion-free portof Prince Rupert, COSCO and the CN Rail.

Timothy E. MarshVice President North American [email protected]

COSCO ContainerLines Americas, Inc.

100 Lighting WaySecaucus, NJ 07094Tel: 800-242-7354Fax: 201-422-8928

www.cosco-usa.com

SHIP WITH CONFIDENCE.SHIP WITH COSCO.

1-800-549-0595 with questions. AES Compliance Seminars, and AESPcLink Certification Workshops will be offered in various cities in the United States. To find out more about these seminars and workshops, visit the Census Bureau Web site at www.census.gov/trade.

the FTR. Anyone submitting paper after September 30, 2008 will be in violation of the FTR and subject to penalties.

The Census Bureau can assist with information on the new FTR and filing export information electronically through the AES. Exporters may call

US Mandates Automated Export Filing

The US Census Bureau has issued its final rule implementing provisions requiring mandatory filing of export information through the Automated Export System (AES). It is a joint venture between CBP, the Foreign Trade Division of the Bureau of the Census (Commerce), the Bureau of Industry and Security (Commerce), the Directorate of Defense Trade Controls (State), other Federal agencies, and the export trade community.

Becoming effective on July 2, 2008, the Census Bureau now requires mandatory filing of export information through the Automated Export System (AES) or through the AESDirect for all shipments where a Shipper’s Export Declaration (SED) is required.

The Census Bureau is providing an additional 90 days to implement these new requirements. After the 90-day implementation period, which ends September 30, 2008, exporters must file export information electronically through the AES or AESDirect.

Additionally, these new regulations have tougher penalty provisions that affect everyone in the export process, says the Census Bureau. Penalties may be imposed per violation of the Foreign Trade Regulations (FTR) from $1,100 to $10,000 both civil and criminal, for the delayed filing, failure to file, false filing of export information, and/or using the AES to further any illegal activity. Also, all AES filers are faced with new filing deadlines by mode of transportation for reporting export information.

The Census Bureau has instructed filers of export information to make every effort to submit these data via the AES or AESDirect to eliminate the use of paper SEDs immediately. During the 120-day implementation phase, the Census Bureau will use “informed compliance” to reach out to filers identified as being in violation of

Operations

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The rush to reduce costs in manu-facturing and procurement fueled a surge in outsourcing and offshoring over the last decade that has almost taken on a life of its own. The major business assumption driving this trend was that it was less expensive to purchase goods and manufacture overseas because labor and raw materials and, therefore, capital projects, cost less.

At the same time, a “me, too” mentality was taking hold—“If everyone else is doing it, it must be the right thing to do.” In fact, it was some of the early successes that may have helped drive this momentum.

Has the tide turned? Is it time to question some of those decisions?

Several factors, including rising energy costs, currency devaluation and demographic changes in the “low cost” countries, are challenging the accuracy of those earlier as-

TTReconnecting With Your NetworkExtended supply chains

have many moving parts in

manufacturing and logistics that

require regular maintenance.

By Alan Kosasky and Ted Schaefer

Risk.Final.indd 22 7/31/08 9:22:38 AM

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cm to 1 inch, which was not precise enough for aircraft engine tolerances, demonstrating that quality control over offshore production can be tricky at best. Today, in the air-craft industry, Boeing is purchasing a Global Aeronautica, LLC fuselage sub-assembly plant in order to regain control over the 787 Dreamliner manufacturing process. Clearly, ensuring the control of final product quality is a key factor in the outsourcing decision process—whether the source is domestic or off shore—even before the logistics factors enter the equation.

Tangible Planned CostsIn addition to quality, there are other costs, obvious

and otherwise, that can be overlooked when companies are not thorough in their analysis of the TDC. Take the case of a specialty chemicals manufacturer that received an excellent price from an offshore manufacturer for a key raw material. While it accounted for ocean freight costs, it neglected to include import duties. Ultimately, its “great price” resulted in a TDC of about 15% more than its origi-nal delivered cost for local materials.

The first step to avoid this type of mistake is to perform a complete analysis of the TDC, assuming everything goes according to plan (unplanned costs will be considered

sumptions. Depending on the country of origin, the com-bined impact of these factors has escalated costs by any-where between 10% and 40% over the past three years. A rigorous and continuing analysis of a company’s supply chain network can reveal the true costs, benefits and risks of manufacturing and distribution decisions.

The only accurate measure of success in any decision to offshore manufacturing is the total delivered cost (TDC) of the product to the final customer—not the price at which it can be purchased or the manufacturing cost in the “low cost” country. The TDC breaks down into obvious and hidden, tangible and intangible components.

One under-appreciated cost component that has re-cently come to the forefront is the cost of quality. In the worst-case scenarios of toys with high lead content, melamine-contaminated pet foods and chondroitin-laced Heparin, multinationals certainly got their low prices, but paid the monumental costs of widespread recalls, fines, lost customer goodwill and damage to reputation.

The debacles that result from ignoring the cost of quality are not new to this decade, nor are they limited to Chinese exports. During World War II, for example, US-made aircraft pistons for British fighters had to be scrapped be-cause the US manufacturer used a conversion rate of 2.54

Reconnecting With Your Network

Risk.Final.indd 23 7/31/08 9:22:50 AM

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However, it is also important to include the costs that are incurred when things don’t follow the plan.

Unplanned CostsWhen it comes to offshore manufacturing, variability is the name

of the game—making profitability a moving target. Political, socio-economic and demographic upheavals, changing marketplaces and the multitude of factors that affect transit time all raise risks and costs and reduce a manufacturer’s flexibility in terms of inventory tracking and control, warehousing, distribution and customer ser-vice. Every risk that comes with the increased time and variability of an extended supply chain has an associated cost. Examining these costs in greater detail is the second step in the process to make a good decision.

The current US transportation-related infrastructure often causes bottlenecks leading to delays and hence lost or delayed sales and/or premium costs to expedite. Even now, US port and rail systems are overburdened with imported cargo. Staging spaces and crane capacity are inadequate, and rail and truck traffic out of ports often approaches gridlock. Further, since container ships are getting big-ger, some take five or more days to unload. Those are just everyday delays and do not take into consideration the possibility of labor ac-tions at US West Coast ports that could cause disruptions similar to the lock-out that closed ports a few years ago.

A continued focus on security has brought with it an increasing likelihood of more thorough cargo inspections at the port of entry, delaying shipments by a week or more.

The current gridlock at US West Coast ports is worsening as US export traffic increases with the weak dollar. Traditionally, ports have dealt with a ratio of about three import containers to one ex-port container, but now that ratio is approaching 2:1 as more and more export containers take up scarce staging space, potentially holding up incoming shipments.

Stuck in all this port congestion, trucks are idling longer, trig-gering concerns over air quality and leading to an increase in envi-ronmental regulations. The Ports of Los Angeles, Long Beach and Oakland, for example, will levy a $35 per twenty-foot-container equivalent environmental fee to mitigate pollution.

A number of ports are developing regulations on the type of fuel ships can use while they are in port. While container ships are at sea, they burn bunker fuel. The regulations would require that they burn a low sulfur fuel when they come into ports in Europe and on the US West Coast. We can expect to see higher fuel costs as the price of bunker fuel soars and low sulfur fuel prices are even higher with increased demand.

Weather is an uncontrollable variable that can cause substantial delays, again increasing expediting costs and revenue shortfalls. A typhoon in the Pacific Ocean could mean, at best, delays as a ship

below). The following table compares the most common domestic and offshore transportation costs that should be included in this type of analysis.

In addition, export taxes or tax rebates may apply, depending on the country of origin for the shipment.

Although distribution center costs are listed for both domestic and offshore manufacturing, the types and magnitudes of the costs are likely to be quite different between the two supply chains. For example, imported materials may require additional handling and processing to be re-palletized to conform to the “standard” pallet in use in the country of consumption.

The warehouse footprint and average dwell time of the material in the warehouse will typically be larger for the imported materials. Even if the order size, and thus the cycle time, of the goods are the same for both imported and domestic materials, the safety stock required to provide the same level of service can be significantly higher for the imported material. This is evident upon inspection of a simple safety stock formula for a fixed order quantity with variable lead-time:

As the lead time between ordering for replenishment and re-ceiving increases, the required safety stock increases. Likewise, as the variability in the lead time increases, the required safety stock increases.

A thorough examination of these items should result in a good estimate of the TDC when everything goes according to plan.

Logistics Cost Domestic OffshoreDrayage from factory to embarkation port No YesTerminal handling fees at embarkation port No YesPort taxes No YesOcean freight No YesInsurance Yes YesDocumentation fees No YesImport duty No YesTerminal handling fees at debarkation port No YesTruck/rail freight to distribution center Yes YesDistribution center costs Yes Yes

Safety Stock=z*√Avg Leadtime*Std Dev2

Demand+Avg Demand*STD Dev2

Leadtime

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days, not weeks or months. Thus, great care should be taken in the assessment of total cost of inventory (working capital, damage, ob-solescence) and the facilities and costs required to manage it, both at the “average” level and during the peaks and valleys that often accompany cross-ocean supply chains.

Tracking Tribulations Inventory management with offshore manufacturing is further

complicated by having inventory in different places at different times—on the ocean, waiting for an inspection in port, moving on a train or already stored in the warehouse. All inventory must, of course, be tracked, no matter where it is. Technology can help, but only to a degree. Without sophisticated tracking processes, products being shipped from overseas tend to go into a “black hole” until they arrive at a port. It may take several days just to find out whether a container has been loaded onto a ship as scheduled or has been “rolled,” i.e., left behind because the ship left full without it. Uncertainty means risk, and hence costs.

Several transportation management systems are available to track inventory, all of which claim to provide clear line-of-sight to the in-ventory throughout the supply chain. However, these technologies can be difficult to implement. Moreover, they may be of limited use in inventory management because the various carriers do not abide by a single standard for communication and some carriers are spotty at best in their delivery of status messages that drive the tracking systems. Further, a number of third- and fourth-party logistics com-panies claim to provide visibility of shipments around the world. But these are also hampered by the lack of common standards, and sometimes they are owned by a carrier that may have difficulty ob-taining information from a competitor. Adding to the challenge are the difficulties of communicating in multiple languages and across different cultures, which may lead to misunderstandings and unmet schedules. At best, tracking attempts present a fragmented picture, regardless of how “easy” electronic commerce supposedly has be-come. Inability to track shipments accurately calls for great flexibility, and often additional costs, in inventory. Don’t forget to include these tracking costs as part of the TDC analysis.

Costs That Change Over TimeSome companies do a thorough job of analyzing the entire cost

picture initially but forget to review their calculations regularly. When this happens, they pay much more a year or so later when rapid global change has suddenly made their decision unprofit-able. A profitable outsourcing decision never depends on a single number at a single moment in time, but needs to consider a range of possibilities and a range of possible futures. This is the third step in a good decision-making process.

Among the global changes that can dramatically affect manu-

detours around the affected area. Or, in the worst case, it may cause losses as shipping containers are jettisoned or lost due to the storm.

Clearly, over the course of time some fraction of the replenish-ment shipments will be expedited due to unexpected surges in demand or delays in replenishment resulting from these and other causes. The costs to expedite an overseas shipment can easily be three to four times the cost of the planned mode of transport. Even a small percentage of expedites can have a material effect on the TDC. Therefore, an estimate of the number of expedites should be built into the TDC of the imported material during the initial analysis.

Out of Room in the Warehouse?The foreseeable and unforeseeable delays of long supply chains

not only increase expediting costs and revenue shortfalls, they also complicate supply chain management. One of the highest hidden costs associated with offshore manufacturing is inventory. Although logistics professionals recognize the need to add extra days of inventory to cover the “pipeline” while the material is in transit from an overseas location, they sometimes overlook the need for additional safety stock to account for the longer lead time for replenishment.

There are additional factors that also negatively affect warehous-ing costs. Ocean transport of containers can be extremely variable, forcing importers to plan for delays in receipt and also requiring them to be able to accommodate larger quantities of material in a single shipment. It is not uncommon, for example, to have two, three or even five containers arrive at the same time, even though they were all ordered one week apart. This multiplies the need for warehousing and staging space and the labor costs for marshaling and sorting the products. If extra warehousing space is not readily available, it may mean paying a premium for third-party space or last-minute arrangements.

As one manufacturer learned, equipment rentals, such as spe-cial chassis for ISO-containers, may further increase these costs. The manufacturer offshored production of a key intermediate from the US Gulf Coast to Europe and found itself in a “feast or famine” situation for months while its ISO-containers were stack-ing up in Europe as they got rolled from one ship to the next.

The planning horizon for overseas manufacturing is much longer, which adds uncertainties and risks and hence hidden costs. Planning under these conditions is much more problematic and challenging than for domestic manufacturing. The longer the supply chain, the more the company is at the mercy of its forecast accuracy. A longer supply chain can increase the risk of obsoles-cence. Mistakes are not as easy to correct in an extended supply chain as with a domestic manufacturer. The domestic supplier may be able to provide additional products in a matter of hours or

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over the time horizon of an offshoring or outsourcing decision. For a number of years, many companies have taken advantage of a 17% tax rebate on products exported from China. However, based on a protest brought to the WTO for unfair trading practices, this rebate is being phased out, creating a step change increase in the cost of goods that are now sourced from China. This kind of cost increase could be a disaster if it were not anticipated.

Components of Complex DecisionsMaking the right decision under such complex conditions and

evaluating it against many possible futures depends on three com-ponents: the right tools, the right data and the right methods. Tools must have the ability to:

· Calculate the total delivered cost.· Account for all the elements of the total delivered cost, tangible

and intangible.· Allow accurate forecasting over the length—both time and

distance—of the supply chain. · Track the total cost so it can be used in decision-making.· Model and compare the entire matrix of sourcing options

for all raw materials and components used in the manufacturing process.

· Account for the extreme variability that comes with global commerce.

With a short, domestic supply chain, it is easy to take quick, corrective action if variability has been ignored in the beginning. But with a global supply chain, the next shipment may be two months away.

The data that supports decision-making covers all the cost elements: raw material, manufacturing, transportation (ocean, air and land), taxes and duties, warehousing, inventory and distribu-tion. It also includes currency values and forecasts of changes in those values.

A common pitfall is discounting the risks of currency fluctua-tions, regulatory change and risks associated with transportation. Discounting risks usually results in higher costs.

Even the most capable tool and the best data, however, can lead to poor decisions if the underlying assumptions about a company’s operations are incorrect. Many companies have the best forecast-ing tools on the market, but their forecasts are not worth the paper they are printed on because they do not follow a disciplined fore-casting process. If an accurate forecast was assumed in the TDC analysis, the inventory and expediting costs that were calculated will be significantly lower than the actual costs will be.

Once a decision is made, sensitivity analysis can help ensure it remains profitable. What would have to happen to reverse the decision? Could it happen, and is it credible? For example, if expe-diting 5% of all orders were to reverse the economics of the deci-

facturing costs are currency fluctuations, demographic and so-cioeconomic changes and, of course, the ever-rising cost of fuel. Such changes can quickly double manufacturing and transporta-tion costs and can erase any return on investment (ROI) from an overseas capital investment. Today, it is more critical than ever to evaluate a planned infrastructure capital investment overseas against many different futures to ensure it is robust enough to be profitable under any conditions. Once a decision is made, contin-ued vigilance and flexibility are just as critical.

Let’s say that to obtain a reasonable ROI an offshore facility has to operate at reasonably full capacity for five years. What macro-economic changes might occur in that country, and the world, during those five years that could change the facility’s profitability? India, for example, was the destination of choice for information technology-related outsourcing just a few years ago. Now, that country’s economy has grown, and these services have become much more expensive. More jobs have become available for people who used to depend on work in all-night call centers, and computer manufacturers are paying much more to retain quality personnel so they can maintain service levels for US consumers. Similarly, in China, an emerging middle class is creating a larger demand for consumer goods and skilled workers, resulting in unprecedented job hopping that makes retaining good people exceedingly difficult. Some estimates suggest China’s labor-cost advantage will come to an end by 2010.

Whether companies outsource their services or manufacturing operations, they need to remain vigilant to changes in workforce demographics and salary costs. Even over as short an investment horizon as five years, the changes in developing countries can be dramatic.

Along with demographic changes, changing political and regu-latory policies can have a significant impact on total delivered costs

Cost Table 1 text:Logistics Cost Domestic Offshore

Drayage from factory to embarkation port No Yes

Terminal handling fees at embarkation port No Yes

Port taxes No Yes

Ocean freight No Yes

Insurance Yes Yes

Documentation fees No Yes

Import duty No Yes

Terminal handling fees at debarkation port No Yes

Truck/rail freight to distribution center Yes Yes

Distribution center costs Yes Yes

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sion, is such a 5% expedite rate credible? If so, perhaps domestic manufacturing or a blended strategy would be more cost-effective. It may be efficient, for example, to obtain 90% of the products from a developing country, using an inexpensive method of transportation, while ordering the remaining 10% from a more expen-sive, but highly responsive domestic sup-plier to mitigate expediting requirements.

Think GloballySavvy logistics professionals are analyz-

ing the impact of all manufacturing and distribution components to determine the best sourcing matrix. They achieve a proper balance between domestic and overseas sourcing by correctly assessing supply chain cost and risk. With a short, domestic supply chain, it is usually easy to take corrective action if the unexpected happens. With a global supply chain, vari-ability is not only more likely, but when it bites, it takes a bigger chunk out of profits. The trouble with variability is that it is an uncomfortable concept, difficult to grasp and it is hard to account for in calculations of costs and benefits. A step in the right direction is having good processes and analytical tools for supply chain analy-sis and forecasting. But don’t count on analytical detail and forecasting to provide the right answer automatically. Take the time to think about how a decision will operate under varying global conditions, now and in a number of possible futures. The most informed decisions will emerge from regularly-scheduled reviews, which include a combination of detailed analy-sis and a wide-ranging perspective of the global landscape.

Alan Kosasky is President and Ted Schaefer is Director of Logistics and Supply Chain Services with Profit Point, a company that spe-cializes in helping businesses optimize complex processes. www.profitpt.com

Hypothetically SpeakingPerhaps the best way to illustrate supply chain risks is to look at a simple hypothetical offshoring decision made in early 2006. Let’s assume that a manufacturing analysis has found a Chinese supplier with excellent quality processes and a total manufacturing cost of 3.20 Yuan/lb, which then equated to $0.40/lb. The best manufacturing cost in the US was $0.50/lb, which gave the Chinese material a 20% manufacturing cost advantage over the domestic manufacturer. After a detailed analysis, the TDC of the Chinese material is shown to be $0.46/lb as shown in Table 1.

Table 2 shows the cost of the domestic material to be $0.528/lb, giving the Chinese material a 13% TDC advantage over the domestic material. However, over the next two years, because of the devaluation of the US dollar against the Yuan and the loss of the export tax rebate, the relative costs of the two materials are reversed, leaving the Chinese material with an 11% disadvantage relative to the domestic material. In addition, this example does not take into account the wage inflation currently underway in China and assumes a well-behaved supply chain without major interruptions. If this decision had resulted in a long-term contract or the construction of manufacturing facilities, the logistics professional who made the decision might be searching for new employment.

Table 1Chinese Sourced Item (all US $ cost per lb) 3/31/2006 3/31/2007 3/31/2008

Purchase Price of Material in Yuan 3.20 3.20 3.20Purchase Price of Material in USD $ 0.399 $ 0.414 $ 0.454Transportation Cost $ 0.077 $ 0.071 $ 0.076Inventory Cost $ 0.024 $ 0.024 $ 0.030Import Duties $ 0.029 $ 0.029 $ 0.032Export Tax Rebates $ (0.068) $ (0.070) $ ---

Total Landed Cost $ 0.460 $ 0.468 $ 0.592

Table 2Domestically Sourced Item

Purchase Price of Material $ 0.50 $ 0.50 $ 0.50Transportation Cost $ 0.015 $ 0.017 $ 0.018Inventory Cost $ 0.013 $ 0.013 $ 0.013Currency ExchangeImport DutiesExport Tax Rebates

Total Landed Cost $ 0.528 $ 0.529 $ 0.531

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Customers Helping Customers Helping Customers

With continuing increases in governmental regulations regarding the movement of freight, it is difficult to imagine being able to conduct a vigorous trade program without the use of technology and solutions that help keep abreast of current regulations. Rather than maintaining internal staffs dedicated to keep-ing themselves up to date on the regulations, many freight forwarders, customs brokers and the like find it best for their business to engage with a technology solution pro-vider able to provide tools they in turn use to the benefit of their shipping customers.

Dave Hockersmith, vice president US business & prod-uct development for CargoWise edi, a solutions provider, observes this trend to outsourcing for customs and trade data by forwarders, brokers and logistics service provid-ers coming about for several reasons. For one, previously companies built programming internally or went to a few key vendors for applications. “But as supply chains have gotten more complicated and everyone is doing every-thing, not just focused on one particular vertical market,” he says, “they just don’t have the expertise internally to develop and program and build an application that covers all the bases.”

According to Hockersmith, another reason for out-sourcing is that older systems can’t match the tools and speed that is possible today with a SQL server database and a Windows platform. A case in point is Mach 1 that went live with his company’s ediEnterprise solution in February in its US, Mexican and Singapore offices.

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ber of consulting services with the objective of delivering an end-to-end solution.

“CargoWise edi has vastly up-graded our ability to provide greater supply chain visibility and shipment status reports for our customers,” claims John Gray, vice president of administration for Mach 1. “By re-placing our outdated AS400 system with the CargoWise ediEnterprise system we now have the ability to display dispatch and operational data on large screen plasma displays in customer service and national account control centers. The EDI interchange integration with Mach 1 customers also enables us to pro-mote our new capabilities to current

customers as well as prospects as we continue to build our international customer base. It’s a wonderful new asset for the company.”

In reflecting on changes within the freight forwarding community, Hockersmith feels there has been a change in attitude. Previously many in the business were protective of their data, feeling it had to be controlled only by internal resources. Today, he senses an increasing realization that there is value in outsourcing and in keeping core people focused on the business. In fact, there is even a trend to outsourcing management of data centers and servers.

“We understand that many providers are working on very fine margins,” says Hockersmith. “So we are trying to give them tools to do their jobs better. We can never do

With headquarters in Tempe, AZ, Mach 1 Global Services has operations throughout the world and offers a wide range of services across its logistics platforms. Until it put its new outsourced applications to work, Mach 1 was using software that ran on an AS400 and just wasn’t capable of keeping up with internal growth and customer demands.

CargoWise explains that its ediEnterprise is a modular set of supply chain solutions designed to automate and streamline operations and management for international providers of logistics and trade services. In the case of Mach 1, modules were aimed at increasing visibility of global shipments, including ediForwarder, ediDocMan-ager and ediWebtracker. CargoWise also provided a num-

Third party suppliers collaborate with technology suppliers to be able to offer their customers the best trade solutions possible.

By Roger Morton

Technology

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the point persons for its Trade Support Network for the Automated Commercial Environment (ACE). CBP has selected 11 core members, of which Amy Magnus is one. “The Kewill partnership is impor-tant for us because Celeste Catano, the company’s principal designer, analyst and developer for its Import and Customs Brokerage software applications also serves as an ACE Trade Ambassador. So I meet with Customs on a very regular basis and am always pleased to have Celeste in the same room with me, sharing the same information I’m hearing at about the same time. There are some very important changes that are coming up quickly and

partnership network it facilitates move-ment of cargo through its primary markets in North, Central and South America, Europe and the Pacific Rim.

Solutions chosen are from Kewill. Ken Halle, chief strategy officer, trade & logis-tics, for the company notes that Deringer is using Kewill’s Customs Brokerage, Freight Forwarding and Forwarding/Export, as well as the multi-carrier solu-tion, Clippership, for handling small par-cel shipments. While Deringer does have add-ons, the core of its technology today is Kewill.

US Customs & Border Protection (CBP) has selected Trade Ambassadors to be

their jobs. That’s what they are the experts at. But if we can get their people to work a little bit more efficiently, then hopefully they will be productive and profitable.”

As with Mach 1, A.N. Deringer, Inc., a privately held corporation providing Customs brokerage and clearing services, had its own legacy technology solution. “We had an off the shelf product that we self-programmed over the years,” recalls Amy Magnus, Deringer district manager. “It evolved over time and we discovered that regulatory changes and requirements were coming on so quickly we really couldn’t keep up with it alone. We saw the need for a partner who could help us have a good IT solution so we could focus on our internal processes to meet the rapid changes.”

The company is very strong along the northern US border. It owns and oper-ates more than 30 offices and distribu-tion centers in the US. Through a global

EVERY TRUCK TELLS A STORY. XATA® has the fl eet management technology and human expertise to help you identify issues, translate data and determine the

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they are moving, when they are released by Customs or are on hold, for inspection by another agency like the Food and Drub Administration, for example.

Another benefit is that Deringer is able to communicate with Customs in a much more paperless environment than previ-ously. The provider offers a great deal of electronic data that does not have to be printed. The lack of a need to print on paper has been a savings for the company and its customers. Imaging, memos and event notifications are immediate, and paperless.

Our company is very happy to have engaged with Kewill,” says Magnus. “We could not have done this alone. There is so much and it is so daunting and quite con-fusing right now for all of us out here. We are working together and talking together about these changes and preparing for them together. That is very comforting in these uncertain times.”

pliant and to be ready for, in most cases, the early adopters. The ESAR release in January 2009 is an example. We are cur-rently programming so we can be ready for them. We can let people like Amy worry about dealing with their customers and how to continue to provide them with good service while we worry about the compliance changes.”

“I am comforted knowing that getting our processes in order and communicating with the clients so they understand what is coming and what will be required of them is getting accomplished,” claims Magnus. “I partner with Kewill to make sure they are prepared for me to be able to transmit data, receive responses to that data and analyze it so we can continue to evolve our product to meet our client’s needs.”

Deringer has been able to use its Kewill solutions to provide clients with visibility into almost everything it is doing. Traders are able to see where their goods are, how

if we’re not prepared for those changes, then we are not going to be able to provide solutions to our clients.”

Among the issues looming for trad-ers, points out Magnus, is that starting in early 2009, CBP’s ACE Entry Summary, Accounts and Revenue at a Glance (ESAR) will be available for early adopters. CBP explains that ESAR, “will enable the agency and its trade partners to truly inter-act electronically. Throughout the upcom-ing years, these enhanced account capa-bilities, affecting virtually all CBP cargo processes, will bring a dramatic, compre-hensive change in the way CBP conducts business.”

Magnus notes that among other things, forwarders and brokers are going to have to completely change the way that they transmit entry-summary data. Halle says, “We pride ourselves here always on having the requirements ready and available for our customers. We have to be 100% com-

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Asset-based vs. Resource Rich

ply chain starts to sound like greater investment in resources, not fewer assets, and here too, outsourc-ing provides some answers. A third party logistics provider (3PL) can offer greater availability of rel-evant strategic resources, suggests Jim Butts, a vice president at CH Robinson. He includes network analysis, consulting and supply and demand plan-ning among those resources.

But just as the users of 3PL services are looking for ways to focus on their core business and shed as-sets and operations that don’t contribute to provid-ing customer value, 3PLs themselves have evolved an attitude of focusing on core competency. Start-up Crane Worldwide will begin operating in the freight forwarding segment applying the lessons of a com-bined 185 years of experience among its executives. The 3PL will practice what it preaches, according to

Companies outsource to shed fixed costs, says Ron Cain, president and CEO of TMSi. Often that equates to physical assets. In a down market with stagnant growth, that decision can translate into consolidating multiple distribu-tion centers into fewer facilities or outsourcing a pri-vate fleet operation to a dedicated contract carrier. But it can also mean reducing inventory or moving inventory through the supply chain faster.

Improving efficiency and flow in a global sup-

Users and logistics service providers focus on execution.

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Asset-based vs. Resource Richuct or service to the customer.

· Liability issues - an area where many companies want to maintain an arm’s length relationship.

· Technology issues - including the need to unify on a single platform or lack of resources to imple-ment or upgrade systems.

· Efficiency and control - which Cain and other 3PL providers suggest is the core of what 3PLs do. The 3PL is in the business of efficiency improve-ment and, with the right contract and the right partner, the user’s control actually increases, he continues.

3PLs are unabashedly asset light in a market that increasingly values the end result—a culture of ex-ecution as CH Robinsons’ Butts describes it. And for the 3PL, the transition has taken it from a traditional brokerage to a larger, more comprehensive solution provider. Some users prefer to have a particular color truck bump up against their dock every day, he comments, “but increasingly we’re seeing that is not the case.”

Taking a more strategic approach, logistics pro-viders begin with a network analysis based on the demands and expectations of the user and the user’s customer, Butts points out. Cain concurs, saying that part of the process for the 3PL is an analysis of where the user’s needs are and where facilities should be, based on volume. Solutions should be based on effectiveness and productivity, adds Butts.

Establishing a baseline for the relationship is critical to the success of any outsourcing contract. Users don’t always have sufficient or accurate data

John Magee, CEO, and outsource what is not a core competency and doesn’t drive customer value.

Cain at TMSi begins his discussion with a list of reasons why users come to him and other 3PLs in the first place:

· Shed fixed costs - often this means shifting con-trol of assets to a 3PL or shedding assets in favor of using the facilities and/or vehicles owned or con-trolled by the 3PL.

· Increased service requirements - driven by the user’s customers or market demands and extending to a desire to see continuous improvement in net-work performance.

· Logistics is not a core competency - or a facet of logistics is viewed almost like a “necessary evil” or cost component rather than a strategic asset.

· The logistics activity does not add value to prod-

By Perry A. Trunick

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carriers themselves. How does the 3PL measure and manage carrier per-formance? How does it identify and address operational problems? How does it vet carriers for financial stabil-ity? And what is the 3PL’s payment record with carriers?

The relationships a lead logistics provider has with other providers will be nearly as important as those providers’ ability to perform. And that leads to another issue for the 3PL, the user’s performance. Reducing costs throughout the supply chain often means pinpointing the “bad actors,” says Butts. As a middleman in the logistics process, Butts notes the 3PL serves both the providers (carriers) and the users and must measure per-formance on both sides. Impediments for a carrier at pick up or delivery locations can be as important to deal with as the internal factors in the us-er’s supply chain. A consignee who takes eight hours to unload a truck or a shipper facility that doesn’t keep ap-pointments are as disruptive as a car-rier that doesn’t perform. And while a shipper (or its logistics service pro-vider) will drop a carrier that doesn’t perform, carriers or other service pro-viders will also be reluctant to take as-signments that are disruptive to their operations.

Optimizing supply chain perfor-mance is a matter of bringing the right resources to bear on a problem, measuring performance, and striving for continuous improvement on all sides. “Any company that has addi-tional costs is going to be at a compet-itive disadvantage,” points out Butts. Increasingly, those resources are a combination of a 3PLs operational core and its relationships, agrees Cain. Those assets often sit at a desk, not in a parking lot.

managing relationships with other 3PLs that provide services that are not part of the lead logistics providers’ core competency. The 3PL reaches out to what it considers to be the best-in-class providers for those ser-vices and sits down with the manage-ment teams to establish a reciprocal relationship and set up a contract. That relationship and contract will be governed by the KPIs established

between the lead logistics provider and its user customer and, though the sub-contracted components will be managed through the lead logistics provider, it is the lead logistics pro-vider who is ultimately responsible to the user for the performance of the entire supply chain.

It’s important for the lead logistics provider to be open with the user about the relationship, says Cain. But the lead logistics provider (LLP) will have the responsibility for the other party’s performance and, with a care-fully executed contract, the ability to change providers should the user’s needs change or if the provider does not meet the performance require-ments.

For companies like CH Robinson that often perform carrier manage-ment for their customers, the need is similar, but it may manifest differ-ently. For users, the visibility may be the performance measurement sys-tems the 3PL uses to manage car-riers more than details about the

on their networks, and before setting key performance indicators (KPIs) in those circumstances, Cain says TMSi will often establish the first 90 days of a contract to develop that informa-tion so that the parties can come back together and establish realistic goals and expectations along with the per-formance measures and other critical contract elements. Looking at those needs also points to which resources

need to be employed, and this is an-other key decision point for the 3PL and the user.

Not long ago, everyone wanted to be a one-stop shop, says Cain. The 3PLs wanted to handle everything in-house. They were the expert at everything. But even though logistics service providers still want to be the single face to their customer, there is a pretty widespread recognition that they don’t have the volume or exper-tise to do it all, Cain continues.

This is one of the lessons Crane Worldwide’s Magee acknowledges. Customers took them into more and more areas, he says, and in the new company, the focus is on the core competency. When users want you to do more, there is a time to do more and there is a time to say “no,” says Magee. Stick to your focus and what you do best, he cautions.

That said, 3PLs are developing not only traditional 3PL relationships with their users, but also act as lead logistics providers, coordinating and

The 3PL is in the business of effi-ciency improvement and, with the right contract and the right partner, the user’s control actually increases.

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Cross-DockingTrends Report

Today’s customer-driven economy has transformed the lo-gistics industry. To compete effectively, suppliers are rec-ognizing they must do business their customer’s way—finding methods to move products more quickly, effi-ciently and cost effectively. Speed and agility are the name of the game. As companies focus on cutting costs from their supply chain, they must make sure that shelves are stocked with the right product to meet demand in a mar-ketplace where customers’ demands change every day. To

achieve these goals, more and more companies are finding that cross-docking must play an integral part of their distribution model.

To gain a better understanding of cross-docking practices, issues, and challenges, Saddle Creek Corporation (www.saddlecrk.com) commissioned

Cross-DockingTrends Report

2008

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an independent party to survey industry professionals who are responsible for and involved in warehousing, distribution and/or transportation. A total of 547 surveys were completed in February 2008, mak-ing this research statistically valid. Of these respondents, 52% currently cross-dock, 13% do not cross-dock now but plan to cross-dock in the next 18 to 24 months, and 31% have no plans to cross-dock.

Of those who have implemented cross-docking, 28% are veterans, having cross-docked for more than 10 years. Another

through the use of a third-party ware-house facility to handle the cross-docking process.

• From multiple plants (deconsoli-dated) into a third-party cross-dock that, within hours, picks and consolidates all products from all plants into customer or route orders and then delivers.

• Consolidating LTL into truckload which reduces the number of deliveries to retail outlets.

In keeping with the product-in/prod-uct-out nature of cross-docking, 66% of respondents report that products reside at their cross-docking facility for one day or less. For 29% of these respondents, prod-ucts reside at their cross-docking facility for half a day or less.

Cross-docks generally can be divided into three levels of complexity:

• One-touch – Products are touched only once, as they are received and loaded outbound without being placed on the warehouse dock. This is highest velocity ”load-as-you-go” and the focus is on cross-dock productivity.

• Two-touch – Products are received and staged on the dock then loaded out-bound without being put into storage. The focus is on outbound load optimization and gaining transportation efficiencies.

• Multiple-touch – Products are received and staged on the dock, then

30% have been cross-docking for four to 10 years. However, the practice is still drawing new practitioners, as 32% of those who cross-dock have been operating a cross-dock for just one to three years.

Many respondents plan to expand their cross-docking efforts. About half of those who currently cross-dock have considered cross-docking more of their total SKU throughput. This combination of new and established cross-docking practitioners helps to confirm the growing role of cross-docking in the industry.

Cross-Docking: A Snapshot

Cross-docking is defined as the process of receiving product and shipping it out the same day or overnight without putting it into storage. Cross-docks are generally used for “hub-and-spoke” arrangements, consolidation, or deconsolidation.

Typically, cross-docks can be developed using a variety of strategies such as (but not limited to) the following arrangements:

• Either pre-picked to a customer order or bulk-picked to a pooling location to handle the “last-mile” shipment to the customer.

• Pre-picked orders to a less-than-truck-load (LTL) carrier break-bulk facility from where the LTL carrier’s network is used.

• Pre-picked orders transferred to LTL

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also accommodates peaks and valleys in the shipping cycle.

Cross-docks can be flexible and used for promotions and seasonality as well as long-term operations. An experienced third-party provider can find the right combination of companies with com-plimentary shipping cycles. When one company’s business is spiking, another’s may be slower and vice versa. The 3PL can ensure that there’s a consistent flow across the dock, so costs can be shared among customers.

In addition, business changes can make it difficult to predict what a company’s business will look like in the future, and the current cross-dock design may not meet future needs. A need for flexibility prompts many users to look to outsourc-ing as an alternative.

Of course, if a company has sufficient volume, a dedicated cross-dock facility may be most effective. If cross-docking is not an internal core competency, some third-party providers will build and man-age a dedicated facility as well.

Many companies prefer to outsource their cross-docking function for general liability reasons. They want to avoid ex-posure to that level of risk. They see the potential danger to their reputation if just one driver is involved in an accident that results in a lawsuit. Third-party logistics providers typically assume the vast major-ity of liability.

Outsourcing trendsA significant number of respondents

plan to begin cross-docking or cross-dock more in the next 18 to 24 months. Nearly one-quarter of respondents who currently cross-dock (23%) plan to increase out-sourced cross-docking in the next one to two years. Another 20% are unsure of their plans. Similarly, more than a quar-ter (28%) of those respondents who are planning to cross-dock in the next two years expect to use either a 3PL provider exclusively or use both in-house resources

cross-docked, less-than-pallet quantities also can work although they are more labor intensive. In the course of more than 16 years of complex supply chain cross-dock experience, Saddle Creek has found that multiple SKUs in LTL quantities can be cross-docked effectively.

Outsourcing OverviewGiven all the variables of cross-docking,

many survey respondents say they look to 3PLs to help manage the process. One-third of respondents who currently cross-dock use a 3PL either exclusively or in addition to in-house resources.

On average, those using a 3PL out-source 44% of their cross-dock volume, with 29% outsourcing more than 75% of their cross-dock volume.

Today, cross-docking practices for out-sourced operations are closely aligned with those operations handled in-house.

Companies that outsource are slightly more likely to cross-dock temperature-controlled goods. Of all the respondents that cross-dock, 15% cross-dock temper-ature-controlled goods while 20% of those companies that outsource cross-dock these products. Perhaps this reflects a de-sire to steer clear of growing food safety concerns by seeking out expert assistance.

Companies with high numbers of SKUs seem to be somewhat more likely to out-source their cross-dock operation. For example, of those companies that out-source, 28% handle 10,000 to 19,999 SKUs, while 22% of the total respondents who cross-dock internally have that vari-ety of SKUs.

Reasons for outsourcingCompanies outsource their cross-dock

operations for a variety of reasons, includ-ing reducing costs, flexibility, efficiency and managing risk.

Outsourcing to a third-party provider offers the ability to share a cross-dock fa-cility with multiple shippers. This not only helps to defray the overhead costs, but it

reconfigured for shipment and loaded outbound directly from the warehouse dock. This method offers the greatest op-portunity for customization and end-user value-add.

Customized programs that involve mul-tiple touches are able to achieve the great-est efficiencies when products are handled the least, as reflected by the velocity with which respondents’ products flow through their cross-dock facilities.

Shipping practicesOn average, respondents who currently

cross-dock report that approximately 27% of their throughput (both inbound and outbound) volume is cross-docked. Those who plan to cross-dock expect a somewhat lower average (19%), probably wanting to start cautiously. Saddle Creek’s research shows that two-thirds of respon-dents cross-dock more than 10% of their throughput (both inbound and outbound) volume, providing further evidence that cross-docking is on the rise significantly.

Respondents who are currently cross-docking are spread across the board when it comes to the total number of SKUs in their warehouse/DC operations. Roughly a quarter of respondents who cross-dock have less than 500 SKUs. Another quarter have more than 10,000 SKUs, with the remaining respondents distributed evenly in between.

Trailer-load and LTL shipments are the most common modes for inbound and outbound shipments. For inbound shipments, trailer loads (51%) are more prevalent than less-than-trailer (LTL) loads (34%). Outbound shipments have virtu-ally the same breakdown.

When materials are not time-sensitive, some companies use rail as a way to reduce shipping costs. However, rail shipments are extremely rare as the predominant mode of transportation, making up just 2% for inbound or outbound shipments.

While products that are typically full-pallet-in, full-pallet-out are most easily

Field Report

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Single Greatest Cross-Docking Benefit

Improved service level 23%

Reduced transportation costs 17%

Reduced need for warehouse space 14%

Consolidated shipments to destination 11%

Savings from reduced inventory carryng costs 9%

Get products to market more quickly 5%

Improved inventory management 5%

Reduced labor costs 5%

Increased demand for JIT service 3%

Accommodate company growth 2%

Other 2%

Source: Saddle Creek Corporation ©2008

Percentage of Companies Using Cross Docking

Currently cross-dock 52%

Plan to cross-dock 13%

No plans to cross-dock 31%

Don't know 5%

Source: Saddle Creek Corporation ©2008

SKUs also plan to outsource some or all of their cross-dock operations when they begin cross-docking.

Product typesWhile they will most often call upon

3PLs to handle durable goods, respondents will look to their third-party partners to handle other types of products as well. Of companies that plan to use a 3PL exclu-sively or in conjunction with their in-house operations, 57% plan to cross-dock dry goods, 27% plan to cross-dock USDA/FDA regulated goods and 21% plan to cross-dock high-value items.

Interestingly, respondents who plan to increase their outsourced cross-docking are more likely to ship sensitive products.

Outsourcing seems to be an appealing way to handle cross-docking more SKU throughput. Of respondents who cur-rently cross-dock and have considered cross-docking more of their total SKU throughput, 77% plan to increase their outsourced cross-docking operations.

Approximately a quarter of those with fewer than 500 SKUs also intend to in-crease their out sourced cross-docking.

When looking at those companies who plan to begin cross-docking in the next 18 to 24 months, a significant number of companies with fewer SKUs will enter the mix, with 40% of these respondents saying that outsourcing will play a part in their operations. Nevertheless, roughly a quarter of those with more than 5,000

and a 3PL. Many of those who plan to outsource

expect to start small, with 32% saying they’ll outsource less than 25% of their shipments. Yet others (11%) anticipate outsourcing more than 75% of their shipments. Overall, respondents expect to outsource an average of 41% of their shipments.

Size of operationsThose respondents with warehouse

operations totaling 500,000 to 999,000 square feet (37%) are most likely to in-crease their outsourced cross-docking, closely followed by those with 250,000 to 499,000 square feet of space (31%).

Conversely, those respondents least likely to increase their outsourced cross-docking are those with smaller-scale oper-ations—less than 50,000 square feet.

For those companies just getting started in the next 18 to 24 months, the sur-vey shows that 43% of companies with 250,000 to 499,000 square feet of ware-house space will use a 3PL in conjunction with in-house efforts when they begin cross-docking. Smaller operations of less than 50,000 square feet are also expecting to reap the benefits of cross-docking, how-ever, with 38% of those companies say-ing they’ll outsource some of their cross-docking.

Mid-sized companies are most likely to hand over their entire cross-dock op-erations to a 3PL. Nearly a quarter of those with operations of 100,000 to 249,000 square feet (21%) plan to hire a 3PL to manage and set up their cross-dock.

Number of SKUsThose most likely to increase outsourc-

ing are those respondents who currently cross-dock with high numbers of SKUs. A third of companies with 5,000 to 9,999 SKUs plan to increase their outsourcing. Roughly a third of companies with 2,500 to 4,999 SKUs (30%) indicate similar plans.

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dock savings are transportation related. Considerable freight savings can be achieved by consolidating LTL shipments into full loads—a practice that 62% of respondents who cross-dock noted as a benefit of cross-docking. Taking advantage of transportation efficiencies also allows companies to mitigate the impact of to-day’s rising fuel costs.

Labor costs. Labor costs are clearly a focus for companies who will begin cross-docking in the near future. Of those re-spondents who plan to cross-dock in the next 18 to 24 months, 18% cited reduced labor costs as the most anticipated benefit of cross-docking.

Cross-docking is not without its chal-lenges, of course. The majority of survey respondents indicate that their operations are effective, but there is room for im-provement.

Moving ForwardA growing number of companies are

recognizing these benefits and making cross-docking part of their distribution

solution. For many, using a 3PL to help manage the process allows them to minimize or avoid some of the pitfalls with the practice. Regardless of how the operation is handled, it is important to es-tablish clear objectives up front. If goals include streamlining the supply chain and getting prod-ucts to market more efficiently and economically, cross-docking may be the right answer.

This article is based on a white paper from Saddle Creek Corp., a third-party logistics services com-pany providing integrated warehous-ing, transportation, contract packag-ing and value-added services nation-wide. A full copy of the paper, includ-ing extensive charts, is available at www.SaddleCrk.com/whitepaper or calling 888-878-1177.

ried in the stores, so they have fewer over-stocks, and yet the shelves are full. It’s all about speed and turnover.

Minimized supply chain costs

Cross-docking offers opportunities for cost control in many areas, most notably warehouse space, labor and transportation.

Warehouse space costs. The inherent sim-plicity of a traditional pallet-in, pallet-out cross-dock makes it a fairly inexpensive way to handle product. Since consider-able volume can be handled on a rela-tively small scale, companies can avoid the major bricks-and-mortar investment of a huge warehouse and the costs associated with that facility.

Transportation costs. Survey respondents also viewed cross-docking as a prescrip-tion to combat rising transportation costs. In fact, this benefit ranked second highest when respondents were asked to select the single greatest benefit of cross-docking.

It should come as no surprise, then, that the biggest opportunities for cross-

For example, 17% of respondents who currently cross-dock handle perishable products, but 28% of those who plan to increase outsourcing cross-dock perish-able products.

The Value PropositionWith so many companies cross-docking

either on their own or with the help of a third party, it is important to understand what motivates them to use the practice. Companies are finding that cross-docking gives them an important opportunity to take costs out of their supply chains and accelerate the velocity of inventory, so they can get their products to market more quickly and economically.

As indicated by the survey results, im-proved customer service—both to the di-rect customer and the end user—is the primary reason that companies consider cross-docking. Cross-docking allows prod-ucts to reach their end destination more quickly and economically, ensuring that products are on the shelves when needed and supply chain costs can be reduced. In many cases, cross-docking is part of an effort to provide just-in-time service.

Reduced need for warehouse space

As today’s business environ-ment shifts from “supply chain” to “demand chain,” companies are faced with the challenges of mini-mizing inventory and reducing warehouse costs when possible while keeping retailers’ shelves full.

Inventory costs money. Cross-docking gives companies the abil-ity to send products in Monday night, deliver them Tuesday and sell them later that same day. Products coming into a cross-docking center usually have been pre-allocated against a replenish-ment order. Less inventory is car-

Next stepsApproximately a third of those planning to cross-dock

are in the process of researching and evaluating potential partners or have already selected a 3PL.

For those companies in the process of selecting a 3PL, Saddle Creek encourages companies to look for the fol-lowing criteria:

• Flexibility to right-size the operation to meet busi-ness fluctuations.

• Built-in transportation capabilities with a reliable carrier network.

• Experience in the cross-dock arena, preferably with similar types of products.

• Reliability and a strong reputation in the market-place.

• Systems capability that allows close to real-time visibility—ideally from plant to cash register, but at least from inbound to outbound.

• Process and program design capability.• Proven ability to reduce supply chain costs.• Commitment to continuous improvement.

Field Report

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at FedEx and UPS in the US. But with Europe’s largest road network, Bakker was satisfied TNT was well posi-tioned to retain that traffic that was seeking lower cost alternatives by road. Road networks will be important to TNT’s growth, said Bakker, recounting the company’s position in emerging markets such as China, India, Brazil, the Middle East and Southeast Asia. In each case the company has built or is building a solid road network through acquisition, expansion and integration of those operations. China, India and Brazil are all now fully in-tegrated into TNT’s international network, said Bakker.In the Middle East, TNT is the only company connect-ing all countries, he pointed out. Asked about Iran, he

In the 10 years TNT has been publicly traded on the Amsterdam Stock Exchange, it has seen many ru-mors, said Peter Bakker, CEO. It is the company pol-icy, he said, never to comment on market rumors. And

with that, he began the earnings announcements for the first half and dismissed any possibility of even a hint on the veracity of a rumor that FedEx was seeking to acquire TNT.Bakker said he was pleased with the results for the sec-ond quarter and the first half despite a substantial drop in Express volumes in June. The drop was the result of customers responding to high prices and shifting from premium air services to ground alternatives. In that, TNT’s experience lags a trend already exhibited

Logistics Services

TNT Express Volume Down

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competes. That said, TNT was not abandoning the North American market and Lombard said it would continue to provide access to North America and provide North American customers ready access to its global network.

TNT has strong planning, modeling and optimization tools that have allowed it to enhance the performance of its global express network. Its recently announced Liege/Singapore/Shanghai air service is an example. TNT was able to determine that adding Singapore to the Liege/Shanghai lane would significantly improve the balance in the Europe/Asia lane.

Also to its advantage, TNT has adopted an express-service strategy that drives its road networks to perform as part of an express operation, not like a traditional less-than-truckload (LTL) operation. This means scheduled departures vs. holding trailers until full. Its recent acqui-sitions are either top express companies in their regions or LTL operations TNT will recast into express feeder operations.

FedEx recently announced a planned expansion of a European hub with a potential rail connection for parcels. That facility could complement TNT’s Liege hub (which concentrates some of its operations previously handled at other European airports). FedEx could then access the already ubiquitous TNT road network for pick up and de-livery on international shipments and it wouldn’t have to compete with TNT for intra-European parcel and freight business-which should provide some instant cost savings and efficiency improvements.

The TNT ground network in China and its road net-work in Southeast Asia (connecting with southern China) would also be a plus for FedEx and complement much of the network it already has in the region. The “emerging markets” strategy of TNT would also help FedEx avoid costly investments to compete against an established car-rier in those regions. Instead, it could provide moderate investments to continue to grow and upgrade the existing or developing TNT networks.

The deal, if there is in fact a deal pending, would not be without potential barriers. Perhaps the biggest is the value of the US dollar. That adds a significant premium to any cash deal FedEx would make.

Board and shareholder approvals would be needed at both companies, and though the Dutch government no longer holds its special share in TNT, the Stichting Bescherming TNT (Foundation Protection TNT) was formed to “care for TNT’s interests, the enterprises con-nected with TNT and all interested parties, such as share-

noted that operation is handled by an indepen-dent agent and TNT was extending its Middle East Road Network to that agent. For those who were starved for a major announcement, Bakker offered only a state-ment that TNT would em-bark on a major cost cutting program for Express. It will optimize its network over the next 18 months and con-

sider, in that process, whether portions of the air network are being replaced by road services. It will also pursue lean operations in hubs and depots. TNT reported over-all growth for the group of 7.5% for the second quarter. Express operational revenue grew 10.7% and core volume was up 6.9%. The sharp volume decline in June was recovering somewhat in July. The lag in re-covering higher fuel costs during the quarter cost the Express group an estimated €7 million ($11 million). Mail showed operational revenue growth of 15.6%. TNT expects its full-year 2008 results to come in at the low end of its expected range. Express cost savings tar-geted at €100-€125 million are expected to be fully real-ized by 2010. And, TNT expects to generate €300-€400 million from real estate sales and working capital by the end of 2009.

FedEx Rumored In TNT Buy“No comment” is the rule, but that’s no denial that

FedEx may be in the market to acquire global express car-rier TNT. Here’s why the rumor seems likely to be true. TNT has been conducting an aggressive stock buyback program. At the same time, it was streamlining the organi-zation into a lean, mail and express company with strong road networks supporting it in developing markets. In a sense, it looks very much like the core FedEx Express operation.

Asked repeatedly about the North American market, Marie-Christine Lombard, group managing director of express at TNT, said they had no interest in expanding in territories other than developing markets. She told Outsourced Logistics essentially that TNT had no desire to try to win market share in a market that was already dominated by major competitors. TNT would prefer to be the number one express carrier in the markets where it

Logistics Services

Peter Bakker

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holders and employees, by, among other things, preventing as much as possible influences which would threaten TNT’s continuity, independence and identity con-trary to such interests.” According to TNT, the Foundation is an independent legal entity and is not owned or controlled by any other legal person. That is, it is inde-pendent, including being independent of TNT control. So, there is still a potential “poison pill” defense should shareholders feel any offer forthcoming from FedEx is inadequate.

Labor is always a concern, and TNT has recently concluded talks with a number of its unions. In the US, FedEx is fac-ing some challenges, and groups like the International Brotherhood of Teamsters (IBT) could mount a vocal opposition, but may not be able to influence the outcome of any acquisition talks.

Since this is only a rumor, the facts could be skewed, and it may not be FedEx that is seeking to acquire TNT. The other likely contender is UPS, but it just got a boost from a proposed $1 billion-per-year contract to handle domestic air lift for DHL Americas. It would seem unlikely that DHL parent Deutsche Post World Net (DPWN) would stand still while UPS uses its money to go into competition with it in its home market in Europe. In fact, the DHL deal with UPS could have been the break FedEx was waiting for to make a move for TNT.

Regulators would have to weigh in on the deal, and the potential for con-cern would appear to be at the European Commission, not in the US. With DPWN still a strong player in Europe, it would not appear a FedEx acquisition would be anti-competitive. There might be initial questions about foreign ownership of a company that maintains an air fleet or over the contracts to operate postal services in Europe. Any official announcement would likely address those issues. (I.e. Deutsche Post set up ABX as the owner of the airline operations of Airborne Express to forestall problems with US limits on foreign own-ership/control of a US airline.)

Logistics Services

New

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08

Getting an 80,000 Pound Cargo Lift with a BlimpThe word “blimp” doesn’t appear in any material from either

Boeing Co. who is teaming with Calgary, Alberta Canada’s privately owned SkyHook International Inc. to develop the JHL-40 (Jess Heavy Lifter) rotorcraft. However, the neutrally buoyant aircraft has a helium-filled envelope size that will support the vehicle’s weight and fuel without a payload. As Boeing explains, “With the empty weight of the aircraft supported by the envelope, the lift generated by four rotors is dedicated solely to lifting the payload, leaving the aircraft neutrally buoyant.” The aircraft will be able to lift a 40-ton sling load and transport it as far as 200 miles without refueling.

The JHL-40’s initial use will be for industries such as energy, mining and logging, and particularly, for environments like those found in Arctic Canada and Alaska. Present conventional land and water transport to these areas is characterized as being, “inadequate, unreliable and costly.”

Boeing is designing the JHL-40 and will manufacture two production prototypes of the aircraft at its Rotorcraft Systems facility in Ridley Park, PA. Skyhook will own, maintain, operate and service all JHL-40 aircraft for customers worldwide. “There is a definite need for this technology,” says Pete Jess, SkyHook president and chief operating officer. “The list of customers waiting for SkyHook’s services is extensive, and they enthusiastically support the development of the JHL-40. Companies have suggested this new technology will enable them to modify their current operational strategy and begin working much sooner on projects that were thought to be 15 to 20 years away. This Boeing-SkyHook technology represents an environmentally acceptable solution for these companies’ heavy-lift short-haul challenges, and it’s the only way many projects will be able to progress economically.”

The JHL-40 will begin commercial service as soon as Transport Canada and the US Federal Aviation Administration certify it.

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TNT Begins Road Service Between China and SEA

Global express company TNT began scheduled intra-Asia road services linking China and five countries in Southeast Asia. The Asia Road Network is 30% cheaper than air and three times faster than sea, said TNT. The services are initially available from the south of China via international road services to Southeast Asia. The second step of the service links with the Chinese domestic network to connect Southeast Asia locations with other parts of China.

The Asia Road Network connects to TNT’s international express network at Nanning, the capital of Guangxi Zhuang Autonomous Region and Guangzhou, the capital of Guangdong Province.

TNT’s Asia Road Network was first introduced at the end of 2005 and now links over 125 cities across 5,000 km (3,100 miles) in Vietnam, Thailand, Singapore, Malaysia and Laos. It features door-to-door, day-definite distribution service with track and trace capabilities. Truck departures are scheduled and the vehicles are tracked using real-time global positioning systems (GPS).

“China is a very important market for TNT’s strategic growth in the region; similarly, the Chinese market is also integral to many of our regional and global clients,” says Marie-Christine Lombard, group managing director of TNT’s Express division. “This extension in China is driven by customer demand,” she continued. “Being customer focused is at the center of how TNT approaches business. Our customers want reliable, cost effective, and secure transportation solutions and this unique service is exactly that.”

The extension of TNT’s Asia Road Network into China is timely as regional trade is expected to thrive. Under the impending China-ASEAN Free Trade Area to be set up with six ASEAN countries in 2010, the estimated bilateral trade volume between China and ASEAN will reach US$250 billion, up from US$160 billion in 2006, according to the Ministry of Transport of the People’s Republic of China.

“Our road service provides more choice to customers shipping to and from China, said Michael Drake, managing director of TNT Greater China. “It is up to three times faster than sea freight and up to 30% cheaper than air freight. That is a winning formula in times of high fuel prices,”

Due to China’s geographical proximity and close business links, Vietnam, in particular, will benefit from TNT’s completed Asia Road Network. As Vietnam’s economy continues to grow, bilateral trade volume between both countries is on the increase and offers strong business opportunities for TNT.

Maersk Moves to Meet Changing Tides of Trade

Targeting such geographic areas as the Eastern Mediterranean, Africa and Latin America while cutting back on transits between Asia and Europe, the shipping giant is reacting to the realities of fuel costs and emerging economies.

Maersk Line explains that in reaction to what it calls significant increase in fuel costs it finds it necessary to remove capacity from Asia-Europe lanes to “ensure the sustainability of our services.” Previously it reduced overall space by 2,000 FFE (forty-foot equivalent) weekly in its AE5, AE7, AE2 and AE8 services. Even with the reductions the shipping line maintained its coverage in all corridors within the network.

The company has served Sub-Saharan Africa for more than 40 years where it has a 25% market share and its own offices in 35 countries in the region. It notes that average growth of exports in the region is currently 7% per year and import growth is 11% annually.

With these facts in mind, senior vice president Michel Deleuran, Maersk’s Head of Network & Product, announced the signing of an agreement with Hyundai Heavy Industries for delivery of 18 container vessels in 2011 and 2012 that he expects will be deployed in trade to and from Sub-Saharan Africa. Each of the new ships will carry 4,500 TEU (twenty-foot equivalent) and will be equipped with a waste heat recovery system that reuses excess exhaust heat to generate energy for propulsion or on-board electric consumption.

Over the past five years, trade between Asia and the East Coast of South America has grown at a 20% clip annually and is projected to continue to show double-digit growth over the next five years. Trade between South America and Europe has been growing at 25% annually. In reaction to these increases, Maersk has ordered 16 new container vessels from Daewoo Shipbuilding and Marine Engineering Co. for delivery in the 2010–2012 time frame. Each ship is to have a capacity of 7,500 TEU and to be equipped with reefer plugs that will enable them to carry 1,700 refrigerated containers each. As with the other vessels on order, these will have waste heat recovery systems.

While Brazil and Argentina, in particular, have very fast growing consumer markets, trade between South America’s East Coast and Europe is driven by export of food such as poultry, meat and fruit, all of which require refrigeration in transport. In discussing the order of these new ships, Deleuran says, “We expect continued strong growth in these markets and that this order shows our long-term commitment to providing service and support to our customers’ increasing business in these trades.”

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When the Middleman Doesn't pay By James A. Calderwood, Esquire

Liability for payment of freight charges has evolved into a complex legal problem that seems to be arising frequently when a ship-per has arranged for a middleman (termed

“3PL,” “broker,” “forwarder,” “logistics manager” or whatever) to arrange for the transportation of the shipper’s freight. After the carrier delivers, the car-rier looks to the middleman (let’s call it a “broker” because that is the term used in the US Code) to pay it. However, what happens if for some reason the broker does not or cannot pay the carrier?

As one can expect, the carrier then says to the shipper, “I hauled your goods and the broker you hired engaged me on your behalf so you, shipper, pay me.” The shipper responds that it paid the broker who was to pay the carrier and it will not pay twice.

One of the reasons some people are lawyer averse is because lawyers can not always give straight forward answers to straight forward ques-tions. This is one of those circumstances.

In this scenario, is the shipper liable to the car-rier for the unpaid freight charges?

The answer is that it depends on the paperwork covering the shipment. This is what makes the is-sue legally complex.

Under a decision earlier this year by the US Court of Appeals for the Sixth Circuit the shipper could be liable to the carrier even though it had already paid the broker. The key is what kind of contracts exist among the three parties, including any bills of lading that have passed.

The appellate court decision involved a series of shipments by Sears Roebuck & Co. arranged by a broker named National Logistics Corporation (NLC). According to the court decision, NLC was engaged by Sears to provide brokerage services,

freight bill auditing and other services for Sears. As part of its brokering services for Sears, NLC arranged for a motor carrier, Oak Harbor Freight Lines, to transport some of Sears’ freight. Oak Harbor was to bill NLC and be paid by NLC.

For years Oak Harbor had a written contract with NLC. Interestingly, the contract said that the “shipper” would pay Oak Harbor if NLC did not. For certain shipments Oak Harbor used a straight bill of lading which indicated that Sears was the consignee (these were shipments being returned to Sears). For outbound shipments Sears generated the bills of lading itself and, among other things, instructed carriers to send their freight bills to NLC.

The court decision says that generally Oak Harbor, the motor carrier, would send its freight bills to NLC within three days of delivery. NLC audited the invoices and collected the money from Sears. NLC then paid Oak Harbor. Sears terminated NLC with, at that time, over $400,000 due from NLC to Oak Harbor for hauling Sears freight. Of this amount Sears had already paid NLC $220,000. Oak Harbor tried to collect from NLC, but to no avail. So it sued NLC and Sears.

Sears claimed it was not liable, but in a battle over the wording of the contracts and the bills of lading used in the transactions the lower court said Sears was liable. The Court of Appeals agreed.

Shipper liability in third party payment (or really non-payment) situations turns on the wording of the legal documents. As a general proposition the “consignor remains primarily liable” to a carrier, at least this is what the US Supreme Court said in 1982. However, this liability can be contracted away, so it is very important that all parties know what they are signing.

Logistics Services

Community Voice

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For instance, a bill of lading may contain what are known as “non-recourse” and “prepaid” provi-sions. If they have been separately signed or otherwise indicated by the parties then the consignor may well be released from any obliga-tion to pay the carrier.

These bill of lading provisions may, however, be overridden by a transportation contract that is drafted to cover a number of ship-ments over a period of time. If for instance a transportation contract says that the carrier has to look to the consignee not the consignor for payment then the consignor may be off the hook no matter what a bill of lading says.

While a bill of lading is a type of contract for carriage it is most of-ten used for one-time, individual shipments and is not intended to cover a series of shipments over time, that is what a transporta-tion contract covers. Well drafted transportation contracts usually state that they take precedent over any conflicting language in a bill of lading. In such cases a bill of lad-ing becomes only a routing docu-ment and delivery receipt. This is one reason many large shippers no longer use bills of lading.

This matter involving Sears, a motor carrier and a middleman (broker) is all too typical of what sometimes happens in today’s lo-gistics markets. Various parties have each entered into contracts with one another (Sears with the broker and the broker with the carrier) at different times with different terms and concepts that may contradict each other. I have seen some of these con-tracts which are hopelessly out of date by referring to sections of the US Code and federal regulations that no longer exist. The issues become more confused when bills

of lading are signed for individual shipments. There simply are no “standard” bills of lading anymore so their terms may vary.

Confused? When the middle-man does not pay, the carrier will almost certainly go after the con-signor and consignee. Any court action will probably result in the judge trying to make sense out of a confusing mess of conflicting documents.

Calderwood is a partner with the law firm of Zuckert, Scoutt & Rasenberger, L.L.P., in Washington, D.C., where he concentrates in trans-portation matters. He can be reached

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5 CRST www.crstlogistics.com

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3PL File

Mission Statement: BDP seeks to strengthen its market leadership position by leveraging its technology and quality of its staff to become the premier provider of global logistics and transportation solutions. The vision is to be the best provider of global logistics and transportation solutions.

Capabilities: Transport services including air, sea and domestic ground; export and import logistics; trade and security compliance; a Lead Logistics Provider; warehousing and distribution; project and energy logistics; chemical logistics; Humanitarian aid; and Centrx, a BDP knowledge venture engaged in logistics, transportation and trade management consulting.

Financial Rating/Stability: $1.6 billion in sales (2008 Estimate)

Ancillary Service Offered: BDP Global Network is an assemblage of logistics and transportation specialists. It is one of the industry’s most prestigious mid market logistics affiliations, representing a select group of BDP and private third party providers with operations in more than 120 countries.

Technology Advantages: BDPXpedion is a comprehensive Web-based business process and information technology (IT) platform that enables a collaborative flow of decision-support communications between all parties in a logistics process. BDPSmart is a comprehensive online logistics customer portal providing global end-to-end visibility and proactive communications, supported by management-by-exception protocols via a single, Web-based interface.

Collaborative Partners: BDP’s partnership strategy is built on a simple but powerful tenet: To forge prudent relationships with organizations whose strengths complement its core competencies—companies with good reputations, solid infrastructure and strong, local market knowledge.

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How It Differentiates ltself:BDP subscribes to the market discipline of Customer Intimacy. Its approach to management of international logistics embodies service specialization rather than standardization within individual account relationships. While this model demands more hands-on account management, at BDP the achievement of service effectiveness and operating efficiency are not mutually exclusive. BDP is structured in two strategic business units dedicated to Global Process Accounts (GPA) and Customized Service Accounts (CSA). As a mid-market, non-asset based enterprise, BDP is small enough to care for its customers as customers rather than as a commodity, while large enough to leverage value on a global scale.

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Key Personnel:Richard Bolte, Jr.

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Year Founded:1966

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