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 Inside
VOLUME 20 NUMBER 4
April 2007
18

FEATU RES E XE C UTI V E B R I E F I N G

10 Supply Chain Watch
12 Tradewinds

18 New Ideas in EXECUTIVE OVERVIEW

48 East Coast Logistics
East Coast ports ramp up.

Trade Finance By Lara L. Sowinski

HOW WE DO IT
Traders of all sizes cash in on opportunities 54 The On-going Management of
once reserved for ‘the big boys.’ International Sourcing
How NCR Corporation achieves greater
By Richard Barovick economies of scale and lower costs.
By Mark Bernstein

TRANSPORTATION & LOGISTICS

64 Air Cargo Reinvents Itself
36 Boeing Reinvents The industry looks to new markets and
services to retain market share.
Its Supply Chain By Lara L. Sowinski

A collaboration of global suppliers SMALL EXPORTER OF THE MONTH

is optimized to calibrate output. 68 Candy is Dandy
Candy Bouquet International finds
By Leslie Wayne sweet success in franchising.
By Curtice K. Cultice

COLUMNS
42 Explosion of Options INSIDE WORLD TRADE
7 The Flight to Reality
in Global Supply Integration brings risk as well as
opportunity.
Chain Integration By Neil Shister
Vendors are getting ever closer to POLICY PERSPECTIVES
offering a single solution for 8 Do U.S. Traders Really Need
Presidential Fast Track?
supply chain management. Chances are that free trade pacts will
pass without TPA.
By Amy Zuckerman By Naotaka Matsukata

GREAT MOMENTS IN WORLD TRADE

74 Retail RFID Gets Real
The promise and the performance.
By Jeremy N. Smith

WORLD TRADE (ISSN 1054-8637) is published 12 times annually, monthly, by BNP Media II, L.L.C., 2401 W. Big Beaver Rd., Suite 700, Troy, MI 48084-3333. Telephone: (248) 362-3700, Fax: (248) 362-0317. No charge for subscriptions to qualified individuals. Annual rate
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W W W. WO R L DT R A D E M AG . C O M 5

005TOC.indd 5 3/16/07 3:04:40 PM

 On
the Web
www.worldtrademag.com IDEAS THAT

New Trade Finance

CLICK
RFP
Options for Small and Contact multiple suppliers at once
with World Trade’s easy Request for
Mid-Size Companies Proposal Form.
More instruments, more Webinars
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 ®
INSIDE
WORLD TRADE
Group Publisher Tom Esposito
Editorial Director
Neil Shister
shistern@bnpmedia.com
Managing Editor Lara L. Sowinski
Art Director Michael T. Powell
Contributing Writers
Mark Bernstein, Richard Barovick, Gail Dutton, Joshua Kurlantzick,
Andrea McDonald, Clay Risen, Jeremy Smith, April Terreri, Amy Zuckerman

WORLD TRADE MAGAZINE

EDITORIAL ADVISORY BOARD
The Flight to Reality
R
Grant Belanger
Ford Motor Company
Beth Enslow, Director
Enterprise Research,
u n n i n g b o l d ly there are two giant butterflys—the U.S. and
Director South America Operations The Aberdeen Group across the cover China—and when they flap, risk managers
Steve Palagyi Kurt Cavano,
Director, Pacific Region Chairman and CEO,
of our December around the world shudder.
PRTM Consulting TradeCard issue, headlining our While the U.S. is the engine that drives
Erik Autor Frank Vogl,
Vice President and Vogl Communications, annual supply chains global demand, China is pivotal to a growing
International Counsel
National Retail Federation
Washington D.C.
predictions story, were number of supply chains. And on both sides
Thomas E. Crocker
Susan G. Esserman Co-Chair International Trade and the words “2007: The of the equation, those charged with managing
Regulatory Group, Alston & Bird LLP
Chair, International Department Year of Living Danger- risk—both financial and supply chain—had
Steptoe & Johnson
ously.” Well, if events in best heed distant rumbles of danger.
Sales the first few months are The big question for the U.S. regards
Publisher/Midwest & West Sales Steve Beyer
630.694.4016
an indication, we were continued commitment to free trade. Can
beyers@worldtrademag.com (alas) spot-on prescient! the constituency that effectively overhauled
National Sales Director-East Randi Giambruno NEIL SHISTER The big news as I the world trading system in the past decade
516.377.3906
giambrunor@worldtrademag.com
write this is the global prevail over those who advocate protection-
Inside Sales Manager/Print Melanie Kuchma
stock market meltdown of early spring. ism? As Treasury Secretary Henry Paulson
610.436.8858, Fax: 610.436.6277 While it’s too early to predict ultimate out- recently observed, “free trade is one of the
kuchmam@bnpmedia.com
comes, beneath the surface jolt one can sense cornerstones” of American prosperity.
Inside Sales Manager/Internet Linda Beyer
847.462.1169
the rumble of colliding tectonic plates. But this seems to matter little to those
lnbeyer@comcast.net This turmoil in financial markets dem- who rage against globalization. And, as even
Europe Friedrich K. Anacker onstrates the ever-growing integration of partisans of liberalized trade have come to
49.202.271690
fanacker@intermediapartners.de
global forces. In the ‘good old days,’ say a recognize, excesses in the system require
decade back, international ‘buffers’ offered remedies (like hidden governmental sub-
Asia Hong Kong Office
Publicitas a geographical safety valve. In all but the sidies to foreign producers that undermine
Wendy Lin
Tel: 852.2527.3525,
most extraordinary circumstances, when pure market mechanisms).
Fax: 852.2528.3260 an untoward economic event occurred in With China, the question is whether
Operations Staff a region its impact could generally be con- political risk in that country is being ade-
Marketing Coordinator Danielle Kimble
Trade Show Coordinator Bryan Cairns, 248.786.1613
tained. Today, that is much less the case. quately priced into foreign supply chain
Production Manager
Audience Development Manager
Suzanne Fairman, 253.946.6854
Amy Schuler
An unlucky convergence of factors kin- channels. Analysts charged with provid-
Corporate Fulfillment Manager Alison Illes dled this spark: Alan Greenspan’s private ing advice about China are sounding a
Audience Audit Assistant Carrie Cypert
Research Editor Amy Mills comments about a possible forthcoming wary note. “In our view,” writes Harald
Postal List Rental Robert Liska, 800.223.2194
robert.liska@edithroman.com
recession, over-frothy emerging market Malmgren, one of the ‘wise men’ of inter-
E-mail List Rental Shawn Kingston, 800.409.4443 stocks, the political threat to middle east national trade, “China will experience a
shawn.kingston@epostdirect.com
Editorial Reprints Jill DeVries, 248.244.1726 oil. But this was mere kindling, there number of economic and environmental
Fax: 248.244.3934
devriesj@bnpmedia.com
likely would have been some other in the accidents in the next two or three years.”
Single Copy & Back Issue Sales Ann Kalb, 248.244.6499 near-future. The results of such ‘accidents’ on dis-
kalba@bnpmedia.com
The fundamental new reality—for good ruption of supply, disruption in transporta-
World Trade Headquarters
901 South Bolmar St. and bad—is the consolidation of the eco- tion and disruption at facilities would likely
Suite P
West Chester, Pa. 19382-4550
nomic universe. Capital, information and wreak havoc on distant shores.
http://www.worldtrademag.com markets increasingly move in tandem; so In the same way that the February and
Corporate do shock waves. While it’s premature to March correction was a wake up call to
envision a single global marketplace on those in financial markets who were taking
the horizon, it is reasonable to suggest that it for granted that valuations were ‘priced
CORPORATE DIRECTORS we’re moving toward a condition where to perfection’ (essentially assuming ideal
Publishing Timothy A. Fausch
Publishing David M. Lurie there will be a limited number of very big, conditions), so should it be a jolt of adren-
Publishing John R. Schrei
Audience Development Christine A. Baloga mutually dependent ones. alin to those who have equally predicated
Information Technology David P. Brown
Finance Lisa L. Foumia
Risk management becomes all the more their supply chains on the permanence of
Human Resources Rita M. Foumia
Conferences & Events Keri L. Kolodziejski
critical (and more complicated) in such ‘the best of all worlds.’
Production Vincent M. Miconi a context. You’ve heard the adage about
Directories Nikki Smith
Creative Michael T. Powell how, when a butterfly beats its wings in
Marketing Douglas B. Siwek
Clear Seas Research Nada Baiz the Amazon, the vibrations get amplified
a thousand-fold as they spread outward?
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007IWT.indd 7 3/16/07 2:56:03 PM

 POLICY
PERSPECTIVES
Do U.S. Traders Really
Need Presidential Fast Track?
T
he last remnants of Congressional credibil-
ity on international trade negotiations were
lost when the new Democratic majority
recently called for the Bush administration
to reopen and renegotiate the labor chapter in the
free trade agreements concluded by the United
States with Peru and Colombia. By demanding
that these agreements be reopened and renegoti-
ated after they had been signed by both parties,
the United States Congress undermined the fun-
damental political principle of presidential trade
negotiating authority granted under ‘Fast Track,’
the Trade Promotion Authority Act of 2002.
BYBYNAOTAKA
DANIEL GRISWOLD
MATSUKATA While the Congress retains the right to reject
an agreement, the selection of particular sections
or commitments for renegotiation before formal
consideration in the House and Senate emascu-
lates the original legislative grant of authority of
Fast Track. It reduces the credibility of executive
branch negotiators with their foreign counterparts,
and presents an unwelcome degree of uncertainty
to America’s foreign trading partners.
What meaning is there to legislation that pur-
ports to allow international trade agreements to
be considered without amendment, when in fact
the amending takes place sometime between the
completion of negotiations and before the agree-
ment is considered by Congress for ratification?
When TPA expires this
June, the 110th Congress,
“The need for controlled by the Demo-
cratic Party, will most prob-
TPA to promote ably reject its renewal. It is
likely that the Democratic
rank and file, as well as the
an aggressive Democratic presidential
hopefuls, will coalesce to
trade liberalization oppose renewal.
Policy experts, business
policy is a myth.” leaders and foreign trade
negotiators warn that with-
out TPA the United States
will begin to lag key competitors economically, as
many major industrial economies will continue to
negotiate trade agreements across the globe. China,
the European Union, and Japan are all now aggres-
sively pursuing bilateral and regional trade pacts in
key economic regions around the world that will
exclude the United States and discriminate against
U.S. products, investors, and manufacturers.
These warnings would have some merit, if in
fact, the United States were to wind down its ini-
8 WO R L D T R A D E A P R I L 2 0 0 7
008PolicyPerspectives.indd 8
tiative to complete as many free trade agreements
(FTAs) as possible, but the more likely scenario is
for the United States to continue pursuing global
trade liberalization without TPA.
The record indicates that the United States has
not been deterred in its pursuit of free trade agree-
ments without presidential negotiating authority.
The FTA with Jordan, viewed at the time as an
essential contribution to the Middle East Peace
process, was negotiated and ratified without fast
track authority. Negotiations with Singapore and
Chile were launched at a time when the Republican
Congress refused to grant President Clinton nego-
tiating authority. Tellingly, both agreements were
completed under President Bush’s watch before
Trade Promotion Authority was passed in 2002.
Current free trade negotiations with key stra-
tegic partners, such as Korea, Malaysia, and the
United Arab Emirates are likely to continue and
conclude without TPA. In fact, if the WTO Doha
Development Agenda ever regains momentum,
the United States will reengage and negotiate to
conclusion without TPA.
It is also likely that the Korea, Malaysia, and UAE
agreements will not need TPA for ratification. Each
of these agreements has enough political, security,
and commercial benefits for the Congress to ratify
without privileged consideration. On the other
hand, as we have already seen, agreements with Peru
and Colombia will not pass with or without TPA.
The political and economic gap between the
Peru and Colombia agreements and the Malay-
sia, Korea, and UAE agreements illustrate how
TPA has become a talisman of free trade, rather
than a true catalyst for greater trade liberaliza-
tion. Simply put, trade agreements will pass or
fail the Congress on a combination of commer-
cial, economic, security and political factors,
regardless of TPA.
The need for TPA to promote an aggressive
trade liberalization policy is a myth. Negotiating
authority is no longer necessary for the United
States to remain engaged in bilateral, regional, and
multilateral negotiations. The President, the Con-
gress, and the privates sector should stop fussing
over the need to renew TPA and focus on the more
critical task of negotiating economically meaningful
agreements for our workers and companies. WT
Naotaka Matsukata, Ph.D. is a Senior Policy Advisor at Alston
& Bird LLP, and a former Director of Policy Planning under
USTR Robert B. Zoellick.
3/16/07 2:59:36 PM
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 T R U C K I N G A I R
SUPPLY CHAIN
AIR
U.S., EU Reach
Agreement on
Open Skies Pact
A last ditch effort between nego-
tiators from the U.S. and EU to
agree on terms for a trans-Atlan-
tic air pact has resulted in a
major breakthrough.
The main sticking point,
which involved what percentage
of foreign ownership of an air
carrier each could acquire, was
finally resolved.
Under the proposed agree-
ment, European airlines will be
allowed to fly anywhere to the
U.S. from anywhere in Europe,
and U.S. carriers will receive
reciprocal rights for flights to
Europe.
The proposal now goes before
the European Commission later
this month. If approved, the deal
could come into force as soon as
October 28, 2007.
While the pact will benefi t
passenger carriers most, the
cargo market is expected to
see growth of between 1 and 2
percent.
TRUCK
Latest PIERPass
Survey Shows
Improvement for
Truckers
The latest survey of truck drivers
in the Los Angeles-Long Beach
port complex shows that drivers
are making more turns with the
PIERPass extended gate program
and, likewise, higher earnings.
Research firm Fairbank, Maslin,
Maullin & Associates also found
that one-quarter of the drivers
reported that off-peak shifts
are being underutilized because
10 WO R L D T R A D E A P R I L 2 0 0 7
010SupplyChainWatch.indd 10
O C E A N T E C H N O L O G Y
there simply isn’t enough cus-
tomer demand late at night.
Among the findings, 61 per-
cent of drivers rate the program
positively while 67 percent
believe it has reduced traffic
congestion.
The survey of 451 drivers was
conducted last November.
Mexican Truckers
Get Green Light
in U.S.
The U.S. Department of Commerce
is launching a pilot program to
allow Mexican trucks unrestricted
access to U.S. roadways.
The provision was supposed
to begin in 1993 with the rati-
fication of the North American
Free Trade Agreement (NAFTA),
but opposition by U.S. industry
groups delayed implementation
for years.
Under the pilot program, one
hundred Mexican trucking firms
will be given access to U.S.
roadeways once their trucks and
drivers pass a safety certifi ca-
tion test.
RAIL
Port of Vancouver,
WA Approves Rail
Project
The Port of Vancouver, Washing-
ton, has approved a $1.5 million
rail project—the West Vancouver
Freight Access (WVFA) project—
that will help the port accom-
modate rising freight volumes
from Asia.
Work on the project is to begin
this fall and is scheduled to be
completed in July 2008.
According to the port’s execu-
tive director, Larry Paulson:
“More than 70 percent of cargo
travels to and from the port by
T R A D E F I N A N C E
Watch
rail and that figure is projected
to increase to over 80 percent in
the next 20 years.”
Lawmaker Seeking
Shorter Work
Hours
Democratic Representative James
Oberstar of Minnesota, who is
the new chairman of the Trans-
portation and Infrastructure
Committee, is considering new
regulations that would limit train
crews to 10-hour shifts, down
from the current 12 hours.
The move is uniting railroads
and labor unions, both of which
are opposed to government
involvement in the matter.
The Federal Railroad Admin-
istration wants to retain its
authority to set rules for crew
schedules, and the agency
recently proposed ‘hours-of-ser-
vice’ legislation similar to that
already in place for truckers.
OCEAN
Seaports Prepare
for Rollout of
TWIC
Ten seaports around the nation
are preparing for the rollout of
the Transportation Worker Identi-
fication Credential (TWIC), which
is set to start in April with full
implementation anticipated by
mid-2008.
The TWIC program is designed
to supplement the government’s
layered approach to supply chain
security. However, the rollout has
been delayed over software and
hardware issues as well as the
specific requirements for worker
background checks.
The Transportation Security
Administration (TSA) has yet to
disclose the identity of the ten
3 P L W A R E H O U S I N G
seaports chosen to debut the
TWIC card.
New Port Proposed
for Savannah River
The governors of South Carolina
and Georgia announced a plan
to jointly develop and operate a
new port on the Savannah River,
ending years of legal tussling over
the rights to develop the port.
Under the proposal, the two
states would form a Bi-State Port
Authority, to be approved by the
two states’ legislatures and rati-
fied by the U.S. Congress.
“If South Carolina and Georgia
are going to maintain our respec-
tive competitive advantages when
it comes to being Southeastern
shipping destinations, the time
to act is now,” said South Caro-
lina Governor Mark Sanford.
TECHNOLOGY
Proliferation of
RFID Tags Slower
Than Expected
Even though over 1 billion Radio
Frequency Identification (RFID)
tags were sold worldwide in
2006, logistics analysts had pre-
dicted that number to be consid-
erably higher.
There are several reasons for
the lower than expected num-
bers. For starters, consumer
goods companies are hesitant to
sink more money into technol-
ogy that is still developing while
others say they’re investing just
enough to keep up with RFID
mandates from the big retailers.
Nonetheless, research firm
IDTechEx is forecasting that
sales of RFID tags will experi-
ence significant growth in 2007,
growing to about 1.71 billion by
year’s end.
3/16/07 10:34:12 AM
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 TRADEWINDS
MEXICO SHIFTS PRODUCTION GEARS
Mexico Looking to China for
Export Opportunities
In recent years, Mexico has lost
millions of dollars in foreign
investment and low-cost manu-
facturing to China, particularly
in sectors such as electronics.
However, business leaders and
Mexican government officials
have begun viewing their rival
as a land of opportunity.
“We have come to the con-
clusion that we cannot compete
with China in labor costs,” says
the director general of Multilat-
eral and Regional Trade Nego-
tiations in Mexico. “The lesson,
I believe, is very clear—to move
to the upper end of the value
chain.”
Not only that, Mexican com-
panies see China’s huge con-
Transportation Services Index (TSI)
Mar. Apr.
Feb. 110.9 110.5
109.4
The Transportation Services Index (TSI) fell 0.6 percent in January to 109.5 (2000=100)
from its December level, falling after a one-month rise, according to the U.S. Department
of Transportation’s Bureau of Transportation Statistics (BTS) office.
TSI is a single seasonally adjusted index of the month-to-month changes in the output
of services provided by the for-hire transportation industries, including railroad, air, truck,
inland waterways, pipeline, and local transit.
12 WO R L D T R A D E A P R I L 2 0 0 7
012Tradewinds.indd 12
THE LATEST TRENDS IN THE WORLD OF TRADE
sumer market as a gold mine.
One Mexican auto parts manu-
facturer has set up operations
in China to produce engine
heads for cars sold to the Chi-
nese market.
“The Chinese market has the
greatest potential for growth,
given its current underdevel-
opment and the possibility to
manufacture cars for the export
market, particularly with Asia,”
notes one Mexican automotive
executive.
That fact is not lost on global
auto manufacturers. In Febru-
ary, DaimlerChrysler AG, the
world’s fifth-largest carmaker,
announced it had started sell-
ing its PT Cruiser model in
May
112.4
June July
111.9 111.5
September October
110.3
August
108.7
FEBRUARY 2006 – JANUARY 2007
China as part of its strategy to
expand into the world’s fastest-
growing auto market.
The 2.4-liter compact
(which is actually made in
Mexico), is priced at 235,800
yuan ($30,432).
CHINA TOP PICK FOR R&D
Foreign firms
setting up more
facilities
A new report by the United
Nations finds that China
has become the most popu-
lar country for establishing
research and development
(R&D) facilities.
January
109.5
December
110.3 November 110.1
109.1
Specifically, in recent years
61 percent of foreign compa-
nies have set up R&D facilities
in China, compared to 41 per-
cent in the U.S. and 29 percent
in India. Furthermore, nearly
all of the world’s major tech-
nology players have invested
heavily in China, with some
$7.7 billion in foreign direct
investment made in 2005 for
the manufacture of telecommu-
nication, computer, and other
electronic equipment.
The report also states that
the massive amount of foreign
direct investment in China has
helped develop local talent in
high-tech industries and is also
encouraging many overseas
students to return for employ-
ment opportunities.
RAIL IMPROVEMENTS FOR INDIA
Triple-stack trains
proposed for key
routes
Indian Railways says it will
introduce triple-stack trains
on certain key routes follow-
ing the success it’s had with
double-stack container trains
throughout the country. “Such
containers will be useful to
carry motor vehicles,” said
India’s rail minister.
Currently, Indian Rail-
ways runs double-stack trains
between the western Port
of Pipavav and Jaipur in the
north. It’s hoped that the
railroad can boost container
traffic to 100 million tons by
2011-12, up from the current
20 million tons.
Meanwhile, India’s Cabi-
net Committee on Economic
Affairs has approved a $6.1
billion rail project that will con-
nect the country’s major ports
on the east and west coasts.
3/16/07 10:34:37 AM
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 TRADEWINDS

Names
& News
NYK Promotes Keller
NYK Line (North America) has
promoted Peter Keller to the
position of president and cor-
porate officer of the Japanese
carrier’s board, starting April
1. Keller is currently executive
vice president and COO of NYK
Line (North America).
SEKO Appoints
Fitzgerald
SEKO, a global provider of
freight forwarding and logis-
tics solutions, has appointed
John A. Fitzgerald as Global
Vice President of Sales and
Marketing. In this position,
Fitzgerald will be responsible
for the overall management
of SEKO’s sales and marketing
efforts, including its strategic
clients.
Lowe’s Cos. Awards
Horizon Lines
The Home Improvement Trans-
portation Division of Lowe’s Cos.
has awarded Horizon Lines with
its most prestigious honor, The
2006 Platinum Carrier Award for
the highest levels of delivered
service. This is the sixth con-
secutive year Horizon Lines has
been honored by Lowe’s.
RailAmerica
Taps Giles
John Giles has been named the
new CEO for short line rail oper-
ator RailAmerica. Previously,
Giles served as president and
chief executive of Great Lakes
Transportation. He has 35 years
of experience in the transporta-
tion industry.
Nelson Named
Advisor to
TradeBeam
TradeBeam, Inc., a leading pro-
vider of on-demand Global Trade
Management (GTM) software
and services, has announced
that David Nelson has been
named as an advisor to the
company. In this role, Nelson
will provide strategic feedback
to TradeBeam’s automotive
industry initiatives.
New CEO for Werner
Enterprises
Truckload carrier Werner Enter-
prises has promoted Gregory
L. Werner to CEO, replacing his
father and company founder
Clarence L. “C.L.” Werner, who
will remain as chairman of the
board. The younger Werner
joined the company in 1997.
JAXPORT Promotes
Peek
The Jacksonville Port Author-
ity has promoted Robert A.
Peek to director of marketing
development. Peek had previ-
ously served as communications
director in the port’s external
affairs office for 11 years.

MARK YOUR

Calendar
2007 Radio Frequency Post Harvest 2007
Identification Summit New Delhi, India
Washington, D.C. April 23 – 25
April 3 – 4 www.supplychains.in
www.dodrfidsummit.com
Logistics M&As in China
Supply Chain Shanghai, China
Management Summit April 25
Boston, MA www.supplychain.cn
April 4 – 5
www.aberdeen.com Logistics &
Supply Chain Forum
2007 MHIA Spring New York, New York
Meeting May 6 – 9
Charlotte, NC www.logisticsforum.com
April 14 – 17
www.mhia.org Transport Logistic 2007
Munich, Germany
WERC 30th Annual June 12–15
Conference www.transportlogistic.de
Nashville, TN
April 22 – 25
World Trade Magazine will be publishing announce-
www.werc.org
ments of forthcoming global supply chain events
in every issue. For inclusion, please forward event
details to laras@worldtrademag.com

14 WO R L D T R A D E A P R I L 2 0 0 7

012Tradewinds.indd 14 3/16/07 10:34:53 AM

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 NEW IDEAS
COVER STORY
IN TRADE FINANCE

As more and more small and mid-

sized companies increasingly
appreciate, international trade
affords them the same kinds of
opportunities that have historically
been the province of ‘the big boys’.
This change of mind has occurred in
the past few years, fueled in no little part
by innovations that make trade finance
available for this new strata of deals
and deal-makers. From the heightened
emphasis by Export-Import Bank of the
United States to support small businesses to
the development of more flexible instruments
throughout the sector to the entry into the
market of new categories of players, there have
never been more choices or appetite for risk. All of
which bodes well for U.S.-based traders.
In this special section, World Trade Magazine reports on the trends
that are transforming trade finance into a dynamic area replete with
creative opportunities.

18 WO R L D T R A D E A P R I L 2 0 0 7

018Feature1_TradeFinance.indd 18 3/16/07 10:36:22 AM

 Innovative Trade Financing
Expands U.S. Pool of
Lenders and Market for
Machinery Export
Internet-based payment systems, credit finance and supply chain
trade finance replacing letters of credit as currency of exchange.
BY RICHARD BAROVICK

I
nnovation did not usually come to mind, over the
years, when talk turned to trade finance. It was a
venerable, mostly unchanging, part of global com-
merce, with a centerpiece product, the letter of
credit, that had origins in the European Renais-
sance. Its practice produced a mountain of paperwork,
and its practitioners were sometimes called “guys with
green eyeshades.”
But, obviously, times have changed. The field is being
swiftly reshaped in multiple ways. The letter of credit’s
market share is sinking, replaced by Internet-based
payments systems, credit insurance, and the ability of
global banks to finance and remove risk for exporters
and importers in the same transactions.
Two recent trends within this mini-flood of change are
worth noting. One is the growing roster of lenders help-
ing small and mid-sized American exporters of machin-
ery and equipment to close their deals. A few are banks,
others are finance companies, and, since 2004, they have
become prominent participants in Export-Import Bank
guarantee and insurance programs.
The other trend is the expanding role of large finance
companies in the convergence of international supply The innovative response shows the entrepreneurial Ed Kostenski, President
chain management and trade finance: logistics groups spirit is alive and well in the lending arena, so when of Nationwide Equipment
create in-house finance units, finance groups partner with opportunities arise, know-how and capital manage to Company in Jacksonville,
logistics companies, and all work with data platforms that merge. And Ex-Im Bank programs are available, hand- Florida, actively wholesales
help parties to a transaction share information. ily, to cover most of the repayment risk. construction equipment to
Take New Continent Finance in Miami, a 2004 Africa with Ex-Im support.
The March of Equipment Lenders entrant, launched by Gustavo Rosas and Oswaldo Jugo,
The roster of U.S. lenders in “middle market” equip- trade finance veterans with FCIA Management (credit
ment exports has managed to keep growing since 2004, insurance), Ex-Im Bank, and Barclays Bank. In entre-
a watershed year, when at least six brand-new specialty preneurial mode, they had earlier established New Con-
export finance companies opened their doors for busi- tinent Suppliers to export heavy equipment and parts to
ness. In 2006, still more banks and finance companies Latin America and the Caribbean.
joined the crowd. But, as a small company, they found “it is very hard
It’s not hard to figure out why. Machinery and equip- to get bank support,” as Rosas puts it. Their response:
ment sectors are among the most globally competitive “Create the answer for us, and other small exporters, by
in the American economy, yet fewer banks are involved establishing a specialty finance company to be a lender
with mid-sized and smaller exporters in the business. under Ex-Im Bank’s insurance and guarantee programs.”
W W W. WO R L DT R A D E M AG . C O M 19

018Feature1_TradeFinance.indd 19 3/16/07 10:36:38 AM

 NEW IDEAS IN TRADE FINANCE

Houston and New York in 2005, began Ex-Im deals in

2006. It has substantial experience and local networks in
its priority markets (Latin America, China, East Europe).

The Large Finance Companies

The big U.S. finance companies have had export-import
operations for decades in a few cases, more recently in
others, but the main trend is a move into savvy supply
side chain strategies.
UPS Capital, finance arm of logistics giant United Parcel
Service, was launched as recently as 1998, following quickly
into trade finance in 2000. It is a high visibility example of
the convergence of moving goods, funds, and information.
UPS, moving beyond package delivery to become a
leading global logistics company, offers short-term trade
payments, including letters of credit (its works with sev-
Scott Shepherd, president of Northstar GMAC’s Anthony Brown eral banks), managing and discounting of trade receiv-
Trade Finance ables (it works with Factors Chain International, a global
network), and its own version of an international “Collect
They have been busy ever since. on Delivery” or COD service.
Or, take WorldBusiness Capital, And, it bought a bank in 2001,
in Hartford, Connecticut, another “A growing roster adding medium-term (and even
2004 entrant in Ex-Im Bank deals. long-term) finance to its portfo-
Brett Silvers, chief executive, had
of lenders is helping lio, including a substantial Ex-Im
earlier built First International small and mid-sized Bank business. Plus, it has a siz-
Bank (Hartford) into the top rank- able insurance brokerage opera-
ing lender (number of transactions) American exporters tion in credit protection and cargo
in Ex-Im medium-term deals. coverage.
But, the bank was sold, and, a of machinery and GMAC Financial Services,
few years later, Silvers (who raised with a new ownership structure, is
capital) set up the new finance equipment to close now embarking on a sophisticated
company, which is also active in international strategy that is just
Overseas Private Investment Cor-
their deals.” beginning to unfold. The former
poration small business projects, General Motors finance arm was
has a focus on Latin America and Eastern Europe. sold off (a 51 percent controlling interest) in late 2006 to a
The Class of 2006 also shows an entrepreneurial consortium led by Cerberus Capital Management, a private
spirit of varying shapes and sizes. investment firm (other members: Citigroup, PNC Financial
Premier Business Bank, in Los Angeles, was founded Services Group, and Japan’s Aozora Bank).
in 2006 by a group of international bankers that decided New ownership has improved the group’s credit
to combine traditional local business lending (working rating, supported an expansion drive. GMAC’s Com-
capital, real estate) with trade finance as a leading product mercial Services division brought in trade finance
(and equipment export deals on a nationwide basis). veteran Anthony Brown in late 2005 to spearhead its
“Smaller companies just don’t get the international international unit’s supply chain approach.
trade service from larger banks that we offer, so it’s a GMAC’s U.S. trade business is 80 percent import, 20 per-
big opportunity,” said Michael Stoddard, executive vice cent export. Its lending, mostly short-term factoring (paying
president, international. “We bring big bank advisory receivables up front, collecting from buyers), makes active
expertise to smaller, mid-market firms, leading with our use of two global networks--Factors Chain International and
know-how, and then offering products.” International Factors Group—and credit insurance.
Commerce Bank, in Cherry Hill, New Jersey (Phila- In the emerging strategy, GMAC is looking at activi-
delphia suburb), one of the fastest-growing lenders in ties “to make deals happen,” says Brown. These include
the country (its e-mail address identity is “the yes bank”) global trade management platforms to facilitate transac-
decided in 2006 to bulk up its trade banking. It hired five tions, partnering with a logistics company to offer buyers
veteran practitioners in one swoop from another bank, to nearby warehouse inventories, and an early payment
form one of the country’s most experienced equipment program that cuts supplier financing costs.
deals capability. So, there you have two trends to watch: innovation in
That, combined with a multi-state branch network small business equipment lending, large finance com-
and deep pockets, means a major new player, particu- pany supply chain strategies. And, if we said it once,
larly in Ex-Im business. Know-how migrates. we’ll say it again: know-how travels. WT
And Northstar Trade Finance, in Vancouver, Canada,
after a dozen years and C$1.6 billion of transactions, Contributing Editor Richard Barovick is a long-time Washington-based
decided to export its successful model, opened offices in reporter on trade finance.
20 WO R L D T R A D E A P R I L 2 0 0 7

018Feature1_TradeFinance.indd 20 3/16/07 10:36:52 AM

WTM04074Nvis.indd 1 3/12/07 2:52:32 PM
 NEW IDEAS IN TRADE FINANCE
22 WO R L D T R A D E
018Feature1_TradeFinance.indd 22
It’s a Buyer’s Market for
Export Credit Insurance
With a wide range of providers offering competitive options and
terms, it’s an ideal time to secure insurance against non-payment.
BY RICHARD BAROVICK
E
very buyer loves being in the catbird seat, savor-
ing one of those moments when sellers are jos-
tling one another to snag his business. And that,
fortunately for American exporters, is where they
now find themselves in buying credit insurance.
These days, eleven companies are competing to sell
protection against the risk of non-payment by foreign
customers. That has brought expanded capacity to
handle risk, an intense rivalry, lower premium rates, and
more varied underwriting strategies.
And, it means not only being able to pick and choose
among insurers fighting for the business, but also to
customize policies from the competing products that
the new rivalry offers.
The roster of rival insurers now includes three U.S.
home-grown firms and eight overseas-based groups, evi-
dence that globalization has fully arrived in the world of
credit protection. There’s a lot to choose from.
The American contingent includes FCIA Manage-
ment, the pioneer (1960s) in the field; global giant
American International Group, and HCC Credit Group,
launched in 2005 by Houston Casualty Company.
Then there’s a “European transplants” group, three
A P R I L 2 0 0 7
large credit insurance specialists that bought U.S. insur-
ers, including Atradius Trade Credit Insurance (Amster-
dam HQ), Coface North America (Paris), and Euler
Hermes ACI (Paris).
Finally, there’s QBE Trade Credit, part of Australia’s
QBE Insurance Group; Zurich Emerging Markets Solu-
tions, a unit of Switzerland’s Zurich Financial Services
Group; Exporters Insurance Co. and Ace Ltd., both
from Bermuda, and venerable Lloyd’s of London, which
reaches U.S. exporters through brokers.
But, not surprisingly, the abundance of choice has
brought fresh challenges. With so many insurers and so
many underwriting styles now on offer, exporters can
find decision-making a bit daunting. That makes it a
good time for the nationwide network of specialty bro-
kers (30-35 of them) that place most of the business.
“With all these variables, you really need a knowledge-
able broker to conduct the bidding,” says Carey Fiertz,
head of Export Risk Management in Salisbury, Conn., a
trade credit specialist.
His clients now receive competing bids in which pre-
miums might be based on the sales volume, the approved
credit limits, or the receivables outstanding. “And
3/16/07 10:37:05 AM
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 NEW IDEAS IN TRADE FINANCE

dell, head of Santa Monica, California-based Meridian

Surge Capital Fills A Void
The importer/distributor working on
a fast-paced transaction between a
manufacturer and a retailer has typi-
cally found himself the ‘odd man out’
when it comes to trade finance. This
is the space that Surge Capital has
carved out for itself, financing trans-
actions by effectively making a loan
to their middleman client to help
finance a big production order.
“Our typical client is the guy in the
middle between China and the U.S.,”
says John Maselli, Senior Credit Officer
for the firm that was founded five years
ago. “He’s been going to China for a
dozen years, can help develop product,
knows which factories are capable and
has great contacts with big retailers
ready to buy the product.”
He cites, for example, iPod acces-
sories, which are currently hot. Their
client helps develop the concept,
say, a stereo alarm clock able to play
the iPod. The manufacturer,
typically, does not
iSy
mp
have sufficient operating capital
to underwrite the huge production
‘surge’ associated with this deal.
Understandably, they get nervous at
the commitment that such additional
volume entails. That’s where Surge
comes in. “Effectively we make a loan
to our client for up to 100% of cost
and the proceeds go to the factory.”
“We’re dealing with entrepreneurial,
owner-operated, fast growing compa-
nies who are opportunistic—they see a
need and know how to fill that need. If
they come up with a hot product, think
of toys, the demand is incredible. This
creates big financing need that typi-
cally a bank won’t step up to.”
Surge largely finances short-term
transactions; goods are typically
made, delivered and paid for from 30
to 120 days.
“We prefer to deal with a small
number of clients with excellent
growth potential, capable of doing
significant deals,” explains Maselli.
“We build on-going relation-
ships through repeat
transactions, provid-
ing all participants the
resources to achieve their
business goals.”
Finance Group (specialty broker and financial arranger),
says, there is now lots of variety among the insurers
within each of these underwriting styles, “the lines have
become blurred, and price is only one factor.”
It’s rare that any two quotes are the same. There’s
much more horse-trading between exporters and insur-
ers in setting the parameters of each policy. Plus, the
underwriters, more than in the past, can offer unique
choices. “There may be a buyer that only one insurer
will cover,” says Mendell, which would determine the
choice. And some underwriters take a country risk that
others will not.
Meanwhile, dramatic policy developments have sur-
faced in other kinds of policies. Perhaps most signifi-
cantly, private insurers now offer medium-term coverage
“With so many insurers and so
many underwriting styles now
on offer, exporters can find
decision-making a bit daunting.”
that supports the sale of equipment and machinery, a
part of the business that has been provided until now
mostly by the U.S. Export-Import Bank.
Most private insurers offer three-year terms, com-
pared with Ex-Im Bank’s five years, says Edward Yauch,
a partner in Columbus, Ohio-based International Risk
Consultants, a specialty broker. And the private under-
writers usually cover smaller portions of a deal, perhaps
50 percent in some cases, compared with Ex-Im’s 100
percent of the financed segment.
Still, at least seven of them have moved into the

some of the quotes have deduct- medium-term business, including Zurich, Exporters
hon

ibles, some have high discretionary Insurance, American International Group, FCIA, Atra-
yH
old

credit limits, and some have neither.” dius, Coface, and HCC. And some of the cover goes to
ing
sE

So, “even if an exporter is familiar five years, especially with a rated buyer.
nte
rpris

with credit insurance, it can be difficult Key account policies are also a growing trend. Here,
es

sorting through the differences without
impartial assistance.”
Part of the challenge has been created by the “trans-
plants,” who brought a “European style” underwriting
to the short-term multi-buyer policy, the most actively
used product in the field. Here, the underwriter evalu-
ates the creditworthiness of each covered buyer up front,
then sets a credit limit on each, and provides insurance
to protect against that exposure. The insurer really man-
ages the credit operations.
This contrasts with the traditional “American style” of
underwriting in which the insurer instead evaluates the
credit management ability of the exporter, based on sys-
tems in place and the experience of the managers (who
are often interviewed). Then, a discretionary credit limit
is approved, with the exporter absorbing a deductible
and co-insurance, and the insurer sharing the risk. The
exporter manages its own receivables.
But, that’s just where the choices begin. As Gary Men-
24 WO R L D T R A D E A P R I L 2 0 0 7
both U.S. and overseas-based insurers cover two or three,
or perhaps 10-15, top buyers in an exporter’s receivables
portfolio. And, since each buyer is evaluated up front,
with a credit limit and no exporter discretion, the two rival
underwriting groups converge into a single approach.
Finally, while the insurers look like they are here
to stay, the current favorable conditions—lower pre-
mium rates, more flexible, competitive policies—can be
expected to become tougher. It’s just the way the insur-
ance industry works. “Buy the insurance now while it’s
cheap, since you know the cycle will turn at some point,”
says Carey Fiertz.
And then, when capacity becomes more limited, “it
will be allocated to existing clients before any new ones,
he adds.”
A veteran underwriter puts it more dramatically.
“Insurers are now offering medium-term cover, but if
conditions grow riskier, it could all turn on a dime.”
So jump in while the good times roll. WT

018Feature1_TradeFinance.indd 24 3/16/07 10:37:26 AM

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WTM02074Wells_2rev.indd 1 1/18/07 4:45:39 PM

 NEW IDEAS IN TRADE FINANCE

Export-Import Bank
Recalibrates Strategy to
Promote Small Business
Other top priorities include faster decision making,
confronting the China challenge and African trade.
BY RICHARD BAROVICK

T
Air Tractor, in Olney, Texas,
actively exports its crop
dusting aircraft with the
help of ExImBank deals.
he years 2005-2006 were a tough patch for
the Export-Import Bank in the political arena.
Congress received an earful of complaints
about the agency’s programs, and, in typical
fashion, trotted out two of its favorite weap-
ons to work its will on the U.S. export lender.
One of these is a committee “oversight” hearing that
puts an agency’s top managers through a public grilling.
The other is fresh legislation that micro-manages the
agency’s operations down to small details.
The Congressional challenge began with a bruising
April 2005 House Small Business Committee hearing
that rang alarm bells over Ex-Im’s failure to meet its
required small business transaction volume. It ended
in December 2006 when the Bank’s legal charter was
renewed, with a slew of detailed instructions on how to
conduct its business.
Equally challenging, Congress and the White House
could not agree on nominations to fill the chairman-
ship and two Board member jobs when the incum-
bents’ terms expired in July 2005. James Lambright,
now chairman and president, spent over a year in an
“acting” capacity. The five-member Board, which
requires three for a quorum, was short two members
for months, dangling the possibility that important
decisions might languish.
But, now that’s all in the past. Lambright has won high
marks—from exporters, lenders, and members of Con-
gress. The Bank’s charter legislation was adopted with
lightning speed at the last moment in December during a
brief window of opportunity (four hectic days).
Setting the agenda
The charter extension has set the Bank’s agenda for
the next several years—adopting priorities, revising the
organization chart, fine tuning underwriting processes,
and building online services.
Five items top the list of priorities. Most visible among
them is to expand support for small business, which
drew a lot of Congressional fire, and produced a lot of
micro-managing.
Another: to become more aggressive in dealing with
new global export credit agency competition, epitomized
by China’s blockbuster campaign to penetrate markets.
Still, a third: to avoid deals that help the overseas com-
petitors of “sensitive” U.S. sectors, such as steel and
semiconductors.
A fourth priority is to streamline operations, particu-
larly by speeding up applications processing through
online services, and, finally, to do more business in a
handful of countries and industry sectors.

Small business strategy

Ex-Im Bank’s small business activities have been
reshaped in a dozen ways, but, significantly, Congress
was adamant in retaining the “set-aside,” a requirement
that 20 percent of its annual transactions (in dollar
terms) be approved for smaller firms.
The Bank failed to hit that target in 2003-2005, but
sailed past it (26 percent) in 2006, through a combination
of more small business dollar volume and a sluggish year
overall (thus boosting the small biz share). Ex-Im officials
did their best to persuade Congress to ease the rule, but the
lawmakers put their foot down.
26 WO R L D T R A D E A P R I L 2 0 0 7

018Feature1_TradeFinance.indd 26 3/16/07 10:37:40 AM

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 NEW IDEAS IN TRADE FINANCE
With the help of Ex-Im
Bank’s credit insurance,
Southwest Windpower, Inc. of
Flagstaff, Arizona can export
to countries such as Brazil,
Argentina, Turkey, India,
South Africa, and St. Lucia.
28 WO R L D T R A D E
018Feature1_TradeFinance.indd 28
ous response, and provides some tools to work with.
Most threatening is the soaring volume of Chi-
nese credits. Ex-Im’s recent annual “Competitiveness
Report” predicts that in 2010 the Asian giant will be the
world’s largest source of official export finance.
And, China is not a member of the Organization for
Economic Cooperation and Development (OECD), the
Western “club” of governments that sets the rules for
ECA operations. The U.S., Europe, Canada, and Japan
have a common forum to challenge one another’s viola-
tions of the rules, but China is not subject to them.
Plus, the new law calls on Ex-Im and the Treasury to pres-
sure China and other aggressive lenders through the World
Trade Organization (WTO), to which they all belong. The
WTO has specific restrictions on export subsidies that can
be expected to provide a platform for this effort.
Processing applications
The legislation also imposes speed and clarity on the
applications process, requiring the Bank to maintain an
effective Internet program to handle requests and keep
exporters informed on where they stand. Ex-Im had, in
fact, already initiated such a service, called Ex-Im Online,
Ex-Im Bank
in mid-2006, but the charter
In micro-managing, Congress insists that it be fully operational
formally created a Small Busi- by September 1, 2007.
ness Division to handle outreach, “Congress was adamant The Congressional action, a
product improvements, and response to years of complaints
transaction advocacy, as well as a
in instructing ExIm to about slow processing, micro-
Bank-wide Small Business Com- retain the “set-aside” manages applications in several
mittee to formulate strategy and ways. For example, it sets time-
oversee performance. requiring that 20% of tables for acknowledging their
What really matters here, said receipt, informing exporters on
James Morrison, president of the transactions go to whether their submissions are
Small Business Exporters Associa- complete, and on what remains
tion, at a Senate hearing, is manage- smaller firms.” to be submitted.
ment consistency, which is assured And, it calls for keeping appli-
only through legislation. The Bank, cants informed on their status,
he noted, “had at least 15 major changes in its small busi- including a “clear and timely” notice of approval or dis-
ness structure since 1997, more than one a year.” approval, and the reason for disapproval. Also, exporters
The charter renewal also formally created a ‘senior are now given the name of a Bank employee to contact
vice president’ to head the division, and placed with questions.
dedicated small business staff specialists in each
transactions division, empowering them to create More Africa business
underwriting standards exclusively for small exporter The legislation also encourages more Ex-Im Bank activ-
performance. Plus, the specialists are authorized to ity with a few countries, but mostly with Africa, where it
approve most applications of less than $10 million. has been steadily expanding anyway. The charter calls
At the same time, the charter gives a boost to medium- for increasing the number of master guarantee agree-
term deals (five-year payment terms), which have been a ments (a framework that speeds processing) with Afri-
persistent target of complaints by smaller exporters. “The can lenders, and improved working relationships with
new legislation lets Ex-Im delegate authority to banks and key regional institutions, such as the African Develop-
finance companies, which should speed up applications for ment Bank and the African Export-Import Bank.
equipment exporters considerably,” said Peggy Houlihan,
head of Houlihan International (Reston, Virginia), which Congress will be watching
advises exporters on using government trade programs. The charter renewal has given Ex-Im Bank its marching
orders for the next five years, but it will take time to absorb
Battling the new competition all the directives. Some fresh initiatives will be rolled out at
Meanwhile, fresh global competition from other gov- the April 2007 annual Washington conference.
ernments’ export credit agencies (ECAs) is a mounting One thing is for sure: Congress plans to monitor prog-
challenge for Ex-Im Bank, and perceived as a threat on ress closely. Stay tuned for more “oversight hearings” in
Capitol Hill. The charter renewal calls for a more strenu- the months ahead. WT
A P R I L 2 0 0 7
3/16/07 10:37:56 AM
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 NEW IDEAS IN TRADE FINANCE

Interview:
James
Lambright
Chairman of the
Export-Import Bank of
the United States.

J
ames Lambright (“call me Jim”), an attorney by dealing with small businesses. And, our new Ex-Im
training (Harvard Law) and an investment banker Online service makes it easier for small businesses to
professionally, has been Chairman of the Export- apply for, and track, their policies.”
Bank of the United States since July, 2005 (first as
‘acting,’ then in his own right with a term lasting The challenge of maintaining Ex-Im’s
through 2009). On the eve of Ex-Im’s annual confer- ‘strategic relevance’
ence, he sat down with World Trade magazine Execu- “A major evolution is underway in how national export
tive Editor Neil Shister to discuss key areas of interest credit agencies function: the dynamics between gov-
and policy. ernments and their export banks are changing; certain
institutions are operating more
Small business like private sector firms, which
“Small business initiatives that the gives them greater flexibility; and
Bank has been pursuing for the “We are committed to emerging export credit agencies
past few years are starting to bear are operating outside the Organi-
fruit. In terms of our aggregate making the experience zation for Economic Co-operation
financing authorization last year, and Development Arrangement
26% went directly to small busi- better for small (OECD) framework.
nesses, while 84% of our transac- “In our case, we operate within
tions in the past year have been for businesses dealing a traditional mandate to support
small businesses. Last year, some exports for the sake of encourag-
450 small businesses used Ex-Im
with Ex-Im.” ing U.S. employment. In some
for the first time. other countries, however, the
“The challenge in growing this export credit agency has broader
area is reaching small businesses. Last year, we created latitude to support a more loosely defined ‘national
a small business outreach unit with all branch offices interest.’ Additionally, the general policy in this country
reporting to a Senior Vice President. Most small busi- is that government agencies should not compete with the
nesses export to only one country. We’d like to help private sector. Thus, Ex-Im has a narrow niche in terms
them get comfortable taking the risk of expanding into of what Congress authorizes us to do, but within that
more markets. niche we are aggressive in supporting U.S. exporters.
“We are committed to making the experience better Our challenge is to adapt best to changing circum-
for small businesses dealing with Ex-Im. Speed of service stances within the framework of our mission.”
has become a top priority with our people. Correspond-
ingly, we’ve reduced the turn-around for medium term The China challenge
financing from roughly 60 days to under 40 days. There “The international architecture is being challenged by
are people in each department specifically charged with emerging export credit agencies, most notably China. We
30 WO R L D T R A D E A P R I L 2 0 0 7

018Feature1_TradeFinance.indd 30 3/16/07 10:38:08 AM

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 NEW IDEAS IN TRADE FINANCE

have a shared interest with them in China is changing the landscape of

terms of U.S. sales in China. But export-credit and this will require
increasingly in third country mar- “China is changing real and concerted attention.”
kets, such as those in Africa, we’re
competing.
the landscape of Africa
“China is not a member of the export-credit and this “When I first came to Ex-Im Bank
OECD, thus its export-import five-and-a-half years ago, my first
bank is not governed by the ‘level will require real and assignment was to help build our
playing field’ requirements of program in sub-Saharan Africa.
members, which were established concerted attention.” Since then, ExIm has continued
as a means of avoiding a ‘race to to make the support of African
the bottom.’ By not being bound deals a goal. Historically, Ameri-
by OECD rules, the Chinese can offer such things as can companies have tended not to participate actively in
financing at lower rates over longer terms with grace Africa, it has been regarded as ‘too distant’ a market. But,
periods. And, they can couple financing with govern- that is changing. And, we want to help U.S. companies
ment aid, exports by state-owned enterprises and even take on the risk of doing business in sub-Saharan Africa.
provide the labor to perform in-country work. In tele- “In the last fiscal year, we helped support 140 transac-
com transactions, for example, where U.S. firms are tions in 23 countries in sub-Saharan Africa. These deals
directly competing with Chinese, those offerings can be supported more than $530 million in exports. Over the
a sizeable advantage. past six years, Ex-Im Bank has supported more than $3
“Our initial response has largely been one of strategic billion in exports to the region.
engagement. We have established a dialogue with our “There is a growing role for U.S. exporters in Africa,
Chinese counterparts. And, we talk to overseas buyers particularly with the large power capacity and rail proj-
about the importance of the objectives underpinning the ects that are being undertaken in countries like South
OECD’s rules, such as environmental standards. But, Africa and Namibia.” WT

32 WO R L D T R A D E A P R I L 2 0 0 7

018Feature1_TradeFinance.indd 32 3/16/07 10:38:25 AM

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 NEW IDEAS IN TRADE FINANCE

The Uses of
Trade Finance
Through the services of our BNP Media corporate colleague Clear Seas
Research, over 200 World Trade subscribers—financial activities influencers
at their companies—were surveyed in mid-February concerning trade finance.
Following is a snapshot of how U.S. traders are deploying trade finance.

How has your company’s use of Does your company have an

trade finance instruments to secure exclusive relationship with a trade
foreign transactions changed over finance institution or does your
the past 12 months? company use multiple institutions?

Increased Exclusive
relationship with
Remain 33% a trade finance
the same institution
59% 34% Use multiple
institutions
66%
Decreased
8%
Total Respondents = 162
Total Respondents = 221

What type of institutions does your Does your bank offer working capital
company use for trade finance? financing to emerging market vendors
in your supply chain?
Commercial Bank 86%

Private Capital Lenders 23% Yes

29%
Insurance Companies 23%
No
Small Business 71%
19%
Administration (SBA)

EXIM Bank 18%

Total Respondents = 146

Total Respondents = 202

34 WO R L D T R A D E A P R I L 2 0 0 7

018Feature1_TradeFinance.indd 34 3/16/07 10:38:39 AM

 What percentage of your trade finance is done
using the following financial tools?
Internal Cash Flow 36%
Letter of credit (L/C) - Commercial Bank 30%
Open Account Trading 22%
Commercial Loan 21%
Export Credit Insurance 20%
Private Capital Lenders or Logistics Providers 18%
Venture Capital-Private Capital Lenders 18%
Export Working Capital Program (SBA) 16%
Direct Loans-EXIM 13%
Bank Guarantee-Commercial Bank 12%

Are there foreign deals your company

Which of the following “non- has not been able to complete
traditional” requests is your company because acceptable trade finance
making of your trade lender(s)? could not be arranged?

Credit checks through

lenders affiliates in a 35%
foreign country Yes
41%
Open account processing
(purchase order/invoice 34%
reconciliation) No
59%
Customs brokerage
and oversight 28%
Total Respondents = 162
Use of technology platforms
to monitor visibility
and provide information 28%
reporting in your global
supply chain from node to

Back-office order processing 22%

Guarantee by sales agent

for a specific territory 16%
(Copyright © 2007 by Clear Seas Research. All rights reserved.)

Other 21% For reprints of this article, please contact Jill DeVries at
devriesj@bnpmedia.com or 248-244-1726.

Total Respondents = 162

W W W. WO R L DT R A D E M AG . C O M 35

018Feature1_TradeFinance.indd 35 3/16/07 10:39:03 AM

 The 21st Century
Supply Chain
Boeing Reinvents
its Supply Chain
Avoid Capacity Problems of Boom-and-Bust
Rather than do everything in-house, a collaboration
of global suppliers is optimized to calibrate output.
BY LESLIE WAYNE
S
aying no to one of your best customers may not
seem like a smart business strategy. But that is
exactly what Boeing said recently to Southwest
Airlines, which buys more Boeing planes than any
other carrier, having taken delivery of 477 to date.
Southwest flies only Boeing 737s, and it typically buys
them in bulk. But when the airline wanted to add two
planes to a recent order of 80, Boeing turned it down.
It did, however, offer a Plan B, by pointing Southwest in
the direction of two slightly used 737s that Ford Motor
wanted to shed.
‘’No one is more important to Boeing than South-
west,’’ said Edmund S. Greenslet, publisher of Airline
Monitor, a trade publication. ‘’If Boeing is not willing
to raise production and build for Southwest, you can be
sure they won’t accommodate anyone else.’’
There was method to Boeing’s seeming madness.
With aviation booming and airlines lining up to buy
36 WO R L D T R A D E A P R I L 2 0 0 7
036Feature3_Boeing_r.indd 36
Boeing planes, the company is trying to manage what
could be too much of a good thing. Granted, it is a
potential problem that is much easier to tackle now that
its archrival, Airbus, is stumbling.
Boeing, which is based in Chicago, is trying to avoid
mistakes of the past. In the last aviation boom, in 1997
and 1998, Boeing gorged itself on orders, but its produc-
tion lines could not keep up and ground to a halt.
Nevertheless, the company flooded the market with
too many planes and ultimately had to sell them at cut-
rate prices. Boeing’s write-offs came to more than $4 bil-
lion in 1997 and 1998.
Today, having learned its lesson, Boeing is adopting a
polar opposite strategy as it faces a new wave of orders that,
if not managed right, could swamp the company again.
‘’In this hot market, it would be easy to be consumed
with the desire to sell anything to people walking through
the door who want to buy and push our production
3/16/07 10:39:54 AM
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 The 21st Century
Supply Chain

The Collaborative Supply Chain at Boeing

Scott Strode, vice president of Airplane Devel-
opment and Production for the 787 program, is
responsible for leading the implementation of
the production plan for the 787 program. He
responded to the questions of World Trade Edi-
torial Director Neil Shister about the project’s
supply chain design and processes.
World Trade: As the 787 is being built from
scratch using what is a wholly different pro-
curement and supply chain strategy for Boeing,
can you describe several of the 'biggest lessons'
about collaborative processes you've thus far
learned (and from which other manufacturers
can benefit)?
Strode: The lessons we’ve learned about col-
laboration are largely considered a competitive
advantage and we don’t share them publicly.
However, in general terms, we can say we have
validated the value of our approach—involv-
ing our partners earlier and much deeper has
resulted in the development of a better airplane
that can be produced more efficiently. It’s taken
the development of new collaborative tools and
technologies to enable this business model to
work and we expect that effort to continue to
provide value to Boeing and its partners for
many years to come on this and other projects.
World Trade: What are the criteria you use to
select partners?
Strode: We select our partners based on their
capability and capacity. Proven performance is
an important factor that we evaluate. The stan-
dards for quality and performance in aerospace
are extremely high—as they should be.
World Trade: In developing the 787, what
IT techniques and processes are being used to
align collaboration from different vendors?
Strode: Our primary collaboration toolset is
the Product Lifecycle Management suite from
Dassault Systemes that includes CATIA, Delmia
and Enovia. With this toolset we can all work
from one dataset to design the airplane, build
the tooling and determine the manufacturing
processes. We even use this toolset to work with
our customers to configure their interiors and
it will be used to create in-service maintenance
programs.
World Trade: In using a collaborative process
of external vendors on such a major scale, is
there a risk that key partners in the supply
chain might be unable to meet commitments
in the future? Perhaps because of problems
with their business models? Or unanticipated
problems? How does Boeing distribute risk and
assure the resiliency of a supply chain so depen-
dent on external partners?
Strode: We pick our partners carefully and
include an evaluation of the stability of their
business models. There is a different kind of risk
to be managed than if you did all of the work in
house but it isn’t more risk or higher risk—just
different risk.
World Trade: Has the R&D process been 'a col-
laboration of equals' or were vendors expected
to execute Boeing specs? In a collaborative
model, do your goals and objectives for the
product tend to change through the interaction
process with partners?
Strode: This has absolutely been a collabora-
tion. Our partners have brought suggestions and
solutions to the table that have helped create
a better product. The goals and objectives tend
to stay the same for the product because they
are largely based on what our customer need.
What changes is how we achieve those goals
and targets.
World Trade: Collaborative supply chains
run the risk that 'your supplier today' will be
'somebody else's supplier tomorrow'. This is
a general problem facing many companies in
Scott Strode, vice president of Airplane Development
and Production for the 787 program
many sectors. How does Boeing address the
challenge of 787 suppliers potentially supply-
ing competitors?
Strode: Our company has a long history of
these kinds of arrangements. In fact, it’s not
unusual for Boeing to be a supplier to a com-
petitor and vice versa. There are legal agree-
ments regarding the protection and insulation
of information that protect everyone.
World Trade: How will such components as
fuselages, etc. be transported to final assembly?
Will outside logistics providers be employed?
Strode: Transportation of large structural
pieces will be accomplished on specially modi-
fied 747s knows as “Dreamlifters” or “LCFs –
Large Cargo Freighters.” Boeing designed these
airplanes and has overseen the modifications.
The first has already delivered its first load from
Japan to a pre-integration center in Charleston,
South Carolina. These are operated by an out-
side company. In addition, an outside company
has been contract for other logistics support.

system to the point where you could break it,’’ said Scott
E. Carson, the chief executive of Boeing Commercial Avia-
tion. ‘’It’s much harder to say, ‘I’m sorry, we’re sold out.’ ‘’
Yet, that is exactly what Boeing is telling customers
these days—not just Southwest—as it slowly increases
its airplane production while holding firm on its sticker
prices. Demand is jumping, especially now that Airbus
has had design and delivery problems with its two new
offerings: the midsize A350 and the superjumbo A380.
At Boeing, for instance, orders for its 787, nicknamed
the Dreamliner—which will not hit the market until
2008—are so strong that it is sold out for four years, and
the earliest a new customer can get a plane is 2013.
Now that Mr. Carson is in charge, he vows to make
restraint a virtue—and a path to fatter profit margins.
38 WO R L D T R A D E A P R I L 2 0 0 7
‘’Frankly, we are much more disciplined than in 1997
and 1998,’’ Mr. Carson said in a recent interview. ‘’The
message is, ‘Don’t get ahead of yourself; don’t go crazy
about how we ramp up.’”
He added: ‘’We have to communicate that openly with
customers and suppliers to be sure they understand why
this is good for the industry. The role of the industry
leader is to demonstrate discipline and restraint in the
marketplace.’’
To industry analysts, this is a 180-degree turn from
the last boom, when Boeing responded to Airbus’s new
competitive threat by trying to sell so many planes that
Airbus would be overwhelmed.
The fallout from that period is still fresh in the memo-
ries of today’s Boeing leadership.

036Feature3_Boeing_r.indd 38 3/16/07 10:40:06 AM

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 The 21st Century
Supply Chain
Modified 747s known as
Large Cargo Freighters
will transport large
structural pieces of the
Boeing 787 Dreamliner.
‘’All the guys at Boeing saw their bosses get fired the
last time,’’ said Troy Lahr, an aviation analyst at Stifel
Nicolaus, a Baltimore brokerage firm. This time, the
company has sharply cut the number of products it
builds.
Today, it builds only the 737, the 767, 777 and the
giant 747. The 787 Dreamliner is still in the develop-
ment phase.
Boeing also has only about half the suppliers that it
did a decade ago and has shifted more of the risk—and
cost—of developing and building the airplanes to them.
Major parts of Boeing planes are built by suppliers
in Japan and Italy and come to the Seattle area, where
the commercial aviation division is based, only for final
assembly. In the United States, its airframe manufactur-
ing operation in Wichita, Kansas, was sold to investors
and now works for Boeing as a subcontractor, absorbing
costs and risks Boeing once shouldered.
‘’The world has changed, and Boeing has changed with
it,’’ said Michael Boyd, president of the Boyd Group, an
aviation consulting firm in Evergreen, Colorado. ‘’They’ve
offloaded a lot of production. They are farming out every-
thing to others so they don’t have to build it.’’
That future is perhaps best represented by the 787
Dreamliner. It will be the first commercial jet made in large
part from composite plastics, rather than aluminum.
The wings are made by Mitsubishi, Kawasaki and
Fuji Heavy Industries, all of Japan. Italian companies are
building part of the fuselage, and Boeing has contracted
with its former Wichita operation, now called Spirit
40 WO R L D T R A D E A P R I L 2 0 0 7
036Feature3_Boeing_r.indd 40
AeroSystems, to make other parts of the fuselage.
These parts will be shipped to Seattle—many on a
747. For instance, barrel sections of fuselage that are
made in Italy will be flown to a subcontractor, Vought
Aircraft Industries, in South Carolina. There, they will
be connected with parts of the wing from Japan, stuffed
with wires, tubes and other systems and tested and
painted. Once that is done, the mostly finished plane will
be shipped, again on a 747, to Boeing’s plant in Everett,
Washington, for final assembly.
‘’All Boeing does is design it and glue it together,’’ said
Mr. Boyd, the aviation consultant.
If there is a downturn in orders, Boeing does not have
to face the challenge of what to do with a permanent,
unionized work force. It also means that fewer workers
are needed in Everett since less of the work is done there.
All this outsourcing is not without busi-
ness risk, as well. ‘’The danger is that your
supplier can become someone else’s sup-
plier,’’ Mr. Boyd said. ‘’There is no stopping
Spirit or Vought from doing business for
Airbus. When Boeing owned all the facto-
ries, it only did stuff for Boeing.’’
Boeing does not disclose how many
planes it builds a month, but Mr. Lahr of
Stifel Nicolaus estimated that by 2008,
Boeing would add 3 planes to its monthly
production of twenty-eight 737s, it would
build one more 777 to reach eight a month
and, at some point, would add three more to
an anticipated monthly run of seven 787s.
‘’The real challenge, once you work out the 787
design, is that Boeing wants to move at a rate that is
unprecedented for a widebody plane,’’ said Richard
Aboulafia, an aviation analyst at the Teal Group, a con-
sulting firm in northern Virginia. ‘’No one has built more
than seven widebodies a month, and they are talking
about 10 a month.’’
Boeing says, however, that increased outsourcing and
the more efficient moving assembly lines will enable it to
pick up the pace without risking some of the problems it
had in 1997 and 1998. In addition, for at least the first
two years, there will be no increases in the anticipated
787 production rates, no matter how strong the demand,
Boeing said.
In a recent media conference call, Michael Bair, gen-
eral manager of the 787 program, said there was no
danger Boeing would fall into its old trap.
‘’We are being very, very careful in the front end of
the program that we don’t get greedy and over commit
before we have all the potential kinks worked out in the
production systems,’’ Mr. Bair said. ‘’So we have not
touched the first two years of production in terms of
what our ramp up is going to be—and we won’t.’’ WT
Leslie Wayne covers business for The New York Times, where this article
originally appeared.
For reprints of this article, please contact Jill DeVries at
devriesj@bnpmedia.com or 248-244-1726.
3/16/07 10:40:18 AM
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 Explosion of Options in
Global Supply Chain
Integration
Software developers are working overtime to provide
Total Visibility applications.
BY AMY ZUCKERMAN
F
rom bottled water producers in France to Ameri-
can retailers, paper manufacturers in Finland and
United States-based auto supply retailers, there’s
been an explosion in demand for building out
global supply chains and a myriad of new ways to inte-
grate supply chain data.
Vendors of all stripes are working overtime to meet
the demand for global visibility of shipping data for all
parties to a shipment in a variety of ways, from e-com-
merce platforms that unite carries and shippers using
one transport mode, to development of global platforms
for one enterprise that then connect to supply chain
partners. There are software developers offering “trans-
lation” services so companies can cross platforms and
vendors creating soup-to-nut platforms and attendant
networks where a business can reportedly have all its
global supply chain shipping, logistic and compliance
needs met in a one-stop shop.
For example, Evian, the French-owned premium bottle
water producer, operates a supply chain that extends
across bottling facilities in eastern France at Lake Geneva,
warehousing in France and Belgium and distribution
operations with strategic partners across North America
with export to over 120 countries worldwide.
42 WO R L D T R A D E A P R I L 2 0 0 7
042Feature6.indd 42
Last fall, the company’s owner, Groupe Danone,
announced it had signed an agreement with GT Nexus
of Alameda, California, to provide hosted software and
information management services to assist Evian North
America improve global supply chain operations. GT
Nexus creates hosted technology platforms to connect
supply chain partners globally “and provide integrated
management software create benefits across entire com-
munities of supply chain participants,” said Aaron Sasson,
the company’s chairman and chief executive officer.
American Eagle Outfitters, based in Warrendale, Penn-
sylvania, is a top retailer for teens to young adults and
works with about 500 suppliers and liaisons in mainly
Asia and the Indian Sub-continent. The retailer turned to
TradeStone Software in Gloucester, Massachusetts about
a year and a half ago to unify their buying process on a
single platform, says Sue Welch, TradeStone CEO.
“American Eagle has multiple technologies for mul-
tiple purposes, so we provide them a one-user experi-
ence,” said Welch, explaining that their technology acts
as a sort of super-translator, accepting data from any
source and any system. “We work side by side with
transport platforms and cross all categories for customer
building in the global commerce community.”
3/16/07 10:41:53 AM
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WTM04074Scbax.indd 1 3/8/07 9:00:52 AM

 Global Supply Chain Integration
‘A hosted web-based Web solution
providing hardware, software and
the network to link suppliers and
customers is the way to go.’
—Jim Preminger, Management Dynamics
On-line platforms maturing,
but aren’t for everyone
Not long ago, World Trade explored companies extend-
ing their enterprise resource planning (ERP) systems
from their internal enterprise to supply chain partners.
While this activity continues, particularly among the
largest global corporations, already it seems a variety
of online platforms are coming into their own, whether
they focus on providing shipping-related services for
one transport mode, or also offer logistics services or
cross transport modes and service arrangements like GT
Nexus and Management Dynamics.
Consider AutoZone, a national auto parts retailer
based in Memphis, Tennessee, which has turned to
Transplace to handle its transition to global sourcing,
predominantly in Asia, says Tom Sanderson, Transplace
President and Chief Operating Officer.
According to AutoZone officials, Transplace has
become an extension of the AutoZone enterprise and is
the single point of contact for transportation logistics,
providing the people, processes, and systems to accel-
erate AutoZone’s growth. They credit Transplace with
savings over $2 million as of 2005 between conversion of
truck lanes and more efficient tools to allocate freight.
Stora Enso, a global integrated paper, packaging and
forest products company based in Helsinki, Finland,
ships more than 1.2 million tons of product out of its
Gothenburg, Sweden, and Hamburg, Germany transpor-
tation and distribution centers to production facilities in
Europe, North America and Asia. Last fall, it announced
it was connecting to ocean industry platform INTTRA
to streamline its electronic communication with ocean
carriers shipping its cargo worldwide.
“Between its mills and its carriers worldwide, Stora
Enso has a complex supply chain. Different carriers needed
44 WO R L D T R A D E A P R I L 2 0 0 7
042Feature6.indd 44
to use different interfaces. The idea was to minimize the
workload and streamline as many of the processes as pos-
sible,” said Anna Wilhelmsson, supervisor and coordinator
of the Stora Enso Infologistic Service Support Team.
Some large corporations still want to develop their
own global networks, says Tim Kelsey, BAX Global Vice
President for Strategic Account Development based in
Atlanta, Georgia, citing the example of an Internet tech
company that “wanted one platform and one lead logis-
tics provider for all their inbound Pacific freight. We
provide them the technology to integrate all their data
via a tool called Viewlocity. What we’ve built provides
both visibility and event management,” or the ability to
automate alerts and avoid crises while en route and in a
totally customized fashion.
Kelsey says this approach is really limited to a “a few
customers with global markets that have global solu-
tions. Even those with a single ERP system are working
with a multiple of tools, so alignment around people and
systems is a major struggle.”
The ‘right approach’ depends
on who is talking and selling
While vendors will tout their approach as the best and most
likely to prevail in a heavily competitive global marketplace,
there is some accord among experts that the future belongs
to those solutions that not only provide data visibility, but
can offer logistics management and event planning.
Jim Preuninger, CEO of Management Dynamics in
East Rutherford, N.J believes his company’s approach
is the way to go—a hosted Web solution providing hard-
ware, software and the network to bring suppliers and
customers together as it is doing for The Children’s Place,
a Seacaucus, N.J.-based specialty children’s retailer. Man-
agement Dynamics recently announced it was handling
the retailer’s internal order management system for a large
network of consolidators and international transport pro-
fessionals in the U.S., Canada and Puerto Rico.
Both Preuninger and Sanderson of Transplace point
out that there are plenty of vendors offering software, but
no network. According to Sanderson, top players in this
sector include Glog (recently acquired by Oracle) and i2.
Then there are platforms that cater to a single transport
mode or just offer port-to-port service. Or, customers
can go to the larger freight forwarders like a Schneider
Logistics that are “limited to the visibility of the cargo
moving with them,” said Preuninger, who considers all
of these solutions outmoded.
He and Greg Johnsen, GT Nexus Vice President of
Marketing, believe the future belongs to those players that
3/16/07 10:42:14 AM
WTM08044YANG 6/24/04 10:11 AM Page 1
 Global Supply Chain Integration

will provide “global trade man- tional trade spectrum, he says

agement (GTM), or supply chain INTTRA is focusing on provid-
event management technologies ing global shipping data visibility
needed to handle cross-border in a secure fashion.
trade. You want to integrate these “INTTRA provides a single
processes and create a platform connection point to access ocean
so everyone within the enterprise carriers, execute transactions,
that deals with international trade track shipments, obtain manage-
has the right capabilities,” says ment information and exchange
Preuninger. vital shipment information
Not only should this system be with all supply chain partners,”
able to track and manage inven- says Gannon, who adds that
tory, purchase orders, provide INTTRA is more than an inte-
global trade and logistics docu- grator. We also provide “execu-
ments, landed costs and global tion and analytic tools that help
transportation spend, but John- users monitor, plan, and execute
sen says the ultimate system must shipments with their supply
be customizable. “I don’t believe chain partners.”
one size can fit all. We believe INTTRA is purposely stick-
that the most cost-effective, ing with a business model that
low-risk way of integrating your
‘A single point of contact focuses on “operational excel-
global supply chain is to lever- for shipping data lence” and being “the industry
age an on-demand technology provider of the best, most accu-
platform so you don’t install and visibility and logistics rate and timely data for ocean.
manage the software yourself. People can call us old-fashioned,
The third-party provider man- management.’ but we’ve heard great claims
ages and delivers the software from software vendors and it
over the Web.” —Tom Sanderson, Transplace comes back to how well you
He points out that “it’s very can execute. We stay focused on
expensive and complex work for ocean execution because it’s not
a single customer to build this sort of platform on their easy and there are always new wrinkles to master,” said
own, that’s part network, part data and part applica- INTTRA CEO and President Ken Bloom.
tions.” The Web-based platform that hosts a network of With customers who can be “anyone buying and
customers and services costs less and means that cus- selling goods across international borders who want to
tomers “can get up and running much faster than tradi- unify that process,” Welch at TradeStone believes her
tional approaches.” company has the solution that ties all of these dispa-
Although extending ERP systems to supply chains is rate approaches together—the ability to help customers
hardly non-existent, Johnsen says he hasn’t found one communicate across platforms, while working “side by
customer with an ERP system “who has done a decent side with the transport platforms,” she says. TradeStone
integration job with their supply chain partners in a “crosses all categories.”
single system. It’s doable, technically, but I haven’t seen She says TradeStone’s Web services technology
it in terms of real-life customers.” “allows us to read information to another system that is
Transplace is also a “very big believer in on-demand not the customer’s own, which means they don’t need
hosted technology solutions. We know where the sup- to replicate the data and they don’t need to replace their
pliers are in other parts of the world and have contact technology. So, for example, American Eagle receives
to ocean and air carries. If you’re Wal-Mart, maybe you shipping data from GT Nexus and then we display that
should do it yourself, but there’s only one Wal-Mart,” data information to the buyers within American Eagle.
Sanderson said. We replace GT Nexus as the display because our tech-
He cites the case of a global medical instruments com- nology can function across multiple systems.”
pany that connected to their network last fall and was Analysts like Manny Hontoria say all options cited
able to be up and running in about three months “with here have merit depending on the customer, their needs
no capital expenditures on the company’s part. And we and resources. Principle of Boston, Massachusetts-
didn’t have to develop an EDI link with all their carriers, based Mercer Consulting in the Transportation and
but were able to provide links to many of the carriers International Logistics sector, Hontoria says whether
they already used.” the link is Web-based, ERP or a desktop solution, the
Over the last five years, INTTRA, based in Parsi- “challenge is increasingly using the information to
panny, N.J., has built the world’s largest on-line plat- systematically drive costs and complexity out of the
form for ocean, handling 61 percent of the world’s supply chain.” WT
ocean container capacity, according to Tim Gannon,
INTTRA’s Vice President of Product Management. Amy Zuckerman is World Trade Magazine’s supply chain high tech
Rather than offering services that cover the interna- correspondent.
46 WO R L D T R A D E A P R I L 2 0 0 7

042Feature6.indd 46 3/16/07 10:42:25 AM

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 EXECUTIVE OVERVIEW
[ WHAT BUSINESS LEADERS NEED TO KNOW ABOUT:
East Coast Logistics
S
APM Terminal at the Port of
New York/New Jersey.
48 WO R L D T R A D E
048ExecutiveOverview.indd 48
The next stage: expanding capacity.
BY LARA L. SOWINSKI
eaports along the East Coast of the U.S. are pre-
paring for another banner year in 2007. Unlike
some of the issues that have plagued major West
Coast ports in recent years with the influx of Asian
imports, ports all along the eastern seaboard are chomp-
ing at the bit to get in on the action.
One of the biggest advantages for most East Coast
ports is their access to land, which makes expansion
considerably easier. But even at the densely developed
Port of New York/New Jersey (www.panynj.com), cre-
ative solutions are helping to position them to take on
more cargo and move it expeditiously.
Working smarter, not harder
Three new intermodal rail projects will be completed
at the port complex of NY/NJ this year, including the
opening of on-dock ExpressRail at New York Container
A P R I L 2 0 0 7
]
Terminal. The port is also working to deepen its chan-
nels to accommodate larger vessels.
Patrick Flinn, General Manager of Planning and Proj-
ect Development for the port complex, says the indus-
trial development plan called the Portfields Inititative is
a complement to these various programs. The Portfields
Initiative, which is also supported by the New Jersey
Economic Development Authority, provides opportu-
nities for private developers, communities, and others
to transform underutilized and brownfield sites into pro-
ductive warehousing and distribution centers. In turn,
these centers will support and capitalize upon emerg-
ing market opportunities for new ocean and air freight-
related warehousing and distribution operations.
Of the original 17 sites identified under the Portfields
Initiative, “most are currently under development or are
in the entitlement stage,” explains Flinn. And, interest
is growing, he says. “We’re trying to meet the demand
from developers and users who are looking for large sites
near the port.”
Most of the sites are within 12 miles of the port,
although one is about 20 miles away. “Part of the Port-
fields Initiative was to try and have this urban ‘in-fill’
development and also reduce truck traffic and conges-
tion on the roads, so obviously we were looking for sites
that had good access or were close to the port.” In recent
years, development has been extending further south
and even west into Pennsylvania, he says. In response,
“there was a concerted effort to keep the cargo and the
jobs in New Jersey, as well as within close proximity to
the port.”
In addition to being close to the port, the facilites
in the Portfields Initiative program are being designed
to offer the growing logistics market high-value, high-
velocity (cross-dock) distribution centers to meet
their needs. “Large, modern distribution centers in
the Port District are at a premium,” according to one
supply chain consultant. “Larger retailers are espe-
cially strapped for finding Northeast regional locations
large enough to accommodate a building greater than
3/16/07 10:42:45 AM
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 EXECUTIVE OVERVIEW
Maher Terminal at the
Port of New York/
New Jersey.
50 WO R L D T R A D E A P R I L
048ExecutiveOverview.indd 50
500,000 square feet, and many
want the sites to be expandable, “It’s an effort
often up to two- or three-fold.
Fuel costs continue to shrink the to keep the
viable options [further afield].”
Jules Nissim, senior director
for Cushman & Wakefield in
jobs in New Jersey
East Rutherford, New Jersey,
says: “The second- and third-
and near the port.”
generation and multistory
facilities that once served, and
continue to serve, the region do not fulfill many of
today’s sophisticated requirements. In order to offer
value-added services, logistics tenants are seeking state-
of-the-art facilities that contribute toward a more effi-
cient supply chain.”
The importance of advanced planning can’t be over-
emphasized, especially when you’re talking about the
projections for increased cargo volumes at East Coast
ports. While estimations vary, everyone agrees that
growth in all-water service, whether it comes from the
Panama Canal, Suez Canal, or both, is a reality. And
again, while land constraints may not be paramount
like they are for West Coast ports, that won’t be the case
forever, reminds John Rosen, Director of Product Mar-
keting for WhereNet (www.wherenet.com), a leading
provider of wireless solutions for tracking and managing
enterprise assets. Although most of WhereNet’s custom-
ers are on the West Coast (the company’s products are
in use at 13 marine terminals at the ports of Los Ange-
les and Long Beach), the company has been working to
expand its customer base along the East Coast.
2 0 0 7
“We have a system that provides much better informa-
tion on activity and inventory inside the marine termi-
nal,” says Rosen, referring to the Real Time Location
System (RTLS) technology that WhereNet has installed
at marine terminals and transloading facilities. The tech-
nology, which uses active RFID or WiFi-enabled tags to
track the location of assets in real time, is expected to
command a $1.26 billion market by 2011, up from the
$200 million marketshare in 2004.
The ability to operate more efficiently in the marine
terminal is key, especially with the advent of 10,000-
TEU vessels. “These large vessels create huge spikes—
freight’s not distributed nice and evenly throughout the
workweek,” explains Rosen. “Terminals are being forced
to stack containers higher, yet current manual processes
don’t support that. When a worker is standing between
stacks of containers four and five high, he can’t read the
container numbers at the top. It also requires more ‘dig’
moves from your terminal handling equipment, which is
very non-productive. Ultimately, the goal is to ‘go higher’
and move more freight, not less.”
Rosen is confident that once the first ‘early adopter’
on the East Coast successfully deploys the system, soon
afterwards everyone else will jump on the bandwagon.
He’s hosted plenty of marine terminal executives at the
ports of Los Angeles and Long Beach who are interested
in seeing the WhereNet system in action. “We show
them that it does work and it can survive the environ-
ment—those are the two big-
gest concerns. When you install
hardware on container handling
equipment, it’s got to be able to
withstand extremely rugged and
difficult working conditions.”
Interest in WhereNet’s sys-
tems is spreading to other play-
ers in the supply chain, namely
railroads. “If we help double the
throughput for containers at the
port of Los Angeles-Long Beach,
it doesn’t mean anything if the railroads can’t handle it,”
says Rosen. Indeed, “the next frontier is the inland infra-
structure,” he says. “Railroads are poised for dramatic
changed…they’re going to have to improve throughput
too. You can buy more land, sure, but the better option
is to start stacking cargo. And, once railroads start stack-
ing cargo, they’re going to begin acting a lot more like
marine terminals.”
Virginia Ports looks inland
Eighteen years ago when the Virginia Inland Port (VIP)
was established, hardly anyone was thinking about rising
cargo volumes from China. In fact, the facility was cre-
ated to capture traffic that was going to competing ports
in the northeast, particularly Baltimore, New York-New
Jersey, and even Philadelphia, notes Joe Harris, Media
Relations Manager for VIP.
The first few years were a bit tough. “Our first year, we
handled 3,000 containers,” says Harris. “But last year,
we handled over 30,000 containers,” which also equates
to 30,000 less truck trips on surrounding roads. The
3/16/07 10:42:57 AM
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 EXECUTIVE OVERVIEW

Major East Coast Transportation and Logistics Providers

Major East Coast Ports: C. H. Robinson www.chrobinson.com
Port of Jacksonville (JAXPORT) www.jaxport.com FedEx Trade Network www.fedex.com
Port Everglades www.porteverglades.com UPS Supply Chain Solutions www.ups-scs.com
Port of Savannah www.gaports.com A.N. Deringer www.anderinger.com
Port of Baltimore www.mpa.state.md.us BDP International www.bdpinternational.com
Port of NY/NJ www.panynj.com Hellmann Worldwide www.hellmann.net
Port of Virginia www.vaports.com Livingston International www.livingstonintl.com
Port of Montreal www.port-montreal.com PBB Global Logistics www.pbb.com
Halifax www.portofhalifax.ca Transplace www.transplace.com
Port of Miami www.miamidade.gov/portofmiami AIT Worldwide www.aitworldwide.com
Georgia Ports Authority www.gaports.com APL Logistics www.apllogistics.com
Port of Baltimore www.marylandports.com Maersk Logistics www.maersklogistics.com
Port of Charleston www.port-of-charleston.com NYK Logistics www.nyklogistics.com
Port of Boston www.massport.com/ports Averitt www.averittexpress.com
North Carolina State Ports Authority www.ncports.com EGL Eagle Global Logistics www.eaglegl.com
Georgia Ports Authority www.gaports.com DHL/Exel www.dhl.com
Panalpina www.panalpina.com
Major East Coast Ocean Carriers Penske Logistics www.penskelogistics.com
Alianca Lines www.alianca.com.br Ryder www.ryder.com
ACL www.aclcargo.com Schneider Logistics www.schneider.com
K Line www.kline.com CEVA Logistics www.cevalogistics.com
APL www.apl.com UTi www.utiintegratedlogistics.com
COSCO www.cosco-usa.com Landstar Logistics www.landstar.com
CSAV www.csav.com SEKO Worldwide www.sekoworldwide.com
Mediterranean Shipping Co. www.mscgva.ch
Maersk Line www.maerskline.com Intermodal:
MOL (America) Inc. www.molpower.com Norfolk Southern Railway www.nscorp.com
NYK Line www.nykline.com CSX www.csx.com
OOCL (USA) Inc. www.oocl.com
Hamburg Sud www.hamburgsud.com Truck:
Hanjin Shipping www.hanjin.com ABF Freight System www.abf.com
Hapag-Lloyd (America) Inc. www.hapag-lloyd.com A.Duie Pyle www.pyleco.com
Turkon America Inc. www.turkonamerica.com Con-Way Freight www.con-way.com
United Arab Shipping Co. www.uasc.com.kw Covenant Transport www.convenanttransport.com
Wallenius Wilhelmsen www.2wglobal.com FedEx Freight www.fedex.com
Nordana Line www.nordana.com J.B. Hunt www.jbhunt.com
Old Dominion www.odfl.com
Major 3PLs: Pitt Ohio Express www.pittohio.com
Lynden www.lynden.com Roadway www.roadway.com
Kuehne + Nagel www.kn-portal.com Ryder www.ryder.com
BAX Global www.baxglobal.com Saia www.saia.com
OH Logistics www.ohlogistics.com Southeastern Freight Lines www.sefl.com
Menlo Worldwide www.menloworldwide.com U.S. Xpress Enterprises www.usxpress.com
Target Logistics Services www.targetlogistics.com UPS Freight www.upsfreight.com
Expeditors www.expeditors.com Yellow Transportation www.myyellow.com

facility, which is located about 200 miles inland from
the Virginia Ports (www.vaports.com) complex of Nor-
folk, Portsmouth, and Newport News, allows truckers to
drop off and pickup loads and get back on the highway
quickly. Norfolk Southern Railway (www.nscorp.com)
runs daily trains to/from the port, which saves a lot of
short-haul truck moves in the port vacinity. The facility
features 17,820 feet of on-site rail and located within one
mile of Interstate 66 and within 5 miles of Interstate 81.
It is also a U.S. Customs-designated port and entry.
Over the years, the VIP facility has attracted consid-
52 WORLD TRADE APRIL 2007
erable business, particularly as a site for distribution
centers. Retailers Home Depot and Family Dollar Stores
moved into the area in the mid-1990s, and others such
as DuPont, Rite Aid, SYSCO, and Kohl’s have followed,
says Harris. Today, the facility boasts 24 major companies
with facilities in the area. “Land was very inexpensive
and they found a very favorable economic development
climate. Since it’s opened, the facility has garnered over
$600 million in investment and construction has been in
excess of 6 million square feet. The labor force has also
increased by some 7,000 people.” WT

048ExecutiveOverview.indd 52 4/27/07 10:53:39 AM

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 HowWE
HOW WeDODoIT…
It

The On-Going Management of

International Sourcing

J
NCR Corporation ohn Mascaritolo is Director of Global Logis-
tics, Corporate Global Procurement for NCR
looks to Corporation. As such, he is responsible for
corporate compliance with global transporta-
international tion and logistics strategies and policies; further,
he serves as resident adviser to company business
sourcing for units in developing their global logistics strate-
gies. Mascaritolo has worked for 30 years with
mass production all aspects of transportation, warehousing, and
capabilities at global logistics, and has business experience in
consumer goods, publishing, health-care, light-
higher quantities ing/construction industry, food retail industry
and third party logistics.
and lower costs. Mascaritolo took leave from his corporate
career to work for the Atlanta Committee for
BY MARK BERNSTEIN the 1996 Olympic Games, for which he oversaw
design, implementation and management of
logistical functions associated with the storage
and distribution of assets used in the 1996 Olym-
pic Games and infrastructure activity at remote
Olympic venues in four U.S. states.
Mascaritolo is active with the Council of Supply
Chain Management Professionals (CSCMP),
both locally and nationally,
and was President of the
Atlanta Roundtable from
1989 through 1994. He is an
adjunct professor at DeVry
University in Atlanta, where
he teaches on logistics and
supply chain management.
In this interview, NCR
Director of Logistics John
Mascaritolo tackles topics
from the need to get a firm
grasp on total cost of own-
ership, to the reasons why
supply chain security must be
an enterprise-wide concern to
the problems and possibilities
of operations in India.
WT: How do NCR’s cur-
rent efforts with interna-
tional sourcing differ from
its own recent history?
John Mascaritolo is Director of Global Logistics, Corporate Global Mascaritolo: NCR oper-
Procurement for NCR Corporation. ated under a country-centric
model for many years with major manufacturing
in the U.S. and Scotland. Over time, we moved
to a combination of regional manufacturing for
Automated Teller Machines and outsourced
OEM manufacturing for retail Point of Sale
units. Within the past seven years, we moved
further away from the country-centric models,
with a combination of region manufacturing
with both local and global sourcing.
WT: What prompted this shift?
Mascaritolo: There’s a constant need for
change to remain competitive. Technology
changes quickly as does the demands for better
products by the customer. Cost take-out initia-
tives improve margins, and low-cost sourcing
contributes to cost take-out initiatives.
WT: What, roughly, is the cost-benefit anal-
ysis of international sourcing?
Mascaritolo: International sourcing has its
advantages and disadvantages. The advantages
we see are mass production capabilities at higher
quantities and lower costs, more competitive
suppliers in low-cost regions, and good work
ethic from different cultures. The disadvantage
is that as the distance from product supply to
point-of-need becomes greater, logistics costs
are raised and product intervals lengthen.
WT: How big a piece of getting costs out
comes from international sourcing?
Mascaritolo: Taking costs out is a constant
push. You are never in a position to say, ‘Well,
we’re there and it’s done.’ We constantly look
at ways to make our deliveries quicker and less
costly—it’s everything from going to the low-cost
region, getting the best activity out of a supplier,
getting your best carrier rates, getting the best
mode of transportation, getting it streamlined
all the way through the entire supply chain pro-
curement process. And when you’ve done that,
you say, ‘We’ve got it to this spot; now let’s try
to get it better.’
WT: How does NCR identify and select its
international partners?
Mascaritolo: We got through an extensive
market search for suppliers capable of meeting
our production needs. Our selection is based on
a thorough Request of Information (RFI) and
Request for Pricing (RFP) process that includes

54 WO R L D T R A D E A P R I L 2 0 0 7

054HowWeDoIt.indd 54 3/16/07 10:43:29 AM

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WTM09064IFS.indd 1 8/8/06 12:36:01 PM

 How We Do It N C R C O R P O R ATI O N

online bidding or reverse auctions. understand the relationship

Because we are dealing internationally, we An Overseas of time and distance.
also go through a Total Cost of Ownership Pioneer You need to realize that
process to incorporate such supply chain 24-hour delivery is not
costs as taxes and duties, customs fees and International sourc- really 24 hours. People
even warehousing. ing is logical topic will say: ‘I can get on an
WT: Doesn’t everybody cover that for NCR: the Dayton, airplane and be there in
range? Ohio-based computer 14 hours.’ That’s true. A
Mascaritolo: No. I find in talking with firm has one of the person can walk on an air-
colleagues in the industry that TCOs are longest overseas his- plane and be there in 14
commonly done by only comparing the tories of any U.S. cor- hours, but a box cannot.
purchase price of the product from the poration. Established as A box can’t, because of
new source against the price from old National Cash Register in the import-export process
source. It’s essential that all logistics cost 1884, it promoted the cash that has been injected into
be included in the study, especially duties register as the essential— the supply chain.
and consumption taxes at point of import. indeed, the first—machine WT: With international
A case in point: some electronic products of business management. Within sourcing, is it possible to
are duty-free based upon various trade a decade, it was selling registers world- project import taxes, customs
agreements between countries, but in place wide, with models that counted up the charges, etc., accurately over time?
of “free duty,” countries are putting import coins in marks, lira, pounds, kronen, Mascaritolo: If you follow the trade
taxes or consumption tax at levels as high francs, gulden and—in British India— agreements, you find that if an agreement
as 30 percent. Your TCO has to recognize rupees. By 1914, NCR had production has been in place, then that duty becomes
things like that. on the ground in Berlin and one-third consistent and doesn’t change. Taxes, as
WT: On total cost of ownership of its sales from outside the U.S. well, are pretty consistent in the developed
(TCO), did NCR develop its own model, Today, the $6 billion corporation countries. With emerging countries, you
or adapt/adopt one? focuses on the markets for ATMs, find that once a new country joins a trade
Mascaritolo: We adopted one, and point-of-sale equipment and data agreement, something changes—the duty
modified it to fit our needs. Previously, warehousing and customer relation- changes or the taxes change. But once it
we had an internal focus on total cost of ship management software. It remains all settles, it stays constant. Generally, if
ownership, but everybody was using a international—in January, announcing a duty goes away, then the consumption
different version of a costing model. We the sale of 5,600 ATMs to four Chinese tax changes. Or, if duty increases, the
found a model that was focused on the commercial banks. consumption tax drops—well actually, I
manufacturing side, and then enhanced haven’t really seen one drop yet. But long
it by incorporating trans- story short, once these
portation and logistics, are established they stay
customs clearance and “We constantly look at ways to make our deliveries consistent.
duties to make a much WT: You mentioned
better bundled tool. quicker and less costly—from going to the low-cost that your TCO model
WT: Was it difficult to factors in country poli-
implement TCO inter- region, getting the best activity out of a supplier, tics? How do you do
nally? that?
Mascaritolo: Yes,
getting your best carrier rates, getting the best mode Mascaritolo: For one
it was hard. It involved of transportation, to getting it streamlined all thing, we ask: ‘is this is
breaking into people’s a friendly country?’ And
comfort zones. It was the way through the entire supply chain by that, we mean is it a
hard making sure that country that is easy to
everybody followed the procurement process.” do business with logisti-
right process: ‘here’s the cally? If there is a free
new model; here’s the port, we know we can get
new template; here’s what everybody has If everybody’s own mind at least, no one into and out; no hassles. There are coun-
to do…’ Lots of people said, ‘Well, you thought they were way off. What I found, tries that are hard to do business with: We
know, my current model does this…’ and however, was that not everybody thought may be cleared to come out of Port A, but
we had to analyze that and say, ‘well, yours beyond the manufacturing process. They if we want to come out of Port B and then
does it to a point, but this one does it four were just making a product-cost to prod- Port C, there may be three different sets of
or five points later.’ uct-cost comparison, not realizing that the regulations. And then there will be differ-
WT: Did the new model show that full cost figures were necessary. ent licenses to apply for and put into place
some costs were much higher than had WT: What internal relearning did before things can run smoothly.
been thought? international sourcing require? W T: What, generally, does this
Mascaritolo: That’s a good question. Mascaritolo: The key relearning is to require?

56 WO R L D T R A D E A P R I L 2 0 0 7

054HowWeDoIt.indd 56 3/16/07 10:43:40 AM

WTM04074Pnorl.indd 1 3/14/07 1:14:04 PM
 How We Do It
Mascaritolo: The fact is: you just
have to pay more attention to current
world events then you probably did when
you were in school. In school, current
events were just a project you did every
Tuesday. Now, if you open a newspaper
and you read something—an earthquake,
say—you must immediately ask: what
effect is this going to have on my people
there? What suppliers do I have there?
What business do I have there, going in
or going out? So now you become much
more sensitive to what is happening in
the world, to world events.
WT: That raises the issue of supply
chain resilience?
Mascaritolo: Resilience is just another
way of saying: ‘What’s the plan if some-
thing happens?’ When we had a country-
centric model, everything stayed within a
given country; whatever happened stayed
there and the people solved it there. Now
that you are crossing borders problems
are not contained within a given country.
It has a bigger ripple effect.
WT: So what do you do?
Mascaritolo: We’re constantly thinking
of possible disruptions and how we could
circumvent them. Someone says: ‘Well,
this may be an off-the-wall thought, guys,
but what would we do if this happened?
Who is our point of contact? How do we
get information? If there is a disruption,
immediately the plants are impacted. If
there is a supply source breakdown: what
is the ripple effect? How do we circumvent
the problem?’ Asking those questions in
advance lets us build our database, so we
know how to communicate internally and
externally. Ten years ago, you probably
never gave it a thought; you reacted to
what happened instead of thinking ahead
about what could happen.
WT: Focusing down: do you do much
sourcing to India?
Mascaritolo: We have facilities and
operations in India, yes; and we use it as
a source.
WT: How would you assess Indian’s
infrastructure for supply chain?
Mascaritolo: India’s infrastructure,
logistically, is improving, but limitations
remain. India still has a lot of regulatory
issues within the country that makes it
cumbersome for transportation and logis-
tics. Some individual Indian states charge
entry taxes or require permits of entry to
be filed before you can even put a ship-
ment in motion. A considerable burden
58 WO R L D T R A D E A P R I L 2 0 0 7
054HowWeDoIt.indd 58
N C R C O R P O R ATI O N
falls on the transportation carriers—as well
as the customer—to make sure things are
in place before a shipment can go from A
to B without incident.
WT: That’s internal to India; what
about import and export?
Mascaritolo: With exports, a lot of visual
inspections are required before anything
leaves the facility. You need to have original
signatures on all your shipping documents.
You need to have designated governmental
agencies witness and sign documentation,
so that exporting something requires the
coordination of a lot of people.
WT: People often cite the difficulty of
getting goods out of Asia, particularly
into port at Los Angeles, as the biggest
bottleneck in the global supply chain.
What’s second to that?
Mascaritolo: What’s second—actually,
it might be first—is security. Security is
very important, particularly from the point
“If I were to pick one
surprise, it is that
internally people did not
realize how important a
factor distance
would be to the total
delivery solution.”
of pickup. For example, when volume
leaving China comes into the Port of Los
Angeles, you have a massive surge trying to
go out of the port and into a rail net that is
already at capacity. Things back up. With
those delays, your supply chain becomes
more exposed, so security is paramount
throughout the process.
WT: Protecting your shipments is half
the task; what about validating your
shipments?
Mascaritolo: Yes. You as a shipper are
responsible for everything from C-TPAT
to Homeland Security concerns. Eventu-
ally, every country is going to have some
sort of C-TPAT equivalent and that will
add another level of complexity. We’re
hoping there will be some level of consis-
tency; that other countries will copy what
the U.S. has done. But if you have fifty
countries saying: ‘here are my individual
requirements,’ then you have fifty different
platforms.
WT: How do you balance cost savings
v. time-to-market?
Mascaritolo: That’s a good question,
and one that is ongoing within the indus-
try. At NCR, we measure our costs through
scorecards from all our origin shipping
locations. Sometimes, time-to-market out-
weighs the cost savings of using a slower
mode of transport, like ground or surface.
The mix of modes is reflected in our score-
cards and we watch the cost per pound. At
the end of the day, we still have to meet our
cost-savings initiatives.
WT: What has surprised you in imple-
menting global sourcing?
Mascaritolo: If I were to pick one
surprise, it is that internally people did
not realize how important a factor dis-
tance would be to the total delivery solu-
tion. Globalization causes more touch
points and more interfacing with different
country customs. International sourcing
engages the import/export process which
adds time to the delivery process.
WT: What lessons have you learned?
Mascaritolo: One lesson is that you
need to do a complete costing analysis
by source to know if international sourc-
ing will provide net savings. Don’t just
compare new source versus old source
purchase price. Sometimes, once you’ve
added logistics costs and import/export
costs to your analysis, a higher unit price
from an in-country supplier may prove to
be better than a lower price from an inter-
national supplier.
A second lesson: the speed with which
companies are ramping up production in
low-cost regions is outpacing supply chain
infrastructure. Often, we see demand that is
more than supply can handle. Cargo capac-
ity remains in shortfall, especially from
China. The logistics industry is making
huge efforts to close this gap, but for the
next few years, the fight for cargo capacity
will be every logistician’s concern.
WT: What tasks remain to be accom-
plished?
Mascaritolo: I need to make sure I
have a strong global carrier network that
is flexible and cost effective to meet the
needs of a new sourcing location. A good
logistics network is never completed; it is
always evolving to better itself and to be
ahead of the demand curve—whatever that
demand may be. WT
3/16/07 10:43:54 AM
 ADVERTISEMENT

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059ISMAdvertorial.indd 59 3/16/07 10:44:33 AM

 92nd Annual International
Supply Management Conference
PREPARATIONS
FOR THE FUTURE
Presentations focus on key challenges facing the supply management
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P across North America are having a hard
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059ISMAdvertorial.indd 60
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Even the best staffed organization can be crippled by events
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3/16/07 10:44:45 AM
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059ISMAdvertorial.indd 61 3/16/07 10:45:07 AM

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 TR A N S P O RTATI O N
& LOGISTICS
Air Cargo Reinvents Itself
I
Competition from t finally seems as though the air cargo indus-
try is recovering after years of mixed results.
truck and rail, According to the International Air Transport
Association (www.iata.org), last year’s cargo
volatile fuel costs, growth rate increased to 4.6 percent from 3.2
percent in 2005, while this year’s forecast also
and legislative points to modest growth.
Yet, the industry is facing a variety of stiff chal-
concerns are lenges. High fuel costs are one of the biggest,
forcing the making it harder not only to remain profitable but
to stay competitive against other modes of trans-
industry to portation, particularly truck. Although fuel prices
have decline somewhat, oil is still around $60 per
work harder for barrel, which is more than double the price in
2000. Furthermore, while air cargo has picked up
market share. gains internationally, domestic air cargo in the U.S.
has taken a dive. Truckers and integrators continue
BY LARA L. SOWINSKI to chip away at air cargo market share with lower
costs, improved transit times, and better service
offerings, such as time-definite delivery.
And if that weren’t enough, legislation requir-
ing 100 percent inspection of all cargo carried
on passenger aircraft continues to threaten the
industry. It’s no secret that the Democratic
Congress wants to get the legislation approved,
but whether the industry can continue to fight
it remains to be seen. Naturally, lawmakers and
air cargo interests both want a safer, more secure
American Airlines Cargo
64 WO R L D T R A D E A P R I L 2 0 0 7
064Transportation.indd 64
environment, but what does that mean? The
Transportation Security Administration (TSA)
itself has stated that 100 percent physical screen-
ing of belly cargo is “impractical from a flow-of-
commerce and resource perspective.” Rather,
the TSA and the air cargo industry are calling
for a multi-layered approach that includes canine
screening, a beefed up Known Shipper program,
and improved bomb detection technology.
Uncovering new markets,
adding new services
China continues to be a huge draw for air cargo
as manufacturing and outsourcing continue
their overseas migration. However, while U.S.
West Coast airports are still major gateways for
inbound Asian freight, many carriers have added
service to East Coast airports as well. New York’s
JFK airport reported that 51 percent of its inter-
national freight volume last year came from Asia,
while Miami also handled more international
freight in 2006, much of it originating in Asia and
destined either for the southeastern U.S. market
or Latin America. Korean Air (http://cargo.kore-
anair.com), China Airlines (www.china-airlines.
com), and Cathay Pacific (www.cathaypacificca-
rgo.com) are just some of the carriers who have
added freighters from Asia to the East Coast.
But, it’s not just China that’s responsible for
air cargo growth. Vietnam is getting a lot more
attention, especially with its formal induction
into the WTO. Intel’s plans to invest $1 bil-
lion in a chip assembly and testing plant, which
is expected to become operational in 2009, is
another significant development for that country.
Meanwhile, DHL (www.dhl.com) is preparing
to spend $14 million for new facilities in Hanoi,
Ho Chi Minh City, Haiphong, and Danang. To
keep up with the anticipated growth, the govern-
ment has approved a plan to build a new airport
north of Ho Chi Minh City that will have a cargo
handling capacity of five million tones a year. It
is scheduled to open in 2010.
Although perishables have been a mainstay for
the air cargo industry for years, it is yet another
segment that has seen increased competition
from other transportation modes, like ocean
freight. However, the popularity of packaged
salads, peeled and ready-to-eat fruit, and precut
and arranged flower bouquets are shifting some
of the highly time-sensitive business back to air
carriers. British Airways World Cargo’s (www.
baworldcargo.com) Perishables Handling
3/16/07 10:45:40 AM
WT04054SEAB 2/24/05 2:47 PM Page 1
 TR A N S P O RTATI O N & L O G I STI C S
2007 Outlook: Reaching for the Skies?
From an economic viewpoint, 2006 was a
much-improved year for the U.S. airline
industry. Including the all-cargo sector, the
Air Transport Association (www.airlines.org)
estimates that the industry will report earn-
ings ranging from $2 billion to $3 billion. On
the heels of $35 billion in net losses over the
previous five years, of course, any full-year
profit comes as welcome relief.
The initial economic outlook for 2007 is the
most promising in several years. In addition to
a healthy revenue environment, U.S. airlines
are seeing the results of painstaking, ongo-
ing cost reduction efforts and balance-sheet
repair. Although the industry is opti-
mistic and well positioned
to move forward, the
reality is that events beyond
airlines’ control could easily push
them off course.
While the last few quarters have been rela-
tively good for the airlines, it is worth noting
that the deregulated (post-1978) U.S. airline
industry has never posted a net profit margin
higher than that of the average U.S. corpo-
ration. From 1979 to 2005, for example, the
median margin for a U.S. corporation was 5.2
percent, well above the negative 0.4 percent
margin experienced by the airlines. U.S. indus-
try margins peaked in 2005 at 9.1 percent,
versus 4.7 percent for the airlines in 1997. And
in the worst year of the period for each group,
the average U.S. corporation made money,
recording a net margin of 3.1 percent in 1986,
while the airlines posted a negative double-
Center at Heathrow Airport provides ser-
vices such as labeling, chopping, cutting,
and repackaging of produce. The carrier
also introduced a temperature controlled
service last year that targets the pharma-
ceutical and biotechnology industries. For
its part, American Airlines Cargo (www.
66 WO R L D T R A D E A P R I L 2 0 0 7
064Transportation.indd 66
BY JOHN HEIMLICH
digit margin of 10.3 percent in 2002. That is a
15-point spread for airlines versus a six-point
spread for the average U.S. business, clearly
reflecting the industry’s earnings volatility.
While conditions have improved and the
overall financial outlook is guardedly opti-
mistic, debt levels remain high, leaving the
airlines vulnerable to fuel spikes, recession or
exogenous shocks (e.g., terrorism, pandemics,
natural disasters), let alone ill-advised public
policy decisions. The challenge we face is to
achieve meaningful and sustainable profits,
and to improve credit ratings to the point where
airlines can weather normal economic
turbulence while simultaneously
investing in the future.
To enhance the travel expe-
rience, renew fleets, refurbish
facilities, expand customer-
interface tools, retain talented
employees and promote economic
stability — in other words, to invest in
the future — the industry must reestablish
its financial health. This means not just a
quarter or two — or even a year or two — but
many years of profitability. We are talking
about achieving a normal rate of return, at
least covering our cost of capital. Airlines,
which help drive 8.8 percent of the nation’s
employment, are working hard to achieve
some sort of financial normalcy, a reasonable
goal that should be within reach.
It is in that context that ATA is projecting
an aggregate net profit (excluding bankruptcy
restructuring and/or reorganization charges)
of $4 billion for 2007, on operating revenues
exceeding $150 billion. That would make
2006-2007 the first back-to-back years of prof-
itability since 1999-2000. Given the risks of
an economic slowdown and unrelentingly high
fuel prices beyond 2007, pressure to control
non-fuel costs and to identify new sources of
revenue will remain paramount. Carriers are
optimistic about their future but realistic
about taking the necessary steps to preserve
the remarkable strides they have made over
aacargo.com) launched its CoolPerishables
program last October in Miami to provide
pre-cooling and expedited U.S. Depart-
ment of Agriculture and customs clearance
for fresh shipments onsite. The president
of American’s cargo division noted, “As
the demand for fresh products increases
the past several quarters.
Airlines continue to simplify their opera-
tions, in part by reducing the number of air-
craft types. They have disposed of hundreds
of older airplanes to curb not only fuel and
labor expenses but also maintenance costs and
fuel-related emissions. This important trend
is expected to continue in 2007. At key hubs,
airlines continue to streamline schedules while
simultaneously increasing their global pres-
ence both through their own flights and via
expanded worldwide alliance arrangements.
They also have closed obsolete facilities, shifted
bookings to lower-cost distribution channels,
expanded the deployment of self-service check-
in kiosks at on- and off-airport locations, and
improved Web site functionality to provide cus-
tomers with more options and control of their
travel experience. Again, by necessity, the
changes are numerous and ongoing.
Meanwhile, balance sheet repair is well
underway and airlines should be able to gen-
erate meaningful cash flow in 2007, allowing
them to continue to pay down debt while
revisiting opportunities to acquire new aircraft
with the sharpest focus in years. Let us cher-
ish the moment and hope that we are entering
a new era in air transportation.
A recent Bear Stearns report noted, “The
improved environment in the U.S. is only tem-
porary, in our judgment. The business remains
highly cyclical.” Whether or not Bear Stearns
proves to be correct, the airlines have every
reason to remain focused on reducing exist-
ing costs and dodging looming commercial or
governmental impediments to growth.
Ultimately, financial stability in the airline
industry is good not only for airlines and for
their customers, but also for the rest of the
economy. U.S. airlines must remain competi-
tive globally to continue to foster the nation’s
economic growth. If only airlines were as prof-
itable as the average U.S. company.
John Heimlich, Air Transport Association Vice Presi-
dent and Chief Economist
worldwide, we have heard our customers
tell us this service is important to their suc-
cess.” Perishables account for more than
10 percent of global air freight tonnage and
volume is expected to grow by an average
of 8 percent annually for the next five years,
according to British Airways. WT
3/16/07 10:45:51 AM
 ©2007 United Air Lines, Inc. All Rights Reserved.

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WTM04074Unite.indd 1 3/16/07 1:32:34 PM

 Small Exporter
OF THE MONTH
Candy is Dandy
C
Candy Bouquet hocolate vases, squares of vanilla fudge, and
sugar-free lemon drops—what better way to
International grow a business than appealing to the world’s
sweet tooth? Margaret McEntire, founder,
finds sweet president, and chief executive officer of Candy
Bouquet International (www.candybouquet.com),
success in thought so. Her firm is now the largest candy fran-
chise in the world. But, it wasn’t always that way.
franchising. The foundation for this successful operation
BY CURTICE K. CULTICE began back in 1989. Margaret McEntire and a
partner opened the first Candy Bouquet store
in Houston, Texas. However, after just one year
they were forced to close the store due to unfore-
seen circumstances and McEntire was faced with
quitting or starting over.
With her life savings on the line and deter-
mined to succeed, she opened a tiny, 90 square-
foot shop in Little Rock, Arkansas. Her family
helped to make the arrangements and in keeping
Margaret McEntire, founder, with the McEntire philosophy, she started giving
president and CEO of Candy away bouquets in high traffic places like banks
Bouquet International. and popular restaurants. This marketing strategy
Candy Bouquet
68 WO R L D T R A D E A P R I L 2 0 0 7
068SmallExporter.indd 68
worked and soon people started calling, some
placing orders and others wanting to learn the
secrets on how to make these unique bouquets.
By 1995, Candy Bouquet was looking to expand
overseas.
Today, the typical Candy Bouquet store is a
full-scale chocolate and candy retail operation,
although some operate successfully as home-
based franchise businesses. Some franchisees
operate exclusively as Candy Bouquet; others
run this franchise in conjunction with a floral
shop or other retail outlet.
The challenge
McEntire says her biggest challenges have been
learning more about business practices in differ-
ent cultures, gaining key market information, and
learning about channels of trade. Educating for-
eign businesspeople about American franchises
is another challenge, and so is describing what
a candy bouquet is. The company has had to
explain the concept of rolling a candy store and
a florist together and making a product that is
really all candy.
The solution
In 1995, McEntire attended a trade show in
Washington, D.C., where she met a trade spe-
cialist from the U.S. Commercial Service. That
connection led to her participation in a Commer-
cial Service mission to Eastern Europe and intro-
duced her to doing business in foreign markets.
In the years that followed, Candy Bouquet
expanded to dozens of foreign countries. The
company’s unique franchising system allows
individuals to make a single purchase into the
franchise and pay no continual overhead. The
only requirement is that their supplies must
come from the Candy Bouquet warehouse in
Little Rock.
“One of the most helpful things I’ve found in
doing foreign business is having a person we know
in that country to help us out,” says McEntire,
referring to the Commercial Service’s worldwide
network of trade specialists. She credits much of
her success to Dennis Millard, a trade special-
ist at the Little Rock Export Assistance Center.
“When I know a foreign franchisee is coming, I
call Dennis at our local U.S. Commercial Service
office, and he provides me with solid information
on the business practices of that culture.”
Millard has also helped her take advantage of
many Commercial Service programs. Candy Bou-
3/16/07 10:46:15 AM
WTM04074DCEx.indd 1 3/9/07 12:01:02 PM
 Small Exporter OF THE MONTH

sia, but there were few takers: “We dis-

Setting Up a Franchise in Saudi Arabia covered that Malaysians…thought the
chocolate pieces were too big. So we
According to the account for more than got the idea of ordering sample sizes
U.S. Commercial Ser- 60 percent of the total from the manufacturer, and that did
vice, franchising is a franchise market. the trick.”
popular and growing American firms have • Educate yourself about local prac-
approach for local the lion’s share with tices. On one occasion, McEntire
firms to establish more than 70 per- shipped candy to Saudi Arabia in
additional consumer- cent of all franchised boxes that bore pictures of women’s
oriented businesses operations in Saudi hands holding drinking glasses. Saudi
in Saudi Arabia. Arabia, from fast food Arabians don’t drink, so their cus-
Although the fran- outlets and hotels, to toms bureau returned the boxes. On
chise market is small car leasing, laundry another occasion, McEntire invited
relative to that in the United States, it is rap- services and printing. three potential Candy Bouquet fran-
idly expanding in several business sectors. Saudi consumers have increasingly chise owners from Indonesia, Malay-
Many brand names are already well become sophisticated demanding qual- sia, and the United Arab Emirates
entrenched in the market, and the concept ity, service and value for money. American (UAE) to visit her home for training.
has proven to have a low failure rate for products and services in this industry have The gentleman from the UAE even-
Saudi business people. Saudi entrepreneurs established brand recognition and were able tually wanted to pray. “Margaret,” he
generally have sufficient capital and a desire to attract and retain a large section of the asked, “which way is Mecca?” McEn-
to own their own business, but are hesitant Saudi population. tire has learned to be prepared for any
to strike out on their own with a totally new Saudi demographics also enhance the cultural contingency.
operation or idea, creating a good potential viability of this concept among the younger • Realize that there will be setbacks.
for franchising. segment of the population. Almost half of One such setback occurred in Cairo,
Even though there are no figures reveal- Saudi population is under the age of 15, and where women seldom start their
ing the size of this lucrative market, indus- franchisees have focused on this age group own businesses. Much of the candy
try sources stated that fast food franchises to sell in this market. that her franchisees had ordered was
burned on the airport tarmac. Even-
tually, many of the women
were able to persuade their
husbands to join in as
Online Resources for Saudi Arabia business partners, making
the venture more socially
U.S. Government Export Portal www.export.gov acceptable.
Saudi Arabian General Investment Authority www.sagia.gov.sa • Protect your intellec-
tual property. In China,
The World Factbook https://www.cia.gov/cia/publications/factbook someone copied McIntire’s
brand name and then tried
Arab American Chamber of Commerce www.arabchamber.org to order additional candy
from her. Fortunately, other
International Franchise Expo, Mar 30 - Apr 1, Washington, D.C. http://www.ifeinfo.com/
Candy Bouquet franchisees
in China informed McEn-
tire about what was going
quet participates annually in the Interna- cial Service and distributed to more than on. She is now pursuing legal action.
tional Franchise Trade Show and has taken 40,000 overseas buyers. • Enjoy your work. “I love my job; it’s fun
part in trade missions around the world. In With assistance from the Commercial to go around the world to help people
1999, McEntire participated in the Women Service, Candy Bouquet has expanded eat candy and chocolate,” McEntire
in Business Matchmaker Trade Mission to from a single-room operation to more than says. “We are changing the face of the
South America and the Women’s Economic 700 franchises in more than 40 countries. world with a brand new industry, and
Summit of the Americas in Buenos Aires, McEntire says, “Nobody likes to pay taxes it is very gratifying to see our franchises
Argentina. McEntire is also a frequent par- but [the Commercial Service] is the best succeed and help the local economy. If
ticipant in Commercial Service global video use of my tax dollars.” you do what you love, you will never
teleconferencing. She is a regular presenter work a day in your life.” WT
at the international trade events sponsored Lessons Learned
by the Little Rock Export Assistance Center McEntire has several lessons to pass along Curtice K. Cultice is a senior communications special-
and shares her experiences with other busi- to new exporters: ist for the U.S. Commercial Service. Founded in1980
nesses that are new to exporting. McEntire • Adapt your product for other cul- by the U.S. Department of Commerce, the Service helps
also advertises in Commercial News USA, a tures. In one instance, McEntire was U.S. companies, particularly small- and medium-sized
product catalog produced by the Commer- trying to sell chocolate vases in Malay- businesses, make sales in international markets.

70 WO R L D T R A D E A P R I L 2 0 0 7

068SmallExporter.indd 70 3/16/07 10:46:30 AM

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Covenant Transport ...................................... 2 www.www.roadway.com

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HSBC ................................................................ 3 UPS ................................................................... 4

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IFS ...................................................................55 Wells Fargo HSBC Bank...........................25

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Institute for Supply Management...41, 59-62 Yang Ming Line ............................................29

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W W W. WO R L DT R A D E M AG . C O M 73

073AdIndex.indd 73 3/16/07 3:10:10 PM

 Great Moments
IN WORLD TRADE
Retail RFID Gets Real
O
BY JEREMY N. SMITH n a map of Texas, a tiny dot marks the
city of Sanger, population 4,500, some
50 miles northwest of Dallas and 20
miles south of the Oklahoma border.
Sanger is an out-of-the-way place by
most considerations, but during the summer of
2003, to the logistics executives of 100 of Ameri-
ca’s largest companies, the city was suddenly the
most important place in the world. Linda Dillman,
then chief information officer for Wal-Mart, had
just announced that the world’s largest retailer
expected its top suppliers to tag all cases and pal-
lets delivered to its Sanger distribution center with
radio frequency identification tags.
Radio frequency identification,
abbreviated RFID, mar-
ries two early
twentieth-century
technologies: radio
transmission, wherein
objects transmit information
via electromagnetic waves; and
radar, which detects and locates objects
by the reflection of such waves. Add the subse-
quent technologies of the transistor, the integrated
circuit, and the microprocessor, and one can attach
tiny tags to items then able them to automatically
broadcast their identity—fighter plane, diamond
tron
ics ring, chewing gum, cow herd—to receivers. So-called
lec
sE “passive” RFID tags as small as stickers require no
ilip
ya l Ph
Ro internal power supply. Instead, the incoming radio
frequency signals induce just enough electrical cur-
rent in the antennae to power the tag’s integrated cir-
cuit and transmit back a response. “Active” RFID
tags, which require an internal power source, boast
tougher, longer-range transmission capabilities and
may include sensors to log such variables as tem-
perature and exposure to vibration.
The military, always interested in telling friend
from foe, embraced RFID two decades ago—as
did toll booth operators, who opened unimpeded
toll collection points for drivers willing to attach
tags uniquely identifying their vehicles for later
billing. Similarly automated identifications fol-
lowed for certain classes of bank customers and
hospital patients, travelers and prisoners, even
VIP patrons to a Barcelona nightclub. As recently
as five years ago, however, the role of RFID in
retail inventory management was much promise,
little implementation. Wal-Mart wanted more.
“The technology will help us know where
74 WO R L D T R A D E A P R I L 2 0 0 7
074GreatMoments.indd 74
inventory is all the time,” Linda Dillman told
BusinessWeek soon after her announcement.
“We’ll see better tracking and moving of inventory,
faster receiving and shipping, improved quality
inspection, fewer out-of-stock items resulting in
improved shopper satisfaction, greater predict-
ability in product demand, and better value for
the shopper as efficiencies occur.”
What Wal-Mart wants from its suppliers, Wal-
Mart gets: in all, 137 not 100 companies signed
on for the Sanger, Texas trail run. The first off a
commercial assembly line was an RFID-tagged
case of Scott Towels, produced by consumer
goods giant Kimberly-Clark in April of 2004.
“RFID should give us visibility into our whole
supply chain from our supplier’s supplier all
the way to the [store] shelf,” a celebratory Terry
Assink, Kimberly-Clark’s chief information offi-
cer said to CIOInsight. “It’s going to get to the
point where we can send an alert to Wal-Mart
and ask them why a store shelf is empty when we
know there’s product in the warehouse.”
Today, Assink’s description remains more fore-
cast than fact, in part because RFID tags still cost
more than the humble barcode—used worldwide
by more than 1 million companies in more than
140 countries—and also because machines trying
to read the tags succeed with only some seventy
percent of attempted pallets. Further intimidating
early adopters is that the technology lacks specific
standards on what data tags include and how
exactly they communicate, though an interna-
tional consortium called EPCGlobal has formed
to fix that. “No one makes money off standards”
explains Alex Soojung-Kim Pang of The Institute
for the Future, a strategic research group based in
Palo Alto, California. “But everyone makes money
because of standards.”
Meanwhile, the field of inventory manage-
ment is hardly closed to other entrants. Last
July, Hewlett-Packard demonstrated an early
prototype of a pencil-tip-sized RFID competitor
it calls the Memory Spot. Though as much as
half a decade from commercial production, HP’s
chip promises to transfer more data faster, and all
with physical dimensions a fraction of even the
smallest RFID tag. Asked to compare his prod-
uct to RFID, Howard Taub, vice president of HP
Laboratories, said, “It’s like comparing a monkey
and a human. There are some similarities but the
capabilities are very different.” WT
3/16/07 10:47:30 AM
WTM01064Merid_Rev 12/19/05 2:41 PM Page 1
 We’ve
always carried
the torch.
On April 26,1956, containerization was
introduced at Port Newark. To meet this
challenge, The Port Authority of NY & NJ built
the first container terminal, which revolutionized
the shipping industry.
Today, we’ve invested over $2 billion so that
we’re better equipped to handle your cargo
needs now, and for the future.
We’re deepening our channels to 50 feet,
building additional on-dock ExpressRail facilities
and instituting new technology to secure
containerized cargo. This means faster and more
efficient delivery of cargo for our customers.
At the same time, we take seriously our
role as environmental stewards of the harbor
and are committed to developing operations
and activities that will help maintain the balance
between our economic development and the
safekeeping of our environment.
We led the way in 1956. And we’re
leading the way today.

www.portnynj.info

WTM04074Pnynj.indd 1 3/14/07 1:11:41 PM