Maritime and Infrastructure
Impact on NIKE’s Inbound
Delivery Supply Chain
NIKE’s FY 2006 Financial & Shipping Data
Revenues
Net Income
U.S. FEU Volumes:
• Nike
• Subsidiaries
Total
Nike & Subs DCs
Nike Direct Ship Locations
Actual
FY 06
B/(W)
PY
$15.0B
9%
.75B
16%
26,000
5,000
31,000
6
80+
13%
10%
12.5%
Supply Chain Risk Assessment
2006 to 2010
More likely
Chance of Occurrence
™ Port / Infrastructure
Congestion
™ Increase Security Requirements
™ ILWU Work
Stoppage in 2008 ™ Terrorist Attack on So.
Cal. Marine Terminal
™ Earthquake near Ports
More severe
Impact on Nike’s Business
NIKE’s US Delivery Network
Seattle
Tacoma
25%
Portland
7%
PNW 100%
PS 0%
(PLD 48%)
PNW 50%
PSW 3%
NYC 47%
PNW 89%
PSW 11%
Oakland
5%
New York
3%
PNW 24%
PSW 75%
HOU 1%
PNW 5%
PSW 70%
OAK 9%
SEC16%
Los Angeles
Long Beach
54%
Savannah
Charleston
6%
Memphis
PNW 5%
PSW 70%
OAK 14%
SAV 12%
Time Sensitive Cargo
Major Sourcing Locations
Region
Indonesia
Other Asia
Qingdao
Row
S. China
Thailand
Vietnam
Cargo needs to flow at the speed of Commerce – delivery timelines dictated by
our customers (95% total shipments)
ƒ
U.S. 2004 delays – 4 to 6 days
ƒ
U.S. 2006 delays – 24 to 48 hours for on-dock rail during and 72 hours
for off-dock rail during peak shipping periods
ƒ
U.S. 2010 delays – industry wide, impact could be 5 to 9 days
Time
NIKE’s Annual Spend
on Sensitive
Import Fees,Cargo
Congestion and Security
• Import duties, Merchandise Process Fee, Harbor
Maintenance Fee - $350,000,000
• PierPASS (S. California) - $200,000
• Alameda Corridor - $340,000
• Maintain C-TPAT status - $300,000
• Ocean carrier security charges – $128,000
• Additional Congestion / Security spend - $100,000
Total Annual Spend = 351,068,000
Potential Impact to Nike, Inc.
Unpredictability will drive extended delivery timelines
• Increased Inventory Costs By 2010
7 to 14 days additional inventory
NIKE carrying cost $4.0 million/week
• Increased Delivery Costs (current or possible in future)
PierPASS / Alameda Corridor fees
Public-private partnership fees
$142+ / FEU
$200 / FEU or 4% NIKE ocean spend
Congestion increases carrier’s operating costs
Airfreight usage up
NIKE’s ocean rates
NIKE’s airfreight spend increase by 10%
Impact of 2006 Safe Port Act
NIKE’s IT (data elements); ocean rates
• Unintended Consequences
Factory orders placed earlier
Missing key delivery dates
More delivery cancellations
Inventory risk
Customer’s orders
NIKE’s storage / DC capacity problems
NIKE’s Delivery Strategy
• Diversify port callings
• Evaluate delivery options
• Engage White House and Congress to develop & fund a
National Freight Policy
• Support private – public funding projects where they make
sense
• Support favorable business practices: terminal usage,
regional / national chassis pools, free time on terminals
• Evaluate port & shipping options
– Suez Canal to U.S. East Coast
– Prince Rupert, British Columbia
– Punta Colonet, Baja
– Lazaro Cardenas, Mexico
San Pedro Bay in 2004 and possibly 2010 +
U.S. infrastructure is fully stretched and
infrastructure projects will take years to
complete so we have to stay actively involved
while developing good long-term delivery
decisions for Nike and our Subsidiaries.