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D e c e m b e r 2 0 0 8
A Penton Media Publication outsourced-logistics.com
Look out for 2009Its going to be tough
Also in this issue:
Trade Routes:
Carriers go east
Do we need another supply
chain application?
Elections have consequences
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2/44
agilitylogistics.com
Troy HammondRetail Branch Manager
Agility, Seattle
TOYSRUS HAS TROY HAMMOND. The next-genvideo game revolution of 2006 sent product demand to an all-time high
and put trusted retailer, ToysRUs, to the ultimate test. The number of new
systems Agilitys Troy Hammond was handling broke records for Agilitys
13-year-old Direct-to-Store program. To secure the necessary courier lift,
trucking support, and temporary labor for the fast-moving products, Troys
team managed a multiple-carrier program. By systematically processing
allocations on a store-by-store basis, Troy kept ToysRUs shelves stocked
and gamers stoked.TOYSRUS HAS AGILITY.
http://agilitylogistics.com/http://agilitylogistics.com/8/4/2019 Outsourced Logistics 200812
3/44
Theres a phrase making the rounds in conference
presentations and the media which logistics profes-
sionals need to ban from their vocabulary. We must
help the general business public understand reverse glo-
balization is a faulty concept or, at least, a misnomer.
If you must persist, you might substitute commercial
agoraphobia (a little redundant since agoraphobia literally
translates to fear of the marketplace). Or, try isolationism
or protectionist.Or, just scrap the economic theories of the last 232
years. Thats when Adam Smith described the supply
chain. Smiths global view was primarily geared to com-
modities that were not available locally and thus had to be
transported great distances.
He described, in An Inquiry Into the Nature and
Causes of the Wealth of Na-
tions, the role of the
supply chain in pro-
ducing the woolen
coat on the back
of a common
day laborer as
extending from
the shepherd
to the sorter of
the wool, the
wool comber or
carder, dyer,
s c r i b -
bler,
spinner, weaver, fuller and dresser. Then he noted a num-
ber of merchants and carriers are involved in the transport
of the goods between these functions. He posed the ques-
tion, how much commerce and navigation and, by exten-
sion, ship builders, sailors, sail makers and rope makers
were involved in bringing the materials to the dyer so he
could complete his job? What about the tools and com-
modities used by the others?
Smith described what we have retitled lean manufac-
turing. In large-scale production, Smith saw a division of
labor necessary to complete the tasks that could not feasi-bly or economically be done by a single worker or a single
set of skills or tools. In those great manufactures . . . which
are destined to supply the great wants of the great body of
the people, every different branch of the work employs so
great a number of workmen, that it is impossible to collect
them all into the same workhouse.
His view of mass production describes multiple work-
shops and implies outsourcingbut a more narrow form
than todays standard because the economics of producing
manufactured goods did not support separating those
different production and assembly steps by any great dis-
tance.
Smith recognized a number of supply chains come
together in the production of even a simple product like a
woolen coat. He described a division of labor which, with
fast, efficient and inexpensive transport does not require
every task to be performed locally. He also knew that the
total landed cost would determine the nature and struc-
ture of those various supply chains.
This difficult economy certainly requires a reexamina-
tion of how we produce and distribute goods and it will
lead to reengineering supply chains. But as we go through
those network optimization exercises to bring sourcecloser to production or production closer to market, call it
that: supply chain reengineering, network optimization or
even near sourcing. But dont call it reverse globalization
unless you want to go back to the hunter-gatherer days of
our distant ancestors.
Editorial
Reverse Thinking
Perry A. Trunick, chief editor,[email protected]
Outsourced Logistics |December 2008 | 1
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6Global Markets
REACH, The EU's Chemical Reaction
Community VoiceIt's back to the basics
of fulfilling customer demand
14Operations
The Post Office Looks for Better Returns
Community VoiceAchieving a Demand-Driven Supply Chain
34Logistics Services
China Carries a Torch for Logistics
Community VoiceElections Have Consequences
Features
22Operations
Look Out or 2009
Warnings abound concerning the near-termoutlook for the global economy.
26Global MarketsThe Changing Map o the World'sTrade Routes
As dynamics of global supply chainsmove to meet ever evolving economic
currents, carriers reconfigure the placesand ways in which they respond to theirown and shipper needs.
30Field Report
Does the World Need Another SupplyChain Application?
AMR Research has stated the problem,"Brand owners need better visibility intoand control of the outsourced supplynetworks, but current technology optionsare not up to the task."
403PL FileRyder
Departments
1 EditorialReverse Thinking
38 Classifeds
Advertiser Index
Decembe r 2008 Vo lume 1, Number 7
2 | December 2008 | Outsourced Logistics
24
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STAYING ON TRACK
AND ON TIME
DOESNT FLY SOLOAT PILOT.
Thats why they selected CRST Van
Expedited for reliable ground support,
and why they have presented us with
their Carrier of the Yearaward. We
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trusted partner. And the same award
winning qualities youll receive when you
contact us at www.crstvanex.com
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Have you
heard?
Outsourced-Logistics.com
is more than just a
companion site to the
magazine. It is the online
logistics daily, providing
news, decision-making tools
and information resources
for logistics professionals.
Daily News Featureson the industry
White Papers
Webcasts
Current and PastIssues
Forums/Rateem & Rankem
Outsourced Logistics (ISSN 1547-1438) is published monthly by Penton Media, Inc.,9800 Metcalf Ave., Overland Park, KS 66212-2216.
The magazine is sent to qualified management in the field of logistics.Periodicals postage paid at Shawnee Mission, KS and at additional mailing offices.
Can. GST #R126431964. Publications Mail Agreement # 40026880.
POSTMASTER: Send address changes toOutsourced Logistics, P.O. Box 2113, Skokie, IL 60076-7813.
Printed in U.S.A. Copyright 2008 by Penton Media Inc.
Send editorial correspondence to: Editor, Outsourced Logistics, 1300 E. 9th Street, Cleveland, OH 44114-1503,or [email protected]
For information on obtaining reprints: Contact Penton Reprints at [email protected]
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[email protected]: Permission is granted to users registered with the Copyright Clearance Center Inc. (CCC) to photocopy any article, with the excep-
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Out-of-print copies are available as positive microfilm and can be ordered from National Archive Publ ishing Co. (NAPC)300 N. Zeeb Road, P.O. Box 998, Ann Arbor MI 48106-0998.
Editorial
Publishing DirectorDavid H. ColbyeMedia Market Development ManagerJason Washburn
Circulation ManagerTyler MotsingerProduction Coordinator Rachel KlikaCustom Media GroupTerrence Grogan
Bob MacArthur Senior VP Industrial Group
Chief Executive Officer Sharon [email protected]
Chief Financial Officer Jean B. [email protected]
1300 E. 9th StreetCleveland, OH 44114-1503
216.696.7000 216.696.2737 faxwww.outsourced-logistics.com
249 W. 17th St., New York, N.Y., 10011212-204-4200
Chief Editor
Perry A. Trunick
Senior Editor
Roger Morton
Professional ContributorsJames A. CalderwoodDesign
Art DirectorBill Szilagyi
Business
EASTERN REGIONJim Oot, Phone: 973-335-8902, Fax: 973-335-8903, [email protected]
WESTERN REGIONKeith Taunton, Phone: 334-514-8107, Fax: 334-514-9377, [email protected]
FLORIDABob Eck, Phone: 352-391-5577, [email protected]
ENGLAND Paul Barrett, Mark Whiteacre, David Moore, Phone: 44-1268-711-560, Fax: 44-1268-711-567FRANCE Fabio Lancellotti, Phone: 331-4294-0244, Fax: 331-4387-2729
ITALY Cesare Casiraghi, Phone: 39-31-261407, Fax: 39-31-261380BELGIUM, HOLLAND Peter Sanders, Phone: 31-299-671303, Fax: 31-299-671500
TOKYO Yoshinori Ikeda, Phone: 813-3661-6138, Fax: 813-3661-6139SEOUL, KOREA Young Sang Jo, Phone: 822-739-7840-2, Fax: 822-732-3662
TAIWAN Charles Liu, Phone: 886-2-707-5829, Fax: 886-2-707-5825CHINABallycastle Trading, Inc. Ltd., Phone: 852-524-7256, Fax: 852-524-7027INDIA Shivaji Bhattacharjee, Phone: 91-11-268-7005, Fax: 91-11-2652-6055
SINGAPOREMike Seah, Phone: 65-299-0413, Fax: 65-758-7850 or 65-296-6629
Sales
4 | December 2008 | Outsourced Logistics
http://outsourced-logistics.com/mailto:[email protected]:[email protected]:[email protected]:[email protected]:[email protected]:[email protected]:[email protected]:[email protected]:[email protected]:[email protected]:[email protected]:[email protected]:[email protected]://www.outsourced-logistics.com/mailto:[email protected]:[email protected]:[email protected]://outsourced-logistics.com/mailto:[email protected]:[email protected]:[email protected]:[email protected]:[email protected]:[email protected]:[email protected]:[email protected]://www.outsourced-logistics.com/8/4/2019 Outsourced Logistics 200812
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6 | December 2008 | Outsourced Logistics
Global Markets
By Catherine Muldoon
When it comes to selling chemicals in Europe, the EU has a long
REACH. Last summer the European Union began requiring
all exporters of chemicals, chemical components and finishedproducts containing chemicals to begin registering those
substances. The regulation is called REACH, which stands for the Registration,
Evaluation, Authorization, and Restriction of Chemicals.
With REACH the EU aims to minimize the potential health and
environmental impact of those substances by sharing information about them
among its member states. That means registering some 30,000 chemicals
over the next 11 years. It also means additional reporting requirements for
a broad spectrum of industry sectors, such as pharmaceuticals, industrial
chemicals, cosmetics and cleaning products. The new policy covers a
number of businesses, including producers of substances and end-
products, exporters, importers, distributors and downstream users.
REACH is far-reaching. It applies to all chemicals, from substances
used in industrial processes to those used in everyday life,
including paints, clothes, furniture, electrical appliances and
others too numerous to list. The regulations require that
chemical substances in and of themselves, in preparations,
and intentionally released from products be registered with
the European Chemicals Agency (ECHA). (The regulations
went into force June 1, 2007.)
REACH is the worlds most ambitious law on public
health and environmental protection, replacing some 40
individual pieces of legislation with what the EU hopes
will be a more streamlined system. It is designed toconsolidate prior laws and regulations to create a
single system for chemicals manufactured in
and imported into the EU.
REACH p la ce s the onus on
manufacturers and importers to collect
d a t a data and share information about
chemicals chemicals used in their respective
p r o d u c t s products and risks they may pose.
Th e s e po s e . The regulations present a significant
c h a l l e n g e t o challenge to exporters who must now
master the intricacies master intricacies of the new law or losethe ability to do or lose the ability to do business in the EU.
REACH, The EUs Chemical
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they can be produced, sold or used in the EU. However, the two types
of substances have different schedules for registration. Manufacturers
and importers were required to pre-register their phase-in substances by
December 1, 2008, if they wanted to benefit from extended deadlines
registration. Otherwise, they were obligated to fully register by that
date. The penalty for failing to register is that the chemicals/articles
For exporters to Europe, REACH is a game-changer.
If a company cannot comply, it wont be able to sell
products in one of the worlds largest markets. With
nearly 500 million citizens, the 27 member countries
that comprise the EU generate about a fifth of globalexports and imports, making their combined GDP
of nearly 11 trillion greater than that of the United
States.
Yet compliance holds considerable risk as producers
and importers face the possibility of having to share
often proprietary information and even testing of
their chemicals if the data is deemed incomplete. The
potential for divulging trade secrets is very real, so it is
critical that REACH compliance be handled extremely
carefully. European chemical companies must cease
producing and importers must stop importing listed
chemicals until they have complied with the mandates.
Even the deadlines pose a challenge. According to
REACH, any company that did not pre-register by
December 1, 2008, will have to stop producing or
importing immediately. And restarting the process
requires going through the full-registration procedure.
(In some cases, it is possible for a company to pre-
register after this date, but the rules are complex.)
There are two broad categories of chemicals that
must be registered: those already being manufactured
or imported into EU countries, called phase-in
substances, and substances new to the EU, called non-phase-in substances. REACH requires manufacturers
and importers of chemical substances in quantities of
1 tonne (1 metric ton, or 1,000 kilograms) per year to
register.
They must obtain information on the physico-
chemical, health, and environmental properties of their
substances to determine how they can be used safely.
Each manufacturer and importer must then submit to
the ECHA a registration dossier documenting the data
and assessments.
Both phase-in and non-phase-in substances thathave not been pre-registered must be registered before
Reaction
Good ChemistryIn considering using an Only Representative to comply withthe EUs REACH regulations, consider the following:
Hire an expert with extensive experience in EU regulationsfor chemical safety, chemistry and toxicology, environmentalrisk management, legal issues and information technology forseamless REACH implementation.
Know the data compiled for REACH compliance and insistthat it be transparent so you are aware of all status filings,information requests, decisions and actions.
Find an advocate who possesses excellent communicationskills to advocate on your behalf.
Consider the total cost of satisfying the logisticsrequirements of REACH and ensure your internal team is up tothe task. The cost of outsourcing may be competitive in light ofthe complexity of compliance.
Ensure confidentiality and control through an OnlyRepresentative that can fulfill the REACH registrationrequirements and safeguard proprietary information.
Get it in writing by naming your Only Representative ina letter to protect against an importer changing its positionconcerning its role.
Plan for transition by building an internal project
management team and empower it with oversight and decision-making authority.
Negotiate the contract, spelling out expectations, terms andresponsibilities including scope of work, pricing, milestones,incentives and penalties. Mandate that your Only Representativemaintain the information in the strictest of confidence and use itfor the sole purpose of REACH compliance.
Keep an open channel by passing information down thesupply chain and responding to information on substancespassed from further down the supply chain (for example,requests for new identified uses of substances from downstream
users). Retain documents.
Outsourced Logistics |December 2008 | 7
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8 | December 2008 | Outsourced Logistics
Global Markets
will not be permitted into EU commerce. Depending
on tonnage band and the hazardous properties of the
substance, the staggered deadlines are November 30,
2010; May 31, 2013, and May 31, 2018.
Under REACH, only a natural or legal person
established in the EU can be a registrant. Foreign
nationals cannot self-register their chemicals. Exporters
that do not have a subsidiary in the EU have three basic
routes to compliance. They can establish a subsidiary in
the EU; allow the importer to register their products; or
they can outsource the process to a legal representative
familiar with the chemical industry, REACH, and the EU
regulatory climate.
Establishing a subsidiary can be costly and onerous
in terms of maintenance and management. Abdicating
the process to an importer runs the risk that confidentialinformation could be compromised by disclosure or
reverse engineering.
If the registrant is an importer or distributor,
that entity technically owns the registration and is
responsible for communicating with ECHA, which
will require detailed disclosure of the composition of
chemicals and other products. In addition, working
through an importer or distributor may make it difficult
to alter future distribution channels in the EU. In fact,
changing partners in Europe may cost an exporter
access to the EU market.
The process of establishing an internal team to gather
data, test substances, file reports and interface with the
EU can tax the resources of even the largest companies.
The REACH deadlines point up the need to act quickly
to ensure uninterrupted access to the EU market.
Within this context, outsourcing REACH compliance
may prove to be a viable business strategy.
Under REACH, an exporter has the option of working
through an Only Representative, an agent that can
register the substances of non-EU members. An Only
Representative must be both a legal entity established in
the EU and have sufficient background in the practicalhandling of substances and the information related to
them to be able to fulfill the obligations of importers.
As such, it can serve as a valuable adviser for developing
a global REACH strategy to complement internal
compliance programs through transaction auditing,
training, and formulation of appropriate policies for
present and future filings.
An Only Representative can provide an exporter
greater control over the entire registration process
including critical aspects of its substances, thereby
minimizing the potential for disclosure of proprietaryinformation.
The key challenge to compliance with REACH is
remaining competitive while protecting trade secrets
and your place in the market. Outsourcing this process
can provide a logical solution for exporters looking to
maintain their competitive edge by retaining ownership of
the registration data and control over the entire process.
Catherine Muldoon joined BDP International in 2002 and
was named chief global counsel in January 2004. She heads
BDPs legal department with direct responsibility for all legal
and contractual considerations associated with all mergers
and acquisitions, joint ventures and business partners,
tax planning, corporate structuring and strategy, business
services, personnel, banking relations, and real estate. She is
also responsible for managing litigation and takes a lead role
in corporate governance and risk management programs.
Registration DeadlinesThe following deadlines have been
established for REACH compliance:
Nov. 30, 2010
P h a se - i n subs t a n c e s t h a t we r e
manufactured or imported into the EU at
least once after June 1, 2007, in quantities of
1,000 tonnes (metric tons) or more per year
per manufacturer or importer.
May 31, 2013
P h a se - i n subs t a n c e s t h a t we r e
manufactured or imported into the EU at
least once after June 1, 2007 in quantities
of 100 tonnes or more per year per
manufacturer or importer.
May 31, 2018
P h a se - i n subs t a n c e s t h a t we r e
manufactured or imported into the EU at
least once after June 1, 2007 in quantities of
1 tonne or more per year per manufacturer
or importer.Substances not pre-registered but which
are imported for the first time into the EU
after December 1, 2008, may benefit from
the staggered deadlines if the information
requested for pre-registration is provided
within six months of the first import into the
EU and no later than 12 months before the
relevant registration deadline.
For more detailed information on practical
pre-registration issues, use of IT tools, IUCLID 5
pre-registration tool, and REACH IT, visit http://
echa.europa.eu/pre-registration_en.asp.
http://echa.europa.eu/pre-registration_en.asphttp://echa.europa.eu/pre-registration_en.asphttp://echa.europa.eu/pre-registration_en.asphttp://echa.europa.eu/pre-registration_en.asp8/4/2019 Outsourced Logistics 200812
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10 | December 2008 | Outsourced Logistics
Global Markets
Ne
wsBriefs
December08
Flying Smart Nets TNT World Record
Actually, TNT was handling Smart cars, 30 of them in a Boeing 747
freighter and on October 23rd, the express delivery company and TopGear
magazine loaded all 30 micro cars in 35 minutes and 34 seconds to set a
world record.
Celebrating the 10th anniversary of the popular Smart fortwo micro car,
TopGear magazines TopGear Italia staged the event to see how many cars
it could fit in the belly of a Boeing 747 freighter. Mercedes Benz Italia SpA
supplied the cars to TNTs Liege hub for the record-setting attempt.
One of the critical aspects was to find a suitable time window to try
the record, fitting with the arrivals and departures of all the other aircraft
scheduled 24 hours, 365 days a year, said Christine Heine, head of ground
operations at TNT Lige Hub, who coordinated the operation. The take-off
time for each TNT aircraft is really imperative, considering its heavy impacton the synchronized network that delivers hundreds of thousands of express
parcels anytime, anywhere, she said.
The seven staff had only three hours to load the smart in the Boeing 747,
unload them and load the plane with the goods leaving for Shanghai. An
incredible result, which celebrates at one hand the professionalism of TNT
people who respected their mission sure we can and at the other Smart
fortwo, a special car that in 10 years of life has already obtained many
records, TNT added.
China to InvestBillions in
InfrastructureImprovements
In response to the global economic
slowdown beginning to challenge
the country, Chinas State Council
its Cabinetwill spend (US) $570
Billion over the next two years to
finance programs in 10 major
areas, most of which deal with
infrastructure.
In addition to allocating money for
reconstruction of areas hit by a majorearthquake on May 12, the stimulus
program includes such projects as
building a gas pipeline to serve the
economic engines of Guangzhou
and Hong Kong, building and
expanding nuclear power plants and
water conservancy undertakings in
other areas. Spending of $18 Billion
for fourth quarter 2008 projects is
already underway.
Some claim the infrastructure
investment program is not quite as
large as might be thought because of
the amount of money being claimed
more than half of it comes from
previously allocated funding. Be that
as it may, there is infusion of fresh
capital into these projects.
There has been a reduction
in export orders for China
accompanied by a decline in
domestic consumption. Where last
years gross domestic product (GDP)grew by 11.4%, current projections
are that 2008 will finish with just
9.4% growth in GDP. Following
on the heels of consistent double-
digit annual growth, the Chinese
government is attempting to get
ahead of the wave of the worlds
economic malaise. Projections for
economic growth for 2009 range
from an annual 8.6% to the Asian
Development Banks forecast of 9.5%growth for 2009.
8/4/2019 Outsourced Logistics 200812
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In hard economic times, it is remarkable how
management at companies of every size, type and
description declare their businesses are getting
back to basics. Not only do they assert their people
are concentrating on the nuts and bolts of running abusiness, they are demanding vendors follow their
example. As the smooth, efficient transportation of
their product lines is a key ingredient in the success
or failure of their selling efforts, with resultant profit
or loss on their balance sheets, logistics providers are
caught right in their crosshairs.
What are the basics of transportation today, whether
by air, ocean, truck or rail? What do customers want
from their vendors?
The principal items on customers wish lists include
competitive pricing; delivery of goods on time and
when promised; rapid, accurate transmission of
information from vendor to customer and hassle-free
transshipment of merchandise from pick-up on the
loading dock to delivery at final destination.
The mark of a successful forwarder remains the
same in good times and bad: it is to offer the shipper
a compelling blend of personal service combined with
high technology. As economic conditions change,
however, priorities must be modified to reflect these
changes.
Of course, it is the successful freight forwarder
who responds to the current needs of the shipper.To offer the customer the kinds of services required.
In todays economic climate, however, technological
hijinx become less important than the primary purpose
of moving goods in a swift, expeditious manner.
In a softer economic climate, no one is safe. The very
large international forwarders, who disdained small
shippers business in the past, now compete vigorously
for it. National trucking firms who traditionally have
emphasized full load shipments now fight for less
than truckload (LTL) business against smaller, regional
carriers. The package express companies, who oncescorned any shipments less profitable than overnight
Outsourced Logistics |December 2008 | 11
deliveries of high value packages and documents by air, now eagerly
accept low value, slower ground freight of any weight and type.
In a harsher economic climate, we forwarders require a change in
mindset. We need more shoe leather and less preoccupation with the
Internet. More sales calls and less time looking at computer screens.
Our business is people, not computers. Never has there been a better
time than today to emphasize that truism to our customers.In these currently tough times, despite our best efforts, some attrition
in business among existing customers will occur. Success or failure in
capturing new business may well mean the difference between a viable
company and a barely breathing one. Even in good times, our industry
has not been particularly successful in attracting customers who either
dont use air at all or use it sparingly. We have been too preoccupied
with soliciting business from each other rather than attracting new
shippers to air. We seem content to generate only a 2% share of all
domestic freight and 4% of international cargo. These percentages have
not changed in thirty years.
As an industry, we must do nothing less than create a sales and
marketing environment that will cause shippers to think of air not
primarily as a premium method of moving goods but as a powerful
sales and marketing tool. In these troubled times, we require a
persuasive and compelling rationalization for the use of air. The last
genuine effort to provide an economic underpinning for the utilization
of air was the Total Cost Concept. That was almost forty years ago. We
require persuasive reasons for the 21st Century, not the 20th.
In a fiercely competitive environment, the first instinct is to cut rates.
Suppress that instinct. Bargain basement rates, often below the cost of
doing business, are at best a temporary fix and at worst the start of a
slide down a slippery slope to bankruptcy.
Rather than cutting rates to the bone, become a partner to yourcustomers profit-making process. Dont be just another anonymous
vendor. Show your concern for his bottom line and how you can help
in making it stronger. That may call for knowing his business as well
as your own. Never take his business for granted. When he calls or
e-mails with a particular problem, answer the request promptly.
Forwarders must respond to the economic realities of today. Those
companies who do so will remain successful. Those who do not,
whether in business ten months or ten decades, will not survive.
Coppersmith is president of the US division of Mainfreight, formerly
Target Logistic Services, and a 36-year veteran of the logistics and freightforwarding industry.
Global Markets
Community Voice
Its back to the basicsof fulfilling customer demand
By Chris Coppersmith
8/4/2019 Outsourced Logistics 200812
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Hurry, savings end January 5.*Available on upfits costing $1,200 or more. Take delivery from dealer stock by 1/5/09. See dealer for complete details. **For more information about the U.S. Economic Stimulus Act, Section 179 expense write-offor the Modified Accelerated Cost Recovery System (MACRS), contact your tax professional or visit the Internal Revenue Service Web site a t www.irs.gov. Please note this information is provided by Ford Motor Companyas a public service to its customers. It should not be construed as tax advice or as a promise of potential tax savings or reduced tax liability.
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14 | December 2008 | Outsourced Logistics
cal optimization technology. HCAP is used to examine
routing and scheduling options with the aim of minimiz-
ing USPS costs while meeting business goals.
Among other challenges for the USPS network is
consideration of many levels of service for customers
including a variety of classes, types, sizes and weights. Added to these issues is the need to best allocate mail
among available transportation resources.
The USPS operates in a very unique business envi-
ronment, says E.J. Matto, Associate Partner, IBM. The
overall size of operations and the inherent logistical com-
plexities create significant challenges in managing the
transportation network. Using optimization technology
for the transportation model helps the USPS uncover op-
portunities to streamline areas of long-haul transporta-
tion through consolidation.
HCAP has provided USPS with optimized plans forthe use of its existing assets including routes, delivery
By Roger Morton
T
he deteriorating economy played havoc
with the US Postal Service (USPS) as it
has with a galaxy of other businesses. As it
ended its Fiscal 2008, it found itself losing
$2.8 billion. For the year, USPS saw its volumes at
202.7 billion pieces, which is a decline of 4.5% year
over year with 9.5 billion fewer pieces handled.
Income for the year was $75 billion. Expenses
totaled $77.8 billion, of which $5.6 billion was a
payment required by the Postal Act of 2006 to pre-
fund retiree health benefits. The Postal Service had undertaken
some $2 billion in cost-cutting actions that included using 50
million fewer work hours than in Fiscal 2007.
As we continue to reduce work hours and other costs, our
top priority remains providing excellent service to our custom-
ers. The combination of excellent service and affordable pricesmakes Postal products a great value, says Postmaster General
John Potter.
Among other guiding principals of the Postal Act of 2006 is,
the adoption of corporate best practices, such as rational invest-
ments in the infrastructure, and the realignment of resources to
match the changing needs of customers and mailers, in order to
respond to the systems incentives. This has led the Post Office
to reach outside its walls to find and incorporate leading edge
technology and services to enhance its offerings.
A case in point has been the use of its Highway Corridor
Analytic Program (HCAP) developed by the USPS in conjunc-tion with IBM Corp., with the use of ILOGs CPLEX mathemati-
Operations
By using third parties andenhancing internal operations
the US Post Office is upgrading
service offerings.
The PostOffice Looksfor BetterReturns
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Outsourced Logistics |December 2008 | 15
Though he wont quote specific dol-
lar figures, Scheer says that the USPS
has received benefits in the millions of
dollars within the course of a single fis-
cal year. Savings have come in rate re-
ductions or avoidance of paying some
freight charges. Some of it has also come
in the ability of Ryder to leverage vol-
umes and negotiate better rates withindividual carriers. But he feels greatest
value has been through load consolida-
tion and tradeoffs within the USPS supply chain between
packaging, inventory management, and warehousing with
transportation.
In addition to using third party providers the USPS
has made changes in services it is offering to its custom-
ers. For example, Express Mail packages may be held at
the local Post Office for pickup at times convenient to the
customer. Customers can choose Express Mail Hold for
Pickup through Click-N-Ship at www.usps.com. Hold for
Pickuppreviously available for Express Mail purchased
at Post Offices or Automated Postal Centers (APC)is now
available for online shippers.
Hold For Pickup provides additional security for ship-
pers who may not want expensive products or heavy-
weight goods left at home addresses, says USPS expedited
shipping vice president, Gary Reblin. One example of use
of the service, he notes, is for businesses sending critical
repair parts for field technicians to pick up.
An additional service now being offered is free Carrier
Pickup for any Parcel Return Service (PRS) package.
Its an outstanding offering that makes an awful lot ofsense, claims Michael Twomey, chief financial officer of
Newgistics. The company is a USPS approved third party
reverse logistics provider for PRS. Now a customer can
arrange for a pickup, provide special instructions such as
the package will be by the side porch door, and those are
printed every morning and handed to the carriers before
they go out on their routes. The use of web service is very
efficient.
As far as costs to the consumer, Newgistics offers its
SmartLabel, a pre-paid, pre-addressed return label on the
order summary to be used to return products to retailers.Because Newgistics has PRS rates it is able to provide com-
time, truck capacity restrictions and class of mail.
The result has been savings of more than $10 mil-
lion in the two years since HCAP was deployed.
In moving to improve freight traffic manage-
ment, the decision was to select a third party sup-
plier (3PL) to manage that portion of its activities,
according to Franck Scheer, purchasing manager
for the USPS. We actually spent about a year and
a half working developing a statement of objec-tives to use as criteria for selecting a business part-
ner, he says. The Department of Defense (DoD)
had experienced a failed attempt with outsourcing to a 3PL. They
learned a lot out of that and went out with another solicitation I
think is proving to be a little bit more successful, he continues.
The USPS sat down with DoD staffers who had worked on the ini-
tiative, learned from them, benefiting from their experiences.
Scheer recalls that, We were looking for a company to come
in and bring best business practices, best information systems
technology to us as solutions. The choice was Ryder Systems for
handling cradle to grave transportation processing for USPS freight
shipments. Within its service offering the 3PL handles back end
operations including invoice validation and preparation for pay-
ment processing in addition to processing loss and damage claims.
Craig Clark, Ryder distribution traffic manager, explains, the
Postal Service had many entities needing to request transportation
that were completely disconnected from each other. They were op-
erating in a vacuum. We provide a web-enabled platform allowing
entry of orders for transportation. We then are able to consolidate
orders and optimally execute them.
Ryder reports on-time pickup and delivery, consolidation op-
portunities and freight volume procurement it leverages along with
a fuel surcharge program that has brought significant savings to theUSPS. But Clark feels Ryders true value is in its ability to capture
and analyze data to demonstrate how the Postal Service business is
operating and point out opportunities for greater economies.
The whole idea about tightening your supply chain is not that
you try to optimize each of the components, such as transporta-
tion, warehousing or packaging, claims Scheer, but that you try
to come up with integrated solutions and ones that look at a much
broader picture and try to get better performance at a lower price
overall rather than each of the individual components. So thats
what I think Ryders forte is. Certainly thats worked to the ben-
efit of the Postal Service by taking that more mature look and alsoworking on a lot of continuous improvement projects.
Mike Twomey of Newgistics
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16 | December 2008 | Outsourced Logistics
Operations
Ne
wsBriefs
December08
The Boeing Strike is OverWhatComes Next?
After a 52-day strike, the International Association
of Machinists and Aerospace Workers (IAM) andBoeing reached agreement on a new contract that
will run for four years instead of an expected three
years.
The IAM cited job security and the use of
outsourced suppliers as the major issues that drove
the labor action. The union noted that as negotiations
moved forward also resolved were matters of wage
rates, health care benefits for current and future
employees, pension improvements and work rule
changes designed to improve productivity.
Final agreement was reached over a five-day period that involved participation by Boeing
representatives, IAM International President Tom
Buffenbarger and the Unions general vice president,
Rich Michalski as well as federal mediators. The Union
represents 27,000 employees at Boeing facilities in
Kansas, Oregon, Washington and California.
Estimates of losses to Boeing during the course
of the strike run as high as $100 million a day. In
reflecting on the settlement, Scott Carson, president
and CEO of Boeing Commercial Airplanes said, Thisis an outstanding offer that rewards employees for
their contributions to our success while preserving
our ability to compete. I thank both negotiating
teams and the federal mediator for their hard work
and commitment in reaching this agreement. We
recognize the hardship a strike creates for everyone
our customers, suppliers, employees, community and
our companyand we look forward to having our
entire team back.
The settlement may pay extra benefits for Boeing
that is negotiating a new contract with its 21,000employees who are members of the Society of
Professional Engineering Employees in Aerospace
(SPEEA). As with IAM, a major issue is outsourcing to
third parties. The IAM contract may provide a positive
framework for SPEEA negotiations since they have
many of the issues resolved in common.
Boeing now hopes to move ahead with the delayed
and delayed again production of its 787 Dreamliner
passenger plane which is now at least 15 months
from beginning delivery for the reported 900 orders
for it on the books from airlines around the world.
petitive pricing to its customers who, in turn, pass them on
to their consumers.
One of our advantages as a business and a provider,
says Twomey, is that we have very advanced technologyboth on the return and delivery side. For carrier pick up,
because weve got web services and are integrated with
our customers, we are able to easily provide a link. Our
application programming interface capability provides the
link back to the USPS site for the pickup. We are making it
very easy for our retailers to provide that capability to their
customers.
Looking at the delivery side, Twomey says the Postal
Service is moving forward very quickly with technology
improvements, one of which is the electronic verification
system (EVS) that significantly speeds manifesting. It re-
duces costs for the USPS and shipper because there is much
less manual auditing of packages. It is accomplished statis-
tically, which significantly reduces the number of packages
to be audited.
We are 100% EVS compliant, claims Twomey, and are
actually working on a schedule with the Postal Service to
use EVS on the return side. So well have electronic mani-
festing on both ends. Our error rates on the front end are
zero, which is great for customers, the Postal Service and
us. We are really looking forward to bringing EVS to the
return side.
Another way the USPS is increasing revenues is througha rate increase that will go into effect on January 18, 2009
for Express Mail, Priority Mail, Parcel Select, Parcel Return
Service and some international shipping products. Overall
the increases are an average of 5%.
The USPS will be offering Commercial Plus pricing it
claims is a great value for high volume Express Mail and
Priority Mail users. On average when compared to retail
pricing, the USPS says Commercial Plus for Express mail is
14.5% less and 7% less for Priority Mail. Commercial Plus
is a very competitive offering for commercial customers,
sys Reblin. It offers lower prices that will reward them forshipping higher volumes with the Postal Service.
Ryder helps move the mail
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warehouse settings; the agile and cost-effective Model 4100 for dock applications.
Both come with our exclusive ACR System, the proven alternative to DC systems,
and another reason why thousands of users are getting more uptime and lower
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18 | December 2008 | Outsourced Logistics
The Top Ten Challenges Facing TruckingThe American Transportation Research Institutes (ATRI) report, Critical Issues in the Trucking
Industry2008, points to fuel costs and the economy as the major headaches. But, there are
eight more. ATRI, part of the American Trucking Associations Federation, is a not-for-profit research
trust headquartered in Arlington, VA. Its mission is to conduct research in the field oftransportation, with an emphasis on the trucking industrys essential role in a safe, efficient,and viable transportation system.
In reflecting on ATRIs work, Bill Graves, ATA president and CEO notes that, On everylegislative and regulatory topic, issues come and go so quickly today. If were not at the tablewith sound, science-based information and a common sense plan of action, then were goingto get left behind, and saddled with solutions that have no bearing on moving Americas freightsafely and efficiently.
Here is the Top Ten list with observations on each quoted directly from the report.
1. Fuel Costs. After ranking 1st in 2005, 2nd in 2006 and 3rd in 2007, fuel once againattained the top ranking. Though motor carriers in 2008 aggressively sought to recoupfuel cost increases with fuel surcharges, the industry simply could not keep pace with theunprecedented rise in diesel fuel costs.
2. Economy.As high fuel prices, a deepening credit crisis and rising inflationary pressurestake a greater toll on the US economy, the industry is pressed by increasing regulations,slumping demand, excess capacity and increases in both fixed and marginal key cost centers.
3. Driver Shortage/Retention. Although the persistent sluggishness of the economyrelieves some pressure, respondents clearly remain concerned.
4. Government Regulation. Though primary safety regulation is the mandate of
Federal Motor Carrier Safety Administration, carriers face other significant regulations imposedby federal, state and local authorities.
5. Hours-of-Service. Hours-of-Service (HOS), was the top ranked issue in 2007.It slipped four places in 2008. In 2008 however, concern over potential changes in HOSregulations has been supplanted by issues that are having a more direct impact on carrieroperations and profitability.
6. Congestion.Though the issue has seen a steady increase in rankings since 2005, itsdrop from 4th place in 2007 to 6th may be explained by recent declines in vehicle trips andvehicle miles traveled resulting from fuel price increases for all road users.
7. Tolls/Highway Funding. These issues have gained prominence from several events,including the US Department of Transportation announcement that the Highway Trust Fundwas running out of money and the rejection of a congestion-pricing program in New York City.
8. Environmental Issues. The proliferation of anti-idling regulations and other emissionreduction initiatives sought by more state and local governments has created concern that thecompliance costs may exceed benefits.
9. Tort Reform. It seeks to minimize industry harm caused by inequitable and excessive civiljudgments against trucking firms. The trucking industry, reflective of many other industries,seeks to clarify the distinction between civil tort liability and punitive damage awards.
10. Onboard Truck Technology. The industry understands and supports many of thepotential benefits of these technologies, even though many questions remain. The most prolifictechnology topic is Electronic Onboard Recorders (EOBRs), most often cited as a potentially
effective tool for monitoring HOS compliance.
Ne
wsBriefs
Decembe
r08
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Outsourced Logistics |December 2008 | 19
Achieving a Demand-DrivenSupply Chain
By Ashok Santhanam
Operations
Community Voice
B
usinesses today are challenged by globalization,
price wars and volatile economic conditions as
well as the need to accelerate time to market and
meet service levels required by their customers.Addressing these challenges puts immense
pressure on supply chains to deliver products and services
at the right time, in the right quantity, with the right quality,
at the right place and the right cost. Managing these five Rs
effectively is the primary task of enterprise supply chains. To
maintain profitability, or even to survive, businesses and their
supplier partners must be able to predict demand and be
prepared to react quickly to change. Failure to do so results in
costly inventory write-offs, stock outs, and loss of market share.
The Evolution of the Supply Chain
Historically, many companies built vertical supply chains
within their organizations and/or created them through merg-
ers and acquisitions. Take for example Ford Motor Company.
Ford aggressively acquired companies, suppliers and distribu-
tors to build a highly integrated supply chain that tightly con-
trolled business processes. The downside of this effortas it
is in many organizationswas the loss of competitive pricing
and the ability to leverage skill sets available in the market.
Over the years, companies have implemented methodolo-
gies such as Kaizen, TQM and Six Sigma, where the emphasis
is on local optimization, improving product quality and mini-
mizing waste. This approach is effective in streamlining inter-nal processes but does not extend beyond the four walls of
the business.
Now, and going forward, businesses must create agile supply
chains that optimize business processes and relationships with
upstream suppliers and downstream distribution, logistics and
retail partners. Building a flexible, efficient and agile supply
chain depends on proactively managing three key elements:
variability, visibility and velocity.
Variability
Demand and supply variability is a common supply chainproblem. A small variation in demand at the point where the
demand is created (e.g., retailers and customers) can cause
significant variability in orders placed upstream. The reason is
that any uncertainty in demand causes every supply chain part-
ner to factor in a margin of safetyleading to a situation com-
monly known as the Bullwhip Effectwhich creates excess
inventory within the entire supply chain. Here are the causes of
the Bullwhip effect: Multiple node forecastsRetailers, suppliers and every
organization that stands between them creates independent,
uncoordinated forecasts.
Long lead timesRetailers and distributors, fearing stock-
outs from unplanned higher demand, add a small safety buffer
in their orders.
Shortage gamingFear of product or component shortage
or allocations forces supply chain partners to inflate their fore-
casts to their suppliers.
Price fluctuationsSpeculation over future pricing and
their ability to survive a price war cause retailers and distribu-
tors to artificially adjust orders.
Order inflationRetailers and distributors increase order
size, motivated by volatile market conditions and economic
news.
Promotions and competitionSupply chain participants
may significantly change their orders to take advantage of trade
promotions or a competitors promotion, causing perceived
changes in demand downstream.
Poor communication and visibilityLoose coupling of
dependent and independent demand as well as a dearth of real-
time, actionable information contributes to inaccurate forecast-
ing and poor purchasing patterns.The Bullwhip effect impacts businesses in two signifi-
cant ways. First, supply chain operation is less than optimal.
Frequent ad hoc order and schedule changes add to the at-
mosphere of anxiety. One location may have excess inventory,
while at another, customer demand is unsatisfied. Inventory
carrying costs mount, and supply chain resources are not well
utilizedultimately leading to a loss of trust among supply
chain partners. Second, disconnects between supply and de-
mand affects delivery performance, negatively impacting sales,
customer loyalty, revenue and market position.
Addressing variability, cracking the code of demandsup-ply imbalance, requires focused activity around implementing
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20 | December 2008 | Outsourced Logistics
and proactively react to them.
Suddenly everyone within the
supply chain is on the same
page.
VelocityBoth IT and business strat-
egy play a pivotal role in en-
suring smooth and quick flow of infor-
mation within the supply chain, leading
to increased velocity. It can be a chal-
lenge to smoothly integrate an enterprises
legacy systems with new supply chain
solutions, while preserving historical data
and continuing to capture real-time sup-
ply and demand information. New plan-
ning systems on the market have enabledcompanies to easily integrate planning
and execution domains, prevent delay in
deploying new planning models and pro-
cesses due to their flexibility and ability to
reconfigure and easily propagate relevant
information to customers and suppliers.
As a result, organizations are better pre-
pared to meet this challenge while main-
taining or improving speed to market.
Conclusion Achieving a demand-driven supplychain organization requires managing
variability, visibility and velocity. Each
of these tasks is considerable, and for-
tunately, successful efforts in one area
should feed into the others.
Companies that set themselves on the
path to an optimally functioning supply
chain will need to undertake initiatives
that range from changing the mind sets of
their supply chain partner, streamlining
their various supply chain processes toimplementing technology that makes the
information flow between supply chain
partners smooth, fast and accurate. The
winners will be those who team with IT to
get the job done.
Ashok Santhanam is CEO of Bristlecone
(www.bcone.com), a supply chain consulting
firm. Bristlecone brings expertise across the
entire spectrum of supply chain including
demand planning, supply planning, networkcollaboration, sourcing and analytics.
pull strategy for all products and services.
In the case of commodity products, the
focus should be on reducing supply chain
inventory costs as much as possible. With
innovative or much-demanded products,
the right approach is to pick a model that
accelerated availability.
Encouraging supplier collaboration
Creating long-term contracts with trustedsuppliers strengthens the business rela-
tionship and makes the flow of products
and services smoother, leading to lower
supply variability.
Visibility Visibility across a supply chain into
data such as demand, inventory levels
and order/shipment status increases the
agility and responsiveness to any changes
in demand and supply. Identifying appro-
priate performance metrics and visibility
into the metrics at various levels of detail
using supply chain analytics ensures that
the supply chain is functioning properly
and enables continuous improvement.
Supply Chain Event Management solu-
tions play a big role in improving supply
chain visibility by enabling an organiza-
tion to easily map, control, and check all
key events for a business process that they
want to monitor and share within the
supply chain. Such a system continuouslymonitors the process for any events that
need to be triggered based on the business
rules and event triggers defined within
the process. Once an event is triggered,
the system identifies the various subscrib-
ers to that event, including supply chain
partners and notifies them using various
mechanisms such as email, phone call or a
system alert. The triggered events serve as
a collaboration mechanism between vari-
ous stakeholders, as well as allow them toidentify any exceptions in a timely manner
the right processes, gathering
the right information and facil-
itating partner collaboration:
Implementing S&OP
Careful planning is vital to a
demand-driven supply chain.
S&OP requires capturing de-
mand across various channels,
analyzing it and creating feasible supply
plans. S&OP requires top-down manage-
ment support within an organization as
well as buy-in across the entire supply
chain. Without them, organizations will
not be able to meet their financial com-
mitments or end the perpetual tug of war
between demand and supply.
Capturing real-time dataTo mini-mize demand variability, businesses are
moving toward collaborative planning.
That is, they are involving retailers and
distributors in the demand planning pro-
cess and capturing point of sales (POS)
dataoften through the use of radio fre-
quency identification (RFID) solutions.
As a result, the entire supply chain has the
accurate demand information on hand
that is necessary to meet financial and
order level commitments.
Statistics-based forecastingThe
ability to analyze historical data for the
presence of trends, seasonal fluctuations
and causal relationships enables organiza-
tions to create more accurate forecasts.
Inventory policiesCompanies can
control supply variability by adjusting
inventory stock norms and implementing
push/pull strategies. Calculating inventory
norms across the supply chain is critical,
as is inventory positioning. Distributed vs.
centralized inventory is a perennial issue,and strategy tends to be influenced by
the nature of products or services and the
supply chain network design. One way to
address this is by pushing larger amount
of inventory to the central distribution
point where it can be pulled based on ac-
tual POS demand. This strategy facilitates
overall lower inventory within the supply
chain, reduces lost sales and increases
inventory turns.
Balancing push and pullThere isno such thing as a one size fits all push/
Achieving a demand-driven
supply chain organization
requires managing variabil-
ity, visibility and velocity.
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By Perry A. Trunick Warnings abound
concerning the near-term
outlook for the global
economy.
Look Out For
September and October the index fell well below 50, into the area
indicating contraction. The good news is that we are probably in
the midst of the worst of it right now, observed Kaglic. We think
that were going to see the biggest contraction in total output in the
fourth quarter. Its going to be ugly again in the first quarter. Its not
going to be as ugly, but its going to be ugly. We see a little bit of sta-
bilization in the second quarter, and we see a slow climb out in the
second half of the year.
Exports had shown some promise in moderating the impact of
the US slowdown, but that could be cut short by the fact the eco-
nomic slowdown is global. Construction equipment, for example,
had benefited from global expansion and a weak US dollar. But the
economic slowdown has reached those nations where construction
was on the rise, curtailing some of that growth. And the instability
in financial markets had fueled a flight to quality investments whichhas boosted the value of the US dollar, leading to a two-pronged
hit on the promising construction equipment export market, ac-
cording to Kaglic.
Inventories typically account for a small proportion of gross
domestic product, he continues. But changes in inventories can
wreak havoc on GDP estimates. Looking back at the recession
of 2001, Kaglic notes, a lot of people said it was because the tech
bubble burst. But, people forget there was a big inventory liquida-
tion as well. And that inventory liquidation at times subtracted 3%
off the top line gross domestic product. So it was in large part an in-
ventory led contraction in 2001 in addition to those other factors.The inventory to sales ratio has been rising lately. But the anec-
When Richard Kaglic stood before the Cleveland
Roundtable of the Council of Supply Chain Management
Professionals (CSCMP) to offer his views, the senior economist
for Eaton Corp. started with the only good news he had. A snow
storm was rolling in. From there, it was downhill.
Quips about the weather aside, Kaglic and other watchers and
forecasters are unanimous in the view that, if the third quarter
looked bad, the fourth will be worse. And dont look for any real
relief in the first quarter of 2009. From there, the prognosticators
vary somewhat on how much and how fast well start to see any
improvement.
In the US, talk of another economic stimulus in the new
presidential term rises and falls with the economic tide. As Kaglic
points out, the first half of 2008 gave the appearance the US might
avoid much of the downturn. The Federal Reserve had lowered
interest rates and Congress passed a stimulus package. But, the
stimulus failed to achieve its goal in large part because the posi-
tive effects of putting more cash in the hands of consumers was
swamped by a surge in oil prices.
The US economy is in a recession, said Kaglic. Its going
to be, by recent historical standards of 1991 and 2001, a fairly
prolonged recession and its going to be a fairly deep recession.
Unfortunately, he continues, other global economies are fol-lowing the US down that road. Even as he was speaking, media
reports were carrying admissions by Japan and some Western
European officials that their countries were now officially in a re-
cession. Even emerging economies which had exhibited booming
growthnotably Chinaare seeing that growth slow or stall.
Volatility in the markets is important, continues Kaglic. That
volatility can lead to uncertainty, and uncertainty in and of itself
can be a paralyzing factor. It can paralyze financial markets, it can
paralyze credit markets, it can paralyze the economy.
Looking at the global purchasing managers index, Kaglic notes
in the first half of the year, the index was bouncing around atthe 50 level, indicating neither growth nor contraction. But in
22 | December 2008 | Outsourced Logistics
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2009appeared to be starting to operate again [as of mid November
2008].Urs Durs, vice president of Lazard Capital Markets, added on a
global scale that the difficulty in finding or acquiring letters of credit
(or the high cost) contributed to the economic malaise resulting
from the lack of credit. Many companies have good balance sheets
and business plans, he noted, the economy is the issue.
The logistics industry is in the third year of a freight recession,
added Larkin, pointing to the third quarter of 2006 when both auto
sales and housing dropped. The situation worsened in the weeks
before the panel discussion as rail car loadings fell and the dollar
gained strength, slowing exports. The Morgan Stanley Truckload
Index continued to indicate low volumes, said Larkin.
The recovery wont look like previous recoveries, said Albrecht.
The prolonged downturn will continue to flush out capacity, he
says. Lengths of haul are getting shorter. One-way truckload is go-
ing away. And the types of loads are changing.
Larkin agrees that smaller and fewer shipments are resulting
from packaging changes that increase the number of items in a
shipment (conversely reducing the number of shipments). Supply
chain owners are looking for ways to take product and weight out
of their shipments and they are reexamining their network design.
You cant build your supply chain around $1 per mile transporta-
tion, he observes.
The three panelists said forecasts on oil prices are impossible. Atbest, the price per barrel of crude should stabilize around $60 or
within the $50 to $100 range in 2009. They appeared to agree that
the $45 level at the time they were speaking was the bottom of the
market and was unsustainable. The price is likely to approach $100
in 2009 and again in 2010 and beyond. A contributing factor in the
difficulty forecasting is the role of speculators. They were not a fac-
tor in the past when forecasts could be based strictly on supply and
demand, noted Larkin. High oil prices with low freight volumes
could accelerate capacity exiting the field, he continued. Smaller
companies got a respite from the drop in prices, but as they edge
back up, fuel cost will be a factor for those carriers. There is a natu-ral process of eliminating excess, says Larkin.
dotal information were getting is, its manageable. Its not so much
an inventory problem as it is a sales problem. Sales are declining,thus the inventory to sales ratio looks bad. But when you dig into
the numbers, this is durable goods inventories and durable goods
sales. What you see [with transportation equipment removed] is
a disconcerting trend, says Kaglic. Manufactured durable goods
sales have been flat or only slightly ahead for the last year and a
half. Durable inventories are rising. This does not bode well for
production as we move through the fourth quarter and the first
quarter of next year. Firms with bloated inventories wont have to
boost production to meet demand, they will simply take it out of
those inventories. That, says Kaglic, will weigh on GDP growth in
the fourth quarter and in the first quarter of 2009.
Aerospace has been another bright spot in an otherwise gloomy
outlook, but the situation there is also changing. The first nine
months of 2008 saw freight volumes decline as well as passenger
traffic. Boeing, which had remained optimistic because it had
backlogs to 2012 (and it pointed out, only 10% of those were
in North America) is feeling the global effect and may only have
backlogs through 2009.
Follow industrial production, agrees Thomas Albrecht, man-
aging director, Stephens Inc. Speaking before the combined
National Industrial Transportation League (NITL), Transportation
Intermediaries Association (TIA) and Intermodal Association of
North America (IANA), he pointed out that industrial productionis down 3.5% and could be off by as much as 10%, which will
drive freight volumes. Joining him on a panel at the combined
session, John Larkin, managing director, Stifel Nicolaus, described
the US economy as unsettled and pointed to a 26-year low in the
Institute for Supply Managements (ISM) purchasing index, saying
it was clearly apparent in the decelerating freight volumes. Those
numbers were weaker from July to August and then again from
August to September 2008, he said. Companies are in a cash pres-
ervation mode, drawing down inventories rather than investing in
new production or purchasing. October took a big drop, he said,
and November would not look better when numbers are released.But, on a slight note of optimism, he pointed out credit markets
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24 | December 2008 | Outsourced Logistics
Still, railroads will invest in corridors
where they can develop shorter to medi-
um-haul intermodal lanes, but a railroads
definition of a short haul lane does not
necessarily match that of a truckload car-
rier. Trucks can reach 500 to 600 miles
where a short haul for a railroad is 900 to
1,200 miles.
In addition, the proximity of the ship-
per or consignee to an intermodal ramp
drives the economics, says Larkin, and ifthe move to or from a ramp is too complex
or too far, the economics break down.
Perhaps the toughest segment is less-
than-truckload (LTL) where carriers have
high fixed costs and shippers have a
strong incentive to reduce costs by shift-
ing away from the mode. The fo-
cus on shorter, more regional dis-
tribution puts national networks
under pressure as well.
DHLs exit from the domestic
US express market will push its
volumes to other carriers, but
likely very little will find its way to
LTL carriers.
So, from a rate and cost per-
spective, bulk commodities ship-
pers and parcel shippers could
have the least leverage given the
fact they have fewer options.
Anecdotal evidence from ship-
pers, carriers and third party lo-
gistics providers also indicates anattitude that hammering carri-
ers on price is a short term tactic
with longer term negative conse-
quences everyone wants to avoid.
With markets across the globe
contracting and a strong focus
on domestic networks, the mood
seems to be that everyone is being
soaked by the same storm, and
perhaps some cooperation is in
order to ensure the greatest num-ber survive.
But there are less-than-natural driv-
ers as well. Lazards Durs pointed to the
death of trade credit causing steel mak-
ing to grind to a halt. Its not a function
of demand. If credit can return, well get
back to business, albeit in a recession,
said Durs.
Other cost factors that are not market
driven include a complex series of de-
velopments at the ports of Los Angeles
and Long Beach. Importers like the portsbecause they are located in a large con-
suming market, says Larkin, but there is a
limit to the amount of accessorials and fees
the freight can tolerate, and it will shift to
other gateways. He notes Vancouver and
Prince Rupert in Canada, Lzaro Crdenas
in Mexico and the expanding
Panama Canal open alternatives
to LA/Long Beach.
Another factor is mode
shifting, but it has its limits.
Container ships can slow to save
fuel, but bulk ships such as tank-
ers cannot, points out Durs. In
addition, containers are easy
to build, and more containers
mean lower rates.
Similarly, bulk commodities
are largely captive to rail in do-
mestic transport, says Albrecht.
Railroads can be more aggressive
on rates and service for freight
that cant convert to truckload.And more intermodal freight
could start to go back to the
highways in 2009, he adds.
There are limits to how much
freight can move via domestic
intermodal continues Larkin.
This is due in part to the fact
railroads have created long-haul,
high-density lanes with efficient
ramps on either end. Some cities
wont be as competitive on inter-modal, he adds.
Global Purchasing Manager IndexNew Orders (>50 = Growth)
Region Aug 08 Sept 08 Oct 08
Eurozone 44.6 41.7 36.2
Germany 46.8 44.9 39.2
France 41.3 37.5 34.9
Italy 43.6 40.4 32.0
Spain 40.3 35.4 29.5
Netherlands 47.8 46.3 41.8
United Kingdom 41.6 36.3 37.8
Russia 49.7 51.9 n/a
Poland 44.3 43.0 40.3
Czech Republic 45.0 42.8 36.1
Japan 44.1 39.6 34.5
China 49.4 45.8 43.8
India 65.8 62.6 54.4
Australia 43.2 44.3 38.9
Brazil 50.5 49.6 42.0
South Africa 43.9 46.5 42.8
Source: JP Morgan/Reuters
Eurozone = Austria, Belgium, Cyprus, Finland, France, Germany, Greece,
Ireland, Italy, Luxembourg, Malta, Netherlands, Portugal, Slovenia and Spain.
Cover Feature
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As dynamics of global supply
chains move to meet ever
evolving economic currents,
carriers reconfigure the places
and ways in which they respond
to their own and shipper needs.
and 34 cities worldwide with 139 air lanes.
Originally scheduled for opening by the end of this month,
the start of operations at its new Asia-Pacific Hub at Chinas
Guangzhou Baiyun International Airport has been moved to the
first half of next year. The new hub will replace the carriers pres-
ent hub in Subic Bay. The slight delay is to provide FedEx with
the necessary time to fully test all systems and processes at the
facility, as well as to work closely with the Guangzhou authorities
to ensure all necessary approvals are in place.
Air carriers are adapting their schedules and routes to take ad-
vantage of now emerging freight opportunities even as they pull
back from some destinations that dont offer as much business.
For example Delta Air Lines will begin new international routes
beginning next summer that add cargo capacity for the carrier.
Among the destinations are a number in Africa, greater Europe,
the Middle East and Asia. American Airlines has expanded itseastern coverage with the addition of daily Boeing 767-300
service from New York to Barcelona and another to Milan. The
airline also has a new cargo service to Moscow from Chicagos
OHare International Airport
Withdrawing from the domestic US air freight market and
maintaining its status as a major international carrier, DHL is
partnering with Polar Air Cargo on flights from the US to Asian
destinations to upgrade its Time Definite product. DHL Express
has a Block Space Agreement with Polar that guarantees access
to six Polar Air Cargo Boeing 747-400Fs that serve key destina-
tions in both Asia and the US. As part of the partnership, DHLwill use Polar Airs scheduled weekday flights from Los Angeles,
By Roger Morton
There is a definite eastward current for global com-
merce. With the emergence of China and its Asian
neighbors as major players in manufacturing, there has
begun a corresponding shift to the east of focus and as-
sets by the worlds primary carriers of commerce.
For example, in late October FedEx Express broke ground
on a new Hub at Cologne to serve as its largest German gateway.
Although the carrier has a major facility at Frankfurt, the new
hub, scheduled for completion in 2010, is aimed at providing
additional express delivery services for Central and Eastern
Europe. When DHL opened its super-hub at Leipzig/Halle in
late May, one of the major drivers in its location was improved
access to Eastern Europe and Asia.
Within the Middle East, DHL Danzas AEI Emirates opened
the largest multi-purpose logistics facility in the Middle East at
Dubais Jebel Ali Free Zone in early November. Reason for the lo-
cation is its access to Europe, Africa and Asia, as well as the fast
developing Indian subcontinent.
With the relative vigor of trade between the US and Asia and
the continuing growth of intra-Asian air freight movements, ma-jor US express delivery providers are growing their Eastern pres-
ence. For example, for UPS, much of its Asian package export
volume comes from southeast China and Hong Kong. More than
half of its intra-Asian business is with China, Hong Kong, Japan,
Korea and Taiwan. As a result, the carrier has begun construc-
tion of a new air hub at Chinas Shenzhen International Airport.
Expected to open in 2010, the new facility will replace the
UPS hub at the former Clark Air Base in the Philippines. It will
be the carriers primary transit hub in Asia. Reflecting on the
strength of the airport as a force in the worlds evolving trade
map, Dr. Huang Qi, president of Shenzhen Airport notes that it,offers a well established air network that connects 18 countries
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The Changing Map of th
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Air Cargo Traffic
to GrowLong TermDespite current economic conditions, in its updated
industry forecast, Boeing Co. sees the worlds air cargo
growth expanding at a 5.8% rate annually to 2027, with the
Asian market to lead all global traffic routes. The biennial
World Air Cargo Forecast is regarded as being greatly
authoritative.
World GDP is projected to average just higher than 3%
during the next 20 years. Asian production fundamentals
including abundant raw materials and low-cost labor
remain solid, and China will remain a source of strongeconomic growth with substantial industrialization and
related investment, says Randy Tinseth, vice president,
Marketing, Boeing Commercial Airplanes.
Boeing expects that not only will Asian needs to move air
cargo require the most new airplanes, the value of those
deliveries will also be the worlds highest. At the same time,
and for the first time, the value of Europes airplane market
will be equal to that of North America.
Projected growth in Southwest Asia is already having an
influence in investments in airplanes and infrastructure for
what Boeing calls, one-stop-to-anywhere airlines in the
Middle East. Hope is held out for the currently suffering US
domestic air freight market that the manufacturer expects
to return to strong growth in time. Although the European
market has been growing at a rapid pace, Boeing expects
that to moderate a bit over time.
Specifically in Asia, China will continue to be the fastest-
growing aviation center in the world, continues Tinseth,
requiring 41% of the entire Asia-Pacific region airplane
demand. This makes China the largest market outside of the
US for new commercial airplanes.
America. On its own, the shipping line has begun a weekly service
that links the East Coast of South America with Northern Europe
with connections to the Middle East and Africa.
Increased interest in growing Latin American trade comes from
Japans K-Line that will be launching an Asia-East Coast of South
America service in June 2009. As with other carriers, K-Line oper-
Wilmington, and New York via Anchorage to Hong Kong,
Shanghai, Seoul and Tokyo. There is extended weekend sched-
uling with flights to Honolulu, Sydney, Sharjah and Leipzig.
DHL is also boosting its intra-regional air coverage in Asia
by increasing the frequency of its dedicated Air Hong Kong
flights from five to six times per week, a boost of 45 tons of
cargo per week. Air Hong Kong is a 60/40 joint venture between
Cathay Pacific and DHL. Routes covered are from Hong Kong to
Nagoya, Taipei, Seoul and Singapore.
As with other modes, air carriers are increasingly turningattention to Central and South America. A case in point is
Lufthansa Cargo that currently serves Buenos Aires and So
Paulo with its own freight fleet as well as with belly cargo on
passenger flights to So Paulo, Caracas and Buenos Aires. It has
now contracted with World Airways to increase its cargo com-
merce between Frankfurt, Germany and Curitiba, Brazil. For
the twice a week round trips, World will be operating a Boeing
747-400 freighter.
Russia is developing new trade lanes. Volga-Dnepr Group
launched its AirBridgeCargo Airlines (ABC) in 2002. It has de-
veloped into a fully independent all cargo airline with a network
covering China, Europe, Japan and Russia. Most recently it
launched non-stop services to Moscow from Shanghai and Hong
Kong. ABC is the first carrier to connect the two destinations
with Moscow by scheduled freighter service. From Moscow, the
carrier offers onward connections to Amsterdam, Frankfurt and
Luxembourg.
Because of the volume of freight moved by ship, ocean car-
riers have been busy in withdrawing ships from service as de-
mand has lessened and changing the ports on which they call in
response to a weakening economy. Earlier this year, for example,
the worlds largest shipping linesMaersk, Mediterranean
Shipping and CMA CGMjoined in a vessel-sharing agreementthat allowed the carriers to eliminate four of their trans-Pacific
services that competed with each other, replacing them with
three on which they shared space.
Based on continually deteriorating economic conditions and
the success of the early joint venture Maersk and CMA CGM will
share two pendulum services in the Asia-North America trade. To
begin next May, one service using the Suez Canal will link the US
East Coast and Pacific Northwest with Asia. The other will use the
Panama Canal to link the US East Coast with Korea and China.
CMA CGM has formed a partnership, as well, with Hapag-
Lloyd and Hamburg-Sud to beef up its coverage betweenNorthern Europe, the Caribbean and West Coast of South
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e Worlds Trade Routes
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28 | December 2008 | Outsourced Logistics
ated the service in partnership; this with
Pacific International Lines (PIL). Each
company will deploy five Panamax-size
vessels.
A current partnership between PIL
and Mitsui O.S.K. Lines offering service
between Asia and South Americas East
Coast will be dissolved in January 2009,
with Mitsui then operating a new inde-
pendent service in its place.
Maintaining a focus on Asia, APL is
making significant changes in its globalservices network in response to harsh