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W W W . W O R L D T R A D E M A G . C O M 5

WORLD TRADE (ISSN 1054-8637) is published 12 times annually, monthly, by BNP Media II, L.L.C., 2401 W. Big Beaver Rd., Suite 700, Troy, MI 48084-3333. Telephone: (248) 362-3700, Fax: (248) 362-0317. No charge for subscriptions to qualified individuals. Annual rate for subscriptions to nonqualified individuals in the U.S.A.: $46.00 USD. Annual rate for subscriptions to nonqualified individuals in Canada: $70.00 USD (includes GST & postage); all other countries: $86.00 (airmail) payable in U.S. funds. Periodicals Postage Paid at Troy, MI and at additional mailing offices. POSTMASTER: Send address changes to: WORLD TRADE, P.O. Box 2144, Skokie, IL 60076. Printed in the U.S.A. Copyright 2007, by BNP Media II, L.L.C. GST account: 131263923. Change of address: Send old address label along with new address to WORLD TRADE, P.O. Box 2144, Skokie, IL 60076. All rights reserved. The contents of this publication may not be reproduced in whole or in part without the consent of the publisher. The publisher is not responsible for product claims and representations. For single copies or back issues, contact Ann Kalb at (248) 244-6499 or [email protected]. Canada Post: Publications Mail Agreement #40026999. Send returns (Canada) to Bleuchip International, P.O. Box 25542, London, ON, N6C 6B2.

F E A T U R E S

18

V O L U M E 2 0 N U M B E R 4

18 New Ideas in Trade Finance Traders of all sizes cash in on opportunities

once reserved for ‘the big boys.’By Richard Barovick

36 Boeing Reinvents Its Supply Chain A collaboration of global suppliers is optimized to calibrate output.

By Leslie Wayne

42 Explosion of Options in Global Supply Chain Integration Vendors are getting ever closer to offering a single solution for supply chain management.

By Amy Zuckerman

INSIDE WORLD TRADE7 The Flight to Reality

Integration brings risk as well as opportunity.By Neil Shister

POLICY PERSPECTIVES8 Do U.S. Traders Really Need

Presidential Fast Track?Chances are that free trade pacts willpass without TPA.By Naotaka Matsukata

GREAT MOMENTS IN WORLD TRADE74 Retail RFID Gets Real

The promise and the performance.By Jeremy N. Smith

C O LU M N S

A p r i l 2 0 0 7Inside

EXE C UTI V E B R I E F I N G10 Supply Chain Watch12 Tradewinds

EXECUTIVE OVERVIEW48 East Coast Logistics

East Coast ports ramp up.By Lara L. Sowinski

HOW WE DO IT54 The On-going Management of

International SourcingHow NCR Corporation achieves greater economies of scale and lower costs.By Mark Bernstein

TRANSPORTATION & LOGISTICS64 Air Cargo Reinvents Itself

The industry looks to new markets and services to retain market share.By Lara L. Sowinski

SMALL EXPORTER OF THE MONTH68 Candy is Dandy

Candy Bouquet International finds sweet success in franchising.By Curtice K. Cultice

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Running bo ld ly across the cover of our December

issue, headlining our annual supply chains predictions story, were the words “2007: The Year of Living Danger-ously.” Well, if events in the fi rst few months are an indication, we were (alas) spot-on prescient!

The big news as I write this is the global

stock market meltdown of early spring. While it’s too early to predict ultimate out-

comes, beneath the surface jolt one can sense the rumble of colliding tectonic plates.

This turmoil in fi nancial markets dem-onstrates the ever-growing integration of global forces. In the ‘good old days,’ say a decade back, international ‘buffers’ offered a geographical safety valve. In all but the most extraordinary circumstances, when an untoward economic event occurred in a region its impact could generally be con-tained. Today, that is much less the case.

An unlucky convergence of factors kin-dled this spark: Alan Greenspan’s private comments about a possible forthcoming recession, over-frothy emerging market stocks, the political threat to middle east oil. But this was mere kindling, there likely would have been some other in the near-future.

The fundamental new reality—for good and bad—is the consolidation of the eco-nomic universe. Capital, information and markets increasingly move in tandem; so do shock waves. While it’s premature to envision a single global marketplace on the horizon, it is reasonable to suggest that we’re moving toward a condition where there will be a limited number of very big, mutually dependent ones.

Risk management becomes all the more critical (and more complicated) in such a context. You’ve heard the adage about how, when a butterfly beats its wings in the Amazon, the vibrations get amplifi ed a thousand-fold as they spread outward? Well, right now on the economic stage

there are two giant butterfl ys—the U.S. and China—and when they fl ap, risk managers around the world shudder.

While the U.S. is the engine that drives global demand, China is pivotal to a growing number of supply chains. And on both sides of the equation, those charged with managing risk—both fi nancial and supply chain—had best heed distant rumbles of danger.

The big question for the U.S. regards continued commitment to free trade. Can the constituency that effectively overhauled the world trading system in the past decade prevail over those who advocate protection-ism? As Treasury Secretary Henry Paulson recently observed, “free trade is one of the cornerstones” of American prosperity.

But this seems to matter little to those who rage against globalization. And, as even partisans of liberalized trade have come to recognize, excesses in the system require remedies (like hidden governmental sub-sidies to foreign producers that undermine pure market mechanisms).

With China, the question is whether political risk in that country is being ade-quately priced into foreign supply chain channels. Analysts charged with provid-ing advice about China are sounding a wary note. “In our view,” writes Harald Malmgren, one of the ‘wise men’ of inter-national trade, “China will experience a number of economic and environmental accidents in the next two or three years.”

The results of such ‘accidents’ on dis-ruption of supply, disruption in transporta-tion and disruption at facilities would likely wreak havoc on distant shores.

In the same way that the February and March correction was a wake up call to those in fi nancial markets who were taking it for granted that valuations were ‘priced to perfection’ (essentially assuming ideal conditions), so should it be a jolt of adren-alin to those who have equally predicated their supply chains on the permanence of ‘the best of all worlds.’

NEIL SHISTER

I N S I D E W O R L D T R A D E

The Flight to Reality

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W O R L D T R A D E A P R I L 2 0 0 78

P O L I C Y P E R S P E C T I V E S

BY DANIEL GRISWOLD

The last remnants of Congressional credibil-ity on international trade negotiations were lost when the new Democratic majority recently called for the Bush administration

to reopen and renegotiate the labor chapter in the free trade agreements concluded by the United States with Peru and Colombia. By demanding that these agreements be reopened and renegoti-ated after they had been signed by both parties, the United States Congress undermined the fun-damental political principle of presidential trade negotiating authority granted under ‘Fast Track,’ the Trade Promotion Authority Act of 2002.

While the Congress retains the right to reject an agreement, the selection of particular sections or commitments for renegotiation before formal consideration in the House and Senate emascu-lates the original legislative grant of authority of Fast Track. It reduces the credibility of executive branch negotiators with their foreign counterparts, and presents an unwelcome degree of uncertainty to America’s foreign trading partners.

What meaning is there to legislation that pur-ports to allow international trade agreements to be considered without amendment, when in fact the amending takes place sometime between the completion of negotiations and before the agree-ment is considered by Congress for ratifi cation?

When TPA expires this June, the 110th Congress, controlled by the Demo-cratic Party, will most prob-ably reject its renewal. It is likely that the Democratic rank and fi le, as well as the Democratic presidential hopefuls, will coalesce to oppose renewal.

Policy experts, business leaders and foreign trade negotiators warn that with-out TPA the United States

will begin to lag key competitors economically, as many major industrial economies will continue to negotiate trade agreements across the globe. China, the European Union, and Japan are all now aggres-sively pursuing bilateral and regional trade pacts in key economic regions around the world that will exclude the United States and discriminate against U.S. products, investors, and manufacturers.

These warnings would have some merit, if in fact, the United States were to wind down its ini-

tiative to complete as many free trade agreements (FTAs) as possible, but the more likely scenario is for the United States to continue pursuing global trade liberalization without TPA.

The record indicates that the United States has not been deterred in its pursuit of free trade agree-ments without presidential negotiating authority. The FTA with Jordan, viewed at the time as an essential contribution to the Middle East Peace process, was negotiated and ratifi ed without fast track authority. Negotiations with Singapore and Chile were launched at a time when the Republican Congress refused to grant President Clinton nego-tiating authority. Tellingly, both agreements were completed under President Bush’s watch before Trade Promotion Authority was passed in 2002.

Current free trade negotiations with key stra-tegic partners, such as Korea, Malaysia, and the United Arab Emirates are likely to continue and conclude without TPA. In fact, if the WTO Doha Development Agenda ever regains momentum, the United States will reengage and negotiate to conclusion without TPA.

It is also likely that the Korea, Malaysia, and UAE agreements will not need TPA for ratifi cation. Each of these agreements has enough political, security, and commercial benefi ts for the Congress to ratify without privileged consideration. On the other hand, as we have already seen, agreements with Peru and Colombia will not pass with or without TPA.

The political and economic gap between the Peru and Colombia agreements and the Malay-sia, Korea, and UAE agreements illustrate how TPA has become a talisman of free trade, rather than a true catalyst for greater trade liberaliza-tion. Simply put, trade agreements will pass or fail the Congress on a combination of commer-cial, economic, security and political factors, regardless of TPA.

The need for TPA to promote an aggressive trade liberalization policy is a myth. Negotiating authority is no longer necessary for the United States to remain engaged in bilateral, regional, and multilateral negotiations. The President, the Con-gress, and the privates sector should stop fussing over the need to renew TPA and focus on the more critical task of negotiating economically meaningful agreements for our workers and companies. WT

Naotaka Matsukata, Ph.D. is a Senior Policy Advisor at Alston

& Bird LLP, and a former Director of Policy Planning under

USTR Robert B. Zoellick.

Do U.S. Traders Really Need Presidential Fast Track?

“The need for

TPA to promote

an aggressive

trade liberalization

policy is a myth.”

BY NAOTAKA MATSUKATA

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SUPPLY CHAINT R U C K I N G A I R O C E A N T E C H N O L O G Y T R A D E F I N A N C E 3 P L W A R E H O U S I N G

Watch


AIR

U.S., EU Reach Agreement on Open Skies PactA last ditch effort between nego-tiators from the U.S. and EU to agree on terms for a trans-Atlan-tic air pact has resulted in a major breakthrough.

The main sticking point, which involved what percentage of foreign ownership of an air carrier each could acquire, was fi nally resolved.

Under the proposed agree-ment, European airlines will be allowed to fl y anywhere to the U.S. from anywhere in Europe, and U.S. carriers will receive reciprocal rights for flights to Europe.

The proposal now goes before the European Commission later this month. If approved, the deal could come into force as soon as October 28, 2007.

While the pact will benefi t passenger carriers most, the cargo market is expected to see growth of between 1 and 2 percent.

TRUCK

Latest PIERPass Survey Shows Improvement for Truckers

The latest survey of truck drivers in the Los Angeles-Long Beach port complex shows that drivers are making more turns with the PIERPass extended gate program and, likewise, higher earnings.

Research fi rm Fairbank, Maslin, Maullin & Associates also found that one-quarter of the drivers reported that off-peak shifts are being underutilized because

there simply isn’t enough cus-tomer demand late at night.

Among the fi ndings, 61 per-cent of drivers rate the program positively while 67 percent believe it has reduced traffic congestion.

The survey of 451 drivers was conducted last November.

Mexican Truckers Get Green Lightin U.S.The U.S. Department of Commerce is launching a pilot program to allow Mexican trucks unrestricted access to U.S. roadways.

The provision was supposed to begin in 1993 with the rati-fi cation of the North American Free Trade Agreement (NAFTA), but opposition by U.S. industry groups delayed implementation for years.

Under the pilot program, one hundred Mexican trucking fi rms will be given access to U.S. roadeways once their trucks and drivers pass a safety certifi ca-tion test.

RAIL

Port of Vancouver, WA Approves Rail ProjectThe Port of Vancouver, Washing-ton, has approved a $1.5 million rail project—the West Vancouver Freight Access (WVFA) project—that will help the port accom-modate rising freight volumes from Asia.

Work on the project is to begin this fall and is scheduled to be completed in July 2008.

According to the port’s execu-tive director, Larry Paulson: “More than 70 percent of cargo travels to and from the port by

rail and that fi gure is projected to increase to over 80 percent in the next 20 years.”

Lawmaker Seeking Shorter Work HoursDemocratic Representative James Oberstar of Minnesota, who is the new chairman of the Trans-portation and Infrastructure Committee, is considering new regulations that would limit train crews to 10-hour shifts, down from the current 12 hours.

The move is uniting railroads and labor unions, both of which are opposed to government involvement in the matter.

The Federal Railroad Admin-istration wants to retain its authority to set rules for crew schedules, and the agency recently proposed ‘hours-of-ser-vice’ legislation similar to that already in place for truckers.

OCEAN

Seaports Prepare for Rollout of TWICTen seaports around the nation are preparing for the rollout of the Transportation Worker Identi-fi cation Credential (TWIC), which is set to start in April with full implementation anticipated by mid-2008.

The TWIC program is designed to supplement the government’s layered approach to supply chain security. However, the rollout has been delayed over software and hardware issues as well as the specifi c requirements for worker background checks.

The Transportation Security Administration (TSA) has yet to disclose the identity of the ten

seaports chosen to debut the TWIC card.

New Port Proposed for Savannah River

The governors of South Carolina and Georgia announced a plan to jointly develop and operate a new port on the Savannah River, ending years of legal tussling over the rights to develop the port.

Under the proposal, the two states would form a Bi-State Port Authority, to be approved by the two states’ legislatures and rati-fi ed by the U.S. Congress.

“If South Carolina and Georgia are going to maintain our respec-tive competitive advantages when it comes to being Southeastern shipping destinations, the time to act is now,” said South Caro-lina Governor Mark Sanford.

TECHNOLOGY

Proliferation of RFID Tags Slower Than ExpectedEven though over 1 billion Radio Frequency Identifi cation (RFID) tags were sold worldwide in 2006, logistics analysts had pre-dicted that number to be consid-erably higher.

There are several reasons for the lower than expected num-bers. For starters, consumer goods companies are hesitant to sink more money into technol-ogy that is still developing while others say they’re investing just enough to keep up with RFID mandates from the big retailers.

Nonetheless, research firm IDTechEx is forecasting that sales of RFID tags will experi-ence signifi cant growth in 2007, growing to about 1.71 billion by year’s end.

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In recent years, Mexico has lost millions of dollars in foreign investment and low-cost manu-facturing to China, particularly in sectors such as electronics. However, business leaders and Mexican government offi cials have begun viewing their rival as a land of opportunity.

“We have come to the con-clusion that we cannot compete with China in labor costs,” says the director general of Multilat-eral and Regional Trade Nego-tiations in Mexico. “The lesson, I believe, is very clear—to move to the upper end of the value chain.”

Not only that, Mexican com-panies see China’s huge con-

sumer market as a gold mine. One Mexican auto parts manu-facturer has set up operations in China to produce engine heads for cars sold to the Chi-nese market.

“The Chinese market has the greatest potential for growth, given its current underdevel-opment and the possibility to manufacture cars for the export market, particularly with Asia,” notes one Mexican automotive executive.

That fact is not lost on global auto manufacturers. In Febru-ary, DaimlerChrysler AG, the world’s fi fth-largest carmaker, announced it had started sell-ing its PT Cruiser model in

China as part of its strategy to expand into the world’s fastest-growing auto market.

The 2.4-l i ter compact (which is actually made in Mexico), is priced at 235,800 yuan ($30,432).

CHINA TOP PICK FOR R&D

Foreign fi rms setting up more facilities A new report by the United Nations finds that China has become the most popu-lar country for establishing research and development (R&D) facilities.

Specifi cally, in recent years 61 percent of foreign compa-nies have set up R&D facilities in China, compared to 41 per-cent in the U.S. and 29 percent in India. Furthermore, nearly all of the world’s major tech-nology players have invested heavily in China, with some $7.7 billion in foreign direct investment made in 2005 for the manufacture of telecommu-nication, computer, and other electronic equipment.

The report also states that the massive amount of foreign direct investment in China has helped develop local talent in high-tech industries and is also encouraging many overseas students to return for employ-ment opportunities.

RAIL IMPROVEMENTS FOR INDIA

Triple-stack trains proposed for key routesIndian Railways says it will introduce triple-stack trains on certain key routes follow-ing the success it’s had with double-stack container trains throughout the country. “Such containers will be useful to carry motor vehicles,” said India’s rail minister.

Currently, Indian Rail-ways runs double-stack trains between the western Port of Pipavav and Jaipur in the north. It’s hoped that the railroad can boost container traffi c to 100 million tons by 2011-12, up from the current 20 million tons.

Meanwhile, India’s Cabi-net Committee on Economic Affairs has approved a $6.1 billion rail project that will con-nect the country’s major ports on the east and west coasts.

January109.5Apr.

110.5

June111.9

November109.1

December110.1

Feb.109.4

Mar.110.9

May112.4 July

111.5

August108.7

September110.3

October110.3

The Transportation Services Index (TSI) fell 0.6 percent in January to 109.5 (2000=100) from its December level, falling after a one-month rise, according to the U.S. Department of Transportation’s Bureau of Transportation Statistics (BTS) offi ce.

TSI is a single seasonally adjusted index of the month-to-month changes in the output of services provided by the for-hire transportation industries, including railroad, air, truck, inland waterways, pipeline, and local transit.

FEBRUARY 2006 – JANUARY 2007

Transportation Services Index (TSI)

MEXICO SHIFTS PRODUCTION GEARS

Mexico Looking to China for Export Opportunities

T R A D E W I N D ST H E L A T E S T T R E N D S I N T H E W O R L D O F T R A D E

012Tradewinds.indd 12012Tradewinds.indd 12 3/16/07 10:34:37 AM3/16/07 10:34:37 AM

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T R A D E W I N D S

NYK Promotes KellerNYK Line (North America) has promoted Peter Keller to the position of president and cor-porate offi cer of the Japanese carrier’s board, starting April 1. Keller is currently executive vice president and COO of NYK Line (North America).

SEKO Appoints FitzgeraldSEKO, a global provider of freight forwarding and logis-tics solutions, has appointed John A. Fitzgerald as Global Vice President of Sales and Marketing. In this position, Fitzgerald will be responsible for the overall management

of SEKO’s sales and marketing efforts, including its strategic clients.

Lowe’s Cos. Awards Horizon Lines The Home Improvement Trans-portation Division of Lowe’s Cos. has awarded Horizon Lines with its most prestigious honor, The 2006 Platinum Carrier Award for the highest levels of delivered service. This is the sixth con-secutive year Horizon Lines has been honored by Lowe’s.

RailAmerica Taps GilesJohn Giles has been named the new CEO for short line rail oper-

ator RailAmerica. Previously, Giles served as president and chief executive of Great Lakes Transportation. He has 35 years of experience in the transporta-tion industry.

Nelson Named Advisor to TradeBeamTradeBeam, Inc., a leading pro-vider of on-demand Global Trade Management (GTM) software and services, has announced that David Nelson has been named as an advisor to the company. In this role, Nelson will provide strategic feedback to TradeBeam’s automotive industry initiatives.

New CEO for Werner EnterprisesTruckload carrier Werner Enter-prises has promoted Gregory L. Werner to CEO, replacing his father and company founder Clarence L. “C.L.” Werner, who will remain as chairman of the board. The younger Werner joined the company in 1997.

JAXPORT Promotes PeekThe Jacksonville Port Author-ity has promoted Robert A. Peek to director of marketing development. Peek had previ-ously served as communications director in the port’s external affairs offi ce for 11 years.

Names News&

2007 Radio Frequency Identifi cation SummitWashington, D.C.April 3 – 4www.dodrfi dsummit.com

Supply Chain Management SummitBoston, MAApril 4 – 5www.aberdeen.com

2007 MHIA Spring MeetingCharlotte, NCApril 14 – 17www.mhia.org

WERC 30th AnnualConferenceNashville, TNApril 22 – 25www.werc.org

Post Harvest 2007New Delhi, IndiaApril 23 – 25www.supplychains.in

Logistics M&As in ChinaShanghai, ChinaApril 25www.supplychain.cn

Logistics & Supply Chain ForumNew York, New YorkMay 6 – 9 www.logisticsforum.com

Transport Logistic 2007Munich, GermanyJune 12–15www.transportlogistic.de

World Trade Magazine will be publishing announce-ments of forthcoming global supply chain events in every issue. For inclusion, please forward event details to [email protected]

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NEW IDEAS IN TRADE FINANCECOVER STORY

As more and more small and mid-sized companies increasingly appreciate, international trade affords them the same kinds of opportunities that have historically been the province of ‘the big boys’. This change of mind has occurred in the past few years, fueled in no little part by innovations that make trade fi nance available for this new strata of deals and deal-makers. From the heightened emphasis by Export-Import Bank of the United States to support small businesses to the development of more fl exible instruments throughout the sector to the entry into the market of new categories of players, there have never been more choices or appetite for risk. All of which bodes well for U.S.-based traders. In this special section, World Trade Magazine reports on the trends that are transforming trade fi nance into a dynamic area replete with creative opportunities.


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Ed Kostenski, President of Nationwide Equipment Company in Jacksonville, Florida, actively wholesales construction equipment to Africa with Ex-Im support.

Innovation did not usually come to mind, over the years, when talk turned to trade fi nance. It was a venerable, mostly unchanging, part of global com-merce, with a centerpiece product, the letter of credit, that had origins in the European Renais-

sance. Its practice produced a mountain of paperwork, and its practitioners were sometimes called “guys with green eyeshades.”

But, obviously, times have changed. The fi eld is being swiftly reshaped in multiple ways. The letter of credit’s market share is sinking, replaced by Internet-based payments systems, credit insurance, and the ability of global banks to fi nance and remove risk for exporters and importers in the same transactions.

Two recent trends within this mini-fl ood of change are worth noting. One is the growing roster of lenders help-ing small and mid-sized American exporters of machin-ery and equipment to close their deals. A few are banks, others are fi nance companies, and, since 2004, they have become prominent participants in Export-Import Bank guarantee and insurance programs.

The other trend is the expanding role of large fi nance companies in the convergence of international supply chain management and trade fi nance: logistics groups create in-house fi nance units, fi nance groups partner with logistics companies, and all work with data platforms that help parties to a transaction share information.

The March of Equipment LendersThe roster of U.S. lenders in “middle market” equip-ment exports has managed to keep growing since 2004, a watershed year, when at least six brand-new specialty export fi nance companies opened their doors for busi-ness. In 2006, still more banks and fi nance companies joined the crowd.

It’s not hard to fi gure out why. Machinery and equip-ment sectors are among the most globally competitive in the American economy, yet fewer banks are involved with mid-sized and smaller exporters in the business.

The innovative response shows the entrepreneurial spirit is alive and well in the lending arena, so when opportunities arise, know-how and capital manage to merge. And Ex-Im Bank programs are available, hand-ily, to cover most of the repayment risk.

Take New Continent Finance in Miami, a 2004 entrant, launched by Gustavo Rosas and Oswaldo Jugo, trade fi nance veterans with FCIA Management (credit insurance), Ex-Im Bank, and Barclays Bank. In entre-preneurial mode, they had earlier established New Con-tinent Suppliers to export heavy equipment and parts to Latin America and the Caribbean.

But, as a small company, they found “it is very hard to get bank support,” as Rosas puts it. Their response: “Create the answer for us, and other small exporters, by establishing a specialty fi nance company to be a lender under Ex-Im Bank’s insurance and guarantee programs.”

Innovative Trade Financing Expands U.S. Pool of Lenders and Market for Machinery ExportInternet-based payment systems, credit finance and supply chain trade finance replacing letters of credit as currency of exchange.BY RICHARD BAROVICK




NEW IDEAS IN TRADE FINANCE

They have been busy ever since.Or, take WorldBusiness Capital,

in Hartford, Connecticut, another 2004 entrant in Ex-Im Bank deals. Brett Silvers, chief executive, had earlier built First International Bank (Hartford) into the top rank-ing lender (number of transactions) in Ex-Im medium-term deals.

But, the bank was sold, and, a few years later, Silvers (who raised capital) set up the new finance company, which is also active in Overseas Private Investment Cor-poration small business projects, has a focus on Latin America and Eastern Europe.

The Class of 2006 also shows an entrepreneurial spirit of varying shapes and sizes.

Premier Business Bank, in Los Angeles, was founded in 2006 by a group of international bankers that decided to combine traditional local business lending (working capital, real estate) with trade fi nance as a leading product (and equipment export deals on a nationwide basis).

“Smaller companies just don’t get the international trade service from larger banks that we offer, so it’s a big opportunity,” said Michael Stoddard, executive vice president, international. “We bring big bank advisory expertise to smaller, mid-market fi rms, leading with our know-how, and then offering products.”

Commerce Bank, in Cherry Hill, New Jersey (Phila-delphia suburb), one of the fastest-growing lenders in the country (its e-mail address identity is “the yes bank”) decided in 2006 to bulk up its trade banking. It hired fi ve veteran practitioners in one swoop from another bank, to form one of the country’s most experienced equipment deals capability.

That, combined with a multi-state branch network and deep pockets, means a major new player, particu-larly in Ex-Im business. Know-how migrates.

And Northstar Trade Finance, in Vancouver, Canada, after a dozen years and C$1.6 billion of transactions, decided to export its successful model, opened offi ces in

Houston and New York in 2005, began Ex-Im deals in 2006. It has substantial experience and local networks in its priority markets (Latin America, China, East Europe).

The Large Finance CompaniesThe big U.S. fi nance companies have had export-import operations for decades in a few cases, more recently in others, but the main trend is a move into savvy supply side chain strategies.

UPS Capital, fi nance arm of logistics giant United Parcel Service, was launched as recently as 1998, following quickly into trade fi nance in 2000. It is a high visibility example of the convergence of moving goods, funds, and information.

UPS, moving beyond package delivery to become a leading global logistics company, offers short-term trade payments, including letters of credit (its works with sev-eral banks), managing and discounting of trade receiv-ables (it works with Factors Chain International, a global network), and its own version of an international “Collect

on Delivery” or COD service.And, it bought a bank in 2001,

adding medium-term (and even long-term) fi nance to its portfo-lio, including a substantial Ex-Im Bank business. Plus, it has a siz-able insurance brokerage opera-tion in credit protection and cargo coverage.

GMAC Financial Services, with a new ownership structure, is now embarking on a sophisticated international strategy that is just beginning to unfold. The former General Motors fi nance arm was

sold off (a 51 percent controlling interest) in late 2006 to a consortium led by Cerberus Capital Management, a private investment fi rm (other members: Citigroup, PNC Financial Services Group, and Japan’s Aozora Bank).

New ownership has improved the group’s credit rating, supported an expansion drive. GMAC’s Com-mercial Services division brought in trade finance veteran Anthony Brown in late 2005 to spearhead its international unit’s supply chain approach.

GMAC’s U.S. trade business is 80 percent import, 20 per-cent export. Its lending, mostly short-term factoring (paying receivables up front, collecting from buyers), makes active use of two global networks--Factors Chain International and International Factors Group—and credit insurance.

In the emerging strategy, GMAC is looking at activi-ties “to make deals happen,” says Brown. These include global trade management platforms to facilitate transac-tions, partnering with a logistics company to offer buyers nearby warehouse inventories, and an early payment program that cuts supplier fi nancing costs.

So, there you have two trends to watch: innovation in small business equipment lending, large fi nance com-pany supply chain strategies. And, if we said it once, we’ll say it again: know-how travels. WT

Contributing Editor Richard Barovick is a long-time Washington-based

reporter on trade fi nance.

Scott Shepherd, president of Northstar Trade Finance

GMAC’s Anthony Brown

“A growing roster of lenders is helping

small and mid-sized

American exporters

of machinery and equipment to close

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Every buyer loves being in the catbird seat, savor-ing one of those moments when sellers are jos-tling one another to snag his business. And that, fortunately for American exporters, is where they now fi nd themselves in buying credit insurance.

These days, eleven companies are competing to sell protection against the risk of non-payment by foreign customers. That has brought expanded capacity to handle risk, an intense rivalry, lower premium rates, and more varied underwriting strategies.

And, it means not only being able to pick and choose among insurers fighting for the business, but also to customize policies from the competing products that the new rivalry offers.

The roster of rival insurers now includes three U.S. home-grown fi rms and eight overseas-based groups, evi-dence that globalization has fully arrived in the world of credit protection. There’s a lot to choose from.

The American contingent includes FCIA Manage-ment, the pioneer (1960s) in the field; global giant American International Group, and HCC Credit Group, launched in 2005 by Houston Casualty Company.

Then there’s a “European transplants” group, three

large credit insurance specialists that bought U.S. insur-ers, including Atradius Trade Credit Insurance (Amster-dam HQ), Coface North America (Paris), and Euler Hermes ACI (Paris).

Finally, there’s QBE Trade Credit, part of Australia’s QBE Insurance Group; Zurich Emerging Markets Solu-tions, a unit of Switzerland’s Zurich Financial Services Group; Exporters Insurance Co. and Ace Ltd., both from Bermuda, and venerable Lloyd’s of London, which reaches U.S. exporters through brokers.

But, not surprisingly, the abundance of choice has brought fresh challenges. With so many insurers and so many underwriting styles now on offer, exporters can fi nd decision-making a bit daunting. That makes it a good time for the nationwide network of specialty bro-kers (30-35 of them) that place most of the business.

“With all these variables, you really need a knowledge-able broker to conduct the bidding,” says Carey Fiertz, head of Export Risk Management in Salisbury, Conn., a trade credit specialist.

His clients now receive competing bids in which pre-miums might be based on the sales volume, the approved credit limits, or the receivables outstanding. “And

It’s a Buyer’s Market for Export Credit InsuranceWith a wide range of providers offering competitive options and terms, it’s an ideal time to secure insurance against non-payment.BY RICHARD BAROVICK



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some of the quotes have deduct-ibles, some have high discretionary

credit limits, and some have neither.”So, “even if an exporter is familiar

with credit insurance, it can be diffi cult sorting through the differences without

impartial assistance.”Part of the challenge has been created by the “trans-

plants,” who brought a “European style” underwriting to the short-term multi-buyer policy, the most actively used product in the fi eld. Here, the underwriter evalu-ates the creditworthiness of each covered buyer up front, then sets a credit limit on each, and provides insurance to protect against that exposure. The insurer really man-ages the credit operations.

This contrasts with the traditional “American style” of underwriting in which the insurer instead evaluates the credit management ability of the exporter, based on sys-tems in place and the experience of the managers (who are often interviewed). Then, a discretionary credit limit is approved, with the exporter absorbing a deductible and co-insurance, and the insurer sharing the risk. The exporter manages its own receivables.

But, that’s just where the choices begin. As Gary Men-

dell, head of Santa Monica, California-based Meridian Finance Group (specialty broker and fi nancial arranger), says, there is now lots of variety among the insurers within each of these underwriting styles, “the lines have become blurred, and price is only one factor.”

It’s rare that any two quotes are the same. There’s much more horse-trading between exporters and insur-ers in setting the parameters of each policy. Plus, the underwriters, more than in the past, can offer unique choices. “There may be a buyer that only one insurer will cover,” says Mendell, which would determine the choice. And some underwriters take a country risk that others will not.

Meanwhile, dramatic policy developments have sur-faced in other kinds of policies. Perhaps most signifi -cantly, private insurers now offer medium-term coverage

that supports the sale of equipment and machinery, a part of the business that has been provided until now mostly by the U.S. Export-Import Bank.

Most private insurers offer three-year terms, com-pared with Ex-Im Bank’s fi ve years, says Edward Yauch, a partner in Columbus, Ohio-based International Risk Consultants, a specialty broker. And the private under-writers usually cover smaller portions of a deal, perhaps 50 percent in some cases, compared with Ex-Im’s 100 percent of the fi nanced segment.

Still, at least seven of them have moved into the medium-term business, including Zurich, Exporters Insurance, American International Group, FCIA, Atra-dius, Coface, and HCC. And some of the cover goes to fi ve years, especially with a rated buyer.

Key account policies are also a growing trend. Here, both U.S. and overseas-based insurers cover two or three, or perhaps 10-15, top buyers in an exporter’s receivables portfolio. And, since each buyer is evaluated up front, with a credit limit and no exporter discretion, the two rival underwriting groups converge into a single approach.

Finally, while the insurers look like they are here to stay, the current favorable conditions—lower pre-mium rates, more fl exible, competitive policies—can be expected to become tougher. It’s just the way the insur-ance industry works. “Buy the insurance now while it’s cheap, since you know the cycle will turn at some point,” says Carey Fiertz.

And then, when capacity becomes more limited, “it will be allocated to existing clients before any new ones, he adds.”

A veteran underwriter puts it more dramatically. “Insurers are now offering medium-term cover, but if conditions grow riskier, it could all turn on a dime.”

So jump in while the good times roll. WT

The importer/distributor working on a fast-paced transaction between a manufacturer and a retailer has typi-cally found himself the ‘odd man out’ when it comes to trade fi nance. This is the space that Surge Capital has carved out for itself, fi nancing trans-actions by effectively making a loan to their middleman client to help fi nance a big production order.

“Our typical client is the guy in the middle between China and the U.S.,” says John Maselli, Senior Credit Offi cer for the fi rm that was founded fi ve years ago. “He’s been going to China for a dozen years, can help develop product, knows which factories are capable and has great contacts with big retailers ready to buy the product.”

He cites, for example, iPod acces-sories, which are currently hot. Their client helps develop the concept, say, a stereo alarm clock able to play the iPod. The manufacturer, typically, does not

have sufficient operating capital to underwrite the huge production ‘surge’ associated with this deal. Understandably, they get nervous at the commitment that such additional volume entails. That’s where Surge comes in. “Effectively we make a loan to our client for up to 100% of cost and the proceeds go to the factory.”

“We’re dealing with entrepreneurial, owner-operated, fast growing compa-nies who are opportunistic—they see a need and know how to fi ll that need. If they come up with a hot product, think of toys, the demand is incredible. This creates big fi nancing need that typi-cally a bank won’t step up to.”

Surge largely fi nances short-term transactions; goods are typically made, delivered and paid for from 30 to 120 days.

“We prefer to deal with a small number of clients with excellent growth potential, capable of doing signifi cant deals,” explains Maselli.

“We build on-going relation-ships through repeat transactions, provid-ing all participants the resources to achieve their business goals.”

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Air Tractor, in Olney, Texas, actively exports its crop dusting aircraft with the help of ExImBank deals.

The years 2005-2006 were a tough patch for the Export-Import Bank in the political arena. Congress received an earful of complaints about the agency’s programs, and, in typical fashion, trotted out two of its favorite weap-

ons to work its will on the U.S. export lender.One of these is a committee “oversight” hearing that

puts an agency’s top managers through a public grilling. The other is fresh legislation that micro-manages the agency’s operations down to small details.

The Congressional challenge began with a bruising April 2005 House Small Business Committee hearing that rang alarm bells over Ex-Im’s failure to meet its required small business transaction volume. It ended in December 2006 when the Bank’s legal charter was renewed, with a slew of detailed instructions on how to conduct its business.

Equally challenging, Congress and the White House could not agree on nominations to fi ll the chairman-ship and two Board member jobs when the incum-bents’ terms expired in July 2005. James Lambright,

now chairman and president, spent over a year in an “acting” capacity. The five-member Board, which requires three for a quorum, was short two members for months, dangling the possibility that important decisions might languish.

But, now that’s all in the past. Lambright has won high marks—from exporters, lenders, and members of Con-gress. The Bank’s charter legislation was adopted with lightning speed at the last moment in December during a brief window of opportunity (four hectic days).

Setting the agendaThe charter extension has set the Bank’s agenda for the next several years—adopting priorities, revising the organization chart, fi ne tuning underwriting processes, and building online services.

Five items top the list of priorities. Most visible among them is to expand support for small business, which drew a lot of Congressional fi re, and produced a lot of micro-managing.

Another: to become more aggressive in dealing with new global export credit agency competition, epitomized by China’s blockbuster campaign to penetrate markets. Still, a third: to avoid deals that help the overseas com-petitors of “sensitive” U.S. sectors, such as steel and semiconductors.

A fourth priority is to streamline operations, particu-larly by speeding up applications processing through online services, and, fi nally, to do more business in a handful of countries and industry sectors.

Small business strategyEx-Im Bank’s small business activities have been reshaped in a dozen ways, but, signifi cantly, Congress was adamant in retaining the “set-aside,” a requirement that 20 percent of its annual transactions (in dollar terms) be approved for smaller fi rms.

The Bank failed to hit that target in 2003-2005, but sailed past it (26 percent) in 2006, through a combination of more small business dollar volume and a sluggish year overall (thus boosting the small biz share). Ex-Im offi cials did their best to persuade Congress to ease the rule, but the lawmakers put their foot down.

Export-Import Bank Recalibrates Strategy to Promote Small BusinessOther top priorities include faster decision making, confronting the China challenge and African trade.BY RICHARD BAROVICK


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In micro-managing, Congress formally created a Small Busi-ness Division to handle outreach, product improvements, and transaction advocacy, as well as a Bank-wide Small Business Com-mittee to formulate strategy and oversee performance.

What really matters here, said James Morrison, president of the Small Business Exporters Associa-tion, at a Senate hearing, is manage-ment consistency, which is assured only through legislation. The Bank, he noted, “had at least 15 major changes in its small busi-ness structure since 1997, more than one a year.”

The charter renewal also formally created a ‘senior vice president’ to head the division, and placed dedicated small business staff specialists in each transactions division, empowering them to create underwriting standards exclusively for small exporter performance. Plus, the specialists are authorized to approve most applications of less than $10 million.

At the same time, the charter gives a boost to medium-term deals (fi ve-year payment terms), which have been a persistent target of complaints by smaller exporters. “The new legislation lets Ex-Im delegate authority to banks and fi nance companies, which should speed up applications for equipment exporters considerably,” said Peggy Houlihan, head of Houlihan International (Reston, Virginia), which advises exporters on using government trade programs.

Battling the new competitionMeanwhile, fresh global competition from other gov-ernments’ export credit agencies (ECAs) is a mounting challenge for Ex-Im Bank, and perceived as a threat on Capitol Hill. The charter renewal calls for a more strenu-

ous response, and provides some tools to work with.Most threatening is the soaring volume of Chi-

nese credits. Ex-Im’s recent annual “Competitiveness Report” predicts that in 2010 the Asian giant will be the world’s largest source of offi cial export fi nance.

And, China is not a member of the Organization for Economic Cooperation and Development (OECD), the Western “club” of governments that sets the rules for ECA operations. The U.S., Europe, Canada, and Japan have a common forum to challenge one another’s viola-tions of the rules, but China is not subject to them.

Plus, the new law calls on Ex-Im and the Treasury to pres-sure China and other aggressive lenders through the World Trade Organization (WTO), to which they all belong. The WTO has specifi c restrictions on export subsidies that can be expected to provide a platform for this effort.

Processing applicationsThe legislation also imposes speed and clarity on the applications process, requiring the Bank to maintain an effective Internet program to handle requests and keep exporters informed on where they stand. Ex-Im had, in fact, already initiated such a service, called Ex-Im Online,

in mid-2006, but the charter insists that it be fully operational by September 1, 2007.

The Congressional action, a response to years of complaints about slow processing, micro-manages applications in several ways. For example, it sets time-tables for acknowledging their receipt, informing exporters on whether their submissions are complete, and on what remains to be submitted.

And, it calls for keeping appli-cants informed on their status,

including a “clear and timely” notice of approval or dis-approval, and the reason for disapproval. Also, exporters are now given the name of a Bank employee to contact with questions.

More Africa businessThe legislation also encourages more Ex-Im Bank activ-ity with a few countries, but mostly with Africa, where it has been steadily expanding anyway. The charter calls for increasing the number of master guarantee agree-ments (a framework that speeds processing) with Afri-can lenders, and improved working relationships with key regional institutions, such as the African Develop-ment Bank and the African Export-Import Bank.

Congress will be watchingThe charter renewal has given Ex-Im Bank its marching orders for the next fi ve years, but it will take time to absorb all the directives. Some fresh initiatives will be rolled out at the April 2007 annual Washington conference.

One thing is for sure: Congress plans to monitor prog-ress closely. Stay tuned for more “oversight hearings” in the months ahead. WT



With the help of Ex-Im Bank’s credit insurance, Southwest Windpower, Inc. of Flagstaff, Arizona can export to countries such as Brazil, Argentina, Turkey, India, South Africa, and St. Lucia.

“Congress was adamant

in instructing ExIm to retain the “set-aside” requiring that 20% of

transactions go to

smaller fi rms.”

Ex-Im Bank


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James Lambright (“call me Jim”), an attorney by training (Harvard Law) and an investment banker professionally, has been Chairman of the Export-Bank of the United States since July, 2005 (fi rst as ‘acting,’ then in his own right with a term lasting

through 2009). On the eve of Ex-Im’s annual confer-ence, he sat down with World Trade magazine Execu-tive Editor Neil Shister to discuss key areas of interest and policy.

Small business“Small business initiatives that the Bank has been pursuing for the past few years are starting to bear fruit. In terms of our aggregate fi nancing authorization last year, 26% went directly to small busi-nesses, while 84% of our transac-tions in the past year have been for small businesses. Last year, some 450 small businesses used Ex-Im for the fi rst time.

“The challenge in growing this area is reaching small businesses. Last year, we created a small business outreach unit with all branch offi ces reporting to a Senior Vice President. Most small busi-nesses export to only one country. We’d like to help them get comfortable taking the risk of expanding into more markets.

“We are committed to making the experience better for small businesses dealing with Ex-Im. Speed of service has become a top priority with our people. Correspond-ingly, we’ve reduced the turn-around for medium term fi nancing from roughly 60 days to under 40 days. There are people in each department specifi cally charged with

dealing with small businesses. And, our new Ex-Im Online service makes it easier for small businesses to apply for, and track, their policies.”

The challenge of maintaining Ex-Im’s ‘strategic relevance’ “A major evolution is underway in how national export credit agencies function: the dynamics between gov-ernments and their export banks are changing; certain

institutions are operating more like private sector firms, which gives them greater fl exibility; and emerging export credit agencies are operating outside the Organi-zation for Economic Co-operation and Development Arrangement (OECD) framework.

“In our case, we operate within a traditional mandate to support exports for the sake of encourag-ing U.S. employment. In some other countries, however, the export credit agency has broader

latitude to support a more loosely defined ‘national interest.’ Additionally, the general policy in this country is that government agencies should not compete with the private sector. Thus, Ex-Im has a narrow niche in terms of what Congress authorizes us to do, but within that niche we are aggressive in supporting U.S. exporters.

Our challenge is to adapt best to changing circum-stances within the framework of our mission.”

The China challenge“The international architecture is being challenged by emerging export credit agencies, most notably China. We

Interview: James Lambright



Chairman of the Export-Import Bank of the United States.

“We are committed to

making the experience

better for small

businesses dealing

with Ex-Im.”


The products and services featured above are offered by JPMorgan Chase Bank, N.A., or its affi liates. JPMorgan

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have a shared interest with them in terms of U.S. sales in China. But increasingly in third country mar-kets, such as those in Africa, we’re competing.

“China is not a member of the OECD, thus its export-import bank is not governed by the ‘level playing field’ requirements of members, which were established as a means of avoiding a ‘race to the bottom.’ By not being bound by OECD rules, the Chinese can offer such things as fi nancing at lower rates over longer terms with grace periods. And, they can couple fi nancing with govern-ment aid, exports by state-owned enterprises and even provide the labor to perform in-country work. In tele-com transactions, for example, where U.S. firms are directly competing with Chinese, those offerings can be a sizeable advantage.

“Our initial response has largely been one of strategic engagement. We have established a dialogue with our Chinese counterparts. And, we talk to overseas buyers about the importance of the objectives underpinning the OECD’s rules, such as environmental standards. But,

China is changing the landscape of export-credit and this will require real and concerted attention.”

Africa“When I fi rst came to Ex-Im Bank fi ve-and-a-half years ago, my fi rst assignment was to help build our program in sub-Saharan Africa. Since then, ExIm has continued to make the support of African deals a goal. Historically, Ameri-

can companies have tended not to participate actively in Africa, it has been regarded as ‘too distant’ a market. But, that is changing. And, we want to help U.S. companies take on the risk of doing business in sub-Saharan Africa.

“In the last fi scal year, we helped support 140 transac-tions in 23 countries in sub-Saharan Africa. These deals supported more than $530 million in exports. Over the past six years, Ex-Im Bank has supported more than $3 billion in exports to the region.

“There is a growing role for U.S. exporters in Africa, particularly with the large power capacity and rail proj-ects that are being undertaken in countries like South Africa and Namibia.” WT

“China is changing

the landscape of

export-credit and this will require real and

concerted attention.”




http://www.supplychain.cn/en/cev/?185



©2006 Bank of the West. Member FDIC.

OUR INTERNATIONAL TRADE EXPERTS CAN HELP YOU SUCCEED IN TODAY’S GLOBAL MARKET.

When it comes to international trade, our success speaks volumes. We offer a full spectrum ofcapabilities, from letters of credit to foreign exchange to advisory services. As a subsidiary of BNP Paribas, we also have ready access to knowledge of local markets, currencies, and trade conditions through more than 60 Trade Centers worldwide. Our staff of trade professionals, combined with the resources of our global network, gets things done for our clients. So if you’re doing business overseas, or simply thinking about it, give us a call at (888) 600-8723. And let’s talk.

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NEW IDEAS IN TRADE FINANCENEW IDEAS IN TRADE FINANCE

Total Respondents = 221

Increased33%Remain

the same59%

Decreased8%

How has your company’s use of

trade fi nance instruments to secure

foreign transactions changed over

the past 12 months?

The Uses of Trade FinanceThrough the services of our BNP Media corporate colleague Clear Seas Research, over 200 World Trade subscribers—financial activities influencers at their companies—were surveyed in mid-February concerning trade finance. Following is a snapshot of how U.S. traders are deploying trade finance.

What type of institutions does your

company use for trade fi nance?

Exclusiverelationship with a trade fi nance

institution34% Use multiple

institutions66%


Does your company have an

exclusive relationship with a trade

fi nance institution or does your

company use multiple institutions?

Yes29%

No71%


Does your bank offer working capital

fi nancing to emerging market vendors

in your supply chain?

Commercial Bank

Private Capital Lenders

Insurance Companies

Small Business Administration (SBA)

EXIM Bank

86%

23%

23%

19%

18%





Internal Cash Flow

Letter of credit (L/C) - Commercial Bank

Open Account Trading

Commercial Loan

Export Credit Insurance

Private Capital Lenders or Logistics Providers

Venture Capital-Private Capital Lenders

Export Working Capital Program (SBA)

Direct Loans-EXIM

Bank Guarantee-Commercial Bank

What percentage of your trade fi nance is done

using the following fi nancial tools?

36%

30%

22%

21%

20%

18%

18%

16%

13%

12%

(Copyright © 2007 by Clear Seas Research. All rights reserved.)

Which of the following “non-

traditional” requests is your company

making of your trade lender(s)?

Are there foreign deals your company

has not been able to complete

because acceptable trade fi nance

could not be arranged?

Yes41%

No59%


Credit checks through lenders affi liates in a

foreign country

Open account processing (purchase order/invoice

reconciliation)

Customs brokerageand oversight

Use of technology platforms to monitor visibility

and provide information reporting in your global

supply chain from node to

Back-offi ce order processing

Guarantee by sales agent for a specifi c territory

Other

35%

34%

28%

28%

22%

16%

21%


For reprints of this article, please contact Jill DeVries at [email protected] or 248-244-1726.





aying no to one of your best customers may not seem like a smart business strategy. But that is exactly what Boeing said recently to Southwest Airlines, which buys more Boeing planes than any

other carrier, having taken delivery of 477 to date. Southwest fl ies only Boeing 737s, and it typically buys

them in bulk. But when the airline wanted to add two planes to a recent order of 80, Boeing turned it down. It did, however, offer a Plan B, by pointing Southwest in the direction of two slightly used 737s that Ford Motor wanted to shed.

‘’No one is more important to Boeing than South-west,’’ said Edmund S. Greenslet, publisher of Airline Monitor, a trade publication. ‘’If Boeing is not willing to raise production and build for Southwest, you can be sure they won’t accommodate anyone else.’’

There was method to Boeing’s seeming madness. With aviation booming and airlines lining up to buy

Boeing planes, the company is trying to manage what could be too much of a good thing. Granted, it is a potential problem that is much easier to tackle now that its archrival, Airbus, is stumbling.

Boeing, which is based in Chicago, is trying to avoid mistakes of the past. In the last aviation boom, in 1997 and 1998, Boeing gorged itself on orders, but its produc-tion lines could not keep up and ground to a halt.

Nevertheless, the company fl ooded the market with too many planes and ultimately had to sell them at cut-rate prices. Boeing’s write-offs came to more than $4 bil-lion in 1997 and 1998.

Today, having learned its lesson, Boeing is adopting a polar opposite strategy as it faces a new wave of orders that, if not managed right, could swamp the company again.

‘’In this hot market, it would be easy to be consumed with the desire to sell anything to people walking through the door who want to buy and push our production

The 21st CenturySupply Chain

S

Rather than do everything in-house, a collaborationof global suppliers is optimized to calibrate output.BY LESLIE WAYNE

Boeing Reinvents its Supply Chain Avoid Capacity Problems of Boom-and-Bust

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system to the point where you could break it,’’ said Scott E. Carson, the chief executive of Boeing Commercial Avia-tion. ‘’It’s much harder to say, ‘I’m sorry, we’re sold out.’ ‘’

Yet, that is exactly what Boeing is telling customers these days—not just Southwest—as it slowly increases its airplane production while holding fi rm on its sticker prices. Demand is jumping, especially now that Airbus has had design and delivery problems with its two new offerings: the midsize A350 and the superjumbo A380.

At Boeing, for instance, orders for its 787, nicknamed the Dreamliner—which will not hit the market until 2008—are so strong that it is sold out for four years, and the earliest a new customer can get a plane is 2013.

Now that Mr. Carson is in charge, he vows to make restraint a virtue—and a path to fatter profi t margins.

‘’Frankly, we are much more disciplined than in 1997 and 1998,’’ Mr. Carson said in a recent interview. ‘’The message is, ‘Don’t get ahead of yourself; don’t go crazy about how we ramp up.’”

He added: ‘’We have to communicate that openly with customers and suppliers to be sure they understand why this is good for the industry. The role of the industry leader is to demonstrate discipline and restraint in the marketplace.’’

To industry analysts, this is a 180-degree turn from the last boom, when Boeing responded to Airbus’s new competitive threat by trying to sell so many planes that Airbus would be overwhelmed.

The fallout from that period is still fresh in the memo-ries of today’s Boeing leadership.

Scott Strode, vice president of Airplane Devel-opment and Production for the 787 program, is responsible for leading the implementation of the production plan for the 787 program. He responded to the questions of World Trade Edi-torial Director Neil Shister about the project’s supply chain design and processes.

World Trade: As the 787 is being built from scratch using what is a wholly different pro-curement and supply chain strategy for Boeing, can you describe several of the 'biggest lessons' about collaborative processes you've thus far learned (and from which other manufacturers can benefi t)?

Strode: The lessons we’ve learned about col-laboration are largely considered a competitive advantage and we don’t share them publicly. However, in general terms, we can say we have validated the value of our approach—involv-ing our partners earlier and much deeper has resulted in the development of a better airplane that can be produced more effi ciently. It’s taken the development of new collaborative tools and technologies to enable this business model to work and we expect that effort to continue to provide value to Boeing and its partners for many years to come on this and other projects.

World Trade: What are the criteria you use to select partners?

Strode: We select our partners based on their capability and capacity. Proven performance is an important factor that we evaluate. The stan-dards for quality and performance in aerospace are extremely high—as they should be.

World Trade: In developing the 787, what IT techniques and processes are being used to align collaboration from different vendors?

Strode: Our primary collaboration toolset is the Product Lifecycle Management suite from Dassault Systemes that includes CATIA, Delmia

and Enovia. With this toolset we can all work from one dataset to design the airplane, build the tooling and determine the manufacturing processes. We even use this toolset to work with our customers to confi gure their interiors and it will be used to create in-service maintenance programs.

World Trade: In using a collaborative process of external vendors on such a major scale, is there a risk that key partners in the supply chain might be unable to meet commitments in the future? Perhaps because of problems with their business models? Or unanticipated problems? How does Boeing distribute risk and assure the resiliency of a supply chain so depen-dent on external partners?

Strode: We pick our partners carefully and include an evaluation of the stability of their business models. There is a different kind of risk to be managed than if you did all of the work in house but it isn’t more risk or higher risk—just different risk.

World Trade: Has the R&D process been 'a col-laboration of equals' or were vendors expected to execute Boeing specs? In a collaborative model, do your goals and objectives for the product tend to change through the interaction process with partners?

Strode: This has absolutely been a collabora-tion. Our partners have brought suggestions and solutions to the table that have helped create a better product. The goals and objectives tend to stay the same for the product because they are largely based on what our customer need. What changes is how we achieve those goals and targets.

World Trade: Collaborative supply chains run the risk that 'your supplier today' will be 'somebody else's supplier tomorrow'. This is a general problem facing many companies in

many sectors. How does Boeing address the challenge of 787 suppliers potentially supply-ing competitors?

Strode: Our company has a long history of these kinds of arrangements. In fact, it’s not unusual for Boeing to be a supplier to a com-petitor and vice versa. There are legal agree-ments regarding the protection and insulation of information that protect everyone.

World Trade: How will such components as fuselages, etc. be transported to fi nal assembly? Will outside logistics providers be employed?

Strode: Transportation of large structural pieces will be accomplished on specially modi-fi ed 747s knows as “Dreamlifters” or “LCFs – Large Cargo Freighters.” Boeing designed these airplanes and has overseen the modifi cations. The fi rst has already delivered its fi rst load from Japan to a pre-integration center in Charleston, South Carolina. These are operated by an out-side company. In addition, an outside company has been contract for other logistics support.

The Collaborative Supply Chain at Boeing

Scott Strode, vice president of Airplane Development and Production for the 787 program


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‘’All the guys at Boeing saw their bosses get fi red the last time,’’ said Troy Lahr, an aviation analyst at Stifel Nicolaus, a Baltimore brokerage firm. This time, the company has sharply cut the number of products it builds.

Today, it builds only the 737, the 767, 777 and the giant 747. The 787 Dreamliner is still in the develop-ment phase.

Boeing also has only about half the suppliers that it did a decade ago and has shifted more of the risk—and cost—of developing and building the airplanes to them.

Major parts of Boeing planes are built by suppliers in Japan and Italy and come to the Seattle area, where the commercial aviation division is based, only for fi nal assembly. In the United States, its airframe manufactur-ing operation in Wichita, Kansas, was sold to investors and now works for Boeing as a subcontractor, absorbing costs and risks Boeing once shouldered.

‘’The world has changed, and Boeing has changed with it,’’ said Michael Boyd, president of the Boyd Group, an aviation consulting fi rm in Evergreen, Colorado. ‘’They’ve offl oaded a lot of production. They are farming out every-thing to others so they don’t have to build it.’’

That future is perhaps best represented by the 787 Dreamliner. It will be the fi rst commercial jet made in large part from composite plastics, rather than aluminum.

The wings are made by Mitsubishi, Kawasaki and Fuji Heavy Industries, all of Japan. Italian companies are building part of the fuselage, and Boeing has contracted with its former Wichita operation, now called Spirit

AeroSystems, to make other parts of the fuselage. These parts will be shipped to Seattle—many on a

747. For instance, barrel sections of fuselage that are made in Italy will be fl own to a subcontractor, Vought Aircraft Industries, in South Carolina. There, they will be connected with parts of the wing from Japan, stuffed with wires, tubes and other systems and tested and painted. Once that is done, the mostly fi nished plane will be shipped, again on a 747, to Boeing’s plant in Everett, Washington, for fi nal assembly.

‘’All Boeing does is design it and glue it together,’’ said Mr. Boyd, the aviation consultant.

If there is a downturn in orders, Boeing does not have to face the challenge of what to do with a permanent, unionized work force. It also means that fewer workers are needed in Everett since less of the work is done there.

All this outsourcing is not without busi-ness risk, as well. ‘’The danger is that your supplier can become someone else’s sup-plier,’’ Mr. Boyd said. ‘’There is no stopping Spirit or Vought from doing business for Airbus. When Boeing owned all the facto-ries, it only did stuff for Boeing.’’

Boeing does not disclose how many planes it builds a month, but Mr. Lahr of Stifel Nicolaus estimated that by 2008, Boeing would add 3 planes to its monthly production of twenty-eight 737s, it would build one more 777 to reach eight a month and, at some point, would add three more to an anticipated monthly run of seven 787s.

‘’The real challenge, once you work out the 787 design, is that Boeing wants to move at a rate that is unprecedented for a widebody plane,’’ said Richard Aboulafi a, an aviation analyst at the Teal Group, a con-sulting fi rm in northern Virginia. ‘’No one has built more than seven widebodies a month, and they are talking about 10 a month.’’

Boeing says, however, that increased outsourcing and the more effi cient moving assembly lines will enable it to pick up the pace without risking some of the problems it had in 1997 and 1998. In addition, for at least the fi rst two years, there will be no increases in the anticipated 787 production rates, no matter how strong the demand, Boeing said.

In a recent media conference call, Michael Bair, gen-eral manager of the 787 program, said there was no danger Boeing would fall into its old trap.

‘’We are being very, very careful in the front end of the program that we don’t get greedy and over commit before we have all the potential kinks worked out in the production systems,’’ Mr. Bair said. ‘’So we have not touched the fi rst two years of production in terms of what our ramp up is going to be—and we won’t.’’ WT

Leslie Wayne covers business for The New York Times, where this article

originally appeared.


Modifi ed 747s known as Large Cargo Freighters will transport large structural pieces of the Boeing 787 Dreamliner.

For reprints of this article, please contact Jill DeVries at [email protected] or 248-244-1726.



Whoever said “it’s a small world”didn’t have to manage a supply chain spanning five countries …

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rom bottled water producers in France to Ameri-can retailers, paper manufacturers in Finland and United States-based auto supply retailers, there’s been an explosion in demand for building out

global supply chains and a myriad of new ways to inte-grate supply chain data.

Vendors of all stripes are working overtime to meet the demand for global visibility of shipping data for all parties to a shipment in a variety of ways, from e-com-merce platforms that unite carries and shippers using one transport mode, to development of global platforms for one enterprise that then connect to supply chain partners. There are software developers offering “trans-lation” services so companies can cross platforms and vendors creating soup-to-nut platforms and attendant networks where a business can reportedly have all its global supply chain shipping, logistic and compliance needs met in a one-stop shop.

For example, Evian, the French-owned premium bottle water producer, operates a supply chain that extends across bottling facilities in eastern France at Lake Geneva, warehousing in France and Belgium and distribution operations with strategic partners across North America with export to over 120 countries worldwide.

Last fall, the company’s owner, Groupe Danone, announced it had signed an agreement with GT Nexus of Alameda, California, to provide hosted software and information management services to assist Evian North America improve global supply chain operations. GT Nexus creates hosted technology platforms to connect supply chain partners globally “and provide integrated management software create benefi ts across entire com-munities of supply chain participants,” said Aaron Sasson, the company’s chairman and chief executive offi cer.

American Eagle Outfi tters, based in Warrendale, Penn-sylvania, is a top retailer for teens to young adults and works with about 500 suppliers and liaisons in mainly Asia and the Indian Sub-continent. The retailer turned to TradeStone Software in Gloucester, Massachusetts about a year and a half ago to unify their buying process on a single platform, says Sue Welch, TradeStone CEO.

“American Eagle has multiple technologies for mul-tiple purposes, so we provide them a one-user experi-ence,” said Welch, explaining that their technology acts as a sort of super-translator, accepting data from any source and any system. “We work side by side with transport platforms and cross all categories for customer building in the global commerce community.”

Software developers are working overtime to provide Total Visibility applications.BY AMY ZUCKERMAN

Explosion of Options inGlobal Supply Chain Integration

F

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On-line platforms maturing, but aren’t for everyoneNot long ago, World Trade explored companies extend-ing their enterprise resource planning (ERP) systems from their internal enterprise to supply chain partners. While this activity continues, particularly among the largest global corporations, already it seems a variety of online platforms are coming into their own, whether they focus on providing shipping-related services for one transport mode, or also offer logistics services or cross transport modes and service arrangements like GT Nexus and Management Dynamics.

Consider AutoZone, a national auto parts retailer based in Memphis, Tennessee, which has turned to Transplace to handle its transition to global sourcing, predominantly in Asia, says Tom Sanderson, Transplace President and Chief Operating Offi cer.

According to AutoZone officials, Transplace has become an extension of the AutoZone enterprise and is the single point of contact for transportation logistics, providing the people, processes, and systems to accel-erate AutoZone’s growth. They credit Transplace with savings over $2 million as of 2005 between conversion of truck lanes and more effi cient tools to allocate freight.

Stora Enso, a global integrated paper, packaging and forest products company based in Helsinki, Finland, ships more than 1.2 million tons of product out of its Gothenburg, Sweden, and Hamburg, Germany transpor-tation and distribution centers to production facilities in Europe, North America and Asia. Last fall, it announced it was connecting to ocean industry platform INTTRA to streamline its electronic communication with ocean carriers shipping its cargo worldwide.

“Between its mills and its carriers worldwide, Stora Enso has a complex supply chain. Different carriers needed

to use different interfaces. The idea was to minimize the workload and streamline as many of the processes as pos-sible,” said Anna Wilhelmsson, supervisor and coordinator of the Stora Enso Infologistic Service Support Team.

Some large corporations still want to develop their own global networks, says Tim Kelsey, BAX Global Vice President for Strategic Account Development based in Atlanta, Georgia, citing the example of an Internet tech company that “wanted one platform and one lead logis-tics provider for all their inbound Pacifi c freight. We provide them the technology to integrate all their data via a tool called Viewlocity. What we’ve built provides both visibility and event management,” or the ability to automate alerts and avoid crises while en route and in a totally customized fashion.

Kelsey says this approach is really limited to a “a few customers with global markets that have global solu-tions. Even those with a single ERP system are working with a multiple of tools, so alignment around people and systems is a major struggle.”

The ‘right approach’ depends on who is talking and sellingWhile vendors will tout their approach as the best and most likely to prevail in a heavily competitive global marketplace, there is some accord among experts that the future belongs to those solutions that not only provide data visibility, but can offer logistics management and event planning.

Jim Preuninger, CEO of Management Dynamics in East Rutherford, N.J believes his company’s approach is the way to go—a hosted Web solution providing hard-ware, software and the network to bring suppliers and customers together as it is doing for The Children’s Place, a Seacaucus, N.J.-based specialty children’s retailer. Man-agement Dynamics recently announced it was handling the retailer’s internal order management system for a large network of consolidators and international transport pro-fessionals in the U.S., Canada and Puerto Rico.

Both Preuninger and Sanderson of Transplace point out that there are plenty of vendors offering software, but no network. According to Sanderson, top players in this sector include Glog (recently acquired by Oracle) and i2. Then there are platforms that cater to a single transport mode or just offer port-to-port service. Or, customers can go to the larger freight forwarders like a Schneider Logistics that are “limited to the visibility of the cargo moving with them,” said Preuninger, who considers all of these solutions outmoded.

He and Greg Johnsen, GT Nexus Vice President of Marketing, believe the future belongs to those players that

Global Supply Chain Integration

‘A hosted web-based Web solution

providing hardware, software and the network to link suppliers and

customers is the way to go.’—Jim Preminger, Management Dynamics


WTM08044YANG 6/24/04 10:11 AM Page 1

http://www.yml.com.tw


will provide “global trade man-agement (GTM), or supply chain event management technologies needed to handle cross-border trade. You want to integrate these processes and create a platform so everyone within the enterprise that deals with international trade has the right capabilities,” says Preuninger.

Not only should this system be able to track and manage inven-tory, purchase orders, provide global trade and logistics docu-ments, landed costs and global transportation spend, but John-sen says the ultimate system must be customizable. “I don’t believe one size can fit all. We believe that the most cost-effective, low-risk way of integrating your global supply chain is to lever-age an on-demand technology platform so you don’t install and manage the software yourself. The third-party provider man-ages and delivers the software over the Web.”

He points out that “it’s very expensive and complex work for a single customer to build this sort of platform on their own, that’s part network, part data and part applica-tions.” The Web-based platform that hosts a network of customers and services costs less and means that cus-tomers “can get up and running much faster than tradi-tional approaches.”

Although extending ERP systems to supply chains is hardly non-existent, Johnsen says he hasn’t found one customer with an ERP system “who has done a decent integration job with their supply chain partners in a single system. It’s doable, technically, but I haven’t seen it in terms of real-life customers.”

Transplace is also a “very big believer in on-demand hosted technology solutions. We know where the sup-pliers are in other parts of the world and have contact to ocean and air carries. If you’re Wal-Mart, maybe you should do it yourself, but there’s only one Wal-Mart,” Sanderson said.

He cites the case of a global medical instruments com-pany that connected to their network last fall and was able to be up and running in about three months “with no capital expenditures on the company’s part. And we didn’t have to develop an EDI link with all their carriers, but were able to provide links to many of the carriers they already used.”

Over the last fi ve years, INTTRA, based in Parsi-panny, N.J., has built the world’s largest on-line plat-form for ocean, handling 61 percent of the world’s ocean container capacity, according to Tim Gannon, INTTRA’s Vice President of Product Management. Rather than offering services that cover the interna-

tional trade spectrum, he says INTTRA is focusing on provid-ing global shipping data visibility in a secure fashion.

“INTTRA provides a single connection point to access ocean carriers, execute transactions, track shipments, obtain manage-ment information and exchange vital shipment information with all supply chain partners,” says Gannon, who adds that INTTRA is more than an inte-grator. We also provide “execu-tion and analytic tools that help users monitor, plan, and execute shipments with their supply chain partners.”

INTTRA is purposely stick-ing with a business model that focuses on “operational excel-lence” and being “the industry provider of the best, most accu-rate and timely data for ocean. People can call us old-fashioned, but we’ve heard great claims from software vendors and it comes back to how well you can execute. We stay focused on ocean execution because it’s not

easy and there are always new wrinkles to master,” said INTTRA CEO and President Ken Bloom.

With customers who can be “anyone buying and selling goods across international borders who want to unify that process,” Welch at TradeStone believes her company has the solution that ties all of these dispa-rate approaches together—the ability to help customers communicate across platforms, while working “side by side with the transport platforms,” she says. TradeStone “crosses all categories.”

She says TradeStone’s Web services technology “allows us to read information to another system that is not the customer’s own, which means they don’t need to replicate the data and they don’t need to replace their technology. So, for example, American Eagle receives shipping data from GT Nexus and then we display that data information to the buyers within American Eagle. We replace GT Nexus as the display because our tech-nology can function across multiple systems.”

Analysts like Manny Hontoria say all options cited here have merit depending on the customer, their needs and resources. Principle of Boston, Massachusetts-based Mercer Consulting in the Transportation and International Logistics sector, Hontoria says whether the link is Web-based, ERP or a desktop solution, the “challenge is increasingly using the information to systematically drive costs and complexity out of the supply chain.” WT

Amy Zuckerman is World Trade Magazine’s supply chain high tech

correspondent.

Global Supply Chain Integration

‘A single point of contact

for shipping data visibility and logistics

management.’

—Tom Sanderson, Transplace


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EXECUTIVE OVERVIEW

WHAT BUSINESS LEADERS NEED TO KNOW ABOUT:[ ]

eaports along the East Coast of the U.S. are pre-paring for another banner year in 2007. Unlike some of the issues that have plagued major West Coast ports in recent years with the infl ux of Asian

imports, ports all along the eastern seaboard are chomp-ing at the bit to get in on the action.

One of the biggest advantages for most East Coast ports is their access to land, which makes expansion considerably easier. But even at the densely developed Port of New York/New Jersey (www.panynj.com), cre-ative solutions are helping to position them to take on more cargo and move it expeditiously.

Working smarter, not harderThree new intermodal rail projects will be completed at the port complex of NY/NJ this year, including the opening of on-dock ExpressRail at New York Container

Terminal. The port is also working to deepen its chan-nels to accommodate larger vessels.

Patrick Flinn, General Manager of Planning and Proj-ect Development for the port complex, says the indus-trial development plan called the Portfi elds Inititative is a complement to these various programs. The Portfi elds Initiative, which is also supported by the New Jersey Economic Development Authority, provides opportu-nities for private developers, communities, and others to transform underutilized and brownfi eld sites into pro-ductive warehousing and distribution centers. In turn, these centers will support and capitalize upon emerg-ing market opportunities for new ocean and air freight-related warehousing and distribution operations.

Of the original 17 sites identifi ed under the Portfi elds Initiative, “most are currently under development or are in the entitlement stage,” explains Flinn. And, interest is growing, he says. “We’re trying to meet the demand from developers and users who are looking for large sites near the port.”

Most of the sites are within 12 miles of the port, although one is about 20 miles away. “Part of the Port-fi elds Initiative was to try and have this urban ‘in-fi ll’ development and also reduce truck traffi c and conges-tion on the roads, so obviously we were looking for sites that had good access or were close to the port.” In recent years, development has been extending further south and even west into Pennsylvania, he says. In response, “there was a concerted effort to keep the cargo and the jobs in New Jersey, as well as within close proximity to the port.”

In addition to being close to the port, the facilites in the Portfi elds Initiative program are being designed to offer the growing logistics market high-value, high-velocity (cross-dock) distribution centers to meet their needs. “Large, modern distribution centers in the Port District are at a premium,” according to one supply chain consultant. “Larger retailers are espe-cially strapped for fi nding Northeast regional locations large enough to accommodate a building greater than

East Coast LogisticsThe next stage: expanding capacity.BY LARA L. SOWINSKI

EXECUTIVE OVERVIEW

APM Terminal at the Port of New York/New Jersey.

S

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EXECUTIVE OVERVIEW

500,000 square feet, and many want the sites to be expandable, often up to two- or three-fold. Fuel costs continue to shrink the viable options [further afi eld].” Jules Nissim, senior director for Cushman & Wakefield in East Rutherford, New Jersey, says: “The second- and third-generation and multistory facilities that once served, and continue to serve, the region do not fulfill many of today’s sophisticated requirements. In order to offer value-added services, logistics tenants are seeking state-of-the-art facilities that contribute toward a more effi -cient supply chain.”

The importance of advanced planning can’t be over-emphasized, especially when you’re talking about the projections for increased cargo volumes at East Coast ports. While estimations vary, everyone agrees that growth in all-water service, whether it comes from the Panama Canal, Suez Canal, or both, is a reality. And again, while land constraints may not be paramount like they are for West Coast ports, that won’t be the case forever, reminds John Rosen, Director of Product Mar-keting for WhereNet (www.wherenet.com), a leading provider of wireless solutions for tracking and managing enterprise assets. Although most of WhereNet’s custom-ers are on the West Coast (the company’s products are in use at 13 marine terminals at the ports of Los Ange-les and Long Beach), the company has been working to expand its customer base along the East Coast.

“We have a system that provides much better informa-tion on activity and inventory inside the marine termi-nal,” says Rosen, referring to the Real Time Location System (RTLS) technology that WhereNet has installed at marine terminals and transloading facilities. The tech-nology, which uses active RFID or WiFi-enabled tags to track the location of assets in real time, is expected to command a $1.26 billion market by 2011, up from the $200 million marketshare in 2004.

The ability to operate more effi ciently in the marine terminal is key, especially with the advent of 10,000-TEU vessels. “These large vessels create huge spikes—freight’s not distributed nice and evenly throughout the workweek,” explains Rosen. “Terminals are being forced to stack containers higher, yet current manual processes don’t support that. When a worker is standing between stacks of containers four and fi ve high, he can’t read the container numbers at the top. It also requires more ‘dig’ moves from your terminal handling equipment, which is very non-productive. Ultimately, the goal is to ‘go higher’ and move more freight, not less.”

Rosen is confi dent that once the fi rst ‘early adopter’ on the East Coast successfully deploys the system, soon afterwards everyone else will jump on the bandwagon. He’s hosted plenty of marine terminal executives at the ports of Los Angeles and Long Beach who are interested in seeing the WhereNet system in action. “We show them that it does work and it can survive the environ-

ment—those are the two big-gest concerns. When you install hardware on container handling equipment, it’s got to be able to withstand extremely rugged and diffi cult working conditions.”

Interest in WhereNet’s sys-tems is spreading to other play-ers in the supply chain, namely railroads. “If we help double the throughput for containers at the port of Los Angeles-Long Beach,

it doesn’t mean anything if the railroads can’t handle it,” says Rosen. Indeed, “the next frontier is the inland infra-structure,” he says. “Railroads are poised for dramatic changed…they’re going to have to improve throughput too. You can buy more land, sure, but the better option is to start stacking cargo. And, once railroads start stack-ing cargo, they’re going to begin acting a lot more like marine terminals.”

Virginia Ports looks inlandEighteen years ago when the Virginia Inland Port (VIP) was established, hardly anyone was thinking about rising cargo volumes from China. In fact, the facility was cre-ated to capture traffi c that was going to competing ports in the northeast, particularly Baltimore, New York-New Jersey, and even Philadelphia, notes Joe Harris, Media Relations Manager for VIP.

The fi rst few years were a bit tough. “Our fi rst year, we handled 3,000 containers,” says Harris. “But last year, we handled over 30,000 containers,” which also equates to 30,000 less truck trips on surrounding roads. The

“It’s an effort to keep the

jobs in New Jersey

and near the port.”

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EXECUTIVE OVERVIEW

facility, which is located about 200 miles inland from the Virginia Ports (www.vaports.com) complex of Nor-folk, Portsmouth, and Newport News, allows truckers to drop off and pickup loads and get back on the highway quickly. Norfolk Southern Railway (www.nscorp.com) runs daily trains to/from the port, which saves a lot of short-haul truck moves in the port vacinity. The facility features 17,820 feet of on-site rail and located within one mile of Interstate 66 and within 5 miles of Interstate 81. It is also a U.S. Customs-designated port and entry.

Over the years, the VIP facility has attracted consid-

erable business, particularly as a site for distribution centers. Retailers Home Depot and Family Dollar Stores moved into the area in the mid-1990s, and others such as DuPont, Rite Aid, SYSCO, and Kohl’s have followed, says Harris. Today, the facility boasts 24 major companies with facilities in the area. “Land was very inexpensive and they found a very favorable economic development climate. Since it’s opened, the facility has garnered over $600 million in investment and construction has been in excess of 6 million square feet. The labor force has also increased by some 7,000 people.” WT

Major East Coast Transportation and Logistics Providers

Major East Coast Ports:

Port of Jacksonville (JAXPORT) www.jaxport.comPort Everglades www.porteverglades.comPort of Savannah www.gaports.comPort of Baltimore www.mpa.state.md.usPort of NY/NJ www.panynj.comPort of Virginia www.vaports.comPort of Montreal www.port-montreal.comHalifax www.portofhalifax.ca Port of Miami www.miamidade.gov/portofmiamiGeorgia Ports Authority www.gaports.comPort of Baltimore www.marylandports.comPort of Charleston www.port-of-charleston.comPort of Boston www.massport.com/portsNorth Carolina State Ports Authority www.ncports.comGeorgia Ports Authority www.gaports.com

Major East Coast Ocean Carriers

Alianca Lines www.alianca.com.brACL www.aclcargo.comK Line www.kline.comAPL www.apl.comCOSCO www.cosco-usa.comCSAV www.csav.comMediterranean Shipping Co. www.mscgva.chMaersk Line www.maerskline.comMOL (America) Inc. www.molpower.comNYK Line www.nykline.comOOCL (USA) Inc. www.oocl.comHamburg Sud www.hamburgsud.comHanjin Shipping www.hanjin.comHapag-Lloyd (America) Inc. www.hapag-lloyd.comTurkon America Inc. www.turkonamerica.comUnited Arab Shipping Co. www.uasc.com.kwWallenius Wilhelmsen www.2wglobal.comNordana Line www.nordana.com

Major 3PLs:

Lynden www.lynden.comKuehne + Nagel www.kn-portal.comBAX Global www.baxglobal.comOH Logistics www.ohlogistics.comMenlo Worldwide www.menloworldwide.comTarget Logistics Services www.targetlogistics.comExpeditors www.expeditors.com

C. H. Robinson www.chrobinson.comFedEx Trade Network www.fedex.comUPS Supply Chain Solutions www.ups-scs.comA.N. Deringer www.anderinger.comBDP International www.bdpinternational.comHellmann Worldwide www.hellmann.netLivingston International www.livingstonintl.comPBB Global Logistics www.pbb.comTransplace www.transplace.comAIT Worldwide www.aitworldwide.comAPL Logistics www.apllogistics.comMaersk Logistics www.maersklogistics.comNYK Logistics www.nyklogistics.comAveritt www.averittexpress.comEGL Eagle Global Logistics www.eaglegl.comDHL/Exel www.dhl.comPanalpina www.panalpina.comPenske Logistics www.penskelogistics.comRyder www.ryder.comSchneider Logistics www.schneider.comCEVA Logistics www.cevalogistics.comUTi www.utiintegratedlogistics.comLandstar Logistics www.landstar.comSEKO Worldwide www.sekoworldwide.com

Intermodal:

Norfolk Southern Railway www.nscorp.comCSX www.csx.com

Truck:

ABF Freight System www.abf.comA.Duie Pyle www.pyleco.comCon-Way Freight www.con-way.comCovenant Transport www.convenanttransport.comFedEx Freight www.fedex.comJ.B. Hunt www.jbhunt.comOld Dominion www.odfl .comPitt Ohio Express www.pittohio.comRoadway www.roadway.comRyder www.ryder.comSaia www.saia.comSoutheastern Freight Lines www.sefl .comU.S. Xpress Enterprises www.usxpress.comUPS Freight www.upsfreight.comYellow Transportation www.myyellow.com


http://www.jaxport.com

http://www.porteverglades.com

http://www.gaports.com

http://www.mpa.state.md.us

http://www.panynj.com

http://www.vaports.com

http://www.port-montreal.com

http://www.portofhalifax.ca

http://www.miamidade.gov/portofmiami


http://www.marylandports.com

http://www.port-of-charleston.com

http://www.massport.com/ports

http://www.ncports.com


http://www.alianca.com.br

http://www.aclcargo.com

http://www.kline.com

http://www.apl.com

http://www.cosco-usa.com

http://www.csav.com


http://www.maerskline.com

http://www.molpower.com

http://www.nykline.com

http://www.oocl.com

http://www.hamburgsud.com

http://www.hanjin.com

http://www.hapag-lloyd.com

http://www.turkonamerica.com

http://www.uasc.com.kw

http://www.2wglobal.com

http://www.nordana.com

http://www.lynden.com

http://www.kn-portal.com

http://www.baxglobal.com

http://www.ohlogistics.com

http://www.menloworldwide.com

http://www.targetlogistics.com

http://www.expeditors.com

http://www.chrobinson.com

http://www.fedex.com

http://www.ups-scs.com

http://www.anderinger.com

http://www.bdpinternational.com

http://www.hellmann.net

http://www.livingstonintl.com

http://www.pbb.com

http://www.transplace.com

http://www.aitworldwide.com

http://www.apllogistics.com

http://www.maersklogistics.com

http://www.nyklogistics.com

http://www.averittexpress.com

http://www.eaglegl.com

http://www.dhl.com

http://www.panalpina.com

http://www.penskelogistics.com

http://www.ryder.com

http://www.schneider.com

http://www.cevalogistics.com

http://www.utiintegratedlogistics.com

http://www.landstar.com

http://www.sekoworldwide.com

http://www.nscorp.com

http://www.csx.com

http://www.abf.com

http://www.pyleco.com

http://www.con-way.com

http://www.convenanttransport.com

http://www.fedex.com

http://www.jbhunt.com

http://www.pittohio.com

http://www.roadway.com

http://www.ryder.com

http://www.saia.com

http://www.sefl.com

http://www.usxpress.com

http://www.upsfreight.com

http://www.myyellow.com

http://www.vaports.com

http://www.nscorp.com

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HOW WE DO IT…How We Do It

ohn Mascaritolo is Director of Global Logis-tics, Corporate Global Procurement for NCR Corporation. As such, he is responsible for corporate compliance with global transporta-

tion and logistics strategies and policies; further, he serves as resident adviser to company business units in developing their global logistics strate-gies. Mascaritolo has worked for 30 years with all aspects of transportation, warehousing, and global logistics, and has business experience in consumer goods, publishing, health-care, light-ing/construction industry, food retail industry and third party logistics.

Mascaritolo took leave from his corporate career to work for the Atlanta Committee for the 1996 Olympic Games, for which he oversaw design, implementation and management of logistical functions associated with the storage and distribution of assets used in the 1996 Olym-pic Games and infrastructure activity at remote Olympic venues in four U.S. states.

Mascaritolo is active with the Council of Supply Chain Management Professionals (CSCMP),

both locally and nationally, and was President of the Atlanta Roundtable from 1989 through 1994. He is an adjunct professor at DeVry University in Atlanta, where he teaches on logistics and supply chain management.

In this interview, NCR Director of Logistics John Mascaritolo tackles topics from the need to get a firm grasp on total cost of own-ership, to the reasons why supply chain security must be an enterprise-wide concern to the problems and possibilities of operations in India.

WT: How do NCR’s cur-rent efforts with interna-tional sourcing differ from its own recent history?

Mascaritolo: NCR oper-ated under a country-centric

model for many years with major manufacturing in the U.S. and Scotland. Over time, we moved to a combination of regional manufacturing for Automated Teller Machines and outsourced OEM manufacturing for retail Point of Sale units. Within the past seven years, we moved further away from the country-centric models, with a combination of region manufacturing with both local and global sourcing.

WT: What prompted this shift?Mascaritolo: There’s a constant need for

change to remain competitive. Technology changes quickly as does the demands for better products by the customer. Cost take-out initia-tives improve margins, and low-cost sourcing contributes to cost take-out initiatives.

WT: What, roughly, is the cost-benefi t anal-ysis of international sourcing?

Mascaritolo: International sourcing has its advantages and disadvantages. The advantages we see are mass production capabilities at higher quantities and lower costs, more competitive suppliers in low-cost regions, and good work ethic from different cultures. The disadvantage is that as the distance from product supply to point-of-need becomes greater, logistics costs are raised and product intervals lengthen.

WT: How big a piece of getting costs out comes from international sourcing?

Mascaritolo: Taking costs out is a constant push. You are never in a position to say, ‘Well, we’re there and it’s done.’ We constantly look at ways to make our deliveries quicker and less costly—it’s everything from going to the low-cost region, getting the best activity out of a supplier, getting your best carrier rates, getting the best mode of transportation, getting it streamlined all the way through the entire supply chain pro-curement process. And when you’ve done that, you say, ‘We’ve got it to this spot; now let’s try to get it better.’

WT: How does NCR identify and select its international partners?

Mascaritolo: We got through an extensive market search for suppliers capable of meeting our production needs. Our selection is based on a thorough Request of Information (RFI) and Request for Pricing (RFP) process that includes

J

The On-Going Management of International SourcingNCR Corporation

looks to

international

sourcing for

mass production

capabilities at

higher quantities

and lower costs.

BY MARK BERNSTEIN

John Mascaritolo is Director of Global Logistics, Corporate Global Procurement for NCR Corporation.

054HowWeDoIt.indd 54054HowWeDoIt.indd 54 3/16/07 10:43:29 AM3/16/07 10:43:29 AM

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How We Do It N C R C O R P O R A T I O N

online bidding or reverse auctions. Because we are dealing internationally, we also go through a Total Cost of Ownership process to incorporate such supply chain costs as taxes and duties, customs fees and even warehousing.

WT: Doesn’t everybody cover that range?

Mascaritolo: No. I fi nd in talking with colleagues in the industry that TCOs are commonly done by only comparing the purchase price of the product from the new source against the price from old source. It’s essential that all logistics cost be included in the study, especially duties and consumption taxes at point of import. A case in point: some electronic products are duty-free based upon various trade agreements between countries, but in place of “free duty,” countries are putting import taxes or consumption tax at levels as high as 30 percent. Your TCO has to recognize things like that.

WT: On total cost of ownership (TCO), did NCR develop its own model, or adapt/adopt one?

Mascaritolo: We adopted one, and modified it to fit our needs. Previously, we had an internal focus on total cost of ownership, but everybody was using a different version of a costing model. We found a model that was focused on the manufacturing side, and then enhanced it by incorporating trans-portation and logistics, customs clearance and duties to make a much better bundled tool.

WT: Was it diffi cult to implement TCO inter-nally?

Mascaritolo: Yes, it was hard. It involved breaking into people’s comfort zones. It was hard making sure that everybody followed the right process: ‘here’s the new model; here’s the new template; here’s what everybody has to do…’ Lots of people said, ‘Well, you know, my current model does this…’ and we had to analyze that and say, ‘well, yours does it to a point, but this one does it four or fi ve points later.’

WT: Did the new model show that some costs were much higher than had been thought?

Mascaritolo: That’s a good question.

If everybody’s own mind at least, no one thought they were way off. What I found, however, was that not everybody thought beyond the manufacturing process. They were just making a product-cost to prod-uct-cost comparison, not realizing that the full cost fi gures were necessary.

WT: What internal relearning did international sourcing require?

Mascaritolo: The key relearning is to

understand the relationship of time and distance. You need to realize that 24-hour delivery is not really 24 hours. People will say: ‘I can get on an airplane and be there in 14 hours.’ That’s true. A person can walk on an air-plane and be there in 14 hours, but a box cannot. A box can’t, because of the import-export process that has been injected into

the supply chain. WT: With international

sourcing, is it possible to project import taxes, customs

charges, etc., accurately over time?Mascaritolo: If you follow the trade

agreements, you fi nd that if an agreement has been in place, then that duty becomes consistent and doesn’t change. Taxes, as well, are pretty consistent in the developed countries. With emerging countries, you fi nd that once a new country joins a trade agreement, something changes—the duty changes or the taxes change. But once it all settles, it stays constant. Generally, if a duty goes away, then the consumption tax changes. Or, if duty increases, the consumption tax drops—well actually, I haven’t really seen one drop yet. But long

story short, once these are established they stay consistent.

WT: You mentioned that your TCO model factors in country poli-tics? How do you do that?

Mascaritolo: For one thing, we ask: ‘is this is a friendly country?’ And by that, we mean is it a country that is easy to do business with logisti-cally? If there is a free port, we know we can get

into and out; no hassles. There are coun-tries that are hard to do business with: We may be cleared to come out of Port A, but if we want to come out of Port B and then Port C, there may be three different sets of regulations. And then there will be differ-ent licenses to apply for and put into place before things can run smoothly.

WT: What, generally, does this require?

International sourc-ing is logical topic for NCR: the Dayton, Ohio-based computer firm has one of the longest overseas his-tories of any U.S. cor-poration. Established as National Cash Register in 1884, it promoted the cash register as the essential—indeed, the first—machine of business management. Within a decade, it was selling registers world-wide, with models that counted up the coins in marks, lira, pounds, kronen, francs, gulden and—in British India—rupees. By 1914, NCR had production on the ground in Berlin and one-third of its sales from outside the U.S.

Today, the $6 billion corporation focuses on the markets for ATMs, point-of-sale equipment and data warehousing and customer relation-ship management software. It remains international—in January, announcing the sale of 5,600 ATMs to four Chinese commercial banks.

An Overseas Pioneer

“We constantly look at ways to make our deliveries

quicker and less costly—from going to the low-cost

region, getting the best activity out of a supplier,

getting your best carrier rates, getting the best mode

of transportation, to getting it streamlined all

the way through the entire supply chain

procurement process.”


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http://www.portno.com


How We Do It N C R C O R P O R A T I O N

Mascaritolo: The fact is: you just have to pay more attention to current world events then you probably did when you were in school. In school, current events were just a project you did every Tuesday. Now, if you open a newspaper and you read something—an earthquake, say—you must immediately ask: what effect is this going to have on my people there? What suppliers do I have there? What business do I have there, going in or going out? So now you become much more sensitive to what is happening in the world, to world events.

WT: That raises the issue of supply chain resilience?

Mascaritolo: Resilience is just another way of saying: ‘What’s the plan if some-thing happens?’ When we had a country-centric model, everything stayed within a given country; whatever happened stayed there and the people solved it there. Now that you are crossing borders problems are not contained within a given country. It has a bigger ripple effect.

WT: So what do you do?Mascaritolo: We’re constantly thinking

of possible disruptions and how we could circumvent them. Someone says: ‘Well, this may be an off-the-wall thought, guys, but what would we do if this happened? Who is our point of contact? How do we get information? If there is a disruption, immediately the plants are impacted. If there is a supply source breakdown: what is the ripple effect? How do we circumvent the problem?’ Asking those questions in advance lets us build our database, so we know how to communicate internally and externally. Ten years ago, you probably never gave it a thought; you reacted to what happened instead of thinking ahead about what could happen.

WT: Focusing down: do you do much sourcing to India?

Mascaritolo: We have facilities and operations in India, yes; and we use it as a source.

WT: How would you assess Indian’s infrastructure for supply chain?

Mascaritolo: India’s infrastructure, logistically, is improving, but limitations remain. India still has a lot of regulatory issues within the country that makes it cumbersome for transportation and logis-tics. Some individual Indian states charge entry taxes or require permits of entry to be fi led before you can even put a ship-ment in motion. A considerable burden

falls on the transportation carriers—as well as the customer—to make sure things are in place before a shipment can go from A to B without incident.

WT: That’s internal to India; what about import and export?

Mascaritolo: With exports, a lot of visual inspections are required before anything leaves the facility. You need to have original signatures on all your shipping documents. You need to have designated governmental agencies witness and sign documentation, so that exporting something requires the coordination of a lot of people.

WT: People often cite the diffi culty of getting goods out of Asia, particularly into port at Los Angeles, as the biggest bottleneck in the global supply chain. What’s second to that?

Mascaritolo: What’s second—actually, it might be first—is security. Security is very important, particularly from the point

of pickup. For example, when volume leaving China comes into the Port of Los Angeles, you have a massive surge trying to go out of the port and into a rail net that is already at capacity. Things back up. With those delays, your supply chain becomes more exposed, so security is paramount throughout the process.

WT: Protecting your shipments is half the task; what about validating your shipments?

Mascaritolo: Yes. You as a shipper are responsible for everything from C-TPAT to Homeland Security concerns. Eventu-ally, every country is going to have some sort of C-TPAT equivalent and that will add another level of complexity. We’re hoping there will be some level of consis-tency; that other countries will copy what the U.S. has done. But if you have fifty

countries saying: ‘here are my individual requirements,’ then you have fi fty different platforms.

WT: How do you balance cost savings v. time-to-market?

Mascaritolo: That’s a good question, and one that is ongoing within the indus-try. At NCR, we measure our costs through scorecards from all our origin shipping locations. Sometimes, time-to-market out-weighs the cost savings of using a slower mode of transport, like ground or surface. The mix of modes is refl ected in our score-cards and we watch the cost per pound. At the end of the day, we still have to meet our cost-savings initiatives.

WT: What has surprised you in imple-menting global sourcing?

Mascaritolo: If I were to pick one surprise, it is that internally people did not realize how important a factor dis-tance would be to the total delivery solu-tion. Globalization causes more touch points and more interfacing with different country customs. International sourcing engages the import/export process which adds time to the delivery process.

WT: What lessons have you learned? Mascaritolo: One lesson is that you

need to do a complete costing analysis by source to know if international sourc-ing will provide net savings. Don’t just compare new source versus old source purchase price. Sometimes, once you’ve added logistics costs and import/export costs to your analysis, a higher unit price from an in-country supplier may prove to be better than a lower price from an inter-national supplier.

A second lesson: the speed with which companies are ramping up production in low-cost regions is outpacing supply chain infrastructure. Often, we see demand that is more than supply can handle. Cargo capac-ity remains in shortfall, especially from China. The logistics industry is making huge efforts to close this gap, but for the next few years, the fi ght for cargo capacity will be every logistician’s concern.

WT: What tasks remain to be accom-plished?

Mascaritolo: I need to make sure I have a strong global carrier network that is fl exible and cost effective to meet the needs of a new sourcing location. A good logistics network is never completed; it is always evolving to better itself and to be ahead of the demand curve—whatever that demand may be. WT

“If I were to pick one

surprise, it is that internally people did notrealize how important a

factor distance

would be to the total

delivery solution.”


92nd Annual International Supply Management Conference

PREPARATIONS FOR THE FUTURE

www.ism.ws

A D V E R T I S E M E N T

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http://www.ism.ws

Purchasing and contracting departments across North America are having a hard time getting the right people, at the right pay, in the right jobs. Retiring baby boom-ers means fewer experienced employees,

while global outsourcing means fewer entry-level posi-tions to get experience. Add to that a perception of lower earnings for entry positions, and escalating earning demands for experienced supply management profession-als and the result is an extremely tight labor market that has companies scrambling to save their labor supply.

Training and retention, risk management, and global supply management forecasts are just a few of the key topics addressed by this May’s 92nd Annual International Supply Management Conference.

Robert Dunn, principal of Strategic Procurement Solutions LLC, will offer tips and tools to help chief procurement offi cers (CPOs), managers, and human resource leaders to attract, identify, develop, and retain the right mix of supply management talent to keep their operation on the competitive edge.

Avoiding DisasterEven the best staffed organization can be crippled by events beyond the company’s control, however. The threat of terrorist attacks has joined a growing list of disasters that can impact a business. After Katrina, plywood, concrete, and labor costs didn’t just skyrocket in the Gulf Coast, but across America. Companies that didn’t have long-term supply contracts with solid escalation clauses either faced excessive acquisition prices, or lost out all together.

Betty Kildow, emergency management consultant at Kildow Consulting, will reveal accepted best practices for developing a comprehensive business continuity program that can weather the worst disaster. Kidlow will take workshop attendees through a step-by-step disaster preparedness assessment to determine a com-pany’s disaster readiness. Kildow follows the assess-ment by presenting a clear, repeatable process that can lead to the creation of a business continuity program, or a better understanding of where your business units fall within a company’s continuity operations.

Supply Futures RevealedFinally, the best way to prepare your supply chain for the future is to understand regulatory, political, and economic conditions that affect your industry. Work-ing with analyst fi rm A.T. Kearney, the Institute for Supply Management™ offers a keynote address that answers the question: “What should my organization be doing now to prepare for tomorrow?”

Delivered by Paul Laudicina, managing offi cer and chairman of the board at A.T. Kearney and author of

92nd Annual International Supply Management Conference

PREPARATIONS FOR THE FUTURE

Presentations focus on key challenges facing the supply management industry, including future market directions, workforce development, and catastrophic risk management.

www.ism.ws


http://www.ism.ws

the economic treatise, “World out of Balance”, Lau-dicina will present global market research that takes a comprehensive and global view of how purchasing and supply will drive the value of organizations over the next fi ve to ten years. The results of the research will provide executives with information to help set strategic initiatives and drive change at the executive level and within the supply management profession. Laudicina will share both market data and anecdotal fi ndings developed through discussions with ‘C’ level executives, directors, managers, and other thought leaders as well as focus groups from all of the major economic regions of the world.

Preparing strategies that leverage future change is never easy. You need the right information to do your job. Safe-guarding supply chains requires the right people, the right partnerships, and the right prepa-ration. Since 1915, the Institute for Supply Manage-ment™ through its member outreach, education, and educational conferences has sought to provide indus-try with the data, clarity, and understanding necessary to succeed in the evolving global marketplace. This May 6-9, get the competitive edge at Bally’s Las Vegas, during ISM’s 92nd Annual International Supply Man-agement Conference.

www.ism.ws


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Whoever said “it’s a small world”didn’t have to manage a supply chain spanning five countries …

ISM is a member of the International Federation of Purchasing and Supply Management

Distribution ➤ Inventory Control ➤ Investment ➤ Logistics ➤ Manufacturing ➤ Materials Management ➤ Packaging

Purchasing ➤ Product/Service Development ➤ Quality ➤ Transportation

It’s a big world, with big opportunities and even

bigger challenges.

From Asia to Europe, the Middle East to South America, supply management

leads business. ISM prepares you to lead supply management.

➤ Register now for ISM’s Annual International Supply Management

Conference, May 6-9, 2007 in Las Vegas. Visit www.ism.ws.

For more information, call ISM Customer Service at 800/888-6276

extension 401.


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t fi nally seems as though the air cargo indus-try is recovering after years of mixed results. According to the International Air Transport Association (www.iata.org), last year’s cargo

growth rate increased to 4.6 percent from 3.2 percent in 2005, while this year’s forecast also points to modest growth.

Yet, the industry is facing a variety of stiff chal-lenges. High fuel costs are one of the biggest, making it harder not only to remain profi table but to stay competitive against other modes of trans-portation, particularly truck. Although fuel prices have decline somewhat, oil is still around $60 per barrel, which is more than double the price in 2000. Furthermore, while air cargo has picked up gains internationally, domestic air cargo in the U.S. has taken a dive. Truckers and integrators continue to chip away at air cargo market share with lower costs, improved transit times, and better service offerings, such as time-defi nite delivery.

And if that weren’t enough, legislation requir-ing 100 percent inspection of all cargo carried on passenger aircraft continues to threaten the industry. It’s no secret that the Democratic Congress wants to get the legislation approved, but whether the industry can continue to fi ght it remains to be seen. Naturally, lawmakers and air cargo interests both want a safer, more secure

environment, but what does that mean? The Transportation Security Administration (TSA) itself has stated that 100 percent physical screen-ing of belly cargo is “impractical from a fl ow-of-commerce and resource perspective.” Rather, the TSA and the air cargo industry are calling for a multi-layered approach that includes canine screening, a beefed up Known Shipper program, and improved bomb detection technology.

Uncovering new markets, adding new servicesChina continues to be a huge draw for air cargo as manufacturing and outsourcing continue their overseas migration. However, while U.S. West Coast airports are still major gateways for inbound Asian freight, many carriers have added service to East Coast airports as well. New York’s JFK airport reported that 51 percent of its inter-national freight volume last year came from Asia, while Miami also handled more international freight in 2006, much of it originating in Asia and destined either for the southeastern U.S. market or Latin America. Korean Air (http://cargo.kore-anair.com), China Airlines (www.china-airlines.com), and Cathay Pacifi c (www.cathaypacifi cca-rgo.com) are just some of the carriers who have added freighters from Asia to the East Coast.

But, it’s not just China that’s responsible for air cargo growth. Vietnam is getting a lot more attention, especially with its formal induction into the WTO. Intel’s plans to invest $1 bil-lion in a chip assembly and testing plant, which is expected to become operational in 2009, is another signifi cant development for that country. Meanwhile, DHL (www.dhl.com) is preparing to spend $14 million for new facilities in Hanoi, Ho Chi Minh City, Haiphong, and Danang. To keep up with the anticipated growth, the govern-ment has approved a plan to build a new airport north of Ho Chi Minh City that will have a cargo handling capacity of fi ve million tones a year. It is scheduled to open in 2010.

Although perishables have been a mainstay for the air cargo industry for years, it is yet another segment that has seen increased competition from other transportation modes, like ocean freight. However, the popularity of packaged salads, peeled and ready-to-eat fruit, and precut and arranged fl ower bouquets are shifting some of the highly time-sensitive business back to air carriers. British Airways World Cargo’s (www.baworldcargo.com) Perishables Handling

Air Cargo Reinvents ItselfCompetition from

truck and rail,

volatile fuel costs,

and legislative

concerns are

forcing the

industry to

work harder for

market share.

BY LARA L. SOWINSKI

T R A N S P O R T A T I O N & L O G I S T I C S

I

Am

eric

an A

irlin

es C

arg

o

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http://www.iata.org

http://cargo.koreanair.com

http://www.china-airlines.com

http://www.cathaypacificcargo.com

http://www.cathaypacificcargo.com

http://www.dhl.com

http://www.baworldcargo.com

http://cargo.koreanair.com

http://www.china-airlines.com

http://www.baworldcargo.com

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http://www.seaboardmarine.com


T R A N S P O R T A T I O N & L O G I S T I C S

Center at Heathrow Airport provides ser-vices such as labeling, chopping, cutting, and repackaging of produce. The carrier also introduced a temperature controlled service last year that targets the pharma-ceutical and biotechnology industries. For its part, American Airlines Cargo (www.

aacargo.com) launched its CoolPerishables program last October in Miami to provide pre-cooling and expedited U.S. Depart-ment of Agriculture and customs clearance for fresh shipments onsite. The president of American’s cargo division noted, “As the demand for fresh products increases

worldwide, we have heard our customers tell us this service is important to their suc-cess.” Perishables account for more than 10 percent of global air freight tonnage and volume is expected to grow by an average of 8 percent annually for the next fi ve years, according to British Airways. WT

From an economic viewpoint, 2006 was a much-improved year for the U.S. airline industry. Including the all-cargo sector, the Air Transport Association (www.airlines.org) estimates that the industry will report earn-ings ranging from $2 billion to $3 billion. On the heels of $35 billion in net losses over the previous fi ve years, of course, any full-year profi t comes as welcome relief.

The initial economic outlook for 2007 is the most promising in several years. In addition to a healthy revenue environment, U.S. airlines are seeing the results of painstaking, ongo-ing cost reduction efforts and balance-sheet repair. Although the industry is opti-mistic and well positioned to move forward, the

reality is that events beyond airlines’ control could easily push

them off course.While the last few quarters have been rela-

tively good for the airlines, it is worth noting that the deregulated (post-1978) U.S. airline industry has never posted a net profi t margin higher than that of the average U.S. corpo-ration. From 1979 to 2005, for example, the median margin for a U.S. corporation was 5.2 percent, well above the negative 0.4 percent margin experienced by the airlines. U.S. indus-try margins peaked in 2005 at 9.1 percent, versus 4.7 percent for the airlines in 1997. And in the worst year of the period for each group, the average U.S. corporation made money, recording a net margin of 3.1 percent in 1986, while the airlines posted a negative double-

digit margin of 10.3 percent in 2002. That is a 15-point spread for airlines versus a six-point spread for the average U.S. business, clearly refl ecting the industry’s earnings volatility.

While conditions have improved and the overall financial outlook is guardedly opti-mistic, debt levels remain high, leaving the airlines vulnerable to fuel spikes, recession or exogenous shocks (e.g., terrorism, pandemics, natural disasters), let alone ill-advised public policy decisions. The challenge we face is to achieve meaningful and sustainable profits, and to improve credit ratings to the point where

airlines can weather normal economic turbulence while simultaneously investing in the future.

To enhance the travel expe-rience, renew fleets, refurbish facilities, expand customer-

interface tools, retain talented employees and promote economic

stability — in other words, to invest in the future — the industry must reestablish

its fi nancial health. This means not just a quarter or two — or even a year or two — but many years of profi tability. We are talking about achieving a normal rate of return, at least covering our cost of capital. Airlines, which help drive 8.8 percent of the nation’s employment, are working hard to achieve some sort of fi nancial normalcy, a reasonable goal that should be within reach.

It is in that context that ATA is projecting an aggregate net profi t (excluding bankruptcy restructuring and/or reorganization charges) of $4 billion for 2007, on operating revenuesexceeding $150 billion. That would make 2006-2007 the fi rst back-to-back years of prof-itability since 1999-2000. Given the risks of an economic slowdown and unrelentingly high fuel prices beyond 2007, pressure to control non-fuel costs and to identify new sources of revenue will remain paramount. Carriers are optimistic about their future but realistic about taking the necessary steps to preserve the remarkable strides they have made over

the past several quarters.Airlines continue to simplify their opera-

tions, in part by reducing the number of air-craft types. They have disposed of hundreds of older airplanes to curb not only fuel and labor expenses but also maintenance costs and fuel-related emissions. This important trend is expected to continue in 2007. At key hubs, airlines continue to streamline schedules while simultaneously increasing their global pres-ence both through their own fl ights and via expanded worldwide alliance arrangements. They also have closed obsolete facilities, shifted bookings to lower-cost distribution channels, expanded the deployment of self-service check-in kiosks at on- and off-airport locations, and improved Web site functionality to provide cus-tomers with more options and control of their travel experience. Again, by necessity, the changes are numerous and ongoing.

Meanwhile, balance sheet repair is well underway and airlines should be able to gen-erate meaningful cash fl ow in 2007, allowing them to continue to pay down debt while revisiting opportunities to acquire new aircraft with the sharpest focus in years. Let us cher-ish the moment and hope that we are entering a new era in air transportation.

A recent Bear Stearns report noted, “The improved environment in the U.S. is only tem-porary, in our judgment. The business remains highly cyclical.” Whether or not Bear Stearns proves to be correct, the airlines have every reason to remain focused on reducing exist-ing costs and dodging looming commercial or governmental impediments to growth.

Ultimately, fi nancial stability in the airline industry is good not only for airlines and for their customers, but also for the rest of the economy. U.S. airlines must remain competi-tive globally to continue to foster the nation’s economic growth. If only airlines were as prof-itable as the average U.S. company.

John Heimlich, Air Transport Association Vice Presi-

dent and Chief Economist

2007 Outlook: Reaching for the Skies? BY JOHN HEIMLICH

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http://www.airlines.org

http://www.aacargo.com

http://www.aacargo.com

©2007 United Air Lines, Inc. All Rights Reserved.

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Small Exporter O F T H E M O N T H

Candy is Dandyhocolate vases, squares of vanilla fudge, and sugar-free lemon drops—what better way to grow a business than appealing to the world’s sweet tooth? Margaret McEntire, founder,

president, and chief executive officer of Candy Bouquet International (www.candybouquet.com), thought so. Her fi rm is now the largest candy fran-chise in the world. But, it wasn’t always that way.

The foundation for this successful operation began back in 1989. Margaret McEntire and a partner opened the fi rst Candy Bouquet store in Houston, Texas. However, after just one year they were forced to close the store due to unfore-seen circumstances and McEntire was faced with quitting or starting over.

With her life savings on the line and deter-mined to succeed, she opened a tiny, 90 square-foot shop in Little Rock, Arkansas. Her family helped to make the arrangements and in keeping with the McEntire philosophy, she started giving away bouquets in high traffi c places like banks and popular restaurants. This marketing strategy

worked and soon people started calling, some placing orders and others wanting to learn the secrets on how to make these unique bouquets. By 1995, Candy Bouquet was looking to expand overseas.

Today, the typical Candy Bouquet store is a full-scale chocolate and candy retail operation, although some operate successfully as home-based franchise businesses. Some franchisees operate exclusively as Candy Bouquet; others run this franchise in conjunction with a fl oral shop or other retail outlet.

The challenge McEntire says her biggest challenges have been learning more about business practices in differ-ent cultures, gaining key market information, and learning about channels of trade. Educating for-eign businesspeople about American franchises is another challenge, and so is describing what a candy bouquet is. The company has had to explain the concept of rolling a candy store and a fl orist together and making a product that is really all candy.

The solution In 1995, McEntire attended a trade show in Washington, D.C., where she met a trade spe-cialist from the U.S. Commercial Service. That connection led to her participation in a Commer-cial Service mission to Eastern Europe and intro-duced her to doing business in foreign markets.

In the years that followed, Candy Bouquet expanded to dozens of foreign countries. The company’s unique franchising system allows individuals to make a single purchase into the franchise and pay no continual overhead. The only requirement is that their supplies must come from the Candy Bouquet warehouse in Little Rock.

“One of the most helpful things I’ve found in doing foreign business is having a person we know in that country to help us out,” says McEntire, referring to the Commercial Service’s worldwide network of trade specialists. She credits much of her success to Dennis Millard, a trade special-ist at the Little Rock Export Assistance Center. “When I know a foreign franchisee is coming, I call Dennis at our local U.S. Commercial Service offi ce, and he provides me with solid information on the business practices of that culture.”

Millard has also helped her take advantage of many Commercial Service programs. Candy Bou-

Candy Bouquet

International

finds sweet

success in

franchising.

BY CURTICE K. CULTICE

C

Margaret McEntire, founder, president and CEO of Candy Bouquet International.

Candy Bouquet

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Small Exporter O F T H E M O N T H

quet participates annually in the Interna-tional Franchise Trade Show and has taken part in trade missions around the world. In 1999, McEntire participated in the Women in Business Matchmaker Trade Mission to South America and the Women’s Economic Summit of the Americas in Buenos Aires, Argentina. McEntire is also a frequent par-ticipant in Commercial Service global video teleconferencing. She is a regular presenter at the international trade events sponsored by the Little Rock Export Assistance Center and shares her experiences with other busi-nesses that are new to exporting. McEntire also advertises in Commercial News USA, a product catalog produced by the Commer-

cial Service and distributed to more than 40,000 overseas buyers.

With assistance from the Commercial Service, Candy Bouquet has expanded from a single-room operation to more than 700 franchises in more than 40 countries. McEntire says, “Nobody likes to pay taxes but [the Commercial Service] is the best use of my tax dollars.”

Lessons Learned McEntire has several lessons to pass along to new exporters:

• Adapt your product for other cul-tures. In one instance, McEntire was trying to sell chocolate vases in Malay-

sia, but there were few takers: “We dis-covered that Malaysians…thought the chocolate pieces were too big. So we got the idea of ordering sample sizes from the manufacturer, and that did the trick.”

• Educate yourself about local prac-tices. On one occasion, McEntire shipped candy to Saudi Arabia in boxes that bore pictures of women’s hands holding drinking glasses. Saudi Arabians don’t drink, so their cus-toms bureau returned the boxes. On another occasion, McEntire invited three potential Candy Bouquet fran-chise owners from Indonesia, Malay-sia, and the United Arab Emirates (UAE) to visit her home for training. The gentleman from the UAE even-tually wanted to pray. “Margaret,” he asked, “which way is Mecca?” McEn-tire has learned to be prepared for any cultural contingency.

• Realize that there will be setbacks. One such setback occurred in Cairo, where women seldom start their own businesses. Much of the candy that her franchisees had ordered was burned on the airport tarmac. Even-

tually, many of the women were able to persuade their husbands to join in as business partners, making the venture more socially acceptable.• Protect your intellec-

tual property. In China, someone copied McIntire’s brand name and then tried to order additional candy from her. Fortunately, other Candy Bouquet franchisees in China informed McEn-tire about what was going

on. She is now pursuing legal action. • Enjoy your work. “I love my job; it’s fun

to go around the world to help people eat candy and chocolate,” McEntire says. “We are changing the face of the world with a brand new industry, and it is very gratifying to see our franchises succeed and help the local economy. If you do what you love, you will never work a day in your life.” WT

Curtice K. Cultice is a senior communications special-

ist for the U.S. Commercial Service. Founded in1980

by the U.S. Department of Commerce, the Service helps

U.S. companies, particularly small- and medium-sized

businesses, make sales in international markets.

According to the U.S. Commercial Ser-vice, franchising is a popular and growing approach for local firms to establish additional consumer-oriented businesses in Saudi Arabia. Although the fran-chise market is small relative to that in the United States, it is rap-idly expanding in several business sectors.

Many brand names are already well entrenched in the market, and the concept has proven to have a low failure rate for Saudi business people. Saudi entrepreneurs generally have suffi cient capital and a desire to own their own business, but are hesitant to strike out on their own with a totally new operation or idea, creating a good potential for franchising.

Even though there are no fi gures reveal-ing the size of this lucrative market, indus-try sources stated that fast food franchises

account for more than 60 percent of the total franchise market. American firms have the lion’s share with more than 70 per-cent of all franchised operations in Saudi Arabia, from fast food outlets and hotels, to car leasing, laundry

services and printing. Saudi consumers have increasingly

become sophisticated demanding qual-ity, service and value for money. American products and services in this industry have established brand recognition and were able to attract and retain a large section of the Saudi population.

Saudi demographics also enhance the viability of this concept among the younger segment of the population. Almost half of Saudi population is under the age of 15, and franchisees have focused on this age group to sell in this market.

Setting Up a Franchise in Saudi Arabia

Online Resources for Saudi Arabia

U.S. Government Export Portal www.export.gov

Saudi Arabian General Investment Authority www.sagia.gov.sa

The World Factbook https://www.cia.gov/cia/publications/factbook

Arab American Chamber of Commerce www.arabchamber.org

International Franchise Expo, Mar 30 - Apr 1, Washington, D.C. http://www.ifeinfo.com/

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http://www.export.gov

http://www.sagia.gov.sa

https://www.cia.gov/cia/publications/factbook

http://www.arabchamber.org

http://www.ifeinfo.com/

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Bank of the West ........................................33

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BAX Global ...................................................43

www.baxgoesschenker.com &

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Coface ............................................................27

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Cosco USA ....................................................49

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Covenant Transport ...................................... 2

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Euler Hermes................................................51

www.eulerhermes.com/usa

FedEx Express Freight ...............................37

www.fedex.com/expansion

FedEx International Priority Freight ......39

www.fedex.com/us/ExpressFreight

HSBC ................................................................ 3

www.tradeservices.hsbc.com

IFS ...................................................................55

www.ifsworld.com

Institute for Supply Management ...41, 59-62

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JP Morgan Chase ........................................31

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Lion Technology...........................................14

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Mediterranean Shipping Company .......... 9

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Menlo Worldwide ........................................11

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Meridian IQ ................................................ IBC

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Nvision Global .............................................21

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Old Dominion ......................................... 16-17

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Port Authority of NY & NJ ........................BC

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Port of Everglades ......................................53

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Port of New Orleans ...................................57

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Roadway ........................................................13

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Seaboard Marine ........................................65

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Schenker, Inc ................................................43

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Surge Capital ...............................................15

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UPS ................................................................... 4

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BY JEREMY N. SMITH

Great Moments I N W O R L D T R A D E


n a map of Texas, a tiny dot marks the city of Sanger, population 4,500, some 50 miles northwest of Dallas and 20 miles south of the Oklahoma border. Sanger is an out-of-the-way place by

most considerations, but during the summer of 2003, to the logistics executives of 100 of Ameri-ca’s largest companies, the city was suddenly the most important place in the world. Linda Dillman, then chief information offi cer for Wal-Mart, had just announced that the world’s largest retailer expected its top suppliers to tag all cases and pal-lets delivered to its Sanger distribution center with

radio frequency identifi cation tags. Radio frequency identification,

abbreviated RFID, mar-ries two early twentieth-century

technologies: radio transmission, wherein

objects transmit information via electromagnetic waves; and

radar, which detects and locates objects by the refl ection of such waves. Add the subse-

quent technologies of the transistor, the integrated circuit, and the microprocessor, and one can attach tiny tags to items then able them to automatically broadcast their identity—fighter plane, diamond ring, chewing gum, cow herd—to receivers. So-called “passive” RFID tags as small as stickers require no internal power supply. Instead, the incoming radio frequency signals induce just enough electrical cur-rent in the antennae to power the tag’s integrated cir-cuit and transmit back a response. “Active” RFID tags, which require an internal power source, boast tougher, longer-range transmission capabilities and may include sensors to log such variables as tem-perature and exposure to vibration.

The military, always interested in telling friend from foe, embraced RFID two decades ago—as did toll booth operators, who opened unimpeded toll collection points for drivers willing to attach tags uniquely identifying their vehicles for later billing. Similarly automated identifi cations fol-lowed for certain classes of bank customers and hospital patients, travelers and prisoners, even VIP patrons to a Barcelona nightclub. As recently as fi ve years ago, however, the role of RFID in retail inventory management was much promise, little implementation. Wal-Mart wanted more.

“The technology will help us know where

inventory is all the time,” Linda Dillman told BusinessWeek soon after her announcement. “We’ll see better tracking and moving of inventory, faster receiving and shipping, improved quality inspection, fewer out-of-stock items resulting in improved shopper satisfaction, greater predict-ability in product demand, and better value for the shopper as effi ciencies occur.”

What Wal-Mart wants from its suppliers, Wal-Mart gets: in all, 137 not 100 companies signed on for the Sanger, Texas trail run. The fi rst off a commercial assembly line was an RFID-tagged case of Scott Towels, produced by consumer goods giant Kimberly-Clark in April of 2004. “RFID should give us visibility into our whole supply chain from our supplier’s supplier all the way to the [store] shelf,” a celebratory Terry Assink, Kimberly-Clark’s chief information offi -cer said to CIOInsight. “It’s going to get to the point where we can send an alert to Wal-Mart and ask them why a store shelf is empty when we know there’s product in the warehouse.”

Today, Assink’s description remains more fore-cast than fact, in part because RFID tags still cost more than the humble barcode—used worldwide by more than 1 million companies in more than 140 countries—and also because machines trying to read the tags succeed with only some seventy percent of attempted pallets. Further intimidating early adopters is that the technology lacks specifi c standards on what data tags include and how exactly they communicate, though an interna-tional consortium called EPCGlobal has formed to fi x that. “No one makes money off standards” explains Alex Soojung-Kim Pang of The Institute for the Future, a strategic research group based in Palo Alto, California. “But everyone makes money because of standards.”

Meanwhile, the field of inventory manage-ment is hardly closed to other entrants. Last July, Hewlett-Packard demonstrated an early prototype of a pencil-tip-sized RFID competitor it calls the Memory Spot. Though as much as half a decade from commercial production, HP’s chip promises to transfer more data faster, and all with physical dimensions a fraction of even the smallest RFID tag. Asked to compare his prod-uct to RFID, Howard Taub, vice president of HP Laboratories, said, “It’s like comparing a monkey and a human. There are some similarities but the capabilities are very different.” WT

Retail RFID Gets Real

O

Royal Philips Electronics

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On April 26,1956, containerization wasintroduced at Port Newark. To meet thischallenge, The Port Authority of NY & NJ builtthe first container terminal, which revolutionizedthe shipping industry.

Today, we’ve invested over $2 billion so thatwe’re better equipped to handle your cargoneeds now, and for the future.

We’re deepening our channels to 50 feet,building additional on-dock ExpressRail facilitiesand instituting new technology to securecontainerized cargo. This means faster and moreefficient delivery of cargo for our customers.

At the same time, we take seriously ourrole as environmental stewards of the harborand are committed to developing operationsand activities that will help maintain the balancebetween our economic development and thesafekeeping of our environment.

We led the way in 1956. And we’re leading the way today.

We’vealwayscarried

the torch.

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World Trade April 2007

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