Chapter 4. Shippers. (9/28/05)
Shippers are the most powerful entities in the international trade industry. The term
“shippers” refers to the beneficial owners of cargo. They are sometimes referred to as
BOCs or BCOs. They are the companies that have produced or purchased the imported
goods; they are the force behind global production and distribution. The term shipper is
contrasted with the term carrier. Carriers are transportation providers, including
steamship lines, railroads and trucking companies. The owners of ships are not called
shippers.
Shippers versus Consignees
Shippers can be divided into senders versus receivers, or shippers versus consignees.
Thus a shipper can be an Asian producer who sends goods to a U.S. retailer. The
shipper-consignee distinction may be clearer when a small importer places an order with
an importer (shipper) who then delivers or arranges for the delivery of the goods to the
consignee. When it comes to large importers, however, the distinction is blurred.
Of course, shippers are not only exporters to the United States and importers from other
countries. They are also exporters from the U.S. to other countries. However, the focus
of this study is not upon U.S. exports, but on the huge and growing volume of imports,
especially ocean-borne, containerized imports from Asia. Within that topic, we place
special emphasis on manufactured consumer products.
U.S. manufacturers and retailers both import goods from Asia and can be viewed as
consignees, especially when they do not own the factories in Asia—which is by far the
most typical arrangement. Nevertheless, they are deeply implicated in the shipping
process and act as shippers. They arrange with Asian contractors for the production of
the goods they buy. This is true not only for manufacturers, but also for retailers. They
are not simply passive purchasers of already produced goods, but are shapers of the entire
production process. They are shippers as well as consignees. Wal-Mart, for example, is
a major shipper, as well as a consignee of a number of major manufacturers. The term
shipper is therefore the more general term.
Third Parties
Shippers can hire a number of types of intermediaries to handle their freight
transportation needs. These include freight forwarders, non-vessel-operating common
carriers (NVOCCs), consolidators, and various other types of logistics companies. Some
of them are termed ocean transportation intermediaries (OTIs) by U.S. law. These
service providers fall under the category of third party logistics companies or 3PLs.
Some of the steamship lines operate their own 3PL subsidiaries.
When people talk about logistics as a topic of study, they typically mean the study of
3PLs, some of which are giant, powerful companies. We have chosen not to place
special focus upon them, since we see the shippers as the primary powers behind the
1
logistics companies. It is the shippers (consignees), or BOCs, who ultimately pay for
freight transportation. They sit at the top of the pyramid of power in global freight
transportation. The 3PLs are middlemen who serve them.
Another reason for not focusing on 3PLs is that shippers sometimes hide behind them.
This is especially evident in PIERS (Port Import/Export Reporting Service) data. PIERS
is the primary source of data surrounding ocean transportation. It is a sister company of
the Journal of Commerce. PIERS collects detailed data about who ships specific
commodities from where. Yet in examining PIERS data we found that Wal-Mart, the
largest importer to the United States, was nowhere to be found. At least one reason for
this is that they can hide behind their 3PLs.
Size and Power
Shippers vary tremendously in size. They can consist of individuals, tiny companies,
small and medium sized firms, and giant multi-national corporations. They are probably
roughly distributed according to the 80-20 rule. That is, the vast majority of shippers are
small, so that about 80 percent of the total number of shippers account for only 20
percent of imports. Meanwhile, a few large shippers (say about 20 percent of the total)
account for the bulk of imports.
As one can imagine, size is related to power, including bargaining power in relation to
carriers. They can use their huge volume to push down the cost of transportation and to
gain other types of preferential treatment. One notorious example involves the abuse of
demurrage on the docks by some of the giant retailers. They sometimes do not remove
their containers in a timely fashion, using the docks as warehouses, and yet are not asked
to pay the demurrage fine that is normally charged for late removal.
Deregulation by the Ocean Shipping and Reform Act (OSRA) allowed shippers and
ocean carriers to engage in confidential rate agreements. Before OSRA, shipping rates
were published. With the passage of the law, the big shippers could hide their special
deals more effectively. Of course, word gets around about the rates, and the bigger
shippers’ rates become the standard to which smaller shippers aspire but can never attain.
This advantage fosters the concentration of wealth and power, as the small are, in a sense,
taxed to the benefit of the bigger, richer companies. As a consequence, smaller shippers
seek to consolidate their cargo, by the formation of shipper associations, and the use of
OTIs and 3PLs, to get a better rate from the carriers.
Offshore Production
Offshore production is, by definition, conducted by shippers, whether they are foreign or
U.S. companies. The bigger importers are generally transnational corporations (TNCs),
with footholds in a number of countries. TNCs can engage in offshore production for the
local markets in which they are located. For example, Wal-Mart arranges for production
in China, some of which will be sold in the newly expanded Wal-Mart chain there. Our
focus is upon those TNCs that import goods primarily from Asia to the United States. In
2
this activity they become shippers. (Of course, shipping within China, or within the U.S.
also involves shippers, but our focus is upon the international/global component of
shipping.)
As we have pointed out, TNCs can engage in foreign direct investment (FDI) or arm’s
length transactions—international contracting and licensing—where they do not own the
companies in which their goods are produced. Global shippers often own nothing except,
perhaps, buying offices and the offices of their various types of agents. They invest little
or nothing in the production facilities, but have a profound effect on them anyway
through their buying activities as well as direct intervention in what is made, how it is
produced, in what time frame, under what conditions, and (for the most powerful) for
what price.
The non-ownership by U.S. shippers of global production facilities provides them with
tremendous flexibility. They can use a particular supplier on an as-needed basis, and can
dump it if they are not satisfied, for some reason. Without owning significant assets in a
particular location, the shipper can fairly easily shift production location on a factory,
regional, or country basis. These shippers are acting as non-asset-based companies in
terms of their off-shore production. The manufacturers among them, such as Liz
Claiborne or Nike, have been described as manufacturers without factories. If any
embarrassing revelations come up in connection with a particular supplier, the shippers
can claim no responsibility, since they have no overt legal involvement in the company,
even though in practice they may determine the conditions there by setting the prices and
standards of production.
Shippers and Global Sweatshops
It is not our purpose here to describe global sweatshops—a phenomenon that has
received considerable attention in the literature. Rather, we want to discuss how the
practices of U.S. shippers, especially retailers, contribute to this growing problem.1
Sweatshops in the developing world are not a product of pre-existing labor conditions in
those countries. Rather, factory managers lower wages and working conditions in order
to survive in the highly competitive system of outsourcing, with great disparities of
power among the various actors (Varley 1998 p.83).
In the old, pre-logistics-revolution system, before the 1970s, importing to the United
States typically was done by specialized import or trading companies. They would
purchase ready-made goods from foreign suppliers and sell them to U.S. retailers after
they had already been imported. But with the logistics revolution, this system shifted.
Here is the way Varley (1998 p.86) describes the shift:
This section relies heavily on Chapter 5. “Dynamics of the global assembly line,” pp.83-107 of Varley
(1998). Varley notes that the chapter is based on a report by Heather White and Fredi Munger of the
monitoring company, Verité. This chapter focuses primarily on the apparel industry but other consumer
goods industries are following a similar path.
1
3
In the 1970s, retailers became more aggressive about their procurement of
consumer products from abroad, and began to secure them in several ways. At
times they still purchased them from importers, but at other times, they bypassed
importers by sending their own buyers overseas. Eventually, some of the largest
retailers—increasingly dominated by large volume, low cost discount chains and
price clubs—established overseas buying offices.
They also began to develop private label (store label) programs to compete with, and
undercut, the brand names. Not only are prices lower for private label, but profits on
them are higher. Retailers are more directly involved in the sourcing of their private label
goods.
Meanwhile, the old, standard, importers have gradually been pushed out of the supply
chain. Here is one of the ways this happens:
Retail buyers approach importers, express an interest in their product lines and
request samples—then take these samples to their Asian contractors or factory
agents and have the designs duplicated at far lower cost. These “knock-offs” save
retailers not only factory production costs but also the cost of the product
development and design (Varley 1998 pp.86-7).
Outsourcing in developing countries is a complex business, often involving various
intermediaries. These middlemen arise because local manufacturers lack the information,
language skills, communications infrastructure, or experience with complex legal and
documentation requirements, and are sometimes located in outlying areas. Usually only
those U.S. companies that are able to maintain an office or agent in Asia can make direct
arrangements with overseas manufacturers, and only the largest and most sophisticated
offshore manufacturers are able to deal directly with U.S. companies. Otherwise
contractors, agents, or trading companies step into the breach. These intermediaries
charge a commission based on a percentage of the value of the goods. They also hide
information from both sides of their transactions, making it difficult for both buyers and
producers to know what the other is doing, and sometimes who they even are (Varley
1998 pp.90-4).
Varley (1998 pp.91-2) talks of the phenomenon of “triangle manufacturing,” where
manufacturers in rapidly growing Asian territories like Hong Kong, Taiwan, South Korea
and Singapore, shift their labor intensive activities to lower-wage regions. Hong Kong
and Taiwanese firms tend to specialize in China, while South Korea has focused on
Indonesia, Guatemala and the Dominican Republic, and Singapore has emphasized
Indonesia and Malaysia.
The triangle is completed when the finished goods are shipped directly to the
buyer’s warehouse in the United States or Europe. In the toy industry, a typical
supply chain will have the goods designed in Hong Kong, assembled in South
China—often with a Taiwanese-made chip for talking toys—and returned to
4
Hong Kong for final shipment to the United States or Europe (Varley 1998 pp.923).
In the last few years China’s indigenous capitalists have grown, along with mainland
ports that are challenging the hegemony of Hong Kong.
The competitive character of U.S. retailing, especially among the discounters, is forcing
retailers to seek out ever lower cost goods. “In turn, retailers pressure contractors, agents
and trading companies for lower-cost goods. Large buyers may offer extremely low
prices to their suppliers on a take-it-or-leave-it basis” (Varley p.95). Meanwhile, an
increasing number of developing countries are trying to establish an export sector,
allowing U.S. firms to search for those suppliers that will give them the lowest prices for
the best quality. As a result, U.S. companies are able to dictate the prices they are willing
to pay. As a director of international trade for the American Textile Manufacturing
Institute stated: “You don’t tell Wal-Mart your price. Wal-Mart tells you” (cited in
Varley 1998 p.95).
Competing middlemen contribute to the problem by offering the lowest prices and then
squeezing local manufacturers. Local manufacturers often accept deals where they are
paid less than the cost of manufacturing the goods, hoping they can cut corners to make it
work. Few contractors are willing to turn down an order for fear they may lose the
customer forever. The result is sweatshop-style production, including failure to pay
workers on time (and sometimes, at all), forced and unpaid overtime, speed-ups, lack of
attention to health and safety issues, etc. (Varley 1998 p.95).
An anti-sweatshop movement has developed in the United States, Europe and elsewhere,
calling on shippers to stop making their goods in sweatshops. Brand name companies
have found themselves the target of embarrassing exposes. Many have developed Codes
of Conduct, and claim that they monitor their factories to ensure that they comply.
Skeptics fear these are largely public relations ploys, and evidence has been collected
revealing the weakness of some of these efforts (Esbenshade 2004).
The problem lies with shippers who do not want to pay more for their products. Neil
Kearney, of the ITGLWF (International Textiles, Garment and Leathers Workers
Federation—a federation of trade unions in these industries from around the world)
stated:
These [multinational] companies adopt codes of conduct, some of them in very
nice language, but then they negotiate deals which make it impossible for their
contractors to honor the codes. The companies say to the contractor, “Please
allow for freedom of association, pay a decent wage,” but then they say, “We will
pay you 87 cents to produce each shirt. This includes the wage, fabric,
everything” (cited in Varley 1998, pp.95-8).
It is on this basis that an anti-sweatshop NGO, the International Labor Rights Fund,
recently (September 2005) filed a lawsuit against Wal-Mart on behalf of hundreds of
5
thousands of factory workers in China, Bangladesh, Indonesia, Nicaragua, and
Swaziland, charging that the retailer has failed to enforce its Code of Conduct for its
suppliers. The suit also claims that the company is making false and misleading
statements to the American public regarding its labor practices (Selvin 9/14/05).
Other aspects of the system lead down the road to sweatshops. Subcontracting is
common, leading to tiny, hidden workshops and homework. There can be what Varley
(1998 p.98) calls “dicey payment arrangements.” Instead of using letters of credit
through banks, more informal arrangements are negotiated, where the producer cannot
ensure that s/he will be paid, or paid the agreed-upon amount. The system also shifts risk
from large U.S. retailers to factories in developing countries. For example, a producer
may invest in expensive equipment to produce free samples in the hopes that a buyer will
place an order (Varley 1998 pp.98-102).
Our main point is that U.S. shippers can play a critical role in the reproduction of
sweatshops whether they intend to or not. The sheer size of their ordering power,
coupled with huge competitive pressures among contractors and intermediaries to win the
work, create a breeding pool for sweatshop proliferation.
Growth of Giant Contractors
U.S. retailers and manufacturers who engage in offshore production make much larger
profits than their suppliers, a fact that has led large triangle manufacturers in Hong Kong,
Taiwan, South Korea, and now China, to engage in more independent production,
including developing their own labels. Some of them are growing into TNCs themselves,
opening retail chains in the U.S. and Europe. These contractors are now becoming
competitors of the firms they formerly supplied. For example, Payless Shoes, the largest
U.S. importer of footwear, receives goods from such a contractor. A Taiwanese bicycle
manufacturer, Giant Manufacturing Corp., used to be a supplier of Schwinn but now
produces on its own. Fang Brothers in another example, a giant, Hong Kong-based
apparel producer which opened its own retail chain (Varley 1998 p.102).
Gabriel Kahn, a reporter for the Wall Street Journal, has conducted some research on this
phenomenon. One of his articles (9/11/03) describes a Hong Kong-based shirt maker
named TAL Apparel Ltd., which has developed a close relationship with J.C.Penney:
TAL collects point-of-sale data for Penney’s shirts directly from its stores in
North America, then runs the numbers through a computer model it designed.
The Hong Kong company then decides how many shirts to make, and in what
styles, colors and sizes. The manufacturer sends the shirts directly to each Penney
store, bypassing the retailer’s warehouses—and corporate decision makers.
Gabe calls this a “radical power shift” in the relations between retailers and their contract
manufacturers, increasing the power of the latter. TAL is a giant contractor that produces
about 12.5 percent of the dress shirts sold in the U.S. “As retailers strive to cut costs and
keep pace with consumer tastes, they are coming to depend more on suppliers that can
6
respond swiftly to their changing needs. This opens opportunities for savvy
manufacturers, and TAL has rushed in, even starting to take over such critical areas as
sales forecasting and inventory management.”
TAL was negotiating a similar deal with Brooks Brothers in 2003, and produced pants in
Malaysia for Lands’ End that it shipped straight to U.S. customers. For J.C. Penney,
TAL has reduced the six months’ worth of inventory it used to carry in its warehouses,
and the three months’ worth it carried in its stores, to zero. Essentially Penney’s has
outsourced its inventory management to TAL. The Hong Kong firm also maintains shirt
design teams in New York and Dallas, which it tests in Penney stores, and makes the
decisions about which to produce, how many, and with what variations (Kahn 9/11/03).
As of 2003, TAL did not produce in China, but located its factories in countries with
higher wages, such as Thailand, Malaysia, Taiwan and Hong Kong. The company made
up for higher labor costs with greatly improved supply-chain efficiency. This example
illustrates how the most advanced features of the logistics revolution are penetrating
Asia.
The other example described by Kahn (8/13/04) concerns a Chinese garment producer
named Luen Thai Holdings Ltd which is creating a “supply-chain city” in the city of
Dongguan in South China. The goal of this project is to work with U.S. brand-name
companies, like Liz Claiborne, to concentrate their production in China more, now that
the country quotas under the Multifibre Arrangement (MFA) have been terminated.2 The
supply-chain city of Luen Thai saves on both time and cost:
“Right now, there is a lot of duplication,” says Chris Chan, Liz Claiborne’s vice
president for Asia. When prototypes come out of the factory they are sent back to
New York to be inspected and possibly modified, then shipped back again to the
factory in China. “When it’s all finished, it gets checked again,” Mr. Chan says.
The process sucks up precious time and requires additional staff (Kahn 8/13/04).
The new system will bring together the NY and Chinese staff at the Dongguan campus,
enabling Luen Thai and Claiborne to cut their staffs from 100 to 60. And they save
precious time by not having to send goods back and forth. Luen Thai hopes to attract
other U.S. apparel manufacturers to the Dongguan site, such as Polo Ralph Lauren Corp.
In the supply-chain city, the same scan-and-track inventory system is used by everyone
from the textile producer to the retail stores, and the goods get shipped straight from the
factory to a specific store that needs them. This reduces the unit cost drastically, to as
low as 20 cents (Kahn 8/13/04). So here we see an example showing how China is
participating in the logistics revolution.
Gabe Kahn talked with us a bit on the phone about the giant Asian contractors (9/1/04):
2
See UNCTAD 2005, a report authored by Richard Appelbaum. The MFA was gradually phased out, and
terminated at the beginning of 2005.
7
The giant contractors want to handle all of the logistics in Asia, including the
warehousing, and ship directly to the store. A lot of functions are migrating to
Asia. It is better if they are closer to the point of production versus the point of
sale. Then they can make decisions as they arise. If a company’s personnel move
to Asia, they can get the goods in three days instead of ten.
Another major example of a giant multinational contractor is Li and Fung, a garment
producer based in Hong Kong. Li and Fung is the model company, according to Gabe.
According to its website (www.lifung.com) the firm has sourcing offices in 40 countries.
It promises its customer global supply chain management, one-stop-shopping service,
quick response, and social responsibility. In other words, Li and Fung can take over the
role of arranging for the production and timely delivery of apparel for Western
manufacturers and retailers.
According to Gabe, Victor Fung talks about “the soft $3.” This means: The vendor sells
the goods to the retailer for $1 and the retailer sells for $4. The Asian producer has to
beat his head to lower his costs to 90 cents. But another approach is to get some of the
$3. To do this you buy the brand. This is what some of the giant contractors are doing.
For example, Li and Fung licensed Levi’s Signature brand, which sells in Wal-Mart.
They design, produce and ship, everything.
Still another example is the vacuum cleaner producer, Dirt Devil. The Asian supplier
bought the brand and moved production out of Ohio. By locating everything near the
production site, they were able to be more innovative and respond more quickly. They
could lower their research and development costs and save time on decision-making.
This practice, Gabe thinks, will become more frequent (Kahn 9/1/04).
Shipper Logistics Practices
We interviewed Kim Suchomel, Vice President of Costco, by phone (6/30/04), and she
was exceedingly helpful in laying out the approach of the giant retailers to offshore
sourcing in Asia. We wondered whether the retailers are involved in Asian production
primarily when they are producing their stores’ private label. Kim disabused of this
notion:
We are involved in all production in Asia, not just private label. We engage in the
direct importing of both private label and branded goods. We work with the
producers, oversee the production of our goods, and set up specifications for our
products. It makes no difference whether the products are branded or private
label. In neither case do we own any factories, so we are always dealing with
someone else’s factories. But we may rethink this with regard to certain products.
Costco does have a private label program which it began about a dozen years ago. If
Costco can get 20 percent better value than the brand, and better quality at the same time,
they switch to private label. They benchmark private label against the brand. Sometimes
they sell the brand right next to the private label items. “Essentially this is saying to the
8
brand that its prices were too high.” This drove down some prices, for example, for
diapers. “Private label has played a role in bringing down industry prices” (Suchomel
6/30/04).
We have had some phenomenal successes with private label. One example is
Kirkland Signature batteries. In this case, we pushed the brand price down, but
ended up going back to private label. In the case of film, we got Kodak to bring
down the price, and ended up going back to the brand.
When Costco started outsourcing in Asia, they used a broker in the U.S. that worked with
a trading company in Asia. But now their policy is to try to get as close to the factory as
possible and to limit the role of brokers. “We don’t have our own offices in Asia, but
some Asian companies are big enough that they serve as their own broker, so we can buy
directly from them” (Suchomel 6/30/04). In contrast, Wal-Mart has its own offices in
Asia. They import much more from there than does Costco. In Kim’s experience, it is
the department stores that especially use buying agents. They form consortia for group
purchasing. The big box retailers are generally trying to get rid of unnecessary
middlemen.
We tried to get a better understanding of the company’s logistics practices. They use
POS data only for replenishment. When they decide to try a new item, they use their
sales history to determine the size of the order. EDI (electronic data interchange) is still
in its infancy in Asia, according to Kim. There is a lack of a common standard. So
Costco does not use EDI (or VMI—vendor managed inventory) in importing from Asia.
They are used in the U.S., and they are coming to Asia. “Eventually the vendor and
retailer community will develop a communications network to standardize ordering at an
international level.”
Part of the problem is that, in dealing with Asia, you can’t control the firewall,
which we can do in the U.S. Possibly it is happening in some countries where the
retailer and vendor use the same communications network. Maybe this happens
in Taiwan in certain cases. I imagine that Procter and Gamble in China would sell
to a Chinese retailer using EDI. But everyone is struggling with communications
from one country to the next. EDI and VMI are only being used in North
America, especially Canada and the U.S., and to some extent in Mexico.
Costco uses JIT practices for anything manufactured locally. They have daily and
sometimes twice-daily deliveries. There is a command from the company president that
there should always be one day’s worth of sales on the floor. This has allowed the
company to reduce its number of SKUs. Imports, in contrast, are planned inventories.
They are rotated into the stores by SKU. They can be seasonal, like furniture, which is
not replenished and involves a one-time buy. Because of these practices, the ports
lockout created serious havoc for them.
Of course, Kim does not know how Wal-Mart operates in Asia, but she guesses that they
do more automated purchasing there than does Costco. This is because they sell lower-
9
end goods, and they own communications systems. They may use EDI to order and
deliver goods to their own offices in Asia.
The question of whether logistics revolution practices can be used in Asia, and especially
China, intrigued us, and we tried to answer this question. An article in American
Shipper, a trade journal (Damas 7/05), reports that China is still way behind in its
logistics development. Logistics costs there are high: China spends 19 percent of GDP
on logistics, compared to 10 percent in Europe and the U.S. The reasons for this are
numerous: poor infrastructure development, regulatory burdens with requirements
varying from one province to the next, difficulties in tracing shipments, and huge
inventory levels (see also Field 8/1/05). One logistics executive estimated that there were
10,000 logistics professionals in China in 2005, when they need about a million. Of
course, all of this is in the process of transformation and no doubt China will catch up in
logistics proficiency. Still, we wanted to find out if any U.S. shippers were able to use
the latest logistics techniques there now.
We spoke briefly over the phone with Rick Jackson, a logistics expert at The Limited
(9/8/04). The Limited, an apparel retailer, does not own any factories in China but does
source there. They use two methods: they have an internal sourcing arm called Mast
Industries, which sources all of their apparel and lingerie, and agents with whom they
contract all non-apparel goods. The agents arrange for the production of goods designed
by The Limited, and produced to their specifications.
The Limited collects POS data, and uses it for JIT production and delivery. They use it
for initial launches, and to react quickly to hot items. However they do not use EDI with
their Asian vendors. How quickly can product be delivered?
If the goods are in inventory, they can be delivered in 72 hours. This means air
shipment. Air costs $1.25 to $1.45 a pound, compared to 20-30 cents by ocean,
so there is a difference of $1. We use air transport for high fashion and lingerie.
Ocean transportation from Hong Kong takes 19-20 days door-to-door, to our DCs
in Columbus, Ohio. Once at the DC it takes 5-10 days to get to the stores, so if
we need a hot item we don’t use ocean.
The Limited maintains several DCs in Columbus, but does not have one on the West
Coast, even though 65 percent of their imports come through LA/LB and Seattle. (The
rest come via air freight.) The goods are “hot hatched” off the ship, meaning that they
are the first to be taken off. This preference is accorded them because they use a small
group of transportation providers and have long-term relationships with them.
Another set of phone interviews was conducted with Johnny Hodges of Texas
Instruments. We asked whether it was possible to do EDI in Asia and he said that Texas
Instruments does not. They trade a lot of data electronically but very few purchase orders
are automated. The company gets their orders from the retailers as EDI (Wal-Mart,
Target, home/office supply companies like Staples, Home Depot), but can not replenish
that way.
10
Texas Instruments has to place regular orders. The company uses ERP—Enterprise
Resource Planning. They collect huge amounts of data (in the sky) and try to figure out
supply and demand. They ask their Asian suppliers to produce a certain amount. The
suppliers get back to them with a counter offer of an amount, and commit to it. They
schedule dates and quantities.
The firm’s biggest user of electronic information is their forwarder, a U.S.-based
company that operates world-wide, and has an office in Asia. They serve as Texas
Instruments’ agent. The forwarder picks up the freight and takes it to the carriers, either
ocean or air. They take physical possession of the goods, and Texas Instruments gets into
their system to see what is happening and where things are. According to Johnny:
The retailer wants JIT delivery. They give us 14-20 days for delivery, but we
have a lead time of sometimes 100 days. We have to use modeling to make
predictions. We have to order in January to get it in April. We can’t use air
freight very much because it cuts into our margins. So 90 percent of the inbound
goods from the Far East come by ocean. If it drops to 70-80 percent it impacts
our margins. We have to create an artificial inventory. Our product (calculators)
has a peculiar seasonality. We don’t have a Christmas push. We are now (July)
right in the middle of our peak season, which is Back-to-School. So our season
runs from May to September. We sell to the big-box retailers and sellers of office
supplies and home equipment, some of which treat our products as loss leaders.
They make their margins on other products, like back-packs. We have to have
goods in stock here, so that the retailer can get a JIT order from us when they
need it. We artificially inflate inventories at the beginning of the second quarter,
and gradually bleed them down to the fourth quarter.
In other words, Texas Instruments provides warehouses that the retailers’ DCs can draw
upon for cross-docking. The retailer does not need to maintain inventory, and pushes that
requirement back on to the manufacturer. Meanwhile, the U.S. manufacturer is not in a
position to ensure JIT production in Asia so that he can avoid inventory build-up in U.S.
warehouses.
The Asian suppliers make corrections during the season. Texas Instruments sometimes
has to go back to the supplier to say they need more. The supplier usually stockpiles
pieces, so they can respond to these kinds of requests. In January, Texas Instruments
makes an estimate of how much is likely to sell. Then they make course corrections as
the season progresses. The model may be doing better or worse than expected, so they
can make changes as the year goes by. But by the third quarter they have very little time
to react. There is hardly any room for miscalculations. Their goal is to end the year with
as little inventory as possible.
Here is what Johnny said about production in China:
11
It’s getting easier. We were trail blazers in getting goods produced in China. We
partner with folks who are international companies who produce for many
different companies. We have been moving production from Shenzen to
Shanghai. Shanghai is cheaper. There is availability of labor from rural areas
nearby, and they have the infrastructure to transport them. The workers are
plentiful, skilled, and trainable. First our goods were produced in Taiwan, then
Shenzen (near Hong Kong) and now Shanghai.
These companies are multi-billion dollar contractors. Some are Taiwanese and
others are Chinese. We do multiple sourcing. Getting piece parts is an issue. We
have to compete with producers of cell phones, digital cameras, and other popular
consumer goods. We want to avoid shortages. We go to the contractor with an
engineer and tell them precisely what we want, and they produce it.
We started with one company 20 years ago. We were one of the first Fortune 500
companies to do this, even though our production isn’t the biggest. But they
value the length of our relationship, and we each have loyalty to each other.
Loyalty matters more in Eastern cultures than in the U.S. They will make
concessions for us if we need them, even though we are a small buyer. There is
mutual respect.
Finally, we contacted Jon DeCesare, a logistics expert, to see what he thought about the
use of advanced logistics practices by the big box retailers in Asia (7/1/04). Here is what
he said:
The big box retailers vary a great deal in their sophistication, so you can’t
generalize. They make general forecasts, and then fill in the details using POS.
In terms of sophistication, Wal-Mart wrote the book, and rewrites it every day.
Target is trying to keep up, as is Best Buy and Home Depot. For example, Target
will budget shelf space for a certain product, and they lose money if it isn’t there
on time. They reckon they save (or lose) $100 million for every day they can take
out of the transit time. So the supply chain is incredibly important to them. But
what they mainly seek seems to be visibility, not replenishment orders. They
want to make sure that goods are moving as planned. They want a glass pipeline.
They want to be able to see where their SKUs are.
He thinks they do not have direct EDI connections, where POS data are sent out. Rather,
their inventory control departments get the data, make adjustments to orders, and then
send them out.
An example is Huffy Bicycles, made in China. Wal-Mart may order 50,000, which are
then delivered to a Huffy Warehouse in the U.S. Wal-Mart then asks for them on a JIT
basis—in smaller lots, like 5000. But they also have the power and flexibility to tell them
that they don’t need any more after they have received 30,000. So then Huffy is stuck
with 20,000 which it has to figure out how to unload. “This is a common scenario,” says
Jon.
12
He says there is a movement by retailers to pick up FOB in Asia. They deal directly with
the steamship line. This gives them greater visibility in terms of the location of their
cargo, and the flexibility to set up alternative routings if needed.
If we can generalize from this limited research, it appears that the most advanced features
of the logistics revolution have not fully penetrated Asia, especially in the arena of the
outsourcing of manufactured goods in countries like China. Offshore production and
importing, especially when ocean transportation is involved, apparently does not operate
on JIT principles—yet. Part of the reason lies with the relatively intractable length of the
ocean voyage, but some of the problem lies with the insufficient development of
Asian/Chinese logistics. This latter will undoubtedly be remedied in the next few years,
and we can expect more efficient replenishment programs there soon.
The Hundred Biggest Shippers/Importers
Table 4:1 shows the hundred biggest shippers to the United States via ocean container for
the years 2001 to 2004 (organized by volume of imports in 2004) published annually by
the Journal of Commerce (JoC). The lists are based mainly on PIERS data, but are
supplemented by other industry sources. They are restricted to shippers, i.e. beneficial
owners of containerized cargo (BOCs). The figures are in TEUs, 20-foot equivalent
units, the standard way to measure containers.
The number of TEUs expressed for each shipper represent the total
import....volume that shipper generates, whether it’s shipped under the company’s
own name or through a non-vessel-operating common carrier, freight forwarder or
other third-party logistics provider… Figuring out who ships what isn’t easy.
Obstacles include corporate privacy rules, mergers and acquisitions, and the
shipment of cargo under the names of company divisions as well as third parties
(Salisbury 4/29/02).
Table 4:1. The Top 100 Importers to the United States via Ocean Container (in TEUs)
Rank Importer/
2001
2002
2003
2004
2004 Headquarters
1
Wal-Mart Stores Inc
260,000
291,900 471,600 576,000
Bentonville, Ark
Retail
2
Home Depot Inc
80,000 182,000 267,100 301,200
Atlanta
Retail
3
Target Corp
121,000
173,100 208,400 202,700
Minneapolis
Retail
4
Sears Holding Corp (Kmart Corp)
80,000
46,400
86,400 186,000
13
5
6
7
9
10
11
12
13
14
15
16
17
18
19
Hoffman Estates, Ill (Troy, Mich)
Retail
Dole Food Co
Westlake Village, CA
Food
Chiquita Brands Int’l Inc
Cinncinati
Food
Ikea International A/S
Plymouth Meeting, PA (Danish)
Retail
Lowe’s Cos
Mooresville, NC
Retail
Heineken USA Inc
White Plains, NY (Dutch)
Beverages
Costco Wholesale Corp
Issaquah, Wash
Retail
Ashley Furniture Inds
Arcadia, Wisc
Manufacturing/Retail
Payless Shoesource Inc
Topeka, Kan (Japanese)
Retail
Samsung Electronics Amer Inc
Ridgefield Park, NJ (Korean)
Manufacturing
Matsushita Electric Corp of Amer
Seacaucus, NJ (Japanese)
Manufacturing
Toyota Motor Sales USA Inc
Torrance, CA (Japanese)
Manufacturing
General Electric Co
Fairfield, Conn
Conglomerate
Williams-Sonoma Inc
San Francisco
Retail
Mattel Inc
El Segundo, CA
Manufacturing
Pier 1 Imports Inc
Fort Worth
143,300
142,900
171,300
164,100
85,300
103,200
108,600
115,600
37,200
44,700
60,200
100,000
35,000
82,900
96,500
100,000
90,000
75,000
77,700
83,400
60,000
19,382
23,200
66,400
32,800
45,200
53,400
63,800
90,000
55,000
56,800
54,200
30,100
46,200
40,800
52,800
40,000
41,500
52,800
52,100
45,000
45,000
49,050
52,000
40,000
48,500
49,300
51,800
19,200
19,200
22,400
50,000
46,700
43,700
41,000
49,300
33,400
46,700
47,300
49,300
14
20
21
22
23
24
25
26
27
28
29
30
31
32
33
34
Retail
Nike Inc
Beaverton, Ore
Manufacturing
Sony Corp of America
New York (Japanese)
Manufacturing
Michelin North America Inc
Greenville, SC (French)
Manufacturing
JCPenney Corp
Plano, TX
Retail
LG Group
Englewood Cliffs, NJ
Conglomerate
Bridgestone Amers Holding Inc
Nashville, Tenn (Japanese)
Manufacturing
Limited Brands Inc
Cincinnati
Retail
Dollar General
Goodlettsville, Tenn
Retail
Toys “R” Us Inc
Paramus, NJ
Retail
Big Lots Inc
Columbus, Ohio
Retail
Del Monte Foods
San Francisco
Food
Ford Motor Co
Dearborn, Mich
Manufacturing
Dorel Industries
Mo-Wisc-Ind (Canadian)
Manufacturing
Nestle USA Inc
Los Angeles (Swiss)
Food
Nissan North America Inc
Gardenia, CA (Japanese)
Manufacturing
35,100
38,700
41,800
47,900
40,000
40,000
50,700
47,100
33,800
34,500
35,100
46,100
25,000
25,000
57,000
33,500
44,700
43,300
20,600
26,800
40,000
42,500
35,000
35,000
37,000
41,300
10,000
10,000
40,000
40,000
40,900
39,300
34,100
45,800
46,000
36,300
10,000
10,000
20,400
32,400
31,000
31,100
31,200
29,700
16,000
28,700
45,000
40,000
19,000
14,300
21,700
28,500
22,100
16,500
21,000
27,700
15
35
36
37
38
39
40
41
43
44
45
46
47
49
50
Yamaha Motors Corp USA
Cypress, CA (Japanese)
Manufacturing
Philips Electronics No Amer
New York (Dutch)
Manufacturing
Michaels Stores
Irving, TX
Retail
Whirlpool
Benton Harbor, Mich
Manufacturing
Canon USA Inc
Lake Success, NY (Japanese)
Manufacturing
Walgreen Co
Deerfield, Ill
Retail
Rooms to Go
Seffner, Fla
Retail
Thomson
Indianapolis (French)
Manufacturing
Federated Dept Stores Inc
Cincinnati
Retail
Procter and Gamble
Cincinnati
Manufacturing
DuPont
Wilmington, Del
Chemicals
Emerson
St Louis
Conglomerate
Marubeni America
New York (Japanese)
Conglomerate
Jarden Corp
Rye, NY
Manufacturing
Stora Enso North America
Wisconsin Rapids, Wisc (Finnish)
Forest Products
Reebok International Ltd
24,600
24,600
26,800
27,300
27,100
22,000
26,800
27,200
14,600
14,600
24,800
27,100
21,900
26,800
20,000
20,000
23,200
26,200
17,400
17,200
19,500
25,500
16,000
19,800
21,100
24,200
20,000
21,400
23,800
24,200
16,800
15,200
13,400
23,700
18,000
18,000
19,400
23,000
22,000
20,000
22,500
22,800
20,000
20,000
20,200
22,600
21,800
21,800
19,000
16,300
16,300
21,700
9,500
9,500
19,000
20,600
16
51
53
54
55
56
57
58
59
60
61
62
63
64
65
Canton, Mass
Manufacturing
Red Bull
Santa Monica, CA
Beverages
Hankook Tire America
Wayne, NJ (Korean)
Manufacturing
Dollar Tree Stores
Chesapeake, VA
Retail
Dow Chemical Co
Midland, Mich
Chemicals
Natuzzi Americas
High Point, NC (Italian)
Manufacturing
Goodyear Tire and Rubber Co
Akron, Ohio
Manufacturing/Retail
Family Dollar Stores
Matthews, NC
Retail
Retail Ventures Inc
Columbus, Ohio
Retail
TJX Cos
Framingham, Mass
Retail
Sharp Electronics Corp
Mahwah, NJ (Japanese)
Manufacturing
Conair Corp
East Windsor, NJ
Manufacturing
Liz Claiborne Inc
New York
Manufacturing
Bayer Corp
Pittsburgh (German)
Manufacturing
Toyo Tire and Rubber Co
Cypress, CA (Japanese)
Manufacturing
Fonterra Cooperative Group Ltd
Auckland, New Zealand
20,400
13,100
20,400
10,000
10,000
15,000
15,000
17,700
19,900
14,500
20,800
21,900
19,654
16,100
14,200
16,100
19,400
12,600
19,300
13,000
13,800
18,800
15,000
15,000
15,700
18,200
20,200
19,700
17,400
17,900
13,700
15,100
18,200
17,800
14,000
14,200
16,000
17,500
15,100
17,400
15,100
16,900
14,600
16,700
11,000
12,900
20,000
17
66
67
68
69
70
71
72
73
75
76
78
Beverages
Toyota Tsusho America
Florence, Ky (Japanese)
Conglomerate
JoAnn Stores Inc
Hudson, Ohio
Retail
FoxConn Industries
Houston (Taiwanese)
Manufacturing
Caterpillar Inc
Peoria, Ill
Manufacturing
Arauco Wood Products
Atlanta (Chilean)
Forest Products
Gap Stores
San Francisco
Retail
DaimlerChrysler
Auburn Hills, Mich (US-German)
Manufacturing
May Department Stores
St Louis
Retail
TPV International
Austin, TX (Taiwanese)
Manufacturing
Best Buy
Richfield, Minn
Retail
Bombay Co
Fort Worth
Retail
Fuji Photo Film USA Inc
Valhalla, NY (Japanese)
Manufacturing
Pacific Fruit Co
New York (Ecuadorian)
Food
BMW of North America Inc
Woodcliff, NJ (German)
Manufacturing
Haier America Trading
New York (Chinese)
Manufacturing
16,000
15,900
10,900
10,900
15,500
15,400
12,000
12,000
13,600
15,300
11,600
9,900
12,000
12,000
13,200
14,800
14,200
14,200
14,400
14,600
13,100
13,000
15,000
14,500
15,000
14,500
14,400
15,600
14,300
10,200
10,500
12,900
14,300
14,000
14,100
13,400
14,200
18,100
14,000
15,000
14,200
12,400
15,200
16,600
14,200
18
82
83
84
85
87
88
89
90
91
94
95
96
Hasbro Inc
Pawtucket, RI
Manufacturing
Salton Inc
Mount Prospect, Ill
Manufacturing
American Suzuki Motor Corp
Brea, CA (Japanese)
Manufacturing
Linens ‘n Things
Clifton, NJ
Retail
OfficeMax Inc
Itasca, Ill
Retail
Epson America Inc
Long Beach, CA (Japanese)
Manufacturing
Coaster of America
Santa Fe Springs, CA
Manufacturing
Staples Inc
Framingham, Mass
Retail
Yazaki North America
Canton, Mich (Japanese)
Manufacturing
So. Wine and Spirits of No Amer
Miami
Beverages
Ricoh Corp
West Calwell, NJ (Japanese)
Manufacturing
Norske Skog (USA) Inc
Southport, Conn (Norwegian)
Forest Products
Brother International
Bridgewater, NJ (Japanese)
Manufacturing
Applica Consumer Products
Miramar, Fla
Manufacturing
Adidas-Solomon USA Inc
Beaverton, Ore (German)
Manufacturing
Footstar Inc
17,500
13,000
16,700
14,200
11,000
11,000
14,600
14,100
10,400
12,300
13,400
13,700
13,600
13,400
11,000
10,900
11,900
13,400
13,200
13,300
12,100
13,200
12,900
14,800
19,000
11,700
12,300
12,700
11,600
19,700
11,600
11,600
11,100
9,500
11,000
24,200
24,200
10,800
15,900
10,500
19
West Nyack, NY
Retail
97
Hamilton Beach/Proctor-Silex Inc
Glen Allan, VA
Manufacturing
98
American Honda Motor Co
46,000
46,200
Torrance, CA (Japanese)
Manufacturing
Group Danone
22,300
22,300
Stamford, Conn (French)
Beverages
100
CVS Corp
16,000
16,000
Woonsocket, RI
Retail
Source: Journal of Commerce, 4/29/02; 4/28/03; 5/31/04; 5/30/05.
10,400
50,400
10,300
24,300
10,300
11,800
10,200
First, let us consider the amounts involved. Bringing in about 10,000 TEUs a year, or
5,000 FEUs (40 foot equivalent units), which are far more common, may not seem that
much, especially when compared with the volumes of the top three importers, but that
means 27 TEUs per day, or 13-14 standard containers, each filled with about 30 tons of
goods. That is a huge amount of commodities to sort and deliver. Now consider WalMart’s volume in 2004. Within 576,000 TEUs per year, Wal-Mart has to import almost
800 standard containers (FEUs) a day on average—a potential logistical nightmare of
major proportions. In any case, it is safe to say that even the smallest of the top 100
importers is a major importer indeed.
Here is what the Journal of Commerce says about the top 100 importers in 2005:
Once again, Wal-Mart ranks No. 1, with the volume of its imports growing 22
percent to 576,000 TEUs. Home Depot ranked second, with import volume
increasing 13 percent. Target remained third, with 202,700 TEUs. The big
change occurred in the fourth spot among importers, which is now held by Sears
Holding Corp., the result of Kmart’s acquisition of Sears, Roebuck & Co.,
knocking Dole Food into fifth place. Kmart had been ranked seventh in the 2003
rankings, and Sears was No. 49. The merged company imported 186,000 TEUs
last year. IKEA moved from 10th to seventh place on the list as its imports grew
to 100,000 TEUs last year from 60,100 TEUs the year before. But the biggest
move on this list came from Costco, the discount warehouse club chain that
Fortune magazine calls “the only company Wal-Mart fears.” It jumped into 10th
place on the list of importers from 35th place in 2003, as its imports almost tripled
to 66,400 TEUs from 23,200 in 2003 (Leach 5/30/05 p.5A).
There are a number of other observations to make about this list. First, we note the
dominance of retailers: 35 out of the top 100 importers were retailers in 2004, as were
seven out of the top 10. The biggest four importers are all retailers, and the size of their
imports easily swamp the other companies on the list. These top four brought in
20
1,265,900 TEUs in 2004, more than trebling their volume of 2001, which was 541,000
TEUs. The top 10 total is 1,895,400 TEUs, of which Wal-Mart accounts for 30 percent.
We should also note that a number of the shippers are not U.S. companies, and Japan
appears to stand out as a source of shippers to the United States. Also, these companies
are headquartered all over the country, showing the truly national scope of the global
sourcing phenomenon. Finally, there is some variability in terms of which companies
make the top 100 list from year to year, while companies vary in terms of the rate of
growth of importing. On the whole, however, the trajectory is ever upward, as more and
more commodities are brought into the U.S. market.
Portraits of Shippers
The Journal of Commerce presents more detailed portraits of a few shippers, which
reveal some of their characteristics:
Home Depot. In 2004 Home Depot had annual net sales of $73.1 billion, and net
earnings of $5 billion. It had 2,065 stores, and was growing at the rate of about 175 new
stores per year. It had centers in Canada and Mexico and plans to enter the retail market
of China. Each of the stores stocks 40-50,000 products per year, and much of it is
imported.
The company is secretive about where it sources, a general phenomenon among offshore
producers.3 As the JoC puts it: “No surprise: Many retailers keep information about
foreign vendors confidential. Sourcing is one of the tools that keeps them competitive in
the market-place. Like many consumer-products importers, though, The Home Depot
relies on China for much of its merchandise” (JoC 5/30/05 p.24A). As of 2004, Home
Depot had 13 import-distribution centers in the U.S. and Canada.
Home Depot says that it buys products from about 600 factories in 35 countries. They
deal directly with the factories themselves, eliminating the need for brokers and other
intermediaries. This reduces costs, allowing them to sell products for less. They
maintain product development centers in Shanghai and Shenzhen, as well as in Bonn in
Germany, and Monterrey in Mexico.
IKEA. IKEA is a Swedish home-furnishings retailer, selling disassembled furniture in
boxes that make shipping and handling more efficient and cheaper. It generated $15.5
billion in sales in 2004, and is the seventh largest importer to the U.S. (JoC 5/30/05,
p.28A). Its imports are growing rapidly, as can be seen from Table 4.1.
3
Those of us who have participated in the anti-sweatshop movement have run into this problem in a big
way. Garment manufacturers and retailers are secretive about where their factories are located, making it
very difficult to track lines of responsibility for abysmal working conditions. One of the major demands of
the movement has been “transparency,” calling for garment TNCs to reveal the names and locations of their
contractors.
21
Nike Inc. Nike is a brand manufacturer that does not actually manufacture anything. It
designs, advertises, and markets its high-priced shoes and apparel and arranges for their
production. “The company uses a complex network of contract manufacturers
throughout Asia and Latin America to assemble its footwear, and supply its global
markets with the hottest items at the right price, just in time.” Since 1997, China has
become a growing location for sourcing, as well as an up-and-coming market for Nike
products. “Mastery of logistics on a massive scale is as much a key to Nike’s continuing
profitability as its low-cost sources of supply. Nike’s two warehousing operations near
Memphis have a combined 2.23 million square feet of space, and 34 miles of conveyor
belts” (JoC 5/30/05 p.32A).
Not only is Nike a manufacturer; it is also a retailer, operating 15 Niketowns and more
than 80 Nike Factory Stores, as well as two boutiques. This is not untypical of major
branded manufacturers of this sort.
Mattel Inc. Mattel is the largest toy manufacturer in the United States. It designs its
products in El Segundo, California, but manufactures most of its toys overseas, mainly in
Asia. It owns some of its offshore plants, but also contracts out much of the work. Says
the Journal of Commerce:
The outsourcing of toy manufacturing to Asian vendors is popular as it pushes
much of the risk to third parties in a fashion-like industry where the tastes of
children can change without warning and inventories can suddenly become
worthless. In choosing contract manufacturers, toy companies look for the ability
of the overseas vendor to ramp up production quickly to meet demand for
promotional or seasonal toys. Vendors must charge a competitive price and be
able to move the toys to market quickly. This scenario is especially evident in
promotional toys tied to the release of movies or television shows” (JoC 5/30/05
p.34A).
Mattel’s success depends, in part, on its tight supply chain. It has been able to provide
large volumes of toys for the US market from offshore on a JIT basis, making use of
import distribution centers. Given that the toy industry is highly seasonal, the company
develops a close relationship with its transportation providers to ensure good coverage
during the peak shipping season in the fall.
Shipper Organizations
Shippers are organized in a number of ways. Smaller shippers (and larger on occasion)
sometimes form Shippers’ Associations for the purpose of gaining strength in numbers.
They are non-profit organizations that band together around various points of
commonality, such as region or commodity, but some are open to anyone. By combining
in this way, they can get better rates for transportation (Bonney 8/13/01).
Among the biggest are the Streamline Shippers Association, which specializes in imports
from China, Japan, Korea and Southeast Asia, and the Wine and Spirits Shippers
22
Association. They are among the dozen largest importers to the U.S. There is an
American Institute of Shippers Associations (AISA) which brings them together. The
Journal of Commerce provides a list of them (8/13/01 pp.16-19). To give a flavor of the
kinds of commodity importers that combine in this manner, here are a few examples:
automotive, food, bicycles, chemicals, fashion accessories, footwear retailers, gloves, and
toys. There are also Associations that specialize in the Caribbean, or a region like
Western New York and Southern Ontario, or the Pacific Northwest, and so on.
At another level is the National Industrial Transportation League (NIT League). This is
an organization, primarily of domestic manufacturers, that has been around for decades.
It is the nation’s oldest and largest shippers’ organization, and has played an important
role in shaping U.S. transportation policy. The NIT League has primarily focused on
domestic freight transportation, but it now has formed a sub-group called the Global
Shippers Network which, as the name implies, involves the international trade and
production community.
Retailers have also formed their own organizations. There are two major ones: the
National Retail Federation (NRF), and the Retail Industry Leaders Association (RILA),
which used to be called the International Mass Retailers Association (IMRA). RILA has
retailer, manufacturer, and logistics company members, and tries to coordinate relations
between the two types of companies, as well as represent their mutual interests. It has a
Supply Chain Leaders Council. It puts on an annual Logistics Conference. Here are
some of the companies whose logistics managers sit on the steering committee for the
conference: Family Dollar Stores, Maersk Logistics USA, Target Corporation, Dollar
General Corporation, Wal-Mart Stores Inc, FedEx Services, Lowe’s Companies, United
Parcel Service, Best Buy Co Inc, the Home Depot USA Inc, Exel, and Sears Holding Co.
(www.retail-leaders.org). So we see that some of the biggest mass retailer importers are
among its members.
One of the most important shipper organizations, which focuses especially on the ports, is
the Waterfront Coalition (TWC). It began as the West Coast Waterfront Coalition
(WCWC). Formed in 2001 to deal with the contract negotiations with the ILWU in 2002,
it has since expanded into an organization that deals with shipper concerns regarding port
issues around the country. The key person who pulled it together is Robin Lanier, who
used to work for IMRA. She started the WCWC by calling on her friends and associates,
leading to a heavy representation of big box retailers including, importantly, Wal-Mart.
Here is the way TWC defines its mission:
The Waterfront Coalition is a group of concerned business interests representing
shippers, transportation providers, and others in the transportation supply chain
committed to educate policy makers and the public about the economic
importance of U.S. ports and foreign trade, and to promote the most efficient and
technologically advanced ports for the 21st century (www.portmod.org).
23
The goals of the Coalition are fourfold: to be the unified voice supporting the
implementation of available technology and infrastructure at the ports; to be the main
source of information for supply chain stake-holders, especially BOCs, about the
importance of cooperative efforts to increase port efficiency and security; to be an agent
for change through education, pilot projects, and advocacy; and to educate and
community with the public, the media, and the government about the importance of the
ports.
In sum, TWC is an effort to develop a strong and unified voice, mainly for shippers, to
express their concerns and needs regarding the ports. The organization played an
important role, for example, in advocating for keeping terminal gates open 24/7, in the
face of severe congestion at the ports, and also served to rally shippers to make use of
these extended gate hours. TWC, specifically in its earlier incarnation as the WCWC,
also played an important role in the West Coast ports lockout of 2002, a topic to which
we shall return in Chapter 9. In other words, they are far from neutral with respect to
labor. In a sense, TWC epitomizes the class conflict between the giant retailers and
logistics workers. But this is a story for another later.
Shipper Influence Over Logistics
As we said at the beginning of this chapter, shippers, especially the big shippers, and
among them, particularly the giant retailers, are the actors with most power in the supply
chain. They dictate terms for both their suppliers and their transportation providers. In
Chapter 11 we shall look at one example of this in detail, namely, Wal-Mart Stores Inc.
Here we want to consider, in general, the ways that the big shippers/retailers exercise
control over ocean transportation and its connected logistics systems.
A Journal of Commerce article (Atkinson 2/4/02) describes the mass retailers as “king of
the jungle.” She comments on the rise of Wal-Mart to the top of the Fortune 500, with
sales that exceed the GDP of Denmark, and the importance of retailers among the top
importers. “With that kind of clout, retailers can tell even the biggest manufacturers and
transportation providers when to jump, and how high” [emphasis added]. “They have
used their ever-increasing volume to reduce unit costs for distribution.”
Here is the way another article in the Journal of Commerce (Tirschwell 1/19/04)
describes the relationship between big retailers and ocean carriers:
International transportation plays a central role in retail logistics. Evidence is
found in the way major retailers approach this function. Though they use 3PLs
for many activities such as preparing goods for the store shelf, retailers negotiate
directly with ocean carriers, ensuring that the relationship with an essential vendor
industry is unencumbered by third parties. With imported goods now a staple of
large retailers’ offerings, ocean carriers are critical. Thus has emerged a
partnership relationship that exists in spite of the contentious annual contract
negotiations between carriers and shippers.
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We will be examining these negotiations in more detail in Chapter 6. Here we mainly
want to point out that the rates negotiated between shippers and ocean carriers greatly
affect the earnings throughout the rest of the freight movement system. They set limits
on the price for railroad and truck transportation, because those movements are often
covered by the steamship lines.
There is a mutual dependence between the shippers and the ocean carriers. In the
negotiations, importers allocate an amount of cargo to a carrier, i.e. they commit to a
certain volume of freight. In exchange, the carriers promise them space on the scheduled
vessel, and that their cargo will not be rolled over to a later trip. But this means that the
shipper has to live up to its side of the commitment (Tirschwell 1/19/04).
According to Mongelluzzo (2/4/02), the large retailers dominate ocean shipping rates.
For example, in the footwear industry, four major retailers: Wal-Mart, Payless Shoe
Source, Target and Sears accounted for about 2/3 of footwear imports to the U.S.
Smaller footwear shippers band together in a footwear shippers association, but it is the
retailers who set the standards.
When a Wal-Mart or a Target meets with an ocean carrier, they expect their
volume to command the lowest freight rates. Usually they are right…. Since
volume is so important…. A natural pecking order develops. J.C. Penney, 28th
among U.S. importers with 30,000 TEUs [in 2001]…. expects a good deal from
ocean carriers. “Smaller importers use J.C. Penney as a benchmark,” said Mark
Maleski, international distribution manager. But, he adds, “I don’t expect to get
the same rate as Wal-Mart” (Mongelluzzo 2/4/02).
Conclusion
Shippers are critical actors in global logistics. They are the reason for the growth in
imports. It is their money that pays for global transportation. They sit at the pinnacle of
global logistics, determining what will be made, where it will be produced, how it will be
shipped, and to where. As we have seen, the giant discount retailers are among the most
important shippers, so in the hierarchy of power in international logistics, they tend to be
dominant. The power of these actors sets a context for understanding the logistics system
that we examine in the next chapters.
References
Atkinson, Helen. 2/4/02. “King of the jungle: Mass retailers dictate terms for suppliers
and transportation providers, but inventories still offer huge potential for savings.”
Journal of Commerce pp.9-12.
Bonney, Joseph. 8/13/01. “Strength in numbers: Shippers associations add services, gain
acceptance by carriers.” Journal of Commerce pp.10-14.
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Damas, Philip. 7/05. “Solving China’s logistics paradox: Despite it manufacturing edge,
China presents idiosyncratic logistics and business problems.” American Shipper pp.1016.
Esbenshade, Jill. 2004. Monitoring Sweatshops: Workers, Consumers, and the Global
Apparel Industry. Philadelphia: Temple University Press.
Field, Alan M. 8/1/05. “Leaping before they look: Survey says many multinationals are
still learning how to profit from sourcing in low-cost countries.” Journal of Commerce
pp.18-22.
Kahn, Gabriel. 9/11/03. “Made to measure: Invisible supplier has Penney’s shirts all
buttoned up—From Hong Kong it tracks sales, restocks shelves, ships right to the store—
Inside a ‘radical’ power shift.” Wall Street Journal A1.
__________. 8/13/04. “Making labels for less: Supply-chain city transforms far-flung
apparel industry; help for ‘the button guy.’” Wal-Street Journal B1.
Leach, Peter T. 5/30/05. “Paper tiger: Wastepaper exports, retail imports dominate Top
100 statistics.” Journal of Commerce pp.4A-5A.
Mongelluzzo, Bill. 2/4/02. “Clout counts: Big shippers still set the benchmark for most
rates in ocean transportation.” Journal of Commerce p.12.
Salisbury, Marsha. 4/29/02. “A note on the lists.” Journal of Commerce, p.6A.
Selvin, Molly. 9/14/05. “Wal-Mart faces suit by labor group.” Los Angeles Times C3.
Tirschwell, Peter M. 1/19/04. “Demanding, exacting, uncompromising: Retailers raise
the bar on logistics performance.” Journal of Commerce pp.14-17.
United Nations Conference on Trade and Development (UNCTAD). 2005. TNCs and
the Removal of Textiles and Clothing Quotas. New York and Geneva: United Nations.
Varley, Pamela (ed). 1998. The Sweatshop Quandary: Corporate Responsibility on thr
Global Frontier. Washington, DC: Investor Responsibility Research Center.
Interviews
Bauss, Rose. 8/6/01. Toyota.
DeCesare, Jon. 7/1/04. Logistics consultant.
Hodges, Johnny. 7/19/04, 8/11/04. Manager of Order Fulfillment, Texas Instruments.
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Kahn, Gabe. 9/1/04. Wall Street Journal reporter, located in Rome at the time of the
phone interview.
Lanier, Robin. 6/14/04. Director, Waterfront Coalition.
Mongelluzzo, Bill. 12/20/01. Reporter, Journal of Commerce
Snyder, Donald B.
Manager, Import/Export/Global Logistics, Mattel Inc.
Stephens, Dale. 6/24/04. Traffic Manager, Costco.
Suchomel, Kim. 6/30/04. Vice President, Costco.
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