Toward Improved Intermodal Freight Transport Between Europe and the United States: Report of the Third EU–US Forum

Based on an Eno Transportation Foundation Policy Forum held November 3-5, 1999, in New York

Sponsored by: European Commission Directorate-General VII (Transport)

US Department of Transportation Office of Intermodalism and Federal Highway Administration Published by Eno Transportation Foundation, Inc. 1634 I St., NW, Suite 500 Washington, DC 20006-4003 Tel: 202-879-4700 Fax: 202-879-4719

Board of Directors Lawrence D. Dahms Lillian C. Borrone Joseph M. Clapp Norman Y. Mineta Thomas J. O’Bryant Ted Tedesco

Staff Damian J. Kulash, President and CEO Robert Ritter, Director, Policy Activities Kathryn Harrington-Hughes, Director of Operations

© 2000 Eno Transportation Foundation, Inc. All rights reserved. Permission to quote from, or reproduce material in, this publication is granted when the following acknowledgment is made: “Reproduced from Toward Improved Intermodal Freight Transport Between Europe and the United States: Report of the Third EU-US Forum, with permission from Eno Transportation Foundation, Inc., Washington, DC.” Table of Contents

Preface ...... v

Executive Summary ...... 1

Forum Proceedings ...... 5 Introduction ...... 5 E-Commerce ...... 5 Infrastructure Investment ...... 8 US and European Concerns Regarding Intermodal Practices ...... 13 Equipment Standards ...... 15 Third-Party Logistics ...... 16 International Issues and Governmental Initiatives ...... 17 Next Steps ...... 18 Summary ...... 18

Background Papers How Electronic Commerce May Reshape the Future of Intermodal Freight Transport ...... 19 E-Commerce, Supply Chain Management, and Intermodality ...... 27 The Self-Sufficiency of U.S. Ports and the Role of State Subsidies ...... 43 The Future Development of Infrastructure for Intermodal Transport in Europe .....57 Third-Party Logistics Providers in the European Union ...... 71

Forum Participants ...... 79

Acronyms and Abbreviations ...... 85

iii iv Toward Improved Intermodal Freight Transport Between Europe and the United States: Report of the Third EU–US Forum Preface

Transportation is the cornerstone of the ing develop an improved understanding of rapidly expanding and increasingly inte- common problems, and strategizing poten- grated global economy. An efficient, coor- tial solutions. dinated network of transportation services The first of these forums was held in 1997 makes possible the full benefits of the glo- in Washington, DC, where discussions fo- bal economy. A significant facilitating fac- cused on impediments to intermodal freight tor in national and international economic transport and on opportunities for improve- growth is the increasing role of electronic ment. The second forum, held in Munich in commerce, or e-commerce, which is revo- 1998, emphasized legal and regulatory issues lutionizing business practices around the governing the rules of competition in the two globe and creating a powerful dynamic in regions. Participants discussed intermodal the transportation industry. Marketing liability issues, debated issues of equipment and distribution requirements for all types standardization, and introducted ideas on of cargoes and involving all modes are in a best practices. state of flux, with pressures to reduce ship- The third forum, held in New York on ping costs and increasing calls for speed, November 3-5, 1999, continued progress safety, and environmental protection. towards the smooth and efficient movement Intermodal transport—providing door-to- of goods between Europe and the United door service using more than one mode—has States. Participants examined the issues and evolved, both domestically and internationally, opportunities confronting intermodal freight in response to the demand for flexible, inte- transport and identified opportunities for grated transport services in the global mar- action and priorities for continued progress. ketplace. The unifying goal of this forum was These included electronic commerce and to improve intermodal transportation be- intermodal transportation, infrastructure tween Europe and the United States. Forum finance issues, best practices in intermodal participants—whether private-sector repre- transport, and prospects for greater equip- sentatives of shippers and transportation ment standardization. carriers, consumers of the goods that are The forums do not constitute a deci- carried in this massive system, or govern- sion-making body. Instead, they offer an ment organizations responsible for improv- opportunity for individuals to go back to ing economies and quality of life—shared their own organizations and sphere of in- this goal. The goal is difficult to attain, be- fluence and take actions consistent with cause no single organization can possibly an increased understanding of intermodal improve this complex network by itself. transport. This report provides a summary Intermodal freight transport involves not of the discussions and the text of the com- only transportation systems and vehicles, missioned background papers. In keeping but also a combination of business deci- with the e-commerce emphasis of the New sions, regulatory and competitiveness York forum, a CD-ROM is packaged with regulations, and liability practices. Exten- this publication. The CD-ROM includes an sive coordination is required between pub- electronic version of this publication, lic and private sectors and among the video highlights of the conference, addi- various modes and different nations that tional publications handed out at the con- make up this vast network. ference, and electronic versions of most of The catalyst for these forums has been the presentation graphics used by the the European Union (EU) and the US De- speakers. partment of Transportation. Each of the The productive dialogue of the forums is forums has brought together top private- helping to improve understanding and lead- sector leaders and senior government of- ing to joint pilot studies and the definition ficials who have devoted time and effort of areas for further work. The goal of seam- to come together sharing thoughts, help- less international intermodal transport now

Preface v appears to be achievable, and the benefits of leaders and governments on both sides of achieving that goal have been highlighted. the Atlantic to work together to develop the Continued efforts are warranted to build on full potential of international intermodal the commitments by both private-sector freight.

vi Toward Improved Intermodal Freight Transport Between Europe and the United States: Report of the Third EU–US Forum Executive Summary

Third EU-US Intermodal Freight ministrative costs. US and Europe leaders Forum Focuses on the Impacts found that the implications of the boom on the E-Commerce and Third- in e-commerce appeared similar in both Party Logistics regions. Significant differences in European and On November 4 and 5, 1999, 42 senior US port infrastructure finance policies and freight industry executives and govern- practices were examined in detail. The re- ment transport officials met in New York turn on investment is declining for all US City to exchange ideas about streamlining ports, squeezing port investment. Govern- the trans-Atlantic intermodal market. This ment investment is also declining, while was the third in a series of forums on the costs of building and maintaining port intermodal freight transport cosponsored infrastructure is increasing at a very rapid by the European Union and the U.S. De- rate, mostly due to the costs of environmen- partment of Transportation. Participants tal mitigation. In both Europe and the find them valuable in understanding issues United States, many believe that new rev- that cut across modes and governmental enue sources must be found to finance port lines, and this allows them to work within development. their own organizations and spheres to Within Europe, there is continuing accelerate progress toward a seamless frustration with the difficulties of operat- freight transport system between North ing in a system with many technological America and the European Union. Co- incompatibilities and political boundaries. chaired by Kenneth Wykle, US Federal High- This has resulted in transport patterns in way Administrator, and Karel Vanroye of the Europe that are characterized by much European Commission, the forum examined shorter average lengths of haul than in the the implications of growth in e-commerce, United States. The relatively low market the prospects for increased standardiza- share of freight carried by rail in Europe tion of containers, recent advances in is an economic and environmental con- tracking and tracing of intermodal ship- cern. Improvements in standardization ments, and the opportunities and risks of and interoperability are needed on many third-party logistics. fronts, but significant improvements do E-commerce promises to have significant not appear likely soon. implications for intermodal transport, and Prospects for greater standardization of this was the subject of a lively exchange. loading units proved to be a particularly Rapid growth in e-commerce, particularly in contentious subject. The range of container business-to-business transactions, will be dimensions within the United States and matched by strong growth in demand for international service to it has evolved to intermodal services. Package express ser- reflect its infrastructure and geography, vices and national postal systems will in- and led to a different mix of units than is tensify their competition to dominate found in Europe. Some European execu- service to the final destination. A variety tives have formed a task force to find ways of new businesses are being structured to gain increased container standardization around e-commerce and efficient transpor- within Europe, and have come to a prelimi- tation services, particularly in the com- nary conclusion that existing European puter industry. This is increasing the van length limits (13.61 meters, or 44 feet number of parcels shipped at the retail 7 inches) might work well. Others argued level while resulting in more efficient that this was unduly restrictive, and argued larger loads in business-to-business trans- that a somewhat larger unit—45-foot con- actions. While e-commerce is helping tainers—were increasingly gaining market speed up transport, the greatest efficiency share in certain international movements. may come through the reduction of ad- A range of diverging views were expressed

Executive Summary 1 regarding the advisability of 45-foot con- graphic regions in which they have exper- tainers. There was consensus that the dis- tise. There are no truly global third-party- cussion of this issue could be improved by logistics providers, so many users of developing reliable information on the cur- third-party logistics firms turn to several rent use of 45-foot containers in terms of providers and manage the overall opera- numbers in use, commodities carried, and tion themselves. Opinions are divided countries served. This would be a useful about the prospects for increased use of next step in consideration of trans-Atlan- fourth party logistics, whereby a logistics tic container standardization. provider not only supplies all transporta- US executives described a system in tion services, but also deals directly with which carriers provide the chassis for customers. This practice has been her- intermodal shipments. Problems in the alded as a growing trend, but many ex- current US system are being overcome by ecutives expressed concern that this was shared chassis pools with the benefit of a strategic business element, and that fewer chassis required, less terminal ca- they were reluctant to lose control and pacity needed, and improved roadability. risk not having in-house staff expertise Railcar use has been made more efficient by in this area. fixed stanchion design, slack elimination, Intermodal liability issues remain a con- and double-stack operation. The current U.S. cern. More agreement is needed on who is emphasis on improving intermodal connec- responsible for goods during each segment tors, terminal improvements, and move- of carriage. On the US side, a move to ment toward a more rational intermodal amend the 1936 Carriage of Goods by Sea network appears to be matched by similar Act, which had generated considerable priorities in Europe. The European Freight concern in the previous forum, appears to and Logistics Leaders Club Working Group have lost steam. In large part, the recently on Best Practices identified concerns with passed Ocean Shipping Reform Act, which the lack of intermodal tracking systems, permits the formation of confidential con- terminal bottlenecks, lack of standardiza- tracts, has allowed parties to arrange the tion, high costs of intermodal transfers, terms of liability coverage through the con- and rail reliability. They recommended im- tract. The emergence of third- and provements in the control of intermodal fourth-party logistics providers means units, increased effectiveness of terminals, that the strength, stability, and trustwor- improvements in road access to terminals, thiness of these firms is also part of the and more focus on standardization. liability equation. Both regions face a range of issues as- Advances in cooperation in US/EU sociated with the growth of third-party lo- intermodal freight technology originating gistics providers. US companies have in the prior forums illustrate the value of outsourced noncore businesses as a means these discussions. One pilot project, involv- of removing assets from their balance ing a number of firms in the automobile sheets, thus providing a leaner and more industry, is designed to support tracking aggressive corporate profile to potential and tracing of containers throughout the investors. Accounting practices that re- intermodal supply chain and to improve quire inclusion of pension liabilities have elements of supply chain management. contributed to this trend. European firms This project was fleshed out at a joint US/ make heavy use of third-party logistics op- EU meeting on Intermodal Freight Tech- erators, but generally maintain sufficient nology held in Seattle, Washington, in June staff expertise and control of the informa- 1999. A related EU-supported effort, the tion to retain logistics management as part Simple Intermodal Tracking and Tracing of the core, in-house strategic business. In Project, is designed to create an industry- both regions, third-party logistics firms are owned and -operated planning and infor- often advantageous because of their abil- mation service for the European transport ity to negotiate attractive volume rates, but industry. firms in this area tend to specialize in the All recommended that the forums be range of commodities carried and the geo- continued, and discussion suggested sev-

2 Toward Improved Intermodal Freight Transport Between Europe and the United States: Report of the Third EU–US Forum eral priority areas for attention at the next ally moving in this region, and an over- meeting. These included: view of the market share of different container sizes in other international • Financing options and financeability of markets transportation infrastructure • Liability considerations in intermodal • Best practices in intermodal transport services with specific consideration of terminal • Intermodal issues arising before the efficiencies World Trade Organization • Future transportation technologies • Comparable data on EU/US unit costs Industry leaders and government offi- by mode, lengths of haul, and the like cials strongly endorsed continuation of for shipments by rail, truck, barge, and joint pilot project efforts in the area of short-haul ship tracking and tracing of intermodal ship- • Discussion of industries best suited for ments. This illustrates one of the tangible utilization of third-party and fourth- benefits of this unique international pub- party logistics provider services lic/private dialogue. Equally importantly, • Continuation of the excellent work to the discussions allow participants to return date on e-commerce, recognizing its fa- to their respective organizations with a cilitating and technology forcing role in broader understanding of the surrounding intermodal transport system, and to take individual actions that • Standardization of containers used in collectively facilitate the rapidly growing, trans-Atlantic services, including a fast changing world of international quantitative summary of what is actu- intermodal freight transport.

Executive Summary 3 4 Toward Improved Intermodal Freight Transport Between Europe and the United States: Report of the Third EU–US Forum Forum Proceedings

Introduction preserve or grow market share in the cur- Kevin Heanue, rent dynamic environment. Transportation On November 4 and 5, 1999, 42 senior E-commerce has many elements. Most Consultant freight industry executives and govern- derive from the communications revolution ment transport officials met in New York that has been driven by the Internet. E-com- City to exchange ideas about streamlining merce is breaking down communication trans-Atlantic intermodal freight systems. barriers, particularly with respect to dis- This was the third in a series of forums tance. Companies on opposite sides of the on intermodal freight transport cospon- world are electronically as close as those that sored by the European Union (EU) and share a building. The Internet stands apart the US Department of Transportation from many earlier introductions of new tech- (USDOT). Participants have found that nology in that it is cheap and flexible. One the forums help them understand issues measure of this aspect is the fact that it is that cut across modes and governmental simultaneously finding its way into homes lines and allow them to work within their and businesses around the globe. Important own organizations and spheres to acceler- components in the business world include ate progress toward a seamless freight Intranets that are internal to companies and transport system between the United allow greater vertical integration of business “High capital States (US) and the EU. Cochaired by Ken- units than possible in the past. Extranets, transportation neth Wykle, US Federal Highway Adminis- Web services that have privileged access, are providers are at risk trator, and Karel Vanroye of the European facilitating partnering between businesses. of becoming com- Commission, the New York forum examined Dell Computer and amazon.com are of- modity providers, the implications of growth in e-commerce, ten cited as companies with e-commerce where other ele- the prospects for increased standardization business models, reflecting total reengineering ments in the supply of containers, recent advances in the track- of traditional concepts. IKEA is another chain capture the ing and tracing of intermodal shipments, growing company whose trans-Atlantic premium.” and the opportunities and risks of third- expansion is based heavily on an electroni- —Robert Martinez party logistics. cally rich model. By sharing information with members of their supply chain network, these companies are able to reduce inventory, or minimize the situations E-Commerce where inventory sits in a valueless situation. Their supply chain network is char- E-commerce is changing the way businesses acterized by transparency with a continual are structured and revolutionizing the way goods are processed, sold, moved, and dis- Robert Martinez, tributed to customers worldwide. It is creat- Norfolk Southern ing new business roles and relationships Corporation while destroying others. Traditionally, business has stratified itself into discrete special- ties, such as manufacturing, wholesaling, retailing, and purchasing, with transportation as the link connecting these elements. These business practices that have evolved slowly over many decades are now changing at a pace that is mind-boggling. Trans- portation providers are being challenged to adapt to the initiatives of others and to innovate in an attempt to stay ahead of market trends and to provide services that will

Forum Proceedings 5 Kenneth Wykle, nies. Today, however, service organizations Federal Highway as diverse as General Electric, the Port of Administrator Hong Kong, the Port Authority of New York and New Jersey, and City Bank are competing to offer a single, integrated package of intermodal supply chain services. Tensions exist because most businesses have long guarded knowledge about suppliers, quantities supplied, and most importantly prices, and they are uncomfortable making such information available to third parties. E-commerce can also be thought of as markets and transactions, specifically sup- knowledge of location of shipments and porting the transactions and monitoring precise, rather than general, expectations of their fulfillment. One model to help under- arrival times. E-commerce has no place for stand e-commerce is the airline passenger logistics practices where a shipment/con- industry. Airlines have for many years prac- tainer disappears into the “system” with a ticed a form of e-commerce. A passenger can hope of arrival in a week, with no ability to enter the system directly with the airline, be tracked or for customers to be notified if through a travel agent, or in some cases, by problems arise or rerouting is required. using a discount ticket wholesaler. Once a In e-commerce, intermodal supply chains ticket is purchased, a common record is es- involve three elements. Goods are moved, in- tablished that is accessible from multiple formation about the goods and their move- places. The passenger may also make ar- ment is exchanged, and money relating to rangements for hotels, rental cars, or meals the goods and their movement is exchanged. to accommodate special dietary require- Traditionally, these functions have been dis- ments. Travel frequently involves the use of crete, involving different specialized compa- multiple airlines. Increasingly, prospective passengers are conducting Internet searches for travel arrangements that offer the best value or that meet special needs. Regardless “Our experience with a particular e-commerce of how the arrangements are made, a com- initiative at the Department of Defense is that at the mon record is established. Airlines have end of the day it makes the process simpler, but worked out extranet arrangements that gov- getting there makes your life significantly more ern sharing of the common record. complex. You have many players to deal with. You The general public typically considers e- have to look at the entire transaction, not just the commerce a novel substitute for retail shop- ping, and it is. Yet 90 percent of e-commerce shipper and carrier, but the financial community and involves business-to-business transactions. others. Every integration we perform creates another The objectives of businesses adopting a mar- opportunity. Looking at their billing, and payment ket strategy based on e-commerce include process, we found an opportunity to make the entire increasing market share, improving profit- transaction between the shipper and the carrier ability, and in some instances, survival. electronic. The pricing, ordering, billing and payment Partnering with supply chain companies is a key element in starting the process; merely are all on the Web. We have been able to signifi- negotiating for lowest cost is not sufficient. cantly reduce paperwork and labor costs while The supplier must be able to meet the streamlining documentation and payments. It is truly broader logistics requirements of an e-com- turning out to be a win-win situation for the Depart- merce business. Logistics thus moves from ment of Defense and for the transportation carriers.” a post-deal-closing arrangement to an essential ingredient of the contract, requiring that —Mary Lou McHugh, Assistant Deputy Under Sec- there be a marriage of logistics expertise and retary of Defense information technology. Eliminating redundancy in business practices is also an impor-

6 Toward Improved Intermodal Freight Transport Between Europe and the United States: Report of the Third EU–US Forum tant aspect. Reengineering for e-commerce Riccardo Vitale, attempts to sweep away myriad letters, Procter & Gamble phone calls, and faxes with their opportunities for error with a standardized multipur- pose document. Eliminating redundancy also cuts time from the process, with significant cost implications. Trust is another essential ingredient of supply chain management, as transparency of operations requires more sharing of business information in most situations, particularly where third parties are involved. Opinions differ regarding the growth potential of e-commerce and the nature and impact of that growth on transportation. In recent years the monetary value of goods purchased through e-commerce has doubled annually. If this trend continues to 2003, needs today and to demand changes in tra- electronic commerce would amount to $1.3 ditional practices when deemed possible. E- trillion globally. It is, however, a risky busi- commerce companies have a goal and a ness. Some estimates suggest that 75 percent good track record of wringing costs from of all Internet startups will fail. To date, the their supply chains. They have proven ability of the Internet to facilitate transac- adept at finding profit margins in cutting tions has resulted in a large increase in the costs, eliminating redundancies, and offer- number of parcel shipments and a boom in ing better service. Transportation, and gen- business for parcel delivery firms. The erally intermodal transportation, has, along Internet also makes it easier to do business with the Internet, made it possible. Trans- with people at greater distance, but the ac- portation companies operating on very low tual effect of this technology leap on trans- profit margins are at risk if they do not join portation is not yet known. the e-commerce revolution. Forum partici- E-commerce got off to a faster start in pants agreed that it would be very unfortu- North America than in Europe, but the nate if transportation providers were the growth rate in Europe is significant and it source of major savings but derived little of appears there will be no long-term differ- the benefits of the e-commerce revolution. ences in acceptance or application. The im- The driving force in the success of e-com- Karel Vanroye, pact of e-commerce on transportation could merce is the ability to add value in the busi- European differ between continents given the differ- ness cycle. For example, the efficient Commission ences in transportation systems. It appears that the pressures of e-commerce will tend to favor larger, global companies that can afford to reengineer their businesses. The e-commerce revolution has created a powerful dynamic in the transportation industry. In the public sector, transportation planners work with 20-year time frames in planning new facilities. Ports, airports, railroads, intermodal terminals, and large ocean- going vessels require large amounts of capital, and their profitability or use is predi- cated on a long-term horizon. At the same time, e-commerce companies with their reengineered business plans are poised to choose only those options that meet their

Forum Proceedings 7 Christine Johnson, ronment. First are the international trans- Federal Highway portation companies, such as Maersk Administration, US Department of Sealand, which provide competitive ship- Transportation per-to-customer transportation service as well as the required information-laden services, such as tracking and tracing. The second model involves a partnering or marriage of efficient transportation service companies with e-commerce-based logistics providers. The third business model involves companies such as Dell and Amazon.com, which are engineered from the start to use the potential of e-commerce. They develop a product internally or purchase it externally under strict time, quality, and price criteria in a manner that uses business plans and logis- processing and use of information is one of tics to create seamless, low-cost, efficient the new functions that is most important in product delivery. the intermodal transport business. Efficient The jury is still out regarding the full data sharing within and between companies impact of e-commerce on demands for is the enabling ingredient of success. The transportation services. When large ship- ability to manage data sources and informa- ments move over long distances, shipping tion flows is a crucial element to adding costs are lower. We have already seen that value. During the forum the term “info- one impact of e-commerce is to eliminate mediary” was used repeatedly to describe the the impediment of distance on communi- new player in the logistics business, who by cation. Potential sellers and purchasers can using e-commerce has been afforded a much communicate and compare prices world- more complete picture of transportation pro- wide at no more cost than checking locally. viders and their cost and service parameters. Companies like Amazon.com in the cur- The infomediary has no emotional ties to rent stage of e-commerce development one mode or vehicle type, but rather chooses have clearly increased the number of small providers based on cost, ability to meet fairly parcel shipments. Private delivery compa- rigid time requirements, and the quality of nies such as United Parcel Service and Fed- tracking and tracing services. Transporta- eral Express and national postal services tion companies are having a hard time ad- such as Deutsche Post are positioned to justing to the e-commerce reality, which says benefit from the explosion in the demand they must make a heavy investment in e- for parcel delivery. The ability to aggregate commerce ability and be willing to rapidly the increased volume of parcel units into adapt services to the new requirements. The truck and container size scheduled services alternative is to be left behind. opens the possibility of additional providers Transportation assets will always be moving into this expanding market. central to the movement of goods, but many transportation providers are too tied to their capital assets. In the past, ownership meant control. In the transition to e- Infrastructure Investment commerce, knowledge assets are providing a greater return than capital assets. The Significant differences in US and European crucial aspect for today’s transportation intermodal infrastructure investment poli- providers is to link transportation assets cies and practices were initially discussed at into the knowledge/information base so as the second US-EU Forum held in Munich to leverage maximum asset utilization and in 1998. Based on those discussions the par- profitability. ticipants requested that a much more com- Three potentially successful e-commerce plete discussion of the policies, practices, and business models emerge in the global envi- status of infrastructure investment be held

8 Toward Improved Intermodal Freight Transport Between Europe and the United States: Report of the Third EU–US Forum at the third forum. These discussions revealed that the priority interest regarding intermodal investment in the United States, at least infrastructure investment, related to ports. Interest in European infrastructure investment covered a broader set of issues, including dissatisfaction with the European freight rail system and the transitioning of the pre-EU national transportation networks into a pan-European system. US ports have evolved from private entities to municipal functions, to creations of functions, such as warehousing or lift op- Harold Cerveny, authorities set up under state law or, in the erations, but leave other functions to op- TTX Company, case of the few multi-state ports, interstate erating companies. Emilio Fernandez, Transfesa, and compacts. Port financing has varied consid- To bring the MARAD studies up to date, Johannes Fritzen, erably over time depending on the ability of a series of case studies were carried out in Volkswagen the port to generate revenues to cover costs preparation for this forum. Unfortunately, Transport (left to and on the willingness of state or local gov- the case studies point to a continuing decline right) ernments to subsidize port development. in return on US port investment. Ports are The European Union has a policy of under pressure to invest heavily in new fa- transparency with respect to port financ- cilities. At the same time, however, they face ing within member countries, and there burgeoning costs, stagnating productivity, was a desire to compare US port finances and reductions in subsidies from all sources. on a similarly transparent basis. The Mari- This holds true for all ports, and the larger time Administration (MARAD) of the US the port, the greater the pressure. The case Department of Transportation has pub- studies show that the very largest ports re- lished a number of reports over the years that main profitable, but their return on invest- provide overviews and a degree of transpar- ment has plummeted in recent years. ency to US port financing. A 1997 MARAD Overall, the case studies show that nonop- study, An Analysis of US Port Profitability erating ports fared better in terms of profit- and Self-Sufficiency (1985-1994), found that ability than operating ports. with few exceptions there has been a steady The case studies illustrated a unique fea- decline in port profitability. There has also ture of US port financing, namely, the use been a decline in the return, before subsi- of tax-exempt bonds. These bonds, whose dies, on the net investment in plant, prop- interest is not subject to federal taxes, pro- erty, and equipment. The study found that vide a subsidy to port investment that is not the declines held for all port regions of the always accounted for in port finance stud- US and concluded that competitive factors ies, and such subsidy is a finance element “may require the future growth of most US not available to European ports. ports to be funded through taxes and sources Mergers and business alliances in the other than port revenues.” ocean shipping community, along with the The MARAD study also looked at prof- introduction of megaships, are creating the itability from the standpoint of the type greatest pressure for port investment. of operation. US ports follow three oper- Merged firms want more space for consoli- ating models. First are the operating dated operations, but rarely propose produc- ports, where the port authority carries tivity increases to reduce space requirements. out all port operations. Second are the Since ports typically have limited or no ca- nonoperating ports, where the port au- pability to increase operating capacity be- thority may own the land on which the cause of land constraints, they often port exists but leases space to other par- consider creating new land through dredg- ties that carry out operations with their ing and filling. Current environmental own equipment. The third model is the laws and regulations often make this op- limited operating port, where the port au- tion very difficult, and in those cases thority may undertake limited operating where it is possible, the costs greatly ex-

Forum Proceedings 9 grow within reasonable cost constraints. For models, one need only look to the West Coast, where significantly higher port productivity is achieved, and to Asia, where productivity is higher still. Three port statistics are worth examining: lifts per hour, lifts per acre, and dwell time. Each of these measures is a way of looking at port efficiency/productivity. An evaluation of lifts per hour would obviously consider hours of operation—is the lift equipment being used more than 8 hours per day and 40 hours per week? Lifts per acre and dwell time are used to determine the de- Guy Robinson, ceed what can be expected to be amortized gree to which valuable port space is being European through normal business operations. used for storage. Empty containers stored at Commission, and Although megaships offer productivity the port consume valuable storage space, and Rune Svensson, Volvo Transport gains in load size and in-transit speed, they sometimes even full containers are stored on require new landside infrastructure for effi- port property because shippers find it cient loading and unloading, and channels cheaper than moving the goods to a ware- must be dredged to accommodate these house. ships. This is not a technical problem, but Based on the port finance paper that fol- rather an issue of environmental permits lows in this report (see page 43) and the dis- and cost. cussion that occurred at the forum, there is These increased costs make it difficult for a high degree of transparency in US port fi- ports to lower their prices. Major shipping nancing. Nonetheless, difficulties arise in lines drive port charges down by threaten- calculating the value of subsidies from tax- ing to take their business elsewhere. Ports exempt bonds and in ascertaining the value and politicians do not fear the loss of ship- of benefits that carriers achieve in service ping business itself, but rather the loss of and rate negotiations with port authorities. jobs, development, and taxes at their facili- The issues confronting infrastructure investment in Europe are broader. The Euro- Front (left to ties and in their economic hinterland. In right): Thomas parallel with the growth in costs and reduc- pean intermodal market has not achieved the O’Bryant, ABN- tion in prices has been a reduction in subsi- foothold that has been achieved in the AMRO Bank dies available from all levels of government, United States. The US intermodal market N.V.; Knud in keeping with today’s political philosophy includes only 4.5 percent of the rail market Pontoppidan, A.P. measured by carloads and, even at this share, Moller/Maersk; to reduce taxes. Ports are given no special Theodore Prince, treatment when government expenditures the intermodal market must compete on cost Kleinschmidt Inc.; are reduced. and service for every load obtained. Large Rear: John Reeve, Port productivity is stagnating, particu- loads carried over long distances make for Reeve and larly in the area of port landside operations. efficient transportation service. Europe is at Associates; a significant disadvantage compared with Christopher Ross, The landbound, environmentally con- European strained ports of the US East Coast must be- the US when the average haul length of trans- Commission come more productive if they are going to port (rail and inland waterway) is measured. In the US the average haul length is 1050 km, whereas in Europe it is only 200 km. It is very difficult for rail and water transportation services to compete with highway service at that shorter distance. Other factors working against the increase in use of European intermodal transport include higher costs than equivalent road transport, longer transit times caused by pre- and end-haulage in the intermodal

10 Toward Improved Intermodal Freight Transport Between Europe and the United States: Report of the Third EU–US Forum chain, the additional organizational and Robert Ritter, communication burdens required, lower re- Eno Transportation Foundation liability, limited applicability in terms of available cargo, dominance of state-owned companies that serve to limit international strategies, differences in rail gauge in parts of the EU, and incomplete intermodal networks in other parts of the region. The current rail network in Europe is very dense, particularly in Germany, En- gland, and the Benelux countries. Rail lines serve both passenger and goods movement, with very few lines dedicated solely to goods movement. The European inland waterway network is very important in Germany, the Benelux countries, and northern France, where deep natural waterways or canals exist and inland barge transport is significant. Short-haul sea transport has a role in the coastal regions of trate companies operating across borders Europe, but its use is limited by the need to and cause many operational problems. transfer goods to other modes for shipment The EU intermodal infrastructure is also to areas outside the port. beginning to experience capacity problems. Europe is well served by more than 1,000 These problems are primarily due to the in- intermodal terminals. This is in contrast to crease in freight transport resulting from the significant reduction that has occurred growing economies, but are aggravated by in the US in conjunction with track consoli- the inadequate use of existing capacity, dation following rail deregulation. Almost caused by many parties wanting to operate all European terminals are equipped to trans- on the same routes. Compounding the in- ship containers; 60 percent can handle swap frastructure problem is the age of the rail net- bodies, and 50 percent are equipped for work and the increased use of rail facilities trailer transshipment. for passenger transport. As high-speed rail The European intermodal network has transport has substituted for air transport, many strong elements, but there are charac- the frequency of passenger service between teristics, policies, and practices that have led economic centers has sharply increased. Pri- to bottlenecks, which retard use and hinder ority is typically given to passenger service, expansion of the network. The intermodal both in investment and operations. Forum policies formulated by the ministries of participants from Europe expressed frustra- transport of EU member countries range tion at the priority given to passenger ser- from liberalization/deregulation to continu- vice over freight. ation of state influence. Perhaps the most One problem common to Europe and the significant factors limiting intermodal use US is the environmental constraints that and frustrating expansion are the huge dif- hamper extension of rail capacity. Before ferences between the various EU countries new capacity can be added, complex envi- in technical systems, loading units, and ronmental hurdles must be overcome, and transshipment techniques. For example, the cost of any necessary mitigation mea- the EU member countries have a number sures must be borne. A second problem in- of different track sizes, signal systems, cou- volves terminal facilities located in older plings, and power systems. In addition, residential areas, where residents object to there are variations in minimum and the steady stream of truck traffic. Many maximum operating speeds, maximum intermodal terminals once were rail yards authorized lengths and weights of trains, that only served rail-to-rail connections and maximum authorized axle weights of and thus did not require efficient highway wagons. These differences serve to frus- access.

Forum Proceedings 11 port—all of which makes intermodal transport more competitive. The fact that US and European rail systems are evolving along significantly different business models was noted. Since their deregulation, US rail companies have merged into larger, leaner (in terms of track mileage and number of employees), vertically integrated, and more profitable companies. American participants noted that European policy is leading to disassembly of the rail network into infrastructure and operating components and expressed concern that it would be difficult to achieve profitability under such policies. There are many proposals involving public/private partnerships on both sides of the Rolf Hellberg, The last infrastructure problem is an or- Atlantic that are trying to combine the fi- Dow Deutschland, ganizational one. The rail infrastructure in nances and creativity of the private sector and Douwe-Frits Europe is managed by organizations that for with the authority of the public sector to con- Broens, TNO Inro, The Netherlands many years have primarily had an operat- struct new infrastructure. The problem is ing role within national boundaries. Today, that while public /private partnerships may they are being called on to have international facilitate development, basic economics must vision in a much broader operating context. be present and sufficient cash flow must be Until initiatives such as the Transeuropean generated to amortize costs. Unfortunately, Transport Networks (TENs) of the Euro- today’s costs are so high it is very difficult to pean Commission facilitate a change in atti- demonstrate positive cash flow even when tudes and freight achieves equal priority a significant shipment volume is available. with passengers in rail policy, intermodal Competing forces are at work in the US, progress will be difficult. Europe, and Asia on the question of port There are a number of extremely positive productivity. Clearly one option in the US is trends and developments that will likely fa- for ports with smaller footprints and higher cilitate intermodal development in Europe. productivity, perhaps on the order of 5000 First, the growing concern for the environ- lifts per acre. At that scale, ports could per- ment, which makes expansion of transpor- haps amortize improvement costs. The prob- tation facilities difficult, favors intermodal lem is the railroads often want more infrastructure over highway infrastructure. terminals at ports, not fewer, more efficient This trend, sometimes called “green logis- ones. The high productivity ports of Asia tics,” has manufacturers demanding that (with lifts per acre in the range of 10,000 to their logistic service providers offer a broader 12,000) are based on a different business intermodal array of services. Second, the model. They prefer common user facilities very success of road transport is creating rather than the stand-alone dedicated facili- highway capacity problems and decreasing ties characteristic of the nonoperating/land- the reliability of road services. A number of lord models prevalent in the US. The US port EU governments, led by Switzerland, are de- infrastructure case studies showed that com- manding that through freight move by rail. mon user terminals such as Charleston or Third, the trend toward storing and loading Norfolk have been able to control bottom line containers at rail depots away from ports is costs and required lower investment levels also serving to favor the development of than nonoperating/landlord ports. It has intermodal services. Fourth, the formation been argued that these common user termi- of the EU, with its pan-European and in- nals push some costs, such as dealing with creasingly global outlook, coupled with the the terminal operator, the vessel operator globalization of many industries, has in- and, in some cases, the stevedore, on to the creased the demand for long distance trans- shipper.

12 Toward Improved Intermodal Freight Transport Between Europe and the United States: Report of the Third EU–US Forum Current trends in the shipping industry, particularly the megaship phenomenon, are creating a demand for dedicated facilities. Large shipping lines control such sufficient volumes of business that they have the ability, on both sides of the Atlantic, to negotiate with multiple ports. The results of the negotiations are most often determined by concessions that are premised on economic development rather than transportation considerations. In the US, the federal government typically does not play a significant role in such negotiations, even though federal en- riers, and motor carriers. This arrangement Thomas Brown, tities such as the US Army Corps of Engi- has served to foster harmonization and stan- Riss Companies, and Gary Maring, neers ultimately become involved in dredging. dardization within the US intermodal indus- Federal Highway In Europe, while the EU is attempting to de- try. IANA is now looking at the collection Administration, velop trans–European networks, national and dissemination of shipment information US Department of considerations predominate in major port as a next cooperative effort. Transportation development investment decisions. Intermodal business in the US is chang- Several factors that appeared common to ing and has grown significantly, with the both sides of the Atlantic were the trend to- international part of the business having ward, and the need for, public/private part- doubled in the past 10 years. Consolidation nerships in port development and a desire of ports is under way. For example, one-third to see an allocation of customs duties to port of all international intermodal business authorities. Ports everywhere are under tre- comes through the ports of Los Angeles and mendous pressure to upgrade and expand Long Beach (California). Containers domi- their facilities at the same time that their abil- nate the rail intermodal business, account- ity to raise revenue is diminishing, and they ing for 65 percent of combined domestic and lack access to the customs revenues collected international intermodal loads. The excess at the port. rail capacity that existed in the past and per- mitted intermodal freight shipments to grow has been used up. Further expansion of intermodal rail transport is difficult and US and European Concerns costly. In addition, the US intermodal busi- Regarding Intermodal Practices ness has a number of critical constraints and operating difficulties. There is a huge prob- A discussion of best practices in intermodal lem in terminal capacity, particularly in gate- transport turned out to be a popular feature ways like Chicago. One bright note is the of the second forum (in Munich) and was efficiencies resulting from the introduction planned to be repeated at this forum (in New of professional terminal operators at ports York). What actually occurred in New York where operations have been outsourced. Ad- was a session that focused not on best prac- ditional successes have occurred when ter- tices, but that provided a candid assessment minals have been built from the ground up of intermodal practices on each side of the rather than retrofitted from existing facili- Atlantic, with a look at what the future might ties. hold. Connectors present another series of The Intermodal Association of North problems. The links between terminals and America (IANA), which organized the US the US interstate highway system are now presentation, plays a unique role in US being studied. Recent US surface transpor- intermodal transport. They have anti-trust tation legislation has resulted in an encour- immunity from the US government to ad- aging start in investment in connectors minister a standard industry contract that between terminals and arterial highways. covers the interchange of intermodal equip- Peak hours present another significant prob- ment and cargo among railroads, water car- lem. If highway intermodal movement could

Forum Proceedings 13 Phillip Yeager, there is no doubt that further growth will Hub Group, Inc. occur. The only question is the rate of growth. The current pattern of rail network and terminal congestion argues for a revised or rationalized network and a rethinking of terminal locations and operations. A vision was presented at the forum of a national network that would build on existing rail lines, but that would have radically different terminal functions and locations and a different operating scheme. Loadings from major points of origin, such as Los Angeles, would be to major on-line destinations only. These would have sufficient volume to permit maximization of car utilization and lane density. Existing gateways, such as Chicago, be shifted to off-peak hours, there might be St. Louis, and Kansas City, would be limited a significant increase in productivity. The to local traffic only. port-to-rail connection problem is currently The former rework functions of the ex- being debated. The Alameda Corridor isting gateways would be moved to rural ar- project, serving the ports of Los Angeles and eas with low land costs and where there Long Beach, is a very expensive ($3 billion) would be minimal environmental impact. solution to a terminal capacity/connector These new rework terminals would not be problem. The resultant costs of $400 per lift designed to support local businesses, but will be five times more expensive than typi- would serve rail-to-rail transfer and also have cal rates (for example, lift costs in Chicago run-through capability. Enhanced rail-to-rail are in the range of $60 to $70). transfer capability would have to be devel- Intermodal equipment presents a further oped to support the new rework terminals. series of problems. On the positive side there While the development of rework facilities have been major improvements in rail roll- away from major metropolitan areas was “The past cannot ing stock. Stanchions have become fixed and presented as a new national concept, indi- be the future for single axles developed. Slack has been elimi- vidual railroads are already moving in that intermodality in nated between rail cars. Double stack capable direction. Europe.” mileage has increased, significantly boosting The European working group on best —Riccardo Vitale productivity. An intermodal equipment practices focused on what the transportation problem unique to the US is caused by the market has to offer the shipper who wants practice of carriers, not customers, provid- to use intermodal transport. A shipper’s de- ing the chassis. For example, railroads and cision about whether to use rail, road, or steamship lines provide their own chassis, intermodal transport is based on service, which creates problems and excess expense. cost, and the environment. The process is Not only is a large supply of chassis required, the same regardless of the outcome. The but many domestic and international con- group looked at available intermodal services tainers require special chassis. A consider- in Europe with respect to (a) the ability to able logistics challenge exists in repositioning meet shippers’ arrival time expectations, (b) chassis for use, storage, maintenance, and flexibility (the ability to accommodate peaks repair. The development of chassis pools is and valleys of shipping requirements), (c) evolving, usually around a port or marine terminal efficiency, (d) equipment availabil- terminal. Until this practice takes hold, ma- ity, and (e) cost. In addition, the shipper is rine terminals will continue to be parking interested in having updated information lots for chassis, a costly and inefficient use on the location of loads at any point in the of valuable port space. shipping cycle. In Europe such informa- What does the future hold? Although tion is difficult to obtain because the ele- some believe that the intermodal growth ments of the national systems have not rates of the recent past cannot be sustained, been fully integrated.

14 Toward Improved Intermodal Freight Transport Between Europe and the United States: Report of the Third EU–US Forum The quality intermodal service that does Fabio Capocaccia, exist in Europe is based on block and shuttle Genoa Port Authority trains. However, the current intermodal volumes are not sufficient to warrant organizing block trains or shuttle trains on a systematic basis. Railway companies are under great pressure to show positive financial results. Unfortunately, intermodal service is not part of the profit-making side of the European rail business. The working group identified four critical areas that need significant improvement if intermodal freight transport is to succeed:

• information technology Equipment Standards • terminal performance • standardization in both equipment and The evolution of container size in the US is operating conditions traced to 1956, when the first containers • overall reliability. were set at a length of 35 feet to conform to the then-legal highway trailer length. The Reliability was not only a question of International Standards Organization (ISO) speed, but also the ability to predict load ar- entered the field when the US patents ran rival times with greater certainty. out on the first containers. Modularity, in- The European perspective on the future terchangeability, and interoperability were of intermodal freight transport came in the the characteristics desired in setting the stan- form of a preview of the Simple Intermodal dards. Ten-, 20-, 30-, and 40-foot lengths and Tracking and Tracing (SITS) project, a study an 8-foot width were the basis for the origi- funded by the European Commission. This nal ISO standards. Today, 20- and 40-foot study is looking at the intermodal supply lengths have become the norm, and the origi- chain from end to end. Weaknesses in tech- nal 35-footer is gone. Two heights, 8 feet and nologies, gaps, barriers, and legal, political, 8.5 feet, have become standard, and a new financial, and environmental constraints height of 9.5 feet is increasingly seen. There have been identified. The study found that are containers for every imaginable purpose, there were few end-to-end tracking systems. demonstrating the flexibility of the concept. Where systems did exist along a route, they Containers are used in rail, highway, and were not interoperable. The study found that shipping modes and are readily interchange- customers are demanding more information able. While external dimensions are impor- and concluded that better tracking and trac- tant, equally significant are the structural ing are needed. Information is needed for requirements, which provide that all con- both short- and long-term planning, as well tainers, even those longer than 40 feet, be as for customer service. The final report for capable of being loaded, unloaded, and se- the study will include a proposed data col- cured at the 40-foot points. lection interface capable of being interop- The standardization discussion focused erable with the many systems and service on the fact that 45-foot containers are being providers that will constitute European used increasingly in US and Asian shipping, intermodal transport. It is anticipated that and are accepted in Europe under a time- the SITS project will be the forerunner of limited exception to ISO standards. This dis- an industry-owned and -operated planning cussion came after the forum participants and information service for the European heard a summary of the preliminary results transport industry. This will require a criti- of the European Freight and Logistics Lead- cal mass necessary to make the service mean- ers Club’s Working Group on Standardiza- ingful and the statistics useful. A key feature tion. A controversy arose about the Working will be low-cost, Internet-based access to reg- Group’s tentative conclusion that existing istered participants across Europe. European van length limits (13.61 meters/

Forum Proceedings 15 44 feet 7 inches) should be the standard. The Canada, and Mexico under the North Working Group did not recommend continu- American Free Trade Agreement (NAFTA), ing the existing special exception for 45-foot although it was conceded the issue is very containers. contentious. All US participants and some Europeans expressed a strong preference for continuing the 45-foot dimension. It was pointed Third-Party Logistics out that the 45-foot unit need not be feared as the first step in what could threaten to be The concept of third-party logistics provid- an endless cycle of length increases because ers has become a growing reality in Europe the 45-foot dimension both fits within and and the US in recent years, allowing ship- is limited by the rack lengths of container pers to outsource logistics activities that had ships. The original dispensation was granted previously been conducted in house. This with the understanding that the existing 45- growth has been spurred in the 1990s by foot containers would probably be phased increased emphasis on supply-chain man- out. However, the opposite has happened, agement as a tool to improve efficiency and as the use of these containers has increased lower costs. The third-party logistics busi- significantly. Maersk reported the recent ac- nesses use information to significantly re- quisition of 2,000 containers measuring 45 duce inventory through the use of sophisticated feet in length. There was a dispute regard- and expensive data management/analytical ing the actual numbers and role of 45-foot tools. At the same time, these firms provide containers in international trade, particu- opportunities for shippers to outsource la- larly Asian trade. There was unanimity, bor. When a good match occurs between the however, in the view that a study should be shipper and the third-party logistics provider, immediately undertaken to document the the result is enhanced service quality and utilization of 45-foot containers in the glo- lower costs. bal intermodal market as a basis for further In the 1996-1997 period, the use of third- discussion. All participants agreed that the party logistics services grew at an annual rate proliferation of container dimensions had to of over 10 percent in both the US and Eu- cease, but it was unclear where the leader- rope. In spite of the recent high growth rate, ship would come from that could achieve this studies of the logistics market indicate room universally desired outcome. for considerable additional growth, although European participants raised the problem the magnitude of that growth is debatable of US weight limitations on 40-foot contain- and the use of third-party logistics logistics ers that are legal elsewhere around the globe. services have not achieved the levels pre- US participants responded that the best hope dicted by many analysts. for resolution will result from the negotia- In Europe major new third-party logis- tions currently taking place between the US, tics providers, such as Deutsche Post, have emerged as a result of rationalization brought Juhani Korpela, about by mergers and alliances. The concen- Ministry of tration/rationalization is primarily centered Transport and in the Benelux countries as favored locations Communications, Finland for European-centered logistics firms, which also serve the US and Asian markets. The focal point of logistics in Europe is evolving from being country-centered to pan– European and global. Despite the relative growth in third-party logistics providers, there are currently no truly comprehensive international firms. The current third- party logistics service providers tend to specialize either in the US or in Europe and often specialize in specific commodities. The challenge for one firm to be expert

16 Toward Improved Intermodal Freight Transport Between Europe and the United States: Report of the Third EU–US Forum in all commodities and all continents was sive products and long-term customer rela- illustrated by an example of a hypothetical tionships must protect and nurture direct shipment originating in Kansas, destined for lines of communications with customers. inland China. An examination of all the links Anything less could destroy a business. in the supply chain would be extremely difficult for any one firm. Such a role would require the firm to be expert in both domestic and international transport options and International Issues and providers in the US and China, as well as be Governmental Initiatives able to supply all other full-service logistics support. Intermodal liability issues remain a concern. Case studies of third-party logistics expe- More agreement is needed about who is re- rience in the United States indicate a posi- sponsible for goods during each segment of tive, though mixed, picture. There are many carriage. On the US side, a move to amend success stories, but there are also instances the 1936 Carriage of Goods by Sea Act, of shippers backing off from fully outsourced which had generated considerable concern logistics work when the firms realized they at the Munich forum, is at a stalemate. In had relinquished too much control and were large part, the recently passed Ocean Ship- not obtaining the anticipated benefits, or had ping Reform Act, which permits the forma- lost valuable business information and even tion of confidential contracts, has allowed management control. The third-party logis- parties to arrange the terms of liability cov- tics providers have had difficulties in realiz- erage through the contract. The emergence ing profits, finding qualified staff, and of third- and fourth-party logistics provid- achieving truly global, multimodal, and ers means that the strength, stability, and intermodal competence. There are some trustworthiness of these firms are also part noteworthy national firms that have been of the liability equation. successful. Geographically specialized Advances in cooperation in US/EU firms, market niche firms, and modally intermodal freight technology that had origi- biased firms are also meeting with success. nated in the prior forums were reviewed. There is debate as to how far the third- One pilot project, involving a number of party logistics trend will move toward the firms in the automobile industry, is designed universal firm. to support tracking and tracing of contain- Opinion varied about the prospects for ers throughout the intermodal supply chain further growth of fourth-party logistics, and to improve elements of supply chain whereby the third-party logistics concept is management. This project was fleshed out extended and the logistics provider not only at a joint US/EU meeting on Intermodal arranges all transportation services, but also Freight Technology held in Seattle, Washing- deals directly with customers, even taking ton, in June 1999. A related EU-supported orders. This growing trend has received much publicity in the press. The growth po- Klaus Groeger, tential of fourth-party logistics is evidenced Federal Ministry by software firms such as Oracle and of Transport, Microsoft moving into this market with new Building, and Housing, software products that are designed to lower Germany costs and facilitate service. The executives at the forum expressed the view that whether you are dealing with third-party logistics or fourth-party logistics, logistics is a strategic business element and the overall management and key staff must remain in- house, even if operations are outsourced. Similarly, participants—particularly those from Europe—felt that with respect to fourth-party logistics, any firm with expen-

Forum Proceedings 17 Richard Biter, date on e-commerce, recognizing its fa- United States cilitating and technology forcing role in Department of Transportation intermodal transport • Development of statistics on the use of 45-foot containers services, including a quantitative summary of what is actually moving and an overview of the market share of different container sizes in trans- Atlantic and other international markets • Continuation of the discussion of liability considerations in intermodal services • Development of a resource paper on the intermodal issues arising before the World Trade Organization • Development of process mapping of trans-Atlantic intermodal operations effort, the previously discussed Simple Intermodal Tracking and Tracing (SITS) project, is designed to create an industry- Summary owned and -operated planning and information service for the European transport The participants expressed the view that the industry. forum was highly successful. Industry leaders and government officials strongly endorsed continuation of joint pilot project efforts in the area of tracking and tracing of Next Steps intermodal shipments, illustrating one of the tangible benefits of this unique international There was a consensus among the partici- public/private dialogue. Equally important, pants that the forums be continued. In the the executive discussions between high-level ensuing discussion several priority areas government officials and key industry execu- were recommended for attention at the next tives allow forum participants to return to meeting. Focus areas included: their respective organizations with a broader understanding of US, EU, and trans-Atlan- • Financing options and financeability of tic intermodal systems. Finally, forum del- transportation infrastructure with an egates acquire information to lead programs emphasis on new revenue sources and and to take individual actions that collec- innovative financing mechanisms tively facilitate the rapidly growing, fast- • Best practices in intermodal transport, changing world of international intermodal with specific consideration of terminal freight transport. efficiencies • Future transportation technologies within the intermodal transportation business, continuing the successful Munich presentations • Development of comparable baseline data on US/EU costs by mode and lengths of haul, with the objective of obtaining a better comparative descrip- tion of US/EU systems for shipments by rail, truck, barge, and short-haul ship • Discussion of industries best suited for utilization of third-party and fourth- party logistics provider services • Continuation of the excellent work to

18 Toward Improved Intermodal Freight Transport Between Europe and the United States: Report of the Third EU–US Forum How Electronic Commerce May Reshape the Future of Intermodal Freight Transport

Background on Electronic business-to-business sales over the Internet John G. Reeve, Commerce to exceed $1.3 trillion by 2003. Reeve and In order to cope with business and con- Associates Business poll after business poll tell the same sumer needs for secure and confidential ac- story: senior executives of leading compa- cess for the conduct of business, while still nies in Europe and the United States are providing ease of access and communication, staying awake late at night wondering how the basic technology of the Internet has been they may best exploit the very real opportu- further developed to provide three main nities provided by the explosive growth of channels along which e-commerce is being the new “digital economy”—while avoiding conducted today on a global basis: the many pitfalls that await the unwary. The emergence of this new economic model, as • The basic Internet that provides complete different from the industrial economy it is global access over the World Wide Web replacing as that model was from the pre- to any member of the public with the ceding agrarian one, has been driven by the means to log on—e-commerce retailing extension of information technology into all such as amazon.com is an example. aspects of business and the creation of a glo- • Intranets for intracompany networks that bal communications web provided by the use Internet-based communications and Internet. Business as conducted over this control protocols in conjunction with “World Wide Web” has been christened elec- special Internet-compatible Electronic tronic commerce, or e-commerce. This pa- Data Interchange (EDI) software and se- per evaluates the current and likely future curity (“firewalls”) that restrict access to impact of e-commerce on the global supply members of the same organization—in- Figure 1. chain, focusing in particular on the inter- ternal company email and knowledge Electronic modal transport sector. base systems are examples. Commerce Projections E-commerce is currently transforming • Extranets that provide an intercompany ($ Billions) the way business is done across the globe. communications network, again pro- 5 Year CAGR The volume of business-to-business and con- tected by firewalls, for communications 105% sumer-to- business transactions conducted via e-commerce has been growing exponentially— more than doubling each year since 1997 (see Fig- ure 1). Despite the great deal of public attention paid to direct to consumer retail applications such as amazon.com in recent years, the fact is that the vast majority of e-commerce sales are business-to-business transactions, accounting for over 90 percent of current and projected e-commerce volumes. Recent forecasts by Forrester Re- search of Cambridge, Massachusetts, project

How Electronic Commerce May Reshape the Future of Intermodal Freight Transport 19 between a restricted number of affiliated be a major contributor to a company’s prof- users to exchange confidential and pro- itable growth and enhanced shareholder prietary information—a sourcing system value, logistics as a management function has connecting suppliers with a major buyer moved up from the ranks of middle man- is an example. agement to the chief executive officer (CEO) level at a number of leading e-commerce Consumer-to-business e-commerce is es- practitioners. Dell Computers has used the sentially conducted over the Internet. Busi- power of e-commerce to redefine computer- ness-to-business commerce will generally occur retailing and distribution. Dell’s business over the Internet or extranets. The larger the model uses e-commerce as critical links with supplier-buyer relationship, the more likely both customers and suppliers. Dell markets it is that their business will be conducted its products to consumers over the Internet. over a secure extranet. By either mode, the A highly customized product may be ordered growth of e-commerce has been driven by on-line for delivery within a matter of 1 to 2 the Internet’s powerful combination of easy- weeks. Outside suppliers of the necessary to-use information technology and telecom- components (drives, screens, keyboards, etc.) munications that enable faster, lower cost, are linked by an extranet to Dell’s assembly and more efficient commercial transactions and integration sites. Transport providers among enterprises and individuals. are also linked to the same network. When An example of a successful business to a customer’s order is entered, the suppliers business extranet is the Automotive Net- of the required components are notified, and work eXchange (or ANX) that was created those materials begin moving through the by the major North American automobile necessary stages of assembly until the final producers to provide a common purchasing product is completed and shipped to the ul- and parts scheduling/tracking system that timate consumer. Via its creative use of e- connects them with their major suppliers. commerce Dell has built what is essentially Through ANX, order fulfillment processes a “virtual company”—an enterprise that and parts specifications have been standard- behaves and thinks as a single organization, ized across the industry, considerably speed- yet that is created from several separate parts. ing up the order process while reducing Dell focuses on what it is really good at— inventory and parts costs. Reportedly, namely, designing and marketing comput- ANX’s first test case for car seats gener- ers, managing its supply chain, and then ated savings of about a billion dollars for partnering with others who have special the industry participants. Extranets fo- competence in a particular area to provide cused on a particular major buyer’s sup- those capabilities to the overall enterprise. ply chain have been created in other Dell Computer’s outstanding financial industries by such leaders as Wal-Mart in performance speaks for the quality of its retail, DuPont in chemicals, and Hewlett- value proposition. Despite the fact that its Packard in electronics. The evident advan- sales are only 22 percent of IBM’s, the stock tages of an industry creating a common set market values Dell at 56 percent of IBM’s of e-commerce processes and channels to market capitalization. Dell has achieved re- facilitate the conduct of business between cent results of annual growth of 42 percent members of a particular supply chain is in sales, 47 percent in net income, and a re- one of the key factors behind the bullish turn on invested capital of 217 percent, while forecasts of business-to-business e-com- keeping its average number of days of inven- merce growth. tory to 6. Dell’s customer receives a relatively low cost, customized end product on a timely basis. Dell’s strategic partners in its supply chain network are able to reduce inventory Impact of E-Commerce on the levels, cut product lead times, and eliminate Supply Chain many redundant and overlapping intermediate process steps through joint problem- Driven by the recognition that an innova- solving, effective real-time information tive and effective supply chain strategy may exchange, and an overall transparency of the

20 Toward Improved Intermodal Freight Transport Between Europe and the United States: Report of the Third EU–US Forum complete supply chain. Dell’s value proposi- enabling inventories to be reduced and tion has given the company, and its supply production to be more responsive to ac- chain partners, a major competitive advantage tual demand levels and specific customer in an industry in which product shelf life is needs measured in months or even days, not years. The process of getting to Dell’s level of Transportation and logistics service pro- supply chain networking extends back sev- viders play a critical part in such a supply eral years. Initial initiatives to improve sup- chain network. Carriers are expected to pro- ply chain management (SCM) tended to vide timely and accurate information on the focus on the purchasing and logistics func- status of a shipment, to meet increasingly tions. During the 1980s many companies narrower delivery windows, and, as impor- sought to reduce the cost of purchased goods tant, to be able to identify and report poten- and services by leveraging purchasing power tial service disruptions. Within a transportation with a selected group of core suppliers. Typi- industry that is increasingly taking on many cally these quantity discounts proved diffi- of the trappings of a “commodity” business cult to sustain if there were no reciprocal (relatively undifferentiated products, high benefits to the supplier from such an ar- price competition, and resulting industry rangement. More recently, companies have consolidation), the quest for areas of “value- looked to improve their internal functional added” service takes on new meaning in this excellence, seeking to seamlessly integrate context. With greater visibility of all partici- internal processes through the implementa- pants along the supply chain, it should be tion of enterprise resource planning (ERP) easier to identify where value may be truly systems that enable real-time communica- added—to the advantage of the overall ser- tion and the sharing of critical information vice provided by the complete supply chain across an organization. However, such ERP network, not to just one participant. For systems typically have not been successful example, this could involve a carrier trans- when working outside a particular organi- porting goods to a final regional assembly zation to connect to other members of the center where they may be packaged for de- supply chain. As the Dell example shows, e- livery to the ultimate customer. International commerce now provides a medium for such retailers will be able to use carrier services supply chain networking. to bring goods into the country from a num- Scott McNealy, chief executive officer of ber of sources and then cross-dock them into Sun Microsystems, has been a leading pro- shipments to store destinations based on ponent of developing a tightly integrated demand levels at their time of entry into the supply chain network as a critical ingredi- country, not when they were loaded onto ent in his company’s strategy: “At Sun, part- vessel, aircraft, truck, or train weeks earlier. nership is at the core of our business These examples indicate the power of e- model…The right alliances can help influ- commerce in providing a tighter level of in- ence gross margins, reduce costs, and allow tegration along the supply chain. When one us to focus on our core competencies.” examines the international intermodal trans- Examples of the win/win propositions portation and logistics supply chain, three that are shared between participants in such major “dimensions” or process flows along a supply chain network utilizing the power which e-commerce-enabled integration may of e-commerce include the following: occur stand out: (1) the actual movement of goods; (2) the flow of information concern- • Real-time forecasting of production based ing the status of the goods; and (3) the flow on actual demand rather than historical of funds connected to the transfer of own- “rules of thumb” ership of those goods. • Open and transparent production sched- There are currently major e-commerce uling processes that enable customers to initiatives focusing on each one of these di- view what is in the pipeline and time or- mensions. ders effectively while cutting safety stocks Current leading examples of e-commerce • Postponement of product differentiation/ initiatives along the goods flow/transporta- customization until later in the process, tion and logistics service dimension are con-

How Electronic Commerce May Reshape the Future of Intermodal Freight Transport 21 Figure 2. centrated primarily on the initial order func- • The Bolero project, a joint venture of Simplified tion and purchasing of transportation and the Through Transport (TT) Club, an Intermodal Supply logistics services: insurer that covers the liability of Chain Integrated electronic sourcing services intermodal intermediaries and port op- that are primarily driven from the shipper erators, and the Society for Worldwide side have been developed including the ANX Interbank Financial Telecommunication initiative mentioned previously and General (SWIFT), a bank-owned cooperative, is Electric’s Internet-based in-house sourcing putting in place a global electronic net- system that it is now marketing to outside work to handle trade documentation users as the Trading Process Network (bills of lading, for example) on a (TPN). paperless basis. To a varying extent, most major trans- • The Microsoft-led Value Chain Initiative port service providers, including container is seeking to bring together software, shipping companies, railroads, trucking hardware, and supply chain companies companies, and freight forwarders, provide to deliver an “integrated architecture” some level of on-line rate quotation, book- that will facilitate the sharing of critical ing, documentation, and cargo-tracking ser- supply chain information between sup- vices over an Internet site. ply chain partners on a global basis, re- Leading freight integrators such as United gardless of the format and communications Parcel Services and Federal Express offer methods of existing systems, and inte- “integrated supply chain management ser- grate the supply chain communications vices” through global divisions created to with operational systems. focus on this business line (UPS Worldwide • General Electric Information Services Logistics and FDX Global Logistics, respec- (GEIS), in partnership with OceanWide tively). Inc. of Canada, is marketing the Maris On-line freight markets selling transport Cargo Document Exchange that provides services on a spot basis are also being offered an e-commerce solution for shippers, over the Internet by such companies as Na- freight forwarders, and trucking compa- tional Transportation Exchange (NTX), nies to exchange documents (bills of lad- which arranges backhauls for trucking in the ing, delivery instructions, etc.) with ocean United States, and Celarix, also in the United carriers and U.S. Customs. States, which is initially focusing on ocean • Several major ports around the world, in- transport. A number of other companies are cluding Rotterdam, Hong Kong, and New also reported to have similar services under York, are in the process of developing development. “electronic port communities” that use e- In terms of the information flow dimen- commerce to connect the various parties sion, there are also a number of major e-com- involved in moving freight through the merce initiatives: port, including shippers, forwarders, in-

22 Toward Improved Intermodal Freight Transport Between Europe and the United States: Report of the Third EU–US Forum surers, customs, terminal operators, and business model. It is rapidly becoming an land, ocean, and air carriers. accepted and expected medium for business, just as the telephone and postal service be- Within the funds flow dimension, there came universally accepted forms of business are also a number of examples of e-commerce media. Also, as e-commerce matures, we initiatives that affect the intermodal supply are likely to see consolidation in service chain: providers. Amazon.com is willing to invest hundreds of millions of dollars in start-up • Warburg Pincus, GEIS, and Marsh costs to build an e-commerce brand name McLennan (global insurance brokers) are and product in anticipation of holding a partners in TradeCard, a global trade fi- competitive advantage in future e-com- nance network that uses e-commerce to merce retailing. Similar investments are process, control, and transmit funds con- being made by some of the players in e-com- nected to a trade transaction. merce supply chain services. For example, • Citibank has recently unveiled Citi- both UPS and Fedex are reported to be in- Commerce.com, which provides cash vesting around a billion dollars a year each management and security services for in information technology development, business to business e-commerce trans- much of it focused on e-commerce solutions. actions. The presence of information technology heavyweights such as General Electric, IBM, Behind this dizzying array of e-com- and Microsoft behind a number of the cur- merce applications, several companies rent e-commerce supply chain initiatives have emerged in recent years with particu- also suggests that they see this area as being lar expertise in developing supply chain soft- worthy of considerable investment for po- ware solutions. These include i2 Technologies, tential long-term reward. What may these Manugistics, Manhattan Associates, rewards be? PeopleSoft, Baan, and SAP. It is worthy of As noted above, there has already been note that the two leading freight integrators, considerable effort made at integrating sev- UPS and Fedex, have recently announced eral steps along each of the three supply strategic alliances with software developers chain dimensions. However, there has been focused on e-commerce supply chain solu- very little attempt to build convergence be- tions—UPS with Manhattan Associates and tween those dimensions—that is, to combine Fedex with SAP. Similarly, IBM has teamed under an “umbrella” service the manage- up with i2 Technologies to pool their e-comment of the flow of goods, logistics informa- merce and supply chain expertise. tion, and financial transactions for the What is clear from the laundry list complete supply chain. Just as knocking above is that are a wide variety of e-com- down barriers within a company through merce initiatives currently under way that the implementation of ERP systems or impact the intermodal supply chain along within an extended supply chain through one dimension or set of processes. How- supply chain integration yielded signifi- ever, there is no remotely comprehensive cant gains in productivity, the knocking solution in place. There is a great deal of down of barriers between the three sup- overlap and competition between several ply chain dimensions should also bear con- ventures. As usual, the rules of economic siderable fruit in terms of raised efficiency Darwinism are expected to hold, and the and reduced costs. most effective solutions will prevail in the However, the lateral convergence be- marketplace. tween the three supply chain dimensions in conjunction with end-to-end integration of the various steps in the supply chain under a single all-encompassing service provider Outlook for E-Commerce will be no easy task. World-leading best-in- class transportation, logistics, information First of all, we should expect that e-com- technology, telecommunications, and finan- merce will quickly lose its mystique as a new cial service skills will be required across the

How Electronic Commerce May Reshape the Future of Intermodal Freight Transport 23 board. As shown in the figure below, there The growth of e-commerce in the con- are several potential players for this game, sumer sector will place significant pressure but no single organization holds all the on the services that provide home deliver- cards. In this case, we are likely to see the ies. As more and more small parcels move current trend of alliances between organi- around the world, new transport solutions zations that have key strengths in some of will need to be found. It may well be that the required attributes continue. E-com- the current process of the shipper deter- merce will enable these alliances to form mining which parcel service will deliver a “virtual” global supply chain management package to a home will be turned on its entities, managing the umbrella of services head. The customer may select the carrier across all dimensions of the supply chain to handle all of their inbound shipments for shippers. as, given the increasing number and likely Global trade and transportation is a value of such shipments, a high level of highly complex business. Yet, the very fac- security and integration with the customer’s tors that have promoted the growth of e-com- special delivery requirements will be re- merce—its universality, ease of access, and quired (for example, very narrow delivery relatively low cost—will promote global so- windows and lockboxes for the storage of Figure 3. lutions. As Europe and the United States delivery items). Strategic move to paperless forms for transacting trade There are only a limited number of Positioning of and transportation, other parts of the world firms skilled in such home deliveries. This Potential will find it very difficult to hold on to old is true on a local/national level without Electronic bureaucratic practices that significantly un- even thinking about global capabilities. Supply Chain dermine their positions in global trade com- Clearly, postal services have such capa- Managers petition. bilities, as do parcel companies such as

24 Toward Improved Intermodal Freight Transport Between Europe and the United States: Report of the Third EU–US Forum UPS and Fedex. However, there is no The E-Commerce Challenge for single entity with such expertise on a glo- Intermodal Transport bal basis. As e-commerce grows, so will global ship- Companies involved in intermodal trans- ments. The shipments to households in Eu- port, whether carriers by land, ocean, and/ rope or North America will be at the end of or air, intermediaries, or the suppliers of ser- very long, relatively complex global pipelines. vices to the transportation principals, must It is likely that the companies that control ensure that they develop and execute an ef- the delivery end of the pipeline will seek to fective e-commerce strategy that meets two control more of the pipeline that feeds the critical requirements: ultimate home distribution step. It will not be efficient to ship home delivery parcels as • A value proposition that combines high- a single unit along the pipeline. Shipments quality service with low cost and that is will still need to be shipped in larger blocks aligned with the requirements of a global (as they are today) before being broken down electronic supply chain manager virtual for final delivery to the consumer. However, enterprise tighter control will need to be exerted over • Technological capabilities and infrastruc- the complete pipeline/supply chain to ensure ture that will enable the intermodal com- that the right products are delivered to the pany to become an integral partner of or consumer on a timely basis. Information is supplier to such a virtual enterprise the key element in this whole process. An e-commerce based supply chain network There are a number of major intermodal that links all elements of the pipeline on a transport companies that may be able to play real-time transparent basis will help to a leading role in the creation of such a vir- ensure the consumer’s expectations are tual enterprise. For example, Maersk Sealand fulfilled. and APL Limited appear to have the nec- Consequently, there appear to be two essary global scope and depth in transpor- sets of players well positioned from a start- tation and logistics expertise to add ing point to emerge as potential parties to considerable value to any such enterprise. a global supply chain management set of However, their capabilities in e-commerce, umbrella services: freight integrators and while among the best in container shipping, information technology companies with are still well behind those of other major strong supply chain expertise. These play- transportation companies such as UPS or ers will shape the future of e-commerce as Fedex and potential players on the technol- it impacts the supply chain. Neither is ogy side, such as General Electric or i2 Tech- likely to succeed on its own. Rather, they nologies. are likely to succeed in alliances with E-commerce is irrevocably changing the strong partners with complementary rules, processes, and structure of interna- skills that come together to create a vir- tional trade and transportation as we know tual enterprise, an electronic supply it. The strategic choice for many in the chain manager. intermodal transport sector is a stark one: Certainly, there will still be a need for (1) be prepared to survive in a highly other transportation and logistics service commoditized business where high service companies. Ships, aircraft, trucks, trains, levels at lowest cost determine success and warehouses, and terminals will all be re- where your customer may no longer be the quired to handle the continuing growth in actual shipper but rather a global supply world trade. However, the services of such chain manager of enormous scale and mar- companies may become increasingly ket power, or (2) follow the path of value “commoditized”—sold on a wholesale ba- migration to become a leading participant sis to the electronic supply chain manager in such a virtual enterprise, leveraging cur- who will hold the ultimate trump card, rent operational expertise and market control of the customer relationship— knowledge through the application of lead- whether that customer is an industrial ing edge e-commerce technological solutions firm or household. provided by the right strategic partner.

How Electronic Commerce May Reshape the Future of Intermodal Freight Transport 25 26 Toward Improved Intermodal Freight Transport Between Europe and the United States: Report of the Third EU–US Forum E-Commerce, Supply Chain Management, and Intermodality

The Emergence of E-Commerce forms of mediation for intermodal ser- Douwe- vices. Frits The development of e-commerce has been Broens, very strong in the past decade, impelled by The two paths involve very different e- TNO Inro the development of telematics and comput- commerce applications. This paper is built ing power. Its influence as a driving force around this scheme. Karel of change in logistics and commercial pro- The second section of this paper de- Vanroye, cesses is undeniable both within compa- scribes the indirect influence of e-com- European nies and within supply chains, and even merce on intermodal transport by describing Commission in consumer markets. It is generally felt its influence on supply chain processes on that e-commerce changes the context of the shippers’ side, like production, inven- Roger business. Some authors even dare to state torying, and ordering. The third section Demkes, that it eliminates the business cycle doom, describes the direct influence of e-com- TNO Inro giving rise to a “new economy.” Whereas merce on intermodal transport organiza- the influence of e-commerce on, for in- tion and facilitation. The fourth section stance, grocery retail and other markets for describes a future for intermodal trans- goods is the subject of many publications, port, in the light of the probable develop- its impact on markets of transport services ments of e-commerce and other factors in receives relatively little attention, despite the environment of the transport world. the fact that there is ample reason for do- Electronic commerce, or e-commerce, is ing so. E-commerce induces a completely strictly defined as the conclusion of trans- new context for transport business, reveal- actions by data exchange between computing two main influences on the manage- ers. There is another interpretation of ment of logistics: e-commerce, however, that is not restricted to just the electronic conclusion of trans- • It blurs traditional company boundaries. actions, but rather includes • It makes completely new functions and companies appear (and others disappear). • pretransaction support (e.g., forecasts or market information), The effect is even greater on intermodal • transaction support (narrowly defined Figure 1. transport management, where the need for as above), and Relationships significant information means that the in- • post-transaction support (e.g. monitor- Studied in fluence goes to the very core of business. ing, tracking, and tracing) This Paper We may therefore say that e-commerce re- defines intermodal freight business. The objective of this paper is to explain how e-commerce and related information changes and innovations and communication technologies (ICT) e-commerce in supply chains developments offer a new context for intermodal transport. This influence takes two clearly distinguished paths (see Fig- ure 1): new forms of changes in intermodal demand for • By influencing the operation and orga- integration logistic services nization of supply chains, e-commerce influences the demand for transport services. • By offering new management tools and opportunities and threats transparency of transport service mar- for intermodal transport kets, e-commerce gives rise to new

E-Commerce, Supply Chain Management, and Intermodality 27 In the following sections, a close look at The advance and proliferation of Inter- the practice of e-commerce shows that the net technologies in particular will give a different categories are difficult to distin- new stimulus to e-commerce, especially to guish. In fact, it is the combination of ap- electronic catalogues, electronic auctions, plications from the three categories that market information, and tracking and trac- really improves the interconnectivity and ing applications. Such applications have a interoperability of transport systems to a large content of graphically presented in- significant degree. formation, which makes them well suited E-commerce basically facilitates transac- to the Internet. The focus of new develop- tions. Transactions take place in markets, ments will be on creating automated where supply and demand meet and prices agents that are capable of finding exactly are set. Different applications of e-commerce the right information. Intelligent software can be distinguished according to different agents (ISA) are probably the fastest grow- price-setting mechanisms. These include: ing area of information technology. Intel- ligent software agents are characterized by • electronic order calls (within blanket their autonomous completion of tasks del- contracts subsequent to bilateral nego- egated to them, in interaction with their tiations), information environment.1 • electronic catalogues (posted prices and “Conventional” EDI only got through simple allocation rules, such as “first to the larger companies, who could afford come, first served”), and investing in special-purpose interfaces or • electronic auctions (simultaneous price in large ERP packages. Most of the smaller setting and matching of supply and de- and medium sized companies were reluc- mand). tant to get involved in EDI, especially since it often concerned one-to-one applications, The prerequisite technology for elec- which would make them too dependent on tronic order calls is electronic data inter- one large customer or relation. Therefore, change (EDI), not necessarily connected the investments needed to implement EDI, to the Internet. To make EDI possible, the as well as the asset specificity of such in- communicating computers must be linked vestments, have more or less restricted the and be able to communicate (interconnec- application of EDI to interaction between tivity), be able to understand each other, large industrial companies. The Internet, and be able to properly process the ex- however, offers both cheap technology and changed information (interoperability). flexible interfaces. In view of Internet be- The interconnectivity of computers is en- coming a common phenomenon in many hanced by advances in telematics, like households and companies, small or me- Internet and broadband technologies. The dium sized enterprises (SMEs) are ex- interoperability of computers is facilitated pected to apply EDI much more in the by ongoing standardization of message future than they have done up to now. definitions and protocols, as well as by the Apart from integrated EDI applications use of standard professional business plan- like efficient consumer response (ECR), ning software. very few e-commerce ventures have been Before we ever spoke of e-commerce, the reported to be profitable. Setting up a com- first wave of innovation in business-to- mercial Internet site was recently calcu- business communication was the develop- lated to cost at least US $1 million. 2 The ment of business-to-business EDI. It had mail order sites offer low prices but long its first and foremost application in auto- lead times, often in impulse markets. mated ordering. Two later waves of inno- Teleshopping is often supported by an ex- vation have led to a reasonable penetration pensive delivery system. Experts feel3 that of such applications, namely point-of-sale such applications still have to prove their scanners (delivering the data to be ex- value. Expectations are very high though. changed) and standardized enterprise re- We can look at the Dutch situation as an source planning (ERP) software (to example, which is representative of Europe. process the data). Recent investigations in the Netherlands

28 Toward Improved Intermodal Freight Transport Between Europe and the United States: Report of the Third EU–US Forum indicate that e-commerce is just beginning to be applied. In most industries, a few innovative firms are investing, but the use is not widespread and a critical mass is yet to be established (see Figure 2). Still, the amount of Dutch business purchases via Internet doubled this year to about US $1 billion, and private purchases doubled to about US $350 million. The spread of Internet use (see the sidebar on connectivity, below) and the swift development of information infra- structures (i.e., the vast investments of governments and companies in broadband by definition equal to a higher level of mar- Figure 2. communication, GSM networks, and ket transparency; it is the organizations, E-commerce other telematics) lower barriers to entry. institutions, and software systems mak- in Europe Is The United States is currently leading in ing use of it that actually makes the dif- Taking Off terms of the Internet, in both perceived ference. quality and support by company manage- On the other hand, the Internet is a pow- ment. The experience built up in the erful enabler of transparency. It offers flex- United States, however, offers European ible, standardized, and cheap technology to companies valuable lessons (some 75 per- realize business-to-business EDI. There- cent of the current e-commerce projects fore, the Internet is the recommended plat- are said to be stillborn4 ) and might give form to realize multi-user applications. the European companies an advantage Based on the expected proliferation of EDI, when the expected breakthrough occurs. the Internet or its successor will be the Beyond the performance of single ven- vehicle through which companies will tures, policy makers often suppose that e- make data available, either to selected busi- commerce, and especially the penetration ness partners, to government, to special of Internet utilization, could be leading to network communities or the world. higher market performance, due to higher Most multi-party communication will transparency and lower transaction costs. be mediated by trustworthy, special infor- This explicitly includes pre- and post- mation service providers, like AC Nielsen, transaction elements of e-commerce (mar- which provides retail outlet scanner data. ket information, as well as automated transaction monitoring). However, the Internet is a medium like any other, and the benefit of higher trans- Connectivity parency cannot be directly attributed to the Internet, for two reasons. First, as al- In 1998 approximately 95 million people ready stated, pre-Internet EDI already con- worldwide “surfed the Internet” for at least an tributes to market performance. Second, hour per week. About half of the Internet us- the Internet can be used both for open ers live in the United States. In 1999 there will communication and for closed communication (e.g., newspapers versus private be approximately 130 million people surfing mailing). New communication technolo- the Internet worldwide, and this number is gies such as XML are especially tailored expected to increase to 350 million in 2003.5 to authorization and protection of data Less than 50 percent of Dutch SMEs had a con- streams. In many business-to-business nection to the Internet at the beginning of 1999. markets, the perception of the safety and By the beginning of the year 2000, the number reliability of Internet communication that potential users have will be of crucial im- of connections is expected to increase to ap- portance for its eventual breakthrough. In proximately 66 percent.6 short, the penetration of the Internet is not

E-Commerce, Supply Chain Management, and Intermodality 29 Such companies bring in the required re- Consumer Markets liability and authorization of the data transmission, as well as the knowledge In consumer markets, the applications fo- and systems for processing the data prop- cus on convenience products (payment erly into useful information. Many types transfer through banks, food tele-shop- of intermediaries can be distinguished in ping), typical mail order products such as the information service business, some of books, CDs, and videos, and electronic them involved in maintaining and exploit- equipment, or information-intensive prod- ing the infrastructure for applications, oth- ucts with relatively scarce supplies (sec- ers with the applications themselves (see ondhand cars, antique books). Most Figure 3). Infrastructure has to be main- applications concern simple order calling tained by defining and keeping records (bank payment transfers) or electronic of message standards (repositories) catalogues (teleshopping and mail order through the provision of middleware products widely advertised on the (that is, technical software to operate the Internet). Applications like teleshopping hardware) and the telematics hardware offer a new marketplace, where consum- itself. ers are offered tailor-made “shops,” per- Typical examples of e-commerce can be sonally designed to fit their lifestyles and found in many different markets, includ- tastes. Every action taken by the consumer ing the following: on the Internet is recorded and applied to perfect the provision for the next time. Ev- • consumer markets ery comment and every purchase that the • business-to-business markets for physi- consumer makes is reported back into the Figure 3. cal goods channel. Retailers are investing heavily in The Application • business-to-business markets for trans- such e-commerce applications like Platform7 port-based services. teleshopping out of fear of missing what

User organization Service level agreements Development Administration Use

Applications (interface, process and domain objects) Facilitary IT-organization

Application platform

database/repository or ODMS (filing of functions and data) Equipment and exploitation middleware and basic software

hardware components computers, networks

30 Toward Improved Intermodal Freight Transport Between Europe and the United States: Report of the Third EU–US Forum is essentially a new market. In the future, still play a modest niche role.9 In its cur- ICT will go further in defining the envi- rent state, e-commerce in business-to-busi- ronment for consumer-producer interac- ness markets is heavily centralized around tion.8 Smart refrigerators are available. bilateral automated ordering. They might communicate directly with the Together with the automated exchange teleshop to order missing products, where- of pre-transaction data for mutual plan- upon the teleshop service delivers the ning purposes, it gave rise to some impor- product at home, without the consumer in- tant changes in business operations and terfering (ubiquitous computing) or even relations in the last decade, especially in having to care about it (still computing). retail and wholesale sourcing markets.

Business-to-Business Goods Markets Business-to-Business Service Markets In business-to-business markets, an even broader range of e-commerce applications Transport activity is coordinated in sev- can be found. As in consumer markets, eral interconnected markets, especially in business-to-business electronic sales have logistics services (by logistics service pro- to compete with the existing, more tradi- viders, forwarders, third parties) and tional marketing constellations in these transport services (offered by operators markets. Whereas in the United States elec- and carriers). Transactions are supported tronic auctions (for example, eBay.com) are by e-commerce applications in all of these a big hit for all kinds of goods, in the Dutch markets. flower trade, many attempts and vast in- The following sections will give a struc- vestments in electronic auctions could not ture for the influences of e-commerce on seduce wholesalers and retailers to move physical products markets and show some away from the established “physical” auc- examples of this influence, as well as some tions. In the Netherlands, electronic cata- examples of applications in logistics and logues and auctions for flowers and plants transport services markets.

Figure 4. An Overview of Transport- Related shippers/passengers Markets and ICT 10 market of logistic services 1 market information Applications 2 transactions logistic service providers 3 operations management

market of transport services

transport operators/drivers

market of infrastructure services 4 navigation 5 traffic information infrastructure providers 6 traffic management

market of infrastructure investments

7 other transport-related services

E-Commerce, Supply Chain Management, and Intermodality 31 E-Commerce Driving Changes in main requirement for proper coordination Supply Chain Management and management of supply chains is that partners in the chain are sufficiently in- As stated before, e-commerce has two main formed about each other’s processes, so influences on supply chain management: that they can anticipate each other’s needs and reach an overall optimum, • vertical integration between trading instead of reacting to each other for a partners (both shippers and logistic ser- suboptimal result. vice providers) Technological advances in ICT sup- • the appearance of completely new func- port supply chain management because tions and companies. it improves information exchange significantly in terms of lead time, com- Vertical integration between trading pleteness, and transparency. This can partners pertains to information sharing, take place in all stages of the supply common planning, and exchange of exist- chain. For example: ing functions. The new functions are centered around information services. Besides • Data sharing by means of product data functions maintaining the information in- interchange decreases the time-to-mar- frastructure (middleware providers, re- ket for new products. positories for messages and dictionaries), • Information transfer about sales and the most important new functions, espe- orders decreases safety stocks, prevent- cially for logistics services, are that of the ing the bullwhip effect. infomediaries. In this section we will ex- • Sharing production schedules and giv- plain the concept, from a supply chain per- ing real-time order status information spective. In the next section we shall optimizes operations planning. explore its importance in the transport and logistics markets. Supply Chain Planning via the Internet Vertical Integration Well-known examples of companies using Supply chain integration is both supported the Internet to steer their supply chain are and driven by ICT and e-commerce. The Intel, Cisco, SAP, and Dell (which all hap- pen to be ICT-related companies). In the field of logistics, especially global express, parcel companies like UPS and DHL are Data Sharing in Intermodal Transport actively using the Internet in combination with tracking and tracing applications to In the European Union’s Wisdom (Waterborne offer status information on shipments to Information System, Distributed to Other their customers. Modes) project the concept of data sharing has Key to supply chain management effectiveness is the sharing of data among sup- been analyzed for a number of innovation sce- ply chain partners. Clearly ICT can help, narios in intermodal transport. Two alternative but implementing shared database systems implementation strategies were considered— is not easy. Lack of systems compatibility, namely, a central database system and a dis- nonintegrated organizational structures, tributed database. In case of an information and the loss of good local information are need, the latter system would search the data- three key barriers to effective database implementation. Also, how does a firm bases of business partners to see whether this share its information among external in- information is already available. Each actor in formation users in a supply chain? It may the chain can decide for himself what informa- dissolve beneficial information asymme- tion is accessible to others.11 tries, but it may as well serve to increase power by making partners more depen-

32 Toward Improved Intermodal Freight Transport Between Europe and the United States: Report of the Third EU–US Forum dent. A basis of trust seems an important ground, if not disappear altogether. In in- precondition for a firm’s willingness to formation services, many new functions cooperate. can be distinguished. Infrastructure must For instance, worldwide retailers are be provided, maintained, and exploited just aware of the important value of their point- as it is for nonelectronic highways. Traf- of-sale data. They often “sell” this data as fic rules have to be set. Users have to be part of a package deal to their suppliers: registered and licensed. To ensure that the information for better service, information information received is the same as the infor better prices. Under the ECR denomi- formation sent, message modes (i.e., the nator, many producers and retailers suc- vehicles carrying the data and informa- ceed to reduce both inventory levels and tion) have to be defined and standardized. operations. The lead time of the supply Such standards have to be kept in reposi- chain as a whole is also compressed by the tories, they have to be accessible and up to incorporation of point-of-sale data in the date. Besides these hardware and middle- producer’s planning. Often the producer or ware functions, the most interesting de- transporter is given the responsibility for velopments, however, can be seen on the the planning of the retailer’s inventories software side and involve the companies (“vendor managed inventories”). The bet- and institutions sending and receiving the ter exchange of information and the messages, and organizing and processing interoperability of planning systems is one the information flows alongside the physi- of the important drivers in this functional cal flows.16 integration. The focus of ICT investments tends to

shift from internal to external flows. Al- 15 though the added value of these systems ERP via the Internet for internal planning and administration is often doubted,12 many large companies The company QAD releases a new version of have been or are investing in ERP systems its ERP software MFG/PRO with a Web inter- that combine internal planning with ex- face to make transactions via the Internet pos- ternal EDI communication, especially of sible. Another feature is the possibility to link orders. Networks of interconnected ERP to the Federal Express Web site for status in- systems constitute a platform for inter- formation on shipments. organizational exchange of information. Since there is only a limited number of ERP systems providers,13 there is a large degree of harmonization and interoper- A consequence of e-commerce develop- ability between these systems. Whereas the ment is that information becomes more external activities of ERP systems go no fur- easily available to all partners in the sup- ther than to exchange upstream information, ply chain. This is a threat to parties in the new advanced planning systems are avail- chain who have traditionally earned a liv- able from several companies, which actually ing on their access to scarce information. produce an integrated resource plan of sup- Many traditional functions, not only in pliers, distributors, and delivery fleets. To transport and logistics, derive their added respond to customers’ requests, the planner value from better access to scarce informa- incorporates insight in the current capaci- tion (take agents and freight forwarders as ties of his supply chain.14 examples). These functions are either outdated or enhanced by e-commerce. Since the market for these services faces large Appearing and Disappearing economies of scale, the switchover to elec- Functions tronic commerce may leave room for only a few of them. Closely connected to these Given that new forms of information will functions is the function of forwarders, become available, new supply chain roles wholesalers, and retailers. A large part of will arise and old functions will lose their business stems from matching sup-

E-Commerce, Supply Chain Management, and Intermodality 33 ply and demand information, albeit mostly TNT Post and ALS in E-Commerce in combination with logistic functions like Projects17 consolidation, forwarding, storage, picking, and marketing. These companies are fac- TNT Post and the Dutch e-commerce logistics ing more and more competition from elec- group ALS are to launch several new e-com- tronic sales channels. merce operations. One of its customers is e- Both in transport services markets and Quote, which will, before the end of this year goods markets, suppliers and actual users can access each other’s information more and in cooperation with business magazine easily, and direct trade between them is en- Quote, start a company selling the “good things hanced. This consequence is often de- in life,” such as wine, cigars, and gastronomic scribed as disintermediation: certain products. ALS will also become the fulfillment intermediating roles in the chain may be- house for the new store, selling mobile telephone come redundant. Still, in large-scale mar- products of Belcompany, part of the MacIntosh kets like transport, the abundance of Retail Group. Toy company Light House Trading information may lead to overload—parties and radio station 538 will also join forces with in the chain can neither find information ALS for the logistics of e-commerce. they are looking for nor can they simply handle the information available. This opens up opportunities for new roles within the The Overall Impact of E-Commerce on supply chain, often referred to as informa- Transport Demand tion brokers or infomediaries. The developments depicted up to now The overall impact of e-commerce on trans- exercise two opposing forces on the freight port demand is not clear. Depending on which transport demand of shippers. First, e- of the two opposing forces get the upper hand, commerce leads to an increase in freight we can depict two different scenarios of fu- transport demand. Second, ICT tools and the opportunities they create, along with ture transport demand: environmental demands and the need to • e-combustion—Transport is completely sub- stay competitive, all result in a reduction ordinate to customer service; one-stop shop- of transport demand. ping changes into daily “just-for-you” shipments of small packages by mail order Increase in Transport Demand and teleshops; producers require perfect re- sponsiveness of their suppliers, who must Trends towards an increase in transport deliver twice a day instead of once a week. demand are fueled by the fact that, for • e-limination—All opportunities to reduce many products, transport costs play a sub- transport demand are exploited; consum- ordinate role in supply chain decisions. ers and customers require sustainable so- Apart from logistic families having low lutions; service requirements are modest, value density and large party sizes (e.g., leaving room for transport optimization. bulk products), for most goods, modal choice is only the last argument to be con- We can imagine a scenario for the future in sidered, after location choice, market which cities are occupied by small freight choice, product design, service levels, and vans, practicing just-for-you distribution to inventory policies. the consumer. The vans depart from shared E-commerce, together with better planning tools and flexible production tech- warehouses at the city boundaries. Traffic be- niques, enables producers and retailers to tween production centers and shared city ware- minimize inventories and lead times (effi- houses is often long distance and with small cient consumer response) and establish unit shipments, but efficiently organized by responsive production, both in quantity large-scale cooperation and consolidation. and in design (mass customization). This leads to highly fragmented freight ship-

34 Toward Improved Intermodal Freight Transport Between Europe and the United States: Report of the Third EU–US Forum ments, characterized by frequent shipments of less-than-full truckloads to and E-Commerce Success Could Be from distribution centers. Supply chain Hindered by Order Fulfilment Chaos processes move from efficient batch-wise (Part 1)18 processes towards responsive, semicon- tinuous processes. Furthermore, the globalization of sourc- Companies are figuring out how to sell goods ing and the involvement of countries with over the Internet, but getting the goods to the cheap labor in many production chains is customer is another story. As online orders partly facilitated by e-commerce. E-commerce makes information available world- from consumers and businesses soar past the wide. Tracking and tracing facilities make 2 billion per year mark, Internet sellers will be it possible to manage such flows. The faced with logistics chaos. Forrester Research transaction part of the e-commerce sup- predicts that the demand for order fulfilment port for consumer transactions occurs solutions will reshape the existing landscape mainly through credit card billing. Distant as logistics suppliers evolve to serve the partnerships in business to business markets enjoy the services of comparable small-package, individual-oriented needs of “trusted third parties,” like banks. commerce site operators. Order fulfilment has not been a serious e- commerce issue to date because most Internet Decrease in Transport Demand sellers have limited the number of products E-commerce contributes to a decrease in offered on their sites and have executed fulfill- demand by redefining products, increas- ment in-house. But as online sales move past ing outsourcing, and improving consolida- the experimental phase, three factors—an ex- tion between shippers. Various trends panded selection of products sold online, the speak in favor of the “e-limination” sce- need to move large volumes of small parcels, nario: and rising customer expectations—will com- • Direct Logistics—The concept of info- bine to put new pressures on order fulfilment mediation as a separate function makes systems. it possible to optimize physical flows independent of information flows. As a result, many transport movements on the computer screen instead of on indeed skip intermediate storage points. paper and video-on-demand through Infomediaries in business-to-business cable systems rather than from a video- trade channels quit handling all their tape shop). Other products are demate- product themselves, so that transport rialized and distributed through the and grouping of materials can be freely Internet. This first started with com- optimized. Many new teleshopping for- puter software, but new items, such as mulas, applying mail order concepts to musical recordings, books, and bro- grocery products, offer a large opportu- chures, are finding their way to the nity for optimizing transport through Internet very quickly. direct distribution center–to–consumer • Outsourcing, consolidation, and coop- logistics,19 which may reduce urban eration—A historical example shows transport by a vast amount. that ECR or just-in-time deliveries do • Dematerialization—A dematerializa- not necessarily equate to soaring trans- tion of products could be a consequence port movements. Recently, three Dutch of the increase in information. At a retailers entered into a program to macro level we see an ongoing shift in implement ECR, together with four sup- demand from goods towards services. At pliers of perishables. They came to the a micro level we see a change in the form conclusion that a lot could be gained by the product takes on (for example, books organizing transport and production

E-Commerce, Supply Chain Management, and Intermodality 35 planning more responsively, both in sional carriers at the same time, which is terms of money and in product quality. often a first step to intermodal transport. Part of the deal, however, was a coop- • E-commerce in supply chain manage- erative outsourcing of transport and ment facilitates globalization, and warehousing. Many producers who pre- intermodal transport is more efficient viously provided their own transport for longer distances. start to outsource transport to common • E-commerce in supply chain manage- carriers or to cooperate in dedicated ment detaches information flows from transport combinations as a result of the goods flows, thus facilitating separate, increasing pressure on the time between flexible optimization of transport; in the arrivals of various shipments, the lead next section we show that this is one of time, and the load sizes. Another Dutch the best opportunities for intermodal retailer developed new technologies— transport. namely, a truck with flexible compart- ments for nonfrozen, refrigerated, and frozen products—to bring down the E-Commerce and Innovations in number of drops at its outlets. Intermodal Transport

Reviewing all developments, e-com- Whereas e-commerce in supply chain merce seems to lead the way to a better management seems to establish clear op- utilization of intermodal transport ser- portunities for intermodal transport, it is vices. Namely, it indirectly contributes to yet to be proven whether intermodal trans- establish better demand conditions for port will live up to those challenges. intermodal transport to compete with all- Intermodal transport has to compete with road transport: unimodal transport, which is also being enhanced by ICT tools and e-commerce. • E-commerce in supply chain manage- The recent developments in ICT, especially ment leads to fragmentation and less- those in e-commerce, offer the best oppor- than-truck loads (just-in-time deliveries, tunities in decades for intermodal trans- ECR), which is a notoriously hard mar- port to lay down its dust-biting past for ket for intermodal transport. This threat good and move towards a competitive head is, however, countered by an opportunity start. They do so in three ways: because it leads to cooperation between shippers and more outsourcing to profes- 1. Facilitating innovative organizational forms suited to serving the supply chain door-to-door. E-commerce Success Could Be 2. Enhancing service levels by means of - Hindered by Order Fulfilment Chaos door-to-door monitoring services, flex- (Part 2)20 ible transport optimization, and decreasing terminal throughput time. 3. Increasing efficiency by optimizing ca- Although a few fulfilment vendors like pacity utilization over all modes. Fingerhut and Valley Media are geared up to service the largest e-commerce sites, most In this section we first sketch the com- online sellers ship less than 400 orders a day petitive playground, and then consider the three contributions of e-commerce. — too small to get any help. But over the next 2 years, Forrester predicts that new outsourced services will evolve to deliver end-to- Service Requirements end solutions to smaller online players. These companies will offer improved drop-ship ser- The supply chain management trends devices and provide a range of residential deliv- picted above not only offer intermodal ery options. transport opportunities to improve its performance, but they also lead to ever stricter

36 Toward Improved Intermodal Freight Transport Between Europe and the United States: Report of the Third EU–US Forum service requirements (frequency, reliability, lead time, information provision, risk Table 1. Customers’ Perception of Transport of damage to cargo, complexity of admin- Modes21 istrative procedures, thinking along with the customer) and an increasing number Characteristics Truck Rail Inland vessel of small consignments and less-than-truckloads, a market that intermodal transport Reasonable prices 1.9 2.9 1.7 has lost almost completely. If intermodal Reliability 1.6 2.7 2.1 transport is to win back a part of the grow- Punctuality 1.7 2.5 2.5 ing less-than-truckloads market and really Service 1.7 3.1 2.6 take substantial volumes off the road, it will Flexibility 1.2 3.7 3.4 have to comply with these demands, start- Speed 1.3 3.4 4.1 ing by improving its image (see Table 1). It Total 1.6 3.1 2.7 is clear that if intermodal transport is to be able to compete with unimodal road Scale ranges from 1 (very good) to 6 (deficient) transport, it should drastically improve both its perceived and its actual service level. To this end, it needs organizational of information infrastructure providers formats better suited to provision of ser- and so-called fourth- or fifth party logis- vice and information, sophisticated logistics service providers. Actually, these par- tics concepts, and advanced information ties are often not directly involved in systems. logistics (for instance, ICT providers, banks, or consultants). Apparently, the business environment E-Commerce Enhancing Door-to- fitting best with the need for advanced Door Transport Service intermodal services is made up by mode- Organizations independent and mode-neutral forwarders, as opposed to the current modally In testing different organizational struc- driven companies. Such forwarders are tures and information systems in container typical examples of infomediaries, process- transport, a recent study22 concluded that ing and providing information as their core optimal transport performance is obtained business. These new integrators, resem- by a centralized decision structure having bling intermodal marketing companies flexible access to all modes. This knowl- (IMCs), have the best chance of develop- edge is confirmed by European studies on ing the skills to serve the increasing de- tracking and tracing in intermodal trans- mand of high-quality logistics services. port, showing that unwillingness to share E-commerce facilitates infomediaries in data among companies has been the larg- different ways. Infomediation itself is of- est impediment to implementing such ser- ten realized in the form of an electronic vices. That implies that door-to-door market. Constituting the intermodal tracking and tracing can only be achieved either by companies large enough to im- pose new technologies and data sharing Sky-Eye 23 (like TNT does in its intermodal forwarding) or by uninvolved, independent par- The worldwide operating satellite provider ties, so-called trusted third parties. In other company Sky-Eye offers not only technology industries, such companies have both and hardware for world-wide container track- made a good living and proved to be a vi- ing, but also information on location, move- tal catalyst in organizing the data sharing between the trading partners. Research ment and standing times of containers, companies (AC Nielsen), ICT companies estimated time of arrival, reefer and tank con- (Baan), banks, consultants, and coopera- tainer diagnostics (temperature, pressure, tives have played such roles. In transport etc.), and container utilization rate. infomediation, we can see the emergence

E-Commerce, Supply Chain Management, and Intermodality 37 Figure 5. The Information Shortcut through Shippers Infomediation Market of logistic services

Infomediary system Logistic service providers Market of transport services

Transport operators

infomediaries on the basis of an integrat- Recent European Projects on ing information system implies direct in- Intermodal Tracking and Tracing 25 formation connection between shippers and transport operators without the inter- Based on a purely rail-bound system (Trace-Rail) ference of a third logistics party (see Fig- developed for Deutsche Bahn, Bertschi and ICF, ure 5). Several examples of such systems an extended system for door-to-door tracing— are available in transport, like Europe- based Téléroute for truck load balancing, TraceIntermodal—is being marketed. The sys- which operates on Minitel, a predecessor tem is marketed and operated by its developer, of the Internet. These systems not only TraceCare. Currently, the system is being tested make it possible to pass over the traditional in a network of four rail terminals in Germany intermediaries, they also establish com- and the Benelux countries. Data gathered pletely new markets. through GSM technology is stored in a central database and made accessible through the Internet. Test results are expected in the spring E-Commerce Enhancing Intermodal Services of 2000. The Greece-based intermodal INFOLOG sys- To date, virtually no progress has been tem integrates EDI and the automated equip- made in establishing efficient systems for ment identification systems of shippers, carriers, the door-to-door tracking, tracing, and monitoring of intermodal flows, despite and terminal operators. In a demonstrator ver- past experiments made in this field. sion, tools and interfaces are provided to all Whereas the road transport sector contin- parties to monitor and control the cargo door- ues to introduce real-time information sys- to-door. The integration of all systems in a tems that can report on the status of any transport chain management system allows consignment being shipped to clients, constant tracking of cargo by all actors. The intermodal transport has virtually noth- 24 TRACAR system focuses on monitoring the con- ing comparable to offer. There are a num- ditions and positions in and about reefer con- ber of reasons for this. In Europe, nonroad carriers invest relatively little in informa- tainers. It has been set up by a consortium of tion technology. Furthermore, the organi- participants in the whole supply chain for these zational structure of intermodal transport products. is not suited to processing the information Other comparable projects are FITE, UK- needs connected to intermodal transport. based and focused on door-to-door tracing in Information simply is not the core busi- the Manchester-Milan rail corridor, and CESAR, ness of traditional forwarders. Currently, several attempts are made to establish info- German-based and focused on exchanging mediaries for intermodal tracking and tracking and tracing data between railroad com- tracing (see the sidebar on European track- panies. ing and tracing projects). In 1992 the Eu- ropean Union’s promising Combicom

38 Toward Improved Intermodal Freight Transport Between Europe and the United States: Report of the Third EU–US Forum initiative did not work out due to high technology costs and low penetration of the supply chain optimization concept; today, several products are being tested on the market in Europe for container tracking in intermodal transport. Most of these recent projects benefit from technological advances (like GSM technology) and from supply chain initiatives by shippers, which more or less force carriers to cooperate. In the implementation, problems do still typically arise in the division of costs and benefits. This calls for an integrated supply chain perspective when implementing intermodal, door-to- door monitoring systems. single-mode operators were able to sched- Figure 6. ule such that their mode was efficiently Different E-Commerce Enhancing Intermodal Types of E- used, which gave rise to significant econo- Commerce Efficiency mies of scale, now even small intermodal Applications operators, without a significant position in in Intermodal Examples of e-commerce applications can any single mode, can achieve comparable Transport be categorized along the different links in efficiency as a result of the market trans- the intermodal transport chain (see Fig- parency and access provided by the single ure 6). We distinguish systems facilitating mode systems. The distinction between the following: single-mode transport and intermodal transport gradually disappears. • collection and distribution transport (e.g., Téléroute) • terminal operations (consolidation, in- US and Europe’s Leading Internet ventory and transshipment, customs)— Applications in Freight Transport 26 e.g., smart cards • access to unimodal services As an Internet application, shipment tracking • mode integration (combinations of the is the top freight transport application both in above systems, overall optimization, and North America and in Europe (responsible for, tracking and tracing) respectively, 21.7 percent and 20 percent of all Internet applications available). In North Particularly eye-catching is the activity of America, quote request is second (14.7 percent hubs (port authorities, airports, container of applications), and services showing load and terminals) in innovative information sys- equipment availability for tender purposes to- tems. Many of these organizations have complete, multi-functional virtual hubs or “data gether make up 18.7 percent. The second type hubs” parallel to their physical hubs. of application in Europe is interactive schedul- The unimodal e-commerce systems ing (6.5 percent). Electronic transaction support achieve consolidation, optimizing capacity and EDI-like applications show about the same utilization and total distances over some- percentages in Europe and in North America (ap- times hundreds of operators and thousands proximately 6 percent). of loads per day. Such systems are both a threat and a blessing for intermodal trans- Even more interesting is the dispersion of ap- port. They directly increase the competi- plications over providers. North America–based tiveness of unimodal transport. But they companies have more than twice as many ap- make it possible for the intermodal service plications as their European counterparts. provider to outperform the single-mode operators. That is, where before only

E-Commerce, Supply Chain Management, and Intermodality 39 Single mode systems may be used as a feres with markets of both physical prod- part of an intermodal optimization algo- ucts and transport services. It leads to com- rithm, as intended by den Hengst,27 to re- pletely new organization forms, and it has duce empty capacity and mileages on a strong impact on the nature of physical collection and distribution transport of good flows. It is unclear if e-combustion intermodal trips. As such, they are a cru- or e-limination will prevail. The odds are cial part of the toolkit of any intermodal in favor of the latter. More outsourcing, service provider trying to keep pace with better cooperation and consolidation be- the all-road competitors. tween shippers, more substantial flows over To face the threats, as well as to seize longer distances, and a more flexible organi- the opportunities, posed by e-commerce, zation of transport will also create more op- we may conclude that there is a need for portunities for inter-modal transport. intermodal integrators able to access all Although e-commerce offers goods oppor- unimodal markets, to optimize over these tunities, the challenges facing intermodal markets, and to deliver optimal value and transport in Europe are multifaceted, and service to the shippers. some structural changes are necessary for the transport world to live up to them. Bet- ter service and reliability and better efficiency must be achieved, and it can be done Future Trends and Expectations by a change of organization and coordination structures. Service applications, like Reviewing the considerations and ex- tracking and tracing, and efficiency opti- amples of the previous sections, several mization over the entire intermodal net- conclusions can be drawn. The progress work (see Figure 6) imply gathering and of ICT technology and e-commerce inter- analysis of data from all firms in the network. Data sharing among transport and logistics firms, involved in a strong com- Planning and Routing Intermodal petition, had proved difficult if not impos- System (Paris—Intermodal Transport) 28 sible to bring about. It gives rise to expectations that there The Paris information system is operated by is a special role for independent special- its developer, Cairo Systems, an information ized infomediaries. There have been some technology provider. The system is used by successful examples. Not only are these firms necessary to realize e-commerce on several shippers and deep-sea container car- a broad basis in intermodal transport, but riers like SeaLand, which uses the system in e-commerce tools and technology are a sine Felixstowe. Paris plans the hinterland trans- qua non to these infomediaries. Some of port of containers to and from ports. The main them will essentially be just an e-com- objective of the system is to minimize empty merce tool (for instance, an electronic mileage and to reduce transport costs within marketplace for loads and capacity, sup- the rules and preferences indicated by the vari- ported by a supposedly neutral ICT firm). ous shippers. The cooperation that is estab- Others will be fourth-party service com- lished between the shippers and deep-sea panies, again neutral, stemming from carriers leads to an increase in efficiency that banks or consultants, perhaps even from is not achieved by individual logistics service trusted parties in transport. Both the providers. Furthermore, it creates flexibility infomediary systems and the fourth-party service providers will rely heavily upon since shippers can use a larger scope of trans- electronic data transmission to and from port operators and each transport operator is their clients and suppliers, upon electronic free to determine what capacity he puts in and transaction support and tracing applica- what orders he accepts. Monitoring of operations, and upon electronic subtools like the tions by means of tracking and tracing ser- unimodal infomediary companies. Recent vices is not available. research has revealed29 that such neutral infomediaries

40 Toward Improved Intermodal Freight Transport Between Europe and the United States: Report of the Third EU–US Forum • directly mediating between shippers and With current transport demand and exist- carriers, ing capacity, only information and orga- • supported by a comprehensive battery nization structure have to be changed in of electronic tools and interfaces, order for the trains to start moving. And • flexibly optimizing over a number of this is, as we have seen, the largest con- different transport solutions, and tributor of e-commerce in intermodal • offering reliable door-to-door services transport. The future is bright for European will be able to deploy the possible gains intermodal transport. Growth can be pre- from intermodal transport. dicted because of the ongoing liberaliza- Besides data sharing, one other hin- tion and increase of scale on the supplier drance to applying e-commerce had been side, the ongoing standardization across the technology cost. Technological progress boundaries, the investments in technology makes better techniques available at lower and “brainports,” and the efforts of sev- costs, and this at a still increasing pace. eral European institutions. E-commerce Tracking and tracing technologies and data and infomediaries will, however, be the transmission technologies are becoming most important driver, especially in the increasingly cheaper, and with Internet next 5 years. penetration, anyone can interface with the world. We may expect that developments in cargo transport will follow the developments in the transport of high-value goods, Endnotes like passengers and express delivery packages. It may therefore be expected that, in 1 Khoo, Tor, Lee, S.G., The potential of in- the coming years, common carriers will telligent software agents in the World Wide Web deploy complex electronic booking devices, in automating part procurement, International such as airlines have done. That door-to- Journal of Purchasing and Materials Manage- door tracing, which is common in express ment, Winter 1998, pp.46-52. delivery (UPS, FedEx), will be common- 2 www.gartner.com, 1998. place in container and other transport 3 AKK Foundation, Chains and ICT, chains as well. Rosmalen, NL, 1998. Looking to the development of Euro- 4 A. Drobik, CEO and CIO Alert: Five Mis- pean intermodal transport as compared to takes that Will Derail an E-Business Project, the North American situation, short-sea Gartner Group. and inland waterway transport is well de- 5 Estimates by Marketeer, 1999. veloped and is adapting swiftly to ICT de- 6 Estimates by Maastricht University, 1999. velopments. The expectation is that 7 AKK Foundation ibid, 1998. e-commerce will offer the best opportunity 8 OECD, 1998. for the European railroad cargo transport 9 van Heck, 1998. to follow the US example. Germany is re- 10 T.M. Verduijn et al., Transport policy for sponsible for the majority of rail cargo in the integration of information and communica- Europe. The Benelux countries, with their tion services, TRANSINPOL project funded by central position in European cargo trans- EC, DG VII under contract ST-96-AM-1152, port, are miraculously lagging behind. The Delft, NL, 1999. market seems ready; due to increasing con- 11 R. ter Brugge, D. Henstra, L. Verspuij, gestion on the roads, attempts are being T.M. Verduijn, WISDOM, potentials in data made to transport even perishables like sharing in container transport, TNO Inro and fresh-cut flowers by train. Many large Telematics Application Pro-gramme, Trans- Dutch shippers are constantly stressing port, project funded by EC, DG XIII, Delft, NL, the need to organize rail services to im- 1997. portant export destinations. Research has 12 Callahan and Nemec, 1999. shown that even without additional infra- 13 SAP, Oracle, PeopleSoft, Baan and J.D structure projects, there is enough capac- Edwards dominate the ERP-market. ity to accommodate at least part of the flow. 14 Kaaij, J. van der, Trends in the supply chain,

E-Commerce, Supply Chain Management, and Intermodality 41 Tijdschrift voor Inkoop en Logistiek, October 1996, 23 K. Jeffery, Recent developments in con- pp. 62-63. tainer tracing technology, Cargo Systems, Lon- 15 Computable, 10 September 1999. don, February 1999. 16 AKK Foundation, ibid. 24 P. Alling, G. Klein, Freight @ Internet: the 17 ALS/Nieuwsblad Transport, 10 Septem- impact of internet technologies in the freight ber 1999. transport market, Transport Technology Pub- 18 www.forrester.com, August 26, 1999. lishing, London, 1998. 19 Bartolotta, S., Norek, C.D., Voelz, B., The 25 K. Jeffery, ibid, 1999. consumer direct grocery channel: what are its 26 P. Alling, G. Klein, 1998, ibid. The over- logistics challenges, Proceedings of the Annual view can be biased since Internet has a higher Conference of the Council of Logistics Management penetration in North America than in Europe, Anaheim, CLM Oakbrook, 1998, pp. 67-76. and other media were not included in the over- 20 www.forrester.com, August 26, 1999. view. 21 EBD, ANAST and ÖIR, Shifting Cargo to 27 M. den Hengst-Bruggeling, ibid, 1999. Inland Waterways, final report, project carried 28 H.A. van Klink,, Towards a joint planning out within the 4th FP, Duisburg, 1998. centre of inland container transport in Rotterdam 22 M. den Hengst-Bruggeling, Inter- Tijdschrift Vervoerwetenschap (in Dutch), organisational coordination in container transport: 1999. a chain management design, Delft, NL, 1999. 29 M. den Hengst-Bruggeling, ibid, 1999.

42 Toward Improved Intermodal Freight Transport Between Europe and the United States: Report of the Third EU–US Forum The Self-Sufficiency of U.S. Ports and the Role of State Subsidies

Preface reported on in section two. Finally, part John E. five, in the interests of transparency, re- Ricklefs, Ph.D., This paper is in response to a discussion views reports covering port subsidy pro- Moffatt & at the second intermodal forum, which re- grams found in the US. Nichol vealed there to be policies within the Eu- International ropean Community and the United States that seek greater transparency and consistency in port finance. Summary of Conclusions Heightening the transparency of US port financial practices is certainly honor- The US Department of Transportation’s able enough an objective for conducting Maritime Administration (MARAD) research leading to a paper. But if, as stated, study covering the period 1985 to 1994 one is looking for opportunities for coor- found a steady decline in the self-suffi- dinated action, then it would seem useful ciency of US ports.1 It also found a consis- to take the analysis further than identifi- tent increase in the average operating ratio, cation and classification. As dismal and a decrease in the average operating mar- complex as this subject may be, it is never- gin, and a steady decline in the net return theless fundamental that we come to grips (before direct subsidies) on the net invest- with the role that subsidies take over time, ment in plant, property, and equipment. Its within the political/financial environment general conclusion was that competitive of ports. Thus, in this paper we will attempt factors “may require the future growth of to place subsidies within a historic trend most ports to be funded through taxes and traced by US ports toward more or less self- sources other than port revenues.” sufficiency. Questions to be asked and The case studies carried out as an ex- hopefully answered in this paper include tension of the MARAD study tend to sup- the following: port the above conclusion, but with some fundamental differences. The most out- • Is the trend of US ports toward greater standing impression given by these case or lesser profitability? studies is the tendency toward diminish- • What impact do subsidies have on this ing returns on investment. Ports are un- trend? der duress to invest heavily in new • What is the trend of return on port as- facilities, but to do so in a context of bur- sets, and do subsidies have an impact? geoning costs, stagnating productivity, and • Do either of the above trends differ sig- reductions in subsidies from all sources. nificantly by size of port? This conclusion holds true irrespective of • Is success in the US port sector associ- the size of port—in fact, the larger the port, ated with megasize and megasubsidies? the more representative its behavior is. • What about the future—will U.S. ports The size of investment required for new require more or less subsidies? container terminals is skyrocketing. Most of today’s costs were not even present a few This paper is divided into five parts. The years ago, with from 50 percent to 60 per- first part summarizes the conclusions of cent of the total accounted for by land rec- the paper. The second part defines terms lamation and environmental mitigation. key to the understanding of the analysis. Furthermore, the demand for terminals is The third part summarizes the results of a usually from new amalgams of old tenants, key study on the profitability of ports in i.e., alliances and mergers. Typically the the US. The fourth part reports on the re- demand from these quarters is for termi- sults of four case studies specially con- nals sometimes twice the acreage of the ducted for this paper. These case studies sum of the partners’ previous facilities. are designed to update the results of those With rare exceptions the new terminals do

The Self-Sufficiency of U.S. Ports and the Role of State Subsidies 43 not exhibit significant increases in produc- sales, administrative, and depreciation ex- tivity. The best productivity levels in US penses without reliance on subsidies. terminals run about 3500 lifts per acre and have remained in this vicinity for the 5 Direct Subsidies—Direct subsidies include years covered by this study. So demand for income from balance sheet items such as new megaterminals remains strong, accom- tax levies, contributions, grants, donations, panied by minimal productivity increases. economic development programs, and Certainly no one can report on increases cross-subsidies. The latter is considered a in the prices ports can charge their clients. subsidy only if significant sums are shifted In fact, the prices appear to be going down. from one port authority department to the Ports seem to have nearly lost control of other consistently over a series of years, the pricing of their terminals. Major inter- for the express purpose of achieving a national shipping lines have learned how breakeven performance (for instance, if to leverage ports downward not by aggres- accounts indicate that regularly monies are sive competitive pressures, but through shifted from the airport department to the political pressure. Never before in the marine department). It should be noted that United States have we gone through a pe- port-published financial statements tend to riod in which public port agencies have had obscure such shifts. Payments out of port their prices so manipulated by private com- income rendered to city or state owners and panies using political pressure. Of course not in response to services received are con- the political pressure is rationalized by sidered to be a form of negative subsidy. stressing the losses in jobs and taxes if the shipping line were to pull its service out Indirect Subsidies—Income from sources and go elsewhere. not shown on the balance sheet constitutes Parallel with the growth in costs and indirect subsidies. They include navigation reduction in prices has come a reduction expenditures by the US Army Corps of in subsidies available. Most state and local Engineers (its cost share) for maintenance governments follow the lead of the federal dredging and channel deepening projects. government and at least pay heavy-duty lip It also includes expenditures by city, state, service against “corporate welfare” and for or federal government for infrastructure “tax reduction.” Most port managements explicitly intended, at least in part, to im- are under heavy pressure to reduce such prove access to the port. A third category dependency, where it exists. of subsidy is that extended by the federal Unless ways are found to relatively re- government to public infrastructure devel- duce terminal investment and to increase opment agencies throughout the United productivity and pricing, the conclusions States (not just ports) in the form of low- of this paper must support those of interest, tax-free revenue bonds. These MARAD—namely, that “future growth of bonds typically allow port authorities to most ports will have to be funded through obtain loans for public-purpose projects at taxes and sources other than port rev- interest rates two or more percentage enues.” points below the prime rate.

Operating Ratio—The operating ratio is a self-sufficiency performance measure de- Definition of Terms termined by dividing the total operating expenses by gross operating revenues. In Self-Sufficiency—For the purposes of this this paper it is calculated with and with- paper self-sufficiency and profitable are used out the inclusion of direct subsidies. interchangeably. A port is defined as profitable if it has a positive net income, not Operating Margin—The operating margin including direct or indirect subsidies. is an additional measure of port financial Thus, a port is deemed self-sufficient if it performance and is calculated by dividing generates sufficient operating income to net operating income by gross operating cover its operations, maintenance, security, revenues.

44 Toward Improved Intermodal Freight Transport Between Europe and the United States: Report of the Third EU–US Forum Net Investment—Net investment covers were designed to extend these trends from investment in plant, property, and equip- 1994 to 1998. ment and includes the cost of land, build- With few exceptions the MARAD study ings, equipment, and other improvements, found a steady decline in the average num- minus their accumulated depreciation. ber of profitable ports during the 10-year period. It also found a consistent increase in Net Return on Net Investment—Net return the average operating ratio, a decrease in the on net investment in plant, property, and average operating margin, and a steady de- equipment is calculated by dividing the net cline in the net return (before direct subsi- income, with or without direct subsidies, dies) on the net investment in plant, by the net investment in plant, property, property, and equipment. The general con- and equipment. clusion was that competitive factors “may require the future growth of most ports to Total Subsidies Ratios—Several ratios have be funded through taxes and sources other been crafted to measure the impact of the than port revenues.”3 Specific findings in sum of both direct and indirect subsidies. each of six major categories were as follows. They include (a) subsidy/gross income and (b) subsidy/net income. Port Region

Note on Data Confidentiality, The MARAD study found that irrespec- Availability, and Credibility tive of port region,4 US ports did not increase their self-sufficiency over the 10 The Eno Transportation Foundation re- years from 1985 to 1994 (that is, net in- quested that case studies be conducted es- come before direct subsidies declined in pecially for this paper. The relatively short all regions). It also found that ports in all time available to conduct these studies has regions exhibited a generally low rate of in itself limited their number to four. Tim- return on net investment. Thus the study ing was also a key factor in determining concluded (in 1994) that such a perfor- which port chief financial officer was mance would not support the high cost of available on relatively short notice. In all constructing port improvements and cases, however, ports allowed themselves equipment. to be subjects for a publicly available paper only if anonymity was guaranteed by the author. This is the reason why the Port Size Based on Gross Operating cases studied are referred to only as num- Revenue ber one, two, three, or four. A reliable and exhaustive coverage of indirect subsidies Size of port in terms of gross operating rev- would require an effort beyond the scope enues was found to be the only character- of this paper. For the purposes of this re- istic of significance, and that only relatively view, reliance has been placed on inter- so. Increases were found in only the two views of authorities in the position to highest gross operating income categories5 know. Reliability and certainly exhaustive- (that is, for ports with gross incomes ei- ness cannot be guaranteed. ther between $40 million and $75 million or in excess of $75 million). The study also observed that the operating ratios for all revenue categories show an The 1997 Analysis of US Public increase over the 10-year period, with oper- Port Profitability (1985–1994)2 ating margins showing a corresponding decrease. Of course, the opposite movement in In June of 1997 MARAD published an these two indicators signifies general dete- analysis of trends in port profitability cov- rioration of financial performance. ering the 10-year period from 1985 to 1994. Ports with an average gross operating The case studies carried out for this paper revenue of less than $10 million (50 per-

The Self-Sufficiency of U.S. Ports and the Role of State Subsidies 45 cent of the ports studied) exhibited a nega- The other two categories, operating and tive average operating margin from 1990 limited-operating, showed a declining trend onwards. in the number of profitable ports. The average net return on net assets in Operating ratios for all categories gen- plant, property, and equipment on all of the erally increased over the study period, with revenue categories show a steady decline average operating margins showing a cor- during the 10- year study period. Ports in responding decrease. The average net re- the smallest revenue categories had an av- turn for all of the revenue categories erage negative return for the last 5 years of declined steadily during the 10-year period. the study period. Limited-operating ports had an average The study also revealed that direct sub- negative net return in 3 of the 5 years ana- sidies to ports were sufficient to eliminate lyzed, including 1994. In 1994, operating negative returns on investment in the ports had a net return of only 0.7 percent. lower revenue categories. Direct subsidies were sufficient to eliminate the negative return on investment for the nonoperating and limited- Port Size Based on Net Investment operating ports. in Plant, Property, and Equipment The MARAD study also investigated port profitability relative to the type of gov- Conclusions on port profitability in rela- ernment department, agency, or authority, tionship to net investment and port size and by the extent to which the port admin- paralleled those based on operating rev- istration had a strong commitment to long- enue. During the 10 years observed, an range planning. The study found the case increase in profitable ports was found of the former to be of little consequence only in the largest net investment cat- and of the latter to be of “significance.” egory6 of ports, with net investment in plant, property, and equipment in excess of $250 million. Operating ratios for all investment cat- Port Self-Sufficiency Case egories showed an increase over the study Studies 1994 to 1998 period, with the exception of ports with a net investment in plant, property, and As noted earlier, the case studies done for equipment in excess of $500 million. this paper were designed as an extension In 1994 all of the categories with a net of the earlier analysis carried out by investment of less than $250 million MARAD. Because of the observed signifi- showed an average negative net return. In cant relationship between port revenue size that year, direct subsidies were sufficient and self-sufficiency, the ports to be exam- to eliminate the negative net returns for ined were chosen solely on the basis of size. all investment categories except for the A comparison between the size categories $100 million to $250 million category. used in both studies is shown below (Table 1). Note, for the purposes of this study, a larger category was created. The informa- Type of Operation tion for the case studies was obtained from interviews carried out on site by the au- The 1997 MARAD study also looked at thor in August 1999. profitability from the standpoint of type of operation.7 Interestingly, enough the study found the number of profitable nonoper- Case Study Number 1—Hub Port ating ports to have been consistently greater than the number of ports not prof- Case study number one represents one of itable in each year of the study period. The the largest ports in the United States, with nonoperating category of ports was also the gross operating revenues in excess of $100 only group that did not show a declining million in each of the 5 years studied. trend in profitability for the 10-year period. Table 2 presents for 1994 through 1998

46 Toward Improved Intermodal Freight Transport Between Europe and the United States: Report of the Third EU–US Forum Table 1. Characteristics Port Size MARAD Case of Ports Study Study Included in ($ million) ($ million) MARAD Study and Ports Included > 100 Case No. 1 in Case 75 to 100 >75 Case No. 2 Studies 40 to 75 40 to 75 Case No. 3 20 to 40 20 to 40 Case No. 4 10 to 20 10 to 20 < 10 < 10

Table 2. US Port Financial Self-Sufficiency Analysis 1994-1998, Case Study 1 Gross Operating Revenue in Excess of $100 million

US$ (thousands) 1998 1997 1996 1995 1994

Operating Income Income from Operations 188,578 177,230 218,650 151,512 128,817 Nonoperating Income 00000 Operating Income without Subsidies 188,578 177,230 218,650 151,512 128,817 Operating Income with Subsidies 188,578 177,230 218,650 151,512 128,817

Operating Expense Operating Expense 38,238 38,053 52,479 34,786 30,378 Depreciation & Amortization 45,582 34,703 37,528 26,039 25,234 Total Operating Expense 83,820 72,756 90,007 60,825 55,612 Nonoperating Expense 42,319 19,975 36,660 36,671 10,578

Net Income Net Income without Subsidies 62,439 84,499 91,983 54,016 62,627 Net Income with Subsidies 62,439 84,499 91,983 54,016 62,627

Net Investment Investment, Accumulated 1,533,041 1,264,079 1,264,079 855,948 855,948 Depreciation, Accumulated 289,408 277,466 277,466 229,136 229,136 Net Investment 1,243,633 986,613 986,613 626,812 626,812

Operating Ratio Ops Ratio without Subsidies 0.67 0.52 0.58 0.64 0.51 Ops Ratio with Subsidies 0.67 0.52 0.58 0.64 0.51

Operating Margin Ops Margin without Subsidies 0.33 0.48 0.42 0.36 0.49 Ops Margin with Subsidies 0.33 0.48 0.42 0.36 0.49

Net Return On Investment Net Return without Subsidies 0.05 0.09 0.09 0.09 0.10 New Return with Subsidies 0.05 0.09 0.09 0.09 0.10

The Self-Sufficiency of U.S. Ports and the Role of State Subsidies 47 the port’s financial performance with and Operating Expense—Operating plus non- without direct subsidies. It covers the fol- operating expense exploded relative to in- lowing accounts: come, growing at 23 percent CAGR over the 5 years. • Operating income, with and without direct subsidies; Net Income—It is not surprising that the • Operating expense, both operating and port’s net income exhibits a nearly stag- nonoperating; nant growth; in fact, it is slightly negative. • Net income, with and without direct subsidies; Net Investment—Net investment grows at • Net investment; a rate of nearly 17 percent (CAGR). • Operating ratio, with and without direct subsidies; Operating Ratio—The nearly 6 percent • Operating margin, with and without growth in the operating ratio underlines direct subsidies; and the port’s less than positive financial per- • Net return on investment, with and formance. without direct subsidies. Operating Margin—This performance in- Operating Income—Operating income dicator further reinforces the picture of a grew throughout the period at a 7 percent relatively dismal financial performance. compound annual growth rate (CAGR) During the same period, the port’s main Net Return on Investment—The negative revenue cargo—containers—grew at a rate 13 percent growth in return on investment of 8 percent. As noted, the port received no over the 5 years indicates a shift from the nonoperating income (i.e., direct subsidies). previous time period where the MARAD

Table 3. US Port Financial Self-Sufficiency Analysis Case Study 1

Evaluation of Direct and Indirect Subsidies 1998 1997 1996 1995 1994

Income and Investment US$ (thousands) Gross Operating Income 97,689 177,230 218,650 151,512 128,817 Net Income 62,439 84,499 91,983 54,016 62,627 Investment 0 257,020 0 359,801 0

Subsidies US$ (thousands) Direct Tax Income 00000 Appropriations -6,244 -8,450 -9,198 -5,402 -6,263 Dredging Maintenance 00000 New Channels 00000 Access 00000 Cross-Subsidies 00000 Bond “I” Rate Diff. 17,137 10,350 13,786 9,735 6,955 Total Subsidy 10,893 1,900 4,588 4,333 692

Ratios Subsidy/Gross Income 11% 1% 2% 3% 1% Subsidy/Net Income 17% 2% 5% 8% 1%

48 Toward Improved Intermodal Freight Transport Between Europe and the United States: Report of the Third EU–US Forum report found that ports of this size main- net income. The only other subsidy iden- tained a positive growth in return on in- tified is that labeled bond “i”(interest) vestment. Diminishing returns to scale are rate differential, which estimates the exhibited. value of federal government subsidies Table 3 sheds further light on the per- extended to all state and local level enti- formance of the port in case study num- ties in the form of tax-free bonding ca- ber one. Here the impact of total subsidies pability. The amount of this indirect (direct and indirect) is examined. Two subsidy obviously grows at nearly the items stand out. First, the port’s perfor- same rate as the port’s investments. It mance is restrained by the payments made accounts for the negative growth in the annually to its owner. These “negative relationship of total subsidies to gross in- subsidies” average 10 percent of the port’s come and to net income.

Table 4. U.S. Port Financial Self-Sufficiency Analysis 1994-1998, Case Study 2 Gross Operating Revenue Between $75 to $100 million

US$ (thousands) 1998 1997 1996 1995 1994

Operating Income Income from Operations 80,965 71,024 62,254 55,278 45,584 Nonoperating Income 00000 Operating Income without Subsidies 80,965 71,024 62,254 55,278 45,584 Operating Income with Subsidies 80,965 71,024 62,254 55,278 45,584

Operating Expense Operating Expense 46,366 42,881 41,301 37,434 31,816 Depreciation & Amortization 15,773 15,086 14,671 12,234 11,742 Total Operating Expense 62,139 57,967 55,972 49,668 43,558 Nonoperating Expense 110 -2,112 -2,755 617 317

Net Income Net Income without Subsidies 18,716 15,169 9,037 4,993 1,709 Net Income with Subsidies 18,716 15,169 9,037 4,993 1,709

Net Investment Investment, Accumulated 531,777 496,851 468,509 458,923 436,162 Depreciation, Accumulated 180,556 165,277 151,385 138,396 128,046 Net Investment 351,221 331,574 317,124 320,527 308,116

Operating Ratio Ops Ratio without Subsidies 0.77 0.79 0.85 0.91 0.96 Ops Ratio with Subsidies 0.77 0.79 0.85 0.91 0.96

Operating Margin Ops Margin without Subsidies 0.23 0.21 0.15 0.09 0.04 Ops Margin with Subsidies 0.23 0.21 0.15 0.09 0.04

Net Return On Investment Net Return without Subsidies 0.05 0.05 0.03 0.02 0.01 New Return with Subsidies 0.05 0.05 0.03 0.02 0.01

The Self-Sufficiency of U.S. Ports and the Role of State Subsidies 49 Overall Performance of Case Finally, in spite of definite 5-year Number One negative trends, this port is currently quite profitable and will remain so for The performance of case number one is some time without the benefit of direct important because it represents a class of subsidies. the largest ports in the United States. The overall impression is one of deteriorating economic performance, mainly because of Case Study Number Two—Major Port apparent diminishing returns on investment. There are two likely causes: lack of Case study two is a major port, ranking growth in the productivity in the use of among the top ten in the United States, the terminal’s revenue-earning facilities with gross operating revenues in excess of (lifts per acre), or lack of the growth in $75 million in 1998. Table 4 presents for facility pricing commensurate with invest- 1994 through 1998 the port’s financial ment costs. In the case of this port, it is performance with and without direct sub- doubtful that bottlenecks in the inland sidies. It covers the following accounts: access can be the cause of stagnant productivity increases. Whichever the case, • Operating income, with and without while indirect subsidies do exist, they do direct subsidies; little to mitigate the deterioration. Perhaps • Operating expense, both operating and most important, the picture obtained from nonoperating; these most recent 5 years indicates a shift • Net income, with and without direct downward from the previous 10 years in self- subsidies; sufficiency of the country’s largest ports. • Net investment;

Table 5. US Port Financial Self-Sufficiency Analysis Case Study 2

Evaluation of Direct and Indirect Subsidies 1998 1997 1996 1995 1994

Income and Investment US$ (thousands) Gross Operating Income 80,965 71,024 62,254 55,278 45,584 Net Income 18,716 15,169 9,037 4,993 1,709 Investment 0 19,647 14,450 -3,403 12,411

Subsidies US$ (thousands) Direct Tax Income 00000 Appropriations 00000 Dredging Maintenance 1,100 0 1,100 0 1,100 New Channels 00000 Access 00000 Cross-Subsidies 00000 Bond “I” Rate Diff. 1,442 1,519 1,577 388 39 Total Subsidy 2,542 1,519 2,677 388 1,139

Ratios Subsidy/Gross Income 3% 2% 4% 1% 2% Subsidy/Net Income 14% 10% 30% 8% 67%

50 Toward Improved Intermodal Freight Transport Between Europe and the United States: Report of the Third EU–US Forum • Operating ratio, with and without direct of this indirect subsidy obviously is mini- subsidies; mal. This port’s outstanding profitability • Operating margin, with and without was minimally affected by the receipt of direct subsidies; and subsidies. • Net return on investment, with and without direct subsidies. Overall Performance of Case Two— Operating Income—Operating income grew Major Port throughout the period at a rapid rate of 12 percent CAGR. During the same period, The performance of case study two is im- the port’s main revenue cargo—contain- portant not so much because the port is ers—grew at a rate of 7 percent. As noted, big, but because of the way the port is op- the port received no nonoperating income erated. Unlike the other cases examined, (i.e., direct subsidies). the second case is an operating port. Clearly the port had its hands well on levers of fi- Operating Expense—Operating plus nonop- nancial power during the 5 years. The con- erating expenses were held in pace with clusion that operating ports have done income at a 7 percent CAGR. Net income better than nonoperating ports conflicts exhibits a remarkable growth of over 60 with the trends developed in the MARAD percent CAGR. report. Statistics fail to reveal the difficult future facing this port. Living well within Net Investment—The key to this port’s stel- its means has meant that investments in lar performance can be found in its mini- its future have come strictly from its earned mal investment over the 5-year period. revenue, leaving little on current account to cover major expansion projects. Success Operating Ratio—A negative growth of 4 for this port has brought it face-on with its percent clearly reflects this port’s positive future, necessitating the development of a financial performance. major expansion project. The port knows significant price increases to be highly un- Operating Margin—This performance in- likely, so it has little alternative but to seek dicator further reinforces the picture of a an investment grant from its owner. relatively positive performance. Today’s antisubsidy fiscal climate makes this alternative difficult to achieve. Perhaps Net Return on Investment—It is no surprise the conclusion regarding case study two is that in a context of rapid increases in in- that it has merely postponed a deteriora- come, low levels of operating expense, and tion in its profitability. Certainly subsidies little or no investment, the port’s return have played little or no role in this port’s on investment grew over the period at past, but they may do so in the future. nearly 40 percent CAGR.

Table 5 sheds further light on the per- Case Study Number Three—Medium formance of case study two. Here the im- Sized Port pact of total subsidies (direct and indirect) is examined. Two items stand out. First, Case study number three is perhaps the the port has received indirect subsidies in most representative of the ports studied. It the form of expenditures for maintenance represents one of the many US ports in the of channel depth. This is the cost ac- $40- to $75-million gross income class. counted for by US Army Corps of Engi- Table 6 presents for 1994 through 1998 the neers. The only other subsidy identified port’s financial performance with and is that labeled bond “i”(interest) rate dif- without direct subsidies. It covers the fol- ferential, which estimates the value of fed- lowing accounts: eral government subsidies extended to all state and local level entities in the form of • Operating income, with and without tax-free bonding capability. The amount direct subsidies;

The Self-Sufficiency of U.S. Ports and the Role of State Subsidies 51 • Operating expense, both operating and Operating Income—Operating income in- nonoperating; creased throughout the period at a little • Net income, with and without direct over 2 percent CAGR. During the same subsidies; period, the port’s main revenue cargo— • Net investment; containers—grew at a rate of 3 percent. • Operating margin, with and without About 10 percent of the port’s operating indirect subsidies; come is received from its owner’s tax base. • Net return on investment, with and without direct subsidies; and Operating Expense—Operating plus nonop- • Operating ratio, with and without direct erating expense grew at 3 percent CAGR subsidies. over the 5 years.

Table 6. U.S. Port Financial Self-Sufficiency Analysis, Case Study 3. Gross Operating Revenue Between $40 and $75 million

US$ (thousands) 1998 1997 1996 1995 1994

Operating Income Income from Operations 55,557 57,789 53,265 51,737 49,330 Nonoperating Income1 6,300 5,899 5,897 6,098 6,088 Operating Income without Subsidies 55,557 57,789 53,265 51,737 49,330 Operating Income with Subsidies 61,857 63,688 59,162 57,835 55,418

Operating Expense Operating Expense 33,009 33,533 31,195 31,121 30,129 Depreciation & Amortization 14,098 13,068 12,230 11,228 10,845 Total Operating Expense 47,107 46,601 43,425 42,349 40,974 Nonoperating Expense -2,992 -2,397 -2,333 -2,455 -2,121

Net Income Net Income without Subsidies 11,442 13,585 12,173 11,843 10,477 Net Income with Subsidies 17,742 19,484 18,070 17,941 16,565

Net Investment Investment, Accumulated 549,664 476,776 455,507 447,228 422,441 Depreciation, Accumulated 176,597 162,738 149,731 137,721 403,419 Net Investment 373,067 314,038 305,776 309,507 116,788

Operating Ratio Ops Ratio without Subsidies 0.79 0.76 0.77 0.77 0.79 Ops Ratio with Subsidies 0.71 0.69 0.69 0.69 0.70

Operating Margin Ops Margin without Subsidies 0.18 0.21 0.21 0.20 0.19 Ops Margin with Subsidies 0.29 0.31 0.31 0.31 0.30

Net Return On Investment Net Return without Subsidies 0.03 0.04 0.04 0.04 0.09 New Return with Subsidies 0.05 0.06 0.06 0.06 0.14

1 Revenue from ad valorem taxes.

52 Toward Improved Intermodal Freight Transport Between Europe and the United States: Report of the Third EU–US Forum Net Income—It is not surprising that the is examined. Three items stand out. The port’s net income exhibits only a slight up- port’s performance is enhanced by annual wards growth trend (1 percent). tax receipts. Another subsidy identified is that labeled bond “i”(interest) rate differ- Net Investment—The port has, however, in- ential, which estimates the value of federal vested heavily in its future, with net invest- government subsidies extended to all state ment growing at nearly 26 percent CAGR. and local level entities in the form of tax- free bonding capability. It will also be noted Operating Ratio—The port exhibits nearly that the port has been the beneficiary of no movement in the operating ratio over off-site highway expansion, and the port’s the 5 years, with or without subsidies. cost share has been estimated as shown. Subsidies as a percentage of net income Operating Margin—This performance in- increase at a rate of a percentage point a dicator further reinforces the picture of a year, hitting 45 percent by 1998. Obviously, relatively level financial performance. subsidies play a major role in the profitability of this port. Net Return on Investment—Returns on this medium sized port’s investment have fallen by about two-thirds. This indicates a simi- Overall Performance of Case Three lar issue of price or productivity as faced by case study number one. The performance of case study three is important because it represents a large class of Table 7 sheds further light on the per- US ports. The overall impression is one of formance of case study three. Here the im- level economic performance. The port is pact of total subsidies (direct and indirect) profitable with or without subsidies. Be-

Table 7. US Port Financial Self-Sufficiency Analysis Case Study 3

Evaluation of Direct and Indirect Subsidies 1998 1997 1996 1995 1994

Income and Investment US$ (thousands) Gross Operating Income 61,857 63,688 59,162 57,835 55,418 Net Income 17,742 19,484 18,070 17,941 16,565 Investment 83,000 59,029 8,262 -3,731 192,719

Subsidies US$ (thousands) Direct Tax Income 6,300 5,899 5,897 6,098 6,088 Appropriations 00000 Dredging Maintenance 00000 New Channels 00000 Access 50 50 50 50 50 Cross-Subsidies 00000 Bond “I” Rate Diff. 1,677 1,638 1,071 1,212 655 Total Subsidy 8,027 7,587 7,018 7,360 6,793

Ratios Subsidy/Gross Income 13% 12% 12% 13% 12% Subsidy/Net Income 45% 39% 39% 41% 41%

The Self-Sufficiency of U.S. Ports and the Role of State Subsidies 53 sides the port’s receipt of subsidies, its Case Study Number Four—Medium heavy investment coupled with deteriorat- to Small Sized Port ing return on investment are its two most interesting features. This port has focused Case study number four is the first port its investment specifically on intermodal where subsidies really make the difference facilities aimed at minimizing terminal between a negative or positive net income. dwell time and hence land use productiv- It represents one of the many US ports in ity of its assets. It is expected that in the the $20- to $40-million gross income class. future the fruits of this investment policy Table 8 presents for 1994 through 1998 will be felt in terms of increased return on the port’s financial performance with and investment, with direct and indirect sub- without direct subsidies. It covers the fol- sidies included. lowing accounts:

Table 8. US Port Financial Self-Sufficiency Analysis 1994-1998, Case Study 4 Gross Operating Revenue Between $20 and $40 million

US$ (thousands) 1998 1997 1996 1995 1994

Operating Income Income from Operations 36,508 37,369 37,942 35,311 32,196 Nonoperating Income 5,850 4,574 23,616 18,605 40,227 Operating Income without Subsidies 36,508 37,369 37,942 35,311 32,196 Operating Income with Subsidies 42,358 41,943 61,558 53,916 72,423

Operating Expense Operating Expense 24,741 24,741 24,880 23,820 23,728 Depreciation & Amortization 11,400 12,290 11,125 10,800 10,500 Total Operating Expense 36,141 37,031 36,005 34,620 34,228 Nonoperating Expense 968 968 1,380 5,985 1,579

Net Income Net Income without Subsidies -601 -630 557 -5,294 -3,611 Net Income with Subsidies 5,249 3,944 24,173 13,311 36,616

Net Investment Investment, Accumulated 223,946 223,165 183,600 182,000 189,600 Depreciation, Accumulated 11,460 11,232 10,107 9,983 10,254 Net Investment 212,486 211,933 173,493 172,017 179,346

Operating Ratio Ops Ratio without Subsidies 1.02 1.02 0.99 1.15 1.11 Ops Ratio with Subsidies 0.88 0.91 0.61 0.75 0.49

Operating Margin Ops Margin without Subsidies -0.01 -0.02 0.01 -0.10 -0.05 Ops Margin with Subsidies 0.12 0.09 0.39 0.25 0.51

Net Return On Investment Net Return without Subsidies 0.00 0.00 0.00 -0.03 -0.02 New Return with Subsidies 0.02 0.02 0.14 0.08 0.20

54 Toward Improved Intermodal Freight Transport Between Europe and the United States: Report of the Third EU–US Forum • Operating income, with and without Table 9 sheds further light on case study direct subsidies; four’s performance. Here the impact of total • Operating expense, both operating and subsidies (direct and indirect) is examined. nonoperating; Four items stand out. The port’s perfor- • Net income, with and without direct mance is enhanced by annual tax receipts. subsidies; Appropriations from a number of state pro- • Net investment; grams are received. The port receives a ma- • Operating margin, with and without jor indirect subsidy in the form of channel direct subsidies; maintenance dredging. The fourth area of • Net return on investment, with and subsidy is identified as bond “i”(interest) without direct subsidies; and rate differential, which estimates the value • Operating ratio, with and without direct of federal government subsidies extended to subsidies. all state and local level entities in form of tax-free bonding capability. Direct plus in- Operating Income—Operating income direct subsidies play a large but diminishing without direct subsidies grew throughout role as a percentage of gross income. Just the the period at a little over 2.5 percent CAGR. opposite must be said for net income. Counting subsidies, its revenues actually decreased owing to a major reduction in the level of grants and appropriations. Overall Performance of Case Four

Operating Expense—Operating plus non- The performance of case study four is impor- operating expenses were held fairly level tant because it also represents a large class of over the 5-year period. US ports. From the MARAD report, one ex- pects and finds a high level of subsidies Net Income—As the MARAD report coupled with profitability depending on sub- showed, ports of this size cannot be self- sidy. What is difficult to reveal in statistics sufficient without subsidies. With subsi- is the effort that the management of this port dies, they can be. What is most important has extended to reduce its receipts from this to note, however, is the major effort man- source, a sevenfold reduction in 5 years. Also agement has made to pull the port out of during this period it has held its expenses the red. It has literally cut its losses six- steady while simultaneously increasing in- fold. vestment solely from retained earnings. The port now foresees the need for a major ex- Net Investment—While improving its bot- pansion, which it understands can only tom line, the port has paid for investment come from retained earnings. Both port mainly from retained earnings and, to a management and those of its owner disclaim lesser extent, from subsidies. The port’s net dependence on subsidies in the future. investment has grown over the 5 years at a rate of 3.5 percent CAGR.

Operating Ratio—An operating ratio State Programs for Financing above one is bad, but in 1999 the port will Port Development break even. The Lyndon B. Johnson School of Public Operating Margin—This performance in- Affairs, University of Texas at Austin, has dicator further reinforces the picture of an published a remarkable series of documents improving financial performance. on state-sponsored port subsidy programs available in the United States. These reports Net Return on Investment—Net return on include: investment shows little improvement. This reflects an increase in investment unac- • The Texas Seaport and Inland Waterway companied by increases in traffic and by System, Policy Research Project No. 114, severely constrained prices. 1994-95

The Self-Sufficiency of U.S. Ports and the Role of State Subsidies 55 Table 9. US Port Financial Self-Sufficiency Analysis Case Study 4

Evaluation of Subsidies 1998 1997 1996 1995 1994

Income and Investment US$ (thousands) Gross Operating Income 42,358 41,943 61,558 53,916 72,423 Net Income 5,249 3,944 24,173 13,311 36,616 Investment 0 553 38,440 1,476 -7,329

Subsidies US$ (thousands) Direct Tax Income 500 500 500 500 500 Appropriations 5,350 4,074 23,116 18,105 39,727 Dredging Maintenance 7,710 14,983 8,658 4,676 7,253 New Channels 00000 Access 00000 Cross-Subsidies 00000 Bond “I” Rate Diff. 140 189 241 306 368 Total Subsidy 13,700 19,746 32,515 23,587 47,848

Ratios Subsidy/Gross Income 32% 47% 53% 44% 66% Subsidy/Net Income 261% 501% 135% 177% 131%

• Port-Related State Programs and Federal 3 U.S. Department of Transportation, Ibid, Legislative Issues, Policy Research page 2. Project No. 117, 1995-96 4 U.S. Port Regions included: North Atlan- • State Programs for Financing Port Devel- tic ports, South Atlantic ports, Gulf ports, North opment, 1997 Pacific ports, South Pacific ports, and Great Lakes ports. The last document reviews in detail port 5 Port size was classified in terms of annual subsidy programs for the States of Wiscon- gross operating revenue as follows: 1) in excess sin, Minnesota, Oregon, Louisiana, Florida, of $75 million 2) between $40 million and $75 and California. Those interested in a major million, 3) between $20 million and $40 mil- effort toward providing transparency to this lion, 4) between $10 million and $20 million, subject should study these documents. and 5) under $10 million. 6 In the MARAD 1997 study, net investment in plant, property and equipment was classified into the following categories: 1) in excess Endnotes of $250 million, 2) from $100 million to $250 million, 3) from $50 million to $100 million, 1 U.S. Department of Transportation, Mari- 4) from $25 million to $50 million, 5) 12.5 to time Administration, An Analysis of U.S. Port 25 million, and 6) less than $12.5 million. Profitability and Self-Sufficiency (1985-1994), 7 The type of port operations studied were Washington, D.C., June 1997. as follows: (a) nonoperating ports, (b) operat- 2 U.S. Department of Transportation, Ibid. ing ports, and (c) limited operating ports.

56 Toward Improved Intermodal Freight Transport Between Europe and the United States: Report of the Third EU–US Forum The Future Development of Infrastructure for Intermodal Transport in Europe

State-of-the-Art European • Punctuality and reliability, especially of René Buck, Intermodal Infrastructure rail transport, are poor when compared Buck Con- with road transport. sultants The use of intermodal transport in Europe • The limited applicability of intermodal International is fairly modest. Despite the fact that gov- transport. The mode is not suitable for ernments go to great lengths to stimulate all types of goods, especially small and Sander intermodal transport, there is still no ma- time-critical shipments of high-value Kooijman, jor shift from road transport to the use of goods. Buck Con- alternative modes of transport by shippers • The European intermodal transport sultants and transport companies. Although there market is still very fragmented. There are International is a slight growth in the use of rail trans- big differences in the rail gauge, and the port in Europe, the market share of companies operating in this market are intermodal rail transport was in 1994 the still very much nationally oriented. same as it was in 1985, namely 5.5 per- Another problem is the dominance of cent. There is a constant decrease in the state-owned companies in intermodal number of containers transported in Eu- transport, which prevents international rope by rail. The number of 20-foot con- strategies and improvements in flexibil- tainers went from 1,286,000 in 1997 to ity and efficiency. 1,249,000 in 1998. The transport of swap • The European intermodal infrastructure bodies, on the other hand, rose 9 percent network still is far from complete. Impor- between 1996 and 1997. Fortunately, there tant links are missing, and some regions are more hopeful perspectives for inter- are not opened up at all. modal transport (for instance, the considerable increase in transport by inland An overview of the European inter- barge and the growing interest in short- modal infrastructure network will be pre- sea transport. But on the whole the situa- sented in this article. Some maps are tion does not look very promising for the included to give a clear picture of the state- future of intermodal transport. of-the-art of the existing routes for the dif- A number of bottlenecks and barriers ferent intermodal modes—namely, rail, prevent a widespread implementation of inland barge, and short-sea transport—as intermodal transport. The most important well as an up-to-date overview of the present bottlenecks/barriers to intermodal trans- terminal network. Some conclusions will port are as follows: then be drawn for each of the modes. Several major conclusions can be stated • The cost level, which is often too high in on the present European rail infrastructure comparison with the tariffs used in con- network: ventional road transport. • The additional time and costs, which are • The present network of rail connections caused by the necessity of pre- and end- is rather dense. In particular, Germany, haulage at the first and final legs of the the Benelux countries, England, and the intermodal logistics chain. northern part of France are well con- • The involvement of (too) many actors in nected. the intermodal chain, which leads to a lot • Most of the connections between the of problems in the fields of organization main economic centers are dedicated to and communication and which also leads both passenger transport and goods to higher costs and the loss of efficiency. transport. There are few main lines that • The lead times in intermodal transport, are designated for freight transport which are typically longer than those in only. traditional road transport (partly due to • There are big differences in, for instance, the former two points). rail gauge between the various countries.

The Future Development of Infrastructure for Intermodal Transport in Europe 57 Figure 1. • The rail networks are still nationally The most important conclusions on the Overview of oriented and operated. The plans for the inland waterways network are as follows: the present rail infra- Transeuropean Transport Networks, as structure well as the upcoming liberalization, both • Because the inland waterway infra- network in instigated by the European Union, will structure largely depends on the pres- Europe change this situation drastically in the ence, situation, direction, and depth of coming years. natural waterways, the suitable net-

58 Toward Improved Intermodal Freight Transport Between Europe and the United States: Report of the Third EU–US Forum work is fairly limited. Only Germany, be served by inland barge transport, sim- Figure 2. the Benelux countries, and the north- ply because these centers are not located Overview of the present inland ern part of France are fit for a large- near waterways. waterways scale use of inland barge transport. • Extension of the natural network, by infrastructure • Sometimes main economic poles cannot constructing artificial connections, is network in Europe.

The Future Development of Infrastructure for Intermodal Transport in Europe 59 Figure 3. very expensive and nowadays also hin- • Because of its characteristics (transport Overview of dered by environmental groups who ob- over sea), short-sea transport is only the present short-sea ject to the the construction of new suitable for the coastal regions in Eu- route network canals because of their impact on the rope. in Europe landscape. • For the rest of the regions, long-distance pre- and end-haulage transport is The main conclusions on the short-sea needed, which makes this mode of trans- route network are as follows: port less attractive.

60 Toward Improved Intermodal Freight Transport Between Europe and the United States: Report of the Third EU–US Forum Some conclusions, which can be drawn Rail-road terminals: 452 Figure 4. from the map on the terminal network, are: Road-sea terminals: 247 Overview of the present Rail-road-sea terminals: 245 terminal • At this moment there are more than a Rail-road-sea-barge terminals: 38 network in thousand terminals for intermodal Rail-road-barge terminals: 32 Europe transport in Europe. The following sub- Barge-road terminals: 24 division can be made: Barge-road-sea terminals: 12

The Future Development of Infrastructure for Intermodal Transport in Europe 61 The absolute number of terminals is the Figure 5 presents an overview of the highest in Germany (166), Italy (124), the complete European intermodal infrastruc- United Kingdom (110), and France (94). ture network. All figures used refer to the year 1997.

• There are, of course, big differences between these terminals in quality, tariff Bottlenecks in the Infrastructure structure, ownership, and so forth, Al- most all European terminals are equipped Figures 1-5 show that there is quite an ex- to tranship containers, 60 percent are tensive intermodal infrastructure network capable of handling swap bodies, and half in Europe. However, there are bottlenecks, of the terminals are fit for the tranship- which prevent an unlimited use of the net- ment of trailers. work and hinder the extension of the net- • The terminal density (number of termi- work. These bottlenecks can be divided nals per 10,000 square kilometers) is the into four categories: highest in the Benelux countries of the Netherlands (15) and Belgium (13). • Diversity France and Spain have a relatively low • Capacity terminal density (2). • Location • In Europe there is still no increase of scale • Organization in the terminal network leading to a concentration of terminals into a number of hub terminals. In the United States the Diversity number of rail terminals has been reduced from 1,500 in 1977 to 160 in 1994. Unfortunately the intermodal infrastructure

Figure 5. Overview of the present intermodal network in Europe

● Main Terminals ★ Inland Ports

SEA PORTS

4 Million TEU

TRAFFIC BASINS

>500 km, >500,000 tonnes

● 12 Million tonnes

RAIL NETWORK

Main European Com- bined Transport Lines

European Combined Transport Lines

Other Rail Services

ROAD NETWORK

Road Network

Ferry Links

62 Toward Improved Intermodal Freight Transport Between Europe and the United States: Report of the Third EU–US Forum network is far from uniform. There are huge Capacity differences between the various countries in technical systems, loading units, and tran- The intermodal infrastructure nowadays shipment techniques. The majority of EU sometimes suffers from an insufficient ca- member states have double-track operations pacity. This lack of capacity is caused by a for most of the rail lines. Some countries, number of developments. One of them is however, have a relatively high proportion the increase in freight transport in the past of single-track intermodal transport opera- couple of years. Because of the growing tions. For instance, over half of the lines in economies in most of the EU member Spain are single track, and these lines are states, the flow of goods to be transported subject to a speed limitation of 60 km/h. Fin- via the infrastructure network will prob- land also has a lot of single-track lines. As ably continue to rise sharply over the next far as loading gauges are concerned, most of years, as will the demands on the infra- the EU member states have a loading gauge structure. As the capacity of the infrastruc- of UIC B level or larger. Exceptions are Italy ture network is already limited at the and the United Kingdom, where the major- moment, it can be expected that problems ity of the lines are below this level. There will only increase in the years to come. are also big differences between the coun- Another complicating factor in this re- tries regarding minimum speed. Germany spect is the age of the infrastructure network. seems to have the highest possible operating A lot of the existing rail infrastructure was speed for intermodal transport trains (140– constructed quite some time ago; hence, the 200 km/h). Austria, Denmark, Finland, infrastructure is not, in many places, what Italy, Luxembourg, and Portugal have a com- we would call the state of the art, not only parable speed level. Other countries have to- from a technical point of view, but also with tally different maximum speeds; for instance respect to location. Fortunately, the recent the Netherlands and Belgium have a limit of construction of high-speed rail connec- 90 km/h, the United Kingdom has limits tions, as well as the (planned) realization between 70 and 100 km/h, Ireland’s limit is of dedicated freight lines, somewhat makes 80 km/h, and Spain’s ranges from 50 to 60 up for this neglect. km/h. Apart form these differences in rail Besides this lack of capacity in absolute lines, there are also differences between the terms, there is also the problem of inad- EU member states as regards maximum au- equate use of the capacity that is available, thorized lengths and weights of trains, the largely because too many actors want to maximum authorized axle weight of wag- operate on the same routes. With the up- ons, operating speed, and so forth. coming liberalization, new parties will en- Besides these technical differences, ter the rail market and will be looking to there are also dissimilarities between the transport goods over a limited number of various countries in the policies towards lines (probably those which connect the intermodal transport formulated by their main economic centers), for which capac- ministries of transport. Some countries— ity is already limited or even insufficient. for instance Sweden, the United Kingdom, Finally, the above-mentioned problems and the Netherlands—strongly encourage (too limited infrastructure and too many a policy focused on liberalization of the rail actors) are aggravated by the fact that the and inland barge sectors. Other countries, use of rail infrastructure for passenger trans- such as France and Spain, support a more port has increased over the past decade. In modest development towards a complete particular, the rise of high-speed rail trans- liberalized market and try to maintain port as a substitute for air transport has led some state influence on the parties oper- to a sharp increase in the frequency of trains ating on the intermodal market. For both on connections between economic centers. potential users of intermodal transport Generally speaking, governments favor pas- and intermodal companies that want to op- senger transport. In the infrastructure plans erate on an international level, this dis- of the various ministries of transport of sev- crepancy in policies can cause a lack of eral EU member states, passenger transport clarity, as well as operational problems. has a priority over freight transport.

The Future Development of Infrastructure for Intermodal Transport in Europe 63 The problem of insufficient capacity of cation of the infrastructure causes a lot of the existing infrastructure is worsened by problems. Not only are rail lines, canals, the difficulties faced when trying to extend and terminals located where there are no the network. Not only is the creation of longer any (major) economic activities, but new infrastructure suitable for intermodal the infrastructure (for instance, terminals) transport very costly, it is also time-con- is also not very accessible. Trucks have to suming. Governments trying to realize new drive through residential areas or even into rail connections or waterways are increas- city centers to reach the transhipment ingly facing objections of environmental points, where they unload or pick up their pressure groups and people living in the freight. This also causes a lot of environ- regions to be intersected by this new infra- mental and societal problems, such as noise structure. In response to these objections, in the early mornings or late evenings or authorities are often forced to introduce even at night when containers are handled long-lasting procedures and to grant expen- or trains are passing by. An additional prob- sive alterations to the infrastructure lem is the transport of dangerous goods. planned. An additional problem is the fact Communities object to the transport of that the limited resources available for the these goods, and the strict regulations that creation of new infrastructure will be must be followed hamper freight transport. largely used for infrastructure that will Because of these poorly situated locations, handle passenger transport. Another com- it is also very difficult to expand the facili- plicating aspect is the lack of a central plan- ties. Often, the locations are enclosed by ning agency for the creation of new already occupied zones or even by residen- infrastructure. Infrastructure for inter- tial areas, which makes it very difficult to modal transport will often consist of long double a rail line or to enlarge a terminal rail tracks between economic centers in facility, especially when a lot of space is different countries. Up until now it has needed. been difficult to coordinate the realization The same applies for waterways, par- of new infrastructure at an international ticularly natural waterways. Natural wa- level. The TEN program of the European terways are ideal connections for the Commission is the first example of a chang- transport of freight, but because they are ing attitude towards this subject. Finally, not manmade they sometimes run from the creation of new infrastructure is, as nowhere to nowhere, ignoring the situation mentioned before, a costly business. Gov- of important economic centers. Finally, the ernments would therefore appreciate the infrastructure has been realized from a involvement of private parties in order to national point of view, so a lot of seemingly facilitate this process. Unfortunately, pri- logical connections, linking economic core vate companies have so far shown only regions across the border, are missing. limited interest in participating in the construction of new infrastructure. Organization

Location The final problem related to infrastructure is the organizational aspect. It is often dif- The third problem related to infrastructure ficult to realize new infrastructure and to is “location.” As the infrastructure for exploit and maintain existing rail lines or intermodal transport (rail lines, canals, ter- waterways, because a lot of actors are in- minals) was basically constructed decades volved. The involvement of many and dif- ago (sometimes even more than a hundred ferent types of actors makes it hard to years ago), the location of the infrastruc- organize the assignment of capacity (exist- ture is no longer adequate. Industrial es- ing infrastructure) and the division of costs tates, along which rail lines have been built, for realization (new infrastructure). This are no longer in use, factories are dis- problem also plays an even bigger role at mantled or have been relocated, economic an international level. In this respect there centers have moved, etc. This outdated lo- are also, as mentioned before, the problems

64 Toward Improved Intermodal Freight Transport Between Europe and the United States: Report of the Third EU–US Forum of costly and time-consuming realization over the past couple of years, which procedures and the environmental pres- makes it attractive for both shippers and sure, which makes it more difficult to real- logistic services providers to switch to ize thing in an effective way. alternative modes such as intermodal transport. • A trend towards more hinterland depots of shipping lines. Shipping lines, respon- Trends and Developments with sible for a huge amount of container Impacts on Intermodal shipments throughout Europe, tend to Transport store their containers more and more at locations in the hinterland instead of There are several trends that have an im- ports. This in a way encourages the use pact on the future development of inter- of intermodal transport at the routes modal transport and, in an indirect way, from ports to hinterland depots. have consequences for the infrastructure. • A further liberalization, especially of the To start with, there are both trends that rail transport market. The liberalization have a negative impact on the use of of the transport markets in the EU will intermodal transport and its infrastructure probably lead, as it did in the United and there are trends that have the oppo- States, to a further growth in the use of site result. First, the trends that favor intermodal transport. The develop- intermodal transport will be touched on. ments in inland barge transport already Trends that support the use of inter- show a hopeful perspective. modal transport and its infrastructure: • The arrival of new professional intermodal players. As a result of the ongo- • A growing awareness of the environment. ing liberalization of the intermodal The public and policy makers are sup- markets in Europe, new players will portive of the idea that intermodal trans- enter the markets and old ones will port can help to reduce the negative merge or change their policies and strat- impacts of the increase of the transport egies. Thus a new generation of profes- of goods. Nowadays, the reduction of sional intermodal players will emerge, road transport by shifting freight to offering shippers more possibilities to use other modes, such as rail transport and intermodal transport in an efficient way; inland barge transport, is part of the • An increase in long-distance transports. transport policies of most of the EU Because of the increase in scale in most member states. industries, there is a clear development • A development towards “green” logistics. towards international and even global Because of the growing awareness of the operating companies. By concentrating public and of policy makers for the en- specific manufacturing processes in cer- vironment, shippers are more and more tain plants (concentration into mega- inclined to carry out their manufactur- factories), the average length of the ing and logistics activities in an envi- transport movements between these ronmental-friendly way. The use of plants will increase. It is a well-known intermodal transport is an important fact that intermodal transport is espe- aspect in this respect. They are also forc- cially interesting for transports at long ing their logistic services providers to distances. offer them possibilities for the use of all • A centralization of stocks in distribution modes, including intermodal transport. centers. The above mentioned develop- • A decreasing reliability of road transport. ment of an increase in scale, internation- The continuing growth of the economy alization, and mergers and acquisitions leads to a corresponding use of road leads also to a concentration trend in transport, which results in an increase logistics. Recently, there has been a in congestion and traffic jams. There- trend toward the concentration of stocks fore, the accessibility of the mode road in central distribution centers, some- transport has diminished considerably times even at a European scale. This also

The Future Development of Infrastructure for Intermodal Transport in Europe 65 facilitates the use of intermodal trans- mean that goods that used to arrive in port, since larger volumes are more eas- ports in northwestern Europe will now ily shifted to intermodal transport than go through ports in southern Europe. small volumes. This means a breaking up of big flows • An increasing bundling of flows. Shippers into smaller ones, which makes the use and haulers are trying to reduce the of intermodal transport more difficult. amount of trips between their plants, • Trucks are becoming increasingly envi- distribution centers, and other points of ronmental minded. One of the main ar- transhipments. To reach this goal, ship- guments for using intermodal transport ments are increasingly being combined is its relatively positive position com- and flows of goods are being bundled, pared with road transport when it even through cooperative agreements comes to effects on the environment. between companies. This bundling of However, technical developments in the flows also enlarges the possibilities for car industry have led to considerable intermodal transport. improvements in the effects on the environment of trucks. The relative advan- There are also a number of trends that tages of intermodal transport in this are not stimulating the use of intermodal respect have thus decreased. transport and its infrastructure: • A lack of interest of investors for freight transport. The wishful expansion of the • A growing opposition to the construction infrastructure for intermodal transport of new infrastructure. As previously men- is hindered by the lack of budgets of tioned, there is growing resistance to governments. Extra financing could be new, big infrastructure works. Environ- provided by private investors. Unfortu- mental groups are stimulating these pro- nately, up until now investors have tests, which often lead to a withdrawal shown small interest in the development of the plans or drastic adaptations of the of facilities and infrastructure for original plans. New rail lines and canals intermodal transport. are especially facing growing opposition. • A trend towards the subcontracting of logistics activities. More and more shippers An Outlook to the Future: An are following the trend of “back-to-the- Agenda for Action core-business” and are thus subcontracting their logistics activities. In some cases There is a well-developed infrastructure only a part of the logistics activities are network for intermodal transport in Eu- subcontracted to a logistic services pro- rope, especially when it comes to rail trans- vider (for instance, transport activities), port and terminals. There are, however, in other cases the complete supply chain bottlenecks that prevent a huge increase of management is subcontracted. This the use intermodal transport. The fact that could be positive for the use of inter- a large part of the infrastructure is outdated modal transport, but it is probably not and located on the wrong site, the lack of a because most of the logistic services pro- central planning when it comes to main- viders are strongly oriented to road taining the present infrastructure and cre- transport and are not inclined to use ating new facilities, the high costs of intermodal transport. This may change constructing new infrastructure, the long in the future, considering the above procedures for the realization of infrastruc- mentioned positive trends. ture, and the lack of interest of financiers • The rise of the Mediterranean ports. Be- for private financing of new infrastructure sides the concentration of flows of goods all are barriers for the expansions needed. in a number of main ports (Rotterdam, To further stimulate intermodal trans- Antwerp, Hamburg), there is also a port, new ground has to be broken, inno- trend towards more traffic in smaller vative solutions have to be invented, and ports (for instance, in the Mediterra- unconventional measures have to be taken. nean). If this trend continues it will Some ideas will be outlined here. One of

66 Toward Improved Intermodal Freight Transport Between Europe and the United States: Report of the Third EU–US Forum them will be elaborated briefly. The follow- will be the main routes between the eco- ing points could offer new perspectives for nomic centers, could also have a posi- intermodal transport and the realization of tive impact on budgets for new new infrastructure required: infrastructure for (intermodal) freight transport since the investments could • The realization of one uniform and liber- be concentrated in these corridors. alized network. The present policy of the • The creation of rail lines dedicated for European Union to integrate the vari- freight transport (intermodal freeways). ous infrastructure networks and to The above-mentioned idea of bundling stimulate a further liberalization of the could even be elaborated into the cre- transport markets is one of the most ation of specific infrastructure for important necessary developments for (intermodal) freight transport. All goods a creation of new market perspectives would be transported along these main for a further growth of intermodal rail lines. The European Commission transport. has already taken some steps towards • The use of new transport modes such as this idea by creating so-called inter- underground transport and zeppelins. modal freeways. Also in some EU mem- Two of the main problems with inter- ber states new infrastructure is being modal transport are the poor location created specifically for freight transport of the infrastructure (for instance, ter- (for instance, the Betuwe line in the minals) and the (expensive) pre- and Netherlands). end-haulage. These problems can partly • A radical improvement of information be tackled by using new innovative in- flows. One of the main obstacles to the frastructure and transport concepts. For efficient use of intermodal transport is instance, the use of underground trans- the lack of information and the poor port can offer possibilities, especially communication between the different when it comes to deliveries in city cen- actors in the logistical multimodal ters. In the Netherlands, some pilot chain. As analyzed in some European projects have proven the utility of un- projects, an improvement of the commu- derground infrastructure. The costs are, nication between the various links of however, still considerably high. An- the chain is crucial for an improvement other option being considered at the of the intermodal product. This can be moment is the use of zeppelins. This realized in a very basic way (structural concept, infamous for the disaster in- meetings of actors) or in a more ad- volving the German Hindenburg air- vanced way—for instance, by introduc- ship, is being rediscovered and will be ing information technology systems. probably used not only for leisure trips • The combination of (new) terminals and but also for freight transport. infrastructure for intermodal transport • The bundling of flows of goods in corridors with industrial and logistic sites. An- between economic poles. One of the main other crucial element for the attractive- reasons for using intermodal transport ness of intermodal transport is the is the combination of flows of goods into distance to terminals and other infra- larger quantities. This is often difficult structure facilities. When this distance to accomplish, however, as shippers are is too large, the extra costs of pre- and very reluctant to combine their goods end-haulage will make the intermodal with the products of their (potential) chain unattractive. The realization of competitors. However, in the light of the new intermodal infrastructure at loca- growing congestion it could become nec- tions where (logistics and manufactur- essary in the future to force companies ing) companies are concentrated could to combine their flows of goods. The offer possibilities for an increasing use most efficient way to do this would be of intermodal transport. to create a number of corridors along • The compulsory concentration of (newly which the freight flows can be trans- built) companies on selected industrial ported. These corridors, which probably sites with multimodal facilities. Inter-

The Future Development of Infrastructure for Intermodal Transport in Europe 67 modal transport is especially suitable percent. Another benefit is the improved when large quantities of goods can be quality of projects caused by the contribu- transported over long distances. Often tion of experience and knowledge of pri- it is hard for one company to use vate parties in projects, which used to be intermodal transport because its flows carried out exclusively by public authori- are too small. In order to create large ties. However, although the cooperation and flows, it is necessary to combine the joint investments of public and private par- freight flows of several companies. One ties in a PPP do have their advantages, they of the solutions in this respect could be should not be considered as a magic tool. to encourage or even force companies When PPPs are used for the realization to locate their facilities at one location. of new infrastructure projects, the follow- Regional or other governments could ing considerations should be taken into select certain sites for the location of account. First of all, most infrastructure new industries. These sites should dis- projects are not cost-effective. No giant pose of intermodal facilities in order to profits can be made through the construc- enable the companies located there to tion and use of infrastructure. Both public use intermodal transport for the trans- authorities and private parties should bear port of their products. this in mind. Another consideration is that • The use of innovative financing models. because an infrastructure project can never As the budgets for infrastructure con- be really profitable, public investments will struction of governments are rather lim- always be necessary. The fact that the ited, the involvement of other, private project as a whole probably is not profit- parties would be welcome. able does not have to mean that private parties are not interested. Still, parts of the One of the possibilities for involving project can be lucrative, so a strict division private-market parties in the financing of of obligations and gains has to be made new infrastructure for (intermodal) trans- between the participating parties. Finally, port is the public-private partnership the involvement of private parties can of- (PPP), in which governmental bodies and fer a solution to the budget problems fac- privately owned companies cooperate and ing governments. contribute to a faster realization of more What should a PPP look like when it and better infrastructure projects. In con- comes to investments in infrastructure? trast to a traditional public tender, the PPP There are two major conditions that have approach aims for a maximum utilization to be fulfilled. First, the infrastructure to of the available knowledge, creativity, and be developed should generate a cash flow. efficiency of the market parties involved. This means that revenues should be gen- Public-private partnerships are based on erated, for instance, by imposing a levy on three basic assumptions. First, the costs, the use of the infrastructure or by collect- as well as the power and risks, of developing a toll. Second, a scope optimization ing new infrastructure have to be divided should be aimed for. The development of between the parties. Second, the project the (nonprofitable) infrastructure should must have both social and commercial ob- preferably be combined with lucrative jectives. Third, the cooperation should not projects or developments—for instance, be free of obligations. A contractual com- with new industrial or logistics sites or mitment forces the parties to take the mat- other kinds of real-estate development. ter seriously and to put time and money Two possible PPP models for new in- into the project. frastructure are the concession contract Earlier experiences in the United King- and the joint venture. The concession dom (private finance initiative, or PFI) have model is based on the assumption that the proven that the PPP-concept does offer ad- infrastructure to be realized is publicly put vantages to both governmental bodies and out for tender. Maintenance and opera- private investors. A higher efficiency and a tions, not just design and construction, so-called life-cycle approach (construction need to also to be part of this tender proce- and operation) can offer savings up to 25 dure. The consortium of market parties,

68 Toward Improved Intermodal Freight Transport Between Europe and the United States: Report of the Third EU–US Forum cooperating in a so-called special-purpose velopment of new infrastructure, the company, offering the best price and high- question arises as to how to deal with est quality wins the tender procedure and the future ownership of the infrastruc- acquires the rights to carry out the work ture facilities. Up until now, most of the and operate the project for a certain period existing infrastructure is publicly (for instance, 20 years). The costs and risks owned, although there are exceptions of developing the project are the responsi- (for instance, parts of the rail infra- bility of the market parties. Investments structure in the United Kingdom and made in this phase of the project can be Germany). If private parties partly fi- recovered during the operating period. This nance (parts of) the infrastructure, the cash flow can be generated by levying a possibility of an independent private in- toll on the users of the newly constructed frastructure provider comes to mind. infrastructure or by collecting a reimburse- • A contribution of users. As mentioned ment from the public authorities for the before, in order to generate revenues, achievement made. In the concession contributions from infrastructure users model the government thus does not buy have to collected, either via taxes or via a product (infrastructure), but a service the (electronic) levying of tolls. that is being offered by one or more market parties for a certain period (the avail- Inland Waterways or Canals ability of infrastructure of a high-quality level). The integration of design, construc- • A contribution of users. The same ap- tion, maintenance, and operations can pro- plies here as for rail infrastructure; in vide considerable efficiency advantages, order to generate revenues, contribu- leading to lower investment and mainte- tions must be collected from infrastruc- nance costs. ture users, either via taxes or via The joint venture model is based on a electronic tolls. new company, to be established jointly by • A possible combination with port and public and private parties. This model is site development. In order to make the to a large extent comparable with the spe- total infrastructure project more prof- cial-purpose company, the main difference itable, more lucrative developments being the fact that the government has to could be added to the project. For in- invest risk-capital in the company. The stance the (re-)development of ports, parties involved are sharing costs and risks harbors, or dock areas, as well as the and pro rata decision power and revenues. development of logistics or industrial In contrast to that of a concession, the life- sites, could be added to the infrastruc- time of a PPP can be infinite. However, the ture project. joint venture can be constituted in such a way that the participating parties can sell Terminals their shares (for instance, after a certain period which they have agreed upon). If the • A possible combination with site de- public parties sell their share this could be velopment. The same applies here as called privatization. Just like in a concession mentioned above. To make the total model, the joint venture offers a horizontal infrastructure project more profitable, integration of efficiency advantages. more lucrative developments could be To give an idea of the possibilities and added to the project. In the case of ter- limitations of PPP constructions for new minals, the development of logistics or intermodal infrastructure, some examples industrial sites could be especially prom- are listed below. ising additions. • The generation of cash flows. In the case of new terminal infrastructure, contri- Rail Infrastructure butions from users can be taken care of in a “natural” way, namely by generat- • The ownership of the infrastructure. ing revenues from the terminal realized When private parties cofinance the de- by a profitable exploitation.

The Future Development of Infrastructure for Intermodal Transport in Europe 69 70 Toward Improved Intermodal Freight Transport Between Europe and the United States: Report of the Third EU–US Forum Third-Party Logistics Providers in the European Union

Introduction from decentralized to centralized produc- Dr S. Seeck, tion and distribution. Zentrum für Evolution of Third Party Logistics The growing competition in the Euro- Logistik und Service Providers pean market forced many manufacturers Unterneh- and retailers to reduce costs by outsourcing mungsplanung Third-party logistics (3PLs) can be defined noncore activities. A high demand for lo- as activities carried out by a logistics ser- gistics providers who have the assets to act K. Vanroye, vice provider on behalf of a shipper and internationally and the competence to of- European consisting of at least management and ex- fer dedicated logistics services emerged. Commission, ecution of transportation and warehous- Directorate ing.1 An increasing number of contracts General for now also include services like inventory Overview Transport management, information exchange, and tracking and tracing, as well as value-added Third-party logistics services are a grow- activities, such as secondary assembly or ing market in Europe, as well as in the even supply chain management. United States. It is expected that the 3PLs The creation of the European Single industry will grow by 19 percent annually Market and the Monetary Union of Europe for the next 5 years.2 This market is already have confronted companies with new chal- a billion dollar industry. lenges. Where most European companies In 1997 the total market for contract were mainly focused on their domestic logistics services in the United States had markets, they now have to cope with a pan- a turnover of $34.2 billion.3 In Europe, Figure 1. 4 Physical European environment. The result is that US$31.6 billion are contracted out. Distribution many multinational corporations are Currently, 80 percent of transportation Management reconfiguring their logistics organization services in Europe and 70 percent in the Functions

Third-Party Logistics Providers in the European Union 71 US are outsourced, followed by warehous- ties should take account of other ben- ing (45 percent in Europe versus 53 per- efits as well, such as service or quality cent in the US). The share of outsourced improvements (see Figure 2). added-value functions, such as production • The start of a partnership is often char- planning and control or order processing, acterized by concerns and reservations. does not exceed 10 percent. Furthermore Shippers fear a loss of control and lack figures show that in comparison with west- trust in the service provider’s competen- ern Europe, the value-added 3PLs market cies. Logistics managers especially feel in the US is less developed. The rates of threatened by the outsourcing process. outsourced value-added services show striking differences (see Figure 1). Despite these drawbacks, 3PLs are The decision to outsource is very often growing in importance, and many shippers triggered by a discrete event. Nearly three- consider that their aims are reached. More quarters of manufacturers indicate that than 50 percent even called their relation- outsourcing was a result of corporate re- ship “highly successful.”7 structuring, of a change in top management, or of a benchmarking exercise.5 It is evident that the actual wave of mergers and Development of 3PLs acquisitions in many different sectors will enhance the demand for 3PLs services. At first, outsourcing was mainly limited to Despite the growing market share of transportation and warehousing. At 3PLs in the European market, several prob- present, transportation is still the most lems remain. Two of the most important important market segment of 3PLs, but the ones are the following: shares of outsourced added-value activities is increasing in all tiers of the logistics • Fifty-five percent of 3PLs partnerships chain.8 Concretely, 85 percent of European fail within 5 years.6 The driving force manufacturers have outsourced their ex- for shippers to outsource logistics activi- ternal transport, and it is expected that this ties is primarily cost reduction. In a re- market segment will not grow much in the cent study, 49 percent of the interviewees years to come, while that of value-added responded that they expected cost reduc- logistics will thrive. tions, but only 40 percent achieved this To give some examples: 34 percent of aim. Breakups are the result. Shippers European manufacturers have already who decide to outsource logistics activi- outsourced transport organization, and an

Figure 2. Expected and Actual Benefits in 1998.

72 Toward Improved Intermodal Freight Transport Between Europe and the United States: Report of the Third EU–US Forum overall increase of 6 percent is expected by Deutsche Post has become an interna- 2005. The demand for packaging and la- tional player. beling will grow to 24 percent from 20 per- In the coming years, the competition in cent, whereas logistics consulting shows an the European 3PLs market will be intensi- even higher potential. The latter indicates fied by the entry of new service providers that in the future, 3PLs will overtake man- coming mainly from the information tech- agement and consulting functions rather nology (IT) sector. Companies such as IBM than physical services such as transport or Microsoft have recognized the importance (see Figure 3). of the logistics and supply chain management markets and are developing powerful applications. Furthermore, national railway companies are also trying to offer a wider The European 3PLs Market service array. Typical is the recent merger of the German DB Cargo and Dutch NS Recent Market Trends Cargo in Rail Cargo Europe to provide customized services that include value-added The most striking characteristic of the services, such as tracking and tracing. Ex- European 3PLs market is the drive for press carriers are a third example of possible mergers, acquisitions, and alliances. In the new entrants in the 3PLs market. past decade, 50 different 3PLs companies Further market segmentation is also ex- have merged in 16 pan-European groups pected to emerge. The market will be divided or alliances. into dedicated 3PLs with customer-tailored A good example is the Deutsche Post solutions for smaller shippers or for one type group,9 which has acquired Danzas, of supply chain and big pan-Europan out- Nedlloyd Transport, ASG, DHL, etc. fits with standardized services. The future Deutsche Post Group has already invested of small and medium sized 3PLs is uncer- $10 billion in mergers and acquisitions and tain. The availability of value-added services Figure 3. plans to expand further. With its new US and especially IT solutions will become de- Outsourcing subsidiaries, Global Mail and Yellow Stone, terminant factors for success. Trends

Third-Party Logistics Providers in the European Union 73 Figure 4. Modal Split for EU 15 Source: DG VII / Eurostat

European 3PLs and Transport km. More than 80 percent of the transport Services volume is moved on distances shorter than 150 km where rail transport, or intermodal Looking at the transport split in Europe, transport in general, is not a cost-effective the steady decline of rail freight is striking alternative (see Table 1). (from 21 percent in 1970 to 9 percent in Third, in the EU most railway compa- 1997).The share of road transport in- nies are national monopolies, missing the creased from 30 percent in 1970 to 43 per- required market incentives to innovate. In cent in 1997 (see Figure 4). contrast, road transport was deregulated at To understand this development, we an early stage, which resulted in fierce com- have to take into consideration that by tra- petition. In order to survive, trucking opera- dition rail is mainly used for bulk trans- tors were obliged to produce inexpensive, port (see Figure 5). However, especially in efficient, and customer-tailored services. the recent decades, the high value market Low profit margins were the reason that has boomed, and rail was unable to capture many of the big trucking operators started a substantial part of this market segment. to look into new markets and ventured into Second, in Europe transport distances the area of logistics services. As a result, are low, and rail transport is only cost-ef- many European 3PLs own road assets and fective for transport hauls longer than 400 have a road knowledge base. It is only re-

Figure 5. Groups of Goods Modal Split of Transported by Products (percentage the Different of kilometers) Modes. Source: DG VII / Eurostat

(NSTR classification groups in brackets) *Data refer to EU 12, 1992 and 3 modes road, rail and inland waterways.

74 Toward Improved Intermodal Freight Transport Between Europe and the United States: Report of the Third EU–US Forum Table 1. As a result, more cargo is attracted to these Distances in National Transport. nodes, to the detriment of less-developed logistics corridors. This phenomenon has Share of Transports (percentage) been coined logistics polarization. It is as- sumed that 3PLs have and are developing Km tons tkm more rapidly in certain nodes along these corridors than in other parts of Europe. 0-49 60 10 A typical example is the different corri- 50-149 22 20 dors originating in the Benelux countries. 150-499 15 45 The Benelux countries are a favored loca- 500- 3 25 tion for centralized logistics in Europe. A great number of foreign manufacturers, Source: DG VII / Eurostat such as 3M, Apple, Adidas-Salomon, Coca- Cola Company, Microsoft, Nike, Polaroid, cently that they have started to examine The Gap, and Timberland, to name only a the area of freight intermodalism. few, have built distribution centers in the Benelux countries to serve the European market (see Figure 6). Polarization of European Logistics In addition, many manufacturers have outsourced their logistics. The emerging In the EU 75 percent of international demand attracted many 3PLs, and the freight traffic is concentrated in about 200 Benelux companies became a pool of logis- main corridors. The rest is dispersed tics knowledge. The infrastructure is also Figure 6. throughout several thousand smaller well developed with good networks of road, Percentage links.10 In the past few years awareness has rail, and inland waterways. However, not Share of grown that nodes of logistics competence unlike the rest of the EU, the Benelux lo- European have developed along several of the high- gistics industry is characterized by a high Distribution density corridors. These nodes are particu- level of fragmentation. Very few companies Centers (EDCs) per larly appealing for shippers looking for have the knowledge and the assets to pro- Country. value-added services and for manufactur- vide pan-European integrated supply chain Source: BCI/ ers aiming to outsource noncore activities. solutions. HIDC 1997

Third-Party Logistics Providers in the European Union 75 Good examples of intermodal transport an obvious trend toward the big polyva- are to be found in the ports of Antwerp and lent 3PLs created by mergers and acquisi- Rotterdam. Several daily rail shuttles run tions. The result of this trend will probably between Antwerp or Rotterdam and France, be the development of true pan-European Austria, Germany, Italy, Poland, Spain, etc. players and an enhanced market segmen- Barging has also acquired a substantial part tation. of hinterland traffic (see Figure 7).

Brief Summary of Main Market Characteristics The Role of 3PLs in Transport

In general, the European 3PLs market Fragmentation of the Transport shows two striking characteristics: Market

• A trend towards value-added services The transport market in Europe is highly • The absence of pan-European 3PLs fragmented. The major 3PLs have a market share of only 8.4 percent in 1997 (see In Europe, the 3PL market is still grow- Figure 8). In countries where logistics ser- ing. Providers originally focusing on trans- vices and supply chain concepts are rela- portation and warehousing now offer tively new, the market is still dominated services such as shipment consolidation by small service providers that almost ex- and volume optimization, warehouse man- clusively focus on transport and warehous- agement, inventory, and even claims man- ing. Focusing on road transport, 444,000 agement. As a result, the 3PLs contracts haulage companies are active in the EU. have a longer time span and have become Spain alone accounts for 133,000 com- a matter requiring senior management in- panies, followed by Italy with 110,000, volvement. the United Kingdom with more than At the moment dedicated service pro- 39,000, and France with more than viders dominate the market. But there is 35,000.

Figure 7. Port Hinterland Container Traffic in the Netherlands and Belgium.

76 Toward Improved Intermodal Freight Transport Between Europe and the United States: Report of the Third EU–US Forum Figure 8. Land Transport in Europe

Revitalization of Rail DB Cargo (the subsidiary of German rail dealing with freight transport) still Most national rail companies have not yet exerts a monopoly on certain routes. Nev- adapted sufficiently to the changes of ertheless, under pressure of inter alia transport demand: they still focus on long- Kombiverkehr, DB Cargo has been obliged distance, low-value transportation. To to take steps towards more “added value” overcome the poor quality of rail services, services and a customer focus. In 2000, many 3PLs aim to run their own trains. DB Cargo will launch a new service This in turn, puts pressure on railways package for the chemical industry and to improve services. Developments in Ger- plans to run special trains between dif- many are a perfect illustration. It is ex- ferent sites of the chemical industry. The pected that in Germany intermodal freight service will provide for tracking and volumes will hardly have increased by tracing and will be supported by an of- 2010. Instead of the 90 million tons aimed fice specializing in the transportation of at by the government, the demand will not dangerous goods. exceed 30 million tons.11 Even the success- In July 1999, DB Cargo took over the ful transalpine routes are hampered by in- European management of Shell Chemicals’ sufficient rail reliability and capacity. At rail fleet for solvents. By outsourcing man- the moment, approximately 200,000 truck agement, Shell Chemicals hopes for a re- loads are transported across the Alps with duction of runs, a better loading factor, and road-rail-road combinations. The rolling thus a cost reduction. This move of DB motorway transports 100,000 truck loads. Cargo is clearly reactive. They want to Kombiverkehr, the German company meet head-on the competition of 3PLs, as specializing in road-rail intermodal trans- well as of shippers, such as BASF running port, has announced the establishment of its own trains between their plants in service stations to inform their customers Ludwigshafen (Germany) and Antwerp about delays. They demand a higher level (Belgium). of competition on rail routes. Similar to Recent developments show clearly that other European 3PLs, they intend to run growing competition between 3PLs service their own railway network. At the mo- providers will be the engine for intermodal ment, Kombiverkehr is in the process of transport development in Germany, as well acquiring route rights. as in the other EU countries.

Third-Party Logistics Providers in the European Union 77 3PLs in the 21st Century than is the case today. It is expected that they will be new entrants coming from sec- The thrust for supply chain management tors such as banking, consultancy, and in- will impact substantially on the 3PLs mar- formation and communication technologies. ket. The holistic and cross-functional approach of supply chain management optimizes the use of transport resources. It provides also scope for a more environ- Endnotes mental friendly freight transport system.12 Another innovation that will influence 1 Laarhoven, Berlund, 1999. the transport sector and 3PLs study is e- 2 Gerard Klauer Mattison & Co. Inc., 1999. commerce. Direct ordering will require full 3 Armstrong & Associates, “Who is Who transport flexibility and an innovative ap- in Logistics?” ,1997 proach. Opinions are divided on the effects 4 MarketLine,1997. of e-commerce on freight transport. In any 5 Randall and Lieb, 1997 case, supply chain management and e-com- 6 New York-based Outsourcing Institute merce will force 3PLs service providers to 7 Van Laarhoven, Berglund, 1999. a more enhanced customization. 8 “Towards the 21st Century,” Berlin, Eu- Competence in information manage- ropean Logistics Association (ELA), conducted ment will also become a critical success by ZLU and TU, 1997. factor. This service will be provided by a 9 Turnover $8.9 billion. new kind of logistics service companies, 10 See also Spatial Patterns of Transporta- 4PLs. In essence, a 4PL provider is a supply tion, The Hague, 1997. chain integrator assembling and managing 11 Hacon Consultants. resources, capabilities, and technology of its 12 The European Commission (DGVII) is own organization with those of comple- currently examining the environmental benefits mentary service providers to deliver a com- of supply chain management in a study on the prehensive supply chain solution.13 greening of supply chains (conducted by FAV, The 4PLs will help manufacturers to ZLU, TU Berlin). focus on core competencies, much more 13 Bauknight, Bade 1999.

78 Toward Improved Intermodal Freight Transport Between Europe and the United States: Report of the Third EU–US Forum Forum Participants

Richard Biter Fabio Capocaccia Deputy Director, Office of Intermodalism Ing.-Secretario Generale US Department of Transportation Genoa Port Authority 400 7th Street, SW, Suite 10200 Palazzo S. Giorgio, Via della Mercanzia, 2 Washington, DC 20590 I-16123 Genova, Italy Phone: 202-366-5781 Phone: 39.10.241.27.89 Fax: 202-366-0263 Fax: 39.10.241.23.80 E-Mail: [email protected] E-Mail: [email protected]

Edward Blank Joanne Casey Director Transport Services President Nestle Ltd. NESTEC Intermodal Association of North America Ave Nestle‘ 55 7501 Greenway Center Drive, Suite 720 CH-1800 Vevey, Switzerland Greenbelt, MD 20770-3514 Phone: 41-21-924-3259 Phone: 301-982-3400 Fax: 41-21-924-2824 Fax: 301-982-4815 E-Mail: [email protected] E-Mail: [email protected]

Michael Bohlman Tina Casgar Director of Marine and Technical Services Director, Intermodal Freight Foundation Sea-Land Service, Inc. Intermodal Association of North America 1210 Corbin Street 7501 Greenway Center Drive, Suite 720 Elizabeth, NJ 07207 Greenbelt, MD 20770-3514 Phone: 301-982-3400 Douwe-Frits Broens Fax: 301-982-4815 Department of Logistics E-Mail: [email protected] TNO Inro PO Box 6041 Franco Castagnetti 2600 JA Delft, Netherlands Director of Procurement Phone: 31-152-696-828 Polimeri Europa S.R.L. Fax: 31-152-696-854 Plazza Della Republica #16 E-Mail: [email protected] I-20124 Milano, Italy Phone: 39-02-6255-3039 Thomas Brown Fax: 39-02-6255-3665 President E-Mail: The Riss Companies [email protected] 4 Orinda Way, Suite 100-A Orinda, CA 94563 Harold Cerveny Phone: 925-257-3801 Assistant Vice President, Business and Fax: 925-257-3880 Market Planning E-Mail: [email protected] TTX Company 101 N. Wacker Drive Rene Buck Chicago, IL 60606-7302 Buck Consultants International Phone: 312-984-3768 Kerkenbos 10-31 Fax: 312-948-2682 6546 BB Nijmegen, Netherlands E-Mail: [email protected] Phone: 31-24-379-0222 Fax: 31-24-379-0120 E-Mail: [email protected]

Forum Participants 79 Emilio Fernandez Christine Johnson Chairman & Executive Director Program Manager, Operations Transfesa U.S. Federal Highway Administration Musgo #1 400 7th Street SW, Rm 3401, HOP Urbanizacion La Florida Washington, DC 20590 28023 Madrid, Spain Phone: 202-366-9536 Phone: 34-91-307-65-85 Fax: 202-366-3302 Fax: 34-91-307-60-08 E-Mail: [email protected] Juhani Korpela Permanent Secretary Johannes Fritzen Ministry of Transport and Communica- President tions, Finland Volkswagen Transport GmbH P.O. Box 235 Porschestrabe 102 Etelaesplanadi, 16 D-38436 Wolfsburg, Germany 00131 Helsinki, Finland Phone: 49-5361-263-110/1 Fax: 358.9.160.2709 Fax: 49-5361-263-410 E-Mail: [email protected] E-Mail: [email protected] Horst Kubeck Klaus Groeger Director of the Board Deputy Assistant Secretary LKW Walter Int. Federal Ministry of Transport, Building Zellerstrasse, 1 and Housing, Germany A-6330 Kufstein, Austria Krausenstrasse 17-20 Phone: 43-53-72-609-4200 D-10117 Berlin, Germany Fax: 43-53-72-64026 Phone: 49-30-2097-2401 E-Mail: [email protected] Fax: 49-30-2097-1956 Damian Kulash Kevin Heanue President and CEO Transportation Consultant Eno Transportation Foundation, Inc. 610 Pulman Place One Farragut Square South, Suite 500 Alexandria, VA 22305-1226 Washington, DC 20006 Phone: 703-549-7039 Phone: 202-879-4711 Fax: 703-549-7039 Fax: 202-879-4719 E-Mail: [email protected] E-Mail: [email protected]

Rolf Hellberg Gary Maring Global Director, Customs & Logistic Regu- Director, Office of Freight Management latory Affairs and Operations Dow Deutschland, Inc. U.S. Federal Highway Administration Am Kronberger Hang 4 400 7th Street, SW 65824 Schwalbach, Germany Washington, DC 20590 Phone: 49-0-6196-566-156 Phone: 202-366-5018 Fax: 49-0-6196-417 Fax: 202-366-3302 E-Mail: [email protected] E-Mail: [email protected]

80 Toward Improved Intermodal Freight Transport Between Europe and the United States: Report of the Third EU–US Forum Robert Martinez Theodore Prince Assistant Vice President, Marketing Kleinschmidt Inc. Norfolk Southern Corporation 9011 Aboretum Parkway, Suite 150 3 Commercial Plaza Richmond, VA 23236 Norfolk, VA 23510-2191 Phone: 847-945-1000 Phone: 757-629-2748 Fax: 847-945-4619 Fax: 757-533-4824 E-Mail: [email protected] E-Mail: [email protected] John Reeve Mary Lou McHugh Reeve and Associates Assistant Deputy Under Secretary of Defense 79 Wharf Lane U.S. Department of Defense Yarmothport, MA 02675 3500 Defense Pentagon Phone: 508-362-9156 Washington, DC 20301-3500 Fax: 508-362-7992 Phone: 703-697-9067 E-Mail: [email protected] Fax: 703-614-5964 E-Mail: [email protected] John Ricklefs Vice President, Division of Port Planning Donald McInnes Moffatt & Nichol Chief of Board 342 Madison Ave, Suite 902 Foundation for Intermodal Research & New York, NY 10173 Education Phone: 212-983-0441 429 Rivercrest Drive Fax: 212-983-0243 Ft Worth, TX 76107 Phone: 817-377-2790 Robert Ritter Fax: 817-377-2792 Director, Policy Activities E-Mail: [email protected] Eno Transportation Foundation, Inc. One Farragut Square South, NW, Suite 500 Thomas O’Bryant Washington, DC 20590 Senior Vice President Phone: 202-879-4705 ABN-AMRO Bank N.V. Fax: 202-879-4719 135 S. LaSalle St., Suite 760 E-Mail: [email protected] Chicago, IL 60674-9135 Phone: 312-443-2233 Guy Robinson Fax: 312-443-2849 European Commission - DGVII, Cable & Wireless Knud Pontoppidan 90, Long Acre Executive Vice President London WC2E 9SL, England A.P. Moller/Maersk Phone: 00-44-171-528-1892 Esplanaden, 50 Fax: 00-44-171-528-1871 DK-1098 Copenhagen K, Denmark E-Mail: [email protected] Phone: 45.33.63.36.40 Fax: 45.33.63.36.44 Christopher Ross E-Mail: [email protected] Special Assistant, Transport, Environment & Energy Delegation of the European Commission 2300 M Street, NW Suite 300 Washington, DC 20037 Phone: 202-862-9572 Fax: 202-429-1766

Forum Participants 81 Stephan Seeck Riccardo Vitale Division Manager Section Head, Transport Purchases Europe Center for Logistics and Business Planning, Procter & Gamble Berlin Temselaan 100 Voltastr. 5 B-1853 Strombeek-Bevar, Belgium D-13355 Berlin, Germany Phone: 32-2-456-3575 Phone: 49-30-464-002-68 Fax: 32-2-456-3579 Fax: 49-30-464-002-11 E-Mail: [email protected] E-Mail: [email protected] James Weinstein Otto Sonefeld Commissioner Program Director for Intermodal Activities New Jersey Department of Transportation American Association State Highway and 1035 Parkway Ave. Transportation Officials PO Box 601 444 N. Capitol Street, NW, Suite 249 Trenton, NJ 08625 Washington, DC 20001 Phone: 609-530-3536 Phone: 202-624-5813 Fax: 609-530-3894 Fax: 202-624-5806 Kenneth Wykle Rune Svensson Administrator Senior Advisor U.S. Federal Highway Administration, US Volvo Transport Corporation Department of Transportation S-40508 Goteborg, Sweden 400 Seventh St., SW (HOA-1) Phone: 46-31-669202 Washington, DC 20590 Fax: 46-31-533636 Phone: 202-366-0650 Fax: 202-366-3244 Karel Vanroye Administrator Phillip Yeager European Commission - DGVII, Chairman Unit for Analysis and Transport Policy Hub Group, Inc. Development 377 East Butterfield Road Rue de la Loi/Wetstraat 200 Suite 700 B-1049 Brussels, Belgium Lombard, IL 60148 Phone: 32-2-296-3245 Phone: 630-271-3600 Fax: 32-2-295-4332 Fax: 630-964-6475 E-Mail: [email protected]

Antti Vehvilainen Senior Vice President Stora Enso Oyj Kanavaranta 1 00160 Helsinki, Finland Phone: 358-2046-21374 Fax: 358-2046-21352 E-Mail: [email protected]

82 Toward Improved Intermodal Freight Transport Between Europe and the United States: Report of the Third EU–US Forum Acronyms and Abbreviations

3PLs third-party logistics CAGR compound annual growth rate COFC container on flatcar e-commerce electronic commerce (i.e., conducted over the Internet) ECR efficient consumer response EDC European distribution center EDI electronic data interchange ERP enterprise resource planning (software) EU European Union GSM Global System for Mobile Communications ICT information and communication technologies IMC intermodal marketing companies ISA intelligent software agents ISO/TC104 International Organization for Standardization’s Technical Committee 104 (Freight Containers) NAFTA North American Free Trade Agreement PPP public-private partnership SCM supply chain management SITS Simple Intermodal Tracking and Tracing SME small or medium sized enterprise TEN Transeuropean Transport Networks TOFC trailer on flatcar UIC International Union of Railways WISDOM Waterborne Information System, Distributed to Other Modes XML subset of SGML, designed for easy implementation in commercial and web environments

Forum Participants 83 84 Toward Improved Intermodal Freight Transport Between Europe and the United States: Report of the Third EU–US Forum