Logistics Management - May 2011

MAY 2011WWW.LOGISTICSMGMT.COM®WAREHOUSE & DC MANAGEMENTGUESS’distributionevolutionPage 24Intermodal looksmarvelous! 30Freight forwarding:Choosing the rightpartner 382011 TechnologyRoundtable 42+ ROUNDTABLE WEBCAST:May 31, 2011, 2:00 pm ETlogisticsmgmt.com/tech2011Tom Boyle,project manager,GUESSSPECIAL REPORT: TOP 20 U.S. PORTSWhere’s the money? 48S

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Get your daily fix of industry news on logisticsmgmt.comAn executive summary of industry newsn Diesel cracks $4 per gallon. As if there was anydoubt, the price per gallon of diesel fuel officiallyeclipsed the $4 mark last month. This increasemarked the first time diesel has been above the$4 per gallon mark since the week of September15, 2008, when it hit $4.023. Many shippers haveexpressed concern about the pace of these dieselincreases, explaining that if prices continue to riseat their current pace it has the potential to hindergrowth and increase operating costs; which will,in turn, force them to raise rates and offset theincreased prices to consumers. For a better understandingon where oil and fuel prices are headed,read Andreoli on Oil & Fuel (page 22).n Holding the line on infrastructure. Whendiscussing what stays or goes in the next federalbudget, President Barack Obama made it clearthat reducing investments in infrastructure is notan option. “We're not going to reduce the deficitby sacrificing investments in our infrastructure,”Obama said at Northern Virginia Community Collegein April. This statement follows a recentlyreleasedsix-year, $556 billion federal surface transportationreauthorization proposal rolled out bythe White House earlier this year. While the bill isambitious and far-reaching, how to effectively fundit remains an obstacle.n TransCore says March truckload spot marketsets another record. As trucking capacity remainstight, one of the biggest beneficiaries is the spotmarket. That was made clear in data released byTransCore, which indicated that spot market truckloadfreight volume in March hit its highest levelsince the firm’s North American Freight Index wasrolled out in 1996. TransCore said that truckloadspot market freight availability in March hit itshighest level for any month since October 2005.March load volume was up 23 percent from Februaryand 40 percent annually, with freight volumespaced by a 57 percent gain in flatbed freight anddry van freight availability up 32 percent and reeferloads up 26 percent.n ATA data points to increased driver turnoverand hiring numbers. Recent data released by theAmerican Trucking Associations (ATA) suggests thatdata pointing to increasing driver hiring and turnovertranslates into signs of an economic recovery. TheATA reported that during the fourth quarter of 2010,truckload (TL) and less-than-truckload (LTL) carriersbumped up their payrolls, with small TL carriersboosting employment by 0.8 percent within theirdriver pool and large TL carriers adding 0.3 percentto payroll by adding linehaul drivers and reducinglocal driver pools. On the LTL side, the ATAreported that fourth quarter employment was up 0.4percent, with all categories up except for linehauldrivers, which were down 0.2 percent.n Unrest weakens air cargo. The InternationalAir Transport Association (IATA) announcedscheduled international traffic for February 2011showed increases of 2.3 percent for cargo demandcompared to February 2010. February demandgrowth was down significantly from the revised 8.7percent expansion recorded in January for cargotraffic. The political unrest in the Middle Eastand North Africa during February is estimated tohave cut international traffic by about 1 percent.In addition to the political unrest in the MiddleEast and North Africa, the more dramatic fall inair cargo growth (from 8.7 percent in January 2011to 2.3 percent in February) was affected in part byfactory shutdowns due to the Chinese New Yearperiod that fell in the first part of February in 2011.“Another series of shocks is denting the industry’srecovery from the recession,” said Giovanni Bisignani,IATA’s Director General and CEO.n Stretched supply chain due to quake. Analystsfor IDC Manufacturing Insights and IDC RetailInsights reported that Japanese manufacturersface severe disruptions across several value chainsin the coming months. According to IDC’s BobParker, Toyota is losing $80 million per day largelydue to several strategic suppliers located in theNortheast of the country. “Even if plants were notdamaged, power has been unreliable,” he said.“General Motors, who also relies on suppliersin northern Japan for global production, has cutovertime at its Korea plants in anticipation of partsshortages and expects the impact to reach otherparts of the world. GM reported that the completepicture wouldn’t be known for several weeks.” Inthe high-tech sector, Parker sees a similar crisisplaying out, with a crunch put on semiconductorsupply—particularly flash memory.continued, page 2 >>May 2011 | WWW.LOGISTICSMGMT.COM Logistics Management 1

Get your daily fix of industry news on logisticsmgmt.comcontinuedn Rail earnings on the mark. There was nosign of a slow economic recovery when lookingat first quarter earnings results from Class I railcarriers. This was evident in earnings reports byUnion Pacific and CSX, among others, that citedstrong pricing, increasing volume, and especiallystrong intermodal performances. Perhaps theonly blemish cited in the earnings results waslower service metrics, but much of that can beattributed to harsh winter weather conditionsthat were prevalent throughout much of the firstquarter. What’s more, at a time when the federalgovernment has stated it wants more freightmoved from the highways to the railways, sustainedgrowth on the tracks looks promising forfuture quarters to come.n U.S. ports: Follow the money. As all of ournation’s major ocean cargo gateways attempt toexpand their footprints and compete with enhancedinfrastructure, finding the money for many suchprojects continues to be a daunting challenge. Lastmonth’s biennial Port Administration and LegalIssues Seminar in San Francisco (sponsored by TheAmerican Association of Port Authorities) featuredan in-depth discussion on port funding and publicfinance management. And while many paths canbe taken toward achieving a financing goal, mostspeakers advised a “go slow” approach. “It’s crucialthat one set priorities with all the port stakeholdersbefore moving forward,” said Karl Pan, chieffinancial officer for the Port of Los Angeles. “Beforegetting started, make sure you understand the risksand whether you are staffed with the administrativeskill sets to the get the job done.”n Expanding its footprint. Last month, ChinaShipping completed a major phase of its terminalexpansion project at the Port of Los Angeles, addinga new 925-foot section of wharf, 18 additionalacres of backland, and four new container cranesthat will increase cargo throughput. China Shippingoperates the West Basin Container Terminalat the port. With the most recent $47.6 millionexpansion phase completed, the terminal now has2,125 feet of wharf space and eight super post-Panamaxcranes, handling cargo operations for ChinaShipping, Yang Ming, K-Line, Cosco, Hanjin, Sinotrans,and Zim shipping lines. China Shipping alsohas a joint venture with a neighboring containerterminal at the port, operated by Yang Ming ShippingLine. As part of the latest improvements, anaccess bridge was also constructed between ChinaShipping and Yang Ming for truck movement ofcargo between the two terminals.n Too much space. While the world’s leadingcargo vessel operators had seen a remarkablereversal of fortune last year, industry analystspredict that the turnaround will be “short-lived.”Alphaliner, the Paris-based shipping consultancy,reported that 19 of the top 25 ocean carriers itsurveyed earned an estimated $14 billion in 2010,after losing $15 billion just the year before. “Containercarriers’ margins recovered strongly in 2010to a positive 7 percent from a negative 16 percentin 2009,” said Alphaliner. But analysts added thatmargins in the Asia-EU trade have softened, andthat 2011 is likely to be a much weaker year in general.Indeed, container rates have been sliding onall the major trading lanes since July 2010, with theexception of a small “hiccup” last winter, as linercompanies tried to push for implementation ofgeneral rate increases in a weakening market, saidanalysts at the Baltic and International MaritimeCouncil in Copenhagen.n Fissures fixed. Minor subsurface crackingwas found on five Southwest aircraft last month,but the abrupt withdrawal of Boeing 737 aircraftfrom its fleet had little impact on shippers, saidan industry leader. “Only about 100 planes weregrounded,” said Brandon Fried, executive directorof the Air Forwarders Association. “We get thatmany aircraft pulled just when a major weatherevent occurs.” Meanwhile, Southwest said that ithad completed all aircraft inspections in accordancewith the Federal Aviation Administration(FAA) Airworthiness Directive (AD) that wasreleased in early April. The airline began operatinga normal schedule a few days later, and didnot anticipate the directive to effect the schedulemoving forward. Mike Van de Ven, Southwest’sexecutive vice president and COO. “Our event,though obviously not what we would want tohappen, is ultimately working to improve theeffectiveness of 737 inspections and maintenanceprograms world-wide.”2 Logistics Management WWW.LOGISTICSMGMT.COM | May 2011

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ContentsVOL. 50, NO.5MAY 2011WAREHOUSE & DC MANAGEMENTGUESS’ distributionevolutionFor more than a decade, the fashiongiant’s WMS has kept pace with several ERPintegrations and the installation of aslew of materials handling equipment—all in an effort to keep the company ontop of the fickle fashion world. 24Cover photography: Roman ChoTRANSPORTATION BEST PRACTICES/TRENDSIntermodal looks marvelous!30The red-hot intermodal sector is “in fashion”these days as shippers opt for lower rates atnear-truck service levels. Our intrepid truckingcorrespondent examines the factors drivingthis impressive growth as well as how logisticsprofessionals are using the option as part of their2011 transportation tool kit.SUPPLY CHAIN & LOGISTICS TECHNOLOGYLMS: Coming into its own34The need to drive down costs is pushing labormanagement system adoption rates. OurTechnology Correspondent offers a snapshot of themarket and examines the issues pushing its useinside the four walls and the cabs of private fleets.GLOBAL LOGISTICSFreight Forwarding: Choosing the best partnerWith President Obama continuing to emphasize38exports, specialized shipping intermediariesare more important than ever to global logisticsoperations. But how do shippers identify andchoose the right freight forwarder?2011 TECHNOLOGY ROUNDTABLEPutting data into context42Our recent Software Users Survey revealedthat shippers are showing a renewed interestin achieving a better understanding of the datasupply chain software systems are capable ofchurning out. Three top technology analysts tell ushow to get this done.Intermodal 30Freight Forwarding 382011 TechnologyRoundtable 42Logistics Management ® (ISSN 1540-3890) is published monthly by Peerless Media, LLC, a Division of EH Publishing, Inc., 111 Speen St, Ste 200, Framingham, MA 01701. Annual subscriptionrates for non-qualified subscribers: USA $119, Canada $159, Other International $249. Single copies are available for $20.00. Send all subscription inquiries to Logistics Management,111 Speen Street, Suite 200, Framingham, MA 01701 USA. Periodicals postage paid at Framingham, MA and additional mailing offices. POSTMASTER: Send address changes to:Logistics Management, PO Box 1496 Framingham MA 01701-1496. Reproduction of this magazine in whole or part without written permission of the publisher is prohibited. All rightsreserved. ©2011 Peerless Media, LLC.May 2011 | WWW.LOGISTICSMGMT.COM LOGISTICS MANAGEMENT 5

departments1 Management update9 Viewpoint10 Price trends13 News & analysis18 Moore on pricing20 Pearson on excellence22 Andreoli on oil & fuelGet your daily news fix atlogisticsmgmt.comt Special reportTOP 20 U.S. PORTSWhere’s the money?Creative funding for expansionand infrastructure improvementis critical for the top U.S. ports,especially as shippers are slowlyreconfiguring their supply chainsto become less dependent on theWest Coast. 48S56 Sage adviceVirtual ConferenceWinning in the global arenaLogistics Management and Supply Chain ManagementReview are joining forces on this virtual conferencedesigned to help companies succeed in the globalmarketplace. We have put together a great seriesof educational sessions and speakers to addresscritical topics like how to work more effectively withyour global 3PL providers and how to accuratelytrack shipments through the supply chain. Our expertpanelists will also provide practical tips on meetingtrade compliance regulations in a timely and costefficientmanner. They will also discuss innovativeapproaches to supply chain financing.“Winning in the global arena” will feature a keynotepresentation on managing global supply chain risk. Inaddition, attendees can visit our “virtual booths” toobtain valuable information on supply chain productsand services.Date: June 29, 2011 from 11:00 AM to 4:00 PM ETRegister: www.supplychainvirtualevents.comLM Exclusive Webcast2011 Technology Roundtable:Putting data into contextDate: Tuesday, May 31, 2011@ 2:00 p.m. ETRegister:logisticsmgmt.com/tech2011The results of our 2011 SoftwareUsers Survey found thatshippers are showing renewedinterest in achieving a betterunderstanding of the data thatsupply chain management (SCM) software systemsare capable of churning out.In an effort to help shippers put their data into bettercontext and improve overall supply chain visibility, we’vegathered a few of the top market analysts to put theirperspective around the evolution of the SCM market.Our panelists will discuss:• The rising importance of business analytics inlogistics operations;• How TMS is becoming essential to improving controlof all shipments;• How and why to move your WMS to the cloud;• Where SCM software currently stands in offeringtrue supply chain visibility.ModeratorMichael Levans, group editorial director, SupplyChain GroupPanelistsBob Heaney, senior research analyst, SCM, TheAberdeen Group; Shanton Wilcox, principal ofsupply chain management at Capgemini Consulting;Jerry O’Dwyer, U.S. sourcing and procurementleader for Deloitte Consulting; Greg Aimi, directorof supply chain research at Gartner6 Logistics Management WWW.LOGISTICSMGMT.COM | May 2011

LAST YEAR, A CUSTOMER ACHIEVEDA POSITIVE ROI IN 2 YEARS.(ACTUALLY IT WAS 2 MONTHS, BUT WE DIDN’T THINK YOU’D BELIEVE THAT.)BELIEVABILITYHighNot SoHighSANTAROIVISIT KRONOS.COM/STORIES30TO LEARN HOW COMPANIES OF ALL TYPES AND SIZES HAVE ACHIEVED EYE-POPPING ROI USING KRONOSHow can a customer achieve these eye-popping results? With our fully integrated suite that makes it easy to do things like trackemployee time and set schedules. Streamline HR and payroll processes. Hire better people. And make better decisions. All of thetools that you need to manage your workforce, from the company that is proving workforce management doesn’t have to be so hard.TIME & ATTENDANCE SCHEDULING ABSENCE MANAGEMENT HR & PAYROLL HIRING LABOR ANALYTICS©2011 Kronos Incorporated. Kronos and the Kronos logo are registered trademarks of Kronos Incorporated or a related company. All rights reserved.

®®EditoriAL StaffMichael A. LevansGroup Editorial DirectorFrancis J. QuinnEditorial AdvisorPatrick BurnsonExecutive EditorSarah E. PetrieManaging EditorJeff BermanGroup News EditorJohn KerrContributing Editor, Global LogisticsBridget McCreaContributing Editor, TechnologyMaida NapolitanoContributing Editor, Warehousing & DCJohn D. SchulzContributing Editor, TransportationMike RoachCreative DirectorWendy DelCampoArt DirectorColumnistsElizabeth BaatzPrice TrendsMark PearsonExcellencePeter MoorePricingJohn A. GentleWayne BourneSage Advicepeerless media, llcA Division of EH Publishing, Inc.Kenneth MoyesPresident and CEOEH Publishing, Inc.Brian CeraoloPublisher and ExecutiveVice PresidentEditoriAL OffiCE111 Speen Street, Suite 200Framingham, MA 01701-2000Phone: 1-800-375-8015MAGAzine SuBSCriptioNSStart, renew or update your magazinesubscription at www.logisticsmgmt.com/subscribe.Contact customer service at:Web: www.logisticsmgmt.com/subscribeEmail: logisticsmgmtsubs@ehpub.comPhone: 1-800-315-1578Mail:Peerless MediaP.O. Box 1496Framingham, MA 01701eNewsletter SuBSCriptioNSSign up or manage your FREEeNewsletter subscriptions atwww.logisticsmgmt.com/enewsletters.ReprintsFor information about reprints, visit usat www.logisticsmgmt.com/info/reprints.®®Putting datainto actionafter putting together our 2011Technology Roundtable (page 42)and then reading John Schulz’s excellentexamination of the state of theintermodal market (page 30), I hada revelation: Logistics professionalsare beginning to see the benefits ofeffectively applying data to their operations—inthis case, their choice oftransportation modes.How did I arrive at this conclusion?Well, as our 2011 technology panel proclaims,shippers that put supply chainmanagement software (SCM) to its fullestuse are not only able to land the mostfavorable rates and the capacitythey need, but are alsopositioned to execute againsttheir long-term transportationstrategy. Those savvy shippershave better “visibility”to their transportation needsmany months in advance and are able toimprove their modal mix and shift intocontingency mode when necessary—and not miss a beat.I would go out on a limb to say thatthe fact that the intermodal marketis “in fashion” in mid-2011 is morea testament to improved transportationplanning—thanks to that businessintelligence and access to data—than itis to shippers simply reacting to higherrates or a recently implemented “green”strategy. These somewhat surprisingintermodal growth numbers can onlypoint to better shipper foresight thatkicked into high gear back in late 2009and early 2010—and to this I say “congratulations.”In his article, Schulz gives shippersthe deep dive, but I’d like to share thehigh-level numbers. At the end of Q12011, intermodal freight volumes wereup 10 percent overall from year-ago volumes—11percent up on internationalmoves and 9 percent up on domesticmoves. That’s about twice the rate ofgrowth of all North American rail traffic,and three times the growth in the U.S.trucking industry.And as fuel surcharges continue tomount—some ringing in at about 50percent of a long haul TL bill—and asthe specter of a driver shortage slowlyreveals itself, transportation analysts saythat intermodal should grow at abouttwice the rate as trucking over the next12 months.“The service is as good if not betterthan solo driver truckload in terms oftransit times and reliability,” analystJohn Larkin tells Schulz. “The baseprice is 10 percent to 15 percent belowtruckload, and the fuel surcharge can behalf as much.”Logistics professionals are beginning tosee the benefits of effectively applyingdata to their operations—in this case,their choice of transportation modes.Sector experts contend that the onlythreats to intermodal growth at thispoint would be if the rail system startsto bog down, service begins to suffer,or shippers take their eye off the ball interms of their improved modal mix.“The strong correlation betweenintermodal volume growth and improvedtransportation planning over the pasttwo years was quite evident during myreporting,” says Schulz. “A shipper organizationcan only maximize the mode’sbenefits if they have a handle on theircomplete distribution network and canclearly plan, long term, for their needs.”If you’re willing to open your eyes tothe world of analytics and put data intoaction to improve your planning, you haveyour required reading for this month.Michael A. Levans, Group Editorial DirectorComments? E-mail me atmlevans@ehpub.comMay 2011 | WWW.LOGISTICSMGMT.COM Logistics Management 9

12840-4-8(2001 = 100)Forecast1351311271231191152007 2008 2009 2010 2011 2012% change (left scale) Index 2001=100 (right scale)% CHANGE VS.: 1 month ago 6 mos. ago 1 yr. agoGeneral freight - local 2.9 3.1 2.7Truckload 1.9 5.1 6.9Less-than-truckload 3.2 8.0 8.5Tanker & other specialized freight 2.4 4.9 5.5TruckingShippers often feel the sting of shifting inflationary winds beforeothers in the economy, and we’re there again. In March, averagetransaction prices for LTL jumped 3.2% from the prior month and8.5% from the same month last year. Average prices for TL haulingof general freight increased 6.9% above year-ago levels as did longdistancespecialized freight trucking, where prices were up 6.6%.Only local trucking exhibited restraint, raising prices 2.7% aboveyear-ago. Looking ahead, one dismal precursor remains: underlyingcosts to operate trucks have been inflating faster than prices. Ourlatest forecast calls for a 5.8% annual price increase in 2011, morethan two percentage points higher than our previous forecast.241680(2001 = 100)160150140130-8Forecast 120-162007 2008 2009 2010 2011 2012110% change (left scale) Index 2001=100 (right scale)% CHANGE VS.: 1 month ago 6 mos. ago 1 yr. agoScheduled air freight 3.6 8.3 8.7Chartered air freight & passenger 0.1 0.9 0.7Domestic air courier 0.9 11.5 11.1International air courier 0.9 13.4 15.0AirAverage prices for flying cargo in U.S.-owned planes via scheduledflights soared 3.6% from month-ago and 8.7% from same-monthyear-agoprice levels in March. On a year-over-year basis, fuel costshave skyrocketed over 30%, but transaction prices for these air cargoservices have increased only around 8%. The airline industry helpeditself by checking wage inflation. Indeed, wages and salaries havedeclined 3.2% on a year-over-year basis. As pressure from higher jetfuel costs show no sign of abatement, the inflation forecast for shippersbuying air cargo services will be challenging. Just looking at aircargo on scheduled flights of U.S.-owned planes, our forecast beenadjusted upward to an 8% average annual price hike in 2011.241680(2001 = 100)185175165155-8Forecast 145-162007 2008 2009 2010 2011 2012135% change (left scale) Index 2001=100 (right scale)% CHANGE VS.: 1 month ago 6 mos. ago 1 yr. agoDeep-sea freight 2.2 3.5 14.8Coastal & intercoastal freight 0.4 2.9 11.6Grt. Lks.-St. Lawrence Seaway 0.0 11.6 7.0Inland water freight 1.9 5.0 14.5WaterOverall, the U.S. waterborne transportation industryincreased average transaction prices 1.1% from month-ago and12.3% from same-month-year-ago in March. For the entire firstquarter 2011, U.S.-owned vessels reported prices up 3.1% fromprevious quarter and up 10.3% above first quarter 2010. Impetus forinflation has come from all categories, with deep sea operatorsreporting the largest quarterly increase (up 13% from year-ago),followed by barges and ships on inland waterways (up 9.7%).Worldwide, Drewry Shipping Consultants predicts ocean carrierswill drop rates by 13.2% in 2011, excluding fuel. Reading pricetrends reported by U.S.-owned ships in our database, our forecastcontinues to predict average annual prices up 5.1% in 2011.151050(2001 = 100)160154148142-5Forecast 136-102007 2008 2009 2010 2011 2012130% change (left scale) Index 2001=100 (right scale)% CHANGE VS.: 1 month ago 6 mos. ago 1 yr. agoRail freight 1.9 5.6 7.2Intermodal 2.5 8.6 10.1Carload 1.9 5.3 6.9RailThis economic recovery, no matter how nascent, combined witha good dose of negotiation power, has put rail industry prices backon the inflation track. In March, average prices for intermodal railservice increased 2.5%, which was the third significant monthlyprice hike in a row. The last time rail operators pushed throughthree consecutive large price increases was the spring of 2008, justbefore all U.S. transportation markets were forced to cut pricesin the throes of the Great Recession. Now, in Q1, intermodal railprices increased 7.8% above year-ago levels and carload rail tagsgained 5.6%. Our trend forecast for all railroad industry pricesshows the average rate of rail inflation returning to 5.3% in 2011.Source: Elizabeth Baatz,Thinking Cap Solutions. E-mail: ebaatz@alertdata.com10 Logistics MANAGement WWW.LOGISTICSMGMT.COM | May 2011

inside• Oberstar stresses need forpartisan cooperation andinfrastructure investment, p. 14• Schneider eyes shorter-haul,Mexican freight for intermodalshift, p. 16White House unveils NationalClean Fleets InitiativeUPS, FedEx, AT&T, PepsiCo, and Verizon are thefive charter members of a push to reduce petroleumdependence in U.S. fleetsBy Jeff Berman, Group News EditorWASHINGTON, D.C.—Following arecent announcement that called forreducing United States oil imports byone-third in the next decade, PresidentBarack Obama last month rolledout a new energy-focused initiativefocusing on trucking in a speech at aUPS facility in Landover, Md.The initiative, entitled theNational Clean Fleets Partnership,will help large companies cutdown on diesel and gasoline usagein their fleets by meshing electronicvehicles, alternative fuels, and fuelsavingsmeasures into their dailyoperations, according to the WhiteHouse.The two defined goals of thiseffort, said the White House, areto reduce fuel through the use ofmore efficient vehicles and technologies,including hybrids, andreplace gasoline and diesel poweredvehicles with advanced technologyvehicles or those that runon alternative fuels like electricity,natural gas, biodiesel, ethanol,hydrogen, or propane.The five charter members areAT&T, FedEx, PepsiCo, UPS,and Verizon, companies that collectivelyrepresent five of the 10largest fleets in the U.S. and ownand operate more than 275,000vehicles, according tothe White House. Theplanned, near-term petroleumreduction strategiesunder the NationalClean Fleets Partnershipwill account for thedeployment of more than20,000 advanced technologyvehicles and annualpetroleum displacementtopping more than 7 milliongallons.A sustainable transportationand logistics expertlauded this plan, calling ita foundational step thatwill generate much moreinterest and acceptanceof alternative poweredvehicles as participantsin the program will not be forced toshoulder the costs on their own.“I have been waiting for severalyears to see this plan come to fruition,”said Brittain Ladd, global supplychain consultant for CapgeminiConsulting. “It’s not that corporationsor carriers are against the useof alternative fuel powered vehicles,they simply don’t want to have tobear the costs of converting theirfleets.”Companies like the five chartermembers of this initiative can allbring scale to the table, which haslong been a drawback to more widelyaccepted usage of alternative fuel andenergy vehicles, according to KevinSmith, president and CEO of SustainableSupply Chain Consulting.The reason being, said Smith,is that it’s a losing battle for themajority of companies and consumersthat don’t have access to thingslike hydrogen-powered vehicles, forexample.May 2011 | WWW.LOGISTICSMGMT.COM Logistics Management 13

“The thing we lose sight of is thatalternative energy sources comefrom somewhere, like coal or oildrivenplants,” said Smith. “Ratherthan being renewable, it pushes thepetroleum reliance further upstream.Hydrogen, though, appears to be amuch more renewable resource foroperating vehicles, because it is actuallyclean. But to do that you needscale.”The White House plan to find thebest alternative energy resources is theright thing to do, said Smith. “CleanFleets providing an impetus to facilitatethese efforts for fleets is something thatcan help eventually pave the way for aneconomical renewable energy source topower vehicles,” said Smith.But he cautioned that if companieslike UPS and FedEx are havingsuccess, and if federal mandatesrequire all companies to do thesame thing a few years from now, itcould be difficult for small carriersORLANDO, Fla.—With politicaldividing lines sharper than ever, therole of transportation infrastructure infostering economic growth is one whichcannot have partisan-led objectiveshalting meaningful progress.That sentiment was made clearby James Oberstar, former Chairmanof the House Transportation andInfrastructure Committee and MinnesotaCongressman, at last month’sNASSTRAC Logistics Conference andExpo in Orlando, Florida.In a wide-ranging speech largelyfocusing on the role transportationplays in our nation’s strength, Oberstarpulled no punches when describing thebiggest challenges the U.S. faces andwhat needs to happen for them to beovercome.“Congestion affects economics,quality of life, and the delivery ofgoods, and that is the biggest challengefor you in serving your customers andto switch to alternative fuel sourcesbecause of cost pressures. Untilthese types of things are accessibleto everybody, it will be difficult tomandate, he added.The National Clean Fleets Partnershiphas been endorsed by the AmericanTrucking Associations (ATA). Butlike Smith at SSCC, the ATA pointedout some caveats.“The trucking industry is a verydiverse industry,” said Rich Moskowitz,ATA vice president and regulatoryaffairs counsel. “What works well forone company may not work as wellfor another. As we begin to transitionto alternatives, it’s important toremember that there’s not going to bea ‘one size fits all’ approach. That istrue in respect to things like naturalgas, hybrids, and biofuels. Dependingon the industry you operate in,some of these alternatives may beattractive and some may not be ableto be implemented.” MgovernmentOberstar stresses need for partisancooperation and infrastructureinvestment in NASSTRAC keynotemaking America work,” Oberstar toldthe audience comprised of shippersand carriers.And given the political dividinglines and tension in play, Oberstarnoted that politicsis the businessof the peopleand the policiesof the nation.What is wrong inthis mix, he said,is partisanship.“But when partisanshipis prevalentand the businessof the peoplebecomes highlycharged and polarizedis when thingsbreak down,” hesaid. But an exceptionto this partisanship,according“I have never seen aRepublican road or aDemocratic bridge.”—James Oberstarto Oberstar, was the House Transportationand Infrastructure Committee heled from 2007-2011.“I have never seen a Republican roador a Democratic bridge,” said Oberstar.“We can work together to buildall American roads and bridges for thegood of the country. When we sticktogether, we can pass good legislation.”Aside from the current partisan differences,Oberstar said more priorityneeds to be placed on the movementof freight in the U.S., given the agingtransportation system which is no longerkeeping pace with internationaltrade.This is key considering the U.S.transportation infrastructure systemhas long been the envy of the world,with Oberstar pointing out that wouldnot be possible without the financialsupport of the Highway Trust Fund.“The answer is American ingenuityand know-how and the will to makeit work,” said Oberstar. “But todaywe are investing 1.9 percent of ourGDP in our infrastructure. Europeis investing 5 percent, and China isinvesting 9 percent. You often hearthings like ‘we will do more with less,’but nobody does more with less withinfrastructure.”Looking to the future, Oberstar saidthat the U.S. population is slated togrow by more than 40 percent in thenext 30 years to roughly 420 millionpeople, with freight volumes expectedto rise about 70 percent from currentlevels in the next 10 years.“That growth is going toput additional demands onour intermodal system,”said Oberstar. “If we don’tmake the investmentsand don’t look ahead anddo what’s right to deliverthose investments, thengoods will move moreslowly, congestion willresume, people will spendmore time in traffic, airquality will deteriorate,fatalities will increase, andour quality of life will bediminished.”—Jeff Berman, GroupNews Editor14 Logistics Management WWW.LOGISTICSMGMT.COM | May 2011

It has ETDs and ETAsdown to a T. Sprint’s mobile fl eet managementapplications are the next best thing to driving the entirefl eet yourself. With a long list of indispensable tools like GPStracking, fuel-effi ciency reports and wireless time cards,you’ll be able to manage your fl eet every step of the way.And you’ll be able to make time-saving adjustments rightthere on the spot. Only on the Now Network. sprint.com/transportation 1-800-SPRINT-1 (1-800-777-4681)BlackBerry ® Bold 9650 smartphone“Sprint showed the biggest improvement in customer experience across 14 industries.”–Forrester Research Report: Customer Experience Index 2010The Sprint 3G Network reaches over 271 million people. ©2011 Sprint. Sprint and the logo are trademarks of Sprint.

truckloadSchneider eyes shorter-haul, Mexicanfreight for intermodal shiftGREEN BAY, Wisc.—SchneiderNational, the nation’s second-largesttruckload carrier which traditionallyhas been a major player in long-haulintermodal traffic, is increasingly marketingits shorter-haul freight options ina major shift that is sure to impact shipperchoice and rates.Steve Van Kirk, Schneider National’ssenior vice president of intermodalcommercial management, toldLM that service improvements by therails, plus issues affecting driver availability,are making shorter-haul intermodalmoves more attractive to manycustomers. Schneider moves aboutone-third of its total freight loads byintermodal, according to truckingindustry sources.“Overall, driver availability is anissue,” said Van Kirk. “Due to demographicsand the impact of CSA 2010,you can debate how many drivers mightnot be drivers going forward. I’ve seenestimates as high as 250,000. But evenif it’s only 100,000, so what? You stillhave rising freight demand and lesspeople entering our industry to becomedrivers…and that helps intermodal,especially in shorter lengths of haul.”The average length of haul foran intermodal move is 1,575 miles,according to Larry Gross, consultantwith FTR Associates and principal ofGross Transportation Consulting. Butincreasingly, traditional truckload carrierssuch as Schneider and J.B. Hunt aretargeting lengths of haul under 1,000miles as rail services improve, fuelcosts increase, and driver availabilitybecomes tougher and wages increase.Traditionally, intermodal hasalways been strong in the 2,000-mileChicago-to-Los Angeles, Chicagoto-Portlandruns. Chicago-to-Dallasis another strong intermodal markethistorically.But now truckers are eyingshorter-haul runs—700 miles fromColumbus, Ohio to Kansas City, forexample—as potential markets toincrease intermodal use. This hashelped drive intermodal freight volumesup 10 percent from year-agovolumes—11 percent on internationalmoves, 9 percent domestic.That is roughly twice the rate ofgrowth of all North American railtraffic, and three times the growth inthe U.S. trucking industry.“What you’re seeing is the really longlengths of haul will not grow at previouslevels,” Van Kirk explained. “There willToday, Union Pacific coordinates the global reach of ocean carriers with the economy of our vast rail networkplus the flexibility of truck transit. So, even if you don’t have rail service at your door, we can still give youunmatched, door-to-door service. Find out more at UnionPacific.com or call (800) 877–0513.

“The really long lengths of haul will not grow at previous levels, therewill be more growth at intermediate lengths of haul—1,000 miles or less.That’s what’s driving the growth.”—Steve Van Kirk, Schneider Nationalbe more growth at intermediate lengthsof haul—1,000 miles or less. That’swhat’s driving the growth.”Truck driver hours-of-service limitsa driver to no more than 600 miles ina day. So anything over that amount isripe to be used for intermodal as longas rail service is reliable, he said. “That’swhere intermodal can deliver a lot ofvalue for capacity at a very competitiveprice point,” Van Kirk says.Besides shorter hauls, Schneiderwants to increase intermodal usage inand out of the Northeast, where backhaulscan be problematic for truckloadmoves. “We like to ship into the Northeaston intermodal. It helps with ourload balance. Demand is great goinginto the Northeast, but because of theimbalance coming back, intermodal is agreat option.”Van Kirk’s advice to shippers is easy.“If I were a shipper, I would start withanything moving more than 500 milesand look at intermodal.”Another area of intermodal growth forSchneider is cross-border moves in andout of Mexico. Up until a couple of yearsago, Schneider basically trucked goodsto the border, transloaded there andused Mexican power units for final deliverysouth of the border. It was costly, andcargo security was an issue, he said.With the help of the Kansas CitySouthern—the “NAFTA Railroad”—Schneider has redesigned its Mexicanfreight network in the past two years.—John D. Schulz,Contributing EditorWherever you find business, you’ll find us.

Moore onPeter Moore is a program faculty member at the University ofTennessee Center for Executive Education, adjunct professor atThe University of South Carolina-Beaufort, and vice president ofCelerant Consulting, a supply chain advisory firm. Peter can bereached at peter.moore@celerantconsulting.com.DISTRIBUTBucking the pricing trendin rail/intermodalin my march column i wrote about encouragingcompetition in intermodal and international shippingby promoting infrastructure projects. But what can wedo about better controlling the core cost in domesticand land bridge movements, also known as rail rates?As a captive rail shipper for many years, I learnedthe hard way that North American railroads constitutea classic oligarchy with limited competition,strong lobbies, and varying quality of service.I respect the value and efficiencies that make thecase for rail, but I’m sure that with the currenttrends in energy savings, equipment restrictions,and increased trucking regulation, we’llcontinue to see general price increases inbulk rail and intermodal as more shippersseek to utilize these modes.Shippers may feel that there’s very littlethat can be done to buck the rail and intermodalprice trends. I’m here to say that’s nottrue. In fact, rail service buyers have severaloptions, but it takes hard work and planning to optimizethese modes.First, the shipper needs to put on an “analytical hat”and look at the modes utilized as a portfolio that inaggregate has a mixed cost per ton/mile or per unit ofproduct sold. It’s this aggregate that offers perspectiveon the role of rail and intermodal. Rail costs per ton/milegenerally compare favorably with highway and air costs.In the case of bulk commodities rail has price competitionfrom water. The first cut at savings then is modalshifts and opportunities to introduce competition.A second is network optimization. Think in termsof what a change of distribution points and modesmight mean to the cost per ton/mile. Network modelingprovides options to rethink your network andthat of your suppliers and customers. One exampleis analyzing potential intermodal transloading locationsand opportunities to leverage two modes indelivering or receiving goods.Third, explore options for alternate bulk equipmentusage. One of these is larger “jumbo” rail cars to maximizepayloads. Alternatively, perhaps you can join thosewho are moving more bulk in intermodal containers. Inthis case I suggest “thinking inside the box.”Fourth, look to see if there’s anything you’re doingthat’s unnecessarily increasing your rail costs. Examplesare equipment detention, special service requests, andlack of a post-audit of bills. My experience as a formerinternal auditor for a Class 1 railroad is that they haveabout a 1 percent error rate.Before I leave bulk rail, I encourage every bulk railIf you see a large number of empty containersbeing loaded for backhaul, get aggressive.If you see loads but not enough to fill a train,get aggressive.shipper to look at rate comparison services based uponhistoric waybill analysis in order to understand howeach of your moves fits in the railroad network and atwhat pricing levels.In intermodal, load factors and routes are importantas well. Equipment balancing and optimizing the carriernetwork can yield real savings for you and the intermodalprovider. As in highway, you need to understandwhat’s moving in the lanes that you want to utilize. Getout of the office, visit the intermodal yard and see what’smoving. If you see a large number of empty containersbeing loaded for backhaul, get aggressive. If you seeloads but not enough to fill a train, get aggressive. Youmight well see one of your “truckload” moves beingquietly loaded onto a railcar for a portion of the route.In rail, like other services, you need information.If you find you don’t know enough about your railmoves, you need to start investing in discussion withproviders, asking for data, and doing some analysis tounderstand these modes of transport as well as youknow your own products. With planning and creativethinking you can buck the current rail and intermodalpricing trends. M18 Logistics Management WWW.LOGISTICSMGMT.COM | May 2011

By offering two shipping services in the same network,FedEx Freight has filled a long-standing void in theLTL industry: the ability to conveniently segment timesensitivefrom inventory-replenishment shipments.Others will likely follow their lead.Bob Zimmer, Manager Corporate Traffic, Standard RegisterDriving industry change.One pickup and delivery. Because the best things in life are simple.Shipping is easy with FedEx Freight. One truck arrives at your dock for all your LTL (less-than-truckload) shipping needs.Choose FedEx Freight ® Priority when speed is critical to your supply chain needs or FedEx Freight ® Economy when youcan trade time for savings. Either way, you can count on FedEx reliability, all-points coverage and easy online shipping tools.Take the weight off with FedEx Freight: one pickup and delivery, one Bill of Lading, one invoice statement and one FedExrepresentative. Simple. Go to fedex.com/shipfreight7.All services are subject to the terms and conditions of the FXF 100 Series Rules Tariff.

Pearson onThe New Panama Canal:Ground-breaking implicationsfor global supply chainsConstruction is on schedule and the first shipis expected to pass through a greatly expandedPanama Canal on August 14th, 2014—100 yearsto the day from the passageway’s first use.This $5.2 billion upgrade is truly significant.It will deepen and widen both the Pacific andthe Atlantic entrances, enlarge the navigationalchannels, and add a third set of expanded locksconnecting the two oceans. As a result, thePanama Canal will be able to accommodatethe world’s largestcontainer ships andpass-through timewill decrease.There are manyways that thisground-breakingachievementcould re-level theoceanic playingfield for shippersthat move goodsaround the Westernhemisphere. Forexample:• Companiesthat import a highvolume of manufacturedgoodsfrom Asia anddistribute thosegoods across NorthAmerica may benefit from new access routesand distribution hubs.• New markets could open for China tosource raw materials, such as coal from Columbiaand iron ore from Venezuela. These marketsdo not currently have a cost-effective transportationoption.• Shipping oil to the U.S. from Ecuador mightbecome less expensive than the current point oforigin: Nigeria. Venezuela could decide to shift itssupply from the U.S. to China.Mark Pearson is the managing director of the Accenture’s SupplyChain Management practice. He has worked in supply chainfor more than 20 years and has extensive international experience,particularly in Europe, Asia, and Russia. Based in Munich, Markcan be reached at mark.h.pearson@accenture.com• The expanded Canal could become a keytransit point for new vessels carrying liquefiednatural gas from Trinidad to Chile and fromPeru to Texas.• Overland transportation between SouthAmerican countries is complicated by inadequaterail and highway systems, as well as the AndesMountains. Passage around the southern tipof South America is arduous in winter, and anexpanded Canal could make those obsolete.Today’s container routes for goods from Asia to U.S.Eastbound: Asia to US West Coast (75% of Asian imports)Eastbound: Asia to Panama Canal to US East Coast (19% of Asian imports)Westbound: Asia to Suez Canal to US East Coast (6% of Asian imports)• U.S. grain exports to Asia move either bybarge or rail to Southern Louisiana and on toAsia via a Panama Canal transit or by rail tothe U.S. West Coast and then on to Asia. Newadvantages will now be associated with theCanal option.• Moving oil from ship to ship via pipelineacross the Isthmus of Panama may no longer offeradvantages over larger tankers that will now beable to transit the Canal.• Perishables from western South andCentral America may no longer need to betransported on refrigerated ships to the U.S.East Coast. With shorter transit times throughthe Canal, they can instead be transported incontainers.20 Logistics Management WWW.LOGISTICSMGMT.COM |May 2011

Pearson onMYRIAD STAKEHOLDERS ANDSUPPLY CHAIN TRADEOFFSAll manner of entities, countries, andcompanies (The Panama Canal Authority;the Republic of Panama, U.S. portsalong the east, west, and gulf coasts;railroads; trucking companies) willpotentially be affected by the Canal’senhanced capabilities. The core reality,however, is more opportunity combinedwith more complexity.For example, while vessels are operatedby ocean carriers, routing decisionsare made by supply chain managers forthe companies shipping freight. Specificestimates vary, but American ports anticipatean increase in shipments reroutedthrough the Panama Canal when theexpansion is completed.Cities hoping to attract the businessinclude New York, Boston, Norfolk,Charleston, Miami, Jacksonville, PortEverglades, Savannah, New Orleans,and Houston. However, there are manycomplex trade-offs that must be balancedby each shipper's supply chain decisionmaker.Tradeoffs include speed, reliability,and economy across various or multiplemodalities; regulatory concerns; laborrequirements and availability; varyingaffects on the environment; and port characteristicssuch as water depth, marine terminaldesign, intermodal connectivity, andavailability of warehousing. Making theright choices will require solid expertisefor reaching sourcing decisions, choosingroutes and ports, and locating distributioncenters and other infrastructure.Leading-edge technology will also beneeded to help freight buyers determinethe true cost of any one route. Such toolswill also need to calculate total landedcost: the sum of all expenses associatedwith developing, producing, deliveringand selling a product. Along with identifyingoptimal routes, these same calculationsmight also reveal that a company’scurrent low-cost supply source is nolonger the best overall choice.Companies may further benefit byadding flexibility to their supply chains—leveraging people, processes, and technologyto better route, execute, and trackthe movement of goods at the SKU levelas they are transloaded from a singleocean container onto multiple domesticcontainers bound for distributioncenters. This ability could reduceinventory and storage costs, whileenhancing companies’ ability torespond rapidly when customers’needs change.And of course, the best peoplewill be needed to fully leveragethe new Canal’s capabilities: thosewith the skills and empowermentto make real-time decisionsbased on reliable demand forecasts.Like so many supply chainevents, it’s physical changes thatmake the news, but people thatformulate and help ensure effectiveresponses. May 2011 | WWW.LOGISTICSMGMT.COM LOGISTICS MANAGEMENT 21

Andreoli onKeep your eyes on the road,not on the price of oiloil has recaptured the attention of the popularpress recently, and has done so for one important reason:the price for West Texas Intermediate (WTI)—thebenchmark crude stream traded on the New YorkMercantile Exchange (NYMEX)—sprinted past $100in the first week of March and past $110 in the firstweek of April.While this is an important story, an even more importantstory has thus far escaped the headlines. The situationdescribed here has implications on diesel pricesand the bottom lines of shippers and carriers across theU.S. Communicating this situation, however, requiresa working understanding of futures markets.The price for a futures contract represents the aggregatesentiment of the market—the point of equilibriumbetween all buyers and sellers of futures contracts—and as such, futures markets provide a valuable pricesearch function. When it comes to oil futures, bullishsentiments prevail when an oil supply disruptionoccurs or when news portendingbetter than expected economic performanceis released.By contrast, the bears emerge fromhibernation when significant new supply isbrought online, or, as is more often the case,when the economic outlook is revised down.Hence just as oil traders can push prices up,their same trading behaviors can push the price down—and there are plenty of winners and losers during bothbull and bear markets.When the majority of market participants believethat oil demand will climb faster than supply, themarket goes into contango, meaning that long termfutures contracts are valued more highly than near termcontracts. And when in contango, the market exertspowerful pressures on the owners of physical productto stockpile. After all, why should the owner of physicalproduct sell today a product that will be worth moretomorrow? And thus the futures market influences thephysical market.But herein lies the problem. Physical storage is limited,and as storage tanks fill up, physical products arepushed to the market. Hence any relative shortage ofend use products caused by stockpiling along the supplychain will be temporary. This is why traders keep aDerik Andreoli, Ph.D.c. is the Senior Analyst at MercatorInternational, LLC. He welcomes any comments or questions,and can be contacted at dandreoli@mercatorintl.com.close eye on crude oil and refined product inventories.The tricky task is deciphering whether the change ininventories is due to buyers being unwilling or unableto purchase fuels at the prevailing price (too high) orwhether sellers are unwilling to sell at that price (toolow). If the high price of crude (which was set byspeculators) is not supported by the fundamentals ofthe physical fuels markets, which is to say if fuels don’tsell at a price point that justifies the traded price, thehigh price for paper barrels will not be sustained.Considering that diesel prices, at least throughMarch, have outpaced the front month futures pricefor West Texas Intermediate, it appears that the futuresmarket has not created a speculative bubble. Instead,demand for oil products has risen as the U.S. andmany Eurozone economies continue along the path ofrecovery and emerging economies continue to grow.The rise in demand has not been met by a sufficientDemand for oil products has risen as the U.S.and many Eurozone economies continue alongthe path of recovery and emerging economiescontinue to grow.increase in the supply of the right types of crude fromthe right places.Saudi crude is not a perfect substitute for the 1.3million barrels per day of Libyan crude that Europeanrefineries are configured to process. Libyan crude isboth lighter and lower sulfur than Saudi crude. Becauseit is lighter, Libyan crude produces a higher fraction ofdiesel through fractional distillation.To get an equal amount of diesel from Saudi cruderequires secondary processing, which is expensive andenergy intensive. Removing the sulfur from Saudi crudealso requires further processing which is costly from afinancial and energetic perspective. Perhaps even moreimportantly, the pace at which heavy sour crudes can berefined is slower than light sweet crudes. The shutteringof exports from Libya has caused demand for otherlight sweet crudes like Brent Blend to increase; and, inturn, the price for Brent and other light sweet crudeshas spiked.There is a single exception to this trend: the price forWest Texas Intermediate has grown at a much slowerrate than other light sweet crude streams. Looking back22 Logistics Management WWW.LOGISTICSMGMT.COM | May 2011

at the year-over-year price change for the top 11 benchmarkcrude streams, we see that the per barrel price for WTIincreased by 26 percent, while the price for every otherlight sweet crude stream increased by more than 40 percent.The price for Brent Blend has increased 43 percentdespite the fact that WTI is slightly lighter and sweeter.And the reason for this discrepancy is that Brent Blend isdelivered to the European market and is a near substitutefor the Libyan Es Sider crude stream.The WTI price anomaly can be explained by the recentshift in the geography of oil production in North America asCanadian syncrude and shale oil from the Bakken formationin North Dakota ramp up. Both of these crude streamscontribute to the bottleneck in Cushing, Okla., the deliverypoint for the NYMEX traded West Texas Intermediate crudestream; and this bottleneck has suppressed the WTI pricefor the reasons described above.Of course, only a portion of the oil supplied to refineriesacross the entire U.S. is delivered through Cushing, and asa consequence, the refiner average acquisition cost (RAAC)has for the first time in the history of the Energy InformationAgency’s data climbed above the WTI spot price. Thismeans that the WTI futures and spot prices are no longerindicative of the price that refiners pay to acquire crude, andare no longer adequate for setting expectations for futurefuel prices.asi_halfpg_LM_final Just how big and out 4/25/11 of the ordinary 8:40 AM is the Page spread 1DISTRIBUTIOAndreoli onbetween the WTI and RAAC? Between January 1992 andDecember 2003, the average spread was just under $2.00per barrel, meaning that refiners paid $2.00 less for a barrelof crude than the WTI spot average. Between January 2004and June 2007, this spread had climbed as high as $8.16per barrel, and the average spread over this period was$5.22. Between July 2008 (the height of the price spike)and December 2010, the average of the spread fell to $3.67,but volatility remained high (bouncing back and forth from$2.00 to over $4.00).Between December 2010 and February 2011, however,the WTI-RAAC spread fell from $3.29 to negative $3.92.This downward movement is rooted in the structural changethat has affected Cushing inventories and suppressed onlythe WTI price.From a practical perspective, fuel consumers should notbe concerned with the WTI price so much as the price thatrefiners pay for crude. Historically, WTI has been a goodestimator of the RAAC, but this is no longer the case. Therehas been an absolute swing of $7.21 cents per barrel overthe last few months. One way to interpret this swing is thatrelative to the price of WTI, the average refiner acquisitioncost has increased somewhere between $4 per barrel and $8per barrel on top of the rising price of WTI. This means thatin the months heading into the summer driving season, theprice for diesel and other fuels will increase far more rapidlythan the WTI suggests. MCalvin CoolidgeThe Business of Alliance Shippers, Inc. is . . .“To Manage Our Customers’ Business.” ®For more information about all of our services, visit us at: www.alliance.com® denotes a registered trademark of Alliance Shippers, Inc.May 2011 | WWW.LOGISTICSMGMT.COM Logistics Management 23

warehoUSE & dc managementGUESS’distributionevolution“One of the great things about our WMS ishow we’ve been able to bolt on just aboutanything we need. The way the system isconfigured allows for a number of accesspoints in the software; and we’ve neverhad an absolute ‘no’ in terms of what weneeded to do.”—Tom Boyle, project manager, GUESSRoman Cho24 Logistics Management WWW.LOGISTICSMGMT.COM | May 2011

For more than a decade,the fashion giant’s WMShas kept pace with severalERP integrations andthe installation of a slewof materials handlingequipment—all in an effortto keep the company on topof the fickle fashion world.GUESS’ WMS automatically directs cartons to their properdestinations and tracks their status in real time.BY maida napolitano,contributing editorEstablished in 1981, GUESShas grown from its earlybeginnings of selling justjeans to a global brand witha full offering of appareland accessories in over 80 countries.In North America, this fashion-forwardcompany remains an iconic leader inthe apparel industry, shipping 30 millionunits annually to major departmentstores, over 400 specialty retail stores,and directly to consumers online.The company has grown dramaticallyfrom a $6 million family businessin 1982 to a global fashion empire withrevenues of over $2 billion in 2010.Such exponential growth over threedecades is accomplished in part by astrong distribution system; but back in1999—just about halfway through thecompany’s journey—this distributionsystem was showing clear signs of wear.In fact, its Los Angeles distributioncenter (DC) was bursting at the seams.“We literally had goods in tents out inthe parking lot because we had no roominside the DC,” recalls GUESS’ projectmanager Tom Boyle. Not only wasthe DC overflowing, but its distributionnetwork was also grappling withissues of lengthy transit times to mostof its customers. Merchandise had tobe regularly transported from Los Angelesclear across the country to where 60percent to 70 percent of its wholesaleInventory is automatically updated with every receipt and shipment.A physical inventory count now takes just 12 hours with its WMS—a significant reduction from three days.Real-time interfaces between the WMS and WCS directs the scanned outboundcarton to either go to value-added services for additional operations requestedby customers, to an outbound quality check, or to an automated print-and-applyarea for shipment.May 2011 | WWW.LOGISTICSMGMT.COM Logistics Management 25

Warehouse & DC Managementbusiness was located.Systems-wise, the company was usingan off-the-shelf, relatively manual, pickpacksystem that didn’t interface wellwith any of their other software or hardware.“This old system was built for amuch smaller business, and as we grew,the controls that we needed in orderto ensure that our inventory was undercontrol just didn’t exist,” adds Boyle.So in early 1999, GUESS hiredKurt Salmon Associates (KSA), aglobal management consulting firm,to assist the retailer in achieving twogoals: the selection of a site for a newDC to improve service times to customerseast of the Mississippi; and theselection of a new, full-featured warehousemanagement system (WMS)that would help GUESS execute thisnew strategy.Keeping the company’s businessneeds in mind, KSA conducted a fullscalesite selection study. Lower laborrates, impressive tax breaks, and theopening of a few well-known carrierhubs were the principal reasons thathad the team zeroing in on a brand new,580,000-square foot facility in Louisville,Ky.Once the building selection wasmade, a very aggressive schedulewas launched to search and installa best-of-breed, advanced WMS forthis new facility. The team selectedManhattan Associates’ WMS (thencalled PkMS, now known as WM),and a two-phased roll-out schedulewas initiated. In December 1999,GUESS’ new WMS went live with theinbound functions of receiving andputaway, followed closely in January2000 by outbound functions of picking,packing, and shipping.But all this was just the beginning.Over the next decade, the companytransformed its distribution operationout of its Louisville site to meet variousbusiness challenges. And with eachtransformation, their WMS would berepeatedly tried and tested. Over thenext few pages we’ll follow how thisfashion giant’s WMS kept pace witha new ERP software solution and theinstallation of a whole slew of materialshandling equipment in an effort tokeep the company on top of the ficklefashion world.CartonSortation SystemJesta I.S.(Wholesale ERP)Transformation #1:New ERPAs part of its continuing quest to efficientlydeliver uncompromising qualityto its customers, the company’s firsttransformation occurred in 2003 whenthe company decided to implement anew ERP software solution called JestaI. S. (formerly Essentus). “The overallproject for this new ERP lasted a year,but the integration with the WMS tookabout four months, and that’s due to‘mapping,’” says Boyle.Bryan Feddersen, Manhattan Associates’senior manager for its clientservices organization and the lead forthe GUESS project, explains this mappingprocess: “It’s a very detailed andinvolved exercise to map all of the dataelements flowing between a WMS andthe host ERP system. In most cases,you do not have the same data structureand integrity requirements on the hostthat you do in the WMS.” He adds thatdata needs to be translated into a formatthat is valid and recognizable to thesystem receiving the data and also tothe system sending the data. The databeing mapped may range from inboundcarton information at receiving to outboundorder data and store distributionat shipping.Fortunately, Jesta had integratedwith Manhattan’s WMS many timesin the past in similar projects withother supply chain organizations; thus,much of its mapping had already beenJDA(Retail ERP)Guess’ WMSSolution Provider: Manhattan AssociatesPlatform: IBM iRF Equipment: MotorolaUnit SortationSystemsXWCSPut To LightSystemLouisville,Kentucky DCHow different systems and equipment interact with Guess’ warehousemanagement system for the Louisville DC.Print and ApplySystempre-configured. “Host interface designis always complex, especially when itis the first time you’ve worked with aparticular vendor’s software,” says Fedderson.“But with several hundred clientsin our client base, we’ve been ableto build a repository of knowledge andexperience from working with a largenumber of different host systems.”Transformation #2:Separating wholesaleand retailAfter a couple of years, another majorchange further tested the flexibility ofits WMS. For years, inventory for bothwholesale and retail had always beencombined, and wholesale sold to retailas if retail were a wholesale customer.In 2005, GUESS decided to split itsbusiness into two separate entities witheach owning their own inventory—butstill running both out of one DC. Notonly did the WMS have to be modifiedto reflect this split, but it now had tointegrate with retail’s JDA ERP system.“Dividing the inventory into retailand wholesale was not tremendouslydifficult,” recalls Manhattan’s Feddersen.“The complexity was in trying todecide when you made an adjustmentwhether you made an adjustment toretail’s or to wholesale’s inventory.”Louisville’s distribution team successfullytested the concept over twoweekends, both operationally andwithin the WMS, bringing in full crews26 Logistics Management WWW.LOGISTICSMGMT.COM | May 2011

Warehouse & DC Managementto actually run a split of the inventoryand to make sure that everything thatwas talked about on paper would actuallywork.Transformation #3:New equipmentThe DC’s pursuit of excellence did notstop there. Over the next few years, thefashion retailer invested in state-of-theartmaterials handling equipment toautomate and increase the throughputand accuracy of its order fulfillmentprocess in Louisville.In 2007, GUESS added a bomb-bayunit sorter that automatically sortedindividual units to its stores or towholesale orders. From 2009 to 2010,a put-to-light system was implementedprimarily for retail’s quick responsereplenishment and for direct to consumeronline orders. This year, theteam is in the midst of installing a tilttray sorter for more delicate handling ofpiece-pick items such as watches andjewelry.With each new installation of a pieceof materials handling equipment, interfaceswith the different systems had tobe built and tested, sometimes remotelyat a vendor’s facility. Overall, however,each integration went smoothly, lastingonly two to three months dependingupon the complexity of the equipment.How the system worksThe GUESS WMS is continuouslyinterfacing with various systems andequipment as it directs the paperlessflow of inventory through its DC. Itbegins with advanced shipping notices(ASNs) that are transmitted from suppliersto Jesta for wholesale, and to JDAfor retail. These ASNs are then electronicallyrelayed to the WMS.Even before the case physicallyarrives at the receiving dock, each caselicense plate number (LPN) alreadyexists in the WMS from this ASN.As cases are unloaded onto conveyorsand scanned, they are automaticallyreceived, inventory is automaticallyupdated, and the warehouse controlsystem (WCS) is automatically notifiedto direct the case coming downthe pike for one of many destinations:an inbound quality check, a weighing/More from ourwms ExpertsTom Boyle, project manager, GUESSOn what’s most critical for a newWMS implementation:“Users have to have a clear understandingof what they really want toaccomplish. Honestly, in our implementation,that was one of our issues.We did not force greater userinvolvement at a high enough levelfrom the very beginning, but weworked those out along the way.”Bryan Feddersen, senior managerwith client services at ManhattanAssociatesOn tips for a good WMS design:“Make sure that the right peopleare involved and that there’s goodinput from both the it side and theoperations side. You don’t want tostart designing your functional flowbased on purely one side’s input. Operationsmay tell you to do it one way,not taking into account what IT’spriorities or restrictions or capabilitiesmight be, and vice versa. Goodcommunication is needed from bothsides to make that happen.”scaling station for dimensions, the putawayarea for storage, or immediatelyto the picking area for shipping. Ateach destination, each case is scannedso that the WMS can be continuallyupdated with its current location andstatus.On the outbound side, the WMS performsan allocation to decide whetherthere’s enough inventory for that orderand where to get the inventory fromwithin the DC for distribution into thesorters or the put-to-light. After cartonsof orders are packed, they’re inductedinto the conveyor system labeled with aunique LPN.Real-time interfaces between theWMS and WCS directs the scannedoutbound carton to either go to valueaddedservices for additional operationsrequested by customers, to an outboundquality check, or to an automated printand-applyarea where shipping labelsare automatically applied. Each casethen crosses a scale and a tape machinebefore being diverted to the appropriateshipping lane.A system wiTH benefitsIt’s been over a decade since the initialWMS roll-out, and GUESS can’tstress enough the importance of thesystem’s flexibility and operation overthe years. “With it, we know exactlywhere our inventory is, what state it’sin, and exactly what our capacity is onthe floor,” says Boyle.Because every unit is tracked in realtime, the WMS ensures that the rightgoods ship to the right locations everytime, causing accuracy to “go throughthe roof.” A physical inventory countnow takes just 12 hours, down fromthree days.Integrating the WMS with unit sortersand put-to-light systems significantlyincreased throughput allowingthe shipment of 30 percent to 40 percentmore inventory year over year. Thisshift to automation also realized hardsavings of $1.3 million in 2009. Weeklystore orders have been reduced frommultiple shipments per week to justonce per week with the consolidationof store orders.More importantly, its WMS allowedthe company to keep up with exponentialdemand and scale up to a brandnew, larger DC. “It also provided theflexibility to handle all new interfacessuch as the installation of new sortersand the implementation of new hostsystems for wholesale and retail,” addsFeddersen.Boyle could not agree more: “Oneof the great things about our WMSis how we’ve been able to bolt on justabout anything we need. The way thesystem is configured allows for a numberof access points in the software;and we’ve never had an absolute ‘no’ interms of what we needed to do.”In fact, the Louisville DC’s WMShas been so successful that GUESShas rolled out the same system in itsDCs in Montreal, Hong Kong andShanghai. MMaida Napolitano is a ContributingEditor to Logistics Management28 Logistics Management WWW.LOGISTICSMGMT.COM | May 2011

transportation best practices/trendsIntermodal looksmarvelous!The red-hot intermodal sector is “in fashion” these days asshippers opt for lower rates at near-truck service levels. Ourintrepid trucking correspondent examines the factors drivingthis impressive growth as well as how logistics professionals areusing the option as part of their 2011 transportation tool kit.BY john D. schulz, contributing editorWhether it’s truck-rail for domestic freight orocean-rail for international moves, the situationis the same no matter how you analyze the numbers:Intermodal is the hottest game in town.At the end of this year’s first quarter, intermodalfreight volumes are up 10 percent from year-agovolumes—11 percent up on international moves and 9 percentup on domestic moves. That’s roughly twice the rate ofgrowth of all North American rail traffic, and three times thegrowth in the U.S. trucking industry.“Intermodal is looking very strong as we roll into themiddle of 2011,” says Larry Gross, an intermodal expert anda consultant with FTR Associates and principal of GrossTransportation Consulting. “It’s been a bang-up year.”Analysts, academics, and some industry officials havelong called intermodal the “sexiest” part of freight transportationdue to several factors. One is its inherent ability totake the best efficiencies from the various modes—cheapocean transport, long-haul rail shipment, and just-in-timetruck transport—and use them in one coordinated move.And then, of course, there’s intermodal’s “green” appeal as itreduces overall diesel fuel usage.For various reasons, from the staggering rise in crude oilprices to shippers and manufacturers increasingly wanting toreduce their carbon footprint and “go green,” analysts predictintermodal growth will continue to exceed overall freightdemand as the nation ramps up from the recession.So how big is intermodal in 2011? According to the IntermodalAssociation of North America, intermodal revenue was$13.5 billion. About 45.9 percent of that is purely domesticmoves with international accounting for the rest.While IANA does not do forecasts, analysts are conservativelypredicting total intermodal growth this year to risebetween 5 percent and 6 percent year-over-year, more if theprice of crude oil continues unabated.And while Class I rail volumes were up 5.1 percent yearover-yearfor all five North American railroads (6.1 percentfor the four U.S. carriers), the intermodal share at each ofthe five railroads was significantly higher in the first quarterof 2011. Depending on the carrier, intermodal rose between8 percent and 10 percent year-over-year at Burlington NorthernSanta Fe and Union Pacific in the West as well as CSXand Norfolk Southern in the East.Over the next few pages we’ll example the factors that aredriving this impressive growth as well as how shippers andcarriers are best using the intermodal option in their transportationtool kit.Under the hot lightsShippers are being inundated right now. Fuel surcharges arerising to the point where they can be 50 percent of their billfor a long-haul truckload move.And while this is going on, there are growing capacityconcerns in the trucking industry. Because of CSA 2010 andother initiatives, truck drivers are under increased scrutinyand are in short supply.During the recession, many large truckload carriers such asJ.B. Hunt, Swift, Werner, and others parked as many as 10percent to 15 percent of their fleets to match reduced demandlevels. Some of those carriers have been slow to replace thosetrucks, creating spot shortages along some lanes, particularlyin the Upper Midwest, parts of the Southeast, and in and out30 Logistics Management WWW.LOGISTICSMGMT.COM | May 2011

Daniel Vasconcellosof California.But while this was occurring, the railroads were investingbillions in their infrastructure, double-tracking, and increasingcapacity where needed. Burlington Northern Santa Fe,for example, bought 331 new locomotives in 2009. UnionPacific (UP) added 127.They’ve also become creative in seeking out help from thegovernment. Most recently, UP announced in April that theNew Mexico legislature has granted the railroad a locomotivefuel tax deduction. That paves the way for UP to startconstruction on a new $400 million intermodal center nearSanta Teresa, N.M., that will have an annual lift capacityof up to 250,000 intermodal containers. UP ChairmanJim Young calls the move a “strategic investment” that willimprove intermodal capacity and efficiency.Rails have also spent the better part of the past decadetightening up their service standards. Trucking companies,meanwhile, are facing ever-higher fuel costs and driver shortages.Analyst Noel Perry of FTR Associates is predictingthat the trucking industry will face a shortfall of as many as400,000 drivers as early as 2012.Today, truckers are increasingly eying the railroads as“partners” instead of competitors and are using the rails fortheir line hauls, particularly over 1,500-mile lengths of haul.“Intermodal is in fashion right now,” says John Larkin,managing director of transportation equity research for Stifel,Nicolaus. “The service is as good or better than solo drivertruckload both in terms of transit times and reliability. Thebase price is 10 percent to 15 percent below truckload, andthe fuel surcharges can be half as much.”May 2011 | WWW.LOGISTICSMGMT.COM Logistics Management 31

Transportation Best Practices/TrendsConsidering all these factors, Larkinis predicting that intermodal willgrow this year at about twice the rateof growth as trucking. That is as long asthere’s sufficient capacity both in termsof equipment and terminal capacity.“The future is bright as long as sufficientboxes, chassis, locomotives, intermodalrail cars of the right type, and terminalscapacity exists,” explains Larkin. “Linecapacity is less of an issue, especially asmore sidings are added or extended.”Larkin noted that most intermodalloads will still go via truck as intermodalis service limited to a relative handfulof lanes—Chicago to the West Coast,Chicago to Dallas, and, to a lesserextent, along the I-95 corridor in theEast Coast.The crowd is loving itIntermodal has other things going forit as well. The mode’s ability to reducecarbon footprint, coupled with the current,global sustainability drive, is certainlya large part of its appeal.Recently, Whirlpool made a significantinvestment to increase its intermodalmoves. The appliance giant reached amajor milestone last year when it loadedits 3,000th boxcar as part of a revampedsupply chain—that’s the equivalent oftaking 9,000 trucks off the road.“Plus shippers get to check the sustainabilitybox in their strategic plans,”adds Larkin. “So, it will keep on grabbingmarket share in the long-haul,high-density lanes anchored by big citiesand mechanized intermodal ramps.”Sustainability and the green movementis also a factor in manufacturers’preference for intermodal, which canreduce their carbon footprint by cuttingfuel consumption and saving money.About two years ago, Whirlpool did thisby conquering one of the centuries-olddisadvantages of intermodal—lack ofaccessibility. It did this by building 10new distribution centers, all with raildocks in key locations near mainline orshort haul tracks and close to highwayaccess. Whirlpool now reports that it’susing fewer trucks, products are movinguninterrupted, and there’s less damagewhen shipped by rail.Whirlpool is not alone. Other manufacturersare making similar, if lessdramatic, steps in increasing intermodalusage.In the meantime, truckers are increasinglyrelying on intermodal service as well.UPS, the world’s largest transportationcompany, is also the single largest rail shipper.UPS will spend more than $3 billionthis year on rail transport, much of it onregularly scheduled, 50-hour nightly trainsout of Chicago to just outside Los Angelesthat run as smooth as most truck moves.“UPS is in a class of their own,” saysconsultant Gross. “They’ve used railforever. For many, many years they werethe backbone of intermodal servicedemand, and they really drive the highservice side of the intermodal equation.”In fact, adds Gross, their trailer“What you’re seeing right nowis really strong freight demandrelative to capacity.”—Steve Van Kirk, Schneider Nationaltrains tend to be the faster trains in theintermodal world.But UPS is hardly alone amongtruckers utilizing rail. FedEx Freight,the nation’s largest LTL carrier, recentlybegan using intermodal when it startedits “two-tiered” system of service—economy and priority. The unionizedLTL carriers such as YRC Worldwideand ABF Freight System long havemoved as much as one-fourth of theirtrailers on the rails, mostly for long-haulline haul efficiency.Truckload carriers are increasing theirintermodal usage as well. Steve VanKirk, senior vice president of intermodalcommercial management for SchneiderNational, says that intermodal’s attractivenesswill continue to grow as overthe-roadcapacity gets tighter.“What you’re seeing right now isreally strong freight demand relative tocapacity,” Van Kirk says. “That appliesto all modes—dry van, truckload,intermodal. Capacity is getting tighter,and intermodal is seen as a viableoption for many shippers.”But there are other factors drivingintermodal growth, including a shift inhow it’s perceived by shippers.“The biggest thing intermodal hasgoing for it is that it has moved fromthe mode of last resort to a core transportationfunction,” says Gross. “That’sa function of reliability and quality ofintermodal product. It’s never goingto be as fast as a truck, but intermodaloffers a combination of speed and reliabilityat a price that makes sense.”Gross adds that the proof of that wasin the most recent recession. In thepast, intermodal usage fell off duringeconomic downturns as truck capacityincreased and rates fell down. “Thatdidn’t happen this time,” says Gross.“Intermodal share has been slowly, butsteadily increasing, and I would certainlyexpect that to continue.”Future projectsAs long as fuel stays in the $4-a-gallonrange and qualified truck driversincreasingly are difficult to hire andretain, intermodal should continue togain market share, say our analysts,with a few caveats.In general, analysts and intermodalexperts say, the only thing that wouldthreaten intermodal would be if the railsystem starts to bog down and servicebegins to suffer. That is not likely, butrail service meltdowns have occurred inthe past in the wake of industry mergers,and other factors.One trend to watch for in the futureis increased intermodal use in shorterlengths of haul. Right now the averagelength of an intermodal move is 1,575miles. But increasingly intermodal isbeing used in “mid-lengths” of haul, oraround 1,000 miles.“It’s a great challenge to bring downthat average length of haul,” says Gross.“You need a denser network of terminals.That gets more complicated andmore expensive to operate. It’s a changeto move into these shorter lengths ofhaul. But I would expect these intermodalplayers to enter that market in thefuture.”Even a drop in the cost of diesel fuelmay not hinder intermodal’s growth,experts say. In the past, the “tippingpoint” for rail vs. truck moves seems tohave been about the $3 per gallon priceof diesel. That may not apply any longer.“That day is done,” concludes Gross.“Everybody understands that if fuelwere to go down to $3, that situationis not going to endure. Intermodal’sattractiveness is not totally dependenton the price of fuel any longer.” MJohn D. Schulz is a Contributing Editorto Logistics Management32 Logistics Management WWW.LOGISTICSMGMT.COM | May 2011

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supply chain technologyLMS: Cominginto its ownThe continued need to drive costs out of the supply chain is slowly, but surelypushing labor management system adoption rates. Our Technology Correspondentoffers a snapshot of the LMS market and examines the issues driving its useinside the four walls as well as in the cabs of the nation’s private fleets.By Bridget McCrea, Contributing EditorLabor management systems (LMS) have beenaround for years, making the market a fairlymature and proven one by supply chain softwarestandards.Used primarily as a way to manage and trackthe labor activities for distribution operations, LMS typicallyincorporates real-time interaction with warehouse managementsystems (WMS). Most often used within the four wallsof a warehouse, these systems report on labor activity, andthen compare that activity against historical data and establishedlabor standards.However, despite LMS’ knack for enhancing worker productivityand shaving labor costs, adoption rates for the softwarehave been less than impressive over the last few years.“Historically, LMS was the purview of large facilities with200 or more workers, with the grocery segment being a particularlylarge user of these systems,” says Dwight Klappich,research vice president for Gartner, Inc. “And as this historyshows, LMS implementation costs have just been easier tojustify with larger labor forces.”But that sentiment could change, says Klappich, as moresoftware vendors offer LMS as part of their supply chainsoftware suites—and as companies across the board strivefor improved labor management practices. “Demand forlabor management is up, and at the same time the solutionshave become more achievable for a wider array of companies,”he says. “As a result, we could see more companiesturning to LMS.”Also pushing companies to explore their labor managementis a continued need to drive costs out of the supplychain. While business activity is picking up nationally, thenumber of jobs isn’t increasing to meet that growth. Callingthis phenomenon a “people-less” recovery, Klappichsays companies are using technology like LMS to maintaingrowth without having to add new employees to the roster.“LMS is a key productivity tool that addresses labor, andis particularly relevant for logistics professionals that wantto be able to do more work with the same number of people,or fewer,” Klappich says. To help companies achievethat goal, LMS creates an environment where worker productivitycan be monitored, and adjusted accordingly, toensure that all employees are performing optimally, and asefficiently as possible.Over the next few pages, we’ll look more closely at theLMS market and the key issues pushing its adoption insidethe four walls as well as in the driver seats of the nation’s privatefleets. We’ll also introduce you to a national waste managementfirm that’s managed to get its arms around drivertracking to create a leaner workforce as a result of its labormanagement process.34 Logistics Management WWW.LOGISTICSMGMT.COM | May 2011

All eyes on laborIn most cases, LMS is used to managewhat’s going in within the four wallsof a warehouse or distribution centerwhere the highest number of opportunitiesto track and control labor costsexist.“There’s so much labor concentratedin the warehouse, and many opportunitiesto optimize those labor activities,”explains Marc Bessho, consultingmanager at supply chain advisory firmCapgemini. “There’s also room for costreduction and asset utilization—both ofwhich can be tackled by an LMS.”Klappich concurs, and says vendorslike Kronos, Red Prairie, andManhattan Associates have all honedtheir LMSs—either standalone, or aspart of a larger supply chain softwareplatform—to the point where implementationsresult in improved humancapital management, and better oversighton important factors like timeand attendance.Supply chain organizations thatimplement LMS frequently experiencea “pretty massive upside in returnfor their investments,” according toBessho, although convincing logisticsmanagers of that ROI isn’t always easy.“Sometimes it’s a hard sell,” he says.“What many companies don’t realize isthat by putting key performance indicators(KPIs) in place to measure workerinactivity, they can gain 30 percent to40 percent improvements in utilizationwithin the warehouse.”Couple those gains with the productivitygains that result when a shipperachieves better workforce visibility, andthe pay-for-performance associatedwith engineering labor standards, saysBessho, and the case for LMS becomeseven more compelling.“Using an LMS, companies cantrack and report on individual performance,and then compare actual versusstandard performance,” says ClintReiser, a research analyst with supplychain technology consultancy ARCAdvisory Group. “Using that data, shipperscan keep a closer eye on employeesand work processes, and use thatfeedback to make improvements, manageprocesses more effectively, and createincentive-based programs.”Addressing hang-upsLMSs come with their own unique setof challenges, most of them culturalin nature. For starters, a “big brother”barrier can come into play when anemployee-tracking system is put intoplace. Warehouses or distribution centersites that are unionized tend to runinto the most resistance in this area,according to Klappich, who has seen afew labor forces use their union clout toMay 2011 | WWW.LOGISTICSMGMT.COM Logistics Management 35

State of Labor Managementblock the use of LMS in the workplace.Exactly how the LMS implementationis introduced and rolled out canmake or break it, says Klappich, whoadvises logistics professionals to leadwith a strategy that clearly explains howthe tools will be used on a day-to-daybasis—not as a big brother-type tool,but as a way to solve warehousing laborissues and improve productivity.“If you just drop this on the workforce,there’s definitely going to beresistance,” says Klappich. “Employeeswill assume you’re trying to micromanagethem, and that you’re going to usethe information to fire them.”Effective LMS implementationsalso take time, and must be supportedby internal standards and processes,says Klappich, who has watched morethan one warehouse or distribution siteinstall such a system, only to shelve it afew months later out of frustration. “Ifyou’re going to use an LMS, you haveto establish a center of excellence and asupport structure for it,” says Klappich.“Without these elements, your LMSwill simply become a scorecard forpenalizing employees who don’t meetyour standards.”Republic Services:All about empowermentRepublic Services of Phoenix, Ariz., isone company that definitely hasn’t letits LMS gather dust, nor has the systembecome a point of contention forthe waste management firm’s 26,000employees and 3,800 managers. Withlocations in 47 states, and more than50 different divisions under its corporateumbrella, Republic Services usesits Kronos LMS to manage a geographicallydispersed labor force with ease.That decision has paid off forRepublic Services, which uses itsLMS as a tracking and reporting toolfor all man-hours worked to manageits logistics-related labor. The softwaremanages time and attendance processesfor employees, and allows theshipper to control labor costs, minimizecompliance risk, and improvelabor productivity.Supervisors and managers use thesystem for labor tracking, for example,and also to generate reports that“help them stay accountable for theiremployees,” says Debbie Stackhouse,time and attendance manager.Republic Services, which has beenusing the LMS for several years,migrated its newest acquisition, AlliedWaste, to the system in 2008. In doingso, the former added 20,000 newemployees to its existing LMS. Previously,Allied was using 63 differenteTIME standalone databases to manageits workforce, and the databaseswere only accessible to their respectiveusers and didn’t provide any type ofcompany-wide visibility.“When the merger took place, wedecided to get everyone on the Kronossystem,” recalls Stackhouse, “knowingit would give everyone insights intowhat was going on across the mergedentities.”Getting there required a conversion,and an upgrade to the latest, web-basedversion of the LMS. The projects wereundertaken concurrently—a move thatcreated a few challenges for the company.For example, Stackhouse saysinternal IT resources were stretched tothe limit during the changeover, whichrequired extensive user training (basedon the fact that the company was movingto a web-based system).“We have a very small team madeup of me, and one support person,”Stackhouse explains. “It was a bigundertaking, but we really felt it wasthe right way to go. We knew wecould get more gains out of the newer,upgraded system.”Payroll administrators, dispatchers,and clerks also use the LMS, namely forreporting, Stackhouse adds. The systemincludes a controlled access function,which allows certain users to edit informationand approve data and othersto simply print out applicable reports.“With each user role, there is a differentsecurity level,” Stackhouse explains.Rudy Leon, Republic’s HR systemsmanager, says the LMS has provenitself especially useful when it comesto tracking driver hours and ensuringthat employees don’t exceed FMCSAhours of service rules. “We have a lotof safety-related managers who usethe system for DOT reporting,” saysLeon, “to make sure they don’t exceedthe maximum number of hours whiledriving.”With 3,800 users currently on itsLMS, Republic plans to enhance thesystem even further this year by implementinga module that will allow thecompany to test and certify drivertime. “While we’ve already seen a lotof benefits from being able to monitorour employees,” says Stackhouse, “nowwe’re looking to leverage our LMS withadditional add-ons.”Leon sees the LMS as a vital tool intoday’s competitive business environment,where companies are continuallyforced to do more with less. “Throughtechnology,” says Leon, “we canempower our managers to get the datathey need to make the best decisions,instead of having to rely on others forthat information. That’s invaluable.” MBridget McCrea is a Contributing Editorto Logistics Management36 Logistics Management WWW.LOGISTICSMGMT.COM | May 2011

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GLOBAL LOGISTICSFREIGHT FORWARDING:Choosing the bestWith President Obama continuing to emphasizeexports, specialized shipping intermediariesare more important than ever to global logisticsoperations. But how do shippers identify andchoose the right freight forwarder?BY PATRICK BURNSON, EXECUTIVE EDITORLost in all the recent discussion of what differentiatesa 3PL from a 4PL, comes the question:Whither the common freight forwarder? Oncecharged with simply arranging the movementof goods through Customs clearance, the roleremains in what some experts call “deeper shades of grey.”“Third- and fourth-party logistics providers are alwaysfreight forwarders,” says Shay Scott, director of the GlobalSupply Chain Institute (GSCI) at The University of Tennessee.“But it’s never the other way around.”Nor should it be, he adds. Given that not every shipperfaces the complexity of penetrating a new globalmarket or extending its existing supply chain across vast“borderless” regions. “A lot of logisticians are taking issuewith economists who say the world is flat,” he says. “Weknow that globalization has been vastly exaggerated, andthat relying on a ‘mega-forwarder’ is not always the distributionanswer.”Shay points to the work of Pankaj Ghemawat, of IESEBusiness School in Spain, who recently authored the book,World 3.0. In it, he notes that the number of American companieswith any foreign operations is vastly overstated, andthat exports remain a relatively small part of GDP.“So while some Fortune 500 companies really do need aFedex Trade Network, or UPS Logistics, or a Penske, manyother U.S. exporters only require a basic forwarder,” saysShay.But that doesn’t keep forwarders from over-promising ontheir services, he adds.“Thirty years ago, a small trucker would call itself a freightforwarder,” Shay says. “Then they’d build a warehouse andcall themselves a 3PL. And if that worked, they’d offer consultingand call themselves a 4PL. It’s all become rather confusing…andoften unnecessary.”What is necessary, however, is finding the right forwarderfor “niche” shipping, says Shay. He notes that U.S. companiesdoing business in Mexico, for example, might be betteroff with a small forwarder located near the border. The sameholds true for shippers of specialized commodities like pharmaceuticalsor hazardous materials.“The shipper’s focus should not be on the country he’s tryingto enter, but the port of entry,” says Shay. “And many ofthe smaller forwarders have better relationships with Customsat these stations than the bigger players.”DUE DILIGENCEAt the same time, say other industry experts, smaller forwardersmay provide a better price point and speed of delivery,too. According to Rosalyn Wilson, senior business analystat Delcan Corp., a supply chain consultancy in Vienna,Va., picking the right global freight forwarder still involvesconsiderable diligence.“Imagine your goods have gotten stuck somewhere enroute—perhaps the paperwork wasn’t filed correctly becausethe regulation has changed, or the promised transportationservice didn’t materialize,” she says. “The delay can hit yourbottom line in terms of dollars, but can also damage the reputationof your product or company.”38 LOGISTICS MANAGEMENT WWW.LOGISTICSMGMT.COM | May 2011

partnerAccording to Wilson, a good freight forwarder will be anasset to the shipper, allowing them to focus on their corecompetencies. Therefore, she says, it is worth the time tothoroughly research options and choose the forwarder thatfits their needs now and in the future.“Probably the most important factor to consider is experiencewith the types of products you ship and familiarity withthe routes you use,” she says. “A good forwarder should beexperienced enough to be able to balance your speed andcost requirements, offeringa range of shipmentchoices—ocean, truck,rail, barge, or plane.”Wilson advises shippersto narrow their shortlistto those with impeccabletrack records aswell as those that keepcompletely up to date onchanging regulations andreporting requirements.She says shippers shouldknow the condition andservice levels of the carriersthey use, and havea deep knowledge thatmatches their needs.“For instance, if yourproduct requires refrigerationor other special handling, find out about their experiencewith these types of shipments,” says Wilson. “If yourshipment involves hazardous cargo, does the forwarder havecertified and trained staff on both ends of the move to manageyour shipment?”She also encourages shippers to ask if the forwarder hasoffices, partners, and employees around the globe—localagents in the origin or destination country or city to ensurethat the cargo was handled correctly.May 2011 | WWW.LOGISTICSMGMT.COM LOGISTICS MANAGEMENT 39

Global LogisticsGain visibilityOther supply chain analysts stress thatforwarders must provide a “visibilitynetwork” in any offering they provide.“I would say that today’s integratedlogistics capability puts a premium onvisibility and information,” says GregAimi, director of supply chain researchat Gartner. “Visibility for tighter controlof processes supporting leaner andleaner inventory strategies preventsexceptions from occurringwhere possible.”Aimi also maintainsthat shipper and forwardershould have shared trackingand tracing systemsfor capturing data. Thisis vital, he says, becausecompanies want to be ableto analyze processes forcontinuous improvementopportunities. “So makingsure that your forwarder’sIT systems are capable isanother factor worth considering,”he says.Charles Clowdis, Jr.,managing director oftransportation consultingand advisory servicesat IHS Global Insight,agrees with Aimi, notingthat with the rapidchanges in supply chainmethodology, attention todetail, especially in yourforwarder’s IT capabilities,is critical.“Certainly, selectinga forwarder who knowsyour product and itsmost efficient transportoptions is also important,”he says. “Furthermore, selectinga forwarder who can measurecosts versus delivery requirements isvital to controlling a budget. I wouldadd that proper documentation andcompliance with any pertinent regulationsshould be a given.”Clowdis adds that these key elementsshould be supported by a robustvisibility network that allows the forwarderto see each incremental stepalong the supply chain and to react toany event “affecting the smooth andscheduled flow of shipments…andsupport contingency options should theneed arise,” he says.Creating the checklistAll three of our analysts come to thesame conclusion regarding a strategicplan for evaluating forwarders andadvise creating a basic checklist beforemaking a final decision.For starters, the forwarder must beThe EU DefinitionWhile there remains considerable confusion over how a freight forwarderdiffers from a 3PL, 4PL, or the newly coined “lead logisticsprovider,” the International Federation of Freight Forwarders Associations(FIATA) has come up with a description for assessmentthat covers the whole range of intermediaries.“Freight Forwarding and logistic services” means services ofany kind relating to the carriage (performed by single mode ormultimodal transport means). It also means consolidation,storage, handling, packing or distribution of the goods as wellas ancillary and advisory services. This includes—but is notlimited to—customs and fiscal matters, declaring the goods forofficial purposes, procuring insurance of the goods and collectingor procuring payment or documents relating to the goods.Freight Forwarding Services also include logistical services withmodern information and communication technology in connectionwith the carriage, handling or storage of the goods, and defacto total supply chain management. These services can betailored to meet the flexible application of the services provided.”An even more complete description has been recently adoptedby the European Association for Forwarding, Transport, Logistic andCustoms Services (CLECAT). And just in time, too.Transport Logistic 2011, the world’s largest trade show examininginternational logistics, mobility, IT, and supply chain management,takes place in Munich, Germany, on May 10 - 13. A major focus of theconference agenda will be on the entire spectrum of global intermodalmovement of goods on the roads, rail, water, and air. LogisticsManagement will be in attendance.bonded and licensed with all the applicablegovernment agencies. Anotherstrong point would be accreditationunder the International Quality StandardISO9000:2000. Also keep in mindthat a forwarder that’s a member ofC-TPAT means they have met certainsecurity standards and will ensure asmoother trip for your shipment.Some other things to check:• Are they financially stable? Checkcredit references and check with carriersto be certain that they have a goodpayment record.• Is the forwarder large enough, withample staff and facilities to handle yourneeds?• Can the forwarder ensure visibilityof your shipment as it moves throughthe supply chain?• Do they have the market buyingpower to get you space, without thepremium price?• Do they have customs-bondedwarehousing allowingyour goods to be storedwithout taxes and dutiesbeing paid improvingyour cash flow and stockmanagement?• Are they also customsbrokers? Do they have anAutomated Broker interfaceto U.S. Customs?• Do they offer comprehensivecargo insurance tocover all risks, including lossand damage?• Do they offer consolidationservices to reducecosts?• Do they offer doorto-door,destination port/airport-to-door?• What services areconsidered ancillary andhow do they charge forthose services?Wilson, Clowdis, andAimi all certainly agreethat a shipper should askfor references, for boththeir forwarding businessin general and specific referencesfor the product,markets, and services thatthe shipper will be using.“It’s critical to find out how longthey have been operating and how wellestablished they are in your target markets,”says Wilson. “But once you havea good forwarder, the temptation will beto use them for everything. So, makesure to evaluate if your shipment reallyneeds that level of service or if a standardcourier service would work just aswell at a lower cost.” MPatrick Burnson is Executive Editor ofLogistics Management40 Logistics Management WWW.LOGISTICSMGMT.COM | May 2011

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LM exclusive2011 technology roundtable+ Live webcast: May 31, 2011, 2:00 pm ETlogisticsmgmt.com/tech20112011PuttingBy Michael Levans,Group Editorial DirectorThe results of our 2011 SoftwareUsers Survey revealed that eventhough logistics professionalsare taking a more calculated approachto vendor and product selection, they’refinally ready to turn up the spending—welcome relief for over-burdened usersacross the supply chain who are stilltoiling on outdated systems.While our research team found theimproved-spending data refreshing, wealso learned that many logistics professionalsare showing renewed interestin achieving a better understandingof the data that supply chain softwaresystems are capable of churning out.In an effort to help shippers put thisdata into better context, we’ve gathereda few of the top supply chain softwareanalysts who are closely watching theprogress of supply chain visibility, businessintelligence (BI), advanced analytics,as well as the steady evolutionof today’s warehouse management systems(WMS).Leading off this year is Shanton Wilcox,principal of supply chain managementat Capgemini Consulting, whowill explore the often-misunderstoodconcept of supply chain visibility. JerryO’Dwyer, U.S. sourcing and procurementleader for Deloitte Consulting,then joins us to explain the growingimportance of BI and analytics in logisticsmanagement. Greg Aimi, director of1 0 10010110010101001011101142 Logistics Management WWW.LOGISTICSMGMT.COM | May 201111

Technology Roundtable:data into contextOur recent Software Users Survey revealed that shippers are showing a renewedinterest in achieving a better understanding of the data supply chain software systemsare capable of churning out. Three top technology analysts tell us how to get this done.supply chain research at Gartner, will wrap things up this yearby giving readers an update on the new capabilities WMS vendorsare adding to these mature systems.Visibility: The Holy GrailLogistics Management: In a recent survey of supply chainprofessionals your organization just conducted, 45 percentof the respondents said that supply chain visibility projectswould be a main focus area for the coming year. What kindsof projects fall into that category?Shanton Wilcox: Visibility is a very misunderstood term, inmany ways it’s similar to the many interpretations of supplychain. From my perspective, visibility spans a continuum,from general or less mature visibility, to state-of-the-art visibility.Simple electronic information integrated between tradingpartners counts as simple visibility, as systems are directlyconnected. At the other end of the continuum are the visibilityplatforms that directly update based on order or shipmentstatus, real-time across several trading partners, providingproactive exception-based management capabilities.LM: Can you give us an example of how improved visibilitymight help logistics and supply chain professionals bettermanage the challenge of market volatility?Wilcox: If you consider the more advanced form of visibility,shippers can proactively direct in-transit shipments to marketswhere products are moving at a higher velocity. Or manufacturerscan determine what parts or materials are actuallybeing shipped in the event of a catastrophe and re-plan manufacturingbased on actual in-transit parts and materials. So,advanced forms of visibility allow partners to more efficientlyexecute management decisions based on real information,reducing latency and costs.LM: What’s technology’s role in improving visibility? Is there asingle solution that shippers can install to gain these benefits?Wilcox: As is the case with all situations that drive significantvalue, there is no silver bullet, but it is achievable. Advanced visibilityis complicated by distance as supply chains were extendedglobally and by the number of partners added to operations todrive efficiency and competitive advantage. So, many factorshave to be aligned to achieve advanced visibility, and it starts withroles and responsibilities enforced with contracts.It ends and materializes via visibility platforms, and manyare commercially available that integrate the informationflows in a business context that facilitate the definition ofalerts and subsequent identification of exceptions. Withoutexception-based management governing visibility, theamount of information flowing between global partnerswould be too great for organizations to manage; so, technologyserves as the unifying mechanism.LM: What are the early steps logistics professionals need totake to get started in putting the right software into place?Wilcox: As in most situations that involve the extended supplychain, look to partners that may be more advanced orexperienced. It could be a supplier that gains experience froma different trading network or a logistics service provider thatprovides the capability to other partners. And when all elsefails, read. There is a lot of information available regardingvisibility and potential solutions.LM: Where do you see visibility-enabling software headinggoing in the next 10 years?Wilcox: Ten years from now, advanced visibility is going to bea “must have.” Companies are beginning to co-mingle freighton the same shipment. Supply chains will be become morevirtual, with contract manufacturers all over the world shippingdirectly to customers. So, in this case, visibility will berequired to operate in the future.0101100101010010111011011001010100101110110100101110101001011101101001011May 2011 | WWW.LOGISTICSMGMT.COM Logistics Management 43

2011 Technology Roundtable+ Live webcast: May 31, 2011, 2:00 pm ETlogisticsmgmt.com/tech2011Picture a remote call center literallyanywhere in the world taking a customerorder over the phone; the orderis transmitted to the OEM and the contractmanufacturer simultaneously; theorder is manufactured anywhere in theworld; and upon completion it’s droppedshipped directly to the customer. In thissituation, visibility technology will allowthe customer to monitor the status ofthe order on-line and will allow the customerservice representative to updatethe customer should anything change orrequire further attention.Advanced analyticsexplainedLM: In a recent article for our sisterpublication Supply Chain ManagementReview, you go into terrific detailin defining “advanced supply chain analytics.”Can you offer us your “elevatorpitch” version of this concept?Jerry O’Dwyer: Advanced supply chainanalytics represents an operational shiftaway from management models built onresponding to data. Emerging capabilitiesin this area seek to introduce a proactivemanagement model, equippingsupply chain professionals with the abilityto continually sense and respond asbusiness changes around them.Moreover, advanced supply chainanalytics can help supply chain professionalsanalyze increasingly largersets of data using demonstrated andtested analytical and mathematicaltechniques, thus allowing them to spotpatterns and correlations that may havebeen missed in the past.LM: How does this advanced level of analyticsdiffer from some of the statistical BIthat many of the more sophisticated logisticsand supply chain organizations havebeen putting to use over the past few years?O’Dwyer: The biggest differencebetween pure-play analytics andadvanced analytics we talk about is thelevel of complexity that can be simultaneouslydealt with. Traditional analyticsmodels include BI and statisticalmodels addressing specific problems.But, those tools essentially provideoutputs that require further interpretationto help leaders make meaningfulbusiness decisions. The success oftraditional models was very dependenton the advisory expertise involved.Advanced supply chain analytics canenable users to simultaneously factor ina host of problems and provide BI thatinvolves synthesizing real-time data intomeaningful information. It also includes ahost of toolkits designed to address multipleproblems that could potentially impacteach other, providing a holistic solution.LM: In terms of logistics and transportationmanagement, can you share a briefexample of what advanced supply chainanalytics would act like in the contextof day-to-day operations?O’Dwyer: Advanced analytics seeks totake logistics decision support to thenext level. Consider international containershipping. Oil prices are rising,capacity is constrained, and transit timesare longer due to carriers’ slow steaming.Providing your carrier partners withaccurate forecasts is key; however, it’salso typically very challenging.Advanced analytics are designed tohelp you go further upstream, lookingat demand patterns, forecasts, manufacturingschedules—even seasonality—tomodel your shipping requirementswith more precision. The outputis typically a more accurate capacityforecast that you can share with yourcarriers to secure capacity and makesure your shipments aren’t held up.LM: How does a logistics and supplychain organization take steps to implementthis concept?O’Dwyer: To implement advanced analytics,companies can start with thefollowing three steps. First, develop awell-defined vision for advanced analyticsso your organization knows whatto expect out of its development. Oncegoals are set, a clear implementationplan should be set. Then, individualanalytics efforts could be prioritizeddepending on the ROI and the criticalityof the application.Finally, from a people perspective,many supply chain organizations don’thave enough business experts with functionalknowledge of different supplychain areas. Finding this diversity andbreadth of experience is important, as isemphasizing analytical competency andexpectation in the hiring and promotionprocess. In addition, companies shouldnot ignore the IT skills challenge.LM: What technology is involved?O’Dwyer: A range of technologies canserve as the underpinning for the nextgeneration of supply chain analytics.Many of these solutions are beginningto enter the market today or are alreadyused by more innovative companies,albeit in select supply chain areas. Thefundamental change is not necessarilyto the types of analytics performed,though that will continue to evolve.Rather, the fundamental change isto the quantity, frequency, and typesof information analyzed and how it isshared. Perhaps one of the most significantemerging and continually evolvingrelevant technology is a next-generationbusiness intelligence and self-structuringdata logic that can bring togetherdifferent datasets, putting data into acontext to enable rapid insight.These new business intelligence andself-structuring data logic applications willallow users to ask questions of data constantly—asopposed to a weekly, quarterlyor yearly basis. In the future, logistics andsupply chain managers will ask questionsof their own advanced analytics toolsrather than the IT department facilitatinga data-warehousing-led information hunt.LM: For the logistics and transportationmanagement function, what would yousay is the greatest benefit?O’Dwyer: The greatest benefit for thelogistics management function is theforward-looking view and, in turn, thecompetitive advantage that advancedanalytics can provide. For instance, ifyou’re trying to solve a network strategyproblem, you want to keep materialflowing through your supply chain frommanufacturing plants to datacenters, andultimately to customers in a cost-effective0101010010111011011001010100101110110100101110101001011101101001011101144 Logistics Management WWW.LOGISTICSMGMT.COM | May 2011

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Feature 2011 Technology Kicker Roundtable+ Live webcast: May 31, 2011, 2:00 pm ETlogisticsmgmt.com/tech2011way that adheres to required service levels.Traditional analytical tools couldallow a user to optimize on a fixed setof variables, like number of plant locations,warehouses, demand centers andcarrier-mix. However, they may notsupport the next level of decision-makingdetermining a flow-path strategy todrive network configuration decisions.This is where advanced analytics helpsorganizations to provide enhanced supportto logistics managers.the new role of wmsLM: Many WMS vendors are adding newflair to these “mature” systems. What newcapabilities should logistics professionalsput to use?Greg Aimi: There are four areas I wouldcall out pertaining to more recentadvancements over basic WMS. First,the mobile input devices for recordingactivities and inventory moveshave a lot going on. We’ve long hadRF hand-helds for scanning barcodes,but now we’re seeing the movement tovoice, RFID, and more complex codinggaining momentum. Also, the mobiledevices themselves are getting smallerand more capable, and there seems tobe some convergence going on withsmartphones and other mobile devices.Second, we’ve seen a pretty dramaticincrease in the use of labor benchmarkingsystems for comparing task performanceand obtaining higher levels of productivityof the worker. Third, we’re seeing agrowth in the use of robotics with “smart”vehicles from the likes of Kiva and Seegridthat introduce significant change in certainwarehouse environments where theymake sense over heavy automation. Andfourth, we’ve certainly seen a rise in collaborationwith suppliers and carriers tocoordinate dock-door schedules with theyard and with internal workers.LM: Last year we discussed the moveby WMS vendors toward Software as aService (SaaS) and the broader, greatercloud. How has that progressed?Aimi: Our research estimates that inthe next five years spending on SaaS-basedapplications in supply chain execution willgrow from around 12 percent today to over18 percent. While there are new entrantsto the pure SaaS WMS arena, whichaccordingly have light to basic capabilities,there are also a couple of vendors that havemore sophisticated and robust WMS solutionsthan the market is probably aware of.At the same time, the major independentsoftware vendors of WMS arebeginning to offer a hosted version oftheir traditional applications hosted in thecloud. This requires a change in the pricingmodel to convert it to an “expense orfee” that has perplexed some of the largercompanies that depend on the big upfrontlicense fees for their revenue structure.LM: What type of operation is the bestfit for a SaaS solution?Aimi: There are a number of warehousesand depots that carry inventoryfor which the Tier-1 WMS solutionsare simply overkill. The basic capabilitySaaS would be appropriate for theseenvironments both from a capabilitiesstandpoint and a cost perspective.LM: It seems that industry jargon freelyuses “cloud” and “SaaS” interchangeably.Is that safe to do when discussingWMS delivery?Aimi: I think it’s important to distinguish“cloud” from SaaS WMS. A fewof the SaaS WMS solutions are quitenew and the features and functions arecorrespondingly light compared to theexisting, on-premise Tier-1 and Tier-2solutions. Moreover, if widespreadadoption occurred I would imagine theSaaS environments being challenged tohandled the throughput—granted thiswould be a short-term complication.Cloud WMS can be one of themore capable solutions—a single privateinstance—hosted on behalf of thecustomer by a cloud service provider.This environment would be as capableas any on premise deployment, exceptthe IT environment and managementwould be outsourced.LM: Our 2011 Software Users Surveyfound that 35 percent of respondents saythey’re ready to upgrade or dive into a newWMS. What steps do you suggest they take?Aimi: The WMS market is mature.There’s such parity in core WMS capabilitiesacross the leading product offerings,which makes other criteria, likebreadth, depth, technical architecture,company stability, and service reputationcritical for differentiating solutions.Technical architecture is now a moreimportant evaluation criterion as componentizedarchitectures like SOA areprevalent and can prevent the traditionalchallenge of one-off customizations.WMS is moving beyond just processexecution, with more emphasis on addingvalue through better intelligence anddecision making; so, it’s time to movetechnical architecture higher on the listof evaluation criteria. Make it secondonly to functionality. Matching provenimplementations with the processes youneed to support is a best practice. Thisdoesn’t necessarily mean they have tohave customers in your same industry,but the internal processes supported orrequired should be the same. Focus asmuch time on investigating support forenhanced decision-making as you will onprocess and activity execution.LM: Gartner writes about understandingwarehouse complexity before movinginto this assessment. What should warehouse/DCmanagers take into considerationwhen going through this exercise?Aimi: Most companies operate multiplefacilities if not multiple supply chains.Complexity may be different at each facilityor across different businesses. Morecomplex facilities require more functionalbreadth and depth to support their needs,while less complex operations oftenrequire less functional robustness.However, the problem with termslike complexity is that many users say,“I’ll know it when I see it.” But, definingit is much more difficult. This vaguenessis especially unacceptable whenselecting new WMS applications ifcomplexity is a strong indicator of thefunctional requirements. MMichael Levans is Group EditorialDirector of the Supply Chain Group01100101010010111011011001010100101110110100101110101001011101101001011146 Logistics Management WWW.LOGISTICSMGMT.COM | May 2011

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Special ReportA special supplement to:TOP 20 U.S. PORTSWhere’s themoney?By Patrick Burnson,Executive EditorCreative funding for expansion and infrastructureimprovement is critical for the top U.S. ports, especiallyas shippers are slowly reconfiguring their supplychains to become less dependent on the West Coast.If there is one lesson learned by thecatastrophic global events recently, it’sthat “just-in-case” scenarios trump “justin-time”imperatives. Japan’s earthquake,continued political unrest in the Middle East,and wild world currency fluctuations haveshippers hedging their bets these days—andthat includes domestic seaport selection.Even on the West Coast, mega-ports inSan Pedro, the San Francisco Bay, and thePuget Sound face daunting competition froma foreign gateway to the north. According toPeter Gatti, executive vice president of theNational Industrial Transportation League(NITL), British Columbia’s Prince Rupert isbecoming the favored gateway for many ofthe League’s members sourcing goods fromthe Far East.“It is a day’s shorter transit time,” Gattinotes, “and they don’t have the labor problemsU.S. ports have.” But the real advantage,he adds, is the rail link provided byCN that not only feeds across the continent,but also down into Kansas City. “Canada48S May 2011 • Logistics Management

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Special ReportA special supplement to logistics managementhas clearly been investing in theport’s infrastructure.”Infrastructure, or rather the lackthereof, is also a key growth indicatorfor Richard Thompson, executivevice president of the globalsupply chain practice for Jones LangLaSalle. He maintains that “connectivity”will be the watchword forU.S. ports in the future.“Given the current energypicture, shippers are becoming evermore reliant on rail and intermodal,”says Thompson. “That meansthat the ports will be concentratingon on-dock or near-dock rail serviceand the DCs to support intermodaltransfer. This kind of connectivitysoftens risk as well.”Thompson’s recent researchsuggests that shippers are slowlyreconfiguring their supply chainsto become less dependent on WestCoast ports. With California’seconomy in tatters, raising capital toimprove infrastructure in that statealone has been daunting.Three of the nation’s top 10ports—Los Angeles, Long Beach, andOakland—are constantly seeking newways to maintain existing “connectivity”and build for the future. But aswe’re finding, all of our nation’s portsare struggling with similar fundingchallenges.What does this mean for shippers?Thompson explains: “All the multinationalsare trying to get locked intolong-term contracts with specific oceancarriers. And if the carriers are callingports that can’t meet all the inlanddistributions needs, the shipper is outof luck.”Consequently, ports are more intentthan ever to keep both carriers and shippershappy—but to do that they need tofind the proper investment capital.In search of fundingWitness last month’s biennial PortU.S. Port Ranking for Q1, 2011Rank US_Port TEU1 Los Angeles, CA 928,3482 Long Beach, CA 692,0363 Newark/New York 646,6214 Savannah, GA 262,6295 Seattle, WA 203,6566 Norfolk, VA 182,4117 Oakland, CA 176,5978 Charleston, SC 140,9849 Houston, TX 140,37610 Tacoma, WA 108,66611 Miami, FL 89,64712 Port Everglades, FL 84,62913 Baltimore, MD 73,26714 Philadelphia, PA 38,04915 San Juan, PR 36,26916 Wilmington, DE 36,10617 Wilmington, NC 31,16818 Gulfport, MS 27,08419 Jacksonville, FL 26,27320 Boston, MA 24,141Source: ZepolOther 125,028Total 4,073,987Administration and Legal Issues Seminarin San Francisco sponsored by theAmerican Association of Port Authorities.The event featured an in-depthdiscussion on port funding and publicfinance management. While many pathscan be taken toward achieving a financinggoal, most speakers advise a “goslow” approach for port administrators.“It’s crucial that one set prioritieswith all the port stakeholders beforemoving forward,” says Karl Pan, chieffinancial officer for the Port of Los Angeles.“Before getting started, make sureyou understand the risks and whetheryou’re staffed with the administrativeskill sets to the get the job done.”According to Pan, interest costs arenot the only concern ports should havewhen borrowing money. There are debtservice reserve fees, financial covenants,and unique reporting requirements.“So when you’re trying to sell yourplan to a Board,” he says, “it’s importantto avoid financial jargon.”Pan also insists that complete transparencybe provided in any presentation,as “there is no place to hide.”Given the economies of scale thatmost ports are now under, financialadvisors are “a must” says Pan.Jessica Soltz Rudd, senior directorwith Frasca & Associates, LLC,concurs, noting that advisors canhelp ports navigate the intricaciesof the financial marketplace.“Back in the ‘go-go ’90s’ portswere bringing in so much cargothat money for expansion was agiven,” she says. “The growth multipleswere three times or more eachyear; and given the capital intensivenature of port operations, moneywas not that hard to raise.”But in the wake of a severerecession, and with consumer confidencenow just beginning to gaintraction, ports are under pressureto justify investment before tryingto raise cash. “Even with a bondrating like the one Los Angeles hasit’s not an easy thing to do,” says SotlzRudd. “And once you get the funding,it’s important to stay on your guard, andremain proactive. You are only as goodas your credit.”Industry analysts say that there’s beena direct correlation between capital investmentin port infrastructure, and thevolume growth at those load centers.Zepol Corporation—a leading tradedata and market intelligence companyspecializing in ocean cargo data—notesthat there’s been a shift in share overthe past year. “Long Beach and LosAngeles lost a combined 4 percent and14 percent, respectively,” says Zepol’spresident, Paul Rasmussen. “East Coastports are picking up this traffic. NewYork/New Jersey and Houston were thebiggest winners on the container frontin the past two years.”Meanwhile, Houston increased its50S May 2011 • Logistics Management

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Special ReportA special supplement to logistics managementthroughput by 31 percent over 2010,and other lower volume ports increasedtheir market share, as well. Earlier thisyear, Houston opened the Cargo BayRoad truck entrance with considerablefanfare. Presently, trucks transport about75 percent of the port’s inbound andoutbound cargo.Houston City Council memberJames Rodriguez, whose District Iincludes several Port Authority operationalfacilities, notes that the new truckentrance will help improve traffic flowwith three inbound and two outboundlanes. “It will be open around the clockand staffed by contract security personnel,”says Rodriguez.Investment paying offHouston is not the only “mid-tier”port investing in its future, says Zepol’spresident. “Port Everglades, Miami,New Orleans, and Baltimore, all portsthat invested recently, all saw significantpercentage increases in TEU volumesOakland was ranked 7th on Zepol’s Top 20 list for the first quarter of 2011.Like Los Angeles and Long Beach to the south, the California ports areconstantly seeking new ways to maintain existing “connectivity” and buildfor the future.versus 2010,” he says.Ongoing capital improvements,including widening and deepening of itsentrance channel and waterways, ensurethat Port Everglades will have the abilityto handle future growth in containertraffic, say officials there.“We have been saying for years thatcargo ships are getting larger and moreefficient,” says Port Everglades’ executivedirector Phil Allen. “Our 20-year masterplan recognizes that Port Everglades willneed to widen and deepen its channelsto handle fully loaded ships of thecurrent generation and even larger shipsonce the Panama Canal expansion isDon’t count California out just yetMany shipping industry insiders werecaught off guard when Richard Steinke announcedhis intention to retire as executivedirector of the Port of Long Beach last April.Even port staffers were surprised.“He (Steinke) is such a young man,” saysspokesman Art Wong. “And we really hopedthat he would be with us for a long time.Ideally…forever.”Wong adds that a national search for anew director is now underway. An executiverecruiting firm might be part of the plan, hesays, as well as internal resources.The outpouring of industry regret suggeststhat this will be a daunting proposition.“Dick is an extremely thoughtful andknowledgeable leader,” says John McLauren,president of the Pacific MerchantShipping Association. “He will be missedin many ways but, most of all, he will bemissed for his strength of character.”McLauren adds that Steinke’s “even keel,common sense, personality, and managementstyle served the port and city of LongBeach extremely well.”Kurt Nagle, president and CEO of theAmerican Association of Port Authorities,notes that Steinke is a “strong and recognizedvoice” for the critical role that portsplay in our economy, as well as a leader inthe ports’ role in environmental enhancementsand sustainable port developmentand operations.At the same time, there is concern withinthe shipping community that Steinke’sdeparture would create a vacuum whereorganized labor may seek an advantage.“The Teamsters have been trying toorganize truckers down there without muchsuccess,” says Dave Enberg, a board memberof the Pacific Transportation Association.“This was in large part due to Steinke’sresistance to the idea.”Amid all the doom and gloom about theflight of freight from the West Coast comesnews that the nation’s largest ocean cargogateway is moving forward with its strategicplans for expansion.China Shipping has completed a majorphase of its terminal expansion project atthe Port of Los Angeles, adding a new 925-foot section of wharf, 18 additional acres ofbackland and four new container cranes thatwill increase cargo throughput.“This allows for the berthing of two shipssimultaneously and positively positionsChina Shipping and the port for considerablegrowth opportunities,” says the carrier’schairman, Li Shaode.As part of the latest improvements,an access bridge was also constructedbetween China Shipping and Yang Ming fortruck movement of cargo between the twoterminals. Over the next three years, 375feet of additional wharf space will be added,along with more backland space that willeventually double the size of China Shippingto 142 acres.When completed, China Shipping’sexpanded terminal operations will increasecontainer terminal capacity to accommodatean annual throughput of 1.5 million TEUs(twenty-foot equivalent units). China Shippingplans to install two additional superPost-Panamax cranes after the final wharfexpansion is completed, bringing the totalcrane count to 10.52S May 2011 • Logistics Management

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Special ReportA special supplement to logistics managementcompleted in 2014.” Meanwhile, Florida’s Governor RickScott asked the Department of Transportationto allocate $77 million to thePort of Miami to deepen the channel tominus 50 feet so larger ships can gainaccess to the port.“This is a solid first step towardenhancing Florida’s infrastructure andgetting our state ready for a new generationof international trade with SouthAmerica and beyond,” says Scott. “Thereare a number of worthy infrastructureprojects that deserve our attention, andas Floridians, we know best where ourresources should be focused.”As LM has reported in the recentpast, the Port of New Orleans is alsocontinuing with its expansion—particularlyin regard to greater hemispherictrade with Latin America.In the past 10 years, the port hasinvested more than $400 million innew facilities. Improved breakbulk andcontainer terminals feature modern,multipurpose cranes, expanded marshallingyards, and a new roadway to handletruck traffic.The Port Authority of New York andNew Jersey has started the engineeringand design work for a project to “Raise theRoadway” of the Bayonne Bridge. Thisunique alternative to dredging is designedto accommodate larger ships after thePanama Canal upgrades are completed.The authority, which is continuingthe development of the Global ContainerTerminal in Jersey City to accommodatefuture growth, is also upgradingand expanding the capacity of thecross-harbor rail float barge operationbetween Brooklyn and Jersey City. Plansare on the books to also develop the54S May 2011 • Logistics ManagementSeattle was ranked 5th on Zepol’s Top 20 list for the first quarter of 2011.And while the port is doing well, it’s facing daunting competition from aforeign gateway to the north.Greenville Yards in Jersey City.However, the limited increase in revenueto the NY/NJ Port Authority generatedby the increase in cargo volumes doesnot cover the costs of the port’s annual stateof good repair—nor does it cover all of the“In this economic environment, the competition for portbusiness is fierce. That is why we continue to take steps withour industry partners to improve our position.”–Chris Ward, Executive Director, NY/NJ port authoritycapital improvements needed to maintainthe port’s competitive position.“In this economic environment, thecompetition for port business is fierce,”says Chris Ward the NY/NJ port authority’sexecutive director. “That is why wecontinue to take steps with our industrypartners to improve our position.”Despite the extremely competitiveenvironment among ports on the EastCoast, NY/NJ remains the largest oceancargo gateway there, and the thirdlargest in the United States behind LosAngeles and Long Beach. The porthandles approximately 31 percent of allEast Coast cargo.But while much of that cargo isheaded to the immediate region, morethan 20 percent of the cargo is destinedfor locations that can be served by otherports. “This discretionary cargo is part ofa highly competitive market that everyport in the U.S. and Canada seeks,” saysWard. “To meet the challenges of futuregrowth, the we will invest $283 millionin 2011 to upgrade the port roadnetwork, enhance the existing Express-Rail system, and continue its programto deepen the port’s channels to 50 feet.”—Patrick Burnson is Executive Editorof Logistics Management

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Time to become a mentorBy Wayne Bourneearly on in my career, I was introduced to the conceptof fair-haired managers, fast trackers, golden rookies,and folks dubbed to be on the inside track. Theseterms more or less described the same group of kids thatwe called “teacher’s pets” back in school. Back then weremember them as generally smarter, but not by much.They were certainly very helpful to the teacher, usuallypassing out papers while the rest of us were sitting onthe edge of our seats waiting for the recess bell.During the first half of my corporate logisticscareer, I became intuitively aware of my new culturalsurroundings. It was made apparent to me that therewere some of my peers that were definitely on a fastertrack than others. Were they smarter? Was their fatherrelated to the founder or the boss? Did they graduatefrom more prestigious schools?Eventually I found that most of these folks actuallyhad working mentors, although they called them“sponsors” back then. They had a management partnerwithin the organization—presumably at a fairlyhigh level—that would assist them in navigating thebureaucratic elements of the organization.The mentor was often a senior manager in the verticalarea in which you were working. In that case, thementor was able to share his experience and knowledgewith you and help you on your way to success.Now, I was never the “teacher’s pet,” but I was, andstill am, a mentor. I’ve also personally been blessedwith some of the best mentors one could expect in allstages of my logistics and transportation career.While you’re offering your skills and secrets, it’sactually a value-added service to your company. A mentorhelps in cutting the on-boarding acclimation processinto small digestible bits, thus allowing the mentee toprogress faster, with fewer mistakes. It also encouragesthe mentee to take positive risks knowing that they havea sounding board off of which to bounce their ideas.If you feel that you have the time and energy tobecome a mentor, and you have sufficient experiencein a field, then I’m going to suggest you go find someonewho can benefit from your experiences.Wayne Bourne is founder and president of The Bourne ManagementGroup, a consulting firm specializing in supply chain, logistics,and transportation network creation, economics, organizationaldevelopment, and process analysis. A recipient of several industryawards, he has nearly three decades of experience in transportationand logistics management. Mr. Bourne may be reached atWLB1144@aol.com.If your company currently has a formal mentoringprogram, then that’s terrific. That means that therules of engagement are already established, and youmerely need to sign up. If not, my advice is to targetan individual you believe may benefit from mentoringand immediately enlist the support of the supervisingmanager of this person.Solicit from the supervisor detailed work performanceand opportunities that, if improved, wouldmake the mentee more successful and better prepared.Then advise the supervisor that from then onall contact with the mentee will be confidential.Mentoring can also be outside the vertical you’re in.You may simply be needed to assist in the area of generalbusiness or management development. My first“official” mentee was not related to supply chain at all.She was a full director with aspirations to become acorporate vice president.This was particularly interesting, as I knew very littleabout her field and she knew even less about mine.However, I knew the politics pretty well myself havinghad to go through the gauntlet a few years previous.We spent real quality time away from the interruptionsof the office and discussed the how to become an officerof the company.Most importantly, we discussed how to embrace a“proactive approach” in her dealings with the officergroup. We also discussed the importance of not onlyimpressing the officers, but her peer group as well.Those would be the folks that will be supporting herafter her promotion. She was promoted within a year,and I was the second person she called with the thrillingnews—her husband was first. Truly I felt like amillion bucks.I am pleased to say that I get quite a number ofemails from my readers regarding their thoughts onmy columns, and I thank your for that. Coincidentally,the columns that elicit the most emails are those dealingwith mentoring. So, if you are a senior managerout there reading this column, put the magazine downand go find a new manager and offer to help them outone on one.Trust me, when that mentee gets promoted it will feellike it was one of your own kids graduating. And if youare a newly minted logistician reading this column anddo not currently have a mentor, go out and find one. Itmay be the best thing you ever do for your career. M56 Logistics Management WWW.LOGISTICSMGMT.COM | May 2011

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