Outsourced Logistics 200812

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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
http://outsourced-logistics.com/http://outsourced-logistics.com/


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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.
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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
mailto:[email protected]:[email protected]


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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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Have you

heard?

Outsourced-Logistics.com

is more than just a

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magazine. It is the online

logistics daily, providing

news, decision-making tools

and information resources

for logistics professionals.

Daily News Featureson the industry

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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.

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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]

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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

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/


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8/44


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.



10/44


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



least once after June 1, 2007 in quantities

of 100 tonnes or more per year per

manufacturer or importer.

May 31, 2018



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.asp


11/44

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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.


13/44

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


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


14/44

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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


17/44


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
http://www.usps.com/http://www.usps.com/


18/44


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


19/44

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20/44


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


21/44


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


22/44


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.
http://www.bcone.com/http://www.bcone.com/


23/44
mailto:[email protected]


24/44

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


Cover Feature


25/44

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

Outsourced Logistics | December 2008 | 23


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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


27/44
mailto:[email protected]://indiamart.com/http://www.mattech.us/


28/44

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


The Changing Map of th


29/44

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


e Worlds Trade Routes


30/44


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

Outsourced Logistics 200812

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