New Order, New Opportunities on the Rise Page 28

logisticsmgmt.com ERP vs. best-of-breed 44 Expanding into emerging markets 48 Lift Trucks: Financing for July 2013 ® ﬂ exibility 52

2013 STATE OF LOGISTICS New order, new opportunities on the rise Page 28

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UPDATE AN EXECUTIVE SUMMARY OF INDUSTRY NEWS

USPS remains committed to reducing topped the 1.0 mark since May 2010, when ship- financial burden. In a Webcast last month, ments moved above the 1.0 mark for the first United States Postal Service (USPS) Chief Finan- time since November 2008. And freight expen- cial Officer and Executive Vice President Joseph ditures at 2.383 were down 2.6 percent annually Corbett explained that the service’s financial and up 0.04 percent compared to April. The Cass outlook has “created a crisis of confidence” in Freight Index report observed how these mixed the eyes of the marketplace. He added that the results are an accurate reflection of the ongo- USPS “needs to, as quickly as possible, resolve ing stop and start nature of the economy, citing the issues underlying these losses and move declining employment and weak job creation, a forward from a position of financial strength and higher GDP than this time a year ago, a slowing continue to deliver mail in a quality way and gain manufacturing sector, eroding inventories, cou- the confidence of our customers and employees.” pled with increasing inventory-to-sales ratios and He explained that the USPS’ five-year plan, which increased container traffic at ports that’s in line was rolled out in 2012 and whose chief objec- with increased domestic shipments and up and tive is to reduce annual costs by at least $20 bil- down import and export activity. lion by 2015, is not stagnant by any stretch and that USPS’ efforts to become more efficient and Ag shipper’s survey. The results of the customer-focused are accelerating. Agriculture Transportation Coalition’s (AgTC) 2013 Ocean Carrier Performance Survey were FedEx set to retire selected aircraft. In a announced last month at the 25th Annual Meet- move geared to modernize its aircraft fleet and ing of the AgTC in San Francisco, with APL win- improve the global network of its FedEx Express ning top ranking. All annual survey responses segment, global transportation and parcel bell- were aggregated, and the individual responses wether FedEx said it has permanently retired or discarded, to ensure confidentiality of each ship- will accelerate the retirement of 86 aircraft and per’s response. This year’s survey was expanded 308 related engines. FedEx said that the aircraft to gain more insight into agriculture and forest and related engines being permanently retired products shippers who completed it, said Peter include: two A310-200 aircraft and four related Friedmann, executive director of the AgTC, add- engines; three A310-300 aircraft and two related ing that carriers were expected to be less tactical engines; and five MD10-10 aircraft and 15 related and more strategic in 2013. “Instead of looking engines. The company also said it will accelerate just to the next quarter, ocean carriers would do by several years the retirement of: 47 MD10-10 well to follow the railroads’ model of looking five aircraft and 172 related engines; 13 MD10-30 years out to the future,” said Friedmann. “Ocean aircraft and 55 related engines; and16 A310-200 carriers need to better understand the agriculture aircraft and 60 related engines. “We are modern- exporters’ business, the global demand for their izing our aircraft fleet by retiring older, less products, global competition for their exports, efficient, and less reliable aircraft and replacing and thus, have a better idea of the long term them with modern aircraft to build a fleet with demand for capacity.” higher reliability and better cost efficiency,” said David Bronczek, president and chief executive Panjiva reports strong global trade officer of FedEx Express. numbers. Data released by Panjiva, an online search engine with detailed information on global Mixed signals lead way for Cass report. suppliers and manufacturers, indicated that signs The most recent edition of the Cass Information of economic growth were prevalent. The firm Systems Freight Index showed that freight ship- reported that U.S.-bound waterborne shipments ments and expenditures were mixed. May ship- were up 8 percent annually in May and up 5 per- ments, at 1.132, were down 0.3 annually and cent compared to April. On a year-to-date basis, up 2.9 sequentially compared to April. May rep- Continued, page 2 resents the 34th consecutive month shipments

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management

UPDATE AN EXECUTIVE SUMMARY OF INDUSTRY NEWS

Panjiva said shipments are up 4 percent. The amount in a tightly constrained budget is a “posi- number of global manufacturers shipping to the tive step forward.” U.S in May was up 16 percent compared to May 2012 and up 5 percent compared to April. “I think Clean cargo imperative. As we’ve reported, these numbers are pretty good overall,” said Pan- sustainability strategies for leading ocean cargo jiva CEO Josh Green. “We have seen some sig- shippers include targets to dramatically reduce nificant fluctuation in these numbers from month carbon dioxide emissions from their global logis- to month, but the year-to-date shipment number tics networks and to prioritize working with like- is encouraging. Trade feels relatively healthy, and minded supply chain partners. BSR, a global the next interesting moment will be in the next consultancy with hundreds of international ship- month or two as corporate buyers start placing pers in its network, is advancing this mission their bets for the holiday season.” with its “Clean Cargo Working Group” (CCWG), an international business-to-business initiative TIGER grant funding remains in made up of leading cargo carriers and their cus- demand. The Department of Transportation tomers dedicated to environmental performance (DOT) said in June that applications for 2013 improvement in marine container transport. TIGER grants total more than $9 billion, which Registration is now open for the BSR Confer- crushes the $474 million DOT has allocated ence 2013 “The Power of Networks” that will for it. TIGER is short for the DOT’s Transporta- take place November 5-8 at the Hyatt Regency tion Investment Generating Economic Recovery Embarcadero in San Francisco. “We live in a net- (TIGER) program that has the objective to ensure worked world in which connections among busi- that economic funding is rapidly made available nesses, industries, and sectors are more power- for transportation infrastructure projects and that ful than ever,” said BSR President and CEO Aron project spending is monitored and transparent. Cramer. This round of TIGER nearly triples the $3.1 billion in funding doled out in the previous four rounds, Procurement pays. IBM recently reported which went towards 218 projects. DOT said that that companies with high-performing procure- during the previous four rounds, DOT received ment organizations are driving better bottom line more than 4,500 applications for TIGER, which results. According to the study, these organiza- cumulatively requested north of $105.2 billion for tions report profit margins of 7.12 percent as national transportation projects. compared to just 5.83 percent for companies with low-performing procurement organizations. Ports hope for reform. For the second Also, companies with top performing procure- year in a row, the U.S. House Energy & Water ment organizations report profit margins 15 Subcommittee, chaired by Rep. Rodney Frelin- percent higher than the average company—and ghuysen (R-NJ), has approved a $1 billion draw 22 percent higher margins than companies with from the Harbor Maintenance Trust Fund. The low performing procurement organizations. The money is for maintaining America’s deep-draft 2013 Chief Procurement Officer Study was con- navigation channels and harbors and is a part of ducted by the IBM Institute of Business Value the U.S. Army Corps of Engineers’ fiscal 2014 (IBV) and highlights the business impact that funding bill. If passed by the Senate and enacted Chief Procurement Officers (CPOs) can have on into law, this would be the largest regular annual a company’s competitive advantage and profit- appropriation for navigation maintenance. The ability. It explores how top-performing CPOs can bill by the House Appropriations Committee increase their influence over strategic business stated that, in prioritizing funding, the subcom- imperatives by driving efficiency and perfor- mittee chose to “invest in critical infrastructure mance, introducing innovative new processes projects to protect lives and property and support and uncovering new insight into supplier net- economic growth.” The American Association of works that have a real, measurable effect on the Port Authorities (AAPA) stated that this funding bottom line. Ⅺ

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Logistics Management

STATE OF LOGISTICS 2013: New order, new opportunities to rise New state of logistics translates into new opportunities 28 for shrewd managers who can leverage their solid transportation relationships into value for their companies. Cover design: Wendy S. DelCampo

TRANSPORTATION TRENDS 2013 Ocean Cargo Roundtable: Business in the balance 40 Our panel of market insiders put the new business dynamics of ocean shipping into perspective and help shippers better understand how to manage their cargo on now roiling seas. SUPPLY CHAIN & LOGISTICS TECHNOLOGY ERP vs. best-of-breed 44 Shippers continue to grapple with the age-old dilemma of having to choose between ERP-developed supply chain software and those targeted solutions 2013 Ocean Cargo Roundtable 44 produced by best-of-breed providers. Here are a few tips that could make the choice a little easier.

GLOBAL LOGISTICS Challenges for expansion into emerging markets 48 Emerging markets 48 The extraordinary variations among emerging market countries suggest the need for multiple supply chains, each tailored to the needs of specific regions and supported by locally developed capabilities and talent. Our consulting team offers some suggestions for dealing with the real, rather than the ideal.

WAREHOUSE & DC MANAGEMENT Lift trucks: Financing for flexibility 52 With the economy warming, lift truck fleet owners are navigating a new array of customized financing options as their fleets return to normal utilization.

Financing lift trucks 52

Logistics Management® (ISSN 1540-3890) is published monthly by Peerless Media, LLC, a Division of EH Publishing, Inc., 111 Speen St, Suite 200, Framingham, MA 01701. Annual subscription rates for non-qualified subscribers: USA $119, Canada $159, Other International $249. Single copies are available for $20.00. Send all subscription inquiries to Logistics Management, 111 Speen Street, Suite 200, Framingham, MA 01701 USA. Periodicals postage paid at Framingham, MA and additional mailing offices. POSTMASTER: Send address changes to: Logistics Management, PO Box 1496 Framingham MA 01701-1496. Reproduction of this magazine in whole or part without written permission of the publisher is prohibited. All rights reserved. ©2013 Peerless Media, LLC.

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1 Management update SPECIAL REPORT 9 Viewpoint Panama Canal Expansion Update: When the “tipping 10 Price trends point” becomes reality 13 News & analysis Once completed in late 2014 or early 2015, 20 Newsroom notes the expansion project will accommodate vessels more than twice the size of current 22 Moore on pricing Panamax ship. However, the projected overall 24 Pearson on excellence impact on shippers, carriers, ports, and service providers appears to be up in the air. 68S 26 Andreoil on oil & fuel 96 Pacific Rim report WEB EXCLUSIVE SPECIAL SUPPLY CHAIN REPORT State of Cargo Security: Top 10 trends in the next Higher stakes in the risk vs. 10 years reward scenario What trends will affect the next generation Global logistics professionals of supply chains? That’s a question more and are increasingly encouraged to more supply chain professionals are asking undergo a systematic analysis of themselves. The 10 trends offered here are their exposure to risk and total validated with executive input from senior landed cost related to a variety executives across different industries. By of procurement strategies. Often understanding, anticipating, and acting upon overlooked, however, is the these trends, the author believes companies financial health of their sub-tier can greatly enhance the value of their supply 58S suppliers. chain operations. www.logisticsmgmt.com

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EDITORIAL STAFF Michael A. Levans Group Editorial Director Francis J. Quinn New order, new opportunities Editorial Advisor Patrick Burnson looking for a great way to kick off one that many savvy logistics managers Executive Editor Sarah E. Petrie your summer reading? Well, look no fur- should be proud to hear. It’s come to the Managing Editor ther than page 28. Once again, we’ve point, says Wilson, where these reoccur- Jeff Berman devoted a sizable portion of our July issue ring themes have become so engrained Group News Editor to putting the Annual State of Logistics that they’ve become our “new normal” John Kerr Contributing Editor, Global Logistics Report into context for shippers. and have ushered in “a new way of life for Bridget McCrea As many are aware, the Annual State our economy and the logistics and supply Contributing Editor, Technology of Logistics Report represents the clearest chain sectors.” Maida Napolitano Contributing Editor, Warehousing & DC snapshot available of the economy over the This “new order,” as Wilson refers to it, John D. Schulz previous year and offers shippers a sum- is characterized by the fact that logistics Contributing Editor, Transportation mary of the key trends that will be driving professionals have seized new opportuni- the transportation and logistics industry. ties to drive costs out of the overall system. Mike Roach Creative Director The release of the report—which took She says they’re doing an excellent job of Wendy DelCampo place on June 19th at the National Press getting the most out of extremely lean full- Art Director Club in Washington, D.C.—sparks our time staffs; they’ve excelled at managing annual investigation into the details of the less predictable freight service as volumes COLUMNISTS Derik Andreoli findings and sends our beat reporters in rose but capacity stayed flat; and they’re Oil + Fuel search of where each transportation mode doing extremely well at planning around Elizabeth Baatz currently stands in terms of service, capac- longer shipping times when moving freight Price Trends Mark Pearson ity, and rates. In short, this issue pulls by sea and rail. Excellence together just about all of our staff in the The new order has amplified the chal- Peter Moore creation of a definitive market snapshot. lenges facing logistics practitioners, and Pricing This marks the 24th year the report according to our John Schulz, the author has been released, and the 10th year that of this month’s cover story “New order, PEERLESS MEDIA, LLC Brian Ceraolo it’s been authored by Rosalyn Wilson, new opportunities on the rise,” the num- Publisher and Executive a 30-year industry veteran who’s now a bers clearly prove that they’ve been up Vice President senior business analyst with Delcan Con- to the task. Kenneth Moyes President and CEO sulting where she focuses on the progress “In 2012, business logistics costs stayed EH Publishing, Inc. of the overall supply chain industry. Wil- steady at 8.5 percent of GDP, the same son has been working on the report since level as they were in 2011,” says Schulz. EDITORIAL OFFICE 111 Speen Street, Suite 200 1994 and assumed full responsibility in “But more importantly, the cost of U.S. Framingham, MA 01701-2000 2004 following the passing of the report’s business logistics system in 2012 only rose Phone: 1-800-375-8015 creator, Robert Delaney. 3.4 percent, less than half the increase MAGAZINE SUBSCRIPTIONS Upon a first glance at this year’s report, from 2011. So, any way you slice it, today’s Start, renew or update your magazine which neatly summarizes total business savviest logistics practitioners continue to subscription at www.logisticsmgmt.com/ subscribe. logistics costs over the course of 2012, you drive costs out the transportation system Contact customer service at: may feel that Wilson’s work has no new and add value to their company’s bottom Web: www.logisticsmgmt.com/subscribe Email: [email protected] tale to tell. In fact, many of the same trends lines—and they’re being treated with the Phone: 1-800-598-6067 dominating the environment in 2012 are the respect they deserve.” Mail: Peerless Media P.O. Box 1496 same trends the market has been manag- Framingham, MA 01701 ing through since 2010—lack of sustained ENEWSLETTER SUBSCRIPTIONS economic growth; high unemployment with Sign up or manage your FREE eNewsletter subscriptions at fairly weak job growth; and inconsistent www.logisticsmgmt.com/enewsletters. freight volumes, capacity, and rates that have REPRINTS forced shippers to become mode agnostic. Michael A. Levans, Group Editorial Director For reprints and permissions, contact The YGS Group at 800-501-9571 x100 or However, it’s this lack of any true mar- Comments? E-mail me at [email protected]. ket differentiation over that period of time [email protected] that’s at the heart of a rather upbeat story,

WWW.LOGISTICSMGMT.COM JULY 2013 | LOGISTICS MANAGEMENT 9 priceTRENDS Pricing across the transportation modes

10 150 TRUCKING Forecast 8 145 LTL truckers of general freight report the largest monthly price 6 140 cuts, down 1.1% in the most recent survey and down 0.4% in the 4 135 previous month. At the same time, truckload prices fell 0.2% and 0.8%. With transaction prices falling from month-ago in all truck- 2 130 ing categories, including tankers and other specialized freight, 0 125 2011 2012 2013 2014 our inflation forecasts have been revised downward in 2013, but % change (left scale) Index 2001=100 (right scale) adjusted upward in 2014. We forecast average prices in 2013 to increase 2.8% and 1.2%, respectively, for LTL and TL service. % CHANGE VS.: 1 month ago 6 mos. ago 1 yr. ago Somewhat steeper price hikes will follow this in 2014, with LTL General freight - local -0.5 -0.5 2.5 tags up 3% and TL up 2.3%. We forecast average annual prices TL -0.2 -0.1 -0.8 in the entire trucking industry to accelerate 2.2% this year and LTL -1.1 -0.8 3.0 3% in 2014. Tanker & other specialized freight -0.1 0.2 0.4

15 190 AIR Forecast 12 180 U.S. airlines flying cargo in the belly of their scheduled planes 9 170 report prices at a virtual standstill in April and May. Looking 6 160 at year-over-year data, we see their prices slowed to a 2.2% growth rate. Decreases in airfreight traffic have contributed to a 3 150 course correction. In the 12-month period ending May 2011, the 0 140 2011 2012 2013 2014 inflation rate for this category rocketed 10.4%. One year ago, % change (left scale) Index 2001=100 (right scale) prices were flying at a still higher altitude, up 12.9%. Mean- while, turbulence beset airliners moving freight on nonscheduled % CHANGE VS.: 1 month ago 6 mos. ago 1 yr. ago charter flights. Here, after climbing 6.3% in April, prices declined General freight - local 0.1 0.3 0.1 4.5% in the latest survey. The inflation flight plan for scheduled Air freight on chartered flights -4.5 -7.0 -5.2 airfreight service calls for prices to rise 0.9% in 2013 and 1.5% Domestic air courier -1.4 2.5 2.5 in 2014. International air courier -1.3 1.3 0.8

16 190 WATER Forecast 12 185 Waterborne freight prices descended 2.1% from year-ago 8 180 and drifted down 1% from month-ago, according to recent sur- 4 175 veys of U.S.-owned barges and coastal tank vessels. Barge acci- dents and floods interfered with river operations in April and May. 0 170 As a result, vessel operators’ negotiation leverage for enforcing -4 165 2011 2012 2013 2014 price hikes likely suffered. Indeed, inland waterways freight com- % change (left scale) Index 2001=100 (right scale) panies report their prices sank 2.9% from same-month-year-ago and dipped 0.5% from month-ago levels. Our forecast for this % CHANGE VS.: 1 month ago 6 mos. ago 1 yr. ago industry calls for prices to decline 0.6% in 2013 before increasing Deep sea freight -2.3 -1.5 -3.1 4.6% in 2014. In the waterborne freight business overall, the infla- Coastal & intercoastal freight 0.5 0.4 -1.9 tion forecast has been revised downward to 0.8% this year and Great Lakes / St. Lawrence Seaway -0.3 5.4 6.5 remains 3.1% next year. Inland water freight -0.5 -4.8 -2.9

10 190 RAIL Forecast 8 180 With rail freight traffic increasing about 3% from April to 6 170 May, it’s no surprise that, at the same time, the latest surveys 4 160 indicate carload rail prices increased 2.3% and intermodal tags chugged up 1.1%. Looking at the first five months of the 2 150 year, we saw carload and intermodal prices increase 4.4% and 0 140 2011 2012 2013 2014 2.7%, respectively, from same-period-year-ago. An oil boom % change (left scale) Index 2001=100 (right scale) in North Dakota means significant new business for railroads hauling product to West Coast refineries and to marine vessels % CHANGE VS.: 1 month ago 6 mos. ago 1 yr. ago for export markets. As a result, the forecast for rail transaction Rail freight -0.2 1.9 2.2 prices may have to be revised upward in coming months. In the Intermodal -0.7 0.9 1.1 meantime, however, the price forecast is unchanged: up 3.8% in Carload -0.1 2.1 2.3 2013 and up 2% in 2014.

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NEWS analysis

Also: • CBP set to roll out additional carrier requirements of 10+2 in July, Page 14 • DHL ofﬁcially inaugurates Americas hub at CVG, Page 16 • Are LNG tax incentives enough to wean trucking industry off diesel fuel?, Page 17 • DOT announces members of National Freight Advisory Committee, Page 18 • Panama Canal expansion “lot of hype,” Page 18 LTLs take mid-year rate hikes as carriers ﬁght skyrocketing costs Despite the recent series of general rate increases (GRIs), analysts question the relevant impact this “anachronism from a bygone era” will have on shippers.

By John D. Schulz, Contributing Editor

WASHINGTON, D.C.—’Tis the sea- in whittling down accessorial and timing of those increases. UPS Freight son for general rate increases (GRIs) other charges,” said Jindel. “The bro- said that they were effective May 28; in the less-than-truckload (LTL) indus- kers make money not just on spread YRC Freight’s took effect June 3; ABF try—those annual hikes for non-con- in LTL rates, but by getting acces- said its hike went into effect June 10. tract shipments that hardly any shipper sorial fees that carriers are not that UPS added its increase applies to mini- in the nation pays. good at collecting.” mum charge LTL, truckload rates, and “It’s a nonsensical pricing structure Here are the latest LTL rate hikes, accessorial charges. that has no relevance to cost efficiency,” mostly effective July 1: YRC Freight, Others, including Estes Express said Satish Jindel, principal of SJ Con- UPS Freight, Con-way Freight, and and A. Duie Pyle, said that they were sulting, a firm that closely tracks the ABF Freight System all took 5.9 per- strongly leaning toward mid-year rate LTL industry. cent rate increases. ABF did report that hikes as well. About the only thing that’s changed the effect of its GRI would vary on “While the bulk of our business over the years has been the timing. A specific lanes and shipment, a hint that is unaffected by the GRI, it’s still a couple of decades ago, GRIs used to larger discounting might be evident. relevant event,” said Steve O’Kane, occur during the first week of Janu- FedEx Freight announced a mid-year president of A. Duie Pyle. “We have ary. Now, they seem to mostly occur rate hike of 4.5 percent also set to take thousands of smaller customers moving mid-year. But in an industry where effect July 1. shipments on tariff rates, and the GRI is big shippers routinely win volume About the only difference was the the most efficient way for us to update contract discounts of between 60 and 70 percent, increasingly GRIs are looked upon as an anachronism from a bygone era. Jindel estimates that between 75 percent and 80 percent of LTL freight moves under contracts, which are immune from GRIs. Ironically, Jindel says that some of the biggest beneficia- ries of these GRIs are the LTL’s main rivals and biggest users of LTL capacity, brokers and third-party logistics providers (3PLs). “Third party providers and brokers try to create value by saying to unsophisticated shippers: ‘Here’s what’s going on the market place, and here’s how we can create value.’ These shippers are not as successful

WWW.LOGISTICSMGMT.COM JULY 2013 | LOGISTICS MANAGEMENT 13 NEWS analysis

these rates to reflect the increased costs fits into Pitt Ohio’s overall network. “technical/surgical” as use of transporta- of doing business.” Increasingly, analysts and even some tion management systems has become While the GRI will make an impact on LTL executives are looking at GRIs as more widespread. less than one third of the shipments Pyle a fairly useless remnant of the indus- “The days of shippers living year after handles, O’Kane said that the change try’s regulated days. John Larkin, truck- year with rates significantly in excess of will touch about 60 percent of its active ing analyst for Stifel Nicolaus, recently market rates appear to be numbered,” customers it hauls for on a somewhat said that truck pricing had become more Larkin said. regular basis. What may be most of interest to ship- REGULATION pers is the list of companies that no longer take GRIs. Pitt Ohio stopped asking CBP set to roll out additional carrier its shippers to take a blanket across-the- requirements of 10+2 in July board rate hike about a dozen years ago. Officials at privately held Pitt Ohio, which is one of the country’s most inno- WASHINGTON—In early July, the U.S. provide 10 data elements and vessel car- vative and profitable trucking compa- Customs and Border Protection (CBP) riers to provide 2 data elements on con- nies, said that instead of a blanket rate will commence implementation of the tainers and their cargo to CBP. This adds increase, it prefers to concentrate on liquidated damages phase of the Import to the information available to CBP and increasing its lowest-yielding and most Security Filing (ISF), which is commonly improves its ability to identify containers unprofitable freight. known as the 10+2 program. that may pose a risk for terrorism. So, the bottom-yielding 15 percent The program requires importers and “The ISF and Additional Carrier of Pitt Ohio customers could likely see a carriers to electronically submit addi- Requirements are part of CBP’s layered heavier rate increase while its best cus- tional information on cargo at least 24 enforcement strategy,” said Acting Com- tomers are likely to see no increases—or hours before ocean freight is loaded onto missioner Thomas Winkowski. “CBP even a slight reduction, depending on a vessel bound for the U.S. This addi- works collaboratively and collectively how those customers’ individual freight tional information requires importers to with the other agencies and the trade to

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maintain the highest level of security and less accurate with managing safety for our nation while facilitating the ISF process as CBP was legitimate trade.” really not enforcing it yet.” CBP added that, effective July 9, it Saphir said that those may issue liquidated damages—a pen- responsible importers that alty secured by a bond—of $5,000 per spent a lot of time and effort violation for the submission of an inac- on creating a compliant ISF curate, incomplete, or untimely filing. program “will receive the And it said that if goods for which an benefit they deserve when ISF has not been filed arrive in the U.S., those importers not compli- CBP may withhold the release or trans- ant will finally need to get fer of the cargo. with the program or face sig- What’s more, for carrier violations of nificant monetary penalties. the vessel stow plan requirement, CBP Fair is fair.” said it may refuse to grant a permit to Saphir added that he’s unlade for the merchandise, with non- convinced that the CBP will compliant cargo potentially being subject take a careful and measured to further inspection on arrival. approach to penalties. And A cargo security trade expert recent- while he doesn’t expect an ly told Logistics Management that this avalanche of penalties, he mandate has been long overdue. “For does warn of a steady flow of many shippers, it may be a rude awaken- “well qualified” and “deserv- ing,” said Albert Saphir, president of ABS ing” penalties on importers Consulting. “I have seen many slack off that simply fail to play by the with ISF compliance, including brokers rules. and forwarders who became less and Earlier this year, the

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National Industrial Transportation standards under which full compliance building for the future, and providing League cited customs and international could take place.” U.S. companies with the logistics support trade law firm Sandler Travis: “CBP is ISF went live in January 2010, fol- they need to succeed globally.” expected to issue by the end of May a lowing a January 2009 interim final rule, DHL officials said that the new proposed rule that would make various which included a delayed enforcement enhancements to its Americas hub include changes to increase the accuracy and date 12 months after the interim final a new 180,000 square-foot sorting facility reliability of the advance information rule took effect. During this one-year specifically designed to accommodate larg- submitted under the importer security period, CBP said it would “show restraint er express shipments; an expanded south filing, or 10 + 2 rule.” in enforcing the rule…and take into ramp for additional wide-body aircraft; an It added that while fines for non- account difficulties that importers may employee and pilot building; and a facility- compliance were set at $5,000 per inci- face in complying with the rule as long wide information technology upgrade. dent, Sandler Travis said that “CBP has as importers are making a good faith A DHL spokesman told Logistics Man- not strongly required full compliance and effort and satisfactory progress toward agement that this expansion was driven by that the proposed rule could set forth the compliance.” the successful realignment of its business agency’s intention to do so and establish —Jeff Berman, Group News Editor to focus exclusively on international services and growth in its import and export EXPRESS business, leading to “a need to continue to adjust its operation to meet the growing demands of international shipping DHL ofﬁcially inaugurates customers.” The spokesperson added that the CVG Americas hub at CVG expansion positions DHL’s largest facility in North America for continued growth in ERLANGER, Ky.—Express delivery and to meet the growing international ship- package volume. But even with this expan- logistics services provider DHL recently ping demand of its large multinational sion growth the company has no plans to announced that it has officially inaugu- corporations as well as its small business return to serving the U.S. domestic market. rated its expanded $105 million Americas customers. DHL moved its U.S. hub operations hub at the Cincinnati/Northern Ken- “The completion of the CVG hub is to CVG in July 2009. DHL’s U.S. busi- tucky (CVG) Airport. a further milestone in the continuous ness focuses on international import and This inauguration represents the cul- expansion of our international express export offerings in major metropolitan mination of a four-year plan for DHL network,” said Frank Appel, CEO areas. It ceased U.S. domestic-only air to augment its CVG facility in an effort Deutsche Post DHL. “We are growing, and ground services at the end of January 2009, due largely to the ongoing uphill battle it faced competing with industry giants UPS and FedEx for market share. And since DHL reopened operations at CVG in 2009, DHL said that is has seen its international business grow dramatically, benefitting not only DHL but the local community with job growth and additional flights. DHL said that this hub resides “at the heart” of the DHL U.S. network with flights connecting customers from more than 220 countries and terri- tories worldwide to the entire U.S., adding that the CVG hub completes the backbone of the DHL intercontinental network along with its Hong Kong and Germany hubs. DHL recently inaugurated its expanded $105 million Americas hub at the Cincinnati/ —Jeff Berman, Northern Kentucky (CVG) Airport. Group News Editor

16 LOGISTICS MANAGEMENT | JULY 2013 WWW.LOGISTICSMGMT.COM NEWS analysis

ENERGY already taxed that way but at the energy equivalent for gasoline. Because of that Are LNG tax incentives enough to wean equality, CNG already is in widespread use by municipal vehicles, such as buses trucking industry off diesel fuel? and trash trucks, but not by long-haul truckers. WASHINGTON, D.C.—Washington is infrastructure and production, and that A lack of a reliable national distribu- pushing a tax break that might make will be a real positive effect on our econ- tion infrastructure and limited number liquefied natural gas (LNG) economi- omy,” Thornberry said. of engines currently in production that cally competitive with diesel, although a A gallon of LNG is taxed at the same can use LNG are often cited by trucking skeptical trucking industry is still taking rate as diesel—24.3 cents a gallon at fleets for their reluctance to convert away a wait-and-see approach on the clean, the federal level. But because it takes from diesel, even with current fuel prices domestically produced fuel. 1.7 gallons of LNG to produce the same stuck stubbornly near $4 a gallon. Two Congressmen—Reps. Mac amount of energy as a gallon of diesel, Truckers say that while they’re study- Thornberry (R-Texas) and John Larson the effective tax on LNG is much higher ing LNG for possible use in long-haul (D-Conn.)—recently introduced a bill than on diesel. vehicles, there are significant hurdles that would equalize disparity between The American Trucking Associations before the industry converts away from the tax the federal government levies on estimates that in order to buy a quantity diesel. diesel fuel and on LNG. Called the LNG of LNG with the same energy equivalent “Incentives will bring the days of LNG Excise Tax Equalization Act of 2013, it as diesel, LNG buyers pay a levy of about closer for us, but they are not here yet,” provides what Thornberry called “a fair, 41 cents—or nearly 70 percent more said Steve O’Kane, president of LTL car- market-centered solution” to fix the tax in tax. The bipartisan House bill would rier A. Duie Pyle. “We’re sitting on the disparity between diesel and LNG. effectively reduce the LNG tax to 24.3 sidelines due to the initial investment in “I think this change will encourage cents—same as diesel. the equipment, the difficulty in establish- more private-sector investment in LNG Compressed natural gas (CNG) is ing our own fueling locations, and some

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of the requirements for maintenance so much natural gas, we’re going to see saying that shippers and transportation facilities.” $5 diesel before we’ll see $3 natural gas. and logistics services providers, labor rep- Trucking fleets are already coping Today, the typical Class 8 truck burns resentatives, safety experts, and govern- with rapid cost increases in the typi- approximately 25,000 gallons of fuel ment entities are all represented as well. cal Class 8 truck, which has risen to annually, getting 5.9 miles per gallon. The members will serve two-year about $125,000 from $80,000 just five Switching to compressed natural gas terms and meet at least three times per or six years ago. A truck equipped to run could save up to $20,000 per truck per year. The first meeting took place on June on LNG costs even more initially—and year. CNG currently costs about $1.90 25 at the Department of Transportation faces some higher maintenance costs per gallon, about half the cost of diesel. and included an overview of MAP-21 over its lifetime, according to preliminary This year the trucking industry is on Freight provisions and preliminary iden- reports on their use. pace to spend about $155 billion on tification of NFAC activities. “We prefer to perform our own main- diesel and gasoline. The National Freight Advisory Com- tenance and fueling, and right now both LNG must be cooled to about minus mittee was endorsed by various freight are prohibitive for us to accomplish,” 260 degrees Fahrenheit and carried in transportation experts when it was ini- O’Kane said. insulated tanks aboard trucks. Con-Way tially announced. CNG proponents, like billionaire T. Inc. President and CEO Doug Stotlar has “This is a big deal and something we Boone Pickens, do have some arguments. compared it to “hauling around a giant have asked DOT to do for some time,” They claim it’s cheaper and more reliable Thermos bottle on top of your trucks” to said Mort Downey, chairman of the than diesel, burns cleaner, and offers avoid loss through evaporation. However, Coalitions for America’s Gateways and slightly better mileage. But mostly they LNG allows carriers to carry much more Trade Corridors (CAGTC) and former are selling it on cost. fuel in less space. deputy Transportation Secretary under As Pickens said recently: “We have —John D. Schulz, Contributing Editor President Clinton. “As they proceed with their strategized freight plan, and with the long-term steps to carry out an effective POLICY freight program, such an advisory group can play a very critical role.” CAGTC Executive Director Les- DOT announces members of National lie Blakey also applauded the effort. “Creation of this committee shows Freight Advisory Committee great leadership by the administration and serves as further evidence of WASHINGTON, D.C.—U.S. Depart- and Under Secretary of Transportation their commitment to improving U.S. ment of Transportation (DOT) Secretary for Policy, as well as representatives from freight mobility,” said Blakey in a state- Ray LaHood announced the 47 members other Federal agencies with freight-relat- ment. “This Committee will contribute of the National Freight Advisory Com- ed obligations, will serve as ex-officio practical experience to the process of mittee last month. members, the DOT said. implementing MAP-21 freight provi- The objective of the National Freight It added that the members come with sions, while helping to lay a path with Advisory Committee, established in Feb- various perspectives on freight trans- creative concepts for freight in the next ruary, is to provide recommendations to portation and represent various modes, authorization.” the Secretary of Transportation on how geographic regions, and policy areas, —Jeff Berman, Group News Editor DOT can improve its freight transportation policies and programs, which, it said, is critical to the nation’s economy and key OCEAN to helping the White House meet its goal of doubling exports by 2015. Panama Canal expansion “lot of hype” “The strength of our economy and the strength of our national freight sys- PANAMA CITY, PANAMA—The pro- access to ports on the Gulf of Mexico and tem go hand in hand,” said LaHood in a jected 2015 completion of the expansion the East Coast. However, Paul Svindland, statement. “The members of this com- and widening of the Panama Canal is chief operating officer at Pacer Interna- mittee understand firsthand the critical causing a “lot of hype,” but will not drive tional and a former Maersk executive, importance of freight movement, and a major change in maritime shipping says that “at end of the day expanding the their valuable insight will help ensure options, a top intermodal executive is Canal does not affect demand patterns that our system is more secure and better predicting. on the East Coast.” connected.” When the project to widen the canal Right now, Port of Baltimore is one of The 47 members of the National is completed in 2015, longer and wider only two ports on the East Coast—the Freight Advisory Committee are from out- ships will be able to pass through its other is the Port of Virginia in Norfolk— side the DOT, and the Deputy Secretary locks, allowing big manufacturers shorter that can handle the large, post-Panamax 18 LOGISTICS MANAGEMENT | JULY 2013 WWW.LOGISTICSMGMT.COM NEWS analysis

I think you may see is a change in the carriers and the type of vessels they put in the market place,” Svindland says. The biggest impact on shippers may be on rates, Svindland adds. “Rates may soften because there will be (more) capacity.” Stevan Bobb, executive vice president and chief marketing officer at the BNSF Railway, aggress. “Whatever should shift to the East Coast already has shifted there,” says Bobb. “We don’t anticipate any substantial change, and it’s up to us to provide the service from the West Coast ports to make sure it doesn’t change.” cargo ships. Baltimore recently complet- the effect of the Panama Canal expansion Svindland and Bobb made their com- ed a major expansion, which included will be more focused on giving maritime ments during a question and answer ses- building a 50-foot berth and dredging carriers greater options in the way they sion following release of the 24th Annual the channel. utilize their vessels, rather than chang- State of Logistics Report. However, Svindland is predicting that ing domestic shipping patterns. “What —by John D. Schulz, Contributing Editor

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Old Dominion Freight Line, the Old Dominion logo and Helping The World Keep Promises are service marks or registered service marks of Old Dominion Freight Line, Inc. All other trademarks and service marks identiﬁ ed herein are the intellectual property of their respective owners. © 2013 Old Dominion Freight Line, Inc., Thomasville, N.C. All rights reserved. Jeff Berman is Group News Newsroom Notes Editor for the Supply Chain Group publications. If you want to by Jeff Berman contact Jeff with a news tip or idea, please send an e-mail to [email protected].

China’s economy is a mixed bag

As the global economic picture remains murky Even with the warning signs coming out of China, at best, a recent report in the Wall Street Journal one spot of growth that still exists there is export growth, (WSJ) observed that declining manufacturing output which the WSJ said was up 14.7 percent annually in in China, the world’s second largest economy after the April. Export growth has been reflected to a degree in U.S., is certainly cause for concern. West Coast port import data, but it’s fair to say we’ll The WSJ reported that the preliminary HSBC China get a truer picture in the next few months with Peak Manufacturing Purchasing Manager’s Index dropped to Season—if there is one—now on the horizon. 49.6 in May, down from 50.4 in April. Like the Insti- While it seems that China has finally joined the tute for Supply Management’s monthly Manufacturing party of economic issues and concerns, it’s not to sug- Report on Business, a reading below 50 represents gest that things are going completely south on the eco- contraction, whereas a reading of 50 or higher repre- nomic front anytime soon. Josh Green, CEO of Panjiva, sents growth. an online search engine with detailed information on China’s manufacturing decline is the latest wrinkle global suppliers and manufacturers, said that China’s in a year that has not matched up with expectations. economy—at a time when the global economic outlook The article explained that at the outset of 2013, econo- is muted—is still a bit of a mixed bag. mists expected 2013 to show stronger growth compared “This has to do with the indicators we’re seeing,” says to 2012, noting that hopes are now fading due to a “global economic environment still China’s manufacturing decline is the latest struggling with Europe’s lingering debt crisis and austerity measures and sluggish growth wrinkle in a year that has not matched up in the U.S.” with expectations. What’s more, it said that the Chinese economy is struggling under the combined weight of weak global demand and decelerating consumption Green. “It doesn’t feel like we’re facing imminent col- at home, with a massive spending spree in lending at lapse or anything like that, and we don’t see significant the beginning of the year adding to ongoing concerns. downside risks in the market. But we don’t think global Clarifying this element, the WSJ said that Q1 eco- trade is taking off any time soon either, and modest nomic growth in China fell to 7.7 percent from 7.9 growth is the trajectory we seem to be on.” percent in Q4. Even though that figure is trending Green adds that China currently seems to have down, it is well above the current pace here in the U.S., its hands full in terms of managing an economy that’s which has been heavily affected by federal budget cuts changing so rapidly. “More specifically to trade, there and sequestration. was talk of China losing its dominance in manufacturing, and our customers have talked of a desire of moving beyond China due to rising wages. Some say that the cost advantage is not as strong as it used to be.” However, Green adds that over the last decade or so, the Chinese manufacturing base developed a capabilities advantage that is proving to be durable; and as a result, companies are finding it harder than they thought to go elsewhere. “The capabilities that many companies have come to rely on in China’s manufacturing base are simply not there in other emerging countries,” adds Green. “So Chinese manufacturing appears to be going strong and is expected to continue for the foreseeable future.” Ⅺ

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Ocean rates: Check the numbers

In last month’s column I focused on the learned that complex ocean invoices were being paid volatility of domestic intermodal rail. I cautioned with only a review of the math and with little over- that shippers should expect pressure in major routes sight on accessorials and surcharges. associated with import and export because ocean Ferreira recommends that shippers look to invoice rates are in turmoil as world markets adjust to new accuracy first to capture freight savings. “One aspect capacity and an uneven economic recovery. to combat potential rate increases for beneficial Ocean and rail are two different modes with dif- cargo owners should be a focus on the accuracy of ferent market characteristics. At least in rail you can new invoicing associated with rate increases taken expect 98 percent plus accuracy in invoicing once in new contracts,” he says. “One major ocean car- you make a deal with a carrier. But even with today’s rier recently disclosed their invoice accuracy rate technological advances, ocean carriers continue to at 88 percent; and in most cases, the business team make errors on 10 percent or more of invoices accord- negotiating ocean freight pricing are not the same ing to Steve Ferreira, CEO of Ocean Audit, a leading associates paying the invoices.” ocean freight auditor. I recently caught up with the globetrot- The consequence of selective rate hikes and ting Ferreira and asked him what he sees happening right now in the intermodal por- changing capacity is that shippers need to be tion of the ocean market: “While it seems on their game in monitoring all the players in likely that carriers will get some increases, the forecast that we’re predicting is that their major and minor shipping lanes. carrier revenue gains will again be inconsistent. It seems that there’s no authorita- tive consensus on how strong the market demand He advises that if you’re taking increases on your ocean may be. That said, it’s a guessing game on capacity freight pricing, it’s best to mitigate them as best possible holdbacks.” by ensuring your teams are using enhanced auditing Ferreira’s comments are consistent with what rather than rubber-stamping invoices for payment. we’ve been reporting in Logistics Management and The progress on including multi-component right on with what shipper contacts are telling me. ocean, rail, and truck rates in transportation man- The impact will continue to ripple through all modes agement systems has been slow. Many ERP-based in international moves as shippers look at total landed systems are simply looking for one total landed cost cost. to enter into a single price field. Accounts payable The consequence of selective rate hikes and may be simply checking for a value within a range. changing capacity is that shippers need to be on their Shippers have historically relied upon third par- game in monitoring all the players in their major and ties to review, adjust, or approve complex invoices. minor shipping lanes. If you’re a small volume ship- But it’s important that you incorporate an integrated, per this can be really tough; so, heading advice from team approach consisting of those with knowledge of fellow shippers in shipper associations and third par- the intent of the contract working along side of those ties can be helpful. with technical expertise and know the market well. On the invoice front, I recently worked with a In this case, I’ll quote a certain presidential can- mid-size shipper who, like many manufacturers, didate: “It takes a village.” Shippers need to have had a logistics and purchasing function negotiating resources that can negotiate a fair rate, monitor freight and a separate finance function in another service levels, and, most importantly, pay only the physical location processing payment. We quickly correct charges. Ⅺ

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Innovation and Risk Management: Surprisingly symbiotic

some large companies believe that their commit- Imagine a VC firm that uses proposals and meetings ments to risk management stifle innovation. Many are to winnow down 20 ideas to only one or two, and then also convinced that blue sky innovation involves too places all its bets on the two survivors—highly unlikely. much risk, too much capital, and too little structure— Instead, most venture capital firms create a portfolio that it’s not possible to mimic small or startup businesses, of investments and manage them through the insights whose efforts are buoyed by highly flexible operations. gleaned from the results of each. They know that a lot The net effect is that when it comes to innovation, of those experiments will fail, but they leverage the big companies often settle for conservative approaches knowledge gained from successes and failures to make such as those enabled by stage-gates. Unfortunate- the overall business profitable. ly, stage-gate processes are classic innovation killers. The point here is that failures can be essential build- Designed to reduce uncertainty as exposure to risk ing blocks and that fault tolerant cultures often drive grows, stage-gate processes mostly ensure that only innovation. Unfortunately, most companies only celebrate weak, incremental ideas emerge from the funnel. success. Rarely do people in large enterprises rise in the Stage gating aside, the real issue is that innovation ranks with a failed experiment on their résumés—even if and risk sensitivity really aren’t incompatible. Accenture the failures provided insights about future opportunities or recently studied the 60 U.S. publicly traded businesses kept an organization from moving in a dangerous direction. that are included on the Forbes list of most innovative Grey Group, recently named one of the “50 Most companies. The key benchmark was a company’s beta Innovative Companies” by Fast Company magazine, value: the measure of its share price volatility relative to the thinks differently. The 10,000-employee agency offers market’s overall volatility. A beta of 1 indicates that a com- a “Heroic Failure” award, which it grants to clever ideas pany’s share price moves in line with market fluctuations. that nonetheless didn’t work. Surepayroll.com, the num- Accenture found that the beta of Forbes’ most inno- ber one online payroll company, takes a similar tack. vative companies averaged only 1.1—hardly riskier than It offers a “Best New Mistake” award to smart, well- their less innovative peers. We also found no correlation intended employees who are trying to do a good job, but between a company’s beta and its position on the list. nonetheless made a mistake and learned from it. In other words, a higher innovation ranking Comparing the equity beta to the innovation doesn’t translate into premium of leading U.S. innovation leaders higher risk. 3 The study’s clear implication is that R2 = 0.005 innovation is less risky than many companies Average beta of leading innovators = 1.1 believe. So why are so 2 many businesses unwill- Beta ing to “risk” developing truly new products and 1 services? Several clues can be gleaned from the venture capital business—arguably the sector that is most adept at 0 0 driving innovation and 10 20 30 40 50 60 70 80 managing risk. Source: Accenture

24 LOGISTICS MANAGEMENT | JULY 2013 WWW.LOGISTICSMGMT.COM Pearson on Excellence

In addition to fault tolerant cultures, a second was launched in 1999, it had only a few people in its R&D innovation cornerstone is flexibility—the willingness to department, but was issuing four major software releases become something different. In the 1970s, Monsanto each year. Five years later, the R&D staff had grown to 200, (#16 on the Forbes innovation list) realized that genetic modifications could become very Smart risk management isn’t the innovation important to its seed business. However, these modifications carried a range of risks, which inhibitor most companies believe it to be. More Monsanto helped mitigate by creating a port- often than not, the barriers to innovation are folio of experiments beginning with careful inflexible, over-conservative processes and investments in biotechnology companies. With the traction, knowledge and experi- cultures. ence gained from those experiences, Mon- santo then opened its Life Science Research Center. By the 1990s, Monsanto was busily acquiring but the number of releases had slowed to one per year. biotech delivery vehicles and enabling technologies. In 2006 Salesforce.com replaced its stage-gate pro- Today, biotech anchors the company’s highly successful cess with a faster, more agile approach: using cross- seed business. functional teams that work iteratively with the market Speed is the third cornerstone. Companies that through frequent tests. The company’s innovation excel at rapid experimentation and agile development prowess quickly returned to the high-octane levels of increase their chances of building innovation portfolios its early years. without increasing risk. The idea is to shorten learning Smart risk management isn’t the innovation inhibi- cycles, recognize failures early and make timely course tor most companies believe it to be. More often than corrections. not, the barriers to innovation are inflexible, over- When Salesforce.com (#1 on the Forbes innovation list) conservative processes and cultures. Ⅺ

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this year marks the centennial anniversary of the opening brought natural gas prices to historical lows. Meanwhile, of the Panama Canal. And as I write, laborers are expand- oil prices have remained high (averaging more than $100 ing the canal so that it can accommodate vessels that are per barrel), and carriers across the spectrum of modes are 25 percent longer, 53 percent wider, and whose draft is 23 now considering supplementing their fleets of oil-powered percent deeper. By accommodating these larger vessels, trucks, trains, and boats with those powered by natural gas. the expansion of the Panama Canal, scheduled to be com- The price differential that has emerged between oil and plete in 2015, could have a significant impact on natural natural gas is unique to the U.S. market, and declines in gas markets in the U.S. A bit of history explains why. U.S. natural gas prices have not been mirrored by natural Shortly after being sworn in as the successor to Presi- gas markets outside of North America. The geographic dent McKinley, who was shot and killed in September price differential that has emerged as a consequence of the 1901, Theodore Roosevelt delivered a speech to Congress shale gas revolution persists to this day, and it continues in which he emphasized the need for a canal that would to inspire investors who are eager to take advantage of the allow the Navy’s Pacific and Atlantic fleets to become one. opportunities offered by physical arbitrage. At the time, the Isthmus of Panama was part of Colom- Certainly the lure of purchasing inexpensive U.S. natu- bia. But under U.S. direction and support, a coup was ral gas and transporting and selling it to Asia, where natural staged in November 1903, and Panama was born. Shortly gas is three to four times more expensive, is great. But thereafter, an agreement was signed that granted the U.S. doing so requires the construction of liquefaction plants rights to the Panama Canal Zone, and the U.S. embarked that supercool natural gas and cause a phase shift from a on an ambitious project to dam the Chagres River, dig a cut gaseous to a liquid state. from one side of the country to the other, and build what In 2007, the only LNG terminal projects being would be the largest set of canal locks ever constructed. reviewed by U.S. federal authorities were proposals for Ten years later, steam shovels digging from the Atlan- regasification plants that would receive imported LNG tic and Pacific sides met, and the Panama Canal offi- from Qatar, Australia, Indonesia, or some other LNG cially opened to commercial traffic on January 7th, 1914. exporting country. Today, the vast majority of proposals are Freight volumes were initially suppressed by the outbreak to build export facilities. of World War I as well as technical issues that caused Of the 20 proposed LNG liquefaction plants under frequent closures, but by the summer of 1920, the canal review today, 80 percent are planned for the Gulf Coast. opened to free passage of civilian ships. Currently, there is no established LNG trade through the Impacts were felt immediately by transcontinental rail- Panama Canal due to the size constraints. The wider locks, roads because the cost to ship oil and lumber from the West however, will be capable of accommodating more than Coast to East Coast markets was significantly reduced. 80 percent of the world LNG fleet. If the Panama Canal At the time, there was a relative glut of oil and fuel in were not expanded, Gulf-based LNG liquefaction plants, California, and prices were significantly lower in Califor- operations that are eager to sell LNG to Japan where LNG nia than they were elsewhere in the country. According to prices are indexed to crude oil, would need to route tankers the research of Noel Mauer and Carlos Yu, authors of “The through the Suez Canal. By routing through the Panama Big Ditch,” California oil prices averaged 61 pecent of the Canal, the journey from the Gulf Coast to Japan would East Coast price before the canal opened, and 85 percent be shorter by nearly 5,400 nautical miles, which at 19.5 after it opened. This shift is attributed to the physical arbi- knots, pencils out to a transit time savings of 11.4 days. trage made possible by the opening of the Panama Canal. In short, the transit savings associated with a bigger, Fast forward a century or so, and we see that the widen- better Panama Canal make the already attractive investing of the Panama Canal is serendipitously timed with a ment in a Gulf of Mexico LNG export facility significantly surge in U.S. production of natural gas, much of which is more attractive, and if approved and built, LNG exports being produced in Texas. will exert upward pressure on domestic natural gas prices, In 2007, when the canal expansion was proposed, the just as they did in California in the 1920s. It is difficult to shale gas revolution was in a nascent state. At the time, say whether the oil to natural gas price differential will be the U.S. was preparing its infrastructure to accommo- so affected as to negate the financial benefits of convert- date long-term imports of liquefied natural gas (LNG). ing all or part of a fleet to natural gas power plants, but Between 2007 and 2012, however, domestic natural the lesson from a century ago suggests the impact could gas production grew by roughly 25 percent, and the glut be significant. Ⅺ

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Find us on: Scan to learn more about MHI: EXCLUSIVE: STATE OF LOGISTICS 2013 New order, new opportunities on the rise

New state of logistics translates into new opportunities for shrewd managers who can leverage their solid transportation relationships

BY JOHN D. SCHULZ, into value for their companies. CONTRIBUTING EDITOR

here’s a “new order” evolving in the logistics and $43 billion from 2011. transportation arena, one that’s amplifying the Inventory carrying costs and transportation costs rose challenge of securing capacity, yet one that will “quite modestly” in 2012, according to Rosalyn Wil- highlight the value of having a shrewd logistician son, author of the 24th Annual State of Logistics Report. at the helm of a company’s shipping decisions. Inventory carrying costs rose 4 percent while transporta- TToday’s savviest logistics practitioners are driving out costs tion costs were up only 3 percent, thanks to weak and from the transportation system and creating new “omni- inconsistent shipping volumes and strong blowback by channel” distribution networks designed to take advantage shippers for carriers to hold rates. of customers’ changing buying habits. And to accommodate “Logistics costs as a percentage of GDP in the U.S. com- the ever-fi nicky consumer, they’re no longer making deci- pares quite favorably to that of our trading partners,” says sions based on modal “silos.” Instead, shippers are becoming Wilson. “Slow economic growth has kept the percentage “modal agnostic,” seeking capacity when and where it makes low, but the supply chain sector has made great strides in the most economic sense for their operations. productivity, asset utilization, and inventory management In fact, the results of the Council of Supply Chain Man- in the past three years.” These supply chain management agement Professionals’ 24th Annual State of Logistics Report, improvements will continue even as higher volumes return co-sponsored by Penske Logistics, shows that the sharpest to the market place, Wilson predicts. logistics management professionals are saving their companies millions in transport, warehouse, and shipping costs. New normal, new options According to the report, logisticians and supply chain Logisticians and supply chain experts have been coping professionals have once again driven ineffi ciencies out of with a new economic paradigm since the Great Recession the business transportation system. Last year, business ended in 2009. This has caused changes in supply chain logistics costs stayed steady at 8.5 percent of gross domes- options as well as other economic realities. Wilson noted tic product (GDP), the same level as they were in 2011, that slow growth and lackluster job creation caused the the report says. That compares to about 17 percent of GDP global economy to wallow in mixed levels of recovery. back in 1979, the year before trucking was economically “You’re probably thinking that there’s not been much to deregulation, allowing innovation to fl ourish. celebrate,” says Wilson. “Perhaps it’s time to ask: Is this the According to the report, the cost of the U.S. business new normal?” logistics system rose 3.4 percent in 2012, that’s less than In her presentation, Wilson said that she believes we’re half the increase from 2011 and still short of the peak 2007 experiencing a “new order” of elements that are translating into level. Total business logistics costs were $1.33 trillion, up a economic paradigm that’s strongly affecting the logistics and

28 LOGISTICS MANAGEMENT | JULY 2013 WWW.LOGISTICSMGMT.COM The U.S. business logistics system cost is the equivalent of 8.5% of current GDP in 2012 ($ billions) Carrying costs ($2.269 trillion all business inventory)

$434 Up 4.0% INTEREST TAXES, OBSOLESCENCE, WAREHOUSING $3 DEPRECIATION, INSURANCE $130 $302

Transportation costs (Motor carriers)

$647

TRUCK (INTERCITY) TRUCK (LOCAL) $445 $202 Transportation costs (Other carriers) Up $189 3.0%

RAILROADS WATER * OIL PIPELINES AIR * FORWARDERS $72 $35 $13 $33 $37 WATER: INTERNATIONAL 27, DOMESTIC 7 AIR: INTERNATIONAL 13, DOMESTIC 20 Shipper related costs $10

Logistics administration $51 growth rates,” Wilson says. AMPO

Up For cutting-edge logistics managers, however, the cur- C EL TOTAL LOGISTICS COST $1,331 3.4% rent environment also means great opportunities to secure increasingly tight capacity in an era of shrewd rate bargaining. S. D Source: CSCMP’s Annual State of Logistics Report This is partly because the trucking industry, in particular, is ENDY W

facing a lid on capacity due to higher qualifi cation standards BY supply chain sectors. This “new order” is characterized by slow for drivers at the same time top carriers are becoming increas- DESIGN growth (GDP growth of between 2.5 percent and 4 percent), ingly selective in their choice of customers.

higher unemployment levels (7.5 percent in the U.S.), and “Truck capacity is still walking a fi ne line—few shortages, MAGE higher reliance on part-time workers during slower job creation. but industry-high utilization rates,” says Wilson. “Qualifi ed I For logistics managers, this means less predictable and truck drivers have become a valuable commodity in very less reliable freight services as volumes rise but capacity short supply.” does not. In areas such as ocean transport, says Wilson, Wilson predicts that driver shortage will exacerbate as the this can mean slower transit times. “I do believe that the economy improves even further. She’s predicting the cur- economy and logistics sector will slowly regain sustainable rent driver shortage of 30,000 will hit 115,000 by 2016. In momentum, but we will still experience unevenness in the ocean and air freight sectors, meanwhile, overcapacity is

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Logistics cost as a percent of GDP Trucking in a “delicate balance” Trucking, in particular, faces tough challenges in merely getting an adequate 9.8 9.9 9.3 9.4 supply of drivers. “The trucking sector 8.7 has been in a delicate balance for several 8.5 8.3 8.5 8.5 7.9 years, just on the breach of experiencing capacity problems,” says Wilson. The U.S. Department of Labor estimates that truck drivers will account for 43 percent of the growth in logistics jobs in coming years, but Wilson asks: “Where will these drivers come from?” She says that truck drivers represent a labor category with the fewest potential workers to fill those jobs. Only 2003 2004 2005 2006 2007 2008 2009 2010 2011 2012 about 17 percent of the current driver population is under 35, with a larger Source: CSCMP’s Annual State of Logistics Report portion close to retirement age. In the meantime, the government crackdown on unsafe drivers, the industry’s inabil- ity to attract younger or minority work- 2012 recap for trucking ers, the high cost of driver training programs, and a revival of the construction Change in employment and number of Class 8 trucks in operation industry are all serving to squeeze the available pool of drivers. According to the report, private fleet owners also have an aging population, and they’ve been attracting some of the most desirable jobs with better pay and working conditions. In comparison, railroads are in “very good shape” regarding infrastructure, equipment, and personnel. Rail infrastruc- 2008 2009 2010 2011 2012 ture spending rose 16.1 percent last year, topping $13 billion, yet efficiency rose. Class 1 rails consumed 2.1 per- General freight truck drivers Class 8 trucks cent less fuel last year despite hauling more tonnage in 2012 compared to Source: Bureau of Labor Statistics and R.L. Polk year-earlier levels. Shippers are increasingly turning to third-party logistics providers (3PLs) the issue while the railroads report that another disappointing year for ocean to help with their capacity issues. they have more than 20 percent of their carriers. Capacity is expected to rise Revenue in the 3PL sector rose by a freight cars in storage. 10 percent this year, but these new healthy 5.9 percent last year, the report The following summarizes the per- vessels “will be difficult to deploy” said, citing figures from Armstrong and formance of individual freight modes without further damaging the indus- Associates, a leading logistics research according to the 24th Annual State of try’s dynamic, the report says. and consulting firm. Logistics Report: • Air freight revenue gained 3.1 per- “The domestic transportation man- • Trucking rose 2.9 percent. The cent while domestic air cargo ton-miles agement segment of the 3PL market sector is “just on the breach” of experi- rose 2 percent, but international fell 3.9 was the fastest growing, with gross encing capacity problems due to higher percent. The all-cargo air industry is revenue up 9.2 percent,” says Wilson. regulations and lack of fleet growth. facing “chronic over-capacity and dete- The service providers’ cost of purchas- • Rail costs rose 4.9 percent, well riorating yield,” according to the report. ing transportation has risen “modestly,” below its 16 percent increase in 2011. • Oil pipeline ton-miles were virtu- she adds, noting that competition in the Class 1 revenue per ton-mile rose 5.3 ally flat last year. But that was “more marketplace is helping hold down rates. percent even as ton-miles actually than offset” by rate increases as pipe- So far this year, freight results are decreased 1 percent in 2012. line revenue rose 8.3 percent in this “mixed,” Wilson says. Rail carloads • Maritime costs fell 0.9 percent in heavily economically regulated sector. were down 1.7 percent year-over-year,

30 LOGISTICS MANAGEMENT | JULY 2013 WWW.LOGISTICSMGMT.COM EXCLUSIVE: 2013 State of Logistics

but year-to-date intermodal units rose signing their store size and location cent on productivity, says Svindland. 4.1 percent for the first five months, due to the growth in online business,” Penske’s Althen says that he estimates compared with the same period last says Beabout. 3 percent in higher costs, largely year. The American Trucking Associa- Steven Bobb, executive vice presi- because Penske’s average length of tions’ monthly truck index has risen for dent and chief marketing officer for haul is much shorter. three of the first five months, an indi- BNSF Railway, says that there are some Beth Ford, vice president and chief cation of the up-and-down nature of segments of economic growth, such as supply chain operations officer for Land the freight recovery. intermodal and energy exploration, but O’Lakes, says her company has doubled “Slow growth will be with us for the there’s “no sustainable” growth in most revenue in the past five years, largely next several years,” Wilson predicts. of the overall economic sectors. due to exports of agricultural products. “Logistics will still be a bumpy road.” BNSF is spending $14 billion on “We continue to see optimism in our However, the forecast of stable or capital investment this year, Bobb business going forward,” she says. decreasing energy prices is “welcome says. But he adds that the biggest So the consensus from shippers news” for shippers, Wilson says, adding issue is making sure that shippers have in the know is expect higher freight that fuel has become a “pretty manage- adequate capacity in the correct geo- rates as capacity tightens, be pre- able piece” of the logistics puzzle. graphic regions to handle the uneven pared to be flexible in modal selec- nature of freight today. tion and be aware that carriers are Industry reaction to report Paul Svindland, COO of Pacer Inter- being increasingly choosy with whom Shippers and logisticians reacted to national, a major intermodal company they do business in this tighter capac- the 24th Annual State of Logistics that offers truck brokerage and other ity environment. Report with confidence knowing that services, says that cross border inter- In summary, 2012 was “certainly there’s adequate capacity for those modal traffic is growing well. “I am cau- not a great year from an economic knowledgeable practitioners willing to tiously optimistic about the rest of 2013 perspective,” Wilson adds. While the do their homework and create long- going into 2014,” he adds. “There is still freight sector continues to improve, term relationships with carriers to growth, but probably not as much as we prospects for high growth are lim- secure sufficient capacity. saw at the start of 2012.” ited. Wilson simply concludes: “Slow Marc Althen, president of Penske However, the July 1 hours-of-ser- growth will be with us for many years.” Logistics, a sponsor of the report, said vice changes will affect regional and that he’s seeing higher inquiries from long-haul carriers, causing an increase John D. Schulz is a Contributing Editor shippers looking for 3PLs, especially in costs between 5 percent and 9 per- to Logistics Management for transportation management solutions to help manage their freight. One area that concerns shippers is sufficient availability of truck drivers. Less-than-truckload: Althen says that driver pay must rise to attract and retain drivers. Penske’s Rich get richer, others annual driver turnover is 17 percent, he says, compared to close to 100 per- looking for options cent for most large truckload carriers. Brent Beabout, senior vice president of supply chain for Office Depot he $32 billion less-than-truckload while performing at an and former vice president of engineer- (LTL) sector of the trucking indus- industry-best 87.6 oper- ing for DHL Express, says that his cur- Ttry can best be characterized as ating ratio. rent company has increased its use of schizophrenic. It offers some of the David Congdon, ODFL’s president intermodal and is also using more ded- best-performing companies in the entire and CEO, chalks up his company’s icated trucking options to combat the trucking industry as well as a few under- profitability to a diversification strategy driver shortage. achievers that are saddled with challeng- enacted 15 years ago. Recognizing that “That dedicated fleet has been a ing union contracts and desperately try- his once-sleepy Southeast regional LTL good answer for us,” says Beabout. He ing to compete with the best of the best. carrier had to offer more services to ship- added that Office Depot co-mingles First, the positives: Old Dominion pers, ODFL has transformed itself to a freight from all three of its distribution Freight Line (ODFL), the nation’s fifth- “multi-platform” carrier, now offering channels—in-store retail, business, largest LTL carrier, will exceed $2 bil- interregional, truckload, logistics ser- and online sales—in creating an omni- lion in revenue for the first time in its vices, and even ocean operations. channel distribution network. He adds history this year. Not only that, ODFL Another current success story is that the retailer has started redesigning is extremely profitable. During the first Saia Motor Freight Line, a carrier that its freight network to take more advan- quarter this year, traditionally the soft- exceeded $1 billion in revenue for the tage of intermodal options. est period for truckers, ODFL posted first time in company history last year. “All retailers are looking into rede- a 22 percent rise in operating income But it’s not just the top line that is grow-

WWW.LOGISTICSMGMT.COM JULY 2013 | LOGISTICS MANAGEMENT 31 EXCLUSIVE: 2013 State of Logistics

ing with Saia. It posted the larg- bled carrier. It recently est yield increase of any pub- LTL operating margin replaced longtime CEO licly held LTL carrier, and last growth and revenue/cwt. growth Richard Gaetz with year the carrier nearly tripled its Weighted average of public LTL carriers interim CEO William net income to $32 million with Deluce, who recently 12% a 94.7 operating ratio. admitted he was “very FedEx Freight, the LTL rev- 10% disappointed” in Vitran’s enue leader with more than $5 8% 102.7 operating ratio in billion last year, has revamped 6% the first quarter. its network and posted the larg- Vitran is not alone. est operating margin growth 4% David Ross, LTL analyst of any public carrier last year. 2% for Stifel Nicolaus, says Privately held gems such as 0% overall operating condi- New England Motor Freight Q1 Q2 Q3 Q4 Q1 Q2 Q3 Q4 Q1 tions are just fair. Slug- (NEMF) succeed partially 2011 2012 2013 gish economic growth has because of its high service lev- translated into still-tepid els as one of the few remaining Rev/Cwt. incl. FSC* (YOY % change) LTL freight volumes, he family-owned carriers in the Operating margin* (YOY change) says, and because volumes sector under the leadership of are only rising “modestly,” founder Myron “Mike” Shevell, Source: Company reports, SJ Consulting Group, Inc. estimates few carriers are adding chairman of the Shevell Group. capacity. With that, says LTL yield growth (revenue Ross, LTL pricing remains per hundredweight, excluding fuel sur- James P. “Jim” Hoffa, whose Team- “fairly rational.” charges) and operating margin growth sters union represents both carriers, is According to Ross and carrier execu- for the public LTL carriers has slowed. annoyed at the prospect of another dif- tives interviewed, overall top line growth Yield growth rose just 2.5 percent in this ficult trucking merger. “We thought they will be flat in the LTL sector for some year’s first quarter, causing year-over-year had finally learned the lessons of past time, and rate increases will be in the operating margin growth to grow by a management catastrophes,” says Hoffa. 2-percent to 4-percent range. “Anything scant 1.1 percent. “Unfortunately it appears they have not.” above 4 percent gets significant push- As an industry, the LTL sector is rela- Toronto-based Vitran Corp., which back from large national accounts who tively flat. The $32 billion total revenue operates a sizeable network of regional have options,” adds Ross. is roughly what the industry posted seven LTL carriers in the U.S., is another trou- —John D. Schulz, Contributing Editor years ago, but that’s because some LTL freight is being siphoned off by truckload carriers at the heavy end and by parcel Truckload: So-so demand but carriers being increasingly aggressive in the 70-pound to 500-pound range. “The LTL industry as a whole hasn’t capacity shortage looming made progress,” said Satish Jindel, principal of SJ Consulting, which closely he $280 billion truckload Loads have been up slightly tracks the sector. “Despite the recovery (TL) sector is expecting (between 1 percent and 2 per- that they’ve had, they haven’t retained Tthe remainder of 2013 to cent) in five of the last six quar- large amounts of LTL shipments han- be much like the past three ters. But TL margin growth dled by TL and parcel guys and fringe years: moderate demand with has been minimal, less than 1 players.” no increases in fleet capac- percent. The average operating YRC Freight finally posted a tiny ity and rate increases in the margin for the public TL carriers operating profit following six years of 2-percent to 4-percent range. was 5.7 percent in the first quarter, losses that exceeded $2.6 billion. ABF “It’s been spotty,” says Saul Gon- compared with a scant 1.8 percent for Freight System lost $13.4 million in the zalez, president of Con-way Truckload, a publicly held LTL carriers. first quarter of this year. $559 million unit of Con-way, who adds John Larkin, trucking analyst for Stifel Oddly enough, even though part that most large TL carriers are reporting Nicolaus, says a confluence of factors of YRC Freight’s financial problems so-so domestic dry freight demand but could cause the TL sector “to be right stemmed from two billion-dollar acqui- increases in cross-border and intermodal on the cusp” of a capacity shortfall. Lar- sitions of Roadway Express and USF traffic. “Our Canada and Mexico business kin says that any of a number of factors Corp. back in the 1990s, the company continues to grow, and we’re seeing dedi- could push up demand including pent up recently disclosed that it has made over- cated business providing lots of opportunity demand from the delayed arrival of spring, tures to ABF parent Arkansas Best Corp. and growth potential.” acceleration of the rate of new home con- on a merger possibility. The numbers bear out that sentiment. struction, as well as the Hurricane Sandy

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Public TL carrier results rebuilding effort. of service will reduce 8% At the same time a number capacity and productivity of factors could simultaneously 6% between 1.5 percent to 4 push down supply, including 4% percent decline, accord- lower productivity from new ing to American Trucking federally mandated safety rules, 2% Associations forecasts. the driver recruiting and reten- 0% John White, executive tion battle, and failure or down- vice president of sales and sizing of smaller, less financially -2% marketing for U.S. Xpress, stable carriers. -4% the nation’s fifth-largest Even if GDP grows in the Q1 Q2 Q3 Q4 Q1 Q2 Q3 Q4 Q1 TL carrier, says “time will 1.5 percent to 2 percent range, 2011 2012 2013 tell” exactly how much these other factors have the those regulatory changes potential to cause sharply higher Rev./Loaded mile excl. FSC (YOY % change) will cost shippers. “We’re rate increases in the TL sec- Total loads (YOY % change) going to have to see,” tor. “In this case, we think that Operating margin (YOY change, absolute) White says. “There are rate increases will then, once some things we can do again, outstrip the rate of cost Source: Company reports, SJ Consulting Group, Inc. estimates to offset the impact, but increases, especially for large, there’s going to be impact purchasing-advantaged TL car- and some of it will be cus- riers,” adds Larkin. tomer specific.” Richard Mikes, managing general added to the Class 8 fleet in five years. Those shippers who give carriers partner of Transport Capital Partners, It’s not going to take much of a bump in operational flexibility and don’t demand which closely tracks the TL sector, says GDP for rates to bump up.” specific time pickups and deliveries will that long-term, once the economy kicks Among the factors is the govern- see mitigated rate hikes. More challeng- in, he’s very optimistic for the TL indus- ment’s Compliance, Safety, Accountabil- ing to TL carriers, adds White, will be try. “It all depends on GDP growth, but ity (CSA) initiative that’s forecast to win- those customers that demand pickup it’s very difficult to forecast the year now as many as 150,000 of the nation’s and devivery at specific hours. ahead,” Mikes said. “We’re absolutely three million long-haul drivers. In addi- —John D. Schulz, very tight on capacity, and we’ve hardly tion, pending changes to driver hours Contributing Editor

Rail: Staying steady up 20 percent from the 81,122 carloads in fourth during uneven times quarter of 2012 and 166 percent higher than the ven with signs of apparent eco- percent on a year-to- 36,544 carloads origi- nomic improvement at the mid- date basis. nated in the first quarter Eyear mark of 2013, it’s fair to say And as they have for of 2012. that the freight transportation market years, the railroads are And while the Class is currently generating more questions continuing to take their I rails have remained than answers. But one constant amid service capabilities and flip focused on service and reli- the economic uncertainly over the past them into strong returns for ability, they also continue few years has been the staying power Class I carriers. What’s more, make massive capital invest- of the freight railroad industry. this is happening at a time when the ments into their own networks Much like a top athlete perfecting economy is still finding its groove, and and infrastructure to expand, upgrade, his craft, the railroad sector has stayed coal, which represents about 40 percent and enhance the U.S. freight rail net- ahead of its competitors by focusing on of total rail carloadings, continues to see work in the form of new equipment, the fundamentals. On the rails, it’s been its volumes decline. safety, rolling stock, terminal expansion, strong service and reliability, two basics Helping to ease the loss of coal vol- and asset utilization. The AAR recently that never go out of style. And because umes is the emergence of crude oil by reported that the seven North American- of this hyper-focus, the sector has seen rail. Consider this: The AAR recently based Class I railroads plan to invest an domestic intermodal volumes return to reported that U.S. Class I railroads estimated $24.5 billion in 2013, with pre-recession levels and carloads trend- originated a record 97,135 carloads of $13 billion of that allocated towards ing in the right direction, down only 2 crude oil in the first quarter of 2013, upgrading or enhancing rail capacity.

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AAR President and industry, addressing the CEO Ed Hamberger said lack of railroad antitrust, that it’s not entirely sur- U.S. rail cargo volumes fuel surcharges applied prising that the cumulative Total carloads Total intermodal loadings by the rails, and recipro- capital expenditure figure 14,682,219 12,267,336 cal switching, these efforts of the Class I railroads con- 2012 have largely stalled out in tinues to be so high on an 3.1% Washington. decrease from 2011 3.2% annual basis. “Our indus- increase from 2011 “The mysterious thing try’s leaders and inves- is that you hear how rail tors know that ‘deferred Total carloads Total intermodal loadings prices have risen, yet the maintenance’ is not a win- January- railroads that are earning May 6,081,180 5,261,051 ning strategy, so these vital 2013 their cost of capital are capital expenditures and 1.7% 4.1% barely earning it,” says decrease from the first increase from the maintenance investments five months of 2012 first five months of 2011 Stifel Nicolaus Analyst will continue, particularly John Larkin. “People for- given railroads are growing get that it is such a major market share to move even Source: Association of American Railroads capital intensive indus- more freight in the future.” try, with new locomo- But in order to be able tives $200 million each to make these invest- or more. Ties are not ments, railroads need to maintain their they’re not getting what they pay for in cheap, nor is keeping right-of-ways in current pricing leverage, which has terms of service and value as annual safe condition to allow for the passage been firmly intact for the last 10 years. rates rise about 5 percent year over year. of trains at a reasonable velocity. It is a This is where things get prickly with rail While there has been much made by very expensive proposition.” shippers—many of whom maintain that shipper groups about re-regulating the —Jeff Berman, Group News Editor Ocean: It’s a sprint, 3) And an operational and organizational setup resulting not a marathon in the lowest unit costs in the market. ars Jensen, CEO and Partner with percent—seemingly “Looking at 2012 annual SeaIntel Maritime Analysis in a recipe for continued accounts, clearly some carriers LCopenhagen, notes that one of the rate declines. appear to be off to a better start most important developments in the “Additionally, we con- than others; however this is not a past month has been the rapid decline tinue to see carriers place sprint, it’s a marathon, and the win- in spot rates—particularly on the Asia- new orders for ultra-large ners may not yet have emerged from Europe trade lanes container vessels,” says Jensen. “It’s in the pack,” says Jenson. “The situation is slightly more this troubled minefield of overcapac- Meanwhile, business for more bulk benign in the trans-Pacific trade, at ity, combined with new fuel efficient and breakbulk carriers may be heating least when the magnitude of the rate vessels that carriers need to make prof- up as China’s demand for coal contin- decline is considered,” says Jensen. its in the coming years. Cumulatively ues to accelerate. However, in reality we see that the par- the carriers have lost almost $7 billion The influence of U.S. coal exports tially successful general rate increase in the past 4 years, and clearly such a on seaborne transportation has grown [GRI] on the trans-Pacific was entirely trend cannot continue indefinitely.” significantly over the past decade. In eliminated in just three weeks this past Who will then stand to be the win- 2002, the U.S. exported 20.1 million spring.” ners of what appears to be a protracted tons by sea, but in 2012 that number According to Jensen, it’s clear that war of attrition? Based on develop- had increased to 106.7 million tons. both carriers and shippers are facing ments in the past decade, the winners The effect on shipping has multi- “troubled times.” Despite rates having will need a solid combination of three plied due to the fact that much of the fallen by 41 percent since the begin- factors, say SeaIntel analysts: demand growth has come from East ning of 2013, carriers are poised to 1) Access to additional capital. Asian countries. With a large part of increase capacity from Asia to East 2) Access to a fleet predominantly the U.S. coal destined for East Asia Coast South America by more than 20 made up of new fuel-efficient vessels. being shipping out of the U.S. East

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A Peerless Media Company 111 Speen Street, Framingham, MA 01701 Phone: (508) 663-1500 www.PeerlessResearchGroup.com EXCLUSIVE: 2013 State of Logistics

Seaborne demand for U.S. coal exports Coast ports, this will increase the (Billion ton-miles, 2002-2013 Q1) demand for tonnage. 250 As a consequence, the transportation demand stemming from U.S. Others coal exports has surged from 84.7 bil- 200 Americas lion ton-miles in 2002 to an estimated East Asia 707.3 billion ton-miles in 2012— 150 EU representing 835% growth over the period. “In comparison, the Chinese coal 100 imports in 2012 accounted for an estimated 697.6 billion ton-miles of demand for seaborne transportation, 50 says Peter Sand, chief shipping analyst at the Copenhagen-based consultancy BIMCO. “This means the U.S. coal 0 2002 ‘03 ‘04 ‘05 ‘06 ‘07 ‘08 ‘09 ‘10 ‘11 ‘12 ‘13 exports were more important to the dry bulk shipping market than the Chi- Source: BIMCO, EIA nese coal imports in 2012.” —Patrick Burnson, Executive Editor

Air: Marginal growth, oil prices at $108 per barrel and a weak economic outlook is a major achieve- freight volumes stagnant ment,” says Tyler. “Improved performance is what’s keeping airlines in the black.” n the air sector, the numbers tell the Profitability is thin, but there’s a The $12.7 billion profit that the IATA story. The International Air Transport solid performance improvement story projects represents a return on invested IAssociation (IATA) recently upgraded over the last seven to eight years, with capital of 4.8 percent. This will enable its global outlook for the airline indus- a more efficient use of assets as the the industry to pay for its debts and pay try to a $12.7 billion profit in 2013 on main contributor. In fact, the indus- equity investors a small dividend. $711 billion in revenues. That rings in try load factor is expected to aver- “However, returns of 4.8 percent are $2.1 billion better than the $10.6 billion age a record high of 80.3 percent in still materially lower than the 7 per- profit projected in March of this year 2013—6.0 percentage points above cent to 8 percent average cost of capital and an improvement on the $7.6 billion 2006 levels. Additionally, airlines have required for the industry,” adds Tyler. “If profit generated in 2012. found new sources of value that have airlines are to find the $4 trillion to $5 However, margins remain weak. On increased the contribution of ancillary trillion needed to finance the projected revenues that are expected to total $711 revenues from 0.5 percent in 2007 to fleet development over the next 20 years, billion this year, the net profit margin is over 5 percent in 2013. even more improvements are needed.” expected to be 1.8%. Indicative of the Macro-economic factors have also The air cargo business continues to characteristically razor thin profits of the contributed. Oil prices are expected to suffer the brunt of the impact of the airline industry, even this small margin average $108 per barrel (Brent), a little weak outlook in developed economies. will make 2013 the third strongest year below the $111.8 average for 2012 Freight volumes are expected to be basi- for airlines since the events of 2001. In in part due to increasing supply from cally stagnant at 52.1 million tons, and 2007, the industry earned 2.9 percent North America. Meanwhile, the out- there has been no significant growth net profit margin ($14.7 billion), and in look for global economic growth has since 2010 when freight volumes were 2010 airlines generated a 3.3 percent deteriorated slightly since March as the 50.7 million tons. net profit margin ($19.2 billion). recession in Europe proves to be deeper “After a 6.3 percent fall in yields in “This is a very tough business,” says than expected. The beneficial impact of 2012, we expect a further contraction Tony Tyler, IATA’s director general and lower fuel prices is expected to offset of 2.0 percent in 2013 as capacity CEO. “The day-to-day challenges of the adverse effect of weaker economic conditions remain much more chal- keeping revenues ahead of costs remain growth, providing a moderate boost to lenging than in passenger markets,” monumental, and it’s not surprising industry profitability. Tyler concludes. many airlines are struggling.” “Generating even small profits with —Patrick Burnson, Executive Editor

38 LOGISTICS MANAGEMENT | JULY 2013 WWW.LOGISTICSMGMT.COM EXCLUSIVE: 2013 State of Logistics

vices. Should that keep 3PLs: Continued pressure domestic 3PLs from going global? Amling doesn’t to function globally think so. “If the 3PL strategy ccording to the leading analysts dents—and 50 will have is to provide an end-to- in third party logistics (3PL) more than a million.” end experience for ship- Aspace, the concept of “mega Amling notes that as pers, they have to enter this cities” in developing countries with companies position to arena,” says Amling. “As supply above average per capita income rates capitalize on this demand, chains become more global and of growth such as Shanghai, Bang- their 3PL partners will need more complex, we’re seeing a trend kok, Mumbai, Hanoi, Jakarta, and Sao to ensure that they have the right toward companies reducing the num- Paulo will drive consumer demand for infrastructure and expertise in place to ber of 3PLs they use, but expecting finished goods globally. facilitate these business strategies. these 3PLs to do more.” Today, forward-looking U.S. based “A key value that 3PLs can provide That said, there’s a lot of opportu- 3PLs such as Jacobson, Menlo World- shippers as we move forward is mar- nity in the market, and putting up a wide, UPS, and OHL have invested ket knowledge across multiple regions global network may not be the right heavily in expanding international and industries,” says Amling. “Another move for all 3PLs. He notes that there operations to meet the new chal- value is to help companies take advan- will continue to be opportunity for lenges. tage of the growth opportunities they local and regional providers to be inte- “Today, China has about 90 cities decide to pursue.” gral components of company supply with more than 250,000 middle class Not only do some global 3PLs have chains. Amling asks: “The real ques- consumers,” observes Alan Amling, existing infrastructure in global mar- tion is with 95 percent of the world’s global director for contract logistics kets, but they also have the in-country consumers now outside the U.S., marketing at UPS. “By 2020, China expertise to help companies navigate can domestic shippers afford to avoid will have more than 400 cities with trade regulations, get products to end going global?” a quarter million middle class resi- customers, and provide post-sales ser- —Patrick Burnson, Executive Editor

WWW.LOGISTICSMGMT.COM JULY 2013 | LOGISTICS MANAGEMENT 39 Transportation Best Practices/Trends

2013 Ocean Cargo Roundtable: Business in the balance

Our panel of market insiders put the new business dynamics of ocean shipping into perspective and help shippers better understand how to manage their cargo on now roiling seas.

BY PATRICK BURNSON, EXECUTIVE EDITOR

s carriers continue to intro- In an effort to put these new dynam- and Don Pisano, ocean cargo chair- duce new capacity into ics into perspective and capture a mid- man for the National Industrial Trans- major global trade lanes, year rate forecast for Logistics Man- portation League and vice president shippers have been able agement readers, we’ve asked three in charge of imports for the American A to leverage rates to their prominent industry experts to share Coffee Corporation. Here’s what they advantage. But analysts contend that their insight and market intelligence. had to say. trend may soon be reversed if vessel Joining in our 2013 Ocean Cargo owners show a willingness to sacrifi ce Roundtable discussion are Martin Logistics Management (LM): Given volumes to protect further pricing ero- Dixon, research manager at Drewry the uncertainty in the current mar- sion. The arrival of a Peak Season—if Supply Chain Advisors in London; ketplace, are shippers making their there actually is one—will certainly Paul Bingham, economics practice Peak Season preparations earlier tell the tale. leader at consulting fi rm CDM Smith; this year?

40 LOGISTICS MANAGEMENT | JULY 2013 WWW.LOGISTICSMGMT.COM Martin Dixon: The bigger question ships in the hope of strong Peak Sea- data exchange are being driven by the remains whether there will be a Peak son demand, which could equate e-commerce portals such as INTTRA, Season at all this year, particularly on more capacity than necessary to meet GT Nexus, and Cargo Smart. These the main eastbound trans-Pacifi c. Peak likely cargo needs. For example, Ever- enable shippers to use a common por- Season in the past two years has proven green and Cosco started a new service tal through which to book and manage particularly disappointing to ocean car- between Southern China and the U.S. their shipments across multiple carriers and forwarders, and many provid- West Coast in the middle of May. riers. The rise of these organizations ers fear another repetition this year. In has necessitated the establishment of fact, we’re forecasting that demand on LM: Will slow steaming continue to international standards. the eastbound trans-Pacifi c will grow play a role in carrier strategies? Bingham: The carriers continue at a similar rate to last year, at a little Bingham: Absolutely. Carriers to work with intermediaries and some under 3 percent. With abundant capac- have strong incentive to save fuel, international efforts in this direction ity there’s little reason, from a shipping reduce emissions, and reduce effective for sure, but we see change being perspective, for shippers to need to start deployed capacity through slow steam- incremental. The market isn’t pro- planning Peak Season sooner. ing. Despite the lengthened shipping viding enough fi nancial incentive or Paul Bingham: Martin makes times, the market overall hasn’t shown pressure from big shippers or govern- a good point. The trend has been enough willingness to pay for faster ments to make it clear to the carriers towards an earlier Peak Season plan- services for carriers to revert to higher- that they can justify the investment to ning period for most of the last several fuel-cost service offerings. Until a accelerate the process. years. Not all shippers act uniformly, future year when vessel capacity however, and even just within retail could be less in surplus globally, there LM: Is data transfer something there are subsectors that see their own isn’t the growth in demand suffi cient shippers regard as “value-added”? peaks at different times and planning enough to have carriers reduce their Bingham: For some larger ship- to match. use of slow steaming. pers, this data transfer would cer- Supply chain practices continue to Dixon: The freight rate war cur- tainly be value-added and help reduce evolve, and because the ocean ship- rently taking place between Asia and transaction costs; however, shippers ping leg is only one component of Europe, as well as between Asia and are reluctant to step forward into the international logistics sourcing, Peak the U.S., along with the addition of lead at their own expense if they think Season services and rates don’t inde- new ships, will force carriers to resort the carriers will eventually shoulder pendently determine Peak Season to more slow steaming. Slowing down the cost. The shippers also don’t want planning by shippers. One other factor ship speed enables carriers to soak up to be caught paying for this and then is the reduction in threat of port labor more excess capacity. In fact, Drewry watch their competitors capture the disruption compared with last year, so expects acceleration in the deploy- benefi t from the investment. that may affect some timing of shipment of slow steaming across multiple Dixon: Most shippers expect this ments this year. trades as ocean carriers grapple with kind of capability as a condition of the challenge of how to prevent freight doing business. The key differentiators LM: How will carriers position rate erosion with too many big ships between ocean carriers in this regard themselves in anticipation of chasing too little cargo. has more to do with the speed and demand? Pisano: I agree. Slow steaming accuracy of milestone updates and Don Pisano: I expect that indi- is here to stay and will be managed confi rmations. vidual liner carriers will do as much as to maximum fuel effi ciency. I believe possible to manage capacity deployed most shippers have already made LM: Are so-called “talking agree- to meet their forecasted demand. adjustments in their supply chains and ments” an effective tool for carriers? They’ve demonstrated much greater adapted to this reality. Pisano: Cleary, they are viewed as control and will avoid carrying freight an effective mechanism by the carriers. with negative net returns. LM: What progress is being made But frankly, I don’t know one shipper Bingham: During this time, carri- by carriers to establish international who believes that carrier agreements are ers have tried to infl uence perceptions standards for business process and necessary or that carriers need the anti- of effective deployed capacity and con- data exchange? trust immunity that these agreements sequential rate expectations, including Pisano: Actually, the carriers have include. In today’s world of international announcements of new rounds of gen- taken signifi cant steps, but this is an business, every other industry operates eral rate Increases (GRIs) in the hopes evolutionary process. Shippers still on the basis of setting prices and ser- that they can keep or even boost rates need to upgrade their own systems to vices based on market conditions, their for Peak Season. maximize the benefi ts. individual costs, plus a reasonable return Dixon: Many carriers have already Dixon: We’re seeing that stan- on investment. This extraordinary privi- launched new services with bigger dardization of business processes and lege simply has no place or relevance in

WWW.LOGISTICSMGMT.COM JULY 2013 | LOGISTICS MANAGEMENT 41 Transportation Best Practices/Trends: 2013 Ocean Cargo Roundtable

today’s marketplace. The freight rate war currently taking Dixon: Regulated rate setting place between Asia and Europe, as well agreements between carriers are a as between Asia and the U.S., along with key feature on U.S. trades, but have the addition of new ships, will force been banned on other trades, such carriers to resort to more slow steaming. as Europe. Carriers believe that they are an effective tool at bringing some —Martin Dixon stability to the trade, both in terms of price and available capacity. However, despite the best attempts of carriers, sustained basis given the temptations many shippers harbor suspicions that rate levels on the eastbound trans- and competitive pressures on the com- they provide carriers with too much Pacific, have remained below carrier panies. collective power to unduly influence break-even levels for the past two the market. years. LM: What about shipper coali- But the evidence of both is mixed. Bingham: I think there is value in tions? Are they gaining traction as Pricing on U.S. trades has tended to exploring talking agreements as long negotiating entities? be less volatile than on the less regu- as expectations aren’t too high from Bingham: For shippers who can lated European trades, but there are what really can be achieved. Expec- make the effort to coordinate with oth- many other factors, such as the greater tations have been raised at times that ers in a coalition, the benefits can be dominance of forwarders. Meanwhile, likely exceed what can be done on a real. There are limitations in how much Vessel charter company thrives amid marketplace disruption ox Ships Inc., the Athens, Greece-based container ves- profitable and have a solid business model. Bsel charter company led by chairman and CEO Michael Bodouroglou, has been doing something remarkable over the LM: Will the Panama Canal expansion have an impact on past three years—making money. your business? Bodouroglou has pursued a policy of purchasing new Bodouroglou: Eventually, the expansion will cause trade vessels even though the industry’s main dilemma is generally patterns to change, but no one knows how they will change or judged to be an excess of tonnage on the seas. By acquiring to what extent yet. So, we feel that as long as we’re flexible, and operating modern ships and employing them in “period we’ll be able to adapt to the new changes, so there should be time charter,” the company appears to have found a formula no real impact to our business. for sustainable success. In this exclusive interview, we investigate what makes Box LM: Are emerging markets served by your business? Ships run. Bodouroglou: Very much so. We operate containerships that are in the mid-size segment, panamax size, and post- Logistics Management (LM): Your success suggests that panamax, which are flexible enough to operate in emerging there’s still room in the container liner industry for new markets. In today’s market, all the incremental growth is players. Is that true? If so, why? coming from emerging markets, and we believe that we’re Michael Bodouroglou: I would say that there is selec- positioned to take advantage of that. That being said, the tively room for new players in the container industry, as long developed world, particularly Europe and the U.S., are still the as you have strong operations and a proven track record of largest drivers of the industry. So, even a modest slowdown managing vessels. This is due to the decline of the German in those economies has a much larger impact on the industry KG model, which used to provide roughly 50 percent of the than the growth coming out of emerging markets at this stage. independent tonnage to the liner operators. That source of funds has dried up, for now, and created an opportunity for LM: What can other carriers learn by your example? other ship owners to enter the containership market to fill Bodouroglou: I think it would not be wise of us to think that that void. we can constitute an example for others. After all, we have not been in this market that long. What I can say, however, is LM: It would seem that you are able to pursue profit, while that in this business the vessels must be maintained and op- larger institutional carriers are pursuing market share. Is erated at the highest level. As an owner/operator of vessels, this true? you have to understand that the containership business, more Bodouroglou: Well, I believe everyone is out for profit at than any other shipping sector, is a logistics business, and if the end of the day, but market share does mean a lot to them. our ships encounter delays it may mean that Walmart may not However, they have shown some restraint now that the market get enough TVs or Xbox units for the Christmas season, so is challenging and carriers are now focusing on profitability you must be tuned into that and build a reputation of a reliable instead of market share. In the end, what’s the use of market partner for the liner companies. share if it means you are losing a lot of money? It’s better to be —Patrick Burnson, Executive Editor

42 LOGISTICS MANAGEMENT | JULY 2013 WWW.LOGISTICSMGMT.COM Transportation Best Practices/Trends: 2013 Ocean Cargo Roundtable

of a cost savings can really be achieved contracts is constrained by the availabil- as tracking. The number of observa- in today’s market conditions, and alter- ity and applicability of indexes to use. tions available from which to construct natives such as use of third-party freight The reliability and composition of an index also matters, so the underly- forwarders may provide some savings indexes over time is important as well, ing velocity and quantity of transac- under certain conditions as well. In any as financial incentives to influence tions matters as well. negotiating situation with the carriers, index values creates a need for inde- having greater volumes to commit can pendent validation that the indexes Patrick Burnson is Executive Editor of result in lower costs. actually track what they are described Logistics Management Pisano: Shipping associations have been around for a long time and will continue to serve a valuable role for specific industries or groups of shippers. In the U.S, they operate under guidelines issued by the U.S. Department of Jus- The Power to Move Your Workplace tice to ensure that they are in compliance with U.S. anti-trust laws. Dixon: These coalitions continue to TURN YOUR WAREHOUSE thrive in the U.S. as cargo owners seek INTO A POWERHOUSE, protection in scale to get better rates WITHOUT SOFTWARE OR and access to more reliable sources of capacity. We’re also seeing more con- INFRASTRUCTURE CHANGES. glomerate organizations taking advantage of their combined buying power across their operating subsidiaries to leverage lower transportation costs.

LM: Finally, do you see index- linked contracting as a meaningful step forward? Dixon: Yes, Drewry believes that index-linked contracts are the right way for both carriers and shippers to manage their contractual relationships Converting a stationary workplace to a mobile one is the easiest, most economical way to increase productivity of your current workers and at a time of continuing freight rate vol- infrastructure. Make your employees’ workplace mobile and free from atility. Current annual fixed rate con- stationary power sources and data cabling with a Mobile Workplace System tracting is struggling in this era of vola- by Newcastle Systems. tility leading to high levels of contract default—when either party breaks the Mobile Workplace Systems Enable You To: contract or demands a renegotiation of terms when the spot market diverges • Quickly obtain measurable productivity significantly from the agreed contract gains without months of planning and rate. Contract default can have serious implementation consequences for the parties, as it can • Integrate with your current equipment leave the carrier without cargo to fill ships or cargo owners without space • Instantly scale your employees’ current on ships to move their freight. operations to handle increased throughput Pisano: I agree with Martin. I believe • Streamline processes in shipping/receiving, MOBILE WORKPLACE SYSTEM index-linked contracts will find greater inventory management and more market penetration once the industry gets more familiar with the products, Learn more at www.newcastlesys.com/powerhouse process, and financial implications for the carriers and shippers alike. “We’ve been using our mobile workplace system for over a year and I can’t Bingham: We all seem to agree on even explain the difference it made in speed and accuracy when scanning/ this issue, but I have a few concerns— labeling goods coming in and out of the warehouse. You guys are life and a few caveats. The initial develop- savers!” - Newcastle Systems Customer ment of index-linked contracting is useful, though limited in its applica- 15B Sylvan St. z Middleton, MA z 01949 z USA z 781.935.3450 tion. The utility of indexes for linked www.newcastlesys.com

WWW.LOGISTICSMGMT.COM JULY 2013 | LOGISTICS MANAGEMENT 43 Supply Chain & Logistics Technology

ERP vs.

Shippers continue to grapple with the age-old dilemma of having to choose between ERP-developed supply chain software and those targeted solutions produced by best-of-breed providers. Here are a few tips that could make the choice a little easier.

BY BRIDGET MCCREA, CONTRIBUTING EDITOR

eciding between best-of-breed needs deep functionality across dif- including financial, human resources, supply chain software solu- ferent supply chain software options, customer relations, manufacturing, tions and applications that then buying a best-of-breed may be warehouse, and distribution. are already built into larger, the top choice. In most cases, these Historically, two different schools Denterprise software options is “bolt on” systems provide a solid foun- of thought have existed in the ERP vs. an age-old issue for logistics managers. dation that shippers can use to run best-of-breed debate when it comes to Knowing this, the world’s enterprise their supply chains. automating supply chain management. resource planning (ERP) solutions are In this ERP update, we’ll look at the Companies with an ERP in place often incorporating more warehouse man- inroads that the big ERPs are making turn first to those vendors to help them agement systems (WMS), transporta- on the supply chain front, highlight gain visibility of orders and shipments. tion management systems (TMS), and new trends associated with these solu- After all, if all the data and information is other supply chain applications into tions, help you come up with the best already stored in an ERP, why look else- their offerings in an attempt to make possible selection criteria, and see how where for the supply chain component? the choice a little easier. one shipper is benefitting from its own The answer to that question isn’t Yet, the ultimate decision usually ERP investment. always immediately clear—namely comes down to this: If a shipper has an because add-on systems have over time ERP in place that’s already chockfull ERP vs. best-of-breed proven themselves as viable options for of company data and ready to be lev- Used by a wide range of companies those companies seeking specialized eraged across the supply chain, then that want to tie all of their business systems that include a high number of it makes economical sense to stick functions under a single umbrella, functionalities. with the larger system and hope that ERPs are known for their ability to col- Ben Pivar, vice president and North the supply chain functionality is both lect, organize, and store critical data American supply chain lead for Cap- broad and complete. for individual companies. ERPs are gemini, singles out the retail, manu- If, on the other hand, the shipper used across numerous departments, facturing, and life sciences fields as

44 LOGISTICS MANAGEMENT | JULY 2013 WWW.LOGISTICSMGMT.COM Best-of-Breed

three sectors where ERPs are used installed and implemented. management software and ERPs are regularly, both in terms of enterprise “It’s really about being able to seam- not synonymous. software and supply chain solutions. lessly manage a business with the help And while the large ERP vendors But when those solutions are unable to of technology,” says Ellis. “Exactly like Oracle and SAP have already effectively streamline and increase vis- where the solutions themselves come started embedding a broader array of ibility of orders and shipments, a best- from is less important than the fact supply chain tools into their offerings, of-breed can help fill in the gaps. that they have to work across the in many cases best-of-breed options “We see a pretty heavy emphasis enterprise all the way out through the from companies like Manhattan Asso- on getting a standard ERP package in extended supply chain.” ciates and Amber Road are generally those markets, and then using various The good news for shippers wanting more sophisticated and able to handle bolt-on supply chain components to to get more out of their ERPs is that more complex supply chain tasks. make up where the ERP falls short,” they can take advantage of their own In many situations, Software as says Pivar. vendors’ efforts to step up their sup- a Service (SaaS) has made it easier At IDC Manufacturing Insights ply chain games. “It’s still a mix out for shippers to decide between full- (IDC), Simon Ellis, practice director, there in terms of who is using what,” blown ERP implementations and the says one way to overcome that shortfall says Ellis, “but it’s clear that ERP ven- specific functionalities that they need is by tying best-of-breed TMS, WMS, dors are now more competitive in the from their supply chain software. yard management (YMS), and related supply chain space than they were 10 “We’re definitely seeing more inter- applications directly into a new or years ago.” est in SaaS solutions that are used in existing ERP. This approach requires the cloud,” says Ellis. “Both software compatible solutions—a TMS that Fill in the blanks providers and integrators alike are integrates with Microsoft Dynamics When helping shippers assess enter- leveraging SaaS in order to sell more AX or Oracle applications, for exam- prise-wide software options, Ellis systems to those companies that don’t ple—that will play well together when usually points out that supply chain want to go through an enterprise-wide

WWW.LOGISTICSMGMT.COM JULY 2013 | LOGISTICS MANAGEMENT 45 Supply Chain & Logistics Technology: ERP Update

rollout or upgrade.” encompassing ERPs should consider providers. Either way, says Pivar, ship- In digging down a little deeper to whether they want to be tied to a pers will be the ultimate recipients of figure out which ERPs are offering single vendor…or not. With SaaS and those technology innovations. new and improved software pack- mobile computing both coming of age “For ERP vendors, it will be about bal- ages, Kimberly Knickle, IDC’s practice in the supply chain space, she points ancing and prioritizing their investments director, says vendors are also develop- out that, “cloud-based options provide in software development against all of ing systems that are user-friendly. This a more flexible way for shippers to beef the industries they serve and against trend is largely being driven by the up their supply chain software coffers all of the different modules they build customers themselves in an effort to without having to give up their ERPs.“ out,” Pivar explains, noting that special- put more IT power into more hands— ized vendors tend to focus on narrower both in the warehouse and outside of Driving the ship industry niches and footprints. the four walls. According to Pivar, the ERP of the That leaves the door wide open “No one wants to have to go through future will largly be shaped by the for ERPs that want to bolt-on more eight different screens on a monitor to customers that are using it. “The soft- robust TMS, WMS, YMS, and other get to the information that they need,” ware vendors are very dependent on offerings. “In some cases, innova- says Knickle. “Vendors are aware of customers pushing them to drive solution comes from smaller, niche firms this, and are coming out with more tions,” he says. versus bigger industry players,” says focused applications that create a bet- Vendor response to those demands Pivar. “We expect that trend to con- ter user experience.” will include ERPs developing fuller, tinue in the future.” Knickle says that shippers who richer supply chain capabilities, and are making the selection between more specialized, customized options Bridget McCrea is a Contributing dedicated software providers and all- on the part of the best-of-breed Editor to Logistics Management

ERP in action in the supply chain anaging 10 shipments a month doesn’t typically neces- Brown. The tipping point came in 2007, when SimplyRFiD Msitate a full-blown ERP implementation. But when those watched its order numbers expand to 100 per month. orders start to multiply, the need for enterprise-wide oversight After exploring several options, Brown and his team selected and reporting becomes more prevalent, as asset tracking an SaaS-based ERP from NetSuite. The system, which inte- solutions provider SimplyRFiD of Warrenton, Va., found out grates with UPS, helps users see which orders were placed, six years ago. which of them shipped, how long it took to reach their destina- At that time, Carl Brown, the company’s president, says tions, and exactly when they arrived at the customer’s door. that the company relied on UPS WorldShip to send RFID tags Spreadsheets, manual processes, and disparate technol- to its customers, who in turn use the tags with SimplyRFiD’s ogy tools have now given way to a solution that handles software package. estimates, sales orders, approvals, and fulfillment in a real- According to Brown, SimplyRFiD’s operations just didn’t time manner online. Today, the company’s logistics team can justify the installation of either an ERP-based supply chain quickly pull up a 4-page checklist for every order submitted. suite or one offered up by a best-of-breed player. Brown says “Once we ship out of NetSuite, the ERP produces the that the company used a combination of Excel spreadsheets packaging label and the customer receives a shipping notice for shipping and Salesforce.com for customer relationship with tracking numbers embedded,” says Brown. management. “We took the orders, shipped them out manu- The company has seen various benefits from its ERP. The ally, and then put the information on a spreadsheet,” recalls accounting department, for example, no longer wastes 20 Brown. hours to 30 hours a week addressing double entries in its Split shipments that had to take place over multiple days books. Order and shipment errors have also been reduced, and customer locations were especially burdensome, ac- expedited shipments are easier to orchestrate, and customer cording to Brown. “Managing those tasks, collecting tracking satisfaction with orders and delivery times is high. numbers, and then managing the bill was crazy,” says Brown. “We send out a customer survey with every order,” Brown “While WorldShip is a nice package, without the rest of the explains, “and right now our Net Promoter Score is between applications in place it was very difficult to manage, track, 95 and 100—compare that to Apple’s score of 70.” and respond to.” SimplyRFiD, which also uses its ERP for inventory manage- Combining spreadsheets with a CRM added another level ment, fulfillment, customer tracking, and other functions, has of complexity to the situation. Double entries were fairly com- been able to up its accuracy levels and ensure that double mon, for example, and not all staff members could be on the shipments no longer happen. “We’re on top of making sure same page at the same time. “We were using Salesforce for every order is right,” says Brown, “and our ERP helps us do content and QuickBooks for billing until it got to the point that in a pretty seamless manner.” where we just couldn’t keep track of everything,” recalls —Bridget McCrea, Contributing Editor

46 LOGISTICS MANAGEMENT | JULY 2013 WWW.LOGISTICSMGMT.COM BEYOND LOGISTICS The world’s leading companies rely on ModusLink for global supply chain management. We integrate seamlessly with clients’ existing manufacturing and business systems to increase efﬁciency and reduce costs. Learn how we go beyond logistics to improve operations and drive growth.

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website www.moduslink.com blog www.valueunchained.com contact [email protected] Global Logistics: Emerging markets

Staying Local or Going Global: Challenges for expansion into emerging markets

The extraordinary variations among emerging market countries suggest the need for multiple supply chains, each tailored to the needs of specific regions and supported by locally developed capabilities and talent. Our consulting team offers some suggestions for dealing with the real, rather than the ideal.

BY BYUNG SOO KIM AND JONATHAN WRIGHT

n developing countries, where shift- Companies taking a “one size fits all” ical mass and tailored to the local mar- ing politics, unstable economies, approach to expansion, however, are set- ket. They will employ global best prac- lack of basic infrastructure, and lim- ting themselves up for disappointment. tices when possible, with emphasis on ited application of enterprise man- In interviews with more than 250 flexibility and responsiveness over global Iagement technologies are the norm, senior executives of Asian companies, standardization and scaled efficiency. companies face a crucial decision. we found that only 28 percent said their It’s also worth remembering that, What alternative strategies should be revenues and profits from international when companies such as Panasonic, adopted to balance the extent of local- markets had fully developed in line with Samsung, and Toyota started their ization versus integrated globalization expectations over the past three years. international expansions, they based in order to succeed in these unpredict- While 90 percent of expanding Asian their competitive advantage in large able and individually unique markets? companies who responded to the study part on lower production costs. Over Should they stay more local, relying remain strongly committed to interna- time, they shrugged off these low-cost more on local partners and supply chain tional expansion, only 31 percent said origins and became known for innova- relationships, or should they be inte- they have the right operational capa- tion and premium products. grated into global operations and scale? bilities to support international opera- The same scenario is playing out What options will be available? tions. Executives also indicated that a today with other Asian companies as As is so often the case in running a major concern was the “human side” of they globalize, but at a much faster global business, there is no one right international business: securing talent, pace. In our study, a majority of execu- answer. Given the emphasis on growth building a global mindset, and manag- tives said low-cost operations were a and the pressure on organizations to ing cross-cultural communications. primary driver of competitive advantage meet financial targets, expansion into Ideally, companies operating in BRIC today, but only a small minority thought BRIC (Brazil, Russia, India, and China) and emerging markets will rely upon it would still be an advantage in three and emerging markets may be inevitable. decentralized operations, running at crit- years’ time.

48 LOGISTICS MANAGEMENT | JULY 2013 WWW.LOGISTICSMGMT.COM The extraordinary variations among Stages of localization maturity investment or at a minimum long-term emerging market countries suggest the Depending upon company ambitions, agreements with partners for local opera- need for multiple supply chains, each the current level of investment and tional infrastructure, including manufac- tailored to the specific needs of regions involvement, and the economic con- turing and logistics and transportation. and communities and supported by ditions within each particular coun- Stage 4: Decentralized opera- locally developed capabilities and talent. try, organizations seeking to enter new tions. Companies in stage four have Each supply chain should be flexible emerging markets may find themselves reached critical mass, with fully decen- enough to accommodate rapid change. at one of four stages of global localiza- tralized local sales and operations. Most organizations place a high tion maturity: To support successful global expan- value on integrated operations, but Stage 1: Entry level/authorized sion, companies need to create the right in BRIC and emerging markets the reseller. In this stage, the organization platform for each market. This means emphasis may shift from “integrated” to relies exclusively upon local partners. designing and implementing effective “dynamic.” This means creating fluid, It has no local employees, and no in- regional and global operating models. responsive ecosystems of processes, country management. Instead, regional The operating model should articu- people, and technologies. Decentralized management oversees operations in a late how the company will organize operations can allow companies to deal cluster of emerging market countries. itself to execute its international strat- more effectively with a range of issues The organization at this stage has made egy. It can also lay the framework for including cross-border challenges, dif- no investment in local infrastructure. coordinating operations between the ferences in taxation, geographic obsta- Stage 2: Direct sales. Stage two company’s corporate center and its cles, technological variations, and dis- organizations have established a sales overseas business units. crepancies in the labor market. force of the company’s own employees. First, organizations define the capa- Every company, and every market, is However, there is a continued reliance bilities and identify the gaps they want different, so organizations must deal with upon local partners for most operational to fill across operations. The operating the real, rather than the ideal. They need aspects of doing business, including model can also reflect the business to think about each developing country as providing the necessary infrastructure. models chosen for each of the overseas an independent ecosphere, a micro-sup- Stage 3: Operational footprint. operations. Key questions for each mar- ply chain with its own variations. In this stage, companies begin direct ket include:

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Percentage of respondents whose organizations’ revenue and profits in international markets have fully met expectations.

• What unique market characteris- All respondents 28% tics drive customer demand for which we need to adapt? ASEAN 23% • What capabilities are critical to delivering our customer value proposi- Greater China 37% tion and achieving differentiation in tar- get markets? India 36% • How can we leverage our existing or shared capabilities to serve new markets? Japan 12% • Where can we improve to become more competitive, with the ultimate South Korea 23% goal of becoming a market leader? Source: Accenture Talent and other key concerns Once a structural design has been cre- characteristics of each country will In the end: Decentralize ated, companies need to determine determine whether reliance on local Global markets are becoming crowded how to implement each required capa- partnerships will increase or decrease and complex, with many companies bility. A key consideration in emerging over time. converging on a common strategy of markets is how to source and develop 4. Multipurpose infrastructure. trying to sell higher-value, innovative the right talent across geographies. Demand and environment in each products. Organizations need fresh, Companies can no longer rely on country can be highly unpredictable. effective roadmaps that reflect chang- sourcing key talent from their home A multipurpose infrastructure including markets, customer preferences, and countries to drive success in foreign ing a distribution network, warehousing technological developments. markets. Rather, they must have com- operations, multi-mode transportation, Our research indicates that companies prehensive strategies in place to build which supports “tap on tap off” capabil- can increase their chances for success by and retain talent, both at home and ity, enabling flexibility and responsive- putting in place strategies that enable dif- overseas. These strategies often rely ness, are among the key attributes of a ferentiation in crowded markets while upon global best practices, mixed in successful emerging market operation. providing sound platforms for growth. with home country traditions. 5. Low visibility and low touch. No matter how clear and detailed Other concerns include the degree Companies entering emerging markets the blueprint for expansion into emerg- of process standardization or custom- may have to accept a lower level of vis- ing markets, however, the most impor- ization needed, and the governance ibility. The risks accompanying lower tant element of success may be a com- structure required to manage opera- visibility, however, can be actively man- pany’s ability to build an adaptable and tions in emerging markets. In working aged through manual checkpoints and responsive ecosystem of processes, with companies planning expansion interventions. people, and technologies. The extraor- into BRIC or emerging markets, we use 6. Reliance on manual processes dinary variations among emerging mar- a seven-point checklist to review strat- and frequent touch-points. Manual kets suggest the need for country spe- egy and the company’s own plans for processes will likely be prevalent in cific operations, supported by locally dealing with key issues. emerging markets from the time of entry developed capabilities and talent. 1. Governance. In a mature opera- all along the maturity curve, although In the end, this will likely require tion with critical mass, the company generally there is the potential to lever- decentralized operations running at generally relies upon local decision- age systems and automation in the late critical mass, to deal more effectively making authority. stages. We believe that the emphasis with a diverse range of challenges. Most 2. Reliance on local talent. The from the beginning should be upon the organizations place a high value on company entering a new market should integration of people and partners rather integrated operations, but in BRIC and consider planning upon increased reli- than the integration of systems. emerging markets the emphasis may ance on local hiring and local leadership. 7. Reduction of complexity with- shift from “integrated” to “dynamic.” 3. Local partnerships. Partners out sacrificing localization. Scaled with local knowledge and experience efficiency may not be attainable, but Byung Soo Kim and Jonathan Wright are ex- can be critical to increasing the likeli- reduction of complexity across products ecutives in the Operations consulting group at hood of success, especially in the early and services is essential at every stage Accenture, a global management consulting, stages of expansion. As mentioned, the from entry to critical mass. technology services, and outsourcing company.

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With the economy warming, fleet owners are navigating a new array of customized financing options as their fleets return to normal utilization.

BY JOSH BOND, EDITOR AT LARGE

n recent years, leasing has grown “Customers feel as if they’re getting the economy warmed up, the hours in popularity and is now the pre- back to normal utilization, and they’re started going on those lift trucks pretty ferred method for acquiring new hoping it stays that way,” says Bob Piot, fast; however, they’re really not sure equipment. However, many of the national sales and marketing manager whether what happened in 2012 will Ifeatures that make leasing a cost- for Toyota Financial Services. “Once happen again.” effective way to procure lift trucks and optimize operations can, if poorly managed, create even more problems. For example, the end of the lease term presents a great opportunity to reevaluate a fleet and upgrade to the latest equipment. On the other hand, it can also signal the beginning of unnecessary monthly renewals and penalties for overages. The key challenge when designing the right lease agreement is “uncertainty.” When signing on the dotted line, how can a fleet owner possibly know what utilization will look like in five years? Thankfully, the uncertainty is now centered around how much more the lift trucks will be used, not how long they’ll stay idle.

52 LOGISTICS MANAGEMENT | JULY 2013 WWW.LOGISTICSMGMT.COM Leasing on the rise Capturing and predicting options has become a problem. utilization data What happened in 2012 was a con- “A lot of these programs are com- tinued growth in forklift sales—and plicated and have confused custom- The best leases match the term to the a continued growth in the number of ers who are not savvy,” says Piot. economic life of the truck, which is those sales that were structured as “Some who were looking for low pay- generally 10,000 hours of use. Assum- leases. ments have ended up paying more, ing the lift truck will be used fi ve days Approximately 65 percent of all new and spending more overhead in their a week for eight hours a day, that’s purchases are acquired through a lease accounts payable department.” 2,000 hours per year for a lease term versus cash, according to Jim Kelly, After having been burned by leas- of fi ve years. senior managing director of equipment ing in the past, some customers have However, as too many have fi nance for GE Capital. Currently, 75 again transitioned from paying cash learned the hard way, that assump- percent of those are fair market value up front to leasing equipment, says tion is a problem. Over-utilization leases, says Kelly, as distinct from Tina Goodwin, director of fi nan- leads to increased maintenance costs, lease-to-own arrangements. cial services for NACCO Material increased downtime, and end-of-term The popularity of leases is not an Handling Group. “Some were larger penalties. Under-utilization equals accident. Following the economic national accounts that had leased money unnecessarily spent. downturn, fi nance companies and long ago and had no interest in doing “In the past, lessees would have equipment manufacturers sought to it again,” she says. “We took them typically entered into a lease for 2,000 stimulate sales with a growing array through an analysis of just the pure hours per year—the traditional annual of new, more fl exible lease struc- fi nancing savings, not including any usage—whether they thought that tures. Although customers are more maintenance, and the savings were they would utilize it or not,” says Kelly. able than ever to tailor an agreement substantial. At a minimum, you will “Today, lessees are looking to past to provide the best possible value, save 5 percent and probably closer to utilization, coupled with their expected Piot believes that the proliferation of 10 percent on equipment costs.” future needs, to derive their annual

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usage hours tied to the lease.” tenance cost,” he says. “This infor- Nick Adams, business development mation also helps the procurement manager for the Mitsubishi Cater- department determine when to replace pillar Forklift America fleet services equipment and the quantity needed.” group, agrees. “I have seen companies Although new technology and where procurement folks structure telemetry units can enhance the leases with a term and annual usage quality and variety of utilization data that is not in sync with the mainte- captured, Bob Chambers, regional nance program term and annual usage account manager for Hyundai Forklift, as designed by operations,” he says. says that the discovery process does “When they’re out of sync, it usually not need to be complicated. “If you’re results in additional costs to the com- not looking to a third party to help, just pany that could have been avoided.” get a spreadsheet and start looking.” Adams says that he’s seeing more Accurate data can allow a customer and more companies form cross- to dial in a 3,000-hour lease or a 700- functional “decision committees” that hour lease as appropriate to each lift are made up of both procurement truck. Brian Markison, senior manager and operational management people. of national accounts for UniCarriers The perception is that this approach Americas (formerly Nissan Forklift) to nine months before the end of the complicates or extends the procure- offers an additional best practice, sug- term. “Check the lead time for your ment process, says Adams, but it also gesting the term should consume only own internal approval processes and reduces costs and significantly helps 80 percent of the economic life of the work backward from there,” he says. reduce downstream issues. lift truck. “Whether leasing or buying, the chal- Detailed usage data is an essen- “A five-year term at 2,000 hours lenge is getting through the capital tial foundation for procurement and per year will sap 10,000 hours, or sub- approval process fast enough or decid- maintenance to stay on the same page. stantially all of the unit’s usable life,” ing ahead of time what their triggers Many customers are seeing the ben- says Markison. “This can leave users will be for action.” efit of adding wireless forklift fleet and at a wall at the end of the term, with For many, delays around lease operator management systems to their few affordable options for extensions. renewals have to do with the relative equipment, says Jeff Bailey, director of A four-year term at 2,000 hours might difficulty in securing capital expense Crown Credit Company. “These types make better sense, with plans to evalu- dollars, even as maintenance dol- of systems collect valuable data that ate options when the time comes.” lars are easily found and spent. “I’ve can be analyzed to help reduce main- seen customers who had short-term Preventing end-of-term rentals for 18 months to 24 months,” dilemmas says Markison. “Getting capital expense Not having a plan for the end money was hard, and the short-term of the lease term is where view prevailed. There was person- even a perfectly tailored agree- nel turnover and they took the path of ment can go wrong. “A lease least resistance. They were paying 30 should force you to look at percent or 40 percent more than they things at the end of the term,” would have been paying if they were in says Chambers. “That can be the right lease.” a great tool for evaluating the It may be that the equipment has state of the equipment and the been under-utilized, and it doesn’t fleet, but is too often a missed make sense to replace it at the end of opportunity.” the term. In this case, default month- “One thing that many large to-month lease extensions are rarely the lessees have issues with is best option. It’s often possible to nego- lease expiration tracking,” says tiate a new lease term and potentially Bailey. “Many times the leases end up with an even lower monthly pay- go past maturity, which ends ment, according to Goodwin. up costing additional mainte- “We saw a lot of customers over nance money. Mom and Pop the last few years who extended their businesses can benefit from leases month to month,” says Good- the same thinking.” win, who notes that a lot of custom- Markison recommends ers were in a wait-and-see mode from that large fleet owners begin 2010 through last year. “They had a lot planning at least six months of under-utilized equipment as a result

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of the downturn, but we’re to the point The new agreement have had to rely on rentals to meet now where we’re seeing equipment Those finally getting around to replac- their needs can enter into lease agree- come back that has been extended for ing equipment will enjoy a variety of ments, according to Toyota’s Piot. a couple of years, and they’re finally options that were not available to them The problem with renting is that, confident and financially comfort- five years ago, such as non-traditional with intermittent periods of heavy usage able enough to return it. That’s a new lease terms, early termination option and idle time, it’s hard to nail down costs trend.” leases, flex leases and lease-by-the- over the long term. Leases offer the ben- hour leases. efit of predictable costs, and often con- “Many customers are asking for tribute to significant overall savings. The some degree of flexibility in the lease move from renting too much to leasing that either allows them to adjust the just right could potentially halve your fleet to the right specifications on the fleet costs, Piot says. fly or return equipment early—at a With detailed data in hand, a cus- reduced cost—should their business tomer might also find benefits beyond needs decline,” says Bailey. structuring the right lease term for the As opposed to “ballparking” a 36-, utilization. Markison offered the exam- 48-, or 60-month lease assuming a ple of customers who have worked certain number of hours per year, cus- with their finance partners and equip- tomers can expect dealers and finance ment manufacturers to guarantee the partners to present a much more residuals at the end of the lease. nuanced approach, especially when In other words, they know utili- accurate utilization data has been col- zation and working conditions with lected. Traditionally, leases were ideal such certainty that they also know for customers with utilization in the the value of the truck at the end of 1,000-hour to 3,000-hour range. Now, the term. This eliminates the need to those running 700 hours who might finance credit risk, which can create

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as much as a 2 percent reduction in the interest rate. For a $20,000 lift truck, that adds up to a savings of nearly $1,300, or 7 percent, in lease costs over five years. “This does not even require advanced fleet management technology or practices on the part of the customer,” says Markison. “It just takes a customer savvy enough to know it’s an option.” Advanced telemetry, on the other hand, might facilitate “power by the hour” options that allow a lessee to only pay over a lease term for the hours that they utilize the lift truck. If a lift truck is used for 20 hours one month, the customer will be billed for 20 hours. Good- win says that such programs enable true matching of the lease term to the economic life of the truck, as well as true matching of a customer’s expense to accurate and cost effective capture of inquires. “Don’t assume you only have their revenue. usage data,” says Adams. one option,” he says. “It’s a matter of “Recently, lease-by-the-hour pro- The key to fleet savings with regard investing some time to explore.” grams are on the cusp of being more to financing, says Markison, is to ask mainstream as the key to its success questions and be ready to answer them Josh Bond is Editor-at-Large for both the lessor and the lessee is the when a dealer or sales representative for Logistics Management

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What trends will affect the next generation of supply chains? That’s a question more and more supply chain professionals are asking themselves. The 10 trends offered here are validated with executive input from senior executives across different industries. By understanding, anticipating, and acting upon these trends, the author believes companies can greatly enhance the value of their supply chain operations.

BY SUMANTRA SENGUPTA, EVM PARTNERS LLC.

ecently, I happened to be perusing the aisle of a bookstore (there are still a few of them left) and found a book by Pavan Sukhdev titled Cor- poration 2020. The title was intriguing and the Rcontents were illuminating. Basically, the author argued for a new formula for business success going forward—one that looked at all aspects of doing business and emphasized the corporation’s responsibility to society and to sustainability. The forward-looking nature of Sukhdev’s book set the wheels in motion for this article. Quite a bit has been written over the years about the future of supply chains. MIT’s SCM 2020 project, for example, brought together leading thinkers and practitioners to address the subject. However, this research and most articles I have read on the topic have focused on supply chain operations and not on the points of “intersection”—that is, the related activities that are outside of the supply chain’s direct control such as R&D, information technology, and post-sales service. In my list of the top trends, I have incorporated a number of these intersection points.

58 LOGISTICS MANAGEMENT | JULY 2013 WWW.LOGISTICSMGMT.COM for the Next 10 years

As we think about the major trends sider is the shortage of knowledge work- and “10 New Ideas for Generat- that will affect the next generation ers to satisfy the needs of the expanding ing Value.” With that same “top 10” of supply chains, we need to con- markets. Studies show that these short- approach in mind, I embarked on this sider certain macroeconomic factors. ages are beginning to be felt in the article. The 10 trends identified are Prominent among these is the chang- immediate term. Some of this shortage listed and discussed in turn below. ing global economic demographics. will be offset by the Baby Boomers want- The list was based on my research Walk into any multinational consumer ing (or needing) to work longer to over- and on consulting engagements with goods or manufacturing company come lingering effects of the latest reces- companies in a range of industries. today and you’re sure to hear a lot of sion. In any case, the shortage of skilled Importantly, the trends were reviewed discussion about the BRIC (Brazil, workers overall underpins several of the by a group of senior executives, both Russia, India, and China) markets. specific trends we present below. in supply chain and in other corpo- The GDP growth in those countries In other articles, I have discussed rate functions, representing a cross far exceeds the growth in more fully the “Top 10 Supply Chain Mistakes” section of industry. The intent was developed economies. to capture empirical data Further, the sheer around the relevance and number of consum- The 10 Trends ability to execute against ers in these countries each of the trends for their already accounts for 1 Service chains will become more important than product chains. particular company and about 40 percent of 2 Companies will need to fully report corporate externalities. industry. the world’s popula- 3 Supply chains must be designed to serve the “base of the pyramid.” The 10 Trends tion. And by 2050, 4 Knowledge work and workers will become global in nature. their combined econ- 1. Service chains will omies are expected 5 SCM will have a standard certification process similar to that for CPAs. become more important than product chains. to eclipse that of the 6 Product clockspeeds will determine the number and nature of the supply chains. In world’s richest coun- 7 Micro segmentation will be key to success. many if not most business tries—including the sectors today, great product 8 Technology to support SCM will primarily be “on tap.” U.S. and European is considered to be the table Union. 9 Leaders will leverage social media in a closed loop feedback process. stakes just to play the game. Another macro-eco- 10 Artificial intelligence will be embedded in mainstream supply chain activities. Increasingly, discerning con- nomic reality to consumers are demanding more

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from pre- and post-sales service for the 3. Supply chains must be designed 5. SCM will have a standard cer- goods they buy. Accordingly, companies to serve the “base of the pyra- tification process similar to that that effectively couple the pre- and mid.” The late Professor C.K. Prahlad for CPAs. Many universities offer post-sales service supply chain activi- authored a compelling book entitled undergraduate and graduate degrees in ties (including product knowledge, in- The Fortune at the Bottom of the Pyra- supply chain management. In addition, store service, warranties, responsive mid, which later was modified and professional associations such as APICS, consumer services, and the like) will widely referred to as the “base” of the CSCMP, and ISM offer a range of cer- emerge as the winners over their solely pyramid. The book pointed to the mar- tification programs. However, in most product-centric competitors. That mes- ket potential of the five billion-plus cases these programs either focus on sage was underscored by Apple CEO people in the world whose incomes are the basics of SCM or on a specific activ- Tim Cook in his recent apology to less than $2,000 a year. We contend ity such as import/export or financial consumers in China for the company’s that companies in the consumable and analysis. We believe that a fundamental perceived failure to listen to feedback durable sectors, in particular, will need shift will occur in the normalized delivery, content served, and certifications of supply chain professionals. Many other Increasingly, discerning consumers are demanding professions like accounting (Certified Public Accountant) and engineering more from pre-and post-sales service for the goods (Professional Engineers) require national they buy. board examinations as well as continuing professional education (measured by a specified number of hours per year). We contend that a similar professional about post-sales service. This was a to create products and associated sup- credentials program will be required for great example of a company with one ply chains to support the products that supply chain professionals to normal- of the most innovative products in the will cater to this market segment. To tap ize the knowledge base of the incoming marketplace forgetting that the con- into this enormous potential, our supply resources. sumer is still largely in charge and that chains must go through a total utilitar- service plus product (in this case, repair ian design philosophy in order to deliver 6. Product clockspeeds will deter- and warranty practices) trumps product sustainable bottom-line performance. mine the number and nature only. Current supply chain thinking, which is of the supply chains. I recently largely based on a cost plus model, will worked with a global consumer dura- 2. Companies will need to fully need to shift to a “not to exceed” cost bles company where over 70 percent report supply chain externali- model. of the products had a life span of less ties. In Corporation 2020, Sukhdev than 18 months. Another 20 per- writes in depth about corporate exter- 4. Knowledge work and work- cent had a life span of three to four nalities—defined as the impacts of an ers will become global in nature. years, with the remaining 10 percent organization’s manufacturing and busi- Knowledge work in supply chains exceeding five years. This “fast clock- ness processes on other segments of today accounts for approximately 40 speed” lifecycle is becoming more society—and the need to disclose those percent of the total labor hours spent. the norm than the exception. The externalities. While some work has been Much of this work deals with com- days of the steady and static product done around supply chain sustainabil- plex analytics, planning, procurement catalog is past; thinking otherwise, ity and the need to reduce carbon foot- processing, and provision of services. in fact, is a recipe for disaster. How- print, companies will need to do a much This nature of the work, the need for ever, we continue to find companies better job of disclosing the end-to-end multi-language support, and the asso- using a single supply chain approach impacts of their supply chains. This ciated local complexities of the dif- to service all segments irrespective of means measuring and reporting on the ferent geographies being served will the time constraints. The winners of effect of major supply chain transactions necessitate the seamless globalization the future will have the same num- on jobs created, carbon footprint reduc- of supply chain knowledge work. As an ber of distinct supply chains as there tion, sustainable procurement processes, example, you could see a U.S.-centric are product clockspeeds. In addition, types of labor used, and modes of trans- company performing supply chain plan- supply chain organizations will need portation among others. The customer ning in the Philippines, operating pro- to be aligned by product segments or consumer will begin to demand the curement centers of excellence in Sin- as well as functional segments in a transparency into these impacts much as gapore, and conducting global business matrix fashion to serve the distinct these have now on the labeling of food analytics in Brazil. supply chain needs. and beverage products.

60 LOGISTICS MANAGEMENT | JULY 2013 WWW.LOGISTICSMGMT.COM Supply chain report

7. Micro segmentation will be key with a durable goods company, we in more effectively automating main- to success. Do you have a detailed found that they had 2,000 websites/ stream supply chain activities. knowledge of your individual con- blogs that were discussing their prod- sumer or customer segments—your ucts and service needs on a fairly regu- Executive validation of the trends micro segments? The honest answer lar basis. However, this company— To validate our 10 trends in the “real for most companies would be “no.” A like most—did not have a systematic world,” we conducted a short but impact- micro segment is defined as that exact method to study the data and dissemi- ful field survey with a group of senior part of the general buying category nate the information to the various executives from various industries. Their that triggers the purchasing deci- supply chain constituencies (design, responsibilities ranged from chief sion—not the category itself. To illus- planning, procurement, service, man- executive officer, chief financial officer, trate, in recent work with a provider ufacturing, and so forth). This is nec- chief operating officer, and chief infor- of smart phone accessories, we dis- essary to provide closed loop feedback mation officer to heads of supply chain. covered that the company had several processes that allow the company to The industry mix was comprised underserved micro segments—specifi- proactively respond to the feedback. of 55 percent consumer products, 22 cally, the design your own/assemble The winning companies will be able percent industrial manufacturing, and your own accessory segment. How- to receive, process and act on the data 11.5 percent each in high-tech and ever, the ability to identify and service that is being provided to them by their services. The responses from each those segments was far beyond the constituents via social media. segment were weighted equally. Sev- reach of this company’s supply chain. eral members of the executive group Going forward, organizations will need 10. Artificial intelligence will be surveyed also had significant prior to know their micro segments, and embedded in mainstream supply experience in pharmaceutical/heath their supply chains must be able to chain activities. Humans learn by care and were able to bring additional effectively service them based on the doing and processes improve as they perspective from that experience. business strategy. I always encourage get “leaned out.” Yet somehow, every We discussed the trends in person clients to think of their business in time we build a supply chain system with each of the executives in our terms of the individual consumer or we begin the process from the ground validation group. (For a full listing of groups of consumers as opposed to a up. Planners go through the same cal- the companies and participants, see broad brush view of categories. Put culation steps every time they start; Author’s Note at end.) We asked these another way, adopt a B2C (business to procurement folks repeat approxi- executives to respond to the 10 trends consumer) mindset even if your opera- mately 35 percent to 40 percent of identified based on four criteria: rel- tion is predominantly B2B (business the activities they did in the past. The evance to the industry; relevance to to business). same holds true for people involved corporate business performance; abil- in building logistics and execution ity to execute on the trend; and com- 8. Technology to support SCM systems. The problem is that when plexity of execution. Each of the four will primarily be “on tap.” SaaS embarking on a supply chain program criterion was graded on a three-point (software as a service) is gaining main- or initiative we do not have access to scale with a low being scored as 1, stream attention. We contend that algorithms that learn and retain the medium a 2, and high a 3. most if not all supply chain technolo- knowledge and experience of the past. Relevance to industry was defined gies by 2020 will be delivered and We contend that supply chain artificial as the relevance to the particular exec- consumed via this method—or “on intelligence will need to be embedded utive’s industry overall (as opposed to tap.” The user will pay for the ability to use the capability and will not have to incur the large fixed costs of Industry Breakdown of Validation Group ongoing maintenance, upgrades, and infrastructure expenditures that can amount to almost 25 to 30 percent of Consumer Products 56% the cost of ownership. The widespread adoption of SaaS constructs will likely Industrial 22% be accelerated by the rise of cloud computing and diminishing concerns High Tech 11% about the security aspects of SaaS. Services 11% 9. Leaders will leverage social media in a closed loop feedback process. Social media data is every- where today. In recent work we did

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just his specific company). Relevance Industry relevance of “on tap” technology and social data to business performance focused on The executive group ranked Trends 1, closed loop chains. the ability to move the needle of bal- 6, and 7 as the highest in the relevance ance sheet or P&L performance in a category. To recap, these trends are: Business performance positive direction. Ability to execute • Trend 1: Service chains will become In terms of impact on business per- was interpreted as the corporation’s more important than product chains. formance, Trends 1 (service vs. prod- ability to act on the trend in the imme- • Trend 6: Product clockspeeds will uct chains), 4 (globalization of knowl- diate near term. The final criterion determine the number and nature of edge workers), 6 (clockspeeds), and addresses the overall complexity of the the supply chains. 10 (imbedded artificial intelligence) implementation. • Trend 7: Micro segmentation will be received the highest rankings from the While survey result tabulation and key to success. executive group. The average scores computation can often lead to a lot of All three of these trends received rel- for the three were higher than 75 per- analysis (just ask a statistician), our evance scores higher than 80 percent. cent. The next highest-ranked trend, objective in field testing the trends The percentage was determined by the with a score of close to 70 percent, was was to gauge the level of relevance in sum of all 10 rankings divided by the Trend 7 (“Micro Segmentation will be the current business setting. This as maximum total score of 30 (that is, the key to success”). opposed to predicting trends from a amount if all 10 executives had given Combining the results of the first pundit perspective—and my apolo- the trend a high [3] relevance rating). two criteria (which essentially is a gies to all the pundits. The executives’ In essence, the increased importance of gauge of the trend’s ability to affect points of view are presented without pre- and post-sales service, the ability financial performance) reveals that any internal bias or analysis added. In to segment product clockspeeds with a Trends 1, 6, and 7 have the greatest the accompanying sidebar on industry supportive supply chain footprint, and potential to advance the supply chain applicability, we provide our perspective the ability to hone in on the customer/ performance curve. All three had on the impact of the trends on individ- consumer targets were deemed most combined relevance and performance ual business sectors based on the many relevant across the largely manufactur- scores in excess of 75 percent. Trends client engagements that we have coming-centric executive group. The next 4 (globalization of knowledge workers) pleted in the past few years. highest set of rankings were the trends and 10 (artificial intelligence) were the fast followers with scores that were higher than 70 percent. Applicability of trends across Surprisingly, Trends 2 and 3—disclosing SCM externalities and design- industry segments ing supply chains and products for base of pyramid—were ranked as hav- ertain of the trends identified have greater relevance to some industries than ing only low to medium relevance. The Cothers. The table below gives our view of the comparative relevance (high, low relevance of the pyramid trend medium, or low) on six sectors represented by, or relevant to, our executive group. was a likely function of the market We highlight the high important ones across the sectors to show the cross indus- positioning of majority of the surveyed try applicability of the trends.y companies (high end brands or U.S.- centric brands). Trend Examining the externality ranking, 12345678910 most of the executives agreed that it CPG HMHMHHHHHH was highly relevant and many already had programs in place. However, the High Tech HHMHHHHHHM general sense was that the ability to positively monetize on the additional Retail HHNA MML HMHH expense associated with this trend was Industrial/ still in the distant future. On both of HMMMMMMMMM Manufacturing these trends, however, many of the executives suggested a wait-and-see Pharmaceuticals HHHHHL LHML attitude. In terms of business perfor-

Food and Beverage MMHHHMHHHH mance in particular, they pointed to the cost of compliance associated with Trend 2 and the company’s ability to

HHigh M Medium L Low flourish in the emerging geographies associated with Trend 3.

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Ability to execute Trends 2, 6, and 8 received the high- Overall Relevance of 10 Trends est ability to execute rankings. These (Weighted Average Relevance Rating) trends are: • Trend 2: Disclosing supply chain 82.5 75.0 externalities will be crucial. 72.5 71.7 68.3 70.0 • Trend 6: Product clockspeeds will 67.5 67.5 65.0 determine the number and nature of 61.7 the supply chains. • Trend 8: Technology to support SCM will primarily be “on tap.” In general, the executive rankings on ability to execute came in lower (average scores were closer to 55 percent) than the other three criteria measured. Inter- estingly, the lowest ranked trends (i.e., 1 2 3 4 5 6 7 8 9 10 least ability to implement) with scores of less than 50 percent, related to adopting artificial intelligence learning systems Finally, the trends with the lowest education; to incorporating in real time and incorporating social data into the overall ranking are perceived to be of local regulatory measures and product supply chains. Specifically, some execu- lesser relevance and slightly more dif- postponement for local preferences. tives raised concerns about the data ficult to implement than the others. Staying still is not an option for supply linkage that would be needed for best- The bottom two in the overall rank- chain practitioners. Having the ability to of-breed learning system to be effective. ings were Trend 3 (serving the “Base create incremental value is fine, but real of the Pyramid”) and Trend 9 (lever- progress comes from anticipating and Complexity of execution aging social media in closed loop pro- capitalizing on the kinds of mega trends Trends 1, 6, and 10—service chains, cess). The ranking of the social media we have discussed here. We believe that product clockspeed, and artificial trend, in particular, came as a bit of a these trends we have put forth will be intelligence—received the highest surprise—given all the recent hype sur- powerful drivers for change going for- complexity rankings (average of 86 rounding Big Data. Yet the result proves ward, and it is encouraging to see that percent), meaning that the executive the point that while Big Data is a useful the senior executive group agreed in group perceived them to be the most tool, the ability to transfer the data to large measure. Equally encouraging and difficult to implement. Part of this may supply chains and the related ability to enlightening was the deeper understand- be due to the highly cross functional execute remains a big challenge. ing gained of the implementation chal- nature of the trends. Standardization As we step back and decipher the lenges that lie ahead. One has to start of education processes was ranked just implications for supply chain practitio- somewhere: Enjoy the journey. below these top three in terms of exe- ners, it is abundantly clear that the abil- cution complexity. ity to create differentiated and multiple Sumantra Sengupta is a Managing Direc- supply chains and to embrace a service- Summarizing the results tor with the business and operations strat- based culture is of paramount impor- egy firm EVM Partners LLC. He can be When weighted equally across the four tance. These capabilities, coupled with reached at [email protected]. dimensions and normalized, the over- the need to service smaller, unique seg- all relevance rankings by our executive ments in a profitable manner, continue Author’s Note: The author would like group show a distribution that ranges to be high on industry and executive to thank the following companies and from 61 percent to 82 percent Trends agendas. Importantly, all of these highly senior executives for their personal par- 6, 1, and 7 have the largest relevance, ranked competencies have the ability to ticipation and opinions (in alphabetical reflecting the issues that are top of move the economic performance needle. order for both). Companies: Ainsworth mind for the executives. Notably, Finally, we would be remiss if we did Pet Nutrition; Clorox; Designer Whey; their ability to execute against these not mention some of the ideas that the Filtec; Godiva; Incase; JustFood ERP; trends is relatively high as well. The executives themselves brought up during Moark; Niagara Bottling; and Pelican middle cluster—comprised of Trends our discussions. Their insights ranged Products. 2, 4, and 8—show an overall relevance from the ability to foster open collabo- Senior Executives: Ashley Dorna, ranking greater than 68 percent, sug- ration (across Buy, Make and Move Kevin Deighton, Marc DiGiorgio, Jeff gesting that these are only slightly less portions of supply chain) with trading Fowler, Mark Hersh, Linzell Harris, relevant and tougher to implement partners; to improving enterprise supply Jamie Hornstein, Grace Jeon, Chad than the top-tier trends. chain risk management processes and Keuhn, and Nick Newman.

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Manufacturing and retail supply chains in ﬂux

Wholesale, rapid changes in both of these sectors are requiring supply chain managers to respond with speed and smart decision-making.

By Patrick Burnson, Executive Editor

hen Gartner’s 2013 Supply with respect to other industries and was not Chain Top 25 came out last considered a good industry for local inves- May, it signaled a shift in tors as well as investors from the world’s most “demand-driven leadership” advanced economies. However, the situation Wwith a handful of new multi- is rapidly changing, analysts maintain. nationals moving up in the rankings. Further IDC says that governments worldwide now evidence that significant changes are taking better understand that an economy based on place in our industry surfaced with two new service alone cannot survive in the long run. reports demonstrating disruption in global link- Manufacturers themselves are going back to age in the manufacturing and retail sectors. basics and putting a renewed premium on The first comes from IDC Manufacturing production knowledge driven by the need to Insights, which recently released “Business protect and enhance their technology. They Strategy: The Journey Toward the People- realize that the direct involvement in pro- Intensive Factory of the Future.” This report duction operations fosters innovation and notes that over the last 15 years, the manu- improves customer service. facturing industry was essentially neglected All of these factors have combined with the rise in transportation costs as a consequence of oil price developments and the need to produce closer to clients for better flexibility and service. The net result: In several developed countries, including the U.S. and U.K., some manufacturers are favoring “insourcing” initiatives. “The manufacturing industry is back onstage in developed countries worldwide. Governments, media, manufacturers themselves, and their people are all changing their mindset with a stronger focus on production,” says Pierfrancesco Manenti, Head of IDC Manufacturing Insights, EMEA, and Practice Director, Operations Technology Strategies. Avoiding future shock This trend is confirmed by IDC survey results, where more than 43 percent of global manufacturers declared that they have a formal process in place to look at how factories and

66 LOGISTICS MANAGEMENT | JULY 2013 WWW.LOGISTICSMGMT.COM Supply chain report

plants will be organized in the near enterprise—are considered the center- vidual customer service location. term. This highlights how manufac- piece of this transformation,” Manenti 2. Leveling the playing field turers are starting to design their fac- concludes. between brick-and-mortar stores and tory of the future now to get ready for internet-based retailers is the goal a massive change that will last for the Retail shake up of the Marketplace Fairness Act, next generation. And while the global manufacturing the proposed federal legislation that It’s important to note that for more industry is passing through probably expands the collection of sales tax by than 56 percent of respondents, the one of the most complex market con- online retailers and is overwhelmingly factory of the future will be measured texts ever, a similar supply chain story popular in the Senate. Even though it according to its production capabil- is unfolding in the retail sector. means new taxes for online retailers, it ity and flexibility, not merely efficiency According to Jones Lang LaSalle, actually focuses on tax collection, not and production capacity. Furthermore, omni-channel selling and consumer the new taxes themselves. While the the survey indicates that over the next demands are raising the bar, as retail- industry knows the changes that result five years about 10 percent of Western ers must compete on service to stay from the final legislation will be pro- enterprises will move away from make- in the game. Demands, such as same- found, the jury is out on how the spe- to-stock (MTS) to adopt make-to-indi- day delivery or ship-from-store, require cific implications will play out—and vidual (MTI). retailers to adapt their supply chain net- who the winners and losers will be. Another key takeaway, say IDC ana- work and store formats sooner rather 3. 3D printing is beginning to have a real impact on manufacturing, In five years, global retail supply chains may the supply chain, retail, and ecommerce. The breadth of creative possi- be unrecognizable from the infrastructure bilities are staggering, as new products that exists today. become cheaper to bring to market, me-tail-driven consumers get to design more of their own uber-customized lysts, is that in five years, 47 percent than later. This transformation means products. At the same time, some of manufacturers will produce modu- that in five years, the retail supply chain brick-and-mortar stores now offer lar platforms centrally while using may be unrecognizable from the infra- walk-in customers tools to create pre- local small factories, suppliers, and structure that exists today. cisely the product they want. distributors to tailor final products “Brick-and-mortar stores are becom- 4. The convenience of digital for local demand. This means that ing more than just a point of sale— devices and advancement of internet manufacturers will have to build a they’re an essential component of the speeds enable books, music, com- “global plant floor,” harmonizing, supply chain as pick-up/drop-off loca- puter games, and other entertainment supervising, and coordinating execu- tions for e-commerce orders,” said Kris to be download-only purchases. This tion activities across the company’s Bjorson, International Director and transforms the retail supply chain in a and suppliers’ network of manufac- leader of Jones Lang LaSalle’s Retail/e- unique way. turing operations. commerce Distribution group. “This 5. The rise in pop-up temporary Despite growing plant automa- additional role offers the retail store stores where large brand retailers may tion, people—and the flexibility and another sales opportunity to entice showcase a new product or a guest decision-making capabilities they customers to add to their order, or to designer to create buzz and drive sales. provide—will be at the center of the try new products.” We see former retail space being used factory of the future. Finding skilled Analysts have identified five key by schools, churches, clinics, fitness workers will prove to be a key issue in retail supply chain movers: centers, and dental offices. As the sec- the industry, analysts conclude. They 1. “Omni-channel” distribu- tor changes, retailers and retail land- point to the fact that 64 percent of tion strategy has become a reality lords must be creative. respondents expect their production for retailers, and it means seamlessly “Never has change come so fast, processes to be largely or completely serving customers via all available and so furious, in the history of retail,” digitized in the next five years. channels such as web, mobile, in- says Greg Maloney, Americas CEO Finally, more than one fourth of store, catalogue and so on, typically and President of Jones Lang LaSalle manufacturers will invest over 25 fulfilling same-day and next-day deliv- Retail. “The good news is that both percent of their total ICT (informa- ery promises. These individual ship- retailers and their supply chain part- tion and communications technology) ments to customers are vastly differ- ners are responding, evolving to rise budget for plant-floor IT. ent from replenishing the inventory to the challenges and opportunities “We are about to witness a new gen- in a store on a weekly basis. In short, posed by the omni-channel paradigm, eration of manufacturing enterprises online and mobile delivery has turned the advent of 3D manufacturing, where operational processes on the every customer into a point of sale, and changes to tax law, and being creative plant floor—at the very heart of the every distribution center into an indi- with remaining retail space.” Ⅺ

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Panama Canal Expansion Update: When the “tipping point” becomes reality

Once completed in late 2014 or early 2015, the expansion project will accommodate vessels more than twice the size of current Panamax ships. However, the projected overall impact on shippers, carriers, ports, and service providers appears to be up in the air.

By Patrick Burnson, Executive Editor

irtually every major global container due to the expansion. “Th e dimensions of the port, ocean carrier, and lead logistics ‘ultra large’ container vessels are relevant in Vprovider will feel some level of im- light of the carriers’ high focus on network pact from the Panama Canal expansion. And optimization, especially for routes going to according to many global freight transporta- the U.S. East Coast,” he says. “Th e large tion analysts, shippers should begin planning infl ow of post-Panamax ships exclusively into now to take advantage of this widely antici- a low growth trading lane like Far East-to- pated “tipping point.” Europe, has created an urgent need to deploy According to Peter Sand, chief shipping such tonnage onto other trades.” analyst for Th e Baltic and International And a number of prominent ports on the Maritime Council in Copenhagen (BIMCO), U.S. East Coast are getting ready for that the carriers with the newest “post-Panamax” anticipated new business. vessels will rush them into new deployments In Savannah, Ga., the river is being deepened

68S July 2013 • Logistics Management BRING IT ON!

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Dredging of the navigational channels has been completed. This included both canal entrances, on the Paciﬁ c and Atlantic sides, as well as Gaillard Cut. The remaining dredging work to be done in Gatun Lake is expected to be complete this year.

while the port of Charleston in neighboring South strong, and self-sustaining, especially as we face Carolina is also expanding. Further south, and increasing and intense competition from ports as the port closest to the Panama Canal, the Port around the globe,” says the port’s executive director, of Miami expects to be the most desired destina- Geraldine Knatz, Ph.D. tion for the new generation of Panamax ships. Th e Port of Los Angeles’ capital spending Th e port’s Deep Dredge project aims to deepen budget earmarks more than $380 million for Biscayne Bay to 50 feet from 42 feet. container terminal and transportation upgrades, Additionally, the Port of Miami’s Tunnel Project including more than $99 million at the TraPac will off er trucks a more direct route to and from container terminal for backland improvements to the port with a bypass of downtown Miami. Th e support future automation as well as construction port is also considering a 4.4 mile rail link to the of a facility to provide on-dock rail capabilities. Hialeah intermodal rail yard. Furthermore, Miami BNSF intermodal executive Fred Malesa main- has forged a deal with mega-carrier Maersk to tains that since the ports of Los Angeles and Long handle more vessels in the coming years. Beach already regularly handle vessels of 8,000- To date, the ports in Norfolk, Baltimore, and TEU to 10,000-TEU capacity, carriers beginning New York have channels with suffi cient post- to deploy 15,000-TEU to 18,000-TEU ships in Panamax depth. Th e Port Authority of New York their Asia-Europe services will continue to make and New Jersey, however, must complete their $1 direct calls there. Panama billion project to raise the Bayonne Bridge by 65 “Following the expansion, West Coast ports will feet before ultra large ships can pass underneath. continue to have a signifi cant transit time advan- Canal Th e largest ocean cargo gateway on the U.S. tage when serving the nation’s interior by rail and Expansion West Coast is hardly standing still, however. In intermodal,” says Malesa. an aggressive move to counter the eff orts of East Update Coast rivals, it’s making major investments in its Latin America angle infrastructure. Other industry analysts say that any cargo lost by July 2013 “Adoption of a new budget allows the Port of West Coast ports as a consequence of direct East Los Angeles to remain competitive, fi nancially Coast vessel calls will be off set by the burgeoning

70S July 2013 • Logistics Management

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business forecasted for the north-south trade with in Miami, shows that Panama’s Colon Free Trade Latin America. Zone (CFZ) will soon become a major logistical Dr. Walter Kemmsies, chief economist at coastal hub for the region due to the expansion. and civil engineering fi rm Moff att and Nichols, says Researchers point out that CFZ imports and that new opportunities will open between the U.S. exports grew by 56 percent between 2008 and West Coast and the East Coast of South America. 2011, an astonishing fi gure amid a world-wide “Brazil remains a vital emerging nation,” says recession and continued lagging growth in the Kemmsies, “and demand for U.S. raw materials world’s largest economy. Th is growth will likely and fi nished goods will only increase. In the mean- be accelerated when the expansion is complete time, West Coast and Midwest shippers can gain a and the CFZ upgrades are fi nalized, including an whole new way to access this marketplace after the international airport. expansion using ports on our own Pacifi c Rim.” “Th e emerging middle class in Latin America A recent study commissioned by Lilly & Associ- and globalized trade markets place Panama and the ates International, a global freight forwarder based CFZ at a strategic crossroads,” says Nelson Cabrera,

Panama Canal expansion not likely to make shipping “greener” On paper, it would seem that a shorter ocean pollutant emissions associated with goods transit route would have a positive impact on movement. the environment. But several scientists contend But quantifying emissions changes associ- that the shift of some freight from the U.S. West ated with Panama Canal expansion depends on Coast to the East Coast will represent no more routing, size of ships, integration of short-sea than “a push” when it comes to cleaning the air shipping, equipment profile, and port-of-entry and addressing climate change. decisions (East Coast, Gulf Coast, or West Indeed, studying the relationship between Coast). climate change and the ocean cargo shipping So while substitution of larger ships can sector immediately uncovers a series of appar- reduce the CO2 footprint of cargo carried by ent contradictions, says Elena Craft, a promi- a container ship through an expanded canal, nent health scientist with the Environmental diversion of current cargo from modes known Defense Fund. to be higher emitting per TEU-mile may not pro- “Of all the modes of transport, containerized vide emissions benefits where waterborne route shipping uses the most unrefined fossil fuels, distances offset modal efficiencies. yet is the least CO2 intensive way to move The conclusion posited by Carbon Manage- goods around the planet,” says Craft. ment Journal: “Using our assumption of future In a recent interview, Craft notes that con- cargo volumes and a 10 percent diversion from tainerized shipping has a successful legacy the West Coast to the East Coast, the effects of of propulsion using renewable sources, yet Panama Canal expansion on CO2 emissions are remains wedded to fossil fuels in the modern negligible due to longer distances travelled.” age. It contributes around 3 percent of global Researchers add that diversion distance CO2 emissions, while its contribution to climate offsets vessel size efficiency gains and reduc- change has been a cooling effect. And, despite tions in inland transportation miles. Changes a strong association with “national pride and in emissions of air quality pollutants could be identity,” it remains omitted from national efforts regionally significant in air-quality terms due to to tackle greenhouse gas emissions in nations the localized nature of their environmental and where mitigation is high on the agenda. health impacts. It’s against this backdrop that Craft has However, there’s an alternative that has yet contributed her insights to a special issue of to be properly explored say Environmental De- Panama Carbon Management Journal in a story titled fense Fund experts—short-sea shipping. “Panama Canal Expansion: Emission Changes “Short-sea shipping is one way to possibly Canal from Possible U.S. West Coast Modal Shift.” mitigate some emissions increases in regions In the story, Craft says that the expansion with higher container traffic volumes, revealing Expansion of the Panama Canal presents many oppor- the importance of system-wide and intermodal tunities for the intermodal container shipping consideration to improve freight transport from Update industry. Larger vessels will be able to transit origin to destination, not just from port to port,” the canal and take advantage of economies adds Craft. July 2013 of scale in part to reduce CO2 and criteria —Patrick Burnson, Executive Editor

72S July 2013 • Logistics Management

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Gateway Logistics Services Warehousing and Distribution Import Deconsolidation and Transloading Local and National Transportation Value-Added Services manager of business development at Should the Chinese operator suc- WMS and TMS Technology Lilly. He adds that with relative politi- ceed in raising suffi cient nance fi to cal and economic stability, Panama is an develop the project, it will profoundly National Footprint appealing way station for multinational alter operational conditions in Nica- New York - New Jersey companies looking to access emerging ragua, reshape global trade patterns, Los Angeles - Long Beach Seattle - Tacoma markets at low risk. And while political and shift regional relations. Of several Savannah and economic challenges are cause for proposed alternatives to the Panama Houston concern, they’re not overriding ones says Canal, this proposal seems the most Cabrera, as Panama outperforms its re- likely yet to get off the ground, say Proven Results gional peers in both stability and growth. analysts, partly because of the Nicara- To discuss your gateway logistics needs, “Panama’s infrastructure improve- guan government’s dominance of the contact the experts at Port Logistics Group. ments and adherence to international domestic scenario and partly because norms under trade agreements position of the clear long-term commercial the CFZ as a dynamic center for Latin benefi ts for a host of diff erent actors. American and Caribbean trade in the coming decades,” adds Cabrera. Steady progress Meanwhile, a long talked about Lending more urgency to the issue is the alternative to the Panama Canal fact that the expansion is right on sched- moved one step closer last month, re- ule, says Alberto Aleman Zubieta, CEO port analysts for IHS Global Insights. of the Panama Canal Authority (ACP). Th e Nicaraguan government proposed “Th e new locks, which are currently North America Sales legislation that will give a 50-year under construction, will expand the (973) 249-1230 ext. 1171 concession for the construction and Canal’s ability to handle ships nearly operation of a new canal connecting three times the size of current ships—an Corporate Headquarters One Greenway Plaza, Suite 400 the Atlantic and Pacifi c oceans to a estimated 14,000 containers versus 5,000 Chinese operator. container capacity today—and double Houston, TX 77046 www.portlogisticsgroup.com Special Special Report: Panama Canal Report

The excavations of the Pacific lock access channel are 70 percent complete. This project calls for the excavation of more than 50 million cubic meters of materials along a six-mile span and is executed in four phases. the throughput capacity of the Canal,” says Zubieta. In another meaningful development, the ACP Most importantly, dredging of the navigational recently implemented the just-in-time service (JIT) channels has been completed. Th is included both that will allow vessels to have a more effi cient transit. canal entrances, on the Pacifi c and Atlantic sides, Panama Canal Administrator Jorge Quijano says as well as Gaillard Cut. Th e remaining dredging that the new service will allow the vessels to arrive at work to be done in Gatun Lake is expected to be the canal much closer to their scheduled transit time. complete this year. “Th is value-added service will allow vessels Th e excavations of the Pacifi c lock access channel to maintain more effi cient fuel usage by having are 70 percent complete. Th is project calls for the to remain at anchor for less time before actually excavation of more than 50 million cubic meters of beginning transit,” adds Quijano. materials along a six-mile span and is executed in four phases. Th ree of the four phases have been com- Patrick Burnson is Executive Editor of Logistics pleted, and the fourth phase is 69 percent complete. Management

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Dear Logistics Management Reader:

Once again, it’s my pleasure to introduce the following section, View From The Top. Now in its 12th year, these pages offer terriﬁ c insight from top-level executives in leading logistics companies as to the current state of the industry, and how their companies are meeting today’s challenges.

The results of the 24th Annual State of Logistics Report show that the rebound for the supply chain and logistics industry continued to move forward over the past year, albeit at a slower pace than many in the industry had hoped. While railroads and intermodal services providers continued to gain market share and improve service levels, the trucking sector grew at a modest pace, air cargo margins were squeezed, and ocean carriers continue to manage through overcapacity and operational losses.

As stated in this year’s report, we have certainly entered a “new normal,” a period characterized by slow GDP growth, higher unemployment levels, and less predictable freight volumes—a time that’s putting more and more operational pressure on every carrier and logistics services provider.

The companies in this section recognize the uncertainty of today’s business climate and are taking steps to help managers navigate through the logistics and transportation pitfalls to help you keep costs down and improve the overall efﬁ ciency of your supply chain. Read through these pages and see all of the new opportunities that are being offered to help improve your company’s logistics network and keep costs in check.

Please take some time to enjoy this year’s View From The Top.

Brian Ceraolo President/Group Publisher

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Dear Reader,

At Alliance Shippers Inc., we’re playing an expanding role in the modern food chain. We know that delivering food and beverage products from the farm to the family table demands fine-tuned efficiency, an excellent producer-shipper partnership and great equipment. That’s why we’ve invested in our refrigerated carrier division like never before. And we made those investment decisions with what has become an Alliance Shippers’ trademark: comprehensive customer input. When it comes to our recent expansion in refrigerated services, that commitment stands clear. Our customers told us a primary priority was to maximize payload. Customers did not want to reduce the amount of product they can load in a unit. Alliance Shippers’ refrigerated trailers weigh approximately 16,000 pounds while refrigerated containers with chassis weigh more than 21,000 pounds. When compared to containers, trailers offer 14.5% greater capacity, eliminating the need to reduce payload to meet legal weight limits. Greater shipment capacity and lighter trailers means maximized payloads, fewer total shipments and reduced fuel costs. That’s why our entire refrigerated fleet consists of trailers. There are no containers. Today, the Alliance Shippers Refrigerated Carrier Division: • is the largest mover of refrigerated intermodal shipments • operates a transcontinental network that includes eastern Canada • utilizes more than 1,700 technologically advanced CARB-compliant refrigerated trailers • offers two-way satellite technology—24/7 visibility and control of every trailer When your payload demands temperature control, the Alliance Shippers’ refrigerated division is equipped to deliver. And when you need an intermodal partner who listens and designs shipping solutions around your exact needs, we’re ready. Sincerely, Ron Lefcourt President, Alliance Shippers Inc.

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How Your Supply Show Why You’re the Best Chain Can Win Over Why should customers work with your company? Customers You have the products they want. Now, make it What makes your even easier for them to do business with you. company different Inject powerful people, processes, and from all the rest? Every technology into your supply chain, and watch day, you do everything what happens as your shipments are optimized. John Wiehoff you can to please CEO & Chairman of the Board Using a single global technology platform called the people who buy Navisphere®, you can see your products flow your products. You try to stand out from the to market faster. Your customers can also see competition. It’s not easy. their order and delivery statuses on Navisphere, What you may not realize is, you can turn your giving you smoother communications with them supply chain into a competitive weapon and win than ever before. over buyers, gaining sales. Use consistent processes to deliver inbound Set Objectives—and Meet Them freight, gather business data, and analyze it to What roadblocks stand between you and make more strategic decisions. That’s how you your supply chain goals? With knowledgeable can leverage your supply chain muscles and logistics experts on your side, you can create leave competitors behind. a customized solution to fit your business Explore how you can accelerate your advantage strategies. You’ll obtain the tools, resources, and in the supply chain. Contact us at solutions@ guidance that can help you maximize supply chrobinson.com. chain efficiency.

The result: your products can get to market faster and more cost effectively than your competitors’.

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Total Cargo and Supply Chain Solutions

Founded in 1892, Crowley is a U.S.-owned and operated company, providing marine solutions, transportation and logistics services in both domestic and international markets. We are customer centric and solutions oriented. Personnel and assets across the entire organization are regularly brought together to solve throughput challenges for many of the world's most dynamic corporations.

Crowley hallmark is our longstand- forwarding; ocean, inland, and air ing, regularly scheduled container transportation; customs house brokerage; A and break-bulk liner services cargo insurance and warehousing. between the U.S., Caribbean and Crowley's inland transportation team along Central America. In 2012, we took that with a healthy network of distribution experience global with the institution of a centers, provide a framework for clients to formal project logistics and global freight combine and tailor cargo transportation management team. With a fundamental services as needed while achieving visibility understanding that supply chains continue through sophisticated shipment tracking. to operate within an increasingly complex and dynamic set of variables, Crowley is Total customer satisfaction is a key now truly positioned as a worldwide partner, performance driver for Crowley. Open, offering flexible, scalable and agile logistics two-way communication and a commitment solutions to customers who have expanded to continuous process improvement is a their businesses into Europe, Asia, the must. And with ISO-certification in freight Middle East and the like. Customers can services and solutions development, now rely on Crowley with effective Crowley meets and exceeds the highest operational representation in more than 130 standards for quality and service. countries for all of their logistics needs. Crowley has a reputation of designing While our footprint is expanding geographi- efficient cargo transportation solutions cally, we remain loyal to longtime customers personalized and scaled to fit each as well, by continuing to provide best in customer’s needs. Whether you need class container shipping services with compliance consulting, SKU-level inventory nearly 30 oceangoing Ro/Ro and Lo/Lo management, physical transportation vessels and more than 46,000 containers, services or anything and everything in trailers, chassis and other types of specialty between, the best business decision you equipment to serve shippers importing and can make is to rely on Crowley. exporting between the U.S., Puerto Rico, Bahamas, Caribbean, Puerto Rico, Domini- If your company has a supply chain in need can Republic, Haiti, Cuba and Central of a solution and you haven’t yet met America. Crowley, you should.

As a third-party logistics provider, we provide supply chain and transportation management services including: freight

1-800-CROWLEY • www.crowley.com/partner

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Landstar is celebrating 25 years of excellence in transportation logistics solutions, providing the safest, most reliable transportation services in the market.

Capacity: Our customers have access to Landstar’s

Henry Gerkens expansive array of capacity with 8,200 power units owned and Landstar Chairman, operated by Landstar business capacity owners, and 14,000 President & Chief Executive Ofﬁ cer pieces of trailing equipment including 1,700 stepdecks and 1,400 ﬂ atbed trailers, along with an extensive selection of specialized equipment. In addition, Landstar customers have access to more than 25,000 other approved third-party capacity providers.

INTEGRATED Transportation Management: Landstar’s capacity sourcing tools provide coordination of bidding, freight optimization, TRANSPORTATION scheduling, shipping, tracking, invoicing and reporting. MANAGEMENT Multiple Modes: Sometimes a truck is not enough, even SOLUTIONS when you have the options that Landstar offers – truckload vans, less-than-truckload, heavy haul and specialized trailing equipment and reefers as well as cargo vans, straight trucks and tractor-trailers for expedited ground. That’s why Landstar also offers domestic and global air services; rail intermodal service throughout the U.S. and into Canada and Mexico; and ocean freight forwarding services.

One Contact: Let our network of independent sales agents ﬁ nd the right mix of transportation logistics services for you. Just one call connects you with multiple integrated transportation management solutions.

www.landstar.com | [email protected] | 877-696-4507 PROVIDING INTEGRATED TRANSPORTATION MANAGEMENT SOLUTIONS

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The Industry That Makes Supply Chains Work®

The increasingly integrated and globalized economy has redeﬁned the dynamics of success for modern organizations. The complexity of managing supply chains that span continents and dominate markets demands agile and adaptable strategies, equipment and systems.

Success depends on effective material handling, logistics and supply chain solutions that deliver the right product to the right market at the right time in the most efficient and cost-effective way. George W. Prest, CEO MHI MHI is the trade association leading this vital industry. MHI members are material handling, logistics and supply chain equipment and systems manufacturers, integrators, third party logistics providers, consultants and www.MHI.org publishers.

Their membership in MHI reflects an ongoing commitment to the increased safety, productivity and profitability of manufacturing and supply chain operations. Visit MHI.org to learn more about our members and the solutions they offer.

In March 2014, MHI will hold its premier supply chain expo - MODEX. Over 800 of the leading providers will be at Atlanta’s Georgia World Congress Center to showcase the best solutions and innovations in the industry. At MODEX, you can see and learn about the latest innovations and network with your peers. The MODEX Supply Chain Conference will include keynotes, collocated partner education and show ﬂoor seminars.

Mark your calendars for MODEX 2014, March 17-20, 2014 Atlanta’s Georgia World Congress Center

Visit www.MODEXShow.com to learn more and register to attend

8720 Red Oak Blvd., Suite 201 | Charlotte, NC 28217-3993 | 704-676-1190 | www.MHI.org

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The Power to Move Your Workplace

HOW TO MAKE YOUR WAREHOUSE AND DC OPERATIONS MORE PRODUCTIVE

Converting a stationary workplace to a mobile one is the easiest, most economical way to increase productivity of your current warehouse workers and infrastructure. Make your employees’ workplace mobile and free from stationary power sources and data cabling.

Implementing Mobile Workplace and Portable Power Systems will enable you to immediately...

• Generate Productivity - Achieve the same amount of volume with fewer pieces of equipment (i.e. printers, computers, etc.) by converting to mobile workstations.

• Improve Processes - Fully leverage your wireless facility by cutting the power cords and letting your workstations move to where they are needed - with your people.

• Enable People - Operators & managers now have access to data and real-time information anywhere in the facility because they can take their workstation with them.

Interested to see how much you can save throughout your organization? Try our ROI Calculator (www.newcastlesys.com/ROI) to help you quantify inefﬁciencies and learn how a Mobile Powered Workstation can help. MOBILE WORKPLACE SYSTEM

15B Sylvan St. z Middleton, MA z 01949 z USA z 781.935.3450 www.newcastlesys.com

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DAVID CONGDON: VIEW FROM THE TOP

gains refl ect the value of our high-quality, more than 215 service centers and expedited, integrated and comprehensive services. drayage, and assembly and distribution services as well as container delivery services Every shipment we deliver represents a to and from North America, Central America, promise each of our customers has made. South America and the Far East. With that in mind, we focus on the task at hand, and utilizing technology, up-to- Our hard work has paid dividends. Last year, date infrastructure and the best people Old Dominion was honored by Mastio possible, we’ve made it our goal – really, our & Company as the No. 1 national LTL carrier There is so much to worry about these days commitment – to deliver every shipment on in the company’s 2011 Value and Loyalty when it comes to running a business, but time and damage-free. When we fall short, Benchmarking Study for its outstanding use whether a shipment arrives on time – and we stand strong, take responsibility and learn of technology. We were also selected as undamaged – shouldn’t even make the list. from our mistakes. one of Forbes Top 100 Most Trustworthy Companies for 2012, an annual recognition Frankly, no one needs another freight and By focusing our attention on our service, awarded to publicly traded corporations that logistics company. What companies need we’ve been able to achieve one of the best have consistently demonstrated transparent, is a partner, someone who understands the on-time records and one of the lowest claims conservative accounting practices and solid intricacies of the problems they are facing ratios in the industry. But our work is never corporate governance and management. and who can offer the customized solutions to done, and we pledge to our customers that fi t the situation. we will continue to strive for perfection, Anyone can have all of the plans and because we recognize we are only as good as strategies in the world. But, in the end, it’s People constantly ask us: How do you do it? our last shipment. about making our customers’ businesses our What makes Old Dominion successful? Well, own and working to achieve a common vision: the answer is quite simple: We’ve not only By offering best-in-class service at a fair and “Helping the World Keep Promises.” set out to maintain pricing discipline and equitable price, we believe we have created invest in our infrastructure so as to position a value proposition for shippers that should ourselves for long-term growth, we’re allow us to gain additional market share and David Congdon is president and CEO constantly investing in our employees and create additional value for our shareholders. focusing on our service. of Old Dominion Freight Line, Inc. Our people and our four product groups – OD- With more than 35 years of experience Let’s focus on that last point for a moment. Domestic, OD-Expedited, OD-Global and OD- in the transportation industry, At Old Dominion, rather than saying we’re in Technology – provide our customers with the Congdon has spent the majority of his the less than truckload (LTL) business, we say complete range of products and services they career continuing the legacy of his that we’re really in the business of keeping need to deliver on our promise of simplifi ed promises and whatever business you’re transportation solutions. We provide direct grandparents, Old Dominion founders, in, we’re in. Our consistent market share service to more than 48,000 points through Earl and Lillian Congdon.

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View From The Top

Dear Logistics Management Readers: U.S. consumers are expected to spend $262 billion on online transactions this year, and by 2017, eCommerce could account for 10 percent of all retail sales in the United States. Online shopping has also taken hold in Canada, where sales increased by almost 10 percent during 2011. This surge in eCommerce presents an exciting opportunity for U.S. retailers, but with that added volume has come a new paradigm within the logistics industry. We’ve had to change our mind-set. The relationship is now B2C, which is much more personal and hands-on. The expectations are different and logistics providers must Jonathan Routledge adapt by offering flexibility and innovation. Vice President, For e-tailers, this means enlisting the services of a logistics provider that offers fast, Sales & Marketing accurate order fulfillment, followed by guaranteed on-time delivery to customers’ residences or businesses. It means service options that fit with customers’ needs and offer flexibility to meet the cyclical nature of their business. It means 24/7 tracking and visibility so that a customer is never left in the dark, and it means a returns policy Purolator that can be customized to meet a business’s precise needs. International Purolator International And for businesses with customers in Canada, it means compliance with all customs is a leading provider and border clearance procedures, along with assurances that Canadian consumers of logistics services will not be hit with an unexpected invoice for additional fees at time of arrival. for shipments traveling Why is the logistics and delivery component of an eCommerce transaction so important? between the United States and Canada. Here’s why: A 2012 survey of consumers found that 29 percent said they would Purolator is a participant “abandon shopping with a retailer altogether” if they received an incorrect delivery just in all U.S. and Canadian once; and 62 percent considered themselves “much less or less likely” to shop with government “trusted a retailer online or by phone if a previous purchase was not delivered within two days shipper” programs, of the date promised. which ensure that Clearly there is a lot at stake, which is why e-tailers need to choose wisely when Purolator shipments selecting a logistics provider. Take the time to ask a few questions when selecting cross the border not just your logistics provider but your logistics partner. You need a partner who hassle free and with understands the potential of the eCommerce market and is prepared to help your minimal delay. For business reach its highest potential – a partner who understands the importance more information about of honoring your commitment to your customers with cost-efficient delivery Purolator and about options that reach all end-consumer addresses with on-time service. the Canadian border clearance process, Sincerely, call or visit us online. Jonathan Routledge Vice President, Sales & Marketing

Purolator International 1.888.511.4811

[email protected] t www.purolatorinternational.com t http://blog.purolatorinternational.com

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MORE THAN JUST MATERIAL HANDLING

You need more than just great material handling equipment to meet the demands of today’s global marketplace. You need in-depth information to help manage your business better. Providing a powerful information solution to help customers optimize lift truck fleet and warehouse operations, Raymond offers solutions to optimize your entire operation.

We look at your entire operation and make recommendations based on your unique needs, evaluating performance across the whole cycle, across the whole shift. Choosing Raymond means working with sales and service professionals who represent the leading provider of material handling solutions.

We have the resources and technology to help your entire operations work smarter.

Tim Combs David Furman Vice President of Sales Vice President of Marketing The Raymond Corporation The Raymond Corporation

The Raymond Corporation Telephone 1-800-235-7200 PO Box 130 Greene, New York 13778-0130

www.raymondcorp.com

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Howdy, pardner. There’s a new carrier in town.

Reddaway now offers service to Texas, Oklahoma and Louisiana. So, for quality handling, on-time performance and best-in-class customer care, trust Reddaway. We’re your reliable LTL carrier with ace-high service and new outbound shipping lanes. Pony up and visit reddawayregional.com/texas or call 888.420.8960 now. Copyright ©2013 YRC Worldwide Inc.

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Finding Value in Integration

At Saddle Creek Logistics Services, our integrated capabilities can help address today’s toughest supply chain challenges. Our custom solutions draw on warehousing, transportation, packaging and fulfillment services to give you a competitive edge. What makes our integrated logistics services stand out in the Cliff Otto industry? The variety of capabilities we provide and how we customize those services to meet your specific business goals. President While we offer the resources of a larger company, we deliver Saddle Creek Logistics Services the responsiveness and personal attention of a more nimble As a third-party logistics company, organization. we leverage our broad array Our seamless integration can help you to: of capabilities — including warehousing, transportation, O Increase speed to market. Your products reach their packaging and fulfillment — to destination more quickly thanks to our multi-channel provide integrated solutions that solutions, streamlined service, efficient processes and support your business objectives. strategically located facilities. O Accommodate fluctuations. If you struggle with ever- changing customer needs or seasonal promotions, we can flex to meet your requirements for staffing, space, technology, and more. O Control supply chain costs. Our integrated approach eliminates links in your supply chain, allowing you to Download our reduce overhead, control inventory costs, and minimize whitepaper on your capital investment. integrated logistics O Improve service to customers. Our Whatever It Takes! outsourcing: approach guarantees that we’ll get the job done to the total satisfaction of your customers. O Focus on core competency. You can focus on your core business, knowing that your logistics operations are the hands of an experienced, knowledgeable partner. We invite you to see how our integrated services can help you develop a stronger, more effective supply chain. 3010 Saddle Creek Road Lakeland, Florida 33801 888-878-1177 [email protected] sclogistics.com

WAREHOUSING ì TRANSPORTATION ì PACKAGING ì FULFILLMENT Whatever It Takes!

90 LOGISTICS MANAGEMENT | JULY 2013 WWW.LOGISTICSMGMT.COM Advertisement View from the Top Saia LTL Freight

Richard D. O’Dell President and CEO

Revisit Your Vision, Everyday

Companies measure themselves in terms of operating from six straight quarters of 98% on-time delivery revenues, key performance indicators and service metrics. or better. That’s moving forward. They focus on things like CapEx and OpEx. While these are important gauges of performance, they should never ÊUÊ «ÞiiÊ «ÜiÀiÌ: We created a dock-to- overshadow the reason a company is in business. driver program, enabling Saia dockworkers to train for their commercial driving license while working At Saia, prior to any business decision we ask ourselves: their current job. It provides them a different career “how will this help our customer, co-workers, or business path and allows us to retain some of our most partners move forward?“ If we can’t answer it, chances dedicated employees. That’s moving forward. are, it’s not worth pursuing. The following are examples of the initiatives that we felt were worth pursuing in the Ê UÊ µÕ«iÌÊÛiÃÌiÌ: We invested $80 million last year. in our fl eet and technology, including advanced braking technology, tractor telematics and electronic Ê UÊ -iÀÛViÊ ÛiÀÃwÊV>Ì: In 2012, Saia acquired on-board recorders. The result has been signifi cant Robart Transportation Inc., a national provider on-road savings, higher safety, better delivery times of non-asset truckload services and third-party and increased fuel economy. These benefi ts are logistics. The acquisition moves Saia from a pure- nice but what they do for our customers, our drivers play LTL carrier to a true full-service provider. and our environment are even better. That’s moving More importantly, it provides our customers with forward. expanded distribution services. That’s moving forward. It doesn’t matter what business you’re in, the landscape is growing more complex. Still, we owe it to Ê UÊ +Õ>ÌÞÊ >ÌÌiÀÃ: In late 2011, we our customers, employees and stakeholders embarked on a major initiative to drive to remind ourselves daily of the simple, clear quality and service to record levels. As vision that they embraced by selecting us. a result, our customers have benefi ted At Saia, that means “moving you forward.”

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Logistics customers are looking for efficiency and quality performance. UniGroup Logistics is delivering with signiﬁcant investments in new customer-facing technology, which will create enhanced supply chain solutions, provide customers improved access to their information and create full transparency into our processes. Transparency is important to both UniGroup Logistics and our customers. By giving customers the ability to track, trace and view shipments they can accurately measure the services delivered against the individualized key performance indicators set by each customer.

In addition to the development of our technology solutions, we leverage our large global footprint to provide quality service. For more than 70 years, the UniGroup companies have provided unparalleled transportation, warehousing and logistics services around the world. When customers work with UniGroup Logistics, UniGroup’s experienced personnel and its network of 1,400 warehouse locations, 56 million square feet of warehouse space worldwide and 14,000 trucks are ready to execute services ranging from supply chain management to custom warehouse solutions. UniGroup Logistics applies its expertise and resources to support customers’ unique requirements, utilizing two trusted names in the transportation industry – United Van Lines and Mayﬂower Transit.

As a UniGroup company, UniGroup Logistics is well-suited to deliver customized logistics solutions with the high-quality service our customers expect including:

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Dear Logistics Management readers:

All of us who make our living in logistics know how challenging this business has been in the years since the global financial crisis. Global growth has slowed from its previous heady pace, as consumers and governments have struggled under the weight of the debt they took on during the prior decade. And after a long period during which trade drove the global economy, trade growth fell to 2% in 2012 and is expected to remain sluggish this year as well. That’s the environment in which each of us operates today. All that said, I have never been more optimistic about the opportunities that lie ahead. As a Chinese philosopher once wrote, “When the wind rises, some people build walls. Others build windmills.” That’s the choice each of us faces today. At UPS, I challenge our nearly 400,000 employees every day to harness the transformative global forces we face for the benefit of our customers. One of the biggest opportunities lies in the emerging economies. Roughly a billion people from developing countries are now entering the market for the goods and services they see on display in the developed world. And the world gives birth each day to another 200,000 people, mostly in emerging economies. Over time, every one of those people will need the services we provide. Between now and 2025, global trade is expected to increase by another 73% and top $50 trillion. If anything, forecasts like this may understate the future opportunities for global commerce. Today, less than 1% of the 30 million U.S. businesses export – and of those, nearly 60 percent ship to just one country. As the world shrinks and becomes more interconnected, global e-commerce will become more feasible. I can foresee the day when consumers in Seattle can purchase a single scarf from a boutique in Prague and have it shipped to their door just as easily as if it came from New York. To be sure, this will require innovation, further reductions in tariffs and customs regulations, plus changes in the laws that prevent many postal monopolies from partnering with commercial carriers. The movement towards dynamic trade agreements such as the Trans-Pacific Partnership and the Transatlantic Trade and Investment Partnership could be game changers – moving beyond simple tariffs to encompass a wide range of regulatory barriers that restrict trade. But for these trade pacts to move forward, political leaders need to make tough decisions. And that means our industry needs to demonstrate the economic benefits that will flow from these deals. Another challenge is how our industry responds to global warming. Governments, citizens and even our customers are looking to see whether our industry is going to be part of the problem – or the solution. This will require each of us in logistics to embrace alternative fuel technologies. At UPS, we’ve already started. In the last five years alone, we’ve invested more than $300 million in alternative fuel and alternative-technology vehicles around the world. We now have more than 2,700 alternative vehicles, and plan to purchase another 700 trucks fueled by liquid natural gas by the end of 2017. Investments like these have helped us reduce our carbon footprint. At our current pace, we now expect to cross the 1 billion mark for the number of miles we’ve driven with alternative vehicles by the end of 2017. But alternative fuels are only half of the story. By using telematics and route optimization software, we’ve reduced the number of miles needed to make our rounds by 364 million – saving 39 million gallons of fuel and eliminating

369,000 metric tons of CO2. Many of you have achieved similar savings, but none of us can stand still in our efforts to cut our carbon output. These are big challenges. But companies that have been around as long as UPS have weathered two world wars and a Great Depression. By comparison, the tests we face today are much more surmountable – and the solutions are as close as the limitless creativity and drive of the human spirit.

Scott Davis Chairman and Chief Executive Officer, UPS

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Supply chain solutions that deliver.

UTi is one of the industry’s leading non-asset based, global third party logistics providers. We deliver competitive advantage to each of our client’s supply chains through innovative, integrated solutions. We are committed to delivering value that will help clients succeed in today’s uncertain economic environment. This means maintaining an external focus on the global marketplace, being alert to potential obstacles as well as opportunities, and having solutions ready that can eliminate complexity. Our primary services include: – Air and Ocean Freight Forwarding – Distribution – Contract Logistics – Managed Transportation Services – Customs Brokerage – Supply Chain Consulting

UTi FREIGHT FORWARDING With 313 freight forwarding locations, in 59 countries, UTi believes freight transportation is about reducing costs while delivering goods when and where they are needed. Value is provided through inter-modal shipping at competitive rates, utilizing air, ocean, surface and specialty transportation services.

UTi CONTRACT LOGISTICS & DISTRIBUTION Operating a global footprint of 245 logistics centers with more than 26 million square feet of warehousing worldwide, UTi can store, confi gure and deliver your products while maintaining the visibility and inventory management you need to effectively manage your business. Whether delivering goods to a global client base or managing complex inbound supply chains, our transportation and inventory optimization tools reduce network costs and improve product availability.

UTi SUPPLY CHAIN DESIGN AND INNOVATION UTi leverages our global network, IT systems, relationships with transportation providers, and expertise in outsourcing to improve visibility and reduce costs. Our team can help you build a business case for change, innovation and cost reduction in your organization.

UTi Worldwide, Inc. COMPETITIVE ADVANTAGE c/o UTi, Services, Inc. At UTi, our people are the most important resource in keeping our commitments 100 Oceangate, Suite 1500 to clients. We nurture talent, providing an atmosphere conducive to performance Long Beach, CA 90802 +1 (562) 552 9400 excellence by each and every person. This is why we can say, at UTi, there’s www.go2uti.com not a weak link in the chain.

94 LOGISTICS MANAGEMENT | JULY 2013 WWW.LOGISTICSMGMT.COM Advertisement View from the Top

Dear Reader,

At VF Imagewear, we understand the importance of a uniform for every organization and its wearer. With over 80 years of expertise, we are extremely proud of our contribution to the uniform and workwear industries through our Red Kap and Bulwark brands. Red Kap was established in 1923 and is proudly worn by the majority of individuals in the industrial segment. Bulwark, our flame- resistant apparel brand, continues to help workers in the oil and gas, electric utility and petrochemical industries. Our objective is to understand what a uniform means and how we can assist in making it the best that it can be.

Today, a uniform is more than a garment–it is a badge of pride as well as a source of safety and creates an image for the wearer. We want uniform wearers to feel comfortable in garments they wear so they can perform their jobs to the best of their ability. Comfort is being created in a new way for uniform wearers with the introduction of a new product from VF Imagewear, Wrangler Workwear.

Made of durable, comfortable canvas material and designed speciͤcally for the range of motion needs of the country̵s workforce, Wrangler Workwear is our newest premium uniform workwear brand. Wrangler Workwear̵s backside pleats and underarm gusset features in shirts allow for greater reaching and stretching, while inseam gussets in pants allow for unparalleled comfort in bending, squatting, lifting and climbing motions. To complete the line, Wrangler Workwear includes work jackets. The work jackets, like the work shirts, feature underarm gussets as well as action elbows. Now workers can perform their duties without a sense of restriction, regardless of their activity-their garments now move with them. Wrangler Workwear is a truly unique product line in workwear apparel. It̵s built with the worker̵s mobility in mind. Wrangler Workwear̵s goal is to help them feel comfortable and perform at their highest level every day.

Sincerely, Chris Holcombe Vice President, General Manager, VF Imagewear

WWW.LOGISTICSMGMT.COM JULY 2013 | LOGISTICS MANAGEMENT 95 Patrick Burnson is Executive Editor Paciﬁc Rim Report of Logistics Management. If you want to contact Patrick with feedback or a By Patrick Burnson story idea, please send an e-mail to [email protected].

Pac Rim shippers may soon opt for air

If the moribund air cargo industry is to finally stage 2013—up from the previous projection of $4.2 billion. a turnaround, the Pacific Rim will play a major role. It will lead all regions both in terms of absolute profits Preliminary financial performance figures released and earnings before interest and taxes (5.0 percent). in June by the Association of Asia Pacific Airlines The main driver is strong growth in China and (AAPA) showed that Asia Pacific airlines achieved $5.2 long haul markets, supported by buoyant trade flows billion in combined net profits in 2012, 6.7 percent and other business activities. Stronger growth is also above the $4.8 billion reported for the year 2011. expected from Japan, as market stimulating measures Nonetheless, carriers still face a challenging operat- take effect in the region’s second largest economy. ing environment marked by prolonged weakness in air Japan’s influence is also helping to overcome weak- cargo markets and persistently high jet fuel prices. ness in cargo markets in which Asia Pacific airlines Operating expenses totaled $166.5 billion, 7.0 are the major players with a 38 percent market share. percent more than the $155.7 billion recorded in The chances that U.S. shippers will put their cargo— the previous year. The main cause of the increase even high-end perishables and pharmaceuticals—on was a 12.2 percent jump in fuel expenditure to $58.8 billion, with jet fuel prices averaging $128 The main driver is strong growth in per barrel in 2012. The share of fuel expenditure as a percentage of total operating costs rose to 35.3 China and long haul markets, supported percent in 2012, from 33.7 percent the previous by buoyant trade flows and other year. Non-fuel expenditures grew by 4.3 percent to $107.7 billion. business activities. “Prudent capacity management maintained relatively high load factors, helping to offset the impact of Asia Pacific aircraft rather than container vessels seems persistently high fuel prices and an extended period ever more remote in the coming months, say other of weak demand in the global air cargo market,” says industry insiders. Andrew Herdman, AAPA Director General, in response However, Brandon Fried, executive director of the to the reports findings. “Asian airlines are expected to Airforwarders Association (AfA), provides a longer-term remain at the forefront in promoting further develop- perspective on the issue. “Most heavy shipments of ment of the global airline industry, with continued any significant weight and volume use ocean carriers investments in fleet expansion and customer service despite slower transit times and varying environmental innovation,” he adds. factors,” he says. “However, for those consignments Analysts at the International Association of Air with time constraints, higher value, and a need for Transport, concur, noting that Asia Pacific airlines are tight inventory or temperature control, airfreight brings expected to post a combined profit of $4.6 billion in more value.” Indeed, as global economic challenges persist, AfA has seen some additional cargo move from the maritime leg of the transit to air carrier to cut transit time and reduce cost. Finally, there’s this: Boeing projects a demand for more than 35,000 new airplanes over the next 20 years, valued at $4.8 trillion. The company released its annual Current Market Outlook last month at the Paris Air Show, forecasting the world fleet to double over the next two decades—with the Asia Pacific carriers leading the way. Ⅺ

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