Pirate Busters - American Shipper

Trade forecast 2009: Supply Chain Management www.americanshipper.com/TF 

OCTOBER 2009 

P irate 

Busters 

Are private security 

contractors the best 

form of vessel 

protection? 

www.americanshipper.com 

Africa rising 8 

Do-it-yourself compliance 21 

Lines face troubled waters 36 

A heartland heart attack? 40

SO HOW DID THEY GET THERE? 

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– BUT NOT FOR ACL. WE MEET THE CHALLENGE EVERY TIME WITH THE RIGHT 

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WINDMILL WINGS WERE DRIVEN DIRECTLY ONTO ACL’S RORO/CONTAINERSHIP 

FOR THE OCEAN VOYAGE. WE HANDLED ALL OF THE INLAND TRANSIT DETAILS 

INCLUDING SPECIAL OVER-THE-ROAD PERMITS, AND DELIVERED THE WINGS 

SAFELY TO THEIR FINAL DESTINATION. 

FOR CONTAINERS AND COMPLEX RORO SHIPMENTS, CALL ACL. WE ALWAYS 

OFFER EASY SOLUTIONS TO DIFFICULT TRANSPORT PROBLEMS. 

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www.ACLcargo.com 

RORO and Container Service to Europe, West Africa, Mediterranean and The World.

Vol. 51, No. 10 

October 2009 

r+ 

American Shipper 

TRADE FORECAST 2009 

Positioning supply chain for recovery 

American Shipper’s trade forecast program 

continues with research from TranSystems. 

An executive summary appears on page 6. 

To read the full report — and all Trade 

Forecast 2009 research reports — go to: 

www.AmericanShipper.com/TF 

LOGISTICS 8 

Nurturing South African ties 12 

Safmarine serves its long-time base. 

Choice assignment 16 

Hitachi unit relies on critical parts 3PL. 

Giving degrees of freedom 17 

Deep’s temperature is at a boil. 

Shippers’ IT 18 

Technology is the asset. 

FORWARDING/NVOs 20 

It’s in the import data. 

Do-it-yourself compliance 21 

U.S. Customs, industry bullish on BSA trial. 

TRANSPORT/AIR 24 

Battle over batteries. 

Security flight plan 26 

COAC, DHS tackle redundant air regs. 

TRANSPORT/OCEAN 28 

Rate increases seem like fuzzy math. 

TRANSPORT/INLAND 40 

In the depths 42 

Hydrokinetic power plants, barges coexist. 

PORTS 44 

Floating an intermodal option 

Trucking alternative to Oakland, Stockton. 

DEPARTMENTS 

Comments & Letters 2 

LETTER: ‘Reliability issue is always No. 1’ 

... Time for a little saber rattling. 

The Strategic View 17 

Shippers’ Case Law 45 

The fi sh (oil) that got away. 

Corporate Appointments 46 

On Second Thought ... 47 

How bad is it, really? 

Editorial 48 

Vulnerable middle. 

On the Cover 

Pirate busters 30 

Pirate attacks on commercial vessels 

in the Gulf of Aden and near Somalia 

are expected to spike again at the end 

of the monsoon season. Some vessel operators 

are turning to private security contractors. 

But is that the best form of protection? 

+ 

American Shipper exclusive Web content 

Commentary Study needed better balance. 

Rent-a-navy Yemen offers protection — for a fee. 

Beware of dog! SEAL security goes to dogs. 

Piracy sparks insurance plunder Premiums 

rise due to increased attacks, security requirements. 

Africa rising 8 

U.S. trade with Sub-Sahara Africa has increased 

sharply this decade, with imports quadrupling 

since 2001 and exports doubling in the same period. 

U.S. trade has been bolstered by the African Growth 

and Opportunity Act, which benefits about 

40 nations. But Africa has taken a hit in the global 

economic crisis — how severe and long-lasting 

an impact is anyone’s guess. 

Troubled waters 36 

From Haifa to Valparaiso to Hamburg, some 

of the most famous names in ocean shipping 

are severely teetering, as Zim, CSAV and Hapag-Lloyd 

fight for their lives. As these multibillion-dollar 

brands have swiftly been placed in peril, their 

shareholders are being asked to retain faith 

in their business models. 

Avoiding a heartland heart attack 40 

The U.S. inland watwerays system comprises vital 

commercial arteries for some of the country’s 

biggest shippers by volume. However, locks 

and dams throughout the 12,000-mile system — 

many built in the 1930s and 1950s — are in desperate 

need of modernizing. “It’s a ticking time bomb,” 

warns one industry official. 

American Shipper+ 

content available at www.AmericanShipper.com/web 

AMERICAN SHIPPER: OCTOBER 2009 1

‘Reliability issue is always No. 1’ 

I read with interest the letter to the editor, “Who gets the booking when rate is the 

same?” (September American Shipper, page 6, by Peter Spiller, president, Florida 

Shipowners Group Inc.). While I agree that personal knowledge of the individual with 

whom you are dealing is important, numerous market surveys over 

the years have revealed that there are basically five reasons why 

people chose carriers they do (assuming that the freight rates are 

relatively comparable): 

• Reliability. Do exactly what you say you’ll do. If you say 

it’s a 12-day transit time, do it in 12 days. If you say 25 spaces 

per vessel, give 25 spaces. Shippers can plan with reliable services 

and that is paramount to selecting a carrier. 

• Total transit time. It’s nice to know your ship goes from 

point A to point B in five days, but my cargo moves from point X to point A, B, and 

Z, and in there are port/terminal delays, etc. So what is the actual total transit time 

from the real origin to the real destination? 

• Equipment. Give me the number of clean, serviceable pieces of equipment 

that I need, when and where I need them. 

• Customer Service. Give me access to a single point of contact where I can 

get all questions and problems resolved (either by phone or Internet); answers to all 

of my service questions quickly and correctly; and respond to and resolve all my 

problems quickly without repeating them. 

• Documentation. Give me accurate and timely finalized documentation. 

The reliability issue is always No. 1 in any market survey on “how we chose a carrier.” 

The other four reasons will change in rank from time to time, but they remain 

the same. If you are the shipper’s closest friend and have competitive rates, but have 

an unreliable service, you won’t keep the freight for long. 

At Sea-Land, I headed the centralization of customer service and documentation 

in the United States from 1992 to 1996 when we reduced those functions from 13 

locations to Dallas. We initially took a lot of flack, especially from freight forwarders 

who said “I used to be able to talk to Sally in your X office and get answers 

immediately. Now I call someplace in Texas and get someone who I don’t know and 

who doesn’t know me.” Over time, better service — we went from a 5 percent error 

rate in documentation to less than 1 percent and got our bills of lading back to the 

customers in less than 24 hours 96 percent of the time — softened those responses. 

However, when Maersk Line benchmarked us and tried to centralize initially in 

1997, the carrier got so much flack that it backed away from the concept for years. 

Now Maersk does it all from India and the error factors are terrible, but the costs are 

so attractive that the carrier can live with it. By the way, the Sea-Land project in the 

United States saved the company $21 million a year after about four years in place. 

Gary Ferrulli 

principal, Global Logistics & Transport Consulting LLC, 

Chandler, Ariz. 

Time for a little saber rattling 

CMA CGM founder and Chairman Jacques Saadé’s call for government protection 

of Europe’s three major container lines in early September whipped up a bit of 

controversy. 

Saadé, speaking at a meeting of the French employers’ federation Medef, blasted 

regulations on liner carriers that went into effect in 2008, preventing them from meeting 

to collectively decide rates and capacity. He said the decision to end an antitrust 

2 AMERICAN SHIPPER: OCTOBER 2009 

CEO 

Publisher 

Editorial 

Sales 

Hayes H. Howard 

Jacksonville (904) 355-8217 

Jim Blaeser 

New York (212) 464-8394 

Christopher Gillis, Editor 

Washington (202) 470-6082 

Gary G. Burrows, Managing Editor 

Jacksonville (904) 355-2601, ext. 14 

Eric Kulisch, Associate Editor 

Washington (703) 723-2833 

Eric Johnson, Associate Editor 

New Delhi (U.S.) (562) 366-4384 

Chris Dupin, Associate Editor 

New York (201) 984-3108 

Stephen Fontanella, Sales Manager 

(978) 807-4384 

Advertising Melodie Crites, Adv. Prod. Manager 

Production Jacksonville (904) 355-2601, ext. 13 

Art 

Joan Main, Art Director 


Shipping Francis Phillips 

Research London +44 (0) 1252 545333 


Stephen B. Wynn 

Randall Register 

Kim Williams 

Robert King 

Edward Howard 

Jordan E. Yates 

Circulation Karyl DeSousa (904) 355-2601, ext. 11 

Kerry Cowart 


Web/Tech Kathy Houser 

Support Jacksonville (904) 355-2601, ext. 20 

e-mail American Shipper staff from 

www.AmericanShipper.com/ 

company/contactus 

Vol. 51 No. 10 October 2009 

American Shipper is published monthly. Published 

on the 15th of each preceding month by Howard 

Publications, Inc., 300 W. Adams St., Suite 600, P.O. Box 

4728, Jacksonville, Florida 32201. Periodical postage 

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Copyright © 2009 Howard Publications, Inc. 

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Every Shipment 

Belongs To 

Someone. 

There’s more than freight inside 

a container. It’s your business. 

That’s why we pay attention and 

work hard to ensure on time, 

cost-effective and trouble-free 

service. Because you’ve got 

your livelihood riding on every 

shipment. So trust us with 

your Hawaii, Guam or global 

ocean and air freight needs. 

When it comes to quality 

service, we put our good 

name behind yours. 

Dependable. 

From Start to Finish. 

Toll Free (800) 488-4888 

www.dhx.com 

Member—World Cargo Alliance 

*ISO 9001: 2000 Certified 

Toll Free (888) 488-4888 

www.dgxshipping.com 

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*ISO 9001: 2000 Certified 

C-TPAT Validated 

Toll Free (800) 700-385 8 

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Part of The Dependable Companies group. 

DGX, DAX, & DHX – Dependable Hawaiian Express, Dependable Global Express & 

Dependable Air Cargo Express & the color combination of purple and magenta are the trademarks 

of DHX – Dependable Hawaiian Express or its affiliated companies.

exemption for carriers combined with the global economic crisis has created an 

uneven playing field for carriers in Europe versus their Asian rivals. 

He added that European governments need to redress the balance, noting that carriers 

based in Asia were gaining unfair advantages from a relative lack of regulation. 

“I call on the competent authorities — banks and public bodies — to protect the 

three big European maritime companies and ensure the survival of the maritime 

sector in Europe,” he said at the meeting, as reported first by Lloyd’s List Sept. 4 

and then by international news outlets shortly afterward. 

Representatives from the Danish Shipowners’ Association and the European Shippers’ 

Council, however, responded quickly to the riposte from Saadé, with the ship 

owners suggesting that individual European governments shouldn’t be automatically 

compelled to use taxpayer money to save struggling lines. The ESC told Lloyd’s 

List Sept. 7 that the goal of governments worldwide should be to bring their liner 

regulations in line with those in Europe, not to erode the EU ban on conferences. 

The Danish Shipowners’ Association, in a Reuters report Sept. 8, pointed out 

that expecting governments to provide guarantees for big lines could also create an 

unlevel playing field within Europe — if, for instance, the French government were 

to back CMA CGM, but the Danish government were to balk at doing the same for 

Maersk Line. 

And one need not even use a hypothetical, since the German government and 

the City of Hamburg are expected to sign off this month on more than $1 billion 

in guarantees for German line Hapag-Lloyd. 

Saadé’s comments come at a time when he is clearly frustrated at the battering 

his line and his industry have taken the past year. The block on liner conferences 

coincided almost sadistically with the beginning of the global economic meltdown. 

But it’s also a hard position for Saadé to justify, given that Europe’s three biggest 

lines (Maersk, Mediterranean Shipping Co. and CMA CGM) are far and away the 

three biggest in the world, and growing. They’ve all spent massive amounts on new 

ships in recent years, trumping the most ambitious growth plans of any of their 

rivals. The three lines have also collaborated on a handful of services in the last 

two years, showing that carriers are not exactly operating in silos. 

His comments that lines in Asia are receiving preferential treatment also rings 

a little hollow since they have been affected by the same anti-conference regulations 

on the Asia/Europe trade as Europe’s big lines have. On the transpacific and 

transatlantic, the U.S. Ocean Shipping Reform Act affects carriers equally as well. 

Perhaps Saadé was referring to intra-Asia routes, where indeed there is little if 

any regulation, and where Europe’s big three are increasingly training their focus. 

Or perhaps he just needed to vent some steam after a brutal year. (Eric Johnson) 

Hazmat politics heats up 

A senior House lawmaker wants a U.S. Transportation Department agency responsible 

for regulating the transport of hazardous materials to end its perceived 

“cozy” relationship with the industry. 

“It appears that complacency and neglect permeate the culture of the Pipeline 

and Hazardous Materials Administration (PHMSA),” said House Transportation 

and Infrastructure Committee Chairman James Oberstar, in his opening statement 

during a hearing on Sept. 10 into concerns with transporting hazardous materials. 

“It seems PHMSA has become misguided in its mission,” he added. “The PHMSA 

culture appears plagued by a belief that the agency should make things as easy as 

possible for the industry it should be regulating.” (Chris Gillis) 

Correction 

In the recent Who’s Making Money (September American Shipper, pages 40-43), 

Hong Kong-based ocean carrier OOCL’s revenue, operating profit and profit margin 

were incorrectly reported. The numbers given in the report were group revenue, operating 

profit and profit margin for OOCL’s parent OOIL. In 2008, OOCL’s container transport 

division had revenue of $6.503 billion, operating profit of $392 million and a profit 

margin of 6 percent. Of note, the corrected figures move OOCL up one place in both 

the operating profit and profit margin rankings, taking them to No. 4 in operating profit 

(ahead of Hapag-Lloyd) and to No. 2 in profit margin (slightly ahead of “K” Line). 


Corporate Offices 

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Jacksonville, FL 32201 

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New York, N.Y. 10014 

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16 Blunden Road 

Farnborough, Hampshire 

GU14 8QJ UK 

New Delhi 

Editorial Board 

Brian Amero 

corporate trade compliance manager, 

Teradyne Inc. 

Chris Antoniou 

vice president of global supply chain 

management, Interstate Batteries 

Timothy D. Brotzman Sr. 

manager of international transport 

and DG compliance, 

McCormick & Co. Inc. 

Joseph Burks 

director of logistics, 

Cooper Wiring Devices Inc. 

Brenda Chenault 

import/export compliance consultant, 

Wyeth 

Joseph L. De La Luz 

general manager, trade compliance, 

NEC Corp. of America 

David Fisher 

global logistics leader, 

Johns Manville 

Rick Gabrielson 

director of international transportation, 

Target 

Geoffrey N. Giovanetti 

managing director, 

Wine and Spirits Shippers Association 

John T. Joseph 

senior manager of international 

transportation, Limited Brands 

Maryanna Kersten 

internal compliance program manager, 

global customs operations, 

Hewlett-Packard Co. 

Richard W. Macomber 

chairman of air transportation 

committee, National Industrial 

Transportation League 

(562) 366-4384 (U.S. number) 

Letters to Editor/Press Releases 

American Shipper welcomes letters from readers. 

All letters become the property of American Shipper, 

which reserves the right to edit them. Include your 

name, position and company affiliation (if applicable), 

location, a daytime telephone number and e-mail 

address. E-mail letters to: letters@shippers.com 

Press releases are welcome and may be e-mailed 

to: releases@shippers.com

A FIRM HAND 

AT THE HELM 

Mediterranean Shipping Company 

holds fast and firm at the helm on the 

ever-changing and often turbulent 

seas of global container shipping. 

Seasoned and wise, with decades of 

experience in logistical shipping, MSC 

has fostered client and executive loyalty 

that have steered them straight ahead 

to a top position in the industry. 

Through tradition, hard work, high energy, 

informed decisions and solid leadership – 

MSC stands firmly at the helm. 

as agents for MSC Mediterranean Shipping Company S.A . 

(212) 764-4800, NEW YORK 

www.mscgva.ch 

ATLANTA 

770-953-0037 

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305-477-9277 

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410-631-7567 

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704-357-8000 

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847-296-5151 

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242-351-1158 

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440-871-6335 

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714-708-3584 

VANCOUVER, CAN 

604-685-0131

Trade Forecast 2009 

Armageddon or Schumpeter redux? 

Positioning your supply chain for recovery 

EXECUTIVE SUMMARY 

Though many have 

quarreled with (or 

misinterpreted) some 

of the conclusions reached in 

Joseph Schumpeter’s 1942 

book Capitalism, Socialism 

and Democracy, few would 

deny his title to the concept 

of evolutionary creative destruction 

and its impact upon 

corporate demise, resiliency 

and survival throughout the 

past century. 

One need only look at the 

companies listed as components 

of the Dow Jones 

Industrial Average over the 

New orders/shipments 

40% 

30% 

20% 

10% 

10% 

20% 

30% 

40% 

Sources: U.S. Department of Commerce, Global Insight, Material Handling Industry of America, 2009 

last 100 years to confirm the hypothesis. Schumpeter argued that 

entrepreneurs are the critical change agents whose challenges to 

status quo fuel and refuel economic growth. 

If ever there were a time for entrepreneurship, it would seem to 

be now. Our intent here is to take stock of where we are, assess 

the impact and issue a clarion call for proactive entrepreneurship 

to cut our losses, improve current performance and better position 

our organizations for accelerated recovery when the tide turns. 

Underestimates of the economic downturn’s impact on supply 

chain infrastructure have left a landscape of overcapacity, cancelled 

or deferred projects, and mothballed ships, trucks, warehouses and 

distribution centers across the country. 

• The Council of Supply Chain Management Professionals’ 2009 

State of Logistics Report puts the numbers in perspective. With a 

7.8 percent decline in industrial production in 2008, logistics costs 

as a percentage of gross domestic product dropped 3.5 percent to 

$1.3 trillion. CSCMP said the trend, which has devastated many 

service and equipment providers, will continue through 2009 and 

is unlikely to see a major correction before at least mid-2010. 

• U.S. freight transportation has stalled at its lowest level since 

1997, according to the U.S. Department of Transportation’s Bureau 

of Transportation Statistics. Total import volume at major U.S. ports 

is now expected to be 12.3 million TEUs for 2009, an 18.8 percent 

decline from 2008’s 15.2 million TEUs. 

• On the warehousing side of the equation, CB Richard Ellis 

said the national vacancy rate reached 10.2 percent at the end of 

June 2009, the highest since the second quarter of 2004. 

• Material handling suppliers have also been hit hard by the 

downturn. The Material Handling Industry of America reports 

that new orders for the first half of 2009 dropped 44.9 percent 

compared to the 2008 period, but forecasts the decline will slow 

in the second half, bringing the year-end total decline to about 35 

percent. Another 5 percent to 10 percent drop is expected in 2010 

with a return to growth in early 2011. 

0% 

Mar-00 

Sep-00 

Material handling equipment manufacturing 

forecast 2009-2010 vs. GDP 

Mar-01 

Sep-01 

Mar-02 

Sep-02 

Mar-03 

Sep-03 

Mar-04 

Sep-04 

Mar-05 

Sep-05 

Mar-06 

Sep-06 

Mar-07 

Sep-07 

Mar-08 

Sep-08 

Mar-09 

Sep-09 

Mar-10 

Sep-10 

Mar-11 

Sep-11 

We are not going to be rescued by another housing boom or the 

surge in consumer spending that took the Dow Jones Index above 

14,000 in October 2007. Further, “bailout” support is an unlikely 

option for any organization without a fairy godmother. 

What are the alternatives? “Waiting it out” is not an option; 

rather, it’s a prescription for potentially irrecoverable loss of market 

position — or worse. 

A corollary to Schumpeter’s creative destruction theorem, from 

Robert Simons of Harvard Business School, states that “the right 

of any corporation to exist is not perpetual, but has to be continuously 

earned.” Accordingly, whether it’s “thinking out of the box” 

or breaking it when it’s not broken, it’s time for us to do some 

entrepreneurial head clearing and take an innovative, bold but 

measured approach to assessment of how best to leverage the hidden 

opportunities within the current economic landscape. Given 

the latter, leadership should focus on gaining buy in and support 

from all employees by clearly articulating the challenges — and, 

collaboratively building and implementing action plans that address 

them showing specifically how individual performance impacts 

results — and then broadcasting actual results on a daily, if not 

hourly basis and explaining what has to be done to stay on target. 

Although the light at the end of your economic tunnel may only 

be a firefly today — regardless of where you are in the business 

cycle — there is no time like the present for fine-tuning strategies 

and action plans to be ready to charge out of the gate when the bell 

rings. In fact, if your industry lags those that appear to be bottoming 

out and on the way back up, there are still opportunities to batten 

the hatches, increase efficiencies and control costs to facilitate the 

recovery process. And, there’s good evidence that many organizations 

have already started. 

The balance of this article will focus upon how close examination 

of supply chain options can produce the short and longer-term benefits 

that sustain and differentiate world class corporate performers 

in good times and bad. 

Register and download the report at AmericanShipper.com/TF 


Annual Rate of Change 

MH New Orders 

GDP Nominal +3Q 

MH Shipments 

Forecast 

8% 

6% 

4% 

2% 

0% 

-2% 

-4% 

GDP four quarter percent change

Trade Forecast 2009 

Armageddon or Schumpeter redux? 

Positioning your supply chain for recovery 

EXECUTIVE SUMMARY 

Though many have 

quarreled with (or 

misinterpreted) some 

of the conclusions reached in 

Joseph Schumpeter’s 1942 

book Capitalism, Socialism 

and Democracy, few would 

deny his title to the concept 

of evolutionary creative destruction 

and its impact upon 

corporate demise, resiliency 

and survival throughout the 

past century. 

One need only look at the 

companies listed as components 

of the Dow Jones 

Industrial Average over the 

New orders/shipments 

40% 

30% 

20% 

10% 

10% 

20% 

30% 

40% 

Sources: U.S. Department of Commerce, Global Insight, Material Handling Industry of America, 2009 

last 100 years to confirm the hypothesis. Schumpeter argued that 

entrepreneurs are the critical change agents whose challenges to 

status quo fuel and refuel economic growth. 

If ever there were a time for entrepreneurship, it would seem to 

be now. Our intent here is to take stock of where we are, assess 

the impact and issue a clarion call for proactive entrepreneurship 

to cut our losses, improve current performance and better position 

our organizations for accelerated recovery when the tide turns. 

Underestimates of the economic downturn’s impact on supply 

chain infrastructure have left a landscape of overcapacity, cancelled 

or deferred projects, and mothballed ships, trucks, warehouses and 

distribution centers across the country. 

• The Council of Supply Chain Management Professionals’ 2009 

State of Logistics Report puts the numbers in perspective. With a 

7.8 percent decline in industrial production in 2008, logistics costs 

as a percentage of gross domestic product dropped 3.5 percent to 

$1.3 trillion. CSCMP said the trend, which has devastated many 

service and equipment providers, will continue through 2009 and 

is unlikely to see a major correction before at least mid-2010. 

• U.S. freight transportation has stalled at its lowest level since 

1997, according to the U.S. Department of Transportation’s Bureau 

of Transportation Statistics. Total import volume at major U.S. ports 

is now expected to be 12.3 million TEUs for 2009, an 18.8 percent 

decline from 2008’s 15.2 million TEUs. 

• On the warehousing side of the equation, CB Richard Ellis 

said the national vacancy rate reached 10.2 percent at the end of 

June 2009, the highest since the second quarter of 2004. 

• Material handling suppliers have also been hit hard by the 

downturn. The Material Handling Industry of America reports 

that new orders for the first half of 2009 dropped 44.9 percent 

compared to the 2008 period, but forecasts the decline will slow 

in the second half, bringing the year-end total decline to about 35 

percent. Another 5 percent to 10 percent drop is expected in 2010 

with a return to growth in early 2011. 

0% 

Mar-00 

Sep-00 

Material handling equipment manufacturing 

forecast 2009-2010 vs. GDP 

Mar-01 

Sep-01 

Mar-02 

Sep-02 

Mar-03 

Sep-03 

Mar-04 

Sep-04 

Mar-05 

Sep-05 

Mar-06 

Sep-06 

Mar-07 

Sep-07 

Mar-08 

Sep-08 

Mar-09 

Sep-09 

Mar-10 

Sep-10 

Mar-11 

Sep-11 

We are not going to be rescued by another housing boom or the 

surge in consumer spending that took the Dow Jones Index above 

14,000 in October 2007. Further, “bailout” support is an unlikely 

option for any organization without a fairy godmother. 

What are the alternatives? “Waiting it out” is not an option; 

rather, it’s a prescription for potentially irrecoverable loss of market 

position — or worse. 

A corollary to Schumpeter’s creative destruction theorem, from 

Robert Simons of Harvard Business School, states that “the right 

of any corporation to exist is not perpetual, but has to be continuously 

earned.” Accordingly, whether it’s “thinking out of the box” 

or breaking it when it’s not broken, it’s time for us to do some 

entrepreneurial head clearing and take an innovative, bold but 

measured approach to assessment of how best to leverage the hidden 

opportunities within the current economic landscape. Given 

the latter, leadership should focus on gaining buy in and support 

from all employees by clearly articulating the challenges — and, 

collaboratively building and implementing action plans that address 

them showing specifically how individual performance impacts 

results — and then broadcasting actual results on a daily, if not 

hourly basis and explaining what has to be done to stay on target. 

Although the light at the end of your economic tunnel may only 

be a firefly today — regardless of where you are in the business 

cycle — there is no time like the present for fine-tuning strategies 

and action plans to be ready to charge out of the gate when the bell 

rings. In fact, if your industry lags those that appear to be bottoming 

out and on the way back up, there are still opportunities to batten 

the hatches, increase efficiencies and control costs to facilitate the 

recovery process. And, there’s good evidence that many organizations 

have already started. 

The balance of this article will focus upon how close examination 

of supply chain options can produce the short and longer-term benefits 

that sustain and differentiate world class corporate performers 

in good times and bad. 

Register and download the report at AmericanShipper.com/TF 


Annual Rate of Change 

MH New Orders 

GDP Nominal +3Q 

MH Shipments 

Forecast 

8% 

6% 

4% 

2% 

0% 

-2% 

-4% 

GDP four quarter percent change

Africa Rising 

Helping continent’s Sub-Saharan region reach its 

potential through world trade and development. 

BY CHRIS DUPIN 

U.S. trade with Sub-Sahara Africa has increased 

sharply this decade, with imports quadrupling 

since 2001 to more than $86 billion in 2008 and 

exports doubling in the same period to $18.6 billion. 

Last year U.S. exports to Africa rose 29.2 percent over 

2007 and imports were up 27.8 percent. 

Globally, the World Trade Organization said last year 

African exports increased 29 percent to $561 billion, and 

imports rose 27 percent to $466 billion. 

The increases reflect basic commodity 

and mineral exports, but also a surge in 

imported consumer goods, said Hans-Ole 

Madsen, vice president for business development 

at APM Terminals in the Africa, 

Middle East and India region. 

“Trade is a critical platform for Africa’s 

economic growth,” said Secretary of State 

Hillary Clinton in an August speech in 

Nairobi, Kenya. “Today, Africa accounts 

for 2 percent of global trade. If Sub-Saharan 

Africa were to increase that share by only 1 

percent, it would generate additional export 

revenues each year greater than the total 

amount of annual assistance that Africa 

currently receives.” 

Trade with the United States has been 

bolstered by the African Growth and Opportunity 

Act (AGOA), a 2000 law that 

allows about 40 Sub-Saharan Africa nations 

to export qualifying goods to the United 

States without import duties. 

But in the past year Africa has taken a 

hit from the global economic crisis. A June 

report from the United Nations Economic 

Commission for Africa warned: “eight 

years of economic growth in Africa could 

be entirely consumed by the current global 

downturn.” It forecast that “following half a 

decade of above 5 percent economic growth 

the continent can expect only 2.8 percent in 

2009, less than half the 5.7 percent expected 

before the crisis.” 

How severe or long lasting an impact that 

will have on trade and shipping volumes 

is not yet clear. 

“The most striking impact of the crisis 

has been the reduction in export revenues. 

Prices of minerals and oil have stumbled 

and consequently it has reduced revenue 

for African countries, especially from oil, 

but also copper and agricultural items as 

well,” said Dominique Lafont, executive 

vice president for Africa at Bolloré Africa 

Logistics. 

An arm of a French conglomerate involved 

in everything from broadcasting to 

the manufacture of batteries and capacitors, 

Bolloré Africa Logistics has operated in 

Hillary Clinton 

U.S. Secretary 

of State 

“Trade is a critical 

platform for Africa’s 

economic growth.” 

8 AMERICAN SHIPPER: OCTOBER 2009

LOGISTICS 

Africa for 50 years and employs nearly 

20,000 people in 41 countries. With 6,000 

trucks, 64 million square feet of warehouse 

space, and operations in eight ports, it said 

it has the largest stevedoring and logistics 

network on the continent. In the United 

States, Bolloré is represented by its sister 

company SDV International Logistics. 

Besides reduced export revenues, Lafont 

said, “the second impact has been the reduction 

of foreign investment. Some projects 

have been cancelled, other projects have 

been postponed, and also competition over 

current projects has reduced. And the most 

developed country on the continent, South 

Africa, has also slowed down.” 

The global recession has not had as 

much impact on import volumes in lesserdeveloped 

countries. “Demand is largely 

for basic products and less vulnerable to 

the crisis,” he explained. 

Maersk Line said its first half volumes 

on Africa routes fell 14 percent. Volumes 

at affiliate Safmarine were flat. (Safmarine 

has some activity on east/west routes, but 

Africa-related activities are by far the 

majority of its business.) 

Stephen Hayes 

president, 

Corporate Council 

on Africa 

“Once you take energy 

out of the equation, even 

South Africa is a larger 

investor in the West 

of Africa than the U.S.” 

“Between us and our big brother, we 

probably have 40-45 percent of the West 

African market,” said John Boudreau, 

president of Safmarine Inc., Maersk’s U.S. 

arm. “In some countries Maersk is bigger, 

some countries Safmarine is bigger.” 

U.S. TRADE WITH SUB-SAHARAN AFRICA 

(Export, import values in $ millions) 

Despite its growth, U.S.-Africa trade 

has been a disappointment to some. It is 

still dominated by oil and a small number 

of other commodities, and most trade is 

concentrated with a few countries. 

Sub-Saharan Africa accounted for slightly 

more than 3 percent of U.S. merchandise 

imports. Petroleum products dominate, 

accounting for about 81 percent of total 

U.S. imports from Sub-Saharan Africa. 

As a result, big oil producers Nigeria and 

Angola account for nearly two-thirds of 

U.S. imports. Congo, Chad, Equatorial 

Guinea and Gabon are other large African 

oil exporters to the United States. 

South Africa accounted for 11.6 percent 

of U.S. imports from Africa in 2008. Among 

the major commodities from South Africa, 

platinum and diamond imports declined 

while vehicles, iron and steel were up. 

Leading U.S export commodities to 

Sub-Saharan Africa include motor vehicles, 

oilseeds and grain, petroleum and coal 

products, aircraft and parts, oil and gas 

machinery, and construction equipment. 

Most of the U.S. imports from Sub- 

Saharan Africa, including oil, are eligible 

U.S. Exports 

U.S. Imports 

2.4% 

3.3% 

4.6% 

21.5% 

10.9% 

22.2% 

35.1% 

South Africa 

Nigeria 

Angola 

Benin 

Ghana 

Kenya 

Other 

2.6% 

3.9% 5.9% 

3.9% 

5.9% 

11.6% 

22.0% 

44.2% 

Nigeria 

Angola 

South Africa 

Congo 

Equatorial 

Guinea 

Chad 

Gabon 

Other 

Item 

Value 

Motor vehicles $2,204.4 

Oilseeds & grains $1,617.4 

Petroleum & coal products $1,403.8 

Aircraft, engines, & parts $1,358.7 

Oil & gas field machinery & equipment $1,344.2 

Construction machinery $1,142.4 

Other general purpose machinery 1 $596.4 

Industrial chemicals $447.0 

Navigational, measuring, 

$427.7 

electromedical & control instruments 

Grain and oilseed milling products $426.6 

Communications equipment $394.1 

Item 

Value 

Oil (crude & non-crude) $71,208.2 

Platinum $2,966.9 

Motor vehicles and parts $1,932.7 

Diamonds $1,572.7 

Iron and steel $1,235.9 

Woven & knit apparel $1,151.5 

Ores, slag, & ash $896.8 

Cocoa $695.0 

Organic chemicals $627.5 

Petroleum gases & other gases $513.4 

1 

Includes pumps and pumping equipment, air and gas compressors, and material handling equipment. 

Sources: U.S. International Trade Commission DataWeb and U.S. Commerce Department, Census Bureau. 


YOU NEED TO SOURCE FROM EMERGING MARKETS. 

YOU NEED HANS MIEDEMA. 

For 37,000 Agility employees in over 120 countries around the world, success 

isn’t measured in parts assembled or products shipped. Success occurs when our 

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that demands individual attention and personal ownership. It’s how Hans 

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Regional Support Leader 

Agility Global Account Team 

agilitylogistics.com

LOGISTICS 

for preferential treatment under AGOA. 

Clinton noted there are 6,999 items that 

can be sent from Africa to the United States 

duty-free, but, “we need more product 

diversification.” 

She said this is an area of focus for U.S. 

Trade Representative 

Ron Kirk, and that 

a number of AGOA 

countries are in the 

early stages of supplying 

the American 

market with new products. 

These include 

footwear from Ethiopia, 

cut flowers from 

Kirk 

Tanzania, eyewear from Mauritius, and 

processed fruits and jams in Swaziland. 

“We’re also seeing some countries take 

advantage of the fact that they can produce 

industrial products in partnership with 

international firms, and then export them 

duty-free to the United States,” Clinton said. 

In a report issued in August the Government 

Accountability Office examined why 

Sub-Saharan Africa’s textile and apparel 

industry has not achieved the growth anticipated 

under AGOA, which was signed 

into law by President Bill Clinton in 2000, 

and offered suggestions for improvements. 

“Industrialization in many developed 

countries was initiated in the textiles and 

apparel sectors, and some developing 

countries have relied on these sectors to 

significantly increase and diversify exports, 

with positive effects on incomes, employment 

and poverty levels,” GAO said. 

By providing generous preferences for 

African textile and apparel imports, the 

expectation was “AGOA beneficiaries 

would be able to leverage these advantages 

to replicate this industrialization process.” 

There was an initial surge of U.S. textile 

and apparel imports Sub-Saharan Africa 

— from about $776 million in 2000 to 

$1.78 billion in 2004. However, after global 

quotas under the multifiber arrangement 

were removed after 2004, U.S. imports 

from Africa dropped to $1.18 billion in 

2008. That’s only about 1.3 percent of total 

U.S. textile and apparel imports compared 

to China’s 35 percent share or Bangladesh’s 

3.8 percent share. 

U.S. exports of yarn and fabric to Africa 

have also fallen, from $24.2 million in 1998 

to $15.6 million in 2008. 

GAO said many African countries “face 

infrastructure and development challenges 

that must be addressed before they can fully 

take advantage of these benefits. It noted 

low-cost Asian producers such as China, 

India and Bangladesh have relatively modern 

production facilities and have developed 

a competitive advantage. 

Also, GAO said consolidation in the U.S. 

retail market has led to “lean retailing methods,” 

a combination of low inventories and 

frequent restocking. Retailers closely track 

sales using electronic data to facilitate fast 

communications with suppliers, who must 

be highly f lexible and able to adjust output, 

and ship and deliver products quickly. 

“Aspects of the lean retailing method 

do not favor African suppliers that have 

less advanced production technology that 

limits their flexibility to meet changing 

demands,” the agency explained. 

Among the options the U.S. government 

should examine to help the continent’s 

textile and apparel industry are extending 

the duration of a provision that allows 

AGOA countries to use fabric from third 

countries in exports that qualify under 

AGOA and extend the duration of overall 

NURTURING S0UTH AFRICAN TIES 

This summer marked the 10th anniversary 

of Safmarine’s purchase 

by A.P. Moller - Maersk. 

The former South Africa carrier has 

grown rapidly under its Danish parent, 

moving about 1.5 million TEUs annually 

on a fleet of about 20 

owned and 19 chartered 

containerships, 

up from about 380,000 

TEUs in 1999. 

“The company and 

our customers get the 

benefit of being part 

of a large organization 

while we still retain 

Safmarine serves its long-time base while 

benefiting as part of behemoth Maersk. 

Boudreau 

a lot of independence, creativity, and the 

ability and freedom to do things to grow the 

business, satisfy our customers and produce 

profits,” said John Boudreau, president of 

Safmarine Inc., the company’s U.S. subsidiary. 

“The company is 63 years old so it 

has quite a history, but the last 10 years is 



quite a quantum leap as far as growth and 

reinvigoration of the brand.” 

In terms of overall U.S. container trade 

Safmarine is relatively small, with only 

about a 1 percent to 1.5 percent market 

share in all trades. It is a bigger player 

on selected trade lanes, including those 

touching Africa, the Middle East and India. 

Boudreau said the company moves 

about 28 percent of the trade between the 

U.S. and South Africa, and together with 

Maersk about 40 percent to 45 percent of 

the West African market. Safmarine is also 

a major player in the trades between Africa 

and Europe and Asia. 

Maersk decided to preserve the Safmarine 

brand, he said, because of its high profile in 

Africa and “it’s a great business model that 

we have within the A.P. Moller - Maersk 

group to be able to take two bites of the apple 

and approach customers from two different 

angles, different philosophies about what 

those customers are looking for in transport.” 

At the same time it gets the benefit of 

access to the Maersk network and the 

economies of scale that the world’s largest 

container shipping company affords. 

Though it has deep roots in Africa, 

Safmarine is actually headquartered in 

Belgium, a reflection of Safmarine’s 1996 

acquisition of CMB Transport. (Safmarine 

had actually owned a 49 percent stake in 

CMBT since 1991.) 

It has expanded globally, with growing 

involvement in east-west as well as northsouth 

services. 

“Safmarine has often specialized in 

midsize companies as well as some of the 

household name companies that we all know. 

But the relationships that have built within 

Safmarine many of them had their roots in 

the original company,” Boudreau said. “We 

are not big enough to cater to everyone.” 

When it works with big companies — say 

with the Big 3 U.S. automakers — “we’re 

generally going after more the north-south 

business and Maersk is more involved in the 

east-west. It’s not a fixed line of demarcation, 

but Safmarine’s relationship with the 

auto manufacturers has always been based 

on the branches of those companies in South 

Africa,” he said. 

“We work on a slightly different business 

model and approach to customers, not just 

Maersk, but the rest of the industry,” he 

said. “We share the same IT systems and 

platform that Maersk does, we utilize the

AGOA benefits beyond 2015. 

Lafont said Africa’s farmers and agriculture 

industry faces many challenges. 

“International competition is not very 

fair to Africa. There are a lot of subsidies, 

and it is difficult for Africa to stabilize its 

agriculture because of the great variation 

in commodity prices,” he said. A stronger 

agricultural sector could benefit the continent 

greatly, he added, encouraging people 

to farm rather than move to the city. 

Madsen of APM said that going back 

to colonial times, Europe dominated trade 

with Africa. But there has been a big shift 

over the past decade with Asia, particularly 

China, becoming the region’s biggest trading 

partner, particularly as an exporter of 

consumer goods. 

Except for a small number of countries 

,such as South Africa or Egypt, not many 

consumer goods are produced in Africa, 

and China has become a major source for 

products such as clothing and electronics, 

he said. 

Africa is “a continent where you import 

consumer goods and you export raw materials,” 

Madsen said. 

That has a big effect on shipping, with 

many exports leaving on bulk or breakbulk 

vessels, while many imports arrive in 

containers. Many export containers, carry 

“fresh air,” he said. 

As containerization has become more 

prevalent over that past 10 to 15 years, 

many African ports have expanded container 

facilities, converting old general 

cargo docks into container ports. Many 

also handle roll-on/roll-off ships as imports 

of new and second-hand cars move to the 

continent from Europe or the United States. 

Stephen Hayes, president of the Corporate 

Council on Africa, believes “the U.S. 

needs to be much more actively engaged 

in Africa. The U.S. technically is still the 

largest investor in Africa but about 70 to 

80 percent is oil and oil-related matters, so 

it’s not long-term investment. It’s not like 

a 50-year investment, but probably a 10-20 

year investment. 

“We need to invest in just about every 

other sector and throughout the continent,” 

he continued. “If you take several countries 

out of the picture, then the U.S has very 

little investment in Africa. Compare that to 

China, which is invested in just about every 

country in Africa. Also Japan, India and 

LOGISTICS 

the Gulf states are increasing investment. 

Once you take energy out of the equation, 

even South Africa is a larger investor in 

the West of Africa than the U.S.” 

Lack of infrastructure has a strong effect 

on how the shipping industry operates 

in Africa. 

“If containers are bound for delivery in 

consumer areas of big cities, it goes out to 

distribution warehouses,” Madsen said. 

But in many locations if cargo is bound 

for or originates far inland, it is stripped 

or stuffed at the port because roads are 

not good enough to run container trucks. 

Lafont agrees. “Unfortunately the roads 

are not good enough, and I am afraid to say 

they are probably deteriorating” in many 

locations. Weight restrictions are often 

ignored, though he said some countries 

are installing scales to prevent overloading 

of containers. 

However, there are some exceptions. 

South Africa has a well developed rail 

and road system. Safmarine has its own 

trucking company and it uses the national 

rail system to move containers inland to 

reach population centers like Johannesburg. 

Madsen said there are container trains 

‘Between us and our big brother (Maersk), we probably have 40-45 percent 

of the West African market,’ Safmarine’s John Boudreau said. 

same operations and facilities, and in many 

cases we’re loading on the same vessel 

at the same port terminals. The Maersk 

model of operational excellence is one that 

we benefit from, having as few exceptions 

as possible.” 

Safmarine offers direct, fully containerized 

weekly sailings from the U.S. East and 

Gulf coasts to South Africa. Cargo to West 

Africa is often relayed via Mediterranean 

ports or Las Palmas in the Canary Islands. 

It serves East Africa, generally by transshipping 

through Durban in South Africa 

or Salalah in Oman. 

Boudreau said the company tries to distinguish 

itself from competitors by offering 

intensive customer service. 

“We will expend a lot of energy with our 

own people to protect our customers from 

any internal snafus or any problems we 

might have with a system. And if there are 

exceptions we deal with them as personally 

as we can to solve their problems. 

“Our business is a little bit less predictable 

coming from a broader number of customers 

generally smaller in size,” he added. 

The company can face challenging 

conditions in some ports, though he said 

the economic slowdown has given some a 

breather to catch up on growing volume. 

Maersk has grown its fleet substantially 

in recent years, taking seven new vessels 

in 2008 and two earlier this year. No more 

are planned in 2009, but the company will 

add to its fleet in 2010 and 2011. 

Safmarine has done better than many 

carriers during the downturn in container 

business this year, maintaining container 

volumes at the same level in the first half 

of 2009 as in the same 2008 period. But it 

is not unscathed; in late July it said it would 

withdraw from the transpacific at the end 

of June 2010, telling customers profitable 

participation in the trade lane was difficult 

because of its small size and poor conditions 

in the market. 

“There is a huge tie-in between Safmarine 

and South Africa. The company began 

as a venture starting service between New 

York and South Africa. The roots run very 

deep we have in many cases South African 

officers,” Boudreau said. 

The company has built a maritime academy 

in South Africa to train workers, and it 

has an active program called Containers in 

the Community, where it donates containers 

to build schools and other community 

facilities. 


LOGISTICS 

that run from the East Coast of Africa from 

Kenya to Uganda, for example. 

Bolloré has a fleet of 6,000 trucks and 

operates trains between Burkina Faso and 

the Ivory Coast and the Camrail network 

within Cameroon. It also operates inland 

container ports in Mombasa in Kenya 

and in Dar es Salaam in Tanzania, and 

river barges on the Ubangi River between 

Central Africa and the ports of Brazzaville 

and Pointe Noire. 

Bolloré operates corridors throughout 

Africa, Lafont said, extending from ports 

such as Dakar in Senegal in West Africa, 

Port Sudan on the Red Sea, or Mombassa 

in Kenya on the Indian Ocean. For example, 

for a shipment moving from Mombasa it 

will handle customs clearance, storage of 

goods, transshipping cargo on trucks or by 

rail to Kitale in the Northern part of Kenya 

or Kampala in Uganda. 

“Our strategy is to offer door-to-door 

service,” Lafont said. 

Boudreau said Safmarine offers a variety 

of services that are appealing to shippers in 

Africa, and some other trades. For example, 

in addition to its fleet of containerships, 

Safmarine charters a fleet of about 40 

breakbulk vessels. These are useful for 

moving pipe and drilling equipment, and 

other supplies for the oil industry in Nigeria 

and Angola, for instance. 

Safmarine works with customers who 

may need containers for extended periods, 

or if it wants to buy containers, it can arrange 

programs for that. The company worked 

with Daimler Benz and a third-party vendor 

to develop a system for loading automobiles 

into racks that are then slid into shipping 

containers. 

Reefer is a big area of focus for Safmarine. 

Boudreau said South Africa, like Chile, is a 

major producer of citrus, grapes and other 

fruit. He expects that business to grow as 

more fruit moves in reefer containers, offering 

exporters advantages over moving 

their harvest in conventional reefer ships. 

“The cargo arrives in better shape. It 

doesn’t come to market in such large lots that 

it depresses the price. There’s less spoilage, 

less pilferage and it fits the supply chain 

better to plan for 40-foot containers rather 

than hundreds of pallets of fruit that need 

to be warehoused,” he said. 

GAL/Galborg, which formerly traded 

under the name Gulf Africa Line, has 

operated liner services between the United 

States, Mexico and Southern Africa for 11 

years, carrying breakbulk and containers 

on 30,000-deadweight-ton multipurpose 

ships. In the United States it calls at Houston, 

New Orleans, and Jacksonville, Fla. 

“We had a very balanced trade for many 

years until cargo slowed,” said David 


Groves, owner’s representative for Galborg 

in Houston. His company’s ships are 

relatively full southbound, but northbound 

business was very quiet in the first half 

of this year. But volumes are picking up 

northbound, where major commodities 

include ferroalloys and steel products like 

pipe and coil and wire rod. 

GAL is a joint venture between Nordana, 

which has its own service between the 

United States, South America and Africa, 

and MACS Maritime Carrier, which serves 

North Europe/Africa. It has recently expanded 

its port coverage through connecting 

agreements with two feeder companies: 

MACS East Africa, which calls ports along 

the East Coast of Africa from Durban, South 

Africa to Mombasa, Kenya; and Angola 

South Line, where GAL will connect with 

Angola South Line in Walvis Bay Namibia 

for cargo bound to and from Angola. 

Hans-Ole Madsen 

vice president 

for business 

development, 

APM Terminals 

“Through privatization, 

and I’d hope we have 

played a good part 

in that, ports are getting 

more efficient.” 

“Angola is definitely a booming country 

with a lot of Chinese money going in 

there for redevelopment of infrastructure,” 

Groves said. 

The connecting carrier agreements allow 

GAL to reach shallow-draft ports in Angola 

that may only be able to accommodate 5,000 

dwt vessels, he said. 

Shipping executives say ports in Africa 

are a mixed bag from the super-sophisticated 

transshipment terminals that APM 

operates in Tangier, Morocco and Port Said, 

Egypt, to ports in West Africa where ships 

may have to wait days, sometimes weeks 

to discharge cargo. 

But Madsen said, “Through privatization, 

and I’d hope we have played a good 

part in that, ports are getting more efficient.” 

Lafont, of Bollore, said Africa first 

opened itself to the concession model in the 

mid-1990s. “I think it is well understood 

and produced good effects,” he said. His 

company has won concessions in eight 

ports: Abidjan in the Ivory Coast, Tema in 

Ghana, Tincan Island in Nigeria, Douala 

in Cameroon, Cotonou in Benin, Libreville 

in Gabon and Pointe Noire in Congo, and 

Pointe des Galets on the French Island of 

La Réunion off the coast of Madagascar. 

Lafont said there is stiff competition from 

many of the large global port companies 

to develop ports on the continent, including 

APM, the Terminal Link subsidiary 

of CMA CGM, DP World, Hutchison and 

ICTS. 

But these companies are sometimes 

allies as well. For example, in May APM 

will become a member of the Bolloré consortium 

that has been selected to develop 

a new deepwater container terminal at the 

port of Pointe-Noire. The companies also 

have an association in Abidjan, Douala 

and Tema. And Zim is Bollore’s partner at 

Tincan Island in Nigeria. 

The improvements in Pointe-Noire and 

Cotonou will allow those ports to handle 

much larger ships, increasing the size of 

container vessels from a maximum of 

about 3,000 TEUs to 7,000 TEUs, Lafont 

said. He believes these larger ships will 

encourage more direct service to Africa 

and a reduced reliance on feeder ships, 

which he said may reduce congestion at 

some African ports. 

Hayes thinks there are big opportunities 

for U.S. companies to increase sales 

in Africa to help build infrastructure, 

including roads, agribusiness, power and 

alternative energy. 

Improvements such as ports and roads 

can not only help Africans trade better, 

but can reduce isolation and tribal affects, 

he says. 

Better roads and storage facilities would 

reduce crop spoilage, bring more crops to 

market and increase incomes. 

And improvements in telecommunications, 

including increased access to 

broadband technology, could help improve 

education. 

“In the long run, we are optimistic 

because we believe the continent has now 

embarked on a development cycle, and this 

is largely due to the globalization factor 

— the world is becoming smaller,” Hayes 

said. “Information technology has enabled 

Africa to make a great leap forward. The 

ratio of people with a mobile phone is far 

greater than most people would have anticipated 

a few years ago. A lot of Africa is 

connected to the rest of the world and that 

creates a desire for people to have more 

transparency, democracy and money, which 

is all a positive factor in terms of economic 

development.” 

■

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LOGISTICS 

Choice assignment 

Hitachi data storage manufacturing unit 

relies on critical parts logistics provider. 

Many businesses need to warehouse 

huge amounts of data, and 

one of the leading manufacturers 

of storage systems is Hitachi Data Systems 

(HDS), a subsidiary of Tokyo-headquartered 

electronic giant Hitachi Ltd. 

Based in Santa Clara, Calif., HDS 

manufactures storage systems that are a far 

cry from the hard drive spinning inside of 

your PC. Some HDS systems have multiple 

drives that can store petabytes of data — a 

petabyte is a million gigabytes — and use 

technology such as redundant arrays of 

independent disk (RAID) systems so that if 

a drive or multiple drives fail, data at banks, 

brokerages, hospitals and airlines remains 

sound and can continue to be accessed. 

When systems fail, many companies are 

eager to replace hardware as soon as possible, 

and to do this, HDS relies on a New Yorkbased 

company that specializes in critical 

parts logistics called Choice Logistics. 

“They’ve been really good partners for 

us,” said Alan Burks, director of logistics 

for HDS. He is responsible for finished 

goods logistics for HDS outside of Europe, 

both products manufactured at its plants 

and service logistics like that supplied to 

the company by Choice. 

Choice is “the best for the stuff that 

you’ve got to have in two, three, four hours, 

that kind of thing. It’s tied into service levels 

and customer expectations,” Burks said. 

When a part in an HDS unit fails, an order 

for a repair and replacement part is placed, 

and it is dispatched from one of Choice’s 

strategic stocking locations to arrive at a 

customer’s site where a Hitachi technician 

can swap out the bad part. (Some Hitachi 

units actually monitor themselves and can 

call a repairman when a problem begins to 

develop.) Choice also handles returns of bad 

parts for HDS, some of which are worth 

hundreds of thousands of dollars each. 

“While what we do for Hitachi is indicative 

of what we can do, I don’t think you 

will find any two clients where we have 

the exact service,” said Gary Weiss, executive 

vice president of global operations for 

Choice. “We have a variety of offerings that 

are somewhat modular and we customize 

it for each client.” 



Gary Weiss 

executive vice 

president of global 

operations, 

Choice Logistics 

“What we try to understand 

is not just what the client 

achieves short term, but 

where they want to be 

positioned beyond that.” 

The company commonly offers delivery 

of parts within windows of 90 minutes to 

four hours. 

Weiss said Choice’s preferred method of 

interacting with customers is through an 

electronic data interchange, and Hitachi 

wanted a direct connection so there was 

a seamless feed from its call center and 

customer relation management software 

directly to Choice. 

“They also wanted someone to do white 

board sessions with them to help do some 

of their planning,” he said. 

Choice initially won a contract with 

Hitachi about six years ago to stock its 

parts at some 64 U.S. locations, and the 

two companies have expanded their relationship 

so that Choice performs work for 

it throughout the Americas. 

When Hitachi first began working with 

Choice its footprint did not yet extend to 

Asia or Europe, Burks said. But as Choice 

has added offices and strategic stocking locations 

in those areas, it would consider doing 

business with them throughout the world. 

Burks said HDS’s need for Choice to do 

super speedy deliveries may actually ebb 

because of technology. In Europe, for example, 

it has become standard for customers 

to expect and accept next-business-day 

delivery of drives when they fail. That’s 

because inside of a RAID device there is 

already a redundant copy of the information 

in the unit, and the spare is generally 

not replaced until all the information on 

the bad drive is copied, a process that can 

take 12 to 14 hours. 

“So is there any value in delivering a 

product that you can’t swap out until 12 

hours later?” Burks said. 

Yet some customers still want or need 

spare parts delivered in a matter of hours, 

and Hitachi continues to provide that service. 

Burks said Hitachi also uses Choice for 

next-day delivery. It even has made its own 

Hitachi distribution center in Indianapolis 

a node on the Choice network so that it can 

use the Choice system to track deliveries 

that it ships from its own warehouse. 

“We have also helped a lot of companies 

to reduce their spend by reducing the numbers 

of parts that they store with us,” Weiss 

said. “Many companies don’t need to store 

as many parts as they do. It becomes very 

easy to put more parts in the field, and that’s 

inventory creep and can cost customers.” 

HDS also relies on Choice to track the 

return of parts within its system so it can 

credit customers or send them a bill when 

parts are not returned. (That, by the way, is 

the preference of some HDS clients like the 

Central Intelligence Agency and National 

Security Agency, who prefer to destroy 

their hard drives rather than let it get out of 

their control.) 

Weiss said Choice is also able to assist 

HDS in foreign countries with fulfilling 

importer of record requirements so that parts 

can be brought into country and contracts 

supported. 

“One thing that many high-tech companies 

may not think of at the time they 

sell a contract is that while they may sell a 

contract to a bank, that may be a worldwide 

bank and that service contract may be in 30 

countries and it is a single service level that 

is being sold. There isn’t time to fly in parts 

and clear them through customs,” he said. 

Choice has also developed a “denied 

party screening program, where orders are 

screened against lists of countries, companies 

and recipients that are not allowed 

to receive high-tech products because of 

government regulations. 

“This is not just something that is nice 

to have. Companies have obligations to 

provide this service,” Weiss noted. 

The company also has hired trade compliance 

experts to work with importers on 

the intricacies of import regulations and 

tax mitigation strategies. 

“What we try to understand is not just 

what the client achieves short term, but 

where they want to be positioned beyond 

that,” Weiss said. 

■

LOGISTICS 

Giving degrees of freedom 

Irresponsibly changing strategies 

brings Deep’s temperature to a boil. 

The bleak economic 

climate is finally 

having an impact on 

my mood — not because of 

the financial situation, but 

because of the ridiculous 

things we are seeing being 

implemented under the guise 

of “strategy,” “tactics” and 

“market readiness” for the 

upswing. 

Business leaders are heading 

down a silly and dangerous 

path with the things they 

are making their businesses 

do, taking the adage “never 

waste a good crisis” a little 

too seriously and going a 

little too far. Used irresponsibly, 

changing strategy or 

tactics can seriously harm a 

business and erode its ability 

to respond to changes in the marketplace. 

Cutting their wings, so to speak. 

Case in point 

Take for instance one of our clients, 

who decided sometime last year to became 

obsessive with supply chain cost-cutting, 

hence pretty much disallowing all transshipments. 

Not a bad thought, considering 

how many times this is done due to lack 

of a sufficiently robust inventory policy or 

reflective of a business with a “sales-gonewild” 

phenomenon. 

Now, this is a good idea if, and only if, 

you’re going to change something that impacts 

the root cause of these transshipments. 

More recently, the client instituted a policy 

to lower working capital, targeting inventory 

at all of its distribution centers, without a 

formal inventory policy — across the board. 

Hence, the degrees of freedom have been 

cut significantly. If you can’t compensate 

for a bad demand signal through transshipments, 

then it’s logical to bolster inventory 

position to account for the demand variability. 

Obviously you would want to first look 

at the forecast to see if you can improve it. 

One of the ways to manage demand 

better is to stratify and segment products, 

which the client refuses to do — there goes 

another degree of freedom. 

So, the next option (we’re towards the end 

The 

Strategic 

View 

BY DEEP PAREKH 

of the list of options now!) is 

to segment service level by 

product, customer and DC, 

so as to provide adequate service. 

But the client insists on 

having nothing less than 100 

percent service level — do 

you hear that chopping sound 

on the degrees of freedom? 

The business has been driven 

to a point of being unable to 

operate systematically. 

Allowing degrees 

of freedom 

Going back to the client’s 

situation, there are 

still further options, such as 

changing inventory strategy 

and consolidating its very 

volatile product in a few DCs 

and then sourcing the region from the few 

DCs, thereby implementing “risk-pooling” 

logic, and consolidation. But the client 

is closed to this as well, because it will 

increase transportation costs. Its volatile 

product, as we discovered, is greatly due 

to certain product variations, which were 

“combination packs.” One of the alternatives 

possible is also to discuss with sales 

to focus its promotions on certain standard 

“multiples” (e.g. if you sell products in 

groups of four, then it would be greatly 

beneficial for sales to promote in increments 

of four, so as to be able to combine 

products at the very last moment), using 

principles of “product postponement.” But 

the client has not explored this possibility 

with other functions yet. 

Impact 

Not unexpectedly, everything has 

become an exception, and has forced everyone 

to be focused on day-by-day and 

hour-by-hour execution instead of planning 

to avoid the pitfalls that develop into 

execution crises. 

But this is only the superficial impact, felt 

in the here and now. In the near term (even 

one year out), the client will still be focused 

only on the short term, and will continue to 

suffer service issues and inventory imbalances 

because it is not looking further out 

to avoid the big things in the future. The 

client is sacrificing the Important for the 

Urgent, and not even realizing it, because 

they’re convinced that the Urgent is, in fact, 

the Important. 

Recovering from this will take another 

year or two, and quite possibly a change 

in leadership because of the underperformance 

that the business will suffer during 

the recovery (which is bound to come 

sooner or later). 

Further, the company will have cut the 

wings of its competitive growth engine of 

innovation because it’s never looking out 

far enough to actually plan and execute its 

innovations with sufficient rigor, discipline 

and, frankly, foresight. 

Deep R. Parekh is a partner with Equus 

Group LLC, a supply chain advisory services 

and management consulting firm 

based in New York and Sao Paulo, Brazil. 

He welcomes your feedback and comments 

at deep.parekh@equusllc.com, and can be 

contacted at (917) 940-7538. ■ 


Technology is the asset 

Third-party logistics (3PL) firms may pride themselves 

on managing freight transportation assets without owning 

them, but this doesn’t mean they’re truly asset-free. 

The 3PL’s assets are generally made up of its people 

and information systems, both into which companies 

pour millions — and in some cases billions — of dollars 

each year to support and grow. 

Miami-based Ryder Systems, a $6 billion global 3PL, 

makes investments in technology on par with some of 

the biggest in the supply chain management industry. 

The company’s supply chain division employs about 

225 IT staff across seven countries, said Kevin Bott, 

Ryder’s chief information officer, in a recent interview. 

This is roughly equivalent to the staffing requirements 

of Ryder’s fleet management division, which includes 

the company’s truck rental and leasing business. 

“Most companies’ IT departments support their own 

operations,” Bott said. “Our IT department supports 

our customers’ critical operations. If our systems do 

not work, our customers may not be able to operate and 

recognize revenue.” 

Control Tower. A little more than a year ago Ryder 

introduced its concept of Control Tower, which in basic 

terms is the company’s approach to packaging people, 

processes and technologies. 

“With Control Tower, we are managing the supply chain 

for our customers,” Bott said. “Control Tower is Ryder’s 

approach to managing our customer’s demand-driven 

supply chain, overseeing the flow of physical goods, 

information and finances both forward and backward.” 

Bott added this is not just a portfolio of applications 

and technologies. “The technology is there to support 

the people and the processes. Twenty years ago we 

could have run Control Tower on faxes and phones, but 

it would have required much more manpower,” he said. 

“In the supply chain arena, Control Tower includes 

almost every application we have, integrated with our 

customers’ systems and their trading partners and suppliers,” 

he said. The applications included in Ryder’s 

Control Tower align with several major categories: 

• Transportation management systems (TMS). A 

customized version of i2’s Transportation Manager. 

• Warehouse management systems. Ryder uses several 

WMS programs, including one developed in-house 

and one purchased from Manhattan Associates. 

• Enterprise resource planning (ERP). Ryder is an 

SAP shop itself but interfaces with customers that run 

on SAP, Oracle and other homegrown ERPs. 

• Supply chain event manager. Ryder Online, an 

in-house developed system, includes the “dial tone” 

connectivity. It is essentially the traffic cop between 

the TMS, WMS, ERP and other systems. 

Control Tower also covers several specific applications 

that don’t necessary fit into the four main categories. 

“We have a financial settlement suite that includes a 

homegrown audit tool. The freight payment application is 

licensed from JD Edwards,” which is now part of Oracle, 

Bott explained. “Our purchase order management system 

was developed by Ryder for the automotive industry.” 

Much of Ryder’s portfolio, including the Control Tower, 

is built around the company’s deep experience in servicing 

the demands of sophisticated automotive industry supply 

chains. Clearly the current environment will call for 3PLs 

to look outside that market segment for future growth. 


“Moving forward we plan to grow the scale of Control 

Tower by adding new customers and new industry 

verticals,” Bott said. “Adding more verticals will require 

changes and enhancements to Control Tower. Automotive 

is an inbound focused supply chain. Retail for example 

is less vertically integrated. 

“Control Tower is only one year old. This is still a 

fairly new offering for Ryder,” he said. 

A particularly unique — and important — piece 

of Ryder’s portfolio is its Ryder Online platform and 

the “dial tone” that it provides to users. “Supply chain 

event manager, or Ryder Online, is the glue that holds 

everything together,” Bott said. 

Ryder’s “dial tone” utility provides customers with 

connectivity to the network and basic visibility. “Dial 

tone is the entry level at which we integrate other technologies. 

The data sets are universal — like a dial tone,” 

said Jim Moore, vice president of sales for Ryder System. 

“Everyone expects the dial tone to be there when you 

need it,” Bott said. 

The “dial tone” serves as an integration point that 

allows customers to connect to Control Tower and leverage 

Ryder’s applications as the need demands. Instead 

of forcing all customers to abandon their own systems 

they can use Ryder’s entire portfolio, or just parts of it. 

“Many Ryder customers operate on their own systems,” 

Moore said. “Today service oriented architecture 

eliminates onerous integrations.” 

Build Or Buy? Since the early days of the IT age, 

systems developers have been forced to make tough 

decisions when it comes to building or buying applications 

and technologies. 

“About 14 years ago, when I joined the company, 95 

percent of our systems were developed in-house,” Bott 

said. “Then we went through a period where we bought 

everything. That’s when we brought in i2 Technologies 

applications and others. 

“Over the last seven to eight years our decision to build 

or buy has been made case by case depending on our 

needs,” he said. “Each application is a strategic decision.” 

“We will make or buy the technology that’s the correct 

fit,” Moore said. “For instance, we built one of 

our warehouse management systems but also deploy 

a handful of third-party WMS according to customer 

requirements. We do use third-party software. We were 

one of the first users of i2 Technologies’ applications 

and we remain a large user.” 

Like most 3PLs, Ryder always looks at ways to expand 

its services portfolio, which often demands new IT investments. 

“Right now, we’re looking at bringing more 

global trade-related systems into our offering,” Bott said. 

And let’s not forget that these efforts — and investments 

— do not end with buying or building technology. “From 

an IT standpoint we are regularly upgrading. About three 

months ago we upgraded i2’s Transportation Manager. 

We recently upgraded our WMS as well,” Bott said. 

Ryder’s approach to technology illustrates the inherent 

complexity involved in assembling and maintaining 

what amounts to a massive asset that serves the needs 

of demanding supply chains. 

“We’ve arrived at this position in part because there 

is no technology or vendor that does it all,” Moore said. 

Clearly it would be a whole lot simpler if there was a 

single solution. But then what value would a company 

like Ryder add?

It’s in the import data 

The Consumer Product Safety Commission lacks 

direct access to customs information that it could use 

to target unsafe imports, according to a congressional 

watchdog agency’s report released in August. 

With the passage of the 2008 Consumer Product 

Safety Improvement Act (CPSIA), Congress sought 

to update and strengthen the commission’s authority 

over import product safety standards, recalls, reporting 

and administrative penalties. The legislation required 

the Government Accountability Office to evaluate the 

progress of the commission’s implementation of CPSIA. 

The GAO found that the commission requires more 

access to Customs and Border Protection’s import 

manifest records to identify potentially unsafe imports 

before they enter the commercial stream. 

The commission has traditionally relied on CBP to point 

up potentially harmful product imports. However CPSC 

is under increased pressure to prevent unsafe products 

from entering the United States. In 2007, the discovery 

of lead paint in a number of popular children’s toys made 

in China thrust the commission into the public and congressional 

spotlight. 

“CPSC does not have access to key CBP import data 

it could use to target incoming shipments for inspection, 

and it has not updated its agreements with CBP to clarify 

each agency’s roles and responsibilities,” the GAO said. 

“CPSC’s activities at U.S. ports could be strengthened 

by better targeting incoming shipments for inspection 

and by improving CPSC’s coordination with CBP,” the 

agency added. “Otherwise, CPSC may not be able to 

carry out key inspection activities efficiently or to effectively 

leverage its enforcement priorities with CBP.” 

The GAO also said CPSC could learn from other 

federal agencies, such as the Agriculture Department 

and Food and Drug Administration, and other overseas 

governments on how to improve its border surveillance 

and information sharing with other countries. 

Furthermore, the GAO said CPSC “lacks a long-term 

plan with key goals” to prevent the entry of unsafe products. 

“This may inhibit CPSC’s ability to appropriately 

allocate any potential increases in agency resources 

or to address the safety of imported products through 

international means,” the agency said. — Chris Gillis 

BDP’s selective acquisition 

The recent acquisition of British firm Rostrum Forwarding 

Ltd. by BDP International was not your typical 

takeover of a small regional player by a larger one. 

In fact, since BDP’s founding in the 1960s by the late 

Richard J. Bolte Sr., the Philadelphia-based company has 

avoided a growth-by- acquisition model, which is quite 

prevalent among many mega-forwarding firms. Instead 

BDP has built its global presence by partnering with 

other firms that think, look and do business like itself. 

BDP has engaged periodically in strategic joint 

ventures in which the company has equity interests in 

selective markets. On some occasions, BDP has even 

gone on to buy the outstanding shares of the joint venture 

to take full ownership, such as the case of entities 

in Indonesia, Thailand, Germany and Italy. 

In general, BDP’s global expansion has included 

multiple alliances with small and mid-sized logistics 

firms. “Together, with our own extensive global coverage, 

we form a web of logistics services that spans the 

world to out-hustle our large competitors by delivering 


a more intimate brand of customer service,” said Arnie 

Bornstein, a company spokesman, in an interview. 

However, the U.K. forwarding market differs from others, 

he said. “While BDP doesn’t subscribe to the growth 

model of buying up other companies for the sake of seeing 

how many BDP logo signs we can hang outside offices 

around the globe, the breadth and importance of the U.K. 

market to our customers was a priority in our decision 

to establish an ownership presence there at this time.” 

“Beyond the competitive necessity of having a more 

substantive presence in the U.K., it further enhances our 

flexibility and service capacity for customers between 

the vital market and the world,” said John M. Bolte, 

BDP’s chief operating officer, in a July 31 statement. 

“The Rostrum-BDP combination culminated nearly 

a year of research and due diligence, and it positions us 

to be more competitive for our customers as economies 

begin to recover,” Bornstein added. 

Rostrum’s name will change to BDP International, 

but will continue to operate under Rostrum’s Managing 

Director Bruce W. Pope. BDP did not disclose terms 

of the transaction. In addition to Rostrum’s Dartford, 

Kent headquarters, the company has receiving depots 

in Birmingham, Bristol, Heathrow, Leeds, London and 

Manchester. BDP invested immediately to expand the 

operation’s services by opening an office at the London- 

Heathrow Airport earlier in July. 

BDP said in the United Kingdom it will offer a range 

of transportation and logistics services, as well as valueadded 

services such as insurance, packing, warehousing 

and distribution, and online shipment management and 

visibility tools. — Chris Gillis 

Nobody’s business 

You wouldn’t give your social security number to a 

complete stranger on the telephone or write it out on 

a survey. Then why would you want to use it on your 

commercial export documentation? 

The U.S. Census Bureau’s Foreign Trade Division 

understands this and has issued an interim final rule to 

end the use of social security numbers as identification 

when registering and filing electronic export information 

in the Automated Export System, or AESDirect. 

The current regulations allow the authorized AES 

filer to either enter a social security number, employer 

identification number (EIN), or Dun and Bradstreet 

number (DUNS). Census said social security numbers 

are often used by individual filers, whereas businesses 

use either the EIN or DUNS. However, the EIN is available 

to both businesses and individuals, the agency said. 

Census said the rule is being implemented to ensure 

that the AES filer is protected in accordance with the 1974 

Privacy Act. The problem with using a social security 

number as an AES filer identification is that the information 

could end up on commercial shipping documents, if 

an AES or AESDirect downtime citation is ever required. 

Under the interim rule, the AES filer, also called the 

“U.S. principal party in interest,” must obtain an EIN 

through the Internal Revenue Service. Those filers who 

want to use a DUNS rather than the EIN must first obtain 

an EIN for identification purposes, the agency said. 

The interim rule, which was published in the Aug. 

5 Federal Register, takes effect Sept. 4, but the agency 

will accept comments about the change through Oct. 5. 

Census plans to implement the provisions of the rule on 

Dec. 3. — Chris Gillis

FORWARDING / NVOs 

Do-it-yourself compliance 

U.S. Customs, industry are bullish 

on Broker Self-Assessment trial. 

Expeditors International and A.N. 

Deringer Inc. are two of four brokerage 

firms selected by U.S. Customs 

and Border Protection to participate in a 

Broker Self-Assessment pilot program, 

American Shipper has learned. 

The agency announced July 29 the selection 

of four companies out of 26 applicants 

to test whether a trusted compliance program 

should be instituted on a voluntary 

basis for customs brokers. CBP will not 

disclose the names of companies involved 

for privacy reasons. 

OHL in Brentwood, Tenn., subsequently 

announced its Barthco International unit 

was chosen for the year-long partnership 

program. 

St. Albans, Vt., logistics and customs 

services provider A.N. Deringer will also 

BY ERIC KULISCH 

self-police compliance with customs regulations, 

said Robert DeCamp, director of 

regulatory affairs and consulting. An official 

at Expeditors, one of the nation’s largest 

international freight forwarders, confirmed 

that the Seattle-based company was accepted 

into the Broker Self-Assessment 

(BSA) program. 

CBP has also picked an unknown small 

broker (less than 100,000 customs entries per 

year), in addition to the two medium (100,000 

to 1 million entries) and one large (more than 

1 million entries) brokers, to get a diverse 

sample of industry segments involved in 

the evaluation. All the companies were 

required to belong to the Customs-Trade 

Partnership Against Terrorism, a voluntary 

security-based program in which importers 

receive fewer container inspections if they 

and their vendors follow approved security 

plans that meet minimum criteria. 

The BSA, modeled on the seven-year-old 

Importer Self-Assessment (ISA) program, 

is designed to promote higher compliance 

levels with Customs laws and regulations 

by letting trusted brokers self-report compliance 

violations so that CBP can devote 

limited resources to checking higher-risk 

companies and enforcement issues. The 

largest import accounts that handle 60 

percent of the customs entry volume have 

a 99 percent compliance rate, and CBP officials 

say they want to focus on the other 

“Firms that already 

are committed to quality 

control and oversight 

recognize their 

responsibilities and should 

fit well into this program” 

Robert DeCamp 

director of regulatory 

affairs and consulting, 

A.N. Deringer Inc. 



40 percent of entries. 

About 200 companies with strong internal 

controls have joined the ISA program 

in exchange for exemptions from periodic 

agency audits and cargo inspections 

for trade violations. 

Many trade professionals 

don’t believe 

the benefits outweigh 

the significant cost associated 

with meeting 

ISA standards. 

Last October, CBP 

also launched a pilot 

program that expand- 

Baldwin 

ed the voluntary approach beyond customs 

regulations to product safety compliance. 

Under the BSA program, a multidisciplinary 

CBP team reviews completed questionnaires 

and visits each broker to learn 

how they conduct business and determine 

whether they are able to update and improve 


BSA benefits 

Potential trade benefits of U.S. Customs and Border Protection’s Broker 

Self-Assessment program: 

• A prior disclosure provision that would limit broker liability for self-disclosing 

violations to CBP, similar to how importers are treated under the Tariff Act. 

• Facilitating gaining a waiver for a broker district permit. Brokers must have 

permits to operate in each Customs district, a condition of which is a licensed 

individual within the district to supervise the staff in the local offices. Brokerage 

houses have 180 days to find a replacement if the licensed employee departs 

the firm, or they can apply for a waiver seeking additional time to make a hire. 

In some markets, it can take time to fill the job because the pool of licensed 

brokers is small. A company’s participation in BSA would be weighed as a 

favorable factor in CBP’s consideration of a waiver. 

• Uniformity in CBP processing so brokers receive the same treatment from 

port to port. 

• CBP assistance in developing a corrective action plan as an alternative to 

penalty assessments or removal from programs such as Remote Location Filing. 

• Assignment of an account manager. Importers and some large customs 

brokers are provided national account managers. A BSA program is envisioned 

as one way for small and medium-size brokers to get a leg up on obtaining a 

national account manager assigned to them and assist with uniformity issues. 

• Accelerated review and disposition of electronic drawback claims, reconciliation 

and ruling requests. (Reconciliation is the process that allows an 

importer to flag certain items at the time of entry for which it doesn’t have complete 

information and plans to submit at a later date. Information can include 

the value of a good, some types of classification, Harmonized Tariff Schedule 

headings or post-entry claims.) 

• Limiting brokers to single-issue audits to investigate a particular problem 

rather than subjecting them to full-blown regulatory audits, which are burdensome 

for both sides. 

• Consideration in disposition of a penalty case so that BSA participation 

becomes a factor in evaluating whether to mitigate or remove a sanction. 

• Enhancing the Broker Evaluation and Analysis Report that Customs 

provides to brokers with national account managers. The reports gives the 

results of compliance problems discovered through stratified, random cargo 

examinations. The physical inspections are done to compare the cargo with the 

content declarations and customs entries in terms of quantity, classification, 

value, country of origin and other aspects. 

internal controls, perform periodic testing 

of those controls and disclose to CBP deficiencies 

discovered through the testing. 

A key responsibility for the brokers is to 

maintain an audit trail linking financial 

records to entries filed with CBP. The 

government expects brokers to have strong 

internal controls to comply with federal 

regulations and act in their capacity as a 

fiduciary agent for importers. 

A permanent program would enable 

participating brokers to undergo fewer 

time-consuming audits. 

CBP relies on the expertise of customs 

brokers to accurately file import documentation 

because 45 percent of all entries are 

from small, one-time shippers who do not 

understand the customs clearance process, 

Dan Baldwin, assistant commissioner for 

international trade, said at a conference 

earlier this year. 

There are 12,000 licensed customs brokers 

across the country that filed 25 million 

customs entries last year. 

CBP categorized each of the applicants 

based on their volume and value of entries, 

history of compliance reviews, number of 

ports served, penalties received, areas of 

specialization and involvement in CBP 

programs such as Remote Location Filing 

(which allows brokers to file entries 

in locations other than the port in which 

goods arrived) and drawback (a process 

for importers to obtain a refund of customs 

duties paid on goods subsequently 

exported from the United States), said 

Richard Walio, CBP’s chief of partnership 

programs, in an interview. The goal was 

to get a cross-section of brokers that deal 

with a variety of issues. One applicant 

only filed 165 entries last year, which 

would not have represented a sufficient 

baseline for judging progress compared 

to how they performed before starting the 

program, he said. 

In August, Walio’s staff began reviewing 

questionnaires and conducting on-site 

checks to develop a profile of each broker. 

It is also drawing up metrics by which to 

measure the companies during the next 

12 months. 

Privately held A.N. Deringer is able to 

meet the BSA requirements because it has 

long practiced strong oversight of its regulatory 

and business processes, DeCamp said. 

“Firms that already are committed to 

quality control and oversight recognize 

their responsibilities and should fit well 

into this program” if it expands, he said. 

DeCamp said A.N. Deringer has a fiveperson 

staff that devotes much of its time 

to compliance work, such as conducting 

internal audits of its operations and codes 

of conduct, and comparing the results with 

CBP regulatory audits. 

The BSA “becomes a badge of confidence 

to our client base and to the 

government that we do it right,” he said. 

The company also expects to benefit from 

sharing best practices with those in the 

program and refining its own operations 

to keep up with the constant change in 

regulations, he added. 

OHL, one of the five largest customs 

brokers in terms of entries processed by 

CBP, said on its Web site that it achieved 

a 99.1 percent compliance rate last year. 

The BSA grew out of discussions two 

years ago between Baldwin and representatives 

of the National Customs Brokers 

and Forwarders Association of America on 

how to improve broker compliance and the 

agency’s enforcement approach, according 

to board member Kenneth Bargteil. 

Baldwin questioned the effectiveness 

of increased penalty actions in achieving


compliance while the industry wanted to 

address concerns about the lack of uniformity 

in applying regulations at different 

ports of entry and the reasonableness of 

the agency’s penalty assessments for broker 

mistakes, he said. 

A major sore point for brokers is the 

penalty case against UPS Supply Chain Solutions, 

in which CBP initiated eight penalty 

actions totaling $90,000 in fines against 

its brokerage division for misclassifying 

a computer part on 60 customs entries in 

2000. Two penalties were for $30,000 apiece 

and the others were for $5,000. 

A federal appeals court in August upheld 

the Court of International Trade’s 

decision that UPS misclassified the parts, 

but overturned the portion of the ruling 

that said CBP followed proper procedures 

in determining that UPS Customshouse 

Brokerage Inc., as the UPS division was 

known back in 2000, did not have sufficient 

internal controls in place to ensure proper 

compliance with Customs regulations. The 

court said CBP, at minimum, must check 

all 10 factors listed in the federal code for 

determining whether a broker exercises 

“responsible supervision and control.” 

Those factors include: 

• Training. 

• Issuing written instructions and 

guidelines to employees. 

• Maintaining updated copies of the 

Harmonized Tariff Schedule and CBP 

regulations and rulings. 

• Frequency of internal audits. 

• Availability of a licensed broker to 

consult with non-licensed employees. 

The UPS case underscores that “Customs 

has not been following the administrative 

protocol as closely as it should when regulating 

brokers, particularly when it comes 

to penalties and disciplinary actions,” said 

NCBFAA Customs Counsel Alan Klestadt. 

UPS and the broker community also 

argue that Customs is only allowed to issue 

a single penalty and a total penalty amount 

of $30,000 for any violations that occurred 

prior to formal notification of a problem. 

The NCBFAA negotiated an understanding 

on broker liability with the government 

a quarter-century ago, but subsequent 

legislation amending the statute governing 

broker rules didn’t explicitly spell out how 

penalties would be capped, according to 

association officials. The legislation was 

an attempt to provide the legacy Customs 

Service a less draconian tool for enforcing 

broker rules, which to that point was 

limited to suspension or revocation of a 

broker’s license. After agreeing to introduce 

a monetary penalty regime, industry and 

Customs officials reached a tacit agreement 

that broker liability would be limited to a 

single $30,000 penalty for repeating the 

same violation before receipt of a warning 

letter. The broker community assumed that 

CBP would interpret the informal agreement 

that way, but the trial judge said there 

is nothing in the law or the legislative record 

supporting the brokers’ claim. 

The law doesn’t require CBP to notify 

brokers of its intent to assess a penalty, 

although the agency often does so. The prepenalty 

procedure is part of the mandatory 

process for importer violations. 

Brokers were also concerned by talk from 

some CBP officials about the need to raise 

penalty ceilings for the industry. 

The BSA program is expected “to give 

Customs an improved understanding of 

how brokers operate, which hopefully 

will reduce situations in which penalties 

are initiated and help them understand the 

routine procedural safeguards that most 

brokers have in place to ensure compliance,” 

said Klestadt, a partner in the New York 

law firm Grunfeld, Desiderio, Lebowitz, 

Silverman & Klestadt. 

The idea is that a better-educated border 

revenue agency should be able to provide 

more consistent regulation of the customs 

broker industry. 

“One of the things we’re looking for is 

a uniform set of guidelines against which 

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we are evaluated. And that’s one thing that 

BSA will hopefully deliver,” he said. 

Bargteil, who is a vice president in the 

Baltimore office of global freight forwarder 

Kuehne + Nagle, said cooperation between 

a NCBFAA task force and CBP to develop 

the BSA program was excellent. During the 

pilot phase none of the participating companies 

will receive any tangible benefits, 

but potential trade benefits that CBP may 

consider if the program becomes permanent 

are posted in a reference guide on the 

agency’s Web site (see box). 

“Most of the benefits we didn’t put into 

the pilot because we didn’t want the perception 

those companies that got in had 

an unfair market advantage,” Walio said. 

The exception to that policy involves 

prior disclosure because CBP needed to 

assure companies volunteering to open up 

their business operations that they wouldn’t 

get hit with penalties for unearthing an 

internal discrepancy as part of their cooperation 

with the agency, he said. 

One of the benefits of a BSA program 

to CBP is that brokers with strong internal 

controls often can incorporate legislative 

or regulatory changes in their compliance 

process and document the new requirements 

faster than the agency can enforce 

them, Walio said. 

■ 

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Battle over batteries 

The Airline Pilots Association (ALPA) is using several 

recent incidents to renew its call, over the objection of 

battery makers, for a temporary ban on lithium batteries 

carried as shipments on passenger and all-cargo planes. 

The rechargeable batteries are commonly used to 

power laptops, cell phones, cameras, MP3 players and 

other electronic devices. Lithium batteries can shortcircuit, 

overheat and catch fire. The trade association 

asked the Department of Transportation to prohibit bulk 

battery shipments on commercial aircraft until new 

regulations are in place to ensure their safe transport. 

The Pipeline and Hazardous Materials Safety Administration 

(PHMSA) is drafting a rule addressing lithium 

battery safety, but ALPA said in an Aug. 20 letter to 

Acting Deputy Administrator Cynthia Douglas that 

immediate action is needed to ensure aviation safety. 

“We have been most fortunate that the lithium-ion 

battery malfunctions … did not cause an accident, but 

luck is not a sound safety strategy,” ALPA President 

John Prater wrote. 

The DOT banned the shipment of non-rechargeable 

lithium batteries from passenger aircraft in late 2004. 

Non-rechargeable batteries pose a severe threat because 

lithium fires cannot be extinguished by Halon 1301, an 

FAA-certified fire suppressant. Rechargeable batteries are 

not as flammable and can be put out by fire extinguishers. 

During the summer, fire, smoke or evidence of fire 

associated with battery shipments occurred aboard 

three separate airliners, including a FedEx plane at 

Minneapolis-St. Paul airport with about 1,000 smokeless 

cigarettes and a UPS plane in Honolulu. 

In 2006, a battery fire destroyed a UPS freighter that 

made an emergency landing in Philadelphia. Following 

the incident, the National Transportation Safety Board 

recommended the batteries be more strictly regulated 

and tested. The Federal Aviation Administration has 

documented dozens of incidents involving lithium- and 

lithium-metal batteries. 

Computer makers in 2006 recalled millions of older 

generation batteries after a series of laptop fires. 

The ALPA has urged transportation officials for five 

years to classify lithium batteries as dangerous goods 

and require special packaging, labeling, marking, testing 

and pilot notification. 

“Now, the evidence of a clear and present danger is 

mounting. We need an immediate ban on these dangerous 

goods to protect airline passengers, crews and cargo,” 

said Mark Rogers, director of ALPA’s dangerous goods 

programs, in a statement. “If we are not able to secure 

these protections for the traveling public through swift 

regulatory action, we will ask Congress to immediately 

intervene to ensure the safe shipment of lithium batteries.” 

Transportation unions have been pushing since the 

Obama administration took office to include the changes 

in the FAA reauthorization bill. 

A ban threatens emergency shipments of batteries 

needed to power life-saving medical equipment such as 

portable oxygen concentrators, and restricts missioncritical 

battery deliveries to U.S. military installations, the 

Rechargeable Battery Association responded in writing 

to PHMSA. 

“A ban on such shipments would also disrupt distribution 

of many other products on which U.S. consumers, 

government agencies and businesses have come to rely,” 

the trade group said. Its position is that the batteries 


are safe to transport if properly packaged and handled. 

Government officials have said a shipment ban could 

lead unscrupulous companies to misidentify their cargo 

on shipping paperwork and labels. 

The battery industry urged PHMSA to move quickly to 

harmonize U.S. battery rules with much more stringent 

shipping and packaging provisions in place around the 

world. It also said PHMSA, which is responsible for 

hazmat rulemakings, and the FAA should more actively 

enforce existing U.S. regulations. 

The two agencies have not seen eye-to-eye in the past 

on lithium battery standards, contributing to bureaucratic 

inertia on new rules. PHMSA has been working on the 

rulemaking for at least two years. 

In each case above, the shipments failed to comply 

with existing hazardous materials regulations, including 

labeling and packaging requirements, the battery association 

maintained. “Similar flaunting of the regulations 

has been involved in virtually all the lithium ion battery 

shipping incidents over the last few years,” it wrote. 

The trade group rejected ALPA’s comparison of the 

three incidents with the UPS accident three years ago, 

noting that the NTSB stated the fire was initiated by an 

unknown source. That doesn’t mean batteries weren’t 

the most likely cause of the conflagration. 

As for PHMSA, it’s ridiculous that an agency can drag 

its feet so long on such an important safety issue. The 

DOT’s inspector general recently issued a scathing report 

documenting poor management practices throughout 

the agency and a lax attitude towards enforcement and 

working with other modal agencies in the department. 

Better rules and enforcement will make the industry 

safer and clear up uncertainty for shippers and carriers 

about shipping methods. 

Air Cargo Security Alliance reacts to coverage 

In my July column (page 36), I wrote about the Air 

Cargo Security Alliance’s attempt to get the Transportation 

Security Administration to conduct cargo 

inspections at airports in parallel with its initiative to 

push cargo screening on passenger planes to shippers. 

The group represents about 300 small forwarders and 

others who worry that the cost of self-screening will put 

them out of business. 

The point of my news analysis was to show that the 

logical outgrowth of their effort would be to derail the 

Certified Cargo Screening Program now being implemented 

to achieve 100 percent screening by 2010. It just 

seems a political reality that in these tough budgetary 

times the government isn’t going to run two separate 

screening programs. 

In a circular posted on its Web site and distributed by 

e-mail, the ACSA characterized my analysis as telling 

the air cargo industry to “drop dead,” and said that I was 

calling them a liar for having secondary motives. The 

tone of the document was much more negative than the 

letter to the editor from David E. Wirsing, principal of the 

ACSA, that we ran in the September issue (pages 2-4). 

The ACSA is off base in its memo. For one thing, the 

air cargo industry is broader than the ACSA, and many 

companies support the TSA program. Secondly, I never 

said the ACSA was lying in its public statements. I just 

analyzed the political situation to say that if the association 

was successful the end result would likely mean the 

CCSP would be replaced by government security checks 

and the ACSA wouldn’t be unhappy with that outcome.

TRANSPORT / AIR 

Security flight plan 

COAC, DHS tackle redundant air cargo regulations. 



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An advisory group to the U.S. Department 

of Homeland Security is 

creating a chart to show all competing 

security regulations and private sector 

standards facing the air cargo industry, and 

help policymakers coordinate decisions 

across government. 

The Commercial Operations Advisory 

Committee, composed of 20 industry 

participants, unveiled at its Aug. 5 quarterly 

meeting a draft matrix of air cargo 

security programs administered by the 

Transportation Security Administration, 

U.S. Customs and Border Protection and 

other organizations — and the resulting 

compliance demands on various parts of 

the supply chain. 

The goal of the exercise is to identify 

overlapping regulations and potential areas 

in which rules or operational practices can 

be fused to improve the efficiency of government 

agencies and reduce the impact 

on industry, said Barbara Vatier, managing 

director of cargo services for the Air Transport 

Association and chairman of COAC’s 

air cargo subcommittee. The matrix can 

also help lawmakers and regulators take a 

holistic approach when considering new rule 

changes, rather than addressing a narrow 

jurisdictional area without regard to existing 

requirements, she added. 

CBP’s Customs-Trade Partnership 

Against Terrorism is a voluntary program 

under which importers, air carriers and 

other trade sectors implement approved 

internal security controls governing the 

shipment of international cargo. A satisfactory 

field visit by CBP officers allows 

a company to gain status as a trusted 

shipper subject to fewer inspections. The 

TSA’s version of a domestic trusted shipper 

program is the new Certified Cargo 

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“There are a lot 

of commonalities among 

programs, but the details 

of the requirements 

are different because 

those programs are all 

serving different masters.” 

Kim Costner Moore 

assistant general 

manager for cargo 

security, 

U.S. Transportation 

Security Administration 

Screening Program that allows shippers 

and freight forwarders to prescreen their 

own cargo to avoid screening by airlines 

and potential airport delays. All cargo 

carried on passenger airlines, including 

international flights departing from U.S. 

airports, must be screened beginning next 

August, as mandated by Congress. The law 

applies to domestic inbound flights too, 

but TSA does not have the jurisdiction to 

implement the same program overseas. 

TSA also manages the Known Shipper 

Program for freight forwarders and passenger 

air carriers to qualify shipping clients, 

and other security requirements specific to 

sectors of the industry. 

The matrix is similar in concept to two 

detailed charts published in the spring 

of 2008 by the American Association of 

Exporters and Importers that provided a 

visual representation of all the international 

trade security regulations and advanced 

data filing requirements that industry faces. 

Expansion of security demands in recent 

years means a company like BDP International 

has to absorb the cost of training 

its personnel to comply with C-TPAT, 

TSA programs and Department of Transportation 

hazardous material handling 

requirements for air cargo, said COAC 

member Michael Ford, vice president of 

regulatory compliance and quality for the 

Philadelphia-based logistics provider. 

TSA and CBP officials said the chart 

is a useful tool for identifying potential 

regulatory streamlining at a high level, but 

noted that the subcommittee also found that 

what appears on the surface to be duplicate 

enforcement activities are often similar but 

not necessarily identical. 

“There are a lot of general commonalities 

among programs, but the details of the 

requirements are different because those

TRANSPORT / AIR 

programs are all serving different masters,” 

Kim Costner Moore, the TSA’s assistant general 

manager for cargo security, told COAC. 

Nonetheless, she added, there “definitely” 

are opportunities for DHS agencies 

to leverage each other’s strengths and 

improve harmonization, including through 

mutual recognition of companies that have 

passed a security review for C-TPAT or its 

TSA equivalent. That way a company in 

both programs would only have to provide 

certain information or get reviewed once. 

DHS is conducting a parallel review of 

its existing air cargo security strategy and 

how it can incorporate the best parts of 

industry security programs too, she added. 

TSA officials have previously acknowledged 

they are working to obtain the results 

from CBP’s Automated Targeting System, 

which analyzes cargo manifests, entry data 

and other information for risk to determine 

which shipments require inspection, and 

plug the international shipment data into 

an enhanced system of their own. 

CBP specialists have also demonstrated 

to TSA how they vet companies in C-TPAT 

and the two agencies are collaborating in 

other areas that may lead to integration of 

their programs. 

The TSA is also learning more about 

product safety programs administered by 

two other agencies — believed to be the 

Food and Drug Administration and the 

Consumer Product Safety Commission — 

to see if they can help meet the screening 

mandate because they have a very high bar 

for security, Costner Moore said at COAC’s 

previous meeting on May 6. She declined 

afterwards to go into detail because the 

security protocols are considered sensitive 

information that is only shared with 

regulated industry parties. 

If DHS were to establish a universal program 

that satisfies all the different agencies 

“it could possibly have the most stringent 

requirements and be more of a burden 

on the industry,” cautioned Aileen Suliveras, 

CBP’s director 

of cargo verification, 

at the May meeting. 

Acting CBP Commissioner 

Jayson 

Ahern agreed that 

it is better for the 

government to check 

for redundancies and 

possible unintended 

Ahern 

consequences before programs are implemented, 

as opposed to doing so after the 

fact. 

DHS made mistakes in that regard in the 

first few years after its creation in 2003 

because of the pressure to move quickly 

on anti-terror measures, he acknowledged. 

“As we continue to mature as a department, 

we’re learning from some of those 

rapid decisions we made. We need to coordinate 

much more than we did in those 

early years. 

“I think we’re on that path. We need to 

make sure we stay on that path going forward 

and have the right level of consultation 

up front,” Ahern said. 

Vatier said there really are two matrices 

at the moment because one includes sensitive 

security information, as defined by 

TSA, and that the goal is to sanitize that 

information and roll it into a single matrix 

for easier viewing. 

The COAC subcommittee will work 

with some outside experts to fill gaps in 

the compendium of security regulations and 

requirements, Vatier said. A final version of 

the matrix will be ready for the next COAC 

meeting on Nov. 4, along with recommendations 

on how to improve coordination 

between government agencies, she said. 

Interested parties are encouraged to view 

the security chart and submit suggestions 

to COAC. 

The draft air cargo security matrix can be 

found on CBP’s Web site (www.cbp.gov) by 

going to the Trade button, and then COAC 

under the Trade Outreach section. ■ 

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Rate increases seem like fuzzy math 

Here’s a simple question with a not-so-simple answer: 

how exactly do carriers arrive at their rate increases? 

The last two months have seen a veritable cavalcade 

of general rate increases on virtually every trade and 

involving most major container lines. 

Only the most hardened shipper or forwarder would 

begrudge carriers their chance to increase rates right 

now, but what must be vexing shippers is the seeming 

randomness of the increases. 

Five carriers operating in the same trade may levy 

different increases between the same origins and destinations. 

As an example, between August and September, 

CMA CGM began charging an extra $240 per TEU 

from the United States to Northern Europe, while Hanjin 

charged $150, Evergreen $200, Hyundai and Maersk 

Line $400, and NYK Line $250. 

Confusion is also added by the fact that a carrier may 

levy an across-the-board hike for shipments from a huge 

geographical area — case in point is a charge Mediterranean 

Shipping Co. announced Aug. 27 for U.S. and 

Mexican exports headed to Mediterranean ports. 

The carrier said the increase is $100 per TEU and 

$200 per FEU, effective Oct. 1, regardless of U.S. or 

Mexican point of origin. But doesn’t it seem preposterous 

that a $100 increase would be as appropriate for a 

shipment from New York as it would for a shipment from 

an inland origin like Kansas City? Or better yet, from a 

more inaccessible inland point in Mexico? 

Evergreen did much the same, with its $200-per-TEU 

increase applying to all shipments to Europe leaving 

U.S. West or East Coast ports. Yet for U.S. exports to 

Asia, the carrier charged different rates for intermodal 

shipments than it did for shipments from Los Angeles 

or Oakland ($80 per TEU versus $40 per TEU for metal 

scrap, as an example). 

Another perplexing feature of these increases is the 

manner in which they’re being applied depending on the 

size of the container. Some carriers are merely doubling 

TEU increases to arrive at their FEU increases (like 

the MSC example above). Others are charging a fraction 

higher than the TEU increase (like Hanjin, which 

is levying a $150 per TEU and $225 per FEU increase 

from the United States to Northern Europe). 

Still more confusion comes from the fact that some 

carriers delineate between commodities for their rate 

increases while others apply one rate to all cargo. 

The sheer number of individual hikes in recent weeks 

is staggering. 

As of Aug. 20, maritime consultant Dynamar compiled 

a list of 100 rate increases (or peak season surcharges 

masquerading as rate increases) across all the major 

global trades. All were due to go into effect from early 

August to Oct. 1. In the week that followed the report, five 

announcements by four carriers detailed rate increases 

or peak season surcharges on 21 sub-trades. 

I suppose the first notion is to pin the raft of increases 

on the breakup of carrier conferences in the past year. 

Those conferences, for better or worse, provided clear 

direction on rates and surcharges. Now that lines trading 

in and out of Europe (as well as India and, nominally, 

China) aren’t allowed to cooperate on rate-setting, it’s 

every carrier for itself. 

That leads to differences in rates and differences in 

methodology. 

Look more closely at the U.S.-to-northern Europe 


increases. Hyundai and Maersk have charged the largest 

increases, and that’s not all too surprising given 

the way those two lines (though vastly different in size 

and makeup) have responded to the U.S. export and 

intermodal markets. 

Maersk famously pulled out of a host of inland points 

in the middle of 2007, citing the escalating cost of inland 

transportation. U.S. railroads have been holding 

firm on intermodal rates while ocean freight rates have 

nosedived in the past year, so the inland component of 

total shipping costs has only been magnified. 

As for Hyundai, Senior Vice President Brian Black 

told American Shipper in June that the carrier was going 

to focus on “prudent decisions on pricing power,” 

and that “we weren’t going to engage in port pairs that 

didn’t make sense for us.” He did say that provided some 

opportunities in the U.S. intermodal market left behind 

by other carriers, but he emphasized Hyundai’s priority 

was on finding viable streams of business. 

In other words, Maersk and Hyundai have decided 

that shipping from the United States to Europe involves 

a certain cost and, publicly at least, they aren’t willing 

to go under that cost to secure volume. 

This is not to imply that Hanjin, for example, is providing 

lower quality service or is searching for market 

share with lower rate hikes. Nor is it to suggest Hanjin 

has found the magic bullet in transatlantic service that 

allows it to provide container transportation at $250 less 

per TEU than its compatriot carrier. 

There are so many functions that go into total rates 

that it’s virtually impossible to pinpoint where all these 

carriers are coming from in arriving at their figures. 

What is certain is that it makes things complex for 

shippers, particularly those that use multiple carriers. 

Rate and surcharge increases are a normal function of 

the shipper-carrier relationship, but so many have come 

so fast that it could make it difficult for shippers to accurately 

determine which carriers are right for them on 

each of their specific lanes. 

With bunker costs and the relevant surcharges now on 

the rise, don’t look for the confusion to end anytime soon. 

The Westbound Canada Stabilization Agreement, 

which represents 10 lines moving containers from Asia 

to Canada, said in late August its bunker surcharge 

for October will rise more than 60 percent. It will be 

interesting to see whether, as bunker surcharges rise, 

lines will be able to keep recouping these rate increases. 

A.P. Moller - Maersk Chief Executive Officer Nils 

Andersen said in August that the current rate increases 

weren’t nearly enough to be considered sustainable, and 

that more increases are needed. Lines welcome the revenue 

that bunker surcharges bring, but it won’t address 

the issue of low rates not covering all their other costs. 

But during a conference call with analysts as Maersk 

announced its first half results, Andersen also said something 

quite interesting about the structure of rates. His 

remarks were in response to a question about whether 

bunker surcharges would rise in the second half if oil 

prices rose as expected. 

“We were quite successful in 2008 in introducing 

(bunker surcharges), but when the crisis hit it became 

a blurred picture,” he said. “It’s more reliable to include 

the total rate, including (bunker surcharge), but it reflects 

the reality of the market.” 

In other words, by rates or surcharges, expect to pay 

more the rest of 2009.

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The best way to move your cargo

P irate 

Busters 

Are private security 

contractors the best 

form of vessel 

protection? 


Pirate attacks on commercial vessels in the Gulf 

of Aden and off the eastern coast of Somalia are 

expected to spike again as the end of the monsoon 

season in September ushers in calmer weather. 

Wind strengths of 18 knots and waves above 6.5 feet are 

considered enough to usually deter pirates who operate in 

small skiffs. 

Last year 111 ships were attacked off the coast of Somalia 


and 42 were successfully captured out of 

more than 21,000 ship transits. That translates 

into one in 500 ships, or 0.2 percent, 

that are taken hostage. Ship owners paid 

about $100 million in ransom to get ships 

and crews released. There were as many 

attacks by May of this year as all of 2008. 

Although a few multinational naval task 

forces and vessels from individual nations 

continue to patrol the region to deter and 

defend against pirates, commercial vessel 

operators are primarily responsible for 

protecting themselves at sea. 

Shipping industry officials say the most 

vulnerable ships, based on previous patterns 

of successful pirate attacks:

TRANSPORT / OCEAN 

• Travel at low speed. 

• Have low freeboard (distance 

from waterline to main 

open deck). 

• Have inadequate response 

planning and procedures in place. 

• Do not maintain a high state 

of alert or signal that they have 

self-protective capabilities. 

• Are slow to respond to an 

attack. 

Most attempted ship raids have 

been repulsed by crews, who have 

planned, trained and employed 

passive counter measures such 

as zig-zag maneuvers, fire hoses, night 

vision optics, transiting at night and even 

dummies posted at the rails to simulate 

additional lookouts. 

Some vessel operators have employed 

unarmed — and in a few instances, armed 

— security forces to help set up defensive 

tactics and repulse attacks while transiting 

the region. Most operators are reluctant 

to use armed security because of liability 

concerns if a guard injures or kills someone, 

a maze of differing firearms restrictions 

among international ports, and a potential 

for more violent pirate responses. 

The U.S. government should press other 

flag-nations to ensure that ocean carriers 

comply with the International Ship and Port 

Facility Security Code and adopt best security 

practices, according to a recent report 

on piracy from the Heritage Foundation. 

In May, the U.S. Coast Guard issued a 

security directive requiring U.S.-flagged 

vessels to conduct risk assessments of their 

vessels, develop anti-piracy plans, and 

establish communications with military 

forces in the area. The sea service recommended 

the use of several non-lethal 

precautions and that the industry should 

consider supplementing crews with armed 

or unarmed security personnel. 

Many ocean carriers are betting on 

the low odds of pirate attack rather than 

spending heavily on security measures 

because the shipping industry, which has 

modest margins even in the best of times, 

is being ravaged by the global recession 

and low rates. 

Nonetheless, for carriers operating 

around the Gulf of Aden costs have risen 

through higher insurance premiums, higher 

fuel costs and fewer revenue-making trips 

for the limited number of tankers and other 

high-risk vessels sent around Africa rather 

than through the Suez Canal short cut, and 

ransoms in the $1 million to $2 million 

range for captured ships. 

One tactic companies have neglected 

so far is to hire private security vessels to 

serve as a “picket” for commercial shipping. 


Many ocean carriers are betting 

on the low odds of pirate attack rather 

than spending heavily on security 

measures because the shipping industry, 

which has modest margins even 

in the best of times is being ravaged 

by the global recession and low rates. 

Private escorts could interdict pirate 

ships, chase them away from commercial 

vessels and then prevent the attack skiffs 

from rejoining their mother ship by using 

non-lethal means to incapacitate or deter 

the pirate craft, the Heritage Foundation 

report said, without any reference to the 

potential cost of such an option compared 

to onboard security. 

Private security firms Glenn Defence 

Marine Asia and Background Asia Risk 

Solutions, in particular, provided vessel 

escorts during the height of the piracy 

scourge in the busy Straits of Malacca, 

according to Patrick Cullen, an expert on 

private military companies. Piracy has 

markedly declined there since 2005 after 

the littoral states — Indonesia, Malaysia 

and Singapore — made a concerted effort 

with help from the international community 

to beef up ocean and air security patrols. 

Blackwater USA, the notorious private 

security firm that recently changed its 

name to Xe Services LLC, saw a business 

opportunity to protect cargo vessels in the 

Gulf of Aden and two years ago invested 

in a security ship and crew. It bought and 

refurbished a 40-year-old National Oceanic 

and Atmospheric Administration vessel 

outfitted with inflatable speed boats with 

rigged hulls, hand-launched unmanned 

aerial vehicles and a landing pad capable 

of handling a couple of small 

helicopters for surveillance and 

forward defense. 

The venture was shut down because 

of lack of interest from ship 

owners, partly due to costs; ship 

owners’ reluctance to do business 

with a security contractor whose 

armed guards were accused of 

using excessive force in several 

deadly incidents in Iraq; and the 

fact that its ship, the McArthur, 

was too slow and couldn’t keep 

up with the vessels it needed to 

escort, according to insurance 

and private security industry experts. 

French security firm Secopex also provides 

armed onboard security teams and 

vessel escorts, according to its Web site. 

Escorting ships is a traditional state navy 

responsibility. International forces have 

set up patrolled transit lanes in the Gulf 

of Aden and offered a limited number of 

scheduled escorts through the waterway. 

The lack of demand for security boats 

to shadow cargo ships is a function of the 

available naval presence and the relatively 

small number of attacks, said Claude Berube, 

an instructor in the political science division 

at the U.S. Naval Academy, in an interview. 

Private escort ships can provide armed 

security hundreds or thousands of meters 

from the vessel, eliminating having armed 

riders onboard, which ship operators believe 

could escalate violence and threaten 

their ships, crews and insurance rates. 

But the escort ships are not a viable option 

unless pirate attacks substantially increase 

or naval force protection decreases, Berube 

said. At that point, shipping companies 

would have to undertake a cost-benefit 

analysis to see whether a guard ship was 

worthwhile. 

“I don’t think the level of piracy has 

reached the level where private escort ships 

would be affordable to private shipping 

companies. So there’s the theoretical aspect 

The U.S. government significantly increased its focus on Somali pirate 

attacks after the U.S.-flag Maersk Alabama was hijacked and required a 

military rescue of its captain last spring.

and then there’s the practical application,” 

he said. 

And for-hire gunboats calling 

at regional ports to resupply 

experience the same problems 

with differing firearms restrictions 

that discourage commercial 

ocean carriers and private yachts from carrying 

weapons onboard, added Berube, a 

Navy reservist who conducted anti-pirate 

operations while on active duty. 

One of the ways some security firms deal 

with the restrictive firearms laws is to dump 

their weapons over the side before entering 

a port at the end of their tour, said Cullen, 

who is now teaching at the Barcelona Institute 

for International Studies. 

Another best practice recommended by 

the Heritage Foundation’s Maritime Security 

Working Group is for vessel operators 

to install alternative detection technologies, 

such as long-range high-definition camera 

systems that can track smaller, fast-moving 

targets. These systems would compensate 

for the limitations of navigation radars. 

Many other recommendations in the 

report reflect consensus positions heard 

often in the press. Few of the 20 members, 

aside from lead author James Carafano, 

have notable naval or maritime industry 

experience, especially as it pertains to 

To read an updated version of best practices 

for shipping managers to deal with Somali pirates, 

go to Intertanko’s Web site at www.intertanko.com 

To read the Heritage Foundation report on piracy, 

visit www.heritage.org/Research/NationalSecurity 

piracy. Carafano is a former Army officer 

who has garnered a reputation for being 

knowledgeable about a broad range of defense 

and homeland security matters in his 

role as a senior research fellow at Heritage. 

The Heritage Foundation 

report also 

called for the United 

States to increase the 

size of Navy and Coast 

Guard fleets to have 

the resources to police 

hot spots around the 

world in addition to 

performing traditional 

Carafano 

missions. Over time, the Coast Guard should 

replace the Navy as the primary service 

tasked with combating piracy, because it 

is better suited to deal with maritime law 

enforcement issues and assist regional allies 

in building up their own coast guards and 

maritime security programs, it said. 

As part of that capacity-building effort, 

the United States should help establish a 


regional joint maritime patrol to 

combat piracy and provide equipment 

and training to regional 

allies, including the sale of Littoral 

Combat Ships, unmanned 

aerial vehicles and electronic 

intelligence-sharing systems to 

Saudi Arabia, the report said. 

Congress has increased funding for the 

Coast Guard in recent years, but the money 

is still far short of the amount needed for 

modernization and its expanded homeland 

security mission since 9/11. Heritage, a 

pro-defense think tank, urged Congress 

to accelerate the Coast Guard’s investment 

schedule by providing $2.5 billion a year 

so that aging cutters, aircraft and other 

equipment are replaced within 10 years 

instead of 20. 

The reduction of U.S. and European 

naval fleets during the past 20 years puts 

a premium on collaboration among naval 

forces, naval experts say. Coordination 

among the various international task forces 

and national missions in the region has improved 

during the past 18 months, but there 

are still differences in rules of engagement, 

command-and-control, capabilities and 

standard operating procedures that limit 

the effectiveness of the various efforts. 

The Heritage report said a joint naval 

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“If piracy were occurring 

on or near U.S. waters 

there’d be a lot more 

resources thrown at it.” 

Stephen Caldwell 

director of maritime 

security and Coast 

Guard issues, 

U.S. Government 

Accountability Office 

force, working through the United Nations, 

should blockade Somali and other ports 

known as pirate refuges, to help dry up 

local popular support for pirates and obtain 

intelligence on their activities. 

It also recommended the U.S. Treasury 

Department impose sanctions on financial 

institutions linked to piracy, or prohibit 

insurance claims on ransom paid to pirates 

because indemnifying ship owners 

for ransoms creates an incentive for more 

hijackings. 

It is against the law for insurance companies 

to directly pay claims for ransoms, 

but ship owners often take out an extra 

Kidnap and Ransom (K&R) policy over 


their normal marine insurance to cover 

such contingencies. 

Insurance companies have recently produced 

new K&R policies specifically for 

maritime piracy and kidnapping, according 

to Michael Frodl, a Washington-based attorney 

who works with specialty insurance 

companies. The new policies cost about 

$30,000 per transit for up to $3 million 

in coverage and include reimbursement 

for legal and security costs, but have not 

caught on with ocean carriers yet, he said. 

A condition of traditional or new K&R 

policies is that the customer can’t let anyone, 

including the crew, know about the coverage 

so that pirates don’t target ships for their 

guaranteed insurance payout. 

Frodl said any attempt to restrict K&R 

policies would be met with stiff resistance 

from the insurance and shipping industries. 

The United States and Britain have 

mounted modest efforts to trace ransom 

payments through the financial system 

to their recipients without notable results. 

Officials agree that the root cause of 

the piracy problem is the lack of a central 

governing authority in Somalia since 1991. 

The Transitional Federal Government now 

in place controls little of the country and 

does not have popular legitimacy. 

The Heritage report suggested that the 

international community should help legitimate 

tribal and other authorities without 

links to terrorism or piracy to encourage 

a bottom-up governance structure. 

Last spring, Somali Prime Minister 

Omar Abdirashid Ali Sharmarke offered 

to share information on pirate leaders it 

has identified with the United States and 

other countries in exchange for combat 

resources. The government presented a 

plan to U.S., European Union and other 

diplomats to build up military forces and 

establish intelligence-gathering posts along 

its coastline to prevent pirates from heading 

to sea, the Associated Press reported. 

The Heritage report and other experts acknowledge 

that vital U.S. national interests 

are not at stake because the U.S. merchant 

fleet is so small and represents a tiny amount 

of traffic around the Horn of Africa. There 

are only two or three U.S.-flag vessels 

operating in the eastern Indian Ocean and 

Gulf of Aden at any given time, typically 

hauling U.S. food aid to countries such as 

Kenya, or carrying U.S. military cargo 

under contract with the Military Sealift 

Command. The U.S. Navy places armed 

marines onboard vessels carrying military 

cargo. The U.S. government significantly 

increased its focus on Somali pirate attacks 

after the U.S.-flag ship Maersk Alabama 

was hijacked and required a military rescue 

of its captain last spring. 

The primary threat from not effectively 

dealing with Somali pirates is that their 

successful tactics could be “exported” to 

other regions and used by other state and 

non-state actors against U.S. economic 

and security interests, security experts say. 

They are concerned that piracy could 

then morph into maritime kidnapping 

where the crew, rather than the vessel, is 

the prize possession and is spirited ashore 

into dangerous hideouts that make rescue 

all but impossible, Frodl said. Somali pirates 

can park captured vessels in Somali waters 

without fear of retribution because there is 

no viable Somali authority and international 

forces will not enter territorial waters. Other 

countries are not likely to allow the same 

level of operational freedom to rebels or 

criminal gangs, who are more likely to 

extract crewmembers from the ship and 

infiltrate them into places onshore that are 

inhospitable to Westerners. 

“The fear is that criminal gangs will recognize 

that people in the shipping business 

will pay serious money to get their crews 

back,” he said. 

Stephen Caldwell, director of maritime 

security and Coast Guard issues for the 

U.S. Government Accountability Office, 

seconded the notion that aggressively fighting 

piracy or helping to rebuild Somalia is

American Shipper+ 

Additional piracy Web-only content 

COMMENTARY: Study needed better balance 

Eric Kulisch questions the content — and the consultants — 

assembled for the Heritage Foundation’s report on piracy. 

Rent-a-navy 

Yemen offers to protect vessels from pirates — for a fee. 

not a required action but a policy choice. 

But he questioned the need for a global 

constabulary maritime force beyond existing 

Navy and Coast Guard capabilities, 

saying there is not much insecurity in the 

maritime domain besides the Gulf of Aden 

and the Caribbean, where drug running 

and illegal immigration are the primary 

concerns. 

The idea that the Coast Guard should 

take the lead in any piracy mission makes 

sense in that the sea service may have some 

legal authority or experience that gives it 

an advantage over the Navy in terms of 

arresting people and gathering evidence 

for prosecution. But taking on such a role 

would also require a logistics capability that 

it currently doesn’t have, Caldwell said at 

a Heritage discussion forum in mid-July. 

The best tools to fight pirates may be 

small patrol boats, and “these assets don’t 

have very long legs” considering they have 

a three-day range out of U.S. ports, the 

analyst said. Operating Coast Guard units 

on a regular basis in the Indian Ocean or 

elsewhere would require development of 

a new resupply system or even maritime 

stations to support remote forces. 

Caldwell, who works for the watchdog 

arm of Congress, also said lawmakers don’t 

have the appetite to increase spending on 

the Coast Guard’s Deepwater modernization 

program, especially considering the 

Obama administration’s long-range budget 

plan essentially flatlines the Department 

Beware of dog! 

SEAL ship security teams use attack dogs as last line of defense. 

Piracy sparks insurance plunder 

Increase in attacks, security requirements, translate 

to higher premiums for ship operators. 

Exclusive Web content available ONLY at 

www.AmericanShipper.com/web 

of Homeland Security’s budget during the 

next 10 years. 

Congressmen and senators want new 

Coast Guard resources directed to local 

maritime safety and search-and-rescue 

capabilities, although the House version 

of the DHS appropriations bill includes 

$241 million to cover Coast Guard overseas 

deployments, including operations 

in the Persian Gulf and against pirates off 

the Somalia Coast. In previous years, the 

money was included in Defense Department 

funding and transferred to the sea service. 

“Most are more worried about keeping 

their own ports safe with a Coast Guard 

that’s more domestically based than they 

are with pirates going after a ship that is 

not U.S.-flagged and not U.S.-owned,” 

Caldwell said. “If piracy were occurring 

on or near U.S. waters there’d be a lot more 

resources thrown at it.” 

The Coast Guard itself has gone on 

record against any acceleration of the fleetbuilding 

program because it is still having 

difficulty taking over as lead systems 

integrator from gaffe-prone contractors 

and building up its contract management 

staff to oversee the project. The Deepwater 

program has been plagued by huge cost 

overruns and new vessels that had to be 

repaired because they didn’t work. 

It will take at least five more years before 

the Coast Guard realizes the full capability 

of the new National Security Cutters, 

Caldwell said. Contractors originally said 


that eight new cutters could do the work of 

12 legacy vessels because they would have 

unmanned aerial vehicles and small boats 

to increase surveillance and patrol range, 

but those systems won’t be fully assimilated 

until 2015, Caldwell predicted. 

The piracy situation provides a potential 

opportunity to develop small boat tracking 

systems, the GAO official said. U.S. 

maritime authorities can easily track large 

vessels offshore, but DHS has listed small 

boat attacks on critical infrastructure as 

a top area of concern. Caldwell said antipiracy 

operations could serve as a test bed 

for small vessel tracking technologies. 

Another silver lining is the Somali 

pirate threat has increased coordination 

among navies that normally don’t work 

together. U.S. Navy officials say the level 

of engagement has reached levels never 

seen before and may pay off in the future 

when dealing with other crises, according 

to Caldwell. 

“The reality is we’re going to have smaller 

navies, but perhaps we can leverage them 

better” and team with the Coast Guard to 

achieve the same results as a single large 

force, he said. 

The GAO plans to begin an analysis of 

the piracy situation later this year. ■ 

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Troubled 

waters 

Zim, CSAV and Hapag-Lloyd 

fight for their lives as shareholders 

double down on struggling lines. 

A 

group of shareholders of the parent company of 

embattled Israeli liner carrier Zim posited a simple 

theory to executives of the line in late August. 

The only reason Zim was in trouble right now, the shareholders 

said, was because of the ship-ordering binge it embarked 

upon in 2004. The context of this accusation was a meeting 

of Israel Corp.’s shareholders, where they were being asked to 

essentially provide the sandbags to Zim’s overflowing river. 


ANALYSIS BY ERIC JOHNSON 

The line has been leaking cash the past 

two years and sorely needs an injection of 

capital that will see it through the leanest 

period in the container shipping industry 

since the cargo box was invented. 

Zim is not alone. From Haifa to Valparaiso 

to Hamburg, some of the most 

famous names in ocean shipping are severely 

teetering. 

Chilean line CSAV has needed its own 

shareholders and ship charterers to provide 

some $700 million in relief, after first half 

losses hit $413 million. 

German carrier Hapag-Lloyd, meanwhile, 

has needed the financial backing of 

its two groups of major shareholders — a 

consortium of Hamburg businessmen who 

bought a 57 percent stake in the line in 

fall 2008, and tourism giant TUI, which 

formerly owned Hapag-Lloyd, but now 

has a 43 percent stake. The two groups 

have committed to inject $1.3 billion into 

the line in order to secure additional state 

backing from the German government 

worth $1.2 billion. 

What all these scenarios have in common 

is the swiftness with which multibilliondollar 

brands have been placed in peril, 

and the extent to which shareholders are 

being asked to retain faith in their business 

models. 

But back to the shareholders being asked 

to bolster Zim. Their statement — that the 

line’s own ambitious expansion problem 

was to blame — was quickly rebuffed by 

Zim, according to a report Aug. 20 in the 

Israeli business newspaper Globes. 

“The company would have been in crisis, 

irrespective of the procurement plan,” said 

Alon Raveh, Zim chief financial officer, in 

response to the shareholders’ worries. “The 

crisis is affecting all companies.” 

Much the same sentiment was put 

forward by Rainer Feuerhake, CFO of 

TUI, the 43-percent stakeholder in Hapag- 

Lloyd. 

“What we are doing with Hapag-Lloyd 

is safeguarding our investment,” he said. 

“There is a very serious situation. If we 

do not give them a very stable financial 

framework, Hapag-Lloyd could be in immediate 

danger.” 

Feuerhake was describing to industry 

analysts the reasons why Hapag-Lloyd’s 

shareholders were engrossed in make-orbreak 

talks about providing a cash infusion 

to the line. 

The words may have been different, but 

the message was the same: save us now, 

and you’ll thank us later. 

Or more precisely, late 2008 and the 

whole of 2009 is a historically bad passage 

of time for liner carriers and companies 

involved in this business deserve not to


Keys to navigating troubled waters 

Zim 

• Parent company Israel Corp. has pledged to inject $350 million. 

• Facing $1 billion cash shortfall through 2013. 

• 29 ships on order, representing 244,604 TEUs or 88.9% 

of current capacity. 

• Lost $304 million in first half of 2009. 

CSAV 

• Shareholders have agreed to a series of cash infusions totaling $365 million. 

• German ship owners who charter to CSAV have 

agreed to $360 million in equity-charter rate-reduction 

swaps. 

• 22 ships on order, representing 128,763 TEUs or 45.8% of current capacity. 


Hapag-Lloyd 

• Shareholders have committed $1.3 billion through cash injections are 

equity for asset sales. 

• German government and city of Hamburg expected 

to provide $1.7 billion in loan guarantees. 

• 14 ships on order, representing 122,500 TEUs or 25.8% of current capacity. 


Source: American Shipper, Alphaliner. 

be judged for their performance this year. 

Zim, CSAV and Hapag-Lloyd make up 

the troika of publicly traded liner carriers 

having a bad go of it, but other lines are 

struggling mightily, too: 

• In a two-day period in August, APL, 

Hanjin Shipping and OOCL posted combined 

first half losses of $978 million. 

• One week prior, Japan’s big three 

carriers — NYK, MOL and “K” Line — 

posting $623 million worth of losses in 

their first quarters. 

• In late August, Maersk Line said it 

lost $829 million in the first half of 2009. 

The numbers are truly eye-gouging. 

But despite sizable losses for every 

major carrier this year, the woes of Zim, 

Hapag-Lloyd and CSAV have stood out. 

None of the three enjoy the sort of protection 

that analysts believe major carriers in 

Asia have from their national governments. 

For instance, whispers have circulated that 

China Shipping is severely struggling, but 

those rumors haven’t gained much traction. 

The theory goes that Beijing wouldn’t 

possibly let one of its two flagship lines 

go under. 

NOL, parent company of APL, recently 

needed to hold a rights issue to raise $1 

billion for its ailing liner carrier. But the 

rights issue (essentially an in-house initial 

public offering) was oversubscribed, suggesting 

that no one is too worried about 

APL’s long-term success. 

So the three seem to stand alone, albeit 

for very different reasons. The profiles 

of Zim, Hapag-Lloyd and CSAV could 

hardly be much different — Zim, with its 

medium-sized fleet of relatively small vessels, 

and massive order book compared to 

its current capacity; Hapag-Lloyd, with a 

huge fleet thanks to its acquisition of CP 

Ships; and CSAV, with a fleet composed 

almost entirely of chartered vessels. 

Yet they all find themselves short of that 

most precious 2009 commodity — day-today 

cash. The cash infusions requested of 

shareholders are necessary to keep the lines 

liquid in the short term. It also points out 

that the three carriers have little diversified 

business to fall back on — they are container 

lines through and through. 

Juxtapose that with the Big Three in 

Japan, or Korea’s Big Two of Hanjin and 

Hyundai. All five lines are also losing money 

this year, but they have other sources of 

revenue, like bulk shipping or shipbuilding. 

Or better yet, compare the fortunes 

of Zim, Hapag-Lloyd 

and CSAV to top dog 

Maersk. Yes, the Danish 

line lost $829 million 

in six months, but 

that line is merely a 

unit within the larger 

A.P. Moller - Maersk 

Group, which has 

major oil interests. 

Andersen 

Maersk Chief Executive Officer Nils 

Andersen said in late August the company 

had no cash f low problems (despite its huge 

losses) and that major debt repayments 

wouldn’t be due until 2012, by which time 

nearly everyone thinks the liner shipping 

industry will be in decent shape. 

Marginalized. Then there are the 

operational differences. Zim, essentially 

a European carrier, is finding itself languishing 

on what should be its core trade 

— Asia/Europe. As of ComPair Data’s 

March World Liner Supply report, Zim 

had only 1 percent of the nearly 270,000 

TEUs of weekly capacity between Asia 

and Europe. 

Zim has been partnering this year with 

the Grand Alliance (of which Hapag-Lloyd, 

incidentally, is a member), giving it somewhat 

of a boost, but the point is that Zim 

is being marginalized in a trade where the 

biggest players use their biggest ships. 

Of the four services it offers between 

Asia and Europe, it buys slots on three. On 

two of those, Zim is crowded onto Grand 

Alliance-New World Alliance joint loops, 

while on the third it shares space with CMA 

CGM and IRISL on an Evergreen-China 

Shipping service. 

Indeed, Zim ships were employed on only 

one service between Asia and Europe at the 

end of August, according to ComPair Data. 

That was Zim’s own EMX service, on which 

the Grand Alliance and China Shipping take 

slots. The 4,300-TEU average size vessel 

on that service may be right-sized for this 

historically low demand trough, but that 

likely won’t cut it when demand rebounds 

and other carriers are using bigger, more 

efficient ships. The three loops on which 

it takes slots are all operated with vessels 

averaging 7,500 TEUs or larger. 

With its ship-ordering binge, Zim had 

intended to join those ranks. The first two 

of those ordered ships — the 10,000-TEU 

Zim Djibouti and 8,400-TEU Zim Los Angeles 

— were delivered in July and they 

are operating on the Grand Alliance’s PNX 

transpacific service. On the transpacific, 

Zim operates vessels on three services and 

buys slots on three others. 

Aside from the PNX, Zim provides 

three vessels on a Grand Alliance all-water 

transpacific service (SEC) to the U.S. 

East Coast. Zim also runs its own 14-ship 

Mediterranean/U.S. East Coast/U.S. West 

Coast/Asia/U.S. East Coast/Med pendulum 

(ZCS). But that pendulum only offers Asia 

to U.S. East Coast direct service, as the 

eastbound routes from Busan go straight 

to the Panama Canal. 

On the transatlantic, aside from the 

ZCS, Zim provides one vessel on a Grand 

Alliance U.S. East Coast/Northern Europe 

service and buys slots on two others. 

In total, Zim runs just two major services 

on the three main east/west trades. Of the 



Israel Corp. shareholders blame Zim’s ship-ordering binge — which included 

the Zim Dijbouti, pictured at Port Metro Vancouver — for the embattled 

carrier’s financial troubles. 

90 ships in Zim’s fleet, only 30 are deployed 

on those three key trades. 

Similar Dreams. CSAV harbored 

ambitions similar to Zim when it ordered 

nearly two-dozen vessels representing 

nearly 129,000 TEUs of capacity, a pervessel 

average of 5,852 TEUs. Its current 

fleet of 86 vessels, of which all but seven 

are chartered, averages 3,267 TEUs in 

size, according to maritime news service 

Alphaliner. 

Rocked by losses last year and this year, 

CSAV has been actively trying to delay 

orders and renegotiate ship chartering rates. 

The line reported to the Santiago Stock 

Exchange in August that an order for 

four 12,600-TEU vessels from Samsung 

Heavy Industries has been converted to 

an order for five 8,000-TEU vessels, and 

that the delivery dates have been pushed 

back one year, to mid-2011. The smaller 

vessels will be, as Alphaliner put it, more 

manageable for the line and could either go 

into service in CSAV’s East Coast South 

America/Europe service or to its Far East/ 

Middle East service operated by subsidiary 

CSAV Norasia. 

So that’s one success. But like Zim, 

CSAV faces concerns on what should be 

its core trade. 

In 2008, former partners Maersk and 

CMA CGM left CSAV to start their own 

South America/Europe services, and the 

European giants have come to compete. 

From the North Coast of South America 

to Europe, for instance, CMA CGM operates 

three services and Maersk one to 

CSAV’s two. 

From the East Coast of South America 

to Europe, Maersk operates two dedicated 


services and CMA CGM operates two, plus 

provides vessels on a separate Hamburg 

Süd service. CSAV, meanwhile, operates 

only one. 

Zim and CSAV are near the bottom of the 

Top 20 biggest container lines, but Hapag- 

Lloyd sits at No. 6 (September American 

Shipper, pages 40-43). 

That Hapag-Lloyd has been hit with 

similar financial concerns should be more 

distressing to the industry at large. 

The line doesn’t have an outrageous order 

book of vessels, nor did it gamble on megaships. 

The line’s management seems to be 

of the opinion that the demand downturn 

and rate slump are all to blame, and it said 

so in an Aug. 20 notice to customers about 

the shareholder cash injection. 

“The reason for this step is that Hapag- 

Lloyd could not avoid the consequences of 

the far-reaching crisis affecting the entire 

shipping sector, even though we already 

initiated a comprehensive savings program 

last year,” the notice said. 

Hapag-Lloyd surely hadn’t banked on 

such a depressed environment when it 

bought CP Ships a few years ago. And 

unlike Maersk, which struggled mightily 

to integrate its acquisition of P&O Nedlloyd, 

it doesn’t have other business units 

on which to fall back. TUI, a successful 

tourism conglomerate, didn’t want to act as 

a counterweight to Hapag-Lloyd’s declining 

profits and was prescient in selling off 

more than half of the company last year. 

Structurally Sound. That said, TUI’s 

Feuerhake said the reason the shareholder 

infusion went through — and the reason 

the aid package from the city of Hamburg 

and German government is expected to do 

likewise — is that Hapag-Lloyd remains 

a sound business in a long-term growth 

industry. 

“We had to make sure that the cash 

flow problems were a result of the market 

situation and not because of structural 

problems,” he said. “And the auditors have 

determined that we don’t have structural 

problems.” 

Hapag-Lloyd, as an integral member of 

the Grand Alliance, enjoys a reasonably 

strong position in all the major east/west 

trades, including a leading position on the 

transpacific to Northern Europe. 

As such, it doesn’t face the marginalization 

that CSAV and Zim are facing. 

However, Hapag-Lloyd is in a group within 

the Top 10 carriers that is struggling under 

the weight of large fleets in a depressed 

demand environment. 

CMA CGM, at No. 3, has had its debt 

rating downgraded a couple times this 

year amid worries that its vessel ordering 

strategy has overstretched its means. The 

French carrier, which is not public, has 

argued that it is being unfairly singled out 

for the ills of the entire industry, and that 

it is in a strong position. Zim, by the way, 

also was put on Standard & Poor’s Credit 

Watch in mid-August and had its bond rating 

downgraded from BB+ to B-. 

No. 4 Evergreen has withdrawn capacity 

and partnered with other carriers on trades 

where it previously operated alone. No. 5 

APL has withdrawn 14 percent of capacity 

and needed the above-mentioned $1 billion 

rights issue. Little official word has come 

from Chinese carriers COSCO and China 

Shipping other than huge first half losses 

of $632 million and $497 million, respectively. 

China Shipping has led the pack in 

terms of ship idling, with 21 percent of its 

fleet laid up. 

Decisions, Decisions. Of course, 

this all comes back to ship ordering. While 

executives may argue that the economic 

downturn would have hit their carriers 

badly regardless of whether a single ship 

was ordered, that’s a tough argument to 

make. 

Is it truth, fiction or hubris that is leading 

executives of the troubled lines to say that 

they can’t be held too responsible for this 

historic downturn? That their companies 

are structurally sound and will make money 

in the long-term? 

There are two crucial questions for those 

being asked to prop up these unprofitable 

lines for the short-term: 

• Should the lines be held accountable 

for poor decisions made before the economic 

downturn. 

• Will the long-term profitability of the

Is it truth, fiction or hubris 

that is leading executives 

of the troubled lines 

to say that they can’t 

be held too responsible 

for this historic downturn? 

That their companies 

are structurally sound 

and will make money 

in the long-term? 

If, as most analysts believe, ocean 

shipping will once again become a wildly 

lucrative business, then it makes sense for 

shareholders to endure pain over the next 

three years. But will that success necessarily 

include Zim and CSAV? The two 

lines are at a disadvantage right now in 

that they have limited ability to expand 

organically, or through acquisition, during 

this depressed market. 

Think of it in terms of all those investors 

who wished they had cash reserves 

when the stock market hit its low point. 

There were bargains to be had, but few 

people had any cash to buy them. Zim 


and CSAV will be in much the same boat 

during this lean cycle, and while they may 

very well make it through the rebound, 

what will be their competitive position 

at that point? 

Zim’s shareholders were able to push 

through an initial injection of $60 million 

in late August, with more likely to come. 

Though the funding didn’t come without 

some roadblocks, similar to the cases of 

Hapag-Lloyd and CSAV, the commitment 

was made. To the question of whether 

these lines will be around to succeed, 

it appears the shareholders’ answer is a 

tenuous “yes.” 

■ 

lines return if they are able to survive the 

current crisis? 

The first question is interesting, but for 

practical purposes, the less important of the 

two. The second question is really the key, 

because it is hard to reverse poor decisions 

made five years ago. 

It is fair for Zim’s CFO to say the line 

would be struggling even if it hadn’t ordered 

one single ship? After all, all the capacity 

ordered by other lines would be affecting 

Zim just the same whether or not it ordered 

vessels. 

But Zim did order vessels, and lots of 

them, and lots of big vessels, which would 

seem to make them as complicit as any 

other line for the excess capacity problem 

the industry faces now. 

It must be noted for clarity that overcapacity 

and the economic downturn are 

really two distinct issues. If the economic 

downturn never happened, overcapacity 

would still be an issue. The downturn has 

merely compounded the problems created 

by excess ordering. So a line that ordered 

little or no new tonnage is in a better position 

to argue to its shareholders that it did 

not make its situation worse. 

Neither Zim nor CSAV are in that position. 

But looking on the other side of the 

coin, both Zim and CSAV were placed in 

a precarious competitive situation. With 

all but a few of the Top 20 lines ordering 

like mad, they faced being marginalized 

on the major trade lanes if they didn’t order 

larger vessels that provided economies 

of scale that ships in their current fleet 

didn’t offer. 

In short, Zim and CSAV faced a crisis 

before the economic crisis. So should the 

lines be judged for performing badly in two 

consecutive crises? Again, the important 

question going forward is this: what are the 

prospects of the two lines making money 

in the next five years? 


Shippers, barge operators seek 

inland waterways modernization. 

BY CHRIS GILLIS 

When Michael Hennessey, vice president of river 

operations for CONSOL Energy, looks across 

the Monogehela River he’s witness to the daily 

flow of barges full of coal coming from the company’s western 

Pennsylvania mines. 

These towed coal barges, along with those of CONSOL’s 

competitors, float by Hennessey’s office window in Monessen, 

Pa., through a lock-and-dam system on the Monogehela. 

The river is a vital commercial artery to 

the heart of the U.S. inland waterways 

system — the Mississippi River — which 

ultimately pours into the Gulf of Mexico. 

But Hennessey isn’t fooled by the river’s 

apparent placidity. He knows danger lurks 

in the Monogehela. A catastrophic breakdown 

of one of the river’s aging locks, 

namely the 100-year-old Lock 3, would 

bring hundreds of thousands of tons of 

barge traffic to an abrupt halt with little 

opportunity to quickly or efficiently divert 

the cargo to other land-based transport 

modes. 

“Lock 3 is about ready to fall into the 

river,” Hennessey said. “If that happens, it 

would stop the barge traffic on the river.” 


The lock’s failure would not only wreak 

economic havoc on nearby towns and mining 

operations that depend on the river for 

their vitality, but could send shockwaves 

through the national economy. The Army 

Corps of Engineers’ efforts to repair a 

failed lock on the Monogehela under this 

scenario would take months, if not longer, 

to complete. “It would be a catastrophe,” 

Hennessey said. 

Shippers and barge operators on the 

Monogehela are not alone. There are numerous 

other locks and dams throughout 

the nation’s 12,000-mile inland waterways 

system that need modernizing. The average 

age of the 192 lock sites is more than 

50 years old. 

“It’s a ticking time bomb,” said Leon 

Crites, manager of marine transportation 

and logistics for Houston-based CITGO 

Petroleum Corp. “A major shutdown would 

raise the cost of doing business and the 

American taxpayer would end up paying 

for it.” 

Only Option. The main purpose for these 

locks and dams is to raise and lower water 

levels and provide safe transport channels 

on rivers, such as the Ohio, Illinois, Tennessee 

and Upper Mississippi, and numerous 

tributaries to the Mississippi River basin. 

Many of the first and second-generation 

locks and dams were built in the 1930s 

and 1950s. For example, locks and dams 

20 to 25 on the Mississippi River along 

Missouri’s Northeast border were erected 

between 1932 and 1936, while on the Illinois 

waterway, the Lagrange and Peoria locks 

and dams were both completed in 1936. 

The Army Corps of Engineers, manager 

and caretaker of the inland waterways system, 

estimates that more than 625 million 

tons, valued at $70 billion, of liquid and 

bulk commodities, including grains, coal, 

metals, cement, sand and gravel, chemicals 

and petroleum, pass through the inland 

waterway system each year. More than half 

of the country’s grain and oilseed exports 

rely on the river system for transport to 

ports for loading onto deep-sea vessels.

TRANSPORT / INLAND 

“It’s a ticking time bomb. 

A major shutdown 

would raise the cost 

of doing business 

and the American taxpayer 

would end up paying for it.” 

Leon Crites 

manager of marine 

transportation 

and logistics, 

CITGO Petroleum Corp. 

U.S. Army Corps of Engineers accomplishments 

(since 2002) 

Project 

Accomplishment 

London Lock & Dam, Kanawha River, W.V. Completed in FY 2004 

Lock and Dam 12, Mississippi River, Iowa (Major Rehab) Completed in FY 2005 

Winfield Lock and Dam, Kanawha River, W.V. Completed in FY 2009 

Lock and Dam 19, Mississippi River, Iowa (Major Rehab) Complete in FY 2009 

Marmet Lock, Kanawha River, W.V. Complete in FY 2009 

Robert C. Byrd Locks and Dam, Ohio River, W.V. & Ohio Complete in FY 2009 

McAlpine Locks and Dam, Ohio River, Ky. & Ind. Complete in FY 2009 

Grays Landing Lock and Dam, Monongahela River, Pa. Complete in FY 2009 

Port Marion, Lock and Dam 8, Monongahela River, Pa. Complete in FY 2009 

Lock and Dam 3, Mississippi River, Minn. (Major Rehab) Complete construction in FY 2011 - 

funded to completion in FY 2009. 

Lock and Dam 11, Mississippi River, Iowa (Major Rehab) Complete construction in FY 2011 - 


Lock and Dam 27, Mississippi River, Ill. (Major Rehab) Complete construction in FY 2012 - 


Illinois Waterway, Lockport Lock and Dam, Ill. (Replacement) Complete construction in FY 2012 - 


Olmsted Locks and Dams, Ohio River, IL & KY 

Twin Locks completed in 2005. Initiate and 

continue dam construction since 2004. 

Emsworth Locks and Dam, Ohio River, PA 

Initiate and continue construction of rehab 

items since 2006. 

Locks and Dams 2, 3 and 4, Monongahela River, PA & WV Construct Charleroi L&D since 2002. 

Chickamauga Lock, Tennessee River, TN 

Initiate and continue coffer dam 

construction since 2006. 

Kentucky Lock and Dam, Tennessee River, Ky. 

Initiate and continue work on highway 

and bridges since 2002. 

Inner Harbor Navigation Canal Lock, La. 

Continue demolitions and relocations. 

Notes: 13 projects funded to completion since FY 2002. Six other major projects ongoing 

— two funded at almost capability amounts, four funded at much less than capabilities. 

Barges also move about 20 percent of the 

coal needed by power plants. 

Some of the country’s biggest shippers 

by volume rely on the inland waterway 

system for their day-to-day transportation 

requirements. 

AEP River Operations hauls about 35 

million tons of coal and consumables a 

year to its coal-powered plants along the 

Ohio River and its tributaries. The company 

transports another 35 million tons 

of agricultural commodities, construction 

materials, limestone, raw materials for the 

steel industry, finished and semi-finished 

steel products, and road and industrial salts. 

Typically, a 15-barge tow on the large 

rivers can move about 22,500 tons, which is 

the equivalent of about 216 railcars or 1,050 

tractor-trailer loads. The Maritime Administration 

and Texas Transportation Institute 

note that it would take 58 million truck trips 

to transport the amount of commerce moving 

annually on the inland waterways. 

The Alexandria, Va.-based Waterways 

Council noted that these types of barge 

movements resulted in an average transportation 

cost savings of $11 per ton compared 

to other modes such as truck and rail. 

The inland waterways barge industry 

also touts minimal carbon dioxide emissions 

compared to truck and rail. A recent 

study by the Texas Transportation Institute 

calculated that, on a per million ton-miles 

measure, trucks emit 71.6 tons of CO 2 

and 

railroads 26.9 tons of CO 2 

, while towboats 

release only 19.3 tons of CO 2 

. 

Many Midwest states recognize the 

importance of efficient waterways navigation 

to their economies and environments. 

The Illinois Chamber of Commerce reported 

that barges on the state’s waterways 

annually transport more than 110 million 

tons of cargo with a value of about $16 billion. 

“Whether that material is being transported 

to or exported from Illinois, or is 

transiting the state’s waterways, it rep- 

Source: U.S. Army Corps of Engineers. 

resents a reduction in truck and rail use 

across the nation. That is the equivalent 

of 4.4 million semi-trailer truckloads or 

1.5 million railcars of material that would 

crisscross Illinois each year were it not for 

the availability of barge transportation,” 

the chamber said. 

Surgery. The nation’s inland waterways 

locks and dams are showing their age and 

it’s become apparent through cracked and 

crumbling concrete, leaky gates and creaky 

equipment. 

Repairs, even scheduled ones, are a 

constant reminder to both the Corps and 

industry about the tenuous condition and 

costs of routinely applying Band Aids to 

a system in need of major surgery. The 

examples of unscheduled closures in the 

past decade are on the rise, and fresh in 

the minds of the inland waterways system’s 

most dependent shippers. 

In 2007, the Corps reported navigation 

locks were unavailable to commercial 

traffic for 157,530 hours due to repairs and 

mechanical breakdowns. 

“The scheduled ones we can deal with 

most of the time with extra inventory 

deliveries prior to closure,” said Mark 

Knoy, president of AEP River Operations, 

which operates 3,000 barges, making it the 

second-largest fleet of dry cargo barges on 

the inland waterways. 

“Oftentimes both scheduled and unscheduled 

closures can be offset somewhat 

if an auxiliary lock 

is available as on the 

Ohio River system,” 

he added. “The Upper 

Mississippi and 

Illinois do not have 

auxiliary locks and 

those closures have 

no choice but to wait.” 

Even scheduled 

Knoy 

closures can easily become costly headaches 

for shippers and barge operators. 

In September 2003, the Corps planned a 

three-week maintenance closure of the 

well-tread Greenup Locks and Dam on 

the Ohio River. The deterioration was far 

worse than anticipated and the Corps kept 

the lock closed for eight weeks. Tows were 

processed through a smaller adjacent lock, 

resulting in queue delays approaching 40 

hours. The shipping industry spent nearly 

$14 million in tow-idling costs. Some power 

companies were down to a few days worth 



Hydro Green prepares installation of its first barge-mounted hydrokinetic 

power plant in Hastings, Minn. (Photo: Hydro Green Energy) 

Something is quietly stirring in the river 

water at Hastings, Minn., just downstream 

from the Army Corps of Engineers’ Lock 

and Dam No. 2. While it’s not a strange 

creature lurking in the depths, it is a new 

sight to the waterway’s users. 

Earlier this year, Houston-based Hydro 

Green Energy installed the first of 

two barge-mounted hydrokinetic power 

plants. The second unit is expected to 

enter service next spring. 

Hydrokinetic power refers to the generation 

of electricity from moving water 

without dams or diversionary structures 

typically used at conventional hydropower 

plants. Hydro Green’s unit will produce 

100 kilowatts of uninterrupted power, 

which will feed back to the electric grid. 

After extensive testing by the company, 

the Federal Energy Regulatory 

Commission signed off on the project 

in Hastings in December. 

The Corps plays a major role in 

evaluating and approving these types of 

projects. The agency must ensure that any 

proposed hydropower-generation equipment 

doesn’t hurt the environment or 

impede barge traffic. “Anytime we have 

the opportunity where we’re not altering 

our flows and capacity, it’s something we 

like to do,” said Mike Ensch, the agency’s 

chief of operations and regulatory. 

Hydropower has been added at Corps 

dams by local utilities over the years, 

such as Canyon and Lewisville, Texas, 


In the depths 

Hydrokinetic power plants operate below barge traffic. 

and Bluestone, W.Va. Other facilities are 

underway by AMP-Ohio at the Smithland 

and Cannelton locks and dams, with three 

more planned. These facilities were built 

on the river banks along the lock and dam 

spillways, Ensch said. 

Suspended or anchored hydrokinetic 

equipment takes advantage of free-flowing 

river currents. While the concept is 

quite ancient, it has recently become part 

of the country’s efforts to develop nonfossil 

fuel-based energy sources, such 

as wind, solar, biomass and geothermal. 

Hydro Green plans to develop hydrokinetic 

projects across more than a 

dozen states for a total of 500 megawatts 

of power. 

Other firms are seeking federal approval 

to install their own hydrokinetic 

equipment in U.S. waterways. Free Flow 

Power of Gloucester, Mass., has received 

55 FERC permits to conduct tests at Mississippi 

River sites between St. Louis and 

Plaquemines, La. 

Free Flow’s 1.4- and 3-meter-diameter 

machines, which resemble wind turbine 

blades contained within an open-ended 

cylindrical shell, would be attached 

several at a time to underwater pylons 

well below surface barge traffic. 

In a 2007 policy statement, FERC 

estimated that hydrokinetic technologies, 

combined with the existing hydropower 

capacity, could eventually produce 20 

percent of the country’s electric supply. 

of coal by the time the Greenup lock was 

reopened. The Corps estimated that if the 

lower gate at Greenup had failed, the main 

chamber would have been closed six months 

with delays costing the industry upwards 

of $75 million. 

Mike Ensch, chief 

of operations and 

regulatory for the 

Corps, said the agency 

does its best to notify 

shippers and barge 

operators as far in 

advance as possible 

to allow them to build 

Ensch 

sufficient stockpiles of materials. The 

Corps provides a composite maintenance 

schedule for the next three years, which it 

makes available to the industry on its Web 

site, he said. 

High Demand. Over the years, the 

Corps has generally had a good relationship 

with the waterways industry. “We have a 

good rapport at the local level. I think the 

industry knows we try,” Ensch said. 

The Corps continues to make upgrades 

on locks and dams throughout the inland 

waterway system. One of the largest modernization 

projects includes the construction 

of a new dam with twin 1,200-foot locks 

at Olmsted. The agency recently finished 

erecting a second 1,200-foot chamber at 

McAlpine Locks and Dam. Both structures 

are located on the Ohio River. 

The agency is also constructing 1,200- 

foot chambers at the Kentucky Lock on the 

Tennessee River and at the Inner Harbor 

Lock on the Gulf Intracoastal Waterway at 

New Orleans. Other projects are underway 

in Pennsylvania, West Virginia and Tennessee. 

Together, this ongoing work represents 

an investment of more than $7.2 billion in 

inland waterways modernization that will 

be completed over the next 10 to 20 years, 

depending on the availability of funds, the 

Corps noted. 

The bigger lock sites are important to 

the shipping industry. At the smaller lock 

sites, barge operators must “cut” their 12- 

to 15-barge tows in half to accommodate 

the 600-foot-long passages. This procedure 

causes long queues for tows waiting their 

turn to move through the lock. In addition, 

the delays cost the industry hundreds of 

millions of dollars a year. 

Other critical projects are authorized or 

under study on the Upper Mississippi River 

and Illinois Waterway, Ohio River, the Gulf 

Intracoastal Waterway, and the McClellan- 

Kerr Arkansas River Navigation System. 

Corps officials said over the next few years, 

these studies will identify navigation and 

environmental actions needed to support

the inland waterways system for the next 

50 years. 

However, the Corps’ pace in performing 

upgrades and replacements of locks 

and dams has increasingly frustrated the 

industry. Some projects that should have 

been completed years ago continue to drag 

on, resulting in billions of dollars in cost 

overruns for the government, and similar 

financial losses due to operational inefficiencies 

for the industry. 

For example, Congress authorized the 

Olmsted Locks and Dam project in the 1988 

Water Resources and Development Act to 

replace the late 1920s-era dams and “temporary” 

lock chambers built there in 1969 

and 1979. Beset by bureaucratic, funding and 

technical setbacks, the project is nowhere 

near completion. The Corps calculated that 

the cost of the finished Olmsted project by 

2018 would be $2.1 billion, or about $1.33 

billion more than its 

original $775 million 

cost estimate. 

“We have a supplyand-demand 

problem 

here,” said Maj. Gen. 

Merdith W. B. Temple, 

deputy commanding 

general for the Corps’ 

civil and emergency 

Temple 

operations, in a recent interview. “We have 

a lot of demand and the supply is essentially 

fixed.” 

The Corps not only maintains the inland 

waterways system, but has numerous other 

military and public works responsibilities. 

The agency estimates that annually it 

dredges more than 200 million cubic yards 

of material from the nation’s ports and 

harbors, which is enough to fill a football 

field to a depth of 10 miles. 

Funding for the Corps’ Civil Works 

activities in fiscal year 2009 came to more 

than $15 billion, including $4.6 billion from 

the American Recovery and Reinvestment 

Act. As a result of the ARRA funds, the 

Corps’ annual capital spend for the inland 

waterways system increased from less than 

$200 million 10 years 

ago to nearly $650 

million for 2009. 

“While this helps 

many ongoing construction 

projects to 

continue moving forward, 

ARRA funding 

is anticipated to be a 

one-time stimulus,” 

Stockton 

said Steven L. Stockton, director of the Civil 

Works program. “Substantial funding well 

into the future will be required to complete 

ongoing and authorized inland waterway 

investment needs. This will require the administration, 

Congress and inland waterway 

stakeholders to reach common ground on an 

appropriate future level of investment, the 

source of funds, and the priority sequencing 

of investment needed to support inland 

waterway infrastructure modernization.” 

Paying The Bill. The cost of inland 

waterways projects has in part been shared 

by the shipping industry. The industry pays 

a 20-cents-per-gallon diesel fuel tax, which 

is deposited into a trust fund set up under 

the 1986 Water Resources Development 

Act. Allocations from the trust fund are 

matched by Congress with funds from the 

general treasury. 

Inland waterway shippers pay less than 

$90 million annually into the trust fund. 

According to the Army department in early 

2008, the annual receipts from the existing 

diesel tax provides less than 10 percent of 

the total costs that the Corps incurs each 

year to support commercial navigation on 

the inland and intracoastal waterways. The 

industry disputes the number. 

Last year, the Bush administration proposed 

a lockage fee to replace the inland 

waterway industry diesel tax. Lawmakers 

rejected the concept. President Obama 

followed earlier this year by similarly 

proposing a lockage fee. Terrence Salt, 

acting assistant secretary of the Army for 

civil works, testified in mid-May before the 

House Appropriations Committee’s energy 

and water development subcommittee in 

support of including the lockage fee proposal 

in the Corps’ fiscal year 2010 budget. 

The inland waterway 

industry has 

fought the implementation 

of lockage fees. 

“We’re strongly opposed 

to that idea,” 

said John S. Doyle 

Jr., vice president of 

government affairs 

for the Waterways 

Doyle 

Council, during an industry press gathering 

in Washington on June 24. 

The council is supported by more than 

250 waterways carriers, shippers, port 

authorities, shipping associations and waterways 

advocacy groups from all regions 

of the country. 

Council officials said the lockage fee 

proposal has failed to gain support among 

lawmakers, even though the Obama administration 

said the fee could generate an additional 

$1.26 billion over the next 10 years. 

Cornel J. Martin, the council’s president 

and chief executive officer, warned that a 

lockage fee would be “grossly out of step” 

with the country’s efforts to encourage 

more shipper use of energy efficient freight 


transportation through the nation’s inland 

waterway system. 

To avoid the lockage fees, Martin said 

inland waterway shippers might decide to 

divert their cargo from the waterways to 

already congested railroads and highways. 

Major Rehabilitation. Instead of a 

lockage fee, the Waterways Council urges 

the administration to allow a current Corpsindustry 

initiative, known as the “white 

paper” process, to develop an improved 

project delivery system and long-term capital 

plan for the nation’s inland waterways 

infrastructure. 

The initiative’s goal is to develop a 

comprehensive, consensus-based program 

to ensure that resources and processes 

can achieve a reliable, cost-effective and 

environmentally sustainable inland marine 

transportation system, along with a funding 

stream that industry can afford and is sufficient 

to meet needs identified in the plan. 

Early in the process, the Corps and Inland 

Waterways User Board members identified 

a list of about 90 possible projects to 

focus on. They’re vetting the list to identify 

those that are most necessary and prioritize 

them, determining the approximate annual 

funding needed over the next 20 years to 

modernize the system, and establishing a 

long-term oversight process. 

“I believe it is premature to put an 

estimate on the inland waterways system 

backlog until the group completes its work 

in about December of this year,” said Gary 

A. Loew, programs division chief for the 

Corps’ Directorate of Civil Works. “At 

that time we should not only have a pretty 

good sense of the work required, but also 

a pretty good sense of the annual financial 

requirement and the picture about how we 

would work through it over time.” 

“I don’t blame the industry for being impatient, 

but it will take time to see results,” 

Temple said. “Overall, I’m optimistic about 

our prospects for the future. There’s some 

momentum here to get us to a solution.” 

Both the Corps and industry hope to 

present the white paper’s outcome to Capitol 

Hill and White House for consideration in 

the development of a 2010 Water Resources 

Development Act. 

“We’re going into this believing that we 

can achieve a consensus-based comprehensive 

set of recommendations, which the 

industry and Corps could together deliver 

to Congress and the administration,” Doyle 

said. “Just think of the power that would 

have on Capitol Hill.” 

“We’re very confident that if we can 

get the funding stream to a sufficient level 

that we can deliver projects efficiently and 

effectively,” Stockton added. ■ 


TRANSPORT / PORTS 

Floating an intermodal option 

Barge service would provide trucking alternative 

to connect Oakland, Stockton. 

Ports America sees big potential at the 

Port of Oakland for increased moves 

of Asian cargo to the U.S. Midwest 

by rail. A start-up called Eco-Transport, 

believes barge transport may also be a part 

of its future. 

Alex Yeros is managing director at 

Eco-Transport and its parent company 

Broe Group, a firm that 

hopes to start a short sea 

inland barge service that 

would move containers 

between Oakland and 

the Port of Stockton, 

located 75 miles east of 

the Golden Gate Bridge. 

Yeros said the company 

was hoping to 

launch the service as 

soon as September, 

believing the time may 

be ripe both environmentally 

and due to 

container shipping industry 

trends. He notes 

that in recent years some 

shipping lines have been reducing their 

involvement in inland transportation, and 

are encouraging shippers to return containers 

quickly so they can be reloaded or 

returned to Asia. 

Compared to some ports, the flow of 

containers in and out of Oakland is more 

balanced, and that there is high demand 

for export containers to carry agricultural 

goods from California. 

Last year there were 988,973 TEUs of 

import containers that moved through 

the Port of Oakland (796,404 full and 

192,569 empty), and 1.2 million TEUs 

of export containers (910,700 full and 

333,860 empty). 

He estimates about a quarter of the traffic 

is moved through the Union Pacific 

and BNSF Railway intermodal facilities 

right at the port. Another Broe subsidiary, 

Omnitrax, operates the BNSF terminal in 

the Port of Oakland, which is called the 

Oakland International Gateway. 

But because of a lack of space in Oakland, 

many of the other containers are trucked 

to the Stockton area to large distribution 

centers or deconsolidation stations where 



Source: Eco-Transport. 

freight is reloaded into domestic equipment, 

he said. 

There are about 50 million square feet 

of distribution or deconsolidation facilities 

in the Stockton area where much is loaded 

onto trains at two other rail facilities, the 

BNSF’s terminal in Mariposa and UP’s 

terminal in Lathrop, he said. 

Today, when those containers move in 

and out of Oakland, many travel by truck 

over Interstate 580 to the greater Stockton 

area where they are transloaded into domestic 

containers, and the ocean containers are 

returned empty to Oakland. Meanwhile, 

Yeros said agricultural exporters dispatch 

trucks in the opposite direction from the 

Central Valley to fetch empty containers 

to carry cotton and other agricultural 

commodities. This two-way f low of trucks 

carrying both full and empty containers 

has helped make I-580 the second most 

congested freeway in Northen California, 

according to the Alameda County Congestion 

Management Agency. 

Yeros said establishing a satellite container 

terminal in the Port of Stockton, 

and a second one eventually in the Port of 

West Sacramento, could help eliminate the 

thousands of container moves each week. 

Eco-Transport plans to establish a service 

that would use a barge to move up to 

350 40-foot containers at a time between 

Oakland and Stockton. The company also 

plans to coordinate delivery or pickup of 

containers from warehouses or agricultural 

exports in the Central Valley. 

“We are trying to establish a service 

within the way the world works today. 

This would not involve new ships. It is not 

a roll-on/roll-off service. We are going to 

load barges the way that ships are loaded 

and unloaded and ultimately make the 

delivery to customers with trucks the same 

way that they operate today,” Yeros said. 

In addition to its environmental benefits, 

he said the service should appeal to 

exporters because they will be able to get 

greater access to available equipment “and 

we can help them with managing the actual 

delivery or pickup of the load. Shipping 

lines can improve the cycle time on their 

equipment and get a better match in import 

and exports of their equipment,” he said. 

Yeros said truckers might be able to dray 

several more containers 

a day to and from the 

satellite container yard 

than if they have to drive 

all the way between 

Oakland and the Central 

Valley. 

William Lewicki, 

marketing director for 

the Port of Stockton, 

said the barge service 

could benefit shippers 

of heavy commodities 

such as pipe or agricultural 

goods that cannot 

fully load containers 

because of weight limitations 

on California’s 

highways. By barging containers to and 

from the port, shippers would be able to 

load more cargo in each box. This could 

be an advantage to Port of Stockton tenants 

such as Ferguson Enterprises, the largest 

distributor of pipe, valves and fittings in 

the United States. 

Lewicki said his port, along with Sacramento 

and Eco-Transport, are seeking 

federal funding for the short-sea shipping 

initiative under President Obama’s 

economic stimulus plan. Stockton hopes 

to obtain a couple of mobile cranes, one 

of which would be devoted to the barge 

service. The plan, he said, is to set up the 

operation in the port’s western complex, 

formerly the Navy’s “Rough and Ready” 

supply depot, where containers could be 

drayed a quarter mile from berths 19-20 

to a container yard. 

But even without that crane, he said the 

port would be able to accommodate startup 

of the barge service in a matter of weeks. 

It would, instead, use an existing container 

crane to offload the barge — containers 

0 - 2,500 trucks per day 

2,501 - 7,500 trucks per day 

7,501+ trucks per day 

Marine Highway Route 

Traffic congestion will 

be eliminated by moving 

containers over the Marine 

Highway to Eco-Transport’s 

Satellite Container Terminal 

in the Central Valley. 

would just have to be drayed a mile and a 

quarter. 

■

The fish (oil) that got away 

UPS Supply Chain Solutions Inc. sued American Inc., 

and motions by both firms for summary judgment on 

UPS’s breach of contract claim were denied by a U.S. 

District Court judge. (No. 08 C 2130, N.D. Illinois, 

Eastern Division. Aug. 14) 

Abbott Laboratories contracted with UPS to have 80 

drums of fish oil transported from Tokyo to South Bend, 

Ind. UPS, in turn, hired American to have the fish oil 

transported from Japan to Chicago. 

UPS issued an air waybill to American that stated, 

“Keep cool/must be in cooler upon arrival at AA/ORD.” 

The shipment was tendered to American on April 

7, 2006 at Tokyo’s Narita Airport. A representative of 

American at Narita stamped the air waybill with the 

following language: “Customer agrees that refrigeration 

is not guaranteed.” 

The shipment arrived at O’Hare Airport in Chicago 

later the same day, but was not refrigerated on arrival. 

Rather, it was mistakenly placed on American’ bypass 

system, which is meant mainly for customer loaded 

containers (CLC). 

Loose freight cargo that is not packaged as a CLC is 

handled and stored in other areas, including the cooler. 

The shipment at issue was loose freight, not a CLC, but 

American contended the shipment was loose freight that 

had been wrapped and packaged to look like a CLC. 

On April 18, UPS’s nominated trucker attempted 

to pick up the shipment from American’s facilities at 

O’Hare, but failed to do so. American contended this was 

because of the trucker’s inability to load the shipment 

onto its truck; UPS said it was because Abbott rejected 

it once it learned the fish oil had not been refrigerated 

and was therefore spoiled. 

On May 1, a UPS employee sent a letter to American 

stating that its customer refused the shipment because 

it was not cooled. It said the product was worth more 

than $80,000. Another UPS employee said in a deposition 

that she faxed a notice of intent to file a claim, but 

no fax was produced in discovery. 

American sent a letter on May 29 saying that after an 

investigation it was declining responsibility for the loss. 

Both parties agreed the Montreal Convention, a treaty 

concerning international air shipments, governed this 

case. It provides the “carrier is liable for damage sustained 

in the event of the destruction or loss of, or damage 

to, cargo upon condition only that the event which 

caused the damage so sustained took place during the 

carriage by air.” 

Under this convention, a prima facie case of liability 

“is established upon a showing that the goods were delivered 

to the carrier in good condition, were delivered 

to the consignee at destination in damaged condition, 

and resulted in a specified amount of damage.” 

American did not challenge the first or third elements 

of UPS’s prima facie case, and the only issue is whether 

there was damage to the shipment upon delivery to the 

consignee. 

UPS said American guaranteed that the shipment 

would be kept cool upon arrival at O’Hare, while American 

pointed to the stamp made at Narita. 

UPS contended the stamp made at Narita Airport was 

not an effective disclaimer of the refrigeration guarantee 

for O’Hare and said American failed to produce any 

evidence concerning when it stamped the air waybill 

or when, if ever, UPS received notice of the stamp. 

The court said the language of the stamp supports 

a reasonable inference that UPS had notice of the disclaimer’s 

existence and that a reasonable jury could 

conclude that an American agent stamped the air waybill 

upon receipt of the package from UPS in Narita and that 

UPS acknowledged the disclaimer’s existence. If so, a 

reasonable fact-finder could also infer that a refrigeration 

guarantee was not part of the shipment contract. As a 

result, summary judgment is inappropriate, the court said. 

Article 31 of the Montreal Convention bars claims 

against a carrier if there has been no timely notice of 

damage, within 14 days from the date of receipt in the 

case of cargo. 

The court said UPS’s May 1 letter was timely, and 

rejected American’s contention that UPS failed to give 

adequate notice because it did not state an intention to 

hold American liable for the loss. The court said the 

shipper needs only to “complain” to the carrier when 

there has been damage to shipment. 

With the denial of summary judgment, the court 

scheduled a hearing to set a trial date and discuss the 

possibility of settlement. 

Shipper has duty to mitigate damages 

A load of advertising brochures for a post-Christmas 

sale at Macy’s was delivered to Donnelley’s distribution 

center on Dec. 27, 2005, 11 days after they were promised. 

By then it was too late to mail the brochures to Macy’s 

customers. Donnelley had to credit the $81,650 cost of 

the brochures to its customer. 

It sued Vanguard, seeking that amount in damages, 

plus its attorney’s fees, which it contended were due 

under the indemnification clause in the parties’ contract. 

(R.R. Donnelley & Sons Co. v. Vanguard Transportation 

Systems, No. 06 C 5837, N.D. Illinois, Eastern Division, 

Aug. 10.) 

Vanguard said Donnelley caused the problem by refusing 

to let its driver deliver the brochures on Dec. 16, 

even though he arrived at the distribution center before 

2 p.m. as required. Donnelley said he was at least two 

hours late when outbound trucks were being loaded. 

In a case in which the court said “the parties disagree 

over virtually every factual and legal issue,” the judge 

focused on the so-called “duty to mitigate damages.” 

“While acknowledging that the victim of a breach of 

contract must mitigate damages, Donnelley argues that it 

did not do so — although it concedes that it would have 

been easy and cheap for it to have done so — because 

it justifiably relied on Vanguard’s repeated assurances 

that it would make delivery.” 

The court found “all that stood between Donnelley 

and the fulfillment of its obligations to Continental Web 

Press and the complete mitigation of its certain damages 

of $81,000 was about an hour of either its time or that 

of a local cartage company and a few hundred dollars. 

Donnelley chose to do nothing, as it had the right to do. 

But in law as in life, choices have consequences. The 

consequence here is that the avoidable loss of more than 

$80,000 cannot be taxed to Vanguard.” 

It found Donnelley was not entitled to damages or to 

attorney’s fees. Vanguard did breach the contract, and 

consequently Donnelley would be entitled to nominal 

damages, had they been sought, but they were not in 

this case. 


Corporate Appointments 

(800) 874-6422, FAX (904) 791-8836, e-mail releases@shippers.com 

Logistics 

Menlo Worldwide Logistics, the global 

logistics subsidiary of Con-way Inc., has 

appointed Anthony Gunn as managing 

director of Europe. Based at Menlo’s European 

headquarters in Amsterdam, Gunn 

was director of European operations. 

Transplace, a non-asset-based logistics 

technology and transportation management 

services provider, has named Steve Robinson 

as senior vice president of operations. 

Robinson was executive vice president, 

retail and consumer packaged goods division 

for One Network Services, a supply 

chain intermediary. Before that, he was 

vice president of global logistics and vice 

president of supply chain management at 

Wal-Mart, among other positions. 

Ocean 

Matson Navigation Co. said James S. 

Andrasick retired from the company Sept. 

1. Andrasick had been 

chairman since October 

2008 and was 

president and chief 

executive officer from 

2002 through 2008. 

Prior to his Matson 

responsibilities, Andrasick 

served as chief 

financial officer and Andrasick 

treasurer of Matson’s parent company, Alexander 

& Baldwin Inc., from 2000 to 2003. 

Maersk Inc. Chairman John P. Clancey 

will step down at the end of the year and 

will be replaced by Vice Chairman Russ 

Bruner. Clancey will 

continue on the boards 

of Maersk Inc., a U.S. 

arm of the A.P. Moller 

- Maersk Group; U.S.- 

flag operator Maersk 

Line Ltd.; and the 

Maersk Inc. compensation 

committee. 

Clancey was appoint- 

Bruner 

ed chairman of Maersk Inc. in December 

1999, following A.P. Moller’s acquisition of 

Sea-Land Service Inc., where he had been 

chief executive officer since July 1991. He 

had joined the company in the 1970s and 

held senior positions in the company’s 

Pacific, Americas and Atlantic divisions. 

Bruner was appointed vice chairman of 

Maersk Inc. in July and had been president 

and CEO from September 2004. He 

joined Maersk in September 1989. He will 

continue to oversee A.P. Moller - Maersk’s 

North America activities and be directly 

responsible for CIS-related activities. 

Pioneer parcel tanker executive Jacob 

Stolt-Nielsen will retire as chairman of 

Stolt-Nielsen on Dec. 15, the 50th anniversary 

of the company’s founding. 

AVALON RISK MANAGEMENT, INC. 

Premier provider of insurance and surety solutions 

for the logistics industry 

www.avalonrisk.com 

Stolt-Nielsen, 78, has been chairman of 

the company since 1959, and will remain 

a director. His son, Niels G. Stolt-Nielsen, 

has been chief executive officer since 2000 

and is also a director. Christer Olsson, a 

director of Stolt-Nielsen since 1993, has 

been nominated chairman. Olsson is vice 

chairman of Wallenius Lines. 

Ivy Barton Suter, a member of the first class 

of midshipmen to include women at Kings 

Point, is the new chief executive officer of 

Trailer Bridge. Ralph W. Heim, interim 

CEO since December 2008, will remain as 

president and chief operating officer. Heim 

filled in after long-time CEO John McCown 

stepped down last December. Suter, 55, has 

more than 20 years of executive experience 

including marine, shipping and intermodal 

operations. She had been managing director 

at the consulting firm Alvarez & Marsal 

since 2006. She chairs the U.S. Merchant 

Marine Academy Alumni Foundation, 

where she earned an engineering degree in 

1978. She is also a former board member of 

Saltchuk Resources, which owns 90 percent 

of Trailer Bridge competitor Sea Star Line. 

Ports 

Alec G. Dreyer is to be named executive 

director of the Houston Port Authority at 

its Sept. 29 meeting. Dreyer was chief executive 

officer of Horizon Wind Energy LLC, a 

Houston-based wind energy developer. Prior 

to that, he was executive vice president of 

Dynegy Inc., in charge of energy generation. 

He replaces Thomas Kornegay, who 

retired Feb. 1 as executive director after 

a 37-year-career with the port. Managing 

Director Wade Battles has served as acting 

executive director during the search process. 

INTERNET INDEX OF ADVERTISERS 

American Shipper www.AmericanShipper.com 

ComPair Data www.compairdata.com 

Agility Logistics www.agilitylogistics.com 

AIT Worldwide www.aitworldwide.com 

Alabama State Port Authority www.asdd.com 

AMB Property Corp. www.amb.com 

Atlantic Container Line www.ACLcargo.com 

Avalon Risk Management www.avalonrisk.com 

CEVA Logistics www.cevalogistics.com 

DGX-Dependable Global Express Inc. www.dgxshipping.com 

DHX-Dependable Hawaiian Express Inc. www.dhx.com 

Emirates SkyCargo www.skycargo.com 

Global Maritime Transportation Services www.globemar.com 

Great American Insurance Group 

www.greatamericanocean.com 

Check out these locations on the World Wide Web: 

Hyundai America Shipping Agency www.hmm21.com 

Intermodal Association of North America 

www.intermodal.org 

Laufer Group International Ltd. www.laufer.com 

Maersk Line www.maerskline.com 

Mediterranean Shipping Co. (USA) Inc. www.mscgva.ch 

National Industrial Transportation League www.nitl.org 

Port of Grays Harbor www.portofgraysharbor.com 

Rickmers-Linie www.rickmers-linie.com 

Rubb Inc. www.rubb.com 

Safmarine www.safmarine.com 

Schneider National www.schneider.com 

Werner Enterprises www.werner.com 

Yang Ming America www.yml.com.tw 


On Second Thought ... 

How bad is it, really? 

“The capitalist system has collapsed and must be 

replaced.” 

“The overcapacity of the merchant fleet as markets 

collapse will cause widespread newbuilding cancellations 

and shipyard failures.” 

“Increasing economic hardships will result with an 

increase in piracy and armed robbery in areas where 

such activity had been curtailed.” 

At the end of last year there was no shortage of 

such doom-and-gloom statements. In the face of such 

dire predictions it is reassuring to note that today the 

many stimulus packages launched around the world 

have helped to avoid a complete financial meltdown, 

the number of new ship delivery postponements far 

outnumber the number of cancellations, and there has 

not been a drastic increase in attacks against ships. 

In some quarters there was even a sigh of relief as it 

was realized that the impending shortage of able and 

trained seafarers was put off, albeit only temporarily, 

until the global markets pick up again and the many 

laidup ships come back on line. So enjoy the respite 

while it lasts, this is a challenge that we will have to 

be deal with soon. 

Now, as 2010 approaches, looking back on the upheavals 

experienced in the global economy since the 

latter part of 2008, it is easy to understand that few are 

making definitive predictions as to when the global 

recovery will truly take hold. Whether one should be 

encouraged or dismayed often depends on the indicators 

and sectors that one is looking at, and there are quite a 

variety of indicators and sectors from which to choose. 

Yet, within each category there are differing trends 

and developments. Looking at container throughput, for 

example, Singapore saw a 5.6 percent increase between 

June and July, welcome news for many searching for 

signs of recovery. At about the same time Malaysia 

reported an increase for its exports of 5.1 percent in 

June as compared with May. 

On further examination, however, we learn that July’s 

container throughput in Singapore is down 10 percent 

as compared with the same month one year earlier, and 

Malaysia’s exports in June were 21 percent lower on the 

same basis. So even the good news comes with a dose 

of sobering reality. 

In an effort to assist the shipping industry in keeping 

abreast of how such economic developments impact our 

business, BIMCO has initiated regular shipping market 

analysis reports, complementing its broad portfolio of 

information services. 

In one early analysis, BIMCO found an interesting 

advantage created by a most unpopular maritime risk, 

the piracy attacks off Somalia. As it turns out, depending 

on factors such as a ship’s fuel consumption and 

insurance, it may be more profitable to transit via the 

Cape of Good Hope instead of transiting via the Suez 

Canal and Gulf of Aden. Who would have thought 

Thomas Timlen 

Asia liaison officer, 

BIMCO 

tt@bimco.org 

profits could be enhanced by routing a ship at a safe 

distance from potential attackers? 

Have there been any other reasons for cheer? These 

days news that national contractions in gross domestic 

product were lower than feared is welcome with a modest 

degree of delight. In this way bad news is delivered as 

good news, yet we have also seen the reverse situation. 

Countries that have begun to show signs of tangible 

growth are hobbled by the spectre of unemployment 

figures creeping upward. No one said the recovery 

would be easy, no matter what corner of the world you 

may be focused on. 

But were all economies contracting? Hardly. Indonesia 

experienced 4 percent growth in the second quarter, 

a rate reportedly at the slowest pace in six years however 

exceeding predictions for 2009. Indonesia is one of the 

few countries in Asia reporting positive growth, attributable 

perhaps in part to growth driven by domestic 

demand rather than a reliance on exports. Meanwhile, 

the Philippines avoided falling into recession altogether, 

with GDP performing at its strongest rate since 2007. 

Still, times are hard for the container lines. The sector 

facing the most dire levels of overcapacity saw companies 

reporting falling volumes and substantial losses. 

Owners in the bulk sector saw some encouraging 

developments. Take for example Hanjin Shipping’s 

20-year deal with Korean steelmaker POSCO worth 

$1.1 billion. 

In the offshore sector contracts worth $85 million 

have recently been secured by Keppel Offshore and 

Marine, and as far as the yards go orders are being fixed 

for rigs and bulkers at handsome rates. 

Where conventional orders are hard to come by, the 

creative thinking of the yards may even help to reduce 

the world’s greenhouse gases. 

Daewoo Shipbuilding & Marine Engineering Co. has 

acquired an American wind turbine producer. The opportunities 

created in clean energy industries are ready 

for steady growth as global climate change remains a 

priority issue. And as several yards begin to compete in 

this field such equipment may become more affordable 

and widely deployed. 

At the end of the day the market upheavals and 

eventual recovery will have varied impact depending 

on the region and sector of business. Far from being the 

end of capitalism, a disaster for the yards and a return 

to mayhem on the high seas, the actual outcome may 

simply be what was mentioned many months ago; a 

necessary and long overdue adjustment for all markets 

— freight included. The experience will hopefully 

provide many valuable lessons, not only with respect 

to creative thinking and innovation that is required 

when faced with such challenges, but also with regard 

to our abilities to run sustainable businesses in this 

globalized marketplace. 

Now that’s not so bad, is it? 

AMERICAN SHIPPER: OCTOBER 2009 47 

No one said 

the recovery 

would be easy, 

no matter what 

corner of the 

world you may 

be focused on. 

The actual 

outcome may 

simply be what 

was mentioned 

many months 

ago; a necessary 

and long overdue 

adjustment 

for all markets.

Vulnerable middle 

Freight forwarders may be “middlemen,” but that won’t preclude them from landing 

right in the center of export violations. 

As a facilitator in the supply chain, forwarders are in no way exempt from U.S. export 

control regulations. Investigations by the Commerce Department’s Bureau of Industry and 

Security may easily lead to stiff, and very public, penalties. 

DHL recently found this out the hard way. In August, the company entered into a joint 

settlement with BIS and the Treasury Department’s Office of Foreign Assets Control to 

settle allegations that it “aided and abetted” in the unlawful export of goods to Syria, Iran 

and Sudan and failed to comply with recordkeeping requirements. The company paid a 

civil penalty of nearly $9.5 million. 

“Large-scale compliance breakdowns lead to significant sanctions aimed at ensuring that 

freight forwarders put into place and maintain necessary measures to meet their compliance 

responsibilities,” said Kevin A. Delli-Colli, the Commerce Department’s acting assistant 

secretary for export enforcement, in a statement related to the DHL case. 

Export control regulations are extremely complex depending on the goods and their 

overseas destination. A forwarder, for example, may become unwittingly entangled in an 

anti-boycott violation. The Export Administration Regulations’ anti-boycott provisions 

prohibit U.S. persons from complying with certain requirements of unsanctioned foreign 

boycotts, including furnishing information about business relationships with or in a boycotted 

country or with blacklisted persons. 

With civil penalties of up to $250,000 per violation and the potential for criminal penalties 

of up to $1 million and 20 years in jail per violation, it’s worth every penny spent by 

forwarders to properly train their employees and hire appropriate third-party experts to 

assist them with maintaining robust export compliance programs. 

Export compliance also makes good business sense in this tight global market. Exporters 

have become more selective in choosing their forwarders, placing more emphasis on 

export compliance capabilities of these service providers. Violations by forwarders can 

just as easily implicate exporters as well. 


Freight Management is Simple 

Once You Know the Right Moves 

2009 NASSTRAC 

Carrier of the Year 

in the National 

Truckload Category! 

Simplify Complexity 

800.228.2240 

www.werner.com 

We Are WERNER. The Leader in Freight Transportation Innovation.

CONFIDENCE 

DELIVERED ONE SHIP AT A TIME 

Lower variable transit costs & improve 

business performance with Maersk 

Line #1 schedule reliability.* 

Every ship, every voyage Maersk Line 

strives to deliver your critical cargo on 

schedule. Optimal schedule reliability 

is how we can add value to your 

bottom line helping you control costs 

and maintain the integrity of your 

supply chain. 

You can be confident that Maersk Line 

will make every effort to continue 

delivering the highest level of schedule 

reliability to enhance your supply chain 

performance. 

Contact us to book your cargo or for 

additional information. 

*Drewry Shipping consultants Q3&4 2008, Q1,2&3 

2009 Report (based on 20 largest ocean carriers) 

maerskline.com | 973-514-5000

Pirate Busters - American Shipper

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