logisticsmgmt.com Parcel Express Roundtable: Do your homework 32 Realize ROI from TMS 38 Reverse : Time to close the loop 44 JanuaryFebruary 2014 2014 ® Sustainability: Why it still matters 48

2014 WAREHOUSE/DC EQUIPMENT STUDY

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‹ XPO’s grand entrance into intermodal. Non obligate funds in 2015 to zero in both the highway asset-based third-party logistics provider (3PL) XPO and transit accounts.” This “Year Zero” scenario Logistics said last month that it has entered into a will put an entire year’s worth of federal highway definitive agreement to acquire Dublin, -based and transit investment at risk, create enormous Pacer International, a freight transportation and logis- uncertainty for transportation planners, and send tics services provider and the third largest provider economic shockwaves through the construction of intermodal services in North America. The total industry, contends AED. purchase price of the acquisition, which XPO said is expected to close in the second quarter, is $335 mil- ‹ POLA and POLB finish strong. Both the Port lion. XPO Chairman and CEO Brad Jacobs told LM of (POLA) and the Port of Long Beach that there were multiple reasons to bring Pacer into (POLB) finished 2013 on a high note, lending fur- the fold. “The intermodal sector is one of the fast- ther credence to the slow but steady trajectory of est growing areas of transportation, and Pacer is the the economic recovery. Total POLA volume—at third largest provider of intermodal services in North 653,358 TEU—was up 11.09 percent annually in America,” said Jacobs. “Pacer is the largest provider December. Imports, which are primarily comprised of intermodal cross-border services into , of consumer goods, increased 8.63 percent, while which is growing fast due to near-shoring manufactur- exports, which are primarily comprised of raw mate- ing in Mexico, with more than one-third of its business rials, were up 16.85 percent. December volumes at focused on cross-border Mexico operations.” the POLB were up 4 percent annually at 582,443 TEU. Imports fell 1.4 percent and exports headed ‹ Surface transportation reauthorization up 9.3 percent. For 2013, total volume at efforts underway. The push for new surface POLB was up 11.3 percent to 6,730,573 TEU, transportation reauthorization was evident during a placing 2013 as the third highest on record, with House Transportation and Infrastructure Commit- only 2006 and 2007 totals ahead of last year. tee (T&I) hearing in January. The hearing follows last October’s report from the House T&I Committee, ‹ Golden State outbound. ’s exporters “Panel on 21st Century Freight,” that called for a turned in a particularly exuberant performance in major push to modernize freight infrastructure in the November, according to Beacon Economics’ analy- U.S. This recent push comes months before the sis of foreign trade data released by the U.S. Com- current authorization, MAP-21, is set to expire at merce Department. For the month of November, the the end of September. House T&I Committee Chair- state’s merchandise export trade totaled $15.22 bil- man Bill Shuster (R-Pa.) stressed at the hearing that lion, a nominal 14.2 percent increase over the $13.33 transportation is a critical part of how the supply billion in exports recorded in November 2012. By chain functions and vital in allowing American busi- comparison, overall U.S. merchandise exports rose nesses to be competitive in the global marketplace. by 5.9 percent over the same period. The uptick in California was led by a solid $1.38 billion jump in ‹ Year Zero? A new analysis by AED’s Govern- manufactured exports, which rose by 16.8 percent ment Affairs Office based on recent data from the to $9.63 billion from $8.25 billion in November 2012. Federal Highway Administration shows the poten- tially devastating economic impact of the impend- ‹ Vitran now to be acquired by TransForce. ing collapse of the federal highway program. AED Less than three weeks after -based less- is an international trade association representing than-truckload (LTL) carrier Vitran Corp. said it had companies involved in the distribution, rental, and entered into a definitive agreement to be acquired support of equipment used in construction, mining, by Manitoulin Transport Inc., Vitran said that the energy, forestry, power generation, agriculture, and agreement with Manitoulin has been terminated. industrial applications. The Congressional Budget Instead of being acquired by Manitoulin, an - Office reported in July 2013 that, due to inadequate based provider of LTL, Vitran has entered into a resources in the federal Highway Trust Fund (HTF), definitive arrangement agreement with TransForce, Congress “would need to reduce the authority to Continued, page 2

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UPDATE AN EXECUTIVE SUMMARY OF INDUSTRY NEWS

a provider of transportation and logistics services, gold standard in corporate sustainability analysis and for $6.50 per share. Prior to this announcement, consists of the 100 top-performing companies world- Transforce owned roughly 20 percent of Vitran’s wide based on a range of sector-specific “sustain- total outstanding shares according to a Toronto ability” metrics. Steve Campbell, senior vice president Globe and report. and head of environmental, engineering, and sustain- ability, says that the company has a “comprehensive” ‹ Survey says re-shoring could have major approach to sustainability, encompassing three dimen- impact on U.S. economy. More than one-third of sions: environmental stewardship, social responsibil- U.S. businesses will move goods and services work ity and governance. “As a major global provider of back to the U.S. in the next 12 months, accord- certified sustainable logistics space, Prologis has ing to the results of the Grant Thornton Realities of developed more than 43 million square feet of facilities Reshoring survey. The findings imply that as much meeting green building standards,” he says. as 5 percent of overall U.S. procurement may come back to the U.S. “The idea of going overseas was ‹ IANA enhancements. The Intermodal Association to drive costs down,” said Wally Gruenes, Grant of North America (IANA) has announced a series of Thornton’s managing partner for industry enhancements and additions to its Intermodal Expo. and client experience. Greunes went on to suggest Taking place Sept. 21-23 in Long Beach, Calif., the that many companies have identified cost sav- 2014 Intermodal Expo will be a stand alone event ings in the sophisticated analysis of data that they for the first time in 11 years. Plans are underway for receive from business partners in the supply chain. increased opportunities for shipper interaction and “Now, most manufacturers are looking for partner- more than double the number of educational ses- ship to share information at a very detailed level. sions over previous years. “The Intermodal Expo They need collaboration or face-to-face meetings, has become one of the largest freight transportation and the proximity of a supplier can be important.” events in North America since its inception over 25 years ago,” says Joni Casey, IANA president and ‹ AfA taking flight. The growth in the number of CEO. “This year’s refocus on intermodal, combined freight forwarding companies joining the Airforward- with an emphasis on connections, dialogue, and edu- ers Association (AfA) has reached unprecedented cation, will enhance the Intermodal Expo’s value for levels, with the organization’s regular membership rolls our core audience and key intermodal stakeholders.” expanding by nearly 25 percent over the past year. More than half of the increase in the association’s ‹ Popular move. While Governor regular membership—composed of freight forward- Chris Christie faces a series of political setbacks ing companies that focus on air cargo—has come and investigations related to campaigning, he has in just the past few weeks. The AfA now represents signed S2747/A4170 into law. This legislation, 230 such enterprises in addition to more than 120 which received unanimous bipartisan support other businesses and organizations, including major from the entire legislature, will eliminate the Port airlines that work with or serve freight forwarding of and New Jersey cargo facility . In operations. “As they contemplate increased business 2011, the ports became the only agency in the in an improving economy, forwarders are likely real- country to impose a cargo facility charge on all izing that the regulatory framework for air freight and containers, including empties. The fee charged other commonly used modes is now more extensive is $4.95 for 20-foot containers, $9.90 for 40-foot and complex than ever,” says Brandon Fried, the AfA’s containers, and $1.11 per unit for vehicle cargo. Executive Director. The fee is costing Line alone $3.5 million on an annual basis. “This legislation goes a long ‹ Green property takes the spotlight. Prologis way in ensuring that the Port of New York and Inc., a leading global owner, operator, and developer New Jersey remains competitive with ports across of industrial warehouse and distribution real estate, the country,” says Doug Morgante, Maersk Line’s announced its inclusion in the 2013 Global 100 Most director of state government relations. “We are Sustainable Corporations in the World list. The Global grateful that Governor Christie recognized how 100, announced annually at the World Economic critical removing this onerous fee is to the vitality Forum in Davos, Switzerland, is recognized as the of the maritime industry.” Ⅺ

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Logistics Management

2014 WAREHOUSE/DC EQUIPMENT SURVEY Maxed Out: Readers continue to do more with less Our annual look into spending plans inside the four walls 26 highlights growing interest in automation and software as workforce issues factor heavily into equipment investments.

TRANSPORTATION AND BEST PRACTICES 2013 Parcel Express Roundtable: Do your homework 32 Our distinguished trio of analysts provides insight into current parcel market trends and suggests that now, more than ever, high-volume parcel shippers need to carefully vet their providers, comparison shop, and match service levels to actual needs. SUPPLY CHAIN & LOGISTICS TECHNOLOGY Parcel express 32 TMS: Cost reductions and ROI Savings from TMS Question: As compared to manual processes, what do you continue to soar 38 believe you save, as a percentage of freight costs, from using a TMS? TMS decrases our 23.1% freight costs by >10% TMS decrases our 40.4% freight costs by 5%-10% Top supply chain software analysts assess growth in the transportation TMS decrases our 23.1% freight costs by <10% management systems (TMS) market, highlight emerging trends in adoption, No difference 9.6% Use of TMS increases our freight costs 3.8% and predict the future of this highly beneficial, yet consistently underused Source: ARC Advisory Group (arcweb.com to obtain full TMS study) application. GLOBAL LOGISTICS Reverse Logistics: TIme to close the loop 44 1101001001010 000 1001001 0011 00110 0100 010 Shippers and their service providers are outlining plans for the new year by 1101001001010 0110 010 000 01001001 0011100 01 0011 01000 010100 010 0 110 01010 10 identifying pain points in the reverse loop. Key to that process is developing 100 0110 10 100 010101 0 a returns management strategy designed to provide customers with multi- TMS 38 channel visibility. WAREHOUSE & DC MANAGEMENT Why sustainable DC design still matters 48 Warehouse and distribution center construction is making a comeback—and so is the desire to get back to green. Our facility design experts offer their take on the evolving benefits and share why sustainable design holds more value than ever. SPECIAL MODEX COVERAGE Looking ahead to a new year in distribution systems 54 The 2013 holiday season highlighted the importance of warehousing and distribution processes. With Modex around the corner, five thought leaders take stock of what may lie ahead for the industry and its customers. Reverse logistics 44

Logistics Management® (ISSN 1540-3890) is published monthly by Peerless Media, LLC, a Division of EH Publishing, Inc., 111 Speen St, Suite 200, Framingham, MA 01701. Annual subscription rates for non-qualified subscribers: USA $119, $159, Other International $249. Single copies are available for $20.00. Send all subscription inquiries to Logistics Management, 111 Speen Street, Suite 200, Framingham, MA 01701 USA. Periodicals postage paid at Framingham, MA and additional mailing offices. POSTMASTER: Send address changes to: Logistics Management, PO Box 1496 Framingham MA 01701-1496. Reproduction of this magazine in whole or part without written permission of the publisher is prohibited. All rights reserved. ©2014 Peerless Media, LLC.

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1 Management update Now on demand 9 Viewpoint 2014 Rate Outlook: 10 Price trends Managing costs via multiple modes logisticsmgmt.com/2014rateoutlook 12 News & analysis Where are your freight transportation rates headed in 2014? 16 Newsroom notes Our panel of top economic and transportation market analysts agree that 18 Moore on pricing freight rates will most certainly see gains in 2014. Join our panel as they share their insight on where rates are headed 20 Pearson on excellence and the issues that will be driving those rate increases over the next 12 months. Attendees will gain a better understating of: 22 Andreoli on oil & fuel • The current state of the U.S. economy and its impact on transportation; 24 Global links • which way oil and fuel prices are likely to go in 88 Pacific Rim report 2014; and • what to expect in terms of rates and capacity across all modes.

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EDITORIAL STAFF Michael A. Levans Group Editorial Director Francis J. Quinn Improving the Editorial Advisor Patrick Burnson human/technology connection Executive Editor Sarah E. Petrie Managing Editor we use our february issue each year to year’s findings into perspective for us (page Jeff Berman peer inside the nation’s four walls to get 26). “This growth is due to readers continu- Group News Editor a better view of how materials handling ing to do more with less, truly optimizing John Kerr Contributing Editor, Global Logistics equipment and automated distribution their existing facilities instead of building Bridget McCrea systems are evolving to become even new—and they say they’re doing this with Contributing Editor, Technology more closely tied to overall logistics and data-driven improvements like improving Roberto Michel Editor at Large, Warehousing & DC transportation operations. tracking and picking, inventory manage- In fact, we kick off this month with the ment, and better overall labor manage- John D. Schulz Warehouse & DC Contributing Editor, Transportation findings of our annual ment through the technology investments Equipment Study, a survey conducted by put in the hands of the worker.” Mike Roach Creative Director Peerless Research Group (PRG) designed In fact, hidden in this data surround- Wendy DelCampo to reveal the current and future spend- ing planned equipment and technology Art Director ing plans logistics professionals have for investments is the imperative to increase warehouse and DC equipment, automa- the productivity of the human worker COLUMNISTS Derik Andreoli tion, and software—purchases tradition- that uses the technology. According to Oil + Fuel ally aimed to tighten the knot between Bond, this bodes well for the next spurt Elizabeth Baatz distribution and transportation and in U.S. productivity growth. Price Trends Mark Pearson improve overall supply chain operations We can only hope that the discussion Excellence and enhance shipment visibility. revolving around the improved human/ Peter Moore In today’s retail environment, one technology connection won’t be lost on the Pricing can easily argue that the two functions floor of the upcoming Modex 2014 trade are now unconditionally tied, and that show in (page 76S). If you’re one of PEERLESS MEDIA, LLC Brian Ceraolo the seamless integration of product the 50,000 warehouse, DC, and logistics President and Group Publisher delivery—fulfilled through multiple professionals walking the aisles to visit the Kenneth Moyes channels—and DC management is lit- more than 750 equipment and technology President and CEO EH Publishing, Inc. erally the foundation of any successful vendors, keep asking yourself how these e-commerce business. In the meantime, investments will integrate with your most EDITORIAL OFFICE manufacturing operations are gearing important asset: your workforce. 111 Speen Street, Suite 200 Framingham, MA 01701-2000 up to deal with similar multi-channel “The DC worker is now, more than Phone: 1-800-375-8015 challenges brought on by the changing ever, being considered an integral part of nature of sourcing and procurement. the equation, not just a body that services MAGAZINE SUBSCRIPTIONS Start, renew or update your magazine And while the integration of transpor- some piece of speedy technology,” adds subscription at www.logisticsmgmt.com/ tation and DC operations improves each Bond. “The impact on labor management subscribe. Contact customer service at: year with the growth of omni-channel is a factor in nearly every buying decision Web: www.logisticsmgmt.com/subscribe distribution and e-commerce, our latest highlighted in this year’s survey, and we’ll Email: [email protected] Warehouse & DC Equipment Study Phone: 1-800-598-6067 tells only see that growing as the race to do Mail: Peerless Media us that today, there is more emphasis on more with less remains a constant.” P.O. Box 1496 Framingham, MA 01701 the relationship between the technology ENEWSLETTER SUBSCRIPTIONS and the workforce tied to the equipment. Sign up or manage your FREE This year’s findings make it clear that eNewsletter subscriptions at www.logisticsmgmt.com/enewsletters. it’s in the improvement of this “marriage” REPRINTS that respondents believe they’ll see the For reprints and permissions, contact next big bump in productivity. Michael A. Levans, Group Editorial Director The YGS Group at 800-501-9571 x100 or [email protected]. “We see activity levels in warehouse Comments? E-mail me at and DCs increasing considerably,” says [email protected] Editor at Large Josh Bond, who put this Follow me on Twitter: @MikeLeva

WWW.LOGISTICSMGMT.COM FEBRUARY 2014 | LOGISTICS MANAGEMENT 9 priceTRENDS Pricing across the transportation modes

5 150 TRUCKING Forecast 4 145 With the 2013 books now closed, we see that transaction 3 140 prices for TL service inched up 0.4% and LTL increased 3.1% last year. This was a significant slowdown from 2012 when 2 135 TL prices grew 4.5% and LTL grew 6.2%. Prices for tanker 1 130 and other special freight trucking services also climbed at a 0 125 2012 2013 2014 2015 molasses-like 0.7% pace in 2013. Thankfully for the bottom line, the industry’s operating costs escalated even more slowly than % change (left scale) Index 2010=100 (right scale) prices. Fuel costs, the biggest potential budget buster, declined % CHANGE VS.: 1 month ago 6 mos. ago 1 yr. ago 5%. Adding it all up, we estimate total costs grew only 0.3% General freight - local 0.0 0.0 -0.5 in 2013. With costs idling, we’re forecasting average trucking TL -0.1 -0.6 -0.3 prices will accelerate 2.5% this year and 2.7% next year. LTL -0.2 0.3 1.0 Tanker & other specialized freight 0.0 0.0 0.6

15 185 AIR Forecast 12 180 Despite winning a 4.8% one-month price hike in Decem- ber, U.S.-owned airline companies collectively suffered a 0.5% 9 175 annual rate of decline in average prices last year. Deflation 6 170 woes were centered primarily in the airfreight chartering side 3 165 of the business where average transaction prices fell 5.3% in 0 160 2012 2013 2014 2015 2013. Looking at domestic airfreight on non-scheduled flights, we see that in December alone prices fell 10.7% from month- % change (left scale) Index 2010=100 (right scale) ago and were off 12.5% from same-month-year-ago. Mean- % CHANGE VS.: 1 month ago 6 mos. ago 1 yr. ago while, U.S. airliners hauling freight in the belly of scheduled Air freight on scheduled flights -0.1 0.7 0.8 flights sputtered with a 0.5% average annual price increase in Air freight on chartered flights -7.3 -1.1 -9.6 2013. We predict more lift ahead with prices up 2.1% in 2014 Domestic air -0.2 0.4 2.4 and up 2.9% in 2015. International air courier -0.5 0.5 1.4

6 190 WATER Forecast 4 185 Companies that ply inland waterways reported a 2.6% drop 2 180 in average transaction prices last year. That’s a clear course change from the previous year’s 4.1% price increase. U.S.- 0 175 owned deep-sea water transportation companies also reported -2 170 a 1.1% price cut in 2013. Prices to move freight over the Great -4 165 2012 2013 2014 2015 Lakes and St. Lawrence Seaway, however, continued rising at a 2.5% pace. In aggregate, the U.S. water transportation industry % change (left scale) Index 2010=100 (right scale) netted a 1.1% average annual price decline last year. At the % CHANGE VS.: 1 month ago 6 mos. ago 1 yr. ago same time, the industry’s operating costs escalated at a 2% Deep sea freight 1.4 -1.1 -2.5 pace. All this spells persistent margin pressure. The revised fore- Coastal & intercoastal freight 0.1 -10.1 -8.7 cast calls for average industry prices to rise 1.2% this year and Great Lakes - St. Lawrence Seaway -0.6 0.0 -5.5 increase 2.2% next year. Inland water freight -4.6 -3.1 -8.5

10 190 RAIL Forecast 8 185 U.S. rail operators cut their monthly transaction prices in the 6 180 final month of 2013 as carload rail prices fell 0.3%. That was the seventh monthly price cut of the year, yet carload rail car- 4 175 riers nonetheless ended up with a 3.3% average annual price 2 170 increase in 2013. Intermodal rail as usual failed to keep pace 0 165 2012 2013 2014 2015 and closed with a 2.4% price hike. Eerily similar to last year, the good news for rail carriers (and any buyers with negotia- % change (left scale) Index 2010=100 (right scale) tion leverage) is this: the railroad industry’s materials and labor % CHANGE VS.: 1 month ago 6 mos. ago 1 yr. ago costs are estimated to have increased at only a 1.1% annual Rail freight -0.2 0.4 1.9 pace last year. Our price escalation forecast for the rail trans- Intermodal 0.0 0.1 1.3 portation industry remains unchanged: up 3.1% in 2014 and Carload -0.3 0.4 1.9 up 3.2% in 2015.

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Also: • Multi-year transport funding programs key part of U.S. Chamber’s 2014 goals, Page 13 • 2013 intermodal volumes set new record, carload down slightly reports AAR, Page 14 • ATA reports sharp gain in seasonally-adjusted tonnage in December, Page 15 YRC wins latest five-year wage concession package by 2-to-1 margin

Teamsters chief says it will hold YRC management’s feet to the fire to ensure job protection and better financial management by the company.

By John D. Schulz, Contributing Editor

OVERLAND PARK, Kan.—YRC make sure our members’ jobs are pro- rejected proposal, the Teamsters said. Worldwide was given a badly needed tected and redouble our efforts to make But the deal continues a 15 percent financial lifeline when continuation sure this company handles its finances wage concession first won in 2009 as of a five-year wage and pension con- responsibly.” well as a 75 percent cut in company con- cession agreement was ratified by a The plan will provide a pathway for tributions to the pension plan. Together, 2-to-1 margin by its Teamsters-covered substantial debt reduction and refi- those concessions are worth an esti- employees. nancing initiatives that will permit the mated $300 million annually to YRC. Voting results were announced late company to protect jobs, YRC has said. YRC is facing about $953 million in last month, approximately debt coming due in the three weeks after a less-harsh next 15 months. It has a concessionary package was $69.4 million bond issue rejected by a 61-39 percent that matures on Feb. 15, margin. This time, Teamsters and it has $325.5 million working for YRC Worldwide of loans due in Septem- approved a tentative agreement ber and $556.7 million of aimed at protecting more than loans and bonds matur- 30,000 jobs. Workers at YRC ing in March 2015. All approved this latest proposal by told, YRC is operating a vote of 12,267 to 6,314. with more debt than all Teamsters President James the other publicly held P. Hoffa called it “a very dif- LTL carriers combined. ficult vote for our members.” Within days of the YRC officials had threatened initial 61-39 percent bankruptcy filing had the wage rejection of the origi- concession not passed. The nal five-year proposal in labor agreement is seen as early January, YRC made key to new bank refinancing another appeal to Team- of some $1.4 billion in debt. sters leadership. This Approximately $300 million of latest package lessened that debt is due in the next six some fringe benefit cuts months, and the labor package is seen Tyson Johnson, director of the such as vacation time while also ensur- as giving the company wiggle room to Teamsters national freight division and ing that fewer YRC road driver jobs will refinance at more favorable terms. co-chairman of the union’s negotiating be lost to non-union contractors. “In the end, they did what they committee, said “once again, our mem- YRC can still use third-party trucking believe will give this company the best bers’ sacrifices are providing the lifeline companies, but only for line haul and not chance to stay in business and protect for the company.” at the direct expense of YRC road driv- their jobs,” Hoffa said. “Now we will The agreement contained significant ers. YRC can, however, file for a change hold management’s feet to the fire to improvements over the company’s prior of operations that forces drivers to 12 LOGISTICS MANAGEMENT | FEBRUARY 2014 WWW.LOGISTICSMGMT.COM NEWS analysis

relocate, giving the company the opportu- next two years, YRC is paying full-time ists, and our environment need it too—to nity to replace those drivers by non-union workers a $750 one-time bonus for each speed mobility, conserve energy, clean the subcontractors. of those years. They’ll start receiving air, and save lives.” “We believe more change of opera- those 40-cent hourly wage increases in Toward that end, Donohue vowed tions and more terminal closures are 2016, 2017, and 2018, Welch said that the Chamber would work for a multi- likely,” noted David Ross, trucking ana- “The reason we feel good about this, year reauthorization of the nation’s core lyst for Stifel Nicolaus in a research note. even with the wage concession extension, surface transportation program, which Over-the-road purchased transporta- is that our employees are still in the top expires at the end of September. The tion is capped at 6 percent of line-haul tier of total compensation for the market Chamber has estimated that aging infra- miles and 26 percent of overall rail- and place,” Welch said. “Our wages are com- structure and bottleneck delays cost this truck-purchased transportation under petitive and our benefits are way above nation $200 billion annually—or 1.6 the new agreement. market rates.” percent of Gross Domestic Product. YRC CEO James Welch said the new Welch said that he was grateful for agreement gave prospective lenders and support of both Teamsters and non-union equity investors “the path they need for workers who have sacrificed billions in the company to achieve a complete recapi- wages the past six years to help keep the talization and achieve a healthy capital company afloat. structure” for the 90-year-old LTL carrier. “No doubt all employees have sacri- In an interview with Logistics Manage- ficed, non-union and union personnel ment, Welch said that the agreement is alike,” Welch said. “I think the focus especially important at YRC Freight, its needs to be on the fact that these are very largest segment, which has gained greater well-paid jobs. But the marketplace will operational flexibility “to make sure we win. We’re competing with other carriers give the right kind of service and keep the with lower cost bases than we do, and The Chamber is also backing its network more in balance.” it’s a matter of staying competitive in the “Rebuild America” initiative, a movement That would be in areas where YRC marketplace.” to raise the federal taxes on motor fuels. Freight could have shortages of drivers. Despite the wage concession by labor, The Chamber says that by paying more in Specifically, the new agreement gives YRC Welch added that shippers still hold the user and taxes, investing up to $250 much greater use of purchased transporta- keys to long-term survival of the company. billion in public-private partnerships, tion, Welch added. “Flexibility is one part “One of the things that makes me feel bringing together the latest technology of cost efficiencies,” he said. “The other good is that our customers have remained and management practices, and building things are the hard cost savings where very loyal as we went through this pro- support for smart investment, the country we’ll have lower new-hire rates and wage cess,” Welch said. “Our customers con- can modernize its infrastructure and grow application bonuses for the first two years tinue to tell us that we continue to fill a the economy at the same time. of the five-year agreement.” need in the market place and our three The Chamber’s other 2014 legislative Specifically, YRC won immediate sav- regional carriers are best in class. We know priorities include: ings in its base pay rates for the first two we still need to improve, but shippers say • Expanding global trade by passing years. Instead of annual 40-cent hourly they value the capacity we bring and the Trade Promotion Authority, or TPA. TPA pay raises due on April 1 of each of the services we bring to the market.” Ⅺ allows Congress to set negotiating objec- tives for new trade pacts. INFRASTRUCTURE • Advancing and protecting the U.S. energy revolution. In 2012, unconven- Multi-year transport funding programs tional oil and gas alone added $284 bil- lion in GDP; generated nearly $75 billion key part of U.S. Chamber’s 2014 goals in federal and state tax revenues; and sup- ported 2.1 million jobs, Donohue said. , D.C.—The U.S. ness is improving and the economy is gaining • Reining in entitlements such as Chamber of Commerce will make a major strength.” But he added that a “safe, seam- Social Security, Medicare, and Medicaid. push this election year to get Congress to less, and modern infrastructure” was neces- “We won’t have the money to invest in pass multi-year surface transportation sary to help speed that economic recovery. infrastructure until we stop ignoring the funding programs that are due to expire “Trading around the world and moving big smelly elephant in the room—Ameri- at the end of the September, the nation’s energy across the country requires a safe, can’s entitlement programs,” Donohue top business lobbyist vowed late last month. seamless, and modern infrastructure,” said. “We still have a serious overspending In delivering his annual “State of Ameri- Donohue told U.S. business leaders and problem—and entitlement spending is can Business Address,” U.S. Chamber of others at the Chamber headquarters, the primary cause.” Commerce President and CEO Thomas which is across the street from the White • Addressing health care reform by Donohue said: “The state of American busi- House. “Families, workers, visitors, tour- “fixing” the Affordable Care Act. Notably,

WWW.LOGISTICSMGMT.COM FEBRUARY 2014 | LOGISTICS MANAGEMENT 13 NEWS analysis

Donohue did not call for repealing the law known as Obamacare. Carload volume was down 0.5 percent compared to 2012 • Trimming regulations and advancing tax reforms. and 3.6 percent below 2011’s numbers. AAR officials said that • Expanding opportunities for all by growing the American going back to 1998, when it initially began collecting data, the economic pie. only year which saw lower total carload volumes was 2009, the “The fact that we have many Americans who are successful height of the recession. According to AAR data, the peak year is not a problem,” Donohue said. “The fact that many Americans for U.S. carloads was 2006 at 17.3 million, with 2013 coming don’t get a fair chance to succeed is a problem. We know what in 15.6 percent below. doesn’t work. Getting stuck in stagnant growth, as has been the U.S. intermodal volumes reached an all-time high at case for the past five years, doesn’t work. And doubling down on 12,831,692 trailers and containers, which topped 2012’s the policies of tax, spend, regulate, and mandate won’t work.” 12,282,221 by 4.6 percent annually and 2011’s 11,892,418 by The Chamber unveiled its 2014 lobbying agenda by saying 7.9 percent. Last year also outpaced the previous high, 2006’s that its goals for this election year are to “expand trade, produce 11,732,750, by 8.6 percent. more domestic energy, and improve our infrastructure.” Putting the 2013 intermodal output into perspective, the ––John D. Schulz, Contributing Editor AAR said that, in 1990, containers accounted for 44 percent of intermodal volume. By 2000, their share was up to 69 percent, RAILROAD-INTERMODAL with 2013 setting a new record at 88 percent. AAR reiterated that it’s much more cost effective to move rail intermodal ship- 2013 intermodal volumes set new ments in containers than in trailers, largely because containers record, carload down slightly can be double-stacked and are easier to load onto and take off a railroad flat car than trailers. reports AAR “Last year ended the way it began—strong intermodal, weak coal, and mixed performance for other commodities, resulting in WASHINGTON––U.S. railroad and intermodal volumes were a year for rail that could have been much better, but also again mixed in 2013, according to data issued by the Association could have been much worse,” said AAR senior vice president of American Railroads (AAR). John Gray. “A variety of indicators seem to be saying that the economy is slowly strengthening, a trend we expect to continue in 2014.” Of the 20 commodity groups tracked by the AAR, 11 saw Time to Replace gains in 2013. Petroleum products were up 31.1 percent, and crushed stone, gravel, and sand were up 8.3 percent. Coal dipped 4.3 percent, and grain was down 8.0 percent. But when Your Metal Roof? coal and grain—which was down 4.1 percent—are excluded, total U.S. carloads are up 3.4 percent annually from 2012 to 2013.

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14 LOGISTICS MANAGEMENT | FEBRUARY 2014 WWW.LOGISTICSMGMT.COM NEWS analysis

Carload growth continues to trail you look at just the cyclical carload traffic intermodal growth for a few reasons, minus bulk commodities, and even taking according to Anthony Hatch, an inde- out intermodal, volume would likely look pendent railroad analyst and principal of closer to 2006,” he said. New York-based ABH Consulting. Looking at 2014 and beyond, Hatch “One part has to do with this eco- said that there is plenty to be optimistic nomic recovery being slower than normal about when it comes to growth on the as this was a bigger than normal reces- tracks due to the downward growth rate sion and was a much bigger shock to the of coal stabilizing from about 15 percent system than any other recession since to low single digits; the drought end- 1933,” Hatch explained. “Another reason ing by the fourth quarter; cyclical traffic is the 50-year drought that hit grain and remains growing at decent low single-dig- Save the date: a secular one-time permanent hit to coal, its; the capital investments being put into 19 – 23 May 2014 which accounted for 39.5 percent of all production around the U.S. chemical 2013 carload volume.” industry; and the Mexican auto industry, According to Hatch, coal peaked in among other factors. 2008, and since then has taken about a “This all means we should be past 20 percent hit, dropping about 12 per- the transition into the second phase of CeMAT 2014: centage points of market share in terms railroad growth,” Hatch added. of U.S. utility fuel use to natural gas. “If ––Jeff Berman, Group News Editor The entire world of materials handling TRUCKING at one venue

ATA reports sharp gain in seasonally- 1,100 exhibitors adjusted truck tonnage in December from 38 countries More than 55,000 visitors ARLINGTON, Va.— With the econo- picking up, coupled with solid volumes my continuing to show modest signs of from hydraulic fracturing, I look for ton- from 39 countries progress, truck tonnage volumes ended nage to be good in 2014 as well,” he said. Forums and special displays 2013 on a positive note, according to This sentiment from Costello matched data issued late last month by American up with commentary from carriers that on port, retail, production, Trucking Associations (ATA). indicated the second half of 2013 was transport, chemicals and Seasonally-adjusted (SA) truck tonnage stronger than expected, as the manufac- pharmaceuticals logistics in December ticked up 0.6 percent follow- turing sector shows continued strength, ing November’s impressive 4.7 percent gain. coupled with good, but not great, holiday More than 1,000 innovations The ATA’s not seasonally-adjusted retail shopping a well as solid growth in the (NSA) index, which represents the change housing and automotive sectors. More information in tonnage actually hauled by fleets before In as recent interview with LM, Noel any seasonal adjustment, was 123.0 in Perry, senior consultant at freight trans- at cemat.com December, falling 1.4 percent below portation consultancy FTR said paying November’s 124.8. The December NSA attention to the general economy is where was up 10.3 percent annually. the assessment regarding future trucking “Tonnage ended 2013 on a high note, capacity and growth really begins. which fits with many economic indicators “There are two main concerns,” said as trucking is an excellent reflection of the Perry. “With the exception of the third tangible goods economy,” said ATA Chief quarter of 2013 [which saw GDP grow Economist Bob Costello in a statement. 4.1 percent], the economy has not truly “The final quarter was the strongest we’ve accelerated in the last couple of years, seen in a couple of years, rising 2.2 percent and the multipliers on GDP that produce from the third quarter and 9.1 percent truck freight are relatively low. The com- The world’s leading fair from a year earlier.” bination of a relatively slow economy and for intralogistics Costello added that the improvement low multipliers indicate trucking will grow is not limited to the tank truck and flat- between 2 percent and 3 percent in 2014 Hannover Fairs USA, Inc bed sectors like earlier in the year. “With on a base case.” Tel. +1 773-796-4250 ∙ [email protected] manufacturing and consumer spending —Jeff Berman, Group News Editor WWW.LOGISTICSMGMT.COM cemat.com Jeff Berman is Group News Newsroom Notes Editor for the Supply Chain Group publications. If you want to with Jeff Berman contact Jeff with a news tip or idea, please send an e-mail to [email protected].

Truckload capacity trends are worth watching

for logistics and transportation stakeholders, has been relatively tight and has become tighter over the keeping an eye on over-the-road capacity at its current last four to five months. Perry adds that there’s potential levels and speculating on future levels has become more for the tightness to continue at least through the first than a passing interest. half of 2014 due to the current “regulatory lag.” With undertones of economic optimism afloat, “What that means is that rates could head up 3 per- coupled with an ongoing regulatory drag in the truck- cent to 5 percent. However, the real story in 2014 is the ing industry, there’s more than enough news to pay upside exposure, as it’s possible that the economy will attention to for both shippers and carriers. Noel Perry, grow more rapidly,” explained Perry. “Historically, when senior consultant at freight transportation consultancy it does, freight has grown by double digits.” FTR, says that paying attention to the general economy is where all interested parties can begin their capacity assessment. If 3.6 percent GDP growth continues for two “The economy has not truly accelerated in the last couple of years,” said Perry, “and or three quarters, Perry believes that would the multipliers on GDP that produce truck translate into freight growth in the 9 percent freight are relatively low. The combination of to 12 percent range. a relatively slow economy and low multipliers indicate that trucking will grow between 2 percent and 3 percent in 2014 on a base case.” If 3.6 percent GDP growth continues for two or On top of that is the repercussions of motor carrier three quarters, Perry believes that would translate into drivers’ hours-of-service (HOS) rules that took effect on freight growth in the 9 percent to 12 percent range. He July 1. The rules have been blasted by shippers and car- adds that that type of growth stress on capacity, which riers, noting that the regulations have been a production has very little margin for error, could portend a return killer to varying degrees. to 2004 rates. Were that to happen, fleets would begin Yet, Perry maintains that the true impact is still ordering additional as a result of the need to unclear, with some industry stakeholders indicating increase capacity. that the new rules are having more of an effect than From a service provider perspective, capacity became most realize, especially now that the truckload market harder to obtain as of late last year, according to Tom Nightingale, president of transportation logistics for Pittsburgh-based third-party logistics provider Genco. “It’s gotten tighter, and it’s gotten harder to get volume and active capacity for our customers,” he said. “It takes more phone calls and effort than before.” As for 2014, Nightingale said that there’s some uncertainty in the growth rate, but he expects capacity to be taut as the “long tail” of HOS takes hold, coupled with a annualized truck tonnage growth rate that he expects to be in the 5 percent range—a number that’s consistent with the estimate provided by FTR’s Perry. In this current environment, it stands to reason that capacity will continue to remain tight. And based on Perry and Nightingale’s commentary, it’s clear to see why. However, it could really only be the tip of the iceberg should the economy continue its steady uptick. Either way, it’s a story that requires full attention from shippers, carriers, and every supply chain stake- holder involved in transportation decision making. Ⅺ

16 LOGISTICS MANAGEMENT | FEBRUARY 2014 WWW.LOGISTICSMGMT.COM I KNOW your shipments and how to handle them. WE KNOW what it takes to get it there next-day.

Holland, the next-day delivery leader, is committed to knowing your business inside out. Winner of the Quest for Quality Award for 28 years running, we deliver the most next-day service in our area – from to Chattanooga, St. Paul to St. Louis – and annually record one of the lowest claim ratios in the industry. Want to know more? Call 866.465.5263 or go to hollandregional.com/nextday today! Copyright ©2014 YRC Worldwide Inc. Copyright ©2014 Peter Moore is Adjunct Professor Moore on Pricing of Supply Chain at the University of Denver Daniels School of Business, Program Faculty at the Center for Executive Education at the University of , and Adjunct Professor at the University of South Carolina Beaufort. Peter writes from his home in Hilton Head Island, S.C., and can be reached at [email protected]. Capacity pricing and LTL freight

by now you’ve surely heard a U.S. Postal Service spokes- and other variables the shipper can impact with their person talk about a parcel deal that they call “If it fits, it internal decisions. This approach incentivizes the shipper ships” with a simple form of capacity pricing. to reduce package size, work on shipping and receiving Shippers and carriers need to think about a future in hours, and book the carriers days in advance to allow them LTL freight with loads up to 19,999 lbs.—or even more— to match capacity to coming demand. that are sold on a capacity basis. If it fits with carrier opera- This may seem idealistic, but I have seen demonstra- tions, it ships with optimum pricing. tions of systems that will do this type of pricing and track- Our LTL pricing systems should look like airline sys- ing for highway carriers. There are third party services tems in which the carrier sets pricing in their own web- with thousands of shippers and carriers connected doing based application and allows shippers and third parties to complex rating—and air providers do it every day. access the pricing, including contract pricing on a real time For some reason we’re stuck in the old, static National basis. The carrier can adjust rates based upon available Motor Freight classification-based pricing system with capacity with pricing adjusting for capability, advanced extra costs for shippers and carriers in tariffs, pricing booking, and long-term contracts. tables, and outside auditors. Carrier discounts have Variable prices for insurance waivers, fuel hedging, and reached an absurd 90 percent level to sustain antiquated transit time (express vs. flexible delivery times) could be established and adjusted as capacity is consumed in a . And like the air providers, Shippers and carriers could work together the carrier price system becomes the system of dynamically to optimize the various factors record for auditing. The implication for a shipper with a trans- that make up service and cost in LTL freight. portation management system (TMS) is that instead of a static rate, the system would call out to the carrier’s system for current pricing from an existing price structures, and we’re unable to take advantage of contract or to a market of carriers in real time. The ship- dynamic changes in carrier operations and volumes that per system has to be able to disclose dimensions, weight, create opportunities for both carrier and shipper margins value, delivery deadline, and availability time in order to on any given day of the week. get a dynamic rate from the carrier. Shippers and carriers could work together dynamically Like the airline, the carrier system uses these variables, to optimize the various factors that make up service and contract agreements, and internal operating practices to cost in LTL freight; however, the slow shift of service rate quote for a given day and class of service. The carrier rate bureaus to “density pricing,” while admirable, is delaying system then sends the shipper’s TMS the contract or bid the major change that industry needs to make. price and records it for settlement. This is the equivalent The shipper action list is short but critical. First, ship- of issuing an airline ticket. The implication for freight pay- pers should meet with carrier executives and discuss ment is that we will only need to audit for service levels their willingness to move to dynamic and collaborative (e.g. on-time delivery) and will not need price matching LTL pricing. Second, have the IT departments of the car- third party audits. With current tracking software, carrier rier meet with your TMS folks or your third-party TMS delivery times could be confirmed automatically, thus provider. You then need to agree on the price and service simplifying settlement of charges. variables that both parties feel are important and measur- Carriers have expressed frustration with having to able as well as the protocols for communication. respond to shipper RFPs based on old fixed-price tables. Third, write an internal procedure that books freight They want to have a way to incentivize shippers to better as early as possible in the order cycle to give carriers utilize their changing capacity; and for carriers this means maximum planning time. Fourth, establish standard costs creating an audit friendly pricing system that is accessible for major freight lanes and begin measuring how dynamic by shippers’ computers. This pricing system would display pricing delivers savings while improving both carrier mar- and distribute pricing by density, day of week, value, gins and your customer service performance. Ⅺ

18 LOGISTICS MANAGEMENT | FEBRUARY 2014 WWW.LOGISTICSMGMT.COM Orders without borders. Your business is unique and so are your international freight forwarding needs. Let our global team of local experts deliver a solution to keep your supply chain moving forward.

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©2013 FedEx. All rights reserved. Mark Pearson is the managing Pearson on Excellence director of Accenture’s Supply Chain Management practice. He has worked in supply chain for more than 20 years and has extensive international experience, particularly in Europe, Asia, and Russia. Based in Munich, Mark can be reached at [email protected]

Cornerstones of an emerging market supply chain

in previous centuries, international trade volumes costs as a percentage of total GDP averages 9.9 percent typically flowed east to west, with more goods, materials, in the U.S. In Malaysia, the average is 13 percent. In and components journeying from emerging markets— Thailand, Vietnam, and Indonesia, logistics-to-GDP largely in Asia—to mature economies in Europe and ratios are 20 percent, 25 percent, and 27 percent North America. respectively. In emerging markets, therefore, lean can Now however, the global economy is more of a two- be mean. way street, with huge volumes of finished goods also Emerging markets are also a hodgepodge of unclear heading east to burgeoning markets like China, Singa- and frequently contradictory regulations. This com- pore, India, and Vietnam, as well as south to fast grow- plicates companies’ ability to enact focused programs ing economies such as Venezuela, Colombia, Argentina, and policies. The 2012 Enabling Trade Index noted that Uruguay, and Peru. Singapore is the world leader in developing “institu- This new reality may be good for business, but it tions, policies, and services facilitating the free flow of can be problematic for supply chain decision makers. goods over borders and the destination.” Hong Kong That’s because many of supply chain management’s ranked second. However, China ranked 56th, Indone- deeply held mantras—lean inventories, standardized sia 58th, South Africa 63rd, Brazil 84th, India 100th and operations, highly rationalized supplier bases—can Russia 112th. work against global companies’ efforts to accommodate The point is that heterogeneity is the overarching the diversity of emerging markets. reality when it comes to emerging economies when you Take consumer needs: Tech-savvy young adults consider the geographically dispersed markets; diverse in Mumbai often have more in common with New business and social culture; myriad stages of business Yorkers than with other young adults across India. maturity; varying work cadences; non-standardized Similarly, the purchase habits of affluent consumers taxation systems; and broad deviations in labor avail- in Shanghai may be more aligned with high income ability and efficiency. Parisians than with middle class or rural Chinese. So what are supply chain leaders doing to address Diversity—the traditional enemy of supply chain emerging markets—places where one size fits none? efficiency—is often the hallmark of emerging markets. Some organizations have chosen to excel at rapidly sens- Emerging market infrastructures can also be inhos- ing, capturing, and analyzing external and internal data. pitable to lean supply chain approaches. According to The idea is to overcome emerging market challenges a report in Indonesia-Investments, the ratio of logistics such as growing to understand diverse, fragmented

20 LOGISTICS MANAGEMENT | FEBRUARY 2014 WWW.LOGISTICSMGMT.COM Pearson on Excellence

customer groups as well as maximizing visibility into and contract manufacturing facilities in Brazil, China, far-flung supply chain operations. India, Mexico, and the U.S. The combination of in- Take Procter & Gamble for example, a company house and external operations helps Lenovo ameliorate that built a supply network that includes near constant risks associated with volatile emerging markets. POS updates that quickly signal shifts in product con- Leaders also tend to agree that “rapid innovation” is sumption. Internal and external partners now use the as important as “rapid response” and that positioning company’s accumulated data to quickly create replen- emerging markets as dumping grounds for stripped- ishment plans. down versions of existing products is a ham-handed Another innovator, Nextel, developed a “control strategy. tower” approach to overseeing dozens of South Ameri- Far more productive is redesigning products to can contractors, giving the company near real-time meet the unique needs of emerging markets. In India, visibility into the progress of equipment installation, 60 percent of the population lives in poor rural areas testing, and integration. without hospitals. As a result, hospitals must often go Complementing the rapid acquisition and assess- to consumers, which is why General Electric developed ment of information is the ability to quickly make sup- a fully portable ultrasound machine. ply chain changes. This is often a function of flexible, Also focused on Indian consumers’ financial and win-win relationships with supply chain partners. storage constraints, Novartis offers small, low priced Lenovo, the world leader in PC production, is a good medicine packets, with packaging information printed example. The company’s hybrid supply chain model in local dialects. uses advanced segmentation and analytics to maximize Lastly, businesses may need more extensive, more transportation and distribution efficiency across captive flexible sales and distribution networks to connect with diverse, largely rural markets. Tata Emerging market infrastructures: Lean can be mean Motors solved this problem in an interesting way: Because its poten- (Ratio of average logistics costs as a percentage of total GDP) tial customers are often too dis- persed to reach a dealership, Tata 27% 25% recruited local sales people who generate leads on a commission 20% basis. To identify and feed pros- pects to Tata dealers, the company also developed a network of cor- 13% porate partners with established 9.9% presences in rural areas. Some emerging markets may not be “emerging“ for long. But it’s unlikely that these new dogs will U.S. Malaysia Thailand Vietnam Indonesia ever respond to old tricks. Which is why supply chain innovators are Source: Indonesia-Investments likely to remain successful far into the future. Ⅺ

WWW.LOGISTICSMGMT.COM FEBRUARY 2014 | LOGISTICS MANAGEMENT 21 Derik Andreoli, Ph.D.c. Andreoli on OIL+FUEL is the Senior Analyst at Mercator International, LLC. He welcomes any comments or questions, and can be contacted at dandreoli@ mercatorintl.com.

Outrunning the Red Queen in the shale oil fields

in lewis carroll’s hallucinogenic novella, Through just to keep production from declining. Sooner than the Looking Glass, the Red Queen explains to Alice that later, oil production from the shale fields will reach she too can become a queen by reaching the opposite a plateau and inevitably fall into decline despite the side of the playing board. But Alice, who has been run- significant size of proved shale oil reserves. ning as fast as she can, finds that, despite her efforts, It’s difficult to refute this line of reasoning precisely she remains in the same spot. because rising production means that the Red Queen The Red Queen explains that in Wonderland, “it problem is becoming ever more pronounced—as pro- takes all the running you can do to stay in the same duction rates go up every year, so too do the legacy place, and if you want to get somewhere else, you must decline rates. run at least twice as fast as that.” Toward the end of 2013, the Energy Information Agen- Critics of the shale oil boom have compared oil cy (EIA) began publishing a monthly Drilling Productivity production in the Bakken and other shale oil fields to Report that suggests trouble looms on the horizon. Alice’s race with the Red Queen. The average new well There are three primary shale oil fields: the Bakken produces fewer than 500 barrels of oil per day in the in North Dakota and the Eagle Ford and Permian in first month. By the end of the first year of production, East and West Texas, respectively. On a daily output has typically fallen to slightly less than half of oil output basis, the Permian is the largest, producing the initial flow rate. By the end of the second year, daily nearly 1.4 million barrels per day (mbpd). Output from output from the average well declines to just over 15 the Eagle Ford has climbed to approximately 1.3 mbpd, percent of the initial flow rate. and production from the Bakken has recently risen Consequently, a significant and growing amount of above 1.0 mbpd. new oil production is required to cover declining output Collectively, oil production from these three fields from the many thousands of legacy fields that have been in December 2013 was nearly double the December drilled over the last few years. 2012 volumes. With such strong growth, there seems As a consequence of low average production and little reason for concern that oil production will soon high decline rates, shale oil critics draw an analogy to become, like Alice, trapped on the Red Queen’s tread- the Red Queen race, arguing that as time goes on, the mill—but decline rates from legacy fields have been amount of drilling will have to increase exponentially climbing faster than net production. Oil and gas production by region Oil production Gas production thousand barrels/day million cubic feet/day

Region January 2014 February 2014 change January 2014 February 2014 change Bakken 1,011 1,036 25 1,117 1,143 26 Eagle Ford 1,251 1,285 34 6,112 6,223 111 Haynesville 52 52 0 6,376 6,259 -117 Marcellus 40 42 2 13,837 14,225 388 Niobrara 284 290 6 4,326 4,293 -33 Permian 1,370 1,373 3 5,055 5,056 1 Total 4,008 4,078 70 36,823 37,199 376

Source: EIA

22 LOGISTICS MANAGEMENT | FEBRUARY 2014 WWW.LOGISTICSMGMT.COM Andreoli on OIL+FUEL

Key light oil and shale gas regions has been growing at a compound annual rate of 43 percent in the Eagle Ford and 36 percent in the Bakken. Bakken Assuming new well produc- tivity continues to increase at these rates, and the number of rigs in operation remains the Marcellus same in each of these fields, pro- Niobrara duction from new wells in the Eagle Ford would be expected to grow from 127,000 bpd to Haynesville 181,500 bpd, as the decline in Permian legacy production grows from 93,000 bpd to 167,000 bpd. Consequently, net new produc- tion, which increased by 34,000 Eagle Ford bpd in January 2014, would be Source: EIA expected to increase by just 14,000 bpd in January 2015. New wells drilled in the Permian field are expected Though still positive, the rate of growth in net new oil to add 42,000 barrels per day (bpd) to total production production from the Eagle Ford will fall to less than half between January and February 2014. On a net basis, of what it is today over the course of the coming year. however, oil output is expected to rise by only 3,000 bpd because output from legacy fields is The average new well produces fewer than 500 declining at a rate of 39,000 bpd, and is increas- barrels of oil per day in the first month. By the ing more rapidly than new well productivity. In January 2011, the legacy decline rate end of the first year of production, output has was estimated by the EIA to be just 25,000 typically fallen to slightly less than half of the bpd, but has since then increased at a com- initial flow rate. pound annual rate of 16 percent. By con- trast, new well productivity in this field has remained flat. Consequently, in order for oil production A similar process is unfolding in the Bakken, but to remain flat, the number of wells drilled every month a different story prevails there. Assuming the recent must increase. trends continue, production from new wells in the New wells drilled in the Eagle Ford field are expect- Bakken would be expected to grow from 86,000 bpd ed to add 127,000 bpd between January and February to 117,000 bpd, while the decline in legacy production 2014, but on a net basis, output is expected to increase would be expected to grow from 61,000 bpd to 92,000 by just 34,000 bpd as production from legacy wells is bpd. Consequently, net new production would be expected to decline by 93,000 bpd. Since January 2011, expected to grow by 25,000 bpd in January 2015, which the legacy decline rate has increased eight-fold, and is exactly how much it grew in January 2014. decline rates continue to accelerate. It may be concluded that the rate of growth of shale The legacy production decline problem in the Bak- oil production is likely to slow markedly over the next ken is similarly troublesome. The newly-drilled wells 12 months. For now, the industry continues to outpace there are expected to bring 86,000 bpd of new oil online the Red Queen, but the exponential growth of legacy between January and February 2014, but 61,000 bpd decline rates suggest that sooner than later the indus- will be lost to declining production from legacy fields. try will have to “run twice as fast” if output from these The legacy decline rate in the Bakken has more than fields is to grow. tripled over the last three years, and decline rates are What this means for oil and fuel prices is difficult accelerating there as well. to discern so far in advance because there are so many To a large degree, legacy declines have been offset by interconnected moving parts. I don’t see the Red Queen rising new well productivity, but gains are not distributed problem as a looming catastrophe, but rather as a chal- evenly across all fields. Well productivity has been flat lenge—a serious and growing challenge that shippers in the Permian, but since 2011 the oil output per well and carriers need to monitor. Ⅺ

WWW.LOGISTICSMGMT.COM FEBRUARY 2014 | LOGISTICS MANAGEMENT 23 Patrick Burnson is Executive Editor Global Links of Logistics Management. If you want to contact Patrick with feedback or a By Patrick Burnson story idea, please send an e-mail to [email protected].

When it comes to risk management, think small

Analysis shows no correlation between a manufacturer’s total expenditure with a supplier and the cost of a supply disruption. Evaluating sub-tier partners is key.

industry analysts agree that it’s important to event will occur at any firm and knowing the magni- make risk assessment an ongoing process, allowing tude of the problems that would ensue. However, for frequent plan updates as political conditions, risks—which can range from a brief work stoppage fuel prices, tariffs, currency exchange rates, labor to a major natural disaster—exist on a continuum costs, and other supply chain security threats arise. of frequency and predictability, and the sources Until now, the focus for most U.S. manufactur- of low-probability, high-impact risk are difficult ers has been on protecting its most asset-intensive to quantify. Manufacturers generally assume that suppliers, to ensure that key high-value components their greatest supply chain risk is tied to suppliers are always available. But a new body of research on of highest expenditure. supply chain risk suggests that there may be no cor- But Simchi-Levi reasoned that because a compa- relation between the total amount a manufacturer ny’s mitigation choices—maintaining more inventory spends with a supplier and the profit loss it would or an alternative supply source, for example—are the incur if that supply were suddenly interrupted. same regardless of the type of problem that occurs, This finding defies a basic business tenet that a mathematical model of supply-chain risk should equates the greatest supply chain risk with suppliers of determine the impact to the company’s operations highest annual expenditure. if any disruption occurs, rather than estimating the When applied to ’s sup- probability of specific types of risks. ply chain, the quantitative analysis by Professor His model incorporates bill-of-material infor- David Simchi-Levi of MIT’s Department of Civil and mation (the list of ingredients required to build a Environmental Engineering and Engineering Systems company’s products); maps each part or material to Division shows that the supply firms whose disrup- one or more of the firm’s facilities and product lines; tion would inflict the greatest blow to Ford’s profits captures multiple tiers of supplier relationships (tier are those that provide the manufacturer with relatively 1 are direct suppliers, tier 2 are suppliers to tier 1 low-cost components. firms, and so on); includes operational and financial “This helps explain why risk in a complex sup- impact measures; and incorporates supplier recov- ply network often remains hidden,” says Simchi- ery time if a problem occurs. Levi, who is co-director of MIT’s Leaders for Global As nodes are removed one at a time from the Operations program. “The risk occurs in unexpected supply network, the model determines how best locations and components of a manufacturer’s sup- to reallocate inventory and obtain alternatives, and ply network.” predicts financial impact. The resulting analysis A paper on the application of this work to Ford’s divides suppliers into three segments depending supply chain by Simchi-Levi and former graduate on the cost of the individual components they pro- students William Schmidt, now an assistant profes- vide and the financial impact their shortage would sor at Cornell University, and Yehua Wei, an assis- have: low-cost components/high financial impact; tant professor at Duke University, will appear in the high-cost components/high financial impact; and January/February issue of Harvard Business Review. low-cost components/low financial impact. Focus on low-probability, Highest risk from 2 percent of suppliers high-impact risk When Simchi-Levi, Schmidt, and Wei applied the Traditional methods for identifying the suppliers model to Ford’s multi-tier supply network—which and events that pose the highest risk depend on has long lead times from some providers, a com- knowing the probability that a specific type of risk plex bill-of-materials structure, components that are

24 LOGISTICS MANAGEMENT | FEBRUARY 2014 WWW.LOGISTICSMGMT.COM Global Links

shared across multiple product lines, and thousands Keeping track of supplier solvency of components from tier 1 suppliers—the model Creating back up plans and due diligence reports predicted that a short disruption at 61 percent of for smaller suppliers should also be a priority says the tier 1 firms would not cause profit loss. By con- Rose Kelly-Falls, senior vice president, supply chain trast, a halt in distribution from about 2 percent of risk management at Rapid Ratings International, firms would have a very large impact on Ford’s prof- in Indianapolis, . She posed this rhetori- its. Yet each of those firms in the 2 percent furnish- cal question to shippers last year: Are supply chain es Ford with less expensive components rather than, managers paying proper attention to their suppliers’ say, expensive car seats and instrument panels that solvency? fall into the high financial impact segment. From her point of view, the answer is a resounding “The ability to manage and respond to supply no. “Solvency is the degree to which current assets chain disruptions is becoming one of the critical exceed liabilities,” Kelly-Falls explains. “If supply success factors of executives,” says Hau Lee, a pro- chain managers miss any ‘red flags’ in this area, they fessor of operations, information, and technology at do so at their own peril.” Stanford University’s Graduate School of Business, Kelly-Falls likes to tell a story about a small pri- who was not involved in the study. “Addressing low- vate machining company that was a second tier sup- probability disruptions has often been viewed as plier of clutch gears for a major U.S. auto manu- black magic, as standard quantitative methods sim- facturer. It was located in a remote community, and ply do not work. The authors have come up with an was quietly purchased by a toy manufacturer with- innovative, structured approach, so that executives out much fanfare. could use a rational decision process to gain control “When the auto maker needed a crucial piece of of this problem.” equipment for a new product launch, it was sudden- The relevance of this methodology can be seen ly unavailable,” she recalls. “Why? Because this big in light of a disruption in 2012 at a plant in Europe, multinational corporation did not ever bother keep- which caused a shortage of a polymer used by most ing track of what it perceived to be a minor business manufacturer-suppliers to make fuel tanks, brake partner.” The result, she recalls, was a missed deadline components, and seat fabrics. It took six months to and the loss of millions of dollars in revenue. Had the restart production, a delay that had a large financial relationship not been underestimated, the risk could impact on the auto industry. have been mitigated. Ⅺ

An Illustrative Example: High Tech Manufacturer’s Risk Exposure Index TTR: 2 weeks 2 weeks 2 weeks FI: $300M $2.5B $100M Printed Circuit Contract U.S. Port Board Manufacturers LTL Stores

Chipset Manufacturer Distributors Assembly Plants

2 weeks 2 Weeks $400M 2 weeks 1 Week $1.5B Distributors $400M $100M TL

Raw Material U.S. Suppliers Suppliers

Tier 2+ Tier 1 Distribution Assembly Customers

• Time-To-Recovery (TTR): The time it takes to recover to full functionality after a disruption • Financial Impact (FI): Lost sales during TTR • The Risk Exposure Index (REI): The maximum FI over all nodes in the supply chain

WWW.LOGISTICSMGMT.COM FEBRUARY 2014 | LOGISTICS MANAGEMENT 25

EXCLUSIVE

2014 WAREHOUSE/DC EQUIPMENT STUDY X X

X XX

Respondent demographics In December, Peerless Research Group e-mailed survey ques- percent). The median revenue of responding companies is tionnaires to readers of Logistics Management and Modern $91.9 million. Qualified respondents—those managers and Materials Handling, yielding 412 qualified respondents from personnel involved in the purchase decision process of ma- manufacturing (36 percent), warehousing (22 percent), cor- terials handling solutions—hold influence over an average of porate (26 percent), and aligned logistics professionals (15 136,885 square feet of warehouse or DC space.

26 LOGISTICS MANAGEMENT | FEBRUARY 2014 WWW.LOGISTICSMGMT.COM EXCLUSIVE: Xxxxxx xxxxxx

Our annual look into spending plans inside the four walls highlights growing interest in automation and software as workforce issues factor heavily into equipment investments. XXBY JOSH BOND, EDITOR AT LARGE ver the last few years, the results of Peerless improvement, workload planning, and lean processes are key Research Group’s (PRG) State of Warehouse/DC initiatives going forward.” Equipment and Technology Survey have reflected The survey results point to significantly increased interest an industry scrambling to adjust. in automated processes in the next two years. There are sizable O The recession, the e-commerce boom, and gaps between the number of respondents currently using auto- advances in materials handling equipment and software mation to evaluate productivity in various functions and those have rewritten the rules on what seems like an annual basis. who expect they will have transitioned to automated approaches Just since 2010, the average anticipated spending on such within the next two years. equipment has spiked by 15 percent or fallen by 26 percent Those soon-to-be-automated functions include the track- from one year to the next. ing of inventory levels (58 percent currently automated, 76 Whatever survey respondents are doing with their money, percent in two years), order fulfillment costs (40 percent, it seems to be working. Activity levels as a percentage of 60 percent in two years), and daily throughput (44 percent, capacity are at their highest since at least 2007, while 95 69 percent in two years). percent of respondents believe that their activity levels will This is reflected in the increased percentage (54 percent, up increase (by an average of more than 20 percent) or stay the from 50 percent) of respondents who plan to invest in informa- same in the next two years. tion technology hardware or software in the next 12 months. But Yet even as the number of potential investors taking a respondents are also keen to optimize the productivity of each “wait and see” approach declines from 50 percent to 43 and every worker, anticipating growth in automated tracking of percent and the number “proceeding with investments” picking accuracy (33 percent currently automated, 62 percent jumps from 19 percent to 27 percent, spending figures have been trending downward. Having spent heavily to set the air- What is your current activity level for stand- craft carrier in the right direction, the industry is transitioning alone warehouses/distribution centers? to targeted investments aimed at keeping the ship on course. (Average % capacity utilization) Continued interest in automation 67 % 68% 65% We know activity levels have grown in manufacturing (75 62% percent, up from 63 percent in 2012), warehousing sup- 60% porting manufacturing (69 percent, up from 56 percent in 2011), and standalone warehousing (68 percent, up from 60 percent in 2011). That growth is largely due to a focus on doing more with less—optimizing existing facilities instead of new building. Technology and equipment investments have already helped support data-driven improvements, but many respondents feel there is much more to be done. “Technology is expected to become even more critical in the upcoming years as a growing percentage of operations plan to automate inventory control and handling, distribution pro- 2010 2011 2012 2013 2014 cesses, and labor management,” says Judd Aschenbrand, direc- tor of research for PRG. “In warehouses and DCs, continuous Source: Peerless Research Group (PRG)

WWW.LOGISTICSMGMT.COM FEBRUARY 2014 | LOGISTICS MANAGEMENT 27 EXCLUSIVE: 2014 Warehouse/DC Equipment Survey

Do you have a pre-approved annual capital in two years) labor hours (51 percent, 69 expenditures budget for materials handling solutions? percent in two years) and on-the-job inju- (% rated very important) ries (18 percent, 37 percent in two years). If yes, what is the amount? Investing to curb workforce challenges 60% Less than $25,000 10% The growth of multi-channel distri- $25,000-$99,999 23% bution and e-commerce have pres- 48% $100,000-$249,999 27% 46% sured the distribution center and sup- $250,000-$999,999 20% ply chain to run ever more efficiently, 38% 39% $ 1 million or more 20% according to Norm Saenz, managing director at supply chain consultancy St. Onge Company. Average budget “In an effort to cut operating costs, 2010 $515,000 some might have performed layoffs in 2011 $694,500 recent years,” Saenz says. “Now that 2012 $470,250 activity levels are up, the back is breaking 2013 $390,000 in many facilities, and thus the willing- 2010 2011 2012 2013 2014 2014 $385,400 ness to spend on automation to enhance

Source: Peerless Research Group (PRG) the productivity of those workers. But while technology and automation receive And, what percent of your overall spending during the next 12 months will be on…

46% 48% 43% 43% Which systems and equipment are you likely to evaluate or consider during the next 12 months?

Materiaals handling Materials handling equipment equipment Racks and shelving 49%

Lift trucks and accessories 47%

26% 29% Totes, bins, and containers 33% 31% 25% Bar coding 33% Information Packaging including palletizers, systems pallets, and dunnage 28% Dock equipment 28% 31% 27% 28% Conveyors including 26% 23% sortation equipment Other Mobile and wireless 24%

Order picking and fulfillment 24%

2011 2012 2013 2014 Systems solutions 20% RFID solutions/products 19% Information management systems Controls 18% Enterprise resource planning 27% Hoists, cranes, and monorails 17% Warehouse control systems 26% Robotics/Automation 16% Warehouse management systems 23% Power transmission including motors and belts 14% Asset management systems 22% Automated storage including 9% carousels and vertical lift modules Labor management systems 15% 3PL services 8% Voice recognition 15% Mezzanines 8% Transportation management systems 7% AGVs 6%

Source: Peerless Research Group (PRG) Experience the power of Hyundai at Booth #7431

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the headlines for improvement in opera- companies adopting multi-channel est, and 10 percent are not sure what tions, more businesses understand it’s strategies must maintain real-time vis- cloud computing is. the labor force that sustains productivity ibility of inventory at different facilities “Those who are adopting these strat- and high service levels.” and synchronize operations across the egies cite cost savings, data reliability When asked to identify the issues that supply chain,” he says. “This visibility across the enterprise, streamlining of are most relevant now and to estimate will improve efficiencies by maintain- operations, ease of information access, their relevance in two years, 89 percent ing one common pool of inventory.” and improved communications with of respondents again placed safety at the Cloud-based or software as a ser- customers and suppliers,” says Aschen- top of the list. Just two years ago, cost vice (SaaS) approaches are gaining brand. “But concerns over security, pri- containment topped the list, but it now some ground in this space, although vacy, data integrity and system reliability sits in second place with 76 percent. overall adoption remains modest. Only remain as reasons for non-adoption.” Labor-related issues like training (63 per- about a third have either adopted (13 cent), labor availability (52 percent) and percent) or are currently evaluating Software: Cornerstone ergonomics (48 percent) are expected to (18 percent) SaaS or cloud comput- for improvement become more pressing in coming years. ing strategies. Twenty percent have In the next 12 months, 43 percent of “The sophistication of the skill sets determined “it’s not for us,” 36 percent planned spending will go toward mate- required to operate leading-edge equip- aren’t sure of their company’s inter- rials handling equipment like racks ment and system solutions in the mate- rial handling, logistics, and supply chain How important are each of these issues today? industry will require an equally sophisti- Two years from now, how important do you expect cated and well-trained workforce,” says these issues to be? George Prest, CEO of supply chain (% rated very important) association MHI. “Hiring, training, and 89% retention of workers is the most impor- Safety tant issue facing this industry.” 85% But none of the listed issues saw a 76% Cost containment 76% greater jump in anticipated relevance 73% than environmental sustainability. Cur- Company growth 76% rently, 40 percent of respondents see it 63% as an important issue, and 51 percent Training* 68% believe it will be within two years. 58% “Because they are elective and not Throughput 60% mission-critical, green initiatives go Capital availability* 54% hand in hand with how well the global 61% economy and the individual company Cycle times* 52% are doing,” says Aschenbrand. 57% Labor availability 52% Supply chain visibility 51% In a new question added to the sur- Ergonomics 48% vey this year, respondents were asked 50% Having a presence in global markets 45% about the level of end-to-end visibility 49% across their supply chains. Environmental sustainability* 40% An impressive 36 percent indicated 51% that they have full end-to-end visibility 40% across their supply chains, while another 42% 27 percent described their manufactur- Smaller, more frequent orders 28% ing and warehousing operations as a 32% Current issue group of discrete silos. In the middle, Facility consolidation 26% In two years 61 percent stated they are in the process 29% of improving integration among supply Trading partner collaboration* 24% chain nodes. “End-to-end supply chain 30% visibility will be a requirement for future Multi-channel fulfillment 24% supply chains,” says Prest. 26% For example, the multi-channel Outsourcing (3PL*) 10% 16% model requires it, says Prest. “While many companies have traditionally * : Expected rise in importance during next two years maintained dedicated facilities to Source: Peerless Research Group (PRG) serve demand from specific channels,

30 LOGISTICS MANAGEMENT | FEBRUARY 2014 WWW.LOGISTICSMGMT.COM EXCLUSIVE: 2014 Warehouse/DC Equipment Survey

and shelving (49 percent), lift trucks year, roughly a quarter of respondents improve the control and productivity of and accessories (47 percent), bar cod- will invest in each of the following: the labor force, and stronger inventory ing (33 percent), conveyors and sorta- enterprise resource planning (ERP), management module can be a signifi - tion (26 percent), mobile and wireless warehouse management systems cant cost savings opportunity,” he says. solutions (24 percent), and robotics (WMS), warehouse control systems “This could be a ‘Band-Aid’ approach and automation (16 percent). (WCS), and asset management sys- to enhancing their systems, should the In past years, investment in equip- tems. Labor management systems (15 company replace the entire WMS in ment might have been independent percent), and voice recognition tech- the future.” from investment in information tech- nologies (15 percent) also placed high As they move forward with infor- nology solutions, but Saenz says that’s on the list. mation technology initiatives, 61 no longer the case. “WMS has evolved into a sophis- percent of companies prefer to work “There is a close relationship ticated $1 billion-plus industry that with a suite of applications from a between equipment and IT invest- operates in a highly competitive envi- single vendor, as opposed to the 39 ments,” says Saenz. “At some point, ronment,” says Prest. “The top pro- percent who prefer a best-of-breed when automation is included in the viders have expanded their solution strategy employing software from investment, certain software and han- offering beyond the warehouse and various suppliers. dling control systems are required to the term ‘supply chain execution’ has Once businesses have established effi ciently manage the automation. been widely adopted to refl ect the a solid baseline of internal data, they Generally, as the investment in equip- shift to more comprehensive logistics will expect trading partners to be able ment and IT increases, the relation- applications. Thus the WMS category to share comparable information. ship becomes much closer between for this type of solution may be too Today, 24 percent see trading partner the two.” limiting.” collaboration as an important issue, Planned spending on information For companies not yet ready to and 30 percent expect it to be more technology suggests businesses will shed their legacy WMS, Saenz says important in the next two years. work to improve the collection and that many can enjoy strong returns management of data from every cor- from bolt-on modules. “At a fraction —Josh Bond is Editor at Large for ner of the supply chain. In the next of the investment, an LMS can greatly Logistics Management

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2014 Parcel Express Roundtable: Do your homework

Our distinguished trio of analysts provides insight into current parcel market trends and suggests that now, more than ever, high-volume parcel shippers need to carefully vet their providers, comparison shop, and match service levels to actual needs.

BY JEFF BERMAN, GROUP NEWS EDITOR

hen it comes to assess- tinguished trio will provide their insight the same-day delivery market, includ- ing the various facets of into what’s currently driving parcel mar- ing Fresh. the transportation and ket trends, the pricing picture, and what Jerry Hempstead: But don’t forget logistics landscape, it’s no to watch for in the future. However, one that at the beginning of 2013 there were Wsecret that parcel express prevalent takeaway the panel shares is uncertainties regarding the negotiations and ground activities follow a different for shippers to do their homework when between UPS and the International playbook than other modes. it comes to assessing rates and service in Brotherhood of Teamsters. From the One big page of that playbook cen- terms of comparison shopping. ebb and flow of package counts divided ters around the fact that this sector, They agree that now, more than between the two big carriers, it was obvi- unlike others, is still largely predicated ever, high-volume parcel shippers need ous that fear, uncertainty, and doubt on the actions of its largest players— to carefully vet their providers and played well for FedEx and dampened the the duopoly of FedEx and UPS. But their eyes to the small but grow- early numbers of UPS. This variable was that’s not to say that this sector is solely ing role that regional parcel express eliminated midyear and the playing field about these two bellwethers, as the providers are now playing. has once again been leveled. Postal Service (USPS), despite its financial travails, continues Logistics Management (LM): How LM: How would you describe the to make steady progress with its ship- would you describe the current parcel current rate and pricing environment ping and package group. marketplace? for parcel shippers? In fact, the ongoing emergence of David Ross: We’ve seen consistent Martinez: For FedEx and UPS cus- e-commerce has also helped to further growth in demand for U.S. small pack- tomers, 2013 was a bear and 2014 will open doors for regional parcel express age deliveries, with ground-deferred be no different. Annual rate hikes again players of all sizes, although the pric- shipments preferred to air-expedited outpaced inflation, many surcharges ing power of the big two makes justify- shipments. were increased, and the dimensional ing alternatives a bit of a challenge. Rob Martinez: David is right on. weight changes implemented in 2011 To help Logistics Management put the I would actually describe the market continued to adversely affect shipper current market into perspective, we’ve as exciting. Many industry develop- costs. called upon Jerry Hempstead, president ments occurred in 2013, including UPS and FedEx continue to be of Hempstead Consulting; David Ross, significant growth in USPS Shipping focused on , and transportation and logistics director at Services; emergence of regional par- shippers report that it’s more chal- Stifel Nicolaus; and Rob Martinez, pres- cel express carriers as viable alterna- lenging than ever to negotiate UPS ident and CEO at the parcel shipping tives to UPS and FedEx; double-digit and FedEx parcel contracts with mul- consulting firm Shipware LLC. growth in e-commerce; and as a result tiple sets of list rates, different fuel In the following few pages, this dis- of that growth we saw new players in surcharges, complex revenue-based

32 LOGISTICS MANAGEMENT | FEBRUARY 2014 WWW.LOGISTICSMGMT.COM DAN VASCONCELLOS incentives, discount exclusions, mini- agreement someplace. cent for ground, while UPS imple- mum charges, and multiple punitive One of the largest effects has been in mented 4.9 percent average increases contract clauses. the escalation of the minimum charge. for both air and ground products on Ross: The rate environment puts This is important because shippers December 30, 2013. These “average” shippers at a disadvantage because there with big discounts often experience increases, however, are misleading. are really only two major players control- the biggest jump in minimums. Since Two- and three-day air products ling roughly 90 percent of the volume. DHL departed, the ground minimum increased 5.25 percent to 5.55 per- They set the pricing. Optimizing modes is up over 35 percent. The benchmark cent, and lightweight ground packages is where the savings opportunity is for ground commercial base price for a increased an average of 7.5 percent for shippers, not in pure rate negotiations. Zone 5, 5-pound transaction is up 1-5 lbs. and 7.0 percent for 6-10 lbs. Hempstead: Dave and Rob are over 45 percent. Their net profits have Lightweight FedEx SmartPost pack- certainly correct. No matter how good soared since DHL exited, and for those ages increased an average of 7.5 per- a negotiator you are or have been, that follow pricing nuances, FedEx has cent for 1-5 lbs. and 7.1 percent for chances are your delivery cost has gone matched the price of UPS for the most 6-10 lbs. Ground minimum charges up, and gone up much faster than the part on the ground tariff. increased 6.8 percent to $6.24, and CPI for the last five years. The exit of many accessorial charges increased. DHL from the domestic playing field in LM: Where do you see rates going in Rate increases are being driven by a 2009 has left shippers at the mercy of a 2014 and what’s driving them? combination of UPS and FedEx’s yield duopoly. Shippers have little recourse. If Martinez: Effective January 6, management strategy, few competitive one marries a carrier, chances are that 2014, FedEx rates increased an aver- alternatives, and the market’s toler- there are yearly increases built into the age of 3.9 percent for air and 4.9 per- ance for GRIs.

WWW.LOGISTICSMGMT.COM FEBRUARY 2014 | LOGISTICS MANAGEMENT 33 Transportation Best Practices/Trends: 2014 Parcel Express Roundtable

Hempstead: When you consider all compromising service. trust of purchasers, and this allows the of the complexities of carrier pricing— The reality is that the number of buyer the convenience of shopping and service types, zones, fees, surcharges— available shipments has been con- comparing from the privacy of their own I can’t envision many shippers skating stantly increasing. The variable has home. This trend will only continue, and by without some pain. The carriers have been the services purchased by the I see the future of shopping malls threat- become very sophisticated in where and shippers, and it has taken the carriers ened as they are quickly being obviated how they tinker with the tariff. some time to adjust to those changing by the online experience. The announcement of “average” demands. For example, USPS Parcel increases by all of the carriers is rather Select has aided both the integrators LM: Given the financial challenges of deceptive, and there is no shipper that and the USPS so that shippers have the USPS, what possible changes might shippers expect? “The announcement of ‘average’ increases by all of the Hempstead: The only politically carriers is rather deceptive, and there is no shipper that saleable solution for the USPS is to raise has a shipping profile that matches the way carriers its prices to cover its operating expenses. determine this average.” Going to five-day delivery, closing unpro- ductive post offices, tinkering with —Jerry Hempstead, president of Hempstead Consulting employee retirement and benefits are just not going to garner any support from has a shipping profile that matches the a system for residential delivery that either side of the aisle in Congress. way carriers determine this average. makes sense for all parties. Ross: I agree. We expect further With that in mind, the only certainty is rate increases, but parcel is not where directionality. Shippers know rates are LM: How is the ongoing emergence of the USPS financial challenges lie—it’s going up, but the amplitude is impos- e-commerce changing the parcel mainly on the mail side. With Congress sible to approximate. marketplace? still involved, we don’t expect the finan- Martinez: It’s safe to say that cial struggles to improve much. Still, as LM: How are market conditions affect- e-commerce is having an enormous parcel is the bright spot at USPS, invest- ing service and what role is the up and impact on the parcel marketplace. ments are being made to improve ser- down economic recovery playing? We’re commonly seeing 40 percent vice—like increased track/trace capabili- Ross: Market conditions are having year-over-year annual package volume ties—so shippers should expect better an impact on service. Whether the econ- growth with many of our e-commerce shipping options for small packages. omy is up, flat, or down, parcel service clients. And while UPS Surepost and Martinez: While it’s certainly true continues to improve—with the excep- FedEx SmartPost package volume that the USPS faces significant finan- tion of the recent snag around Christ- posted significant growth in 2013, cial and legislative challenges, declin- mas, but that was poor peak readiness. the USPS stands to be the real win- ing mail volumes, as well as increased Martinez: Outside of the holiday ner because it handles the final mile labor, health care, and pension costs, season, in which a combination of delivery for the vast majority of these the shipping and package services seg- high package volumes and inclement shipments. Moreover, these USPS ment is actually doing quite well. It’s weather affected service performance, products will be taking a healthy rate been the bright point, boasting con- overall service at FedEx and UPS has increase later this month. sistent and solid revenue and package been relatively stable. We were con- In addition, the explosive growth of volume growth. cerned when FedEx announced in e-commerce is creating new opportu- Therefore, I don’t believe we’ll see 2012 that the company was revamp- nities in parcel delivery. Regional car- negative changes at all. If anything, ing the Express segment through a riers like OnTrac—that provides par- the Postal Service is likely to con- combination of cost reductions, payroll cel services to the eight Western U.S. tinue to offer new service and product reduction, and service repositioning to states—are gobbling up market share enhancements like we saw with Prior- shed $1.7 billion by 2016. However, from Amazon, NewEgg, and many ity Mail this past year. With all this in service performance at FedEx Express other high-volume e-commerce compa- mind, we believe that the USPS will continues to meet historical levels. nies. And in the ever intensifying battle continue to grow its shipping busi- Hempstead: The impact of the to exceed customer expectations and ness segment, and play a major role in havoc that the economy brought on using delivery as a competitive advan- the delivery of lightweight, residential is seen in the downtrading of interna- tage, same-day services are springing up deliveries well into the future. tional shipments and the use of more in major metropolitan areas. intelligent shipping software that can Hempstead: The most significant LM: What advice do you have for parcel correctly select the lowest possible change is the rapidity at which the shippers in 2014? price option to fulfill customer expec- mix of business, from commercial to Ross: Know your freight and your tations. This has caused the carriers residential, has occurred. It appears lanes and figure out what service level to rationalize networks, in particular to be on a hockey stick trajectory. The is really needed. Carriers are target- in the air, to maximize profits without e-commerce companies have gained the ing specific package weights with their

34 LOGISTICS MANAGEMENT | FEBRUARY 2014 WWW.LOGISTICSMGMT.COM THIS IS A $12 MILLION SPRING.

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annual rate increases, and if shippers Martinez: Indeed, the “super” age the USPS for final mile delivery keep shipping as they always have, they regional carriers—OnTrac, Eastern will continue to grow faster than air may take unnecessary rate increases. Connection, LaserShip, Pitt-Ohio, Sir and ground services. With the growth Ground service has improved in terms Spee-Dee, Lone Star Overnight, Cou- in e-commerce, return shipments of transit times and reliability; so rier Express, TransTek—have been will continue to rise. Companies like regional shippers that are using express making inroads and growing market Newgistics, that specialize in returns, should take a hard look at shifting to the share. The regional carriers offer many will be the beneficiaries of the trend. carriers ground products. benefits over UPS and FedEx includ- Finally, the same-day delivery market Hempstead: There are just so ing cost savings, larger next-day - will grow as online shoppers realize the many complexities now—different ery footprint, later pickups, earlier benefits and convenience of receiv- services, different zones, and differ- deliveries, easier contracts with fewer ing an order the same day it is placed. ent accessorial charges. This makes it accessorial charges, same day-delivery Once the shipping operators find the easy to get distracted. The two things options, and customized solutions. right price point, we can expect rapid shippers should have in their toolbox An industry trend that favors the growth and expansion of same day ser- is a robust shipment processing system ongoing expansion of regional carriers vice offerings. Ross: B2C is driving all of the “The USPS will play a major role in parcel delivery and change, and Amazon is certainly experi- will take considerable market share away from FedEx menting quite a bit. USPS should and UPS. Within five years, the USPS will be the single remain king of B2C delivery, as the low- largest player in residential parcel delivery.” cost home delivery option, while FedEx should continue to slowly take share — Rob Martinez, president and CEO, Shipware LLC from UPS. We don’t see DHL re-enter- ing the U.S. market, but small local that complies with the changing car- is the trend to move inventory closer B2C start-ups should emerge to handle rier requirements, and the services of to customers. Companies like Amazon e-commerce deliveries. Regional carri- a qualified, experienced expert in the have opened dozens of regionalized dis- ers are likely to grow at above-market parcel industry. tribution facilities all over the country to rates, but still not capture any more Martinez: Analyze, optimize, and decrease shipping times, reduce costs than 3 percent to 4 percent of the total. diversify. We’re seeing shippers save 25 and better serve customers. Regional Hempstead: The potential exists percent to 40 percent through a combi- carriers stand to benefit immensely. that the USPS may intentionally, or nation of least-cost routing and modal Ross: Yes, but keep in mind that unintentionally, put itself in a posi- optimization strategies as well as carrier the regionals only have less than 3 tion that it’s not the optimum method optimization including the USPS, UPS, percent of the market. Even increas- to accomplish residential deliveries for FedEx and regional parcel carriers. ing their market share by 35 percent FedEx, DHL, and in particular UPS. is barely noticeable to FedEx or UPS. The economics are such that UPS Sure- LM: Have regional parcel players made In our view, they just need to keep post already diverts many transactions inroads in market share gains in the last doing what they’re doing—providing over 10 pounds to their own driver to year? What can they do to better com- fast, reliable service at a competi- deliver—the price increase slated for pete with the “big boys”? tive rate on a regional basis. We don’t January 26 most likely slips this number Hempstead: The regional car- envision a being to 8 pounds or less. riers continue to grow and prosper. established, as that would require Amazon has sent a mes- However, this really doesn’t seem to significant real estate infrastructure sage out to the private carriers that have the attention of the national investment, and the “big boys” would it’s willing to explore alternatives to integrators. FedEx has entered into a likely hold rates flat or cut them to traditional services. However, I don’t new service offering of same-day city prevent any new national parcel com- see their flying device as the solution. deliveries using delivery partners. As pany from gaining enough density to The reality is that Amazon now has the USPS continues to raise the Par- make money. sufficient critical mass in its control cel Select prices, the regional carriers to become its own parcel shipping become more relevant. LM: How much different could the company and sell that service to other This option becomes available to parcel landscape be in five years? sellers. So, although Amazon may be a shippers who can use the services of a Martinez: We see it changing in a big customer of FedEx and UPS, they regional carrier within their footprint, few ways. First, the USPS will play a could become a threat as a competitor. but also as a practical alternative to the major role in parcel delivery and will What’s most likely is that they will find USPS for the hybrid services. Some of take considerable market share away creative ways to work together to lever- the regionals are already beginning zone from FedEx and UPS. Within five age each other’s strengths. pools to facilitate moving orders years, the USPS will be the single larg- across regions for entry onto their net- est player in residential parcel delivery. Jeff Berman is Group News Editor for works. Parcel select companies that lever- the Supply Chain Group

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2014 State of TMS: Cost reductions and

Top supply chain software analysts assess growth in the transportation management systems (TMS) market, highlight emerging trends in adoption, and predict the future of this highly beneficial, yet consistently underused application.

BY BRIDGET McCREA, CONTRIBUTING EDITOR

n its 2012-2017 TMS Global Mar- about 8 percent for most industry ver- SaaS [Software as a Service] revenues,” ket Research Study published in ticals.” That means that the company says Banker. By definition, cloud com- 2013, research firm ARC says that that spends $100 million annually on puting is the deployment of software transportation management systems freight can invest, say, $1 million to on virtualized servers where the TMS I(TMS) continue to offer a strong $2 million in a TMS and can expect to runs on multiple different servers ROI for shippers—namely in the way save an average of $8 million in freight as demand increases or decreases, of lower freight spend. And that trend costs. “That’s a pretty good return,” whereas SaaS involves applications shows no signs of slowing down any says Banker. that are hosted by a vendor or service time soon. Eager to tap into those returns provider and then distributed to cus- ARC says that over 40 percent while also gaining visibility over their tomers via the web. of respondents felt that if they were global supply chains, today’s shippers Rick Brunson, manager of supply forced to their TMS and go are exploring their options on the TMS chain technologies for consulting firm back to more manual processes for front. In most cases, that means select- Capgemini, also sees more potential planning and execution, their total ing between the traditional, purchase- ahead for cloud-based TMS, namely freight costs would increase by 5 and-install format or one that resides due to the lower barriers to entry pre- percent to 10 percent. Twenty-three online in the “cloud” and is accessible sented by the online software delivery percent of shippers surveyed felt that to users on a 24/7 basis on the web. option. their total freight costs not under the “Cloud has always been very strong He says that JDA Software is one of control of the TMS would increase by in the TMS market, in fact roughly one several TMS providers that are helping over 10 percent. quarter of revenues in this market are to drive that trend. “JDA is pushing the According to Steve Banker, cloud for their customers,” says ARC’s director of supply chain TMS Defined: Tasked with helping com- Brunson. “The cloud-based TMS solutions, TMS achieves these panies reliably, efficiently, and cost effectively market will continue to grow savings based on process enforce- move freight from origin to destination, trans- because it makes things easier ment, visibility, analytics, and portation management systems (TMS) represent for IT departments, which don’t optimization—with virtually no one of the fastest growing segments of the have to maintain and deploy yet other supply chain application established enterprise application market. TMS another application.” offering so many different forms is typically focused on either planning and ex- TMS trend tracking of optimization. ecution (for carrier-based freight movements) “TMS is one of those applica- or fleet management (for moves that involve a In assessing the top TMS provid- tions that has good payback,” says company’s transportation assets), according to ers in the market today, Banker Banker. “When a company installs ARC Advisory Group. says that both Oracle and SAP a TMS, the savings expectation is had strong sales in 2013, and that

38 LOGISTICS MANAGEMENT | FEBRUARY 2014 WWW.LOGISTICSMGMT.COM ROI continue to soar

Savings from TMS Question: As compared to manual processes, what do you believe you save, as a percentage of freight costs, from using a TMS?

TMS decrases our 23.1% freight costs by >10% TMS decrases our 40.4% freight costs by 5%-10%

TMS decrases our 23.1% freight costs by <10%

No difference 9.6%

Use of TMS increases our freight costs 3.8% Source: ARC Advisory Group (arcweb.com to obtain full TMS study)

10100100101 0001 000 01101001001010 1101 0 10100100101 0011 001 0001 0001010 00 1101001001010 101010 101 000 0011 00101 01 010 0001 01 01 10101 0 001 0101 00 01 0100 11 01 001 010 01 0010 010 00 11010 010 01 100100 101 10 0 1010 01000110100 WWW.LOGISTICSMGMT.COM FEBRUARY 2014 | LOGISTICS MANAGEMENT 39 Supply Chain & Logistics Technology: TMS

both could repeat those winning per- formances this year. Banker says SAP’s efforts to produce a best-of-breed TMS started paying off with the soft- ware’s most recent release. “About two years ago SAP finally got it right,” says Banker. “By that time, “We can customize there was a lot of pent-up demand the TMS to meet to fulfill.” Since introducing its latest our specific needs TMS, SAP has grown quickly in the and match what space, says Banker, namely due to that we’re trying to do.” pent-up demand and the fact that it has been hawking its solution to logis- —Jamie Graf, tics service providers, “where the aver- manufacturing operations age selling price is significantly higher manager, Wayne Water than it is for shippers.” Systems Banker says that SAP’s efforts actu- ally suppressed some of the growth on the cloud side of the TMS mar- ket. Despite that sub-trend, Banker says the multi-tenancy capabilities of Filling the gaps with TMS SaaS—where a single instance of the or more than 80 years, Harrison, Ohio-based Wayne Water Systems has provided software runs on a server, handling Fhomeowners with durable, reliable, worry-free water handling solutions. But up multiple tenants—make the online until 2012, the manufacturer’s transportation management system was stuck on variations of TMS software especially “autopilot” and in need of an overhaul. attractive for new users. To help fill that gap, Jamie Graf, manufacturing operations manager, says that “Cloud continues to grow, but its the firm went in search of a strategic partnership with a third-party logistics provider growth has slowed somewhat over (3PL) that could go the extra mile to learn the ins and outs of the company’s supply previous years,” says Banker. “Still, chain. there are certain benefits associated “We knew if we looked deeper into our supply chain, there was room for improve- with multi-tenancy and the associated ment,” says Graf. “We needed a TMS that could drive efficiencies.” After shopping networks that you can’t get with tradi- around, the company partnered with Transportation Insight and began using the tional solutions.” firm’s Insight TMS. Graf says that the selection was made based on the low upfront Visibility is clearly one of those and ongoing costs—and the fact that Wayne Water Systems would retain control benefits. Focused on streamlining over its logistics decisions. and gaining better visibility over their “We can customize the TMS to meet our specific needs and match what we’re global supply chains, many firms are trying to do,” says Graf. For Wayne Water, the solution provides a customer-specific turning to TMS to help them achieve routing guide that factors in routing rules for the firm’s big box retail customers— those goals. “We’re definitely seeing most of whom require approved carriers versus “lowest cost” carriers. Integrated more demand for global visibility,” with Wayne Water Systems’ ERP, the TMS handles shipment creation to delivery and says Brunson. “Shippers want to know all steps in between. where everything is located across the “When our team receives an order via EDI, routing instructions are applied, with entire supply chain at any given point.” few exceptions,” says Graf. “In one system, we can rate shop, auto-tender loads, Right now, companies want generate shipping documents, and acquire tracking information.” Rate Shop, for improved visibility of outbound example, is a TMS function that gives the manufacturer visibility over its entire carrier domestic shipping, although Brunson base and allows it to make selections based on cost and/or service needs. says that more and more are request- Graf, who says that Wayne Water Systems has gained efficiencies and saved ing enhanced inbound visibility across money using its new TMS, advises other shippers to select technology vendors or all modes of transportation. The lat- 3PLs that can grow and adapt to changing business needs without much additional ter will likely spur demand for a TMS investment in capital and time. that can handle multi-modal processes And don’t overlook the need for a solid support team, Graf adds. “It’s important with ease. to have a TMS that fits your business,” he says, “but the support team behind the “Going forward,” says Brunson, TMS is equally, if not more, important than the application itself.” “we’ll start to see more inbound freight —Bridget McCrea, Contributing Editor visibility and the routing of that freight across the supply chain via differ-

40 LOGISTICS MANAGEMENT | FEBRUARY 2014 WWW.LOGISTICSMGMT.COM

Supply Chain & Logistics Technology: TMS

ent modes of transportation—motor in the $25 million to $100 million “We’re seeing 3PLs move away from carrier, rail, ship.” range are doing so. that strategy and start using more off- When asked whether TMS vendors Of those current TMS owners, the-shelf packaged TMS,” says Ellis. are stepping up to the plate on the just 25 percent say they are “fully “As part of that push, software vendors global multi-modal front, Brunson says utilizing” their systems. “There are are adding fleet management to make it’s already happening “to a degree,” many shippers that are using pieces their products more appealing.” but notes that as more shippers move and parts of their transportation Ellis says that TMS providers are in that direction an increasing number systems and aren’t realizing the full watching global supply chain trends of providers will probably jump into benefits of their investments,” says closely and coming up with ways to the fray. Klappich. “Between the low adoption incorporate global trade management “There aren’t a lot of shippers utiliz- rates for TMS and the fact that many capabilities into their solutions. “Inevi- ing their TMS for those functions right users aren’t fully optimizing their tably, as manufacturers and retail- now,” says Brunson. “As more clients systems, Klappich says vendors will ers look at sourcing products from start moving in this direction, vendors have their work cut out for them dur- overseas,” he explains, “the ability to will have to come up with additional ing the year ahead. manage customs and regulations and features that no one is really thinking “Vendors basically went after the coordinate across multiple carriers about right now.” big fish and abandoned the rest of becomes very important.” the market,” Klappich points out. Whether those global capabilities Measuring the market “That’s why companies like Mercu- fall under the TMS header—or in Transportation management systems ryGate, which is focused on mid-tier an adjacent category—Ellis says that may have been around for a while, but companies, are growing like weeds. shippers can expect to see significant that doesn’t mean they are a shoe-in Next to Oracle, MercuryGate is one developments in that realm in the for companies that want to gain bet- of the fastest-growing TMS compa- coming months. “Up until now, the ter controls over their transportation nies right now.” tools have been deficient in this area operations. because manufacturers and retailers According to the Logistics Manage- Looking to the future weren’t asking for them,” says Ellis. ment 2013 Technology Usage Study, When Simon Ellis, practice director “That is changing.” just 34 percent of respondents are cur- at research and consulting firm IDC From their TMS, retailers are also rently using TMS. Of the 33 percent Manufacturing Insights, looks at the demanding improved omni-channel of shippers that were planning to buy TMS market, he sees a number of key visibility. Two other opportunity areas supply chain software over the com- trends being driven by large vendors for vendors within the supply chain ing 12 months, 41 percent planned to like SAP and Oracle. Fleet manage- space include distributed order man- acquire TMS. ment continues to be a strong focus agement (tools necessary to manage, Dwight Klappich, research vice for both providers, says Ellis, with monitor, and optimize cross-channel president at Gartner, says that his both adding capabilities to attract order management) and the placement results show that roughly 50 percent third-party logistics providers (3PLs) of warehouse-like solutions in retail of firms with $100 million+ in rev- that have traditionally been using stores. enues are currently using a TMS, homegrown transportation manage- “Right now, omni-channel is the while only about 10 percent of those ment systems. largest supply chain opportunity that’s out there in the TMS space,” says Banker. “It’s an interesting niche that’s worth paying attention to and that we’ll be watching pretty carefully in 2014.”

—Bridget McCrea is a Contributing Editor to Logistics Management

“ We’re definitely seeing more demand for global visibility. Shippers want to know where everything is located across the entire supply chain at any given point.” — Rick Brunson, manager of supply chain technologies, Capgemini

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Register to attend for FREE at modexshow.com Global Logistics Reverse Logistics: Time to close the loop Shippers and their service providers are outlining plans for the new year by identifying pain points in the reverse loop. Key to that process is developing a returns management strategy designed to provide customers with multi-channel visibility.

BY PATRICK BURNSON, EXECUTIVE EDITOR

et’s face facts: Despite a signifi cant impact on the can have on your business, we still fi nd it troubling to see bottom line, most retailers and manufacturers sim- that many ignore this found money,” says Michael Blum- ply don’t have policies, processes, or infrastructure in berg, a certifi ed management consultant and president of place to manage returns. the Blumberg Advisory Group. L According to Dr. Dale Rogers, professor of logis- Blumberg maintains that a good reverse logistics strategy tics and supply chain management and co-director of the can cut operational cost while increasing sales and secur- Center for Supply Chain Management at Rutgers Univer- ing customer loyalty. “Not having a clear planning process sity, this fact should not come as a surprise. “The reverse is pure insanity,” Blumberg says. “And it happens because movement of products offers many challenges and oppor- many shippers don’t understand the market opportunity and tunities not present with forward logistics,” he says. “And its dynamics.” most companies are not there yet. They still need to spend Steve Dollase, supply chain president at Inmar, an intelli- more quality management time carefully examining and gent commerce network, agrees. He says that logistics manag- constructing their reverse logistics processes.” ers need to consider the entire product lifecycle before returns Rogers adds that U.S. companies also need to work begin. “Products fi nd their way to the reverse supply chain for harder at managing reverse processes once they are estab- many reasons, and an effective strategy must consider these lished or they will experience a “constant leak of profi t.” factors to most effectively affect the top line,” he says. In fact, recent research conducted by supply chain tech- Dollase offers the following tips that are focused on how nology stalwart Intermec found that more than half of all to better manage returns that are discontinued, damaged, or businesses they surveyed don’t have the capability to deter- consumer generated: mine if returned goods should be discarded, returned to a • Turn failures into successes. The sad reality is that vendor, or moved back into inventory. The survey also found up to 90 percent of new products fail. Every product launch that 44 percent of distribution center managers consider plan should be accompanied by an exit strategy that is coordi- returns a “pain point” in their operations. nated with retailers. A component of this strategy can include Industry analysts and consultants maintain that the challenge tactics to increase sell-through of discontinued products. is well worth taking on, especially when considering the payoff. Data from product returns can also be leveraged to improve replenishment planning for new products or inform Plumping up the top line promotion strategies such as targeted digital promotions to Reverse logistics—the process of controlling the effi cient move discontinued items off the shelves. Transporting these fl ow of goods from the point of consumption to the point products quickly to secondary markets can also generate of origin for purposes of recapturing value—has long been revenue while preserving valuable shelf space for higher regarded as a critical component of the bottom line. But profi t-producing products. Data can also be leveraged to industry analysts are now saying that with the rate of returns inform redistribution of excess returned inventory to stores expected to continue on an upward trajectory, savvy ship- where the product will sell. pers can plump up the top line, too. • If it’s broken, understand why and fi x it. Consum- “Given the substantial positive effect reverse logistics ers are understandably reluctant to buy damaged and expired

44 LOGISTICS MANAGEMENT | FEBRUARY 2014 WWW.LOGISTICSMGMT.COM goods. The harm to the top line comes not only from lost sales, fi guring out how to be more effi cient in shipping and pro- but from brand degradation. The result is a negative effect on cessing returns and cutting costs,” concludes Dollase. top line sales if the cause is not identifi ed and corrected. “Today it’s about driving top line sales and long-term brand Repair and refurbishment of returned products can also loyalty through a more holistic view.” help to generate revenue, and lower priced refurbished prod- ucts may appeal to segments that would not purchase a prod- Reverse lessons learned uct at full price. Data from failure analysis and product returns Curtis Greve, principal at Greve Davis, a reverse logistics can be used to inform a host of changes, including product consultancy, observes that when retailers, service provid- design, manufacturing, packaging, promotion and even pric- ers, and manufacturers convene to discuss the latest trends ing—all of which can lead to improved top line revenue. in reverse logistics, the focus inevitably turns to consumer • A return can be a future sale. Consumers are known electronics returns. to change their minds, and today’s consumers believe that It’s always a hot topic, says Greve, because this category they’re entitled to do so. When they do return a product, has the greatest potential while facing the greatest risks. whatever the reason, the ease of the return process and how Furthermore, managers in all product sectors can profi t by they are treated have a huge impact on repeat sales. examining this sector. Many retailers have recognized this reality and have “The biggest issue affecting consumer electronics returns adjusted their returns policies to be hassle free. Some retail- is the combination of rising costs and lowering price points,” ers even encourage returns and have made return ship- says Greve. “Everyone is feeling this compression, and the ments as simple as possible. Customer and brand loyalty service providers are stuck right in the middle. It’s a tough contribute directly to the top line, and data from customer market, and many retailers and manufacturers are trying to returns can help inform this strategy. fi gure out how to improve recovery rates and reduce pro- “A reverse logistics strategy is much more than simply cessing costs.”

WWW.LOGISTICSMGMT.COM FEBRUARY 2014 | LOGISTICS MANAGEMENT 45 Global Logistics: Reverse Logistics

Many experienced retailers and Are drones really in the conversation? manufacturers fail to examine the total net recovery value and don’t think ith the reverse logistics world chat- such as shoes, this is a big deal.” about the time requirements, Greve Wtering about Amazon’s drone de- Greve observes that transportation contends. He says that they should livery development, most analysts are costs are typically based on running routes instead focus on total liquidation reve- voicing skepticism about its viability. that drop off and pick up. If the volume of nue and yield rate. Companies that do “It is a great concept that has po- outbound deliveries decreases and there this have a big opportunity to dramati- tential,” says Curtis Greve, principal at are fewer trucks running routes, the cost cally improve profits. Greve Davis, a reverse logistics consul- of returning products will increase. Shippers operating in the global tancy, “but there are a number of issues The analyst believes that Amazon consumer electronics reverse logistics that will have to be addressed before it could develop drop off points or lever- world must know their “net recovery becomes a reality.” age existing options like small parcel value,” says Greve. For example, he notes that there are consolidation points, but small parcel A diagram of the Net Recovery no Federal Aviation Administration regu- carriers will be reluctant to support any Value (NRV) looks like this: lations developed yet, and delivery to program that they view as a direct com- apartments and office buildings will be a petitive threat. NRV=Total Liquidation Revenue + big challenge. Weather related accidents “I am sure that there are hundreds Recycling Revenue – Repair Costs and other liabilities must be addressed, of executives at UPS and FedEx talking – Processing Costs – Transporta- and shipping container standards along about drones and how they could affect tion Costs – Cost of Parts with weight limits on the “forward side” their business, or at least they should are waiting to be worked out, says Greve. be,” says Greve. “These same execu- “Take a look at your last quarter’s “On the reverse side of the supply tives should also be discussing how they results,” Greve advises. “Having a chain, using drones for returns presents could develop similar delivery systems defined time period where you use actual a much more complicated set of issues,” and the real threat drones pose to their costs and revenue is critical.” Greve also Greve adds. “In thinking this through, business model.” suggests that shippers calculate their it seems that these issues will require However, Greve warns that if the par- NRV for all products liquidated, includ- Amazon to handle returns as they are cel duopoly simply dismisses Amazon’s ing anything sold “as is.” Then they today—that is, via small parcel pickup. drones as a publicity stunt, they risk be- should next figure out NRV for products Consider the fact that for many catego- coming the “buggy whip” manufacturers that are “repaired and liquidated” versus ries, the return rate for internet sales can of the 21st century. products that are sold “as is.” be three times higher than traditional —Patrick Burnson, “After logistics managers have gone brick and mortar stores. For categories Executive Editor through this exercise, they will have all they need to make adjustments to their reverse logistics program, and they will tains that a “focused triage” and refur- stating they had returned or exchanged be better prepared for the peak sea- bishment solution has benefits across an item over the past year—versus 51 son,” says Greve. commodities. percent in 2012. David Griffith, senior vice president “The purpose of reverse logistics is “More importantly,” says Amling, at Neovia, formerly Caterpillar Logis- to mitigate loss,” says Vehec. “Prod- “when consumers have a positive tics, concurs that consumer electron- ucts that can be resold in their existing returns experience, it can drive sales ics and other consumer package goods condition or through a refurbishment dramatically. As we have recently represent the greatest challenges in process can deliver additional value learned, 81 percent of online shoppers the reverse loop. for shippers.” And when all costs are surveyed said that they would complete “The planning horizon is much smaller factored for the handling, shipping, the purchase if they could return the and the order profiles are more fluid,” promotion, allowances, and product item to a store or have return shipping.” says Griffith. “Season forecasts should be devaluation, he adds, the focus is on Compounding the impact made by used to partner with suppliers on a long recovery of lost value. “Time is the increasing returns from e-commerce season buy. We learned a lot by examin- enemy, especially in the case of con- and the short life span of consumer ing this sector. Cell phones, for example, sumer electronics.” products, are environmental concerns, go through three selling seasons a year— For Alan Amling, vice president of says Amling. “Consolidation of end-to- the aftermarket implications are huge.” global logistics and distribution mar- end reverse logistics processes partner- keting at UPS, the reverse objective ships between 3PL providers can help Mitigating loss will only gain more importance as here,” he says, “but in this dynamic How a shipper deals with allocation e-commerce gathers momentum. industry, one must always be ready for of costs and the repurposing of prod- He notes that the 2013 UPS Pulse change.” ucts varies widely, says David Vehec, of the Online Shopper study indicates senior vice president of retail at third- that returns volumes are only grow- —Patrick Burnson is Executive Editor party logistics giant Genco. He main- ing, with 62 percent of consumers of Logistics Management

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penskelogistics.com Why sustainable design still matters

Warehouse and distribution center construction is making a comeback—and so is the desire to get back to green. Our facility design experts offer their take on the evolving benefits and share why sustainable design holds more value than ever.

48 LOGISTICS MANAGEMENT | FEBRUARY 2014 WWW.LOGISTICSMGMT.COM Warehouse/DC Operations

BY ROBERTO MICHEL, CONTRIBUTING EDITOR

ack in the mid-2000s, when the Klimek also sees sustainable warehouse economy and the construction of and DC design becoming the norm. “Of commercial buildings were on a our work right now, at least 80 percent of tear and energy prices were on the it is sustainable, and a good chunk of it is Brise, everyone was talking about LEED,” he says. retrofi tting or building green warehouses There are multiple reasons why green and distribution centers (DC) packed with DCs continue to make sense, but the big- energy saving designs. Then, the worldwide gest remains energy savings. According to recession hit, and the sustainability focus the New Buildings Institute, best practices seemed to fade away. in the design of lighting and the building “Interest in sustainable warehouses didn’t “envelope” (the shell of the building, includ- fall off the table,” says Ed Klimek, a partner ing its roof and walls) can save at least 40 with KSS Architects. “The fact is that all types percent on energy use, and up to 50 percent of new development fell off the table. How- when the effects of a heating, ventilation, ever, there were still some sustainable projects and cooling (HVAC) system selection are going on, and there were many companies factored in. making those types of long-range decisions.” Even for established facilities, there are The numbers now show that warehouse smart, lower cost ways to go green, such and DC construction is making a come- as motion sensors on lighting. Some bigger back—and so is the desire to get back to ticket features, such as photovoltaic (PV) green. After bottoming out in late 2010, solar panels, can bring quicker payback than quarterly U.S. totals for warehouse construc- commonly thought. tion put-in-place have mostly risen, espe- And as the nature of distribution opera- cially since early 2012. tions changes to accommodate e-commerce What’s more, warehouse and DC design- fulfi llment, DCs are becoming more highly ers say that most of their projects are steeped automated—but also in need of labor for in energy saving, sustainable features, and piece picking and kitting. This is driving the many are getting certifi ed under the U.S. need for more energy effi cient facilities closer Green Building Council’s LEED (Leader- to urban areas that are also more “condi- ship in Energy & Environmental Design) tioned” than warehouses of the past, in that program. In December 2013, the council they need better lighting and a more comfort- announced the 20,000th LEED certifi cation able air temperature. for a commercial project. While most design experts say that cor- “Over the last fi ve years, more and more porate social responsibility programs and of our buildings are being built to a LEED branding are sustainability drivers for some certifi cation,” says Tripp Eskridge, a senior companies, they also point out that for many, vice president with Jones Lang LaSalle, a the bigger driver behind sustainable ware- commercial real estate services fi rm. “There houses is bottom line savings—whether has been greater and greater acceptance it’s from energy effi cient lighting or the of LEED.” ability of a well designed network to slash

WWW.LOGISTICSMGMT.COM FEBRUARY 2014 | LOGISTICS MANAGEMENT 49 Warehouse/DC Operations: Sustainable Design

transportation costs. given the right mix of Here’s a look at the U.S. total warehouse incentives, local climate, evolving benefits of going construction put-in-place and the energy profile of green and why sustainable (Billions $, SAAR) the building, notes Klimek. design holds more value In New Jersey, which now than ever. $20 has a strong solar program, 18 KSS designed a ware- Big bang for small bucks 16 house and office facility When it comes to lower 14 for Somerset Tire Service cost ways of being green 12 (STS) outfitted with a within the four walls, the 10 roof-mounted, 1.2 mega- most common tactic is to 8 watt photovoltaic solar go after lighting. In par- 6 array. The payback period ticular, moving from older is expected to be five 4 metal halide lighting over years, says Klimek, in part to newer T8 or T5 fluores- 2 because of state incen- 0 cent lighting that is outfit- 2005 2006 2007 2008 2009 2010 2011 2012 2013 tives, but also because ted with motion sensors so the adjoining office space that lighting only comes on Source: Jones Lang LaSalle, Moody’s Analytics makes use of the renew- when needed. able energy. “Your payback with After bottoming out in 2010, the value of new warehouse Not every facility can efficient lighting is often construction put-in-place has been on a mostly upward curve. expect similar payback on less than three years, but big ticket items, but nearly lighting is usually around all new distribution facili- a buck a square foot, so if you have a Eskridge adds. These lenses scatter ties today utilize green features such 200,000 square foot facility, that’s not light over a broad area, and can be as high efficiency lighting, motion sen- cheap,” says Eskridge. combined with photocell sensors on sors, or daylighting. In other words, When it comes to the electric bill, artificial lighting so that the lights stay adds Klimek, green features are Don Derewecki, a senior consultant off when the natural “daylighting” is becoming the norm as new construc- with St. Onge Company, agrees that producing sufficient light. tion picks back up. high efficiency lighting with motion Being green, of course, also entails “There was a time during the reces- sensors is a smart move, even for exist- water management. Rainwater runoff sion where there wasn’t a lot of build- ing facilities. “If you have 20-year-old from roofs, known as grey water, can be ing going on, and much of the activity lighting system, it’s probably eating captured and used for lawn care, notes was in trying to lease existing space,” your lunch,” he says. Derewecki. If lots or access says Klimek. “Well, we’ve absorbed There are some other relatively roads need repaving, new semi-porous that existing space, we’re developing low cost means of improving sustain- paving material can reduce run off. again, and much of that new develop- ability. Switching to green cleaning Installation of circulation fans is ment is sustainable.” products and better management of another low cost energy saver, adds the waste stream and recycling, for Derewicki. These fans cut heating and E-impact on sustainability example, are low cost, says Eskridge. cooling costs by promoting even air Whereas the more traditional sup- “Some of the lower cost methods help temperature. ply chains featured large warehouses the environment quite a bit, and you Encouraging green commuting with racks for storing full pallet loads, know that they are the right thing to can also can be seen as a sustainabil- digital commerce and the move toward do,” he says. ity goal. One low cost tactic, notes omni-channel distribution are driving White roofs that reflect sunlight Klimek, is to provide designated park- the need for very rapid fulfillment of have all but become the norm for ing spaces and signs for employees small orders. As a result, warehouses new, larger warehouses, says Eskridge, with high efficiency vehicles. and distribution centers now need to but aren’t typically justifiable for an However, bigger ticket systems also excel at tasks such as item sortation, existing building unless a new roof is tend to produce bigger savings, with kitting, piece picking, and goods-to- needed. quicker payback than many might person automation. Prismatic lens for skylights are expect. Solar panels, for instance, To adapt to e-commerce, says another effective green feature, might only carry a five year payback, Klimek, DCs are using intelligent

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Prismatic lenses for skylights disperse natural sunlight into a facility more effectively. Combined with photocell sensors on high efficiency lights, such “daylighting” technology can cut lighting costs dramatically.

sortation and conveyor systems, but New distribution facilities in urban can also be part of a network analy- there’s also the need for more labor for areas, says Derewecki, will likely be sis, along with considering alternative final picking, even if the process is par- more high-rise and denser to maximize modes of transportation, like more rail, tially automated. space. Systems such as automated or pooling transportation with other “We’re doing more e-commerce- storage and retrieval systems (ASRS), companies. centric projects, and as a result, there very narrow aisle (VNA) layouts, and “While there is much that can are more employees in many of the mezzanines make it possible to pack be done within a warehouse to save buildings,” says Klimek. “So, we’re see- more into a smaller footprint, as do energy, optimizing the network is ing the need for a more ‘conditioned’ multi-story designs. where some of the biggest bang for the building and also more intensive use of Such designs are common in Japan buck is,” says Derewecki. automation, which consumes energy.” and Europe, says Derewecki, and will Other site considerations also affect In these cases, various sustainable likely be seen more in the U.S. “I think sustainability. For example, proximity features help make a facility more com- that we will go higher and higher, and to public transportation, or availabil- fortable and efficient. Skylights can use more of the cube,” he says. ity of state incentives for systems like improve lighting conditions without solar panels, may help decide which inflating the lighting bill, for instance. Big picture considerations site is best. “Factors like knowing the Architects are also working more closely One of the biggest opportunities for available incentives are all part of due with materials handling system vendors energy savings falls outside of the four diligence involved in site selection,” to model energy needs and identify high walls and can be found in the design of says Derewecki. efficiency drives and motors. the overall distribution network, says Distribution centers, in Klimek’s DCs of the future are likely to be Derewecki. view, should not be viewed simply closer to urban areas, says Derewecki, “Looking at where your distribution as buildings, but as points in a sup- in part to place consumer goods points should be is more important than ply chain. “If you really want to affect closer to customers, but also because ever,” Derewecki says. “Anytime you can energy use, bring the building closer to of a larger pool of potential employ- reduce transportation distance, time, the customer or closer to ports where ees. Mass transit availability can help and costs for your network, you are also the goods are unloading,” he says. attract a workforce, especially with the providing a green benefit.” trend of a smaller percentage of young Sourcing strategy, such as whether Roberto Michel is a Contributing people becoming drivers, he adds. to nearshore or use domestic sources, Editor to Logistics Management

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Transport & Logistics Looking ahead to a The 2013 holiday season highlighted the importance of warehousing and distribution processes. With Modex around the corner, five thought leaders take stock of what may lie ahead for the industry and its customers.

54 LOGISTICS MANAGEMENT | FEBRUARY 2014 WWW.LOGISTICSMGMT.COM Special Modex Coverage

BY BOB TREBILCOCK, new year in EDITOR AT LARGE distribution operations

ith January behind us, we’re only one month into the new year. Yet, it seems as if so much has changed since last fall. The industry is a little topsy-turvy, and much of that is the result of the 2013 holiday season, which was marked by inadequate planning and a failure of order fulfi ll- Wment processes to deliver on customer service promises. Meanwhile, many people are abuzz with talk about using drones and even more automation for same-day delivery. Forget that drones aren’t currently legal for civilian use. The seeds have been planted. Both scenarios shine a light on the fact that materials handling and distribution systems are more important than ever. Moreover, those systems will have to work more closely together than ever and will rely more heavily on data and software. Those are absolute necessities if the industry is going to address the age-old buga- boo of gaining visibility into demand, capacity, and constraints so that we can fill and deliver orders in a timely fashion. With Modex around the corner, a trade show that brings together both the materi- als handling and delivery sides of the supply chain, we asked five thought leaders from the consulting and academic worlds to comment on how they think the most talked about trends of the day will affect our industry in the years to come.

Jim Barnes, CEO, enVista Barnes, CEO of enVista, says that understand- Understanding the data ing order profi les is one of the most critical met- End users have more materials handling tools rics to choosing the right tool for the job. and technologies available to them than ever “I don’t think end users spend enough time before. At the same time, order fulfi llment analyzing their data to understand what is requirements are more complex and service- happening today and what will happen in the level agreements are more demanding. More- future—what I call the ‘what is’ and the ‘what over, today’s facilities are likely to have more is to be,’” says Barnes. ”Order profi le data is the than one order fulfi llment engine—more than baseline for a solution.” one tool—to serve a variety of order profi les. One key metric is peak demand. However, Data is the high-octane fuel that powers these the defi nition of peak demand is changing, espe- new engines. Without it, they fall fl at. Jim cially because of e-fulfi llment. Where peak once

WWW.LOGISTICSMGMT.COM FEBRUARY 2014 | LOGISTICS MANAGEMENT 55 Special Modex Coverage

referred to variations based on sea- so we worked to make that effi cient,” the domain of a WMS. While some sonal and holiday demand, there are Leja says. “Now, if you’re productive in have called for a new name for this now average-to-peak periods within a picking, packaging is the bottleneck, layer of functionality, Banker thinks we shift. “If your service-level agreement especially with the emphasis on fulfi ll- need a new software architecture that is that you will pick and ship anything ment speed.” takes distributed intelligence, or soft- that drops into the warehouse man- A pick, for example, can be trans- ware agents, into account. agement system by 3 p.m., you better acted in seconds. Packaging, on the “Intelligence is being pressed down understand the order fl ow on a min- other hand, can take more than a min- into discrete pieces of equipment,” ute-by-minute or hourly basis,” Barnes ute and a half per order. “Automation says Banker. “A segment of conveyor says. “When you get that granular, is the only way for packaging to keep now has its own motor, a sensor and you’re going to fi nd that what happens up with picking,” he says. “That’s the logic that allows it to automatically at 1 p.m. is different from what hap- next frontier of automation.” close the gap between cartons or pens at 3 p.m.” One example of this phenomenon divert a carton based on a bar code. In The result, says Barnes, is that facili- is MSC Industrial, a Fortna cus- essence, you’re putting a small WCS ties have to balance order fl ow with their tomer. Before the growth of MSC’s into a discrete piece of equipment.” staffi ng levels and materials handling e-commerce channel, most customers Banker calls this piece of distrib- systems. “You can’t put everything in a phoned or faxed orders throughout the uted intelligence a software agent. In mini-load or shuttle system for goods- day. That allowed MSC to spread the human terms, agents are similar to to-person picking because it may not be workload across a shift. Manual pack- people who have a task to perform, a able to keep up with peak demand for aging was suffi cient for that scenario. point of view and a mission to opti- that hour or two when you’re trying to Today, customers are likely to add mize their specifi c task. “A piece of meet service-level agreements,” Barnes items to an order queue throughout a conveyor’s goal is to divert a carton or says. “Or, you may need different slot- shift and then release it right before speed it up and close the gap,” he says. ting strategies during peak versus non- the order cut-off time. What used to While that’s important, agents alone peak periods.” None of those decisions, be a day’s work has to get done in two aren’t enough to optimize an end-to- he says, can be made without a deep to three hours. What’s more MSC end process. “Agents don’t get you to understanding of data. is adding promotional literature and global optimization. To do that, you value-adds directed at specifi c custom- need another layer of software with a Helgi Leja, senior account ers. The only way to get the work done global view of a process.” effi ciently was to automate the packag- That new architecture might look executive, Fortna ing process. something like this: A WMS sits at the Packaging is the new bottleneck “There is an automation technology top of the stack and maintains a global In the past, distribution system design for each of the steps associated with view of order and inventory informa- came fi rst and transport packaging was packaging, from right-sizing the car- tion. The WMS also has visibility into an afterthought. As the demand for ton and applying the shipping label,” what’s happening across the functional direct-to-consumer and even direct-to- says Leja. “This is being driven by the areas of the warehouse as other sys- business orders grow, packaging “is a competitive landscape and customer tems report back on their progress. fundamental part of the design of new expectations. We expect to see more In highly automated warehouses, DCs,” says Helgi Leja, a senior account emphasis on packaging going forward.” where all of the equipment needs to executive with Fortna. “Packaging has work together, a WCS has a global view become the new bottleneck within the Steve Banker, service of what’s happening across the equip- distribution center,” says Leja. director, supply chain ment. It can optimize the movement Leja refers to these orders as a management, ARC of goods based on what is going on in “batch of one,” because every order is Advisory various parts of the warehouse. How- unique. “The batch of one is allowing ever, it may also defer to the WMS for end users to use their packaging for Keep an eye on software agents optimization. “The WMS has visibility marketing and to make customers feel Inside the distribution center, the into manual packing stations, but a special,” he says. Orders from fashion software world has traditionally been WCS does not,” says Banker. “If that’s retailers are likely to include designer divided into two camps: warehouse your bottleneck, the WMS would be tissue paper and a sticker that com- management systems (WMS) man- able throttle that back so you don’t municates something about the qual- aged inventory, orders and people overwhelm the pack stations.” ity of the organization. It’s a way to while warehouse control systems Next is a conventional layer of WCS build customer loyalty. The emphasis (WCS) managed automated materials to manage the islands of automation on batches of one, however, means handling equipment. within a warehouse. A shipping sorter, that packaging can no longer be taken In recent years, WCS applications an automated storage and retrieval sys- for granted. “It used to be that picking have assumed some of the order fulfi ll- tem (AS/RS) or a pick module have was your most labor-intensive process, ment functions that were previously their own WCS that communicates

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with the global system. says Hill, who points out that Gillette new technology—James B. Rice Jr. The last layer consists of software was using handheld palm devices to has a word of caution: Technology agents distributed at the equipment receive inventory 15 years ago. “But alone will only get you so far. “Users level, including software that closes they’re more topical because of the should target cost improvements the gap between cartons on a section improvements in the technology and from applying new technologies in of conveyor or reports to maintenance the tie-in to the gap in the workforce,” innovative applications in the sup- that a roller or motor needs replaced. he says. He also expects to see the ply chain,” says Rice, who researches “In the end, the upper tier WMS adoption of more visualization and innovation as deputy director of and WCS systems are working gamifi cation in WMS systems, with the MIT Center for Transportation toward making the overall process graphics that mimic video games. & Logistics. “But, in most cases, I as effi cient as possible,” says Banker. The big get bigger: Like analyst don’t see earth-shaking, arm-waving “The other layers are optimizing indi- Dwight Klappich at Gartner, Hill sees changes coming from the use of vidual tasks, right down to the level a shift underway in the WMS market, these technologies.” of the equipment.” as the leading enterprise resource plan- Instead, most supply chain inno- ning (ERP) suppliers capture a bigger vations, or SCIs, deliver meaningful, John Hill, director, share of the pie among large end users but incremental, improvements. “The St. Onge with run-of-the-mill warehousing pro- genius for a lot of supply chain innova- cesses. Meanwhile, JDA/RedPrairie tion isn’t the technology itself, but the Three trends shaping WMS and Manhattan Associates continue selection of an economically feasible It’s not just WCS that is evolving. The to dominate in facilities with complex application and bringing it to scale,” WMS is evolving as well. While WMS order fulfi llment processes. “There is Rice says. “That’s where the magic functionality has matured, the WMS always going to be an important role for happens.” market is in fl ux, says John Hill, a direc- suppliers like HighJump, Tecsys, Accel- In a column on Innovation Strate- tor at St. Onge who has been involved los and Softeon in the small-to-mid- gies in the January/February 2014 with warehouse management systems size market,” says Hill, pointing to the issue of Supply Chain Management since their inception. Hill is following sheer number of warehouses. “But the Review, LM’s sister publication, Rice three important developments affecting top end of the market is currently being writes about two types of SCIs: disrup- these systems that are essential to man- dominated by a handful of providers.” tive innovations that bring dramatic aging warehouse processes. Visibility is more important than change, and sustaining innovations Enabling tomorrow’s workforce: At ever: Visibility continues to be the that move companies forward at a any gathering of materials handling Holy Grail for warehousing, distribu- steadier pace. and logistics professionals, the lead- tion and logistics providers. “With so Disruptive innovations make our ing topic of conversation isn’t the latest much emphasis being placed on net- pulses race because they challenge technological innovation (and, more work-wide control, the WMS provider the status quo, what researchers call about innovation in a moment). It’s that can’t assure its client that it can the “dominant design.” They promise a the shortage of labor and talent for the play in that space will be at a distinct whole new way of doing things. warehouse of the future. disadvantage,” says Hill. “Even small “Leaders tend to be inspired by dis- No doubt, many are trying to fi gure companies that provide products criti- ruptive SCIs and demand dramatic out how to relieve our dependence on cal to their customers will be equipped change,” Rice writes, “even when they labor through the use of automation, to support the transfer of data to a lack a thorough understanding of the such as robotics. On the other hand, host of trading partners, raw materials processes involved.” others are focused on how to make dis- suppliers and logistics services provid- The better choice, he adds, is tribution jobs more appealing to mil- ers.” The cloud is, and will, have a big often the sustainable choice. “Sus- lennials, who are the workforce of the impact on visibility, since it provides taining innovations make products future. connectivity while relieving people of better through, say, lower prices or “We need to offer the same types the burden of maintaining an infra- added features,” Rice says. That of communications tools that they are structure on their own, Hill says. might not be as exciting as rein- using in their daily lives,” says Hill. venting the world, but those solid, “That means industrially hardened James B. Rice Jr., deputy incremental improvements may be versions of the technology with which the winning strategy that sustains a they are already familiar.” director, MIT Center company’s market position. “Industry Hill expects to see more applica- for Transportation & will be better off when they either tions deployed on mobile phones Logistics: focus on disrupting the supply chain and tablets, such as the use of iPads to create a new design or focus on equipped with RFID readers to locate Innovate, with caution sustaining innovation for incremen- inventory and assets in a warehouse. For those who see innovation as a tal change. Rice says. “More focus, “These aren’t necessarily new ideas,” panacea for what ails us—especially less waste.” Ⅺ

58 LOGISTICS MANAGEMENT | FEBRUARY 2014 WWW.LOGISTICSMGMT.COM The Port of Welcomes Amazon to Maryland

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A $46 billion investment gap by 2040 threatens U.S. seaports—critical economic lifelines that rely on connecting transportation infrastructure to deliver prosperity for millions of Americans. With this nation’s trade volume expected to quadruple after 2030, and port Special Report connections in poor condition, industry experts agree that U.S. Ports Update: now is the time to invest. Investing in the future

By Patrick Burnson, Executive Editor

60S LOGISTICS MANAGEMENT | FEBRUARY 2014 WWW.LOGISTICSMGMT.COM A SPECIAL SUPPLEMENT TO LOGISTICS MANAGEMENT

ast month’s Congressional passage of the $1.1 Economic Recovery (TIGER) discretionary grants, trillion Consolidated Appropriation Act of U.S. Corps of Engineers’ navigation-related programs, 2014 ensures that several high-priority pro- FEMA State and Local Programs grants that include grams crucial to the safe, efficient, and com- dedicated funds for port security, EPA’s Diesel Emissions petitive operation of U.S. seaports are included Reduction Act (DERA) grants, and funding for several in the appropriations mix. For many trade analysts, the subprograms that aid navigation. Ltiming for such a move couldn’t be better. “In this era of fiscal restraint and belt-tightening, “U.S. imports were up 3.7 percent by volume in we’re pleased to see that a number of the priorities of 2013, which is the largest year-over-year increase seen America’s ports were important enough to lawmakers since 2010,” says Paul Rasmussen, CEO of leading trade that they included them throughout this government- intelligence resource Zepol Corporation. “U.S. trade has wide spending bill,” says Kurt Nagle, American Associa- continued to expand during the recent economic recovery tion of Port Authorities (AAPA) president and CEO. and we expect this to continue as we move into 2014.” “The funding provided to port-related infrastructure Rosalyn Wilson, senior business analyst with Delcan programs is recognition that lawmakers appreciate Corporation, agrees with Rasmussen, noting that a more that seaports are vital to creating and sustaining jobs, balanced outbound picture should emerge next year as economic growth, and enhancing U.S. international well. “China’s economy, along with the economies of competitiveness.” other Asian trading partners, has been picking up lately, which should translate into higher exports to Shipper agenda will change those countries,” she says. “U.S. ports will need to ac- Leading industry analysts insist that as the ports get commodate carriers with the outbound move when this their houses in order, shippers will be reexamining their happens.” sourcing and distribution strategies with total landed Meanwhile across the nation, ports will receive cost in mind. funding for Transportation Infrastructure Generating “Port executives know that direct investment in

U.S. Imports by Top U.S. Ports (Twenty-Foot Containers and Shipments) 2012 Quarter 4 2013 Quarter 1 2013 Quarter 2 2013 Quarter 3 2013 Quarter 4 U.S. Port TEUs TEUs TEUs TEUs TEUs Los Angeles/ Long Beach 1,681,083.33 1,666,866.51 1,831,104.33 2,039,650.33 1,888,652.47 New York / Newark 594,697.46 626,393.23 692,252.17 765,310.73 705,893.30 Savannah, GA 235,841.22 254,748.71 289,567.44 313,148.94 300,165.36 Norfolk, VA 196,699.23 195,014.98 216,469.72 251,885.89 239,324.52 Oakland, CA 174,459.98 178,417.29 200,086.64 214,009.99 188,491.63 Tacoma, WA 174,209.68 174,853.11 181,501.39 186,944.24 181,435.68 Houston, TX 143,840.56 151,817.76 174,135.47 186,644.22 169,959.79 Charleston, SC 150,447.13 156,745.02 163,258.09 172,103.30 166,247.82 All Others 705,575.43 774,199.77 793,336.09 816,105.61 751,142.80 TOTAL 4,056,854.01 4,179,056.39 4,541,711.33 4,945,803.25 4,591,313.36 2012 Quarter 4 2013 Quarter 1 2013 Quarter 2 2013 Quarter 3 2013 Quarter 4 U.S. Port Shipments Shipments Shipments Shipments Shipments Los Angeles/ Long Beach 850,211 850,600 940,645 1,042,256 955,534 New York/ Newark 368,927 380,267 430,003 474,798 446,178 Savannah, GA 99,412 102,241 115,088 133,521 122,485 Norfolk, VA 90,684 87,096 101,219 118,749 108,193 Tacoma, WA 82,822 83,003 89,496 95,985 92,702 Oakland, CA 82,089 79,988 89,861 96,163 85,933 Charleston, SC 71,988 73,817 81,078 86,072 81,592 Houston, TX 69,729 72,083 83,415 95,744 81,489 All Others 343,775 360,743 369,907 386,700 361,926 TOTAL 2,059,637 2,089,838 2,300,713 2,529,988 2,336,032 Source: Zepol Corporation

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FUTURE 2013 total U.S. container exports vs.imports December Year-over-year Month-to-month 2013 change change infrastructure makes them more attractive to Exports beneficial cargo owners,” says Robert L. Phillips, 987 -16.7 +5.7 Jr., first vice president at real estate advisory firm Imports 1.395 +10.7 +17.7 Cushman and Wakefield. “And that makes them Source: 2013 INTTRA and Cass Information Systems, Inc. more attractive to ocean cargo carriers as well.” According to Phillips, The Port of Virginia is well positioned for growth, noting that it expanded “Much of our growth from April to June will be af- its containerized cargo business by 5 percent this fected by developments in export business and the past year. “The Richmond/Greensboro inland implementation of the mega-alliance deployments triangle is a solid industrial base that can gener- by ocean carriers…if and when approved.” ate exports,” he says. “Once the Panama Canal Steve Medwin, managing director and head of expansion is completed in 2015, Virginia can bring brokerage at real estate services firm Jones Lang La- vessels in and send them out fully loaded.” Salle in Miami, says that shippers there are mitigat- At the same time, the South Carolina Ports ing risk by using by several Florida ports. “Miami is Authority (SCPA), which owns and operates the closest U.S. gateway to the Panama Canal,” he Charleston and Georgetown, has seen volume in- says, “but shippers are hedging their bets by sourc- creases across all business segments in 2013—a year ing some of their goods through the Suez to the marked by the successful opening of the inland Port of Jacksonville where inland rail connections port and significant progress of both the construc- are well developed.” tion of the Navy Base container terminal and the Post-45 harbor deepening project. Where’s the real estate? “We typically see a modest first quarter of the Prime real estate near ports for warehousing and calendar year followed by a stronger second quarter, distribution center development may soon become and we expect 2014 to follow a similar trend,” even scarcer, say other Cushman and Wakefield says Jim Newsome, president and CEO of SCPA. analysts.

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“Growing demand for goods from consumers and businesses Cass/INTTRA Ocean Freight Index—U.S. Exports is propelling the industrial sector (A measure of changes in U.S. export activity) into its most positive state since 1.7% before the Great Recession,” 1.6% notes , Cushman and 1.5% Wakefield’s leader of industrial 1.4% services for the Americas. “Manu- 1.3% facturing production and ship- ments are increasing at a healthy 1.2% pace, as are imports and exports. 1.1% Real estate demand has respond- 1.0% ed accordingly, resulting in a very 0.9% good year for our industry.” 0.8% In its strongest performance JFMAMJ JASOND since 2005, the U.S. industrial Ⅵ 2010 Ⅵ 2011 Ⅵ 2012 Ⅵ 2013 real estate market saw 328.5 mil- Source: 2013 INTTRA and Cass Information Systems, Inc. lion square feet in leasing activity and 117.2 million square feet of positive absorption in 2013. Cass/INTTRA Ocean Freight Index—U.S. Imports Industrial leasing activity was up (A measure of changes in U.S. import activity) Investing in the 6.2 percent year over year, and 1.7% analysts say that this reflects a 1.6% more robust future for the na- 1.5% FUTURE tion’s leading container seaports. 1.4% “The Port of Houston, for 1.3% example, is growing by leaps 1.2% and bounds,” observes B. Kelley 1.1% Parker, III, executive vice presi- 1.0% dent at Cushman of Wakefield 0.9% 0.8% in Texas. “Petrochemical exports 0.7% are continuing to ramp up, and 0.6% inbound calls serving the mega- JFMAMJ JASOND

retailers are higher than ever.” Ⅵ 2010 Ⅵ 2011 Ⅵ 2012 Ⅵ 2013 Colliers International, another leader in global real estate ser- Source: 2013 INTTRA and Cass Information Systems, Inc. vices, has recently defined Hous- ton “as the most irreplaceable” notes Parker. “Galveston provides direct access to ocean cargo gateway. While the “irreplaceable” the open Gulf of Mexico, and has cargo facilities designation was bestowed last year based on the less than 10 miles from the open sea.” vital nature of the port’s physical aspects, the latest award recognizes the Port of Houston Authority’s Regional collaboration operational excellence. The report says that the port Leveraging the infrastructure of regional ports has is not only “vital to U.S. energy interests, it’s also been a dream for some time, but political barri- highly profitable.” ers to such an arrangement have been difficult to Gulf port neighbors Corpus Christi and Galves- overcome—until now. ton are also contributing to this surge say analysts. Just last month, the ports of Seattle and Ta- “Corpus Christi has been targeted as a key ocean coma filed a discussion agreement with the Federal entry for plant machinery and container cargo Maritime Commission that will allow them, under destined for South Texas as well as to important federal regulations, to gather and share information to industrial conglomerates of Northern Mexico,” identify potential options for responding to “unprec-

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edented” industry pressures. second largest concentration of warehouses and “While the ports of Tacoma and Seattle have distribution centers on the West Coast, we must many advantages, such as naturally deep water use our combined marketing strengths in the face and strong highway and rail connections to the of continued soft demand and increasing competi- tion,” says Port of Seattle CEO Tay Port of Oakland names new maritime chief Yoshitani. Last July when Chris Lytle assumed his duties Meanwhile further down the as the Port of Oakland’s Executive Director, coast, the Port of Portland is using its the shipping community was eager to learn economies of scale to specialize as a what moves he would make to demonstrate niche gateway for auto exports. decisive leadership. Chief among them was Ford’s slogan is “Go Further,” the choosing of a maritime chief capable of attracting new business. which is exactly what an estimated By all appearances, Lytle has found his 30,000 Ford vehicles will do this man. The port recently announced the hiring year when they’re exported through John Driscoll of John Driscoll, a distinguished industry Portland to China for the first time. veteran, as its director of maritime. Following inspections by Chinese Driscoll has more than 30 years of commercial experience in international maritime transportation, having worked for Sea- government auditors, Auto Ware- Land Service, Maersk Line, and CMA CGM. It’s also important housing Company’s (AWC) facility to note that during Driscoll’s eight years with CMA CGM, the at Terminal 6 received full approval, average annual increase in business volume was 14.1 percent. meaning that export shipments can This time span, many will recall, included the Great Recession now begin through Portland. The Investing in the and the ongoing ocean carrier capacity crisis. Can Driscoll work the same kind of magic for Oakland? country recently opened its doors While the port has long led the West Coast as a gateway for to a variety of new Ford cars and FUTURE export cargo, it lags significantly behind several others in at- trucks coming from several plants tracting “first call” inbound vessels. Lytle has told shippers that in the U.S., Canada, and Mexico. this will be part of his ongoing mission in the years ahead, as “We’re proud to be serving as the Oakland positions itself as a logistical hub for new enterprises moving into the Bay Area. primary gateway for exports of new Given Driscoll’s noteworthy achievements for CMA CGM in Fords to China and furthering our the Caribbean, Central America, and in the recent mission to provide access to inter- past, one may assume that developing more hemispheric busi- national markets,” says Bill Wyatt, ness could also be in the offing. executive director for the —Patrick Burnson, Executive Editor Port of Portland. “This fulfills a national role for Ford vehicles manufac- tured in plants through- out North America.” Finally, no mention of West Coast shipping can end without a cursory look at Southern Cali- fornia, where industrial leasing activity was up 6.2 percent year over year. According to Cushman and Wakefield analysts, the Greater Los Angeles The Port of Oakland is No. 5 region continued to lead on the list of Top U.S. Ports the nation with 35.8 mil- by Imports. lion square feet in activity. This is welcome news

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The Port of New York/Newark is Investing in the second on the list of Top U.S. FUTURE Ports by Imports. for the Port of Long Beach, which expects big AAPA workshop to things in 2014. Cargo volumes here rose 11.3 percent last year to 6,730,573 units—making focus on further 2013 the port’s third-busiest year ever behind only 2006 and 2007. investment In 2013, imports were up 12.8 percent to 3,455,323 twenty-foot equivalent units (TEU), mong the key topics on the minds of port de- exports rose 10.7 percent to 1,704,932 TEU, and velopment and logistics executives in the West- empties were up 8.8 percent to 1,570,318 TEU. ernA Hemisphere is how to implement and fund Shipping container volume rose in part because transportation infrastructure projects for the grow- major shipping lines—CMA CGM and Mediter- ing volumes of goods that are flowing through their ranean Shipping Co.—started to increase their facilities as world economic conditions improve. services to Long Beach at the end of 2012. To address these and related questions, “Our economy is getting better, and the port the American Association of Port Authorities’ is providing a shot in the arm for Long Beach (AAPA) 2014 Maritime Economic Development and all of Southern California,” says Al Moro, Workshop (Feb. 20-21) in will feature acting executive director of the Port of Long a host of business and logistics experts, shipping Beach. company executives, infrastructure development That upturn, along with the much needed case studies, and a unique, three-hour “facilitated monies for enhanced infrastructure, represents dialogue” session to bring the collective knowl- not only a “shot in the arm” for U.S. ports in edge of the entire audience to bear in solving 2014—but also a kick in the pants. some of the port industry’s toughest economic challenges. —Patrick Burnson is Executive Editor of “Seaports in the Americas are investing bil- Logistiics Management lions of dollars to improve their infrastructure,

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expand their services, enhance their cargo han- from finding investment partners and passing effec- dling capabilities, create jobs, and assist businesses tive freight policy legislation at the federal level, to looking to tap into the increasing global demand convincing their local and regional stakeholders the for both raw materials and domestically manufac- investments they are proposing are necessary and tured products,” says Nagle. “In order to effectively worthwhile.” compete, seaports must deal with issues ranging —Patrick Burnson, Executive Editor Private sector partnerships sought for port dredging options

eaports across the nation are confronting one from the port. similar challenge: how to develop a sustainable With a 50-foot-deep shipping channel, Bal- Sstrategy for distributing dredged materials. timore is one of only two ports on the U.S. East Continuing their commitment to attract private Coast currently able to handle large Super Post- sector expertise to address unique transportation Panamax ships that will use the newly enlarged challenges, the Maryland Department of Transporta- Panama Canal when construction is completed tion’s Maryland Port Administration (MPA) recently by 2015. To maintain these shipping channels, issued a Request for Information (RFI) seeking ideas approximately 1.5 million cubic yards of mate- and best practices for converting material dredged rial must be dredged from the Baltimore Harbor from Baltimore Harbor shipping channels into an annually. Dredged material from the harbor is then environmentally safe aggregate used in the construc- placed at containment facilities, including Cox Investing in the tion and building industries. Creek and Masonville. MPA said that it is exploring the potential of While capacity remains at these sites, the MPA FUTURE developing a public-private partnership to take has been investigating best practices to increase material already placed at the Cox Creek Dredged dredged material placement capacity while Material Containment Facility and convert it into researching possible beneficial reuse ideas. Accord- a light-weight aggregate used in masonry blocks, ing to officials, the MPA will analyze the industry concrete, hot-mix asphalt, and geotechnical fill. feedback to determine the potential for partner- “Dredging is the lifeline of the Port of Bal- ships and develop next steps for a possible solicita- timore,” says MPA Executive Director James tion process. MPA is targeting late winter 2014 for White. “Without properly maintained shipping a decision regarding next steps and for a potential channels, the huge ships of today and supersized solicitation process. ones of tomorrow could not safely travel to and —Patrick Burnson, Executive Editor Port Tracker report shows positive themes heading into 2014

ptimism appears to be the operative term in month of the year for imports. describing growth prospects at U.S.-based re- The report is pegging December at 1.35 million Otail container ports in 2014, according to the most TEU, which would represent a 5 percent gain over recent edition of the Port Tracker report from the December 2012. “Retailers are still assessing the National Retail Federation (NRF) and maritime holiday season, but they’re also looking ahead to see consultancy Hackett Associates. what will happen in the new year,” said Jonathan For November, the most recent month in which Gold, vice president for supply chain and customs data is available, Port Tracker said that the surveyed policy at NRF. “Based on these early numbers, ports handled 1.37 million twenty-foot equiva- 2014 looks like it should be off to a good start.” lent units (TEU), which dipped 4.3 percent from Port Tracker expects January to be up 4.8 per- October—the month that is viewed as the busiest cent annually at 1.37 million TEU, with February

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www.portoftacoma.com Are you Special Report: U.S. Ports Update Retail A SPECIAL SUPPLEMENT TO LOGISTICS MANAGEMENT down 7.5 percent at 1.18 million TEU, a time when it should be declining and March up 15.9 percent at 1.32 mil- seasonally, a fact that could mean that Ready? lion TEU. April and May are currently current GDP growth is stemming from estimated at 1.4 million TEU and 1.46 the services sector. While this is not nec- million TEU for 7.7 percent and 4.6 essarily a negative, it could translate into percent increases, respectively. retail sales not being the growth engine Hackett Associates founder Ben for import volumes. Hackett observed in the report that But even if that’s the case, Hackett 2014 looks to stands as an improvement said that expectations of a stronger to 2013 due to better than expected dollar could help to bolster consumer GDP figures, lower unemployment confidence with import prices falling. rates, and continued low inflation— “We’re seeing a trend from 2011 into coupled with expectations of a stronger 2014, with each peak getting higher and dollar that will also help to increase the troughs not as deep as what we have consumer confidence as import prices had in the past,” said Hackett. “This continue to fall. serves as confirmation that the recovery Yet Hackett cautioned that the is ongoing.” inventory-to-sales ratio is still high at ––Jeff Berman, Group News Editor Maersk to bring back SeaLand brand for Gateway Logistics Services Warehousing and Distribution new intra-Americas service Import Deconsolidation and Transloading Local and National Transportation cean shipping giant Maersk Line, way to best serve this market. They went Value-Added Services a subsidiary of A.P. Moller Maersk through some different scenarios and WMS and TMS Technology OGroup, said last month that it has re- landed on the model that has worked for National Footprint established the SeaLand brand to form a us. We felt that would make sense for the regional, containerized shipping compa- intra-Americas market, based on what we New York - New Jersey ny focused on the intra-Americas market. hear from customers and shippers in that Los Angeles - Long Beach Seattle - Tacoma Maersk officials said that SeaLand will region.” Savannah be comprised of local sales and support In the past, Maersk Lines’ presence from Houston personnel positioned in North, Central, Latin America up through North America and South America, as well as the Carib- has not had what Simpson described as a Proven Results bean, to meet the unique needs of custom- sense of permanency that customers and To discuss your gateway logistics needs, ers throughout the region. They added shippers in that market really value. contact the experts at Port Logistics Group. that SeaLand will be similar in terms of “Previously in the Latin and North structure to its other regional carriers, in- America market we have announced cluding intra-Asia carrier MCC Transport services and taken services out with not and intra-Europe carrier Seago Line. that much continuity,” said Simpson. Tim Simpson, director of marketing “But with SeaLand, we think we have a and communications for North America solution that is really going to work for for Maersk Line and SeaLand, told this market. Customers have told us we Logistics Management that there were are not ‘all in’ in this market, and that multiple drivers for this endeavor. they want a supplier that is focused on “We’re always looking at the network being there and delivering for them.” North America Sales and looking at how we best serve our In terms of services provided by the (973) 249-1230 ext. 1171 customers and also deliver the kind new SeaLand, Simpson said that the plan Corporate Headquarters of results our shareholders want,” said is to take the existing network Maersk One Greenway Plaza, Suite 400 Simpson. “There has been a team at Line has and put it under the ownership Maersk looking at what would be a of SeaLand, effective January 1, 2015, Houston, TX 77046 www.portlogisticsgroup.com 2011

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with Craig Mygatt serving as CEO. At that point, it results in a higher level of personalization from a will assess what types of other ways it can addition- service perspective, better relationships, and being ally serve customers, with that rationalization process consultative toward customer supply chains. taking place throughout 2014. —Jeff Berman, Group News Editor The plan, he noted, is to move its ocean products under the ownership of U.S. seaports address infrastructure SeaLand, with the difference being in how progress at WERC conference they are managed, with things “closer to home” and not be managed in multiple hen the Warehousing Education and Research Council W(WERC) stages its annual conference in Chicago (April 27-30), continents. With a U.S. headquarters in a seaport infrastructure will be top of mind, say organizers. location to be determined, Simpson said The session “U.S. Port Update: Investing in the Future” will SeaLand will have a greater opportunity feature a panel of three industry leaders from East Coast, Gulf to be more nimble and more flexible in Coast, and West Coast ports discussing their relative challenges helping customers. He did note that the and opportunities. The current line-up includes: headquarters might be based in the south- • Tim Wormer, Marine Planning and Development ern region of the U.S. on the Gulf coast or Manager, The Port of Portland Atlantic coast. • Russell Held, Director of Economic Development, The Port From a services side, Simpson of Virginia said that it will provide the ability to • Reggie Gray, President of the Houston Intercontinental Chamber of Commerce Investing in the have sales and customer service teams Logistics Management’s Executive Editor Patrick Burnson will co-located in these markets, working moderate the hour-long session and will follow up with a post- FUTURE with small- to mid-sized customers that conference report. For more details visit www.werc.org.

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With more than 750 exhibitors, three keynotes, SHOW HOURS and an extensive educational program, Modex Monday, March 17 10:00 am - 5:00 pm 2014 is adding 50,000 square feet of show floor Tuesday, March 18 10:00 am - 5:00 pm space. Here’s a guide to every inch. Wednesday, March 19 10:00 am - 5:00 pm Thursday, March 20 10:00 am - 3:00 pm n just about two months, the Georgia World Congress Center Hall B will be set to welcome 25,000 visitors to Modex 2014—the indus- try’s newest expo for the manufacturing, distribution, and supply chain industries, sponsored by MHI. I Attendees will fi nd more than 750 exhibits from industry, com- merce and government spread throughout the 230,000 square foot show fl oor (an increase from 180,000 square feet at the inaugural Modex in 2012). Also included are three keynotes and more than 90 educational sessions over four days. Our sister publication, Modern Materials Handling, checked in with George Prest, CEO of MHI, to get a sneak peek into what’s being planned for the show, which is being held from March 17-20, 2014. A SPECIAL SUPPLEMENT TO: “It’s shaping up to be an incredible show,” says Prest. “We’ve moved from Hall C to Hall B to accommodate the demand for exhibit space, as well as to add 15,000 square feet to co-locate the inaugural Supply Chain & Transpor- tation USA Exhibition & Conference (SCT).” To further make the event a one-stop destination, registered attend- ® ees not only gain full access to Modex, but also free entry into the

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SCT exhibits. There, four solution before we launched Modex that said industry growth of 8 percent in 2013, centers—transportation, logistics, supply chain professionals were look- and we’re projecting double-digit industrial real estate, and the future ing for an event like this.” growth for 2014.” of supply chain—are located inside The growth in attendance and Because of that, Prest anticipates the Modex show, to the left of the exhibit space mirrors the growth at that attendees will be trolling the main entrance. MHI’s other major show, ProMat. exhibit aisles with project plans in “Adding the SCT show gives MHI held its space draw for Pro- hand. They’ll also be looking to get attendees more opportunities to Mat in December 2013, setting a new ideas about how to improve maximize their time, and reinforces new record of 229,375 square feet their supply chain efficiencies. To Modex’s position as the largest sup- sold—representing 75 percent of accommodate that, MHI places a ply chain show in North and South the planned exhibit area of 305,000 strong emphasis on creative solu- America,” Prest added. square feet, said Prest. tions, hosting the second installment Although this is only the second “Our industry is at a really strong of the Innovation Awards for new and Modex show, the event’s growth place in the economic cycle right existing products. wasn’t a surprise to MHI, he says. “It now. Companies are looking to invest “We debuted the Innovation validates all of the research we did in productivity,” he adds. “We saw Awards at ProMat 2013, and it was FEATURED PRODUCTS

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a huge success, with more than 75 Information about all Modex- • Manufacturing & Assembly: entries,” says Prest. “With the speed related events can be accessed from Featuring automated assembly sup- of change happening exponentially, the official Modex app. The app port, intelligent devices, robotics, ergo- attendees have told us in exit surveys offers an interactive map, exhibitor nomic and safety equipment, work- that they specifically come to MHI search, educational sessions search, stations, light-rail and other assembly shows to seek out new ideas about and information about the three assist equipment and systems for the how they can increase their produc- keynotes. Attendees can also access manufacturing environment. tivity and maximize their bottom their personalized agenda using the • Fulfillment & Delivery: Show- line.” mobile app. Available free at both cases solutions for traditional or Additionally, he adds, Modex has Android and Apple app stores, down- e-commerce order fulfillment, order 13 co-located education partners loading information can be found at picking and packaging, third-party presenting events at the show, the www.Modexshow.com/app. logistics, warehousing, distribution, largest being the Georgia Logistics To make it easier for attendees or transportation. Summit, held Tuesday and Wednes- to find the solutions they need, the • Information Technology (IT): day upstairs from the Modex show Modex 2014 show floor is divided Highlighting supply chain software floor. into four solutions centers: solutions, RFID, auto-ID and data

Video-based help desk technical support Combining hands-free video camera with two-way communication, the EYE4U option provides real-time, video-based technical Suite of fulfillment support for accurate diagnosis and fast, effec- execution systems tive problem solving. The system shares live A comprehensive suite of intelligent fulfill- images to save time in diagnosing and correct- ment execution systems includes a ware- ing situations, improving uptime and increas- house management system, warehouse ing materials handling system availability. The control system, order fulfillment, labor images also help to overcome possible lan- management and supply chain business guage problems and misunderstandings. The light and compact head-worn camera unit intelligence software. The systems help and recorder permit up to 9 hours of high-quality recording. A wireless remote control is retailers, manufacturers and logistics provid- included, and all live video and image streaming is encrypted for secure communication ers increase productivity and efficiency for and can only be accessed by authorized help desk specialists. Vanderlande, 770-250- fast, accurate fulfillment and high levels of 2800, www.vanderlande.com. Booth 6734. customer satisfaction. Engineered to enable real-time responsiveness, the systems fea- ture adaptive, task-driven workflows and constant analysis of order priority, inventory, High-bay LED fixture produces 100 lumens per watt labor, process and equipment information. The Intelligent DLE high-bay LED fixtures produce 100 lumens per watt of energy for All fulfillment execution systems combine bright illumination with high energy efficiency. The fixtures feature built-in sensing and intelligent software with order picking controls, and integrate with the supplier’s LightRules manage- technologies to deliver scalable solutions ment software, allowing settings management and report- for single-facility operations and multi-site ing on energy use. Offered in 12,000-, 18,000- and enterprises. Knighted, an Intelligrated Co., 24,000-lumen output versions, the fixtures include 914-785-8800, www.knightedsoftware. independently rotating LED light bars and wide com. Booth 4923. and narrow optics to direct and distribute light where needed. IP52 rated for damp environ- ments, the fixtures also offer occupancy and daylight sensing. Digital Lumens, 617-723- 1200, www.digitallumens.com. Booth 4734.

WWW.LOGISTICSMGMT.COM FEBRUARY 2014 | LOGISTICS MANAGEMENT 79S SHOW PREVIEW

A SPECIAL SUPPLEMENT TO LOGISTICS MANAGEMENT collection, transportation manage- 314, and features Edward H. Bas- companies in the aerospace, automo- ment systems, manufacturing execu- tian, president of Delta Airlines. In tive, and pharmaceutical industries tion systems, logistics execution sys- an address entitled “Shipping Trends will examine supply chain challenges tems, enterprise resource planning for Global Supply Chains,” Bastian and note opportunities for advanced and order management systems. will take a look at current and future manufacturing companies. • The Knowledge Center: Offer- trends and issues in the global sup- Tuesday morning, from 8:30 to ing resources to educate and build ply chain from both carrier and ship- 9:45 a.m. in the Georgia World Con- awareness of what the materials han- per perspectives. He will also offer gress Center Hall B’s room B312- dling and logistics industry has to offer insights into advanced manufactur- 314, businessman Lee Scott, Wal- the supply chain as a whole. ing customer needs and potential Mart’s president and CEO from 2000 technology applications. Additionally, to 2009, will detail how to build a Keynotes talk trends and technologies he will discuss Delta’s role in global logistics and supply chain organiza- This year, Modex features three key- commerce, and share his perspective tion that is a market differentiator. note presentations, each offering on future challenges and technolo- As the company’s third-ever CEO— critical insights from experts into gies essential to competitiveness. following Sam Walton and David shipping trends, building successful Bastian’s speech is presented by Glass—Scott reinvigorated Wal- supply chains, and the latest issues the Metro Atlanta Chamber’s Sup- Mart’s mission, transforming it into and trends in materials handling and ply Chain Leadership Council. The a respected corporate leader on many logistics. council is also sponsoring a moder- of the major issues facing today’s The fi rst runs Monday from 8:30 ated shippers panel discussion taking global businesses. to 9:45 a.m. in the Georgia World place immediately after the keynote Widely regarded as the builder of Congress Center Hall B’s room B312- concludes. Panelists representing the best supply chain in retail, Scott

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A SPECIAL SUPPLEMENT TO LOGISTICS MANAGEMENT will share what it takes to match sup- logistics and transportation. companies strive to provide consis- ply chain performance to a company’s • Multi-Channel Fulfi llment and tent customer experience and service needs: hire the right people and give its effect on distribution strategies as levels. Ⅺ them the right experiences. During his tenure, the company emerged as the world’s largest retailer with more than 2.1 million associates and 7,390 retail operations in 16 markets around the world. The company earned the The Power to Move Your Workplace Fortune No. 1 spot six times between 1998 and 2008 and had sales of more than $405 billion in 2009. TURN YOUR WAREHOUSE Battle-tested in the war to deliver INTO A POWERHOUSE, products to consumers at the lowest WITHOUT SOFTWARE OR prices, Scott will offer tips on how to cope with today’s rapid rate of change INFRASTRUCTURE CHANGES. in an increasingly complex world. On Wednesday, the fi nal keynote presentation unveils the key fi ndings of the annual MHI Industry Report, conducted in partnership with Deloitte Consulting. The “Preview of the MHI Industry Report—Trends Driving Supply Chain Innovations” will be presented by George Prest, CEO of MHI, and Scott Sopher of Deloitte from 8:30 to 9:45 a.m. in the Georgia World Congress Center Hall Converting a stationary workplace to a mobile one is the easiest, most economical way to increase productivity of your current workers and B’s room B312-314. The extensive infrastructure. Make your employees’ workplace mobile and free from report on supply chain and materi- stationary power sources and data cabling with a Mobile Workplace System als handling trends and technologies by Newcastle Systems. draws upon a series of surveys con- ducted in January. Both MHI mem- Mobile Workplace Systems Enable You To: bers and supply chain end users were asked to verify and rank what each • Quickly obtain measurable productivity gains without months of planning and group expects to focus on in the next implementation two to three years. • Integrate with your current equipment Among the topics explored • Instantly scale your employees’ current in the study: operations to handle increased throughput • Supply Chain Analytics and the • Streamline processes in shipping/receiving, tools and techniques companies are inventory management and more MOBILE WORKPLACE SYSTEM using to track performance and iden- tify areas for improvement. Learn more at www.newcastlesys.com/powerhouse • Mobile Supply Chains and the use of sensing and data collection technologies across all supply chain See us at MODEX 2014 areas, including production, inbound Booth #4005 and outbound logistics, inventory management and more. • 3D Printing/Additive Manufact- uring technology, its expanded use and 15B Sylvan St. z Middleton, MA z 01949 z USA z 781.935.3450 its potential impact on manufacturing, www.newcastlesys.com

WWW.LOGISTICSMGMT.COM FEBRUARY 2014 | LOGISTICS MANAGEMENT 81S Show Preview: Explore the possibilities Co-located with Modex 2014, Supply Chain & Transportation USA, the nation’s newest transportation and logistics show, promises something for everyone who is in charge of moving freight.

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82S LOGISTICS MANAGEMENT | FEBRUARY 2014 WWW.LOGISTICSMGMT.COM PREVIEW

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BY BRIDGET McCREA, CONTRIBUTING EDITOR

ogistics and supply chain exec- “Co-locating the two events will allow stop-shop approach that we’re giving utives who attend Modex 2014 manufacturing and supply chain pro- attendees.” in March at Atlanta’s Geor- fessionals unparalleled education and Atlanta was a natural selection for gia World Congress Center networking opportunities as well as the show’s location not only because L will get a bonus this year. The exposure to the largest equipment Modex was already taking place there, materials handling centric event is co- and technology display of any show of says Noel, but also because the city is locating with Supply Chain & Trans- its kind in North America. In today’s centrally located and representative of portation USA (SCT) to create the world where agile and innovative sup- what’s taking place in the logistics field largest international expo and confer- ply chains are a necessity, the co-loca- across the country. ence of its kind to be held in the U.S. tion is a win-win for participants and “When you factor in the grow- and South America in 2014. attendees.” ing rate of trade and exchange taking Sponsored by MHI and run by Reed Noel says that the combined event place between the U.S. and Europe, Exhibitions (RX), SCT is expected to creates the first U.S. exhibition that for example,” says Noel, “Atlanta is a attract over 100 exhibitors who will offers a one-stop shopping experi- major hub and a great representation showcase their solutions on the event’s ence for supply chain executives. “The of the transportation activity that is 15,000-square-foot show floor. Tens of event will also include free educational going on.” thousands of supply chain profession- content designed to meet the needs of Already entrenched deeply on the als from over 100 countries around the vertical industry segments,” he adds, materials handling and equipment globe will attend this combined event. noting that MHI’s move to incorporate side of the supply chain industry, According to Laurent Noel, vice the area “outside of the warehouse’s Noel adds that Modex presented a president of transportation and logis- four walls” represents the next step for unique co-location opportunity for tics at RX, Supply Chain & Transpor- Modex. SCT. “Today’s vice president of sup- tation USA will showcase a complete ply chain or logistics and transporta- range of innovative products and Natural fit tion wants to find what he or she is services dedicated to transportation, Noel says that the idea of combining looking for in one place,” says Noel. logistics, real estate, and the future SCT with Modex came about when “Being able to bring the transporta- supply chain. The co-location will event coordinators realized that no tion components to a single location include approximately 230,000 square such event existed in the U.S. with Modex—which is already bring- feet of exhibits as well as educational “There’s no other show that provides ing all of the intra-logistics together— sessions. total supply chain services and equip- is a perfect fit.” “The decision to co-locate Modex ment in one place for the supply chain And because the SCT team has and Supply Chain & Transportation community,” says Noel. “There may already successfully rolled out similar USA was made for several reasons,” be a few different events covering the shows around the world (Paris, Bra- says George Prest, MHI’s CEO. space, but none provide the same one- zil, and Indonesia, for example), Noel List of Exhibitors EXHIBITOR BOOTH NO. EXHIBITOR BOOTH NO. EXHIBITOR BOOTH NO. Tracking Solutions 3220 ClearTrack 2919 GEODIS Wilson 2613 Acuitive Solutions 2313 Con-way Multimodal 2513 German American Chamber of AFS Logistics 2515 DART Entities 2416 Commerce of the Southern US Inc. 3014 AGILE Network 2819 Data2Logistics, LLC 3318 American Expediting DB Schenker, Schenker Inc. 2213 Gold Cold Chain Alliance 3114 Company 2113 Delta Airlines 2215 HA Advantage 2718 American Society of DigitalShipper Logistics Hartsfield-Jackson Atlanta Transportation & Logistics (ASTL) 2314 Software 2820 International Airport 2019 APICS 3115 Escro Transport Ltd. 2115 HOPPECKE Batteries Inc. 2013 APL Logistics 2316 Evanhoe & Associates Inc. 3118 Insert Information Technologies GmbH 3320 Avery Trucking 2715 Exmile Industry & BLG Logistics Inc. 2310 Construction Tyre Co., Ltd 2713 Integral Strategic Solutions 2018 Bluestar 3219 Eyefreight 2913 International Business Systems 2918 Cardinal Health Integrated Freightwatch International 2719 INTTRA 2816 Logistics Services 2116 French A.m.erican Chamber of Commerce 2708 KRC Logistics 2115 Continued on page 84S

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A SPECIAL SUPPLEMENT TO LOGISTICS MANAGEMENT is confident that the co-located event tion sharing. “We’re educating with- Retailers, for example, need to will be well received here in the U.S. out competing with CSCMP, which understand concepts like supply chain “We know that it’s a concept that is purely educational,” says Noel. optimization, visibility, and agility. They works for shippers,” says Noel, whose “Our event is more deeply rooted in also need to be able to deftly explore team has organized eight supply chain, exchanging information with peers and and move into new markets, says Noel, transportation, and logistics events on the sharing of best practices, informa- who feels that the show will help such four different continents. Each event tion, and insights among attendees.” attendees realize those goals in 2014. follows a similar concept of dividing At the event, most of the world’s He points to the event’s long list of the conference up between logistics top freight forwarders will be on deck, exhibitors as proof that no attendee and transportation services on one side including UPS, BLG Logistics Group, will walk away from the Atlanta event and materials handling and equipment Panalpina, and APL Logistics. “This is empty handed. (intra-logistics) on the other. the only trade show that will feature so “When you look at our exhibitors, “In some cases we will organize both many leaders in the freight forwarding we have a long list of freight forward- sides of the event,” says Noel, “but in industry exhibiting at the same time,” ers, transportation companies, and the U.S. we felt that Modex would be Noel points out. “Some will be speak- other entities that are well equipped to the best partner to conduct the material ing at the sessions and conferences, help manufacturers and retailers build handling and equipment component.” but most will also be exhibiting and their businesses, explore new markets, available for discussions.” and optimize their supply chains,” says Sharing information and best practices Another one of the event’s notable Noel, adding that a lengthy lineup of In terms of attendance, Noel expects features will be an IT-focused exhibi- educational sessions is also on tap. 25,000 participants—50 percent of tor area for technologies concerning the In fact, the SCT event will fea- whom will be manufacturers and retail- management of information flow in the ture 40 such sessions across a three- ers who influence transportation and supply chain, including software ven- day period and will include a mix logistics decisions—to be on site during dors, integrators, and manufacturers of of panel discussions and case stud- for the combined event. He says that products and services for tracking trace- ies. The latter will include real-life the efficiencies created by both events ability or geolocation. “Most of these stories of how global organizations taking place at the same venue will help exhibitors will be focused on warehouse found new ways to track shipments push up attendance numbers. management systems and other ware- and optimize their supply chains, “Our competitors are taking a similar housing-related products and services,” among other examples. approach, knowing that shippers today says Noel, “although a portion of them “We want to cover a diverse range have less time to visit events and get will be dedicated to transportation.” of topics so that there’s a little bit of up close and personal with the newest everything for everyone,” says Noel. products and services,” says Noel. Under one roof “We want retailers, manufacturers, In addition, this year’s Modex/SCT Noel says that the co-located event and distributors alike to be able to event will include panel discussions, will be most applicable for logistics learn something new, share with their best practice sessions, case studies, and supply chain professionals from peers, and enjoy the camaraderie and and other features that encourage the retail, distribution, and manufac- networking that this world class event networking and peer-to-peer informa- turing sectors. provides.” Ⅺ List of Exhibitors (Continued) EXHIBITOR BOOTH NO. EXHIBITOR BOOTH NO. EXHIBITOR BOOTH NO. Lanter Distributing 2115 Panalpina Inc. 2518 ShenYang Shining Fortune Inc. 2813 Peerless Media 3215 Container Seal Co. Ltd 2414 LLamasoft Inc. 2916 PINC Solutions 3216 Site Selection Magazine 2914 Manhattan Associates 2716 Port Canaveral 2415 TICONTRACT Inc/ TRANSPOREON Group 2818 Metalcraft Inc. 3018 Ports of HAROPA 2318 Transwide 3116 Metro Atlanta Chamber 2019 Protrans 2720 UPS Corporate Monode Marking Inc 2015 Headquarters 2118 Products Inc. 3020 Ramp Systems Inc 2920 Urban Area Bourges 2016 Next Generation Rasco Industries Inc 3319 Logistics Inc. 3016 US EPA SmartWay Roush CleanTech 2615 Transport Partnership 2315 Numerex 2614 Saddle Creek Logistics USSA 2507 Old Dominion Freight Services 2216 Worldwide Aeros 2510 Line Inc. 2516 Seagull Scientific 3218 XTL Inc. 2018 ORTEC 3013 SENATOR International Palisades Logistics 2616 Freight Forwarding 3015 YRC Freight 2413

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Supply Chain & Transportation USA 2014 Conference Schedule

Monday, March 17 Time Title Speaker Session type SCTUSA Theater 8:30a.m.-9:45a.m. Shipping Trends for Global Edward H. Bastian, President, Delta Keynote Presentation B312 Supply Chains Airlines 10:15a.m.-11:15a.m. Found Money/ Using Modeling Toby Brzoznowski, Co-Founder and Presentation B Technology to Find Hidden Executive Vice President, Llamasoft, Inc. Savings in your Supply Chain 10:30a.m.-11:30a.m. Employee Engagement and Dominic Longo, CSCP Director, Presentation A Certification in the Supply Corporate services, APICS Chain 11:30a.m.-12:30p.m. Embracing Lean: How an Jeff Rivera, Vice President, National Case Study B asset-based truck line is using Sales, Con-way Freight; Brain Lean principles to eliminate McGowan, Vice President, Lean, waste in transportation Con-way Freight 12:45p.m.-1:45p.m. Dock Scheduling; Bringing Elie Hiller, Director, Sales & Marketing, Case Study B Order to Your Logistics North America, Transwide Universe 1:00p.m.-2:00p.m. The Benefits of Business Kyle Salem, UPS Case Study A Process Re-engineering in Supply Chain Operations 2:00p.m.-3:00p.m. Has Technology Changed The Elaine Puri, CTL Director of Workforce Case Study B Way We Train Employees? Development, American Society of Transportation and Logistics (AST&L); Wayne Kline, GLA, Program Director, Polk State Corporate College 2:15p.m.-3:15p.m. Near-shoring and the “New Wade McDaniel, VP of Supply Chain Presentation A Normal” Solutions, AVNET Velocity 3:15p.m.-4:15p.m. Urban Logistics and Supply Chip White, Professor, Georgia Tech; Case Study B Chain Efficiency Alan Erera, Professor, Georgia Tech and Tim Staroba, Freight’s Eastern Area VP, Con-Way 3:30p.m.-4:30p.m. Global Manufacturing (Off-, Larry Lonagham, Senior Executive, Presentation A Near-, and Re-shoring) Logistics Unlimited Tuesday, March 18 Time Title Speaker Session type Theater 8:30a.m.-9:45a.m. A Conversation with Lee Scott Lee Scott, Former CEO, Wal-Mart Keynote Presentation B312 10:15a.m.-11:15a.m. Supply Chain Technology: Mike Mulqueen, Senior Director of Case Study B Transportation Management Product Management, Manhattan Systems (TMS) Gaining Altitude Associates in Today’s Omni-Channel Landscape 10:30a.m.-11:30a.m. Trends in Omni-Channel Randy Strang, UPS Case Study A Retailing 11:30a.m.-12:30p.m. The Collaborative Network: Kristen Celecki, Product Marketing Panel Discussion B Succeeding in a New Era Director, Visibility Solutions, INTTRA; of Supply Chain Shipment Mike Levans, Group Editorial Director, Visibility Logistics Management; and a Manufacturer (TBD) and Retailer (TBD)

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Time Title Speaker Session type Theater 11:45a.m.-12:45p.m. Fueling a Competitive Steve Whaley, Director of Business Panel Discussion A Edge: How Top Fleets are Development, ROUSH CleanTech Succeeding with Propane Autogas 12:45p.m.-1:45p.m. Bar Code, RFID, RTLS and AIM Presentation B Mobile Computing Solutions Impact Operations Worldwide 1:00p.m.-2:00p.m. DB Schenker Case Study DB Schenker Case Study A 2:00p.m.-3:00p.m. North America-Europe William Behrens, North American Panel Discussion B Logistics Solutions Representative, USA/Canada, Ports of HAROPA; Shannon Feeley, Assistant Director of Cargo Business Development, Port Canaveral 2:15p.m.-3:15p.m. Need and Future of Workforce BLG/Mercedes/German-American Panel Discussion A Training Chamber of Commerce 3:15p.m.-4:15p.m. Ortec Case Study Ortec Case Study B 3:30p.m.-4:30p.m. Size Matters: How Very Large Ken Uriu, Marketing Manager, Port of Presentation A Ships, Trains, and Terminals Long Beach Are Changing America’s Ports Wednesday, March 19 Time Title Speaker Session Type Theater 8:45a.m.-9:45a.m. Preview of MHI Industry Report George Prest, CEO, MHI; Scott Sopher, Keynote Presentation B312 Principal, Deloitte Consulting LLP 10:15a.m.-11:15a.m. Strengthening Relationships Global Cold Chain Alliance Panel Discussion B in the Cold Chain—Beginning with Rail 10:30a.m.-11:30a.m. Strategies for Optimizing Data Kristen Celecki, Product Marketing Panel Discussion A in the Global Shipping Industry Director, INTTRA; an Ocean Carrier (invited) and a Shipper (invited) 11:30a.m.-12:30p.m. Global 3PL Distribution: Greg McKinley, VP of Warehousing and Presentation B Thinking Outside the Borders Logistics, Incomm 11:45a.m.-12:45p.m. Top Healthcare Strategies Robin Hooker, UPS Case Study A Revealed 12:45p.m.-1:45p.m. Omni-Channel—The future of Agile Network Case Study B shipping 1:00p.m.-2:00p.m. The SmartWay Transport Buddy Polovick, Team Leader, US Panel Discussion A Partnership—Enhancing EPA SmartWay Transport Partnership; Supply Chain Efficiency by Run Guzzi, Sr. Manager Carrier Managing Carbon Emissions Relations, and Ed Connally, Manager Logistics, Admin & Compliance, Colgate Palmolive (invited) 2:00p.m.-3:00p.m. Livingston International Case Livingston International Case Study B Study 3:15p.m.-4:15p.m. Is Your Supply Chain Rayford Collins, UPS Case Study B Optimized? 3:30p.m.-4:30p.m. Urban Area Bourges Case “Urban Area Bourges/French American Case Study A Study Chamber of Commerce”

WWW.LOGISTICSMGMT.COM FEBRUARY 2014 | LOGISTICS MANAGEMENT 87S Patrick Burnson is Executive Editor Pacific Rim Report of Logistics Management. If you want to contact Patrick with feedback or a By Patrick Burnson story idea, please send an e-mail to [email protected].

Sourcing accountability placed under greater scrutiny in Asia Pacific

AsiaInspection, (AI) a leading provider of quality con- Sourcing forecast trol services for businesses importing from emerging Despite fears that China’s competitiveness would be Pacific Rim nations, observes that 2013 was a challeng- eroded by the appreciation of the Renminbi and wage ing year for brands and retailers. inflation, China’s exports continue to set new highs. For example, strikes and riots erupted throughout November was up 12.7 percent compared with a the year in factories across India, Bangladesh, Cam- year earlier, and for the period of January to November bodia, and Myanmar with workers demanding higher 2013 showed a 9.3 percent increase compared to 2012. wages. In Bangladesh—where the collapse of a garment This puts China on track to report the largest annual factory took the lives of 1,129 people—the minimum trade surplus since 2008. wage is half that of China. AI’s inspection figures mirror this with a 17 percent Figures from AI reflect brands and retailers are finally increase in ordered inspections in China in 2013 com- taking action, showing a 61 percent increase in its audits pared with 2012. In 2013, China remained, by far, the of multinational companies in Asia for 2013 compared largest sourcing region used by AI clients. To put it in to 2012. While Bangladesh was in the spotlight, buyers perspective, Bangladesh exports amounted to a mere 1 took to securing their supply chain in all sourcing regions, percent to that of China. with audits in Bangladesh up 47 percent year over year. Increases in audits in China were up 58 percent and up 112 percent in India. Despite fears that China’s competitiveness Furthermore, child labor was put back in would be eroded by the appreciation of the the spotlight when a report was published by Renminbi and wage inflation, China’s exports the U.S. Department of Labor late last year cited that 78 million children are engaged in continue to set new highs. November was up child labor in the Asia and Pacific region. 12.7 percent compared with a year earlier. Safety last? China continues to dominate toy manufacturing, pro- In terms of percentage growth, 2013 confirmed the ducing more than 80 percent of all toys sold in western trend for new sourcing regions, with Africa seeing a 47 countries. With another Christmas season well behind percent increase in the second half of the year. Vietnam us, a period when up to 70 percent of all toy sales occur, was up by 71 percent, and Cambodia doubled despite consumer safety was high on the agenda last quarter. protests over wage concerns. In November, 200,000 dolls made in China were It’s important to note that 2013 was the year when seized at U.S. ports for containing high levels of logistics and supply chain management—or rather the phthalates, a banned chemical used in plastic. The lack thereof—made headlines and became a concern not same happened this December in France, with 30,000 only for sourcing professionals, but for consumers as well. non-compliant Chinese toys destroyed by customs. “A Western buying office that does not know pre- Concurrently, a U.S. public interest research group cisely where the products they purchase are manu- analyzed 50 toys from China and found them to con- factured and what’s going on in their outsourced tain 29 times more lead than the safety limit, banned factories is doomed,“ says Sebastien Breteau, CEO of phthalates, excessive levels of cadmium, and choking AsiaInspection. risks. “Major names like H&M, Apple, and HP have pub- AI data on the toys and products in the recreational lished their lists of approved suppliers,” Breteau says. industry shows a worrying trend, with the number of failed “We will see more initiatives with major brands taking toy inspections in Asia rising from 27 percent in 2012 to back full control and enforcing visibility.” 33 percent in 2013. While most failed inspections were for AI analysts say we may see 2014 be the year that minor non-life threatening issues, more than 4 percent of transparency becomes a reality in global supply chains. toy testing by AI did not pass safety standards. Let’s hope they’re right. Ⅺ

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