American Shipper February 2006

FEBRUARY 2006IndiaLand of opportunitywww.americanshipper.comPWC storms across logistics landscape 30Paper tigers of trade 40Negotiating parcel contracts 72Proving a point in Panama 82

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Vol. 48, No. 2LOGISTICS 6Japan opens, shuts border to U.S. beef 42Logistics cotton bowl 44Byrd Amendment shot down 50Exports to Iran a dangerous game 52Get in touch with inner supply chain 54Keep trade simple 60Blasgen: ‘Consensus builder’ 62Asian 3PL perspectives 64FORWARDING/NVOs 68ACE gaining momentum 68Sidler out at Panalpina 68Court dismisses NSA challenge 69ALG companies unite under brand 69EGL settles war risk surcharge case 69Kuehne + Nagel closes ACR buy 69TRANSPORT/INTEGRATORS 70DHL’s case of the missing tape 70TRANSPORT/AIR 70United exits bankruptcy; now what? 70TRANSPORT/OCEAN 78Carrier services changes aplenty 78Miles, Webber relieved at the helm 79TRANSPORT/INLAND 80Better solutions in Chicago 80PORTS 82Proving a point in Panama 82Growing need to be green 85Cooperation a Sound judgment 87Seattle, Tacoma ‘gateways’ ranked 90SERVICE ANNOUNCEMENTSChina Shipping, CMA CGM plan Atlanticloop ... CP Ships to join Grand in transpacifi cservice ... MSC, Maersk add ship to U.S./Africa loop ... Radiance kicks off ro/roDEPARTMENTSComments & Letters 2Shippers’ Case Law 92Corporate Appointments 93Service Announcements 94Editorial 96On the CoverFebruary 2006India: Land of opportunity 6The South Asian giant is on the vergeof flexing its industrial muscle. The shippingindustry knows this and is carefully exploringthe market. The underlying goal of interestedshippers, logistics providers and carriersis to stay a step ahead of future competition.India’s government and population appearcommitted to the developments necessaryto unleash the country’s entrepreneurial spirit.PWC storms across logistics landscape 30Ask any shipper, analyst or international trade specialistif they know about PWC Logistics and you are likelyto draw a blank stare. But those uninformed looksare likely to turn to nods of understanding in the next fewyears as the Kuwaiti-based logistics provider continuesits turbo-charged expansion into a full-service supplychain management company, fueled by hefty profitsfrom huge U.S. military contracts in Iraq and Kuwait.Paper tigers of trade 40Wastepaper is the United States’ most prominent exportin terms of number of TEUs, helping feed the packagingneeds of China with 6 million tons in 2004. Othermanufacturing powerhouses in the region claimedtheir share of U.S. used paper too. Yet even as U.S.wastepaper exporters send more product to Chinaeach year, the U.S. share of China’s paper exportsis shrinking.Negotiating parcel contracts 72More shippers are using integrated carriers for packagedeliveries than ever before. Negotiating contractswith UPS, FedEx, DHL and the U.S. Postal Service canbe complicated, requiring time and strategies that go farbeyond having accurate ZIP codes for recipients. Andlike other aspects of the logistics industry, muchof the success comes in paying attention to small details.Shippers’ NewsWireDaily updates www.americanshipper.comTo subscribe call 1 (800) 874-6422 or on the Web at www.americanshipper.comAMERICAN SHIPPER: FEBRUARY 2006 1

Promising pick for MarAd chiefDavid C. Sanborn has the maritime background that mayserve him well as the United States’ next maritime administrator.Sanborn, who was nominated to the post by President Bushin February, currently serves as director of operations forEurope and Latin America for DP World, the global marineterminal operator.Prior to this, Sanborn served as CMA-CGM’s senior vicepresident North America service delivery. He also served asvice president for network operations at APL, and earlier asdirector of operations at Sea-Land Service.In addition, Sanborn is a retired lieutenant in the U.S. NavalReserve and holds a bachelor’s degree from the U.S. MerchantMarine Academy.If confirmed by the Senate, Sanborn will succeed Capt.William G. Schubert, who resigned as chief of the MaritimeAdministration in January 2005. John Jamian, deputy administratorat MarAd, has since filled in as acting maritimeadministrator.The U.S. shipping industry is optimistic about Sanborn’snomination to maritime administrator.“He’s experienced and very knowledgeable in the industryand I’m sure he’ll do a fine job,” said World Shipping Councilpresident Christopher Koch in an interview. (Chris Gillis)Shippers pay for Wal-Mart’s carrier ratesOne point not mentioned in your article on Wal-Mart (“ShelfLogistics,” December American Shipper, pages 8-16) is the additionalcosts every other importer faces due to the rate levelsocean carriers grant Wal-Mart.Carriers each year grant rate and spaceconcessions to Wal-Mart that artificiallyprop up the demand for space. This fabricatedshortage of space gives the carrierssufficient ammunition to demand higherrates from all other shippers and importers.Everyone else ends up paying for the concessionswhich are granted to Wal-Mart. Ican’t tell you how many times over the years I have heard, “wecan’t talk about rates in your service contract until we completeour negotiations with Wal-Mart.” It’s King Kong and Godzillarolled into one.Every one of us pays for Wal-Mart’s success. I’m wonderingwhere they would be without all the concessions from carriers,local and state governments, their employees and suppliers. If therewere a level playing field, things would certainly be different.Dennis J. WilkinsonWorldlink Logistics Inc.Park City, UtahVol. 48 No. 2 February 2006American Shipper is published monthly. Published on the15th of each preceding month by Howard Publications,Inc., 300 W. Adams St., Suite 600, P.O. Box 4728,Jacksonville, Florida 32201. Periodical postage paidat Jacksonville, Florida, and additional mailing offices.Subscriptions $36 per year for 12 issues; $180 for airmail. Telephone (904) 355-2601.American Shipper (ISSN) 1074-8350)POSTMASTER: Send Change of Address Form 3579to American Shipper, P.O. Box 4728, Jacksonville,Florida 32201.Printed in U.S.A.Copyright © 2006 Howard Publications, Inc.To subscribe call1 (800) 874-6422or on the Web atwww.americanshipper.comPublisherEditorialHayes H. HowardJacksonville hhoward@shippers.comChristopher Gillis, EditorWashington cgillis@shippers.comGary G. Burrows, Managing EditorJacksonville gburrows@shippers.comRobert Mottley, Feature writerNew York rmottley@shippers.comEric Kulisch, Associate EditorWashington ekulisch@shippers.comJim Dow, Associate EditorMiamijdow@shippers.comEric Johnson, Associate EditorLong Beach ejohnson@shippers.comSimon Heaney, ReporterLondon london@shippers.comFrancis Phillips, Shipping ResearchLondon fphillips@shippers.comStephen Wynn, Shipping ResearchJacksonville swynn@shippers.comBeth Voils, Art DirectorJacksonville evoils@shippers.comJason Braddock, Graphic DesignerJacksonville jbraddock@shippers.comAdvertising Ryan Kneipper, Advertising ManagerNew York rkneipper@shippers.comNancy B. Barry, Adv. Prod. ManagerJacksonville nbarry@shippers.comCirculation Karyl DeSousa, Kerry Cowart,Kathy HouserJacksonville circulation@shippers.comJacksonville (800) 874-6422(904) 355-2601Fax: (904) 791-8836300 W. Adams St., Suite 600P.O. Box 4728Jacksonville, FL 32201Washington (202) 347-1678Fax: (202) 783-3919National Press Bldg., Rm. 961Washington, DC 20045New York (212) 422-2420Fax: (212) 422-004761 Broadway, Suite 1603New York, N.Y. 10006London +44 (20) 8970-2623Fax: +44 (20) 8970-2625Empire HouseEmpire Way, WembleyNorth London HA9 0EW, EnglandLong Beach (949) 412-4304Fax: (626) 796-82462215 E. 2nd St., No. 1Long Beach, CA 90803Miami (954) 443-374610300 Iris CourtPembroke Pines, FL 330262 AMERICAN SHIPPER: FEBRUARY 2006

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Keep the tequila flowingU.S. bottlers should toast U.S. trade officials for successfullyreaching an agreement with Mexico in mid-February tocontinue shipments of bulk Mexican tequila for bottling in theUnited States.In 2003, Mexico considered amending its tequila standards torequire its bottling in Mexico. The amendment, in effect, wouldhave banned bulk exports of the liquor.“We have resolved this important trade challenge in a waythat ensures U.S. bottlers will have continued access to bulktequila,” said U.S. Trade Representative Rob Portman in a Jan.17 statement.If the change in Mexico’s tequila regulations would havegone forwarded, it would have “threatened the huge investmentsby U.S. companies in building bottling plants and developingbrands in the United States,” Portman said.Other important provisions included in the agreementwere:• A prohibition on Mexican regulation of tequila labeling ormarketing, as well as the labeling, formulation, and marketingof distilled spirits outside Mexico.• Creation of a “tequila bottlers registry” that identifiesapproved bottlers of tequila.• Continuation of current practice with respect to addressingMexican concerns about manufacturing tequila in the UnitedStates.• Establishment of a working group to monitor the implementationof the agreement.The United States is Mexico’s largest export market fortequila and accounts for 50 percent of the Mexican product.In 2004, the United States imported more than $400 millionof Mexican tequila, of which 73 percent was shipped in bulkform. (Chris Gillis)Bonner’s back in townRobert Bonner returned to Washington Jan. 18, less thantwo months after leaving his post as head of U.S. Customs andBorder Protection, for a reception at the office of his law firmGibson, Dunn & Crutcher.Bonner recently rejoined Gibson Dunn, where he served asa partner prior to being named in 2001 to head the CustomsService. He is based in Los Angeles, but will split time in theWashington office.The event was billed as an executive briefing on homelandsecurity and challenges for the private sector. But the real purposewas to introduce Bonner to the firm’s clients and spreadthe word to prospective clients that he is ready to share hisexpertise.Although Bonner mostly discussed broad policy accomplishmentsat the Department of Homeland Security, he subtly usedthe occasion to let technology providers in particular know thatthey might need a little help getting their products noticed byDHS officials.Looking refreshed after four grueling years at CBP, he talkedabout how technology made possible container inspection andother programs instituted during his regime, and the technologyopportunities that are available as the government tries to rampup initiatives to gain control of the border to interdict and deterillegal immigrants.During a brief history lesson about DHS, Bonner explained4 AMERICAN SHIPPER: FEBRUARY 2006how difficult it was to integrate multiple agencies with differentmissions and cultures in a consolidated organization.“This is important to know for technology and systems developmentcompanies, as well as those that might be regulatedby the department. Companies that have something to offerto help DHS perform its mission need to know how DHS isactually structured, and how and where decisions are made,”Bonner said.“DHS doesn’t have, yet, a mature organizational structure,doesn’t always have clear roles and responsibilities for operationalagencies” and doesn’t have a robust procurement-orientedculture like the Defense Department, “which makes it harderto navigate for the private sector,” he said.The unspoken message: Who better to help steer companiesthrough those complicated regulatory and acquisition waters thana DHS agency head fresh off his tour of duty? (Eric Kulisch)Farewell to CSCMP’s McIntyreThe unexpected departure of Maria McIntyre as chief operatingofficer of the Council of Supply Chain ManagementProfessionals is difficult to accept on the face of it. The officialCSCMP story is that McIntyre wanted to spend more time withher family. Yet imminent retirement was not a subject McIntyrementioned to anyone within earshot during a reception at thecouncil’s annual meeting in San Diego in late October. She wasenthusiastic about the CSCMP’s evolving plans for 2006.It is fitting to salute McIntyre as a catalyst who inspired manylogisticians. In a September 2002 interview with AmericanShipper, McIntyre recalled a career that began in 1966 when shestarted working as an administrative assistant for the AmericanWarehousing Association, now the International WarehouseLogistics Association.Maria had married Donald McIntyre, a social worker whobecame an education counselor. They would have two children,Lisa and Deanna. In 1974, after her first daughter was born,McIntyre began working part-time for George Gecowets at theNational Council of Physical Distribution Management, helpingto plan the NCPDM’s annual fall conference which thendrew 500 attendees, compared to 3,400 in 2005. A decade later,McIntyre was Gecowets’s manager of administration. She hada say in changing the NCPDM’s name in 1985 to the Councilof Logistics Management. After Gecowets retired in 2000, asearch committee picked McIntyre to succeed him as CLM’sexecutive director, signing her to a multi-year contract.J. Thomas Mentzer, professor of logistics at the Universityof Tennessee and a former CLM president, said in 2002 thatthe search panel “had been impressed with her quarter-centuryof experience as well as her historical perspective of the fieldof logistics. She has been there for the evolution of the professionfrom a backroom activity to an executive-level globalfunction.”Perhaps McIntyre’s greatest challenge was in bringing off the2001 CLM annual conference in Kansas City in late Septemberof that year. It was one of the first industry gatherings to beheld after the trauma of Sept. 11, 2001.The aftermath of 9/11 hurt CLM, which again changed itsname and gradually built back its membership. Those weren’teasy days, and McIntyre provided the leadership to sustain anorganization that she had known for so long.To that end, she was indefatigable. (Robert Mottley)

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IndiaLand of opportunityThe South Asian giant India is on the verge of flexingits industrial muscle.The shipping industry knows this and is carefullyexploring the market for opportunities. The underlying goalof interested shippers, logistics providers and carriers is tostay a step ahead of future competition.Numerous studies and industry experts point to Indiaplaying a significant role in global commerce, but the realityis that it may take five to 10 years before the country’stransportation and port infrastructure catches up to the levelof China and other industrial powerhouses of Asia and theWestern world.India’s government and population appear committed tothese developments, allowing the country’s wealth of entrepreneurialspirit to be unleashed.For the industry, there are short- and long-term strategiesto ensure success in trade with India.AMERICAN SHIPPER: FEBRUARY 2006 7

LOGISTICSRace for second placeIndia is positioned to become the world’s second mostpowerful goods manufacturer — if it can overcomeinfrastructure shortcomings and bureaucracy.Hidden under the giant boulder thatis China is the world’s secondmost-populousnation, India, acountry on course for a manufacturingrevolution of its own sure to have globalramifications for shippers in North America,Europe and the Middle East.India, with the backing of its hard-drivinggovernment, stands on the precipice ofconverting its predominantly services-basedeconomy into a manufacturing and logisticshub that it hopes will rival its neighbor tothe north.Yet problems persist, most notably aninfrastructure system that lags well behindrival China, and a political culture that canbe notoriously bureaucratic.At the heart of the question of whetherIndia will become the next manufacturingsuperpower, however, is whether the country,and foreign investors, can tap into a populationof hundreds of millions of poor urbanand rural citizens who have missed out onmuch of the country’s economic boom timesin the last decade.In October, APL Logistics and DrewryShipping Consultants released a report, ConnectingIndia — Transportation Challengesand Opportunities, describing what awaitsshippers looking to source in India, as wellas companies looking to set up manufacturingbases there.Kenneth Glenn, senior vice presidentSouth Asia and managing director Indiafor APL, spoke with American Shipper atlength about the exciting times facing thesubcontinent. Glenn has been working inAPL’s Bombay office since fall, shuttlingbetween the nation’s biggest city and itscapital, New Delhi.“All the hype you hear is accurate,” Glennsaid. “You can’t open a business magazine orread a newspaper without reading about Indiaand China in the same breath. The place isbooming in every respect. There’s excitementon the institutional level, the employmentlevel and the government level.”Glenn said India is well placed to becomea logistics hub, “if they can overcome the8 AMERICAN SHIPPER: FEBRUARY 2006BY ERIC JOHNSONchallenges and hurdles. I see this countryat the very beginning of an upward curveof growth potential. They have a can-doattitude in terms of their willingness totackle things.”“All the hype you hearis accurate ... The placeis booming in every respect.there’s excitementon the institutional level,the employment leveland the government level.”Kenneth Glennsenior vice presidentSouth Asia & managingdirector India,APLTwo Employment Bases. In order tounderstand what cultural challenges awaitforeign investors in India, one must understandthe dichotomy of the country’s twobroad employment bases: the well-educated,English-speaking urban dwellers for whomservice, financial, and technology jobs are anatural fit; and the hundreds of millions ofrural citizens, who are poorer, less-educatedand have limited opportunities to tap intoIndia’s booming economy.It is these rural populations, and in thepoorer urban areas, where manufacturingcould take hold and elevate the economyof the entire nation, Glenn said.“When you’re moving to a manufacturingeconomy, you target a different demographicgroup,” he said. “As great as India’seconomic growth has been, the reason theparty changed in the last election was thatthey lost the rural vote.”Understanding India’s dizzying politicalsystem can be a chore. But a sea change occurredin 1998, when the Bharatiya JanataParty (BJP), which has fought hard forHindu nationalist causes, wrested controlof the central government away from thelong-ruling Congress Party.In the years that BJP ran the government,the country became a services-basedeconomic phenomenon, with scores ofEnglish-speaking businesses using thewell-educated population as outsource callcenter hubs.“The past five years have been accompaniedby higher levels of foreign direct investment,increased participation of the privatesector in industrial and commercial venturesand rising volumes of foreign trade,” theAPL-Drewry report says. “In particular, thelatter years of the BJP administration sawrelations with China thaw, and trade betweenthese two countries is now powering aheadat a very rapid rate.”Yet while the economy has boomed becauseof it, problems persisted.“BJP was very pro-business, but theproblem was as much as they did for theeconomy to position it for future growth, itdidn’t affect a lot of the people,” Glenn said.“Sixty percent of the country still dependson agriculture for income.”And so the Congress Party won backpower in 2004, primarily with the ruralvote. That rural population, Glenn said, iswell suited to help India undergo its nexttransformation.“India is predominantly a services sectoreconomy,” he said, pointing out that thesector represents about 50 percent of thenation’s GDP.In contrast, only 20 percent of GDP isattributed to manufacturing.“That’s almost exactly the reverse ofChina, where manufacturing accounts for50 percent of GDP and services about 30percent,” he said. “India is really only at the

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LOGISTICSbeginning stages of becoming an internationalsourcing location. It’s just beginningto realize its potential.“Looking 10 years down the road, that’slikely to be very different,” Glenn continued.“The government’s priority is to develop asa manufacturing base.”Of the products it does manufacture andexport, roughly 50 percent are garmentsand textiles. Auto parts are the next biggestcategory of goods, but those are almostentirely kept in the domestic market.“India’s export mix is changing withhigher value goods (e.g. high-tech, pharmaceuticals,engineering and automotivecomponents) growing at a faster pace thanresource-based and agricultural products,”the APL-Drewry report said.Glenn said India is on course to followa familiar pattern of development as otherAsian countries, like Korea, Taiwan andChina. “You start with a labor-intensivepattern, manufacturing things like shoes,toys and low-end electronics,” he said. “Thenyou climb the food chain into value-addedproducts.”Since 1995 the value of the country’sexports has almost doubled from $31 billionin 1995 to $57 billion in 2003, theAPL-Drewry report said. As a result, India’sshare of world exports has risen from 0.6percent in the mid-1990s to almost 0.9percent in 2004.By the end of this year, the governmentwants the country’s share of world exportsto reach 1 percent, a process it thinks willbe aided by a move up the value chain.English And Democratic. India’shuge English-speaking population and higheducation levels have afforded the countrya key advantage over China and other developingnations.“It really has led to their home as a servicecenter and that’s clearly been the backbone“India is uniquely suitedto expand its presencein the business processesoutsourcing sector and to usethis as a platform for morevalue-added service andresearch and developmenttype activities.”APL Logistics-DrewryShipping Consultantsreport10 AMERICAN SHIPPER: FEBRUARY 2006Indian exports by countries of destination(% of total export value, 2003-2004)8%5% 5% United Arab Emirates5%United States4%18% Other3%3%3%JapanItalyBangladeshBelgiumSingapore3%Germany3%ChinaUnited Kingdom40%Hong KongThe pharmaceuticals, engineering and automotive components sectors are likely to becomemore important export cargoes in the future, with India also significantly increasingits involvement in the IT sector. In general this changing mix of cargoes will result in furtherunitization of the country’s general cargo trades.Sources: Indian Department of Commerce, Drewry Shipping Consultants Ltd.to their economic development to date,”Glenn said.“India is uniquely suited to expand its presencein the business processes outsourcingsector, and to use this as a platform for morevalue-added service and research and developmenttype activities,” the APL-Drewryreport says. “In addition to its English-speakingand generally well-educated population,it has a vibrant computer software industry,with exports of IT products and IT-enabledservices a major generator of revenues andemployer of people.“The contribution of this sector to theeconomy is expected to rise further, withanalysts at Morgan Stanley suggesting anat least four-fold increase in revenues overthe next five years.”The services sector has benefited fromloosening of restrictions during BJP’s turnat the helm, and the Indians it has employedhave fueled a consumer culture.“Economically, India benefits from havinga young English-speaking workforce thatis highly flexible, generally well educatedand well qualified to take on remote-servicesjobs, such as those offered in call centersand administrative/documentation processingcenters,” the report said. “Growth in theservices sector has also been attributable toIndia’s deregulation of its financial servicesand telecoms industries. Given the relativelywell-paid jobs available, it is the emergenceof this type of business that is helping fuelan active and relatively cash-rich middleclass, which in turn is feeding into risinglevels of consumer demand.”The report also said India has taken aninclusionary, consensual approach to its economicgrowth, or the opposite of the closedgovernmental system found in China.“One of the things India likes to do ishighlight the fact, especially in comparisonto China, that it is the world’s biggest democracy,”Glenn said. “The decision-making isconsidered slow and bureaucratic, but it isdemocratic.”Glenn said much of the country’s neartermsuccess will depend on whether thecontentious factions of government canreach consensus on pro-business goals.“It’s not necessarily going to be democracyalone that would make India more attractive,”he said. “The safety of investment,stability, and currency concerns would bemore important to shippers looking whereto source.”Infrastructure Upgrades. More thananything else, though, infrastructure improvementsare the key to progress.“If it’s not the key, it’s certainly near thetop of the list,” Glenn said. “You can’t have aconversation with anyone here, in the publicor private sector, where infrastructure needsdon’t come up.”How big a deal is it? Even the New YorkTimes had a front-page story Dec. 4 chroniclingIndia’s effort to upgrade its dilapidatedroads.“Everyone acknowledges there’s a woefullack of infrastructure today to complement thegovernment’s stated goals,” Glenn said.China’s expanding infrastructure, whichis still having trouble catching up withthat nation’s explosive trade growth, putsIndia’s infrastructure development to shame,Glenn said.“There’s no comparison at all betweenthe U.S. and India or China and India,” he

LOGISTICSsaid. “I would put China’s infrastructure inurban areas close to the U.S. They’ve madeincredible steps in the last 10 years.”The list of India’s problems is long— roads too narrow and in poor condition,rail inefficiencies, low throughputefficiency in marine terminals — and yetIndia’s growth as a hub of internationaltrade will depend largely on its transportationsystem.Seaport Growth. Glenn said seaportsare one area where private money hasflowed.“Huge private investment in ports beganabout 10 years ago,” he said. “You havea queue a mile long wanting to invest inports.”Yet, ports in India aren’t the efficientlogistical machines they are in other partsof Asia.“Port productivity is much lower in Indiathan in China,” Glenn said. “Customs clearancesare slower. And landside infrastructureis much slower because there are bottleneckseverywhere and a lack of capacity to handlethe volume.”All those slowdowns contribute to makinglead-time for a product sourced in Indiasignificantly longer than from China, Glennsaid in the APL-Drewry report.“In India the costs associated with movingfreight are some of the highest in theworld at 11 percent of the landed cost ofthe cargo,” the APL-Drewry report said.“This compares with a global averageof just 6 percent. The main reasons forthe higher costs are twofold — tariffsand the inadequate infrastructure, whichlimits productivity improvements, resultsin higher levels of damage and extendslead times.“The ports also play a role in the longerlead times required for Indian exports tothe USA, relative to China — since whilegeography is naturally a factor, it does notbegin to explain the contrast between the sixto 12 weeks for India and the two to threefor China,” the report said.Just as in the United States, the IndianWest Coast dominates container trade, havinghandled almost 3 million of India’s total4.4 million TEUs in 2004.APL sees growth in India’s automotivesector and theorizes that agricultural products(like grain and soybeans) that havemoved bulk or breakbulk will increasinglybe containerized. In the report Drewry estimatesthe level of container penetrationin India to be around 50 percent, but risingrapidly.According to Glenn, handling rates percrane have improved dramatically over thepast 10 to 15 years as well.12 AMERICAN SHIPPER: FEBRUARY 2006“Prior to 1989, the average handling rateat India’s ports was just 12 to 13 containersper hour. This improved to 15 containersper crane per hour with the opening of theJawaharlal Nehru Port, then 18 to 19 withthe commissioning of Nhava Sheva InternationalContainer Terminal, and the pastthree years have seen rates rise further to25 containers per crane per hour.”The carriers are certainly recognizingIndia’s growing prominence.“Since 2000, the North American EastCoast trade has seen the phasing intoservice of a considerable amount of newcapacity and the launch of several newstrings to/from ports in the Mid-East/SouthAsia region, such that more than 80 percentAPL Logistics and Drewry Shippingcompiled a report in fall detailing thepotential rise of India as a global manufacturingpower. India is almost alwayslinked with its neighbor and rival, China.Yet China has stolen a march on India inthe manufacturing arms race. The APL-Drewry report lists some reasons:• First, the world’s largest democracyhas not had the political continuity thatChina has, with the election of differentgovernments resulting in changed policies,greater levels of bureaucracy andslower decision-making procedures, etc.Moreover, the democratic nature of thepolitical process in India does mean thatany movement for change needs to beconsensual and command popular support— which is seldom easy to achievein such a diverse country with so manycompeting interest groups.• The country has not been consideredas attractive as China from the foreigndirect investment (FDI) perspective,and particularly for manufacturing andassembly ventures. On average, recentFDI levels in India have been equivalentto just 1 percent of the country’s annualGDP ($4 to 5 billion), whereas China hasbeen able to attract $50 billion in recentyears. While India’s share of global FDIis less than 1 percent, China has a 12percent share.• A rigid labor market puts India at adistinct disadvantage compared to China’sflexible market.• A high tax burden, characterized bymany different taxes, including federallyimposed excise tax, central value-addedtax and service tax together with stateimplementedsales tax and a tax leviedof capacity assigned to the trade is nowprovided by dedicated direct-call services,”the APL-Drewry report said. “Thetwo principal liner services are operatedby Maersk Sealand (more than 250,000TEUs of annualized slots are deployed inthe westbound direction) and the Indamexgrouping (APL, CMA CGM, Contshipand MacAndrews — SCI withdrew fromthe consortium in the first half of 2005),which provides almost 200,000 TEUswestbound.“A priority in this trade in recent yearshas been to reduce transit times, particularlyfor Indian exports, and for this reason, manyof the operators involved in the markethave cut back on the number of way-portIndia and China, head-to-headat municipal government level for goodsbrought into the city for consumption. Anational VAT system, due to be implementedin April 2005 with a standardrate of 20 percent (compared with existingtaxes of 25 to 30 percent) has beendelayed, with many states unwilling toproceed.• Comparatively weak domesticdemand means Indian companies cannotreadily achieve the scale of similarChinese enterprises. Indeed, a 2004 MorganStanley report estimates that India’sdomestic market, across a broad spread ofmanufactured consumption items, is only10 to 20 percent of China’s and that it willtake 10 to 15 years for the Indian marketto become as large as China’s is now, interms of per capita consumption.• Poor infrastructure, which has notkept pace with the level of economicgrowth, industrialization and urbanization.China’s recent investment in infrastructurehas been eight times that of Indiain absolute terms. In 2002 China’s totalcapital spend on electricity, construction,transportation, telecoms and real estatewas $260 billion (20 percent of GDP)compared to India’s $31 billion (6 percentof GDP). Only in telecoms has India madesignificant advances in recent years, withcosts falling by 60 to 80 percent over thelast five years.• Lower levels of FDI, and of capitalinvestment generally, mean that not onlyis productivity in India below that ofChina in most sectors, but the costs ofmany basic services are also higher — forexample, Indian electricity charges areabout double those in China, while railtransport costs are triple.

LOGISTICScalls scheduled in the Mediterraneanbasin. Partly, this is attributable to thegrowth in time-sensitive textile/garmentsand footwear cargoes moving from Indiato the U.S.”The report further said, “Despite India’sgrowing role in international trade and theincreased level of investment in its ports, asignificant proportion of India’s containertrade is still moved by feeder vessel to/fromhub ports such as Dubai, Salalah, Colombo,Port Tanjung Pelapas and Singapore. Partly,this is historical and stems from lineroperators’ use of ships deployed on themain east/west trades, such as that betweenEurope and the Far East, to link in marginalmarkets. However, direct-call mainlineservices to/from India (particularly themain ports of JNP and Chennai) are onthe rise and this will continue as overalltrading volumes pick up and direct linksbecome more economically viable thanfeeder/transshipment operations.”Roads And Rails. Highways and roadsare a major culprit for poor lead times. Thevast majority of roads are one or two lanesand they’re crowded with any and all typesof vehicles (including mammals).“Roads have not had a lot of successin terms of attracting FDI (foreign directinvestment),” Glenn said.Yet, there is hope on the horizon. Thegovernment is building a major pan-Indianhighway network connecting the nation’sbiggest cities — Calcutta in the east, NewDelhi in the northwest, Bombay in the west,and Chennai in the south.That project is about 85 percent complete,and Glenn said it signifies the government’sintent to follow through on infrastructureimprovements.Shantanu Dutta, a professor of marketingat the University of Southern CaliforniaMarshall School of Business, said the goldenquadrangle, as it’s called, is as significant aninfrastructure development as the Americanhighway system built in the 1950s underDwight Eisenhower.It not only links India’s four biggest cities,and two of its biggest ports in Bombayand Chennai, but also 17 other major citieswith 3,625 miles of two-, four- and six-lanehighways where often single-lane roadsonce stood.An example of how the highway networkcan help lead the economic transformationof India can be found in Surat, a city in thestate of Gujarat that is heavily focused onthe diamond trade.Seven of every 10 diamonds worldwideare polished in India, Dutta said, and ruralcitizens are flocking to Surat from as faraway as Orissa, a state 900 miles to the east,More than anything, infrastructure upgrades are the key to India’s progress.for a chance to participate in the growingindustry.The APL-Drewry report notes that Indiais the world’s largest exporter of cut diamondsand is a significant participant inthe international gems and jewelry businessas a whole.India employs 750,000 to 1 million inthe diamond trade, fairly comparable to the1.5 to 2 million working in IT. Though ITjobs get much of the publicity, it is jobs indiamonds, and in auto parts and industrialequipment plants, that will make India themanufacturing giant analysts predict.“The government has invested in this roadbecause if they want to compete with China,they need to improve the infrastructure,”Dutta said.Meanwhile, the rail industry, which haslong been a public sector staple, is slowlyintegrating private investment. Last year’sbudget saw the approval of FDI in freightrail (not passenger rail), especially in relationto the movement of containers.Dutta said the rail system in India is ingood shape to accommodate growth infreight. Because of the paucity of soundroads, most freight moves on rail today,evidenced by 9 percent growth in 2004 and10 percent growth in 2005.And even though the government hasn’tadded to the system to the same extent ithas to the highway network, “there is a lotof slack in the system,” Dutta said. “It’s astate-run system, so there are inefficienciesthat can be improved.”What’s The Attraction? So exactlywhy does India hold so much promise,from the point of view of foreign shippersand investors?“What makes India attractive to potentialinvestors, in terms of setting up manufacturing,is you have a huge local market justbeginning to consume in the way more developedcountries have consumed before,”Glenn said.Between 2003 and 2005, vehicle saleshave risen 30 percent, PCs 65 percent, andcell phones 200 percent.“And those increases have been supportedby a small percent of the population,” hesaid.With a population of more than 1 billion,Glenn estimates conservatively that there are200 million households in India. Of those,130 million live on less than $1,500 a year,while another 50 million live on less than$4,000 annually.That means the remaining 20 millionhouseholds (or roughly 10 percent of thepopulation) are almost wholly responsiblefor driving up the volume of consumer goodssold. If that 10 percent’s spending powerincreases further, coupled with a modestrise in the consuming power of the other90 percent, the stakes can get quite high,Glenn argues.“So the growth has been in the top,maybe, 10 percent,” he said. “Now spreadthat through the rest of the population asthey become more upwardly mobile and itbecomes very attractive to an investor wantingto set up a manufacturing operation forboth export and domestic consumers. If youcan do that in conjunction with creating anexport market based on low-cost labor, nowyou have the best of both worlds.”And Glenn is not alone is seeing India asa retailer’s dream.“India is positioned as the leading destinationfor retail investment,” according toa report by Delhi-based firm Research andConsultancy OutSourcing Services. “Thisfollowed from the saturation in western retailmarkets and we find big western retailers14 AMERICAN SHIPPER: FEBRUARY 2006

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LOGISTICSto foreign direct investment. Crucially, FDIwill become increasingly important for thenation’s various industrialization and infrastructuralimprovement programs.”“India is positioned as the leading destination for retail investment,” accordingto Delhi-based Research and Consultancy OutSourcing Services.like Wal-Mart and Tesco entering into theIndian market.”The report, Indian Retail Sector — AnOutlook (2005-2010), said India’s retailindustry accounts for 10 percent of its GDPand 8 percent of employment, which willcombine to reach $17 billion by 2010. Thereport said that cities are due to be hit withan influx of 300 new malls, 1,500 supermarketsand 325 department stores in thenext few years.“A shopping revolution is ushering inIndia where a large population between theages of 20 and 34 in the urban regions isboosting demand by 11.1 percent in 2004-2005,” the report said. “This has resultedin huge international retail investment anda more liberal FDI.”The APL-Drewry report, meanwhile, saidthat loosening of restrictions to date hasbeen focused mainly in giftware, durablesand light manufacturing sectors.“However, the heavy engineering,transportation, so-called ‘metal bashing’and chemicals industries remain largely inthe public domain,” the report says. “Theliberalized environment has also resulted inmany multinational companies establishingassembly/manufacturing bases in India.This has been especially true of the carmanufacturers, with Ford, Fiat, Mercedes-Benz and Toyota all producing cars in thecountry and keen to capitalize on the salesopportunities presented by the nation’s risingmiddle class.”A Question Of Pace. For Glenn, thequestion is not will India become a majorglobal manufacturing and logistics hub, butwhen. Or as he puts it, “At what pace?”“It’s an extremely fragmented democracyin terms of any one party having any actualpower,” he said. “You have this coalition16 AMERICAN SHIPPER: FEBRUARY 2006government with differing views on what todo, and so progress is sometimes painfullyslow. So the question is, at what pace dothese reforms take place.”The populace is, however, aware of theneed for India to take advantage of the opportunitythat awaits, Glenn added. “The needfor economic reform is deeply ingrained inthe population here.”But there’s the politics, don’t forget.“No one party can win a clear majorityin the state elections and coalitions are anormal political way of life in India, butit makes for difficult decision making andfor highly compromised legislation andgenerally weak laws and statutes,” the APL-Drewry report said.In fact, in order for Congress to oustBJP, it had to rely on a coalition withthe country’s Communist party to secureenough votes. The Communist party, whichis tight with urban labor unions, is fightingdegradation of current labor laws, a policythat might dissuade foreign investment inthe country.“On the regulatory front, there are signsthat progress is being made, with one of themost recent and significant developmentsbeing the repeal of a six-year rule calledPress Note 18, which was perceived asaffecting India’s overall attractiveness toforeign investors,” the APL-Drewry reportsaid. “Press Note 18 stipulated that foreignparticipants in joint venture operations hadto seek government approval before settingup rival businesses in the same industry. Itmeans that such developments, includingnew collaborations, will now be based oncommercial considerations and contractualagreements.“This move is important because it sendsout the right message that the governmentis keen to reduce the number of obstaclesU.S.-India Relations. The relationshipbetween the United States and India hasbeen strained at times, with India leaningon its neighbor (and former U.S. enemy)Russia for support in the region. Similarly,India has not always been impressed by U.S.support for Pakistan.But business opportunities sometimestrump politics, and that seems to be thecase these days.“Clearly the Bush administration is veryfavorably deposed to India,” Glenn said.“Most people see India as a rising powerthat is not aligned with anybody. The numberof countries sending trade delegationsis astounding.”U.S. delegations aren’t the only onescoming through Bombay and Delhi.“Japanese delegations have quietly beenvisiting India,” USC’s Dutta said.The reason? Japan wants to diversify itssourcing options. Call it the “not puttingall your eggs in China” theory. And U.S.-Indian economic relations are growing forsimilar reasons.“I think the powers that be see India asa way to manage China,” Dutta said. “Ofcourse, China is doing its best to make surethe U.S. doesn’t get too close to India. Butthis is the best it’s ever been between theU.S. and India, and I think it will continueno what matter the administration.”The United States is by far the biggestconsumer of Indian exports, more thandouble the second biggest (United ArabEmirates), the APL-Drewry report said. TheUnited States is also the largest exporter ofgoods to India.Right Time? So the next question is, ofcourse, when to make the plunge?“I would say to closely watch the pace ofeconomic reform, and of FDI,” Glenn said.“The greatest gains are to those who getin early. Everyone is sort of dipping theirtoes in the pool right now. The countriesthat make that plunge early will realize thegreatest benefits.”Rachel Meyer, a business analyst forHoover’s, was even more emphatic.“The time is now,” she said. In earlyDecember, “Microsoft announced an investmentof more than $1 billion to go to Indiaover the next four years, and Intel announceda $250 million venture fund for the country.Red Hat also bought out its partner in itsIndian joint venture.“Waiting too long might end up beingmore costly, as wages are escalating rapidly

LOGISTICSfor workers in India, primarily due to the informationtechnology and business processoutsourcing boom, as employees move fromone job to another to obtain higher salariesor better benefits.”But the outlook for India only gets betterfor those who invest early, Meyer said.“India’s investment potential will continueto grow for many years,” she said.“Its rising middle class and young, highlyeducated population is buying at an acceleratingpace. We’ve also seen significantgovernment investment in the country’sinfrastructure, such as power plants, roads,ports, airports, irrigation and water supplies,and telecommunications.”Content With 2nd? “It’s clear Indiawill be a follower to China,” said UdayKarmarkar, a professor of decisions, operationsand technology management atUCLA’s Anderson School of Management.“There was a time they could have followedKorea as the next big manufacturer, but thatopportunity was missed.”Karmarkar said that failure to take advantagestill haunts the country today. He saidIndia’s manufacturing sector slowly suffocatedduring Britain’s colonization, whichended in 1947 when India gained independenceand partitioned with Pakistan.Despite its clear place in line behindChina, Karmarkar said India can transitionsmoothly to a manufacturing-basedeconomy. After all, its long produced textiles— dungarees and khakis both originatedin India.“China has grabbed the lead and theywill be impossible to catch,” he said. “Theyare amazingly good at manufacturing.They make everyone else look slow. So theproblem for India will be that it’s the secondchoice. There are clear thinkers who knowwhat’s going on. Unfortunately, when youmake progress, it doesn’t happen uniformly.When you invest $5 in something, otherswonder why they don’t have $5 themselves.As (former Prime Minister) Indira Gandhisaid, ‘Progress is not in a straight line.’ ”Karmarkar said India only needs foreigninvestment to turn it into a global manufacturinggiant.“India is quite well-positioned to exportto the Middle East and Europe,” he said.“There’s not a shortage of capability. It’sjust a matter of investment.”Chemicals, pharmaceuticals, auto partsand apparel are the markets India is likelyto quickly find success in the global market,Karmarkar said, as well as microchip andindustrial equipment manufacturing.Dutta said India realizes it is fighting forsecond place in the global pecking order, butthat that’s a pretty good position to be in.18 AMERICAN SHIPPER: FEBRUARY 2006“There’s a reality at this point in time,”Dutta said. “You look at the trajectoryChina has been on, and you see that theyhave had at least a 15-year lead in openingtheir country to investment. But there arestill specialized electronic components thatare more cost-effective here than in China.There are manufacturing niche markets thatrequire technological skills. That said, Indiawon’t overtake China in terms of mass-scalemanufacturing.”But as India relaxes its policies on foreigninvestment and grapples with how to makelabor laws less daunting for investors abroad,things are changing.From Ag To Manufacturing. Duttasaid the diamond trade in Surat, and textilesmanufacturing in other smaller cities, providea keyhole through which the future ofthe economy can be glimpsed. Industry willset up in smaller cities along the highwaynetwork, near large rural populations eagerto work, and away from cities, where labormovements are strong.“In India, the costsassociated with movingfreight are someof the highest in the worldat 11 percent of the landedcost of cargo. Thiscompares with a globalaverage of just 6 percent.”He also expects to see India followChina’s lead in developing special exportzones, where businesses are not governedby labor laws.“These people from the villages come toSurat and earn five times what they are makingback home,” he said. “Even (technologyofficials) recognize employment generationwill come from these manufacturing sectors,not IT.”Karmarkar said the remnants of the feudalland ownership system first implementedafter independence — where no landownercould own more than 40 acres — havecreated a dependence on agriculture foremployment, without ever being terriblyefficient from a bottom line standpoint.He said the country’s output of agricultureaccounts for only 20 percent of GDP,yet 60 percent of employment in India istied to agriculture. India’s IT employees,for example, account for only 10 percentof the country’s workforce.“The county boys want to go to the city— that’s the same everywhere,” Karmarkarsaid. “If you’re a farmer, you’re not doingwell. A lot of people are on the brink ofstarvation. There’s a large young populationmoving to the cities and bringing withit problems of their own. The real solutionis to move people out of agriculture intomanufacturing.”Again, it’s a question of tapping into adifferent demographic than the people likelyto work in IT or other services.“Farm boys can work in factories,” Karmarkarsaid. “That’s sort of the Americanmodel. But they can’t move to softwaredesign. Right now, we lack those entrepreneurslike John Deere.”Yet India still has enough skilled employeesto lure sophisticated manufacturing awayfrom China in some markets.“India is still viewed as a preferred globaloffshore location for information technologyand business process outsourcing. Butit is also moving beyond call-center workand basic software development to moresophisticated labor, such as semiconductordesign and manufacturing,” Hoover’sMeyer said. “Skills in precision engineeringalso make the auto components and medicalinstruments manufacturing industries areasto look to for further growth.”Problem Areas. Along with transportationinfrastructure comes the problemof power. Like China, India is becominga consumer of energy to rival the UnitedStates, and the three nations are racing tosecure energy sources worldwide.Dutta said Indian industrial facilities,like its well-chronicled IT campuses inBangalore, often rely on their own powergeneration to get around frequent blackoutsin the government-run grid.Yet it’s expensive, and adds to the costof making goods if power to run plants ismore expensive.India is tying up long-term natural gasagreements with Russia and is likely todevelop more nuclear power plants.“I’m less hopeful on that system than Iam on infrastructure,” Dutta said. “Maybein another 10 years.”But to Glenn, time is the main problem.“The only real risk I see is that economicreforms get bogged down in politics,” hesaid. “Political realities could affect the paceof reform. I wouldn’t rate that risk as veryhigh, but then again, politics is an endlessgame of compromise. Beyond that, I don’tview anything as even remotely likely tointerrupt or reverse the progress that’s beenmade so far.”

LOGISTICSIndia’s formulaLogistics companies should understand contextof nation’s boom before diving into the market.20 AMERICAN SHIPPER: FEBRUARY 2006BY DEEP R. PAREKHThere is an Indian saying that bathingin the holy River Ganges is never thesame experience twice — becauseyou’ve changed and the river has changedeach time you visit. The same can be saidof the logistics industry and the players inIndia with each passing year of liberalizationand the “boom” years.India’s boom is still in its infancy. It isimportant to understand its context in somedepth before addressing the scope of the truepotential of India’s economic future and,more to the point, how its economic potentialand growth pattern crosses paths withthe strategy that logistics service providers(LSPs) should consider when thinking aboutthe “India formula.”An October 1997 issue of the Times ofIndia quoted K. Rameshwaram, then directorof the economic coordination unit forIndia’s Ministry of External Affairs: “Theseventh-largest and second-most-populouscountry in the world, India has long beenconsidered a country of unrealized potential.A new spirit of economic freedom is nowstirring in the country, bringing sweepingchanges in its wake. A series of ambitiouseconomic reforms aimed at deregulating theeconomy and stimulating foreign investmenthas moved India firmly into the front ranks ofthe rapidly growing Asia Pacific region, andunleashed the latent strengths of a complexand rapidly changing nation.”Almost 10 years later, that statement hasbecome vibrantly true and almost understatedwhen we consider the growth thathas been already realized, and the expansionthat lies ahead.More recently, the McKinsey Quarterlywrote, “the rise of the IT and biotechnologysectors is a great story, but they alonearen’t enough to create the kinds of employmentopportunities that will bring broadereconomic and social progress.” Whatholds India back is lack of public health;inadequate infrastructure; needed modernizationof maritime ports, roads, airportsand railways; and substantially reduced,yet still-excessive government regulatoryintervention. The financial system is alsoundergoing a metamorphosis, as are relateditems such as lending, banking, and corporategovernance.Raghuram G. Rajan, chief economist ofthe International Monetary Fund, said, “theeconomy isn’t as open to foreign goods andservices, labor, or knowledge as it should be.That could keep India from becoming moreof a player in the global economy.”When we consider the India formula, wemust define the variables of the formula.Amongst the major variables we recommendto consider are:• General trade increases.• Specific industry hotspots.• Logistics trends in India.• Governmental factors.• LSP’s business strategy.This article will present each of thesevariables in more detail, so as to understandbetter the lay of the land, some critical successfactors, as well as what to consider whendeciding when, how, and where to get intothe logistics industry in India.General trade increaseIt is important to ground ourselves withsome factual statistics about the developmentof India, its recent boom and its correctcontext.BRIC Context. Goldman Sachs issued aglobal economics paper in late 2003, whichChinaIndiaRussiaBrazilUKItalyItalyoutlined some of the trends they are seeingfor four major global economies — Brazil,Russia, India, and China — together calledthe BRIC economies. In this report, theysummarized the following:• Over the next 50 years, the BRICeconomies could become a much largerforce in the world economy.• In less than 40 years, the BRIC economiestogether could be larger than the G6(Italy, France, Germany, Japan, UnitedKingdom, United States) in dollar terms,and by 2025 could account for half thesize of the G6.• The shift in GDP relative to the G6takes place steadily over the period, but ismost dramatic in the first 30 years. Growthfor the BRICs is likely to significantly slowtoward the end of the period, with only Indiaseeing growth rates significantly above 3percent by 2050.• As early as 2009, the annual increase inU.S. dollar spending from the BRICs couldbe greater than that from the G6, and morethan twice as much in dollar terms as in2003. By 2025 the annual increase in U.S.dollar spending from the BRICs could betwice that of the G6 and four times higherby 2050.• The relative importance of the BRICsas an engine of new demand growth andspending power may come more dramaticallyand quickly than expected. Highergrowth in these economies could offset theimpact of the graying populations and slowergrowth in the advanced economies.• Higher growth may lead to higherreturns and increased demand for capital.The weight of the BRICs in investmentportfolios could sharply rise. Capital flowsmight move further in their favor, promptingmajor currency realignments.• Rising incomes may also see theseOvertaking the G6:When BRICs’ GDP would exceed G6Germany Japan USFranceGermanyBRICs*cars indicate when BRICs $GDP exceeds $GDP in the G62000 2005 2010 2015 2020 2025 2030 2035 2040 2045 2050Source: Goldman Sachs Report.FranceItalyGermanyJapanFranceGermanyG6

LOGISTICSeconomies move through the“sweet spot” of growth for differentkinds of products, as localspending patterns change. Thiscould be an important determinantof demand and pricing patterns fora range of commodities.• As today’s advanced economiesbecome a shrinking part ofthe world economy, the accompanyingshifts in spending couldprovide significant opportunitiesfor global companies. Beinginvested in and involved in theright markets — particularly theright emerging markets — may become anincreasingly important strategic choice.• The list of the world’s 10 largest economiesmay look quite different in 2050. Thelargest economies may no longer be the richest(by income per capita), making strategicchoices for firms more complex.Looking Inwards. India’s economyranks 10th in the world today. Varioussources predict it will rank amongst thetop five by 2025. We are seeing India inthe midst of some fundamental shifts inindustry and service trends.Between 1990 and 2003, McKinsey &Co.’s research group showed the GDP increasedfrom $272 billion to $550 billion,representing a Compound Annual GrowthRate (CAGR) of 5.4 percent. During thistime, the share of agriculture as part of theGDP contributor fell from 30 percent to 22percent, most of that being shifted to theservices sector, which rose as a contributorby 8 percent. The CAGR of services hasbeen almost 7 percent, a dramatic growthrate. Manufacturing, on the other hand, hasseen a 5.4 percent CAGR, but still representsonly 15 percent of India’s GDP. We viewthis as an immense source of potential forlogistics service providers, as the manufacturingbase and share of GDP goes up, asit is bound to.Employment Structure. The employmentpicture, however, is interestinglyinverted. Whereas only 22 percent of theGDP comes from agriculture, it employedabout 67 percent of the people in 2004.Services, meanwhile, employed only 21percent of the people, and manufacturingonly 12 percent. Further, we see that about65 percent of the GDP is derived from privateconsumption, about 13 percent from publicconsumption, and 22 percent from investment.It’s important to keep these figuresin mind when we consider the structure andsegmentation of the population’s literacystatistics and age-group statistics, to seewhy we predict that the boom is a long wayfrom being over, just with the sheer mass22 AMERICAN SHIPPER: FEBRUARY 2006Largest economies in 2050GDP (2003 $trillions)ChinaUnited StatesIndiaJapanBrazilRussiaUnited KingdomGermanyFranceItaly0 5 10 15 20 25 30 35 40 45 50Source: Goldman Sachs BRICs Model Projections.and magnitude of the population and theresources available to it.Business Climate. McKinsey’s 2005study also showed that the business climateas a consumer market is steadily increasing.Some alarmingly positive statistics haveshown that “since 1996, the number of airlinepassengers has increased six-fold.” India isprojected to be the second-largest globalmobile telephone market by as early as 2006,and a top 15 global market for airlines thisyear, with 47 million passengers in 2004.The automobile market is projected to be thefifth-largest by 2015, and the second-largestmotorcycle market this year. In addition, wesee that since economic liberalization in1991, the number of players in the telecomindustry has increased from two to more than15, those in the auto industry from three tomore than 12, and those in the domesticairline industry from one to eight.Standards of Living. Since becomingan independent country in 1947, we seedramatic strides of progress in the standardsof living, urbanism and education,all of which lead to economic growth. Lifeexpectancy of an average Indian has nearlydoubled, and infant mortality rates havehalved. Adult literacy rates have increasedfrom 58 percent to 68 percent for men, andfrom 31 percent to 45 percent for women(still low, but growing nonetheless). Thenumber of Indians living below the povertyline has reduced from 55 percent in 1973 to26 percent in 2000. Whereas these might notseem overtly positive figures, the importantaspect to consider is the trend, which is verypositive, and not showing signs of reducing.Companies investing in India need to keepthese statistics in mind, as they considerstaffing, overheads, and labor considerationsfor expansion.Infrastructure. Many executives ofglobal companies consider India’s inadequateinfrastructure as its largest constrainton growth. Although fixing this problem willnot be a short-term initiative, the work hasbegun, and we are seeing signs of progressacross the country. Various sources such asthe CIA World Factbook, IndianRailways, Ministry of Power,National Highways Authorityof India and the Planning Commissionof India agree with thefollowing numbers: Road densityin 2002 (kilometers of paved roadper 1,000 square kilometers ofland) for India was 441, comparedwith a maximum of 1,539 forthe United Kingdom, and 11 forBrazil. Railroad density in 2002(kilometers of track per 1,000square kilometers of land) was 21,as opposed to a high of 127 forGermany, and a low of four for Brazil. Thereis also a gap between the nation’s demandand supply of energy, which is growing.Geographic Spread of Wealth. If wedivide the country into two categories, thewealthiest states and the poorest states, we seethat the population is fairly evenly divided betweenthe two. The wealthiest states, however,contribute about $720 per capita, versus $330per capita by the poorest states. The CAGRfor the wealthiest states is about 4.7 percentcompared to 1.7 percent in the poorest states.The wealthiest states comprise the southernhalf of India, the northwest frontier, and afew scattered states in the east.Population Segmentation. We viewIndia not as one homogenous population,but as four distinct Indias within the country,each a segment of its own. At the top andmost affluent is what we call “InternationalIndia,” which comprises about 1 millionhouseholds (about 4-5 million people).International India typically owns a one- ortwo-bedroom house, with a color TV, mobilephones, refrigerator, washing machine, anda mid- to high-priced car. People belongingto this stratum typically include businesspeoplein small to midsized enterprises,corporate or select government employees,and wealthy agriculturalists.The second rung is “Aspiring India,”which is a segment of about 40 millionhouseholds (about 160 million to 200 millionpeople), representing typically salaried employees,services/outsourcing employees,and shopkeepers. The typical assets ownedby this stratum include a color TV, refrigerator,telephone, a scooter or motorcycle, orperhaps a low-end car.Then comes the “Emerging India,” whichcomprises the largest population belt ofabout 110 million households (about 440million to 550 million people), who areat the lower-end of the services industry,such as wait-persons in restaurants, maids,drivers, shopkeepers and most farmers.They typically have a bicycle, radio, and ablack & white TV.The lowest of the strata are the “Poor

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LOGISTICSIndia,” which is about the same size as theAspiring India (about 160 million to 200million people), and comprises subsistencefarmers and their workstaff, owning assetsof value not much more than a watch.Whereas the top International Indiais where there is tremendous purchasingpower, it should be viewed in a constrainedmanner, as simply a great market forprestige products andglobal standards, butnot a scale or volumemarket. Companiesentering India to caterto this stratum aremissing the point, albeitmaking money.The retail industryshould be catering tothe Aspiring India andthe Emerging India,with the former beingthe immediatepriority. The first 160 million to 200 millionpeople in Aspiring India will gain theplayers in the retail industry their riches,with which they can fund the developmentand advancement of the Emerging India.To give some sense to the size of AspiringIndia, the U.S. population is about 280 millionpeople, and the Brazilian population isabout 170 million people.To give some idea of the size of success,McKinsey & Co. researched severalindustries with respect to market size andmarket share between 1992 and 2004. Thefindings were as follows: The breakfastcereals market increased from $2 millionto $25 million, and multinationalsgained market share from 0 percent to48 percent. For potato chips, the marketsize grew from $6 million to $35 million,with multinational share increasing from0 percent to 63 percent. Washing machinesfaced a similar situation, where marketsize rose from $40 million to $570 million,and share increased from 2 percentto 49 percent. In the TV industry, marketsize grew five-fold, from $630 million to$3.03 billion, and multinational share grewfrom 3 percent to 51 percent. Whereasthe growth numbers are nothing less thanspectacular, it is important to note that eventhe absolute market size in 2004 in eachof these product lines is just a fraction ofwhat it is in the western countries, or evenin China for that matter. This leads us tobelieve that we have not even scratchedthe surface yet, in terms of growing themarket size to its true potential.Retail Market. India has the potentialto be a tremendous retail market. With 70percent of the Indian population being lessthan 36 years old, and half of these below 18,24 AMERICAN SHIPPER: FEBRUARY 2006With 70 percent of theIndian population beingless than 36 years old,and half of those below 18,the potential to sell to theseup-and-coming youngstersis almost incredible.the potential to sell to these up-and-comingyoungsters is almost incredible. Whereasthey might be rooted in their traditionsand customs, they are quite aware of theWest, with a growing desire to purchasethe products that their counterparts in theoccidental countries have.We see this population having growingincomes but yet-limited budgets, which havea great impact on theirmindset and prioritiesin the product selectionand purchaseprocess. Whereaspeople in the AspiringIndia stratum stillspend about half theirmonthly budgets ondaily necessities, wefind that disposableincome is increasing,stimulating consumptiontrends. The mentalityof Indians is to ensure a better futurefor their children, so the first priority isto spend disposable income on categoriesof products which benefit their children’shealth and well-being, and education.Hence, such industries related to these areashave shown strong growth.Industry hotspotsNow that we have established how thereis a significant unexploited and yet-unreachedmarket inIndia, let’s turn towhat industry areasare the hotspots, sothat logistics serviceproviders can evaluatehow to enter or expandin the country withmaximum impact andbenefit. We view fourindustry verticals asthe hotspots for LSPsto be targeting as clientbases, and investingin these so as toride the wave of theincreasing popularity for using India as amanufacturing base:• Automotive.• Specialty chemicals.• Electrical and electronic products.• Retail.We see these as four verticals that arerapidly growing and will continue to do sofor the foreseeable future.According to McKinsey Global Insightresearch, the manufacturing share of GDPper capita (adjusted for purchasing powerparity) in 2004 ranged from 37 percent forThailand, 36 percent for China, 33 percent“Greater integration of rail,road and water transportsystems is requiredand is vital for the eastto have a competitive edgein the pan-Indian context.”for Malaysia, 18 percent for Mexico, andonly 16 percent for India (only about halfthat of China and Thailand).Manufacturing exports, as a percent ofGDP in 2004, was also quite varied, withMalaysia leading the pack at 93 percent,followed by Thailand at 54 percent, Chinaat 30 percent, Mexico at 27 percent andIndia lagging at only 8 percent. Granted,this is partly because of the significant GDPcontribution of India’s services industry,which is not as strong in the other Asiancountries or Mexico. Yet, showing that thereis a significant potential for India to be aglobal player of some consequence in themanufacturing sector.One of the common complaints we hearfrom manufacturing companies is that, eventhough they wish to go to India, viewinglabor costs as attractive, they find thatseveral of the local suppliers cannot meetthe scale requirements that the companiesneed in order to have a desirable return oninvestment. One of the major reasons forthis is that India has never known suchscale, due to the fragmented nature of itsmanufacturing base. Because the road, rail,and port infrastructure is not adequate for theneeds of serving the subcontinent as a whole,companies had several manufacturing andsupply bases scattered around the nation asa viable alternative to consolidated regionalor national manufacturing and distribution.Due to this factor, suppliers were neverincentivized to scaleup beyond a certainlocal or sub-regionalrequirement. Hence,lack of availabilityof scale is one of thebiggest issues thatpose a roadblock inconsidering India tobe a manufacturingbase.We view China orother Asian countriesas an excellent manufacturingbase oncethe technology andprocess has been well defined and established(Scale-Oriented Manufacturing orSOM), whereas we view India as adding asignificant element from a process designand innovation perspective (Design-OrientedManufacturing or DOM). Indianengineers are by nature “tinkerers” (and wemean this in a good way). They are orientedtowards constant “upgrades” of the processso as to make the operation more efficient.This nature is deep-rooted in the engineersfrom a perspective of scarcity and expensefor resources, and the desire to get the mostout of what little has been available. LSPsA.K. Chandrachairman,Kolkata Port Trust

LOGISTICSneed to keep this in mind as well, as theyexpand into the country or enter the countryfor the first time, that the Indian engineersare going to want to tinker with the systemsand processes of the LSP, which risksincompatibility with the global optimumwhilst creating a local optimum.Automotive Components. One ofthe biggest factors against outsourcing themanufacturing of parts in the automotiveindustry has been the level of trust in qualityand reliability. However, automakers arenow rapidly shedding their skepticism, andwith companies such as Cummins, DiamlerChrysler,and Toyota Motor Co. havingentered the market in a big way, others aresoon to follow.Since automakers are sensitive to the dualpressures of innovation and cost reduction,auto component manufacturers must sharethis sensitivity wholeheartedly, designingand manufacturing components that add newfeatures and functionality to the automobiles,yet designed in a way so as to optimizetheir cost base, and yet be in compliancewith environmental standards.McKinsey analysis projects that globaloutsourcing in the auto components manufacturingindustry to be up from $65 billionin 2002 to $375 billion by 2015. Out of this,India has the potential to capture about $25billion of it. Already, there are about 400Indian suppliers, of which 80 percent havean ISO 9000 certification. Research indicatesthat India holds about a 15 percent to20 percent cost advantage in manufacturingauto components over other countries.Logistics service providers who playin this sector shouldbe well aware of thisexpansion potential,and poised to capturethe market when thisquantum leap beginsto occur. Ways inwhich this can bedone is to constantlykeep abreast of newsigns from governmentabout new manufacturing permitsbeing granted for component manufacture,and of course, stay in close touch with theircurrent automotive-oriented clients. Withthe cost advantage that India has in thisarea, a winning formula for an LSP wouldbe sure to protect this margin from erosiondue to higher logistics costs, yet at the sametime, be able to provide services which differentiateit from competitors.Specialty Chemicals. This industryvertical has yet to fully take off, but isshowing signs of rapid evolution. Indian26 AMERICAN SHIPPER: FEBRUARY 2006Lack of availability of scaleis one of the biggest issuesthat pose a roadblockin considering India to bea manufacturing base.and Chinese suppliers are maturing overtime, with high levels of reliability andquality assurance. With the U.S. specialtychemicals business having only 20 percentof consumption as imports, there is hugepotential to have this business outsourced.As pricing pressures mount, this industrywill not be insulated, and will have to, atsome point, relent.India’s capabilities in chemistry, engineering,and processdesign areas, gives itthe potential to rapidlyscale up and be one ofthe world’s top suppliersalong with China.As the head of onespecialty-chemicalmultinational put it,“we achieve Europeanlevels of labor productivityat our Indian plant, but at 20 percent ofthe labor cost.” With companies like Degussa,Rohm & Haas having entered the market,others are viewing it in a new light.LSPs that are able to create economiclanes or “logistics pipelines” for the movementof these chemicals between source anddestination will be well rewarded for theirefforts. Usually chemical plants are locatedin areas where logistics infrastructure isclose at hand, so developing “the last mile”is a viable concept for them, and withoutrisking too much fixed capital.Electrical, Electronic Products.India was one of the last of the Asiancountries to enter this industry vertical. Thefocus of electrical products is more on thecustom-built side thanthe mass-market side,keeping consistentwith the design-orientedmanufacturingvs. scale-orientedmanufacturing perspectivegiven earlier.Custom-built productsinclude actuatorsand sensors, or non-electronic parts such aspower assemblies, cables, and connectors,areas where the Indian suppliers are strong.McKinsey research puts the market potentialfor these products to be about $18 billionannually by 2015. With global companiesof the likes of Honeywell and Siemens alreadyin the market for a long time, othersare likely to enter as well. Philips and LGhave already been exploiting the marketpotential for a number of years, and the latterhas gained significant market share. Thesecompanies have realized global productivitybenchmarks at about 60 percent to 70 percentThere are no global playersin India yet, although a lotof players are tryingto f ind the right formulabefore entering.of the cost in the U.S. or Europe.Logistics service providers will have alot to contribute in this area, since one ofthe critical issues that plagues this industryis lack of manufacturing clusters andunreliable transportation infrastructure. IfLSPs are able to create some sort of clusterorientation by inducing trading partners toco-locate and put up some of the fundingrequired for a transport infrastructure,they could capturean entire market andindustry sector inIndia. By setting upmilk-run operationsbetween partners ina cluster, LSPs couldguarantee asset utilizationand also addtremendous value tothe trading partnersin terms of manufacturing reliability, lowerinventories, and rapid transit times.Retail. India is the last large Asian countryto liberalize its giant retail sector. We dividethe retail market into “modern trade” and“traditional trade,” the latter being momand-popshops and corner bodegas, theformer being supermarkets that are commonthroughout the United States and Europe.Euromonitor Research indicates thatwhereas in Taiwan over 80 percent of tradeis modern trade, India has only 2 percentof trade in modern trade, and 98 percent intraditional format. Further, whereas Taiwanhas about a $40 billion retail market, Indiahas only a $180 million market.One of the big issues has been the freshfood supply chain, which is geared towardssmaller suppliers and smaller, but morefrequent lot sizes, dissuading bulk transfer.Further, the vastly distributed demand in thecountry is not automobile oriented, and sotraveling great distances to shop at a retailcenter is not likely.McDonald’s has spent more than fiveyears in India, and is only now emerging asa force in the fast food market. Like otherindustries that we have observed, they toohad to “localize” their menu offerings. Retailwill be much the same, having to localizetheir offerings to the domestic market.Logistics service providers will find thatthere is a lucrative reverse logistics marketin much of India, as electronics very slowlylose their lives. When they do, much is“upgraded,” “refilled” or “recycled,” makingfrequent movements between factory,distributor, retailer, consumer, and all theway back.Brazil is similar, in that about 85 percentof the aluminum cans and bottles are recycledand reused. Besides this opportunity, the

LOGISTICSbigger one for LSPs is to create a cost-efficientand responsive distribution network.The country has been catered to with smallfactories and distribution locations all overthe place. If LSPs could capitalize on thisfact, and create “virtual pipelines” betweenalready existing clusters of business partners(suppliers, customers, distributors, factories),they could capture entire markets andgeographies in this manner. It would be wellworthwhile to set up a few pilot projects as aproof of concept before leaping into it withfull scale.There are no global players in India yet,although a lot of players are trying to findthe right formula before entering.Entering or expanding in IndiaLogistics Service Providers need toconsider several factors when thinking ofentering or expanding in India. Three factorsrank higher than others: productivity, serviceoffering, and pricing, in that order.Productivity. One of the biggest factorshampering the logistics industry today isthe infrastructure, followed by productivity.McKinsey Global Research and AMEMineral Economics find that FOB cost forIndia are somewhere near $16.32 per ton,as compared with $8.81 in South Africa,$5.56 in Brazil, and $4.71 in Australia.Whereas this reflects an example purelyfrom the minerals industry, it is directionallyrepresentative of other verticals as well.The research finds thatIndian productivity isone of the lowest in theworld. Benchmarkingthe United States as thebase point (100,100) inGDP per capita vs. laborproductivity, India is 10percent on each axis.When entering intobusiness in the countrywith a local partner,companies have foundthey are able to contributetremendouslyHighValueLowProductivityGainsin a relatively easy manner, new businessprocesses that result in quick wins from aproductivity perspective. This has also beenseen when local companies hire away humantalent from multinational companies.We have seen studies where it has beenproven that productivity measures takenoften have more effect in overall economicadvantage for both the country as well asthe LSP, and the enterprise to which it isselling services. McKinsey research findsthat “once the basics are in place, less visibleefforts to improve the flow of goodsthrough a country can have a stronger28 AMERICAN SHIPPER: FEBRUARY 2006economic impact than another pier, runway,or paved mile.” Network components suchas efficiency in customs clearance, loadingand unloading, and proper inventory management,can all significantly contributeto lowering a country’s and an enterprise’slogistics cost, which, in turn, contributesto productivity increases, resulting in harddollar gains.A recent study found that for Europeancountries, the typical direct logistics costsas a percent of GDP were in the 9 percentto 10 percent range,whereas for the typicalAsian country were inthe 13 percent to 14percent range. Indirectcosts, similarly, were inthe 4 percent to 5 percentrange in Europe, but 9percent to 10 percent inAsia, making the totallogistics costs differentialalmost 10 percent ofGDP more for an Asiancountry as compared toa European country.StructuralProjects ResultsTime, Effort, ResourceRequirementHighHigh‘Localized GlobalBest Practices inKey AreasValueLowWhereas India is already investing inits road, rail, and port systems, anecdotalresearch shows these projects would contributeonly marginally to the country’s shorttermGDP, whilst productivity gains couldcontribute a lot more, and more rapidly.We like to use the following frameworkto describe the LSP’s strategy of enteringand expanding inIndia. We recommendthat they enter throughthe route of productivitygains (low time,effort, resource requirement,high value), andgradually spread intothe structural projectsareas, where they cangain more value, butnot without spendinga lot more effort, time,and resources. To godirectly to the upperright quadrant poses a very risky approach,with high costs but no guarantee of actualresults or benefits in the short term. Theeventual goal is to exploit the long-termpotential of the Indian marketplace. But itis important for the LSPs to pace themselveswhen they enter, and have a solid, fact-basedcapital expenditure plan with a businessplan behind it.Confederation of Indian Industry (CII)research and interviews show that thereis a greater call for government and theprivate sector to collaborate on new projectsto develop the logistics processes andinfrastructure together and align them in amore tightly knit manner. A.K. Chandra,chairman of the Kolkata Port Trust, ralliedfor greater private sector participation forupgrading the logistics infrastructure.“Greater integration of rail, road, andwater transport systems is required and isvital for the east to have a competitive edgein the pan-Indian context,” Chandra said.Full PortfolioSolutionsService OfferingComplexity & VarietyHighService Offering. With rampant fragmentationin the transportation and logisticsindustry, informaleconomies, and lackof sufficient businessorganization, foreignlogistics service providersdo and will continueto find it difficult toimplement their westernways in India. We use asimilar framework forour recommendation ofservice offerings as wedo for the entry/expansionmodel. Consider thefigure, where instead ofthe level of time, effort, resource, on the X-axis, we show the service offering complexityand variety, ranging from low to high.We recommend that LSPs offer low complexityand variety, but high value services orknowledge, such as global leading practicesthat they might have recognized in their firms,which Indian companies might not have adeep understanding of, and while exploitingthis arbitrage opportunity, build a completesolution portfolio to offer, as they make theirclients evolve during the next five to 10 years.We typically break down these best practicesinto the following segments: transportationmanagement, warehouse management, ordermanagement, performance measurement andcustomer service excellence.In the transportation management area,we recommend that LSPs focus on practicessuch as carrier performance management,integrating inbound and outbound logistics,and automated routing and carriercommunications. In the area of warehousemanagement, we recommend focusing onareas such as network optimization, inventoryaccuracy and product recall processes,and efficient picking and packing processes.In the area of order management, we recommendthe focus areas of order cycle timeimprovement, reorder point optimization,and order process rationalization. Performancemeasurement work includes areassuch as standardizing definitions of keyindicators, tracking actionable indicatorsand performing root cause analysis, andcreating a detailed understanding of all thecomponents of supply chain costs.

Pricing. One of the biggest pressuresexecutives are facing when entering orexpanding in India is pricing. It is nearlyimpossible to charge the same for servicesinside India as firms charge in their nativemarkets, as the Indian market will not tolerateit. They would choose to forego theservice provider in favor of a lower costapproach, however inefficient and expensivein terms of hidden costs.Indian companies are sensitive to pricingmovements and often make decisionsbased on no other factors. Even globalconsulting firms have had to adjust theirpricing based on local market conditions,even to (especially to) the bigger Indiancompanies. In reducing pricing, logisticsservice providers will have to leverage themost out of their knowledge managementproficiency and gain the ability to “palletize”service offerings that are repeatableunits with predetermined dimensions andscope of what services they will offer andat what price, so as to take cost elementsout of their service offerings.By offering established leading practicesto begin with, LSPs can establish credibility,at low cost and high margin, and design theirportfolio of service offerings to optimize theircost structure, and maintain margin ratios.However, LSPs must take care to “localize”their established global leading practices,and not just try to implement them withoutconsideration of the Indian environment.Value-based pricing is gaining popularityin India, but is risky for the new LSPentrant, since the market and value leversmay be relatively unknown. However, withsome local benchmarking, this mode canbe a profitable one for LSPs, as the Indiancompanies many times have the disadvantageof not knowing the true potential lockedin their supply chains.Long term, short termWe have shown how the long-term potentialin India can be very rewarding forany logistics service provider that enters andexpands in the Indian market with the properapproach. We emphasize, though, that it isprofitable to make a profit in the short termwithout having to wait for years to seekback the return on investment. Although itis imperative that an LSP first be sure ofwhether or not they want to be a player inIndia, their manner of entry and expansioncan be a staged one, which we recommend.In a nutshell, commitment must be full,although engagement is staged.We once again draw attention on the fourindustry hotspots for the LSPs to considerplaying in — they are sizable and scalable.LOGISTICSThe automotive, electrical and electronicsproducts, specialty chemicals, and retailindustries will drive both short-term andlong-term growth in India. Global LSPs arealready familiar with and have establishedexcellence in these industries in other partsof the world. Entering India would be a favorablemove for them whether in a joint venturepursuit or in a greenfield operation.Don’t try to conquer the stars on yourfirst day! LSPs should develop a stagedapproach with how to enter and expand inIndia, starting with low complexity, low effort,but middle to high value, which helpsthem to get their foot in the door, establishcredibility, test the market assumptions, andprovide their excellence to increase the productivity,optimized service offerings, andcatering to local pricing parameters.Deep R. Parekh is managing partner ofEquus LLC, a supply chain consulting andstrategic advisory services firm. He canbe reached at deep_parekh@equusllc.com,or at (917) 940-7538.Parekh would liketo thank Lars MeyerSanches from Brazil,for his special insightsinto the global logisticsindustry.AMERICAN SHIPPER: FEBRUARY 2006 29

Ask any shipper, analyst or international trade specialistif they know about PWC Logistics and youare likely to draw a blank stare. The company’s$454 million acquisition of established Santa Ana, Calif.-basedfreight forwarder GeoLogistics last September has done littleto raise the company’s visibility in trade and financial circlesoutside of the Middle East.But those uninformed looks are likely to turn to nods of30 AMERICAN SHIPPER: FEBRUARY 2006understanding in the next few years as theKuwaiti-based logistics provider continuesits turbo-charged expansion into a full-servicesupply chain management companyfueled by hefty profits from huge contractsto store and distribute equipment and materielfor the U.S. military operating in Iraqand Kuwait.Much like how German postal operatorDeutsche Post burst onto the logisticsscene the past four years with a massiveacquisition spree culminating in its recentpurchase of global service provider Exel,PWC is rocketing up the logistics chartsfrom its humble beginnings as a localwarehousing company to become a signifi-

cant worldwide competitor in ocean andair freight forwarding, contract logistics,customs brokerage, regional trucking, e-commerce fulfillment, and supply chaindesign and consulting.By some indicators, PWC (which standsfor the Public Warehousing Co.) has alreadyhit the big time. In the span of oneyear, the company went from a marketcapitalization of $2 billion to $6.5 billion,a figure almost equal to the value of Exel,which was purchased for $6.7 billion, andonly behind that of DHL, FedEx and UPS.The sharp increase in value indicates themarket’s confidence in the company’sgrowth potential.“PWC may be the mostprofitable logistics companyin the industry. There are nocompanies that generate ahigher profit as a percentageof sales and few that generateover $300 million in netincome,” said Ben Gordon, afinancial consultant to PWCand head of BG StrategicAdvisors.GeoLogistics was PWC’sthird significant acquisitionin 2005, following the earlierbuys of Kenner, La.-basedproject cargo forwarderTransoceanic Shipping Co.,and Singapore-based eventsand exhibition logistics specialistTrans-Link for about $35million apiece.PWC is reviewing its brand strategy, butwithout a change, customers and carriersmay not realize that they are already dealingwith PWC.Growth Spurt. Until recently, PWCwas a little-known public warehousingcompany that was primarily owned by theKuwaiti government. The company startedin 1979 as a real estate company, along thelines of Aurora, Colo.-based ProLogis, thatleased, developed and managed warehousespace and industrial parks. In 1997 thegovernment, spurred by calls for economicliberalization following the first Gulf War,spun off the company as part of a broadprivatization campaign.The driving force behind the company’stransformation has been Tarek Sultan,chairman and managing director of PWC,whose family is the company’s largestshareholder. Sultan, who came from aninvestment banking and managementconsulting background, brought in a newmanagement team that quickly expandedPWC into warehouse management, runningfacilities for multiple customers,and then into higher margin, value-addedwarehousing before heading into the deepwaters of global supply chain management.Sultan’s initial strategy focused onbuilding an infrastructure base of worldclassdistribution facilities, trucking assets,technology and logistics expertise sothat multinational companies and the U.S.military would view Kuwait as the optimalplatform for doing business in the MiddleEast, and PWC as their preferred logisticspartner. PWC then expanded its footprintto the rest of the Gulf nations and beyondto become the dominant logistics providerin the Middle East.The company provides outsourced logisticsservices to a wide variety of sectors,such as apparel, consumer package goods,oil and gas, health and pharmaceuticals,information technology, food and grocery,and governments throughout the region. Itcontrols 85 percent of the logistics marketin Kuwait, where its biggest commercialaccount is Nestle.In 2003, PWC acquired Tristar Transport,a Bahrain-based tank truck company thatspecializes in liquid fuel distribution, andexpanded into a new line of work when itwon a contract to provide ground handlingand cargo services at Kuwait InternationalAirport.“Investing heavily in warehousing andtransportation has really differentiated usas a company, given us flexibility to meetcustomer needs because there are not manygood asset providers in this area, unlike theUnited States and Europe,” Essa Al-Saleh,managing director of corporate development,said in a telephone interview. Indeveloped markets, PWC tends to relyTarek Sultanchairman and managing director,PWC LogisticsAMERICAN SHIPPER: FEBRUARY 2006 31

LOGISTICSon contractors to handle its storage andtransportation.The build-it-and-they-will-come mentalitywas not without risk, especially sinceArab businesses are traditionally reluctantto trust third parties with their goods. Within10 months, PWC’s new 200,000-squarefootfacility in Kuwait was at 70 percentoccupancy and accounted for 10 percentof revenues. And when the United Statesdecided to invade Iraq in 2003, PWC waswell positioned to grow dramatically.In March 2003, the Defense LogisticsAgency (DLA) awarded PWC a contract tostore and distribute food and groceries toU.S. troops in Kuwait, Iraq and Qatar. TheU.S. military paid out more than $3 billionto PWC under the contract.Last summer, PWC won three majorDefense Department contracts to supportmilitary activity in Iraq. The biggest wasa five-year contract renewal potentiallyworth $14 billion to deliver food and drygoods to troops in the region, includingBahrain. PWC is responsible for foodprocurement in the United States, transferto international carriers contracted by themilitary, warehousing, picking, shippingand delivery under wartime conditions.The job is so big that PWC has becomethe largest exporter of U.S. food, saidRich Anchan, PWC’s global director ofenterprise initiatives.PWC is also transporting tanks and otherequipment for the U.S. Army using its fleet offlatbed and low-bed trucks under a five-yearcontract with a potential value of $1.5 billion,Essa Al-Salehmanaging directorof corporatedevelopment,PWC Logistics“Investing heavilyin warehousing andtransportation hasreally differentiated usas a company, given usflexibility to meet customerneeds because thereare not many good assetproviders in this area.”million (US$)$340.0$283.5$227.0$170.5$114.0$57.5$10.0Source: PWC Logistics.the largest heavy-lift contract ever awardedby the U.S. military, according to PWC.Under another five-year contract with a potentialvalue of $180 million, PWC is providingwarehouse and distribution services usinga company facility with more than 1 millionsquare feet of climate-controlled space in sixlarge warehouses and an outdoor containeryard. Value-added services provided by PWCinclude asset tracking, packing, and informationtechnology support. The Kuwait depot,which distributes high-demand items such asrepair parts, clothing, tents and constructionmaterial, is the only contractor-owned andoperated distribution center among 26 suchpre-positioned facilities operated around theworld by the Defense Distribution Center,according to the DLA. The depot began operatingin August 2004 and has increased itsinventory to about 40,000 different items. Bystocking parts in the region, the DDC can useless expensive ocean and truck transportationinstead of airlift, while speeding up deliverytimes to soldiers in the field. Through March2005, the DLA said it avoided $45.7 millionin air transport costs with total projectedsavings of $160 million.The company has received several awardsfor service quality from the DLA.“PWC has consistently been a proactive,reliable contractor, supporting the war fighterin Iraq through road transportation to basesthat are up to 800 mileas away and riskinglife, limb and property to ensure missionsuccess,” one citation read. “PWC has beenable to effectively manage this enormousprogram through expanded warehouse space,additional transportation assets, increasedsecurity, expanded and refined supplier selectionand tracking, increased personnel andPWC Logistics net profits1994 1995 1996 1997 1998 1999 2000 2001 2002 2003 2004a state-of-the-art management informationsystem that has helped them maintain competitivepricing in this hostile region.”“PWC has performed very well for theU.S. armed forces in achieving a near 100percent fill rate for orders received” underthe food contract, Maj. Robert Bettwy, asupply services officer with Coalition ForcesCommand in Kuwait, said via e-mail. Hesaid PWC also has the ability to airlift foodsupplies to various locations when requestedto do so.Big Ambitions. PWC’s overall strategy,however, was to diversify from a niche playerin the Middle East and to reduce its relianceon the U.S. military as a customer. AlthoughPWC had a strong local distribution system,it was missing a key component: the abilityto control freight movement in and out ofthe region.The company’s three-prong plan focusedon entering emerging markets such as Asiathrough acquisitions, expanding servicesinto complimentary fields such as projectlogistics and freight forwarding, and establishingPWC as a global third-party logisticsprovider, according to Gordon, a logisticsindustry mergers and acquisition specialistwho was brought in to help develop PWC’sglobal growth strategy and identify acquisitiontargets.The first part of the strategy was accomplishedby the purchase of Trans-Link inApril 2005. That move was quickly followedby the deal for project cargo specialist TransoceanicShipping, and then the big moveinto freight forwarding with the purchaseof GeoLogistics and its global network.GeoLogistics is the 13th-largest air freight32 AMERICAN SHIPPER: FEBRUARY 2006

LOGISTICSforwarder and the seventh-largest oceanforwarder, according to Gordon.In all three cases, PWC gained anexpanded presence in other parts of theworld while bringing more resources tobear for those companies to grow andgiving them access to the Middle Eastmarket. Trans-Link, for example, recentlyacquired Exposervice, a small exhibitionlogistics firm serving the Australian andNew Zealand markets.The combined group has revenues inexcess of $3 billion with more than 17,000employees and 15 million square feet ofwarehouse space in more than 100 countriesJuly 1997Kuwait government privatizes the Public Warehouse Co.worldwide. The majority of the company’swarehouses are in the Middle East.GeoLogistics has a troubled history,plagued by management turmoil, employeeturnover, inconsistent margins anda historically weak technology platform,according to former JP Morgan analystGregory Burns, who now heads Blue LineAdvisors.GeoLogistics was bought from Britishforwarder LEP International in the mid-1990s by William E. Simon & Sons, amerchant bank company run by formerU.S. Treasury Secretary William E. Simon,and completed a financial restructuring inPWC timeline2001. Other investors included OaktreeCapital Management and Questor PartnersFund.But in recent years,GeoLogistics’ performancehas improvedunder the leadershipof Chief ExecutiveOfficer Bill Flynn,whom PWC kept incharge after the takeover.Prior to joiningFlynnGeoLogistics, Flynn was an executive forCSX Corp., the large U.S. railroad, andthe former Sea-Land Services, where heand cleans vehicles at its vehicle support facility in Kuwait. Thecontract is valued at $9.4 million.1999Completes 200,000-square-foot, climate-controlled distributioncenter in Kuwait. Business rapidly expands the following year afterthe nation’s largest supermarket cooperative, the Sultan Center,leases warehouse space.Acquires 53% stake in Inspection and Control Services Ltd., a Britishcompany that provides pre-shipment inspections and other cargo auditingservices to help customs authorities find under-declared goodsand maximize duty and tariff collection. PWC invested $25 million.October 2001Unveils MicroClear, a sophisticated Web-based customs clearancesoftware program marketed to customs administrations.November 2001Nestle signs long-term warehouse and distribution deal for Kuwait.November 2002Wins ground-handling contract at Kuwait International Airport. NewNational Aviation Services subsidiary begins work one year later.March 2003Defense Logistics Agency awards a two-year contract to PWC tosupply food and grocery items to U.S. military services operating inKuwait, Iraq and Qatar. PWC is paid $3.3 billion for its service.September 2003China Customs agrees to install several MicroClear modules.November 2003Acquires bulk chemical carrier Tristar Transport.April 2004Receives a six-month, $9.7 million contract from the U.S. military todistribute imported fuel to the Iraqi civilian population.June 2004Receives a contract from the Coalition Provisional Authority to cleanand renovate warehouses in Baghdad and Um Qasr so they canbe used to distribute materials and equipment for reconstructionefforts and to provide lead logistics services. The contract, whichhas been assumed by the Iraqi government, was valued at $156million over three years.Under a two-year contract with the U.S. Army, PWC stages, storesFebruary 2005Acquires Trans-Link Group for about $35 million.April 2005Acquires Transoceanic Shipping Co. for about $35 million.British Oxygen awards PWC estimated $2.2 million, five-year contractto transport helium and nitrogen gas from its plant in the UnitedArab Emirates.June 2005Defense Logistics Agency awards PWC a follow-on contract worthup to $14 billion over five years to provide food and dry goods toU.S. military forces in Iraq, Kuwait, Qatar and Bahrain.DLA awards PWC a heavy-lift transportation contract potentiallyworth $1.5 billion.July 2005Establishes joint venture with Dnata, the Dubai-based air cargoand airport services provider, to provide road feeder service betweenairports in the Gulf region. Initially, the company will focus itsoperations in the Gulf, Lebanon and Jordan, but plans to expandthroughout the Middle East.August 2005Receives a warehousing and distribution contract from DLA for $180million over five years.September 2005Acquires global freight forwarder GeoLogistics for $454 million.October 2005Samsonite awards PWC multi-year contract for transport, warehousingand distribution of products from Asia to Africa and theMiddle East.November 2005Beverage giant Cadburry Schweppes renews GeoLogistics as itsocean freight forwarder for the Americas region.December 2005PWC subsidiary Trans-Link acquires Australian exhibition logisticsservice provider Exposervice.Wins project logistics contract for Equate petrochemical facility.34 AMERICAN SHIPPER: FEBRUARY 2006

LOGISTICSheaded the ocean carrier’s Asian operations.The forwarder achieved $1.6 billionin sales and $32 million in pre-tax earningsin 2004.Anchan said Flynn did a good job turningthe company around, but was constrainedfrom achieving the company’s potential bya lack of resources.“Any company that is bought by a venturecapital firm, the last thing they wantto invest in is technology, new officesand personnel. We’ll help them to growfaster, become more profitable and offeradditional services to their customers,”Anchan said.Meanwhile, PWC Logistics seems tohave its hand in virtually every line ofcargo work it can find.Last year, PWC and Dnata, the Dubaibasedair cargo and airport services provider,established a joint venture companyto provide air cargo operators road feederservice between airports in the Gulf region,Lebanon and Jordan, and eventually theentire Middle East.In 2004, Global Clearinghouse Systems,a joint venture in which PWC is the majorityshareholder, won a 25-year contract toautomate Kuwait Customs using PWC’sproprietary MicroClear customs managementsystem.“We are pretty well diversified. Morethan 50 percent of our gross revenue isfrom outside the Middle East. And as wehave grown, the military component of ourbusiness has decreased and will continueto decrease,” Al-Saleh said. PWC doesn’tdepend on Kuwaiti government contracts,which constitute a small part of its business,he added.Deep Pockets. Today, PWC Logisticsis publicly listed on the Kuwait Stock Exchangeand has about 12,000 shareholders.The Kuwaiti government indirectly ownsabout 15 percent of the company throughits pension arm. PWC has also applied tobe listed on the Dubai Stock Exchangeand expects to be approved sometime inthe first quarter, Al-Saleh said.The company operates from a strongfinancial position. In 2004, PWC hadmore than $1 billion revenue and netincome of $336 million. It has a strongcredit rating.All three of its recent acquisitions werecash transactions. To help fund the GeoLogisticsdeal, PWC raised $1.1 billion splitequally between loans from internationalbanks and issuing more shares of its stock.The rights issuance was oversubscribed55 percent, meaning there were so muchinvestor interest that PWC had to returnabout $250 million of the $800 millionPWC acquired global freight forwarder GeoLogistics for $454 million.it raised.Raghu Sarma, an analyst at KuwaitbasedGlobal Investment House, told theMiddle East publication ITP Businessthat PWC went to the capital markets,even though it had sufficient funds forGeoLogistics, in order to gain exposure tointernational markets and syndicated bankloans, which will be useful if the companyseeks other large acquisitions.Business Acumen. Those who havelooked at PWC say it is a modern companywith service levels as good as, or betterthan, many bigger logistics players.“PWC has succeeded by providinghigh-quality, western-oriented logisticssolutions in a market where there are veryfew companies that can provide that levelof quality,” Gordon said.“I think PWC is a very, very wellfinanced and managed company,” saidKieran Ring, chief executive of the GlobalInstitute of Logistics, a small non-profitgroup that promotes the benefits of outsourcedlogistics to shippers.The institute, which produces an annualsurvey of the 50 best third-party logisticsproviders, named PWC the top logisticsprovider in the Gulf region during 2004.“PWC was operating in a very businesslikefashion. There are no politics involvedin their decisions,” said Ring, who hasvisited PWC’s facilities. PWC has hiredAmerican, British and other key personnelthat have extensive logistics experience inthe West, he added.Among PWC’s recruits are CharbelAbou-Jaoude, general manager for logisticsoperations, who came over fromwarehouse management software providerEXE Technologies after it was acquiredin 2003 by SSA Global; and Anchan, aformer top executive at Menlo Logisticsand UTi Worldwide, where he helped theforwarder expand into the contract logisticsbusiness.“This senior management team is assmart, as visionary and works together aswell as any I’ve ever seen,” said Anchan,who joined the company a year ago and isresponsible for executing the company’sstrategy and integrating its acquisitions.“One of the things that differentiatesus is that we know the region well and weare much more risk-tolerant than a Kuehne+ Nagle, a Schenker or a UPS wouldbe because we have the roots, know thatheritage,” which enables the company tosize up good opportunities others mightavoid, he said.The fact that the DLA has awardedPWC so many contracts “speaks volumes,”Ring said. Security is one of the DefenseDepartment’s key criteria for its commercialproviders in the Middle East, and itwould not have given PWC business unlessit was sure the logistics provider had thesystems in place to protect freight fromtheft or attack, he said.Ring praised PWC’s move into theproject logistics niche, saying logisticsfor outsize cargo is a very high-marginbusiness with high demand from emergingeconomies for capital equipment andinfrastructure. And he said PWC is stillinterested in a major acquisition.That PWC still has a roving eye for logisticsand transportation service companieswas confirmed by Anchan and Al-Saleh,who said the company considered buyingU.K.-based marine agency Inchcape ShippingServices, which instead was recentlyacquired by Dubai investment companyIstithmar for $285 million.Anchan said PWC ranks in the top 2036 AMERICAN SHIPPER: FEBRUARY 2006

LOGISTICSglobal logistics companies based on revenue,but “I can tell you we have a very aggressiveplan to move up that ladder quickly.”The company has made technology a toppriority to help manage operations and trackinventory for its customers. It installed amulti-language warehouse managementsystem from EXE Technologies to operateits facilities. In 2000, it rolled out itsInternet-based platform enabling customersto book shipments, track inventory,process orders and customs documents,make payments and conduct other financialtransactions.All of its fleets aretracked with GlobalPositioning Systemlocation monitoringunits that are electronicallyconnectedto the company’s selfdevelopedtransportationmanagementsystem, MicroTransport,and its WebbasedWMS systemso that customerscan track their goodsdown to the line itemlevel, Al-Saleh said.“In many cases, insome markets whereInternet penetration isnot high, we providePCs and networkinginfrastructure so customers can log onto theInternet and interact with us,” he said.One example of PWC’s modern managementstyle is its creation of PWC LogisticsUniversity, which is led by a full-timeprofessor who develops, in conjunctionwith Georgia Tech’s Logistics Institute,technical and management courses for newhires and existing personnel interested incontinuing education. The program alsoprovides online information and distancelearning tools. The concept is similar toMenlo University started several years agoby Menlo Worldwide Logistics.Anchan said PWC’s distribution centerscompare with any in the United States, andare designed to meet the high expectationsof multinational corporations. PWC has,or is building, 200,000-square-foot facilitiesin each of the 20 major markets in theeight-nation Gulf region. Each is built toPWC’s specifications with very-narrowaisle racking, climate control, cold storage,warehouse management and securitysystems.In 2004, the logistics provider built andcompletely leased a 1-million-square-footfacility, its largest ever, in Kuwait.“These are modern, first-rate facilities,38 AMERICAN SHIPPER: FEBRUARY 2006not just big empty sheds with metal roofs,”Anchan said.The dearth of modern warehouses inemerging markets such as the Middle Eastmeans that logistics companies have topursue a different strategy and build uptheir asset base.“It’s very unlike what a 3PL would do inthe United States, where there is no valueaddedproposition (to owning warehouses)because you can go out and lease them inpractically any market you want,” Anchansaid.PWC’s main distribution center in Kuwait City.PWC recently signed a contract to dofinal assembly of laptop and desktop computers,servers and cell phones for Siemensin Dubai, Anchan said. PWC is convertingpart of its facility there into a clean roomoperation for the German electronics andappliance maker. Siemens expects to benefitby pushing final assembly closer to itscustomers in the region and removing daysof inventory from its supply network by nothaving to ship products from Europe to theMiddle East.PWC has similar build-to-order projectsin the works in Saudi Arabia and UnitedArab Emirates for pharmaceutical and foodcompanies, Anchan said.It operates single-tenant facilities forMcDonald’s, Nestle, Ikea and others in additionto its multiclient warehouses.PWC’s customer list includes Wal-Mart,Samsonite, Western Digital, Fluor Corp.,and Dow Chemical. The Tristar subsidiarytransports fuel for BP, Shell, British OxygenCo., among others.Company officials say they are alreadytaking advantage of new customer bases andcapabilities from their recent acquisitions toreap new business opportunities.PWC’s experience in the region, and thenew project forwarding capabilities obtainedin the Transoceanic takeover, helped it recentlysnag the Fluor contract for managinginternational shipments of construction materialsto build a new Equate petrochemicalplant in Kuwait. PWC officials said theyexpected to arrange transport for 80,000 tonsof freight and earn a significant percentageof the $1.3 billion logistics component ofthe project, depending on the company’sperformance.PWC already serves Dow’s localEquate Petrochemical Co. joint ventureby transporting plasticpallets used tomanufacture variousplastic componentsto several countries inthe Middle East.Trans-Links salesand operational capabilitiesin Asia helpedPWC land a contractwith Samsonite inOctober to handletransport and distributionof suitcases,handbags, backpacksand computer casesfrom its Asian manufacturingplants to theMiddle East. Samsonitesaid it movedits distribution centerfrom India to PWC’sfacility in Dubai’s Jebel Ali foreign tradezone in order to be closer to its market.And Trans-Link, which previously didn’thave a focus on the Middle East market, hasalready won contracts to provide transportand set up for 12 events in the Middle Eastsince coming under the PWC umbrella,Anchan said.As for Transoceanic Shipping, its SeagullMarine subsidiary is picking up a lot of newbusiness in the U.S. Gulf after hurricanesKatrina and Rita. Seagull is a marine agencythat provides ship services such as marinesurveyors, crew transport and accommodations,dry dock and vessel repair, andfueling. Its main line of work is assistingoil companies in offshore constructionand drilling.Seagull Marine is helping in the recoveryby searching for missing or damagedunderwater pipes and other equipment,providing offshore supply boats, heavy-liftcranes and floating hotels for workers.Transoceanic is active in Iraq, too. It setup offices in Baghdad and Mosul and ismoving a lot of heavy equipment by air,ocean and highway into the country undercontracts with U.S. engineering companiesdoing reconstruction work.■

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Paper tigers of tradeChina’s increasing demand for U.S. wastepaper exportsdoesn’t make the market any less competitive.BY ERIC JOHNSONQuick quiz: What commodity filled up the mostU.S. export containers bound for Asia in 2004?Here’s a hint: you’re probably holding a magazinefull of it right now.Wastepaper is the United States’ most prominent exportin terms of number of TEUs, helping feed the packagingneeds of China to the tune of 6 million tons in 2004. Othermanufacturing powerhouses in the region claimed their share40 AMERICAN SHIPPER: FEBRUARY 2006of U.S. used paper too.Yet even as U.S. wastepaper exporterssend more product to China each year, ourshare of China’s paper imports is shrinking— from about 75 percent in 2000 to justunder 50 percent so far for 2005.It’s making an already competitive industrydownright fierce, as U.S. suppliersface competition from other über-consumernations like Japan and in Western Europe.Junk mail, classified sections, tissueboxes, the cardboard packaging fortressesthat encase plasma screens. They’re all shipspassing in the night to consumer goods arrivinghere from Asia.In 2004, wastepaper recyclers handled

more than 60 million tons of recycled scrappaper and paperboard — nearly half of the130 million tons of recyclables in the UnitedStates, according to the Institute of ScrapRecycling Industries.With a ton of recovered paper going for$100 to $120, it’s a $6 billion to $7 billionindustry, and there’s not much in the wayof margins.“The profit margin is definitely small,”said Peter Wang, executive vice president ofAmerican Chung Nam Inc., a paper exporterowned by the same company that operates thebiggest paper mill in China, Nine Dragons.“It can be as low as $2 on a ton that goes for$120. But nobody’s going in expecting tomake $2. Most are hoping for $7 or $8.”The average profit margin, Wang said, isabout $5 to $6, and the chances are 50/50 thatan exporter will reach $7 or $8 a ton.“Trucking costs and ocean costs may bemore than what you’ve budgeted for,” hesaid. “There are quality issues, and moistureissues, particularly in winter.“The market is not really controlled byanyone. It’s a commodities market. Everyoneis making calls every day to try to find outthe price.”Transportation, labor and finance costsall determine what the profit margin actuallyis, though a new external factor seemsto pop up every month to further cloud thepicture. One month, it’s the cost of fuel. Thenext it’s PierPass, which Wang said puts hissuppliers in Southern California at a distinctdisadvantage compared to suppliers who areusing other West Coast ports.Many are paying up to $40 to drivers tohaul at night to avoid the $80 PierPass fee.Any more than $40, and the suppliers justdon’t find it worthwhile.“Suppliers don’t want to run at nightbecause it means they have to have a secondshift,” Wang said. “Recycling centersaren’t always in the nicest places in town,so you have safetyissues. Suppliers say,at some point, it’s justnot worth it.”Because exporters’margins are so low,they have no choicebut to pass the fee onto suppliers.“I can’t afford tosubsidize $80 for thesupplier,” Wang said.“So recycling centers and packers are absorbingthat cost. If it costs buyers more tobuy in Los Angeles, they’d move to suppliersin Oakland.”It’s part of the reality of operating in acommodities market. Suppliers and exportersmust work in reverse to meet thebuyer’s price.For instance, buyers in Shanghai mayset the delivered price of a ton of recoveredpaper at $130. That means every wastepapersupplier and exporter in the United States hasto figure out a way to get product to Shanghaiat that price, or face being beat.It gets really interesting when oceanfreight rates enter the equation. An oceancarrier might charge $300 to ship a containerof recovered paper from Long Beach toShanghai, but $700 to ship that same containerfrom New York to Shanghai.“This is a low-marginbusiness. Most peoplewould look at it and sayyou’re crazy.”With each container holding about 23tons of scrap paper, it costs $30 a ton toship from New York but only $13 a ton toship from Long Beach.That means an exporter in New York hasto wring out an extra $17 from his supplychain to cover the difference. Wang said thatusually means the supplier in New York gets$15 or so less than one in Los Angeles.The same situation applies to suppliersinland. A paper-packing center in Chicagohas to offer its product to an exporter inLos Angeles at a much lower rate than apacker in Los Angeles, simply because ofthe transportation costs to bring that paperto the port.And yet exports are increasingly morevital.For suppliers in Southern California,“freight costs are much less to L.A. andLong Beach than to certain inland points,”said Doug Domonoske, with Potential Industries,a supplier, packer and exporter ofrecovered paper. “You can sell to other agentsto export, so if you’re not doing it yourself,you’re selling it to others who are exporters.And if you’re not, you’re in trouble becauseexport rates are higher than domestic rates.This is a low-margin business. Most peoplewould look at it andsay you’re crazy.”Most packers inSouthern Californiaexport about 50percent to 70 percentof their product.Domonoske said Potentialexports about90 percent, because itsfacility is mere milesfrom the ports of LongBeach and Los Angeles.Of the estimated 50 million tons of recoveredpaper in the United States in 2004,roughly 30 percent was exported, with 43percent of that amount going to China.All in all, China imports nine million tonsof recovered paper from North America, saidBrian Taylor, editor of industry magazineRecycling Today.China’s mill capacity for making highgradepaper has grown an average of 2.5million tons over the last decade, accordingto Resource Information Systems Inc., anindustry analyst.“Exports have long been a part of the picture,but exports to China in particular havezoomed as that nation has built paper millsto serve its need for boxes,” Taylor said. “Theboxes, of course, hold all the goods producedby China for export. China has gone fromDoug DomonoskePotential IndustriesAMERICAN SHIPPER: FEBRUARY 2006 41

LOGISTICSimporting less than one million metric tonsof scrap paper from North America in 1995to nearly nine million in 2004.”Recyling Today publishes a directory ofU.S. paper recyclers with more than 4,000listings, and paper from many of them endsup in China, Taylor said. Some companiesdeal in recyclables brought in directly fromthe public, some with municipal curbsiderecycling, others with the scraps from bulkprinters. And many companies do a combinationof two, or all three.“But much of it gets aggregated at thelocations of major West Coast shippers whoare the ones who tend to get the necessary(Administration of Quality SupervisionInspection and Quarantine) shipping licenseto ship containers of scrap paper to China,”he said.“It’s kind of a reverse logistics chain fromhow a manufacturer-wholesaler-distributorretailernetwork works. Boxes, as an example,are collected from Wal-Mart, mightgo to a regional recycling plant that makeslarger bales to fill up an export container(intermodal boxcar or truck trailer). Thisintermodal container makes its way to oneof the West Coast export facilities.”The top 10 U.S. exporters, like ACNI, dothe lion’s share of overseas trade.ACNI is basically the buying arm forits parent company to supply the NineDragons mill in China, which produces3.5 million tons of paper annually, makingit the second-biggest in Asia and one of theworld’s top 10.Half of all the recovered paper used bythe mill comes from the United States,Wang said.ACNI’s export tonnage has grown atabout 35 percent over the last few years,he added.In the United States, there are about 15to 20 major recovered paper exporters, andan unlimited number of smaller ones, Wangsaid. Suppliers — the recycling centersand packing facilities — number in thethousands nationwide.Each supplier is likely to have a differentmarket, depending on how geographicallyclose each one is to domestic paper millsand key seaports.For instance, 95 percent of recyclingcenters in Southern California are exportingproduct because of the proximity to theports of Long Beach and Los Angeles, andbecause there are hardly any paper millsin the region.But in, say, Alabama, where paper millsare more plentiful, a supplier might havea choice between exporting or selling to adomestic mill. Or if the supplier is a fewblocks away from a mill, it might just decideto sell all its product to that mill, particularly42 AMERICAN SHIPPER: FEBRUARY 2006“Suppliers don’t wantto run at night because itmeans they have to havea second shift. Recyclingcenters aren’t alwaysin the nicest places in town,so you have safety issues.Suppliers say, at somepoint, it’s just not worth it.”Peter Wangexecutive vicepresident,American ChungNam Inc.if it’s small.“The market is quite fragmented,” Wangsaid. “In places where there’s low domesticdemand, everyone is looking at exporting. Inareas where there’s high domestic demand,usually the larger companies are doing thebulk of the exporting.”As for how the ocean carriers view thewastepaper industry, Wang said it’s a relationshipborne out of mutual necessity.“They love it and they hate it,” he saidof the carriers. “They like the volume, butthey don’t like carrying paper. If you havea ship with 3,000 containers, the last thingyou want is a bunch of paper because you’renot making money. You want refrigeratedcontainers or electronics.”Of course, bringing something back toAsia is better than nothing, isn’t it? NotJapan opens, shuts border to U.S. beefTainted beef shipment halts U.S. beef imports one monthafter Japan partially lifted its two-year ban.WASHINGTONThe U.S. government admitted Jan. 20that a shipment of beef to Japan containedcattle parts that are banned under an agreementreached in December to end a two-yearban on U.S. beef imports because of fearsof “mad cow” disease.The Department of Agriculture said it istaking action against the processing plantand inspector who handled the shipmentand stepping up inspections.Japanese Prime Minister Junichero Koizumisaid Jan. 20 he would order a halt tobeef imports from the United States, basedalways, Wang said.“There’s a faster turnaround time for anempty once it’s in China,” he said. “If there’sa product inside, it has to clear Customs,and it has to be unloaded and returned tothe port. There’s a bottom line to how muchfreight will go back,” he said.Which means that rates for wastepaperexports, although remarkably low comparedto import rates, are still a source of negotiationbetween exporters and carriers.“If they really need something to fillthat container, then they’re more willing tonegotiate,” Wang said.The carriers know that Asian demand forU.S. wastepaper is so high that it has to comefrom all regions, not just the West Coast.“New paper mills are going up all over inChina,” Wang said. “By far it is the largestgrowing country in terms of paper-makingcapacity.”The capacity expansion is barely keepingpace with China’s two-fold needs for paper— a higher standard of living is fuelinginternal growth in the paper market, andpackaging needs for Chinese-manufacturedproducts are creating huge demand in theexport market.Domonoske said China’s thirst for recoveredpaper stems from its own inability toaccess paper-producing trees.“The trees they do have are in the west, farfrom the country’s manufacturing areas, andthe infrastructure isn’t developed enough tolink them,” he said.“Twenty years ago, Japan and Taiwanwere big buyers of wastepaper. Now they’reexporters. As the standard of living getshigher, the generation of wastepaper goesup because they’re consuming more andmanufacturing is moving offshore. The flowof materials has changed,” he said. ■on recommendations from the Ministry ofAgriculture, which reported that inspectorsat Narita International Airport found piecesof cattle backbone in a shipment.Japan partially lifted the trade ban onU.S. beef to allow meat from cows up to 20months of age. The agreement also excludedspines, brains, bone marrow and other partsof the cow thought to be at higher risk forbovine spongiform encephalopathy (BSE),a brain-wasting disease.Although the beef shipment meets theinternational safety standard for cows aged30 months or younger, “our agreement with

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LOGISTICSJapan is to export beef with no vertebralcolumn and we have failed to meet theterms of the agreement,” U.S. AgricultureSecretary Mike Johanns said in a statementissued early Jan. 20.“While this is not a food safety issue,this is an unacceptable failure on our partto meet the requirements of our agreementwith Japan. We take this matter seriously,recognizing the importance of our beefexport market, and we are acting swiftlyand firmly,” he said.The United States exported $1.4 billionin beef to Japan in 2003, making it the U.S.beef industry’s largest overseas market byvalue.Johanns said he apologized to theJapanese ambassador for the breakdown inprocedures, and planned to issue a report tothe Japanese government about actions thedepartment intends to take and the resultsof its investigation.Johanns said Japan was basically preventingbeef shipments from entering themarket until it is satisfied the U.S. has mettheir concerns. The rapid U.S. action is designedto forestall Japan from reimposinga permanent ban.The USDA said it has removed the unidentifiedprocessing plant responsible forthe shipment from the list of companiesallowed to export beef to Japan, and haslaunched an investigation to determine thecause of the packing mistake. Johanns saidit was the plant’s first shipment to Japansince the 2003 ban on U.S. beef importswas lifted in December.“We will take the appropriate personnelaction against the USDA Food Safety andInspection Service employee who conductedthe inspection of the product in questionand approved it to be shipped to Japan,”Johanns said.The department dispatched a team ofinspectors to Japan to help re-examineevery shipment awaiting entry approval tomake sure they comply with the terms of theexport agreement with the largest customerfor American beef.Johanns said he would send extra inspectorsto every plant approved to export beefto review procedures and ensure compliancewith trade agreements. Two inspectors arenow required to review and certify every exportshipment. He also ordered unannouncedinspections at those plants and extra trainingfor all beef inspectors to make sure they fullunderstand the requirements of all beef exportverification programs. Johanns said he alsoplanned to meet with representatives fromall U.S. processing plants that export beef toreview safety and trade requirements.The news from Japan came one day afterSingapore agreed to resume shipments of44 AMERICAN SHIPPER: FEBRUARY 2006beef under 30 months of age. U.S. beef tradewas also recently restored with Hong Kongand South Korea.Numerous countries stopped acceptingU.S. beef shipments in late December 2003after the USDA confirmed that a Washingtonstate cow was infected with BSE. Humansmay contract a form of the brain-wastingdisease by consuming infected beef.In a press conference, Johanns said theUSDA would be in contact with other countriesto make them aware of the situation andexplain how the United States has responded.He emphasized that the United States agreedThe U.S. cotton industry is bracingfor its biggest year in exports witha projected volume of 16.2 millionbales shipped abroad.While this is good news for the industry,shortcomings among logistics services andtransportation providers may dampen someof the bumper crop’s attractiveness amonginternational buyers.“More than ever, American cotton shipperswill be struggling with certain logisticscoordination issues that are not common inother regional cotton markets,” said ChristineBagarre, commodity manager for rawcotton at French liner carrier CMA-CGM,a relative newcomer to the transport of U.S.to the much stricter requirement for beef fromcows under 20 months of age to reestablish thebeef market in Japan, and that other countriesdo not have the same standard.With the new procedures in place, “I feelvery, very confident in the safety of U.S. beefand feel very, very confident about meetingthe requirements,” Johanns said. “This simplyshould not have happened. I don’t want tomince words about that, I’m very unhappyabout that. It’s a situation where very, veryclearly our inspector should have caught thisand I’m doing everything I can to make surethat doesn’t happen again.”■Cotton is handled at cotton merchant Paul Reinhart’s warehouse in WestMemphis, Ark.Logistics cotton bowlForwarders, ocean carriers struggle to managetransport of America’s bumper crop.BY CHRIS GILLIScotton, but a long-time player in the globalmarket of this commodity.“This year, carriers involved in theAmerican cotton tradewill run into manychallenges, includingproper scheduling ofcontainers, chassis,trucks, and demandsfor equipment positioningin out-ofthe-waywarehouses,”Bagarre said. “Con-Bagarregestion at ports and rail terminals will addto the difficulties.”Other carriers and freight forwarders

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LOGISTICSengaged in the American cotton businessagree.“Without a doubt, truck and equipmentavailability will be the most significanthurdles,” said Barry Gibson, trade managerfor cotton at OOCL(USA).“Even though wehave made the truckersaware of the industryneeds, theyare having problemsin finding the driversto man the trucks.Many owner-opera-Gibsontors have changed occupations due torising fuel and insurance costs, whileothers are working in the Gulf area forFEMA (Federal Emergency ManagementAdministration),” Gibson explained. “Asan industry, we need to provide better andadvance volume forecast and be preparedfor a higher trucking cost.”The problems for the liner carriers filterdown to the freight forwarders who oftenprepare the documentation and monitorlogistics activities on behalf of the cottonshippers.W. Neely Mallory III, president of Memphis-basedMalloryAlexander InternationalLogistics, isconcerned that persistenttruck and railproblems could ultimatelygive overseascotton growers theupper hand. “Rightnow we have the ad-Malloryvantage of a great infrastructure to deliverthese crops,” he said.Global demand for American cotton hassignificantly increased in recent years dueto the shrinking U.S. dollar and demise ofdomestic textile mills. In addition, risingpetroleum costs have increased demand forcotton over man-made fibers. The largestimporters of U.S. cotton are China, Turkeyand Mexico.“Before last year, we have never experiencedthis type of overseas demand,” saidDebra Thomas, vice president of transportationfor Paul Reinhart, a global cottonmerchant with U.S. operations based inDallas, in a recent interview.The cotton season in the United Statesruns from Aug. 1 to July 31. Export volumesgenerally reach their peak during the secondhalf the season.“It’s all coming from the same placeat the same time and going to the sameplaces, and the transportation infrastructureis just not strong enough to handle it all,”Thomas said.46 AMERICAN SHIPPER: FEBRUARY 2006Data Control. Mallory Alexanderrecently held a meeting in Memphis withshippers and carriers to find ways to improvethe logistics and transportation forU.S. cotton.According to the forwarder, here’s howthe American cotton export process shouldwork:• Booking is made.• Carrier must designate a specifictrucker and backup trucker.• Forwarder will send warehouse information,location of the cotton, markings,bale count and ready dates to the truckerand to the carrier.• Carriers communicate back to theforwarders about the trucking status.The forwarder noted that carriers havefinal ownership of door moves and areresponsible for all reporting of containerdetails.“It’s all comingfrom the same placeat the same time andgoing to the same places,and the transportationinfrastructure is justnot strong enoughto handle it all.”Debra Thomasvice presidentof transportation,Paul ReinhartHowever, communications breakdownsbetween the carriers, forwarders and shippersare frequent.Cotton is generally sold based on weight,color and fiber length and strength. TheU.S. Department of Agriculture gradescotton bales and registers them into anational system.Thus, when a cotton shipper places anorder, bales may be pulled from numerouswarehouses around the country. But latepickups from warehouses could cost shippersup to $3 per bale in penalties.Cotton shippers and forwarders at theMallory Alexander meeting called for improvedcommunications with the carriers,starting at the booking through to whenthe containers are loaded on vessels. It wassuggested that these improvements couldbe made with help from carrier Internetportals, such as INTTRA, GT Nexus andCargosmart.On The Ground. Carriers are also attemptingto get closer to cotton shippersby forming commodity-specific teams inthe U.S. market.OOCL started building its cotton team inMemphis in 1998. “We feel it’s importantto have team members in place who arefamiliar with the commodity, the lingo (salenumbers, marks, ready dates, etc.), as wellas why certain things are important to theshipper and forwarder,” Gibson said.In December 2004, CMA CGM reorganizedits VIP export desk in Norfolk, Va.,and set up a cotton team, which providesservices such as bookings, shipment monitoring,customized reports and other relatedactivities. Some of the specific actions takenby CMA CGM to ease American cottonshippers’ concerns are:• Standard operating procedure fordoor moves.• Share document forecasting.• Vessel reports issued on a daily orweekly basis depending on the customerrequirement.“We strongly believe that this policyand these efforts will help CMA CGM tosecure a good share of the cotton businessthis year,” Bagarre said.Transport Alternatives. Meanwhile,carriers continue to pour more containercapacity into the cotton belt, which stretchesacross the American South and Southwest.OOCL began holding empty boxes in theDallas and Memphis areas about 30 daysbefore the seasonal crunch. “Once theseason gets going at full speed, 200 to 300boxes per week could be utilized at eitherlocation,” Gibson said.Cotton shippers have also considerednon-traditional inland container transportto get their cargo to the coastal outboundseaports.In 2004, U.S. cotton giants Louis Dreyfus,Dunavant Enterprises, and Cargill beganplacing loaded containers on barges at theFullen Dock and Warehouse in Memphis.The barges, operated by Osprey Line, takethe containers down the Mississippi Riverto the ports of New Orleans and Houstonfor loading onto deep-sea ships.During the peak season for cotton shipping,Fullen Dock may handle up to fivebarges daily. Each barge transports, amongother freight, about 25 40-foot boxes, eachpacked with up to 88 500-pound cottonbales.“Imports are causing bottlenecks forthe truck and rail industries,” said LannyChalk, terminal manager for the FullenDock. “Moving containers on barges givesthe cotton shippers an added option fortransportation.”■

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LOGISTICSByrd amendment shot downCongress moved to repeal a controversialantidumping law in late December,but the legislation’s impactwill likely be felt by American businessesfor another two years.The 2000 Continued Dumping andSubsidy Offset Act, better known as the“Byrd amendment,” requires the federalgovernment to compensate U.S. producersfor harm caused by artificially low-pricedgoods from overseas competitors. Themoney for the payments comes from theduties paid on U.S. imports competing withinjured American industries.Many U.S. importers and manufacturers,on the other hand, have complained that thelaw creates incentives for companies to cryfoul in hopes of gaining large payments fromthe government.More than $1.26 billion in Byrd amendmentpayments have been distributed byCustoms and Border Protection since 2001,with more than one-third going to an Ohioball-bearing and steel tubing maker and itssubsidiaries. In 2005, CBP doled out $226million, with 80 percent ending up in thehands of 34 companies.“The Byrd amendment payouts result innothing more than an exclusive ‘millionairesSteve Alexanderexecutive director,ConsumingIndustries TradeAction CoalitionCompanies may still take advantageof trade benefits for next two years.“The Byrd amendmentpayouts result in nothingmore than an exclusive‘millionaires club’ createdby government handoutsof taxpayer money.”50 AMERICAN SHIPPER: FEBRUARY 2006BY CHRIS GILLISclub’ created by government handouts oftaxpayer money,” said Steve Alexander, executivedirector of the Consuming IndustriesTrade Action Coalition.Washington-based CITAC led the chargeon Capitol Hill in recent years to repeal theByrd amendment. The coalition’s membersinclude some of the country’s largest importersand trade groups, such as Target Corp.,The Home Depot, Michelin North America,Toyota, the Retail Industry Leaders Association,Consumers for World Trade and theDomestic Petroleum Council.“We don’t have a problem with legitimateunfair trade complaints, but under the Byrdamendment you’recreating incentives tobring them forward,”said Jonathan Gold,vice president of globalsupply chain policyat the Retail IndustryLeaders Association.Also workingagainst the Byrd Goldamendment were the recent findings by acongressional watchdog agency. The GovernmentAccountability Office reported inSeptember that CBP is struggling to processByrd amendment claims.In specific, the GAO found CBP’s pro-Byrd amendment ‘million dollar winners’(Fiscal year 2005)Company Product sector PaymentsTimken Bearings $62,388,177.07MPB Corp. Bearings $18,818,039.84Emerson Power Transmission Corp. Bearings $16,627,488.47Lancaster Colony Corp. Candles $11,376,302.04AK Steel Corp. Steel products $7,143,124.76Carpenter Technology Corp. Steel products $4,770,235.26Bristol Metals LP Steel products $4,535,412.96Home Fragrance Holdings Candles $3,697,601.73Wellman Inc. Fiber $3,442,108.54North American Stainless Steel products $3,109,875.51Allegheny Ludlum Corp. Steel products $3,085,791.86Maui Pineapple Co. Canned pineapple $3,065,874.21Marcegaglia USA Inc. Steel products $2,976,903.17Sioux Honey Association Honey $2,856,003.52New World Pasta Pasta $2,694,356.10American Italian Pasta Co. Pasta $2,627,884.91Outokumpu Stainless Pipe Inc. Steel products $2,444,737.47Shaw Alloy Piping Products Steel products $1,872,333.98Crucible Specialty Metals Steel products $1,850,025.21Gerdeau USA Inc. Steel products $1,834,610.30Mittal Steel USA Steel products $1,779,924.89Muench Kreuzer Candle Co. Candles $1,692,324.39Dupont Teijin Films Film $1,623,130.51McGill Manufacturing Co. Bearings $1,545,801.07United States Steel Corp. Steel products $1,518,499.03E. I. Dupont de Nemours Fiber, resin $1,503,626.61Gerlin Inc. Steel products $1,470,327.90Taylor Forge Stainless Inc. Steel-containing products $1,460,565.74A. I. Root Co. Candles $1,362,787.74PTC Alliance Corp. Steel products $1,309,184.78Markovitz Enterprises (Flowline) Steel products $1,228,612.28General Wax Co. Candles $1,171,586.42T. T. and W. Farm Products Catfish $1,157,336.90Dakota Pasta Growers Co. Pasta $1,103,260.87Million dollar winners’ total fiscal 2005 disbursements $181,143,856.04Million dollar winners’ share of total fiscal 2005 disbursements 80.0%Total fiscal 2005 Disbursements $226,051,863.09Source: Trade Partnership LLC, from U.S. Customs and Border Protection data/ConsumingIndustries Trade Action Coalition.

cesses to be “labor intensive anddo not include standardized formsof electronic filing.” The GAOalso noted that most companiesare not accountable for the claimsthey file because they don’t haveto support them and CBP does notconduct verifications.“This report highlights a totallack of accountability,” said Sen.Chuck Grassley, R-Iowa, in astatement at the time of the GAOreport’s release. “When governmentprovides an incentive tooverstate claims and then fails toverify whether the claims madeare accurate, it really amountsto an open invitation for fraud.Once a company gets the money,there’s no way to tell how it’sbeen spent.”Pressure to repealthe Byrd amendmentwas also applied by theWorld Trade Organization,which ruled in2002 that the legislationviolates U.S. tradeobligations. Failure byGrassleyCongress to repeal thelaw has since resultedKey industrial recipientsProduct sectorPaymentsSteel and steel-containing products $154,486,165.24Bearings $100,307,889.88Food products $26,196,433.99Honey $4,420,106.67Pasta $8,213,460.95Catfish $5,674,411.34Crawfish $2,198,146.41Canned pineapple $3,065,874.21Candles $21,523,740.60Fibers $5,267,013.91Softwood lumber $3,278,700.46Plastic film $2,668,006.22Cement $2,185,990.20Iron products $1,937,157.51Industrial belts $1,659,673.59Source: Trade Partnership LLC, from U.S. Customs and Border Protectiondata/Consuming Industries Trade Action Coalition.in WTO-authorized retaliation against U.S.exports by Canada, the European Union,Japan and Mexico on products such asbaby formula, oysters, wine, dairy products,candy, chewing gum, totaling about $114million.Big Money. Proponents of the Byrdamendment say it helps level the playingfield with overseas competitors thatLOGISTICSattempt to sell their products inthe U.S. market at unreasonablylow costs. It also allows Americancompanies injured by unfair tradeto invest in their operations andworkers.“For those anxious to end (Byrdamendment) distributions, thesolution is simple and does notrequire legislation; simply stopillegal dumping and subsidies,”said Joseph L. Mayer, presidentand general counsel for the Washington-basedCopper & BrassFabricators Council, in a Sept.2 letter to the House Ways andMeans Committee.In 2005, The Timken Co. ofCanton, Ohio, and its subsidiaryMPB Corp. received the highestByrd payments, totaling $81.2million or about 36 percent of the total disbursements.Since fiscal 2001, Timken andits subsidiaries have received $476 millionin Byrd payments, more than one-third ofthe total amount distributed.Three other top recipients in 2005 wereEmerson Power Transmission, an Ithaca,N.Y.-based bearings maker; LancasterColony Corp, a Columbus, Ohio-basedcandle company; and AK Steel Corp., aWhat we can’thandle, can’tbe shipped.You name it – Ro-Ro, container,project, heavy machinery, timber,even boats – NSCSA ships it.THE NATIONAL SHIPPING COMPANY OF SAUDI ARABIANSCSA (America) Inc., General Agent • 400 E. Pratt St., Suite 400Baltimore, MD 21202 • (410) 625-7000 • (800) 732-0204 • Fax: (410) 625-7050New Jersey Office: (800) 362-7452 • (732) 562-8989 • Fax: (732) 562-0909NSCSA canhandle all your cargoneeds to the Middle East and theIndian Sub-Continent. With multifacetedoptions - from Containers to Ro-Ro and Break-Bulk - our state of the art vessels can carry everytype of freight, no matter what the size or shape.Load on our competitive transit times, excellentintermodal links and impeccable customer serviceand it’s easy to see why we’re the mostaccommodating carrier in the business.www.nscsaamerica.comAMERICAN SHIPPER: FEBRUARY 2006 51

LOGISTICSMiddleton, Ohio steel producer.Companies in the steel products sectorreceived the largest Byrd payments, totaling$154 million. Other sectors that receivedsubstantial payouts last year were foodproducts, such as honey, pasta and catfish($26 million); candles ($21 million); andfibers ($5 million).The GAO said there’s insufficient data tosupport the claims that Byrd payments improvethe competitiveness of manufacturerswho receive the money. The agency’s reportnoted in one case a recipient used Byrdmoney to pay off a personal mortgage.Dangerous gameU.S. exporters warned to avoid violatingcountry’s export trade embargo with Iran.The U.S. national security spotlightwas turned up on Iran in earlyJanuary when that country’s leadersannounced they would restart their uraniumenrichment program.Federal agencies responsible for enforcingthe U.S. government’s export tradeembargo with Iran — namely the TreasuryDepartment’s Office of Foreign AssetsControl and the Commerce Department’sBureau of Industry and Security — areexpected to turn up the heat on Americancompanies that violate the embargo.“The embargo on Iran is an important partof our nation’s foreign policy interest,” saidCommerce Assistant Secretary for ExportEnforcement Darryl W. Jackson, in a statementinvolving the December court case ofa Kentucky man found guilty of illegallyshipping forklift equipment to Iran. “Wewant to do all that we can to discourageIran’s sponsorship of international terrorismand active pursuit of weapons of massdestruction.”Iran suspended its nuclear program twoyears ago under the threat of internationalsanctions, but on Jan. 8 ordered inspectorsof the International Atomic Energy Agencyto remove agency seals at its nuclear facilityat Natanz.While Iranian officials have attempted toassure IAEA officials that any nuclear workat Natanz would be for peaceful purposes,52 AMERICAN SHIPPER: FEBRUARY 2006BY CHRIS GILLISClose Call. Despite sharp attacks againstthe Byrd amendment, lawmakers were deeplydivided on whether to repeal the legislation.The Byrd amendment is named after its chiefarchitect Sen. Robert Byrd, D-W.Va., a powerfulsenior lawmaker on Capitol Hill.The House of Representatives passedlegislation to repeal the Byrd amendmentin late November as part of the already contestedDeficit Reduction Act (H.R. 4241),by a narrow vote of 217 to 215. The Senateapproved the legislative package on Dec. 21by a vote of 51 to 50 with Vice PresidentCheney’s vote as the tiebreaker.However, as a caveat to the legislation’sproponents, the repeal won’t take effect untilOct. 1, 2007. Until then, companies cancontinue to file Byrd amendment claims.Alexander said CITAC will “continue totrack Byrd amendment disbursements infuture years to underscore the importanceof repealing this trade-distorting law.”Final approval of the Deficit ReductionAct bill is expected from Congress in earlyFebruary.■the United States and other governmentsdon’t buy it. Many national security specialistsquestion Iran’s need for nuclear energywhen the country is a large oil producer.On top of this, Iran’s newly elected presidentMahmoud Ahmadinejad has publiclycalled for Israel to be “wiped off the map,”and there’s concern that Iran will step up itsmilitary buildup and support for anti-Westernterrorist groups under his leadership.Deception. U.S. officials suspect Iran ispurchasing large amounts of conventionalarms, as well as missile technology and nuclearequipment from Western sources.“Iran’s procurement officials and theiroverseas procurementagents are generallyaware of the U.S. tradeembargo against Iran,as well as the morelimited restrictionsother countries, suchas the members ofthe multilateral exportcontrol regimes,Menefeeimpose on such sales to Iran,” said MarkMenefee, counsel for Washington law firmBaker & McKenzie, and former director ofBIS’s Office of Export Enforcement.Menefee explained that this forces Iranianbuyers to use deception. “U.S. companiescan be vulnerable to these deceptive busi-ness practices if they don’t take additionalmeasures to verify the legitimacy of theircustomers,” he said.The most common deception used isfor the U.S. company to ship an item to amiddleman in Europe or the United ArabEmirates, who will transship the item to Iran.The U.S. company tries to make it appearthat it didn’t know the product was destinedto Iran, but this short-term strategy usuallybreaks down.“A U.S. company and the middlemaninvolved in an illegal diversion have a basicproblem: how do they organize the transactionso that it evades detection by enforcementauthorities, but remains transparentenough to the exporter and transshipper sothat in the end they can still get paid by theIranian customer and take their respectiveportions of the proceeds?” Menefee said.“If the Iranian customer expects a warrantyor after-sale support to come with theproduct, it will significantly complicate theillegal diversion scheme,” Menefee added.“Many illegal diversion schemes break downover time when the parties change, have adispute over payment, or when equipmentneeds servicing or repairs.”Cracking Down. In the past two years, theU.S. courts have issued a number of indictmentsand penalty actions against corporateexecutives and their companies for violatingthe country’s trade embargo with Iran.On Dec. 7, 2004, Ebara InternationalCorp. of Sparks, Nev., was sentenced inthe U.S. District Court for the District ofColumbia for illegally exporting submersiblepumps to Iran. Ebara agreed to pay a$6.3 million criminal fine and serve threeyears corporate probation. BIS assessed a$121,000 administrative penalty and a threeyearsuspended denial of export privilegesas part of an agreement with the companyto settle administrative charges related tothe unlicensed exports.In addition, Ebara’s founder and formerchief executive officer Everett Hyltonpleaded guilty to conspiracy to make falsestatements and agreed to pay a $10,000criminal fine and three years probation.He also agreed to a $99,000 civil penaltyand a three-year suspended denial of exportprivileges as part of his settlementwith BIS.On Sept. 15, 2005, PA Inc. of Houstonpleaded guilty to a criminal charge for attemptingto violate the trade embargo bytrying to illegally export specialty nickelalloyed piping to Iran. BIS assessed a$50,000 administrative penalty and afive-year suspended denial of export privilegesas part of an agreement with PA tosettle administrative charges related to the

Paul DiVecchiopresident,DiVecchio& Associates“It’s a case of ignoranceis not bliss. You’re supposedto know the law.”so many nuances in the law,” said Paul Di-Vecchio, president of Boston-based exportconsulting firm DiVecchio & Associates.DiVecchio advises U.S.-based corporationsto ensure their compliance programsare global. He emphasizes to his clients thatemployees in overseas subsidiaries shouldthoroughly understand and comply withU.S. trade embargoes.Menefee recommends U.S. companiesuse effective language in their distributionand resale agreements that would enablethem to terminate agreements if a distributoror reseller should violate the law.American companies may still beLOGISTICStempted to ship to Iran because competitorsin other countries are free to tradewith Iran. The Middle East country’s toptrade partners are Japan, China, Italy andSouth Korea. Iran imports large volumesof industrial raw materials, capital goods,foodstuffs, technical services and militarysupplies.While most violations of U.S. export tradeembargoes are inadvertent, in the eyes offederal regulators and the courts, there areno excuses.“It’s a case of ignorance is not bliss,”DiVecchio warned. “You’re supposed toknow the law.”■transactions. In this case, PA tried to slipthe shipments past two freight forwarders,both of which flagged the transactions andcooperated with BIS investigators.On Dec. 7, 2005, a federal jury in theDistrict of Columbia found Robert E. Quinnof Lexington, Ky., guilty of one count ofconspiring to violate the U.S. trade embargoagainst Iran and five counts of illegal exportsto Iran. Quinn was a sales representativefor Clark Material Handling Corp.(CMHC), a Kentucky-based forklift truckmaker. Between March 2003 and December2003, Quinn directed five shipments ofCMHC parts through Ship Line Trading, abroker in Dubai, U.A.E., to Sepahan Lifterin Iran. Quinn is scheduled for sentencingon Feb. 23. He faces a sentence of eight to10 years in federal prison, the U.S. JusticeDepartment said.In line with the 1992 Iran-Iraq Arms Non-Proliferation Act and 1995 trade and investmentembargo, the U.S. government deniesexport license applications for so-called“dual-use” items, or goods that can be usedfor both commercial and military purposes,to Iran. The United States, through approvedexport licenses, will permit exports to Iran,including food, agricultural equipment,medicine, and medical supplies.A big problem for American shippers,however, is that regulations for each sanctionsprogram are different, and are oftenwritten in broad, somewhat vague language.In addition to Iran, the United States maintainsexport trade embargoes with Cuba,Sudan and Syria.“Vague language in a regulation can resultin U.S. and foreign companies engaging inbusiness practices that, while they seemharmless and even commonsense on theirface, can be alleged by OFAC to be inviolation of the trade sanctions,” Menefeesaid. “Vagueness undermines the credibilityand effectiveness of the trade sanctionsprograms.”“It’s a slippery slope because there areCelebrating OurANNIVERSARY25 th25 years of providing you withthe best ocean and air service isjust the beginning. We plan onexceeding your expectations forthe next 100 years. We’ll alwaysbe there when you need us,getting your shipment thereon time, intact, every time.www.dhx.comwww.dgxshipping.comYou’ll appreciate the “Dependable difference” – and so will your Customers!DGX, DHX-Dependable Hawaiian Express, Dependable Global Express, and the color combination of purple and magenta,are the trademarks of DHX-Dependable Hawaiian Express or its affiliated companies.AMERICAN SHIPPER: FEBRUARY 2006 53

LOGISTICSCFOs: Get in touchwith inner supply chainAberdeen report says automated settlementscan also drive supply chain efficiency.Chief financial officers need to takeownership of import and logisticsissues, and import specialists needto think about broader supply chain issuesto generate shareholder value, according toa study by Aberdeen Group.An online survey of 233 companiesconducted in September by the Bostonbasedtechnology research firm shows that35 percent of CFOs are already taking alarger leadership role in managing globaltrade because they understand how businessdecisions impact financial performance andwant to reduce risk inherent in far-strungglobal supply networks.Companies need to ensure that internationalbusiness is profitable by automatingand coordinating more supply chain andfinancial processes and using trade financeservices to better manage the flow of moneyand reduce risk, according to the report.A major goal of well-run companies is toimplement technology that can report thestatus of an order at all times and makepaperless transactions possible.“At the best performing companies, theCFO is not merely running a back-officesupport function, but is leading the charge tocreate cross-functional processes for globaltrade,” the report said. The tools of choice toprovide all parts of the company with a viewof each transaction are sophisticated tradeand financial management systems.“Most companies are still operating offof very manual, intensive processes, basicallyspreadsheets, to keep the supply chainmoving,” said Beth Enslow, author of thereport, in an interview. “Companies haveunderinvested in technology for internationalsupply chain management, and we’renow seeing that the forward-thinking CFOsare realizing that they can get two bangsfor the buck. By increasing automation,they are not only improving supply chainperformance, but improving financial performanceand significantly freeing up cashfor their organization.”A company with $1 billion in sales can54 AMERICAN SHIPPER: FEBRUARY 2006BY ERIC KULISCHfree up $10 million to $40 million by improvingglobal trade processes, the report said.Since 2002 the best companies (top 20percent) were able to reduce their total costof goods by 15 percent or more and the cashcycle — from time when suppliers are paidto the time payment is collected for sale ofthe final product — to less than a month,according to the report. About one-fourthof the companies said they only reducedcosts by 1 percent to 5 percent, and anotherquarter said they didn’t reduce costs at all orexperienced a cost increase by sourcing productionoverseas. One-third of companies inthe survey said their cash cycles were two tothree months, and 18 percent reported cashcycles of up to four months or more.Cash Is King. Gaining control of cashflow from international trade has becomeincreasingly important for businesses inrecent years as their dependence on globaltrade has rapidly expanded. Aberdeen, whichprovides research and consulting to helpbusinesses understand how best to deploytechnology, said the typical company surveyedderives one-third of its revenue fromsales of imports and that 30 percent of itstotal cost of goods sold comes from productspurchased overseas. For companies in thehigh-tech and apparel industries, more than80 percent of revenue and cost of goods arefrom internationally sourced goods.Global sourcing adds complexity tobusiness operations because of the longercommunication and transport distances,multiple intermodal handoffs, languagebarriers, trade restrictions, customs rulesand security concerns.Global activities also tie up more money.Lead times are longer and uncertain deliveryschedules require more inventory and writeoffsof obsolete products. Longer paymentterms are the norm in other countries (whichcan place a U.S. exporter in the position ofhaving to pay domestic suppliers within 30days while waiting 60 or 90 days for paymentsfrom European and Asian customers).And cash transfers are more complex acrossborders and currencies. Longer lead timescan also make companies less responsiveto customer demand, which may hurt theirability to attract new business.The key to successful trade is synchronizingthe physical, financial and informationflows, so companies can see what is goingon in current time, according to Enslow andother experts.The report prods CFOs to become involvedin sourcing and overseas contractnegotiations, because international trade isfraught with many hidden variables and uncertainties— delayed, incomplete or emergencyexpedited shipments, unexpectedcustoms fees or fines, currency fluctuations,unanticipated customer refunds for servicefailures, and payment disputes, to name a few— that can affect the bottom line. Measuresare required to prevent surprises when it’s“What is surprisingis that most CFOs lagbadly in recognizing tradecompliance technologyas a priority. As CFOs takea greater leadership rolein cross-functional tradeprocesses, this attitudeis changing.”Beth Enslowvice presidentfor enterprise research,Aberdeen Group

SCO SHRMA International Trade SymposiumStart looking East! A wave of change for shippers andmaritime professionals is now upon us.The Hampton Roads Maritime Association andAmerican Shipper invite you to attend one of this year’smost important and informative conferences.HRMA’s third annual conference offers two full daysof events, including speakers and panels from someof the most respected shipper and maritime industryorganizations in the country.Discussions will outline the realignment of thetransatlantic trade and its impact on shippers and how thebooming South Asia and Indian markets are impactingocean freight transportation to the U.S. East coast.Shippers will also provide insight into their requirementsfor efficient East Coast distribution services. Inaddition, conference attendees are encouraged tonetwork with their industry peers by attending the 86 thAnnual HRMA Maritime Banquet and enjoying a roundof golf.Hotel information: Norfolk Marriott Waterside, 235 EastMain Street, Norfolk, VA 23510 USATel: (800) 874-0264. Don’t delay. Reserve your room byApril 3 to receive the conference discount. Mention theHRMA conference when reserving your room to receivethe discount.For more information on the conference, discussionand panel topics, and other activities, visit:www.HRMA.PortofHamptonRoads.com/symposium/

LOGISTICStime to report financial results.The more information the finance departmenthas about purchase orders andshipment dates, the better it can manageits cash assets.Companies usually have a pretty goodhandle on their domestic inventory andfinancial obligations. But too often, financialofficers do not understand how thephysical and financial supply chains arelinked for international transactions, andhow supply chain performance can impactfinancial results, wrote Enslow, Aberdeen’svice president for enterprise research anda former executive at Descartes SystemsGroup, a provider of online logistics andtransportation workflow tools.Moving production offshore is often decidedbased on the lower cost of labor andmaterials. But these savings can be canceledout by higher logistics and transaction costs,unless supply chain processes are carefullyintegrated.Top CFOs see that the lack of coordinationbetween financial functions andmanufacturing, procurement, marketingand logistics areas of the company lead topoor shipment quality and delayed delivery,which requires more safety stock, and thusresults in more working capital and poorcash flow, Enslow said.“Best-in-class finance organizationsplay the vital role of financial analyst andmediator by ensuring sourcing decisionsaccount for both cost and revenue impacts,”the report added. Poor transportation costforecasting is the biggest reason that sourcingfrom low-cost countries often doesn’tgenerate anticipated savings.Beth Peterson, a trade consultant basedin San Francisco whois familiar with thereport, said transportationcosts blow thebudget when companieshave late shipmentsand need to useair freight to expeditedelivery.“The trick is keep-Petersoning down those expedites and those varianceson types of transportation they use,”said Peterson, a former executive withOpen Harbor.Determining whether to source productsfrom overseas should be based on theconcept of total delivered profit rather thantotal landed cost, Enslow recommended.Total landed cost calculations for pricingproduction and shipment of goods fromoverseas neglect to factor in local contentrules, inventory carrying and obsolescencecosts, customer service penalties fromlate shipments, added freight charges in56 AMERICAN SHIPPER: FEBRUARY 2006Pressures compelling firms to improve global trade processesCustoms and regulatory risks and requirementsRisk of business disruptionsSlower cash-to-cash cycle of global tradeExposure to currency fluctuationsRevenue growth pressures to expandinto international marketsExpected low-cost country savings erodedby unanticipated supply chain costsSarbanes-Oxley concernsSource: Aberdeen Group, September 2005.the destination country, fuel surcharges,full duties, taxes and tariffs, intellectualproperty theft and how revenue is affectedby unpredictable lead times, fluctuations indemand and supply disruptions.China, for example, requires productsto be made with at least 30 percent localcontent in order to avoid high export fees.A company that assumed it could simplyassemble the product in China may discoverthat it needs to add a manufacturing processto get that greater content value, whichcould raise costs.“A 5 percent variance in a high-tech company— that’s your profit,” Peterson said.“The reality is that while a number ofcompanies will do well to source as muchof their product from low-cost countries aspossible, many more will drive higher profitsby taking a more calculated approach. Forinstance, this might involve low-cost countrysourcing of steady demand items and localsourcing or finished goods postponement ofmore dynamic items,” Enslow wrote.Get Visible. From a financial perspective,the lack of transaction visibility is due inlarge measure to the fact that internationalsettlement processes are still paper-basedat 60 percent of firms, and often have errorsthat must be reconciled at a late stage.Manual ordering and settlement processedlead to sporadic invoicing by vendors, withsome companies reporting up to 60-daydelays to receive invoices. The lack of anelectronic audit trail, for example, makes itdifficult to prove whether a vendor receiveda faxed document. Late billing means acompany doesn’t have to part with its moneyas fast, but most companies prefer predictablecycles so they can properly forecasttheir cash flow, rather than having to keepreserves high because they don’t know wheninvoices will arrive.Aberdeen found that more than two-thirdsof companies have begun or plan to automatetheir financial management and trade compliancesystems. Nearly three-fourths planto increase their use of trade services fromfinancial institutions to lower transaction57%48%51%50%47%55%30%36%29%27%28%20%40% 12%0% 20% 40% 60% 80% 100%costs, smooth cash flow and make it easierfor customers and suppliers to do businesswith them.“What is surprising is that most CFOslag badly in recognizing trade compliancetechnology as a priority,” Enslow wrote.“As CFOs take a greater leadership rolein cross-functional trade processes, thisattitude is changing.”The trend toward budgeting money fororder, shipment, compliance and paymentautomation projects is led by companiessuch as IBM, Williams Sonoma and LizClaiborne, who are making incrementalimprovements in automation and thenexpanding those systems to other areas ofthe supply chain, Enslow said.“Without automated processes and strongworking capital and cash flow management,the more global selling and sourcing that’sdone, the more manpower will be required,and the more unpredictable financial conditionswill be,” the report said.Many technology providers are steppingforward to meet the demand for multidimensionalglobal trade management services, butmost of the standalone compliance softwareproviders have been acquired by companieswith broader service portfolios.Last year, financial services giant JPMorganChase acquired Vastera, a Dulles,Va.-based provider of automated trademanagement and customs tools, and trademanagement consulting in a move designedto create a one-stop shop for integratedcash, trade and logistics services. Othercompanies that offer systems to automateimport and export planning, processes andcustoms compliance include TradeBeam,which bought Open Harbor in 2004; andManagement Dynamics, which recentlyacquired NextLinx. These companies alsomaintain databases that automatically populatetheir systems with the latest tariffs andother regulatory content and business rulesfrom countries around the world.GT Nexus, which started out as a Webbasedocean carrier booking and contractmanagement platform, now provides a suiteof pay-per-use logistics and settlement

Logistics2006Welcome to Orlando to the premier supply chain meeting for executives in the retail industry.We hope you enjoy all the quality education and meaningful networking, which can befound only at RILA’s Logistics 2006.Program Highlights Include:Opening Keynote Address by David PerdueChairman & CEO of Dollar General CorporationAdditional industry speakers from companies including: Best Buy, Black & Decker,Canadian Tire, Carrefour, Coca-Cola, Family Dollar, Limited, Liz Claiborne, Lowe’s, HomeDepot, Nestle, Northern Tool,Tractor Supply,Wal-Mart, and Williams-SonomaWhile you’re at it, be sure to SAVE THE DATEfor next year’s event.(And if you’re reading this and didn't come to Logistics 2006, be sure to mark these dates...you don’t want to miss thismeeting two years in a row!)Logistics 2007February 11-14, 2007Manchester Grand HyattSan Diego, CA

LOGISTICSmanagement services underpinned by anonline network that allows shippers, logisticsproviders and carriers to exchange informationand documents. It recently addeda global freight audit management systemto its Web portal to help companies ensurethat invoices accurately reflect contractrates and services. In October, GT Nexuslaunched a total landed cost calculator thatgoes beyond similar offerings to tie togethertransportation, finance and trade compliancecosts. The GT Nexus calculator buildsin the actual cost of transportation and otherevents as they occur by using bills of lading,purchase orders, commercial invoicesand customs documents compared withother providers that build tables to estimatetransportation and other charges. The newcapability gives customers the ability tore-price products, alter promotions, switchfuture shipments to other modes, re-examineproduct classifications for customs, reassignfuture orders to lower cost suppliers,and take other corrective action in the faceof unanticipated costs, Enslow wrote in aseparate bulletin.UPS, the company with the motto“Synchronizing the world of commerce,”offers a suite of order, cash and trademanagement services through its SupplyChain Solutions company, and providesfinancial services through UPS Capital.And enterprise software companies suchas SAP have significantly expanded theirtrade compliance modules.Meanwhile vendors such as TradeCardfocus on financial management, and provideservices such as managing early paymentprograms. These financial systems allowcorporate officials to see when an order hasbeen accepted by a supplier, how much hasbeen shipped, whether it has passed throughcustoms and other fulfillment milestones.The report urges companies to use trackingcapability as a way to verify progressof a shipment and trigger earlier paymentsor financing. Instead of waiting for an orderacknowledgement, advance shipmentnotice or warehouse receipt, companieswith real-time information could makepayments when automated manifests arefiled, shipments arrive at the consolidator,enter a port, are loaded on a vessel, arriveat a destination port, clear customs or areloaded on a truck.The same electronic trading platformused for monitoring the payment status of ashipment can be used to update the logisticsdepartment about any potential delays toavoid stock-outs and excess inventory.The penetration of classic supply chainvisibility systems is still very low in mostcompanies, because it’s hard work to createsystems in-house to connect suppliers and58 AMERICAN SHIPPER: FEBRUARY 2006Total landed cost overrunsfrom China sourcingAverage discrepency betweenforecasted landed cost and actuallanded cost from China24%23%5%22%26%More than 10% greater cost5-10% greater cost2-4% greater cost0-1% greater cost1-5% less costSource: Aberdeen Group, September 2005.customs brokers. But as outside vendorsbuild up their networks of suppliers, shippers,transportation providers and intermediaries,“the barriers to entry are much lower,and now you can gain much quicker accessto your logistics community” on a pre-integrated,shared platform, Enslow said.Resource-constrained IT departments“don’t have a lot of bandwidth for integrationprojects. But by outsourcing thatdemand, they can get that functionalitywithout having all those IT resources inhouse,” she said.Meanwhile, government security requirementsfor prescreening commercialshipments are placing additional pressureon companies to enhance their tracking andinformation sharing capabilities. Automationalso helps public companies complywith the Sarbanes-Oxley law by locatingtheir inventory so they can determine whosebooks it should be credited to for accountingpurposes. Technology adoption is expectedto expand as the need for IT systems to meetsecurity, financial and logistics requirementsconverge. Businesses realize that the samesystems used for security and regulatorycompliance purposes can also provide operationaland financial benefits.Account payment cycles can be shortened,and inventory levels can be reduced byfive days through tighter management andoperational changes, such as switching toan account-based settlement system insteadof using cumbersome and expensive lettersof credit, selling receivables to banks at adiscount to get cash quicker, better understandingof how to take advantage of freetrade agreements, moving from paper-basedto electronic invoicing and payment, andimproving supply chain visibility.More specifically, if the company imports30 percent of its goods, it can free $6 millionin cash from these types of improvements,and another $4 million by moving to electronicpayment programs. The companythat is 80 percent dependent on importscan generate $40 million in savings andnew revenue.“Freeing cash directly impacts the qualityof a company’s earnings, which impactsthe company’s price/earnings ratio and itsmarket capitalization,” Enslow wrote.She noted that a health sciences company,for example, had to write off $10 millionin inventory because it because it lacked anelectronic audit trail for the movement of itsgoods, and was unable to claim drawback, orrefund, of customs duties on imported materialsthat were subsequently exported.The report recommends companies expandtrade compliance and documentationprocessing systems to make sure costing isaccurate, goods are properly classified andnot subject to extra duties, and that documentsare in order to prevent fines and delaysby customs authorities. Large companies, inparticular, can generate significant savingsby adopting a single import/export databasefor all departments of the company.“The opportunity cost of insufficienttrade compliance can be even greater:Top areas for global trade budget discrepenciesTransportation expenses67%Raw materialsSupplier chargesTaxes and tariffsBroker/forwarder feesInventory costs3rd-party warehousing/handling costsProduct rework costs39%38%29%29%27%25%21%0% 20% 40% 60% 80%Source: Aberdeen Group, September 2005.

LOGISTICS“If you don’t have visibility,then you don’t havethe capability to extendpayables or get a discount.It’s all about takingadvantage of the factthat the cost of capitalis different in differentcountries and differentsize companies.”Companies have documented millions ofdollars of savings by better understandinghow to use free trade agreements in theirproduct design, sourcing and distributiondecisions,” Enslow wrote.Better status information from electronictracking and document sharing technologygives companies the ability to hold lessinventory, make sure shipments get to theright place, avoid customs delays and offersuppliers more predictable payments, whichin turn can lead to creative ways to increaseincome from international operations.Cash-rich companies, for example, canoffer early payment discount programs bywhich they agree to pay suppliers soonerthan normal in exchange for lower pricedgoods. Instead of waiting for an order acknowledgement,advance shipment noticeor warehouse receipt, companies withreal-time information and electronic settlementprograms can make payments whenautomated manifests are filed, shipmentsarrive at the consolidator, enter a port, areloaded on a vessel, arrive at a destinationport, clear customs or are loaded on a truck.A 1 percent or 2 percent price reductioncould translate into a 0.5 percent gain innet income, Enslow estimated.Cash-poor companies can use electronictransactions to gain longer payment termsfrom suppliers.“If you don’t have visibility, then you don’thave the capability to extend payables orget a discount,” Enslow said. “It’s all abouttaking advantage of the fact that the cost ofcapital is different in different countries andfor different size companies.”The report recommends that companiesinstitute stronger financial oversight ofsupplier contracting and make sure theyunderstand the fiscal health of suppliers soexecutives know when it pays to use thesetypes of revenue schemes. Companies couldlose business if their suppliers lack sufficient60 AMERICAN SHIPPER: FEBRUARY 2006capital to expand capacity to fill orders, orworse, if they shut down altogether becauseof financial problems. But only 20 percentof companies in the survey said they knewthe cost of capital for their suppliers.Enslow said that the cost of capital inlow-cost countries may range from 12 to16 percent, compared to 4 or 5 percent forU.S. companies. Smart companies play offthat difference by providing suppliers withlower cost access to money in exchange forlower pricing and other benefits.Smaller vendors often can’t afford tostockpile materials ahead of a firm order,which increases lead times and the need forlarger inventory. Some companies buy rawmaterials on behalf of their suppliers for upto 35 percent of their production in order toreduce lead times, as well as to get bettervolume discounts or lower cost of capital.To encourage suppliers to buy raw materialsahead of time, purchasing departmentsmay agree to pay for some or all of the rawmaterials if there is a shortfall in demandand finance departments need to be awareof commitments that can impact financialresults, Enslow wrote.Companies can also spread the risk ofinternational trade with their vendors byKeep it simplesharing the risk for significant shortfall inforecasts, adding online access to paymentstatus, providing financial advice to suppliersand having a joint disaster recoveryplan.“Moving to electronic invoicing anddisbursements for suppliers, includingonline visibility of payment status andonline dispute resolution, removes paymentuncertainty for suppliers. In return,companies are often able to negotiate 15- to20-day extensions on their days payable,”the report said.Enslow said the biggest lesson in thereport for logistics professionals is to realize“here is an opportunity to get the financialgroup on your side and to be cheerleadersfor making logistics more of an integratedpart of the business, and that the door is opento have that conversation and they need totake advantage of it.“Rather than trying to get a projectbudgeted because it is going to help yourgroup, show how it will help the companyoverall. It’s so much easier to get fundingfor yourself if you can show it helps others.Now you have departments working off ofthe same data and the same view of the stateof orders in the supply chain.” ■Trade doesn’t need to be this complicated.The U.S. trade community cumulativelyspends hundreds of millionsof dollars every year to comply withfederally mandated laws and regulationscovering imported products and materials.Our government spends vast amounts ofmoney and energy to keep the public safefrom not only smuggled or fraudulent goods,but those that are also deemed inadmissibleor unfit for consumption.In addition to having its own convoluted,and in some cases arcane, set of rules andregulations governing imported merchandise,U.S Customs and Border Protection isalso the “enforcer” for more than 40 otherfederal agencies who regulate or otherwisecontrol imports. This creates an intricateand highly complex regulatory labyrinththrough which importers must traverse.Nonetheless, most major corporationsengaged in international trade understandthe need to comply with import laws. In largepart this is due to CBP’s informed complianceprograms and other initiatives designedto educate the importing public.However, the trade laws that govern ourBY MICHAEL LADENindustry are rife with exceptions. As newregulations are drafted they are subjected to acommentary process and routinely modifiedto accommodate special interest groups andother advocates or opponents. This is partof the give and take we call democracy. Butevery time we create a law that applies toX, except for Y and Z, we open ourselves todifferences in interpretation or application.Additionally, we set technical trip wires forunwitting importers.We also create opportunities for criminalsto fraudulently exploit these nuances. Theseexemptions create a technical minefield thatimporters must navigate to avoid penalty,delay, or, in extreme cases, seizure of theconsignment for inadmissibility or noncompliance.Meanwhile, our government is negotiatingfree trade agreements at a frenetic pace.Each FTA seems to come with a completelydifferent set of rules or requirements. Combineall of this with the unabated growthand proliferation of the Harmonized TariffSchedules that we have experienced in past30 years and you have an award-winning

ecipe for a world-class quagmire.Today, except for a handful of categories,duty rates have essentially become a nonfactorfor importers largely because of tradeagreements. In my opinion, the HarmonizedTariff Schedules, and processes used toclassify material for duty and statisticalpurposes, are ready for an overhaul. Weshould look for opportunities to collapsesubheadings into headings and to aggregatedata at a much higher level of detail.I realize that a complete rework wouldneed to be negotiated and accomplishedat the world level. But I believe that bychallenging status quo, the United Statescan make great progress in simplifyingthe process of classification. We shouldexamine and seize upon every opportunityto escape from the statistical quicksand thatwe seem mired in.In a past retail life, my team and I spenthours agonizing over the density of thefoam in a child’s baseball bat, trying todetermine if it was a toy or a sporting good.It wasn’t the duty that we were concernedabout; it was the compliance implicationsof misclassification.Truth be known, most legitimate importersdon’t really care what the duty rate is. It’sa cost of doing business and the expense issimply baked into the price of the finishedproduct, and the ultimate consumer bearsthe burden. What they care about is dutyparity. They don’t want their competitionto achieve an advantage by classifying theexact same product or material under adifferent tariff number and enjoy a lowerrate of duty.Recent developments have highlightednew approaches, however. Programs suchas the Customs-Trade Partnership AgainstTerrorism illustrate the shift from the “gotcha”mentality historically applied to allimporters. C-TPAT has ushered in a newera of trust and partnership. As a result,CBP and other government officials arebeginning to understand the value of a trueprivate-public partnership.Relieving the trade and government ofsuperfluous technical requirements willmake our industry more productive andefficient. Let’s not forget that the prioritymission of CBP recently changed, and whilecompliance is still important, protecting ourhomeland from the terrorism threat is thenew imperative.In a past retail life, myteam and I spent hoursagonizing over the densityof the foam in a child’sbaseball bat, tryingto determine if it wasa toy or a sporting good.It wasn’t the duty that wewere concerned about;it was the complianceimplicationsof misclassification.Making it easier to comply with the lawwill free up vital CBP resources for thehomeland security mission. CBP doesn’tmake the laws; it simply interprets andenforces them. It is Congress and thecourts that create and shape our regulatoryenvironment. Our congressional leadersneed to be mindful that every exceptionlacedtrade law or FTA they enact requiresadditional CBP resources to enforce, andcreates operational obstacles for importersto monitor and manage. In some cases,the laws act as non-tariff trade barriers bydiscouraging importers who feel that thetechnical complexities outweigh the rewardor benefits of direct import.So, the fundamental question then becomes,“What can be done to simplify?” First, Congressand the courts should give commonsense and simplification deference whencreating or altering trade laws.Second, our congressional leaders should,perhaps as a precursor to a Trade SimplificationAct, appoint a multi-disciplinarygroup to closely study and offer meaningfulrecommendations for simplification.Third, the world has changed a lot since theHawley-Smoot Tariff Act (as amended) waspassed more than 75 years ago. It’s time thatwe wipe the slate clean. Such an undertakingwould be daunting, but would also illuminatethe tangled web of complexities and exceptionsthat burden our industry.Such a mission would require greatLOGISTICSleadership from the importing public, tradeassociations and the Commercial OperationsAdvisory Committee (COAC). Butit would be a worthy objective and wouldallow the Tariff Act to remain relevant ina world that continues to experience theeffects of unparalleled growth fueled byinternational trade and the globalization ofthe world economies.Lastly, the long overdue InternationalTrade Data System (ITDS), if it ever comesto fruition, will aid the simplification cause.As certain modules of ITDS are developedand deployed, the necessity for the data andthe process for collecting and reporting it,should be thoroughly examined, and eliminatedor simplified if feasible.The Brussels-based World CustomsOrganization also has some skin in the“simplification game,” and I would beremiss if I did not acknowledge their efforts.The WCO is playing a pivotal roleby reminding and encouraging customsadministrations around the world to adoptsensible, predictable and efficient customsprocedures. Recognizing that simplificationwill reduce transactional costs andprovide a greater revenue stream. The WCOhas pledged to assist member countries byhelping them identify and remove proceduraland institutional bottlenecks.The efficient and unencumbered movementof legitimate goods across internationalborders not only contributes to economiccompetitiveness, but also encourages investment,industry development and participationin the global marketplace by more smalland medium-sized enterprises.As this column was being drafted, thepresident had yet to nominate a permanentCBP commissioner. In order for simplificationinitiatives to move forward, thenext several CBP commissioners willneed to embrace the same visionary, balancedand logical leadership that recentlyretired Commissioner Robert Bonnerexemplified.Michael Laden is afounding principal ofTrade Innovations Inc.a trade advisory firmlocated in Minneapolis,Minn. Laden canbe reached by e-mailat mike.laden@tradetradeinnovations.com.Shippers’ NewsWireDaily updates www.americanshipper.comTo subscribe call 1 (800) 874-6422 or on the Web at www.americanshipper.comAMERICAN SHIPPER: FEBRUARY 2006 61

LOGISTICSIn November 2005, the Council of SupplyChain Management Professionalsnamed Rick D. Blasgen, a food industrysupply chain veteran, to succeed MariaMcIntyre, who hadbeen CSCMP’s rankingstaff executive.Blasgen’s appointmentcame asa surprise to many— including Blasgen— because he had‘Consensus builder’Blasgen takes lead role at Council of SupplyChain Management Professionals.62 AMERICAN SHIPPER: FEBRUARY 2006BY ROBERT MOTTLEY“I’ve learned from industrythat unwavering andsteadfast customer focusis what this organizationis going to be about.”Rick D. Blasgenpresident and chiefexecutive officer,Council of SupplyChain ManagementProfessionalsbeen in place, as thecouncil’s first assis-McIntyretant vice president, to become its electedpresident for 2006-2007.In an interview with American Shipper,Blasgen, 47, discussed his role asthe council’s president and chief executiveofficer — a new title established inDecember — and what the change meansfor the Oak Brook, Ill.-based organizationand its 10,000 logistics and supply chainorientedmembers in the United Statesand abroad.Blasgen said CSCMP’s basic tone willcontinue to be set by its “chairs,” formerly“presidents,” in their one-year terms.“My role is to support them,” Blasgensaid. “My job is also to facilitate and provideresources and make sure that what the boardwants is done.”In addition, Blasgen will on occasionrepresent CSCMP internationally “as anambassador for our supply chain industry,”beginning at an international conference inDubai in early February.“I am a consensus builder. I’ve learnedfrom industry that unwavering and steadfastcustomer focus is what this organization isgoing to be about. We are going to satisfythe needs of our customers, meaning ourmembers,” he said.Blasgen said he has no trouble adjustingnow to working for a non-profit organization.“I approach it in this way: we have resources.They’re limited. That’s the samein any organization. We have a mission,also a vision. So do many commercialcompanies. We have a budget, and initiativesto drive value. All of that is similarto what you would find in a for-profitcorporation,” he said.“Our job is to take what we have andprovide value for those who participatewith their hard-earned dollars as membersof the CSCMP.”Swift Broom, New Labels. The circumstancesin which Blasgen was selectedfor his new post — he was appointed quicklyby CSCMP officials who did not use anexecutive search committee to produce acandidate — have drawn the attention ofmany council members.After the CSCMP’s annual meeting inSan Diego, Calif., in October 2005, MariaMcIntyre decided to retire for personalreasons.“I was approached by Mark Richards(CSCMP’s outgoing president) who askedme if I was interested in leading the organization,”Blasgen recalled. “That occurred afterMcIntyre had made her decision.”After considerable thought, Blasgen acceptedthe council’s offer.“The CSCMP was attractive because itallowed me to have an even more directhand in furthering the supply chain profession,”he said. “I’d been involved withthe organization for a number of years asa volunteer, and the chance to be on thestaff side and continuing to advocate onbehalf of the profession was a fantasticopportunity.”According to revised by-laws adoptedDec. 9, the council’s executive committeewent on to change the titles of the organization’sofficers and governing panel. Theexecutive committee gave itself the newname “board of directors.” It will continueto meet four times a year.Others changes included the following:• Mary-Lou Quinto, the council’selected president for 2005-2006, became“chair of the board of directors” instead.Quinto is director of global logistics forGENENTECH Inc.• The position of first vice president isnow known as “board chair elect.” Ed Huller,president of Alden Consulting Group, waschosen as board chair elect and will succeedQuinto as chair of the board at the CSCMP’s2006 annual meeting Oct. 15-18 in SanAntonio, Texas.• The position of second vice presidentis now known as “board vice chair,” whois now Richard Murphy Jr., president andchief executive officer of Murphy WarehouseCo.The combined position of secretary andtreasurer did not change in title. That slot isoccupied for 2005-2006 by Roger W. Woody,manager, transportation management group,Sprint North Supply.Occupants of those four top positionsremain elected by the council.The previous appointed position of immediatepast president is now known as “pastchair of the board of directors,” currentlyheld by Mark Richards, who is vice president,Associated Warehouses Inc.Blasgen’s title of president and CEO“more clearly communicates that he is thetop staff executive,” said Paul Accardo,CSCMP’s director of marketing and communications.

LOGISTICSThe speed with which all of that happenedhas troubled a number of older membersof the CSCMP, some of them past CLMpresidents — none of whom wanted to beidentified by name.“I don’t know why it was all done sofast,” said one previous council official.“They haven’t come clean with us — noteven the courtesy of phone calls to alertus to the changes.”To mitigate such criticism, Blasgennoted that the name changes of the variouscouncil positions had been discussed “forsome time” by the organization’s executiveYears before he became involved inthe Council of Supply Chain ManagementProfessionals, Rick D. Blasgenhad acquired a “hands-on” knowledgeof supply chain operations.A native of Chicago, CSCMP’s newpresident and chief executive officerworked for Sears, Roebuck for seven yearsduring high school and college.“I had flexible hours so I could go toclasses. I started in Sears’ shipping andreceiving department, on truck docks,”Blasgen said.After graduating from Governors StateUniversity — “I was a finance majorlooking for work in a recession,” Blasgenrecalled wryly — he was hired in 1983 byNabisco as an inventory analyst.“I suppose I was really a product ofNabisco and Standard Brands merging.We were co-locating inventories and salesorganizations, and bringing together supplychains,” he explained.Nabisco began to invest in sophisticatedlogistics planning tools, transportationand warehousing systems. “I learnedearly, in a very manual way, the benefitsof supply chain management,” Blasgensaid.He especially remembers managinga Southside Chicago and Bedford Parkprivate distribution center that had theTeamsters as a union.Nabisco promoted Blasgen to orderprocessing supervisor, “which allowedme to understand how systems worked,”he said. The company subsequentlygave Blasgen management assignmentsin Chesapeake, Va.; Wilkes-Barre, Pa.;and then at the Nabisco headquartersin Parsippany, N.J., where he was vicepresident, supply chain.“Nabisco became very externally focused,which is how I had leeway to beinvolved as much as I was in professionalCorporate ascentcommittee — now its board of directors.“We were getting feedback from peoplesaying that the old titles were creatingconfusion and were out of sync with commonbusiness terms. We heard that fromour domestic and international members,”he said.“The necessity for the clarity of havingnew titles was imposed by the marketplace,”Blasgen explained. “Our staff membersin Oak Brook, who really understood theworld of associations, said that we reallyneeded to think about our nomenclature,and make it more relevant and consistentassociations,” he recalled. Blasgen joinedthe CLM, eventually serving on its executivecommittee. He also became a boardmember and eventually president of theWarehousing Education and ResearchCouncil (WERC).After Kraft purchased Nabisco in 2000,Blasgen went on to be vice president,supply chain, for Kraft Foods NorthAmerica in 2002.A year later, ConAgra Foods recruitedhim to be senior vice president for integratedlogistics.“They were bringing almost a hundredoperating companies under one roof.We implemented a single-order-to-cashsystem from multiple-order-to-cashprocesses, and built an infrastructure tobecome a global market force in termsof food products,” he said.In May 2005, Blasgen was operatinga ConAgra logistics unit based inSchaumberg, Ill. “For personal reasons,I wanted to stay in the Chicago area.When ConAgra decided to relocatemany of its offices — logistics beingone of them — to Omaha, Neb., I choseto part company with ConAgra and notrelocate,” he said.“I definitely knew that I wanted to stayin the supply chain arena,” Blasgen said.Between jobs, he was “still in my post-ConAgra period of seeing what I coulddo” when the CSCMP came calling.Blasgen’s associates — includingsources not on CSCMP’s staff — notedthat he is fair, open-minded, and conscientiousabout personally returning phonecalls. During several talks with AmericanShipper, he occasionally seemed on thedefensive about events in recent months,but he is clearly looking forward — notto the past.“The key word here is evolution,”Blasgen said.with current practices.”“Nothing changed with operations andthe responsibilities of the various posts— only their names,” he explained. “Idon’t understand why anyone would beupset with what we’ve done.”Name Change. The strong feelings overevents last November and December echomilder frissons that shook the CSCMP afterits name change earlier last year.Blasgen was on the executive committeeof the CLM, as well as the council’ssecretary-treasurer, when plans were afootto make the organization’s name reflect abroader logistics constituency.“My position on the name change wasthis: I knew that our members, who werelooking for leadership from the council,were expanding their daily work in termsof what we typically call supply chainapproaches. They wanted to know howto integrate supply chains, and how tointerface with marketing, manufacturingand procurement,” Blasgen said.“Given the feedback we were gettingfrom members — as well as the work thatwas being done out in the industry, whatcompanies were looking for, and even whatacademic institutions were teaching — itwas decided the name change was in thebest interests of the council,” he said.“It was much more than a name change.It was all about providing what our membersneed to be successful in their institutions,whether they are academic-oriented,service-providers, software providers,manufacturers, third-party logistics providers,retailers — wherever they comefrom, they are dealing with all the issuesfor which the council can help them,” hesaid. “We weren’t courting new membersfrom these new areas. They were, in fact,coming to us.”That’s because logisticians have expandedinto a more critical role withinmany companies than they had 10 or evenfive years ago.“We interact with many more people, bothwithin and outside of our organizations. Ourroles have evolved, which is also why thecouncil changed its name,” he said.“One of the reasons we wanted ‘professional’to be part of the new name is thatthe council is an organization of individuals.We are not a trade organization,” headded.Asked how the CSCMP is not a trade organization,Blasgen said, “it’s the individualthat has membership in the council, not hisor her employer. We have no intention ofevolving into an organization that wouldhave companies as members.”In 1993, George Gecowets, then execu-AMERICAN SHIPPER: FEBRUARY 2006 63

LOGISTICStive director of the CLM, included severalprinciples of operation in its annual reportto members.The first tenet was that the council’sannual conference programmers should“make every effort to prevent any portion ofthe program from serving as a forum usedto extol the virtues of any given productor service,” the point being “to discourageany presentations that even slightly smackof commercialism.”“That most definitely remains truetoday,” Blasgen said. “The conference isabout disseminating information, researchand education to our members. We’re notin the business of promoting any individualand company.”Another principle was that “everyactivity in the council is carried out orsupervised by members who receive noremuneration for their efforts,” with theexception of the council’s executive director(as the post was called then), and itsprofessional support staff. “That will notchange,” Blasgen said.Another tenet in 1993 stipulated that“all members should be treated equally.The council has never had what could beconsidered an associate or allied class ofmembers.”“The only change from that over the lastdecade was that the council did developa student membership class,” Blasgensaid.A final principle of operation statedbluntly that “there is no such thing as a freelunch. To assure objectivity in everythingwe do, the council neither solicits nor acceptsfunding or sponsorship of receptions,meals or materials used at our meetings.”Until this year, the council also prohibitedcorporate hosted events and hospitalitysuites at its meetings.“In 2006, for the first time, the councilis offering sponsorships at our annualconference in San Antonio,” Blasgen said.“We started discussing that on the executivecommittee in December 2003. Mostconferences have some sort of sponsorship.In our case, there’s going to beabsolutely no impact or participation inthe educational venue. The ‘sponsorships’are really opportunities to host a breakfastor reception.”“Let me reiterate: no sponsorships willbe offered for annual conference eventsfeaturing educational programming,” headded.CSCMP now has an “affiliated functionspolicy” that allows outside groups tosponsor hospitality suites in venues usedby the annual conference, so long as thereis no conflict with the council’s conferenceschedule.■Asian 3PL perspectivesChina will generate 23% of Asian Pacific’sthird-party logistics revenue by 2007.This is the third in a three-part series coveringresults of an annual survey of chiefexecutive officers of many of the largestthird-party logistics companies operatingin North America, Europe and the AsiaPacific.This report focuses on the results ofour 2005 survey of chief executiveofficers of third-party logistics providersin the Asia Pacific (APAC) region.We developed a questionnaire that focusedon a variety of issues including thekey marketplace dynamics in the APAC 3PLindustry, the industry’s service offeringsin the region, changing requirements ofcustomers in the region, and the industry’sstatus and prospects in the region.The 2005 survey also gave considerableattention to such issues as the extentto which radio frequency identification(RFID) technology has been embraced byAPAC 3PL service users, the experiencesof these companies operating in China, theextent of customer interest in fourth partylogistics (4PL) and lead logistics provider(LLP) relationships in the region and effortsof providers to address long-standingindustry problems.A target group of 10 companies wascontacted, and the CEOs of those companiesagreed to participate. However, nine usablequestionnaires were completed online.Revenues, Profitability. The annualrevenues for 2005 reported by the respondentsranged from $15 million to $453 million,with the average being $132 million.The average figures reported by the groupfor 2003 and 2002 were $112 million and $86million, respectively. It should be noted thatLiebBY ROBERT LIEB AND BROOKS A. BENTZone of the companies included in the surveyonly entered the APAC market in 2003.APAC 3PL CEOs were also asked if theircompanies had succeeded in meeting theirrevenue growth projections in the regionduring 2004, and three reported exceedingthose projections while six indicated theircompanies had met them.The CEOs were asked to categorize theprofitability of their companies’ APACbusiness units during 2004. Two indicatedthat their companies had been “very profitable,”six were “moderately profitable” andone said his company broke even during2004.On profitability of the 3PL industry inthe APAC region during 2004, two CEOssaid that it was “very profitable,” four said“moderately profitable,” and three said“breakeven.”For the second straight year, none believedthe regional industry, nor their own company,had been unprofitable during the year.The CEOs were asked to indicate theRobert Lieb is professor of supply chain management,College of Business Administration,at Northeastern University in Boston. He canbe reached at r.lieb@neu.edu.Asian Pacific 3PLsin 2005 CEO surveyCaterpillar Logistics ServicesDHLEagle Global LogisticsExel LogisticsGeoLogisticsMeridian IQRyderTNTUPS Supply Chain SolutionsSource: 3PL users survey, Robert Lieb, BrooksA. Bentz.Brooks A. Bentz is an associate partner withAccenture’s supply chain management sector,based in Wellesley, Mass. He can be reachedat brooks.a.bentz@accenture.com.Bentz64 AMERICAN SHIPPER: FEBRUARY 2006

percentage of their company’s2004 operating revenues that wasgenerated in specific countries inthe APAC region, and were alsoasked to project what that revenuesplit would be in 2007. The resultsare shown in Table 1.While the significance of individualcountries varies widelyto these companies, the four respondentssaid that China, Japan,India and Australia would generatenearly two-thirds of their collectiveAPAC revenues by 2007.As for industries showing thegreatest growth potential for 3PLservice providers in the region,seven of the eight CEOs whoanswered the question mentionedhigh technology and electronics,five cited retailing, four said the automotiveindustry, and two said the fashion industry.Pharmaceuticals, medical equipment andremanufacturing were named by at leastone CEO.Operations In China. Because ofChina’s explosive economic growth and itsimportant linkages to the North Americanand European economies, many large 3PLservice providers have established operationsin that country.All nine companies involved in thesurvey reported providing 3PL services inChina. Their revenue growth in China wasspectacular last year, averaging a 93 percentincrease with a range of 10 percent to 365percent. Even if that data is “normalized”by removing the company that registeredthe 365 percent revenue growth in 2004,the average for the remaining companieswas still 48 percent.The CEOs were also asked to project theannual rate of revenue growth of companyrevenues in China over the next three years.The average response was 51 percent,with a range of 12 percent to 150 percent.Table 1Revenues generatedby participatingcompanies in Asia Pacific(By country, as %, 2004, 2007 forecast)Country 2004 2007China 10% 23%Japan 13% 18%India 4% 10%Australia 22% 14%Other 51% 35%Source: 3PL users survey, Robert Lieb, BrooksA. Bentz.Two of the companies projecting revenuegrowth in excess of 100 percent per yearover that time frame, compared to three inthe previous year.Several questions were also posedconcerning the regulatory environmentin China.The CEOs were asked if the recent liberalizationof Chinese regulations governingtransportation and logistics service industrieshad been significant to their companies’operations in China. Five respondents saidthe liberalization had been “very significant,”two said the changes had been “significant,”and the other two said the changeshad been “relatively insignificant.”Those who said the changes were eithervery significant or significant were thenasked to identify the changes, and commenton their specific impact. Their responseswere as follows:• “More liberal licensing has allowed ourcompany to extend its branch network.”• “The gradual reduction of joint venturerequirements has allowed us to act moreindependently within China.”• “Complete foreign ownership of logisticsand freight forwarding ventures will bepermitted by the end of the year, and ourcompany will take related actions.”• “The regulatory changes will permitconsolidation opportunities for thosecompanies who are in a strong capitalposition.”• China’s commitment to the WorldTrade Organization “will create opportunitiesto purchase organizations that hadpreviously been embedded inside large stateowned enterprises.”Seven of the nine 3PL CEOs said there arestill specific regulations that significantlyrestrict their operations in China. Their responsesin identifying those regulations andhow they affect their companies’ operationsLOGISTICSwere quite interesting.Six of the seven mentionedlicensing restrictions that stilllimited the range and scope ofactivities of foreign enterprises.Several were particularly botheredby licenses that were limitedto specific geographical areas,and the difficulties involved ingetting licenses to operate innew cities, or to institute newservices.Another CEO said, “Theregulations that prove to be mosttroublesome remain at the provinciallevel. There continues to bea large disconnect between theactions and activities in Beijingand the 31 provinces throughoutChina.“You can’t underestimate the need forsolid government relationships at all levelsin China,” the CEO added.Several other respondents were concernedabout the pace at which Chinese regulatoryand licensing changes take place.Many questions have been raised notonly about the availability and quality oftransportation services in China, but alsoabout that country’s international transportationlinkages.Those 3PL CEOs surveyed were askedto comment on the experiences of theircompanies in China with respect to bothof those issues, on a mode-by-mode basis.Their responses are summarized in Tables2 and 3 (page 66).Their responses raise some serious questionsconcerning transportation availabilityin China.Of the CEO responses in all of the modalcategories, more than half resulted in ratingsof “fair” or “good.”China’s international ocean and air linkagestend to be more highly rated overall thanthe country’s purely domestic operations.The worst domestic performance wasshown by the less-than-truckload and localcartage trucking sectors.However, when the CEOs were asked iftheir companies had been adversely affectedby alleged port and highway congestion inChina, none of them said “yes”As the Chinese economy has expanded,have 3PL companies noticed any significantchange in the nature of the services requiredby its customer base in the country? Fiveof the eight CEOs who responded to thequestion said “yes.” Specifically, they saidChinese customers now are more sophisticatedand have more stringent requirementsfor service.The Chinese also rely more heavily uponbenchmarking to determine service andAMERICAN SHIPPER: FEBRUARY 2006 65

LOGISTICSTable 2CEO rankings of transportation availability in China 2005Modal Services Excellent Very good Good Fair PoorIntercity rail — — 2 3 1Truckload — 1 1 5 —Less-than-truckload — 1 1 5 1Local cartage trucking — 1 1 5 1Parcel delivery — 2 2 1 —Domestic water carriage — — 2 1 1International ocean carriage 1 2 3 1 —International air cargo service 1 1 3 2 —Table 3CEO rankings of quality of transportation servicesprovided in China 2005Modal Services Excellent Very good Good Fair PoorIntercity rail — — 2 2 2Truckload — 1 1 3 —Less-than-truckload — 1 — 2 4Local cartage trucking — 1 — 3 4Parcel delivery — 2 — 3 —Domestic water carriage — — 1 — 2International ocean carriage 1 2 3 1 —International air cargo service 1 1 3 2 —Source: 3PL users survey, Robert Lieb, Brooks A. Bentz.cost targets. They want more reliability,flexibility and instant information fromtheir service providers, as well as morevalue-added services (which, according toone CEO, are difficult to provide).Respondents also said their Chinesecustomers are more interested in consumergoods being imported than in the past.The issue of contingency planning relatedto China was also raised with the CEOs.Specifically, four of the nine CEOs saidtheir companies have been initiating formalcontingency planning efforts to examinelonger-term movement of manufacturingactivity from China, and their companies’ability to respond to any such movement.Four of the nine CEOs indicated that suchefforts were already underway within theircompanies.Contracts. Several survey questionsrelated to the nature of 3PL contracts inAPAC.First, the CEOs were asked to estimatewhat percent of their companies’ customercontracts that are due to expire in a givenyear are generally renewed. The averageresponse was 88 percent, with a range of80-95 percent.Five of the nine CEOs said their contractstypically include incentive payment forsuperior performance.Four of the CEOs provided details concerningthe nature of the incentives, whichwere either gain-sharing formulas, or performancebonuses based on exceeding keyperformance indicator (KPI) targets.Five CEOs said company contracts inthe region typically included penalties fornon-performance, in the form of “fines” forfailure to meet KPI targets.In one instance, it was reported that poorperformance led to an early exit from acontract by a customer.Acquisitions, Alliances. Six of thenine CEOs said they had participated insignificant mergers or acquisitions in the pastyear. The acquisitions comprised four 3PLservice providers, two transportation companies,two warehousing operations, threefreight forwarders or customs brokers, anda company that specialized in internationaltrade management software.Three of the CEOs said they had enteredinto alliance agreements with other serviceproviders in the region during the past year,as a means to broaden their service offeringsand geographic coverage.When asked to identify the industrysectors which their new alliance partnersrepresent, one said 3PL services, two saidtransportation companies, two with warehousingcompanies, and two with freightforwarders and customs brokers.4PLs, LLPs. Four of the nine APACCEOs said they believed use of fourth-partylogistics providers or lead logistics providerswas expanding in the region.When asked what they believed to bethe most important factors that would leada 3PL customer to consider using a 4PL oran LLP, responses included:• Limited managerial talent within theclient organization.• A desire to establish a single IT platformand common business processes acrossthe company’s provider group• The potential for increased visibilitythroughout the network.Six of the CEOs said their companies haveacted as a 4PL or an LLP for their clients.Only two said that their companies areinvolved in 3PL contracts in the regionwhere another party has been designatedas a 4PL or an LLP. In both of those cases,the relationships were very new and therespondents indicated it was too early tocomment on their experiences.The CEOs said major benefits a customermight expect from a 4PL or LLP serviceprovider included being a single point ofcontact; upgraded information technologywith greater visibility; and increased vendoraccountability, as long as a 4PL was willingto take complete responsibility for theother parties.Respondents were also asked how widespreadthey thought the use of 4PL and LLPservices would become in the region. OneCEO believed they would be used extensively,four thought they would be used on alimited basis, three said a very limited basis,and one thought they would not be used.The last-cited individual suggested that thevalue proposition of such relationships hasnot been clearly demonstrated.Because of the increasing importance ofinformation technology support as a competitivevariable in third party logistics, thesurvey included several IT questions.First, CEOs were asked to estimateon an annual basis what percent of theircompany’s APAC operating costs is comprisedof IT-related spending. The averagewas 12.1 percent, with a range of 5 percentto 20 percent.When asked how those IT expenditureswere typically allocated between hardware,software, and other related expenditures,on average, this group spends 25 percenton hardware, 35 percent on software and40 percent on other IT categories, includingconsulting, networking, customizationcosts, development and integration projects,as well as support and developmentactivities.Five of the nine CEOs said their companieshad any formal alliance agreements withcompanies in the region that are primarilyinvolved in the provision of IT services.We first asked the 3PL CEOs to assessRFID technology in terms of requirements66 AMERICAN SHIPPER: FEBRUARY 2006

of their current or prospective customerbase in the APAC region.One CEO said the RFID movement was“very significant,” five others said “significant”and three indicated it was “notsignificant.”The respondents were next asked to estimatethe percentage of current customers inthe region who had already committed to usingRFID technology in their logistics operations.The average response was 15 percent,with a range of 5 percent to 40 percent.Going one step further, when asked thepercentage of their customers in the regionthat were conducting pilot studies of RFIDapplications in their organizations, the averageresponse was 12 percent, with a rangeof 2 percent to 30 percent.Seven CEOs responded to a questionconcerning how the movement toward theuse of RFID technology in the region mightimpact their companies’ future service offeringsand capital spending.All of those respondents focused on thecapital aspects of the question.Four indicated they believe it will requiresignificant capital outlays in the region forhardware and training, but their consensuswas that the outlay would generate longtermcost savings.The other three CEOs were unsure ofthe potential impact on either the serviceofferings of their companies or their capitalrequirements in the region.Their approach might be categorizedas “wait and see,” but in each case theyindicated their companies would be veryresponsive to key client initiatives in thearea.Industry Status, Prospects. In eachprevious survey, CEOs have been asked toidentify the most important 3PL industrydynamics, opportunities, and problems, aswell as the most important developmentswithin their companies and within the 3PLindustry during the past year.In ranking the three most important industrydynamics in the marketplace, continuingdownward pressure on pricing ranked first(Table 4). That dynamic had been rankedsecond in the 2004 APAC survey. Growingcustomer interest in outsourcing aTable 4CEO perception of 3 most important Asia Pacificregion industry dynamics 2005broader array of logistics servicesranked second, followed by largescalemergers of 3PL providers inthe region, and increased pressureto internationalize company serviceofferings.The CEOs were also asked toidentify the most significant opportunitiesavailable to providersin the APAC 3PL marketplace.While several focused their attentionon the growth potential of specificgeographies, such as China and India, othersfocused on specific service offerings andopportunities.Four CEOs mentioned opportunities relatedto the support of inbound logistics andoperations of manufacturers in the region.Four respondents cited retailing, withspecific emphasis being placed on suchmatters as compliance issues, and the driveby some retailers to control their own transportationdecisions rather than leaving themto their suppliers.Other opportunities mentioned were thepossible provision of reverse logistics andrecycling services, and 4PL opportunitiesrelated to supply chain visibility.CEOs also identified a wide range ofproblems facing 3PL service providers inthe region. They included:• Intense price competition among3PLs, with many customers focusingmore heavily upon cost rather than serviceconsiderations.• A lack of company infrastructure tosupport market development, especially,low levels of IT development.• Difficulties in dealing with Chinesejoint venture partners.• Chinese infrastructure problems,particularly with respect to linking internalregions of China.As for most significant developmentsin 2005, six CEOs focused on increasedcompany investments in the region, with specificmentions being given to infrastructureLOGISTICSIndustry dynamic CEOs ranking it ... TotalNo. 1 No. 2 No.3 weightedpointsContinuing downward pressure on pricing 3 2 1 14Growing customer interest in outsourcing a broader 2 2 2 12array of logistics servicesLarge-scale mergers of 3PL companies 1 2 1 8Increased pressure to internationalize — 2 3 7company service offeringsSource: 3PL users survey, Robert Lieb, Brooks A. Bentz.Table 5Revenue growth rate projections,company and Asia Pacific industry(Growth rate, 1 and 3-year average)Company projectionIndustry projection1-year 3-year 1-year 3-year55.7% 29.6% 20.3% 16%Source: 3PL users survey, Robert Lieb, Brooks A. Bentz.outlays in China, Japan, and Australia.One CEO said his company had constructedmore than 40 new facilities in theAsia-Pacific region during the past year.Four CEOs also focused on expansion ofcompany service offerings in the region tosupport customer programs.Three CEOs mentioned company acquisitionsthat have given their organizationsscale and scope in the region.Several CEOs also mentioned companyinvestments in upgraded IT systems to supportcompany expansion in the region.The most frequently mentioned developmentwas the continued deregulation ofvarious aspects of the industry.One CEO suggested that freight forwardershave traditionally dominated the marketplace,but that companies providing a broader rangeof logistics services appear to leading marketdevelopment activities at this point.The CEOs also asked what major changesthey expect to take place in the APAC 3PLindustry during the next three years.Clearly, there was a strong focus on thelikely continuation of merger and consolidationactivity in the region, as that wasmentioned by six of the CEOs.Several CEOs addressed potential marketchanges by predicting broader 3PL serviceofferings in the region, with greater emphasison value-added services and the introductionof advanced supply chain managementpractices, processes and technology.Other likely changes were an increasedemphasis on recycling, particularly in China;the possibility of lower prices dueto increased 3PL competition inthe region; and a greater focuson the automotive aftermarketin China.The CEOs also expected Chinato continue regulatory liberalizationpolicies, and anticipatedlarge investments in India fromboth private and public sectorsto improve and expand logisticscapabilities in that nation. ■AMERICAN SHIPPER: FEBRUARY 2006 67

ACE gaining momentumCustoms and Border Protection’s Automated CommercialEnvironment is gaining ground as more truckorientedborder crossing points are using the program’selectronic manifest system for trucks.The e-Manifest system has been used at selected locationsfor more than a year, starting in the Pacific Northwest.The system moved eastward along the Canadian borderas far as Michigan over the summer. The first southernborder use, at Nogales, Ariz., did not occur until earlyDecember, and many key border crossings have yet toconvert to the system. Texas was converting to the systemduring January.Still, the e-Manifest concept is steadily gaining groundand participants. By the end of 2005, CBP reported, participationhad crossed the 1,000-account threshold.While converting to a new system is no easy chore, thee-Manifest is definitely expected to make life easier forthe international trade warriors out in the field.The company that could be considered the leadingpioneer for e-Manifest is Olmsted Transportation, basedin Mount Vernon, Wash. It had the largest number of e-Manifests processed at the end of 2005, with more than300 entries.The CBP monthly newsletter on Customs Modernizationand the ACE program quoted Olmsted President BartSmith on how life had changed for his drivers along theCanadian border: “Drivers are saving on average three tofour hours per day, per driver, which increases their overallearnings,” he said. “With shorter lag times, there is lessexposure to potential accidents waiting in line. Before,guys in line were getting impatient and causing fenderbenders. We see less of that now at ACE ports.”Other changes involving ACE include the start of dutypayments through ACE non-portal accounts. That meansimporters who do not have their own ACE Secure DataPortal accounts can use their authorized customs brokersto make payments through ACE, using the broker’s accountrather than setting up a separate account for theimporting company.Parts of the system are up and running. But for themost part, the system is just getting started. It will seecontinued phasing-in steps through this year, with someactions not slated to begin until 2007.The preliminary design for the ACE Entry Summary,Accounts, and Revenue (ESAR) system has been approved,and a preliminary schedule is in place.The first phase of ESAR is scheduled to be active inearly 2007, according to CBP. It will allow the system toinclude more types of accounts than the existing categoriesfor importers, brokers and carriers.CBP plans to extend the definition of an account toinclude “any entity” as long as the party is doing businesswith CBP.AS ESAR advances, one of the first changes to accountmanagement features is the ability for “cross accountaccess,” allowing access to accounts with more than oneuser ID and password. That will give authorized thirdparties access to account information.CBP said the process for merging accounts with theACE Secure DATA Portal will be streamlined and enhancedvalidation and duplicate checks will be performedon master data.Besides third parties from the private sector, othergovernment agencies involved in the entry process willbe able to store license, permit and certificate data at the68 AMERICAN SHIPPER: FEBRUARY 2006account level, and provide both the CBP and trade usersthe ability to view certificate-related information.Truck drivers will be able to create and maintain theirown account, or else designate another party to set upand maintain their account.Sidler out at PanalpinaOfficials at the Swiss forwarding giant Panalpina citedan alleged manipulation of booking information by anemployee at the Panalpina Airfreight Management Ltd.subsidiary in Basel as the reason for the January departureof Bruno Sidler as the chief executive officer of theparent company.Panalpina released a statement that said an unidentifiedemployee who had been with the company formore than 40 years purportedly circumvented internalcontrol mechanisms to “deliberately and systematically”manipulate booking records over a period of 14 monthsto hide incurred losses.The alleged incident would lead to a loss of some$25.7 million for operating results combined over 2004and 2005.Panalpina discovered the discrepancies through an internalinvestigation that ended in December. The companysaid the changes to booking records did not personallyenrich the employee, but hid losses within the unit. Panalpinasaid it planned to move forward with a criminalprosecution against the former employee.Sidler had nothing to do with the actions of the employee,but submitted his resignation after the discrepancieswere discovered. The adjustments to financial recordsafter the discovery would not lead to a loss for Panalpina,the company said, but would reduce profits.Sidler was with Panalpina for 25 years, starting outas a sales manager in South Africa. He was promoted toregional manager for South Africa, and in 1985 was movedto Panalpina Nigeria. From 1987 to 1994 he was managingdirector of Panalpina Singapore, and was also managingdirector during that time at Panalpina Indonesia.In 1994 he was named managing director of Air SeaBroker, now known as Panalpina CPC Air. He was namedpresident and CEO of the Panalpina Group in 1998.Who will run CBP?One of the hottest topics in the aftermath of the retirementof CBP Commissioner Robert Bonner is the Bushadministration’s plans for the top spot at the agency.Deborah Spero was named acting commissioner atthe end of November, and the industry is abuzz withspeculation over whether she will finish out the Bushadministration at the helm or be replaced by a newcommissioner.Spero is not a political appointee. She rose throughthe ranks to become deputy commissioner under Bonner,following the general tradition of having someone with apolitical background as the head of CBP with a veteranagency manager in the number two spot.Spero directed the transition team that coordinated themerger of the U.S. Customs Service, U.S. Immigrationand Naturalization Service, and the Animal and PlantHealth Inspection Service when those agencies weremerged to create CBP.She had also headed the Office of Strategic trade, andbefore that served for five years as assistant commissionerfor Human Resources Management, the HR departmentfor the 19,000 employees of the old Customs Service.

FORWARDING / NVOsAppellate court dismisses NSA challengeWASHINGTONIn what could be one of the last acts in thebattle for shippers‚ associations with nonvessel-operatingcommon carrier membersto enter into confidential contract, a federalappellate court has dismissed a court casecentered on the legality of NVOCC ServiceArrangements, or NSAs.The American Institute for Shippers Associations(AISA) and one of its members, theInternational Shippers Association (ISA),had challenged a Federal Maritime Commissionrestriction against NSAs for shippersassociations with NVOCC members in acase in the U.S. Court of Appeals.The FMC subsequently changed its rulesregarding NSA in October 2005, but the courtcase was still pending. The AISA and the ISAhad asked that the case be dismissed, and thecourt has now granted that request.“The United States Court of Appeals forthe District of Columbia has removed thelast remaining cloud over the use of NVOCCService Arrangements,” a statement issuedTuesday by the AISA said.Although the FMC final ruling on NSAbasically cleared up the matter, the AppealsCourt could have ruled that the originalrestrictions against shippers’ associationswith NVO members was valid, creating newlegal problems.“As a practical matter, the court’s actionnow ends the challenges to the legalityof NSAs and removes the last cloud overwhether the FMC’s action was authorized.NVOCCs, shippers, and shippers’ associationsare now free to enter into and useNSAs without concerns that the appellatecourt may ultimately find them unlawful,”the AISA noted.■ALG companies uniteunder single brandCHICAGOLogistics services companies operatingunder different brand namesaffiliated with Chicago-based ALGwill operate under the single brandname ALG Worldwide Logistics, LLCeffective Jan 1.The change impacts companiesoperating as ALG Admiral, ALG AdmiralGlobal, ALG Direct, and ALGTransport.“Previously, each company serveda distinct segment within the logisticsmarket,” explained James Hezinger,chief executive officer and founderof ALG Worldwide Logistics. “Wefelt it was time to eliminate the blurthat resulted from multiple companynames.”■EGL settles war risk surcharge caseWASHINGTONEagle Global Logistics said it has receivedan offer from the U.S. AttorneyGeneral for the Eastern District of Texasto settle a war risk surcharge case againstthe Houston-based company for the sumof $4 million.EGL was served an administrativesubpoena by the Defense Department in2004 alleging the company had submittedunwarranted war risk surcharges to itscustomer and Defense contractor Kellogg,Brown & Root.EGL cooperated with the investigationby initiating an internal investigation andforensic analysis by accounting firm KPMG.The company said its analysis found thatabout $1.14 million in war risk surchargescharged by EGL to KBR were not actuallyimposed on EGL by transportation providers.EGL said it reported these results to thegovernment and fired two employees forviolating its code of conduct.“Our code of conduct could not be moreclear on this subject, and every one of ourmore than 10,000 employees is required tosign a personal commitment to adhere to thecode as a condition of employment,” saidJames R. Crane, chief executive officer ofEGL, in a Dec. 14 statement.By cooperating with the federal government,EGL noted that the U.S. Attorney’sOffice for the Eastern District of Texas andthe Defense Criminal Investigative Servicewill agree to waive all investigatory expensesand will make no recommendation to theDefense Department for debarment of EGLfrom future Defense contracts.In addition, the U.S. Attorney’s Office inthe Texas district will not recommend anycriminal charges against EGL, the companysaid.■Kuehne + Nagel closes ACR acquisitionSCHINDELLEGI, SwitzerlandKuehne + Nagel International AG, aglobal forwarding and logistics servicescompany based in Schindellegi, Switzerland,has completed its acquisition of ACRLogistics, two weeks after the EuropeanCommission’s approval of the takeover.ACR, a large European third-party logisticsprovider, will now operate under the Kuehne+ Nagel brand, and will be fully integratedinto the Kuehne + Nagel Group.Klaus-Michael Kuehne, executive chairmanof Kuehne + Nagel’s board of directors,called the acquisition “a quantum leap forour organization.”Xavier Urbain, former chief executiveofficer of ACR Logistics, has been appointeda member of the Kuehne + NagelGroup Management and also heads thenewly created Kuehne + Nagel SouthwestEurope region.Kuehne + Nagel acquired the entire sharecapital of ACR Logistics for 440 millioneuro. The transaction was financed by acombination of existing cash and the saleof 1.7 million treasury shares. ■AMERICAN SHIPPER: FEBRUARY 2006 69

Case of the missing tapeLast year UPS was in the hot seat after it lost computertapes with millions of customer records it was deliveringfor Citigroup bank to a credit-reporting agency.Now it’s DHL’s turn to squirm after a similar gaffe. InNovember, DHL lost a computer tape with informationon more than 2 million ABN AMRO mortgage customers.The tapes, which included Social Security numbers,addresses and account information, were also destinedto the Experian credit bureau in Texas.Unlike UPS, DHL at least found the tape.The flat parcel got stuck in DHL’s Wilmington, Ohiohub for a month after the shipping label came off. Thepackage was finally sent to DHL’s Shipment RecoveryCenter, where employees found a return address inside,repackaged it and sent it back to ABN AMRO’s Chicagodata processing center, according to a nice bit of reportingin the Detroit Free Press.If only DHL had found the tape a few days earlier itmight have avoided a public embarrassment. ABN AMROand Experian spent weeks looking for the tape before announcingthat the customer records had been lost — twobusiness days before DHL discovered the tape.The bank said it had not detected any unauthorizedactivity on any accounts and did not suspect foul play.Mistakes happen and it’s not like DHL has a chronichabit of losing packages. On the other hand, this wasthe type of shipment that required extra precautions. Ofcourse, when your fruitcake is lost, it doesn’t make thenews, so how often this type of thing happens is anybody’sguess. DHL says it’s rare.After launching a massive advertising campaign to showthat customers can depend on it for excellent customerservice, this is the last thing DHL needs.The bottom line is that banks shouldn’t be sending suchsensitive material through the regular delivery systems oftheir favorite couriers. They should be using white gloveservices that have someone escort the shipment every stepof the way, or, as many financial institutions have alreadystarted doing, encrypt and electronically transmit theserecords to avoid physical delivery.That is the direction the banking industry is headinganyway, but these incidents will speed up the process ofconverting tapes to electronic format.On the brighter side for DHL, the express carrier announceda new, three-year delivery agreement with EncorePayment Systems, a Texas-based company that provideselectronic payment equipment and services to small andmedium-sized businesses. Encore sells systems to enablestores to electronically process debit, gift and governmentbenefit cards. DHL will deliver contracts and hardwarefor Encore and its retail customers.Teamsters target Jindel’s backgroundLogistics consultant Satish Jindel has drawn the ire ofthe Teamsters union. Jindel’s company, Pittsburgh-basedSJ Consulting, helps airlines, motor carriers, logisticsproviders and shippers design business strategies forpricing and moving freight.The Teamsters are supporting FedEx Ground driverswho filed a class-action suit against FedEx to be classifiedas employees rather than independent contractors. Thedrivers claim FedEx exerts so much control over themthat they are essentially employees. They want FedEx topay for their trucks and overtime, as well and health andretirement benefits.70 AMERICAN SHIPPER: FEBRUARY 2006FedEx inherited the independent drivers when it acquiredthe Roadway Package Services (RPS) deliverycompany several years ago. UPS drivers are companyemployees and belong to the Teamsters union.Inside the “FedEx Watch” bulletin board on its Website, the Teamsters have posted a leaflet titled, Why DoReporters Still Call Satish Jindel? and Who in the Worldis Satish Jindel?The union says reporters often quote Jindel as an experton the labor dispute, but do not disclose that he beganhis career at RPS and helped develop the owner-operatorbusiness model or that he later served as a consultant toFedEx for its purchase of RPS and its parent company,Caliber Systems, in 1997.Jindel, who has been a frequent source for this magazineand other trade publications, says he is amused by the attention,especially since he has done work for companieswith strong unions, such as UPS and trucking companyYellowRoadway.“Anyone who expresses their opinion about whatthe Teamsters is doing, they want to view that as anti-Teamsters and having a bias. They are entitled to theiropinion. It’s not a question of being biased but sharing theknowledge that exists. I personally have nothing againstthe union,” he said.Jindel says he just sets the record straight when the Teamstersmake claims such as FedEx Ground under-prices thecompetition. “The facts are that the FedEx Ground yieldper package is higher than UPS, so they are not underpricingto get the business. And their market share gains havecome when there has been labor unrest at UPS.”In fact, Jindel frequently argues that just because atransportation provider is unionized doesn’t mean it can’tturn high margins if it is well managed.The Teamsters makes a good point — transparency ishealthy and reporters should note Jindel’s past affiliationsto bring readers the full context of a story.But the union’s suggestion that he not be used as asource altogether goes too far. Jindel is knowledgeableabout freight transportation and logistics. To ignore hisopinions would equally be a disservice to readers.United exits bankruptcy, but then what?UAL Corp., parent company of United Airlines, recentlysecured a previously announced $3 billion loanwith JPMorgan and Citigroup, to enable United’s exitfrom bankruptcy.Meanwhile, the U.S. airline industry continues tostruggle. Independence Air in January went out of businessas a low-cost carrier based out of Dulles InternationalAirport after it couldn’t sustain its low fares and copewith sky-high fuel costs. Independence was a casualtyof the United bankruptcy. When United tried to radicallyrestructure its contract with regional partner Atlantic CoastAirlines, which operated as United Express, Atlantic officialsdecided to start an independent airline and competeagainst United and other carriers.Analysts say there is still too much capacity in the systemto make airlines profitable. Last year America West and USAirways merged. Speculation on the next merger centerson Continental and United. Continental’s chief financialofficer recently mused at an investor conference about thepotential strength of a Continental-United combination.U.S. airlines are targeting 2007 as the year cost cutting,restructuring and lower oil prices allow the industry tomake money for a change.

OVER 70% SOLD OUT!CALGARY, CANADASEPTEMBER12-14, 2006ACF exhibitors span the logistics chain, supplyingproducts and solutions to airlines, airports, forwarders,manufacturers, and safety, IT, material handling,environmental and security companies.ACF global attendance continues to grow, drawingparticipants from 82 countries.ACF draws quality participants; 87 percent of theattendees describe themselves as decision makers.To exhibit, contact:Art Weldy, Director of Exhibitsweldyexp@verizon.net+1 412 821-4270www.tiaca.orgO RGANIZED BY T HE I NTERNATIONAL A IR C ARGO A SSOCIATION (TIACA)

Negotiating parcelcontractsConsultants offer shippers advice on gettingthe best deal with integrated carriers.BY ROBERT MOTTLEY72 AMERICAN SHIPPER: FEBRUARY 2006

More shippers are using integrated carriers forpackage deliveries than ever before. Negotiatingparcel contracts with UPS, FedEx, DHL and theU.S. Postal Service (USPS) can be complicated, requiringtime and strategies that go far beyond having accurate ZIPcodes for recipients.Such contracts are also difficult to effectively pursue, becausemany shippers have only a vague notion of the nuts-and-boltsspecifics of their own businesses.There is not a lot of general understandingthat a single small mistake in reckoningvolume, or a missed opportunity to leverageplausible discounts from an integratedparcel carrier, can cost a company millionsof dollars.“Such losses can come from not coveringsmall details in prior contracts, and from notrealizing that you could get lower assessorialcharges based on key shipping characteristics,”said Mike Erickson, president andchief executive officer, AFMS LogisticsManagement Group.“You may find that you’re using a carrierthat takes an extra day on a particularrouting on your ground service deliveriesversus other options out there, putting you ata competitive disadvantage,” Erickson said.“And, if you’re currently a shipper usingmultiple carriers, you may want to reducethe number from three to two,” thereby jettisoningredundant processes.Different carriers also have different baserates. A 30 percent discount from CarrierA is not the same as a 30 percent discountfrom Carrier B, explained Douglas O. Kahl,director, sales and business development,for AFMS.“Carriers apply their discounts and incentivesdifferently. For example, one carrierwill take your rate plus fuel surcharge, andtake your discount off that entire amount.Another carrier will take your rate, discountit, and then add your fuel surcharge,” Kahlexplained.“That gets down to understanding whatis the real net cost to you. And for that, youneed to understand how the carriers operateand how they apply their charges, and whatcharges need to be included to arrive at atotal cost of transportation,” he said.AFMS is a third-party consultant hired tofacilitate contract negotiations by shippersthat generally spend more than $1 million ayear on parcel shipments. Some of AFMS’sFortune 500 clients spend more than $20million for such delivery services.“We specialize in advising shippersthrough the contract negotiation processwith their small-parcel carriers and freightforwarders,” Kahl said.“Our goal is to obtain a contract for ashipper that will work optimally for servicesand pricing,” said Doug Caldwell, vicepresident, pricing, for AFMS.American Shipper asked AFMS’s executiveswhat shippers of all sizes should knowabout dealing with UPS, FedEx, DHL andUSPS.“Before any shipper starts seriously choosingparcel carriers, you need to understandwhat it is about your business that you’relooking to move, where you’re moving itto, and what service levels your customersneed,” Erickson said. “Then you can betterdecide which carriers provide the best service,technology support and pricing.”Delivery Variations. Long before negotiationscommence on a parcel contract,a shipper should analyze the major carriers’transit times. One carrier may deliver inthree days, another in two. “A day’s differencemeans something to most companies,”Erickson noted.Such data is available online. For example,the carriers list ZIP codes electronicallyas well as their on-time performance forthose codes.“If you’re a large or medium-sized shipper,it can be a lot of work to go back andcheck every ZIP code you ship to against anintegrated parcel carrier’s database. You canask the carriers to do that, giving them a listof your 400 most important customers andhave them respond,” Erickson said.“If shipments are going by ground delivery,you can ask for data showing how many ZIPcodes a carrier covers in one, two, three orfour days. You can ask each carrier to do asimilar analysis and then compare them,”he said.All of the large parcel integrators willusually do that on request. Although eachcarrier will say it offers a wide suite of services,that doesn’t mean it is equally goodin each service area.For example, USPS isn’t going to be asgood delivering heavier packages to commercialaddresses as an integrated carrier.“Before any shipper startsseriously choosing parcelcarriers, you needto understand what itis about your business thatyou’re looking to move,where you’re moving itto, and what service levelsyour customers need.Then you can better decidewhich carriers providethe best service, technologysupport and pricing.”Mike Ericksonpresident and chiefexecutive officer,AFMS LogisticsManagement GroupAMERICAN SHIPPER: FEBRUARY 2006 73

TRANSPORT / INTEGRATORSBut USPS will do a very good job withresidential packages.Caldwell said the postal service’s strongestpoint is the drop-shipping of packagesfor residential delivery that more consolidatorsare using. “That product offering isincreasing very rapidly,” he added.Priority Mail is also growing. Some ofUSPS’s new international services are gettingtraction. “But USPS is never going to offerthe full suite of delivery services that you findwith UPS, FedEx and DHL,” he said.There are also more partnerships developingbetween the large parcel integrators andUSPS, especially in regard to residentialdeliveries in the “last mile” sphere of operations.Doug Caldwellvice president,pricing,AFMS LogisticsManagement Group“Our goal is to obtaina contract for a shipperthat will work optimallyfor services and pricing.”22%Domestic ground market shareGround parcel market 1998($20 billion)9%69%UPS Ground ($13.5 billion)US Postal Service ($4.2 billion)FedEx Ground ($1.9 billion)Source: Company reports and MorganStanley Research.Know Your Business. There are fourcommon kinds of parcel delivery services:ground, which is the slowest; overnightpriority; standard next-day; and two-dayservice. Each of those services has differentdelivery commitments by ZIP codes.“A shipper should first settle the serviceissue: picking carriers for optimum servicein all ranges of customer ZIP codes,” Ericksonexplained.“Of course, you may ultimately decide touse each of the major carriers for varioussegments of your delivery grid — dependingon which offers an optimum delivery time ina particular ZIP code zone,” he said.“Before making that decision, you shouldsit down and do a more in-depth analysisof your package shipments,” Caldwell said.“You need to determine how profitable yourbusiness is to the carriers, what kind of discountsyou can get, what kind of concessionsyou hope to obtain when negotiating, whatsort of information technology is availablefrom the carrier for tracking and otherpurposes, and also how compatible that ITwill be with your own systems.”Shippers also need to know what assessorialcharges carriers may impose. Assessorialsare extra charges on top of regular parcelshipping fees. Assessorials can be addedon for COD shipments, Saturday delivery,handling hazardous materials, remote-areadeliveries and many other items.Five or 10 years ago, “there were probably20 or 30 assessorial charges out there,”Erickson said. “Today, there’s over a hundredassessorials. That’s because carriers haveused their expanding technology to providemore billable services — which shippersare using.”“It wasn’t that long ago when a groundshipment was a ground shipment, and it tookdays to get to its destination. Now, you seeregional ground shipments that are deliveredthe next morning,” Kahl said.There are more than 42,000 ZIP codesin the United States. Of that number, morethan 23,000 are considered beyond regulardelivery areas by UPS, FedEx and DHL.Declarations. Most shippers find thatparcel carriers are usually as forthright aspossible in describing their services.That said, integrated carriers have so manycustomers they can’t understand every bitof information about each client. A formersenior account manager for one of the majorintegrated carriers had responsibility formore than 1,000 customers.To be fair, the carriers also have a rootproblem: many shippers don’t give fulldisclosure to the carriers of what their totalbusiness looks like.For example, a shipper may not havethought through whether an integratedcarrier’s heavyweight program is best, versus5.3%CAGRGround parcel market 2004($27 billion)17%16%2%UPS Ground($7.5 billion)US Postal ServiceFedEx Ground ($4.3 billion)DHL Ground ($2.2 billion)65%a trucking company’s less-than-truckloadprogram.Freight forwarders, for years, have offeredheavyweight regimes — such as a 100-pound weight limit for air, and 200-poundlimit for ground.“But the parcel carriers have gottenthere now, so it’s become a real question ofwhether a shipper uses a freight forwarder’sheavyweight programs or those offered byUPS, FedEx or DHL,” Caldwell said.Another factor is that third-party logisticsproviders have also begun acting as intermediariesbetween shippers and parcel carriers.Often, 3PLs “have enough business tosecure pretty good rates from the integratedcarriers, which a single customer might notobtain without a 3PL’s help. In that case, ashipper’s savings could more than justifythe 3PL’s fees,” Kahl explained.The fact remains that in the security-rabidworld of 2006, it is absolutely essential thatshippers correctly describe what is in theparcels they send out.“I don’t think there is a lot of deliberatemisrepresentation out there,” Ericksonsaid. “You do see misinformation, or lackof information, because mistakes are madeby consolidators or packagers who haven’tbeen properly trained, or brought up to speedon new rules promulgated by Customs andBorder Protection.”There’s not a lot of description necessaryfor non-hazardous domestic parcels, butshippers often have difficulties in documentinghazmat products.“Hazmat domestic parcels must bedescribed accurately,” Erickson said. Forexample, a lot of automotive companies are74 AMERICAN SHIPPER: FEBRUARY 2006

Introducing the new American Shipper Web site.We’ve redesigned AmericanShipper.com to offer you the same great services, plus more,in a great new format that you’ll find easy to use, no matter where you are within our site:• Easy-to-use navigation on every page.• New dynamic menu gives you direct accessto every aspect of the site.• Multi-function search capability at the topof every page allows you to instantly searchpast news items and magazine archives withone easy click.• Revised and expanded Online News sectionsinclude new “International” news area.• New Vendors Directory area allows vendorsfrom within the shipping and logistics industriesto register searchable company information;different upper-level registrations feature logoinclusion and direct hotlinks to your company’sWeb site, along with the possibilities of targetedWeb advertising from page to page on theAmerican Shipper Web site.Other expanded features include:• Easy-to-use Subscriber Help for instantusername and password retrieval.• Send a Letter to the Editor directly from theWeb site.www.americanshipper.com

TRANSPORT / INTEGRATORSshipping components for air bags, includingCO 2cartridges, as parcel deliveries. “Therecan be no mystery about those parcels,” headded.“It used to be, for a hazmat shipment,that if you misdeclared it to the carrier, thecarrier would call you up and tell you thata mistake had been made,” Caldwell said.“Now, the carriers are required to reportyour misdeclaration to the government.There are specific penalties for even oneviolation.”“Integrated parcel carriers have automatedthe hazmat process, meaning thatthey don’t manually fill out airway bills anymore for hazardous cargo, because there’stoo much chance of a classification error— which can really be bad,” Kahl added.Integrated parcel carriers are now offeringtraining classes for shippers regarding thepreparation and classification of hazmatmaterials. “That’s even more importantinternationally, because categories of whatmay be considered hazardous can vary fromcountry to country, despite internationalrating codes,” Erickson said.Carrier Focus. While many smallersizedshippers remain cautious about givingtoo much of their parcel business to oneintegrated carrier, larger shippers that havepreviously used one ground carrier and oneair carrier are now picking one carrier todo both.“That comes from UPS having improvedits air services and FedEx having upgradedits ground services,” Erickson said.“We’re seeing more companies usingone carrier for as much as 90 percent oftheir business,” he said. “And in a coupleDoug Kahldirector, salesand businessdevelopment,AFMS LogisticsManagement Group“You need to understandhow the carriers operateand how they apply theircharges, and what chargesneed to be includedto arrive at a total costof transportation.”14%32%Domestic overnight market shareOvernight parcel market 1998($15 billion)6%48%FedEx ($7.0 billion)UPS ($4.7 billion)Airborne ($2.1 billion)US Postal Service ($900 million)Source: Company reports and MorganStanley Researchof years, I have no doubt that DHL will beas competitive as UPS and FedEx. DHLhas spent heavily on hubs and technologies.They are going to be a major player in theUnited States very soon.”“If you’re a shipper looking for a singlesourcecarrier, the first thing you’re going toassess is ground service,” Caldwell said.In early 2006, DHL’s ground service is notyet at the level of UPS or FedEx. If a shipperhas packages that must be delivered by10:30 a.m. on a business day, DHL doesn’thave the depth of coverage that FedEx andUPS have. Both UPS and FedEx offerearly-morning services guaranteeing 8 a.m.deliveries. DHL can’t offer early-morningservice at this time, because DHL’s planestend to land later in the day.However, “DHL’s air service is closing thegap with FedEx and UPS,” Caldwell said. AndDHL is still the only U.S. carrier that ownsits own airport, in Wilmington, Ohio, wherelanding priorities are not a problem.Response To Errors. Whatever therelative advantages and disadvantages ofthe major parcel integrators, “we’re seeingever-sharper attention to customer service.Correcting billing problems, or promptlyanswering questions that come up abouthazmat and other shipments — that countsas much these days as on-time parcel deliveries,”Erickson said.“In the last year or so, UPS and FedEx —in no particular order — have become verystrong in their attention to such customerconcerns. They don’t keep clients waitingfor needed information,” he noted.That’s because routinely happy clients are2.1%CAGROvernight parcel market 2004($17 billion)13%5%36%46%FedEx ($7.5 billion)UPS ($6.0 billion)DHL / Airborne ($2.2 billion)US Postal Service ($900 million)less likely to bolt if a major snafu occurs.Larger shippers using integrated carrierswho want to shift their business from onecarrier to another are finding that it takesabout two months to make the change“That isn’t done on a whim. The days aregone when an irate CEO will change carriersbecause his golf bags arrived damaged at aconference resort,” Caldwell said.“Everyone makes mistakes — UPS, FedEx,DHL, USPS. It’s a matter of how anerrant carrier responds. They will all makerestitution and correct routings to preventfuture mistakes, in order to keep customersfrom jumping ship,” Kahl said.“There are problems that come fromswitching carriers too often. That playshavoc with long-term strategies. Wisershippers are planning what their cost savingscould be in 2007 and beyond. They don’twant to factor service disruptions into thatplanning,” he added.As for information technology, in the lastfive years UPS and FedEx in particular havereached virtually the same boilerplate technologyplateau. If one rolls out a new softwareapplication, the other will have somethingsimilar in place shortly thereafter.The one IT area where parcel carriersare stepping gingerly is radio frequencyidentification. Although parcel shippers willgrudgingly pay extra for RFID tags whenand where consignees require them, there isa general sense of a promising technologythat has not yet found its stride.To get a $20 million annual accountfrom a large shipper, a carrier will pull outall stops to customize whatever that clientneeds. For $500,000 to $1 million in annual76 AMERICAN SHIPPER: FEBRUARY 2006

TRANSPORT / INTEGRATORSbusiness, a carrier probably wouldn’t makethe same effort.Integrated parcel carriers have usuallyalready written interface modules for thewarehouse management systems that a shipperis likely to be using. The carriers alsoknow that if one of them doesn’t go after thatshipper’s business, another one will.The top three carriers also know eachother’s innards remarkably well. That intimacyis not just confined to their technologydivisions. They hire a lot of their employeesback and forth, to the point that recruitmentis almost incestuous.AFMS has done its sharing of hiringfrom parcel carriers. The company, basedin Portland, Ore., employs 26 consultants.Many of them are former vice presidents,directors and pricing managers from UPS,FedEx and DHL.Founded 13 years ago, AFMS started byhelping anyone who had parcel shippingcosts of $50,000 and up. Today, the companyusually requires new clients to haveannual budgeting of $250,000 for parcelshipments, with the preferred threshold being$1 million.Customers pay AFMS a monthly fee,or a portion of shipment savings. “We arecreative and flexible in arranging fee options,”Erickson said.AFMS’s 800-plus clients include companiesas disparate as Honda, General Electric,Boise Cascade, QuikSilver, Reader’s Digest,Hickory Farms, and Johnson & Johnson.The company’s style is to “keep a quiet,relatively low profile,” Erickson said.Parcel contracts are negotiated by a widerange of parties. “We’ve seen presidents andCEOs that involve themselves personallyin such negotiations, because they knowthe contract is a $20 million budget itemand they want to know what is going on,”Erickson said.“Chief financial officers are also involved.Usually, such negotiations for largershippers involve a company’s vice presidentof logistics, vice president of supply chain,and comptroller,” he added.For a company with an account of $5 millionor under, contracts are usually handledat the logistics manager level. For smalleroperations that ship $300,000-$400,000 ayear, “you’ll see warehouse managers negotiatingparcel contracts,” Caldwell said.The actual negotiation usually beginswith a face-to-face meeting, following exploratoryphone calls. For its part, AFMShelps its clients analyze current data abouttheir shipments and their characteristicsbefore negotiations commence.Parcel contract negotiations can takeweeks or months. Often a shipper will wantits legal department to review a contract,which used to run two or three pages andnow can be 15 to 50 pages.Assessorial or extra-charge waivers, serviceimprovements, new technology, all gointo addendums. “Parcel contracts today aremore complicated than they have been at anytime I can remember,” Erickson saidUsually, international and domesticshipment stipulations are pulled togetherinto one global corporate contract. Withinthat pact, there are sub-groups, each withits own language.One client took six months to finalize acontract — and three months to roll it out.During that time, the shipper went on usingthe previous carrier.During negotiations, the incumbent carriersis aware of all details and will work tokeep as much of the departing business aspossible. Often, a shipper making the shiftwill not pull everything from the incumbentcarrier right away, but over a few monthsduring a transition period.One interesting bit of etiquette prevails:if a shipper is moving services from UPS toFedEx or vice versa, representatives of UPSand FedEx usually keep rates in place duringthe phase-out part of the transition.“We discourage clients from signing anew parcel contract each year. The morehomework a shipper does before negotiating,the better the resulting contract — whichmay be in effect for as long as four years,”Erickson said.“As a shipper, you have the right to changecarriers at any point during your contractfor whatever reason is chosen — you’re notstuck with the same carrier for the length ofthe contract. But the same is true with thecarriers. If your volume or characteristicschange in mid-stream, the carriers canchange the pricing if warranted, based oncost-to-serve variables,” he explained.“Anything and everything can happen toaffect shipments after a contract is in place:hurricanes or floods that disrupt service,equipment shortages, labor strikes. Carefulnegotiation can give shippers plenty ofleeway,” Caldwell said.All contracts have 30-day out clauses forboth the carrier and customer. It is commonfor such a long-term contract — for example,one that covers 15 shipment subgroups — toinclude escape clauses for each category, so ashipper can opt out in one instance for a betterdeal with another carrier without jeopardizingother sections of the original contract.“It is an especially good idea to includeperformance expectations in contracts withparcel carriers. You don’t want to set the bartoo high, but it’s always better to say whatyou expect,” Kahl explained. ■transport insurance plus innovationInsurance for:Transport and logistics operatorsPorts and terminalsCargo handling facilitiesShip operatorsContact TT via your brokeror at any point in the networkNew JerseyTel +1 201 557 7300San FranciscoTel +1 415 956 6537LondonTel +44 (0)20 7204 2626www.ttclub.commarketing@ttclub.comAMERICAN SHIPPER: FEBRUARY 2006 77

Service changes aplentyComing soon to a port near you … a load of newservice changes, mostly instigated by Maersk Sealand’stakeover of P&O Nedlloyd in the fall.The fallout of Maersk and P&O morphing into MaerskLine will only become truly evident in the next couplemonths, when new services from a handful of carrierconsortiums begin.According to ComPair Data reports, 14 new servicesare being introduced between now and April, with 11 ofthe new services beginning this month.The new services are set up to compensate for the lossof seven services that will end in February when P&Oofficially becomes part of Maersk.Meanwhile, the carriers most affected by the Maerskacquisition of P&O — P&O’s partners in the GrandAlliance — have yet to announce service changes tocompensate for the loss of capacity. The Grand Allianceis, however, joining with the New World Allianceof APL, Hyundai Merchant Marine and Mitsui O.S.K.Lines to swap space on ships in the Asia/North Europeand Asia/Mediterranean trades, as well as to start a newjointly operated all-water Asia/North America East Coastservice via the Panama Canal.Other new services due to start in February include:• Hapag-Lloyd, CP Ships, and Zim-Mediterranean’sGulf Express between the Mediterranean and U.S. EastCoast, which replaces two services of which P&O wasa member.• MOL and “K” Line’s Andes Service between Asia,Mexico and South America, with the two carriers goingit alone after losing P&O in a similar service.• Four new services among five carriers designed tobridge the gap of the now-retired Westabout and Eastaboutround-the-world loops.The next question, of course, is what consequencesthe reshuffled services have on shippers.The impact, as far as rates, should be minimal, withan excess of ship capacity due to come online this year,and new carrier arrangements almost exactly replacingP&O’s lost capacity in some instances.Take, for example, the new arrangement between theNew World and Grand alliances. With P&O in the fold,the Grand Alliance had capacity of 45,000 TEUs inservices between Asia and North Europe, and Asia andthe Mediterranean.The Grand-New World combo will have 46,000 TEUsof capacity, allowing Grand Alliance members to keepparity, and allowing New World members access to theMediterranean, which they previously didn’t have.And sometimes industry shakeup isn’t all that bad forthe customers of carriers. The withdrawal of P&O fromthe Grand Alliance has created a cascading effect on therest of the carrier groups, and that’s made carriers looklong and hard at what opportunities are there to expandto markets they never reached before. Similarly, it’s allowedcarriers and alliances to look at what markets theyshould back out of.Heck, even the instigator of this whole mess is gettingin on the changes. Along with the myriad service changesMaersk is undertaking, the name on the sides of its shipswill also change, from Maersk Sealand to Maersk Line.It can be doneIn December, the Evergreen Group brought the firstof its “green ships” to the United States, when the Hatsu78 AMERICAN SHIPPER: FEBRUARY 2006Sigma, a 7,032-TEU vessel that the Taiwanese carrier saidis the cleanest containership in the world, made its maidencall to the United States in the Port of Los Angeles.The Sigma, the first of 10 ships in Evergreen’s S-series,employs a host of environmentally sensitive features that thecompany displayed for media and port officials, includinga double-skin hull, a main fuel tank that sits inside columnsof containers to prevent oil leakage in an accident, andthe capability to hook up to electrical shoreside powerwhen docked.The last provision is particularly noteworthy since theEvergreen dock in Los Angeles isn’t even equipped yetto provide shoreside electrical power, nor was Evergreenbound by any requirement to equip ships to be coldironed.China Shipping, the first carrier to cold-iron ships inLos Angeles, was required to do so by a 2002 lawsuitsettlement.More than just the features, the ship also shows cleanerships can successfully be built, even at a higher cost.Evergreen officials said the cost to environmentallyupgrade the series of 10 ships will exceed $20 million.Five of the S-series ships will be employed in theAsia/Europe trade, with the other five serving the transpacificlane.The vessel has a top speed of 25.8 knots, and stretches940 feet long and 17 containers wide.In another bit of long-term planning, Evergreen hasequipped the ship with a reserve fuel tank that allows it torun on low-sulfur fuel while moving around the harbor, aprovision that the U.S. Environmental Protection Agencyis trying to mandate for all new containerships arrivingin the United States.India a two-way street for commerceIf you expect to see the U.S. trade balance with Indiamirror that of China, you might want to think again.The Los Angeles Times reported on Christmas Eve thatexports from California to India in the first three quartersof 2005 nearly equaled the $1 billion recorded for all of2004, a significant rise and emblematic of India’s growthas not only a potential producing powerhouse, but also aconsuming nation as well.Carriers and their customers should take notice. Whilehardly anything but raw materials flow from the UnitedStates to China, there’s significant opportunity for carriersto ship consumer goods from America (and Europe andEast Asia) to the brand-savvy and growing middle classin India’s urban centers. Seventy percent of the Indianpopulation is under the age of 30.This, of course, means higher rates through more valuablecargo, but it also means more competition for spacein ships headed to India’s ports, which are due to receivebillions in public and private foreign investment.TSA: Asia/U.S. market grew 11% in 2005Shipping lines of the Transpacific Stabilization Agreement(TSA) have indicated the Asia/U.S. container marketposted cargo growth of about 11 percent in 2005, basedon yet-to-be-completed figures.The TSA said the increase was largely driven by retailimport merchandise and business purchases of industrialinputs, computers and other such equipment.The TSA said Asia/U.S. freight bookings eased slightlyin December with most ships running at approximately85 percent utilization.

TRANSPORT / OCEANRelieved at the helmMiles, Webber step down as Hapag-Lloydstarts CP Ships integration process.MilesBY SIMON HEANEYMichael Behrendtchairman,Hapag-Lloyd“Throughout his careerRay has had a tremendousinfluence on our industry.He transformedan underperforming singleroutetwo-vessel shippingline into a consistentlyprofitable top-20international carrier.”Hapag-Lloyd in January startedboardroom-level integration of itsnew acquisition, CP Ships.The formal takeover was completed inDecember and has propelled Hapag-Lloydinto the top five of ocean carriers with acombined fleet of about 140 vessels andtotal capacity of 410,000 TEUs.Hapag-Lloyd and CP Ships will operate asseparate carriers until the end of 2007, whenthe CP Ships name will be eliminated.Ray Miles, CP Ships’ prominent chief executiveofficer, endedhis 18-year associationwith the companyon New Year’s Eve.Under terms of hisseverance package,Miles receives oneyear’s salary, plus bonusentitlements, pensioncontributions andother unspecified benefits.In addition, he was given a lump-sumincentive payment of about $9 million.A veteran of the container-shipping scenefor more than 30 years, Miles oversaw theAnglo-Canadian carriers’ rapid growth froma small operation carrying 100,000 TEUs ayear to 2.2-million TEUs volume in 2004,and to its eventual takeover by Hapag-Lloyd’s parent company TUI AG.With Miles at the helm, CP Ships carriedout nine acquisitions, including historicalnames such as Lykes and Australia NewZealand Direct Line. In 2001, its managementtook the company public on the Torontoand New York stock exchanges.During his tenure, Miles became the firstchairman of the World Shippers Council in2000. He also headed the container shippingindustry’s CEO forum, the InternationalCouncil of Containership Operators, morecommonly known as the Box Club.“Throughout his career Ray has had atremendous influence on our industry. Hetransformed an underperforming singleroutetwo-vessel shipping line into a consistentlyprofitable top-20 internationalcarrier,” said Michael Behrendt, chairmanof Hapag-Lloyd and now CP Ships.“As the first chairman of the World ShippingCouncil, he oversaw the developmentof the container shipping industry’s highlysuccessful cooperative relationship with theU.S. government on maritime security. Rayhas, in fact, helped steer the course of linershipping,” Behrendt said.Miles’ tenure at CP Ships did not passwithout scandal, though. In the last twoyears, the company was shaken by accountingerrors and a subsequent investigation intoinappropriate stock trading and the suddenresignation of Frank Halliwell as CEO.Their troubles began when the companyadmitted it had overstated its profits in 2002,2003 and in the first quarter of 2004. Miles,and several other unnamed senior CP Shipsexecutives, were found to have sold sharesshortly before announcing the restatement,when CP Ships stock collapsed.The Ontario Securities Commissionexonerated the executives when they wereasked to pay back trading profits on thetransactions.However, CP Ships is still facing severalclass lawsuits filed in the United States andCanada relating to the accounting errors.TUI replaced Miles with one of its ownhigh profile executives, Adolf Adrion, CEOof Hapag-Lloyd. Adrion’s curriculum vitaeechoes that of Miles’, having taking overfrom him at the World Shipping Council,Box Club and now CP Ships.Adrion is also the chairman of Far EasternFreight Conference.The departure of CP Ships’ chief financialofficer Ian Webber was announced at the sametime as Miles’. Webber was scheduled to leaveat the end of January with Hapag-Lloyd’sCFO, Ulrich Kranich, taking over. Webber’sseverance package includes two year’s salary,plus bonus entitlements, pension contributionsand other unspecified benefits.In addition to Behrendt and Adrion, theCP Ships board of directors now includesBrian Westlake, an attorney based inToronto, and Holger Oetjen, manager ofHapag-Lloyd Canada.Despite these high-level transfers ofHapag-Lloyd staff into the CP Ships fold,the Germans stressed that they respect theCP Ships management and want to retaintheir knowledge.“We are pooling the top expertise at CPShips and Hapag-Lloyd,” Behrendt said.Hapag-Lloyd has created new roles forthree former CP Ships executives by establishingtwo additional regional managementcenters.Glenn Hards, CP Ships’ executive vicepresident of operations, will also serve asmanaging director of Hapag-Lloyd in SouthEurope. Located in Genoa, Italy, the SouthEurope regional headquarters will cover allcountries bordering the Mediterranean, theMiddle East and services to Africa.Juan Manuel Gonzalez, CP Ships’ executivevice president commercial for LatinAmerica, Asia and Australasia will also runHapag-Lloyd’s Latin America center. Gonzalezwill be based in Tampa, Fla., coveringMexico and South America.Hapag-Lloyd’s existing regional centersare located in Hamburg (for Europe), Singapore(for Asia and Australasia) and NewYork (for the United States).Alan Boylan, CP Ships’ executive vicepresident commercial for the Atlantic trades,has been handed the task of overseeing CPShips’ integration into Hapag-Lloyd withthe additional position of integration chiefexecutive.Along with their new roles, Gonzalez,Hards and Boylan joined Behrendt andAdrion on Hapag-Lloyd’s executive body(Excom).“We are delighted that these executiveswill help shape the integration process. Thiswill ensure continuity, as well as retainingvital know-how in-house,” Adrion said. ■AMERICAN SHIPPER: FEBRUARY 2006 79

TRANSPORT / INLANDBetter solutions in ChicagoAt the nation’s busiest rail hub, working smarteris the key to handling record volumes.When the West Coast was hit by aport strike in 2002, and then sawintermodal rail yards jammedbeyond capacity during the peak seasonof 2004, the shipping community and thenation quickly learned that new and bettertransportation solutions were needed.Less obvious, but important to the nationaltransportation system, is the criticalintermodal rail gateway of Chicago, wherebusy rail corridors from California, thePacific Northwest, the Deep South and theNortheast all connect.Improvements in Chicago were seen aspart of the answer to larger network problemsduring the peak season of 2004, andsignificant improvements over the last yearin Chicago have eased problems for manyshippers. Officials say these improvementshave resulted not so much through increasedcapacity or an influx of labor, but from systemimprovements that have allowed manydifferent parties to work smarter.In a sense, Chicago got an advanced noticeof the need for changes when a cripplingsnowstorm hit in January 1998.“Chicago was shut down,” recalls TomShurstad, president ofPacer Stacktrain, whowas then running theBelt Railway Co. ofChicago, the world’slargest “switch” carrier,interchangingfreight between the sixClass I railroads thatserve Chicago. “SomeShurstadpeople said to reroute through St. Louis, butit couldn’t cover the problem. All the trackscome to Chicago.”The local railroad industry, as well asmany state and local officials, realizedthey had to find a way to make the Chicagorail network work better. That led to theformation of the Chicago Planning Group,which started to identify both problems andsolutions for Chicago rail services. Spurredby Chicago Mayor Richard M. Daley, thegroup identified the need for $1.5 billionin infrastructure improvements.Shurstad, who was part of the effort, saidthat the request for $1.5 billion translated80 AMERICAN SHIPPER: FEBRUARY 2006BY JIM DOWinto some $150 million in funding — 10percent of the targeted need.There have been two major intermodalrail yards developed by railroad companies— BNSF’s Logistics Park Chicago openedin October 2002, and Union Pacific’sGlobal III intermodal facility opened inOctober 2003.But inspired in part by the effects of the2004 peak season delays, industry officialssay there have been key gains in the lastyear created mainly by smarter planningand better use of existing facilities.Unified Plan. “This time last year wewere in dire straits,” said Shaun Gannon,“K” Line’s vice president, Midwest, whooversees the operations of “K” Line Americaintermodal subsidiary Rail-Bridge Corp.in Chicago. Working primarily with UnionPacific, Gannon said, “This year things haveimproved immensely.”Both Gannon and Shurstad pointed tothe success of UP’s “Unified Plan,” whichamong other things has led to specializedoperations at UP’s Global I, Global II, andGlobal III rail yards in the Chicago area.UP spokesman Mark Davis said the UnifiedPlan studied the Los Angeles/Chicagocorridor, with an emphasis on improvedoperations in the Chicago terminals.The Global III terminal, located about30 miles west of Chicago in Rochelle, Ill.,now handles a mix of freight that includespre-blocked, dedicated trains.The Global II terminal is used for internationaltraffic, and the Global I terminal isused for westbound domestic shipments.The Canal Street terminal is used forwestbound containers and trailers, and UPalso moved its eastbound interchanges toanother yard.“We implemented redesign of our operatingplans,” Davis explained. “Insteadof a hodgepodge of commodities anddestinations at the different terminals, wefound that by specializing our facilitiesit helped us better utilize our chassis andrail cars.”Specifically, Davis said there has been a 65percent reduction in weekly “work events” inChicago, in which there is a transfer of a carfrom one train to another. There was a 41 percentreduction in “stops,” or equipment beingheld out and put to the side, and a 30 percentreduction in overall network events.Trains are now blocked as far away asthe West Coast and designated for specificChicago-area rail yards, whereas in thepast the breakdowns were limited onlyby specific geographic destinations. Thatmeant, for example, that anything headedto Milwaukee last year would be directedto the Global II yard, leading to a mixturethere that included domestic, international,eastbound and westbound freight.“That took up a lot of capacity, and alsorequired effort to final destination, intermodal-wise,”Davis explained.Now, with international freight going tothe Global II yard, for example, there is notonly a reduction in handling the freight itself,but it is easier to position locomotives.Davis said there were some delays of upto 12 hours in late November, near the endof the peak season. One reason for the delaywas the heavy eastbound volumes, creatingan imbalance that made it a challenge to getlocomotives positioned to move empty containersback to the West Coast. In addition,it was a record-breaking season overall, withincreased total volumes. But in spite of thevolumes, there were still fewer delays thanthere had been the year before.Working Smarter. Stung by the problemsof 2004, professionals throughout thesystem worked smarter during the 2005peak season, with the most notable gainsoccurring in the Chicago area.Gannon said shippers were practicing“smarter ordering,” spreading their ordersout over a longer period of time ratherthan concentrating so much volume into arelatively short peak season.He said Rail-Bridge was also workingwith rail carriers to provide upgraded intermodalchassis. The idea is that with betterequipment, there are fewer repairs needed,and subsequently faster turn times.He said equipment is also being turnedaround faster, thanks to better and moresophisticated communications between therailroads, shippers, intermodal marketingcompanies (IMCs), and truckers.At “K” Line’s Chicago TransportationCenter, for example, there are high volumesof eastbound international traffic, Gannonnoted. That can be offset by arranging formore shipments of westbound domesticfreight on the same equipment that was usedfor the eastbound international traffic.“It’s education,” Gannon said. If there isproduct sourced overseas coming into theMidwest, his people will try to find a truckerwith several accounts moving domestic

TRANSPORT / INLANDfreight to the West Coast. They will alsotell IMCs about those truckers.“Ideally, we can get the draymen threemoves,” he said. That would include a drayagemove from a Chicago rail terminus tothe warehouse receiving import cargo, amove from the international customer to thewarehouse of a domestic shipper, and a movefrom the domestic shipper’s warehouse backto the rail yard where a westbound train isbeing put together.That saves “K” Line money because there isless down time for its assets, helps the shipperget faster access to equipment, and helps theIMC improve operating efficiencies.As is true in any transportation corridoror trade lane, fewer empties means lowercosts for everyone.Steel Wheels And Rubber. With somany different carriers involved, Chicagostill faces challenges related to exchangesbetween carriers.Much of the traffic actually begins orends in the immediate Chicago area. Butwith UP and BNSF providing the connectionsbetween Chicago and the west, andCSX Transportation and Norfolk Southernserving the eastern states, there are highlevels of interchanges in Chicago for transcontinentalmoves.Short line railroads provide “steel wheel”exchanges between rail lines, which aregenerally considered to be simpler than“rubber wheel” moves using drayage truckingcompanies.The Chicago Belt Railway is the largestintermediate switching terminal railroad,with 28 miles of mainline track and morethan 300 miles of switching track. It canhandle interchanges with every railroadserving Chicago, and has extensive clearingyards totaling 786 acres.The Indiana Harbor Belt Railroad offersdaily interchanges with 16 different railroadcompanies in Chicago. It targets mostlytraditional industrial traffic, with a primaryemphasis on the region’s large steel producers,oil refineries, and grain shippers.Depending on what is being moved, theshort line railroads can provide the connection,as long as a railcar or intermodal chassisis being transferred as part of a full hand-offbetween western and eastern carriers.But if there is not a full car of freight,a shipment has to be broken down, put ona chassis and drayed by truck to the otherClass I railroad.Shurstad said Pacer Stacktrain has nosignificant problems moving freight throughChicago. He attributes much of that to hiscompany’s staffing levels and expertise inthe Chicago market.At Pacer Stacktrain’s Chicago facility,there are about 25 employees, a fairly largecontingent for a single city, Shurstad noted,and they provide round-the-clock service.Pacer can move a shipment 36 to 48hours faster than underlying railroads, hesaid, a feat that puzzles some, including therailroads themselves.But Shurstad said that when Pacer handlesa shipment in Chicago, they make sure thatthe freight is moving out the same day it isturned over to the underlying rail carrier.“If it is tendered on a Tuesday, it leaveson a Tuesday,” he said.Conversely, for incoming shipments, hesaid that when it arrives at their facility, it is“unloaded in a timely fashion” and deliveredefficiently to the receiving party.He thinks Chicago has fewer capacityproblems than not only the mega-gatewayof Los Angeles-Long Beach, but even alower-volume location like Seattle.For all the improvements, industry officialssay they will have to stay on top oftheir game.“We’re seeing record volumes,” Davissaid, “and traffic will stay at these volumesor increase. We’re going to have to watchour efficiency, maintain the ability to absorbtraffic, and operate and work smarter to helpus move these record volumes.” ■Experienced Traveler.COSCO has been providing both efficient and on-time service since 1961. Nowwith more ships and more direct ports than any other single carrier COSCOhas grown to be one of the largest Ocean Container Carriers worldwide. Cargohandling capabilities include 20-ft and 40-ft dry containers, refrigerated containers,flat racks, open tops, high cubes and other specialized equipment. COSCO’sE-Commerce, InfoLink voice response system and Cargo Tracing System allowyou to track your shipment until it arrives at your destination.THE MOST FAMILIAR FACE IN CONTAINER SHIPPING.COSCO North America, Inc. 100 Lighting Way, Secaucus, NJ 07094 USATel: 800-242-7354 Fax: 201-422-8928InfoLink 1-800-967-7000 www.coscon.comSHIP WITH CONFIDENCE, SHIP WITH COSCOAMERICAN SHIPPER: FEBRUARY 2006 81

TRANSPORT / PORTSManzanillo International Terminal’s success has quieted critics who saidPanama would not be a suitable location for transshipments.Proving a point in PanamaManzanillo International Terminal has becomeLatin America’s largest transshipment center.Inside Motta International, a flagshipstore in the Colon Free Zone onPanama’s Atlantic/Caribbean Coast,well-dressed buyers stroll the floor lookingat plasma screen televisions, Fendi handbags,Cartier jewelry, or the latest fashionsfrom Calvin Klein.While Motta International looks likea cross section of shops from a high-endshopping district, it is not a retail establishmentat all; it’s essentially an orderingpoint for retail stores from throughout LatinAmerica. Buyers do not personally taketheir purchases from the premises of MottaInternational or any of the other outlets alongthe streets of the free zone. Orders can runinto containerload volumes, and all freezone purchases are meant to be exported.When a sale is completed, buyers becomeshippers arranging to have their purchasesshipped out of Panama.The Colon Free Zone is one key link inan ocean shipping success story that hashelped to reshape shipping and distributionin Latin America and the Caribbeanislands over the last decade. The free zone islocated immediately adjacent to ManzanilloInternational Terminal (MIT), which is nowthe largest transshipment terminal in LatinAmerica and one of the most productivecontainerports in the world.82 AMERICAN SHIPPER: FEBRUARY 2006BY JIM DOWMIT was a de facto “greenfield” terminalwhen it handled its first containership forMitsui O.S.K. Lines and its vessel-sharingalliance partners in April 1995. In the monthsbefore that, roll-on/roll-off shipments forSeaboard Marine had been moved overunpaved roads at the facility.Since then, it has seen phenomenalgrowth. Preliminary figures for 2005 indicateMIT handled more than 1.6 TEUs ofcontainerized cargo, a 15 percent increaseover 2004.Foresight And Faith. MIT is a partnershipmanaged by Seattle-based SSA Marine,formerly Stevedoring Services of America.The other partners are the Panama-basedMotta and Heilbron families, who earlyon replaced the original partner, MotoresInternacionales S.A. The Motta and Heilbronfamilies are involved in enterprisesthat include aviation, banking, media, andinsurance. The Mottas started the ColonFree Zone more than 50 years ago.Officials from SSA started scoutingthe prospects for a terminal in Panama inthe early 1990s, convinced of the strategicpotential. Panama, an essential shippingcrossroads because of the Panama Canal,and with its geographical advantage in theAmericas being due south of Florida, hadnonetheless been a transshipment non-factorprior to the establishment of MIT.Panama’s reputation among internationalsteamship lines was not good priorto the 1990s. It was known for inefficientlabor practices and security problems thatincluded drug smuggling, cargo theft andstowaway problems.The government of Panama had hopedto change that through a program of portprivatization, but the conventional wisdomin the mid-1990s was that Panama had toomuch downside to warrant development asa transshipment hub.But those views were based on an oldand obsolete model, said Jon Hemingway,president and chief executive officer ofSSA Marine and its parent company, CarrixInc.“The skepticism was based on perceptionsof an earlier age,” Hemingway said. “Inthe mid-1990s port privatization was justgetting started, and poor performers haveimproved as they brought in internationaloperators.”Hemingway said SSA remained keenon Panama and on the location of MIT inparticular because of the natural proximityto international trade lanes, coupled withthe presence of a local market base createdby the Colon Free Zone.“That’s a daily double,” he said.Although Panama has a population ofabout 3 million people, the Colon Free Zonein effect created a “local” base that alsoincluded shippers from many other nations.That helps establish a market that surpasseshubs like Kingston,Jamaica or Freeport,Bahamas, noted DavidMichou, president ofSSA International,who has been at MITsince it opened.Hemingway saidSSA also had confidencein the projectMichoubecause it had received indications of interestfrom several steamship lines, reassuringcompany officials there was a market forthe terminal.“There were a large number of lines thatwere interested, and we knew if we got justa few of them we’d be O.K.,” Hemingwayrecalled.Michou said that once the first majortranspacific carriers started calling, therewas solid proof that Panama could workas a hub.“They showed you could hub-and-spokeout of Panama,” he said, noting carriers tendto follow one another into markets.Carrier response was strong, indeed, andMIT had more than a dozen carriers call-

ing the terminal within a year of startingcontainer services. Today, there are morethan 25 carriers calling MIT.The concept of transshipment hub operationsin Panama has expanded beyondMIT. Just across Manzanillo Bay from MITis the Colon Container Terminal, whichis operated by Taiwan-based Evergreen.CFT opened in 1997. It handled slightlymore than 700,000 TEUs in 2004 and isprojected to top 800,000 TEUs when final2005 figures are compiled.In addition, Hong Kong-based HutchisonPort Holdings established Panama PortsCo. to operate two terminals in Panama.The Balboa Container Terminal opened inNovember 2000 on the Pacific side of thePanama Canal near Panama City. Hutchisonalso plans to develop a container terminalon the Atlantic side, near Colon at the Portof Cristobal. No firm dates have been announcedfor that project.Steady Growth. At MIT,growth has been strong since thebeginning, and SSA is about tobegin its third major expansionof the facility.The terminal originally had600 meters of berth for containerships,with six gantry cranesand another 225 meters of berthfor ro/ro business. The Phase IIexpansion in 1997 added another600 meters of berth. MIT had10 gantry cranes operating atthe beginning of 2006, but willincrease the number to 16 duringthe first quarter of the year. MITin December took delivery of sixnew rubber-tired gantries for thecontainer yard and has plans toadd a total of 12 RTGs this year aspart of a $75 million investmentin new equipment.A Phase III expansion projectbeginning this year will includethe reclamation of 170,000 squaremeters to expand the containeryard. The existing operations have450,000 square meters. MIT willadd a pregate handling facilitywhere truckers can resolve anyproblems that could slow overalltraffic flows.Plans also call for the developmentof more than 40 hectareswhere a commercial park willallow shippers to operate logisticsand distribution facilities that willserve a multinational market. Thecommercial park will allow theseamless movement of shipmentsbetween the container terminaland the park. The park will provide users acontiguous customs and fiscal area, whereinventories can be maintained in a securelocation using U.S. dollars.MIT is also improving the truck gatebetween the terminal and the Colon FreeZone. Although other stevedores andsteamship lines with operations in Panamatake advantage of the Colon Free Zone,MIT is the only terminal with a gate thatgoes directly between the marine terminaland the free zone.One aspect of MIT that sets it apartfrom other terminals handling comparablevolumes is that it does not need nearly asmany truck gates. It has five inbound andfive outbound truck lanes. Most of thecargo, however, does not enter or leavethe terminal by truck or even intermodaltrains.Roughly 85 percent of the traffic istransshipped, meaning those containersremain within the terminal for transferSorting out the namesTo those unfamiliar with the marine facilities in Panama,the names of the various facilities can be confusing. Furthercomplicating the fundamental understanding is the directionof the Panama Canal and its relation to the Pacific Ocean andthe Atlantic Ocean.Most people initially think of passageway between thePacific and Atlantic oceans and presume the Panama Canalruns east and west. In fact, the canal runs more north andsouth, with the Pacific Ocean to the south and the CaribbeanSea/Atlantic side to the north.Manzanillo International Terminal, the single-largest portfacility in Panama, is located near Colon, Panama’s secondlargestcity, on the north end of the canal. Colon is actuallyon the island of Manzanillo, thus the name for the terminaland the bay.Across the bay from MIT is the Colon Container Terminal,a private terminal operated by Evergreen, the Taiwan-basedshipping company.Manzanillo Bay is also the former home to the Coco SoloNaval Station, founded in 1920 by the U.S. Navy to assist withoversight of the Panama Canal Zone, which was controlled bythe United States until Dec. 31, 1999. The area around MITis sometimes referred to as Coco Solo.At the Pacific end of the canal near Panama City is the Portof Balboa, operated by Panama Ports Co., a unit of HutchisonPort Holdings. PPC also has plans to develop the Port of Cristobal,which is located on the Atlantic side near Colon.Long term, the government of Panama hopes to develop amega-terminal on what would be a man-made island on thePacific side of the canal. “Our aspiration is to increase ourcountry’s installed capacity to 6 million TEUs in the next threeyears,” said Alejandro Ferrer, Panama Minister of Commerce.The government has hired the U.S. consulting firm Moffatt& Nichols to conduct a study on the prospects for the newport, following up on a study the company did in 2000. Noterminal operator has been selected for the project.TRANSPORT / PORTSbetween oceangoing vessels.For the traffic that does move beyond theterminal, most of the truck traffic goes inand out of the free zone. There is some trucktraffic that extends out into Panama.One relatively small but growing optionis the use of intermodal rail. MIT has a connectorramp to the Trans-Isthmus Railroad.The rail line predates the Panama Canal,and for the most part runs parallel to thecanal. Intermodal railcars move containersbetween Colon on the Atlantic side andBalboa on the Pacific side. There are nowroughly 10,000 intermodal rail moves amonth between MIT and Balboa, up from20,000 a year when container operationswere getting started on both ends of thecanal.Maersk Line is the single largest userof the intermodal rail service. The world’slargest container carrier has called MITwith one of its 6,600-TEU containerships, apost-Panamax vessel that is the largest everto call a port in Panama.MIT officials note that while57 percent of the vessels that callthe terminal transit the canal,43 percent do not. Most of thevessels that do not make thetransit are feeder ships, althoughsome are post-Panamax vesselsthat are too large to transit the105-foot-wide canal.Security, Technology. MIThas taken security concernsand turned them into a sellingpoint. There are more than 200security personnel working atthe terminal. Security workerswith specially trained snifferdogs inspect shipments, andvideo cameras are deployedaround the grounds to assist withsurveillance.MIT meets or exceeds allstandards of the Super CarrierInitiative Program establishedfor port security. Under thatprogram, U.S. Customs andBorder Protection trains companiesand provides guidelinesto prevent the use of commercialtransportation for smuggling orterrorist activities.MIT also uses all of the latesttechnology for not only security,but for container handlingand container yard inventorycontrol.In addition to the yard handlingequipment being added aspart of overall port expansion,MIT has an inside track onAMERICAN SHIPPER: FEBRUARY 2006 83

TRANSPORT / PORTScontainer yard and vessel-loadingtechnology. SSA Marine is aCarrix company, making it a sistercompany to Tideworks Technology.Tideworks is a leading provider ofsoftware packages for marine terminalmanagement and planning,supply chain management, and forefficient storage and movement ofgoods, whether inside containershipsor in landside warehouses.MIT has a large informationtechnology department in theterminal administrative offices,providing double and triple redundancy,or backups, to make sure atechnology-driven operation likea modern container terminal doesnot go down.Michou said sufficient backupsystems are especially critical intoday’s environment with radiofrequency identification (RFID)technology used for tracking thelocations of containers.“It has to be running,” Michousaid.The combination of equipmentand technology, teamed with welltrainedpersonnel — a staple partof the SSA philosophy — has madeMIT one of the most productivemaritime terminals in the world.MIT’s record is 64 containermoves in an hour, and the averagein 2003 was just over 40 movesan hour.MIT general manager Carlos UrriolaTam explained the averages have sincedropped down into the 30s, in part becauseMIT’s extensive use of hub-and-spokeservices requires the use of smaller feederships, which tend to lower the productivityaverages.MIT’s container repair and maintenancedepartment can monitor and maintainmore than 1,000 reefers simultaneously,using modems to keep track of temperature-sensitivecargo being held at the port.The maintenance operations also includea unique, low-humidity storage facility,which extends the life of parts for cranesand yard equipment. Panama’s high humiditycan lead to corrosion for any parts storedin the maintenance department.MIT is in operation 24 hours a day,365 days a year. Because of its productivitylevels and customer service, MIT hastwice been named port of the year by theCaribbean Shippers Association.Strong Outlook. Although MIT has attractedglobal attention as a containerport,it is also an important transshipment center84 AMERICAN SHIPPER: FEBRUARY 2006Community relationshipsWhen Manzanillo International Terminal led the way forport privatization in Panama in the mid-1990s, it created awealth of economic benefits for Colon, Panama’s secondlargestcity.An economically strained community with traditionalunemployment rates approaching 20 percent, MIT broughtnearly 900 new jobs for the area. While American expatriatesfrom Seattle-based SSA were instrumental in gettingthe project off the ground, 98 percent of the MIT work forceis now from Panama.Productivity at the terminal is so good that there has beena reverse flow for training. SSA Marine used to bring personnelto the United States for training, but now employees arebrought from the United States and other countries with SSAfacilities for training in Panama.In addition, the company has made an impact on the communitywith a $1.5 million donation for a hospital in Colon,and will donate another $500,000 for community improvementsas part of an agreement for the company’s plannedPhase III expansion.Beyond that agreement, SSA most years provides some$250,000 to $300,000 a year for community projects. Examplesinclude audio-visual equipment for local schools, languagetraining classes to increase the number of bilingual locals,sponsorship of sports teams, and a donation to get 12 childreninto Operation Smile, which provides reconstructive surgeryfor children with facial deformities.The benefits go both ways, said David Michou, president ofSSA International and the senior SSA executive in Panama.“We really are dependent on this community to provide ourlabor force,” he said.for non-containerized cargoes, primarilyro/ro cargo.In 2001, MIT signed a contract with thecar carrier Wallenius Wilhelmsen Line,Jon Hemingwaypresident and chiefexecutive officer,SSA Marine“Panama is a good placeto do business andit is a privilege for usto be there. They saya rising tide floats all boats,and I hope that keepsup for our customers.”which on Jan. 1, 2006 changedits name to Wallenius WilhelmsenLogistics. The carrier usesMIT as a hub for its servicescalling South America.In addition, MIT has becomea distribution center for heavyequipment manufactured inBrazil and brought to Panamafor transshipment to various locations.Michou said SSA madea business decision to decreaseits unit moves of traditionalro/ro moves in 2005 to allow formore heavy equipment moves,which generate more revenuewith better margins.Overall, the single-largestsource of cargo for MIT stemsfrom the all-water routes betweenAsia and the U.S. EastCoast. Those services use MITto drop off cargoes for LatinAmerica and the Caribbean.Although more and moreAsian carriers are generatingenough volumes to providemore direct services betweenAsia and South America,Hemingway said the outlookfor MIT remains strong.“We’re not experts on thedevelopment of hub-and-spokeservices, and consolidationamong carriers will lead to anumber of shifts in services,”he said. “The bottom line is that tradegrowth will continue to be robust, and weforesee growth in general merchandiseof 9 percent to 10 percent a year for theforeseeable future. I feel fairly bullish aboutcontainer volumes.”He added that he is also encouragedby economic development in Panama. Henoted there is strong growth expected forlandside distribution facilities, includedthe commercial zone planned adjacent toMIT, as well as the planned expansion ofthe Colon Free Zone.Michou said the free zone is much moreconvenient for shippers in Latin Americathan sourcing product directly out of theFar East.“Companies in the free zone have developedrelations with buyers, sometimes overgenerations,” he said. “They know when theycan extend credit, and shippers don’t haveto get an L/C (letter of credit) out of Tokyo.That’s really important in this region.”“Panama is a good place to do businessand it is a privilege for us to be there. Theysay a rising tide floats all boats, and I hopethat keeps up for our customers,” Hemingwaysaid.■

TRANSPORT / PORTSGrowing need to be greenMore shipping interests see how sound environmentalstrategies ultimately impact everyday operationsBY JIM DOWThe Port of New York and New Jerseygot its wake-up call in the late 1990s,when stalled dredging projectsstarted forcing heavily laden containershipsto divert first-inbound port calls to Halifaxor Norfolk to allow ships to lighten theirloads before attempting to traverse NewYork-New Jersey’s ship channels.Those diversions got the attention ofprominent politicians, which led to expeditedfunding of dredging projects, muchto the relief of North Atlantic shippers andmajor steamship lines.So when the port was honored in Octoberwith an environmental award from theAmerican Association of Port Authorities,insiders knew there was more to it than awarm and fuzzy feeling from seeing improvementsin air pollution emissions.The port had received the award for its2004 cargo handling equipment inventoryupdate. The air emissions inventory checkedthe off-road cargo handling fleets of fivecontainer terminal operators, and found thateven though off-road fleets had increased19 percent since 2002, overall emissionsof air pollutants had actually decreased.The reason: terminal operators had voluntarilyagreed to modernize their fleets withcleaner-burning equipment.The voluntary 2004 survey was directlyrelated to a 2002 air quality inventory,which had been taken to show the port wasin compliance with requirements laid downwhen $83 million in dredging work had beenauthorized in July 2001.“Ports recognize their environmentalperformance and impact have an impacton growth and community relations over along period of time,” said Meredith Martino,AAPA’s manager of government relationsand environmental policy.Steamship lines understand the stakes, aswell, with a small but growing number of carrierstaking ground-breaking steps to operatein an environmentally friendly manner.In 2004, China Shipping Container Lines,which had encountered various forms ofopposition in its efforts to develop a newcontainer terminal at the Port of Long Beach,implemented the use of “cold iron” berthing.Formally known as Alternative Marine Power,China Shipping used what has been referredto as the “world’s longest extension cord,” andplugged into electric power to run its vessels’engines in port, rather than following thenormal practice of using emission-producingdiesel engines to power the ship in port.When the terminal was dedicated, then-Los Angeles mayor Jim Hahn said, “thisunprecedented technology will make LosAngeles’ environment healthier by eliminatingtons of pollution each day.”China Shipping, originally painted as abad guy, had gotten itself a new terminal ata premier port and come away with a publicrelations victory.The Port of Long Beach is working withoil company BP PLC to cold iron oil tankersat BP’s terminal there.But it’s not all about image.Toyofuji Shipping Ltd., the Japanesecar carrier, introduced its Century 2 vesseldubbed the Eco Ship in 2002 with costreductions in mind. Company officials saidthe vessel uses about 17 percent less fuel— an annual reduction of 530,000 gallons pership — while carrying more than 20 percentmore cars than a typical auto carrier with thesame dimensions. The ships also produce 26percent fewer nitrogen oxide emissions.“We created this type of ship to exploreways to reduce operating costs while addressingenvironmental concerns such asglobal warming,” company representativeKazuaki Makino said when the first shipcarrying Toyotas made its maiden call atthe Port of Portland, Ore. in 2002.The BNSF Railroad is making environmentalefforts a part of its plans for developmentand operation of a new near-dockintermodal rail facility known as the SouthernCalifornia International Gateway (SCIG).The facility is being sold as a means to reducetruck traffic, with the additional benefitsof an environmentally friendly rail yard.BNSF plans to use alternative railroadswitch engines at the facility. A battery-poweredengine known as the “Green Goat” willbe used instead of traditional diesel-poweredengines. BNSF also has the only four LiquidNatural Gas-powered switch engines in theUnited States deployed in Los Angeles.The railroad is considering the use of thoseengines at the SCIG, as well.BNSF also has plans for using LNG-fueledFastestAMERICAN SHIPPER: FEBRUARY 2006 85

TRANSPORT / PORTSyard hostling trucks for the SCIG. Subjectto fuel availability, a demonstration projectis planned for the spring to determine theoperational feasibility of that technology.Reaping the benefits of environmentallyconscious strategies generally requiressystemic changes. Seaports, who tend tohave more urgent demands for strong environmentalrecords, are establishing entireenvironmental departments, with managersat the director level.Portland has had one of the most recognizedenvironmental policies in theindustry, picking up AAPA awards in 2005and 2004.Eric Schwamberger, corporate environmentalmanager at the Port of Portland,explained that rather than having everythingoriginate within the port’s environmentaldepartment, all departments get involvedin the process. They begin with an “aspectsand impacts analysis” that looks at key environmentalissues and opportunities. Theystart by establishing objective areas like airquality, natural resources, water quality, andenergy savings.Next, they try to establish specific targetsin several objective areas.“We go through a process where we establishactual targets that we want to achieveGlobalSolutionsfor contract managementand tariff services.eztariff offers a full range cost-effectivesystem that reduces costs and increasesprofit potential. With our user-friendlysoftware and intuitive search capabilities,you can turn your tariff and contractinformation into vital planning tools.Set up is quick and easy, with secureweb access through an easy login.Start today !For more information call,1-877-580-GMTSwww.globemar.com 1-954-340-8886 1-877-580-GMTSMADISON, NEW JERSEY CORAL SPRINGS, FLORIDAOAKVILLE, ONTARIO, CANADA86 AMERICAN SHIPPER: FEBRUARY 2006The Port of Long Beach is pioneering the use of ‘cold iron’ berthing to reducediesel emissions. BP’s oil tanker fleet is the latest to plan to convert.for that year within those objective areas,”he explained.Port officials start the process seven oreight months before the start of a new fiscalyear. They typically establish teams inNovember that talk to people around theport over November and December, askingfor help in setting goals for the comingfiscal year.In January, they start a review of the goals,specifically looking at budgetary constraintsand whether the targets are achievable. Thatprocess lasts for another two months.Finally, during March-May, the goals andobjectives are finalized, fully budgeted andapproved by the directors of the port — theexecutive director, marine director, theaviation director, general counsel, the chieffinancial officer — all the top managers.“We want to get these targets driven, notjust by the environmental professionals, butreally get them driven by the operationaland other support people in this port. We’vemet pretty great success in that simplybecause people as a result of this feel theyhave a greater stake in the process and inthe achievement of the results, as well,”Schwamberger said. “Also, we’ve tried toreally integrate these objectives and targetsin the entire port business concept so thatthey are in line with the port budget and theport fiscal year.”AAPA’s Martino noted there’s ever-presentpotential for environmental oppositionto critical projects like port expansions anddredging projects ranging from maintenancedredging of existing ship channels and berthsto actual deepening projects needed to accommodatethe newest containerships. Themaritime community needs to be proactivein establishing community relations andenvironmental polices.“All ports have become very attuned tothe environment,” she observed. “They payclose attention to their environmental footprintfor the sake of both the community andthe stakeholders involved with the port.”Many ports have extensive communityoutreach programs, and work to bring thecommunity into port planning projects.“A community relations campaign reallybegins at the grass roots level,” says DarleneFrank, spokeswoman for the Maryland PortAuthority. “Our harbor development teamactually involves the community from theget-go.“There’s a whole organized approach to allthis, but every time there is an opportunityfor new dredging, the port has a series ofmeetings with affected communities. Theseare open forums with a chance for concernedcommunity members to come and hear whatthe port’s plans are and then voice theiropinions, and to learn more. So it’s a realtwo-way communication,” Frank said.The idea is to let concerned residentsparticipate in planning developments andmitigation early on, rather than goingthrough an extended political battle andmaking environmental concessions later.“Most ports recognize that it’s in theirbest interest to have environmental programsand community relations in place,”Martino said. “Then, if a group tries to stopan expansion project with environmentalobjections, the port already has an imageas a good neighbor, and the right relationshipsare in place already if there is a needfor community approval.”For seaports, steamship lines, and railroads,the tangible commercial benefitsof “green” operations are becoming moreapparent. And while shippers may not seethe immediate relationship between the environmentand their transportation services,they will increasingly enjoy the benefits. ■

TRANSPORT / PORTSCooperation a Sound judgmentPuget Sound port officials maintainrapport under voter scrutiny.BY ROBERT MOTTLEYThe four major Puget Sound ports inWashington State — Seattle, Tacoma,Olympia and Everett — viebriskly for trade, albeit not always the samekind of business, within a larger sphere ofleveraging each other’s needs.While some officials see that as workingtoward their region’s common advantage,outsiders suggest it has more to do withport commissioners being elected by thepublic.“Our ports compete, but they also cooperate,”Doug Ljungren, business planningmanager for the port of Tacoma, toldAmerican Shipper. “In addition to obtainingnew clients, you want to keep every pieceof business your port has. But if you justcan’t, for reasons outside your control,we don’t tell a customer, ‘you’re on yourown.’ Instead, we’ll say, ‘let’s go out andfind you a place in the region where you’llbe more satisfied.’ ”Ed Paskovskis, deputy director of thePort of Everett, concurred. “There’s beena general sense of cooperation for years,because we are geographically close toone another.“Also, we’re connected by association.While there’s fierce competition betweenus for cargoes that are discretionary, inthe long view we have worked togetheron improving our regional transportationinfrastructure,” Paskovskis said.“Seattle and Tacoma have meetings everysix months to discuss matters of commoninterest,” said Kari L. Qvigstad, directorof marketing and business developmentfor the Port of Olympia. “The idea is notto have any last-minute surprises comingfrom suddenly departed customers.”“Olympia has individual port discussions— especially a close dialogue withTacoma, which we see as being our ‘bigbrother’ port,” Qvigstad said.Apportioning cargo amongst the fourports roughly follows this rule of thumb:whatever can be handled to common advantagegoes where it can best be handled.While there is no overall agency to divvyup what goes where, “we are all focusing onthose areas where we can find the best fitfor the cargoes we serve,” Qvigstad said.“There’s give-and-take, both directand indirect,” said Kent Christopher,general manager, containers, for the Portof Seattle.When asked about the role played bypolitics in the region’s ports, Christopherdeclined to comment.His reticencewas understandable,given that three ofSeattle’s five portcommissioners wereup for re-election ina contentious publiccampaign duringAmerican Shipper’svisit.ChristopherIn Washington State, port commissionersare elected from their districts. “Obviously,there is politics, but not of a scaleor depth that exists elsewhere,” Ljungrenexplained.When Voters Speak. The 2005 fallelections cast a spotlight that was especiallyrevealing on functions of the Port of Seattle,which is divided into three parts: an aviationdivision, an economic developmentdivision, and a seaport division.The aviation component operates Seattle-TacomaInternational Airport (Sea-Tac), the 16th-busiest airport in the UnitedStates. This facility handles 29 millionpassengers annually, as well as 346,000metric tons of air cargo.The economic unit oversees the port’sreal estate development. The seaport divisionhas four units: One division focuses oncontainerized cargo and passenger cruisebusiness. The other seaport sectors leasecommercial and non-maritime real estateholdings, find new business for the port,and provide harbor services and facilitiesfor fishing and recreational boats.The 1,260-acre seaport has five marinecontainer terminals, 20-plus cranes, anddockside intermodal yards — all highlyvisible from the Seattle waterfront.The port of Seattle, as a whole, takes 25cents in property-tax assessments for everyEasiestAMERICAN SHIPPER: FEBRUARY 2006 87

TRANSPORT / PORTS88 AMERICAN SHIPPER: FEBRUARY 2006“Our ports compete,but they alsocooperate.”Doug Ljungrenbusiness planningmanager,port of Tacomatuting their noses in the public trough.”Creighton also made much of one notableembarrassment for the port in 2004, whenit sold warehouses to Charlie’s Produce, afood distributor, without competitive bidding.The distributor subsequently sold theproperties, netting $10 million. Creightonargued that the port should have reservedthe right to buy back the warehouses.Two candidates vied for the third portcommissioner seat: Richard Berkowitz, 45,who worked for the Transportation Institute,a trade association of U.S. shippinglines; and Lloyd Hara, 66, who had servedfour terms as Seattle city treasurer.Berkowitz dismissed critics who saidAn Evergreen ships is worked at the port of Tacoma.$1,000 of home value, or about$100 for an average house.The port also provides 37,000direct jobs, more than Microsoft.Yet the hard fact remains thatthe seaport component has lostmoney in five of the past six years,as well as market share to otherports. Meantime, the parent portorganization spends billions toimprove facilities at Sea-Tac.In the recent political campaign,Patricia Davis, 69, a fivetermport commissioner since1986, regained her seat over JackJollye, 47, a former bond traderand Microsoft money manager.Jollye challenged Davis on theissue of red ink at the port.Davis, who has since been elected commissionchairman, maintained that themoney the seaport had lost before 2005was after deducting the cost of depreciationon its facilities. A $1.4 million profitis expected for 2005, which she said vindicateda longtime policy of investing interminals without an expectation of turningimmediate profits.According to The Seattle Times, Davisbelieved that cruise and cargo terminals“should lose money initially and pay itback over time.”Jollye proposed putting incentivesin terminal leases to move cargo fasterthrough the port. He did not ruleout raising rents for tenants SSAMarine, a terminal and stevedoringcompany, and ocean carrierAPL two years before their rentswere due to increase under existinglease agreements.Jollye also argued that billionsof dollars invested by the port inequipment and deepwater landwere not yielding any return, andmight never recover their costs.Another sitting port commissioner,Lawrence Molloy, 43,an environmental manager, wasbeaten by John Creighton, 39,an attorney. Both agreed portreform was needed, but differedon tactics.Molloy wanted to cut the port’sstaff of 1,600, beginning withits 20 full-time public affairsofficers, and impose tolls andfees for using facilities.Creighton, claiming to be abusinessman free from partisaninterests, memorably defined theport’s reform movement “as laborand progressive alliances substitheport was failing, notingthat the seaport division wouldalways have difficulty makingmoney because leases weren’tbeing raised as cargo increased.Hara said he would make theport’s departments justify theirbudgets, and believed that newfacilities should pay back theirinitial investments as quickly aspossible.Hara beat Berkowitz, and waselected commission vice presidentin January. Two sitting portcommissioners, Bob Edwardsand Alec Fisken, did not facevoters in 2005.Lost Market Share. Containershipscalling at Puget Sound portsdo so primarily at the two largest ports,Seattle and Tacoma, which have adequatewater depths and rail connections. Bothports are neck-and-neck in terms of cargovalue and TEUs handled. In 2004, Tacomahandled 1.80 million TEUs to Seattle’s1.78 million.Tacoma’s 2,400-acre port, located onCommencement Bay, a deepwater harborin southern Puget Sound, is an independentmunicipal corporation created by citizensof Pierce County in 1918.“We attract shipping lines that want someflexibility in their cargo handling,” Ljungrensaid. He explained how Tacoma, 31miles south of Seattle, acquiredservices from Totem OceanTrailer Express (TOTE), theport’s first major containerizedand roll-on/roll-off carrier (December2005 American Shipper,page 77).“TOTE started its operations30 years ago in Seattle to scoopthe food market to Alaska. Tothat end, TOTE had specialneeds of how to load their ships— notably, a fast turnaround,” heexplained. “That kind of loadingrequired special knowledge fromlongshoremen. They put in a callto the International Longshoreand Warehouse Union hall andgot whoever showed up.“With a constant changing mixof longshoremen, TOTE wasn’table to load its ships as fast asit wanted, because of uniquerequirements of backing in tothe dock.“TOTE went to the ILWU inSeattle and said, ‘can we havea pool of longshoremen we cantrain ourselves to load our ships?

It can be as big a pool as you want, butwhen we put in a call for a gang, it has tocome from that pool.’“The longshoremen in Seattle said ‘no,that’s not how we do things.’ TOTE responded,‘you’re hurting us, so we’re goingto shop around,’ ” Ljungren recalled.In Tacoma, TOTE found more cooperativeears with the local ILWU. In 1976,the carrier literally moved from Seattle toTacoma over a weekend.After TOTE came Sea-Land, “the firstlarge international carrier that decidedto build a terminal in Tacoma, whichwe constructed to its specifications,” heexplained.“Maersk came next. They started usingthe Husky terminal, and then moved intothe Sea-Land facility after Maersk acquiredSea-Land.”Horizon Lines, a surviving descendantof Sea-Land, which competes with TOTEin the Alaskan trade, is now “a quasi-tenantof Maersk,” Ljungren said.Besides containers, the port of Tacomahandles breakbulk, bulk, project and heavyliftcargoes, and automobiles.The port recently reached a settlementwith the Weyerhaeuser Co., which growsand harvests timber and other forestproducts, that will allow the widening ofTacoma’s Blair Waterway.Weyerhaeuser had operated a 25-acrewood chip facility on a narrow portion of theBlair Waterway since 1973. The companyowned improvements made to the facility,but leased the land from the port under anagreement that expires in 2017.The port, which has plans to widen thewaterway next July, held all the chips inthis situation. It persuaded Weyerhaeuserto vacate the facility by May 31, 2006, inKari L. Qvigstaddirector of marketing& businessdevelopment,port of Olympia“Olympia has individualport discussions —especially a close dialoguewith Tacoma, which wesee as being our‘big brother’ port.”exchange for a $12.5 million payment fromthe port compensating Weyerhaeuser forthe value of its leasehold interest remainingover the 12 years on the lease.“This was a difficult decision for theport,” said Timothy J. Farrell, executivedirector of the Port of Tacoma. “Shipsin international trade have been growingdramatically, and our waterways must growwith them to assure public safety. We hadto reconcile equably the interests of ourlong-term customer, Weyerhaeuser, againstthose of navigational safety.”PMA. The four major Puget Sound portswork closely with the Pacific Maritime Association,a management group comprisingshipping lines and stevedore companies,which negotiates and administers maritimelabor agreements with the ILWU. The portsare not part of the PMA, but often act asbuffers between the PMA and the union.“We communicate with the PMA ona regular basis,” explained Jim Amador,marine terminal director for the port ofOlympia.“Most West Coast ports have shiftedfrom being operating ports to being tenantports, Qvigstad said. “As a result, we don’tneed to be at the table with the PMA andthe ILWU.”Still, tensions between the PMA andILWU have resulted in the loss of businessto East Coast ports.For example, the lockout of West Coastports in 2002, initiated by the PMA, “onlymoved forward an event which was inevitable,”Ljungren explained.Imported cargo coming into the UnitedStates “is like water finding the path ofleast resistance,” he said. “As the WestCoast filled up, which it was doing, it wasinevitable that market share was going tomove to the East Coast. The lockout justpushed that movement forward.”As a result, the market share for WestCoast ports of Asian imports to the UnitedStates dropped from 82.8 percent at theend of 2001 to 75.3 percent in the thirdquarter of 2002.At the end of the second quarter of2005, the West Coast market share was76.5 percent.“So, we’ve lost 6 percent of overallmarket share. It hasn’t come back. Wheredid it go? On all-water routes to the EastCoast,” he noted. “That’s a significant percentage,but it’s not a huge abandonmentof the West Coast. It’s not like it went from80 to 50 percent.”In Tacoma, “we’ve learned that you can’tbecome too callous as you become a big port.You have to remember that every piece ofcargo has people associated with it. If thoseTRANSPORT / PORTSClosestAMERICAN SHIPPER: FEBRUARY 2006 89

TRANSPORT / PORTSpeople are unhappy — for whatever reason— that cargo will go elsewhere,” he said.‘Helpful Transitions.’ As more spacein the ports of Seattle and Tacoma is givenover to containers, “that puts pressure onother commodities, which tend to comeOlympia’s way,” Qvigstad said.The port of Olympia, located in Washington’sstate capital, is located at the head ofPuget Sound, 59 miles south of Seattle and10 hours’ sailing time from Port Angeles,on the Strait of Juan de Fuca.“Olympia has traditionally been a nicheport,” Qvigstad said. “Seattle and Tacomasee their future in containers and cruisebusiness, while we remain committed tobreakbulk cargo.“Many of the combination vessels callingin Olympia carry both containers andbreakbulk cargo,” Amador noted of theport, which has a 60-acre marine terminal,two gantry cranes, and three deepwaterberths. “Our facilities have been designedwith heavy-lift capability,” he added. Theport’s on-dock rail line extends to BNSFand UP.“Forest products have historicallybeen our staple,” Qvigstadsaid.On the general cargo side, “wehave a combination of tramp businessand some recurring semilineractivities. We’re focusing ongrowing that now, especially forproject cargo,” she said.“Seattle and Tacoma are gettingout of those market segments,which gives us the opportunity tostep in where we can,” Amadorsaid.In the 1990s, “we made astrategic decision to diversify cargoescoming into Olympia whilestrengthening its core forest productsbusiness,” Qvigstad said.The latest example is a leasethe port signed with WeyerhaeuserCo. for a 24.5-acre site on theport’s peninsula for Weyerhaeuser’snew forest products exportfacility, being relocated from Tacoma.The lease extends five yearswith options for three consecutivetwo-year extensions. Operationsare expected to begin in the springof 2006, pending construction ofimprovements on the site.The new facility will handle upto 18 export vessels and 30 bargesof inbound logs a year. More than100 million board-feet of exportwood is expected to cross thedocks annually, compared to 4190 AMERICAN SHIPPER: FEBRUARY 2006Seattle, Tacoma ‘gateways’ rankedThe Department of Transportation’s Bureau of TransportationStatistics (BTS) said the ports of Seattle and Tacomaranked 19th and 20th by value of shipments in 2004 amongthe top 50 U.S. foreign trade freight gateways, including air,water and land ports.The previous year, the port of Seattle ranked 21st andTacoma 17th.BTS said that in 2004, the port of Seattle handled $6.7 billionexports and $22.9 billion imports, for a total of $29.6 billion.In 2003, Seattle had handled $5.7 billion in exports and $17.4billion in imports, for a total of $23.1 billion.In 2004, the port of Tacoma handled $5.3 billion in exportsand $23.6 billion in imports, for a total of $28.9 billion. Theprevious year, Tacoma handled $5.2 billion in exports and$21.1 billion in imports, for a total of $26.3 billion.Seattle had a roughly $700,000 lead over Tacoma for 2004in value of cargo. Both ports were ahead of the water ports ofOakland (ranked 21st with $27.3 billion total for exports andimports) and Savannah (22nd, $26.3 billion total), and justbehind the airports of New Orleans (18th, $30.0 billion) andDallas-Fort Worth (17th, $32.1 billion).To give those figures some perspective, the BTS’s top-rankedU.S. gateway in 2004 was JFK International Airport in NewYork, which handled $52.7 billion in exports and $72.6 billionin imports, for a total of $125.3 billion.Neither Olympia nor Everett made the BTS’s top 50 listfor 2004. That roster ended with the land port of Sweetgrass,Mont., which handled $9 billion of combined exports andimports.As for other West Coast ports ranked by BTS, Los Angeles’water port was second ($121.4 billion), Long Beach wasthird ($121.3 billion), and Portland, Ore., was 39th ($12.1billion).million in 2004.“The port has established itself as aregional log load center, and this move capturesa market opportunity that is a naturalextension of what we already do well,” saidBob Van Schoorl, president of the OlympiaPort Commission.“The move to Olympia is driven by thechanges in Weyerhaeuser’s timberlandsownership in the Pacific Northwest overthe last few years,” said Brad Kitselman,director of marketing for Weyerhaeuser’sWestern Timberlands division.“Since we no longer own tree farms inKing and Pierce counties, the Olympialocation better serves our operations insouthwest Washington. In addition, the portof Olympia can handle larger ships than thefacility we’ve had in Tacoma,” Kitselmanexplained.The port of Olympia has had a contractualagreement with ILWU Local 47 going backto the 1950s.“I’ve had an opportunity to see howunions work in other ports. We have a jointpartnership with our local that is on a differentlevel entirely from what I’d knownbefore,” Amador said. “Basically, the unionwill accommodate almost anything that acustomer wants done, within reason.”Still, “it would be ideal if breakbulk portscould spin off a separate labor agreement,”Qvigstad noted.“Our port is not only a shipping terminal,but also a fairly diverse holding company— we have an airport, real estate and commercialproperties, and we operate a recreationalboating facility,” she said.The port of Olympia functions as amunicipal corporation, generating revenuethrough its business operations. A threememberelected port commission has theability to levy taxes, which typically pay forconstruction projects. The commissionersalso issue bonds for other financing.Helped by its proximity to the state capitol,the port of Olympia has also become aproponent of short-sea shipping.“There’s a major government initiativeto find private-sector partners to identifyniche routes and schedules,” Qvigstad said.“Because of our forest product activity,we are looking at more bargeactivity for logs that are broughtfrom British Columbia, and thenconsolidated and shipped out ofthis port.”As part of the Northwest MarineTerminals Association, the portof Olympia also “has antitrustimmunity to address competitivenessand operational issues withour peers,” she added.From the perspective of Qvigstadand Amador, the port ofOlympia’s informal links with theports of Seattle and Tacoma havecreated useful leverage.“Cargoes come and go. Youneed always to think about longtermflow,” Amador said.“We have real estate that cansupport the growth of Seattle andTacoma on the container side,”Qvigstad said. “They have beenvery helpful in terms of transitionsof cargo that have been displacedto us and to Everett.”Everett. The port of Everett,on Puget Sound 25 miles northof Seattle, recently received twocranes that had been put on surplusstatus by the port of Seattle.“It would have been expensiveto scrap them. Instead, the privatecompany that won a bid to disposeof the cranes elected to shipthem to Everett,” Paskovskis said.“We’ve upgraded and refurbished

Jim Amadormarine terminaldirector,port of Olympia“Cargoes come and go.You need always to thinkabout long-term flow.”the cranes, and will have them operationalin the first quarter of 2006.”The port of Everett focuses on specializedbreakbulk, refrigerated, containerized andproject cargoes.The 400-acre port now operates all of itsfacilities — SSA Marine no longer beingthe lessee at its Pacific Terminal.“We felt it was in the port’s best interestto make our terminals open for any and alloperators to come in and use,” Paskovskisexplained.In addition to its cargo operations, theport of Everett owns the largest marinaon the U.S. West Coast — home to 2,100privately owned recreational boats. Theport also manages and leases a large tractof industrial properties.“That’s a kind of three-legged stool whichkeeps us from being dependent on any oneline of business,” Paskovskis said.Olympia and Everett used to compete fordiscretionary log business. “There’s beena significant drop in the export market oflogs,” he said. “That’s because forest productsupply sources have changed in the last 10years. Chile, portions of Russia and NewZealand have now become the ‘wood basket’of Japan. The U.S. once had a strong connectionwith Japan in regard to Douglas fir,but not any more.”The loss of log business has been mitigatedfor Everett by increased business fromBoeing, a major aerospace company, overthe last decade.“Most of Boeing’s incoming productsmove through Seattle and Tacoma, in directship calls. Olympia doesn’t really participate,”Paskovskis said.Everett’s relationship with Boeing startedin 1993, when Boeing recognized the needto import oversized boxes, larger than atypical 40-foot-container. Some of theboxes are 23 feet wide, and 16 to 18 feethigh. Boeing’s oversized boxes delivered toSeattle and Tacoma are put on barges andtowed to Everett, which is only three milesfrom Boeing’s assembly plant.“After 10 years of coming in by barge,Boeing has seen the benefit of having a directship call in Everett,” Paskovskis said.That led to thinking how to solve a problemencountered en route to the Boeing plant.“The boxes come from Japan. They go by railto the plant. But when the wider boxes travelalong the three-mile BNSF rail link, they holdup other freight traffic,” he said.As a way around that problem, “the aerospaceindustry, along with Boeing and theport, have committed to build a barge-andrailfacility at the switch location at the baseof the hill up to the Boeing plant,” he said.The project will be finished by summer.Boeing’s boxes transloaded by barge,many of them containing sections for thecompany’s new 777 passenger jets, will stilltravel by rail from the discharge facility upa hill to the assembly plant. But the bargeswill eliminate bottlenecks that occur alongthe three-mile rail link.“We anticipate that the new facility willbring more Boeing shipments throughEverett,” Paskovskis said.Ports in the Puget Sound region have alsoshared in intermodal improvements. Oneeffort has been the Freight Action Strategyfor the Tacoma-Seattle-Everett traffic corridor.That route, on which vehicular andrail traffic are separated, “has become areal success story,” he said.Asked why smaller ports excel at handlingbreakbulk shipments, he noted that “smallports out our way have always been involvedwith specialized lifts.“For example, log loading requires individualcare on each lift. Longshoremen inthe Pacific Northwest have experience inworking with the gear and tackle to handlethat,” Paskovskis said.“That’s not to say you can’t gain the samething with a container crane and spreaderbar. It’s just that the ILWU gangs in smallports have more physical exposure to thecargo they handle,” he explained.In the port of Everett, “we do our ownhandling from ship’s tackle to shore when wehave the appropriate equipment. If we don’thave it, then we defer that to local stevedorecompanies,” Paskovskis said.Asked if he viewed Vancouver and PrinceRupert, in British Columbia, as competitors,Paskovskis replied, “I don’t think of themas such, not directly. We see it this way: theFar East market and demand for product isso high — I’m not sure that facilities at thefour major Puget Sound ports can sustainthe growth to handle that demand.“There’ll be plenty of cargo to go around,north and south of the Canadian border.The marketplace will ultimately determinewhere the cargo goes,” he said. ■TRANSPORT / PORTSThe PortOf VirginiaNew straddle carriers complementa $279 million renovation atNorfolk International Terminals,ensuring your cargo is handled inthe fastest, most efficient mannerpossible. We’ve devised the easiestway for truckers and shippers tosave time and money: a one-of-akindtruck chassis pool. A growingnumber of companies, looking forthe closest possible access toEastern U.S. and Midwest markets,are taking advantage of thePort’s ideal location and have setup distribution centers in Virginia.The Port of Virginia. It doesn’t getany better than this.TheIs HereVirginia Port Authority • 600 World Trade CenterNorfolk, VA 23510 USA • Phone 757-683-8000FAX 757-683-8500 • Toll Free 800-446-8098 •www.vaports.comAuthorityFuture© 2006 Virginia PortAMERICAN SHIPPER: FEBRUARY 2006 91

Soda pop and sea waterIn mid-August 2000, the CSX Expedition, a ship boundfor Port Elizabeth, N.J., docked in San Juan, Puerto Rico,to load additional freight. The new cargo included three40-foot containers for which the Pepsi Cola Co. was theconsignee. Each container held hundreds of five-gallonplastic pails of phosphoric acid solution, a concentratefrom which caffeine-free Pepsi is produced.During the voyage north, one of Pepsi’s containers wasflooded under 10 feet of ballast water, while the othertwo were partially submerged. After the ship reached PortElizabeth, Pepsi examined the cargo and accepted thetwo containers that had only been partially submerged.CSX Lines LLC, which owned and operated the vessel,wiped the pails clean and repackaged them where necessaryin these two containers, at a cost of $68,430. WhenPepsi rejected the fully submerged container, insistingthe integrity of its contents had been compromised, CSXretained a cargo surveyor who independently inspectedthe cargo and disputed Pepsi’s assessment. Despite thedisagreement, Pepsi disposed of the contents of the fullysubmerged container in late September 2000.Pepsi’s insurer, Atlantic Mutual Insurance Co. Inc.,subsequently sued CSX and its vessel in federal court, allegingnegligence and breach of contract. CSX’s surveyor,Richard Allen said the integrity of the pails’ sealing capshad not been compromised and that rust on the caps wasclearly cosmetic.” Allen said Pepsi refused him an opportunityto directly examine the concentrate. Pepsi saidAllen would only have been barred from taking a sampleof the concentrate off-site. In court papers, Pepsi claimedit restricted access to the concentrate “in order to protectits well-guarded formula and control practices.”When the district court ruled in favor of CSX, determiningPepsi’s insurer had failed to submit sufficient evidenceto establish a case of liability under the U.S. Carriage ofGoods by Sea Act (COGSA), Atlantic Mutual appealedto the Second Circuit.The appeals court noted that “to recover against a carrierfor damage to goods shipped (under) a bill of ladinggoverned by COGSA,” a shipper must prove “both deliveryof the goods to the carrier in good condition and outturnby the carrier in damaged condition.” Furthermore, “theloss in market value of a plaintiff’s cargo is the presumptivemeasure of damages in a suit brought under COGSA.Generally, the measure of damages is the difference betweenthe fair market value of the goods at their destination in thecondition they should have arrived and the fair market valuein the condition in which they actually did arrive.”“Since loss in market value is the ordinary yardstick ofdamages in a COGSA suit, we believe that evidence of asignificantly discounted market value must also suffice toshow damage to cargo for purposes of establishing COGSAliability,” the court said. “Atlantic Mutual has submittedevidence that the pails of Pepsi Free concentrate shippedin the fully submerged container retained no market valuebecause the concentrate could not, as a practical matter,be sold.”Because CSX “accepted responsibility for the circumstancesthat led to the pails being submerged in ballast waterfor a prolonged period of time, and because these conditionsprecipitated the loss of the concentrate’s market value(regardless of whether actual contamination occurred), wehold that Atlantic Mutual (had adequately established) acase for liability under COGSA,” the court said.The Second Circuit appeals court vacated the district92 AMERICAN SHIPPER: FEBRUARY 2006court’s ruling and remanded the case to the lower courtfor further proceedings.[Atlantic Mutual Insurance Co. Inc., as subrogee of PepsicoInc., v. CSX Lines LLC and CSX Expedition; U.S.Court of Appeals for the Second Circuit; Docket number04-6670-Civ; Date of ruling: Dec. 27, 2005]Where ‘privilege’ runs thinIn a case brought in federal court in New York by Reinode Espana (Spain) against the American Bureau of Shipping,arising from the sinking of the tanker Prestige offthe coast of Spain in 2002, ABS provided 8,317 pagesof documents to Spain on March 4, 2005.ABS, a vessel classification society, maintained it hadinadvertently included 10 pages of e-mail communicationsand 24 pages of handwritten notes that “were protectedby attorney-client privilege … because they reflected thetransmission of confidential legal advice related to thePrestige litigation.” ABS asked the court “to order Spain toreturn or destroy these allegedly privileged documents.”“The attorney-client privilege protects from disclosureconfidential communications made between client andcounsel for the purpose of obtaining or providing legaladvice or services,” said U.S. Magistrate Judge Ronald L.Ellis. “ABS claims that its officials sought legal advicefrom general counsel via e-mail after reviewing a bulkersafety news article. Spain contends that the e-mails discussnon-legal, business related issues.”After reviewing the documents, Ellis said the e-mails“contain a discussion of the news article” that wasprimarily about “ABS’s relative advantage vis-à-vis itscompetitors if it adopts different bulker safety standards.”Recipients of the e-mails included Frank Iarossi, ABSchairman and chief executive officer; Robert Somerville,president; Steven McIntyre, director of regulatory affairs;Donald Liu, senior vice president of technology and chieftechnology officer; Steward Wade, vice president ofmarketing and communication; as well as Thomas Miller,general counsel. The court found ABS’s contentionswithout merit. “The inclusion of ABS employees outsidethe legal department as recipients further supports theconclusion that the e-mails contain business advice.”As for the handwritten notes, which came fromWade, “ABS maintains that Wade prepared each note inanticipating of litigation. The court finds this argumentunpersuasive … the court finds that in light of the Prestigecasualty, ABS would have created notes concerningpress and public relations strategies in the normal courseof business without the threat of litigation.ABS also argued “it inadvertently produced the allegedlyprivileged documents,” Ellis said. While “thevoluntary production of a privileged document removesall confidentiality from the document … privilege isnot waived if the disclosure is inadvertent.” However,privilege “is waived if the disclosing party failed to takereasonable steps to maintain the confidentiality of theassertedly privileged documents,” Ellis said.The court determined “the procedure ABS used tosafeguard the confidentiality of the materials was inadequate,and affects a waiver of any privilege otherwiseapplicable,” and denied ABS’s request. The case continuesin New York’s Southern District.[Reino de Espana v. American Bureau of Shipping; U.S.District Court for the Southern District of New York;Docket number 02 Civ. 3573; related case: 04 Civ. 0671;Date of ruling: Dec. 14, 2005]

Corporate Appointments(800) 876-6422, FAX (904) 791-8836, e-mail gburrows@shippers.comLogisticsDHL Danzas Air & OceanChris Fahy has replaced Renato Chiavi ashead of the logistics division of DHL.Fahy was DHL Danzas Air & Ocean’sregional director for Europe.Deutsche Post World Net, Europe’s largestpostal service and owner of DHL, said Chiaviwill continue to work with the group, supportingthe integration of recently acquiredExel and promoting expansion of forwardingbusiness and projects logistics.TNT Logistics North AmericaThe supply chain services provider hasnamed Steven A. Kowalkoski vice presidentand general manager, automotive.Kowalkoski was vice president of globalautomotive services with Eagle Global Logistics.Before that, he worked for SchneiderLogistics and FedEx Logistics.ForwardingGeoLogisticsThe large international freight forwarder,has named Thomas Eisenblatter senior vicepresident, ocean freight. He will join theSanta Ana, Calif.-based company May 1.Eisenblatter has worked as Panalpina’smanaging director of ocean freight since2001.GeoLogistics is a subsidiary of KuwaitbasedPWC Logistics.Sinotrans Ltd.The Chinese forwarding and shippinggroup said its chairman and executive directorZhang Bin announced his resignationfrom the company at an extraordinary boardmeeting held Jan. 10 in Beijing.The board proposed Zhao Huxiang toreplace Bin. The proposed resignation andappointment will be submitted at the firstextraordinary general meeting scheduledMarch 3.Huxiang worked for the Chinese governmentat the Marine Transportation Bureauof the Ministry of Communications. InDecember 2005, He was appointed generalmanager of China National Foreign TradeTransportation (Group) Corp., the governmentagency in charge of Sinotrans.IntegratorsDeutsche Post World NetEurope’s largest postal service and ownerof DHL and more recently Exel, has appointedformer Exel Chief Executive OfficerJohn Allan to its management board,in charge of the enlarged logistics businessfollowing the recent 5.6-billion-euro ($6.6-billion) takeover of the U.K.-based logisticscompany.Allan’s contract runs for three years. Hewill assist in the integration of Exel intoDHL Logistics.Allan replaces Frank Appel who will nowhead Deutsche Post’s newly created globalcorporate services division.FedEx Kinko’sFedEx Corp. said Gary Kusin, chiefexecutive officer of FedEx Kinko’s Officeand Print Services has resigned, effectiveat the end of January.FedEx acquired Kinko’s office centers inFebruary 2004 for $2.4 billion.Kusin will be replaced by Kenneth A.May, the company’s executive vice presidentand chief operating officer. May is a 24-year FedEx veteran who previously servedas senior vice president of U.S. domesticground operations as well as air, ground andfreight service at FedEx Express.Brian D. Philips, vice president of U.S.marketing for FedEx, will succeed May asCOO of FedEx Kinko’s.MaritimeHorizon LinesFormer U.S. Transportation Commandchief Gen. John W. Handy has been namedexecutive vice president, responsible forimproving profitability and efficiency,business development and grooming newmanagement.John Keenan will now serve as HorizonLines’ senior vice president and chieftransportation officer. He was senior vicepresident and chief operating officer.Brian Taylor has been promoted to seniorvice president, sales and marketing. Hewas vice president and general manager ofHorizon Lines’ Hawaii/Guam service.Mediterranean Shipping Co. (USA)The major global container carrier haspromoted several executives.Nicola Arena has been named chairman aswell continuing as CEO of MSC (USA) andits IT subsidiary, Interlink Technologies.Claudio Bozzo is now president and chiefoperating officer. He was executive vicepresident.Allen Clifford has been named executivevice president, commercial. He was seniorvice president, sales and marketing.Robert Milazzo is now executive vicepresident, intermodal and equipment control.He was senior vice president, intermodal.Giancarlo Morgera is senior vice president,liner services. He was vice president,liner services.Christopher J. Parvin has been promotedto vice president, marine operations from assistantvice president, marine operations.Fabio Catassi has been named presidentand chief operating officer of InterlinkTechnologies. Catassi will retain his title aschief technical officer, MSC Geneva.InlandPacer InternationalIntermodal industry veteran John Hickersonhas been named chairman and chiefexecutive officer of Pacer’s truck servicesunit Pacer Transport.Hickerson was vice president of domesticintermodal marketing and sales for BurlingtonNorthern Santa Fe. He also spent 22years with the Con-Way group, with stintsas president and CEO of Con-Way SouthernExpress and as vice president and generalmanager of CF Truckload Services.Pacer Transport, which provides specializedand heavy-haul trucking services, aswell as van or trailer services, is part ofPacer Global Logistics, the logistics armof Pacer International.TTX Co.TTX Co., which owns and operates a poolof freight cars for the North American railindustry, has appointed Kathleen Savard asvice president and chief financial officer,effective Jan. 1.Savard joined TTX earlier this year asassistant vice president, strategic financialplanning. Previously, she was vice presidentand treasurer of Flowserve Corp.She replaces Thomas D. Marion, TTX’ssenior vice president and chief financialofficer, who is retiring.AMERICAN SHIPPER: FEBRUARY 2006 93

Service Announcements(800) 876-6422, FAX (904) 791-8836, e-mail gburrows@shippers.comChina Shipping, CMA CGM plan Atlantic loopChina Shipping and CMA CGM will start a joint weekly transatlanticservice in March.The first voyage on the new USA Servicewill be made March 15 with both carriersproviding two 2,250-TEU ships calling: NewYork, Baltimore, Norfolk, Charleston, LeHavre, Antwerp, Rotterdam, Bremerhavenand back to New York.China Shipping said transit betweenBremerhaven and New York will be eight days.Maersk, CP Ships to start pendulum serviceMaresk Sealand said it will establish a vessel sharing agreementwith CP Ships in the trade between Australasia, the U.S. East Coastand Europe.Hapag-Lloyd and its sister company CP Ships announced inNovember that they were finalizing plans to start the service.Maersk said that new pendulum service will use 11 high-reefercapacity vessels, which have been used on the Eastabout service.Both the Eastabout and Westabout loops will end in Februarydue to P&O Nedlloyd’s integration with the Maersk brand.CP Ships, CMA CGM in vessel sharing pactCP Ships said it will be a vessel provider on CMA CGM’s previouslyannounced fortnightly service between Australasia, the U.S.East Coast and North Europe via the Panama Canal, due to startFebruary. CP Ships will provide two of the six 2,500-TEU vessels.French carrier Marfret will also participate on the new loop.Under terms of the vessel sharing agreement, CMA CGM willcooperate with CP Ships and Hapag-Lloyd on their new weeklyjoint service, also starting in February, between Australasia, Asia,the Mediterranean and North Europe via the Suez Canal. CMACGM will provide two of the 12 ships ranging from 2,000 TEUsto 2,500 TEUs.The new Suez and Panama services will replace the round-theworldservices known as Westabout and Eastabout, which are beingdiscontinued in February.COSCO, Grand end slot charterCOSCO Container Lines said it will end its slot charter arrangementsin the U.S. Gulf/Europe trade on the weekly Grand AllianceGASS and SGX services in February.COSCO said the decision was prompted by P&O Nedlloyd’stakeover by A.P. Moller-Maersk and subsequent withdrawal fromthe Grand Alliance.It is still unclear whether COSCO’s CKYH alliance partners,“K” Line, Yang Ming and Hanjin Shipping, will continue to takespace on the GASS and SGX loops.CP Ships to join Grand Alliance in PacificGrand Alliance members Hapag-Lloyd, NYK Line, OOCL andP&O Nedlloyd have filed with the U.S. Federal Maritime Commissiona modification to include CP Shipsin the alliance for services in the transpacifictrade.Hapag-Lloyd acquired CP Ships for $2.3billion in December. CP Ships’ inclusionwill help cover the loss of P&O Nedlloyd,the largest carrier in the Grand Alliance, whowill leave the group in February following its94 AMERICAN SHIPPER: FEBRUARY 2006takeover by A.P. Moller-Maersk in August.The parties have requested expedited review of the modificationto the agreement.Hanjin adds Oakland calls to Pacific loopKorean ocean carrier Hanjin Shipping has added calls at Oaklandto its weekly transpacific China America Express service.The CAX service operates with four 4,300-TEU ships and hasa revised port rotation including Shanghai, Busan, Long Beach,Oakland, Busan and Shanghai.Fellow CKYH alliance members, “K” Line and Yang Ming takeslots on the service along with Sinotrans Container Lines.WTSA lines to raise metal scrap ratesContainer shipping lines in the Westbound Transpacific StabilizationAgreement (WTSA) said they plan to increase freight ratesfor shipments of metal scrap by $150 per 40-foot container and$120 per TEU, effective Feb. 15.Metal scrap has been the second-largest containerized cargomoving from the United States to Asia during the past year, withmore than 235,000 TEUs shipped during the first nine monthsof 2005.WTSA carriers have also decided to limit the “free time” allowedfor delivery of cargo and return of container equipment in China.Effective also on Feb 15, equipment detention charges will beginto accrue at Chinese destination points after 12 calendar days offree time.“Shippers occasionally take advantage of free-time allowancesto ship loads of scrap metal before actually lining up a Chinesebuyer,” the WTSA said. The limit on free-time allowances aims to “toimprove equipment availability and recover delay-related costs.”WTSA’s member lines are: APL, China Shipping Group, COSCOContainer Lines, Evergreen Marine Group (Taiwan), Hanjin ShippingCo., Hapag Lloyd Container Linie, Hyundai Merchant MarineCo., Kawasaki Kisen Kaisha (“K” Line), Nippon Yusen Kaisha(N.Y.K. Line), Orient Overseas Container Line, and YangmingMarine Transport Corp.Rickmers-Linie to add Pacific voyagesHamburg, Germany-based breakbulk, heavy lift and projectcargo shipping line Rickmers-Linie has signed a two-year charteragreement for four multipurpose vessels operated by JapaneseEastern Car Liner (ECL) in the Asia/U.S. East Coast trade, to startwestbound transpacific voyages.Under the terms of the agreement, ECL will deliver its shipsafter the end of each monthly eastbound voyage to Rickmers-Linie,who will then charter the ships for transpacific westbound voyagesand redeliver them to ECL in Japan.The four 11,000-deadweight-ton vessels are equipped withroll-on/roll-off ramps and heavy lift gear capable of lifting loadsof up to 120 tons.Rickmers-Linie will start its new westbound service later thismonth with calls at Philadelphia, Charleston, Houston, Busan,Xingang, Qingdao, Shanghai and Yokohama.ECL’s existing eastbound service calls Kanazawa, Osaka, Nagoya,Moji, Puerto Bolivar, Savannah and Philadelphia.Carriers to add Oakland to RTW serviceNorasia Container Lines, China Shipping Container Lines,Zim Integrated Shipping Services and Gold Star Line have addedcalls at Oakland to their joint weekly Asia/Middle East/Indian

subcontinent/Europe/U.S. East Coast/U.S. West Coast/Asia Roundthe World service.The first call at Oakland was made by the 2,770-TEU vesselNorasia Rigel Jan. 15.The Round the World service uses 13 ships averaging 2,900TEUs, with nine provided by Norasia, and has a revised port rotationof: Shanghai, Ningbo, Xiamen, Chiwan, Singapore, Port Kelang,Jebel Ali, Mundra, Nhava Sheva, Tuticorin, Colombo, Damietta,Felixstowe, Rotterdam, Hamburg, New York, Norfolk, Charleston,Kingston, Los Angeles, Oakland and back to Shanghai.Hapag-Lloyd, CP Ships to merge loopsHapag-Lloyd and its new sister company CP Ships will combinetwo existing services between the Mediterranean, U.S. EastCoast and the Gulf of Mexico, starting inFebruary.The rationalized weekly service will becalled the Mediterranean Gulf Express andwill use six 3,000-TEU ships calling at Malta,Cagliari/Gioia Tauro, Leghorn, Genoa, Barcelona,Valencia, Veracruz, Altamira, Houston,New Orleans, San Juan and Malta again.Zim Integrated Shipping Services will continue its slot charteragreement with Hapag-Lloyd in the trade and will also allow theGerman carrier to take space in the transatlantic section of itsZCS loop.At the same time, Hapag-Lloyd said it will cease taking spaceon CMA CGM’s weekly transatlantic Amerigo Express, replacingit with an agreement with Maersk Line between the East Mediterraneanand the U.S. East Coast.MSC, Maersk, Safmarine add ship to loopMediterranean Shipping Co. and Maersk Sealand, along withsister company Safmarine Container Lines, have added an eighthship to their joint U.S. East Coast/South AfricaAmerica Express serviceThe addition improves the sailing frequencyto fixed-day weekly.The 2,480-TEU ship MSC Amsterdamjoined the AMEX service Jan. 5.The AMEX port rotation remains: NewYork; Baltimore; Norfolk, Va.; Charleston, S.C.; Freeport, Bahamas;Cape Town; Durban; Port Elizabeth; Cape Town; and backto New York.U.S./Caribbean lines raise bunkerchargesThe Caribbean Shipowners Association, a carrier group in theU.S./Caribbean container trade, will next month raise its bunkersurcharges “due to the continued rise in fuelprices.”Effective Feb. 5, the new levels of the bunkersurcharges will be $102 (from $78) per 20-footcontainer, $188 (from $140) per 40-foot boxand $214 (from $160) for containers longerthan 40 feet.CSA carriers are Bernuth Lines, CMA CGM, CP Ships, Crowley,Interline, Seaboard Marine, SeaFreight Line, and TropicalShipping.FTD Shipping leaves discussion agreementNina (Bermuda) Ltd., doing business as FTD Shipping Line,has left the Hispaniola discussion agreement, a carrier group inthe U.S./Caribbean trade.The remaining agreement members are Crowley Liner Services,Seaboard Marine, Tropical Shipping and Frontier LinerServices.Radiance kicks off Mexico ro/roRadiance Shipping Line has started a weeklyroll-on/roll-off service between Port Manatee,Fla. and Progreso, Mexico.The vessel Luz B can carry 122 TEUs, including51 reefer TEUs, and will call in Floridaevery Tuesday and Mexico every Friday. Thevoyage will be approximately 42 hours.Internet Indexof AdvertisersCheck out these locations on the World Wide WebAmerican ShipperComPair Datawww.AmericanShipper.comwww.compairdata.comAPL Co. Pte Ltd. www.apl.comAtlantic Container Line www.ACLcargo.comAvalon Risk Management www.avalonrisk.comChina Shipping Container Lines Co.www.chinashippingna.comCOSCO www.coscon.comCP Ships www.cpships.comDGX www.dgxshipping.comDHX www.dhx.comEagle Global Logistics www.eaglegl.comEmirates Sky Cargo www.skycargo.comEvergreen America Corp. www.evergreen-marine.comFMI International www.fmiint.comFreightgate www.freightgate.comGlobal Maritime Transportation Serviceswww.globemar.comGulf Africa Line www.galborg.comHampton Roads Maritime Associationwww.portofhamptonroads.comIntermarine LLC www.intermarineusa.comInternational Air Cargo Association www.tiaca.orgLog-Net www.log-net.comMaersk Logistics www.maersklogistics.comMaersk Sealand www.maersksealand.comMatson Navigation www.matson.comMediterranean Shipping Co. USA Inc.www.mscgva.chMIJ Ministry of Finance www.gfez.go.krMOL (America) Inc. www.molpower.comNational Shipping Co. of Saudi Arabiawww.nscsaamerica.comOceanwide Inc. www.oceanwide.comPort of Oakland www.thechinaconference.comRickmers-Linie www.rickmers-linie.comRetail Industry Leaders Association www.retail-leaders.orgSafmarine www.safmarine.comSeaboard Marine Inc. www.seaboardmarine.comSino Americas Conferencewww.sinoamericasconference.comSouth Carolina State Ports Authoritywww.port-of-charleston.comTT Club www.ttclub.comUnited Arab Shipping Co. www.uasc.com.kwVirginia Ports Authority www.vaports.comYang Ming Line www.yml.com.twAMERICAN SHIPPER: FEBRUARY 2006 95

Future logistics epicenterChina has raced to the global forefront of manufacturing and exporting, but India’s moremeasured pace of industrial development may ultimately be to its benefit and to the shippersthat set up operations there.As reported in depth in this month’s American Shipper, India shows great promise atbecoming a logistics services epicenter for the global shipping industry.True, India still suffers from poor transportation infrastructure, insufficient manufacturingcapacity, and bureaucratic red tape. However, the Indian government and industry bothrealize the need for these types of investments and are moving quickly to make them.While India’s transportation and manufacturing sectors play catch-up to China, this SouthAsian country has rapidly built a service sector in recent years, especially in the field oftechnology support.Businesses throughout the world seeking help with computer problems are often routedto Indian call centers staffed by young, highly educated, and motivated employees. TheseEnglish-speaking service center employees are trained to correct problems and find waysto do things better. Isn’t that what logistics management is all about?Today’s logistics providers could use India’s technical expertise and cheaper labor, inaddition to its corporate willingness to operate 24 hours a day, to build workforces that arebacked by powerful data tools to manage international freight moves.Manufacturing and transportation infrastructure will come to India in the next five to10 years, but it’s better to first have the intelligence in place to make the system work efficiently.96 AMERICAN SHIPPER: FEBRUARY 2006

Evergreen Group Chairman Dr Y. F. Chang says that shipowners should use thelatest technology as soon as it is available to minimize the impact of containershipping operations on marine life and port communities. In this spirit, Evergreenwill soon take delivery of a fleet of Evergreen S-Type “Greenships”.Surpassing world environmental standardsThe Evergreen S-Type Greenships design from Mitsubishi HeavyIndustries’ Kobe Shipyard incorporates features that meet or surpassthe strictest global environmental standards. It has received Lloyd’sRegister environmental protection (LR EP) notation and equivalent ESnotation with the American Bureau of Shipping (ABS), makingEvergreen a global leader in natural resource and environmentalmanagement.International quality and environmental standardsDouble-skin hull design leads the industryEvergreen took the lead to prevent maritime accidents and oil spillswith the Greenships design as early as 2003, seven years prior to theenforcement of SOLAS and MARPOL conventions on maritimepollution and safety requiring shipsworldwide to have double-skinned hulldesign by 2010. Container ships arenot bound by these rules,thus demonstrating Evergreen’scommitment to sustainabledevelopment, protection of themaritime environment and corporatesocial responsibility.S-Type Greenships employs the latestdouble-skin hull designNext-generation design protects the oceansThe oil tanks on the S-Type Greenships are situated in the spacesbetween cargo holds and above thetanktop to minimize the likelihood of fuelspills in the event of an accident. Oilspills can severely damage ocean andcoastal environments and thispreventative approach by Evergreen isboth pro-active and responsible.Tin-free anti-corrosive paint helps keep the ocean cleanTo protect and sustain the oceans, Evergreen is committed to a newtin-free anti-corrosive coating on the newS-Type ships as well as all of its othervessels. Research has shown that thiscoating has high anti-corrosive propertiesand is better for the environment.Excessive tin in ocean environments cancause serious harm to marine life.Internal fuel tank design meets strictenvironmental standardsAdvanced ship design saves energy,while tin-free anti-corrosive coatingsare safer for the environmentGreen technology and policies fulfill environmentalcomplianceTo honor environmental commitments, Evergreen S-Type Greenshipsuse the latest low-sulphur fuel systems, advanced oil-waterseparators, environmentally friendly Freon, large high-temperatureincinerators and dock power systems to protect the purity of theoceans and the air quality around ports and the people who live there.1. Increased capacity bilge separator and bilge tank.8. Equipped with waste and excess food storage chambers. 6. Electric deck machinery replaces electro-hydraulic machinery.2. Equipped with grey water holding tank.3. Equipped with cargo hold bilge holding tank.7. Airspace stern tube sealing system replaces oil seal system.4. Internal oil tank design provides double protection for fuel tanks.5. Superior hull shape and propeller design reduces drag and improves energy efficiency.

Announcing the newest chapter ofMatson’s evolution.Matson’s China service begins in February 2006.On February 22, 2006, Matson will expand its shippingservices to the China market. Our weekly sailing will callon Ningbo and Shanghai before proceeding directly toLong Beach, California. One of the most efficient andexperienced shipping companies in the world, Matson is the principal carrier of containerized cargo betweenthe U.S. West Coast, Hawaii and Guam. Our China service will employ our fastest ships to provide11 day transit to our dedicated Matson terminal. From this facility we offer oneday cargo availability and seamless intermodal services capable of movinggoods to and from virtually any location in North America. Proud of our pastand enthusiastic about the future, we look forward to serving the China market.Brought to you by Matson®If your time sensitive cargo and shipping needs can benefit from our services,please call (800) 4-MATSON or visit matson.com.