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J a n u a r y / F e b r u a r y 2 0 0 9

A Penton Media Publication outsourced-logistics.com
Also in this issue:
High-yield Capital Strategies
Calming the Waters on 10+2
Outsourcing Adds to Internal
Resources
J a n u a r y / F e b r u a r y 2 0 0 9
A Penton Media Publication outsourced-logistics.com
Expanding
While
Contracting
Ports are moving ahead
with critical infrastructure
improvements.
Cover.Final.indd 1 1/16/09 9:17:10 AM
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P
re-election fuel prices had candidates chanting
“Drill, baby, drill.” The tune has changed to “Build,
baby, build.”
The proposed US economic stimulus focuses attention
on infrastructure and is lauded as necessary but criticized
as lacking clarity on how it will spend nearly $1 trillion.
Weary of large “investments” that don’t spell out details
on how funds are spent or how spending is monitored, the
public wants to see results—especially in job creation.
There is no doubt the US desperately needs infrastruc-
ture spending. Let’s make sure it is directed to areas with
the most long-term promise to support commercial and
economic growth. That will help ensure the job creation
is not short lived. This is a place where the logistics com-
munity can (and must) weigh in together in support of the
best alternatives for economic survival and growth.
I have a queasy feeling each time the term “shovel ready”
comes up in some local politician’s speech. What’s in
this inventory of unfunded
projects? Do they fit
the changing social
and commercial
l a nds c a pe a s
it is evolving?
And what's left
behind on the
drawing board?
I n a 2003
present at i on,
“America’s Ports:
Falling Fur-
ther Be-
hind?” John Vickerman noted an increasingly dire need for
investment in port infrastructure to meet not only current
(2003) demand but future growth. He pointed to an inter-
modal system in the US that is an aggregation of multiple
private and public modes with little or no true cross com-
munication or collaboration. Too little has changed and
today, this sounds like fresh commentary.
Vickerman’s co-presenter, Theodore Prince, added
there has been inadequate research into the national sig-
nificance of port infrastructure development, including
a gap on local vs. national benefits. Many of the benefits
occur elsewhere, making it difficult to lobby a regional
political base to invest when a disproportionate benefit oc-
curs outside their constituency. The stimulus provides the
ultimate opportunity because its focus is on linking local
and regional investments to national prosperity and jobs.
But we need a concerted effort to avoid moving from
crisis to crisis. When the economy recovers, we’ll find less
capacity, and that can constrain growth. This is an op-
portunity to define infrastructure development in terms of
long-term commercial and economic needs and overcome
some of the historical barriers that have created a discon-
nected (or only semi-connected) logistics network.
That shovel ready project your local politician men-
tioned might create construction jobs in the short term,
but when completed, will it sustain job growth?
The shovel-ready comment sounds like a “build it and
they will come” mentality we can’t afford. We need more
convincing. The logistics community must come to the
table with its support. Then build. Bring them back and
get and keep them using what was built. And bring more.
It’s a relentless and unforgiving process, and there is no
time for lengthy lobbying efforts. The logistics communi-
ty—shippers, carriers and logistics service providers—are
the beneficiaries and need to identify the most sustainable
projects in the pipeline or described as shovel ready and
push them as priorities. This is a one-time funding oppor-
tunity and a one-time marketing opportunity for logistics
to be recognized as the economic engine it is. The US
logistics community already signed a $1 trillion check for
the services it purchased in 2007 and it will do so again
in 2008. Spend wisely.
Editorial
The Economic Engine That Could
Perry A. Trunick, chief editor,
perry.trunick@penton.com
Outsourced Logistics | January/February 2009 | 1
Perry Edit.Final.indd 1 1/14/09 11:33:34 AM
6
Global Markets
UK to Fund Transport
Community Voice
Mexico's New Customs Regime
12
Operations
Top 10 Trends in Services Globalization 2009
Community Voice
Consider Internal Resources Before Outsourcing
Logistics Functions
30
Logistics Services
Iraq Builds Its Logistics Network
Community Voice
Connecting Domestic Pricing to the Global
Supply Chain
Features
18
Special Feature
Calming the Waters on 10+2
The new rules are a sea change in the way
imports are handled. There is time to get ready
for the government's forceful implementation.
22
Cover Feature
Expanding While Contracting
Though business is in decline, ports are
moving ahead with critically needed
infrastructure improvements.
26
Field Report
Strategies for High-Yield Working
Capital in Today's Economic
Environment
Attention shifts between supply chain,
chain of custody and capital chain as
external forces reshape priorities for
business.
37
3PL Report
Focus on Value
Users still want value from their logistics
service providers.
40
3PL File
Sunteck Transport Group
Departments
1 Editorial
The Economic Engine That Could

34 Classifeds
Advertiser Index
Januar y/Febr uar y 2009
Vol ume 2, Number 1
2 | January/February 2009 | Outsourced Logistics
18
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Publishing Director David H. Colby
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Sales
4 | January/February 2009 | Outsourced Logistics
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6 | January/February 2009 | Outsourced Logistics
T
he UK Transport Secretary, Geoff Hoon,
recently confirmed the government plans
to inject an extra £1 billion into major
transport projects next year. According to
the Department for Transport (DfT) state-
ment, the investment is being made, “In
order to stimulate the economy by accel-
erating Government plans to cut congestion and significantly
increase rail capacity.”
This extra £1 billion, to be spent on road and rail plans, is in
addition to the overall £10 billion for 2009-2014 already pledged
by the transport minister in July 2007 to increase rail capacity.
Other major long-term rail projects include the massive London
Crossrail plan, the £5.5 billion Thameslink program and an ad-
ditional £600 million to tackle congestion.
Major transport plans highlighted in this most recent DfT
statement, include the enhancement of rail freight routes through
Global Markets
London. This includes £54 million just for the North
London route improvement. Other monies already
allocated in Oct. 2007 to rail freight projects in-
cluded TIF (Transport Innovation Fund) money
(£132.5m) for Peterborough to Nuneaton (£80m)
and Southampton to West Midlands (£43m) rail
gauge enhancement to cope with modern taller con-
tainers on standard-height rail wagons.
While this is more welcome news for southern trans-
port projects, which will continue to receive the lion’s
share of new rail funds, there is a rapidly growing con-
sensus in the rest of the country that further expenditure
in southern UK infrastructure is a failed model. It makes
no provisions for tackling the identified problems of the
UK’s north-south economic performance divide.
“The UK Government needs to invest in the fu-
ture and not the past,” stated Martyn Pellew, Group
Development Director for PD Ports. “This latest injec-
tion of cash for road and rail projects into the already
congested south will do very little to improve any-
thing, it’s just a perpetuation of pre-existing problems.
Over three-years ago the Government’s Northern
Way initiative identified a £32 billion shortfall in the
economic performance of the North of England. If the
UK Government really wants to help our economy in
this financial crisis and also meet the long term environmental tar-
gets that have been laid out in the recent Climate Change, Energy
and Planning Bills, then the UK Government clearly needs a new
direction for a sustainable future” added Pellew. “Despite the obvi-
ous benefits of moving freight by rail, so far there is still consider-
able misdirection in the way the UK Government treats and funds
its rail network.”
As the recent DfT news indicates, a significant amount of fund-
ing has gone into rail access to the country’s southern ports for
increased freight shipment particularly to cope with the newer
one-foot-higher containers bringing more and more product to
UK consumers from the Far East, but as Pellew argues, “This latest
investment will only continue the trend for shipping lines to add
increasing cargo volumes on to the overcrowded southern UK in-
frastructure. It’s an investment that will work against itself.”
Pellew adds, “The fact that Britain is an island with a history of
maritime trade and excellent ports around our entire coast, plus the
UK to Fund Transport Projects
A good but
misdirected effort,
says one port official.
901LT6-11.indd 6 1/15/09 10:58:47 AM
“As an island, we need to use our already available best infrastructure
asset first–the sea, “explains Pellew. Like Pellew, proponents of the supply
chain concept known as Portcentric Logistics, strongly argue that by bring-
ing cargo farther north via the sea, closer to its end destination and then
transferring to shorter distance rail movements, retailers can see a signifi-
cant reduction in their shipment delays because their products will not be
caught up in UK southern port and road congestion. This means that there
will be an increase in the accessibility of inventory. They will also benefit
from lower overall transport costs and cheaper land costs and lower labor
rates in the North. All of which will help retailers significantly cut their
supply chain costs. “When a product is moved from its overseas original
source, in say China, to the UK retail shelf with greater efficiency, then ev-
eryone benefits, including the environment.”
Once again, there’s data to back up the claims made by
these northern UK infrastructure supporters. Tesco has been
reported as having this year doubled some of its national
haulage by rail, while ASDA said it had already reduced
road miles by 25% since January 2005 and aims to cut an-
other 15% by the end of 2009. “The results seen with Tesco
and ASDA/Wal-Mart,” added Pellew, “indicate that the UK
Government needs to open its eyes as to the benefits that
result from a greater use of northern ports and the need for
better rail infrastructure to accelerate this trend.”
Yet, while the recent DfT announcement included £30
million for certain road improvements to Immingham Port
on the Humber, the East Coast ports of the Humber, Tees,
Tyne and Grangemouth still have not seen money committed for urgently
needed rail gauge enhancements to link these ports to the East Coast Main
Line (ECML). The ECML is the crucial rail link that runs along the East
Coast of the UK from London to Scotland, and has yet to receive any seri-
ous investment for freight.
According to estimates, a relatively small £100 million investment in rail
freight capability on the ECML would allow the UK to effectively handle
an ever increasing demand for imported containerized goods through east
coast ports on the Tyne, Tees and Humber. Those in the North East, argue
that as a matter of strategic transport investment, their request for a £100
million investment in the ECML is a relative “drop” in the UK’s transport
budget bucket.
“The country needs to develop more sustainable transport methods and
there is a need to change traditional thinking. The UK Government cannot
continue to neglect the North East and the ECML any longer, as this area
clearly represents the most logical place for change to begin. A meager £100
million investment into this vital rail line will have a major and direct impact
for all UK business in terms of reducing cost, carbon emissions and conges-
tion. Investment in the ECML now represents an opportunity for the UK
Government to act with responsible and decisive vision,” stressed Pellew.
fact that the North has less road and rail congestion, is an
incredible asset with some of the best potential for increas-
ing inward investment to the UK and for reviving our eco-
nomic development. The right mixture of good access to
the sea, available brown-field land and an eager work force
exists in the North East. It’s clear to see that there is signifi-
cant economic potential for the UK here. What’s missing is
a supportive rail infrastructure–especially in the form of rail
access for trains and wagons capable of
carrying the modern high-cube imported
containers.”
Northern UK ports employers, the
rail community and major retailers
have been collectively calling on the UK
Government to invest strategically on
the rail infrastructure of the North and
Northeast. “The UK needs to invest in
its Victorian-era rail network and shed
its prejudices toward everything good
being in and around the south east. We
need new ways of thinking if we are to
realize that there is a vital latent eco-
nomic power that exists in the Northeast,” suggested
Pellew, and major retailers seem to agree.
ASDA Wal-Mart is already operating a 360,000 sq
ft import center at the northern UK port of Teesport to
handle its imported containers prior to onward trans-
port to the company’s distribution centers in the North.
Furthermore, Tesco has commenced construction of a
1.2 million sq ft import center at the port in a move that
will create over 800 jobs. Again this import center, when
opened in 2009, will serve the UK’s largest retailers north-
ern stores and regional distribution centers.
Yet, despite the interest of UK and overseas business
enterprises to invest in the North East, the Government,
as recently evidenced, still doesn’t seem to be catching
on to the more economically viable and environmentally
responsible transport solutions available up North. Those
in the North suggest that this could be because the UK
Government and Whitehall still have not shed archaic no-
tions about how best to re-energize the economy and how
best to move goods within the UK.
Outsourced Logistics | January/February 2009 | 7
Projects
Martyn Pellew
901LT6-11.indd 7 1/15/09 10:58:55 AM
8 | January/February 2009 | Outsourced Logistics
Global Markets
Schneider Logistics
Expands Coverage
The global provider of comprehensive
logistics services has added five new freight-
forwarding offices at major US and European
gateways. These locations join those already
along the US West and East Coasts. The
company has also grown its China marlet
coverage, as well.
Already existing in the US are operations in
Los Angeles, San Diego, San Francisco, Seattle
and Miami. Joining them now are the new
facilities in Chicago, Atlanta and New York. The
two new European locations are at Rotterdam
and Amsterdam. Schneider Logistics strategy
guiding the new US operations is to offer
shipping customers the option of diversifying
their points of delivery away from dependence
on West Coast ports. In Europe some 70%
of freight at the two new locations is either
inbound or outbound from other European
countries, including those in the emerging
Eastern European region.
John Ferguson, vice president, International,
for Schneider Logistics, observes, “These
locations and services are key components in
our strategy to build a comprehensive, door-to-
door, global logistics operation that spans air,
ocean and truck transportation.
Hapag-Lloyd Container Business Sold
A consortium of Hamburg businessmen and the city government
of Hamburg have outbid Singapore’s Neptune Orient Line (NOL) for
the container business of Hapag-Lloyd.
Klaus-Michael Kühne, head of Kuehne + Nagel, which recently
broke ground on a logistics site near Hamburg, and Christian
Olearius of MM Warburg are top figures in the group acquiring
Hapag-Lloyd. Current Hapag-Lloyd parent TUI will buy back one-
third of the company. Though TUI is selling the container line to
focus on its tourism businesses, its partial stake in Hapag-Lloyd has
been described as a means to bring the deal down to a price that both
valued the operation fairly and brought it within reach of the buyers.
The enterprise value of €4.45 billion ($6 billion) was a “fair value
under normal market conditions,” according to TUI.
One of the goals of the consortium acquiring the shipping line is
to keep it in Hamburg. Hamburg is Europe’s second largest container
port and Hapag-Lloyd is the world’s fifth largest container line
(handling 2.8 million twenty-foot-equivalent units through June
2008).
Uncertain markets have had another impact on logistics companies
in Germany. The expected floatation of Deutsche Bahn’s DBP Mobility
Logistics did not take place at the end of October as planned. The
forwarding and logistics business will remain with the national
railway, Deutsche Bahn (DB) for the time being.
Hartmut Mehldorn, chairman and CEO of DB, has said he’d like
to see more consolidation of the European transport markets. DB
already holds Schenker and was rumored to be in negotiations for a
large motor carrier. Its recent expansions in rail include Transfesa in
Spain and EWS in the UK.
The government had expected to raise €8 billion ($11 billion)
through the floatation but some industry sources indicated that even
a figure of €5 billion ($6.8 billion) would be optimistic in the current
economic climate.
CH Robinson Acquires
Transera
With the acquisition of Canadian project
freight forwarder Transera International, CH
Robinson Worldwide expands its global freight
forwarding capability. Transera, based in Calgary,
Alberta, is a non-asset global project freight for-
warder handling over-dimensional and heavy lift
shipments. It has eight offices in Canada, Dubai,
Singapore and the US. Annual gross revenues
were approximately $125 million.
Terms of the acquisition were not released.
“We are very excited to bring our capabili-
ties to Robinson and turn international over-
dimensional freight shipping into a successful
core offering for Robinson’s current and future
customers,” said Rosemary Marr, founder and
CEO of Transera.
CH Robinson Worldwide provides multi-
modal transportation services and logistics solu-
tions through a network of 221 offices in North
America, Europe, Asia and South America.
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Who’s Who of 3PLs
The 16th edition of Who’s Who in Logistics has been released. The
new edition, in two volumes – The Americas and International, has been
expanded with in-depth profiles of 242 3PLs, says publisher Armstrong
& Associates.
Of the 3PLs profiled, over 70% are private versus publicly traded com-
panies. Who’s Who in Logistics profiles individual 3PL financial informa-
tion, key personnel, information technology, and service capabilities.
“Since our first publication in 1994, our guides have become a pri-
mary information source for third-party logistics market information,”
said Richard Armstrong, chairman of Armstrong & Associates. “We are
pleased with the quality of our global information expansion. 119 of
the 3PL profiles highlight international providers. Each profile includes
assessments of 3PLs overall capabilities, strengths and weaknesses and
identifies 3PLs with the requisite capabilities necessary to be classified as
Tier 1 Global Supply Chain Managers. These providers have extensive IT
capabilities, over 5,000 employees and provide service to 90% or more of
the world’s Gross Domestic Product (GDP).”
Global Markets.Final.indd 8 1/15/09 10:24:10 AM
812LT21_Richmond.indd 1 1/21/09 9:53:45 AM
10 | January/February 2009 | Outsourced Logistics
Global Markets
DB Schenker Grows Its Siemens Alliance
DB Schenker has extended its role with Siemens medical products in
Australia and New Zealand. Schenker Australia Pty Ltd has been providing
import and export services for Siemens medical products for more than
eight years. This will now extend to all Siemens Australia and New Zealand
international and domestic import and export activities and domestic
freight, providing a consolidated, streamlined service that ultimately ben-
efits the customer, says Schenker.
Ron Koehler, CEO of Schenker Australia Pty Ltd, notes the contract exten-
sion is the result of significant improvements in the company’s supply chain
across its businesses during the last two years, and a responsive approach
to reducing the environmental impact of its freight services. “We are proud
to have been awarded the Siemens contract for import and export services
across Australia and New Zealand, and will transfer solutions originally de-
veloped to meet the demands in the Healthcare business, to strengthen and
develop Siemens supply chain in other sectors,” said Koehler.
“We have also considered ways of reducing the environmental impact of
our international and domestic freight services. By providing an optimized
combination of transport modes and reducing paper in freight documen-
tation and invoicing, Schenker Australia Pty Ltd reduce environmental
impacts in the supply chain, which is in line with Siemens principles of
environmentally responsible practice.”
Jeff Connolly, Siemens Ltd CFO, said that of the tenders received,
Schenker Australia Pty Ltd was best placed to deliver a consolidated, time-
and cost-effective international and domestic import and export service for
Siemens customers.
“Having provided freight forwarding, warehousing and distribution
services for Siemens medical products and for large projects since the late
’90s, Siemens is pleased to extend our relationship with Schenker Australia
Pty Ltd to include freight forwarding services for import and export activi-
ties across Australia and New Zealand, including transport and distribution
services throughout both countries,” said Connolly.
“DB Schenker provides the optimal solution for Siemens freight services,
with the ability to deliver some very challenging cargo, from an extremely
large power generation turbine, to delicate medical devices within very
tight timeframes and cost effectively. Priority medical products have al-
ways been deliverable from Europe within just two days, but now this
exceptional turnaround rate can be provided to customers for all priority
products across Siemens three sectors – Industry, Energy and Healthcare.
The delivery time for goods other than priority medical products was pre-
viously nine days.”
Connolly said DB Schenker also offered Siemens customers complete
visibility throughout the entire journey, with ready access to the online
track and trace system, and improved order and invoicing processes. “As
Schenker Australia Pty Ltd is now the single preferred provider of interna-
tional and domestic import and export services for Siemens customers in
Australia and New Zealand, customers will be able to check online where a
product is at any time throughout its journey.
The development of the electronic interface between DB Schenker and
Siemens also means a vast reduction in paperwork, and timely receipt
and issuing of invoicing, with all related documents to now be processed
electronically.
The Panama Canal Had a
So-So Fiscal Year
As it closed its 2008 fiscal year, the Canal
reported a slight decline in overall transits and
tonnage, though there was growth in tanker and
passenger business.
The lessening in transits was just 0.1%, with
14,702 in 2008 compared to 14,721 last year.
Using its Panama Canal/Universal Measurement
System (PC/UMS) calculations, tonnage through
the Canal was down 1.1%, from 312.9 million
PC/UMS tons in 2007 to 309.6 PC/UMS tons in
2008.
The Panama Canal Authority (ACP) attributes
the increase in tanker traffic to the fact that
natural gas supplies used for generation
of electricity in Chile from Argentina were
suspended. As a result, petroleum from the US
Gulf Coast to Chile increased. For the Canal,
tanker traffic was up 4.8% during the year, to
2,067 transits compared to last year’s 1,972.
Tanker tonnage was up 8.6%.
Transits of passenger vessels were up
17.6%, from 205 to 241. A reason for the gain,
according to ACP, was that more smaller cruise
ships made transits. Transit by container ships
dropped from 3,622 in 2007 to 3,544 in 2008. At
the same time, movement by dry bulk vessels
was up to 2,420 from 2,406.
Commenting on fiscal year figures, ACP
executive vice president of operations, Manuel
Benítez, said, “The Panama Canal remains on
sound operational footing, providing the safe,
reliable and efficient service our customers have
come to know and expect. Though a slowing US
economy has slightly reduced cargo shipments
traveling to and from US ports via the waterway,
the Canal actually experienced some growth this
fiscal year among key segments.”
ACP notes that during the second quarter
the Canal experienced a surge in arrivals at the
time maintenance was being performed on the
Miraflores and Pedro Miguel locks. This resulted
in an increase of 13.3% in Canal Waters
Time—the average time, including waiting time,
it takes a ship to navigate the waterway. Year-
end totals were 31.55 hours in 2008 compared
to 2007’s 27.84 hours.
The canal has a vessel booking system, used
by 60% of its oceangoing transits. Customers
had requested increases in the number of daily
slots available. The ACP increased the number
from 25 to 27. However, use of the system
declined to 92.73% from 94.98% year over year.
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Global Markets.Final.indd 10 1/15/09 10:24:23 AM
A
prime objective of the government of Mexico is to
promote its interests abroad. Efforts to revitalize
its economy and open up to international
competition have resulted in scores of free trade
agreements — more so than any other country. In addition,
Mexico seeks to improve its cross border processes by
revamping outdated customs processes and procedures.
Currently, Mexican customs officials are working to pilot
a new customs regime that seeks to attract more foreign
investment by improving importers’ supply chain speed
and mitigating the delays frequently associated with time-
intensive processes and procedures at the port of entry.
RFE—A New Customs Regime
A customs regime is a country’s specific set of trade
regulations, processes and practices that regulate the
actions of importers and exporters. This new customs
regime is known as Regimen de Recinto Fiscalizado
Estratégico (RFE), or loosely translated as a Strategic
Bonded Warehouse. It is similar to a Foreign Trade Zone
within a geographical area, where tariffs and quotas are
eliminated and bureaucratic requirements are minimized
in an effort to attract foreign investment.
The benefit of the new customs regime is to allow
goods to be imported into Mexico and remain for up
to two years on a tax-free and duty-free basis. It is
expected to mimic the current automotive fiscal deposit
regime (Deposito Fiscal para la Industria Automotriz)
and expand to include more industries and to be more
competitive than the current IMMEX (previously Maquila
& Pitex) regime. The government believes that RFE will
decrease logistics cost in terms of dollars per container
and numbers of days in transit which in turn will help
attract additional production to Mexico.
As a growing export center in central Mexico, the
state of San Luis Potosi will pilot the new RFE customs
regime. The Mexican government has partnered with
local businesses to develop and test the new regime,
including two large automotive parts makers, a robotics
and electronics manufacturing company, a warehousing
facility administrator and J.P. Morgan’s Global Trade
Services unit. Preparations began in November 2007 with
Outsourced Logistics | January/February 2009 | 11
the pilot program going live in July. The program is expected to open for
additional manufacturers in early 2009.
Key elements of the new customs regime include:
• Allows goods to remain in a Mexican warehouse for up to 2 years on a
tax-free and duty-free basis
• Elimination of customs inspection at the port of entry, resulting in cost
reductions and reduced time-to-market.
• No secondary customs inspections required
• Simplified customs clearance process results in reduced customs
brokers fees
• Importers have a three-day grace period within which to correct
import declarations
Mexico Customs estimates that the RFI clearance process will save an
importer between US$200 and US$600 per shipment.
Differences between RFE and IMMEX
RFE is similar to the well-known IMMEX program and is expected to
be slightly more favorable due to greater flexibility and simplified customs
inspections that will speed goods through customs.
Global Markets
Community Voice
Ay Caramba!
Mexico’s New Customs Regime
By Alvaro Quintana, Executive Director, Global Trade Services, J.P. Morgan
RFE IMMEX
Goods may undergo manufacture,
transformation, repair, handling, stor-
age, distribution, exhibition and sale.
Goods may undergo manufacture and
transformation; certain services are
also permitted.
Importer permitted to correct customs
declarations within three days.
Customs broker will require his physi-
cal inspection (previo) prior to submit-
ting a declaration (pedimento).
Goods exempt from customs inspec-
tion at country’s point of entry.
Goods are subject to a first and a sec-
ond customs inspection at country’s
point of entry.
Simplified import declaration required
(aviso).
Simplified import declaration required
(aviso).
Reduced services required of customs
broker will result in lowered costs.
Customs broker fully engaged and lia-
ble in the import process, hence higher
costs.
Goods destined to local market enjoy a
duty and tax deferral of up to two years
from arrival date in Mexico.
Authorized items imported duty and
tax deferred destined to a manufacture
or transformation process.
Lessened manipulation of goods in
transit reduces costs, time and risk of
damage and or pilferage.
Goods subject to three inspections,
transfers, loading and unloading re-
sulting in higher fees and delays in
transit. Odds of misrouting increase
thereby subjecting goods to greater
risk of damage and pilferage.
Global Markets.Final.indd 11 1/15/09 10:24:40 AM
12 | January/February 2009 | Outsourced Logistics
or outright dissolution.
Undeniably, 2008 was a tumultuous year for out-
sourcing, and though we continue to advise clients to
remain cautious in the year ahead, we do not discount
the opportunities and potential still very much evident
in the market. We consider the current struggles of the
industry as a driver for positive change and expect the
outsourcing industry to develop in the coming years, be-
coming more mature, efficient, dynamic, and ultimately
more resilient. With prudence, heightened focus and a
more adaptive approach towards outsourcing in 2009
can in fact be a watershed moment for the global out-
sourcing industry.
These Tholons Top Ten Trends in Services
Globalization—2009 will have a significant impact on
Global Outsourcing for buyers, investors, providers
and on emerging centers of excellence:
1. The market downturn will impact rev-
enues during the first 2-3 quarters.
There are strong headwinds for vendors in the out-
sourcing space. We expect the worldwide market
downturn to impact growth and margins for the first
2-3 quarters of 2009 before picking up and ending the
year on a stronger note as clients seek to cut costs and
generate more revenues. During this period, we see
a reduced number of start-ups in the services sector
as the focus shifts on sponsoring hard asset-intensive
businesses. Moreover, it has become increasingly clear
that the downturn is impacting revenues and we ex-
pect most large firms will see a decline in Quarter over
Quarter earnings.
2. Focus on domestic market to in-
crease.
As Western economies continue to hurt, service pro-
viders will shift focus to domestic markets for growth.
We are already seeing increased focus by vendors to-
wards large (and growing) domestic markets such as
found in India, China, Argentina and Brazil. Fulfillment
of customer support and back office services targeted
for retail, Telco, and Financial Services verticals will be
among the hot spots for providers looking to tap the
surging local demand of outsourced services.
3. Global economic downturn and
financial sector consolidation will
T
he tsunami of the global economic downturn continues
to impact the foundation of the outsourcing industry
both near and long-term. Service providers are already
feeling the effects of decreased margins and employee down-
sizing, while service buyers are reducing IT budget allocations
for outsourcing engagements. This in turn has caused a cas-
cading effect across the industry—evidenced by drying pipe-
lines, cancelled bookings and increased pressure to deliver
value beyond cost.
Decreasing margins and headcount will push providers
to better utilize existing resources. Service providers need to
implement new technologies in a more efficient manner to
differentiate themselves and improve service delivery pro-
cesses. Clients, with reduced IT budgets, will be forced to be
more selective—demanding far more stringent Service Level
Agreements, greater contractual flexibility and output/result
based payment schemes.
These shifts will significantly induce a high degree of con-
solidation that will be felt across the outsourcing ecosystem.
Paul Santos, Managing Director at Tholons Capital says:
“It’s an opportune time for the larger players to continue their
string of strategic, niche acquisitions. In an increasingly com-
petitive market, and improbable economic state, the mantra of
only the strong will survive has never been more relevant.”
Smaller and less efficient providers may face difficulties in
tapping new revenue streams and will be prone to acquisition
Operations
Despite a lingering cloud of
uncertainty, the global advisory,
investment and research firm,
Tholons, predicts a strong demand
for outsourcing over the long term.
Top
Trends in Services
Globalization 2009
Operations.Final.indd 12 1/15/09 10:28:09 AM
Outsourced Logistics | January/February 2009 | 13
In the coming year, we will see more clients asking for al-
ternatives to India to de-risk their service delivery models
that are otherwise geographically limited.
Nearshoring as a low cost alternative to domestic
sourcing will assume greater importance for processes
requiring the same time zone presence. Latin America
with superior cost dynamics will emerge as a near time
zone alternative to Europe/US business adding Spanish
language capability. In the near-term, the top Indian firms
are predicted to expand global footprints and open deliv-
ery centers in China, Latin America, Eastern Europe and
North America.
6. Pricing pressures will result in reduced
rates and new measures to achieve cost
savings and higher productivity.
Pricing pressures will kick in as suppliers scramble to
meet their quarterly targets through the year. We will see
clients negotiating hard with suppliers to reduce costs,
while suppliers will try to protect rates but offer more
value added services.
Large providers are expected to see EBITDA margins
plunge below 20% over the next three years, as they
move more IT projects offshore—mostly to India—and
struggle to balance operations with rising wages. The situ-
ation could aggravate if the Rupee continues to appreciate
during this period.
On the delivery front, supplier movement from high
onsite to low onsite deployment will be visible and new
tactical measures for cost savings and higher productiv-
ity towards clients and internal operations will mark new
industry standards.
7. Consolidation imminent for small
players—focus away from large deals.
On the M&A front, large deals will slow due to a more
tepid market. Challenges related to integration and main-
taining liquidity (as opposed to acquisition), will also be
primary concerns for 2009.
Cross-border, inorganic investments are expected to
increase in Japan and China with increased market con-
solidation seeing small to medium players being likely
targets. We also see difficult times for small, non-differ-
entiated players over the next 12 months. As clients look
to reduce spends and rationalize costs, new business
generation will be very difficult. Also, some of the existing
engagements may come up for re-negotiation as clients
lead to increased outsourcing in Healthcare,
Education, Retail, Telecom and Legal Process
Outsourcing (LPO).
Global economic downturn is motivating service providers to
focus on recession-proof industries like Healthcare and educa-
tion. Other sectors like manufacturing, retail and telecom will
have to make a significant shift and reduce cost drastically to
survive. These sectors will be attractive industries as they look for
opportunities to cut cost. It is more a question of survival than
being just competitive in such turbulent times.
Consolidation in the financial sector is inevitable due to the
global financial crisis. This will create M&A opportunities which
will generate further business for LPO firms. We expect strong
growth for LPO firms. Increased M&A activity in the financial
sector would also mean that merging companies would want to
integrate their existing outsourced services—leading to increased
spending for integration projects. The processes will revolve
around integration of software applications, data center consoli-
dation and tighter integration of other operational platforms.
With financial institutions such as Lloyds TSB/HBOS and Bank
of America/Merrill Lynch merging, service providers will also find
themselves bidding against incumbent transnational rivals like
IBM, Accenture and HPEDS for several large-scale integration
contracts (valued anywhere between US$500 million and US$1
Billion over 5 years).
4. Governments to take special initiatives in
promoting destinations.
Emerging outsourcing destinations still trying to establish
their brands will find the going tough, as clients look for “safer”
choices.
Cebu City, Shanghai, Beijing, Ho Chi Minh City and Krakow
make up the top five spots in the recent Tholons study of Top
50 emerging global outsourcing cities. We see significant gov-
ernment and industry support for these cities along with some
other more popular emerging destinations like Cairo, Sao Paulo,
Buenos Aires and Dalian.
5. Clients will increase geographic diversity in
their service delivery locations.
Newer service delivery geographies are emerging with niche
capabilities. The Philippines has exhibited spectacular growth,
with BPO export value aggregating close to 50% of India’s
Business Process Outsourcing (BPO) export.
Similarly, Vietnam has emerged as a solid alternative to India
on the IT side, and we are seeing aggressive strategies from
Vietnam-based players to increase traction in the global market.
Operations.Final.indd 13 1/15/09 10:28:17 AM
Adam Aguilar, Dana Burleigh, Mick Noce and Brian Alexander
of Unyson Logistics, A Hub Group Company
offerings. Companies that focus on solution-based selling will
weather the storm. Companies that do not innovate will lose
market share.
Otherwise, they run the risk of being an also ran compared to
larger, feature-rich Multi-National Company (MNC) vendors.
10. Sourcing deal sizes will increase for
large clients.
Large clients will move towards single vendor sourcing to
get volume based price discounts, as opposed to the best of
breed solutions for specific sourcing requirements, which
tend to cost more, and carry a higher program management
overhead.
They will also look for opportunities to group an asset sale
with a sourcing contract, as vendors show readiness to use
their balance sheet strength for top line gains. As a result, we
anticipate the average deal sizes to go up, even as the overall
deal volumes remain depressed.
Tholons is a Services Globalization and Investment Advisory
firm combining “Best of Breed” consulting experience with deep
execution expertise and investment insights to deliver effective ser-
vices to its clients. Learn more about them at www.tholons.com.
look to vendor consolidation for better pricing and reduced
program management costs.
With Tier One firms witnessing flat to negative Quarter
over Quarter revenue numbers, smaller players will find the
going tougher, and will be more open to mergers or takeovers
to survive. We believe a large proportion of sub-1,000 (em-
ployee) companies will either close shop or be acquired.
8. Outsourcing revival by 2009 end—driven
by small to mid sized (SME) clients.
The fundamental motivation for offshoring has not dimin-
ished—in fact it has actually become stronger. We expect to
see a revival in outsourcing, and we are already seeing an up-
tick in outsourcing related activity for engagements that will
come to fruition in 9-12 months.
The mid-market swing will also be aided by providers
developing market specific, full service solutions catering to
this space.
9. Strong focus on innovation, R&D and
technology adoption will be key differen-
tiators for providers.
We expect increased pressure to differentiate one’s service
Operations
901LT12-17.indd 14 1/15/09 11:07:18 AM
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and well-engineered supply chain
practices. It’s fundamental to supply chain
velocity and a competitive cost structure.
Menlo is an ideal partner for Navistar as we
build a world-class logistics capability that
will make us more profitable and enable us
to better serve our customers.”
“We are very proud and excited to
be selected for this highly strategic and
mission-critical role supporting Navistar’s
business objectives,” said Robert L.
Bianco, Jr., president of Menlo Worldwide
Logistics. “It’s clear that Navistar is
determined to elevate their logistics and
supply chain operations into a source
of competitive advantage. The role of
lead logistics provider is a tremendous
opportunity for Menlo and we look
forward to demonstrating the value of this
engagement for Navistar and its customers.”
Navistar International Corp. announced it
has selected Menlo Worldwide Logistics, LLC,
as its global lead logistics provider to support
Navistar’s global growth strategies as the
company moves into new marketplaces.
Menlo will support Navistar’s strategies
to achieve world-class performance and
a competitive cost structure in its global
logistics network. The contract includes
management of global transportation
providers, regional warehouse management,
lead-time planning and net landed cost
modeling.
Navistar said the outsourcing initiative
represents a significant step forward for its
plans to accelerate growth globally and
speed the introduction of its products into
new markets. Ed Melching, Navistar’s director,
Global Logistics said, “Effective logistics
operations are based on superior processes
Operations
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Navistar Selects Menlo for Its Growth Strategy
901LT12-17.indd 15 1/15/09 11:07:08 AM
16 |January/February 2009 | Outsourced Logistics
Consider Internal Resources Before
Outsourcing Logistics Functions
Operations
Community Voice
A
s chemical companies look for ways to reduce lo-
gistics costs, many are increasingly considering out-
sourcing as a way to save money associated with
freight and personnel costs. Often considered a fast and ready
solution to mandatory reductions in the logistics budget,
companies should carefully consider the value of combining
internal expertise with outsourced technology-based tools and
professional services rather than simply replacing internal re-
sources to streamline logistics functions.
With capital funds tight, many companies may find it dif-
ficult to acquire the latest state-of-the-art transportation man-
agement technology or retain sufficient staff to manage new
technology or develop corporate-wide logistics solutions. It is
at times like this they often turn to third party logistics (3PLs)
to provide the logistics solutions and/or logistics service pro-
viders (LSPs) to supply the technological tools and professional
services for logistics and supply chain optimization. However,
it is the company’s internal staff that holds the knowledge base
of their supply chain operations to understand the specific
risks and merits associated with different cost-saving tactics.
Understanding the value of their internal resources, companies
should consider supplementing in-house expertise with out-
sourced resources to optimize specific logistics operations.
A recent survey reports that while nearly 60% of companies
did outsource some portion of their logistics function, only
about 4% outsource the entire department. And companies
that are outsourcing use these resources to achieve savings on a
variety of logistics programs involving inbound and outbound
traffic, freight costs, current assets, raw material and finished
goods inventories.
Rising fuel costs and more limited carrier options have
resulted in increased logistics costs for chemical companies, av-
eraging somewhere between 10% and 20% of revenues. Rather
than focus on specific logistics tasks, companies are evaluating
the total supply-chain when considering logistics enhance-
ments to balance trade-offs between cost and customer service.
Through this approach, companies are saving as much as 4%
in sales, while improving customer service.
But should companies outsource the entire logistics func-
tion? Because logistics is a core business function, chemical
companies may find that complete outsourcing can create new
barriers as 3PLs and LSPs are simply not as knowledgeable as
their own staff about internal operations, customer relation-
ships and business regulations. For example, as the changing
business climate warrants increased responsibilities in security
and asset visibility, chemical companies may find that many
3PLs do not have as much experience as their own staff to
handle these issues.
When considering outsourcing as a means to optimize logis-
tics functions, companies should evaluate how their business
operations would change with this new resource and review
successful implementations by other companies. Changing
market factors should also be considered.
For example, the practice of making staff cuts to reduce costs
has slowed in recent years as many logistics departments have
reached the point where downsizing may affect business op-
erations. Though cost savings are accrued through reductions,
dollar impact is usually near term and the in-house intellectual
capital that took years to build is gone forever.
Some 3PLs propose freight rate savings solely based on the
larger volumes they command. Studies indicate that lane and
carrier market intelligence also can have a significant impact on
freight negotiations. In addition, the use of an online bidding
tool and supplemental resources allows shippers to execute an
RFQ quickly and generate savings much faster than the con-
ventional bid process. After bidding is completed, optimization
tools can pinpoint the best carrier mix and savings based on
client service levels, capacity commitments and rates.
When considering logistics improvements, experts instruct
companies to look beyond cost savings associated with per-
sonnel and freight as savings and service improvements can
be found in product visibility, inventory and asset reductions,
demand planning, improved procurement and freight opti-
mization. And because a truly cost-effective logistics program
typically includes organizational changes across different de-
partments, many functions may lie outside a logistics manager’s
control (including sales, purchasing and manufacturing). This
is where logistics outsourcing can help project management on
a program and supplement in-house resources.
Steve Hamilton describes
experiences with chemical
companies that can benefit other
industries as well.
Operations.Final.indd 16 1/15/09 10:28:31 AM
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Outsourced Logistics | January/February 2009 | 17
Polep Distribution
Services Adds Warehouse
System
J. Polep Distribution Services, one
of the top 15 convenience store
distributors in the US, is upgrading
its enterprise system and installing
a new warehouse management
system (WMS) at its Chicopee, MA
headquarters. It is using the Retalix
Power Enterprise suite. The purchase
is part of the convenience distribu-
tor’s expansion and technology in-
vestment initiative over the last few
years—which has included strate-
gic acquisitions, expanded product
lines, and new programs and value-
added services—to better meet the
needs of convenience retailers.
“Service, dedication, commitment
and customer satisfaction have been
the driving force of our business for
more than 100 years,” said Lori Polep,
president of J. Polep Distribution
Services. “To continue to deliver on that
promise, we needed the complete
supply chain solution that Retalix offers
to enable our customers to grow and
thrive in a highly dynamic and com-
petitive environment.”
The project includes Retalix Power
Enterprise to integrate and synchro-
nize business and operational ap-
plications; and a new install of the
Retalix Power Warehouse to man-
age all aspects of route-based,
multi-stop distribution operations.
“Retalix is the market-leading soft-
ware provider for convenience and
foodservice distributors,” said Reuben
Halevi, chief operating officer of
Retalix USA. “Retalix Power Warehouse
will enable J. Polep to synchronize
its supply chain and business pro-
cesses, reduce costs and support
new growth opportunities.”
Polep serves more than 4,000 chain
and independent retailers in the six
New England states and New York.
Chemical companies have reduced specific logistics expenditures
by supplementing in-house resources. For example: Looking to
reduce less-than-truckload (LTL) freight costs while gaining online
visibility of customer orders without sacrificing services, a specialty
lubricants company engaged the rate benchmarking and negotiation
services of a qualified logistics outsource provider. Maintaining an
extensive database of freight rates for carriers in different modes, the
LSP analyzed freight costs associated with different carriers to deter-
mine optimum carrier selection.
Benchmarking LTL rates of incumbent carriers, the LSP can pro-
vide an accurate estimate of cost savings prior to bidding out LTL
freight. With this capability, the lubricants company can negotiate
the best transport rates and lanes with existing and new carriers for
lower freight charges and better delivery performance.
In addition, the LSP’s carrier selection and routing tools enable the
company to track orders from system entry until completion, rate
shipments online and monitor carriers, resulting in more accurate
accruals and reconciliation of expenditures.
In another scenario, a global chemical company looking for a
solution that would streamline management of freight and increase
customer service decided to upgrade their logistics functions by
implementing a transportation management system (TMS). Because
the company didn’t want to make any changes to its staffing or op-
erating procedures, it chose to outsource to an LSP that could also
provide strategies for increasing efficiency and outline opportunities
for short- and long-term savings.
The LSP provided a web-based TMS that optimized freight opera-
tions in key areas such as carrier management, route guide design
and compliance, tender management and vendor compliance in
addition to providing full visibility into freight spend through online
access to data and custom reports. Automatic tracking improved
carrier performance from 90% to around 98%.
Advanced contract management functionality offered by the on-
demand TMS provides for highly accurate, real-time freight accruals
for accurate reconciliation, eliminating the occurrence of wide vari-
ances between estimated and actual cost of freight.
Chemical companies as well as businesses in other industries
should evaluate the value of their internal logistics resources be-
fore eliminating them for a complete outsource solution. Before
outsourcing any transportation and logistics functions, tap into the
value of your current resources. Money can be saved by using inter-
nal staff to manage specific tasks rather than outsourcing complete
operations. Companies also shouldn’t lose the investment made in
building internal logistics expertise over the years. Consider using
outsourcing to provide the tools and support needed for your in-
ternal staff to better manage logistics functions for greater efficiency,
cost savings and customer service.
Steve Hamilton is president and chief executive officer of ChemLogix
LLC. The company often works with “best-in-class” shippers, and those
aspiring to be, in implementing programs that generate significant logistics
and supply-chain savings. E-mail information@chemlogix.com.
Operations.Final.indd 17 1/15/09 10:28:39 AM
18 | January/February 2009 | Outsourced Logistics
It’s not that the industry didn’t
know new regulations were to be imposed
on goods destined by ship for the US. Part
of the Security and Accountability for Every
Port (SAFE) Port Act passed in October 2006
mandated that ocean shipments to the US had
to have electronically filed manifests in the
hands of US Customs and Border Protection
(CBP) at least 24 hours in advance of lading a
vessel at its foreign port.
There are 10 data elements to be included in the
Importer Security Filing (ISF) by importers or their
agents. Ocean carriers and Non-Vessel Operating
Common Carriers (NVOCCs) are to file 2 data elements
that describe the status of a container and its physical
location on board the vessel. Hence the 10+2 regula-
tions. The specifics of required data are listed in the box
on page 20.
In January 2008, CBP published its proposed rule-
making in the Federal Register. It then collected and
By Roger Morton
Calming the
Waters
Special Feature
901LT18-21.indd 18 1/16/09 10:12:42 AM
While the new rules represent a sea change in
the way imports are handled, there is ample
time to get ready for the government’s forceful
implementation of what’s commonly called 10+2.
on 10+2
on what we call the line item level.”
While realizing that some are going to turn to outside
logistics providers to handle the process, Nathan Pieri,
senior vice president of marketing and product manage-
ment, Management Dynamics, argues that the govern-
ment’s increased security regulations, holding importers
more accountable than ever, are moving companies to
have more control and develop core competency in the
area.
Management Dynamics is a provider of global trade
management software and information services, part of
which is to provide solutions to automate and complete
the import process, from order entry to delivery. “As
part of our core trade import information,“ explains
Pieri, “we added 10+2 capabilities. Our perspective
was that there would be pain in implementing this new
regulation, but with that there is the possibility of a tre-
mendous gain. The gain is that all of a sudden you have
much more automation in your supply chain. There will
be much more visibility and control over what’s going
on. Now you can actually start getting operational ben-
efits. We see it as a net good.”
There are barriers to overcome. For example,
Fountain feels because of the intermediary nature of the
global economy, getting information on the true manu-
facturer will be one of the more difficult data elements
to get for the “10” portion of the regulation. “Generally,”
he notes, “trading companies and wholesalers have been
reluctant to disclose the actual name of the manufacturer
for fear of losing future orders, and this piece of data is
one of the major components of the 10 + 2 filing.”
Another challenge pointed out by Woods is that for
importers the filing is fairly involved. “What really com-
plicates it,” he says, “is that you have to link it at the line
item level for the commodities. You have to identify the
manufacturer, country of origin and harmonized tariff
evaluated some 200 public comments, made what
it calls “significant enhancements,” then issued the
Importer Security Filing and Additional Carrier
Requirements interim final rule.
When the proposed rules appeared they caused con-
cern since while seeming to be fairly straightforward, the
amount of data required to answer each element can be
burdensome. Some proactive companies saw this as a
strategic opportunity to evaluate and gain greater visibil-
ity into their supply chains. The alternatives for compa-
nies to meet the new regulations appear to be handling
the entire filing process themselves; purchasing or using
as required a vendor’s software solution; or turning the
entire process over to a third party supplier.
Walt Fountain, director of enterprise security at
Schneider National, feels the largest component to the
ruling that will affect shippers, importers and logistics
industries, is the level of visibility each party needs for
a transaction. “The depth of information needed truly
makes the importer responsible for understanding every
point in their supply chain,” he says. “We strongly rec-
ommend that every importer go to their suppliers and
vendors and make sure that each party in the supply
chain can provide the needed information within the
prescribed time frames.”
Depending upon the service supplier, there are dif-
fering perspectives on who will handle the import
process. For example, Don Woods, director of customs
brokerage compliance for UPS Supply Chain Solutions,
claims results of two surveys conducted in each of the
past two years indicated that many importers expected
their broker to handle the paperwork on their behalf.
“The advantage the broker has is that they are familiar
with the data elements required in the security filing,” he
notes. “They are dealing with this type of information on
a daily basis, particularly linking information together
Outsourced Logistics | January/February 2009 | 19
10+2.Final.indd 19 1/16/09 9:18:32 AM
20 | September 2008 | Outsourced Logistics
information you have at lading,
then perfect it before arrival. 4. The
fourth and final piece of data they
will allow you to give the best in-
formation you have up front then
amend it later is the ‘ship to’ party.
In some cases—particularly where
the importer or ‘ship to’ party may
not be known—they will allow
you provide what they call a nomi-
nal consignee where they will ac-
cept in some cases they’ll even ac-
cept a terminal, container freight station
or warehouse. So, that’s a lot of flexibil-
ity on that piece because many import-
ers say they just don’t know where the
goods are going to be finally delivered.”
As for vessel reporting requirement,
“The carriers have their operational sys-
tems that can report the ‘2’ element,”
claims Pieri. “Some of our logistics
provider customers are interested in
using our systems to manage their
part of 10+2 which sometimes in-
volves providing the compliance de-
tails of stuffing locations and some
of the other ‘10’ items. Most car-
riers can provide the ‘2’ elements
pretty much from their normal op-
erations.”
Although there is a substantial
grace period before 10+2 enforce-
ment goes into full force, this time
should be sufficient to allow import-
ers to assess their supply chains and
capabilities to determine whether to
handle compliance internally, out-
source it, or some combination.
Fountain explains Schneider
works with its customers to under-
stand how they view their compli-
ance programs and determine if com-
pliance is best handled internally or
should be outsourced. “Every suc-
cessful compliance program will in-
corporate both internal and external
factors,” he argues. “Generally, ac-
tivities such as Focused Assessment
ible data elements “1. The manufacturer
of the goods. But if you don’t know
that you can give them the supplier. 2.
Country of origin. If you don’t know, you
can provide the country where the final
stage of production took place. 3. You
don’t have to have the perfect harmo-
nized tariff schedule. Give them the best
schedule number. That puts it on
a par with a Customs entry.”
Interacting with DHS on im-
plementation of the new regu-
lations, Woods notes that the
government has indicated there
will be some flexibility in en-
forcement for a period of time.
He claims that between January
26, 2009 and January 26, 2010,
DHS and CBP will accept mini-
mal data in the timing of when
the ISF is to be reported. When full en-
forcement comes about in 2010, there is
to be a change in penalties. Where they
were leveled at shipment value, the new
charge will be at $5,000. per violation.
Another change involves what CBP
has considered as the responsible party
for the security filing. In the past it
has been assumed the responsible
party was going to be the importer
of record, usually the same party as
for Customs entry purposes. Now
the importer of record may be an
owner, buyer or a nominal con-
signee, whoever causes the goods
to enter a port within the US. This
change may relieve some anxiety
since the importer of record on the
entry doesn’t have to be the same as
the ISF importer.
Further explaining results of his
governmental meetings, Woods
recalls that, “Part of that flexibil-
ity comes in four data elements of
the eight identified in the proposed
rule where there could be multiple
responses instead of a single one.
So, indicates the government ‘if you
don’t have all data 24 hours before
loading at origin, you can give us
the information you have to the best
of your knowledge at that time.’
However, a modified or amended
ISF must be provided to Customs
24 hours before arrival.”
Woods enumerates the four flex-
20 | January/February 2009 | Outsourced Logistics
Don Wood of UPS
Supply Chain
Solutions
Nathan Pieri of
Management
Dynamics
The 10+2 List
There are different requirements for im-
porters and carriers in the rules. The “10”
refers to eight data elements that must be
in the Importer Security Filing (ISF) with
an additional two elements that refer to
where containers are located on a vessel
and who performed the consolidation.
Here are the 10 for importers:
1. Seller
2. Buyer
3. Importer of record/FTZ applicant
identification number
4. Consignee number(s)
5. Manufacturer (or supplier)
6. Ship to party
7. Country of origin
8. Commodity Harmonization Tariff
Schedul e of the Uni ted States
(HTSUS) number
9. Container stuffing location
10. Consolidator
The 2 for carriers
1. Vessel Stow Plan
2. Container Status Messages (CSM)
Special Feature
10+2.Final.indd 20 1/16/09 9:18:44 AM
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Outsourced Logistics | January/February 2009 | 21
Audits should be done by an outside
organization, but the development of
the actual program must be done on an
internal level and can be guided by out-
side consultants or by US Customs. The
structure of the compliance program
will depend on the complexity of the
organization, its products and the reach
of its supply chain.”
In Pieri’s view, “At the end of the
day there are going to be a couple of
different camps. There are going to be
those that have relatively simple sup-
ply chain and are going to solve 10+2
transactionally. Typically they’ll work
with one forwarder and move that way.
There will be another segment that will
say ‘hey, I think this is a good time,
especially now that we have lead time,
let’s go ahead and look at doing a better
job. Let’s get it right in procurement.
We’ll make sure all of our orders are
compliant.’ Our view is that now is the
time, especially with this regulation,
to treat global trade management as a
strategic piece of information technol-
ogy that your business should have.”
Reflecting on the motivation for
implementation of these rules: the rea-
son is security. “US Customs has long
stood by the idea that cargo security is
best achieved by ensuring that freight
which poses a possible threat does not
make it onto a vessel or aircraft des-
tined for the United States,” points out
Fountain. “The security of our country
depends on the ability of international
communities, and industries within
these communities, to support and fol-
low through on these initiatives.”
“US Customs has long stood by
the idea that cargo security is best
achieved by ensuring that freight
which poses a possible threat does
not make it onto a vessel or aircraft
destined for the United States”
901LT21rev.indd 21 1/16/09 1:38:03 PM
Though business is in decline, ports are moving ahead with
critically needed infrastructure improvements.
Negative news
Among items of negative news is a report from Port
Tracker, produced for the National Retail Federation by
IHS Global Insight. Its analysis indicates retail container
traffic at the nation’s major retail container ports will be
the lowest since 2004. Volume for 2008 is projected at
15.3 million TEU (twenty-foot equivalent units) com-
pared to 2007’s 16.5 million TEU, a decline of 7.5%
Because of the volume of container traffic handled by
West Coast ports and since so much import business of
late has come from Asia, they garner the most attention.
Drewry Supply Chain Advisors claims problems being
faced by US West Coast ports are structural and not of a
temporary nature.
The argument forwarded by a division of Drewry—
whose expertise is in shipping, international supply
chains and related sectors—is covered in its white pa-
per, "US Transpacific Intermodal Today and Tomorrow."
By analyzing end-to-end transport costs of containers
shipped to and from the US interior via West Coast
and East Coast ports, then forecasting a decline in
vessel-related costs once the Panama Canal
expands it capabilities
by 2015, and the in-
creased development
of the Suez Canal as a
viable route for cargo
from Southeast Asia,
Dr e wr y Suppl y
T
here’s no denying the global economy is
in a bad way and dragging down business
of every kind, including transportation.
Import and export freight movements
through the nation’s ports have been in
decline, just as with cargo for air, rail
and truck. While ports are suffering with
dwindling commerce, when looking be-
yond immediate problems there are a number of issues
on the horizon that require action now if they are to
remain viable—and even ahead of the competition—
when the gloom lifts.
A few of the matters needing to be addressed now in
order to be ready when the economy grows again include
the fact that larger vessels, carrying more cargo will have to
be accommodated with deeper channels and cranes that
can handle their size and volume. Facilities to move and
house freight must be expanded. On-dock rail is a requisite
for speedy movement of freight to intermediate or final
destinations. There are increased governmental demands
for safety and security as well as improved environmental
conditions being imposed on the ports that require greater
investments as well. The list goes on. What is happen-
ing is that though business is shrinking, ports
are continuing to invest in upgr adi ng
their infrastructure. The
story is one of current
negatives and future
positives.
By Roger Morton
Expanding
While
Contracting
22 | January/February 2009 | Outsourced Logistics
Cover Feature
901LT22-25.indd 22 1/16/09 1:34:34 PM
Outsourced Logistics | January/February 2009 | 23
Among the projects is a $97.9 million wharf improve-
ment, part of TraPac Container Terminal expansion and
$42.7 million for marine wharf maintenance and im-
provements of various berths.
The Port of Tacoma. With three major projects esti-
mated to cost $1 billion, the port will increase its capac-
ity for growth and development within its industrial
core. The relocation of the Totem Ocean Trailer Express
(TOTE) Terminal is scheduled for 2009-2011. By ex-
tending the port’s Blair-Hylebos Peninsula by 6.4 acres
and moving the TOTE facility there, space will be made
in the old location to support a new terminal for NYK
Line. The Blair Waterway will also be widened to ac-
commodate larger ships.
Two berths will be built for the new NYK 168-acre
container terminal to be constructed from 2010 to 2012.
To be named the Yusen Terminals Tacoma Inc. (YTTI),
the new facility will incorporate an on-dock intermodal
rail yard with the capability of handing full-unit trains.
The port is also working to improve road and rail con-
nections from 2009 to 2013.
The Port of New Orleans. A $1 billion 2020 master
plan was announced by the port early in 2007. Reported
estimates are that short-term projects would cost $574.3
million and long-term work would be an additional
$465.1 million. The port has continued to suffer long-
term effects from Hurricane Katrina that struck the City
and Port in August 2005. Part of this is because the
US Army Corps of Engineers has halted dredging the
Mississippi River Gulf Outlet that would create deep
draft access to the port’s Inner Harbor.
Despite the setbacks, the port is moving ahead with
its projects. Most recently it awarded a $26.5 million
contract for construction of two new multi-purpose gan-
try cranes for its Napoleon Avenue Container Terminal.
These will join four cranes already in operation when
work is completed in July 2010.
The Port of Houston. The port reports that each year
7,700 vessels call there, which ranks it first in the US in
foreign waterborne tonnage and second in overall ton-
nage. The Port Commission is highly active in projects
to improve the port’s infrastructure.
Among the most current projects under consider-
ation are $30 million for Bayport Container Terminal
improvements that include building a Terminal
Administration Building and a Maintenance and Repair
Building. Additionally, consideration is being given for a
Chain Advisors sees the economic forces and infrastruc-
ture improvements favoring growth of Gulf and East
Coast ports.
Examining typical patterns of cargo arriving at West
Coast ports destined for customers in the East, the study
looks at costs for moving that freight via intermodal rail
traffic. “Faced with a tightening market and rising de-
mand,” claims Philip Damas, director of Drewry Supply
Chain Advisors, “the railroads have chosen to up their
prices rather than invest in significantly more capacity,
in the mistaken belief that they had a captive market.”
Ultimately, because of all these factors, concludes
Damas, “Intermodal costs are certain to keep rising, while
all-water costs will continue to fall, which means that the
‘land-bridge’ route will become less economic than the all-
water route except for very time-sensitive goods.”
Positive actions
Even in the face of such serious traffic issues, ports are
taking steps to improve infrastructure. Here are some
exemplary projects underway aimed at meeting future
needs as the world economy improves and demands for
port services and facilities increases.
The Port of Anchorage. This far north port services
80% of the state’s populated areas, handling 90% of all
shipped goods and moving more than 4 million tons
of freight each year. Its current $700 million expansion
project is aimed at responding to a need for facilities for
additional containerized carriers; servicing more indus-
tries related to export, such as mining and forest prod-
ucts; and lending oil field assembly and load-out
support.
Among other facilities being built under the
project manager, ICRC, are two barge termi-
nals, four container/military berths, and three
fuel berths.
The Port of Los Angeles. It is anticipated
that $383.7 million in construction projects
is to be awarded. The port’s executive direc-
tor, Geraldine Knatz, Ph.D., notes, “The rise in
construction activity underscores our mission
to continue upgrading Port infrastructure and
cargo terminals in the most environmentally
sustainable fashion. After a seven-year hiatus
in our capital development program, this con-
struction activity is a sign that we are back in
business in a big way.”
901LT22-25.indd 23 1/16/09 1:35:37 PM
24 | January/February 2009 | Outsourced Logistics
director of the Georgia Ports Authority
claims it will not only survive the cur-
rent recession, but will come out of it
stronger than ever. “Now is the time for
our ports to expand capacity and prepare
for the next wave of cargo shipped to
Georgia,” he says, “Our ports are in the
advantageous position of being able to
attract additional cargo, even in a chal-
lenging economy, while preparing for
future growth.”
At Savannah, four additional super
post-Panamax cranes will be operational
by May. Additionally, construction has
been completed for 14 additional rub-
ber-tired gantry cranes at the port. Part of
Georgia Ports, The Port of Brunswick is
building a 10,000-ton grain storage tank,
scheduled to be completed in April.
The Port of New York and New Jersey.
As with others authorities around the
to support new maritime business.
The Port of Jacksonville. Signed in
early December was a 30-year lease by
South Korea’s Hanjin Shipping Co. It
calls for construction of a new $300
million terminal by the end of 2011.
The facility will function as a key hub in
Hanjin’s East Coast port activity.
The new facility will be located ad-
jacent to MOL’s (Mitsui O.S.K. Lines)
TraPac Container Terminal at Dames
Point. Fronting on the harbor’s 441-foot
deep channel, the 158-acre Terminal is
12 miles from the open sea. At Dames
Point there will be two berths able to
accommodate post-Panamax vessels as
long as 2500 feet. Featured will be a dual
operating rubber-tired gantry and rail-
mounted gantry.
The Port of Savannah. Exuding con-
fidence, Doug J. Marchand, executive
$5 million project to deepen and widen
the Houston Ship Channel.
The Port of Tampa. Most recently the
Port Authority Board of Commissioners
approved $40 million in improvements
it characterizes as preparing the port for
significant future growth. $8.3 million will
be used for the first phase of a project
to expand the Port of Tampa Container
Terminal. The first phase will add 14.5
acres of paved storage area to the 25 acres
already at the terminal. Target date for
completion is August 2009.
The Port Authority expects to award
larger contracts for the expansion proj-
ect. Presently the Container Terminal
features a 43-foot deepwater channel,
2100 feet of berth, three container gantry
cranes and a 120-ton lift capacity mobile
harbor crane. There has been an addi-
tional $19 million allocated for dredging
T
hough this story centers more on domestic port
activities, the country’s northern neighbor has felt a
pinch from a diminished global economy, but not as
significantly as those in the US. Here’s a quick overview of
activities at three major Canadian ports.
Vancouver Fraser Port Authority, marketed as Port Metro
Vancouver. The Fraser River Port Authority, North Fraser Port
Authority and Vancouver Fraser Port Authority amalgam-
ated on January 1, 2008. Through mid-2008, overall cargo
tonnage was down 5% year over year, attributed to reduc-
tions in shipments of minerals. At the same time, in contrast
to many West Coast North American ports, total container
traffic at the port grew 4%.
Although the port is projecting overall increases in
tonnage in 2009, for the latter part of 2008 it had experi-
enced lower than usual volumes. To remain competitive,
Port Metro Vancouver is moving ahead with its $4.25 bil-
lion in capital construction plan. As it explains the overall
expansion strategy is to, “increase production at existing
terminals, expand existing facilities and explore options
for new facilities. Picking just one project as exemplary
of work underway, the Deltaport 3rd Berth Project began
construction in January 2007 and is scheduled for com-
pletion in Fall 2009. Among its principal components is an
expanded 50 acre container storage yard, a new wharf to
accommodate a third berth, expansion of an existing ship
channel and adding 73,000 feet of rail track.
The Port of Montreal. Calling itself the world’s largest
inland port, through the first eight months of 2008 con-
tainer traffic was up 8.4%. By the end of September 2008,
the Port of Montreal handled 1,117,000 TEUs (twenty-foot-
equivalent units), up 9.9% year over year. As third quarter
statistics became available, the port showed cumulative
growth of 10.1%.
The Port of Montreal’s infrastructure improvement project
is called Vision 2020. “Since the early 1990s world container
Canadian Ports Are
Sailing Ahead
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Cover Feature
Ports.Final.indd 24 1/16/09 1:12:43 PM
Outsourced Logistics | January/February 2009 | 25
country, this one has responsibility for more
than just ocean traffic. It also oversees air-
ports, tunnel traffic, light rail and more.
Among activities related to cargo, it most
recently authorized an additional $7 mil-
lion in a project to complete construction
of its Phase 1B ExpressRail Corbin Street
Intermodal Support Facility at the Port of
Newark and the Elizabeth-Port Authority
Marine Terminal.
The Port Authority has reached agree-
ments with the US Environmental Protection
Agency and ACCION New York to estab-
lish and implement a $2 million Emissions
Reduction Program to provide financial incen-
tives to truck owners operating within the Port
District. The financing is aimed at allowing the
purchase of used trucks retrofitted with new
emission control technologies.
traffic has grown almost three times faster than GDP,” notes
Patrice M. Pelletier, the port’s president and CEO. “By 2020
container traffic is expected to grow by nearly 7 % a year. We
must act right away to obtain a large share of this traffic.”
Similar in approach to Port Metro Vancouver, the $2.5
billion Vision 2020 four phase plan is to optimize current
infrastructure for increased operational efficiency and to
immediately expand capacity; expand the port existing
sites for optimum bulk and container storage; develop
new infrastructure; and to increase the port’s capacity to
4.5 million TEUs.
Port of Halifax. Through mid-year 2008, the port expe-
rienced the same lessening in traffic others were seeing.
Though year over year breakbulk cargo was up 12.4% and
ro/ro up 14.7%, they were not enough to offset declines
in bulk cargo, down 12.6% and containerized cargo, off
19.6%. Overall through the end of June 2008, total cargo
was down 14.2%. Reflecting on global economic condi-
tions in 2008, George Malec, vice president Business
Development & Operations for the Halifax Port Authority
says, “We are weathering the storm and looking to the
future. Our fundamentals are strong with a strong financial
position reflected in our 'A' outlook stable credit rating
from Standard & Poor’s. When the global economy recov-
ers, there’s every reason to expect a return to the kind of
growth that was predicted before the global economy
started to go into recession.”
Infrastructure improvement continues for the port, al-
though 2007 was a record year for investments on cargo
infrastructure. Improvements were made by doubling on-
dock rail tracks, creation of a new truck marshalling yard,
and the purchases by Ceres/NYK of two new super-post-
Panamax cranes.
A one-time dredging project is underway and will be
completed this year. The port claims to have one of the
world’s deepest harbors and at 16.8 meters, the deepest
berths on the East Coast. Other projects for the year include
construction of a new maintenance garage at a container
terminal, resurfacing of piers and lighting upgrades.
“In addition to our recent infrastructure up-grades.”
Claims Malec, “we also have the capacity to handle more
cargo. The Port of Halifax can nearly triple cargo volumes
without significant investment. With our existing footprint,
current container capacity is 1.4 million TEUs. By fully maxi-
mizing use of current terminals, expanding onto adjacent
lands and further efficiency up-grades we could facilitate
an expansion to 2.5 million TEUs. Our rail partner, CN has ca-
pacity on the rail system to more than triple volumes.”
Five Facts About US Public Ports
The American Association or Port Authorities offers these bits of informa-
tion about the role of the nation’s ports in supporting the economy.
1. Deep-draft ports, which accommodate oceangoing vessels, move
99.4% of US overseas trade by volume and 64.1% by value, according to
the US Census Bureau.
2. Ports on the coasts and inland waterways provide a total of 3,200 berths
for deep-draft ships.
3. The US Department of Transportation projects that compared to 2001,
total freight moved through US ports will increase by more than 50% by
2020 and the volume of international container traffic will more than double.
4. Since 1945, US ports have invested more than $34 billion in capital proj-
ects to enhance their facilities, and nearly $9 billion in the last five years. In
the foreseeable future, ports are projected to spend an estimated $2.1 bil-
lion more annually.
5. More than 300 million cubic yards of dredged material are removed from
navigation channels each year. Another 100 million cubic yards are dredged
from berths and private terminals. The total, 400 million cubic yards of
dredged material, would form a four-lane highway, 20 feet deep, stretching
from New York to Los Angeles.
For more information on these and other ports,
visit www.outsourced-logistics.com/portmap.
Ports.Final.indd 25 1/16/09 1:13:17 PM
Field Report
Field Report.Final.indd 26 1/15/09 10:50:50 AM
Outsourced Logistics | January/February 2009 | 27
“Bank lending tightening for large and mid-market firms; small business under substan-
tial borrowing pressure.”
Q
uotes like this one from the Federal Reserve are by no means unusual these days.
The harsh reality of today’s economic environment is bringing the importance of
managing working capital to the forefront for buyers and suppliers alike. On one
hand, purchasing organizations (buyers) are challenged to lower their net working
capital by extending their Days Payable Outstanding (DPO), and to obtain the best
possible return on their cash in an environment with historically low short-term
interest rates.
On the other hand, suppliers are struggling to find sources of operational cash flow, with all of this creating
significant liquidity risk in the supply chain. Working together, these factors of elevated risk, lower returns
and locked-up working capital are creating a perfect storm of economic pressures.
So, how does a buying organization balance the need to reduce net working capital and raise the return on
cash while reducing the supply chain risk created by the tight credit markets? What follows are some simple and
practical ways industry-leading companies in energy, entertainment, and consumer goods were able to unlock
the value confined in payables to optimize working capital while reducing the risk in their supply chains.
Holistic Approach
With the impact of the current credit crisis, more and more organizations are emphasizing the importance of a
holistic working capital management strategy that minimizes the risk in their supply chain, while still reducing net
working capital and maximizing their return on cash—a challenging proposition indeed.
The challenge is two-fold. On one hand, many buying organizations during tight economic times “protect” their
own operations by delaying payment to hold on to cash as long as possible. Such an approach defeats its purpose
when buyers do not account for the full impact delayed payments have on their suppliers and, ultimately, to their
own bottom line. The benefit of this approach to buyers is particularly reduced with the short-term return on cash
at near-historic lows.
On the other hand, suppliers of all sizes are under pressure to ensure that liquidity levels and cash flow are
sufficient to support their operations, particularly as credit tightens and alternative sources of liquidity dry up
or become more expensive. In fact, it is this issue of the credit crunch in general, and how it is affecting busi-
nesses large and small in particular, that is putting additional pressure on and adding significant liquidity risk
Strategies for
High-Yield
Working Capital in
Today’s Economic
Environment
Attention shifts between supply chain, chain
of custody and capital chain as external
forces reshape priorities for business.
By Drew Hofler
Field Report.Final.indd 27 1/15/09 10:51:07 AM
28 | January/February 2009 | Outsourced Logistics
with some portion of their suppliers, many find that they are
unable to take advantage of those early-pay discounts because
of the latency inherent in an accounts payable process still
drowning in paper. In fact, in a recent survey by Paystream
Advisors, almost half of the respondents stated that they
know they are missing existing discount opportunities due to
latency in the approval process. Half that group reports they
are losing at least 30% of their pre-negotiated early-payment
discount value.
Therefore, the first step to effective discount management
is removing the inefficiencies and latencies in the invoice ap-
proval process in order to monetize missed discounts.
One step is to receive 100% of invoices electronically and
then automate the routing, workflow and approval of those
invoices. The net result is an average invoice approval time re-
duction from 30 or 45 days to four to six days (as little as one
day in the case of PO invoices), which enables much greater
capture of existing, prenegotiated discounts.
One large energy company removed the approval latency
from its invoicing process and reduced its approval cycle
down to an average of five days. As a result, they were able
to take advantage of $15 million in pre-negotiated early-
payment discounts that had previously been lost (on overall
spend of $15+ billion).
Optimizing New and Existing Discounts
While reducing invoice approval time first enables a com-
pany to harvest the “low-hanging fruit” of previously missed
discount opportunities, it also opens the door to optimize
their existing discount terms and capture new ones as well.
With traditional two-part terms such as 2% 10/net 30,
an early payment is worth a 2% discount if paid by day 10,
but worth nothing if paid on day 11 or later, up to day 30.
Similarly, an invoice approved prior to day 10 is limited to a
2% discount, even if it is paid on day three. While such early-
payment terms may have been the best option in the days of
paper processing, these terms are insufficient to the opportu-
nity presented by electronic invoicing.
Automating the process enables buyers to offer their sup-
pliers accelerated payment at any point on the invoice time-
line and can include automatically pro-rating the discount,
allowing the buyers to capture the full value that otherwise
would be lost.
Discount management enables buyers to capture Standing
Early Payment opportunities on a greater proportion of their
spend through automated notifications and supplier self-service.
to supply chains in many industries.
World-class companies in diverse industries such as phar-
maceuticals, energy, financial services, telecommunications,
transportation, etc. have been able to remove supply chain
liquidity risk while raising their return on cash and reducing
their net working capital using steps including:
1. Discount Management – Gives the ability to use cash
to finance supplier early payment—preserving the suppliers’
health—while at the same time generating excellent short-
term returns for the company.
2. Third Party Financing – Introduces a third party to
fund accelerated payment to suppliers at very low rates—
again removing supply chain risk—thus enabling the exten-
sion of Days Payable Outstanding (DPO) and lowering net
working capital needs.
A Gartner study predicts that, by the end of 2009, at least
30% of the Fortune Global 2000 would adopt dynamic early-
payment discounting as a standard practice in their accounts
payable departments.
Consequently, buyers would not only capture early-pay-
ment discounts where available, they would also proactively
negotiate discounts with suppliers.
Many suppliers are currently unable to access adequate
liquidity and those who can are often forced to resort to high-
cost financing options. As an alternative, in exchange for
accelerated payment, many suppliers are willing to offer dis-
counts that equate to significantly better return on cash than
other short-term liquidity management investment options.
For example, buyers can offer to pay a supplier 20 days early
in exchange for a 1% discount off the invoice, which repre-
sents a quite significant 18.25% APR return to the buyer. The
supplier then gets access to the full amount of the invoice less
the discount, which reduces their DSO and is not debt on the
balance sheet. It is a win for both sides of the transaction.
But, what if there are no such pre-negotiated credit terms?
Buyers and suppliers can negotiate discounts dynamically
depending on their cash flow position. In essence buyers and
suppliers collaborate with each other and negotiate mutually
beneficial payment timing. There are three ways in which
Discount Management enables buyers to maximize the ben-
efits of accelerated payment discounts:
1. Monetize missed discounts
2. Optimize discount terms
3. Capitalize on dynamic discounts
While most companies have negotiated early-payment
terms (e.g. 2%/10, net 30—2% in 10 days, net in 30 days)
Field Report
Many suppliers are currently unable to access adequate liquidity and
those who can are often forced to resort to high-cost financing options.
Field Report.Final.indd 28 1/15/09 10:51:16 AM
Outsourced Logistics | January/February 2009 | 29
maximizing their Days Payable Outstanding (DPO). And that
is where third party financing fits into the cash management
picture. Introducing a third party can inject cash into the sup-
ply chain, leveraging buyers’ credit strength to offer suppliers
financing at rates typically far below their alternatives.
With Supply Chain Financing, the supplier is still paid early,
while the buyer pays the invoice at its full net term—thus tak-
ing out costs from the supply chain through cheaper financing,
removing liquidity risk through accelerated cash flow, and re-
ducing Net Working capital through maximizing DPO.
In practice, a nationwide auto parts retailer with high Days
Inventory Outstanding and low Days Payable Outstanding
needed to reduce its Net Working Capital. To accomplish
this, the retailer employed Third Party Financing as a tool
to enable it to extend its DPO without adversely affecting its
suppliers. Because of the very low financing rates the third
party was able to offer, the impact to suppliers was net neu-
tral in most cases (longer terms offset by cheaper financing =
net neutral cost to suppliers). As a result, over a period of six
years, this company increased its DPO by 91 days (11% year
over year), freeing up $873 million in working capital.
By leveraging the buyer’s credit rating and low cost of capi-
tal, supply chain financing is able to provide early payment to
suppliers at an extremely low rate, often less than half what
suppliers can get through other credit sources (e.g. factoring,
asset-based lending, and the like). As a result, buyers can
extract some of those savings from suppliers through longer
payment terms, thus extending DPO and freeing up working
capital. For every $1 billion in payables, extending terms by
just 15 days frees up $41 million in working capital.
For example, 35% of $1 billion overall spend targeted for a
DPO extension of 15 days frees up over $14 million in work-
ing capital. At an annualized rate of 10%, that cash is worth
over $1.4 million in bottom-line savings.
While the dark clouds of the current economic climate may
signify many challenges for buyers and suppliers alike, there
is a silver lining. Buyers have a unique opportunity to remove
supply chain risk and yield significant returns by leveraging
cash flows and discount terms and, when appropriate, inject-
ing third party financing to extend DPO.
Drew Hofler. is Senior Manager, Financial Solutions for Ariba.
Ariba Inc is a leading provider of on-demand spend management
solutions designed to help users source, contract, procure, pay,
manage, and analyze their spend and supplier relationships. www.
ariba.com
One large computer manufacturer introduced pro-rated
standing early-payment discount terms to its supply chain
and increased the number of suppliers accepting standing
payment terms by over five times, penetrating greater than
30% of their spend.
Finally, while it is ideal to establish early-payment terms
with as many suppliers as possible, there are many who do
not need accelerated cash flow on an ongoing basis and are
not willing to agree to standing early-payment discounts.
Depending on the nature of the suppliers’ particular busi-
nesses, they may have an increased desire for cash at various
points in their business cycles. With these suppliers, auto-
mated Dynamic Discounting adds value by enabling buyers
and suppliers to make opportunistic decisions on payment
timing depending on the cash situation.
Dynamic discounting allows buyers to establish offers of
discounted early payment to suppliers that are automatically
presented whenever an invoice from a particular supplier or
group of suppliers is approved. At that point, the supplier has
the self-service ability to accelerate their payment whenever
they need it simply by clicking a button to accept the dis-
count offer. Essentially, dynamic discounting enables buyers
to capture previously missed opportunities to finance suppli-
ers in a supplier-self-service, automated model.
An entertainment industry company utilizes automated
dynamic discounting to offer early payment to 100% of their
suppliers not on prenegotiated early-payment terms. Rather
than relying on suppliers to call them and request early pay-
ments, or trying to reach out manually themselves, they em-
ployed a “set it and forget it” strategy to automate the process
and reap the return with little effort on their part. They have
averaged 10% APR return on discounts captured in this sup-
plier self-service model.
The bottom line on discount management is that by re-
moving latency from the invoice approval process in order to
capture missed discounts can inject liquidity into the supply
chain and earn returns on short-term cash far exceeding alter-
native liquidity investments.
Following is an illustration that demonstrates that for $1
billion in spend, buyers can earn $4.5 million in discounts—
assuming an average discount of 1.25% (~15% APR on avg.
30 days early pay) on 30% of spend.
While Discount Management gives buyers the ability to fund
their suppliers’ short-term cash flow needs in exchange for an
above-average return on cash, many organizations choose to
focus instead on lowering their Net Working Capital needs by
While the dark clouds of the current economic climate may signify
many challenges for buyers and suppliers alike, there is a silver lining.
Field Report.Final.indd 29 1/15/09 10:51:24 AM
30 | January/February 2009 | Outsourced Logistics
That effort started with a two-day sym-
posium that included what the military re-
fers to as a Tactical Exercise Without Troops
(TEWT). Though the first-ever event
brought together nearly 300 Iraqi Army
officers and their Coalition counterparts
(including over a dozen generals), it only
lays the groundwork for “improving Iraq’s
logistical capability through partnership
and assistance.” The job of carrying the
knowledge and concepts to the Iraqis who
will build those logistics networks rests
with people like CW3 Rodney L. Hughes
Sr. and SFC Josue Martinez. Hughes is a
team chief of a Logistics Training Assistant
Team (LTAT) and Martinez is one of the
many Coalition logistics specialists working
directly with Iraqis. They provided back-
ground on the effort thus far.
Much of the previous Iraqi effort to build
up logistics capabilities relied on trial and
error. What seems to work in one province
may not work in another, say the two Coalition specialists. This
makes it very difficult to take the approach of building a logistics
system that can be generalized to meet the needs of the whole
country. In addition, what is counted as success in one place may
be taken as a setback in another.
There is an additional hazard of cultural sensitivities, which can
be reflected in different perspectives on the part of the various tribal
regions. Implied in this issue is not only the fact that one region
may view issues differently than another, but pointing to a group or
region as “good” can jeopardize success in another area. Teaching
or training to a “best practice,” therefore, becomes a treacherous ap-
proach. It quickly becomes clear why a train-the-trainer approach
is important to carry out the ultimate mission. As Ralph Waldo
Emerson observed in his 1841 essay on self-reliance, “An institu-
tion is the lengthened shadow of one man.” In Iraq in 2009 the goal
is to prepare many men to cast their shadows.
Among the broad challenges is the fact that forms and required
paperwork used to maintain accountability are constantly changing.
Logistics Services
A
powerful goal of the Coalition Forces prepar-
ing to exit Iraq is to help the Iraqis build a
sustainable society, government and econ-
omy. The purpose of a joint Iraqi/Coalition
tactical exercise late in 2008 was to “practice the planning
and execution of logistical operations in their drive to-
wards self reliance.”
The effort to provide training quickly becomes a challenge
of language, culture, geography, technology and infrastruc-
ture. To succeed, the efforts of the logistics training teams will
need to be disseminated quickly through multiple networks.
One approach they are taking is “training the trainer.”
Coalition members articulate the
challenges of helping Iraq build a
sustainable logistics capability.
Iraq Builds Its Logistics Network
901LT30-36.indd 30 1/16/09 2:55:47 PM
Outsourced Logistics | January/February 2009 | 31
Though the focus is on logistics to support the Iraqi military
bases and efforts, those bases don’t exist in a vacuum. The
economy of the community in the immediate area of a military
base plays an important role. Not only do civilian resources
help build the military capabilities by providing skilled work-
ers and materials, they facilitate realization of the current
non-military supported self-sustainment assets. These include
telephone and Internet services and all classes of supply. As
they evolve and develop, the skills and capabilities of the two
logistics systems, military and non-military, become more in-
terchangeable and support each other.
There are 65 LTATs working with the Iraqi Army, National
Police and Special Operation Forces to improve logistics. “This
is a critical part of our exit strategy,” said Major Lowell Howard,
Logistics Training and Assistance Team Support Officer for Fort
Riley’s 1st Sustainment Brigade.
The work is far from finished, but as the Iraqi Army has
improved its logistics capabilities, it has reduced its reliance on
Coalition Forces’ support for logistics, points out Iraqi Staff Lt.
General Abdullah, the Deputy Chief of Staff-Logistics for the
Iraqi Joint Headquarters.
Thanks to CW3 Rodney L. Hughes Sr.,16th SB LTAT Team Chief,
and SFC Josue Martinez and to Sgt. Alexander Gago, Public Affairs
Officer, 3rd Sustainment Command (Expeditionary).
This makes the transition from individual and outdated practices
and systems to general, accessible and flexible systems a greater
challenge. Similarly, there are barriers to setting up basic tools
like a database system to manage large amounts of information
needed to support specific and overall logistics goals. Even on
the level of the operations themselves, the ability of the Iraqi
soldiers carrying out logistics tasks to identify items by stock
number or part number becomes a training issue and a matter of
developing proper systems support.
A conventional classroom approach of teaching concepts must
be heavily supplemented with on-the-job training. While train-
ing for specific roles and functions in a warehouse, the trainers
must also teach the bigger context of why those functions are im-
portant and how they fit into the overall operation. At the same
time, trainers are motivating and giving purpose to the trainees.
The approach involves continual demonstration, hands-on expe-
rience and praise for good practices and behaviors.
The trainers have learned to take logistics one piece at a time
and use repetition in the training process to ensure mastery of
the skill or procedure. They couple this with efforts to analyze
and select personnel who have shown the best fit for some of
these key positions.
Language and communication present obstacles. Word-by-
word translations are inadequate. It is important to communi-
cate concepts and descriptions of ideas. With direct translation,
“You often lose the meaning and intent of what you are actually
trying to convey,” say the trainers. And that communication
runs both ways. “Not every system in the Western culture will
fit into the Eastern culture. Be aware of practical differences,”
they point out. Forming a friendly relationship will require
time and constant interaction before doing business, but it will
pay great dividends.
Central to achieving some of the short-term and long-term
goals is the establishment of channels of communication
between the logistics system users and outside “customers”
and suppliers to build a logistics team concept and spirit.
Information technology helps support this, but the systematic
involvement of elements at all levels through meetings, brief-
ings and practical exercises and acknowledgement of checks
and balances among the internal chain of command are all
foundation elements in building a solid logistics system.
Network
Chief Rodney L. Hughes Sr., Logistics Training
Assistant Team (LTAT) team chief, works closely
with Iraqi Army officers to develop logistics skills
and train Iraqis.
901LT30-36.indd 31 1/16/09 2:55:48 PM
32 | September 2008 | Outsourced Logistics
32 | January/February 2009 | Outsourced Logistics
Logistics Services
A special ‘hook’ system designed by
Volga-Dnepr Airlines’ technical experts to
secure heavy, single pieces of air cargo for
transportation was used successfully to deliver
a 98 tons hydro turbine motor wheel from Russia
to Kyrgyzstan.
The shipment was transported on December
4th from Saint Petersburg in Russia to Bishkek,
Kyrgyzstan, on board one of Volga-Dnepr’s AN-
124-100 freighters. The turbine was destined for
the Kambartinskaya GES-2 hydro-electric power
station, currently under construction.
The motor wheel measured 6.25 meters in
diameter and was 3.5 meters high. It was held
securely in place during the flight using the
‘hook’ technology inside the aircraft’s freight
compartment. This is the latest piece of unique
technology developed by Volga-Dnepr Group’s
Technical Director Department for the carriage
of outsize and heavy air cargo.
Mergers and More. . . Some On, Some Off
Even within a volatile and diminishing economy, activity continues with mergers, acquisitions and alliances.
A Celadon Group wholly-owned subsidiary has acquired Continental Express Inc.’s truckload, intermodal and
brokerage business for $24 million. Along with the business units, some 400 Continental tractors and 1,100
trailers are part of the deal. Continental is reported to have had $92 million in gross revenues in 2007. “Based
on our evaluation of the business, we believe Continental has quality customers and drivers, but suffered from
a cost structure that plagues many mid-sized carriers,” says Steve Russell, Celadon chairman and CEO. “We ex-
pect to integrate the acquired operations promptly. As part of the integration process, we expect to optimize the
combined customer, driver, and equipment base to improve asset productivity.”
Bangalore, India-based Infosys Technologies and Columbus, OH-headquartered Sterling Commerce are ex-
panding their global alliance to enable them to grow their combined service offerings into the financial services
and retail markets. The two companies have had a partnership for more than 10 years with clients in manufac-
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Logistics Services.Final.indd 32 1/16/09 2:32:52 PM
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Outsourced Logistics | January/February 2009 | 33
Success is predicated on a multi-hub
strategy that will include Paris Charles-
de-Gaulle, Amsterdam Schiphol, Milan
Malpensa and Rome Fiumincino.
Through optimization and synergies,
Alitalia looks to save $951 million over
three years from the venture.
of Austrian.
At last, the melodrama ends as Air
France-KLM joins a relaunched Alitalia.
The strategic partnership comes at a cost
of $427 million by Air France-KLM (AF-
KLM), for which it receives a 25% stake in
Compagnia Aeria Italia, the new Alitalia.
turing, banking, telecommunications
and life sciences. “This extension of our
successful relationship comes at a time
when clients are looking for companies
to work together to deliver the value
they need out of their existing systems,”
claims C. Kakal, senior vice president of
enterprise solutions at Infosys. “With the
largest number of consultants trained
on Sterling Commerce technology in
the field, Infosys is already providing
deep domain and industry expertise to
Sterling Commerce customers.”
i2 Technologies has called off its move
to merge with JDA Software Group, Inc.
Previously JDA had gained strength in
process manufacturing and transporta-
tion through its acquisition in July 2006
of Manugistics. Adding i2 would have
given JDA entry into electronics, auto-
motive, high technology and transporta-
tion discrete manufacturing. In discuss-
ing the end of merger plans, i2’s execu-
tive chairman of the board of directors,
says the company has, “excellent cus-
tomers, employees and a strong financial
position with significant cash balances.
While it is unfortunate that we could not
consummate the merger agreement with
JDA, we look forward to fully focusing
on making our customers successful.”
A new intermodal service offering
combining neutral ocean services with
a neutral drayage product through a
technology platform has been created
through the collaboration of Vanguard
Logistics Services and RoadLink. The
service, DrayMate, will be used by do-
mestic and international agents to pro-
vide the US domestic customs broker
and freight forwarding community with
drayage that can be offered to custom-
ers along with quotes for core ocean
services.
Currently in a buying mood, pend-
ing governmental approvals, Lufthansa
will purchase a 41.6% stake in Austrian
Airlines at a cost of €366.6 million. It
will also make a public offering to re-
maining shareholders. Lufthansa has
been approved by its supervisory board
to spend enough to reach 100% control
Logistics Services
Logistics Services.Final.indd 33 1/16/09 2:33:34 PM
34 | January/February 2009 | Outsourced Logistics
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UPS Opens Shanghai Hub
UPS has placed in service a new international hub in Shanghai, China.
The company says the new hub will improve access to China and speed
the movement of express packages and heavy freight around the world.
The facility is located at the Pudong International Airport, in the Yangtze
River Delta area, and now becomes the key gateway linking China to UPS’s
global network, the company said. It features the largest on-site 24/7 cus-
toms inspection area in Shanghai and was built to a unique design that
facilitates rapid handling of express packages in addition to heavy freight.
“Everything about this facility was built for speed and reliability,” said
Dan Brutto, president of UPS International. “Linked now to our vast inte-
grated transportation network, it opens wider the doors of commerce with
China. We believe Shanghai will become an even more attractive business
location because our customers will recognize the importance of a world-
class UPS facility that provides rapid access to the world.”
Joining Brutto at a special opening ceremony were Mr. Wu Nian Zu,
Chairman and President of the Shanghai Airport Authority (SAA); Derek
Woodward, president of UPS Asia Pacific Region, and Richard Loi, the
head of UPS China.
“As the world’s third largest airport by cargo tonnage, and with annual
growth of 11.5%, Shanghai Pudong International Airport offers a well-es-
tablished air network that connects 179 international and domestic cities,”
said Mr. Wu, Chairman of SAA. “The opening of the UPS hub, the first
foreign-run hub in the West Cargo Handling Area, further accelerates the
implementation of the national Shanghai Aviation Hub Strategy, strength-
ens the position of the airport and boosts the economic development in
Shanghai, the Yangtze River Delta and China,” he continued.
The hub features 117 conveyor belts and 47 docking bays and has a
package sorting capacity of 17,000 pieces per hour. It also is designed for
simultaneous rapid processing of heavy freight.
To speed the processing of packages and freight, UPS collaborated
with Shanghai Customs to deploy an industry-first customs risk manage-
ment system at the facility. By merging UPS information with Customs to
identify high-risk items for inspection, the system minimizes unnecessary
checks and expedites shipment clearance for delivery to recipients.
The dedicated customs area is equipped with advanced technology en-
abling automated import and export inspection, thereby increasing overall
package flow efficiency. With a touch of a button, specific packages can be
routed off the main conveyor belts for inspection without impacting the
flow of the remaining packages, says UPS.
With its high sorting capacity, the hub improves delivery times for
customers in eastern China by a full day, the carrier claims. In addition,
pick-up times for express and cargo shipments in Shanghai will be pushed
back by one hour and four hours, respectively, so customers have greater
flexibility in shipment preparations.
Another industry-first feature, says UPS, is the “Shipper Build Area” at
the General Cargo Handling Area, which allows customers to perform on-
site packaging before goods are loaded on the aircraft. This eliminates the
current industry practice of processing goods at a separate facility.
Logistics Services
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Stay up with the most current
logistics news, daily features,
white papers, webcasts
and more at:
outsourced-logistics.com
Logistics Services.Final.indd 34 1/16/09 2:34:06 PM
Outsourced Logistics | January/February 2009 | 35
T
oday’s global manufacturing and shipping
patterns significantly influence freight trans-
portation within the United States. In recent
years the ocean, air, rail and trucking industries have
individually responded to shippers’ changing needs,
adapting their services according to demand. As the
nature of carriers’ service offerings changed, their
pricing structures were also modified to reduce am-
biguity and reflect real-time cost considerations.
However, the pricing structure and methodol-
ogy of the less-than-truckload (LTL) segment is
based upon a rigidly structured freight classification
system that does not conform to the transportation
requirements of a global supply chain network.
Consequently, opportunities for efficiency and col-
laboration are underutilized or completely missed by
the LTL carriers.
The LTL industry has been part of the US trans-
portation system for more than half a century. Its
baseline pricing structure was originally adapted
from the railroads and involves assigning a class
designation to freight according to its character-
istics (density, stowability, handling and liability).
Although it soon became LTL industry specific, this
freight classification system was further ingrained
into LTL carriers’ pricing structures through longtime
economic regulation.
Today there is a stark difference between the do-
mestic LTL system of classifying freight and the global stan-
dard of density-based shipment characterization. While the
classification-based system may remain viable on domestic
traffic, the LTL industry is missing an opportunity to tap into
import and export traffic that competitors are entering.
With density-based pricing, the physical volume and
weight of a shipment are used in lieu of a class to determine
shipping costs. Density-based pricing more accurately reflects
the transportation costs associated with a shipment’s physical
characteristics and provides a common, comprehensive and
reliable language for global trade; therefore, density measure-
ments have become the worldwide standard when determin-
ing transportation base pricing.
In a world where international door-to-door pricing is sup-
planting pricing by mode, the classification-based LTL pricing
system is incongruous for dealing with import/export traffic.
The pressure to move to a standardized density-based pricing
system can only grow as borders are crossed.
In the LTL world, cubic capacity utilization and distance
are two of the most significant cost factors when moving a
shipment. Generally, carriers fill a trailer’s finite cubic capacity
before they reach the regulated weight limit. Those who favor
moving to density-based rates argue that carriers should price
their services based on the resources used, such as a ship-
ment’s space and weight utilization or its density components.
Obviously, the distance the shipment moves would also be
encompassed in the pricing.
An added benefit of density-based pricing is that once
the physical metrics of the shipment are known technology
can apply that intelligence in load optimization software
to enhance load planning, equipment utilization and labor
management. Today’s radio frequency identification (RFID)
and bar-coding technologies promote information transfer
through simple scans–this information transfer could include
shipment density for automated rating. Efficiencies such as
these can be shared throughout the supply chain since, once
Logistics Services
Community Voice
Connecting Domestic Pricing
to the Global Supply Chain
By Daniel M. Acker`
Daniel M. Acker issues a
call for domestic pricing
systems to be aligned with
international conventions
to ease global trade.
Logistics Services.Final.indd 35 1/16/09 2:34:17 PM
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36 | January/February 2009 | Outsourced Logistics
captured, shipment metrics can be passed from
mode to mode from origin to destination.
Density-based pricing scenarios also give ship-
pers more control over their transportation spend-
ing. Freight re-classification is a lengthy process
involving a board hearing, but under a density-based
system, a shipper can redesign their packaging for
improved space utilization (which increases density)
and receive immediate freight savings on the very
first shipment.
Shrinking freight volumes in the LTL
market, fluctuating energy costs, environ-
mental concerns and infrastructure conges-
tion all contribute to the growing need for
optimizing the LTL industry’s load factors.
Today’s classification-based structure uses averages
to determine an individual shipment’s density and
its resultant class, while density pricing provides
shipment information that facilitates accurate load
optimization and system efficiency.
LTL carriers who offer international shippers and
freight brokers a density-based pricing scenario
make themselves available as a player in the global
supply chain. Shippers also benefit from the density
standard, simplifying their operations through com-
mon, standardized processes and technology sys-
tems for both domestic and international shipments.
The consequences of failing to modernize the
LTL pricing model are plain to see. However, there
is work to be done; planning, effort, foresight and
a systemic realignment of the industry’s thought
processes are all required. But in the end both the
carrier and shipper will realize new opportunities to
more closely match the transportation service to the
shipper’s needs.
Daniel M. Acker has been active within the motor car-
rier industry for over 30 years. His background includes
managing daily operations and administration, with
heavy emphasis in the cost, financial and statistical ar-
eas. As Senior Vice President of Research and Economic
Analysis for SMC³, Acker oversees the company’s eco-
nomic updating of its CzarLite benchmark rate products,
SMC³’s Carrier Cost Index (CCI) and other industry
studies. www.smc3.com.
Logistics Services
Logistics Services.Final.indd 36 1/16/09 2:45:48 PM
Outsourced Logistics | January/February 2009 | 37
pete with some their own ser-
vice offerings. And fourth, they
sell services to companies they
compete with on some accounts
or in certain markets. This in addi-
tion to the traditional manufacturing
and retail users of logistics services.
From the user’s perspective, the tangle is
nearly as complex. A long-stand-
ing bias against shared facilities or
shared capacity is slowly break-
ing down. Logistics providers
are creating shared-use facilities
to serve specific market segments
with common sources, common
customers, or both. An example
is the Exel Optical Village. The
3.5-million-sq-ft facility provides
manufacturing, packaging, storage and distribution capa-
bilities for lens and eyewear companies.
T
he shift in focus is
too significant to
ignore but too sub-
tle to label as a trend.
We’re moving from a
cost-based to a value-based model
in outsourcing, and the impact will
have far-reaching consequences.
Central to this view is the percep-
tion of logistics as a service. That
takes some of the emphasis off the
assets and places it on results. One
major logistics provider recently
described a tangle of relationships
that would have given a genealogist
pause. First, they buy services from
other divisions of their own com-
pany. Second, they sell services to
those divisions. Third, they buy services from other logis-
tics providers, including companies which directly com-
3PL Report
Users still want value
from their logistics
service providers.
By Perry A. Trunick
Focus on Value
901LT37-39.indd 37 1/16/09 2:34:06 PM
is, that’s what the customer pays. One
reason that may work for Odyssey is, as
Shellman explains, the company handles
movement from origin to destination,
including clearing customs, processing
international documentation and effecting
foreign payments in hard currencies.
Another major 3PL describes its rela-
tionship with a customer where the 3PL
manages the full range of global trans-
portation planning and execution except
freight bill payment. Those arrangements
ensure the company sees its actual freight
costs and is able to budget based on those
costs and negotiate fees for additional
services provided as part of the transpor-
tation management contract. On the one
hand, this may speak to a discomfort with
what some providers may be charging in
mark ups, but on the other hand, it puts
the focus on the service aspect of the con-
tract and the value that is delivered there.
“We don’t do gain share and never
will,” continues Shellman. “The reason
we don’t do it is, it doesn’t work. It doesn’t
lend itself to a partnership. It ends up
in a contest between the organizations
as to who can prove there’s great savings
and who can prove there weren’t great
savings so that the fees are lower.” That
doesn’t stop users from asking for gain
share, or savings share as Shellman calls
it. Shellman turns the discussion to think-
ing more in terms of strategic solutions.
The first question is, does the outsourcing
improve service? Second, is the question
of whether the deployment of a 3PL or
4PL saves money. And third is the issue
of whether the fees for the service will
provide a return on investment above the
savings.
Reinforcing the sense of partnership,
Shellman says Odyssey’s minimum con-
tract is three years. That said, Shellman
doesn’t like to go over seven years. The
six-year-old company, specializing in bulk
and chemical logistics, has had every con-
tract renewed when it reached the end if
when charges can be 30% or more above
a comparable internal market rate,” said
Compass. “Fewer outsourcing providers
are entering into contracts that have nega-
tive cash flow in year one in order to fund
a short term discount for their clients.”
The Compass report continued, “The
economics of outsourcing and the way
deals are managed is going to change rad-
ically in the months to come.” Compass
predicts that with the attraction of short-
term discounts removed from outsourcing
deals, providers and purchasers will need
to adopt a more precise and co-operative
approach to the way contracts are put to-
gether, priced and managed. Specifically,
companies are seeking reassurance that
the price they are paying remains com-
petitive throughout the contract lifecycle
and clarity on the areas where they and
the provider could collaborate to achieve
sustainable cost reduction.”
Back on the logistics front, Odyssey’s
Shellman describes how he executes on
all modes globally as well as managing
3PLs. “Our business model allows for
complete transparency to the underlying
cost of all of the global transportation,
and if we’re paying 50 cents a mile, our
customer pay 50 cents a mile.” The same
is true in other modes, says Shellman.
Whatever the containership freight cost
The evolving logistics service sector
is, at times, moving faster than our abil-
ity to coin descriptions for the hybrids.
“When we described ourselves to clients,”
says Bob Shellman, CEO & president of
Odyssey Logistics & Technology, “one of
them jumped up and said, ‘Wait a minute,
you’re a 4PL and a 3PL; you’re a 7PL.’”
While he chuckles when he retells the
story, Shellman is serious about the com-
pany’s role as a 4PL, managing other 3PLs
for its clients. He says Odyssey is also a
3PL and “does the work.” “We manage
over 100,000 origins and destinations on
a global basis,” he points out.
“The whole area of logistics is pre-
dominantly service driven,” agrees
Anand Cherian, VP of technology,
NIIT Technologies. As such, continues
Cherian, you cannot deliver and keep
your customers happy unless you have a
well-engaged, well-educated motivated
work force. That’s not something that
shows directly on a bottom-line cost anal-
ysis, leading Cherian to observe, “It’s gone
from a cost-based model to a value-based
model.”
It may be true that users are looking
for value, but other factors are also shap-
ing the attitude shift away from price and
discounts. Shrinking credit markets were
having an effect on pricing of long-term
outsourcing deals, according to a study
by Compass Management Consulting.
Analysis of 125 outsourcing deals over the
last two years was showing that discounts
in the initial years are no longer available
as outsource service providers are now
unwilling, or unable, to fund losses in
the early years of their contracts said the
Compass report.
“Outsourcing providers have typically
made long term deals attractive by offer-
ing pricing structures that deliver signifi-
cant discounts on the cost of the in-house
operation it replaces in the first year of
the contract. This initial discount is re-
covered in the later years of a contract,
38 | January/February 2009 | Outsourced Logistics
3PL Report
“The
economics of
outsourcing and
the way deals
are managed is
going to change
radically in the
months to come.”
901LT37-39.indd 38 1/16/09 2:34:07 PM
Outsourced Logistics | January/February 2009 | 39
Cherian. It’s not a case of buying a product
or service in the market and tuning your
business to meet the product’s demands
or the service provider’s structure. The
basic questions are changing from, “What
does this technology do?” or “What ser-
vice do you provide?” to “How is this ser-
vice or this framework you have helping
me accomplish my business goals?”
The way you define your business
goals matters, continues Cherian. He
points to one company with the ap-
proach, “How can I pay the least to
get the maximum amount of work?”
Another company in that same industry
takes the approach, “How can I increase
the quality of the interaction my employ-
ees have with my customers and I have
with my employees, thereby motivating
and boosting their morale and desire to
produce more?” Both approaches have a
goal or controlling or reducing costs, but
the tools (including outsource service
providers) used for each will be different.
One will focus on the low-cost provider,
the other on the partner who can help
increase business value.
Service level agreements that spell out
operational details and cost goals, among
other things, are tools to achieve a larger,
more strategic goal in Cherian’s view.
A successful approach to outsourcing
for both Shellman and Cherian is one
that shifts responsibility to an outside
provider for functions that don’t help
differentiate a user’s brand or directly
enhance the customer experience or rela-
tionship. The responsibility for granular
detail and doing the root-cause analysis
to fix problems or improve performance
levels must be spelled out, but it is shift-
ing to the service provider to allow the
user of outsourcing to focus on business
goals and supporting a value proposition
with will, Cherian feels, ultimately gain
and keep the best customers and best
employees.
NITT is a software services organization
and Cherian’s experience with compa-
nies outsourcing tech services may have
led trends with logistics outsourcing.
Initially, in the 1980s, customers wanted
to maintain complete control, he notes.
They didn’t want to become dependent
on their service provider. Then, the at-
titude changed 180 degrees and com-
panies wanted to push everything out
to a service provider. Neither approach
worked very well to move services or
technology forward.
We’ve matured, he says, and now re-
alize that total dependence or total in-
dependence don’t work. There’s always
finger pointing. Today, and going into
the future, the services are decided upon
by both sides. The user and the service
provider sit together and plan for the next
quarter and the next half-year and the
next year, he continues. And each side
then says, “OK, I’m good at doing this
and you’re good at doing that.” “Because
of this approach, organizations are now
more comfortable moving away from
that monolithic logistics outsourcing to
best-of-breed logistics outsourcing,” says
Cherian.
This collaborative approach allows
both the user and the service provider
to advance their practice, according to
its term and, says Shellman, more clients
are asking to change from a three-year
period to a five-year term.
Starting up in a time when users ex-
pected their 3PL to issue them a check for
savings, Odyssey was able to avoid that
and charge fees because of its approach
to logistics on a strategic level and its
leverage with asset-based suppliers. The
service argument may resonate more with
users now than it did six years ago, but the
ability to deliver lower costs is still impor-
tant. “We have over $200 million of spend
in bulk truck alone,” says Shellman, and
he sees that growing. A single customer
can look at its total transportation spend
and see a big number like $50 million,
but, notes Shellman, “that’s all they’re
ever going to have.” The 3PL makes them
bigger on day one, and bigger with all
modes. That’s one reason Odyssey passes
through actual freight costs with no mark
up. The savings should be visible and the
fees for services should also be clear.
In a very true sense, most of what a
3PL does may be straightforward trans-
portation management, but Shellman
pauses for a moment to reflect on why US
companies specifically find it difficult to
achieve similar results. “It was a very ugly
business event that’s been occurring over
the last 15 years called right sizing and
down sizing,” he says. Companies elimi-
nated as much of the cost in non-core
areas as they could and invested in core
areas. They weren’t putting the money in
personnel or technology for transporta-
tion management. (By contrast, Shellman
claims, Odyssey bought one of the largest
transportation management systems sup-
pliers and continues to invest in its tech-
nology to serve its 3PL customers.) So,
while many transportation departments
were struggling to “maintain” the 3PL was
constantly upgrading skills and technol-
ogy and adding volumes.
NIIT Technologies’ Cherian adds
another slight twist on the evolution.
“It was a very
ugly business
event that’s
been occurring
over the last
15 years called
right sizing and
down sizing,”
901LT37-39.indd 39 1/16/09 2:34:08 PM
40 | January/February 2009 | Outsourced Logistics
3PL File

Mission Statement: To provide the highest quality of customer service
delivered with a sense of warmth, friendliness, individual pride and company
spirit. Sunteck strives to continuously leverage technology with industry best
practices to create a better business model for employees, agents and customers.
Capabilities: Sunteck’s portfolio of services include truckload and LTL,
intermodal, expedited, and distribution/logistics (pool distribution, “last mile,”
“white glove,” warehousing) for the private and public sectors. It focuses on
providing these services within a diverse range of end-use markets, including
food, automotive, paper, printing, electronics, general industry and various other
consumer goods and retail products.
Financial Rating/Stability: $110.3 Million (2007 Gross Revenues:
January-December) $81.8 Million (2008: January-June 30, 2008)
Technology Advantages: Technology is at the center of Sunteck
operations, providing optimization, integration and visibility for customers. Its
state-of-the art, proprietary dispatch and tracking software is complimented by
one of the industry’s most proficient data storage and disaster recovery programs.
Sunteck supports the latest EDI and nontraditional proprietary formats to
transmit and receive vital business documents. The company utilizes value-
added networks (VANS) and the Internet to effectively transport this data in both
real time and batch environments. Sunteck’s IT professionals work closely with
its customers to determine and implement the most efficient method of EDI or
web-based solutions.
Additional Services Offered: Management of national supply chains
with complete tracking, scanning, reporting, and invoicing all from one system.
Professional consultative analysis of current supply chain processes. Increased
flexibility of fleet and specialized distribution services with one EDI bill. Wide
array of distribution specialty services including installation, home delivery, and
pick and pack fulfillment.
How It Differentiates ltself: As an experienced logistics company with
both brokerage and contract carrier operating authority, Sunteck can quickly
respond to changing market conditions and evolving customer needs. Its
experienced freight coordinators and logistics managers have the flexibility and
freedom to assess each customer’s service and cost requirements and implement
the best transportation solution for every shipment.
Company Name:
Sunteck Transport Group
Ownership:
Subsidiary of
AutoInfo, Inc.
Publicly Owned
Stock Symbol:
AUTO
US Headquarters:
6413 Congress Ave.,
Suite 260
Boca Raton, FL 33487
800-759-7910
Website URL:
www.suntecktransport.com
Foreign Locations/
Markets Served:
Non-asset based
transportation and logistics
services are provided
through broad freight
brokerage and motor carrier
operations connected across
the US and Canada through
a diverse network of agents.
Key Personnel:
Harry Wachtel, President &
Chief Executive Officer
William Wunderlich, Chief
Financial Officer
Michael P. Williams, Chief
Operating Officer
Mark Weiss, Executive Vice
President
Year Founded:
1976 (AutoInfo)
Number of
Employees:
Combines company drivers
and owner-operators
with 28,000 contracted
independent motor carriers.
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