Namaste, the new India Insider: www.AmericanShipper.com/Namaste
MARCH 2008
Forwarder
Momentum
Special report
www.americanshipper.com
10 + 2 = $$$$
Big IT fishes for 3PLs
Shifting trade winds
When shareholders attack
6
20
60
66
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Vol. 50, No. 3
LOGISTICS
COAC recommends ‘10+2’ changes
‘10+2’ could spark broker evolution
IT drives competitiveness
Asia Logistics
Shippers’ IT
6
12
16
24
30
32
FORWARDING/NVOs
34
Litman: Spirit of the industry
34
AES mandatory consensus reached 34
TRANSPORT/AIR
Another day at the office for UPS
ACE lift for Air AMS
E-Freight update
54
54
56
57
TRANSPORT/OCEAN
Your country needs you: Spend!
Schedule slippage
When shareholders attack
‘Give-and-take’ balances UNCITRAL
58
58
64
66
69
TRANSPORT/INLAND
China beckons logistics providers
China still draws offshore business
Globe-trotting truckers
72
72
74
75
PORTS
Court puts cargo case in reverse
76
76
SERVICE ANNOUNCEMENTS
FEFC eastbound up in 2007 despite 4th
quarter dip ... Rickmers-Linie adds ship to
Pearl String ... APL Logistics adds China/
U.S. guaranteed FCL service ... U-Freight
adds U.S./Southeast Asia service ... “K”
Line joins China/Red Sea loop ... CMA CGM
finds NEMO home in Tauranga ... CMA CGM
to continue EPIC journey alone ... Hamburg
Sud integrates Costa’s services
DEPARTMENTS
Comments & Letters
The Strategic View
Shippers’ Case Law
Corporate Appointments
Service Announcements
Editorial
2
24
76
77
78
80
March 2008
On the Cover
Forwarder momentum
36
MergeGlobal is back in partnership with
American Shipper in 2008 for another year
of transport and logistics industry analysis.
In its first report, the MergeGlobal team
provides its perspective on how and why
freight forwarders are able to generate
attractive financial returns that asset-based
air and ocean carriers can only dream about.
10 + 2 = $$$$
6
The U.S. proposal to collect detailed information
about containerized imports has shippers on edge
because of concerns about compliance costs, difficulty
of overhauling business practices, IT and whether
all their efforts actually improve security. However,
software providers who will help much of the industry
connect to CBP systems say the integration job
is manageable, and will ultimately benefit business.
Big IT fishes for 3PLs
20
Information technology giants spend millions
of dollars a year on R&D and sales promotion, but
will it be enough for these firms to reel in the potential
rewards from the highly fragmented 3rd-party freight
transport field? They think so, and for the hook SAP
and Oracle offer what they believe to be scalable,
yet affordable, IT programs specifically devoted
to the market. Smaller firms cast their lines as well.
Shifting trade winds
60
Shipping companies reduced their container capacity
out of the transpacific in the last part of 2007 while
increasing the number of slots on services in the
Asia/Europe trade, according to statistics compiled
by American Shipper’s affiliate ComPair Data. While
carriers point to seasonal adjustments, the lines are
also responding to rapid growth in the Asia/Europe
trade that is expected to continue in 2008.
Daily News Updates
americanshipper.com
Feature Articles & Analysis
Your subscription to American Shipper brings you both
American Shipper Magazine
AMERICAN SHIPPER: MARCH
2008
1
Measures require reasonable access vs. reasonable risk
In a Feb. 4 Shippers’ NewsWire item, headlined “TWIC enrollment at nation’s ports
off to slow start,” Keith Higginbotham gave a good recap of the Transportation Worker
Identification Credential progress. He highlighted that 69,000 TWIC applications had
been received against an estimated population requiring TWIC
cards of somewhere between 750,000 and 1.5 million.
Having for a time been closely involved with maritime security issues for a major container carrier, I have followed
TWIC progress with varying degrees of interest. I recall a
congressional hearing that took place in mid-2007 at which
Kip Hawley, the Transportation Security Administrator and assistant secretary for Homeland Security, was a principal witness.
He was well prepared. Initial portions of his testimony listed
problems associated with TWIC and what TSA was doing to address these issues.
Early on he took some of the steam out of a panel eager to criticize. In subsequent
back and forth with the panel Hawley said TWIC represented a degree of access
security that no one in the world had achieved, and that this sophistication was a
major component of the extended time frame in implementing TWIC.
As an interested observer and a taxpayer, my initial reaction to this description of
TWIC was: Why? What risk assessment had been undertaken, the results of which
indicated that a U.S. marine container terminal needed this degree of access security?
From where I sat in the maritime security debate, no such study had been produced.
In fact, administration officials with whom I had some contact did not view the maritime security environment at the top of the risk list. Congress was a different story as
maritime security became politicized and posturing opportunities arose.
In the post 9/11 environment TWIC took on an iconic role in homeland security
as did other elements of the maritime sector. Progress on some icons — e-seals, and
container security devices for example — has slowed as current technological realities became evident, while others, such as 100 percent scanning, continue despite
warranted skepticism as to practicality.
The last I heard, the cost to date of TWIC was $100 million, which covered mainly
card development, leaving progress and implementation of card readers for a later
date (and greater cost).
Several years ago my company participated in one of the trade lane studies conducted under the auspices of Operation Safe Commerce. At the end of the project
I saw the 180-page report produced by the consulting firm who managed the test.
I viewed the report with some trepidation, as I was fearful of a consultant-inspired
“all-ahead flank” approach to the value of cutting-edge technology in solving any
and all maritime security concerns. As I got into the report I found myself reading
a well-prepared, real world view of the maritime security environment. Current
CEO
Hayes H. Howard
Jacksonville hhoward@shippers.com
Publisher
Jim Blaeser
New York
blaeserj@shippers.com
Editorial
Christopher Gillis, Editor
Washington
cgillis@shippers.com
Gary G. Burrows, Managing Editor
Jacksonville gburrows@shippers.com
Eric Kulisch, Associate Editor
Washington ekulisch@shippers.com
Eric Johnson, Associate Editor
New Delhi ejohnson@shippers.com
Simon Heaney, Associate Editor
London
london@shippers.com
Chris Dupin, Associate Editor
New York
cdupin@shippers.com
Keith Higginbotham, Assoc. Editor
Los Angeles
keithh@shippers.com
Stephen Fontanella, East Coast Rep.
(212) 422-2420 stevef@shippers.com
Sales
Caroline Binick, Gulf Coast, Midwest
(713) 521-9339
cbinick@emmettcompany.com
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Production Jacksonville nbarry@shippers.com
Art
Jason Braddock, Art Director
Jacksonville jbraddock@shippers.com
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Jacksonville dporter@shippers.com
Shipping
Research
Simon Heaney
London
london@shippers.com
Francis Phillips
London
fphillips@shippers.com
Stephen Wynn
Jacksonville
swynn@shippers.com
Circulation Karyl DeSousa
Kerry Cowart
Jacksonville circulation@shippers.com
Web/Tech Kathy Houser
Support
Jacksonville khouser@shippers.com
Vol. 50 No. 3
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AMERICAN SHIPPER: MARCH
2008
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March 2008
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technology limitations and the experimental status of many
security devices were recognized. Further, some existing security measures, including the ISO 17712 bolt seal, were seen
as actually providing some value.
In the context of TWIC, surely there must be existing methods of establishing reasonable access to U.S. marine terminals
commensurate with reasonably evaluated risk.
Whatever happened to Operation Safe Commerce?
Alan T. Hicks
Washington
Let’s fix this communication problem!
Our industry is about information and communication. Our
customers depend on accurate, on-time and even proactive
information in order to manage their increasingly complex
global supply chains. Fast distribution of
information is seen as a key value differentiator, and more and more companies
have created solutions that come to our
e-mail inboxes almost instantly.
As technology is available and utilized,
Web sites are more interactive and accurate
than ever. Therefore we should all know
what is going on with pretty much anything,
internally or externally. Right?
Unfortunately, this does not seem to be the case at all. We
have a great divide in our industry — the ones who know vs.
the ones who don’t.
I travel around this country a lot. I am fortunate to meet many
people, from CEOs to local department managers, in addition
to airlines, forwarders, ground handlers, truckers — a pretty
solid cross section of the U.S. air cargo industry.
The problem as I see it is the growing gap between information (company specific and industry wide) that is available and
understood by the local managers and employees.
Interestingly, when you look at this issue more on a company by company basis, you realize very quickly one thing:
Our most successful players in the industry also have the most
well-informed employees! Now, I do not have scientific data
to back that up, but trust me — it’s true.
How many companies have a strong communication process
and flow to every employee in the organization? How many
local offices hold truly regular employee meetings where
company goals, industry issues and initiatives are being shared
and discussed? How well are company goals truly explained
— behind the simple number of KPI?
None of this is a matter of company size — it is as important
in a small structure as it is in a large and global one. Our industry
has to manage change every day — from security, quality, flight
changes, and customer expectations. The list is endless.
Front line employees need to know more than ever to act in
the best interest of the customer. That begins with both solid
internal and external communication.
Otherwise, if the have-nots don’t take action to address this
problem they will rapidly become the has-beens.
Jens Tubbesing
president, Cargo Network Services Corp.
Garden City, N.Y.
4
AMERICAN SHIPPER: MARCH
2008
Keeping ’em honest
After listening to logistics consultant Curtis Spencer speak for
the umpteenth time on supply chain security during the American
Association of Exporters and Importers winter conference, the
question on my mind is, why do so many trade associations and
conference organizers give him a platform to speak?
Spencer is president of IMS Worldwide Inc., a Houston-based
firm that specializes in providing real estate developers and
international businesses advice on setting up foreign trade
zones, inland ports and industrial parks. In recent years the
company added a supply chain security practice.
Spencer has been connected to the Commercial Operations
Advisory Committee ever since he was selected to his first
term in early 2005. Belonging to this influential Department
of Homeland Security sounding board undoubtedly conveys
prestige and a certain level of inside access for one’s company. But most committee members are very low-key about
trumpeting their association, and focus on providing industry
perspectives to government. COAC isn’t supposed to be used
as a marketing tool.
Spencer is an entertaining speaker, but his visibility gives the
appearance he’s COAC’s spokesman, when that role is actually
held by Boeing’s Bruce Leeds. And it leaves the impression
that he is an authority on supply chain security matters.
The problem is he tends to hype the industry impact of DHS
security measures and is too loose with facts when it comes to
describing what’s going on in the policy arena. During the AAEI
conference, Spencer made a series of inaccurate statements:
• He indicated container security devices are one of the three
legs of the Secure Freight Initiative. Not so — the legs are a
pilot program for automated 100-percent container inspections
in seven overseas ports, collection of more advance information through the “10+2” regulation, and use of the Global Trade
Exchange third-party database to enhance cargo risk analysis.
• He stated only 1 percent of inbound cargo is scanned
overseas under the pilot program. Not so — less than 1 percent
of incoming containers are actually run through detection
machines at Container Security Initiative ports where targeted
inspections take place overseas; DHS has said it will inspect
roughly 7.5 percent of all inbound cargo when the pilot is running full steam at all seven ports.
• He said 80 percent of cargo entering the United States
is being scanned either at the U.S. port or overseas. That’s
fundamentally wrong because Customs and Border Protection
only scanned about 5 percent to 6 percent of the cargo during
the past three years, and now is doing a bit more under the
Secure Freight Initiative pilot. CBP also says it is conducting
radiation detection checks on 98 percent of all ocean containers
at U.S. port locations.
The figure Spencer was referring to is that 80 percent (now
closer to 85 percent) of all ocean containers entering the United
States go through a CSI port, according to CBP. But that’s a
big difference than saying they all get inspected. It just means
they have the possibility of being inspected if their risk score
triggers an alert.
One can explain away some of these factual errors as minor
inconsistencies given in a fast-moving presentation. But there is
a lot of confusion in the industry about what CBP is doing and
how security regulations will be implemented, which makes it
doubly important to give accurate information. (Eric Kulich)
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10 + 2 = $$$$
Import industry deals with cost and confusion
of proposed cargo security rule.
BY ERIC KULISCH
T
he U.S. government’s “10+2” proposal to collect
more detailed information about containerized imports has international shippers on edge because of
deep concerns about the cost of compliance, the difficulty of
overhauling business practices, information technology and
whether all their efforts actually improve security.
Despite all the hand-wringing, software providers who will
help a large segment of industry connect to systems at U.S.
Customs and Border Protection say the
integration job is manageable and that the
security filing requirement will ultimately
prove to be a benefit for business. Several
likened the effort to implementation of
the 24-hour rule in 2003 when Customs
required carriers and non-vessel-operating
consolidators to electronically file manifest
information in advance of container loading, and the industry adapted and flourished
under the new system.
Congress required regulations for advance electronic data in the SAFE Port
Act of 2006 to protect against terrorist
smuggling of weapons or materiel. The
security filing is designed to provide
more accurate data for CBP’s Automated
Targeting System that determines which
inbound containers should be inspected
by automated means.
Importers, or their agents, will have
to file 10 types of data identifying the
manufacturer, consolidator, buyer and
receiver of the goods, as well as a detailed
product description 24 hours prior to vessel lading overseas. Under the proposed
rule, vessel operators must submit their
stowage plans identifying the onboard
location of each container within 48 hours
of vessel departure from the foreign port,
and submit container status messages on
an ongoing basis.
There are exceptions for freight remaining on board or shipped inland for exportation through another port, and ports of call
within two days cruising time.
CBP is proposing that importers report
their filings via the Automated Broker
Interface (ABI), used by licensed customs brokers to file entries and conduct
other customs business, and the Automated
Manifest System (AMS), used by ocean
carriers to file advance cargo declarations.
The proposal would open access to ABI
for authorized agents handling the “10+2”
data submission.
CBP, which worked for several years to
develop the data collection capability, has
said it will phase in enforcement of the rule
over 12 months to help importers adjust to
the new requirement once it is finalized.
The agency recently extended the public
comment period for the proposed rulemaking by 15 days until March 18.
Importers, logistics service providers,
software vendors and trade compliance
“This is substantially larger
than the 24-hour rule
because it touches a much
wider community than ...
companies that transport
goods. It covers hundreds
of thousands of importers
and all their agents. And
it raises questions about
the mechanics of how
to do it, liabilities, powers
of attorney, bonds — things
that we didn’t expect that
showed up in this rule that
we are still trying to digest.”
Arthur Litman
former vice president
of regulatory affairs,
FedEx Trade Networks
consultants are scrambling to figure out
how to implement the potential new requirements, and hope that the final rule
will address many perceived pitfalls and
areas of confusion.
Among the questions importers must
resolve are:
• Where to find the data?
• Who will collect it?
• Who will consolidate it?
• Who will transmit the data to CBP?
• How will it be tied to the bill of lading
and the two carrier reports?
• Who will notify the carrier that the
file has been sent?
• How will it be transmitted in a timely
fashion?
• Who will correct the data?
• Who will audit the filing?
• How is data confidentiality maintained?
“There’s no doubt in my mind that this
is substantially larger than the 24-hour
rule because it touches a much wider community than those limited set of companies
that transport goods. It covers hundreds of
thousands of importers and all their agents.
And it raises questions about the mechanics
of how to do it, liabilities, powers of attorney, bonds — things that we didn’t expect
that showed up in this rule that we are still
trying to digest,” said Arthur Litman, vice
president of regulatory affairs at FedEx
Trade Networks, prior to his retirement in
early February.
“It’s as big a change as I’ve ever seen,”
said the usually understated Litman, who
gave a presentation on the subject at the
American Association of Exporters and
Importers winter conference Jan. 21-22 in
Newport Beach, Calif.
The timing is especially difficult because
the trade community, faced with limited
resources, also has to contend with the
entire entry process moving out of the
Automated Commercial System (ACS) to
the Automated Commercial Environment
(ACE) in two years, a looming Census
Bureau mandate to electronically file
shippers export declarations and a recent
CBP proposal to eliminate the favorable
import valuation methodology available
under the First Sale Rule, he pointed out.
Each of those changes requires traders to
make changes to their internal IT systems
that communicate with CBP.
Companies like IES, Descartes, TradeTech, GT Nexus, Kewill Systems and
Management Dynamics that provide freight
transportation software to the customs
AMERICAN SHIPPER: MARCH
2008
7
LOGISTICS
broker, forwarding and non-vessel-operating common carrier industries plan to
have ready-for-use applications within
their software programs by the time CBP
implements its “10+2” rulemaking.
“It will be disruptive for the first 90 days
and then everybody will like it,” said Jason
Kohler, director of business development
at IES.
Cost And Complexity. Many companies that depend on import trade have voiced
strong concerns that the new rulemaking
will add significant cost and slow down
their supply chains because of the extra
time needed to collect all the required data
from foreign suppliers. Some data elements
are not normally collected from suppliers,
can be hard to track down or are not known
early in the process. A last-minute order,
for example, may lead to a container being
filled from a different production line than
normal, there may be no consignee to list
because sometimes goods are not sold until
they are on the water, or the exporter could
be the importer of record and hold the goods
in a warehouse until they are sold. Importers
also may not know the container stuffing
location, consolidator, country of origin,
or six-digit harmonized tariff number 24
hours prior to loading.
And consider non-product transactions
such as shipments of samples, repairs,
marketing materials and intra-company
components. Those items typically do not
reside on an enterprise resource system
because they are not part of a contract. This
makes it difficult for the importer to know
The rule will cost
industry from $390 million
to $630 million per year
for security filing
transaction costs
or transmission fees
charged to importers by
cargo agents, the potential
for supply chain delays
and the estimated costs
to carriers for transmitting
the additional data to CBP.
U.S. Customs and
Border Protection
economic analysis
8
AMERICAN SHIPPER:
MARCH
2008
No single service provider has geographic or technological
reach to handle security filing themselves
Vessel
carrier
AMS
Yes
Security filing
No
Customs clearance
No
Office structure
Global
Systems access
Global
Services importer
Yes
Services exporter
Yes
NVOCC
Yes
Yes
No
Global
Global
Yes
Yes
Customs
house broker
No
Yes
Yes
Local
Local
Yes
No
3PL
Yes
Yes
Yes
Global
Local
Yes
Yes
Consolidator
No
No
No
Global
Global
Yes
Yes
Security filer
Yes
Yes
No
Global
Global
Yes
Yes
Source: TradeTech.
the parties to the supply chain, logistics
veterans say. When the owner of a gadget
in India ships it back for repair, the U.S.
company is technically the importer even
though it has no control over that part.
Consolidators, in particular, are likely
to advance their cutoff times for receipt
of shipments to allow importers sufficient
time to transmit the security filing so they
don’t have to unpack a container in the event
CBP rejects a report for being incomplete.
The extra lag means that importers are
likely to increase their inventory levels.
Study ‘Understates’ Costs. The
CBP and Office of Management and Budget analysis of the rule’s economic impact
predicted that shippers would likely have
to add another day to their normal transit
schedules to account for the information
gathering during the first year of implementation, and experience an average delay of
12 hours in the second year onward.
According to CBP’s economic analysis,
the rule will cost industry from $390 million to $630 million per year for security
filing transaction costs or transmission fees
charged to importers by cargo agents, the
potential for supply chain delays and the
estimated costs to carriers for transmitting the additional data to CBP. The total
present value cost calculation is estimated
at $3.3 billion to $5.3 billion for the next
10 years, based on assumptions about the
most likely scenarios.
At the micro level, CBP estimates the
security filing will add $24 to $38 per
import transaction and that filing costs will
average $10 to $50 per transaction.
Some sources say their companies have
determined that the rule will add two or
more extra days to their supply chain. One
large manufacturer estimates that each
extra day equates to about $300 million
in inventory carrying costs.
They are frustrated that after years of
optimizing the supply chain to move cargo
at great speed and reduced cost, shipments
must now wait for information to catch up
with them.
Traders also are footing the cost to build
or modify their systems, which don’t have
fields for the new data requirements.
An executive for a high-tech company
who is not allowed to speak for public
attribution complained that the OMB’s
economic analysis only dealt with inventory carrying costs and ignored opportunity
costs from lost sales, handling and storage
costs, adjusting production schedules and
cash flow.
The major soft cost will be training
hundreds of thousands of people in a short
span of time, chimed in Bryn Heimbeck,
president of TradeTech, a Seattle-based
supply chain and transportation management software provider.
As for inventories themselves, the study
calculates the cost of a one-day delay in the
supply chain as 0.06 percent to 0.1 percent
compared to 0.8 percent in a 2001 Purdue
University study. U.S. Trade Representative
Susan Schwab told reporters following the
November ASEAN meeting in Singapore
that every day goods rest waiting for customs clearance is equivalent to a 1 percent
tariff — roughly a 10-fold difference from
CBP’s economic impact analysis.
The executive also said OMB’s estimate
for information collection costs only covers filing fees that importers will pay
intermediaries, and not costs associated
with generating a data pipeline to pull
together all the information from suppliers. Another flaw is the focus on potential
delays for consolidated shipments without
recognizing that single-shipment loads will
also face delays as carriers move up cutoff
times to make sure the security filing has
been properly transmitted.
“So this study understates the costs by
a very high order of magnitude,” the hightech trade manager said.
CBP acknowledges difficulty determining hard figures for its cost-benefit analysis
because of the challenge evaluating to what
ASEMEDSHIP06_JLB
9/6/07
1:25 PM
Page 1
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(212) 764-4800, NEW YORK
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ATLANTA
770-953-0037
LONG BEACH
714-708-3584
MIAMI
305-477-9277
BALTIMORE
410-631-7567
NEW ORLEANS
504-837-9396
BOSTON
617-241-3700
NORFOLK
757-625-0132
CHARLESTON
843-971-4100
CHARLOTTE
704-357-8000
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847-296-5151
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BAHAMAS, FREEPORT/NASSAU
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DETROIT
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MONTREAL, CAN
514-844-3711
HOUSTON
713-681-8880
TORONTO, CAN
416-231-6434
VANCOUVER, CAN
604-685-0131
LOGISTICS
extent the “10+2” rule could reduce the
possibility of a hypothetical nuclear or biological attack. According to its analysis, the
proposed regulation would need to result in
avoiding one nuclear attack during the next
600 to 1,100 years just to break even.
Other Issues. Aside from the cost,
the trade community is concerned about
technical, process and legal issues.
A controversial element of the “10+2”
proposal is the requirement that the report
link the country of origin, manufacturer
and tariff number as a package the way
they are on the customs entry form. CBP
did not adopt the recommendation last year
by its Departmental Advisory Committee
on Commercial Operations, or COAC, to
move up the customs entry process to allow
importers to make one filing for customs
entry and security purposes, thereby
streamlining the compliance process and
justifying an early notice of conditional
cargo release. Importers complain they
are essentially paying third parties to file
two similar forms since most of the data
sought on the security filing is documented
on the entry.
“The potential programming costs to the
importing community are astronomical,”
Susan Kohn Ross, a Los Angeles-based
trade attorney for Mitchell Silberberg &
Knupp LLP, wrote in a client alert.
“Despite this fact, Customs continues to
ignore the practical suggestion to write an
algorithm that would cause its Automated
Targeting System to make all the possible
matches and determine whether any combination created a risk. If so, that shipment
would be subject to inspection. Instead,
Customs insists on putting the burden on
the trade to link the three data elements at
the line item level when filing,” she said.
Another big issue is that seven of the
10 data elements are not part of the data
set espoused by the World Customs Organization, which is trying to promote a
global standard for trade security to ease
the burden for companies operating in
multiple countries.
“It will be disruptive
for the first 90 days
and then everybody
will like it.”
Jason Kohler
director of business
development,
IES
10
AMERICAN SHIPPER:
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2008
Data is decentralized and confidential
Importer’s responsibility to provide
Manufacturer, name/address
Seller name, name/address
Buyer name, name/address
Ship to name, name/address
Container stuffing location, name/address
Consolidator, name/address
Importer of record number
Consignee number
Country of origin
HSUSA (6) (Cargo classification number)
Available at
Origin
Origin
Origin
Origin
Origin
Origin
Destination
Destination
Origin
Destination
Confidential
Potentially yes
No
Potentially yes
No
Potentially yes
No
Yes
Yes
No
No
Source: TradeTech.
Many individuals and organizations
have pushed for an account-based filing
system in which top-tier trusted shippers
or repetitive filers periodically store data
in the importer’s electronic account with
CBP. That would spare companies from
having to key in the same information and
only put in the data that is different for
each shipment. They say that providing
that type of benefit is the whole purpose
behind the Customs-Trade Partnership
Against Terrorism.
The industry also wants some kind of
electronic confirmation from CBP that
their filings have been accepted in its
system so the carriers can safely load their
freight on the vessel. As it stands now,
CBP will notify the importer that it has
received the security filing, but won’t show
the actual data elements or the identity of
the party who filed them. Importers say
they want the power to correct mistakes
in the forwarder’s filing. The concern is
that multiple parties in the supply chain
are submitting information to the agent
on the importer’s behalf, but the importer
can’t check it for accuracy. Industry professionals also say carriers need independent
assurance that a security filing has been
transmitted because otherwise it opens the
possibility of a mix-up that could affect
many shippers, especially for a container
with a mixed load.
NVOs, therefore, have agitated for some
independent confirmation to avoid the risk
of unloading the vessel or turning the goods
around to the packing station.
COAC has pointed to the Census
Bureau’s Automated Export System as a
good model. It sends a unique identifier (the
ITN number), confirming that the export
declaration has been received. Then the
carrier could query the bill of lading and
associate it with the security filing code to
confirm it is cleared.
Logistics professionals say it is critical
for importers to more closely collaborate
with suppliers to avoid any surprises.
Trade consultant Beth Peterson recommended that importers insist that agents
send them or their broker a copy of the
filing and think about ways to audit the
information.
Shipment pre-alerts or pre-advice will
no longer be optional and bill of lading
details must be obtained by the importer
or its agent prior to container arrival at
the foreign port, Susan Pomerantz, vice
president for trade management consulting at JPMorgan Global Trade Services,
warned in the company’s February customer newsletter.
Value To Business Process. Several
consultants and trade management software
providers said the trade community should
look beyond cost and realize that the rule
will serve as a catalyst to improve business
process in much the same way the 24-hour
rule did several years ago.
Container lines, NVOs and importers all
complained that the 24-hour rule would be
expensive, difficult and lead to shipment
delays. Instead, it’s widely believed the
advance manifest requirement has helped
improve efficiency by forcing the foreign
shipping entity to produce and deliver the
bill of lading faster to the carrier, which uses
the information to produce the electronic
manifest. Customs brokers in the United
States, in turn, benefit because they no
longer have to wait for the B/L to complete
the customs entry summary and clear the
goods out of the port after the vessel arrives,
as often occurred in the past.
The security filing “is going to force
(businesses) to capture more visibility into
their supply chain and could really assist
them with their logistics flow,” said Sam
Banks, a former deputy commissioner at
U.S. Customs and now an executive vice
president at Sandler & Travis Trade Advisory Services.
Importers have long clamored for increased knowledge and predictability for
their inventory in transit, and Heimbeck
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LOGISTICS
COAC recommends ‘10+2’ changes
TUCSON, Ariz.
A key federal advisory panel on Feb. 13
asked U.S. Customs and Border Protection to phase in the operational rollout of
a new import cargo security measure for
advance data and publish it as an interim
rather than a final rule to ensure smooth
implementation.
The government is collecting comments
on its so-called “10+2” proposal that would
require importers to electronically provide
details about a shipment’s chain of custody
24 hours prior to vessel departure overseas. Ocean liners would have to submit
container stow plans and status messages.
The rule is controversial because it would
require most companies to reconfigure
business processes, invest in new information technology connections and possibly
delay shipments until they can collect some
of the data elements they currently don’t
receive in the transaction process.
CBP has stressed in the run up to the
rulemaking process that it intends to allow for a one-year learning curve until
full enforcement kicks in.
The Commercial Operations Advisory
Committee stressed in an eight-point letter that the phase-in period should also
apply to the actual technical mechanics
of implementation so that importers, their
agents and CBP can align their systems
to properly transmit and receive the
information without glitches that could
disrupt commerce. It recommended that
the effective date for all filers be 12 months
from the time of the final rule, subject to
implementation progress.
COAC, meeting in Tucson, Ariz., also
said an interim final rule would allow
industry to see the details of the data requirements and give them time to develop
or adapt their systems and software to
properly transmit the filing.
agreed that the government mandate for
this information would push forward trackand-trace capabilities that have largely been
the domain of giant companies like Target
to the import market at large.
Today, many companies do not bother
tracking their purchase orders. Others may
have trade compliance systems they have
not integrated with operating systems,
small carriers with limited data exchange
capability, or freight forwarders with systems in which status messages are often
based on estimated arrival times instead
12
AMERICAN SHIPPER:
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2008
An interim final rule has the full force
and effect of law, but it allows stakeholders to continue submitting comments that
the agency will consider before deciding
whether to issue a revised final rule or
confirm the interim rule as final.
CBP Commissioner Ralph Basham assured the 20-member industry body
that “we recognize
that we need to do
this in an appropriate way (and)
establish a timeline
that does not cause
failure” for CBP
or individual comBasham
panies. He promised that the agency
would continue to work with the trade
community on implementation.
Christopher Koch, president of the
World Sh ip pi ng
Council, repeated
a request voiced by
others that CBP find
a way to start the
dialogue on data
formats and other IT
requirements even as
the agency maintains
silence on the rule,
Koch
as required by law, during the open comment period.
COAC’s other recommendations are:
• Eliminate use of liquidated damages
to penalize companies for inaccurate or
late security filing because the threat of
“no load” messages preventing a shipment on a vessel is a sufficient penalty
and deterrent.
• Avoid “linking” the data elements in
the importer security filing. Instead filers
should transmit all required information
in an established format, allowing CBP
of the actual location of the cargo. And the
information is often at the inventory level
rather than the shipment level.
The Holy Grail of logistics is to know
exactly what shipments are in the pipeline
and how many days they are from their
destination. A manufacturer may notify its
customer that their order is scheduled for
ocean transport on a particular day, but a
black hole often exists about whether the
ship is on time, whether the box made its rail
connection, if it got hung up with Customs
inspections or other events.
to manipulate the data to best achieve
security screening.
• Provide a timely confirmation message (with a unique identification number
issued) indicating that the security filing
has been completed, filed and accepted.
Industry wants this so that foreign shippers and carriers have confidence to move
ahead with loading a shipment without
fear of future penalty.
• Clearly describe the type, length and
definition of each required data element
in the regulations and any accompanying
instructions, so that filers may properly
program their IT systems to accommodate
the security filing.
• “10+2” and the World Customs
Organization’s SAFE Framework of
Standards for supply chain security should
be harmonized.
• Clearly define the carrier messaging
requirements.
• Conduct a “more realistic and collaborative cost benefit and feasibility
study” because total industry costs are
understated in the Notice of Proposed
Rulemaking.
COAC indicated that it was not objecting to CBP’s strategy of collecting more
advance import data, but simply seeking
process changes.
Bruce Leeds, a senior import-export
manager for Boeing and COAC’s chairman, said the panel reserved the right to call
a special teleconference meeting on March
14 to determine if COAC needs to submit
more detailed recommendations before the
comment period closes on March 18.
Rich DiNucci, CBP’s “10+2” program
manager, said he is considering holding a
public roundtable with one or two companies who are sharing import data with
CBP as part of the Advance Trade Data
Initiative to test transmission methods.
The companies have volunteered to share
their experiences so far to help give the
trade community a comfort level with the
filing process, he said.
Logistics experts say that true inventory
visibility can help companies respond more
quickly to the ebbs and flows of consumer
demand, improve dwell times and reduce
inventory levels. The sooner an importer
can discover a problem with a shipment
the sooner it can make contingency plans
for reordering, diverting or expediting
the goods.
And further detail can help an importer
sort out which container in a multi-container shipment on the dock is the one with the
out-of-stock, or seasonal merchandise that
LOGISTICS
needs to be rushed to the store and which
containers can be picked up later.
“Up until now, people just said it was
too difficult and expensive. But the business community is going to benefit from a
substantial business process improvement
as a result of that implementation” after
initial costs are sorted out, Heimbeck said
in a phone interview.
Importers could doubly benefit if CBP
fed back to importers all the container
status messages that the carriers also
submit, similar to how NVOs now receive
feedback on vessel arrival times and other
information captured through AMS, he
added. They would get a full picture of
their cargo in a single platform without
having to go to each carrier’s Web site or
multi-carrier portals.
“We’re imagining that people will actually use this as a tool so they have visibility
of all their inventory in a carrier-indiscriminant technology and use that data to
make cargo management and expediting
decisions,” Heimbeck said.
Redundancy. Another potential business benefit of “10+2” is that it could
streamline the process of creating the
customs entry, according to officials at
software provider IES. The Midland Park,
N.J.-based company, which provides an
integrated suite of international transportation management tools for intermediaries,
plans to take advantage of the shared data
requirements between the security filing
and the entry summary to automatically
pre-populate data fields and minimize
keystrokes in the entry system.
Kevin Gavin
vice president
of supply chain
management,
IES
“When you add up
the AMS and ‘10+2’ data,
you really have a customs
entry. That’s quite
an advantage if the broker
controls the data
and a disadvantage
if they don’t.”
14
AMERICAN SHIPPER:
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2008
Scope is essentially full customs clearance
10 + 2
Manufacturer, shipper
M. B/L and H. B/L
name/address
Voyage number
Seller name/address
Carrier SCAC
Container stuffing location
Cargo quantity/measure
Buyer name/address
Last foreign port of call/date
Ship to name/address
Port of loading/date
Importer of record number
Date of vessel sailing/port of loading
Consignee number
Port of discharge/date
Country of origin
Container number/seal number/container size
HSUSA (6)
Vessel Name/Flag/IMO
Consolidator name/address
Hazmat code
Container stow plan
Consignee name/address
Container events
Shipment type (LCL/FCL)
PTT/I.T. Information
Transportation Entry Type (I.T./T&E, FOB)
First Foreign Place of Receipt
Commodity description (free form)
AMS
ABI
Entry number/type
Port of entry
Filer code
Surety number
Exporting country
Foreign port arrival
Entry value
HSUSA (10)
Other agency requirement
There will be
no standalone
security filing.
Source: TradeTech.
“We won’t let that data system go to
waste,” said Kevin Gavin, vice president
of supply chain management at IES. The
firm’s technology does the same thing
with AMS data to help populate its import
breakbulk brokerage system and then link
the message to the entry process. Officials
say their work essentially is limited to building out the AMS application to support 10
more data elements.
“When you add up the AMS and ‘10+2’
data, you really have a customs entry. That’s
quite an advantage if the broker controls
the data and a disadvantage if they don’t,”
he said.
Four of the security filing elements
— importer of record number, consignee
number, country of origin and Harmonized
Tariff Schedule (HTSUS) number at the
10-digit level — are identical to elements
submitted on customs entry or entry summary forms.
CBP proposes to reduce redundant transmissions by allowing importers and brokers
to submit these elements once, via the same
transmission, for their entry or entry summary. The rule says the agency will pull
the four data elements from the filing and
link them to the entry. The move is a nod
to COAC, which recommended that CBP
allow entries to be filed earlier along with
a couple extra pieces of information.
But there is no way to implement the
process because CBP has indicated it is not
prepared to do the necessary programming
in ACS or ACE to accommodate the change,
according to Peterson. ACS is on its final
legs and agency officials have said they
don’t want to do anything that would impact
the rollout of ACE, which means ACE will
eventually have to be programmed a second
time if early entry is actually implemented,
she said. Other trade compliance experts
said the provision is useless without the
programming, and has created confusion
that the security filing may substitute for
the entry process.
And CBP has also given no sign that
it will release goods sooner than the current timeframe of five days prior to vessel
arrival. That is raising questions about
whether importers would have to retransmit
the entry to get the cargo released, thereby
doubling the workload for the broker and
eliminating any benefit for early filing.
Security Or Punishment? The rationale behind the security filing is to enhance
the computerized decision support tool that
relies on limited ocean manifest information
submitted by the liner companies to help
identify shipments requiring additional
scrutiny. The Automated Targeting System
uses hundreds of rules to check manifest
and other data for every container heading
to the United States and assigns a risk score
to each cargo shipment. High-risk containers
or manifest information that is incomplete or
not filed 24 hours prior to loading can trigger
a “no-load” message from CBP.
But trade compliance professionals note
that the rule refers to financial penalties
rather than a “do not load” sanction for
importers who submit late or inaccurate
“10+2” data. Many industry practitioners
believe that creates a scenario under which a
ASENYKLINE03_JLB.indd 1
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LOGISTICS
container associated with faulty information
can still be loaded on a vessel and shipped
to the United States, essentially undermining the purpose of the rule to use additional
screening criteria to catch suspicious cargo
before it leaves the foreign port.
The trade community was caught off
guard by the provision setting penalties
at the value of the goods because CBP
never discussed the penalty option with
industry working groups helping to develop the rule, industry sources said. They
assumed that CBP simply wouldn’t allow
a container with a faulty security filing to
come to the United States, especially after
the COAC recommended that the penalty
for non-compliance should be a “no load”
message. The 20-member industry body
felt that delaying a shipment was sufficient
motivation for shippers to submit timely
and accurate information, and fines are
unfair because importers have no control
over the message filed by the exporter or
overseas freight forwarder.
“The importer has no control over this
(process) even though they have full responsibility,” said Petersen, head of San
Francisco-based Beth Peterson Enterprises
Inc.
“The potential
programming costs
to the importing community
are astronomical.”
Susan Kohn Ross
trade attorney,
Mitchell Silberberg
& Knupp LLP
Some import professionals say it’s inconceivable that CBP won’t use the additional
data to halt shipments overseas, aside from
the “do not load” option. Incomplete or
faulty information will raise a shipment’s
score and likely push it past the pre-set
threshold for triggering container exams.
But that security layer is different from
an automatic “do not load” message.
Although 85 percent of inbound cargo
comes through 58 foreign ports where
selective inspections can be conducted at
U.S. request under the Container Security
Initiative, the vast majority of high-risk
shipments still undergo X-ray and radia-
Broker evolution
Brokers could adopt collaborative work model to maintain
their role in security, entry filing process.
BY ERIC KULISCH
D
uring development of the U.S.
government’s “10+2” proposal,
some questioned whether customs
brokers would become marginalized since
most of the data points on the entry could be
completed by parties at the point of origin.
But entry filing remains customs business
that can only be conducted by a licensed
broker. The real danger is that customers
could abandon brokers who are unable to
keep up with the fast-moving requirements
for “10+2,” a proposed advance cargo security measure to collect detailed information
about containerized imports.
An industry shakeout or consolidation
could affect brokers large and small alike.
In either case there will be companies
who adapt quickly and laggards that don’t
make the transition, said Bryn Heimbeck,
president of TradeTech, a supply chain
and transportation management software
provider. He noted that larger companies
16
AMERICAN SHIPPER:
MARCH
2008
may have the resources to upgrade their
operations, but start-ups and smaller companies often are more nimble.
Many brokers also operate as forwarders
and have the relationships with the trucking firms and other agents that pick up the
merchandise from the supplier. If they don’t
control the information at origin, IES, another transportation management software
provider, said it expects to set the broker up
as a notify party to the transaction to get the
data it needs, as it does with Customs and
Border Protection’s Automated Manifest
System (AMS).
The software developer is making sure
that only the trusted agent can access all
the information. Usually the broker has
the relationship with the importer and
does the customs clearance, but under the
ruling the carrier or non-vessel-operating
common carrier that files AMS can also
submit the security filing. A large por-
tion exams at U.S. ports.
“It’s kind of obvious that you would be
able to issue a DNL order, but it’s not stated
clearly in the rule,” IES’s Kohler said.
Late word from industry sources close to
CBP is that agency officials have privately
indicated that there will be a way to issue
a “No Load” instruction through the same
process used to stop shipments in AMS that
don’t conform to the 24-hour manifest rule.
How agents and carriers will coordinate
their filings to avoid the risk of penalties
is still an open question, they say.
Sureties. The surety industry is also
busy analyzing the impact the new rule
will have on companies that issue customs
bonds and the people who buy them.
Insurance companies were surprised by
the requirement that every importer or their
agents obtain a bond to guarantee proper
filing of the electronic data. CBP consulted
with various trade associations involved in
international goods movement, but did not
talk with any customs bond surety groups
or mention the idea at meetings of the Trade
Support Network advisory panel, according
to the rulemaking and industry officials.
“What’s the point of a bond? Collecting
tion of the security filing is simply more
detailed AMS data identifying the shipper
and consignee.
IES will let the broker build a profile of
its repeat suppliers so that the importer only
has to supply the information one time and
the report can be completed by selecting
the specific template, thereby minimizing
keystrokes and potential errors. The broker
will only need to chase down information
for new shippers or consignees.
Heimbeck, whose company serves about
300 NVO customers, envisions brokers
adopting a collaborative work model — or
virtual assembly line — to maintain a role
in the security and entry filing processes.
TradeTech also has the ability to mask
certain aspects of the filing from other
participants — such as hiding the name of
the buyer’s manufacturer from the importer
to prevent back-channel sales. The system
identifies who is entering an account and
what information they should be given access to on a customer by customer basis.
“I think we’re at a time when workflow
technology is coming of age, where people
working on a single computer can see information and add additional data to a core data
set in a Web-enabled system,” Heimbeck
said. The new work model would have the
agent at origin key information into the
system for the security filing and save it,
where it becomes available to the broker to
LOGISTICS
liquid damages after the goods have been
shipped to the United States doesn’t get us
where we want to be,” said trade attorney Lee
Sandler, who represents bonds issuers.
Customs bonds are intended to guarantee
that an importer complies with customs laws
and pays duties, fees and taxes owed to the
U.S. government after the goods are released.
Importers prefer to use bonds rather than
plunk down cash deposits because it ties up
less of their capital. Premiums are generally
inexpensive because of the low-risk sureties
normally associated with customs bonds and
the competitive bond market.
The rule potentially creates a whole
new class of bondholders — the foreign
freight forwarder — and substantially
increases the number of bonds that will
be required. Foreign corporations who set
up registered agents in the United States
to do their own importing and afterwards
sell the goods “delivered duty paid” will
also need bonds.
And the ruling doesn’t allow intermediaries to use their existing bond for the
importer security filing. Brokers who
intend to transmit the security filing would
need to update their bond to reflect the
new activity.
“It’s one thing to write a bond for a U.S.
importer located in the United States. It’s
a different set of underwriting criteria to
underwrite that same bond for a foreign
freight forwarder in Bremerhaven. There
are probably more questions in this document then there are answers,” said Michael
Davenport, president of the International
Trade Surety Association.
Surety companies are trying to figure
out who is supposed to have a bond, how
to provide bonds to foreign agents, how to
underwrite the new risk, whose bond is
liable and whether rates will increase.
Industry officials said they need more
clarification from Customs on the bond
requirements because they have no way
to determine their increased exposure
and how to spread the risk across their
customer base.
The requirements need to be carefully
spelled out by CBP to limit the types of infractions that can affect the bond, said John
Michel, president of Trade Risk Guaranty.
“If you’re going to add more liability to
the bond, then define it. Once we know the
language, then we can analyze whether it
justifies a change in rates,” he said on the
floor of the AAEI expo hall.
All Systems Go? Meanwhile, CBP is
reassembling the team of field officers and
targeting personnel who helped design the
10+2 proposal to help prepare technical
changes to the agency’s systems. The goal
is for data to be visually appealing and
integrated with the Automated Targeting
System that flags high-risk containers for
inspection, CBP program manager Richard
DiNucci said at the AAEI conference.
CBP is also developing training and
outreach programs for analysts on how
to understand the new data and explain
compliance to importers, carriers and transportation intermediaries responsible for
transmitting the security filing, he said.
Six carriers and 35 to 40 importers are
voluntarily submitting early data to help test
the interoperability of the agency’s systems,
data formats and bandwidth capability to
go line by line and classify the cargo. This
method eliminates manual data entry steps
because it drops the security filing into a
nearly automated secondary process for the
entry, complete with stored data fields such
as the broker ID number, port of entry and
other repetitive data.
A secondary evolution in broker business could subsequently follow, Heimbeck
said. Under this model, the broker would
be tasked with pre-classifying the purchase
order before the products are even made.
The importer could send the broker a copy
of the purchase order spreadsheet and the
broker uploads the tariff codes to the shared
system, where they are available to the
foreign shipper to complete the security
filing and transmits the report. Some sophisticated importers already classify their
purchase orders in advance.
Putting the broker at the beginning of the
process allows for maximum time saving
because the information is ready to be sent to
Customs as soon as the foreign shipper gets
the information in its systems — even while
production is going on, Heimbeck said.
It also adds more buffer time to make sure
the filing gets done without endangering
the ability of a shipment to get on the next
outbound vessel. Many manufacturers are
slow at producing commercial shipping
documents, and take advantage of the long
ocean voyage to get them to the customs
broker. While they’ve sped up issuing the
transportation instructions for the carrier
bill of lading, they still lag in producing the
commercial invoice and packing list used
to complete the customs entry.
Under the 24-hour pre-filing requirement
time differences between continents could
slow the import-export process, especially
because so much cargo moves at the last
minute to meet rapid fulfillment schedules.
U.S.-based customs brokers are often asleep
when shippers in Asia will file the documentation. Brokers, who previously used vessel
transit time as a buffer to complete their entry
work, may be hard-pressed to complete all
the security filings they receive in a day, and
if there is bad weather or an employee calls
in sick the workload can spill over until the
next day. The problem is most acute for shipments produced near major ports compared
with those elsewhere that travel a few days
on feeder vessel before being transloaded at
the main load port, where the security filing
requirement kicks in.
Some brokers may incur extra cost to put
on an extra shift to cover more hours in the
day and meet their importers’ needs.
“I think what you’re going to have to see
is a process change that allows the shipper
to compress the time so they can produce
a document in far less time — a few hours
to two days instead of seven to eight days,”
Heimbeck said.
He predicted that brokers, especially
small and medium-size ones, will then
push their customers to give them purchase
orders in advance so they can move to preclearance and relieve a lot of pressure.
“I think the collaborative model is most
likely because it involves the least amount
of change, but over the longer term I think
you’ll see more and more people move
towards the pre-classification model,”
he said.
The “10+2” rule will redefine what it
means to be a broker, according to the
technology executive. “Instead of being a
passive information collector, they’re going
to be a direct collaborator at the time of shipment and become a partner in the process
of forwarding the cargo at origin.”
“Some of our customers understand this
is a seminal event that they need to worry
about,” said Kevin Gavin, vice president
of supply chain management at Midland
Park, N.J.-based IES. “They’re looking to
us, and asking, ‘How am I going to stay in
charge with my importer of record? And
we’re saying, ‘Don’t worry, we’ll make
sure you have a service that you can stay
in charge with.’ ”
“It’s going to take a little bit of time to
streamline the process, but in six months
or a year it’s gonna be a benefit,” said
Jason Kohler, IES’s director of business
development.
“Sureties don’t make money by restricting the pool of principles they sell bonds to.
If you’re gonna have bonds, it’s gonna have
to be a program that you can underwrite in
a way that bonds are freely available and
at low cost so sureties can make a profit,”
said Sandler, a partner in Miami-based
Sandler, Travis & Rosenberg.
AMERICAN SHIPPER:
MARCH
2008 17
LOGISTICS
process the commercial feeds and route
the data into its targeting system. Under
the closely held Advance Trade Data Initiative (ATDI), Customs had received 26,000
security filings, 425 vessel stow plans and
45 million container status messages from
its industry partners as of late January,
DiNucci said.
Litman publicly raised concerns at the
conference that CBP has banned discussions with the trade about IT integration
during the legally required quiet period
when the agency is accepting comments
and drafting its final rule. Successful
implementation of the rule under expected
timelines will be very difficult unless
potential systems problems for filers and
the agency can be resolved, said Litman,
who pushed for a firewall of some sort to
allow IT consultations to proceed while the
policy blackout is in effect.
“The trade won’t get a good look at how
this will be programmed until the final rule
comes out, and I don’t think that’s good for
either party,” he said.
Software developers say they have all the
requirements they need to build the screens
and workflow, but they can’t complete their
products until the final rule is out.
Litman also suggested that CBP wait
to develop the new security program in
the Automated Commercial Environment
so that CBP and trade won’t be burdened
with double programming within two
years when the new IT system for administering commercial operations is
fully available.
Banks, who has dealt with customs issues
from both sides of the regulatory arena,
predicted that the “10+2” implementation
could take longer than one year to get
everybody on board and make the process
predictable.
“This will be very tough for both CBP and
industry to do globally,” the ex-Customs
official said. “If they are intending a big
bang theory this could be very disruptive.
They need to phase it in and refine it before
they mandate everything.”
Hundreds of thousands of companies
will need to get signed up or certified to
work on either ABI or AMS and then get
power of attorney from the importer to file
on their behalf.
There are about 8,000 NVOs, customs
brokers (2,000 to 3,000) and self-filers, connected to CBP via one of the two existing
systems, according to industry experts.
“Certifying them to exchange the data
sets means CBP is going to have to onboard 30 systems a day every day for 248
consecutive business days. And then those
people are going to have to turn around and
onboard 300,000 importers (1,200 per day)
18
AMERICAN SHIPPER:
MARCH
2008
and their shippers. This is a monumental
task,” Heimbeck explained.
Taking in information streams from that
many importers led Banks to worry that
the ATDI exercise wasn’t large enough to
determine whether CBP’s legacy systems
can withstand the new traffic levels.
“CBP took a very rational approach, but
there’s always unknowns. You’ve just got
to be prudent when taking on these big
systems issues,” especially when the entire
import industry relies on the instantaneous
performance of the agency’s systems to
keep trade flowing, Banks said.
ACE, the agency’s evolving IT system
to monitor, control and expedite imports
and exports, was actually developed because of concerns that ACS is not robust
enough to handle the projected increase in
entry filings.
“This will be very tough
for both CBP and industry
to do globally. If they
are intending a big bang
theory this could be very
disruptive. They need
to phase it in and refine
it before they mandate
everything.”
Sam Banks
executive vice
president,
Sandler & Travis Trade
Advisory Services
The rollout of the electronic truck
manifest in the past few years is a likely
template for how CBP will approach the
security filing’s technical challenges, he
noted.
CBP began the e-manifest program in
Blaine, Wash., took the system back down
multiple times when technical glitches
occurred, and gradually expanded to
other land border crossings as problems
were ironed out. Once the system was in
place, truckers were able to participate on
a voluntary basis and data was properly
coming in, CBP phased in mandatory use
region by region to keep from overloading
and crashing its computers. The toughest
part of the process, which took more than a
year longer than expected to complete, was
getting different CBP software systems to
talk to each other. And last year CBP opted
for a gradual deployment of its ACE Entry
Summary, Accounts, Revenue module in
2009 rather than activating it overnight
and requiring all importers and brokers
to immediately switch from existing reporting systems. CBP changed its mind
after industry partners recommended a
slower deployment to make sure agency
and corporate systems could handle the
new data flows without disruption
“But in some ways truck manifest
was a piece of cake compared to 10+2,”
Banks said. “It’s a lot of data and it’s a lot
of players.”
That’s why Banks advocates against
flipping the switch all at once for the entire
trade. A one-year informed compliance
program of reminder letters about mistakes
will help the industry get accustomed to the
new rules before the penalty phase kicks in,
but it won’t do anything to keep CBP’s trade
processing system functioning smoothly
and prevent breakdowns, he said.
“Otherwise they’ll end up with inaccurate information and system (outages),”
he said. “They should give a real acid test
to ‘10+2,’ but nowhere in the NPRM do
they talk about a progressive, incremental
implementation plan.”
He recommended that CBP phase in
the program by taking a volunteer crosssection of large and small companies
from various industries and begin real
data exchange with them to perfect the
system. As operations improve, Banks
suggested, the program can open up to
more companies and eventually get to
universal, mandatory coverage.
In other respects the rule should be easier
to implement than e-manifest because
it mostly seeks existing data supplied to
Customs, but brings it earlier in the process.
And, unlike ACE truck manifest, it doesn’t
involve building a whole new system.
“This isn’t something new for CBP to do.
They’ve built these systems and brought
industry along in a rational manner in
the past. My guess is they’ll do the same
thing this time, but industry wants some
assurance that that’s going to happen,”
Banks said.
As long as CBP is able to continue to
show progress towards its goals it should
be able to satisfy Congress, he added.
Once all the comments are received,
staff from various CBP offices will draft
responses and make adjustments for the
final rulemaking. They will be isolated at
an off-site location so they can work on the
10+2 ruling without distraction.
A final rule could be wrapped up by April
or May, DiNucci said, but many industry
officials believe the process will take longer
than that.
■
Big IT fishes for 3PLs
Large systems developers set hooks but face
tough sell to fragmented industry.
BY CHRIS GILLIS
I
nformation technology giants spend millions of dollars a
year on research and development and sales promotion,
but will it be enough for these firms to reel in the poten-
tial rewards from the highly fragmented third-party freight
transportation management field?
They think so, and for the hook, they’re offering what they
believe to be scalable, yet affordable, IT programs specifically
devoted to this market.
20
AMERICAN SHIPPER:
MARCH
2008
“The reasons why SAP decided to invest
in the LSP (logistics service provider)
market are growth in global commerce and
the demands of the shippers,” said Rodney
Strata, the company’s industry principal for
transportation markets in Asia, the Pacific,
and Japan.
According to a 2007 logistics outsourcing survey, in which SAP participated with
Capgemini, DHL, and the Georgia Institute
of Technology, a 50 percent performance
gap was found between shippers’ IT expectations versus actual 3PL delivery.
The report noted that the majority of shippers are still not satisfied. “The picture is
confirmed when we look at the continuing
tion management systems with modern
streamlined programs that not only meet
their current and future internal operation requirements, but also those of their
shippers.
Logistics is estimated to be a $1.7 billion business. IT giants, such as SAP and
Oracle, believe this is all the more reason
to enter this market.
“Shippers are exploring expanding to
other geographic areas, either using thirdand fourth-party LSPs or becoming themselves LSPs — better using their own fleet
and sharing traffic with other companies,”
said SAP in a 2007 white paper. “The LSPs
that not only buy transportation services
but sell them as well are managing slim
profit margins while trying to increase
customer service. They must update their
antiquated system landscapes to remain
competitive.
“In both cases, these challenges truly
require an enterprise-wide business process platform.”
Oracle has also recognized this change
in mindset among logistics services providers toward systems development. “LSPs
are very curious about finding one system
provider to handle all their transportation
management needs,” Murphy said.
problems that 3PL users report with their
3PL providers: Insufficient IT capabilities
are still a top three issue in the performance
of 3PLs,” the report said.
John Murphy, senior director of logistics
and transportation for Oracle, described the
3PL industry’s systems development as suffering largely from “fragmentation.”
“They have adopted a lot of different
systems over time, resulting in lots of
niche systems in different places,” he said.
“This scenario is extremely challenging to
these companies’ CIOs (chief information
officers).”
However, 3PLs are inching toward
replacing their fragmented transporta-
Opportunity. Early IT giants in the
transportation market, such as i2, Red
Prairie, Manhattan Associates and TMW
Systems, built sophisticated applications
for domestic multimodal freight management and supply chain activities, a pressing
need for many large shippers and their
service providers.
SAP grew up providing enterprise
systems to the manufacturing industry.
The company’s recent move into the
services industry, such as logistics, has
largely been through in-house technology
developments.
That’s not to say SAP is a stranger to
the logistics management field. Prior to the
release of TM6.0, SAP provided core ERP
transportation management functionality.
The company has more than 550 logistics
services provider customers globally
that use its business process platform for
functions such as customer relationship
management, financials, operations planning, and human resources.
Understanding that the LSPs are the
architects of global trade, SAP reviewed
options as to how it would provide the LSP
markets with a global integrated transportation management application. Based on
SAP’s premise of providing end-to-end
business process integration, it decided to
invest in development rather than acquire
from the outside market, Strata said.
During the past two and a half years,
SAP has made significant investment in
both capital and man-hours to develop a
modern transportation management application of its own.
SAP noted that its Transportation
Management application, which underpinnings include enterprise services oriented
architecture and NetWeaver technology,
allows the integration of a 3PL’s logistics
processes, such as freight management,
transportation dispatch and execution, and
business changes, on a single platform. It
also aligns communication and collaboration between all parties in the supply chain,
including shippers, carriers, and partners
no matter what types of legacy or “best of
breed” applications are involved.
Oracle emerged primarily as a database
technology company and within the last
five years has made a big push into the
applications market through acquisition.
Notable acquisitions that played a key
role in the creation of its supply chain
management suite include PeopleSoft, JD
Edwards, Demantra, BEA Systems and
most importantly G-Log, which occurred
in November 2005.
G-Log, already known to 3PLs and
shippers as an international freight
management systems application, was
“LSPs are very curious
about finding one system
provider to handle
all their transportation
management needs.”
John Murphy
senior director
of logistics and
transportation,
Oracle
AMERICAN SHIPPER:
MARCH
2008 21
LOGISTICS
considered a good purchase by Oracle
because it was already compatible with its
Fusion middleware and more than half of
G-Log’s existing customers used Oracle
database applications.
“I’m a proponent of co-development,”
Murphy said. “You get to work with real
business scenarios that our development
team can see and understand.”
Oracle also relies on annual feedback
from its customer advisory board, which
consists of representatives from about 20
firms. At Oracle, general upgrades are announced about every three to six months,
followed by major upgrades every 12 to 18
months, Murphy said.
Shipper IT expectation/
3PL performance gap
100%
Moving Ahead. IT giants, such as
92%
80%
Oracle and SAP, have already netted some
Performance
large 3PL customers.
gap
In July 2007, Schneider National said it
60%
selected Oracle’s applications and infrastructure software to create an integrated
40%
transaction and data environment. Oracle Perceptions. While Oracle and SAP
42%
noted that as Schneider “expanded its ser- may have pulled out the stops on targeting
20%
vice offerings and geographic footprint, the 3PL business, the market will still be
the company needed a more flexible and difficult to conquer for either firm.
0%
quick-to-deploy information platform.”
“Transportation is not simple,” said Greg
Necessity
Satisfaction
According to Oracle, Schneider pur- Aimi, director of supply chain research for
of IT
with IT
chased the Oracle E-Business Suite to Boston-based AMR
Source: 12th annual The State of Logistics
benefit from integrated financials, procure- Research. “There are
Outsourcing: 2007 Third-Party Logistics
ment, human resources, payroll, supplier so many variations
report.
management, enterprise asset management, by mode, equipment
scalability and modularity. We understand
demand planning and supply chain manage- type and geography.
that managing risk and ensuring value is
ment functionality.
It takes a lot of time to
critical, hence LSPs may not seek a complete
Oracle’s Transportation Management ap- get all these elements
rip and replace of their systems,” he added.
plication also gives Schneider “end-to-end in place.”
“Companies have built some differentiated
planning, execution and visibility across
Other obstacles for
competitive solutions in their legacy syseach of its transportation and logistics the big IT applications
Aimi
operations — including asset and non-as- developers are the perception of operational tems and with ESOA (enterprise service
set services.
upheaval and expensive price tags associ- oriented architecture) they do not have to
give up their competitive advantages.”
“This will help the company ensure that ated with large-scale implementations.
3PLs also feel they’re often caught in
every shipment is delivered to customers
“The way our TMS is structured it
in the most efficient and cost-effective can be deployed with the platform or as a a catch-22 when it comes to investing in
manner,” Oracle said.
standalone application. You don’t have to IT.
“While the 3PLs want to provide more
In November 2007, SAP began undergo- buy the ERP to run it,” Strata said.
ing a similar deployment of its ERP system,
“In the 3PL business it’s often about technology, the shippers are generally
hesitant to pay for it,” Strata said.
including its new Transportation
“Yet if 3PLs don’t have the proper
Management application, with
technology platform to support
several large 3PLs.
the ever changing requirements
Jim Ward, CIO of Pacer Global
of the shippers, they may not get
Logistics, called the move to
Desired future state:
considered.”
deploy SAP a “green field imple• Plug-and-play integration to reduce implementation
Strata believes 3PLs should
mentation” where the company’s
time.
focus on the overall long-term
entire systems management will
• 3PL offers high technical flexibility and fast turnaround benefits to be gained from IT
be overhauled.
to business requirements.
investments, including explain“We expect it to be the best of
• 3PL provides a flexible choice of IT solutions (a tool- ing the value they will deliver to
breed in the next few years,” Ward
box).
the shippers by doing so.
told American Shipper in an inter• New releases/software upgrades committed to con“An integrated collaborative
view. “By being one of the first (for
tract.
platform will enable the ability
deploying SAP’s Transportation
• Shared and correct master data/meeting industry for both the LSP and the shippers
Management application), we get
standards (advance ship notice, etc.).
to share demand and operational
to be a lighthouse customer that
• Software standardization on a global basis.
data further upstream,” he said.
provides not only input, but also
How to get there:
“This provides the shipper with
gets SAP’s total attention to get it
• Willingness to invest in the right solution.
reliable capacity and service to its
up and running smoothly.”
• Establish a plan to move towards a more collaborative end-customers, while giving the
Ward said the SAP installation
relationship during the contract lifetime.
LSP greater visibility to manage
should be finished by January
• Keep focus on the right solution. Don’t give up!
its assets and business processes
2009. “We’ve stayed on schedule,”
• 3PL to develop better project management skills for more efficiently.”
he said.
IT implementation.
For both Oracle and SAP, these
• Involve IT service providers.
No Fear. Within the 3PL sector
collaborative large-scale impleare a number of niche Internet
mentations allow them to work
out lingering bugs and further Source: 12th annual The State of Logistics Outsourcing: 2007 Third- applications and software providers that have evolved durrefine their products.
Party Logistics report.
Future IT expectations
and how to get there
22
AMERICAN SHIPPER:
MARCH
2008
LOGISTICS
of logistics software
and data management services, views
ERP systems providers more like partners
than competitors.
“We extend their
products,” said Art
Mesher, chief execuMesher
tive officer for Descartes. “These systems need to be fed
rates and contract information and meet
government requirements. We’ll be more
than happy to feed
them.”
“Customers who
invest in an SAP or
Oracle system must
still solve the tactical
problems in logistics
at the end of the day,”
said John P. Motley,
Motley
president and CEO of
Log-Net. “That domain knowledge, which
we have, simply doesn’t exist in these large
ERP companies today.”
Deep’s trends – No. 9
“The reasons why SAP
decided to invest in the
LSP market are growth in
global commerce and the
demands of the shippers.”
Rodney Strata
industry principal for
Asia, Pacific and Japan
transportation markets,
SAP
ing the past 10 to 15 years. Some offer
automated tools for regulatory compliance, such as filing cargo manifests and
import entries with U.S. Customs and
Border Protection, while others offer the
ability to electronically oversee pieces of
the transportation process, such as ocean
freight contract management and cargo
tracking. Over the years, 3PLs have bolted
these various systems together to keep
their operations running.
Interviews with freight industry-focused
IT executives revealed
a sense of calm with
regards to the emergence of large IT firms
in the market.
“They may pick
up a big forwarder or
two,” said Andrew
Bullen, president of
IES Ltd., a transportaBullen
tion software provider. “However, we think
they’re still way out of the price range for
our customers, which generally involve
less than 200 users.”
Descartes Systems Group, a provider
24
AMERICAN SHIPPER:
MARCH
2008
Use of information, technology
to drive competitiveness
It’s not about what you have, it’s about what you do with it.
T
his month we explore
develop conclusions about
the use of information
markets and business situaand technology to drive
tions in the future to derive
competitiveness. This is a
competitive advantage out
topic of great personal interof it.
• Companies are sitting
est, having run a software
on mountains of informacompany (PlanCentral) in
tion and different platforms
the past.
of technology … and using
Companies have tradivery little of it.
tionally been victims of
• Information needs to
software purchases and
be converted to analytics;
implementations that have
technology as the means to
gone seriously wrong. No
convert information to anadoubt, the net value gained
lytics — analytics is the new
has been positive, but not
basis of competition between
without many instances of
companies not products.
out-of-control projects and
• Analytics drives supply
skyrocketing over-spends
chain design and execution;
on technology. Technology
it drives investment deciis not the evil force at play.
sions, tradeoff decisions,
The issue is the actual vs.
BY DEEP PAREKH
and decisions of how to get
perceived use of it. The use of
information to drive competitiveness is an more competitive using existing or new
interesting case, where during the past 10 resources and products.
• Technology trends towards more of
years, enterprise resource planning (ERP)
systems have enabled the generation of tril- a service than an asset deployed in the
lions of terabytes of data about shipments, business — technology becomes more of
plans, orders, point of sale, etc., of which “Software-as-a-Service” (SaaS); infraprecious little is being used for any value structure investment becomes redundant as
network speeds increase, hosting security
besides retrospective reporting.
increases, and costs drop.
The
Strategic
View
Bottom line
Both information and technology are
plentiful. It’s not about the latest software
technology you buy or about the amount of
information that you own, but about your
staff’s actual use of it and the ability to
Still chewing and already
taking next big bite
AMR Research did an excellent article
some years ago on “shelf-ware” — the
ASEHAMBSUD18_JLB.qxd
2/7/08
9:26 AM
Page 1
The perfect partner
(we do the heavy lifting).
Linking North America with Latin America, Europe, Asia, Australia/New Zealand and the South Pacific Islands.
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No matter what.
LOGISTICS
software that companies have purchased that
they have not used (and therefore still sitting
on the shelf, so to speak): Lessons learned
to date suggest that we’re on the right track,
but still have a long way to go. In a series
of detailed field studies, some encouraging,
while sobering, findings emerge:
• Supply Chain Management. Of 42
companies using SCM software, performance improvements (inventory turns,
cycle times, customer service levels) are
being delivered and overall vendor satisfaction is 6.95 on a scale of one to 10, yet
85 percent are implementing or using only
one or two modules.
• Procurement. Of 60 companies using
procurement software, the reported savings
averaged 10 percent of addressed spending,
but future phases addressing more complex
spending categories are on hold. Only onethird of respondents would consider the
applications for direct procurement.
• Customer Relationship Management. Of 100 companies using CRM
software, 74 percent say their expectations
have been met and 68 percent say planned
return on investment (ROI) was achieved
or is on track. Most, however, have implemented less than half of the software that
has been licensed.
• E-logistics. Of 200 logistics professionals using e-logistics software, only
30 percent expect improvement in key
operating metrics (inventory turns, fill
rates, costs) of at least 10 percent within
one year. Some 60 percent expect that
Figure 1
High performing companies greatly leverage analytics
Importance of analytical orientation: High vs. low performers, 2006.
80%
77%
65%
70%
Low performers
High performers
60%
50%
40%
36%
40%
33%
23%
23%
30%
20%
8%
10%
0%
Have significant
decision-support /
analytical capabilities
Value analytical
insights to a very
large extent
Have above average
analytical capability
within industry
Use analytics
across their entire
organization
Source: Competing On Analytics (Davenport & Harris, 2007), page 47, Equus analytics.
improvement, but after five years.
Fast forward a few years, and we find
the same situation today. Companies we
work with are using small percentages of
the functionality of the tools and technologies that they have purchased, and
are continuing to balloon IT budgets for
ever-advancing software. Our key message
to shippers and logistics service providers
(LSPs) is to invest in technology not as
a given fact-of-life but to seriously consider what value it will deliver, just like
any other investment in capital projects.
Further, SaaS is more prevalent in the
industry, from applications for human
resources, payroll, accounting, sales force
automation and supply chain management.
Utilize these SaaS offerings as a solution
to your issues instead of investing in the
software itself.
Competing on Analytics
I recently read Competing on Analytics,
by Thomas Davenport and Jeanne Harris.
It was an eye opener in terms of not only
the research that went into it, but also of
the astounding results that companies have
gained through analytics. Figure 1 shows
Figure 2
High
Different levels of core analytics with different depths of insight
8
Output
Question posed
8
Optimization
What is the best that can happen?
7
Predictive modeling
What will happen next?
6
Forecasting/extrapolation
What if these trends continue?
5
Statistical analysis
Why is this happening?
4
Alerts
What actions are needed?
3
Query/drill down
Where exactly is the problem?
2
Ad hoc reports
How many, how often, where?
1
Standard reports
What happened?
6
5
4
Analytics
3
2
1
Low
Low
Degree of intelligence
Value generated
8
7
6
5
4
3
2
1
High
High
Source: Adapted from Competing On Analytics (Davenport & Harris, 2007), page 8.
26
Type of activity
7
Competitive advantage
Low
#
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2008
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LOGISTICS
most high performing companies
but the actual application of the
Figure 3
used analytics on the information
new technologies that can yield
they have to gain competitive
competitive advantage,” he said.
advantage.
For example, imagine a technolFurther, International Data
ogy agent sifting through service
Contract
Alliance
Logistics
Corp. found that analytical projlevels, inventory policy informaservices
partners
providers
ects aimed at improving production, production conformance to
tion had a median ROI of 277
plan, commodity prices and logispercent, CRM of 55 percent, and
tics conformance to schedule. An
business intelligence (BI) projects
intelligent technology agent could
Information
Company A
Financing
providers
(e.g. Shippers)
agents
using predictive technologies of
conclude with the insight that there
145 percent compared with 89
could be a severe service issue in
percent for projects without them.
the next X number of months due
These analytical projects leverage
to reducing production plan conthe technologies that companies
formance, shortfall of anticipated
Suppliers
Customers
Employees
buy (such as solutions for CRM,
inventory policy, and inconsistent
BI, etc.), and turn information into
delivery schedules. Further, with
insight, and insight into action.
anticipated rising commodity
Support Services
Core Company
The book does a great job deprices, it would stimulate a deciDirect Relationships
“Information Pipes”
scribing the state of companies ussion to stock up on the material
ing analytics, as shown in Figure
commodity and gear up additional
2. Considering how companies Source: Adapted from The New Rules — Using Information to Unleash production resources as contract
use systems and information, each The Hidden Capital in the Extended Value Community (Chandos, capabilities, and sort out the deliv2002), Equus analytics.
type of output defines a level of
ery schedule compliance with the
advancement in gaining competitive advan- — is mythical. The new rules demand that logistics company. This allows the company
tage for the enterprise. The lowest level on information should be accessible in near real to maintain competitive advantage through
the scale is the standard reports coming out time by all the participants in the community, the better use of information and systems to
of most systems that generate information and the participant decide the analytics that generate anticipative insights.
to understand posteriorly what happened. leverage that can be extracted from the use
Jarvis concludes that whereas these “planMost companies we find are at stage two of the information.” The differentiating o-bots” are useful at an aggregate level, their
or three, where they can generate ad hoc factor in this approach is it reduces the “in- true value lies in sifting through the terabytes
reports to understand details around their formation latency” — instead of different of data at the SKU, location and daily level,
operations, and drill down to understand players in the EVC receiving information with millions of possible combinations with
for troubleshooting and problem resolu- second- and third-hand, all players receive it other relevant causal factors.
tion. There are fewer companies that are at the same time, taking out the guess work
generating statistical analyses and to pre- in anticipating rapidly changing customer So, what needs to be done?
We propose a five-step approach to
dict business and market trends, predictive and consumer demand.
leverage your technology and information
modeling, and business optimization based
to derive competitive advantage:
on different future scenarios. However, Strategic direction
We recently caught up with London1. Take inventory of all data and softthe “Analytics” type of activities are what
truly generates the competitive advantage. based Martin Jarvis, an eminent global ware technology you have and audit its
Some of the companies that are participat- supply chain and Sales & Operations Plan- usage.
2. Plot yourself on the competitive ading in these more advanced analytics to ning (S&OP) authority, who had much to
gain competitive advantage are Procter & say on this topic. His belief is that most vantage scale shown in Figure 2.
3. Understand where you want to be on
Gamble, Anheuser-Busch, Mars, Amazon, major technology vendors are behind the
curve in developing flexible technology the competitive advantage scale in terms
Wal-Mart, and AstraZeneca.
that people can easily adapt to, with built-in of utilization of this information.
New rules
design, implementation, and maintenance
4. Articulate the gap, and develop an
Sumantra Sengupta, a well-known sup- flexibility that allows the software to be understanding of how you can better extract
ply chain thought leader, and currently used in the right manner, and leveraged for and use your information and technology
vice president of Hitachi Consulting, in the right information. Many instances exist to gain competitive advantage.
his book, The New Rules — Using Infor- where software had to be re-implemented
5. Execute the necessary changes to the
mation to Unleash the Hidden Capital in due to its inflexibility in adapting to or- current systems and information structure
the Extended Value Community (Chandos, ganizational design shifts, where business you need in order to use your information
2002), defines an information management groups collapse into each other, mergers in a competitive manner.
framework that is worth implementing between different categories of products,
(Next month: No. 8, Hard infrastructure
for any company, shipper or LSP. Figure or functional integrations.
becomes a priority.)
3 shows the Extended Value Community
Jarvis is a strong believer in using “agentDeep R. Parekh is a partner with Equus
(EVC) that forms one of the central themes technologies” that can “crawl” around the Group LLC, a supply chain advisory serin the book, adapted for this column.
different pieces of information available and vices and management consulting firm
The author puts forward that “information across the different software technologies, based in New York and Sao Paulo, Brazil.
management is an extremely important con- consolidate and compare different infor- He welcomes feedback and comments at
cept in the community. The traditional view mation and provide insight into where the deep.parekh@equusllc.com, and (212)
— that possession of information is power business is going. “It is not just the intention 905-3336.
■
Extended value community
28
AMERICAN SHIPPER:
MARCH
2008
Falling from the sky?
Reading Boeing’s and Airbus’ projections for future air
freighter demand sometimes make it seem as though the
sun and clouds over Asia will be permanently obscured
by the steely glint of cargo planes.
Airbus recently said it expects 3,800 freighters to be
delivered globally through 2026, with a huge slice of that
demand coming from the Asia-Pacific. Boeing’s figures
aren’t too different. They’re expecting a total freighter
fleet of 3,980 by 2026, and have targeted China and India
as the places with the greatest growth potential.
Individual airlines have placed some startlingly large
orders for planes over the next decade, led in Asia by
Emirates and Kingfisher. But are all these planes really
needed?
The growth areas are likely to be stymied for the
foreseeable future by lack of ground capacity. For every
Hong Kong and Singapore, there’s a Ho Chi Minh City and
Mumbai, where demand rises by the day, but where airport
capacity and support infrastructure lags well behind.
What must be frustrating for air shippers, not to mention the airlines, is that new projects coming up seem
to barely be able to handle current demand, falling far
short of demand in five years, much less two decades
down the line. It’s sort of like a couple that wants lots of
children deciding to build a one-room house.
Boeing and Airbus have vested interests in proclaiming such a healthy demand for their planes, because it
looks good to shareholders to say 200 freighters a year
need to be built or converted to satisfy demand — and
keep in mind freighters represent only a fraction of the
24,300 planes Airbus said will be ordered through 2026.
But privately, the plane manufacturers’ numbers must
be a little more conservative.
Sometimes Asia seems like a playground for global
trade. First it’s shippers who get stars in their eyes, imagining the potential of severely cutting their labor costs.
Then it’s transportation providers who serve the shippers,
building new machines to transport all those cheaply
made goods. Then it’s non-asset-based companies, who
teach everybody how do things more efficiently.
But at some point, the fun runs out and the possibilities
dry up. And then the smart people get down to the hard
work and figure out how to wring profit from the driest
rags. It must go the same way for air cargo in Asia. Opportunity looks unlimited now, but it never is forever.
I may be way off base, especially since the reputed Air
Cargo Management Group is projecting a similar demand
as the plane manufacturers, but it seems hard to imagine
such a need for freighters in Asia for the next 20 years.
The Association of Asia Pacific Airlines reported record cargo volumes in 2007, but admitted those volumes
brought only modest growth when factoring in freight
ton kilometers traveled, the key metric in air cargo.
The aviation industry in Asia will develop in leaps
and bounds over the next decade, but how can that momentum sustain itself beyond that? We’re already seeing
ocean shipping returning to earth a bit (who would have
predicted Los Angeles and Long Beach would see no
volume growth in 2007?). Could things be just a little
overstated in the air as well?
Cold snaps supply chain
While the most poignant pictures from China to emerge
over the past month involved hundreds of thousands of train
passengers stranded in Guangzhou’s train station, shippers
30
AMERICAN SHIPPER: MARCH
2008
shouldn’t forget cargo also was frozen off the rails.
As always, cargo gets less attention than passengers,
and so it probably should. But China’s worst winter
weather in 50 years paralyzed supply chains too. Now
production always slows down during the Chinese New
Year, but the deep freeze was so intense and widespread
that some of Shanghai’s container terminals were unable to berth ships. Rail and truck routes were rendered
superfluous. Suppliers worried about late deliveries. Even
automakers Toyota and Ford shut down production in
their mainland factories for a time in late January.
Domestic energy and agriculture sectors were also
hit, as crops froze and the rail lines that bring coal to
coastal power plants were shut down.
Now back to the stranded hordes in Guangzhou. It’s
important to remember that they aren’t too far removed
from foreign supply chains, since the bulk of those passengers were factory workers in South China wanting to
return home for the biggest holiday of the year.
Government officials estimate a nearly $5 billion hit to
the Chinese economy, but that doesn’t take into account
what it means in terms of unsettling those who are becoming increasingly jittery about sourcing in China. Along
with rising wages, rising power costs, rising logistics costs,
questions of product quality, and a proliferation of sourcing
alternatives in other Asian nations, now there’s this.
Not exactly walking in a winter wonderland.
Asia’s acquiring minds
In early February, PricewaterhouseCoopers released
an interesting look at the global logistics and transportation mergers market.
The report looking at 2007 found that while merger
and acquisition activity was higher than in the last 20
years, the value of those mergers actually was half that
of mergers in 2006. Drilling down, the report found increasing activity in the Asia-Pacific region, with (guess
who) Chinese and Hong Kong companies the leading
targets. Interestingly though, the bulk of the transactions
in this region are not international ones.
“Chinese transportation and logistics companies have
been more likely to consolidate within the local market
than across borders,” the PWC report said. “Only seven
of the 18 announced deals for targets in China during
all of 2007, and two of the eight deals announced during
the fourth quarter, were cross border deals.”
That compares to a 45 percent rate of cross border
deals globally, the report said. Eighteen deals (and eight
in the fourth quarter) is a small sample size, but it shows
that not all mergers are Western companies honing in
on Asian acquisitions.
“We expect that strategic investors will continue to
account for the majority of transportation and logistics
deals as a tight credit market weakens the buying power
of financial investors on a relative basis,” the report said.
“It is likely that emerging market companies will play a
significant role as acquirers, given adequate financing
sources (including highly valued equity markets) and
strong currencies.”
That last line speaks to a growing trend in other industries, where Chinese and Indian heavyweights in the
automotive and steel sector, to name a few, have made
splashes in the global market. It’s often stated that the
logistics sector is underdeveloped throughout Asia, but
there are some big boys capable of making their own
acquisitions in the next few years.
All roads lead to Rome
In the glory days of the Hollywood studio machine, no
one more embodied the “epic” style of production than
director Cecil B. DeMille. Known for his massive casts
and sets, DeMille was fond of saying about his style, “give
me two pages of the Bible and I’ll give you a picture.”
His 1923 silent production of The Ten Commandments
required some 1,600 workers to erect the plaster and wood
sets, including four 35-foot-tall Pharaoh statues, 21 giant
sphinxes, and gates reaching a height of 110 feet.
During the production of one of his epics, DeMille
was staging a complex Roman battle scene involving
hundreds of extras over a grand vista. With six wideshot cameras and five close-up cameras set up at various
locations, the scene had taken all day just to rehearse
four times. With just enough daylight left to get the entire
scene filmed, DeMille called the multitude of actors to
position and ordered “Action!”
On cue, hundreds of extras charged up the hill, swords
glinting in the setting sun. Hundreds more came storming
down the same hill to engage them in mock battle. In
another part of the vast scene, Roman centurions lashed
and shouted at 200 slaves laboring to move a huge stone
monument toward its resting place.
The entire scene took 15 minutes to run its course.
When it was over DeMille yelled, “Cut!” and turned to
his assistant. Obviously pleased at the result, DeMille
beamed, “That was great!” just as the sun began to
disappear behind the hill.
“Fantastic, C.B.,” the assistant agreed. “It was fantastic.
Everything went off perfectly.”
Still ebullient, DeMille turned to his cinematographer
to make sure that all 11 cameras had picked up their assigned shots. The cinematographer waved to the camera
crew supervisor — just coming out of his hiding place
atop the battle hill.
From the distant hill, the camera crew supervisor
enthusiastically waved back.
He raised his megaphone, and yelled to DeMille’s
group, “Ready when you are, C.B.!”
Needless to say, at that moment, DeMille understood
the importance of connectivity, especially when it comes
to communications.
Kewill connects the world
In the logistics industry, managing shipments as complex as any film scene dreamed up by DeMille requires
the same level of communication, especially in a world
where the logistics “crew” is spread out across the entire
globe.
Logistics software giant Kewill Systems has introduced a major new component, Kewill Forwarding, to
its global trade management suite that addresses just
that problem.
The Guildford, U.K.-based firm’s new KF component
combines with the well-established Kewill GTM system
to offer increased visibility, reduced staffing expense,
and an increase in the speed of transactions — all in
a package that works seamlessly to plan, monitor and
control shipments in a global environment.
Kewill, which at 36 is nine years older than the first
PC computer, designed the new components to address
what the firm views as historic concerns in the forwarder
and broker sectors of the industry.
“In the past their businesses were fractionalized,” said
Ken Halle, Kewill’s chief operating officer. “They did
32
AMERICAN SHIPPER: MARCH
2008
multiple data entries, they had different systems across
the world and what you had was a lot of different systems
in the industry that were disconnected.”
Halle said the shipping industry’s rapid globalization
has touched virtually all firms, necessitating a global
presence from the very large players down to some of the
smallest. In addition, consolidation within the industry
has forced many firms into a global presence in a very
short time frame.
Following the dot-com nuclear winter in 2001, when
Kewill was forced to sell off many of its founding ERP
suites to survive, a new management team under Chief
Executive Officer Paul Nichols refocused the firm’s
energies on GTM products. To build a global product,
Kewill has spent the past five years acquiring premium
logistics software providers in the United States, Europe
and Asia. Starting with the purchase of U.S. firm Tradepoint in 2003, where Halle spent many years, Kewill then
acquired Interchain Holdings B.V. in the Netherlands and
CSF GmbH in Germany. The February 2007 purchase of
Singapore-based IPAC e-solutions gave Kewill an expansion into the Asian market as well as ownership of the
already up-and-running IPACS’s Java-based forwarding
product, the Advanced Logistics System. Kewill used the
ALS as the core of its new forwarding component.
The KF component connects local offices of a supply
chain into a unified network via Kewill’s Internet-based
GTM suite. This multilingual system offers purchase
order-level visibility, reduces administration and staffing
costs by integrating communications and eliminating
data entry repetition, and allows for a greater degree of
shipment control throughout the supply chain.
Early adopters see benefits
With Kewill already supplying IT services to 23
of the world’s leading 25 freight forwarding firms,
the new product is poised for a rapid and widespread
implementation.
Several firms that have made the move are already
seeing the benefits of the system. Shanghai-based freight
forwarder ADP, which employees more than 1,500
employees, was an early adopter of the system and is
already seeing benefits in the services it can provide to
customers.
Tri-Net Logistics Management, the U.S. ocean and
air logistics arm of Japan-based Mitsui & Co. Ltd., is
gearing up for a full deployment of the Kewill forwarding system following the deployment of the product by
Mitsui’s Japanese iteration of Tri-Net. Parent firm Mitsui
maintains more than 50 logistics subsidiaries worldwide
— including Tri-Nets in the United States, Europe, China,
Japan and Asia — and communications between the
different units is critical, according to Yoichiro Kasai,
Tri-Net LM President.
“Up to this point each (Tri-Net) had its own system,”
Kasai said, pointing out that a majority of the information
exchanged between the different Tri-Nets was previously
done through e-mail and faxes. “We weren’t really connected. Now all of the information is in the server in
Tri-Net Japan and we access that server from here.”
Kasai, who expects the Kewill system to be up and running throughout the U.S. Tri-Net within the year, is looking
forward to the improved data exchange and a reduction in
data double inputs that will follow implementation.
“From the moment we start using (the Kewill system)
there are going to be a lot of benefits,” Kasai said.
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Spirit of the industry
Arthur Litman, a veteran international logistics
practitioner who has played a key role advising U.S.
Customs on import-export issues, retired from FedEx
Trade Networks in early February.
Litman was vice president for regulatory affairs at
the FedEx unit.
The American Association of Exporters and Importers
in January presented Litman with its “Trade Warrior”
award for his contribution to global trade and representing the international freight industry.
Litman’s distinguished career in customs brokerage
and freight forwarding began in the import-export business at Los Angeles-based Castelazo & Associates in the
1960s. He eventually became a part-owner in the company.
In 1991, Castelazo became a division of Tower Group
International, a large customs brokerage. He continued
to work as a vice president at Tower until that firm was
acquired by FedEx in early 2000.
He represented FedEx on the Private Sector Consultative Group, which advises the World Customs Organization on trade matters, including the organization’s
SAFE Framework of security standards and customs
modernization. Litman has been a major force in helping
Customs develop its new Automated Commercial Environment trading system. As an ACE Trade Ambassador
he promotes industry adoption of the system and is active
in the Trade Support Network, a technical advisory body
for U.S. Customs and Border Protection.
He is a past president of the National Customs Brokers
and Forwarders Association of America, the International
Federation of Customs Brokers Associations and the
Foreign Trade Association of Southern California, and
serves as a governor for AAEI. Litman also served as an
original member of the Commercial Operations Advisory
Committee, or COAC, in 1988 and served six two-year
terms on the federal advisory panel to the departments
of Treasury and Homeland Security.
Litman is widely respected by colleagues because of
his expertise, willingness to be a mentor and efforts to
improve relations with Customs. They say his departure is
a big loss because he has such great institutional memory
about the Customs modernization process that has been
underway for the better part of 20 years.
Litman said at the AAEI winter conference in Newport
Beach, Calif., that he intends to continue to stay on the
Trade Support Network to help with the development of
ACE during the critical rollout period. — Eric Kulisch
AES mandatory consensus reached
The U.S. Census Bureau and Department of Homeland
Security quietly resolved their 30-month standoff in early
January over proposed rules requiring electronic filing of
export documentation, according to a Census official.
The proposed rules for mandatory use of the agency’s
Automated Export System will be published soon in the
Federal Register, Jerome Greenwell, trade ombudsman in
the Foreign Trade Division, told members of the American
Association of Exporters and Importers at the winter
conference in Newport Beach, Calif., in mid-January.
Census was prepared in 2005 to issue a notice of proposed rulemaking updating the foreign trade regulations,
but DHS blocked the effort after failing to gain approval to
share export transaction data with foreign governments as
part of antiterrorism cooperation. Census jealously guards
Census data at the transaction level to protect the privacy
34
AMERICAN SHIPPER: MARCH
2008
of companies that submit confidential information to the
government. DHS also raised security concerns about
Census continuing to allow post-departure filing of export
documents by approved companies. It wanted Census to
either eliminate post-departure filing in AES, technically
known as Option 4, or substantially increase the requirements for accepting new companies in the program. DHS
also did not want existing post-departure filers simply
grandfathered into the mandatory program.
The Foreign Trade Division uses data from AES to help
calculate the country’s trade statistics. CBP uses AES data
to target illicit exports before they leave the country.
Most shippers export declarations must be filed prior
to export. Under post-departure rules, approved exporters
and freight forwarders can process export declarations
up to 10 calendar days after departure of the goods.
About 2,300 exporters gained post-departure filing
privileges before Census placed a freeze on accepting
new applicants to the program.
Greenwell said the two agencies concurred on a final
copy of the AES regulations. He declined to provide details
about the compromise, other than to say it will closely
resemble the original version of the 2005 proposal.
Manufacturers and other shippers at AAEI were
concerned that Census may have traded the elimination
of Option 4 to break the logjam on issuing the AES rule
as ordered by Congress back in 2003.
Exporters like post-departure filing because not all
the information needed for the declaration — such as
the exact final price, what inventory the items were
taken from, the country of origin of components — is
immediately available at departure.
The program’s biggest advantage is that companies
don’t have to hold back shipments because the SED
data is not available or accurate, said Ikue Duncan, an
international compliance manager for Toyota Motor
Sales USA. That means exporters can ship products
concurrently while complying with the regulations. Postdeparture filing also saves administrative costs because
companies can consolidate work instead of sending
export data shipment by shipment, she said.
“We hope with this proposed regulation this program
will continue,” she said.
Greenwell suggested companies might no longer need
Option 4 in today’s trade environment because high-tech
communications between shippers and freight forwarders
are much better than they were several years ago and
allow for accurate transmission of information.
“The transfer of information is almost instantaneous
today as opposed to 2005,” he said.
“Don’t read into that there’s not going to be Option
4,” he added.
The new AES regulations will require exporters to
file SEDs a certain number of hours prior to departure,
depending on mode. The time frames are 24 hours
prior to lading for vessel shipments, four hours before
wheels up for air shipments (with exceptions for nearby
countries), two hours for rail and one hour for truck (or
30 minutes for pre-certified secure carriers).
The rule will go into effect 30 days after it is published
in the Federal Register and be implemented within 90
days.
Greenwell said Census will put notices on its Web
site, do a couple of town hall meetings and produce a
video to advertise the new changes to the foreign trade
regulations. — Eric Kulisch
Special report: Freight forwarding
Forwarder
Momentum
Opportunities for value creation in freight forwarding.
BY MERGEGLOBAL VALUE CREATION INITIATIVE
36
AMERICAN SHIPPER:
MARCH
2008
Additional content, including a series of one-on-one executive interviews with industry leaders analyzing
past MergeGlobal reports, is available at www.americanshipper.com/tf2007
A
s a direct beneficiary of globalization, the global freight
forwarding industry has enjoyed rapid growth while
generating returns on capital that asset-based air and
ocean carriers can only dream about.
Both financial and strategic investors have been attracted
to the forwarding industry’s positive fundamentals, leading
to a growing number of mergers and acquisitions, at steadily
rising multiples, predicated on the general notion that “bigger
is better.” This maxim is not always true, as
some investors have recently discovered.
Still, considerable opportunity remains
for financial and strategic investors in the
freight forwarding sector. While there may
never be another Expeditors (stock price
appreciating by 255 times its split adjusted
initial public offering price in 1984), there
are many little known, small and midsized,
high quality, highly profitable forwarders
who can be repositioned for rapid, long
term, sustained growth.
For logistics players seeking a forwarding capability (or vice versa), a pragmatic
and disciplined strategy can create enormous value by exploiting the narrow but
lucrative overlapping activities of each
entity’s value chain. Likewise, as history
has shown, such combinations can destroy
enormous value when premised upon broad
visionary statements of convergence and
globalization without in-depth understanding of exactly where synergies exist and
how to exploit them. To be successful, such
combinations must be rooted in a highly disciplined financial approach (starting with
valuation in the mergers and acquisitions
process); systems enabling understanding
of customer and service profitability; and
a culture in which operating management
can exercise judgment and be held accountable. Given the low margins (high return
on capital employed notwithstanding) of
most forwarding and contract logistics businesses, a one percentage point improvement
or decline in operating margin can have an
enormous impact on financial performance
and, ultimately, value.
Globalization is driving sustained
growth in long-haul trade. As a percentage
of world gross domestic product, the value
of intercontinental trade has almost tripled
from 5.2 percent in 1962 to slightly more
than 15 percent in 2006, and we expect its
share to continue to rise. This trend directly
benefits freight forwarders on whom most
manufacturers and retailers rely to organize
and supervise the door-to-door movement
of goods. This unique positioning has allowed forwarders to not only participate
in the expansion of global freight flows
but also to control the most complex and
valuable activities of these flows.
As the forwarders’ influence in the market has increased, customers, competitors,
strategic buyers and financial investors
seek to better understand how and why
forwarders have been able to consistently
generate superior profit and create value
over a long period of time.
In this article, we will provide our
perspective on how and why freight
forwarders are able to generate attractive financial returns. Our insights are
drawn from fact-based analysis and our
cumulative experience in advising clients
on several recent M&A transactions and
value creation engagements in the freight
forwarding industry.
The MergeGlobal Value Creation
Initiative comprises Brian Clancy,
David Hoppin, John Moses and
Jim Westphal. Clancy, Hoppin,
Moses and Westphal are managing
directors of MergeGlobal, a specialist firm that provides clients in the
global travel, transport and logistics
industries with services ranging
from financial advisory to strategic
consulting. This is the first in a series
of reports in which MergeGlobal will
team with American Shipper for multiissue coverage throughout 2008.
Specifically, we will address the following issues:
• Why are freight forwarders uniquely
positioned to create value?
• Why are the dynamics in the intercontinental freight industry favorable to
forwarders?
• What is driving M&A in the forwarding industry?
• What are the common mistakes in
forwarder M&As?
• What are the most important variables
that impact value creation in the freight
forwarder business model?
Forwarders uniquely
positioned
The global supply network has changed
considerably with trade liberalization.
Sourcing and manufacturing has been
progressively shifting from high labor cost
markets like the United States to low labor
cost markets like China. The shift started
30 years ago with low-value consumer
products and is moving up the product
value spectrum. As sourcing patterns have
shifted, manufacturers and retailers have
increasingly relied on freight forwarders
to be the network managers of their intercontinental supply chains. End customer
reliance on forwarders has created a $115
billion industry.
The customer base of a typical freight
forwarder comprises large, medium and
small manufacturers and retailers. Services
provided include:
• Transportation (intercontinental and
destination delivery).
• Customs brokerage.
• Origin consolidation.
• Destination deconsolidation.
• Warehouse contract logistics services.
Most service types are priced on a transactional basis per shipment or total volume.
Freight forwarders are both competitors
and customers of asset-based air and container sea freight carriers. They compete
with asset-based carriers for customer
freight shipments, and purchase capacity
from the same carriers to manufacture
origin/destination itineraries for their
customers. In 2007 freight forwarders
controlled an estimated 46 percent of the
combined air and containerized sea freight
market (Figure 1).
Forwarders dominate the air freight sector with 85 percent revenue share of heavy
AMERICAN SHIPPER:
MARCH
2008 37
Forwarder Momentum
freight shipments. This estimate excludes
the express small package market where
the big four integrated carriers control 90
percent of this market segment. Over the last
10 years, forwarders have increased their
share of the air freight market by 9 percentage points, as airlines have progressively
reduced direct sales efforts to shippers.
Forwarder share of the sea freight sector
is lower at 34 percent revenue share of full
containerload shipments and 74 percent
revenue share of less-than-containerload
shipments. Forwarders’ share of FCL has
increased by 6 percentage points since 1997.
Forwarders’ high share of the LCL segment
is due to expertise in handling smaller, complex transactions similar to air freight. (For
the same reason, certain integrated carriers
are targeting LCL flows as well).
Forwarders are able to generate attractive returns on capital employed by focusing on activities that require intellectual
capital instead of physical assets. Figure
2 arrays the historical returns by industry
segment with the worst performing on the
far left and the best performing on the far
right. Freight forwarders’ return on capital
employed (ROCE) is the highest among
all segments of the freight and logistics
industry, reaching a peak of 64 percent,
a trough of 53 percent and average of 57
percent throughout the industry cycle.
Scheduled air freight and container
carriers have significantly lower average
ROCE and a high variability between peak
and trough returns. Their lower returns can
be explained by the need for significant
investments in transportation assets and
daily exposure to capacity utilization risk.
While entry barriers exist, availability
of low cost capital — often government
subsidized — allows new entrants to more
easily add physical capacity even in poor
industry conditions.
Structural factors favor
forwarders
There are several structural factors in the
forwarding industry and its business model
design that allow forwarders to generate
superior financial returns compared to air
and container carriers. These include:
• Control of the end-user customer.
• Ability to provide better supply chain
information to customers.
• Flexibility of services across modes
and different carriers within each mode.
• Ability to attract and retain high
quality people.
• Better understanding of costs due to
less complexity.
However, contrary to conventional wisdom, there is also a level of fixed costs and
38
AMERICAN SHIPPER:
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2008
Figure 1
Rise of freight forwarder share
of intercontinental trade
Carrier
Forwarder
1997
2007 (Estimated)
Total market: $96 billion
Total market: $250 billion
$21
$70
$5
38%
24%
$44
$187
15%
$19
26%
66%
72%
85%
76%
74%
62%
28%
Air
freight /1
FCL sea
freight
34%
LCL sea
freight
Air
freight /1
Revenue $billions
FCL sea
freight
LCL sea
freight
Revenue $billions
1/ Excludes express package market controlled by the Big 4 global integrated carriers.
Source: MergeGlobal Inc. estimates from industry data.
commitments which forwarders maintain
including:
• Information systems.
• Facilities.
• Minimum volume commitments with
air and container carriers in front haul
markets with tight supply.
Forwarders are able to take control of the
end-customer relationship as asset operating air and container carriers increasingly
rely on forwarders’ wholesaling capacity
instead of direct marketing to end customers, especially medium and small sized accounts. These carriers are adding capacity
to fulfill long term market share objectives
and are not constrained by the quarterly
earnings expectations of shareholders.
Capital for asset-intensive transport
activities is shifting to emerging markets,
particularly in the form of local companies
investing in capacity for market share
growth. Such entities are not equipped and
cannot easily build the intellectual capital
and customer relationships that asset-based
companies located in developed markets
have established. As a result, as market
share shifts to these entities, forwarders
will take greater share of retail control of
end customers.
Two examples of this trend are Emirates
in the air freight sector and China Shipping
in the container sea freight sector.
Emirates is building substantial capacity in the Asia/Europe trade as part of the
United Arab Emirates’ long term economic
diversification strategy and desire to be-
come a global air logistics hub. Emirates has
10 747-8 and eight 777 freighters on order.
Among non-integrated air freight carriers,
this is the one of the largest freighter orders
on the books.
China Shipping is a young government
controlled container carrier founded in
1997. The company has embarked on an
aggressive expansion strategy to build up
its position in its home market. To support
the growth, China Shipping continues to
add containership capacity, especially eight
13,296-TEU vessels to be delivered over the
next five years, and will aggressively use
freight forwarders to fill its new ships.
In both cases, wholesaling of capacity to
freight forwarders is their key sales channel
strategy to fill their new capacity.
Forwarders are better suited to provide
end customers with granular transaction
data that allow customers to calculate landed
product costs, which is necessary to optimize
supply chains. Their ability to provide better data is enabled because they capture all
transactions of a customer’s trade flows for
a specific route corridor. The carrier view of
customer trade flows is fragmented because
it sees only the transactions that use its services and not the transactions that use other
carriers — and further it sees only a portion
of each shipment’s door-to-door journey.
Expeditors International is the best
example of a forwarder that has built information technology systems that capture
rich transaction data and allow it to manage
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Forwarder Momentum
both physical flows of products and mission
critical information flows such as customs
clearance and trade quota compliance. This
capability is especially attractive to small
and medium sized customers that do not
have large internal staffs to manage complex trade logistics. In contrast, carriers
have a tendency to direct most of their IT
spending on internally focused systems
that are required to run and optimize their
transportation networks instead of systems
designed to manage their customers’ trade
flows.
Forwarders can be more flexible with
customers and are able to customize their
services to specific requirements because
they have no planes or ships to fill each day
and are indifferent about which routings
and carriers to use for customer shipments.
Carriers are focused on maximizing the
load factor and yield of each flight or vessel departure and they have an incentive
to encourage customers to choose routings
that best optimize the use of the carrier’s
assets instead of a customer’s distribution
network.
Forwarders have competitive advantage
in human resources. They are able to attract
and retain high quality people because of
their ability to promote faster and pay well
due to higher growth and profitability.
Many forwarders reward employees based
on station level profitability. Expeditors is
known for setting aside up to 20 percent of
its pre-tax profits for staff bonuses at the
station level. It also regularly uses stock
options as an additional source of compensation for its best employees. Opportunities
for career advancement have been limited
at most air and container carriers due to
financial restructurings and merger integrations. While carriers can pay bonuses
and award stock options, the bonus ranges
are smaller and the value of the underlying
stock is more volatile.
Forwarders know their costs better
because their business models are less
complicated. Forwarders choose to buy key
inputs instead of making them internally,
and this fundamental decision eliminates a
significant layer of complexity inherent in
operating transportation assets. Forwarders
are far less complex because they focus
on the basics: sales, terminal operations,
transportation services procurement and
customer facing IT.
Operating transportation assets requires
expertise in a wide range of areas, including
asset acquisition, aircraft and vessel operations, terminal operations, maintenance and
overhaul, labor management, fuel purchasing and regulatory affairs. This wide range of
disciplines requires lots of experts in multiple
42
AMERICAN SHIPPER: MARCH
2008
Figure 2
ROCE/1 by industry segment: 2000 –2006
70%
64
Peak
60%
Average
57
Trough
53
50%
40%
31
30%
20%
29
22
26
23
19
10%
12
5
0%
0
Scheduled
air freight
Container
shipping
Contract
logistics
Freight
forwarding
Return on capital employed (ROCE) is defined as earnings before interest,
tax and amoritization (EBITA) divided by net working capital plus net property,
plant & equipment.
Source: MergeGlobal Inc. analysis; Capital IQ; company reports.
functional silos, most of which are internally
focused and not facing the customer.
Another complication for carriers is that
asset-based network businesses involve
significant shared costs that can confuse
asset-based carriers due to arbitrary cost
allocations resulting in bad pricing decisions and a poor understanding of customer
profitability. Good forwarders are able to
trace the majority of a specific transaction’s
costs to specific purchased inputs thereby
limiting the number of transactions that
are priced below direct costs.
Freight forwarder M&A
continues
Mergers and acquisition are a tool that
companies can use to grow an existing business or enter a new industry segment. It is
often used when a company determines that
it would take too long to grow organically or
it lacks the expertise to establish a de-novo
operation in a new industry segment.
As manufacturers and retailers continue
to shift their sourcing offshore, domestic-oriented competitors are entering the
intercontinental freight market by acquiring freight forwarders. Figure 3 depicts the
major competitor segments in the global
freight and logistics industry and their participation in each step of the intercontinental
freight network. Freight forwarders and
integrated small package carriers span the
entire chain. However, forwarders focus on
heavier freight shipments while integrators
specialize in small packages. Air freight and
container carriers tend to focus on line-haul
and terminal operations serving a mixture
of wholesale (forwarders) and retail (endusers) accounts. Domestic competitors,
such as intermodal marketing companies
(IMCs), truckload carriers, LTL carriers
and warehouse-based logistics companies,
lack an intercontinental freight transport
capability and are moving from their large
destination markets in North America and
Europe upstream into Asia by acquiring
freight forwarders. They seek to follow
their customers offshore and increase their
exposure to faster growing markets because
the domestic market is mature and will
grow roughly at local GDP.
As a result of the need to go offshore and
build scale, M&A in freight forwarding has
been relatively steady over the last several
years. Figure 4 is a list of the major freight
forwarding and related transactions since
2000. The buyer universe comprises strategic acquirers and financial sponsors. The
stated rationale among strategic acquirers
for buying forwarders includes:
• Large multi-segment transport conglomerates pursuing the idea of the one-stop
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Forwarder Momentum
Figure 3
Illustrative competitor segment participation
Industry
segment
Non-asset
competitors
Origin
consolidation
Intercont’l
line-haul
transport
Line-haul
terminal
operations
Freight
deconsolidation
Direct participation in segment by competitor
Customs
brokerage
Inland
intermodal
delivery
Warehouse
based
logistics
Outbound
transport
(TL/LTL/
domestic
intermodal)
Competitor segment participation via purchased services
Freight forwarders
IMC
Truckload broker
Asset-based
competitors
Global integrated carriers
Air freight carriers
Container carriers
Contract warehouse
logistics
Truckload/LTL carrier
2007 market size ($billions)
$9
$189
$16
$18
$25
$20
$575
$2,300
Growth rate % (’97-’07)
6%
9%
10%
12%
8%
10%
7%
4%
Source: MergeGlobal Inc. primary research and estimates from industry data.
shop for global 1000 shippers created a global
forwarding platform through numerous
acquisitions over the last decade (Deutsche
Post buying AEI and Exel, and Deutsche
Bahn-Schenker buying BAX Global).
• Larger forwarders buy smaller forwarders to add geographic scope and build
lane density in markets already served
(Schenker’s acquisition of BAX Global
in 2006).
• Warehouse-based logistics and
trucking companies needing a forwarding capability to meet their customer’s
intercontinental forwarding needs or
forwarders deciding they need to lock in
their customers by moving up the supply
chain into logistics management (Toll’s
recent acquisition of BALtrans, Geodis’
purchase of TNT Freight Management,
PWC Logistics’ entry into forwarding
with its acquisition of Geologistics, and
various warehousing acquisitions by UTi
and Kuehne + Nagel).
Financial buyers are drawn to the attractive returns of forwarding due to its high
growth and capital efficiency. Financial
buyers believe they can exit from their
forwarder investments either by selling to
a strategic or via IPO. Private equity firms
with an investment in freight forwarding
include:
44
AMERICAN SHIPPER: MARCH
2008
• Apollo Management bought EGL in
2007 and merged it into its 3PL portfolio
company CEVA to create the world’s fourthlargest logistics company.
• Welsh Carson through its 3PL portfolio company, Ozburn Hessey, purchased
Barthco and Dart and hired Mick Fountain,
former chief executive officer of Exel
Freight Management, to build up the forwarding platform.
• 3i bought ABX Logistics in 2006 as a
divestiture from the Belgian Railroad.
• Solis Capital acquired Kamino Transport in 2006.
• Brynwood Partners, the original
financial sponsor of AEI, bought InterJet
Systems and renamed it IJS Global. The
company hired former AEI executive
Georgio Lacona as CEO to lead its growth
strategy.
Prices paid for forwarders have risen in
recent years. Multiples of earnings before
depreciation and amortization (EBITDA)
have been as low as 7.7 times last 12 months
(LTM) EBITDA for UPS’s purchase of
Fritz during the 2001 tech bubble to nearly
15 times for Toll’s announced acquisition
of BALtrans in December 2007. While
multiples vary considerably based on
business and earnings quality, the general
trend is upward as there is a perception of
growing scarcity of high quality forwarder
companies with gross revenues above $500
million that are available for purchase. We
expect a lot of the M&A activity will be at
the lower end of the market with companies
that have between $200-500 million in
gross revenue. We also believe that there
are a large number of mid-size high quality forwarders who can be strategically
repositioned for growth.
Freight forwarder value drivers
Wall Street has emphasized several broad
success measures for freight transport and
logistics companies, including forwarders.
These include a focus on global market
share and breadth of service capability (the
one-stop shop and end-to-end solutions).
Being the biggest does not guarantee
being the most profitable. Maersk several
years ago embarked upon a route leadership
strategy that was based on the hypothesis
that the carrier with the highest relative
capacity share on a trade route would end
up with an equally high relative market
share and this would translate into above
average operating margins. The company
built its capacity share with a combination
of organic growth and acquisitions. The
complication was that the integration of the
acquisitions proved to be difficult and costly
Forwarder Momentum
Figure 4
Historical freight forwarder mergers and acquisitions: 2000-2007
Buyer
type
Acquisition
rationale
Date
Strategic
AU-based 3PL needs Asia forwarding platform
Dec-07 Toll Holdings
Strategic
NZ-based 3PL needs North American forwarding
Sep-07 Mainfreight Ltd. Target Logistics
Acquiror
Baltrans
Financial 3PL needs forwarding platform for cross-sell synergy
May-07 Ceva Logistics Eagle
(Apollo)
Strategic
Nov-06 Geodis
3PL seeks to build EU forwarding scale
Value
(MM)
Target
TNT Freight
Management
Financial Financial group building end-to-end China-U.S. capability Nov-06 Summit Global FMI
by combining ocean forwarding and deconsolidation
Revenue EBITDA EBITA
HKD2,385
0.5x
15.0x
17.4x
$52
0.3x
13.9x 17.8x
$1,993
0.6x
14.4x 18.7x
€460
0.6x
11.6x
$130
1.1x
9.5x 11.3x
$43
0.9x
7.7x
SGD 1,207
1.2x
NA
NA
NA
NA
NA
Strategic
China apparel sourcing company acquires U.S. import
infrastructure to create end-to-end China-U.S. capability
Aug-06 Li & Fung
Impac
(IDS Group)
Strategic
AU-based 3PL buys Asia geographic footprint
Jul-06
Toll
Sembcorp
Financial 3PL needs customs brokerage
and forwarding platform
Jul-06
Ozburn Hessey Barthco
(Welsh Carson)
Financial Sponsor bets on furniture industry shift to China
Jun-06 GTCR
Global Link
$129
1.0x
10.2x
NA
Strategic
Forwarder buys truckload broker for inland network
Mar-06 UTi Worldwide
Market Industries
$197
1.8x
NA
NA
Strategic
EU-based forwarder needs transpacific footprint
Jan-06 Deutsche Bahn
BAX Global
$1,100
0.3x
9.3x
14.1x
Strategic
Global integrator adds forwarding scale and logistics
Dec-05 Deutsche Post
Exel
£3,959
0.5x
11.3x 18.6x
Strategic
3PL seeks global expansion with forwarding platform
Sep-05 PWC Logistics
Geologistics
$454
1.2x
15.0x 21.5x
Strategic
Global integrator buys cheaply and gets IT platform
Dec-04 UPS
Menlo Worldwide
Forwarding
$260
0.1x
7.9x
NM
Strategic
Transborder customs broker buys transborder
truck broker
Jul-04
Clarke
CAD 50
2.0x
6.9x
NA
Strategic
Global integrator buys forwarder for one-stop shop
Jun-04 TNT Post
Wilson Logistics
SEK 2,350
0.4x
9.8x 11.8x
Financial Sponsor invests in China-U.S. import platform
Jun-03 KRG Investors
FMI
$103
1.4x
7.1x
Strategic
Global integrator buys into forwarding to build
one-stop shop
May-01 UPS
Fritz
$512
0.8x
7.7x 13.3x
Strategic
Global forwarder adds automotive forwarding/
logistics platform
Apr-01
Exel
Coughlin
$210
0.6x
NA 17.2x
Strategic
U.S.-based forwarder buys international platform
Oct-00
EGL
Circle International
$556
1.6x
10.2x 15.5x
Strategic
Global integrator buys transpacific forwarding footprint
Feb-00 Deutsche Post
$1,122
2.2x
13.2x
NA – Not available
NM – Not meaningful
CAD – Canadian dollars
PBB
AEI
HKD – Hong Kong dollars
SEK – Swedish kronor
NA
11.4x 15.3x
NA
17.5x
SGD – Singapore dollars
Source: MergeGlobal Inc. primary research.
and that the increases in relative market
share did not translate into better pricing
power and higher yielding cargo mix.
APL, on the other hand, made the right
decision to stay small globally, but to seek
high market shares in very specific customer
and trade routes where it could leverage the
uniqueness of its integrated terminal and
intermodal operations. Today, APL is a more
profitable company than Maersk.
Companies who have pursued a ‘onestop’ strategy have had highly mixed
results in terms of building shareholder
46
AMERICAN SHIPPER: MARCH
2008
value. Deutsche Post and UPS are examples
of global transportation conglomerates
that have attempted the one-stop shop
strategy. Both companies made a series of
acquisitions in small package, forwarding,
contract logistics and LTL trucking over
the last decade to build out their respective
“department stores.”
Integrating the acquisitions into their portfolios has been costly and time consuming.
The fundamental problem with the strategy
is that customers know that no one entity
can possibly have the best cost structure
in every industry segment and geography.
Thus, they do not want to rely on a single
service provider for all of their transportation
and logistics requirements.
Instead, the largest shippers like to act
as general contractor and hire the best-inclass specialist for specific segments of
their supply chain. This approach gives
them the best balance of price and quality. FedEx took the opposite approach and
focused on running only asset-based small
package and freight networks instead of
the one-stop shop. A focused strategy pays
d!
vere
Co
We’ve
Go
t
p
ing N
p
i
h
S
r
ee
u
o
ds
Y
DHX-Dependable Hawaiian Express, DGX and DAX
are the only names you need to know for costef fective, on-time, trouble-free ocean
and air freight service.
Give us a call.
Toll Free (800) 488-4888
Toll Free (888) 488-4888
www.dhx.com
www.dgxshipping.com
Member—World Cargo Alliance
Member —World Cargo Alliance
*ISO 9001: 2000 Certified
*ISO 9001: 2000 Certified
C-TPAT Validated
Toll Free (800) 700-3858
ISO 9001: 2000 Certified
*IATA Member & TSA Certified
DGX, DAX, & DHX – Dependable Hawaiian Express, Dependable Global Express & Dependable AirCargo Express and
the color combination of purple and magenta are the trademarks of DHX – Dependable Hawaiian Express or its affiliated companies.
Dependable. From Start to Finish.™
Forwarder Momentum
because since November 2000 (Deutsche
Post’s IPO date), FedEx’s share price has
grown at 10.2 percent per year versus UPS’s
at 2.5 percent and Deutsche Post an even
slower 0.6 percent per year.
We believe there is no substitute for
disciplined strategic analysis if you wish
to avoid the mistakes of chasing global
market share or opening a one-stop shop.
Understanding the value drivers of a
forwarder helps a potential buyer focus
on the key variables that matter most in
creating value. Based on our experience in
forwarding M&A transactions, we first like
to start with a detailed understanding of a
forwarder’s value chain and the underlying
cost structure.
A typical door-to-door value chain for
a forwarder identifies the key activities
associated with each step in the value
chain and the expected behavior of the cost
structure in terms of fixed versus variable
and location of the costs. The vast majority
of a forwarder’s cost structure is variable
because so many of the services can be
purchased from third parties, including
freight consolidation labor, air and container line-haul capacity and local pickup/
delivery (P&D) services. If volumes decline
so does the spending on these activities.
However, many of these variable costs have
minimum purchase commitments in order
to obtain the best pricing from suppliers.
A sharp falloff in volume could result in
unfavorable actions by capacity providers
(e.g., an airline or container line denying a
forwarder access to peak-season capacity
or reprice the services based on a lower
annual volume commitment).
The geographic location of costs is
another important variable to consider.
Service industries, like forwarding, tend to
have very local cost structures, where the
cost structure and productivity of a facility
in one market has very little to do with the
costs of another facility at another location.
Generally, labor that handles freight is
location specific. Costs that can be shared
across multiple locations generally involve
information technology, customer service
call center operations and sales.
Our next step is to identify the key factors
that help or hurt the basic value creation equation. Value is created by revenue growth,
operating margin expansion and efficient
use of capital. How a forwarder structures
its business, picks its customers and organizes its activities has a huge influence on
its ability to create value. Ultimately, these
decisions require management teams to
make tradeoffs, and the managers that are
best at deciding what not to do are often the
best at creating value.
48
AMERICAN SHIPPER: MARCH
2008
Figure 5
Six common mistakes in evaluating
freight forwarders
1. Underestimating the cost of complexity in managing large, diverse
logistics ‘mini-conglomerates.’ Forwarders have extremely high returns on
capital but low margins. While there are potentially significant benefits of scale
and scope in combining logistics entities with different activities, we have found
that executives in such combined entities often fail to understand the real P&L
of their various units due to organizational complexity. As a result, they cannot
properly evaluate growth opportunities, understand customer/segment profitability, or eliminate unnecessary costs.
2. Aspiring to market share leadership in a geographic market that is defined too broadly. While the Jack Welch mantra of achieving global market
share leadership is important in industries like jet engines, most of the costs
in freight are local or regional. Having global capabilities is certainly important
in serving multinational customers. However, route density is the single most
important driver of cost structure, and many companies have destroyed value
by building overly diffuse networks in pursuit of global market share. A balanced
approach is needed and many focused geographic competitors are surprisingly
more profitable than companies with broad geographic scope.
3. Correlating effective information technology with spending levels. Some
of the most effective IT systems are homegrown and are simply a reflection of
the business rules developed by forwarders with sound operations. We have
seen little correlation between level of technology spending and the quality of
systems.
4. Assuming customers will pay a premium for ‘integrated solutions’ or
‘bundled products.’ Big customers are very effective at disaggregating their
supply chain and bidding it out to numerous logistics competitors. Forwarders
who emphasize “cross-selling” of other logistics services while maintaining
relative independence of other business units have generally been more successful than those who try to subordinate one activity to another or create a
hybrid entity. (There tends to be more scope to provide premium priced bundled
services to smaller customers.)
5. Equating customer lists with prominent multinationals (household names)
as marketing or strategic success. Big customers, again, are often very effective at extracting price concessions from forwarders. While such customers
can provide a forwarder with a volume base for lower costs, we have found that
forwarders with a sales force capable of reaching less price-sensitive small
and mid-sized customers tend to have superior profitability.
6. Failing to be specific and disciplined in defining specific activities in
which synergy will occur. Intercontinental forwarding models and segments
differ significantly. Many large acquisitions have been premised on vague
notions of convergence between forwarding and contract logistics or other
broad strategic visions. It is crucial to evaluate specific needs and behavior of
customer bases and potential cost sharing in serving such customers.
Figure 6 outlines the key value drivers that
we have identified during our strategic due
diligence of forwarders. We have identified
five revenue growth drivers that are consistently seen in high quality forwarders with
strong growth and consistent profitability.
Being in the right markets is extremely
important. Forwarders make this decision
by determining the geographic scope of
their network. Ideally, a forwarder wants
to have disproportionate participation in
origins and destinations (O&Ds) in the
largest and fastest growing trade lanes. In
today’s world, this means an origin capability
in China, India and Vietnam that connects
the major consumption markets in North
America and Europe. Markets with massive
spending on infrastructure, like the Middle
East, are also important if a forwarder wants
to grow faster than the average. Markets
with tight supply can be helpful to a freight
forwarder even if the margins are lower
because the purchased transportation rates
tend to be three to four times higher in
front haul markets than back haul markets.
A lower margin on a much higher absolute
Forwarder Momentum
Figure 6
Capital
efficiency
Operating margin expansion
Revenue growth
Value drivers in freight forwarding
Operational driver
Mechanism
Impact
Geographic scope of network
Network coverage in largest export markets
Enables faster growth due to high
growth market exposure
Service types offered
Balanced mix of air, sea and ground services
Enhances customer life cycle
management
Sales force vertical specialization
Intimate knowledge of customer industries
leads to customer wins in complex segments
Enables capture of high-margin
accounts and reduces attrition
Medium and small customer account penetration
Smaller customers have less buying power
and need for comprehensive services
Higher prices and sale
of value-added services
Customer facing IT functionality
Enables high-value-added services like origin
consolidation
Reduces price elasticity and
creates switching costs
Relative market share on specific front haul O&D lanes
High shares on specific routes improves
buying power
Reduces line-haul transportation
unit costs
Air freight customer freight density mix
Need a balanced mix of high and low density
freight on specific O&Ds
Expands margin by reducing volumetric surcharges paid to carriers
Core carrier program
Concentrates transport spend with smaller
carrier base
Leads to preferential access
to peak capacity
Regional customer local origin and destination density
Creates regional P&D delivery density and
reduced one-way trips
Generates lower P&D unit costs
Balanced mix of high and low demand volatility customers
Minimizing demand volatility improves freight
handling productivity
Lowers freight handling unit cost
and increases peak capacity
Forced consolidation gateway structure in NA & EU
Economies of consolidation facility scale and
RFS lane density
Reduces freight handling and
P&D unit costs
Integrated operations IT platform
Single platform reduces key strokes and data
entry errors while providing high value data
Reduces administrative staffing
and associated costs
Higher share of medium and small size customers
Customer payment terms
Lowers net working capital
required
Use purchased transportation for P&D operations
Outsourced line-haul transportation
Lowers net PP&E employed
Large customer of transportation provider
Supplier payment terms
Lowers net working capital
required
Source: MergeGlobal Inc. primary research.
rate generally produces larger net revenue
per unit transported. The higher net revenue
per unit is where good forwarders make a
majority of their profits.
Once its network has been defined, a
good forwarder will offer a broad range
of service types that are price and transit
time options built around multiple modes of
transportation. Attracting new customers is
always the hardest thing for any business to
do and it is no different in freight forwarding. A forwarder wants to be able to handle
all or a large portion of a customer’s trade
flow in a specific region or country pair. In
each trade lane, a major customer will have
a portfolio of SKUs — each with different
50
AMERICAN SHIPPER: MARCH
2008
unit values, growth rates and profit margins
— moving at the same time. Forwarders
that can offer multiple routing options at
different price points, transit times and
levels of reliability can help such customers lower their total distribution costs. This
usually means offering sea freight, both
FCL and LCL, air freight for high value or
emergency shipments and sea/air services
that provide the right balance of time and
cost in markets that have really expensive
air freight and extremely slow sea freight
like Asia to deep South America.
A forwarder with a well-trained sales
force that specializes in target end-customer
industries can build a strong position in
specific vertical markets and defend those
positions with knowledge. The barriers to
entry in automotive, electronics and pharmaceuticals can be high as manufacturers
must trust mission critical elements of their
supply chain to an outside party, and the cost
of choosing the wrong service provider can
be career ending. In electronics and pharmaceuticals, the unit value of the products
can get extremely high, and cargo security
becomes a key issue, which requires specialized knowledge about the operations
of these types of supply chains.
We have seen on numerous occasions that
forwarders will often have more data about
the customer and its specific transactions
Forwarder Momentum
than the customer has itself. This is a result
of forwarders that have invested in strong
customer-facing IT functionality. Capturing transaction level detail and making it
available to customers electronically is a key
revenue driver for forwarders. Customers
will often award their account to forwarders
that have the best functionality in this area.
However, not all forwarders understand their
costs of providing this IT capability and so
they give it away for free. Other forwarders understand very clearly what it costs to
provide these services and seek to get paid
specifically or in the form of a higher price
per freight transaction. Successful penetration of the retailing industry requires strong
customer-facing IT in the form of vendor
purchase order management systems that
allow a forwarder to gather multiple vendor POs in China on behalf of a retailer
and consolidate orders into a single box
for transport to North America or Europe.
This type of shipment is among the most
profitable freight in the intercontinental
freight market. It is one of the ingredients
of the secret sauce that makes Expeditors
International so successful every year.
A forwarder’s mix by type and size of customer has a significant influence on revenue
growth. Ideally, a forwarder should have a
higher ratio of medium and small customers
because these segments have a propensity
to purchase high margin complementary
services and are typically less price elastic.
Often times, a forwarder can position itself as
the only service provider at small or medium
accounts, which can significantly increase
switching costs to the customer and lower
sales costs for incremental business.
There are several decisions that management teams can make that can significantly
influence margin expansion. These decisions
often involve a combination of variables that
interact together to produce the impact.
The single-largest expense category for
a forwarder is purchased air and container
line-haul capacity. There are several decisions a manager can make to lower his
line-haul transportation unit cost.
52
AMERICAN SHIPPER:
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2008
Forwarders with a high share of total
demand on specific freight corridors (lane
density) are able to command lower prices
because air and container freight typically
are priced by directional O&D market.
Purposely targeting accounts that build
O&D lane volume allows a forwarder to
get bigger discounts per unit of capacity
from carriers. Global size does not matter
because a forwarder can be among the
largest globally but have fragmented flows
that cause it to fall within the second or
third quartile in any given O&D market
and therefore not get the best prices. Alternatively, a medium-sized forwarder with
a high market share of a select group of
routes can obtain the best line-haul prices
and use it to win new business, often at the
expense of larger forwarders.
Customer freight density mix is an extremely powerful value driver. Forwarders
with a broad mix of voluminous and dense
freight in same freight corridors are able to
maximize profits by charging low density
freight shippers’ volumetric surcharges and
then combining these shipments with high
density freight into a tendered consolidated
shipment that meets an airline’s minimum
weight per pallet. On certain routes, the
difference between profit or loss is the
ability to optimize consolidation density.
Achieving such density mixes requires
a well-coordinated approach between
locations in origin countries and sales
forces in destination markets, where most
customers manage their freight forwarding relations.
A forwarder can improve its operating margin by aggressively managing its
ground transportation procurement. By
definition, all air and sea freight shipments are from shipper door to consignee
door. The portion of the total door-to-door
journey is a function of the competitiveness
of a forwarder to quote a price/service
combination that is better than what a
customer can independently purchase. Use
of dedicated truckload capacity on high
density lanes can drive delivery costs down.
However, it requires significant coordination and planning to execute. Combining
air freight and LCL sea freight can drive
lane density to the point where a forwarder
can shift from LTL to truckload service
with the attendant reductions in unit cost.
Investment in practical decision support
tools also helps forwarders make better
tactical decisions about ground routings
and carrier selection.
Forwarders should seek out a balanced
mix of customers with predictable demand
and unpredictable demand in same freight
corridors to reduce the risk of capacity
spoilage on high demand routes where
carriers require block spaced agreements.
This combined with customers with peak
season and contra seasonal demand reduces
capacity procurement risk and makes the
forwarder more valuable to the carrier in
terms of shipment tender reliability. Carriers reward this type of customer loyalty with
preferential access to overflow capacity
during the peak season as well as boarding priority when freight must be rolled to
the next departure. It is like an industrial
frequent user card, where carriers take
care of the best customers during periods
of tight capacity.
Another way to build local and regional
economies of scale is to construct a forced
gateway consolidation network in North
America and Europe. A forced gateway
strategy involves selecting a few carefully chosen air or seaports with adequate
frequency and capacity to a wide range of
destinations, and then requiring all interior offices to route freight through these
gateways to build O&D volume in ground
feeder operations to/from the gateway and
line-haul consolidation volumes to improve
buying power and freight density mix on
specific intercontinental lanes. A forced
gateway also leads to a faster learning curve
by accelerating cumulative experience by
aggregating volumes. Freight handlers
become more efficient faster with higher
volumes flowing through their larger facility and back office workers are able to
Forwarder Momentum
obtain transaction processing experience at
a faster rate at a large gateway than at a small
sub-scale gateway. The volume aggregation
benefits of a forced gateway also extend to
economies of freight terminal size where
larger facilities have lower real estate costs
per unit handled and are more capable for
handling peak season demand due to flexibility in facility layout. Outsourcing the
labor for freight consolidation operations is
an effective way for a forwarder to reduce
its exposure to having a large semi-skilled
workforce and keeping long term handling
costs low while maintaining management
control of key operational decisions that
impact consolidation economics and customer service levels.
Investment in information technology has revenue benefits, as described
above, but it also has a big impact on a
forwarder’s cost structure. A typical forwarding company requires an operations
and financial IT. Forwarders with a single
integrated operations system have lower
administrative cost per transaction, higher
data quality, greater visibility on shipment
status and better cost driver information
that can be fed into a financial system to
analyze customer profitability to validate
the company’s pricing strategy. Many
forwarders do not have a single operations
system, and several of the largest forwarders
operate different systems for air versus sea
freight and different systems in geographic
regions and country markets. Forwarders
with multiple systems generally grew
through acquisition and failed to fully
integrate acquired companies’ IT. Botched
IT integration projects have caused numerous earnings misses due to unexpected
IT consulting fees, lost customers due to
poor service and increased labor expense
due to re-keying of data to port data across
multiple systems. Forwarders that built
and maintained a single integrated system
consistently outperform those that have
not. Another word of caution with IT is
that the level of IT spending should not be
considered a proxy for effective IT. Often
the best IT systems are home grown and
developed around the specific business
rules of the company.
Management decisions also impact
capital efficiency. Purposely targeting
customers that pay their invoices quickly
can help reduce capital employed by lowering the networking capital requirements.
Outsourcing local delivery instead of
operating an organic fleet keeps assets off
the balance sheet and helps lower capital
employed. Finally, concentrating spending
with key suppliers can make you important
enough to that supplier to extract special
payment terms that also help lower net
working capital required.
Conclusions
The freight forwarding industry will
continue to benefit from growth in trade
and certain structural advantages over
carriers. But it is important for a buyer of
a forwarder to understand where the value
drivers are and the relative importance of
each one.
A buyer must also recognize the hidden
costs of complexity when integrating a forwarding capability with freight network and
contract warehousing type businesses.
Buyers must also recognize that synergies are limited to specific activities and
that paying a high premium for activities in
which there is not overlap is not wise.
Ultimately, value is driven by financial
performance, and financial performance is
driven strategic position. Strategic position
must be assessed in a disciplined manner,
which examines the discrete and interrelated activities within a forwarder value
chain to understand sources of synergy and
options to increase value.
■
AMERICAN SHIPPER:
MARCH
2008 53
Another day at the office for UPS
You know you’re in a UPS town when the place
you’re staying at is called The Brown Hotel. Or when
the wonderful Latin American restaurant Seviche has a
postscript on the bottom of its menu that reads: “Thanks
to our local UPS hub, we are able to get daily flown-in
seafood, caught the same morning.”
UPS headquarters is in Atlanta, but the center of its
express package and freight universe is the Worldport
hub in Louisville, Ky. The city is also the base for UPS
Airlines, celebrating its 20th anniversary. My visit was
an opportunity to see UPS in action and the industrial
engineering marvel that allows it to move hundreds of
thousands of packages overnight for next-day delivery.
And there was plenty of action. As we arrived for a
debriefing the night of Feb. 5 a huge line of thunderstorms
was moving through eastern Texas and up to the Great
Lakes. That’s the type of situation that normally disrupts
passenger airlines. But UPS, like its counterpart FedEx,
is built around meeting delivery commitments and has
backup plans for just about any contingency.
At the UPS Operations Center a team of meteorologists
was monitoring the weather conditions. The integrated
logistics provider employs sophisticated monitoring
systems and has developed proprietary software to better
analyze weather patterns. It also created its own model
for forecasting fog.
The Flight Control group comprises 65 licensed
aircraft dispatchers working around the clock on three
shifts to plan domestic and international flights. Tasks
include planning cargo loads, routes, refueling nodes,
and crew scheduling, monitoring airport conditions, and
handling in-flight diversions and emergencies.
Things were just beginning to get interesting. The
meteorologists were on the lookout for possible tornado
activity. “We’ve been working this scenario the whole
day,” flight manager Sam Kern said.
At 7 p.m. EST, UPS contingency planners held a conference call in which they determined several inbound
flights affected by the storm should be held on the
ground at origin. These locations included Tulsa, Okla.;
Richmond, Va.; and Washington Dulles International
Airport. The ground stop was later expanded to St. Louis,
Minneapolis and Memphis, among others.
At 10:30 p.m. operations staff postponed some takeoffs
within 400 miles to gain better control of the incoming
traffic. By staggering planes UPS can avoid ramp delays and congestion caused by scheduled and weatherdelayed planes arriving at the same time. Dispatchers
also ordered many planes to take on extra fuel so they
could hold in the air above Louisville for an hour or
more, if necessary.
Plans were also in place to divert several planes to
other regional UPS hubs where incoming packages
could also be sorted. But the Rockford, Ill., facility was
off the table because the airport was being hit by snow.
The preferred option is to try and wait out the weather
as long as possible and avoid diverting aircraft.
Meanwhile, five flights already en route were diverted
to refuel.
At 11 p.m., we headed across the highway to the giant
sort center on the grounds of Louisville International
Airport. It was “rush hour” because that’s when thousands
of UPSers come to work to load and unload the planes and
feed packages through the automated sortation system.
Most of the activity takes place between 11 p.m. and
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AMERICAN SHIPPER:
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2008
3 a.m. so the planes can reach the next airport, package
cars can be loaded and roll out to make morning deliveries. Every night, the express package and freight carrier
turns around about 105 aircraft.
When Louisville came under a tornado warning, it shut
down operations at Worldport for 40 minutes. Tornadoes
in four states that night killed 54 people.
The UPS operation quickly returned to normal, but
three planes sustained minor damage. One of them,
an Airbus A-300, suffered a few punctures to its skin
when the wind slammed some Unit Load Devices into
the plane. UPS deployed spare planes to take their place
without missing a beat.
By 1:45 a.m. fewer than half of the 78 scheduled
flights had arrived at the international hub. Flights were
63 minutes late on average due to the storms. Operating
with an hour penalty, the UPS team was still able to meet
its delivery windows for more than 90 percent of the
shipments that came through Worldport that night.
UPS takes these steps because the customer in Hong
Kong or Berlin doesn’t know that there were tornadoes
in Kentucky and doesn’t care. The only thing she cares
about is getting her package on time.
Worldport is a 4 million-square-foot engineering
marvel. It’s easy to view it as part of the landscape now,
but it’s amazing that a bunch of individuals had the vision
to create a totally automated sorting center that normally
handles about 850,000 packages per night and up to
950,000 during peak season (roughly 305,000 to 350,000
items per hour). Over a full day it processes about 1.2
million packages and more than 130 aircraft.
Workers quickly remove the package bins from the
planes and place shipments on one of three high-speed
conveyor belts — flats and small parcels, regular packages
and irregular packages. Dimensional weight scanners
measure packages and sophisticated cameras read smart
labels. As packages and documents whir along miles of
conveyors, computers read bar codes and direct traffic.
Here plastic sliders pop out to push a package down the
correct chute. There bins drop open and deposit the package
in the correct bag that will be placed on a plane headed to
an airport near the consignee. It takes 13 minutes and nine
seconds on average to sort a package. All this activity is
choreographed by the technology (wrap your head around
this statistic: 59 million database transactions per hour),
which is a key differentiator for a company that invests
$1 billion per year in information systems.
For all its high-tech innovation, perhaps most noteworthy is how UPS has adapted its workforce to meet
its needs. Through its Metro College program UPS pays
tuition and course-completion bonuses (along with wages
and benefits) for thousands of Kentucky residents to attend the University of Louisville and surrounding community colleges in exchange for working the part-time
night shift. It’s a bargain compared to hiring full-time
employees who would be idle half the day.
Meanwhile, UPS keeps planning for future growth.
The $1 billion-plus construction of two more load/unload
wings is scheduled to be completed in 2010, bringing sort
capacity to 416,000 packages per hour. Plans are also in the
works to expand capacity to 487,000 packages per hour.
UPS Airline began adding 747-400s to its fleet last year.
The world’s ninth-largest airline plans to take deliveries of more this year and park or sell 10 older 747-100s
and 200s. Altogether, it operates 268 of its own aircraft
supplemented by more than 300 charter aircraft.
TRANSPORT / AIR
ACE lift for Air AMS
Improvements to U.S. air cargo manifest program
to benefit IATA’s e-Freight initiative.
BY CHRIS GILLIS
W
hen shippers request air transport services from their freight
forwarders, they expect rapid
and efficient delivery of their goods.
However, air cargo generally moves as
fast as the attached paper waybill, and if that
documentation should become separated
from the shipment while en route, shippers
may experience severe delivery delays and
financial losses.
U.S. Customs and Border Protection has
operated an electronic data interchangebased automated air cargo manifest program
for more than 15 years. While the system
holds much promise for industry efficiency,
Air AMS has failed to spur an operational
dependency that has long been witnessed
through other automated CBP manifest
programs, such as ocean and rail.
“Other slower modes have increased
the velocity of their cargo clearances and
improved 3PL and
equipment handling
via EDI,” said Kim
G. Santos, director of
CBP’s Cargo Control
and Release Requirements Division in the
Office of Information
and Technology, during the first meeting
Santos
in Washington of the International Air
Transport Association’s global e-Freight
project on Jan. 16.
“Twenty-ton ocean containers may
be moving faster through our ports and
terminals than air freight at our airports,”
he added.
“The ocean industry moved 70 million
metric tons of dry cargo and 700 million
metric tons of petroleum in 1999 through
our ports and those figures have surely
gotten higher,” Santos said. “Yet the cargo
dwell time at the port of unlading has been
reduced to hours in many instances.
“On a weekly basis, the rail industry
imports 40,000 loaded railcars and trains
that can be 8,000 or more feet in length
and have almost ‘roll-through’ clearances
at many CBP ports.”
56
AMERICAN SHIPPER:
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2008
“ACE will automate
the total import/export
transportation process.
Sixty-two of the 65
government agencies
involved with air
transportation will be using
the ACE system for their
manifest and transportation
information.”
Orrin Ramstad
chairman,
Air Manifest Users Group
In 1972, the average transit time for an
international air shipment was 6.5 days.
Since then, IATA estimates that airlines
have only managed to reduce that transit
by 12 hours. Air cargo analysts say this has
much to do with the continuation of paperbased waybills and manifest procedures. It’s
estimated that the airline industry moves
enough paper each year to fill 39 Boeing
747 freighters.
From the start, CBP’s Air AMS had a difficult uptake within the industry. First the
system stood alone from the rest of CBP’s
manifest processes, such as ocean and rail,
which used ANSI X12 EDI formats. When
it first deployed Air AMS, CBP made the
decision to use the CargoImp EDI format
to accommodate the trade.
The railroads and ocean carriers were
quick to work together with the government on efficient automated manifest
procedures for their respective freight
transport sectors.
“Working collectively and with a common, focused voice, they have achieved
economies in their operations, enhanced the
effectiveness of their representation and, in
terms of e-Freight, promoted uniformity in
the design, development and deployment of
their e-Freight initiatives,” Santos said.
Railroads and ocean carriers also continue to integrate their operations with
terminal operators, forwarders, shippers,
customs brokers, custodial entities and
regulatory agencies.
“Information sharing via EDI reduces
paper document handling, speeds cargo
clearance and improves equipment utilization, all of which enhance the revenue
stream back to the carrier,” Santos said.
In the United States, the airlines, through
the auspices of the Washington-based Air
Transport Association, formed the Air
Manifest User Group to work with CBP
on automation issues and management of
Air AMS applications.
“I believe that if IATA and the ATA
Air MUG coordinated efforts in areas
of common interest, such as automation
of air cargo processing and clearance, as
great economies could be achieved as we
have seen in the rail and ocean sectors,”
Santos said.
Modern Touches. CBP will make a
number of updates to Air AMS as part
of its new umbrella computer system, the
Automated Commercial Environment.
First, the agency is moving Air AMS
into a browser environment for the industry and its field officers. Internally, this
change will allow CBP quicker access to
manifest information. For the industry,
it will support a “trade portal” through
which an air carrier can establish an ACE
account that will provide the trade partner
new capabilities, such as running reports
from CBP’s stored data, better managing
the use of custodial bonds, efficiently
routing CBP advice to the industry, and
adding any new functions requested by
the air industry through Air MUG, the
Trade Support Network, and operational
enhancements from CBP’s Office of Field
Operations, Santos explained.
CBP will extend the “broker download”
capability to Air AMS users. Broker download serves as an electronic “heads up”
that a shipment is incoming for the broker
identified within the waybill transmitted
to CBP.
“Broker download promotes pre-arrival
entry filing, also called pre-filing,” Santos
said. “That means the cargo release data
has been received and processed by CBP
before freight arrives in the U.S. and that is
how velocity is added to the movement of
air cargo at the point of cargo control and
release — the airport in the U.S.”
Additionally, CBP will extend to the
air transport industry its highly success-
TRANSPORT / AIR
ful “secondary notify” function
to participate in the e-Freight
within the ocean and rail secinitiative,” he added. “That’s
tors. This capability allows CBP
extremely good news.”
The International Air Transport Association is gradually
to send a copy of the official
Tubbesing said IATA will
progressing in its march to make filing of air freight docucargo release message to enticonduct a “gap analysis” bements more electronic.
ties designated by the importing
tween what already exists in the
Launched in 2004, the standards were jointly developed by
carrier, such as truckers, bonded
U.S. system to help eliminate
IATA and the World Customs Organization.
warehouses and container freight
paperwork for both inbound and
At a January air cargo conference in Mumbai, an IATA ofstations, allowing cargo to move
outbound shipments vs. what still
ficial gave a quick rundown of the project’s current status.
more quickly through these
needs to be done. IATA will also
“E-Freight is about removing the need for the paper chase,”
handoffs. “There are no lost pacreate a “joint understanding”
said Aleks Popovich, global head of cargo at IATA. “In pasper documents and everyone is
between Air MUG, the Internasenger terms, e-Freight is like an e-ticket and an e-passport
enfranchised at the speed of light
tional Federation of Freight Forfor customers who can’t walk or talk.”
with the CBP shipments status
warders Associations (FIATA),
The system is live in six locations (Hong Kong, Sweden,
advice,” Santos said.
and itself to communicate to CBP
Singapore, the United Kingdom, the Netherlands and Canada)
For the most part today, CBP’s
in “one voice,” he said.
on 20 connecting routes, involving seven forwarders, seven
regulations allow for paper-free
“The Air MUG committee
airlines and 11 customs and government bodies.
inbound U.S. cargo transportabelieves strongly in the e-Freight
Popovich said the system has been successful in removing
tion. Exceptions are the General
principles and process, however
about 60 percent of the paper documents necessary in an air
Declaration and a small percentparticipation in the test program
cargo shipment:
age of import transactions, from
will be each carrier’s decision,”
• Three between the shipper and forwarder.
1 percent to 5 percent, that require
Ramstad said. Air carriers United
• Four between the forwarder and export customs.
documents to clear customs. Exand American told IATA that they
• Three between export and import customs.
port manifest automation plans are
would be interested in participat• Three between import customs and the shipper on the ing in a U.S. e-Freight pilot.
underway in ACE to implement
receiving end.
paperless outbound processing
Earlier attempts to eliminate
“It’s not perfect, but it’s moving forward,” he said. “DHL,
by 2010. Paper General Declarapaper within the highly fragfor instance, has decided to do e-Freight on every route betions will likely be eliminated at
mented air cargo industry were
tween these six locations. And eight more locations will be
that time, if not sooner, said Orrin
largely failures. But a recent
added in 2008.”
Ramstad, chairman of the Air
IATA survey found that 99 perFor more information on e-Freight, go to: www.iata.org/
MUG, and senior specialist with
cent of its airline and forwarder
stbsupportportal/efreight/.
Northwest’s cargo operations.
members use Internet-based
“ACE will automate the total
communications today.
import/export transportation
“Clearly, we have to do it,”
process,” Ramstad said. “Sixty-two of the officials and corporate volunteers from the Tubbesing said. “We need to get out of the
65 government agencies involved with air airline and forwarding industries.
stone age. We cannot continue this way
“Never before has there been this level with global traffic growing at 6 percent. It
transportation will be using the ACE system for their manifest and transportation of seriousness and professional effort be- is impossible given the other industry chaling made to take paper out of the air cargo lenges, such as fuel that can push down our
information.”
process,” said Jens Tubbesing, president of operating margins.
U.S. Onboard. For IATA representa- Cargo Network Services Corp., the U.S.
“Now, will the e-Freight initiative for
affiliate of IATA, in an interview with achieving paperless be perfect? No. But it
tives, CBP’s upgrades
American Shipper.
to Air AMS speak to
leads us in the direction for how it can be
“U.S. Customs is very eager and willing done,” he said.
■
the Montreal-based organization’s e-Freight
initiative to eliminate
paperwork throughout
the air cargo system.
IATA estimates
that automation of
cargo documents will
Tubbesing
reduce international transits by a day and a
half, or 25 percent. The annual savings from
the elimination of paper would be about
$1.2 billion of which $216 million would
be realized by shippers, IATA said.
Late last year, IATA launched a series of
successful paper-free pilot tests between the
air cargo markets of Canada, Sweden, Hong
Kong, Singapore, United Kingdom and the
Netherlands. IATA now wants to expand
the pilots to larger, more complex air cargo
markets, such as the United States. The pilots involve project teams comprising IATA
E-Freight update
AMERICAN SHIPPER:
MARCH
2008 57
Your country needs you: Spend, spend, spend!
Nervous investors have been dumping liner stock in
droves of late, sending the share prices of many leading
container operators in Europe and Asia into a tailspin.
Roughly two-thirds of the container shipping market
is consumer goods related, so are those shareholders
rushing to sell because of fears over a looming U.S.
recession? Or is the squeeze on carrier profits from
record bunker prices? Or maybe it’s just fallout from
the global stock market turbulence?
Someone with a better grasp of the markets than me is
U.S. activist shareholder Guy Wyser-Pratte, interviewed
on pages 66-68. He pinned the blame for Jan. 21, “Black
Monday” — the worst day of trading since Sept. 11,
2001 — on the subprime crisis rather than lingering
recession fears.
“What’s happening in the markets is a financial event
and not an economic one,” he said. “They’ve gone down
because you have a potential tsunami of worthless paper
floating above the markets in the form of insured credits
from these so-called monoline insurers like Ambac and
MBIA, which went outside of their traditional business
of insuring municipal loans and went into insuring
subprime mortgages.
“It is creating some fear and trepidation in the markets
and in the public’s mind. But I don’t see a recession at
this point. It’s a financial event that has yet to affect
Main Street. It’s certainly affected the housing market
but the subprime market is the major casualty.”
However, Global Insight’s latest U.S. macroeconomic
forecast already has the United States in a mild recession
at least for the first half of this year. The Boston-based
firm expects U.S. gross domestic product declines of
0.4 percent in the first quarter and 0.5 percent in the
second. This will be followed by growth rebounds of
3.4 percent in the third quarter and 2.7 percent in the
fourth as monetary and fiscal stimulus kicks in. Alas,
that boost to consumer spending from tax rebates is
expected to fade for the first quarter of 2009 with GDP
growth slipping back below 1 percent.
Further evidence that U.S. consumers are getting jittery and tightening their collective belts comes from the
disappointing holiday season sales and fewer inbound
containers arriving at major U.S. ports, a situation poised
in February to stretch to seven consecutive months of
year-on-year declines.
Also, the government’s $152 billion economic stimulus
package might not work as planned, as a number of opinion
polls indicate most people won’t actually spend the tax
rebates on retail goods but rather use the cash to clear
debts, or make investments and donations to charity.
I wonder if consumer confidence would be higher
right now if Black Monday had been branded with a
slightly brighter color? I mean where can you go after
that? Super Tuesday I guess.
But will a recession really damage the ocean carriers as
hard as wary investors seem to think, and have the polls
underestimated the appetite of the U.S. consumer?
Adolf Adrion, the soon-to-retire boss of German carrier Hapag-Lloyd, admitted in London recently that he
expects to see a “small trough” in U.S. demand for liner
services, but remains confident U.S. shoppers won’t stay
away from the mall for too long.
“Knowing the mentality of the Americans I still hope
they will go back to their mentality to buy even if they
don’t have money in their pockets … we will not see a
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AMERICAN SHIPPER:
MARCH
2008
change in the attitude of the Americans. They love to
buy and we love to serve them!”
Philip Damas, who works for London-based Drewry
Shipping Consultants, is also confident that the liner
business will ride the latest storm. His rationale is that
unlike the scenario post-Sept. 11, when most of the world
markets collapsed in union, this time around the United
States stands out in terms of its exposure.
“There are many strong trades unrelated to the U.S.
economy and these, so far from all the records we have
seen, have been insulated from the downturn in the
U.S.,” he said. “There is a buffer there that will help
the container shipping industry get over the shock of
the transpacific and transatlantic trades.”
Drewry does expect the rest of the world to slow, only
in a more moderate fashion compared to the United
States. On a global basis the company foresees container
throughput growth dropping from 12 percent last year
to a still healthy 10 percent in 2008.
Another reason for shipping lines to be encouraged,
Damas said, is the supply and demand balance is relatively good by historical standards “so I don’t think the
shipping lines are panicking on that issue.”
Paul Bingham, a principal with Global Insight, is a tad
less optimistic. “Perceptions of shareholders are difficult to
identify, but there is no doubt that equity investors are aware
of the weakness in the economy and that softer demand
for goods means a reduction in the demand for shipping
goods, which clearly will affect shipping lines.
“The non-U.S. markets will likely again prop up the lines
in 2008 but not to the same degree as they did in 2007,
because there have been consequences for global financial
and credit markets from the U.S. downturn that are slowing
demand in many of those economies as well.”
Even if bargain hunters flock to the discount stores,
the virtual warehouses of cheap Asian goods, Bingham
said total U.S. volumes would decline.
“While there will be some source geography impact
on the lower-price product composition of consumer
spending in recession, this effect will be much less than
the overall reduction in demand,” he said.
Sensing the downturn in the U.S. trades, lines have
already cut their cloth accordingly by relocating tonnage
from the Asia to North America route to more profitable
corridors such as Asia/Europe, something that will likely
continue until U.S. demand picks up.
Until then, Damas thinks lines will probably look
to off-hire some chartered tonnage and try and reduce
fixed costs, such as from U.S. intermodal operations. “If
they do that they should be able to survive and continue
well into the future.”
There are those who would welcome a U.S. economic
blip. With fewer goods from the Far East expected in
U.S. stores, the World Bank recently cut its forecast for
China’s 2008 economic growth to 9.6 percent from the
11.4 percent it grew last year. Far from worried, some Chinese economists believe a U.S. recession could actually
narrow trade imbalance between the two countries.
“A reduction is good to ease international pressure,
adjust the economic structure and enlarge domestic demand,” Zheng Jingping, a researcher with the National
Statistics Bureau, told Xinhua recently.
The Xinhua report, citing economists’ calculations,
said a drop of one percentage point in American GDP
would lead to a five percentage-point decline in the
growth rate of Chinese exports.
WHAT WILL YOU DO IF IT HAPPENS AGAIN?
The East Coast Alternative
Virginia Maritime Association’s International Trade Symposium 2008
Confirmed ITS speakers include:
May 8-9, 2008
Charles W. Moorman – Chairman, President and Chief
Executive Officer, Norfolk Southern Corp.
Norfolk Sheraton Waterside
Richard P. Hughes, Jr. – President, International
May 8: International Trade Symposium & Banquet
May 9: Golf Outing
Longshoreman’s Association
Charles G. Raymond – Chairman, President and Chief
Executive Officer, Horizon Lines Inc.
This year’s theme “The East Coast Alternative”
explores three important panels:
Joseph F. Carroll – Publisher, Furniture Today
Thomas Capozzi – Senior Managing Director of Marketing
• Armchair Logistics: Furniture Distribution Today
Services, Virginia Port Authority
• The Business Case for Trans-shipment
• East Coast Surge Capacity
John Wheeler – Director of Trade Development,
Georgia Ports Authority
Fred Stribling – Vice President of Marketing and Sales,
South Carolina State Ports Authority
Visit www.VAMaritime.com / symposium for information and registration.
Sponsored by Virginia Ports Authority, Maersk Line, Norfolk Southern,
Marine Repair Services, and “K” Line.
Shifting
trade winds
With imports booming in Europe,
carriers trim transpacific capacity.
BY CHRIS DUPIN
60
AMERICAN SHIPPER: MARCH
2008
S
hipping companies reduced their container capacity out of the transpacific in the last part of 2007
while increasing the number of slots on services
in the Asia/Europe trade.
Statistics compiled by American Shipper’s affiliate, ComPair Data, show Asia/U.S. carriers had weekly capacity to the
West Coast of 265,931 TEUs as of Jan. 1, about 5 percent less
than Oct. 1, 2007. For the U.S. East Coast there was 75,585
TEUs of weekly capacity at the start of this
year, 8 percent less than Oct. 1.
In contrast, capacity from Asia to North
Europe grew 6 percent to 211,626 TEUs
per week; from Asia to the Mediterranean
improved 4 percent to 142,010 TEUs per
week.
Carriers are responding to rapid growth
in the Asia/Europe trade that is expected
to continue in 2008.
“Because we expect Far East to Europe
container volumes to keep growing much
faster than transpacific volumes, the Far
East to Europe trade should overtake the
transpacific eastbound trade this year for
the first time since the start of containerized
shipping,” said Philip Damas of Drewry
Shipping Consultants in London.
Niels Erich, a spokesman for the Transpacific Stabilization Agreement, which represents 15 steamship lines in the Asia/U.S.
trade, notes that some of that fourth quarter
capacity reduction is seasonal because of
carriers’ tendency to make repairs and
conduct routine maintenance on vessels
during the post-holiday lull.
But ComPair Data found the fourth
quarter reduction in transpacific capacity
of 5 percent in 2007 greater than the 3
percent reduction in the fourth quarter of
2006 or 2 percent reduction in the fourth
quarter of 2005. There was actually a 2
percent increase in capacity in the fourth
quarter of 2004.
But he also said, “The lines typically
try to scale their fleets as best they can to
market demand. I think what you are seeing
is the market at work.”
Ben Hackett, executive managing di-
Philip Damas
Drewry Shipping
Consultants
“The Far East to Europe
trade should overtake
the transpacific eastbound
trade this year for the first
time since the start
of containerized shipping.”
rector with the economic forecasting firm
Global Insight, reckons that because of a
sharp slowdown in the second half of 2007,
eastbound transpacific container traffic
was flat last year compared to about 9.6
percent growth in 2006.
With transpacific traffic moderating
even during last year’s peak season, and
costs — especially for fuel — climbing
sharply, Erich said carriers have looked at
opportunities to deploy ships in other trades
with stronger cargo growth or use them to
reduce costs by slow steaming.
“Traditionally, the transpacific eastbound to North America, especially the
U.S., has been the so-called darling because of the growth it had continuously
for many years,” said Arnold da Silva,
an executive vice president at Schenker,
the large non-vessel-operating common
carrier. “This is changing — it changed
last year and is likely
to change this year
if you believe everything you hear
about the subprime
crisis and so forth.
For the carriers, the
rate levels are significantly better on the
Asia/Europe routes
da Silva
and for this reason they are putting their
resources to the trade lanes that give their
best returns.”
Some of the transpacific reduction may
be seasonal, but the TSA is predicting only
limited growth in cargo volumes in 2008
for its members of 3 percent to 5 percent,
compared to 8 percent in the first nine
months of 2007 and 9.6 percent for the
whole of 2006.
With the U.S. economy’s slowdown at the
end of last year, carriers in the U.S. trades
are expected to be cautious about expansion. Advance estimates released by the
U.S. Bureau of Economic Analysis showed
real gross domestic product increased at an
annual rate of just 0.6 percent in the fourth
quarter of 2007, compared to 4.9 percent
in the third quarter.
“We will be monitoring the market very
carefully in the early part of this year,” said
Brian M. Conrad, TSA executive administrator, in January.
He said the slower cargo growth forecast
for this year “supports lines’ individual
decisions to redeploy new and existing
ships to intra-Asia, Asia/Europe or Latin
America. At the same time, many analysts
forecast a turnaround in the U.S. economy
later in 2008, and lines see the potential
for volatility, beginning in late spring and
continuing into the peak season due to some
very significant, one-time events.”
TSA said those events include the Beijing
Olympics, when factories in parts of China
are expected to close; the contract negotiations with the International Longshore and
Warehouse Union; the clean truck program
in Los Angeles and Long Beach; and the
implementation of the federal Transportation Worker Identification Credential,
Table 1
Capacity changes in the Asia/Europe trades
(Weekly capacity in TEUs, adjusted, Jan. 1, 2007 to Jan. 1, 2008)
Trade
Asia to North Europe
Asia to Mediterranean
Total
1/2007
171,951
104,259
276,210
4/2007
173,894
108,321
282,215
% chng
1.1%
3.9%
2.2%
7/2007
190,439
122,652
313,091
% chng
9.5%
13.2%
10.9%
10/2007
199,875
136,691
336,566
% chng
5.0%
11.4%
7.5%
1/2008
211,626
142,010
353,636
% chng
5.9%
3.9%
5.1%
Source: World Liner Supply reporting service of www.compairdata.com.
AMERICAN SHIPPER:
MARCH
2008 61
TRANSPORT / OCEAN
which may create shortages of trucking
services.
TSA lines forecast an average 2 percent
to 4 percent increase in their aggregate
transpacific capacity in 2008, but cautioned
that the gap could narrow if economic conditions do not improve and carriers scale
back operations further.
TSA said its members had high vessel
utilization during the fourth quarter, averaging 94 percent via the West Coast and 91
percent via East Coast all-water service, up
from 2006 levels.
Erich said that was partly a result of carriers trimming capacity to meet demand,
but also a reflection that TSA members
were increasing market share.
Hackett of Global Insight believes it
will be six to nine months before additional capacity begins to flow back into
the transpacific trade, pointing to weak
U.S. consumer demand and the fact that
the Asia/Europe trade is “holding up pretty
well, though slowing up a little.”
“I don’t think ships will return to the U.S.
as lines indicated they would take additional
tonnage out in 2008,” said Charles de Trenck,
a shipping industry analyst with Citigroup.
“But neither do I think capacity will remain
quite so tight in most of 2008.
“I would expect demand to remain flat
with risk that it moves into negative territory
during the first half of 2008. In the second
half I think we could be flat with little
rebound in volumes until 2009,” he added.
“The downside risk is that this malaise
continues into 2009 as the U.S. recovers
from its credit-driven binging over the last
decade or more. But clearly authorities are
trying to kick-start the consumer again
with more subsidies. If they succeed, then
the downside scenario may not materialize
and we may be in position for volumes to
rebound a little more in 2009.”
And if that happens, it will be “just in
time for the acceleration of super post-
Table 2
Services started in the Asia/Europe trades
(Weekly TEU capacity added, Oct. 1, 2007 to Jan. 1, 2008)
Asia/North
Europe
1,266
2,882
0
0
Carriers and service name
COSCO/“K” Line/Yang Ming/Hanjin - AE3
Hanjin Shipping/UASC - CNX
Evergreen Line - AEM
Wan Hai/PIL - FBS
Asia/Med
422
0
2,524
1,345
Source: World Liner Supply reporting service of www.compairdata.com.
Panamax accelerated deliveries, which will
go mostly into the Asia/Europe trade,” and
which may lead to a cascade of ships back
into the Pacific trade.
“The transpacific peak in 2007 wasn’t
what was anticipated and I think will
be similar in 2008,”
said Jimmy Crabbe,
vice president of UPS
Global Ocean Freight
Services. And the
weak dollar has driven
interest in both U.S.
exports and different
trades, he noted.
“Add all that up and
Crabbe
there are good reasons why the carriers
might be moving out of their least profitable trades if you look at it and put it in
the most profitable trade — which is the
Asia/Europe trade,” he said.
Drewry Shipping Consultants estimates
that total adjusted capacity for the eastbound transpacific trade capacity grew
just 0.7 percent during 2007. In contrast,
Far East-to-North Europe capacity was
19.7 percent higher at the end of the year
than at the beginning, and Far East to the
Mediterranean was 51 percent higher.
In the Mediterranean there were 10
new services launched last year as well as
significant upgrades on existing services,
noted Neil Dekker, editor of Drewry Ship-
ping Consultant’s Container Forecaster.
“This is the first time where the growth on
the trade from Asia to Europe has outstripped
trade to the U.S.,” said Rod Riseborough,
chief executive officer of the Far East Freight
Conference, which represents 17 container
carriers in the Europe/Asia trade. “Normally
they’ve run fairly parallel”
FEFC carriers saw liftings from Asia
to Europe grow 19 percent in 2007 to 9.5
million TEUs. They grew 17.5 percent to
6.2 million TEUs in North Europe and
22 percent to 3.3 million in the Mediterranean/Black Sea trade.
FEFC dominates the trade, but there is
significant participation by outsiders as
well. Drewry figures show that volume in
2007 from Asia to Europe by conference
and non-conference carriers combined
increased about 20 percent to 13.5 million
TEUs. Of this, trade to North Europe grew
about 18 percent to 9.2 million TEUs and
trade to the Med soared about 23 percent
to 4.3 million TEUs.
“It is difficult to say exactly how much
tonnage has been directly displaced from
the transpacific trades to the Far East/Europe trades, but it was made fairly public
that in the last year China Shipping Container Line, COSCO and Evergreen have
displaced some 7,000-TEU and 8,000-TEU
vessels back into the Far East/Europe
trade,” Dekker said. “Zim-Evergreen an-
Table 3
Biggest Asia/Europe capacity adjusters
(Weekly capacity in TEUs, adjusted, Oct. 1, 2007 to Jan. 1, 2008)
Maersk Line/Safmarine
CKYH Alliance
CMA CGM/China Shipping
Mediterranean Shipping Co.
Grand Alliance
Evergreen
New World Alliance
Other carriers
Total
Asia/North Europe
10/2007
1/2008 % chng
41,147
39,781
(3.3%)
41,809
43,689
4.5%
31,009
35,381
14.1%
15,251
20,556 34.8%
28,696
28,219
(1.7%)
13,692
13,595
(0.7%)
16,741
18,689
11.6%
11,530
11,716
1.6%
199,875
211,626
5.9%
10/2007
26,005
20,591
28,609
30,551
9,277
7,823
3,209
10,626
136,691
Source: World Liner Supply reporting service of www.compairdata.com.
62
AMERICAN SHIPPER:
MARCH
2008
Asia/Med
1/2008 % chng
30,480
17.2%
23,597 14.6%
26,169
(8.5%)
26,544 (13.1%)
9,407
1.4%
10,474
33.9%
3,684 14.8%
11,655
9.7%
142,010
3.9%
Combined
10/2007
1/2008
67,152
70,261
62,400
67,286
59,618
61,550
45,802
47,100
37,973
37,626
21,515
24,069
19,950
22,373
22,156
23,371
336,566 353,636
% chng
4.6%
7.8%
3.2%
2.8%
(0.9%)
11.9%
12.1%
5.5%
5.1%
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TRANSPORT / OCEAN
nounced just before Christmas that their
AUX string (surprisingly for the U.S. East
Coast) would be suspended permanently
and the 4,400-TEU nominal vessels are
being put into the Europe trades.”
Riseborough said that while Maersk,
for example, moved an entire string of
4,000-TEU-plus ships from the Pacific to
the Asia/Europe trade, most carriers have
managed capacity in the transpacific by
taking large ships out of the Pacific and
replacing them with smaller ships. Evergreen replaced a string of 7,100-TEU ships
with 5,500-TEU vessels.
The large ships have been put into the
Asia/Europe trade, which Riseborough
said has the added benefit of helping “to
deal with the congestion we have in North
European ports.”
For example, it takes less time to dock, set
up, discharge and load two 7,500 TEU ships
than three 5,000 TEU ships, he said.
In addition, he notes many carriers have
inserted additional ships into Asia/Europe
strings so they have nine rather than eight
vessels. This allows them to reduce the
speed of ships, fuel consumption, and still
maintain weekly port calls. It also gives
them increased flexibility in their schedule
to deal with port congestion.
Hackett said 10 ships are even being used
on some very long strings.
Some transpacific carriers have leased out
ships in the charter market for short terms,
he said. This allows some carriers to begin
services sooner, rather than waiting for vessels under construction to be completed.
“The developments which have taken
place are all about the overriding economics,” Dekker said. “Eastbound transpacific
growth has been poor in 2007 and as a result
of two years where the carriers negotiated
little or no increases in the shipper contract
all-in rates, they have been very much
exposed to increasing fuel and intermodal
costs, which has hit them hard.”
Bill Ralph, an economist with R.K. Johns
& Associates, agreed that the numbers
over the past few years have shown Asia/
Europe is the most dynamic trade route,
sustaining 20 percent
to 30 percent annual
volume growth. “It is
incredible. The carriers have reacted to
that as required with
the addition of considerably larger ships
in the Europe/Asia
trades.
Clerc
Vincent Clerc, vice president for Pacific
services at Maersk, said, “When different
markets go through the outsourcing pattern,
you see basically an S curve where you have
64
AMERICAN SHIPPER:
MARCH
2008
the pioneers go first and the market grows
very slowly at the beginning; then you have
some years of extremely heavy growth;
then growth slowly tapers a little bit as you
get toward the end of the S curve because
you have basically done the outsourcing
you can do.
“The U.S. outsourced earlier and faster
than the Europeans and were at the top of the
S curve 2000-2002, and that is when growth
on the Pacific was very strong. Europe has
made the move a little later. And with the
very strong euro, the advantage that they
got by outsourcing became more obvious to
them and so they have done it a lot.”
That strong trade also may explain why
Europeans have been more accepting of
higher bunker charges than shippers in the
transpacific, he said.
“My caution is that the economic indicators point to the fact Europe growth is likely
to slow, although I don’t think anyone is
talking about a recession in Europe,” Ralph
said. “But slower growth is going to have
an impact on volume growth in containers.
The real issue is how will the carriers react
given the large amount of assets they have
put into that trade and are still planning to
based on the order books.”
The International Monetary Fund said in
January that it expected economic growth to
slow from 4.9 percent in 2007 to 4.1 percent
in 2008. In the United States a slowdown of
from 2.2 percent to 1.5 percent is predicted;
and in the “Euro zone” from 2.6 percent
to 1.6 percent.
But Riseborough cautioned against looking at Europe as a single entity, noting rates
of growth vary by region.
“You don’t have a single economy — the
Euro zone, the U.K., and Eastern Europe
— they all have different currencies and they
tend to move at different paces,” he said.
The “core” European countries —
Schedule slippage
BY SIMON HEANEY
I
t’s been nearly 10 years since ComPair Data started tracking global
liner services, and the state of schedules in some trades right now leaves a
lot to be desired.
It’s not quite a throwback to the days of
conventional shipping, but the fixed-day
weekly ideal is being achieved much less
frequently from what we are seeing.
Take a look at a random schedule in
any of the east/west trades and there
might well be a gap of six days between
two ships calling at the same port in a
rotation followed by a gap of eight or nine
days for the next. Or maybe there’s no
ship at all for that week for one reason
or another.
Based on our experience this practice
was almost unheard of only four or five
years ago.
And that’s just what we see looking
at the advertised schedules. There are
reports out there that show sometimes
only about half of ships arrive in port
on time.
There are many reasons why ships
come in late, including bad weather and
limited berthing windows. But shippers
are crying out for reliability. You only
need to look at the growing popularity
of time-guaranteed options with moneyback clauses. Carriers need to be mindful
of this or risk losing customers.
Among the growing number of carriers
and non-vessel-operating common car-
riers offering such products to shippers
are partnerships between APL Logistics and Conway Freight; and between
Matson Navigation, Matson Integrated
Logistics and trucking giant J.B. Hunt;
as well as Vanguard Logistics Services,
and Shipco Transport. The services are
limited to certain ports.
Another serious downside is a heightened risk of port congestion as planning
goes out the window. Much has been
made of terminal productivity, but it
helps when you know when your busy
times are going to be.
One big reason for the erratic situation with schedules is undoubtedly
lines chasing profits by repositioning
vessels from one poorly returning trade
to a better yielding route. We have seen
this recently with a substantial number
of ships switching from the transpacific
to the booming Asia/Europe trade. You
can’t blame lines for wanting to get the
most out of their assets, but until things
settle down schedule integrity will probably continue to suffer.
Things could improve now that we are
seeing more and more operators making
the decision to slow-steam and add extra
ships into loops, although this has more
to do with the record bunker prices. The
trade-off is a few more days in transit
but it should give them the flexibility to
meet schedules better by turning on the
gas if ships fall behind.
TRANSPORT / OCEAN
France, Germany, the United Kingdom,
Holland and Belgium — are seeing inbound
container growth rates of 14 percent to
15 percent. But some smaller regions are
seeing faster growth: Asian trade into the
Black Sea and North Russia is growing at
an annual clip of 50 percent; to Poland 35
percent to 40 percent, he said.
A fall in the euro’s value may not matter
to a consumer in Eastern Europe or Russia
who wants to buy a flat-screen television
made in Korea.
Even if the European economy slows,
Hackett of Global Insight believes doubledigit growth in container imports from Asia
remain likely.
According to the information service
AXS Marine/Alphaliner, this year 14 ships
with capacities of more than 10,000 TEUs
will be delivered and 35 with capacities of
7,500 to 9,999 TEUs. In 2009, the comparable numbers are 26 and 35. Most of these
are expected to be put into Asia/Europe
trades. AXS/Alphaliner said there will also
be 58 5,000-7,499-TEU ships delivered in
2008 and 54 in 2009.
AXS/Alphaliner said CMA CGM and
China Shipping will probably this summer
launch a new string with ships ranging in
size from 8,530 to 9,661 TEUs, and that
CMA CGM is expected to follow it in 2009
with another string with 11,000-plus-TEU
ships.
“Should the transpacific trade pick up,
more newbuilds should be deployed back
into the transpacific and new service strings
may in due course be launched, but this is
certainly not going to happen at the moment,” Dekker said.
Crabbe of UPS said it is still too early to
tell whether carriers will do a good job of
balancing supply and demand, but he thinks
they will be cautious about reducing capacity on the transpacific too sharply.
“The transpacific has been their bread
and butter for a lot of carriers for many
years,” he said
The current slowdown “is not going to
go on forever. The U.S. economy will pick
up and there will be an increase in demand
— if not this year then probably next year,”
Crabbe said. “Carriers cannot afford to go
out of that trade or significantly reduce their
customer base because they would only
have to build it up in the future.
“If anything I see this as an opportunity
for NVOs to pitch their value add to customers,” he said. Shippers who only deal with
one carrier or a very limited number might
be more vulnerable if there are shortages
of capacity, whereas big NVOs “deal with
many carriers so we feel we can manage
capacity.”
Rolf Altorfer, president and CEO of Kue-
Table 4
Comparison of Asia/North Europe,
Mediterranean carrier groups
(As of Jan. 1, capacity per week, adjusted)
Asia/North Europe
19%
21%
17%
6%
6%
9%
13%
10%
Capicity /week
CKYH Alliance
43,689
21%
Maersk Line/Safmarine
39,781
19%
CMA CGM/China Shipping
35,381
17%
Grand Alliance
28,219
13%
Mediterranean Shipping Co.
20,556
10%
New World Alliance
18,689
9%
Evergreen
13,595
6%
Other carriers
11,716
6%
–––––––––––––––––––––––––––––––––––––––––––––––
TOTAL
211,626 100%
Asia/Mediterranean
19%
21%
18%
8%
3%
7%
7%
17%
Capicity /week
Maersk Line/Safmarine
30,480
21%
Mediterranean Shipping Co.
26,544
19%
CMA CGM/China Shipping
26,169
18%
CKYH Alliance
23,597
17%
Evergreen
10,474
7%
Grand Alliance
9,407
7%
New World Alliance
3,684
3%
Other carriers
11,655
8%
–––––––––––––––––––––––––––––––––––––––––––––––
TOTAL
142,010 100%
Source: World Liner Supply reporting service of www.compairdata.com.
hne + Nagle’s U.S. office, said he doesn’t
expect the reallocation of container capacity
will have a significant impact on rates.
“It doesn’t look right now that they are
going up, because capacity is O.K. and
I don’t think they are going to make an
‘artificial capacity crunch.’ ”
The movement of ships “is a natural move
because the trade is probably still stronger
from Asia to Europe and the venue is not a
strong one on the transatlantic. How quickly
they come back into the Pacific depends on
the market. By the end of the first quarter
we should have a better picture of which
way this thing is heading,” he said.
Hubert Wiesenmaier, executive director
of the American Import Shippers Association, which negotiates freight rates on behalf
of many apparel importers, said, “It looks
like the carriers are in an improved position to negotiate if there is less vessels. The
other way around has favored the shippers
if there is overtonnaging.
“I expect tough negotiations to result
from all of that. Whether the situation improves and they bring vessels back again or
bigger ones for the transpacific eventually
or in short order remains to be seen. I think
essentially the underlying revenues have to
improve for them to do that,” he said.
If there are shortages of space, “I’m confident it will not be in our sector,” Wiesenmaier
said. “Apparel pays a premium over other
stuff that moves. If there are shortages or
if more cargo is rolled, we have the clear
understanding that we do a contract and want
our members containers moved.”
Schenker’s da Silva noted the buzzword
heard from carriers today is “profitable
growth,” and they seem to have become
smarter in how they allocate capacity — not
only by switching vessels between trades,
but also forging new alliances.
Independent lines, and even some of the
big alliances are beginning to swap spaces.
He points to Maersk and Evergreen swapping Asia/Europe slots on the Maersk AE2
service and Evergreen’s CEM service.
That kind of cooperation is also happening in the transatlantic where the Grand
Alliance is upgrading its ATX service
with Zim and the New World Alliance and
Maersk have entered into a slot exchange
agreement.
■
AMERICAN SHIPPER:
MARCH
2008 65
TRANSPORT / OCEAN
When shareholders attack
U.S. investor gunning for TUI CEO Frenzel. Hapag-Lloyd,
APL merger speculation refuses to go away.
Guy Wyser-Pratte
BY SIMON HEANEY
D
espite the fact he’s approaching his
68th birthday Guy Wyser-Pratte is
someone you don’t want to get into
a fight with.
The tall, straight talking former U.S.
Marine Corps. captain is one of the driving
forces behind the so-called shareholder activist movement, where proactive investors
pester managers of “failing” firms to change
their ways or ship out.
In Europe — Wyser-Pratte was actually born in Vichy, France in 1940 before
emigrating to the United States with his
parents and two brothers in 1947, becoming
a naturalized citizen in 1953 — he is nicknamed the “Rambo of the capital markets”
as a nod to his combative style.
His list of activist projects on the European continent includes French champagne
producers Taittinger and German robotics
firm Kuka.
One of his latest targets is Hanover-based
tourism and shipping giant TUI AG, owners
of the world’s fourth-largest container line
Hapag-Lloyd. Wyser-Pratte last September
acquired a 1 percent share in TUI for an
undisclosed sum that was estimated at the
time to be worth about $57 million.
“We take positions and shares in companies that are undervalued and try to assist
the management to the best of our ability
to initiate value enhancing changes within
Table 1
Hapag-Lloyd and NOL/APL financials
(Comparison after 9 months of 2007, in million euros/$ million,
container volumes in 1,000 TEUs)
9 mnths
2007
4,645
$6,636
4,507
$6,439
257
$368
9 mnths
2006
4,756
$6,098
4,634
$5,942
(91)
($116)
%
difference
(2.3%)
Global container volumes (1,000 TEUs)
Atlantic
Asia/Europe
Transpacific
Latin America
Australasia
4,091
1,098
1,047
777
668
501
3,724
1,047
872
705
591
509
9.9%
4.9%
20.1%
10.2%
13.0%
(1.6%)
Neptune Orient Lines/APL
NOL revenue
APL revenue
APL EBIT
Global container volumes (1,000 TEUs)
Transpacific
Intra Asia
Asia/Europe
Latin America
Transatlantic
9 mnths
2007
$5,736
$4,804
$337
3,376
1,178
1,134
622
254
188
9 mnths
2006
$5,279
$4,323
$286
3,034
1,066
950
602
240
176
%
difference
8.7%
11.1%
17.8%
11.3%
10.5%
19.4%
3.3%
5.8%
6.8%
Hapag-Lloyd
Revenue
Container shipping
EBITA
(2.7%)
n.a.
EBITA = Earnings before interest, tax and amortization.
EBIT = Earnings before interest and taxes.
Note: Hapag-Lloyd’s revenue and EBITA result includes both container shipping and
cruise operations.
Source: Companies.
66
AMERICAN SHIPPER:
MARCH
2008
“If the supervisory board
lives up to its fiduciary
duties then there will not
be a merger
of Hapag-Lloyd and TUI.”
the company, whether it’s strategy, management or operations. Whatever it is that will
create value for the shareholders,” WyserPratte explained to American Shipper.
“In a place like Germany it’s not an obvious thing because they don’t have a shareholder culture. They still think there that if
you make money you have to steal it.”
Ever since purchasing his stake in TUI
he has been a vocal critic of Chief Executive Officer Michael Frenzel, and sent an
unflattering dossier
chronicling Frenzel’s
failings to supervisory board chairman
Jurgen Krumnow.
“We said to the
board: ‘Do not renew
this clown’s contract.’
This guy has done
nothing for the last 13
Frenzel
years as CEO but destroy the value of the
company. Everything he’s bought he overpaid for, everything he sold has tripled in
value and his salary has quadrupled. What’s
wrong with this picture?
“This is your typical socialist politician
running a company. They don’t have a
bloody clue as to how to run a company. All
they have is what I call a ‘socialist candy
bag’ handing out favors like a Mafia don.
It’s all they know how to do.”
Wyser-Pratte wouldn’t be drawn out on
how much his enmity has to do with money
lost as one of the largest investors in engineering firm Babcock Borsig that collapsed
in 2002. TUI, then known as Preussag, was
also a major shareholder.
“Let me put it to you this way. I know
what kind of people I’m dealing with in
TUI because I dealt with them at Babcock.
(TUI Chief Financial Officer Rainer Feuerhake) may wind end up in jail yet. They’re
TRANSPORT / OCEAN
Table 2
Top 5 global container operators
(In the event of a Hapag-Lloyd/APL merger, in 1,000 TEUs)
Rank - Carrier group
Country
1. A.P. Moller - Maersk
Denmark
2. Mediterranean Shipping Co. Switzerland
3. Hapag-Lloyd/APL
(5) Hapag-Lloyd
Germany
(8) APL
Singapore
4. (3) CMA CGM
France
5. (4) Evergreen Line
Taiwan
No.
ships
530
371
265
139
126
375
176
TEUs
Share
1,916.9
1,228.0
899.8
492.1
407.8
893.9
624.4
16.2%
10.4%
7.6%
4.2%
3.4%
7.5%
5.3%
Order
book
417.8
641.3
366.1
105.0
261.1
604.8
108.6
%
existing
21.8%
52.2%
40.7%
21.3%
64.0%
67.7%
17.4%
Source: AXS-Alphaliner www.axsmarine.com (as of Feb. 11).
all the same gang,” Wyser-Pratte said.
Wyser-Pratte was referring to the Dusseldorf public prosecutor accusing Feuerhake and former Babcock director Klaus
Lederer of a breach of trust to the detriment
of the shipyard HDW when construction
and shipbuilding assets were transferred to
Babcock in 1999. Furthermore Feuerhake
is accused of supporting a delay in filing
Babcock’s bankruptcy petition in 2002.
“TUI is still of the opinion that Mr. Feuerhake did not commit any illegal acts,” the
company said in a statement in January.
In December, the Frankfurt District
Court dismissed a lawsuit filed in 2004 by
the Babcock liquidator claiming that the
valuation of three shareholdings bought
from TUI was too high.
Wyser-Pratte’s calls for Frenzel’s dismissal were ignored and the TUI supervisory panel renewed his contract until
March 2012, just after the company reported
improved nine months results in November
(see Table 1).
Since then Frenzel has drawn up a bold
plan to merge Hapag-Lloyd with the holding company that, if successful, would
make the shipping unit virtually immune
from any takeover approach as it would
require potential suitors to stump up for
the entire group.
TUI’s supervisory board has agreed to
examine the plan when it next meets on
March 17, when it will also consider the
relocation of holding company functions
to Hamburg.
“They had to say they’d look at it to save
Frenzel’s face,” Wyser-Pratte said. “The
merger of Hapag-Lloyd and TUI will never
happen. The board is now opposed and
Frenzel has overstepped his boundaries.
It is clearly a move that destroys value in
the company and there’s no way he can get
around that. He’s really created himself a
problem by even proposing such a thing.
“There’s enough opposition on the supervisory board that I don’t believe it will
pass. If the supervisory board lives up to
its fiduciary duties then there will not be a
merger of Hapag-Lloyd and TUI.”
Wyser-Pratte said he is not the only angry
TUI shareholder. “There are a number of
people upset with Frenzel.”
“No comment” was his answer when
asked if he’s looking to create a strategic
alliance with Norwegian and Russian
billionaires John Fredriksen and Alexei
Mordashov, who between them hold about
10 percent of TUI shares, and are said to be
concerned with the company’s direction.
Along with Frenzel’s exit, Wyser-Pratte
would like the German holding company
to do the same thing with Hapag-Lloyd as
it did last year with TUI Travel, in which
it now holds 51 percent after it was created
through a merger between TUI’s Thomson
travel company and British rival First
Choice Holidays.
“There are, I think, a number of interested
bidders for Hapag-Lloyd. That would add
significant value to the company and to the
shareholders. Also, they should remove the
duplicate headquarter structures and utilize some of their tax loss carry forwards.
There’s any number of things they should
be able to do.”
TUI declined an interview to discuss
the Hapag-Lloyd merger plan or respond
to Wyser-Pratte’s comments.
There may indeed be another merger
deal in the pipeline if sightings of Frenzel
in Singapore to discuss a possible deal
with Neptune Orient Lines, owners of the
eighth largest liner carrier APL, are to be
believed.
“I’m positive that he’s been in Singapore,”
Wyser-Pratte said. “But unfortunately it
was, from what I understand, to try and
purchase Neptune, which is not going to
happen.”
Frenzel has resisted all previous calls
to divest Hapag-Lloyd from shareholders
unhappy with the company’s results since
acquiring CP Ships for $2.3 billion in late
2005. Past speculation has centered on
Denmark’s A.P. Moller - Maersk Group
making a bid for the Hamburg carrier.
Both TUI and NOL have distanced them-
selves from the latest round of rumors, but
a mounting number of reports suggest that
talks are at an advanced stage with TUI
hiring Deutsche Bank and Greenhill to
assist in a deal, while NOL has reportedly
hired JP Morgan’s services.
One proposed outcome would see NOL’s
majority owner, Singapore governmentcontrolled investment company Temasek
Holdings, put its 68 percent share of NOL
into Hapag-Lloyd in return for about 23
percent of TUI.
Frenzel is understood to want to place
NOL President and CEO Thomas Held, a
German national, as head of a combined
Hapag-Lloyd/APL entity that would narrowly leapfrog CMA CGM for third place in
the global rankings behind Maersk Line and
Mediterranean Shipping Co. (see Table 2).
Current Hapag-Lloyd CEO Adolf Adrion is
set to retire before the end of the year.
Held caused further intrigue when he
said his company is preparing for merger
and acquisition activity. “We do expect
AMERICAN SHIPPER:
MARCH
2008 67
TRANSPORT / OCEAN
container shipping industry consolidation
to continue and we are prepared to take an
active role as a consolidator if this creates
value for our shareholders and fits in with
our overall strategy,” he said after NOL
announced its 2007 results.
“It’s our policy not to comment on market speculation and we do not talk about
individual candidates,” he added.
NOL’s annual results rebounded after
a disappointing 2006 to post a 44 percent
jump in net income for 2007 to $523 million. Its annual liner shipping core earnings
before interest and tax (Core EBIT) rose 56
percent to $533 million. TUI will announce
its full-year results on March 18.
Tables 3 and 4 show that a Hapag-Lloyd/
APL merger would be a good fit. APL would
boost its share of the Asia/Europe and
transatlantic markets, while on the flipside
Hapag-Lloyd would increase its share in the
transpacific and intra-Asia trades.
Philip Damas at Drewry Shipping Consultants agrees the two carriers could be a
happy marriage. “I think it makes sense
for the two carriers to merge, more than
other combinations. I think it’s a fact that
the acquisition of CP Ships has not been
very successful so far, so the onus is on
TUI to deliver on its promises.”
Table 3
Hapag-Lloyd
container volume
(In 1,000 TEUs, Jan. 1 - Sept. 31, 2007)
501
12%
668
1,098
27%
16%
19%
26%
1,047
777
Atlantic
Asia/Europe
Transpacific
Latin America
Australasia
Source: Hapag-Lloyd.
Table 4
APL container
volume
(In 1,000 TEUs, Jan. 1 - Sept. 31, 2007)
188
254
8%
622
6%
18%
1,178
35%
34%
1,134
Transpacific
Intra Asia
Latin America
Transatlantic
Asia/Europe
Source: APL.
One obvious stumbling block to a deal
being concluded is the potential operational
chaos that would be inflicted on the two
carriers’ global alliance partners. HapagLloyd is a member of the Grand Alliance
alongside NYK, OOCL and MISC (only on
Asia/Europe services), while APL partners
with MOL and Hyundai Merchant Marine
in the New World Alliance.
Also, it can’t be ruled out that any of
these partners or another container shipping heavyweight wouldn’t immediately
opt to enter the fray if it emerges there is
substance behind the rumors.
■
68
AMERICAN SHIPPER:
MARCH
2008
TRANSPORT / OCEAN
‘Give-and-take’
balances UNCITRAL
Carriers, shippers come together on draft convention
for international ocean cargo contracts.
BY CHRIS DUPIN
G
roups supporting both carriers and
shippers say a proposed treaty for
ocean cargo contracts is a compromise that would bring the law more into
line with the way shipping is actually done
today than existing treaties.
A United Nations Commission on International Trade Law (UNCITRAL) working group meeting in Vienna in January
adopted a draft convention on contracts for
the international carriage of goods wholly
or partly by sea.
The working group has been meeting
periodically since April 2002 to prepare a
new treaty aimed at creating what UNCITRAL said would be “a modern and uniform
law concerning the international carriage
of goods which include an international sea
leg, but which is not limited to port-to-port
carriage of goods.”
Countries use a variety of national laws or
laws based on international treaties to resolve
cargo disputes. In the United States, it is the
Carriage of Goods at Sea Act (COGSA),
based on the Hague Rules that were passed
in 1924. Many use the Hague-Visby rules,
which were drafted in the early 1960s in the
very early days of containerization, before
intermodalism took hold, while a smaller
number use the newer Hamburg Rules.
The draft convention is now being circulated to governments for comment and
will be presented to the annual session of
UNCITRAL when it meets June 16-July
3 in New York.
If the final round of negotiations this
summer is successful, it will be presented
to the UN’s General Assembly later in
2008. Then it will have to be approved by
individual countries. If they don’t adopt
the new treaty, they will continue to use
their existing laws.
UNCITRAL said the proposed treaty has
innovative features “including provisions
allowing for electronic transport records,
and other more technical features to fill
the perceived gaps in existing transport
regimes.”
It predicted the new convention “will lead
to an overall reduction in transaction costs,
increased predictability when problems
are encountered, and greater commercial
confidence when doing business internationally.”
The convention can be viewed, in part,
as a reallocation of risk among shippers
and carriers. But Michael Sturley, a law
professor at the University Of Texas in
Austin, who was senior advisor on the U.S.
delegation to the working group, suggested
it is not only about how the pie is cut up,
but making the pie bigger.
“This convention governs an industry
in which the parties are not in competition
with each other but are cooperating with
each other. It may be popular to look at the
litigation model and think of cargo interests
and carrier interests as antagonistic to each
other, but the carriers’ real view of cargo
is not an antagonistic interest, but as a
customer,” Sturley said.
“It is in the carrier’s interest to better
serve their customers and provide a legal
regime that better addresses the risk allocation benefits for both carriers and cargo
interests, and in the long run, the success of
the industry depends on both segments of
the industry being better off,” he added.
One of the most discussed provisions in
the new UNCITRAL treaty would raise the
limit on a shipowner’s liability to a level
higher than prior treaties in the event of
lost or damaged cargo. That is currently
$500 per package under COGSA, which
is based on the original Hague Rules.
Higher limits are often seen as benefiting
shippers and their cargo insurers, who can
recover more money from carriers and their
protection and indemnity insurers if there
is a cargo loss.
But attorneys say there are provisions
in the new treaty that will also benefit
carriers.
The new liability limits proposed in
the new treaty would be pegged, as in
cargo treaties used by other countries, to
the International Monetary Fund’s unit of
value, Special Drawing Rights or SDRs.
transport insurance plus innovation
Insurance for:
Transport and logistics operators
Ports and terminals
Cargo handling facilities
Ship operators
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or at any point in the network
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San Francisco
Tel +1 415 956 6537
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AMERICAN SHIPPER:
MARCH
2008 69
TRANSPORT / OCEAN
SDRs fluctuate like world currencies, and
in 2007 1 SDR fluctuated in value from
about $1.49 to $1.60.
Under the proposed draft convention,
the per-package limit for loss or damage
would increase to 875 SDRs or 3 SDR per
kilogram, roughly $1,300 to $1,400 or $4.47
to $4.80, respectively in the past year.
That’s higher than the limits under the
widely used Hague Visby Rules that were
adopted in 1968 of 667 SDR or 2 SDR per
kilogram or under the Hamburg Rules of
835 SDR or 2.5 SDR per kilogram, which
are used by fewer countries.
“There was a lot of give-and-take,” said
Don O’Hare, vice
president for the World
Shipping Council, a
group that represents
major liner companies. “But in the end
I think we came away
with a very balanced
convention. Nobody
was completely happy
O’Hare
with the final package but that is usually
the sign of a good compromise.
“From the carriers’ perspective, we’re
pleased that the convention will generally
cover multimodal shipments and is not
just another port-to-port convention. The
70
AMERICAN SHIPPER:
MARCH
2008
liability limits are somewhat higher than we
would have liked, but we will have freedom
to negotiate volume contracts with shippers
that can change those limits as well as other
terms of the convention. And we have much
more balanced burdens of proof compared
with existing conventions.
“All in all, I believe it is a convention that
should gain broad international acceptance,
which was a primary objective of the U.S.
delegation and many others when we started
this process,” O’Hare said.
Peter Gatti, executive vice president
of the National Industrial Transportation League, a shipper advocate group,
said the UNCITRAL
proposal is “a comprehensive complex
convention and you
have to look at the
whole picture. I think
the terms provided for
the workshop provide
a fair and balanced
ref lection of what
Gatti
shipping conditions are today. It will bring
predictability and more order to what has
been a fairly well divided world in how
they apply rules.”
Gatti said the ability of shippers and
carriers to deviate from the convention
through contracts is recognition that “the
overwhelming amount of business is under
contracts and a reflection of the economic
partnerships that exist in the world today
— not just in the U.S., but other trades
throughout the world.”
Vincent DeOrchis, a New York attorney
who was a representative for the Maritime
Law Association of the United States and a
consulting expert to the U.S. State Department, said, “while one could argue that it
weighs more in favor of cargo interests, I
do think shipowners’ interest obtained as
much concessions as they could under the
circumstances at the UNCITRAL working
group stage.
“I wish in some ways, at least when it
comes to limitation of liability, that there
had been more facts available to the group,”
DeOrchis said. “It would have been very
helpful if we had known statistically what
are the average values of cargoes being
shipped today and how those values fit in
with the limits of liability available under
Hague-Visby or Hamburg and what direction are the values of cargoes taking.
“At least one delegate at the working
group suggested that the values of cargoes
are dropping on average because the freight
rates are dropping and therefore less valuable cargoes are being shipped today. There
is a category of less valuable cargoes that
are being shipped today that may not have
been shipped in the past because it simply
was not affordable. I don’t know if it is true,
because we had no data unfortunately.
“Similarly, we had no data to take a look
at what impact this would have on insurance
rates, either on the cargo side or the P&I
side, nor to determine whether the actions
being taken would provide the most economic result for the industry as a whole. I
consider that all to be rather unfortunate,”
De Orchis said.
James Craig, president of the American
Institute of Marine
Underwriters, said
higher liability limits
applicable to carriers
for cargo loss and
damage “may improve recoveries by
insurers on cargo loss
and damage claims.
“However, it must
Craig
be recognized that many other factors
influence cargo insurance, including the
highly competitive worldwide marketplace
in which cargo insurance is sold,” he added.
“Consequently, the impact of the new limits
will be difficult to assess. The work is still
important in many respects.”
While the convention does allow shippers
and carriers to change standard provisions
TRANSPORT / OCEAN
of contracts, De Orchis said, “it remains
to be seen how attractive that option will
be to shippers in the future, and whether
carriers will have the leverage to turn that
option into a real opportunity.”
If the convention is widely adopted,
DeOrchis said it will have prevented what
he feared could have been a growing regionalism with “a patch quilt of various
responsibilities, obligations, duties and
limitations that would have made it very
difficult for any carrier or shipper to predict
what happens in the event of cargo loss or
damage.”
Sturley thinks “there will probably be a
period of adjustment, but ultimately more
claims will be paid without litigation, and
that should thus reduce costs and reduce
losses.”
The proposed treaty would eliminate the
shipowner’s traditional “error of navigation” defense and will include a provision
that will require a carrier to exercise due
diligence to make sure its vessel is seaworthy, not just at the beginning of a voyage,
but throughout. That provision reflects
the improved navigation systems, weather
forecasting, and other technology available
to shipowners today.
Sturley said it could be argued that these
changes could mean that carriers will take
even greater care in the maintenance and operation of their ships, drive bad shipowners
and substandard ships out of business, and
result in fewer cargo losses and eventually
lower premiums on their protection and
indemnity insurance, which among other
things, pays for cargo claims.
Sturley said the new convention should
reduce disputes centered on how many
“packages” are in a container — whether
for example, a pallet of 10 boxes counts as
one or 10 packages. Disputes like this are
frequently heard in U.S. courts today.
Another visible change, he said, are
new rules for jurisdiction and arbitration.
Cargo claimants will have the right to
seek redress in several places that have
sufficient connection with a lawsuit. So
a U.S. consignee, for example, will have
access to U.S. courts where today many
cargo selection cases are sent to overseas
locations that are inconvenient, forcing
settlements for much lower amounts. That
should benefit both U.S. cargo interests,
and even U.S. maritime attorneys.
DeOrchis said with the new higher limits
on liability it will be rare for cargo losses in
a single container to exceed them.
It’s not clear if all nations will support
the new law — both China and Korea spoke
against the new higher limits. Both countries, of course, have both large shipowners
and major cargo exporters.
■
AMERICAN SHIPPER:
MARCH
2008 71
TRANSPORT / INLAND
Schneider Logistics (Tianjin) manages a fleet of Chinese owner-operators
that provide short-haul distribution for western companies.
China beckons logistics providers
Schneider answers call with focus on domestic distribution.
BY ERIC KULISCH
L
ogistics and trucking operations
in China are expected to form a
very significant part of Schneider
Logistics’ revenues within 10 years, as
the third-party logistics provider expands
beyond its domestic U.S. base and Europe,
according to President Tom Escott.
The logistics subsidiary of Schneider
National, the largest U.S. truckload motor
carrier, is about a $500 million entity that
provides transportation management, supply
chain consulting, dedicated contract carriage, intermodal, event management, and
freight payment and auditing services.
Schneider National is part of a leading
edge of U.S. freight transportation service
providers laying the foundation to serve the
largely untapped third-party logistics services market in the world’s most populous
country. Aside from global freight forwarders such as UTi and Eagle Global Logistics,
those companies include motor carriers
YRC Worldwide, Werner Enterprises and
Con-way, as well as integrated logistics
providers UPS and FedEx.
The trucking companies are setting up
shop in China in order to diversify their
geographic reach and service, but also to
exert control over customer shipments from
the overseas origin to their truck fleets
rather than see third-party transportation
intermediaries arrange for inland transportation with a rival carrier once a shipment
arrives in the United States.
Logistics analysts say that continued
manufacturing outsourcing to China, strong
export and intra-Asia trade, and a growing
72
AMERICAN SHIPPER: MARCH
2008
domestic consumer market are driving opportunities for 3PLs. China’s middle class
is projected to reach 500 million people by
2025. As China tries to spread wealth from
the coastal provinces to the central part of
the country through its “Go West” economic
development campaign, and manufacturers
seek to counter rising labor costs in the
coastal regions by moving inland, supply
chains will become longer and encompass
many provinces to move freight to local
retail outlets and deepwater ports.
“We believe more national sourcing
and distribution strategies will replace
local sourcing and lead to opportunities
for long-haul trucking,” Escott said in a
panel presentation during the Council of
Supply Chain Management Professionals
conference in Philadelphia last fall.
Logistics costs account for about 20
percent of China’s Gross Domestic Product,
double the cost of logistics in the United
States and equivalent to the cost in 1950
before the development of the Interstate
highway system, transportation deregulation and modern equipment.
Most of China’s logistics companies are
small family businesses that own a few
small trucks or a barebones facility for
storage without providing any added value
through packaging, assembly or technology-based tracking. Businesses are faced
with navigating a maze of inconsistent local,
provincial and national regulations.
In fact, the term “logistics” was not even in
the Chinese vocabulary until this decade.
That inefficiency and the complexity of
global supply chains create a lot of opportunities for logistics specialists to reduce
waste and speed deliveries for shippers.
The fact that China’s economy is largely
based on manufacturing and agriculture
means logistics will necessarily comprise
a larger proportion of economic activity to
ship those goods than in the United States,
which is predominantly a service economy.
China’s logistics market is one-third the size
of its U.S. counterpart, but analysts believe
it is poised to grow six to 10 times its current size during the next 15 years.
According to a 2007 research note by
Jon Langenfeld, senior research analyst
for Robert W. Baird & Co., less than 3
percent of China’s total transportation and
logistics market, or less than $12 billion
out of a $500 billion pie, is outsourced
to 3PLs.
Kerry Logistics, an Asian-based forwarder, estimates the outsourced logistics market
will increase to $32 billion by 2010.
Meanwhile, China is developing even
faster than the 9 percent rate official statistics indicate, many China observers say.
The good news for companies doing business in China is that the country’s infrastructure will soon be able to support a modern
logistics system, industry officials say.
China has embarked on a massive road
building exercise, and while roads are often
unpaved, narrow and difficult to traverse in
the hinterlands, the major developed areas
in the eastern region have adequate modern
capacity and are quickly being connected.
China is investing $106 billion from 2001
to 2010 to construct a national highway
network, with a 60 percent increase to
65,000 kilometers occurring in the second
half of that build out.
Forty-three new airports were built
in the first half of this decade, and the
government is beginning to invest in rail
intermodal between major gateways. In the
past three years several major ports have
come online and the nation boasts three of
the five largest ports in the world.
The effort stems from Chinese officials’
realization that they must have the capacity to move all the goods their farms and
factories produce to serve the export market
that drives the economy.
The World Bank recently ranked China
30th out of 150 countries in terms of logistics performance (customs clearance,
domestic logistics, international reliability,
telecommunications and physical infrastructure quality, competence of logistics
service providers) based on a survey of
freight forwarders and express carriers.
Countries that have better transport
connections to other markets tend to be
more competitive and better at attracting
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Main Conference: March 26 & 27, 2008
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BEST BUY
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CIO
BAUSCH & LOMB
Matt Kistler
SVP, Sustainability
WAL-MART STORES, INC.
Jerry Wolfe
CIO and VP Supply Chain
MCCORMICK AND CO. INC.
Philippe Lambotte
SVP, Global Customer Service and Logistics
KRAFT FOODS NORTH AMERICA
Marianne Timmons
VP Supply Chain and Global Business-ToBusiness, WEGMANS FOOD MARKETS
Karen Alber
CIO and VP
HEINZ
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VP, Strategic Industry Initiatives
THE COCA-COLA COMPANY
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John Ling
VP Supply Chain Management and Logistics
CRATE & BARREL
Tim Riordan
VP Supply Chain
INTERFACE
Mary Lou McCleese
Regional Director of Customer Logistics
JOHNSON & JOHNSON
Global Logistics And Transportation Management: March 28, 2008
Jerry Darby
SVP, Operations
COMBE INC.
Laura Wittman
VP, Corporate Compliance and Human
Rights JONES APPAREL INC.
Ellen Martin
VP – Business Systems
VF CORP.
Anthony Furst, Director, Office of Freight
Management and Operations,
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Rich Hubli, VP – Operations
Strategy Development,
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Ellen Martin, VP – Business
Systems, VF CORP.
TRANSPORT / INLAND
foreign investment. But China also poses
huge pitfalls and challenges for uninitiated
international logistics companies. In addition to the well documented regulatory
burdens, constraints for logistics providers
include:
• Complex trade zone rules, provincial
authorities requiring trucks to transfer their
loads at the local border because there is
no unified transportation authority that
asserts a national right of way.
• Trucks stopped for inspections at the
provincial border.
• Tolls that can average more than 25
percent of operating costs for trucking
firms.
• Unavailability of labor.
• Preferential treatment for local operators.
• Poor infrastructure.
That is why, Escott said, Schneider Logistics will be patient building up its distribution
and warehousing network in China. But
the company expects to break even on its
investment relatively fast, he added.
In 2007, Schneider established Schneider
Logistics (Tianjin) Co. in the northern port
city of the same name and began operating
with about 50 trucks from Bao Yun Logistics.
In September, the Green Bay, Wis.-based
company completed the acquisition of Bao
Yun, a top 100 domestic logistics firm that
provides warehousing and other services.
Schneider National, which is privately
held, didn’t disclose its acquisition price.
According to Hoovers corporate research
service, BaoYun Logistics has annual sales
of $37.5 million. Menlo Worldwide, sister
company of Ann Arbor, Mich.-based Conway Freight, purchased a larger Chinese
3PL for $60 million at the same time.
Schneider’s non-asset-based Chinese
subsidiary has six to eight primary offices
and 28 branches, 150,000 square meters
of leased cross-dock space and warehousing space, more than 500 employees and
handles about 500 shipments per day for
multinational corporations in the retail/
consumer, electronics and automotive
industries. Although Schneider Logistics
(Tianjin) runs some of its own equipment for
dedicated customers, it primarily follows
a brokerage business model under which
it arranges freight deliveries for customers
by subcontracting with independent truck
drivers, while supervising quality control,
routing and shipment visibility.
Schneider Logistics is taking a different
tack by first focusing on less-than-truckload and eventually truckload business to
serve the domestic market and the first export leg to the ports, while most other 3PLs
are focused on import-export flows.
Lagenfeld noted that international con74
AMERICAN SHIPPER: MARCH
2008
China still draws offshore manufacturers
The outsourcing trend that has fueled
China’s economic growth in the past
20 years probably has a long way to go
before running its course, according to
Jon Lagenfeld, director of transportation and logistics research at Robert W.
Baird & Co.
While transportation costs for goods
sourced in China are five times more
expensive than those produced domestically, labor costs are 20 times more
expensive in the United States.
The vast majority of toy, apparel and
footwear manufacturing is now located in
China, but the next wave of outsourcing
is underway with furniture, technology
and pharmaceutical production, while
diversified industrial product and machinery manufacturers are in the early
stages of offshoring production.
Lagenfeld wrote in a research report
last year that the U.S. automakers are
also beginning to outsource as China
becomes more adept at making precision
components. General Motors and Ford
subsequently announced plans to open
research centers in China
Other examples of outsourcing will also
tract logistics providers that do provide
intra-China distribution tend to do so for
multinational companies because it’s too
difficult to serve indigenous companies
at this time. And Chinese companies with
domestic Chinese distribution generally
don’t outsource logistics, or do so to lowcost local companies, he said.
The truckload market is beginning to
emerge, “and we believe our core competency is managing relatively complex domestic
transportation networks as we do in North
America and Europe,” Escott said.
In Europe, Schneider also offers pan-continental truck brokerage and 3PL services
and this year began a freight forwarding
operation in the Netherlands.
Escott said Schneider Logistics is in the
process of applying for its freight forwarding license and expects to begin handling
international cargo business in 2008. As
with its trucking license, the company is
being very deliberate to make sure no mistakes are made getting approval. Escott said
Schneider will probably acquire a Chinese
freight forwarder, but left open the possibility of organically developing the company
because Schneider has several employees,
including Chinese nationals, with freight
forwarding experience.
lead to more trade and opportunities for
third-party logistics providers as China
moves into higher-value production.
Lagenfeld said a plane engine parts
manufacturer in the Midwest that once
rejected component outsourcing to China
because of concerns over rigid temperature control requirements is now re-evaluating its position. A manufacturer of small
front-end loaders in the upper Midwest
that ships semifinished goods to China
for domestic Chinese consumption could
eventually relocate production to China
for both China and U.S. markets.
A tool-and-die manufacturer has
increased its production in China by
more than 50 percent in recent years
and plans to continue expansion. And,
Lagenfeld said, China International Marine Containers Group Ltd. (CIMC), the
world’s largest container manufacturer,
“intends on becoming a dominant player
in the U.S. trailer market” by producing
more trailers outside the United States
and importing them to compete with
Wabash National and Great Dane. CIMC
currently has a modest trailer production
facility in Monon, Ind.
Schneider Logistics hopes to gain
advantage among large domestic and
foreign shippers seeking to build out their
intra-China networks by bringing modern
trucking practices to a fragmented market
dominated by mom-and-pop operators who
own one or two trucks. China is a country, in
fact, where only 20 percent of the trucking
market utilizes enclosed vans or trailers,
equipment is archaic and 5 million registered trucks belong to two million registered
trucking companies. It’s not uncommon, for
example, to see frozen chickens covered
with a tarp and transported on a flatbed
truck, food industry officials say.
But, Escott said, modern equipment
tractor trailers and warehouses that meet
Western standards are becoming more
prevalent. Schneider, for example, is providing dedicated transport in China for a
European appliance manufacture using
drop deck trailers specially designed for the
product. And a warehouse it operates on
behalf of a U.S. consumer goods company
meets the same cleanliness, security and
information technology standards found
in U.S. facilities.
Together the changes signify that the
perception of China as a transportation
morass no longer applies and that logistics
TRANSPORT / INLAND
companies will have the resources to efficiently move goods.
Other companies that are thinking about
entering the domestic Chinese trucking
market include DHL, Eagle, FedEx, TNT
and UPS, Lagenfeld said.
Escott said multinational logistics providers, retailers and manufacturers should
use the next two-year window to influence regulators as they develop policies
and standards that will enable improved
logistics productivity. The economy has
advanced faster than regulations and now
the government is trying to catch up.
Driving the right policies could shave
15 years off the time it takes to reach the
level of logistics efficiency achieved by the
United States, he predicted.
After the highway infrastructure is in
place, for example, the country will need
to set truck equipment standards, uniform
size and weight standards for trailers,
simplified national driver and equipment
licensing, uniform driving standards and
equitable tax measures to help pay for the
infrastructure, such as a fuel tax.
Provincial and federal officials are open
to ideas from well-managed companies on
how to foster modern trucking and logistics
industries along Western standards, Escott
noted. Schneider is pushing for a national
hours-of-service policy because there is no
clear national direction on how long commercial vehicle drivers can work behind the
wheel before taking a rest.
The company also wants better enforcement of regulations that restrict overloaded
trucks, which are common on Chinese
roads. There are about 90,000 truck-related
fatalities in China even though the country
has one-fifth the commercial vehicles as
the United States, where deaths involving
trucks number roughly 5,000 per year.
Escott said it appears that the standard
maximum trailer length will be set early
next year at 14.6 meters (about 47.5 feet),
which reflects the narrower streets in China
compared to the United States where 53-foot
trailers are now the norm.
“What we hope to avoid is a patchwork
of different use taxes, (operating rules)
and licensing processes from province to
province that would make our compliance
costly,” he said.
Uniform safety, legal and environmental standards also benefit companies like
Schneider by creating a level playing field
that makes it harder for low-cost operators
to cut corners and survive.
Schneider actually began in 2005 sowing the ground for operations by creating a
supply chain consulting office in Shanghai
and working to obtain necessary transport
and logistics licenses. A lot of the work has
involved building relationships with officials
in China’s Ministry of Communications,
who perceive the company as giving back to
the logistics community by hosting a couple
of local logistics conferences and helping
with education and training initiatives.
The company has also cultivated good
relations with government officials by
serving as an unofficial advisor on how to
create the conditions to support a successful
trucking industry. Chinese officials have
visited Schneider National’s Green Bay
headquarters to see how a large motor
carrier operates and deals with national
infrastructure challenges. Schneider has
also taken Chinese delegations on field
trips to intermodal yards and other facilities
around the United States to observe how the
freight transportation system works.
Regulatory changes are also needed to
allow financial institutions to provide loans
to independent truckers so they can afford
the modern equipment required by multinational corporations to haul their goods,
according to Schneider Logistics’ chief.
Currently the law does not give protection
to creditors so they have recourse to recover
a collateralized asset for non-payment.
“A combination of people willing to
provide capital and regulatory changes
to protect them is going to be required,”
Escott said.
Globe-trotting truckers
WASHINGTON
Representatives from China’s freight
trucking industry are steering toward
more efficient operations and traveling the
world to understand and possibly emulate
the best business and regulatory practices
in use so far.
“First, you have to learn what’s happening around the world — good and bad,”
said Mi Wenju, deputy manager of Beijing
Xianglong Assets Management Co., and a
member of the China Road Transport Association, through a translator. “After that,
we’ll come up with the best conclusion and
what’s best for China’s situation.”
China’s trucking industry is undergoing significant changes as the country’s
manufacturing sector expands to accommodate international trade and moves
further inland.
In mid-January, the China Road Transport Association dispatched a delegation
to Washington to meet with officials of
the U.S. Department of Transportation and
the American Trucking Associations. The
association had previously visited trucking
operations in Germany, Belgium and the
Netherlands.
During their Washington visit, the
Chinese delegation learned how the U.S.
trucking industry expanded from localized operations under a patchwork of state
laws to a streamlined, national industry
that operates under federal oversight and
is responsible for transporting imports,
exports and domestic shipments.
Tony Furst, director of the Federal Highway Administration’s Office of Freight
Management and Operations, also discussed the U.S. government’s safety approach to regulating truck size and weight,
according to ATA officials.
“ATA will provide training materials for
how we do it here in the United States,” said
Warren Hoemann, ATA’s senior vice president. “Of course, the materials will need to
be translated and easy to follow.”
The delegation was most interested in
learning more about U.S. drop-and-hook
operations and the use of multiple trailers
per truck, a practice currently not permitted
in China. CRTA is working with the Chinese
government to implement regulations to
allow trucks to pull multiple trailers. “The
plan is to start with a portion of the roads,”
Mi said.
“The Chinese understand that their national economy is directly linked to freight
transportation and a supporting infrastructure. In fact, China devotes fully 9 percent
of its GDP to transportation infrastructure
— a timely reminder as we in the U.S. await
the recommendations of our National Infrastructure Commission,” ATA President Bill
Graves said at a welcoming ceremony.
The former Kansas governor said his
members would also like to learn from
China how to improve efficiency in ports to
get truck turn times under 30 minutes.
The CRTA represents more than 900 of
the largest trucking companies in China,
many of which operate upwards of 10,000
modern trucks. Smaller firms with one to
five trucks generally belong to provincial
and local branches of the CRTA. The trade
association operates as a quasi-private
organization under the leadership of the
Ministry of Communications.
The increased presence of multinational
corporations in China, better roads and the
rapid growth of the Chinese middle-class
has spurred several U.S. trucking firms to
set up small operations in China in the past
two years. The Chinese market is so fragmented and based on local relationships that
it remains a big challenge for U.S. trucking
firms to set up a national hub-and-spoke
network for LTL shipments.
■
AMERICAN SHIPPER:
MARCH
2008 75
Court puts cargo case in reverse
In February 2003, Ford Motor Co. and Orient Overseas
Container Line entered into an agreement for the multimodal transport of automobile transmissions, from the
inland city of Blanquefort, France, to the port of Le Havre
where they would be loaded on ships and discharged in
Montreal. From there they would be delivered to inland
cities in Kentucky, Missouri, Minnesota and Michigan.
In March 2003 thousands of transmissions, held in racks,
were delivered to Le Havre and loaded onboard the Canmar
Pride, a ship owned by CP Ships, OOCL’s space-sharing
partner in the service. OOCL issued bills of lading for the
cargo, showing Blanquefort as place of receipt, Le Havre
as port of loading, Montreal as port of discharge, and
multiple inland U.S. cities as places of delivery.
The ship encountered stormy weather. Some containers
were washed overboard, others were flooded, with 4,387
transmissions lost and 840 damaged. Royal reimbursed
Ford $5.7 million pursuant to its marine insurance policy.
The two companies filed suit against OOCL in U.S.
District Court, seeking to recover the value of the lost
and damaged transmissions.
OOCL said its liability was limited to $500 per package
under the Carriage of Goods at Sea Act, and also filed a
third party complaint against CP Ships and affiliates. Ford
and Royal argued that Hague-Visby Rules, not COGSA,
applied to the shipment and, therefore, the liability limit
was greater than $500 per package.
OOCL and CP Ships moved for partial summary judgment, arguing each rack of transmissions, and not each individual transmission, constituted a COGSA package. The
district court granted, in part, Ford’s and Royal’s motion
for partial summary judgment. The court found COGSA
applied and that each rack constituted a package.
Ford and Royal appealed and the Sixth Circuit reversed
the district court. (Royal Insurance Co. of America;
Ford Motor Co. v. OOCL, No. 06-1199, Sixth Circuit,
Jan. 30.) The appeals court ruled the lower court had
erroneously interpreted the bill of lading to apply
COGSA instead of Hague-Visby. It remanded the case
to the lower court, saying additional factfinding and
briefs were needed before the liability limitation could
be appropriately applied.
The Sixth Circuit said the case presented “an intellectual puzzle that we must resolve without direct precedent
as guidance, and our analysis should be understood as
a default rule around which cargo owners and carriers
can contract.”
First, the court said it had to decide whether COGSA,
Hague-Visby or both rules applied as a matter of law
to the ocean voyage between Le Havre and Montreal.
It concluded Hague-Visby applied ex proprio vigore
or “of its own force” to the ocean carriage between Le
Havre and Montreal. COGSA did not apply ex proprio
vigore to an ocean voyage between two foreign ports,
even though the ultimate destination in the through bill
of lading may be a U.S. city.
But the court’s inquiry did not end there. It said the Supreme Court’s 2004 decision in Norfolk Southen Railway
Co. v. Kirby, “affirmed the broad principle that courts
should evaluate multimodal contracts in their entirety
rather than treat each of the multiple stages in multimodal
transportation as subject to separate legal regimes, which
would present an obstacle to efficient liability rules.”
Therefore, the court said it was holding “that as a matter
of federal common law, COGSA liability rules apply to a
76
AMERICAN SHIPPER: MARCH
2008
multimodal maritime contract with an ultimate destination
in the United States, regardless of whether the contract
provides for an intermediary stop en route during the sea
stage of transport or between the sea and land legs.”
However, in this case, the court noted that in this instance the parties “were free to contract for application
of the liability limits set forth in either the Hague-Visby
Rules or COGSA.”
Pointing to what it said was the “convoluted and contradictory nature of the contract at issue,” the court said
it would apply contra proferentem, a rule of contract interpretation that provides that an ambiguous term will be
construed against the interests of the party that imposed
its inclusion. So in this case, the court construed the bill
of lading against its drafter, OOCL, and held that OOCL
and Ford had contracted for application of the liability
limits set forth in the Hague-Visby Rules.
One of the issues to be addressed on remand by the
lower court is the definition of a package or unit.
The Sixth Circuit said because it had reached the
conclusion that the bill of lading binds OOCL by the
Hague-Visby and not the COGSA liability limits, it
turned to the bill of lading to assess the number of units
listed by OOCL. But it said the bill of lading, was “sufficiently confusing to make it inadvisable for us to reach
a conclusion as to the total number of units listed” and
would have to be sorted out by the lower court.
Big package, small limit
The Fourth Circuit upheld a district court decision
that granted Maersk summary judgment in a dispute
over the shipping company’s limit of liability for a damaged piece of equipment (Maersk Line Ltd. v. U.S., No.
07-1013, Fourth Circuit, Jan. 28; see also March 2007
American Shipper, page 76).
The dispute arose after Maersk moved seven Halvorsen
K-Loaders for the military from Charleston, S.C. to
Oman. K-Loaders are pieces of equipment that weigh
30,000 pounds and are used to load cargo on aircraft.
Maersk secured each loader to a flat-rack and brought
them by ship to Oman. One of the loaders was damaged
and it cost $31,279.60 to repair.
The military said the loaders were “not shipped in
packages” within the meaning of the Carriage of Goods
at Sea Act, and therefore not covered by the $500-perpackage limit as Maersk contended. Instead, the military
said the $500-per-measurement ton limit should apply.
Since the unit weighed 56,625 tons, it said Maersk’s liability was $26,312.50 plus $46.80 in interest.
But the appeals court noted language in contractual
documents and the bill of lading showed the military
“considered the K-Loader to be a package and that the
United States also understood that some preparation for
transportation to facilitate commercial handling would
be required whether it was made by or for the United
States.”
In this case, the government had disconnected the
battery, drained the fuel tank of the loader. Further the
government conceded that it knew and understood that
putting the K-Loader on the ship was the only way it
could realistically lift it aboard the ship.
The court said under COGSA, the government could
have avoided the $500-per-package limitation by declaring the equipment’s value at the outset or negotiating
with Maersk beforehand to provide a higher maximum
amount of liability.
Corporate Appointments
Logistics
Agility
Holger Punjer, managing director of its
Central Europe region has left the company
“by consensual agreement.”
Oliver Hellmold, chief financial officer
for Central Europe, has served as acting
managing director for the Central Europe
area since Feb. 1. Freyja Dyck will cover
Hellmold’s CFO role until a permanent
decision is made concerning Pünjer’s
replacement.
Forwarding
Schenker
Lutz Freytag will start as chief financial
officer in Essen, Germany on April 1.
Freytag has been a member of the
board for finance and
controlling at Railion
Deutschland, another
unit owned by Schenker parent Deutsche
Bahn, since 2005. He
previously held senior
positions with companies including Stinnes
and Siemens.
Freytag
At Schenker, he replaces Marco Schröter,
who will be joining Technologies as CFO
and human resources director.
Integrators
Deutsche Post AG
The supervisory board of Deutsche Post,
whose major subsidiaries include DHL,
the German Post Office, and Deutsche
Postbank, accepted Klaus Zumwinkel’s
resignation as chief
executive officer on
Feb. 18.
Zumwinkel offered
his resignation Feb.
15 in the midst of a
tax fraud investigation that is reportedly
looking at the transfer
of funds by wealthy
Zumwinkel
individuals in Germany to foundations in
the tax haven of Liechtenstein.
During a meeting in Bonn, the supervisory board unanimously appointed Frank
( 800 ) 876-6422, FAX (904) 791-8836, e-mail releases@shippers.com
Appel as Zumwinkel’s
replacement, with immediate effect. Appel
has been a member of
Deutsche Post’s management board since
2002 and was most
recently in charge of
the logistics corporate
Appel
division, international
mail, regulation management, as well as
the cross-divisional
responsibility for the
group’s 100 largest
customers. His contract as CEO runs
until Oct. 31, 2012.
At the same time,
Allan
the supervisory board
agreed to extend the contract of Chief Financial Officer John Allan by two years
through 2010.
Air
Lufthansa Cargo
The German airline has appointed six
new regional managers.
Carsten Hernig, in charge of the Lufthansa Cargo station in Hong Kong, has
moved to New Delhi to become regional
manager in India and the Middle East. He
succeeds David Keary, who has retired.
Rudiger Helm replaces Hernig in Hong
Kong. He was regional manager for the
Benelux countries, based in Amsterdam.
Alexander Kohnen, head of sales processes
at the company’s Frankfurt headquarters,
will take over in Amsterdam April 1.
Christian Haug, managing director of
Lufthansa Cargo subsidiary Handling
Counts GmbH, will move to New York
to become U.S. Northeast regional manager.
Gunnar Löhr has returned to Frankfurt
from the U.A.E. to assume responsibility for
quality assurance in worldwide handling.
He is succeeded in Dubai by Matthias
Brazel, formerly assistant to Andreas Otto,
board member, product and sales.
Marcus Burchard is taking over in Madrid as new regional manager for Portugal
and Spain, effective July 1. He will succeed
Wolfgang Frey, who is retiring.
Ocean
Germanischer Lloyd
The Hamburg-based classification
society has added Pekka Paasivaara as a
member of its executive board for industrial services.
He has been a member of the executive
board at Lenze AG, a German manufacturer
of drive and automation technology.
Paasivaara joins Hermann J. Klein,
responsible for maritime services, and
Joachim Segatz, in charge of finances, on
Germanischer Lloyd’s executive board.
Inland
Greatwide Dedicated Transport
James L. Kitz has been named vice
president of sales.
Kitz was vice president of business
development at Exel Direct Inc. He has
also held positions at FedEx Logistics,
Roadway Express, Yellow Freight, The
Limited and UPS.
Greatwide Dedicated Transport is a part
of Dallas-based non-asset transportation
and third-party logistics services provider
Greatwide Logistics Services.
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AMERICAN SHIPPER: MARCH 2008 77
Service Announcements
( 800 ) 876-6422, FAX (904) 791-8836, e-mail releases@shippers.com
FEFC EB up in 2007 despite 4th quarter dip
A 4 percent fourth quarter decline in Europe to Asia container
volumes dampened Far Eastern Freight Conference ocean carriers’
eastbound growth in 2007.
E
For 2007, FEFC’s eastbound volume rose
U
4.8
percent to 3.35 million TEUs. Box traffic
R
from North Europe to the Far East increased
O
4.3 percent to 2.7 million TEUs, while
P
Mediterranean to Asia cargoes increased 6.8
E
percent to 649,632 TEUs.
FEFC’s westbound trade rose 19 percent to 9.5 million TEUs.
Rickmers-Linie adds ship to Pearl String
Rickmers-Linie said it would add a vessel to its round-the-world
“pearl string” breakbulk and heavy-lift service.
The company said it has chartered for two years a 30,000-deadweight-ton “near sister” to ships in the service. The vessel will be
renamed Rickmers Houston and phased into service in Southeast
Asia in June or July. The company said the additional vessel would
add capacity and improve frequency from 14 to 11 days.
APL Logistics adds China/U.S. FCL service
P
A
C
I
F
I
C
APL Logistics has launched a guaranteed
full-containerload service from Asia to most
continental U.S. destinations.
The APL Guaranteed Continental service
connects the ports of Shanghai, Hong Kong,
Chiwan and Yantian with virtually any continental U.S. ZIP code. It guarantees delivery
of full-containerload cargo on a specified date, or shippers receive
a 20 percent refund, APL Logistics said.
The service builds on APL’s OceanGuaranteed service, kicked
off last year, that guarantees day-definite service for less-than-containerload cargo. APL Logistics, a subsidiary of Singapore-based
Neptune Orient Lines, was designed to provide importers with a
cost-effective, expedited surface alternative to air freight.
APL Logistics said the new APL Guaranteed Continental service
will offer the industry’s fastest transit times between key Chinese
ports and U.S. locations, such as FCL shipments from Hong Kong
to a consignee’s door in Boston will take only 15 days.
The service prioritizes stowage on vessels at Chinese ports,
guaranteeing containers are among the first loads discharged
after vessels arrive at APL’s marine terminals in Los Angeles and
Seattle. APL GC boxes headed for 13 metropolitan or geographic
areas are loaded onto specially designed long-haul chassis. APL GC
cargo headed for other U.S. locations is transloaded into domestic
highway trailers at APL Logistics Los Angeles-based facility.
In addition, APL Logistics said the service guarantees vessel
space and priority marine terminal handling, even during the
crowded peak shipping season.
U-Freight adds Southeast Asia service
U-Freight’s ocean freight unit U-Ocean has launched weekly
scheduled export consolidation services from New York and Los
Angeles to Southeast Asia via transshipment in Hong Kong.
U-Freight rebranded its international ocean freight forwarding activities under the U-Ocean banner in 2006 not long after it
acquired a majority stake in Comax, a small Hong Kong-based
35
78 AMERICAN SHIPPER: MARCH 2008
logistics company specializing in ocean freight forwarding between China and the United States.
“K” Line joins China/Red Sea loop
“K” Line has begun taking space on the weekly Central-China/
Red Sea (CRS) service of Hapag Lloyd and Wan Hai Lines.
The CRS uses six 1,200-TEU vessels calling Shanghai, Ningbo,
Hong Kong, Shekou, Singapore, Port Kelang, Jeddah, Aqaba, Hodeidah, Port Kelang, Singapore, Hong Kong and back to Shanghai.
“K” Line already operates the Red Sea Service with Pacific International Lines, using seven 2,000-TEU ships calling Shanghai,
Ningbo, Hong Kong, Shekou, Singapore, Aden, Jeddah, Aqaba,
Sokhna, Aden, Singapore, Lam Chabang, Shekou and Shanghai.
CMA CGM finds NEMO home in Tauranga
French carrier CMA CGM has decided to relocate from Auckland
to Tauranga on its meandering 23-port New Europe Mascarene
Oceania (NEMO) service, starting March 26-27.
CMA CGM subsidiaries Delmas and ANL have space on the
loop, while Deutsche Afrika Linien contributes tonnage. The service operates with 12 ships in the 2,500-to 3,000-TEU range, with
a revised rotation of Tilbury, Hamburg, Antwerp, Le Havre, Fos,
La Spezia, Damietta, Pointe des Galets, Port Louis, Melbourne,
Sydney, Brisbane, Tauranga, Lyttelton, Melbourne, Adelaide,
Jakarta, Port Kelang, Chennai, Colombo, Damietta, Malta, La
Spezia and back to Tilbury.
CMA CGM to continue EPIC journey solo
Marseilles, France-based CMA CGM has confirmed it will
continue with a single weekly service in Europe/Middle East/India
when its consortium agreement with German
M
carriers Hapag-Lloyd and Hamburg Sud ends
I
in a few months.
D
E
The two Hamburg-based lines said they will
A
terminate the two-loop Europe Pakistan India
S
Consortium agreement with CMA CGM in
T
early May to start their own string using six
4,000-TEU vessels on an undetermined port rotation.
CMA CGM said its service will deploy six 4,200-TEU ships,
soon to be replaced by 6,500-TEU vessels, on a rotation of Tilbury,
Hamburg, Antwerp, Le Havre, Port Said, Korfakkan or Jebel Ali,
Port Qasim, Nhava Sheva, Mundra, Malta and back to Tilbury.
Hamburg Sud integrates Costa’s services
Hamburg Sud has consolidated operations of its latest acquisition,
Italy’s Costa Container Lines, into its own service network.
In the East Coast South America/MediS.
terranean, the German operator has brought
A
M
together the weekly New Sirius service it
E
operates with Zim, Niver Lines, CMA CGM
R
and CSAV Group subsidiary Libra, with the
I
C
Seagull service of CCL and Maruba. The new
A
Med-ECSA service operate two slings:
• Sling 1 (six ships of 3,100 TEUs to 3,500 TEUs) calling
Barcelona, Vado Ligure, Livorno, Fos, Valencia, Rio de Janeiro,
Santos, Buenos Aires, Montevideo, Santos, Rio de Janeiro, Pecem
and back to Barcelona.
• Sling 2 (six 2,800-TEU ships), Valencia, Genoa, Livorno,
Malta, Dakar, Buenos Aires, Rio Grande, Sao Francisco do Sul,
Santos and Valencia.
Hamburg Sud said it has also combined and upgraded services it
offers with subsidiaries CCL and Alianca between the East and North
coasts of South America, Central America, U.S. Gulf and Caribbean.
The new combined operation will result in three services:
• Sling 1 (seven 2,200-TEU ships), Rio Grande, Paranagua,
Itajai, Santos, Puerto Cabello, Cartagena, Veracruz, Altamira,
Houston, Manzanillo (Panama), Cartagena, Puerto Cabello, La
Guaira, Suape, Santos and Rio Grande.
• Sling 2 (six 1,600-TEU ships), Santos, Rio de Janeiro, Salvador, Puerto Cabello Cartagena, Santo Tomas de Castilla, Havana,
Veracruz, Altamira, Cartagena, Puerto Cabello and Santos.
• Sling 3 (single 1,400-TEU ship), Cartagena, Manzanillo,
Puerto Limon, Rio Haina and Cartagena.
Internet Index of Advertisers
Check out these locations on the World Wide Web
American Shipper www.AmericanShipper.com
ComPair Data www.compairdata.com
Agility Logistics www.agilitylogistics.com
Alabama State Port Authority www.asdd.com
Atlantic Container Line www.ACLcargo.com
Avalon Risk Management www.avalonrisk.com
China Shipping Container Lines Co.
www.chinashippingna.com
Chiwan Container Terminal www.cwcct.com
COSCO Container Lines Americas Inc.
www.cosco-usa.com
DGX-Dependable Global Express Inc.
www.dgxshipping.com
DHX-Dependable Hawaiian Express Inc. www.dhx.com
Emirates Shipping Line www.emiratesline.com
Emirates SkyCargo www.skycargo.com
Evergreen Line www.evergreen-line.com
Freightgate www.freightgate.com
Global Maritime Transportation Services
www.globemar.com
Great American Insurance Group
www.greatamericanocean.com
Guangzhou Port Group www.gzport.com
Hamburg Sud www.hamburgsud.com
Hyundai America Shipping Agency www.hmm21.com
Intermarine LLC www.intermarineusa.com
“K” Line America Inc. www.kline.com
Logicon Conference www.logicon2008.com
LOG-NET www.log-net.com
Mediterranean Shipping Co. (USA) Inc.
www.mscgva.com
MIC Customs Solutions www.mic-cust.com
MOL (America) Inc. www.MOLpower.com
Motorola www.motorola.com/as3
National Retail Systems www.nrsonline.com
Nordana Line USA www.nordana.com
NYK Line (Japan) www.nyk.com
OOCL (USA) Inc. www.oocl.com
Port of Grays Harbor www.portofgraysharbor.com
Port of Portland www.portofportland.com
Safmarine www.safmarine.com
Saudi Arabian Airlines www.saudiairlines.com
Seaboard Marine Ltd. www.seaboardmarine.com
TT Club www.ttclub.com
Vanguard Logistics www.VLA-Global.com
Virginia Maritime Association
www.VAMaritime.com/symposium
WCA Family of Logistics Networks www.wcapn.com
Yantian International Container Terminals
www.yict.com.cn
AMERICAN SHIPPER: MARCH 2008 79
Forwarders still got what it takes
Freight forwarders have long been called the travel agents for cargo, but unlike their
brethren in the passenger business, they continue to prove their value to shippers.
Today’s travelers mostly use the Internet to control the booking of their trips, and when
something goes awry in transit they can visibly represent themselves to right the wrong
and get to where they need to ultimately go.
Not so with cargo. It has no voice and will sit unless someone somewhere resourcefully
represents its interests and keeps it moving through the supply chain. That someone is often
the forwarder, who on a daily basis works the computers and telephones to get the job done.
Overworked shippers rarely have the capability in-house to control this complex activity
and should be thankful to have logistics experts like the forwarders on their side.
In this issue, American Shipper published an in-depth report by Merge Global (pages
36-53) that explains why most forwarders are doing well in today’s shipping environment,
and how they’re expected to ride this wave of prosperity into the future.
Now that’s not to say there aren’t the occasional setbacks. Forwarders are rolled up
through mergers and acquisitions, disappear, and some of the most prominent names suffer setbacks now and then.
Take for example UTi Worldwide. After posting strong results in fiscal year 2007, UTi
began to experience a decline in profits last year and issued a gloomy outlook for its 2008
fiscal year earnings due on March 27. The Rancho Dominguez, Calif.-based forwarder
said it planned to exit underperforming business, cancel certain long-term initiatives and
right-size operations to reduce overhead. UTi should be able to pull out of this apparent
setback as long as it has the conviction of both management and staff.
With plenty of talent, forwarders continue to show their ability to flexibly meet the challenges of diversified shipper demands, carrier capacity shifts, changing regulatory requirements and occasional shake-ups in their own industry. They’re still truly the backbone of
the ocean and air cargo business.
80 AMERICAN SHIPPER: MARCH 2008
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