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outsourced-logistics.com

July 2008

Also in this issue:
Why Size Matters in Global Supply Chain Services Diebold and Menlo 7 Steps to Improve Transport Management Part 2 India Faces Its Logistics Challenges

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A New Paradigm in Logistics Outsourcing
n recent years there has been a significant evolution in the use of logistics outsourcing in supply chain management. What was formerly an ad hoc decision to hire a transportation provider or 3PL is now a transformative business practice. What was a business transaction is now a strategic business decision. What used to be ”contract logistics” has become Outsourced Logistics. This magazine, Outsourced Logistics, is evolved from Logistics Today, and is edited to reflect the new paradigm in logistics outsourcing. Content of Outsourced Logistics is a mix of articles, features and stories about operations and strategy, logistics services and global markets. Our intent is to deliver useful content and to stimulate conversation among the community of logistics management decision makers. Our message to our fellow community members is not as much the “how to” of global logistics outsourcing, but the “why” these are sound business practices. Our decision to re-focus our magazine and website is based on an analysis of over 15 years of data, extending back at least to the early 1990’s. References like Cap Gemini, Armstrong and Associates, our own “Strategic Decision-Making in Supply Chain Management” and other sources document clearly the movement of companies in three important areas. The first indicator is the growing number of companies the data showed were and are using outsourcing to replace existing services. These companies use outsourcing not only as replacements but also as a way to enter new markets or to support new product introductions. Outsourcing is more than just cost savings. A second indicator is the hundreds of billions of dollars being spent annually on outsourcing. In 2008 the number is forecast to be well north of US $130 billion. And while that number is significant, indicators are that we are

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at an inflexion point and that this is the beginning of an explosion in spending on logistics outsourcing. A third metric is the breadth of spending on logistics services. For years, “transportation services” was the principal candidate for outsourcing. In recent years there has been dramatic growth in spending on third party providers and on warehouse services. It is clear that as companies make the move to outsourcing their decisions impact an array of Outsourced Logistics options. Our research also shows that outsourcing knows no geographic boundaries. It is no secret that companies source raw materials, finished goods and services from around the world. Our new editorial lineup reflects the global nature of outsourcing in several ways. We have contributors who offer a Euro-centric, Sino-centric or Latin American view of outsourcing. We have features dealing with 3PLs in China, compliance issues in the European Union and transparent global Outsourced Logistics networks, to name a few. When we speak the language of logistics outsourcing, we may communicate in English, but be speaking in the tongues of the global market. The market is changed and so is our magazine. We continue to write and editorialize about traditional logistics and SCM topics, but now we take a broader view. Our intent is to provide the community of manufacturers, 3PLs and logistics services providers with reliable information, useful case studies, and a forum for the discussion of best practices. There is indeed a new paradigm, in the market and in our magazine. It is called Outsourced Logistics.

David H. Colby, Publisher, david.colby@penton.com

Outsourced Logistics

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“MORE TECHNOLOGY”

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July 2008 Vo l u m e 1 , N u m b e r 2

Global Markets
Coping with India Community Voice World Economic Pace Slows Operations Moving a 66 Ton Chamber from Brisbane to Milwaukee Community Voice Third-Party Logistics Labor Performance Management, An Untapped Opportunity Logistics Services US Logistics Costs Rise in 2007 Community Voice A 3PL by any other name

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Supplier Selection Size Matters When Choosing a 3PL Supplier scope and scale loom large in the selection of a logistics provider.

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Partnering Collaboration Trumps Cost Diebold reaches for high-level supply chain partnerships that support its strategic goals. Field Report 7 Steps to Transportation Management Excellence The second and final installment. Developing a strategy to build top-performing transportation management.

Features
Global Strategy DHL Plans to Ease Its $1.3 Billion Headache Entry into the US domestic market cost more than anticipated, causing the delivery giant to take dramatic measures to staunch a gushing loss. Global Strategy TNT Focuses on Emerging Markets On the tightwire of express services, TNT concentrates on keeping its balance.

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3PL File C.H. Robinson Worldwide, Inc.

Departments
Publisher's Letter A New Paradigm in Logistics Outsourcing Editorial A Time for Decisive Action Classifieds Advertiser Index

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Outsourced Logistics

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1300 E. 9th Street Cleveland, OH 44114-1503 216.696.7000 216.696.2737 fax www.outsourced-logistics.com

Editorial
Chief Editor Perry A. Trunick Senior Editor Roger Morton Professional Contributors James A. Calderwood

Design
Art Director Bill Szilagyi

Sales
EASTERN REGION Mike Antell, Phone: 978.282.5625, Fax: 978.282.9749, michael.antell@penton.com CENTRAL REGION. Terry Davis, Phone: 404.325.9037 Fax: 404.325.6737, terry.davis@penton.com WESTERN REGION Christopher Hartnett, Phone: 832.237.4004 Fax: 832.237.4114, chrishartnett@penton.com FLORIDA Bob Eck, Phone: 352-391-5577, bob.eck@penton.com ENGLAND Paul Barrett, Mark Whiteacre, David Moore Phone: 44-1268-711-560, Fax: 44-1268-711-567 FRANCE Fabio Lancellotti, Phone: 331-4294-0244, Fax: 331-4387-2729 ITALY Cesare Casiraghi, Phone: 39-31-261407, Fax: 39-31-261380 BELGIUM, HOLLAND Peter Sanders, Phone: 31-299-671303, Fax: 31-299-671500 TOKYO Yoshinori Ikeda, Phone: 813-3661-6138, Fax: 813-3661-6139 SEOUL, KOREA Young Sang Jo, Phone: 822-739-7840-2, Fax: 822-732-3662 TAIWAN Charles Liu, Phone: 886-2-707-5829, Fax: 886-2-707-5825 CHINA Ballycastle Trading, Inc. Ltd., Phone: 852-524-7256, Fax: 852-524-7027 INDIA Shivaji Bhattacharjee Phone: 91-11-268-7005, Fax: 91-11-2652-6055 SINGAPORE Mike Seah, Phone: 65-299-0413, Fax: 65-758-7850 or 65-296-6629

Have you heard?
Outsourced-Logistics.com is more than just a companion site to the magazine. It is the online logistics daily, providing news, decision-making tools and information resources for logistics professionals.

Business
Publishing Director David H. Colby eMedia Market Development Manager Jason Washburn Circulation Manager Tyler Motsinger Production Coordinator Rachel Klika Custom Media Group Terrence Grogan
Bob MacArthur Senior VP Industrial Group

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Chief Executive Officer John French John.French@penton.com Chief Financial Officer Jean B. Clifton Jean.Clifton@penton.com Chief Revenue Officer Darrell Denny Darrell.Denny@penton.com
Outsourced Logistics (ISSN 1547-1438) is published monthly by Penton Media, Inc., 9800 Metcalf Ave., Overland Park, KS 66212-2216. The magazine is sent to qualified management in the field of logistics. Periodicals postage paid at Shawnee Mission, KS and at additional mailing offices. Can. GST #R126431964. Publications Mail Agreement # 40026880. POSTMASTER: Send address changes to Outsourced Logistics, P.O. Box 2113, Skokie, IL 60076-7813. Printed in U.S.A. Copyright © 2008 by Penton Media Inc. Send editorial correspondence to: Editor, Outsourced Logistics, 1300 E. 9th Street, Cleveland, OH 44114-1503, or editor@outsourcedlogistics.com For information on obtaining reprints:Contact Penton Reprints at 888.858.8851 reprints@pentonreprints.com List Rentals: Walter Karl Inc., Rosalie Garcia, (845) 732-7027, rosalie.garcia@walterkarl.infousa.com Copying: Permission is granted to users registered with the Copyright Clearance Center Inc. (CCC) to photocopy any article, with the exception of those for which separate ownership is indicated on the first page of the article, provided that a base fee of $1.25 per copy of the article plus 60¢ per page is paid directly to the CCC, 222 Rosewood Dr., Danvers, MA 01923. (Code No. 0895-8548/08 $1.25 + $.60)
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Editorial

A Time For Decisive Action

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s the US enters an election season with two clear presidential contenders, it’s open season on their present and past positions. The media love to make a story out of an apparent “flip flop” on some issue, but most strategists will agree that changes are not only normal, they are necessary. Rigidly adhering to battle plan can bury an army (or a business) as conditions and circumstances change. Just over a decade ago, DHL’s position in North America was that it could connect businesses in the US with global markets through its well developed networks in Asia, Europe and beyond. At the time, that was a smart choice, though there was less emphasis on global reach among US-based businesses. The fact was, FedEx, UPS, Airborne, BAX Global, Emery Worldwide, Roadway Package System and, to some degree, the US Postal Service were all contending for parcel and express business in the market. There wasn’t room for a seventh or eighth player. At the time, TNT took a look at the market and even made some acquisitions that could help it start building the ground network that was critical to success for any operator seeking a market position in the US. In June, Marie-Christine Lombard, group managing director for TNT Express, said its small presence in the US was in some ways a great regret, but in others, “thank God we’re not.” The TNT footprint in 2008 looks much like DHL did 10 or 15 years ago and for the same reason--building a ground network to cover the US is expensive, and the return if you are the new-

comer facing large, entrenched competitors won’t support the position. With the deep pockets of Deutsche Post and some changes in the US market, the time may have appeared ripe for DHL to enter the US through its acquisition of Airborne. With UPS and FedEx experiencing slowdowns in the domestic express market and issuing earnings guidance, being third in a shrinking market is anything but a growth strategy. It is clearly time to change tactics, but not necessarily strategies. As global logistics providers, DHL and TNT both realize the importance of a presence in the North American market. The key is to stay in the battle and not lose the war. For DHL that means protecting a much larger investment against the day when the markets recover and being one of three major players offers potential for modest profit rather than massive losses. TNT has little to change in its tactics as it pursues a strategy that has been evolving over the last four years. Its focus is on developing markets where a key acquisition will allow it to transplant its network design and operating expertise to become the number one provider in the market. Then, it can provide national, regional and interregional service and link to its global network. The principal difference in the two strategies being TNT isn’t interested in fighting with giants. What makes the express wars a story for the age is that, in the cases of TNT and DHL, the two companies have a very clear global strategy with regional tactics that support it. Both have undergone major revisions in both strategy and tactics in recent years. As painful as it may have been to make these adjustments, they were clearly called for. If they had not changed, they could have ended up pouring increasing amounts of assets into battles which would have eventually resulted in unsustainable losses and ultimate defeat. The business leaders who had to make those changes were facing new realities and, we can only hope, choosing the better path. Call it a retreat, a flip flop or a decisive redeployment of resources, but when the situation changes, you have to change with it or give up your market position completely.

Perry A. Trunick, chief editor, perry.trunick@penton.com

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Global Markets

One of the fastest growing global markets, India has its strengths and its challenges.

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Coping With India
A conversation with Pradeep Vachini and Jaison Augustine market, it’s inadequate. It’s still a sunrise part of the industry, so in terms of using India as a back office for logistics, it lags behind. The National Association of Software and Services Companies (NASSCOM) has flagged logistics as a target area because they view the lack of formal education as an impediment. It’s not that there isn’t some supply, it’s just inadequate for the size of the demand. From a logistics perspective, India lags behind, which is surprising given that logistics is a $100 billion industry expected to reach $120 billion by 2010. India has 20 million expatriates living outside India, and 2.4 million of those are living in the US. They tend to be on the higher levels of education—professionals with good management skills. Physical infrastructure is probably one of the most hotly discussed areas and is probably India’s biggest opportunity and it’s biggest problem area. Core to the success of smooth logistics operations is having a network of roads that interconnect the cities and ports. Roughly 60% to 70% of goods move by road in India. That’s where India has had its biggest challenges. That doesn’t mean there hasn’t been positive progress. The government embarked on a project called the Golden Quadrilateral centered on four metro cities of New Delhi in the North, Mumbai in the West,

utsourced Logistics asked Pradeep Vachini and Jaison Augustine to comment on the business realities of operating in India. Speaking from their offices in India, they addressed people and skill levels, physical infrastructure and the regulatory and business climate. Given the history of India with the legacy of the British, the English education system and English language, skills are very high, with a large number of people who are educated in English and also a large group for whom English is a second language. So, there is a large talent pool of college-educated people with English skills. Logistics is a niche skill which is not as widely available at a university level in India. Unlike wellknown universities in China, the UK and the US, India doesn’t have universities with a heavy focus on the field. Most of the education takes place on the job. To some degree, that impedes professionalism in the logistics business. Expatriate Indians with logistics skills aren’t coming home in very large numbers If they are coming back with higher education in the field, they aren’t a very visible group in the industry, perhaps due to the size of the market. There are three or four good educational institutions in India providing logistics training, but given the size of the

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Chennai in the South and Kolkata in the East. This is ate monies out of India, especially in a business like where the commerce and trade takes place. Except for logistics where a company may be collecting revenues in New Delhi, they are free ports. India, but in an international transaction, all that would The government embarked on a project to connect have stayed in India would be the expenses incurred all of these cities with four- to six-lane highways. This there. It used to be a challenge to repatriate the rest, but will facilitate trade and access to the ports. The average now the Central Bank of India has made it much simpler speed of a truck carrying cargo is about 20 kilometers for businesses to move those funds. per hour, which means they cover about 200 km in a Ports, however, are still controlled by archaic port auday. That’s probably one third or even one fourth of what thorities. There are still tariff bodies that govern tariffs in can be done. That imposes a huge burden of inefficiency ports and almost artificially keep costs up. And, by and on the system. large, the ports are still controlled by bureaucrats and From the mid-1950s to now, traffic or density of not professionals. Some bureaucrat is actually calling the vehicles has grown by as much as 100 fold and the shots and making decisions, which has some bearing on roads have grown eight fold. The road building and the the regulatory environment. Golden Quadrilateral nearing completion will give a Lack of competition has impeded progress at ports. In huge boost to the economy in general. the past you had three or four major gateways into India, Technology and telecommunications infrastructure, but today you have a choice. All are competing with taras a result of India being a late starter, now surpasses iffs and services and that’s a new environment that has China as the fastest growing cellular telephone market, largely resulted from all of the private investment the with more than 300 million users. The telecom infra- government has recently permitted. structure has improved dramatically. India may have There’s also been a relaxation of requirements for started late, but the quality and customer service on its foreign direct investment in the retail industry and as a nearly completely digital networks is very high. result, there has been a lot more commerce involving all India was an early adopter as far as IT is concerned. of the big global retailers, including Marks & Spencer, There was a good fit for the skill sets and the education Tesco and Wal-Mart, who are setting up shop in India. Indians received, and it has become the calling card for India’s success. Do you have direct experience with logistics In general, since about 1991, Indian law operations and logistics providers in India? Go has been slowly but surely removing some to “Rate ‘em and Rank ‘em” at www.outsourcedof the requirements for operating a business. logistics.com and share your experiences. Whether that is deregulation in the telecom industry or relaxation of duties on imports or requirements on foreign direct investment, all of that has They’re bringing their sophistication on the movement been happening. of goods and supply chain management which is sparkIndia has made a lot of progress in these areas but ing improvements. there are some remnants of the past draconian regime in People often speak of India and China in terms of the complex mesh of taxation which is controlled by the their growing economies. The opportunity for India is central government and partly by state government. If that while it has been slow compared to China, when you are moving goods from one state to another, you get you look at what China has managed to achieve, that’s entangled in all of that mess. There is a move to get rid what India needs to aspire to. China’s throughput at its of all of these taxes that get imposed on cargo moving ports is almost 15 to 17 times that of India. That’s somefrom one point to another. Discussion centers on going thing India can learn from. to a common value-added tax (VAT), but that’s easier said than done. India may be slow in implementing it, Pradeep Vachini, Co-CEO, Industrial & Infrastructure but it appears to be headed in that direction. It will be a Services, and Jaison Augustine, vice president of business welcome move for companies that operate in India. development, Industrial & Infrastructure Services for WNS There were measures that made it difficult to repatri- Global Services, a business process outsourcing firm.

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Global Markets

News Briefs • July 08

The UK’s New $3 Billion Port Gets the Go-Ahead
Just 25 miles from central London, the project is designed to become the country’s national hub port and Europe’s largest logistics park. To be developed by DP World, the Dubai-based global marine terminals operator, London Gateway will accommodate the world’s largest container ships and is claimed to be the most fully automated and efficient in the country when completed. Construction of the 1,850-acre site is slated to begin later this year. As it sought to gain approval for London Gateway, DP World proposals included the capacity of handling 3.5 million TEU (twenty-foot equivalent units) annually along a 2,300-meter container dock. To enhance the value its customers, DP World would include in the logistics park surrounding the Gateway container and other terminals, free zones and logistics facilities among other infrastructure developments. Even before winning final approval from the UK government for the project, Dubai World Chairman Sultan Ahmed Bin Sulayem, claimed that, “After visiting the London Gateway site, we have realized the vital significance of this project for the British economy as well as for DP World. We are fully committed to this project and believe it will enhance the value we offer our customers due to its proximity to the UK’s largest consumer market as well a unique combination of facilities provided by the port and park together.

Roadway Introduces Expedited Ocean Transport from China
The less-than-container-load service cuts six days off standard ocean transit time. A subsidiary of YRC Worldwide, Roadway is working in cooperation with YRC Logistics Global on the expedited product. It is offering new supply chain services for international shippers at both origin and destination. The carrier is able to offer the service by utilizing multiple shipments from seven ports of origin in China. Once cargo arrives at US ports it receives priority unloading. Shipments are then expedited through Roadway’s network with guaranteed delivery to final customer. Commenting on the service, the carrier’s president, Terry Gilbert, said, “Our new Roadway Expedited Ocean Service meets a need in the marketplace for a reliable, cost-effective alternative to air transit for less-thancontainer-load shipments from China. It is just one aspect of our ability to create the right combination of service and expertise wherever needed in the supply chain through our expanded global offerings.” As Roadway explains, services offered by YRC Logistics Global, an NVOCC-licensed affiliate, include global freight forwarding, inland transport, global logistics, global trade management, technology for shipment visibility and control, and supply chain management ser vices. Port deconsolidation services are available in the US for complex requirements, including delivery direct to the retail floor.

SkyTeam Alliance Gets Antitrust Immunity
Six airlines are being allowed to combine Transatlantic operations, finalizing a tentative decision issued on April 9. While Delta Air Lines and Northwest Airlines are part of SkyTeam, the decision from the US Department of Transportation (DOT) has no bearing on the move by the two airlines to merge.Those plans are under review by the US Department of Justice. The four other members of SkyTeam are Air France, Alitalia, Czech Airlines and KLM Royal Dutch Airlines. Northwest already has an alliance with KLM and Delta is allied with the other three airlines. Under terms of the new Open Skies Plus agreement between the US and European Union (EU), Transatlantic markets are open to other competitors since both US and EU airlines are now permitted to serve any routes between the two entities. In approving the antitrust immunity, DOT said that, “the proposed alliance is in the public interest because it features a proposed new and highly integrated joint venture that will likely produce efficiencies and provide consumers with additional price and service options.” In reflecting on the announcement, Glen Hauenstein, Delta’s executive vice president Network Planning and Revenue Management, said, “We are pleased the DOT recognizes once again that antitrust immunity offers significant advantages to customers including more choice in flight schedules, travel times, services and fares. This grant of immunity allows us to expand these benefits for our customers to two other airline partners and significantly strengthen the SkyTeam Alliance.”

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Connell Bros. Expands In Global Logistics Management
Specialty chemical distributor Connell Bros. Company is using the GT Nexus global trade and logistics portal on-demand platform to procure, execute, monitor and audit containerized freight services, across all ocean carriers. The initial level of service, which provides shipment tracking and contract management services was activated in 2007. Within sixweeks, CBC had all of their container status messages flowing into a centralized database and all of their ocean contracts digitized online in a common format across all carriers. That foundation has now been expanded to freight procurement and advanced spend management capabilities. C B C ’s b u s i n e s s c a n b e ex p o s e d to unpredictable demand swings based on changes in regional economies, said GT Nexus. Additionally, transportation costs represent a significant part of operational budgets. For these reasons, CBC required a flexible solution that could support constant change, and also deliver industry leading strategic spend management capabilities. “GT Nexus has a proven track record of success with the world’s biggest shippers,” said John Figura at CBC. “We now have a fully integrated suite of tools that allow us to transform the way we run our transportation network. And since it’s an industry platform, our carriers were already connected to it and familiar with the applications based on their experience supporting other customers on GT Nexus.” The spend management capabilities of the platform focus on two primary areas. Strategic optimization supports the procurement cycle and allows CBC to identify the best service-price combinations before making final allocation decisions. The freight audit capability compares the data inside final digitized service contracts with electronic bills of lading and then presents a real-time view of discrepancies. The entire platform is provided as an ondemand service that is hosted and managed by GT Nexus. CBC shares the network, data translation services, and infrastructure with all other GT Nexus customers, but uses a secure private environment to use applications and collaborate with partners.

Canada Bolsters Its Latin America Trade
Looking south, the Canadian government has lately signed two free trade agreements and is exploring a third. In late May, Canada signed free trade, labor cooperation and environment cooperation agreements with Peru. In regard to commerce, as soon as the free trade agreement (FTA) is approved, Peru will eliminate tariffs on 95% of current Canadian exports. Remaining tariffs will be eliminated over a five- to ten-year period. Products to receive duty-free access to Peru include wheat, barley, lentils, peas and selected boneless beef cuts, as well as a variety of paper products, machinery and equipment. For its part, immediately upon implementation of the FTA, Canada will quickly move to eliminate 97% percent of its tariffs on Peruvian imports with the remainder to be eliminated over a three- or sevenyear period, with the exception of over-quota tariffs on dairy, poultry, eggs and refined sugar, which are excluded from tariff reductions. For refined sugar, a tariff-rate quota will apply. Two-way trade between the two nations was $2.45 billion in 2007, with Canadian investment in Peru estimated at $1.8 billion. In early June, the Canadian government announced the conclusion of free trade agreements with Colombia. Trade between the countries in 2007 was $1.14 billion with Canadian investment in the country at $739 million. “The Government of Canada is delivering on its commitment to open up opportunities for Canadian business in the Americas and around the world,” claimed David Emerson, Minister of Foreign Affairs and International Trade, and Minister for the Pacific Gateway and Vancouver-Whistler Olympics. “The free trade agreement will expand Canada-Colombia trade and investment, and will help solidify ongoing efforts by the Government of Colombia to create a more prosperous, equitable and secure democracy.” As the government explains, under Canada’s Global Commerce Strategy, it is working “to advance the country’s trade interests in key markets by opening up new opportunities for Canadian exporters, investors and innovators. The Strategy includes an aggressive agenda of trade negotiations that aims to secure competitive terms of access in markets that offer significant potential for our products and expertise.” Canada entered into exploratory discussion with Panama on a FTA. In 2007, bilateral trade between the countries was $115 million. Through the end of 2006, Canadian direct investment in Panama was $111 million. Through last year, Canada’s greatest exports to Panama included pharmaceutical products, machinery, electrical and electronic equipment, malt and barley, vegetables and meats. Imports from Panama included mineral fuels, fruits and nuts, fish and seafood, spices, coffees and teas, fats and oil products and wood products. In addition to these recent moves within this hemisphere, earlier this year Canada signed its first FTA in six years. It was with the European Free Trade Association, consisting of Iceland, Liechtenstein, Norway and Switzerland. The agreement has been tabled in the Canadian House of Commons where it must rest for 21 days before ratification. Tabling of all FTAs is required under a new governmental policy.

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Global Markets

Community Voice
World Economic Pace Slows
By Global Insights

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lobal Insight has revised its forecast for bles. In 2000, the economy was still booming, and 2008, projecting US real gross domestic imports grew at a recored rate. In contrast, the current product (GDP) growth will decrease to recession is a gradual emergence of a financial crisis a mere 1.36%. Imports to the US could created by the inflated housing market and the subturn negative for the first time since the 2001 reces- prime mortgage crisis. US economic growth had already started to slow by sion. The impact of the US economic situation will also affect the growth rate of world real GDP, bringing it to 3.07% Selected Global Trade Growth Projections in 2008. The financial crisis created 2006 2007 2008 2009 by the subprime mortgage criWorld Trade 9.53 7.57 6.46 7.48 sis has yet to spread to more World GDP 3.94 3.65 3.07 3.38 countries whose financial institutions had either directly US Export Trade 10.77 8.75 4.64 5.62 or indirectly invested in the US Import Trade 7.23 1.31 -1.79 5.31 US GDP 2.87 2.19 1.36 2.17 US mortgage market. This crisis will negatively affect these NAFTA Export Trade 8.92 6.29 3.70 5.47 countries’ economies, making NAFTA Import Trade 7.92 2.03 0.15 5.43 their economic growth even NAFTA GDP 2.96 2.26 1.50 2.24 lower than what is currently forecast. The result is that inEU Four Export Trade 6.76 4.72 5.39 5.59 ternational trade could be even EU Four Import Trade 6.23 5.85 5.90 4.76 further depressed. EU Four GDP 2.62 2.40 1.58 1.86 Private consumption in the US is likely to inch up 0.83%, Eurozone Export Trade 6.43 4.48 5.31 5.63 which is hardly in keepEurozone Import Trade 6.82 6.47 6.50 4.80 Eurozone GDP 2.87 2.53 1.79 1.95 ing with population growth. The low levels of private conChina Export Trade 23.11 17.32 11.9 12.59 sumption are likely to cause China Import Trade 16.57 16.76 14.86 15.85 a marked decrease in the deChina GDP 11.1 11.5 10.4 9.40 mand for imports. As a result, US real imports are expected India Export Trade 11.18 9.52 10.23 9.96 to drop by 1.79% in 2008. India Import Trade 13.14 15.71 10.25 12.03 Comparing the current US India GDP 8.83 8.38 8.14 8.05 recession and the recession in “EU Four = Germany, UK, France and Italy” 2001, an obvious difference is that the 2001 recession was “Eurozone = Austria, Belgium, Cyprus, Finland, France, Germany, Greece, caused by the burst of IT bubIreland, Italy, Luxembourg, Malta, Netherlands, Portugal, Slovenia, Spain”

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2007 and import growth slid to its lowest growth rate since 2002. In 2008, the US economy and imports will continue to experience down-side pressure. They will gradually deteriorate in the first half of the year. This will allow households and firms to adjust their consumption, investment and production and gives time to policy-makers to take rescue measures. Therefore, it is likely the current US economic recession will not be as deep as the one in 2001 and the United States might not cut back on imports as much as it did in 2001. Countries whose exports rely more on the US market will be affected even more by the US recession. Mexico’s exports rely on the US market more than any other country. More than 50% of Mexico’s exports to the US are machinery and motor vehicles and parts. In nominal terms, in 2007, more than 80% of Mexico’s exports relied on the US market. In 2007, the United States was the world’s third largest

exporter, accounting for 8.5% of the world exports. Countries that mainly supply the US with capital goods and luxury consumer goods and whose currencies have appreciated against the US dollar have been hurt by the current US recession. The majority of China’s exports to the US are low-cost consumer goods. Since China has restricted the appreciation of its currency, China’s exports to the US will be hurt the least among the top five exporting countries. Global Insight provides economic, financial, and political coverage of countries, regions, and industries —covering over 200 countries and spanning more than approximately 170 industries—using a unique combination of expertise, models, data, and software within a common analytical framework to support planning and decision making. The company has 700 employees, and 25 offices in 14 countries covering North and South America, Europe, Africa, the Middle East, and Asia.

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Outsourced Logistics

| July 2008 | 13

Operations

Moving a 66 Ton Chamber

From Brisbane to Milwaukee
The hyperbaric chamber on site at St. Luke’s being lifted by crane.

aking the pressure off the manufacturer of what’s been called the largest rectangular hyperbaric chamber ever made was Maryland-based John S. Connor, Inc. Getting the $3 million chamber from the Fink Engineering plant in Australia to Milwaukee’s St. Luke’s Medical Center required extremely tight coordination all along its route. The chamber is one of four in the US. Hyperbaric oxygen therapy is a medical treatment in which a patient breathes 100% oxygen within the pressurized chamber for conditions such as problem wounds, carbon monoxide poisoning and exceptional blood loss. Fink outsourced all movement of the 52.4 ft long, 12.3 ft wide and 9.5 ft tall chamber from its plant to the hospital. For a previous similar operation, Fink used a different provider and had the shipment sit for two weeks in Long Beach while the Mayo Clinic waited its arrival. An Australian Connor partner, Global Product Supply Management, arranged the pick up of the chamber, its movement to the port and loading aboard

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one of the only vessels that can handle a shipment of this size. Working with US authorities, Connor cleared the load through Customs three days before it reached the Port of Long Beach. The truck that would transport the load was waiting at the pier when the ship landed and was unloaded. Because the transport was 132 ft long on 13 axles—over wide, over high and over weight— special permits were required from each state along the route. “This unique shipment was a matter of tight coordination and cooperation among John S. Connor and all of our contracted partners and vendors,” recalls Diane Olszewski, Connor’s Export/NVOCC manager. “Working on an extremely tight schedule, we coordinated the logistics from the manufacturing plant in Australia, including inland transport, port crane handling, ocean transport to Long Beach, customs clearance, and then truck transport to Milwaukee.” The load could only arrive on site on a Thursday. A 2,700 ft section of the roof of the hospital building was removed above the level at which the chamber would be placed. Connor coordinated delivery with the construction company, crane operator and others engaged in the process. The street had to be closed, bus routes changed and a police escort arranged. The roof was replaced, electrical and mechanical components installed to complete the project.

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HighJump Software is Being Sold
The seller is 3M; the purchaser is Battery Ventures, a technology venture capital and private equity firm. HighJump’s software is used by industries as diverse as aerospace and automotives, consumer goods, direct store delivery, discrete manufacturing, document management, food and beverage, retail, third party logistics, as well as wholesale and industrial distribution. The company describes itself as, “simplifying the art and business of creating, selling and moving products across global networks, helping more than 1,300 clients worldwide drive growth and manage change.” Citing reasons for selling HighJump, the vice president and general manager of 3M Track and Trace Solutions Division, Lemuel Amen, notes that the company, “is refining its approach to providing comprehensive track and trace solutions for high-value assets and people that deliver customer value through asset utilization, safety and security. Therefore, we believe HighJump will have more opportunity to maximize its potential with Battery Ventures.” The sale is expected to close in the second quarter of this year after which HighJump will function as a stand-alone company. The company says that after the transaction is completed, it will “remain committed to investing in the development of its products, services and technologies in order to continue to provide value for its customers and maintain its strong offering in the marketplace. The products will continue to be sold and supported under the HighJump brand around the world, offering the functionality and flexibility required by customers.” Battery Ventures manages nearly $3 billion in committed capital, including its current fund of $750 million. It describes itself as partnering with entrepreneurs and management teams across technology sectors, geographies and stages of a company’s life, from start-up and expansion financing, to growth equity and buyouts. Jesse Feldman, senior associate of Battery Ventures, explains that, “We have been evaluating the supply chain software market for over 18 months, and believe HighJump Software represents the best-in-class solution. Moving forward, the company provides us with an excellent platform to grow both organically and through acquisition.” Terms of the transaction were not disclosed.

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Outsourced Logistics readers’ will be longing for much more. Check us out at: http://outsourced-logistics.com

Outsourced Logistics

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News Briefs • July 08

Operations

News Briefs • July 08

Cardinal Health Moves Fleet to Penske Logistics
Penske Logistics announced it has begun a transition to manage the dedicated fleet for Cardinal Health’s medical supply chain business. As a part of the agreement, Cardinal Health will outsource the management of its dedicated truck fleet to Penske Logistics. This involves transitioning approximately 700 of Cardinal Health’s truck drivers and related transportation support staff across North America to become direct employees of Penske Logistics. Penske said it intends to hire all the employees and is collaborating with Cardinal Health to ensure the transition for the employees is as smooth as possible. “We are very pleased to be working with Cardinal Health and we welcome these new associates to our organization as highly valued members of the Penske team,” said Vincent Hartnett, President-Penske Logistics. “We are working to ensure the transition is seamless for Cardinal Health’s customers, as these drivers will continue to serve their normal routes with the same dedication to service.”

Loss Prevention Conference Association Closes
The Loss Prevention Conference (LPC), a transportation industry association dedicated to educating its members on the prevention of freight loss and damage, recently announced to its membership that it will no longer operate as a member-based organization. SMC3 will begin offering an annual loss prevention conference event that will be consistent with the LPC’s high quality educational conferences. “The integration of the LPC’s educational mission with SMC3’s organizational principles provides a win-win relationship that all freight claims professionals will clearly benefit from,” said A. J. Mitchell, Southeastern regional manager for MTI Inspection Services (Colorado Springs, CO) and outgoing LPC President. SMC3 will host its first annual loss prevention conference this coming October in Atlanta. Previous LPC board members are working with SMC3 in an advisory capacity to ensure that the SMC3 offering continues to be the industry’s premier loss prevention education event. Consistent with previous LPC annual meetings, the SMC3 Loss Prevention Conference will deliver valuable information for preventing freight loss and damage, as well as best business practices for claims resolution, said Mitchell. “Not only will the educational content remain highly relevant, but the peer interaction and exchange of ideas the LPC meetings offered will continue on as well,” said John Rader, SMC3 director of industry and educational services, and former LPC executive director. SMC3 plans to announce the details surrounding its 2008 Loss Prevention Conference soon, including confirmed dates, speakers and a conference agenda. Those interested in receiving conference information as it becomes available can send their contact information to lpc@transportlink.com.

The Panama Canal Raises Marine Service Fees
For shipping companies there are boosts in costs for tug, locomotive and line handling services on the waterway. In explaining the climb, the Canal Authority notes that over the past eight years it has spent $1.329 million in upgrades its fleet of tugboats, locomotives and other elements of infrastructure. Now almost half of all transits of the waterway are by Panamax vessels that are 106-feet wide. Since locks are just 110-feet wide, state-of-the-art equipment and personnel are needed to ease these ships along the way. Rates for tug services will grow 8%. Line handling services will be boosted by 7%. “Additionally, a $300-per-wire fee will be charged for ancillary locomotive services,” explains the Authority, “up from a $200-per-wire fee (wires are attached to the locomotives to ensure that the vessels stay centered as they transit through the locks).” For visibility requirements, if a vessel notifies the Canal less than 48 hours prior to its arrival that its load exceeds Canal standards, there will be additional costs. Those vessels that notify the canal at least 48 hours in advance of arrival will be charged $4,000. If the data is submitted less than 48 hours, that fee will be $8.000. For complete details on these increases, visit the Canal’s web site at www.pancanal.com and go to Marine Notice to Shipping N-1-2008, page 18.

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Major Trucker Jevic Shuts Down
High fuel costs, an economic downturn, increasing insurance costs and tightening credit markets are cited as causes for going out of business. Jevic and Saia Inc. were spun off from Yellow Freight and co-existed under an umbrella holding company named SCS Transportation. Eventually SCS sold Jevic for $51 million to Sun Financial Partners, retaining Saia, which has experienced substantial growth. At the time of the splitting off of Jevic from Saia, then-chairman and CEO of SCS, Bert Trucksess, was quoted as saying that, “Jevic historically has had performance challenges, and so they’re no longer going to be part of our company, and we’ll be able to focus all our resources on Saia, which has been a consistently strong performer.” Jevic has struggled in a tough competitive market. It offered specialized less-thantruckload (LTL) transportation services and selected truckload (TL) and time-definite services with delivery capability throughout the contiguous 48 states and Canada. Founded in 1981, the carrier offered integrated customer solutions, including directto-customer deliveries, multi-shipper order consolidation for inbound supplies, and express and time-definite deliveries. Jevic focused on loads between 1,000 to 30,000 pounds (overlapping both the LTL and TL markets), providing shippers with an alternative to traditional LTL and TL carriers that may have strict load requirements. In a letter to customers announcing the closing, David Gorman, the company’s CEO, explained that Jevic, would continue operating to deliver all freight within its system prior to closing and would continue to provide Customer Service during the wind down period at 888Go-Jevic. “The Jevic website will remain active and will be updated during the period as well and that should be your primary point of contact for tracing and needed documentation,” he explained. “We greatly appreciate the loyalty of our many Jevic customers,” continued Gorman. “It has been our pleasure to provide solutions to your transportation needs over these many years. We are committed to providing the prompt delivery of your shipments in our system and professional customer service for all your needs during this process. Thank you again.”

Menlo Worldwide Launches Warehouse Solutions
Third-party logistics provider Menlo Worldwide announced a multi-client network of warehouse management solutions. Customers of every size can outsource any level of warehousing, distribution, and transportation management operations, says the company. It’s scalable and customizable warehouse offerings operate from Menlo’s information technology platform and global network of facilities. Paul Tedfors, regional logistics manager for BSH Home Appliances, is using the program to create what he calls a scalable solution “leveraging Menlo’s shared resources for IT services, physical plant, labor, and expertise.” Menlo modeled the multi-client operation on a successful facility in Fremont, CA and is rolling out six fully operational facilities: Atlanta, GA; Dallas, TX; Aurora, IL; Cranbury, NJ; Fontana, CA; and Portland, OR.

California Ports Ban Owner Operators
Citing “rapid improvements in air quality,” the Los Angeles Harbor Commission approved the Clean Truck Program’s Concession Agreement that will phase out owner operators at the port of Los Angeles by the end of 2013. The program, which would require drayage services to use 100% employee drivers by the end of 2013 is to be phased in from October 2008. Port officials say it will allow them to hold the drayage companies accountable for truck maintenance (which will improve emissions) and driver credentials (which has a security benefit). The Long Beach Press Telegram reported that over 85% of the 17,000 short-haul trucks operating at the ports of Los Angeles and Long Beach are independent drivers. In a letter to the Intermodal Carriers Conference of the American Trucking Associations, J. Christopher Lytle, deputy executive director of the Port of Long Beach, said,“It is clear our differences go to fundamental issues and not merely to details.” He went on to say that,“we do not believe that further meetings on the contents of the Long Beach concession agreement would be productive.” This action, says the National Industrial Transportation League (NITL), would appear to clear the way for the American Trucking Associations (ATA) to start litigation challenging the concession agreement. The concession agreement calls for 20% of the licensed motor carrier’s fleet to be made up of employee drivers by the end of 2009, increasing to 66% by the end of 2010 and 85% by the end of 2011. By year-end 2012, 95% of the drivers would have to be employees, and the remaining drivers would be required to be employees by the end of 2013.

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Operations

Community Voice
Third-Party Logistics Labor Performance Management An Untapped Opportunity
By Jack Webster

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oo often companies and their third-party logistics (3PL) partners lack business relationships that extend beyond the standard three- to five-year contract length. Reasons cited for these unsuccessful relationships range from service-level agreements not being met, to costing and pricing issues, to cultural differences. While there is no one-size-fits-all solution to address these relationship challenges, there is one tool that is often overlooked as a way to potentially strengthen a 3PLs relationship with its customer: a distribution center ’ (DC) labor performance management program. DC labor performance management programs have long been recognized by supply chain organizations as tools to increase productivity and throughput capacity, reduce operating expenses and improve accuracy and safety in DCs. Built around several core components, successful programs typically include engineered labor standards (ELS), a robust labor management system (LMS) with the ability to track and report cost and performance, and well-defined program polices and procedures. Strong corporate sponsorship of the program and the adoption of a continuous improvement culture throughout the organization are equally important, as these elements are the glue that holds the program together and helps drive its short- and long-term success. If implemented in a 3PL DC environment, this type of program can provide the 3PL and its customer with many benefits. Of course the level of benefit realized depends largely on the organizations’ commitment to the program, as well as the type of price contract employed. The DC labor performance management program offers each organization the tools to succeed. It is up to the business partners to determine the level of benefit each will realize. Under a fixed cost or cost-plus arrangement, the implementation of a DC labor performance management program benefits both parties. It allows the 3PLs customer ’ to defer capital and operating expenses it might have in-

curred if 3PL productivity and throughput gains had not been realized as part of the program. The 3PL can benefit by maintaining its pricing structure while increasing profit margins through decreased costs. Under an open-book arrangement, both parties enjoy many of the same benefits realized under the fixed cost or cost-plus arrangement. Additional benefit is gained through collaboration and understanding of the true work content and costing. The most critical elements required to build this understanding and collaboration under the open-book arrangement are accurate engineered labor standards (ELS) and a high-quality LMS. ELSs enable the 3PL to develop accurate, activity-based pricing that is representative of the work content actually performed by the 3PL, In turn, this allows the 3PL to maintain adequate margin levels and fair pricing for the customer. Using an LMS provides visibility of DC performance, accuracy and cost associated with specific DC operations. The LMS is a powerful tool that helps build understanding between the 3PL and customer. It provides unbiased, fact-based reporting that details the successes of and opportunities for the 3PLs DC. Working with these reports, ’ the 3PL and its customer can collaborate to develop tactics and strategies to capitalize on successes and overcome challenges faced at the DC. The success of a DC Labor Performance Management Program hinges on corporate sponsorship for the program from both the 3PL and its customer. Jack Webster is a Senior Manager with Kurt Salmon Associates (KSA).

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DHL Plans to Ease

Headache
acts facing DHL: In 2007 came a loss of $1 Billion and for 2008 an EBIT (earnings before interest and tax) loss of $1.3 Billion is projected. Outside of the US, the company is the major provider of express and logistics services. Within the US, it is the third largest player in the market, trailing FedEx and UPS. It’s a serious understatement to say that investors are upset with the performance. Since 2003, when DHL bought Airborne Express for $1.05 Billion as a stepping-stone to

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entering the US market, expectations have not been met. Despite rumors that DHL would abandon the US entirely, sell off its operations or merge with another supplier, none of that has happened. Dr. Frank Appel, CEO of Deutsche Post World Net, DHL’s parent company, has reaffirmed the company’s commitment to sustaining its US business. Consider that, as DHL notes, in the Americas the US represents the largest express market and is connected to the world’s principal trade lanes.

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Entry into the US domestic market cost more than anticipated, causing the delivery giant to take dramatic measures to staunch a gushing loss. By Roger Morton

Its $1.3 Billion

Further, the company says that 47% of all its domestic a 20-year commitment for guaranteed capacity on and international shipments are billed in the US where Transpacific air routes. The agreement remains in force. half of its 200 largest customers are based. DHL and UPS are working aggressively to reach “The US business is accretive in value to our global agreement. Noting that it will begin transporting a network,” explains John Mullen, CEO of DHL Express. small portion of DHL this year then feed the rest into “That’s because if we didn’t have the US, then we would its network next year, UPS Spokesperson Ken Sternad, firstly lose all of the profit we make in the rest of the says that, “We are compelled to get a contract completed world on shipments to and from the US, which is quite before we can begin.” substantial. Secondly, the US pays a proportion of global As a consequence of moving airlift to UPS, the costs. It pays for a piece of the Hong Wilmington hub will no longer be part Kong hub, the Leipzig hub, the air netof the global DHL backbone. In effect works and so forth. If we didn’t have a the UPS WorldPort Air Hub at Louisville US then those costs don’t go away.” International Airport becomes the North So much attention had been given to American hub for DHL. the strategic plan announced by DHL Even before talks with DHL began, to restructure its US business, that it WorldPort has been growing. “We will overshadowed news of the opening have additional capacity with aircraft of its new air hub at Leipzig/Halle in coming into the fleet that we are comGermany some two days earlier. The mitted to,” claims Sternad. “We also have hub is a significant part of the backbone a rather large expansion of WorldPort. A of DHL’s worldwide coverage that joins lot of that capacity will come on by next one at Hong Kong, and had included a Frank Appel, CEO, summer. Adding efficiency and density Deutsche Post World Net. is what our business is all about. This hub at Wilmington in Ohio in the US. The DHL strategic plan contains two move is very good for us and good for principal elements: outsourcing North our business.” American airlift and reorganizing its inOn hindsight, looking at the frastructure. The first of these two is garWilmington facility, Mullen reflects that nering most attention as DHL intends to it was an under-mechanized hub. In orpay UPS $1 billion a year for the next 10 der to keep it up and running, he says it years to move its freight from airport-towould have been necessary to upgrade it airport only. DHL will retain its ground and improve its ramp facilities to handle network, pickup and delivery functions DHL intercontinental flights with Polar and Customs clearance. and its Transatlantic carriers. “We would Previously DHL acquired a 49% stake have had to mechanize the parcel sort in the Atlas Air Worldwide Holding and to gradually replace all of the aging subsidiary, Polar Air Cargo. Under terms John Mullen, CEO DHL aircraft,” he notes. “All of those costs of the agreement, DHL Express gained Express. disappear now with this arrangement.

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Keeping track. Monitoring all flights, worldwide, at the Global Quality Control Center at DHL Express Global’s Head Office in Bonn, Germany.
Going forward we avoid all of the capital expenditure we would have had to incur on our own if we kept going with our old business model.” As characterized by Sternad the agreement covers shipments from origin gateway to destination gateway. The only aircraft UPS would not operate are those coming into WorldPort on international inbound flights. For shipments within the US, or anything going to and from UPS gateways in Canada and Mexico, DHL will deliver the volume to a UPS gateway location. The freight will then move to the destination gateway. At that point DHL will pick it up and move it to its final customer. “At the same time, out there on the street, in front of the customer, we’re still ardent competitors,” notes Sternad. DHL is also changing the way it conducts business on the ground with modifications to the infrastructure in its station network, pickup and delivery routes and ground line haul. The company expects to reduce the size of its network by 34% through consolidation and closure of service centers. It will close facilities in what it terms are low-density areas as well as closing low-density stations in a number of areas. It will also consolidate facilities located in close proximity to each other in a number of locations. It will replace its current partially automated hub and spoke network with what it terms is a more fully developed multi-hub network supported by more advanced automation. Using newer technology solutions, the company intends to re-engineer its basic pickup and delivery route structure. It will also change the structure of its routes with the aim of boosting premium international and express product service. It anticipates a 17% reduction based on the routing rationalization. To save 18% in its ground line haul network, DHL is cutting out runs to more remote locations while upgrading its fleet with more efficient equipment. While DHL is expanding its use of the US Postal Service to serve for last mile delivery in certain locations, there will be some impact on customers in areas affected by closures and consolidation. DHL characterizes the customer impact as “minimal,” translating into 3.3% fewer deliveries and 0.06% less pickups. For DHL for the time being the bottom line is the bottom line. Implementation of its new strategy is expected to cost $2 Billion. The company anticipates decreasing losses in US Express business over the next three years at $900 Million in 2009, $500 Million in 2010 and $300 Million in 2011. “If we can get it to the area of a $300 million loss that we’ve targeted, that’s our step one,” claims Mullen. “We picked that figure because we wanted to be able to walk before we ran but also because at that level, we’re actually better off having the US with those losses than not having the US with those losses. That said, nobody wants to lose money. If we can get there in the time frame that we’ve scoped, the next plan will be how to get the $300 million down to zero.”

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Each night, freight arrives, is sorted and departs from the new Leipzig/Halle hub.

DHL Creates a Major Hub

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he new Leipzig/Halle Airport facility is an important cog in the company’s global commerce backbone that includes its major hub in Hong Kong.

south and the growing markets to the east. John Mullen, CEO of DHL Express, observed that, “Demand for Express services is growing worldwide and we took the decision to invest in our international network in order to meet this need. The state-of-the-art new hub will enable us to continue to offer the best possible service, quality and reach for our customers. It is not only one of the industry’s most technically advanced hubs, with some of the world’s most sophisticated sorting equipment, but it will also protect and strengthen our leading position in the European, and indeed global, express market.” The hub’s sorting line is fully automatic and has been designed to minimize sound levels as it operates. Its main sorter is 6,500 meters long. There is a 900-meter document sorter and 260 loading and unloading slots for air containers. At present it is capable of handling 1,500 tons per day, anticipated to grow to 2,000 tons per day by 2012. The line can handle 60,000 parcels and 36,000 documents per hour. The facility is environmentally sensitive with, for example, the use of natural gas powered cogeneration technology for electricity, heating and cooling. The hub has 1,000 square meters of solar cells on the roof of its workshop used for generating electricity. The hub catches and stores rainwater that it then uses for drinking water and cleaning aircraft.

Two days before announcing plans for changing its market approach in the US, the international delivery giant opened this € 300 million facility to enhance its global express network. For the company, this hub transfers flights previously going to its Cologne gateway and its previous European air freight hub in Brussels. Some 60 planes per day arrive at the new hub from 46 destinations across the globe. In addition to freight arriving from the US and Hong Kong, cargo moves between Leipzig/Halle and such points as Sharjahj in the UAE, Delhi, Istanbul, Sofia, Warsaw and Ostrava, to name a few. These sites are mentioned here to provide a sense of why this particular location was chosen by DHL for creation of the new hub. At the formal opening of the facility, Frank Appel, Chairman of the Managing Board of Deutsche Post World Net, spoke of a shift in global commerce increasingly toward the east, not only with freight moving from China and India, but with emerging markets that include the Mideast, the Baltic States and Russia. Appel explained that this location in Germany is central to DHL’s continuing business with western destinations as well as to serving markets to its north and

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TNT

TNT Focuses on Emerging Markets
By Perry A. Trunick

faces the same challenges as every other logistics provider and user of logistics services: record fuel prices, slowing Western economies, congestion and productivity issues and rising environmental costs and pressure. The express group is focusing its attention on using its strengths to enter developing markets where it has the best prospect to become the leading provider. Marie-Christine Lombard, group managing director express, describes TNT’s strategic focus in simple terms. It has reached the position of number one in Europe in national and intraEuropean express flows. It is building uplift capacity from China to fuel its European network and it is working to establish an intra-China network. In the Rest of World category, it is number one in selected emerging markets and is developing further opportunities. Prior to selling its contract logistics unit (the current CEVA), TNT announced a strategic direction that would focus on networks. The company has continued to develop its air and road networks, says Mark Bradley, director of global network and operations, “taking a global approach of ensuring the networks are planned, aligned and optimized so that we make accurate and smooth capital investments to support growth.” Being strong in core markets allows expansion into other markets, including China. TNT’s announcement that it would begin Liege-Singapore-Shanghai-Liege service in its own 747 freighter is a prime example of how the company applies lessons learned in the express business to enable it to develop tactics that support its larger global strategy. Before the Singapore leg was added, the imbalance in the Europe-China lane was significant. While China-Europe averaged 92%, utilization, the return leg from Liege to Shanghai was only averaging 39% of capacity. Lombard noted that TNT was using commercial uplift on the lane and that was not only expensive, it was less reliable and less connected to TNT’s hub

On the tightwire of express services,
in Liege. Modeling the multi-stop route showed that the change could provide good utilization on the Liege-Singapore leg and on the Singapore-Shanghai segment. The Shanghai-Liege route was, at times, at 100.1%, said Lombard, “You just can’t fit any more on the plane.” In fact, TNT needed only 5% utilization outbound from Europe to keep the 747 freighter operation in the black, and it had surpassed that in early trials. The service launched June 25th. From 2004 to 2007, TNT engaged in the first phase of a transformation that included stripping out its logistics services operation (now CEVA Logistics) and its freight forwarding group. It was back to the core of optimizing and operating express networks. TNT’s density in Europe operating a road and air network in 35 countries provided the base for its operations and its experience. The European road network features 16 road hubs and 85 international depots connecting another 415 regional depots. On the air side, TNT operates from 70 gateways in Europe, Liege being its principal express hub. Examining its global strategy, Lombard comments that TNT’s lack of a presence in the intra-US express market is at times a great regret, but at other times, “we thank God we are not there.” TNT continues to deliver into the US market using regional carriers and subcontractors and it will connect US customers with other

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TNT concentrates on keeping its balance.
global destinations, but it has no desire to enter the intra-US express market. Just weeks after DHL had announced it would outsource its US domestic express air lift to UPS, Lombard was explaining the TNT position saying, “If you come too late to the market, you can’t take a position.” Given its focus on emerging markets where it doesn’t face large, entrenched competitors, TNT’s goal is to be the lead express provider in the markets where it operates. Lombard explained the acquisition of Hoau in China in the context of the company’s larger strategy. Hoau was already a leading less-than-truckload (LTL) carrier covering all of China, she pointed out. Hoau’s 1,100 depots and 150,000 clients provide a strong platform for TNT in China. As an LTL operation, however, Hoau’s focus is on filling its trucks. Utilization is high because they don’t operate to a schedule, they optimize vehicle capacity before the trucks leave the depot. That isn’t TNT’s model, and it has begun moving Hoau to scheduled departures that are necessary to support express operations. The situation with Speedage in India, another acquisition, is similar to China for TNT. That road network provides an LTL platform TNT can transform into a national express network. When you match schedule and capacity, it creates a strong barrier to entry in a market. TNT’s sophisticated modeling tools

have helped it optimize its European road network and integrate with its air operations, and it is this model TNT is migrating to developing markets. The company has also developed a road network in Southeast Asia which Lombard says has exhibited 23% growth operating within and between the Southeast Asian countries and Southern China. A similar developing road network in the Middle East experienced 53% growth, she added. So, TNT isn’t forgetting regional markets as it targets growth in the Middle East, Africa, Southeast Asia and South America. The South America experience is a little different, admits Lombard. There, TNT acquired Mercúrio in Brazil. Mercúrio is a 60-year-old company and a leader in Brazil. It also already has express characteristics, says Lombard. Bradley digs a little deeper into TNT’s factbased and scientific approach utilizing a data warehouse to feed information into strategic planning tools to help build an optimized air and road network. This is consistent and constant process of alignment, analysis and restructuring to suit the economic environment, says Bradley. It’s not just about building a pan-European approach but taking a global approach with consistent deployment throughout. Bradley points out that TNT first develops a baseline to determine the demand and service profile in the region. It models current performance in service, service offering and cost characteristics, and simulates and models various alternatives. TNT can then take a clear strategic direction and do the tactical and transition planning, he continues. TNT’s analysis of its European road network extends through 2017 and they have identified six potential new hubs on the east-west axis going through Europe: Bratislava, Slovakia; Lyon, France; Munich, Germany; Prague, Czech Republic; Stuttgart, Germany; Vitoria, Spain. TNT Hoau in China is mostly in the East of China. India has five key hubs: Sinnar, Nagpur, Mahipalpur, Martingale and Calcutta. The road network in Southeast Asia serves Singapore, Malaysia, Thailand, Cambodia and feeds into China. The European air network operates a single hub based in Liege which connects with 65 airports utilizing 42 aircraft on 500 flights per week carrying a weight ex-hub of 2,200 tons. In North America, TNT provides international express delivery services to and from the US and Canada. It has three international air gateways in New York, Los Angeles and Miami.

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SIZE
When Choosing a 3PL
A Ryder consumer packaged goods facility in Chile.

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Matters W

Supplier scope and scale loom large in the selection of a logistics provider.
By Roger Morton

hen looking for an outsourcing Chile, Brazil and especially in India. partner, depending on the nature Because of its presence in Southeast Asia, it is operating two of the alliance, the size of the supdistribution centers for Nike in the region—one in Indonesia, plier can play a part in making the other in the Philippines, both of which are growing. “We the final choice. The size of the enabled them to very quickly outsource to us pick and pack provider matters but it’s where operations, shipment staging, tracking and reporting for distrithat size is that makes the differbution through the local markets,” he explains. ence claims Jerry Levy, vice president of marketing for Agility. Because of Agility’s local experience in India it was able to Customers should be looking at where there are low cost sourcwin business by providing a custom solution for Germany’s ing opportunities or where there is an opportunity for expandMetro Cash & Carry. Metro has 615 stores in 29 countries that ing markets, he advises, and then they should examine the size offer a broad selection of goods and services at wholesale prices of potential logistics suppliers in that area. to customers that include hotel and restaurant operators as well As far as having presence in a market, Levy observes that, as small- and medium-sized retailers. Among its other offerings “The emerging market place is driving a lot of Metro Cash & Carry supplies fresh fish, meat, growth. Those markets are China, of course, but fruits and vegetables every day. The company also Eastern Europe, the Middle East, Vietnam, now has several outlets around the country afand places like Sri Lanka, Indonesia and Latin ter its start in Bangalore in 2003. America.” He sees a significant trend in what Agility manages the company’s cool chain he terms Short Supply Chain shelf life. “It used operations for fresh produce. “They faced issues to be if you built a manufacturing plant in an that are typical in a developing market,” recalls emerging market to supply developing counLevy. “The produce had to be processed, stored tries, you might keep it there 15 years. Now and transported in very good condition in an companies set up in one area of the world and optimum temperature environment. At the time 24 months later are looking to relocate.” they entered the Indian market—and it’s someWhile having presence in a location is importhing often encountered in emerging markets— tant, Levy applies the concept of size to having Ryder’s Tom L. Jones there was very little infrastructure for cool chain knowledge of the local marketplace. “Because available. So we built our own facilities.” low cost sourcing opportunities are constantly changing manuAgility has to manage movement of fresh produce across facturers need to be looking at logistics providers that can very long distances through the hot and cold temperatures that are quickly establish supply chain operations in these emerging typical of India. “The good news for us, and this comes to intelmarkets,” he notes. “They don’t necessarily have to have the aslectual skill sets,” says Levy, “is that we have a long term Agility sets sitting there. But they do need the intellectual skill sets.” team in India very experienced in managing general logistics Something to be understood and what 3PLs assist with is challenges that require us to deploy our own assets.” helping to determine the total landed cost of conducting comAs does Agility’s Levy, Tom L. Jones, senior vice president merce off shore. A customer may find a low cost sourcing opporand general manager of Supply Chain Solution of Ryder emtunity where manufacturing or retail expenses seem low but not phasizes the importance of total landed cost and the ability to take into account what transportation and supply chain support manage it as key to success for any company. “It involves a very may cost for all logistic operations. Levy claims Agility has size complex set of considerations that have to be put into the equaand strength in the Middle East, Southeast Asia, Eastern Europe, tion,” he reflects. “Then also you have to be able to change the

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SIZE Matters
supply chain as the parameters within the total landed cost calculation change as well. Take the matter of fuel, for example. It is changing the strategies of a lot of off shoring and moving it toward near shoring.” The people factor is more important than ever in operating the supply chain and, according to Jones, it has become an issue with industry today. “That’s because the field is exploding and there is a lack of good, readily available talent throughout the world,” he claims. “The need is for people who can actually understand supply chains and think threedimensionally instead of two-dimensionally, because supply chains are pretty complex and are something in which relationships have to be understood.” Jones recognizes the need for in-country people but argues they need to understand the global economy in addition to the local economy. In a global environment there have to be both shipping and receiving groups to comprehend what happens at both ends of the chain. When shipping globally anywhere there is a need for those well versed in world trade issues as well as local customs and the landscape of logistics throughout the region. Because of those requirements, Jones feels a larger provider offers greater access to those resources. Something else that argues in favor of a larger supplier is the ability to devote a broad range of assets to a project. Those assets might include everything from trucks to warehousing. They may involve transportation management and the ability to procure services from other people. “Those are relatively large endeavors that a small logistics company might struggle with,” states Jones. “Because to keep on top of the technology, especially in warehousing, transportation management and online services, there is a significant investment companies have to make that needs to be leveraged across a very broad array. Otherwise, for just one customer it would be cost prohibitive.” Jones points to the big systems needed to operate effectively globally. They are expensive and require people that can maintain the systems and react to technology issues relatively quickly and efficiently. “You have to have a backbone with an IT organization that is able to support the technology that’s being deployed on the customer’s behalf.” Jones sees market strength for logistics providers like Ryder that have intellectual depth, geographic presence and technology and employ people that understand those relationships and are readily available for large customers. “That’s where real leverage comes,” he claims. “Because if you learn something on a landed cost calculation with customer A, more than likely that knowledge will help customer B as well.” Ryder is a very powerful Americas logistics organization. In the Asia-Pacific region its focus is primarily on China. Jones characterizes the company as a very strong regional logistics provider with capabilities in the entire world. Ryder conducts a great deal of cross border operations with automotives in Canada. “In the US we are historically strong as an automotive provider,” he explains “We are strong in the high tech arena and in the fast moving goods, or retail, segment. That is one of our fastest growing areas. We are looking at the consumerism in the region and are crafting our products to reflect North American trends that include less manufacturing, more consuming.” What a large 3PL can do for its customers goes beyond just moving the material, notes Jones. Its benefits involve the customer’s shelf, manufacturing plant and suppliers. He claims that, “All the elements of the supply chain important to success are things customers don’t necessarily see in a cost sheet, but those are the advantages they get from an industry leader.”

Supplier Differentiation
Choosing between providers of outsourced logistics services can be a daunting task. They are not all the same. As John Mullen, CEO of DHL Express (see “Curing the Headache by Outsourcing to UPS” in this issue) notes, differentiation even for the world’s largest expedited and express companies can come through size and strength. “Differentiation is always a challenge,” claims Mullen. “We all have our strengths. Obviously UPS is a powerful ground player in the US. FedEx is extremely strong in air. Our differentiation is that while we are weak in the US, we are the leader in the rest of the world. We have a full portfolio of products and a larger market share. That said, all of us big ones are vulnerable. “If a customer is in Hong Kong and all they do is send bank documents to London, there are lots of little players who will probably beat us on both speed and price since they’ve only got a couple of containers to put on a plane and take off on the other end,” he continues. “We have a whole aircraft to unload. But if the customer wants a Pan-Asian solution or a Pan-Global solution, with all sorts of complicated supply chain components and everything else, then obviously the small competitors can’t play in that field at all. So, we have differentiation around the scale of our global network. It has size and strength. We offer full integration of everything from shipping to documents and the ability to provide that anywhere in the world.”

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Special Feature

Collaboration
Diebold reaches for high-level supply chain partnerships

“W

e want to be a partner for the long haul to our customers and help them create value for their customers,” says Frank Natali, vice president of operational excellence for Diebold Inc. “And we want to be compensated in accordance to the value that we provide them in achieving those goals,” he adds. When it comes to relationships with suppliers, including logistics service providers, Natali is very clear, “We’re looking for that same sort of relationship with our supply base.” Diebold’s business may be all about cash—it makes automatic teller machines, card readers and security systems—but its outsourced logistics relationships don’t focus only on cost. It’s not that cost isn’t important, and it is a metric for evaluating performance, but Natali lists a number of other factors driving Diebold’s supply chain strategy and decisions to outsource before reaching cost or cost reductions. “If all you are going after is cost and you think that’s going to lead to a long-term competitive advantage, you’re wrong,” says Natali. “I want my business partners to understand my ‘end game.’ If all they understand is logistics and they can’t appreciate what I’m trying to achieve, that’s not helpful either.” That end game, as Natali describes it, is meeting customer needs, and Diebold’s core strategies are focused there. It wants partners who can appreciate and embrace its strategies. Diebold has undergone some transformation recently, including a new CEO in 2005. Positioning operations for the new CEO was less about how logistics

could perform better and more about “how does it intertwine with our core strategy,” Natali points out. “We’re focused on critical functional capabilities that are restraining our business strategy and correcting them, whether that is through an internal program or, in the case of logistics, an external partnership.”

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Trumps Cost
that support its strategic goals.
Natali offers some factors he considers when making logistics outsourcing decisions: 1. Fill a resource gap. 2. Fill a knowledge gap. 3. Satisfy systems needs. 4. Speed of improvement. 5. Gain procurement leverage. 6. Redeploy key personnel to customer-facing tasks. In assessing his needs, Natali asks, would any or all of these functional deficiencies inhibit the ability to achieve long-term business goals? And, if the answer is “yes” the decision to outsource is clear-cut. In addition to aligning on strategic goals, Natali acknowledges the importance of connecting with the operations people who will be handling his business. “I need to meet the on-site leader from the 3PL,” says Natali. “That leader needs to be a doer and, more importantly, that leader needs to be a force of nature. They have to have this competence, energy and work ethic that is awe-inspiring to behold.” He is also looking for a supplier who is tops in its area of expertise and, he’s not afraid to admit, “they need to be smarter than me.” And, he adds, sometimes they need to save him from himself. “They have to be able to challenge me effectively with data and say, ‘You’re gong to hurt yourself if you try to execute this.’” “With a few exceptions, the days of the completely vertically integrated mega-corporation are over,” says Natali. “If you try to understand how to do everything yourself in-house, the level of execution that you need to have in every piece of your business to be competitive today is just so high that you will spend yourself into the ground trying to be the best there is in every functional element.” That said, Natali adds, Diebold does have a global logistics and warehousing director with a small core

By Perry A. Trunick

group of people who manage critical pieces of the business and manage their logistics providers. And, he continues, there’s an internal sourcing exercise so that Diebold understands the capabilities of the logistics providers they use and their competitors, so if they should need to change resources, they know what is available. Contracts are typically structured on a three- to fiveyear basis. The core contract covers terms and termination and a series of appendixes spell out specifics so that changes can be made during the contract period without the need to revise the whole contract. Coming back to Natali’s listing of reasons to outsource, one of the first considerations he had was filling a resource gap. Posed as a question, Natali asks, “Do I have the resources I need internally?” He follows this with another question, “If not, do I have time to grow them?” Faced with a small department and some knowledge gaps based on the growth and evolution of Diebold’s markets, Natali had to be realistic about spending to grow that expertise through training or additional staffing. The answer: “I have to bridge that resource gap with an outside partner.” Outsourcing allowed those critical internal resources to be focused elsewhere. “Do I really want to have them focus on network design or are there other more critical projects in terms of how we serve our customers that I want them to focus on while I have an outside company that has a lot of competency focus on the execution piece?” Natali asks. Another area to consider is information systems. Here, Natali asks a similar set of questions. “Do I have the systems I need?” Diebold’s enterprise resource planning (ERP) system couldn’t give them the detail needed to manage logistics and material flow effectively, pro-

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Special Feature

viding another reason to partner, he explains. A third consideration is speed of improvement. Even if there is sufficient need and critical mass to make it worthwhile to develop logistics capabilities internally, is there time to do it? “Am I going to get better enough fast enough to execute what I need to do?” asks Natali. If the answer is “no” then the solution is outsourcing. Also in terms of scope and critical mass, Natali raises the question of purchasing leverage. Even with Diebold’s multi-million-dollar budget for transport and warehousing, does a thirdparty logistics company have more procurement leverage? The bottom-line question on outsourcing for Diebold isn’t about logistics but it is about corporate strategy. “If I take a look at my three-year business plan and I don’t partner with an outsource logistics firm, will my strategic business plan be inhibited by those functional deficiencies? And if the answer is ‘yes’ you have to eliminate that functional deficiency,” explains Natali. A central point of the conversation Natali and Diebold had with Menlo Worldwide Logistics was about Diebold’s strategic vision in terms of global supply chain, product offering and what Diebold’s customers’ needs were. Then, they talked about what Diebold needed in order to get to where it wanted to be. “We spent a lot of time talking about what our in-house capability truly was,” says Natali. “We had a global logistics department for the manufacturing supply chain piece of the business that consisted of a grand total of three people. We had entrusted that movement to our carriers. There was a certain model they had for doing business, and it didn’t necessarily match with our strategic vision of where we wanted to go.” “For Diebold, the focus is on turning their supply chain into a core competency and competing on the strength of the supply chain,” says Carl Fowler, director of account management for Menlo Worldwide Logistics. “As markets globalize,” he explains, “companies find their supply chains stretched beyond their capabilities to manage what they have with a meager group of supply chain resources.” Fowler continues, “Whether it’s an ATM or an auto-

mobile, the cost of manufacturing is pretty consistent when you look at it region by region. And where the companies are competing today is on the strength of supply chain. You need something that’s more flexible. You need to be able to get the parts on the shelf a little faster and a little bit cheaper while shrinking the inventory footprint in the field.” With Diebold, specifically, Fowler explains, the partnership between user and logistics provider focused on supply chain evolution and supply chain integration. It all came down to putting a common supply chain vision out and rolling the disparate operating divisions in to support that one vision, that one goal, says Fowler. It meant using the strength of the supply chain to compete more effectively in new and emerging markets. “The best machines are the ones that don’t have that many moving parts,” Fowler says. “Looking at a global entity or global enterprise like Diebold, our focus has been on rationalization; simplification of the supply chain.” By definition, he adds, transportation and warehousing are waste. Eliminating the movement and warehousing of goods whenever and wherever possible using lean tools and techniques helps drive waste out of the supply chain. “As lead logistics provider (LLP) for Diebold globally, our job is to find out where that waste is.” “This becomes more than doing the movement efficiently,” adds Natali. The focus becomes, “Why am I moving so much?” “Because,” says Natali, “moving material around doesn’t service our customers.” Diebold and Menlo started looking at how Diebold was using warehousing and transport, how they organized their outbound network and where Diebold adds value in that outbound network. “I have no desire to have a logistics partner that simply executes what I tell them to do. I need them to be a partner in not only creating my logistics strategy but a leader in creating my logistics strategy and a partner in creating my business strategy,” says Natali. In a strategic partnership explains Natali, it’s more than driving continual cost improvements, though that's important. In today’s competitive environment, you have to be getting better every day.

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Field Report

In this second and final installment, three transportation management experts offer the last steps in developing a strategy to build a top-performing transportation management function.
By Scott Sykes, Matthew Menner, and Vincent Chiodo

Steps to Transportation Management Excellence Part 2

T
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he first installment of this two-part series pointed out that many firms are spending more on freight transportation than necessary. Though many recognize the critical importance of transportation management, they postpone projects to improve transportation management in deference to other corporate projects. The first four steps, covered in the earlier installment, communicate the potential improvement a transportation management project can deliver by helping to “size the prize,” design the moving parts of the solution, and articulate the path forward.

The seven steps outlined in the first installment are: 1. Assess your transportation management capabilities. 2. Identify your “target state” of transportation operations performance. 3. Size the prize. 4. Determine the appropriate moving parts to move you to the target state. 5. Determine the appropriate solution deployment strategy to move to the target state. 6. Plot the course.

July 2008

| Outsourced Logistics

7. Keep score for continuous improvement. Approaching the transportation management business process in this manner provides a series of facts and insights that guide improvement and can instruct top management on the value and importance of the transportation management discipline. To achieve these goals, people, process, and technology will be important. All three dimensions are central to progression toward transportation management excellence. Steps one through four, work through the process of establishing a current performance baseline and setting goals. These steps also help determine how much opportunity exists in your company, and you will determine what additional capabilities (people, process, and technology) will be required to realize those benefits. Steps five through seven, focus on ascertaining which deployment strategy best fits your company’s environment and help plot the path forward. The final step helps provide perspective on the importance of performance measurement and the need for a cultural commitment to continuous improvement.

reality. A highly decentralized execution model can still work effectively, but the deployment option may need to be designed in such a way that it is not a headquarters vs. the field cultural challenge. A neutral third-party can enhance the likelihood of deployment success, given the cultural context. Centralized management of the transportation management relationship and function are still necessary, but in this scenario the central management surrounds the third-party’s performance in the role. In this scenario, the field can legitimately see themselves as the customer of the centralized transportation management program because their centralized provider is, in fact, not a headquarters counterpart.

Organizational Skills and Capabilities
A second consideration in the people category takes into consideration the work from the earlier steps to define the “as-is” and “to-be” states of the transportation management function. Chances are, the design specification on the to-be job’s roles and responsibilities will exceed the specifications of the previous as-is model. Thus, as part of closing the performance gap between the as-is state and the to-be state, there is a question of staffing and training. Your company’s business strategy and outlook will guide the proper deployment strategy here as well. If your company is in a growth mode, and it is adding staff and altering pay grades and job descriptions, then you have a strong chance of making your case for an organizational re-building process to support your transportation excellence program. Alternatively, if your company has recently been in a hiring freeze period, your program’s likelihood of success and speed of deployment will be best served by a third-party deployment strategy.

Determine the Best Deployment Strategy
Step five addresses the questions of How? Who? and Where? In considering so lution deployment, it is important to return to the three performance considerations discussed in step one—People Considerations, Process Considerations, and Technology Considerations. These are essential ingredients in achieving transportation management excellence. Further, all three areas must be sufficient in quality, depth, and availability to ensure success. If, as you consider each of these categories, you uncover an area of deficiency that cannot be remedied in the short term, that shortcoming must instruct your deployment strategy.

Infrastructure and Technology Requirements
Another key deployment consideration is the acquisition and deployment of technology. For most firms, available IT resources are scarce, IT budgets are already spoken for by other company requirements (such as SarbanesOxley compliance, ERP upgrades and maintenance, etc.), and the opportunity to get a transportation management technology project approved is simply not in the cards. This will shape your transportation management excellence deployment strategy. Another alternative is the deployment of a Software-as-a-Service or SaaS-based

Organizational Design Requirements
Let’s first consider your company’s organizational readiness. As mentioned, one of the attributes in a transportation management leader is the presence of a “central leader” or go-to person for the transportation management function. If your company’s culture is one of high autonomy and decentralization of decision-making, then the structure and nature of a consolidated transportation management program must change to respond to this

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Field Report

transportation management technology deployment. In the SaaS scenario, you would not make a capital appropriations request, buy incremental hardware, databases, and applications, or consume your company’s scarce IT personnel’s limited time. In the SaaS deployment model, the solution is designed and tailored to meet your to-be blueprint (discussed in step two). The solution’s moving parts reside on your SaaS provider’s servers, so you avoid the incremental technology investment outlays; and, because the SaaS provider is already serving other users on their own transportation management excellence journeys, your system deployment and go-live lead times are compressed.

involvement vertically with the team and horizontally with other senior executives.

Prioritize Actions
The second order of business is to sequence your project’s key activities and milestones in accordance with your business’ stated objectives for approving the program. If

Economic Realities
With a SaaS deployment, your company avoids the up-front capital outlays, avoids the internal IT staffing and prioritization challenges, and receives a hosted solution that is delivered securely over the Internet using industrystandards and protocols. Technology costs are included in the scope of the overall managed services relationship. If your company seeks to address your transportation management challenges in the short-term, but your firm’s IT readiness to support you is further in the future, the SaaS delivery model offers an excellent immediate solution that can be re-visited at a later date.

Getting a quick win on a highly visible challenge is a great way to lock-in your project sponsorship and gain the momentum that a transformational project like this needs.
the project clincher was the rapid resolution of an operational challenge, tackle it first. Getting a quick win on a highly visible challenge is a great way to lock-in your project sponsorship and gain the momentum that a transformational project like this needs. Conversely, if the primary driver for getting the project launched was the size of the prize, sequence your project to attack the areas of richest opportunity first. Capture those savings early, and use the savings to prefund the subsequent activities in the project.

Plot the Course
Step six involves laying out the time-phased plan for moving from your as-is transportation management capability to your aspirational to-be blueprint. At this critical point, much of the hard work and internal selling is done. Now, you have reached the moment of truth where the project kicks off and now you must deliver.

Contingency Planning
Finally, ensure that your transportation management excellence program has a well-documented and published process review calendar. Projects have ebbs and flows to them. During one of the lulls, you want to have that pre-published calendar of process review meetings available to remind your audience of your continued progress and momentum. Also, have a contingency plan in place for the inevitable project disruptions that surface after kick-off. The mere presence of a “what if?” contingency project plan will calm the anxiety of your most challenging project participant.

Organizational Sponsorship and Commitment
To succeed in this phase, the first order of business is to secure sponsorship from the top of your organization. Strong project sponsorship and meaningful steering committee participation will make or break your transition journey. Securing sponsorship at the outset, and involving the sponsor in the kick-off, is a key success enabler. Get the support and make it easy for your leaders to involve themselves throughout the program. If you are the person at that level, be sure to demonstrate visible support and

Change Management and Communications
Projects that involve a great deal of change in the organization create both excitement and angst. It is the angst that you must proactively manage. The best method of managing an anxious audience is with consistent and constructive

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Field Report

communication. Ensure that your program management team establishes and executes a change management and communications methodology from the outset.

Keep Score for Continuous Improvement
The final step in the process is to acknowledge that this journey is never completed. With a best-in-class transportation operation now established and running as designed, your final step is to deploy a fact-driven performance management program.

• Average time for a carrier to communicate resolution of a problem/error. Many other metrics could be listed, but the key take away is that less is more when it comes to transportation management excellence. Decide on the essential performance metrics that will instruct your continuous improvement efforts, and implement them in cooperation with your trading partners.

Getting a quick win on a highly visible challenge is a great way to lock-in your project sponsorship and gain momentum.
Essential Performance Measures
There are many business intelligence and reporting tool kits available in the marketplace. Many of these tools come pre-populated with thousands of defined metrics, ratios, and indicators. It is far more important to ensure that you are focused on quality in this area. Quantity— when it comes to analytical tools and performance measurement—can quickly become a curse rather than a blessing. Experience teaches that less is more in this area. In step two, we discussed three key indicators that transportation management leaders can be identified by: (1) Transportation cost as a percent of revenue; (2) Annual year-over-year freight cost reduction/increase actuals; (3) Percentage of on-time deliveries. With those three outcome-based measures, you have the core of a transportation management excellence performance management program. Beyond those three outcome-based measures, we typically work to define the appropriate additional operational metrics to deploy as part of the program. Typical operational metrics include items such as: • Percentage of shipments delivered complete (right quantity of goods). • Percentage of shipments delivered damage-free. • Average lead-time for a carrier to accept or reject a tender (by carrier, by lane, by date range, etc.). • Average time for a carrier to communicate in-transit updates.

Deploying an Intuitive Score-Carding Portal
Another key strategy is the deployment of an easily accessed and reviewed score-carding portal. This deployment strategy is your single source of truth for all transportation-related pieces of your business. With everyone looking at the same figures, in the same environment, collaboration and shared understanding are the result.

Periodic Performance Reviews
Finally, you must conduct pre-scheduled, periodic reviews of your transportation management program. For some of the metrics, a quarterly review is appropriate. For others, weekly and daily frequencies are more appropriate for fostering continuous improvement. The key is to establish a pre-published calendar of reviews and required attendees so that all trading partners will have the same information, reviewed at the same time, in the same context. Consistency in execution feeds, fosters, and drives continuous improvement results. In conclusion, we have provided a guide for pursuing transportation management excellence. By approaching the transportation management business process in this manner, you will have a series of facts and insights that guide your improvement, and instruct your leadership on the value and importance of the transportation management discipline. The importance of people, process, and technology cannot be diminished, nor can any one of the three topics be discounted. All three are central to your company’s progression toward transportation management excellence. Scott Sykes is senior director of solution sales for Transplace, Matthew Menner is senior vice president of sales and alliances for Transplace, Vincent Chiolo is senior vice president of solution sales for Transplace.

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Logistics Services

US Logistics Costs Rise in 2007
US
business logistics costs hit $1.4 trillion in 2007, up $91 billion over the prior year, according to Rosalyn Wilson. Wilson reported the figures in the 19th Annual State of Logistics Report, sponsored by the Council of Supply Chain Management Professionals. The 2007 results were the fourth consecutive record high for US business logistics costs, pushing logistics costs to 10.1% of the gross domestic product (GDP)—a figure equal to 1998 and only topped once since then when US logistics costs hit 10.3% of GDP in 2000. With the US economy slowing, demand for transport services also tapered. But despite the effects of the housing slump and slower consumer buying, export demand increased, shoring up freight volumes in some areas. That said, nearly 2,000 motor carriers ceased operations in the course of the year. Looking more specifically at the modes, motor carrier tonnage rose earlier in the year but dropped in the latter months, says Wilson. Rail ton-miles were up 2.2% into 2008, but intermodal traffic declined 3.1%. Fuel prices and inflation have also continued to rise as have inventory levels, reports Wilson. Real GDP was up just 1.7% in the first quarter of 2008, falling after a lackluster 2.5% increase in the fourth quarter of 2007. Expectations for 2008 center on a 2.4% rise in GDP for the full year. With six months left in 2008 at the time of the report, Wilson noted, “The Federal Reserve continues to say that we have not entered a recession, but in my opinion, neither have we entered a recovery.” Outsourced Logistics

No surprise, fuel is on everyone’s mind

| July 2008 | 41

Logistics Services

She expects “more of the same” for 2008 Wilson. The switch from more palletized and a slow recovery in 2009. deliveries to individually picked items When the US economy does bounce pushed warehouses to look for more auback, what can the logistics community tomation, observes Wilson. Labor shortexpect? “Poor industry performance is ages are also becoming a problem as it is leading to a loss in capacity as [transport] harder to recruit workers at lower-wage companies first idle and then sell off jobs. their excess equipment or leave the market altogether,” Wilson points Selected Trends out. “Adding to this is a drop in in Logistics Costs investment in plant and equipment Source: 19th Annual State of Logistics Report as companies put off spending.” Category Increase This lower capacity level will have Inventories 8.7% serious repercussions when the economy turns around, she sugCarrying Costs 9.0% gests. This could return the market Transport Costs 5.9% to a crisis situation similar to that Warehousing Costs 9.9% experienced just a few years ago Average Diesel Fuel with backlogs and bottlenecks. (2007 vs. 2006) 6.5% Inventories will become a major Average Diesel Fuel concern for the field as the focus (current 2008 vs. 2007 average) 64.0% on inventory optimization takes Motorcarriage Cost 6.1% center stage. Wilson points out Truck Tonnage -1.5% that wholesale inventories have been growing faster than retail inventories as turnover rates have been Worker pay has also been an issue for falling. the transport side, but from a different Total logistics costs have gone up in angle. Shorter length of haul and less each of the last five years, says Wilson, cargo means many transport workers rising 52.3%. Transport costs accounted have seen their income erode. Driver for 52% of the rise in 2007. Motor carmiles are down for many, as are dock riage, the largest component of transport worker hours. “Looking at the annual costs, posted a 5.6% increase and other reports of many carriers will show that modes, taken together, accounted for a hourly compensation is up in terms of 6.7% rise. Though a smaller portion of wage rates and benefits,” says Wilson, overall logistics costs, inventory carrying “but the total hours for which they pay costs have been rising faster than transthe compensation was down in 2007.” port costs for the last four years, notes From consumers to the board rooms Wilson. of major companies, fuel is a hot topic of Warehousing costs also rose in 2007, conversation. For the logistics industry, up 9.9%. The move to more regionalit’s an unavoidable issue. “It costs over ized distribution centers continued as $1,100 to fill up a big rig with a pair more firms relocated facilities or opened of tanks that hold 250 gallons,” says new distribution centers serving smaller Wilson. “This compares with $720 last markets. These changes were made to year.” Fuel has now passed labor to shorten delivery times and length of become the motor carrier’s top cost. It haul in order to reduce fuel usage, says is eroding profit margins in an industry

with historically lean margins to start with, continues Wilson. Smaller motor carriers are finding it difficult to survive with fuel costs at this level because they often cannot pass the full increase in fuel costs along to their customers in the form of fuel surcharges. Meanwhile, these smaller companies also cannot take full advantage of the economies of scale available to larger companies to reduce empty miles. As an example, Wilson notes motor carrier C.R. England estimates 96% of every revenue dollar goes to costs, up from 92.8% in 2007 and 90.8% in 2006. Air freight carriers are also reporting that their prices are rising faster than rates they charge to cover them. “Northwest Airlines has modified its fuel surcharge over 20 times this year, cut service to some markets and grounded aircraft in response to higher fuel costs,” says Wilson. UPS, says Wilson, has also noticed a shift away from its faster air cargo options to slower, less expensive ground options. The nation’s 71st largest for-hire motor carrier shut its doors because of fuel costs, says Wilson. And, nine air carriers have announced they are ceasing operations primarily due to higher fuel prices. For comparison, barges can transport a ton of freight 576 miles on a single gallon of fuel. Railroads can carry a ton of freight 413 miles. And a motor carrier can transport one ton of freight 155 miles. (70% of US freight moves by truck.) The driver shortage has been masked by the economic slowdown in 2007, reports Wilson. The parallel slowdown in the construction industry has had a positive effect for motor carriers as laid off construction workers have turned to driving trucks.

42 | July 2008 | Outsourced Logistics

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News Briefs • July 08

China Southern Links With Air France-KLM in a Cargo Joint Venture
The new airline will be called AE (Asia Europe) and will be based on the Chinese Mainland. China Southern has that country’s largest air fleet. It will join with Air Bleu Ltd., an airline controlled by the Air France-KLM (AF-KLM) Group. It will hold 75% of AE and 25% of Air Bleu. The business plan of the new company calls for a term of 30 years for the venture. China Southern says that the new airline will “engage in domestic and international air cargo transportation and storage activities, including cargo and mail airline services, ground handling services, operation of warehouses and other storage services, agent services, representatives of other airline companies, customs clearance agency, and import and export services.” In its most recent financial reporting, China Southern enjoyed an increase in operating revenues of 17.9% for all of 2007 compared to 2006. Even with what the airline characterized as fierce competition in the industry and skyrocketing fuel prices it, “Dealt with the pressures resulting from high fuel prices by optimizing the structure of flight routes and the composition of the fleet, increasing overall revenue by taking a series of fuel-saving measures and utilizing financial derivatives.” Total cargo and mail freight grew 6.5% for the year, to a total of 8.72 million tons. Revenue from the segment grew 4.5%, to RMB 3.687 billion. As with other airlines, AF-KLM has felt the effects of sharp rises in oil prices and a challenged global economy. For its full fiscal year that ended on March 31, the combined airline had overall revenue growth of 4.5% with € 24,114 million for 2008 over 2007’s € 23.073 million. AF-KLM cargo business was strained in the first two quarters of its fiscal year, but has recovered somewhat since the middle of the year. It moved 363,000 tonnes of freight. With a negative impact of currency at 3.8%, freight revenues climbed 8.0%. Operating income saw a decline of € 22 million in 2006-2007 and recovered in the new fiscal year to almost break even, with a loss of € 1 million.

A Forecast for Strong Air Freight Growth
Given current events that include airline shrinkage, shutdowns, mergers and acquisitions along with alarming continuing costs for fuel, OAG says there is hope for long-term growth. Taking into account current dire trends, OAG Analytical Services, a part of Official Airline Guide, in its third annual Global Air Freight Forecast looks for an annual growth rate of 5.6% by 2011 for air freight after what it terms “a slowdown in the near term.” “The international air freight market is expected to continue to flourish, with average annual growth of 6.1% during the 10year forecast period from 2008 to 2017,” predicts Tulinda Larsen, managing director of OAG Analytical Services. “Security and green issues are expected to pull down demand for regional air freight trade to 3.9% average annual growth.” OAG is providing access to 620,000 worldwide cargo schedules through one website at www.oagcargoflights.com. OAG Cargo Flights permits users to combine multiple search criteria based on origin, destination, carrier, date and time. It also offers data on duration of flights, stops and types of aircraft. The information covers cargo-carrying flights from 3,500 cities around the world that are operated by 900 airlines. In discussing improvements within the redeveloped software, OAG managing director, Mike Navin, points out that customers can, “choose from worldwide direct and connecting cargo scheduling information, view data on wide and narrow-bodied passenger flights and road feeder schedules in an easy-to-use on-line format.”

Seko Synergy “Fastest Growing”

UK-based Seko Synergy Ltd. was selected for the Sunday Times Fast Track 100 as one of the UK’s fastest growing businesses. This is the second consecutive year the UK-based third party logistics provider has been selected for recognition by the London newspaper’s Fast Track list, sponsored by Richard Branson, founder of Virgin Group. “When we launched our business in 2003, we knew we had to offer new and innovative solutions that ultimately enabled our clients to manage their businesses more efficiently and save money,” said Keith O’Brien, managing director. Seko Synergy has targeted a market of mid-market companies with logistics budgets that “take them off the radar screen of multi-national logistics providers” says O’Brien. The company launched a new end-to-end logistics solution that combines freight transport and information services with valueadded services and Web fulfillment solutions, explains O’Brien. It has achieved 63% per year growth from 2004 through 2007.

44 | July 2008 | Outsourced Logistics

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Logistics Services

Ad Index
Pg. 35 Company/Website CEVA Logistics www.cevalogistics.com Con-way Freight www.con-way.comoceanguaranteed CRST www.crstmalone.com Exel Logistics Ford Motor Company commtruck.ford.com Interchez Logistics Systems Inc www.interchez.com Landstar Logistics www.landstar.com Old Dominion Freight Line Inc www.odfl.com Ryder Ryder.com Saddle Creek Corporation www.saddlecrk.com Scope West www.scopewest.com SMC3 www.smc3.com/go/today; www.smc3.com/go/wc/lt Transplace www.transplace.com UPS upsfreight.com

News Briefs • July 08

Navistar and Caterpillar Join on Global Truck Business
The two major manufacturers sign a Memorandum of Understanding to cooperate in serving an expanding base of engine truck and equipment customers worldwide. The companies will work together to develop, manufacture and distribute commercial trucks in what they define as “select regions outside of North America.” Beside current market coverage in the US and Canada, Navistar has distribution in Mexico and the rest of Latin America. Caterpillar sells its onhighway truck engines in Mexico and Latin America. It also has distribution networks in Australia and New Zealand, the UK, Belgium, Russia, China and South Africa. About the cooperative effort, Dee Kapur, president, Navistar Truck Group, observes, “The combination of Navistar’s truck design, development and manufacturing expertise and Caterpillar’s unparalleled worldwide distribution creates a significant advantage for global customers through the ability to offer the right vehicle for the right application through more than 4,700 points of distribution around the world. The North American Caterpillar distribution system provides expanded reach for severe service trucks with big bore power, a segment where Navistar has traditionally not been as focused.” The product offering would include a full line of medium and heavy-duty trucks in both conventional and cab over designs. Caterpillar has determined not to supply engines that meet the more stringent US Environmental Protection Agency 2010 regulations for truck and other on-highway original equipment manufacturers (OEMs). The company does assure customers that its dealers will continue to provide product support and service beyond 2010 for all Caterpillar onhighway engines regardless of truck brand. Caterpillar and Navistar plan to cooperate on engine development, incorporating “best in class” technologies from both companies. “There are many opportunities for technology sharing and development that would result in the ability to better meet the worldwide demand for diesel engines in both on and off-highway applications,” notes Jack Allen, president, Navistar Engine Group. In explaining the strategic move, Douglas R. Oberhelman, Caterpillar Group President, claims, “In the past 15 years, Cat has become significantly less dependent on the sale of on-highway truck engines in the total contribution of our global engine profitability. Our global power systems business has grown significantly—in fact we supply approximately 400,000 diesel engines annually outside of the on-highway truck market. We intend to remain the world leader in clean diesel engines, and this collaboration is a key enabler.”

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46 | July 2008 | Outsourced Logistics

Logistics Services

Community Voice
A 3PL By Any Other Name...
By James A. Calderwood
The courts have held that because brokers are not legally defined as carriers they were not liable for loss or damage to goods because of the Carmack Amendment. This broker defense may be changing as illustrated in a recent decision by a federal court. The case involved the movement of industrial machinery from California to Illinois. The shipper arranged with Two Brothers Trucking, Inc, which, despite its name, acted as a broker (remember, names do not always tell the whole story) to take care of moving the machinery. The goods arrived damaged and the shipper sued Two Brothers and the carriers involved. Two Brothers asked the court to dismiss the suit on the basis it functioned as a broker not a carrier and applying Carmack to the interstate shipment, it was not liable. The court agreed and dismissed Two Brothers from the suit. The shipper then filed an amended suit against Two Brothers claiming that it had violated its contract with the shipper to deliver the cargo in good condition. Two Brothers asked the court to dismiss these contractual claims on the basis that they were preempted by federal law, (Carmack). The court declined to dismiss these breach of contract claims holding that while carriers are preempted from state law contract actions brokers are not. The court reasoned that the Interstate Commerce Act imposes relatively few duties upon brokers and makes no grant of liability for loss and damage to cargo upon brokers as it does for carriers. The court said that the Carmack Amendment’s silence as to brokers would not be interpreted as a preemption of state law. Calderwood is a partner with the law firm of Zuckert, Scoutt & Rasenberger, L.L.P in Washington, D.C., where ., he concentrates in transportation matters. He can be reached at jacalderwood@ZSRLAW.COM. This column is designed to provide information of general interest. It cannot substitute for in-depth legal analysis of particular problems. Readers are urged to seek counsel concerning individual situations Outsourced Logistics | July 2008

Liability, unlike roses, smells different when you change the name.
s often happens, commercial dynamics move faster than changes to the law and outmoded but still existing laws end up being applied to logistical arrangements never contemplated when the laws were enacted. “3PL”, “4PL”, “Logistics Provider”, “Freight Expeditor”, “Consolidator”, etc.; the terms are many and varied. One problem, however, is that none are recognized in any statute. When the current legal framework was created such entities did not exist. The laws and regulations refer to and impose certain obligations on rail carriers, ocean carriers and brokers. When serious issues do arise and legal action is instituted, the type of entity involved can be very important in resolving the dispute. Entities such as 3PLs, Logistics Providers, etc. are legally usually functioning as brokers. The term “broker” is recognized by statute. Brokers are required to be registered with the Federal Motor Carrier Safety Administration (FMCSA) part of the US Dept. of Transportation, carry insurance and follow certain regulations. Before dealing with third parties it is advisable to check with the FMCSA to determine if the party is a currently registered broker (www.USDOT/FMCSA.gov). A major issue in domestic transportation involving brokers is their extent of liability for lost or damaged goods. Brokers are not carriers and do not physically transport cargo. They arrange for carriers to perform this function. If you arranged for a broker (no matter what it may actually call itself) to handle pickup and delivery of your goods and something goes wrong can you make the broker legally liable? The law on this issue is somewhat confused. The US Supreme Court, almost 100 years ago, said motor carriers, rail carriers and domestic freight forwarders are liable for the value of lost and damaged goods under the Carmack Amendment to the Interstate Commerce Act. There is not a lot of legal confusion with respect to the liability of such carriers. Broker liability is another story.

A

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3PL File
Company Name: C.H. Robinson Worldwide, Inc. Ownership: Public Stock Symbol: CHRW US Headquarters: 14701 Charlson Road Eden Prairie, MN 55347 952-937-8500 Website URL: www.chrobinson.com Foreign Locations/ Markets Served: 220 offices in North America, South America, Europe and Asia. Key Personnel: John P. Wiehoff, Chief Executive Officer and Chairman of the Board; Chad M. Lindbloom, Senior Vice President and Chief Financial Officer. Year Founded: 1905 Number of Employees: 48,000+ carriers worldwide. Approximately 7,500 employees
Mission Statement: C.H. Robinson Worldwide, Inc., is one of the largest non-asset based third-party logistics companies in the world. It is a global provider of multimodal transportation services and logistics solutions, currently serving more than 29,000 customers through its network of 220 offices in North America, South America, Europe and Asia. C.H. Robinson maintains one of the largest networks of motor carrier capacity in North America and works with approximately 48,000 carriers worldwide. Capabilities: C.H. Robinson is a global provider of multimodal (truck, air, ocean and rail) transportation services. As a non-asset based transportation provider, it can be unbiased in selecting optimal logistics solutions for its customers. Financial Rating/Stability: $7.3 billion (2007 Gross Revenues) Technology Advantages: C.H. Robinson’s technology connects its

people to its customers, carriers and other suppliers, helping it communicate and work together. At the elemental level, the provider’s systems capture and circulate information on routine events, data about orders and modes, pickups and deliveries, load consolidations, and real-time tracking of freight. At a higher level, its technology helps in strategic relationships. C.H. Robinson’s systems allow it to look at traffic patterns, product mix, production schedules, customer trends and transportation spending. (LTL), refrigerated LTL, flatbed, dimensional, temperature controlled, expedited and special handling, intermodal or short haul freight.

Modes of Transportation Utilized: Full truckload, less than truckload

Specialized Logistics Services: Transportation Management services

include carrier management, mode selection, freight bill audits, consolidated billing, consolidated shipments, vendor management, premium freight reduction, complete supply chain visibility, private fleet utilization, backhauls, inventory management and new market distribution. Analytical services include crossdocking, network analysis/design, process engineering, order management, site analysis, private fleet analysis and supply chain engineering.
How It Differentiates Itself: C.H. Robinson’ Worldwide's commitment, reliability and flexibility win customer confidence, setting the company apart. Its success is largely due to the caliber of its employees; they are ambitious, hardworking, entrepreneurial people that direct their energies into a can-do culture fostering individual and company growth. Its employees have knowledge of local market conditions, connections with the 220 offices in the worldwide network and industry-leading technology to see every shipment through to delivery. The company feels it makes customers more competitive by using its proprietary competitive advantages on their behalf.

48 |

July 2008

| Outsourced Logistics

The Benchmark

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When you use CzarLite base rates you win – because carriers know and understand CzarLite formulas they are able to competitively price your freight with confidence. And CzarLite products easily integrate LTL pricing into your current technology, distributing critical business information across the entire company. Start making smarter transportation purchases – contact SMC 3 at 1.800.845.8090 ext. 5533, or visit www.smc3.com/go/today

LTL Base Rates – When, Where & How You Need Them

© 2007 United Parcel Service of America, Inc. UPS, the UPS brandmark, and the color brown are registered trademarks of United Parcel Service of America, Inc. All rights reserved. Avery, Marks-A-Lot, the Crown Cap Design, and all other Avery brands are trademarks of, and used here under license from, Avery Dennison Corporation.

On-time guarantee applies to customers whose shipments are rated from the current UPGF 560 base rate tariff only. See Rules Tariff for applicable terms, conditions, restrictions and remedies.