Au g u s t 2 0 0 8

A Penton Media Publication
Also in this issue:
Cross Docking On the Rise
Logistics Helps Pork Breeding
Connecting With Customers to
Help Their Customers
Asset Based vs.
Resource Rich
Reconnecting With
Your Network
Is it time to reconsider
your off-shore strategy?
Cover.b.indd 1 7/25/08 9:35:39 AM









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Untitled-1 1 7/29/08 4:30:58 PM
A New Paradigm
in Logistics Outsourcing
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 prin-
cipal candidate for outsourcing. In recent years there has
been dramatic growth in spending on third party provid-
ers and on warehouse services. It is clear that as compa-
nies 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 communi-
cate 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.
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 deci-
sion 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
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 con-
versation 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
Our decision to re-focus our magazine and website
is based on an analysis of over 15 years of data, extend-
ing 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 move-
ment of companies in three important
areas. The first indicator is the grow-
ing number of companies the data
showed were and are using outsourc-
ing 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 annu-
ally on outsourcing. In 2008 the num-
ber is forecast to be well north of US
$130 billion. And while that number
is significant, indicators are that we are
Outsourced Logistics | August 2008 | 1
David H. Colby, Publisher,
Publishers Page
Publishers Page.Final.indd 1 7/29/08 2:34:04 PM
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Global Markets
Perspective on Outsourcing
to China and India
Community Voice
Asia-Pacific Leveling
After Soaring Growth
Why is this Pig Smiling?
Community Voice
Outsourcing to a Sustainable 3PL
Logistics Services
TNT Express Volumes Down
Community Voice
Calderwood: When the Middleman
Doesn't Pay
Global Strategy
Is It Time to Reconsider
Your Off-Shore Strategy?
Extended supply chains have many
moving parts in manufacturing and
logistics that require regular maintenance.
Customers Helping Customers Helping
Third party suppliers collaborate with technology
suppliers to be able to offer their customers the
best trade solutions possible.
Logistics Services
Asset-Based vs. Resource Rich
Users and logistics service providers focus on
Field Report
2008 Cross-Docking Trends Report
More companies are finding cross-docking must
play an integral part in their distribution model.
3PL File
BDP International, Inc.
1 Publisher's Letter
A New Paradigm in Logistics Outsourcing

7 Editorial
Contractions and Distractions
47 Classifeds
Advertiser Index
Outsourced Logistics | August 2008 | 3
Augus t 2008 Vol ume 1, Number 3
August Contents.Final.indd 3 7/30/08 3:12:58 PM
Have you
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Chief Editor
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Senior Editor
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Professional Contributors James A. Calderwood
Art Director Bill Szilagyi
EASTERN REGION Mike Antell, Phone: 978.282.5625, Fax: 978.282.9749,
CENTRAL REGION. Terry Davis, Phone: 404.325.9037 Fax: 404.325.6737,
WESTERN REGION Christopher Hartnett, Phone: 832.237.4004 Fax: 832.237.4114,
FLORIDA Bob Eck, Phone: 352-391-5577,
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
4 | August 2008 | Outsourced Logistics
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t’s sometimes difficult to separate which corporate and
industry moves are driven by the times and which are
the drivers.
Arguably, DHL was driven to an alliance with UPS to
mitigate massive US losses. Close on the heels of that an-
nouncement came the rumor that FedEx was pursuing
TNT. Ceva, which had acquired Eagle Global Logistics
(EGL) in 2007, announced a management restructuring.
Crane Worldwide, led by the former CEO and founder
of EGL, announced it would launch as “an international
company with a North American headquarters.”
The list goes on, but is there a trend emerging?
DHL could have exited the US domestic market and
become more like TNT with its arm’s length approach to
connect North American shippers and consignees to its
international network. It chose to stay rooted in a mar-
ket it says is important to its global network but which
has been financially painful.
That keeps alive a third
choice in domestic
express services. It
also shows that
even the most
virulent com-
petitors can find
reason to coop-
Could FedEx
be looking at its
own network
n e e d s
a n d
reaching the conclusion that it doesn't have to own every-
thing to succeed? An alliance with TNT could strengthen
FedEx’s global position without a massive outlay of cash
at a time when its core domestic market is suffering and
the US dollar makes any overseas acquisition much more
expensive. For TNT, it could provide greater density on its
network and help balance some of its own market fluctua-
tions And, of course, it could be the engagement before a
Ceva, which was feeling the gap in its service portfolio
where Wilson had been when it was part of TNT rescued
EGL from a takeover attempt by former CEO Jim Crane.
Its new management structure may have taken a page from
its strategic plan from TNT days. It has now integrated its
contract logistics and freight management services under
region managers rather than separate functional units.
This allows local market forces to play freely, driving those
services region by region.
Crane Worldwide is launching as a pure-play freight
forwarder. It doesn’t want to be drawn into too many non-
core areas and take on unfamiliar functions or incompat-
ible IT platforms. It may be a slight over-reaction to the
recent history of its senior executives, but the message is
clear: focus on the core. That will certainly be necessary for
survival as a start up in a difficult market.
In the US motor carrier market, YRC Worldwide may be
forced to take a step many expected when it first acquired
Roadway Express and combine the operations of Yellow
Freight and Roadway. The rationale for two national LTL
networks appears to have expired. As it builds out its ca-
pabilities in regional LTL, it is facing some established and
some newly expanding competition.
Underlying so many of these moves is a focus on “core.”
What makes up that definition will vary with the culture of
each company. It seems the companies most likely to suc-
ceed in this evolving logistics market aren’t allowing them-
selves to be distracted from what made them a player in
the first place. This could help avoid some catastrophic
contraction in the industry, a prospect that would be
very disruptive for everyone.
Contractions and Distractions
Outsourced Logistics | August 2008 | 7
Perry A. Trunick, chief editor,
Perry Edit.Final.indd 7 7/29/08 2:35:21 PM
8 | August 2008 | Outsourced Logistics
Perspective on
Outsourcing to China
and India
nomic hubs are already
exhibiting problems with
overcrowding, traffic conges-
tion, air pollution and rising
costs. Skilled labor and raw ma-
terials are particularly affected.
Companies with substantial size in
China are extending their reach into
the interior by forming partnerships
to lessen some of the impacts of
these problems.
Though China has shown a will-
ingness to address issues of quality and safety con-
cerns, companies are putting greater significance to
the need for risk mitigation. Other positive signs of
China’s response to business needs include major in-
vestments over the last 10 years and changes in laws
that encourage a business culture that fosters growth.
Today, only about a third of the Chinese economy is
state owned. These and other reforms have allowed
China to double its share of global manufacturing
hough not a new phe-
nomenon, it is now pos-
sible to analyze and qual-
ify the processes that have
made overseas outsourcing success-
ful and profitable, write the analysts at
Capgemini. The report, Outsourcing
to China and India: A North American
Perspective, notes that, in fact, some
North American companies have been
outsourcing to China for as much as 40
years. However, experience in India is
much more recent.
With India, much of the outsourcing has been in
the area of information technology. Supply chain pro-
cesses related to manufacturing are a challenge and an
obstacle for North American companies.
Chinese infrastructure has proven to be a chal-
lenge as operations move away from the economic
hubs along the coasts and into the less developed
areas of China’s interior. The rapidly developing eco-
Global Markets
From a Report
by Capgemini,
in collaboration
with ProLogis
Global Markets.Final.indd 8 7/30/08 11:18:03 AM
Outsourced Logistics | August 2008 | 9
and moved through the ports of Hong Kong,
Tianjin, Shenzhen and Shanghai. Among the chal-
lenges on outbound shipments, companies cited
lack of standards on pallet loading, dock heights,
and truck size. In addition, the need for greater vis-
ibility along the supply chain was also mentioned.
While many companies operating in China see
potential for increased investments there, they are
also looking to countries like Vietnam, Thailand
and in Latin America as ways to mitigate some of
their risks and shorten the supply chain cycle time.
Meanwhile in India, the services industry has
become the country’s largest sector. It’s more mod-
est [than China] GDP growth rate of 8% per year
should remain reasonably constant.
Foreign direct investment levels are low com-
pared with China, however, analysts expect the
Indian government to continue to seek ways to in-
crease investment.
As in China, the fast-growing consumer market
is changing companies’ views of India as just a low-
cost manufacturing site. But economic and political
factors could hinder this. Poor infrastructure may
delay foreign manufacturing investments. Despite
the government’s more favorable views on foreign
investment, there are still restrictions in some of the
fastest growing industries.
Taxes are a major issue in India. Corporate tax
rates are high, with a basic rate around 35%. There
are also taxes by state and for interstate commerce.
Because logistics and outsourcing within India
can be a challenge, some of the companies respond-
ing to the survey indicated they handled their own
manufacturing and did production planning in the
US and communicated the resulting plans to opera-
tions centers in India.
Success in India requires developing a good
knowledge of state-level taxes as well as the infra-
structure limits.
Capgemini provides consulting, technology and out-
sourcing services. Global revenues for 2007 were €8.7
billion. It employs 83,000 people worldwide.
output as most wealthy Western countries see man-
ufacturing output decline.
Since 2003, two years after it joined the World
Trade Organization (WTO), China’s gross domestic
product (GDP) exhibited 10% growth each year.
While that growth is expected to continue, it will be
at a somewhat slower pace.
As China’s economy grows, so does its consuming
population. One major consumer products com-
pany reports it no longer uses China merely as low-
cost production, instead, it has shifted production
of products bound for North America and other
markets to other low-cost locations. Its China-based
production serves the Chinese consuming market.
Wage inflation in the urban hubs, mostly located
along the eastern coastal regions, has led to China
manufacturing wages outstripping the Philippines
and Indonesia in terms of average manufacturing
wage. Though costs are lower in the interior of
China, the infrastructure limits the opportunity for
North American companies to take advantage of
those lower costs.
Another factor affecting the growing use of China
as a manufacturing source is the rise of protection-
ism in the US and Europe. The substantial trade
surplus China enjoys with the US is a growing con-
cern for many as it drives pressure on the Chinese
government to revalue its currency.
Of North American companies surveyed, many
of those with operations in China said they shared
planning responsibilities, with final execution of
weekly and daily planning taking place in China.
Added to the need for logistics skills is the mat-
ter of cultural issues. Many companies attribute
their success in China to efforts to understand and
respect local culture. The sooner their staff became
localized, particularly when Chinese nationals were
bilingual and educated in American business prac-
tices, the sooner performance improved.
For outbound flows from China, most North
American companies surveyed used ocean freight
Global Markets.Final.indd 9 7/30/08 11:18:14 AM
10 | August 2008 | Outsourced Logistics
Global Markets



Jim Crane, founder and former CEO of Eagle Global
Logistics, has assembled an executive team and will
launch Crane Worldwide Logistics beginning this month.
Joining Crane, who will be chairman of the new freight
forwarding firm based in Houston, will be John Magee as
CEO and Keith Winters as chief operating officer. Magee
said, “During the past 12 months that EGL/Ceva man-
dated that I not compete in the logistics industry, we have
been able to research acquisitions of some of the most ef-
fective supply chain companies in the industry.”
Crane Worldwide Logistics will ultimately operate
globally with company-owned operations in more than
40 countries, said the announcement. The company ex-
pects to have 4,000 employees worldwide over the
next five to seven years and also expects to gener-
ate over $1 billion in revenue in that period.
Crane and a team of senior executives led an
unsuccessful bid to acquire EGL in 2007. Along
with General Atlantic LLC, the group offered $1.2
billion, at the time a 21% premium over the December
26, 2006 closing price for EGL stock. Revenues reported
for the year prior to the buyout offer were $3.1 billion.
General Atlantic withdrew its participation in the buy-
out “due to an expected shortfall in EGL’s fourth quarter
2006 results.” At the time, Crane announced to Eagle’s
board that he would pursue other equity sources and
mount a revised offer.
Ceva Logistics, itself owned by an equity firm Apollo
Management after its sale by TNT, mounted a successful
bid for EGL, completing the $2 billion acquisition on
August 2, 2007.
Reporting financial results later that year, John Pattullo,
CEO, noted, “We are a new company comprised of for-
mer TNT Logistics and EGL and we already behave as a
single, integrated entity.”
The company reported EGL revenues of €1,962 million
for the nine months ended September 30, 2007, up 4.9%
over the prior year period. In a presentation later that
year, Pattullo described Ceva’s presence in Europe, the
Americas and the Asia Pacific, saying revenues of roughly
€6 billion (nearly $8 billion) were divided between the
regions as 48% from Europe, 32% from the Americas and
20% from Asia Pacific.
In 2008, Ceva reported its first full-year results. Pro
forma earnings for 2007, before interest, taxes, depre-
ciation and amortization, were €284.8 million ($419 mil-
lion). Though the EGL merger had not been completed
until late in 2007, the company estimated that if it had
occurred on January 1, 2006, the comparable earnings
would have been €182.5 million. On that basis, Ceva es-
timated 2007 revenues increased 4.5%. Pattullo said the
merger of Ceva’s contact logistics and EGL’s freight manage-
ment operations was a key driver in its financial results.
Crane Forms Logistics Company
Russia’s Air Cargo Forecast to
Outgrow All Other Regions
Drawing on a number of research reports as well as internal
figures, Denis Ilyin, senior vice president for strategy and com-
mercial of AirBridgeCargo (ABC) Airlines, part of the Volga-Dnepr
Group, says Russia’s present share of
1.4% of the total $80 billion global air
cargo market will grow to 8% in 2015
at $8.4 billion and 16% by 2030, to
$25.6 billion.
Speaking at the Russia & CIS
Aircraft Conference in Moscow, Ilyin claimed that, “Despite a certain
decrease in the passenger air market, global air cargo is constantly
developing and average annual growth up to 2025 is forecast at
between 5.4% and 7.1%. Russia can and will benefit strongly from
this. Airfreight growth in Russia over the next 17 years is forecast
to be greater than that for North America, Europe-Middle East,
Intra-Europe, Europe-Africa, Europe-North America, Latin America-
Europe and Latin America-North America.”
Using Volga-Dnepr statistics, Ilyin estimates that there will be
8-10% growth in demand for ramp aircraft to 2020. He sees that
as traffic grows capacity needs will be met by freighters to be built
both by Russian and Western manufacturers. For example, 21 large
freighters are handling Russia’s current scheduled cargo service
market needs. By 2020, Ilyin forecasts a need for 76 freighters
which will include 25 Boeing 747s.
Supporting the growth is development of two hubs. One
in Moscow that Ilyin says offers natural connections with the
Middle East, Indian Subcontinent and Southeast Asia. The other at
Krasnoyarsk in Russia’s Far East, that he characterizes as being
in the center of major trade lanes that connect the US, Europe and
Canada with China, Japan and Southeast Asia by means of cross-
polar and trans-Siberian routes.
Launched by Volga-Dnepr Group in 2006, ABC is the first all
cargo Russian airline to operate scheduled services in Europe,
Russia and Asia. It expects to initiate scheduled services to North
America this year.
Global Markets.Final.indd 10 7/30/08 11:18:27 AM
Outsourced Logistics | August 2008 | 11
real pan-China player yet,” said Wong. Firms are still
competing on price rather than quality of service.
Road transport accounts for 76% of total transport and
since 75% of all main highways in China are toll roads,
tolls account for 30% to 40% of costs. In addition, 70%
of all accidents and 50% of all road injuries and deaths are
related to overloaded trucks.
Airlines to Pay Criminal Cargo Price
Fixing Fines
These major international airlines have agreed with the
US Department of Justice (DOJ) to plead guilty and pay
criminal fines totaling $504 million for participating in a
multi-year conspiracy to fix prices for air cargo rates. All
plea agreements are subject to court approval.
Specifically, the airlines and their fines are Air France-
KLM (counted as two), $350 million; Cathay Pacific,
$60 million; Martinair, $42 million; and SAS Cargo, $52
million. The DOJ notes that if the court imposes the $305
million fine on Air France-KLM it will be one of the largest
criminal fines it has ever obtained.
In its discussion of the case, the DOJ said, “The airlines
each engaged in a conspiracy to suppress and eliminate
competition by fixing the cargo rates charged to customers
for international air shipments. The charged conduct
affected billions of dollars of consumer and other goods–
including produce, clothing, electronics and medicines–
shipped by these airlines and their competitors in the
air cargo industry. The companies have each agreed to
cooperate with the Department’s ongoing investigation.”
These actions are part of an ongoing investigation by
the DOJ. Other international carriers have previously pled
guilty and paid fines as a result of the investigation. In
April, Japan Airlines agreed to pay a $110 million fine for
its price fixing. Prior to that, Qantas, British Airways and
Korean Air had also pled guilty and paid fines. In reaction
to the investigation, both Air Canada and El Al have set
aside funds for possible settlements.
In discussing these actions, Kevin J. O’Connor,
Associate Attorney General at the DOJ said, “Millions of
American consumers and thousands of businesses–from
the corner store to the biggest corporation–rely on the
air transportation industry to provide the products we
buy, sell, and use every day. This price-fixing conspiracy
undermines our economy and harms the American people
who, due to lack of true competition in this area, end up
footing the bill.”
The Continuing Challenge of Doing
Business in China
“China’s economic growth has made a major impact
on the global logistics and transportation industries,”
says Yansheng Zhang, director of the Chinese Mainland’s
Institute of International Economic Research. Of the top
30 ports in the world in 2007, 10 were on the Chinese
Mainland, he adds.
Anthony Lau, president of the CILT in Hong Kong,
noted that the Chinese mainland’s rapid growth has
increased Hong Kong’s importance as a gateway between
East and West. Stanley Hui, CEO of the Hong Kong Airport
Authority added that half the world’s population is within
five hours’ flying time of Hong Kong, making it an ideal
transshipment point. Supporting his statement, Hui noted
cargo throughput at Hong Kong’s airport was 3.74 million
tonnes in 2007, up 4.5% over 2006.
Speaking of mergers and acquisitions, Nick Gowlland,
head of transport and logistics with NM Rothschilds &
Sons (Hong Kong), noted that while Europe accounted for
40% of the global logistics market and the US 37%, Asia
outside China only accounts for 14% and China 9%. This
suggests tremendous pent up demand, he said.
Vincent Wong, former joint managing director with
Kerry Logistics Network Limited (Hong Kong), noted
that China’s logistics industry is worth US$ 500 billion a
year and is growing at about 25%. Third-party logistics
providers have only been able to penetrate about 3% of the
market, according to Wong. This share could increase to
US$ 32 billion by 2010, but on low margins of 5% to 10%.
Principal services provided by logistics services
companies include transport, warehousing, customs
clearance and forwarding.
The challenges of doing business in China are
formidable, said Wong. Mainland firms prefer to keep
their logistics operations in-house and regard logistics
as a way of reducing direct costs rather than improving
supply chain efficiencies, he pointed out. Competition
is ferocious, with over one million registered logistics
services providers in the People’s Republic of China of
which 90% are small- and medium-sized companies.
There are 850,000 trucking companies on the Mainland
with an average of 1.4 vehicles per company, continued
Wong. The international express deliveries sector is
dominated by a few providers: DHL and Sinotrans (38%
of the market), EMS (30%), FedEx and Datian (16%) and
TNT-Marchplus (6%).
“The market remains extremely fragmented with no
Global Markets.Final.indd 11 7/30/08 11:18:38 AM
12 | August 2008 | Outsourced Logistics
he condition of US and European markets is af-
fecting export growth from the Asia-Pacific region
and, though the region will continue to see mod-
erate growth in 2008, growth will slow from the multi-
year high growth rates it has seen.
While exports from the region will be undermined by
the decelerating economies in the US and Europe, intra-
Asia demand will support exports within the region.
On the import side, the region’s import position will be
inflated by high global commodity prices.
China is expected to slow as authorities implement
more aggressive tightening measures in the second
half of the year, with potential risks of a hard landing
accentuated by unresolved structural imbalances in
the economy. Impetus in regional growth will shift to
recovering domestic demand, with the resilience of in-
vestment and consumption remaining the key variable
in the near-term outlook.
The exposure of the region’s financial system to the
subprime loan crisis so far remains limited. The de-
clared exposure of Asian banks to subprime loan losses
remains comparatively limited, while property price in-
flation has been broadly in line with fundamentals, with
the possible exception of heated real estate markets in
Australia and New Zealand.
Continued, if softened, business investment should
support consumer spending as employment and in-
come growth remains stable.
Given the current balance of forces, aggregate
growth in Asia, excluding Japan, should slow to
7.2% in 2008 from the 13-year high of 8% hit in
Accelerating inflation remains a key risk in the
outlook for the Asia-Pacific region. Inflation has
surged amid intensifying supply constraints in the
context of robust domestic demand growth. Rising
input costs, compounded by wage inflation, will
exert pressure on company profit margins, while
higher staple prices will undermine household
purchasing power. Fiscal strain could be exerted in
countries that operate extensive subsidy systems,
reducing resources for public investment while
monetary tightening targeted at demand pressures
also fuels inflation.
Export dependency increases exposure to a pro-
longed US downturn. Undeniably, the region’s growth
still remains skewed to exports and to demand sourced
outside the region. Much has been made about rising
volumes in inter-regional trade anchored on the emerg-
ing markets of China and India. Nevertheless, the inter-
regional production chain that this trade reflects re-
mains overwhelmingly dependent on the United States
and Europe as the source of final-stage demand, even as
consumer markets in India and China grow. Any severe
or prolonged downturn in US demand would result in
an attrition of growth, with the risks exacerbated if the
G3 economies enter a synchronized downturn.
Global Insight provides economic, financial, and po-
litical coverage of countries, regions, and industries
—covering over 200 countries and spanning more than
approximately 170 industries—using a unique combi-
nation 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.
Global Markets
Community Voice
Asia-Pacific Leveling After Soaring Growth
By Global Insights
Top 5 Exporting Countries
Real Exports to the United States
(Percentage Change)
Exporting Country 2000 2002 2007 2008 2009
China 24.5 31.2 11.0 -0.7 9.7
Germany 11.8 3.6 -4.8 -2.0 4.8
Japan 8.5 -0.1 -3.6 -6.8 2.6
France 17.9 -4.7 0.9 -3.1 4.2
United Kingdom 6.5 -2.3 -3.6 -2.9 2.8
Containerized Shipments
(Millions of twenty-foot-equivalent units)
Lane 2004 2007 2008 2009 2010
Far East to Europe 8.8 14.2 15.9 17.2 18.6
Far East to North America 10.6 13.7 13.6 14.5 15.9
Global Markets.Final.indd 12 7/30/08 11:18:51 AM
Hans Miedema
Regional Support Leader
Agility Global Account Team
When does Agility’s Hans Miedema consider a job done? When he successfully executes critical
gas turbine shipments for his global energy customer? When he applies Lean Six Sigma
Methodology to eliminate defects for his clients in Eastern Europe and India? For Hans, and
more than 32,000 other Agility employees in over 100 countries around the world, success isn’t
measured in parts assembled or products shipped. Success occurs when our partners achieve
their goals. It’s an intimate approach to logistics that demands individual attention and
personal ownership. It’s how Hans Miedema brings Agility to supply chain challenges.
Untitled-1 1 7/31/08 1:57:22 PM
14 | August 2008 | Outsourced Logistics
By Roger Morton
ur core competency is swine genet-
ics,” says Ole Torgesen, PIC (Pig
I mprovement Company) USA
Transport Logistics Manager. “We used to have our own
fleet and drivers, but we realized that transportation was
not our specialty and it would probably be better for us
to outsource it to someone else.”
As the company explains, PIC USA is the leading sup-
plier of breeding stock in the US and the largest world-
wide. Founded in 1973 in Spring Green, WI, it is now
headquartered in Hendersonville, TN. Today more than
2,000 family farms, cooperatives, contracted multipliers
and integrated pork systems in the US are PIC USA cus-
tomers, including 23 of the largest 30 US producers.
As with other verticals the pork industry has under-
gone significant consolidation resulting in fewer but
Why is this pig
Changing third party
suppliers paid off
with safer and more
humane delivery for this
leading supplier of pork
breeding stock.
Operations.Final.a.indd 14 7/31/08 8:48:41 AM
Outsourced Logistics | August 2008 | 15
They were all about growing.”
Mike Oetjen, vice president, Integrated
Logistics, NationaLease, explains that PIC
USA really needed to improve their sys-
tem design. Any time an animal spends
less time in transit it will be in better
shape and the chance for injury is less-
ened. “Due to the former supplier’s inflex-
ibility,” he notes, “there were too many
deaths on arrivals; too many cripples, and the integrity of
the animals was not being maintained as well as possible.
One animal on a truck could be worth $25,000. The best
breeding stock will start a genetic line that will produce the
best animals over time.”
NationaLease did a site location study as well as a rout-
ing and scheduling analysis. It performs trailer configura-
tion and load building for the company. The site location
study revealed that PIC USA was too far away from source
farms. In revamping the transportation system, domicile
locations for distribution hubs were placed closer to source
larger pork producers. In order to meet
customer needs PIC USA has reconfig-
ured its source farms and now has fewer
but larger sources geographically closer
to producer systems.
With a refreshed business model, PIC
USA moved from a centralized trans-
portation system hauling large volumes
of lower priced animals to a decentral-
ized system hauling relatively low numbers of high priced
animals. Although its original outsourced transportation
supplier was able to improve efficiencies and save on costs,
it wasn’t flexible enough to meet PIC USA’s new business
The producer’s search for a different supplier of logistics
services led it to select NationaLease, a full service organiza-
tion with more than 700 locations throughout the US and
Canada. “Our main production areas had changed,” claims
Torgesen, “but the logistics company didn’t want to accom-
modate that by decentralizing and right-sizing the fleet.
A Key Advantage
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Phone: (330) 923 5080
Turn to the pros at InterChez
as your company prepares
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InterChez presents an extensive
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to complete linguistics services.
Don’t risk your bottom line before
understanding the complete picture
of international business.
Miles per pig
delivered has been
cut 11%, from
nine miles to eight,
resulting in an
annual savings
of $80,000.
Operations.Final.a.indd 15 7/31/08 8:50:51 AM
16 | August 2008 | Outsourced Logistics
has saved PIC USA another $50,000 an-
nually. With its previous logistics firm,
PIC USA was able to recover 47% of
transportation costs. Using NationaLease,
the company is recovering 87% of the
transportation costs and Torgesen expects
further efficiency improvements.
farms. This drives cost out simply because
less fuel is needed. More importantly, the
animals now spend less time in transit.
NationaLease merged with AmeriQuest
in December 2006. With the combina-
tion, Oetjen is able to reach out to a num-
ber of members of the ownership of the
company. In the case of PIC USA, for
example Oetjen involved West Brothers
Transportation Services of Raleigh-
Durham, NC to hire the drivers and pro-
vide all fleet needs, including leasing,
customized maintenance, finance leasing,
asset services, distribution routing and
analysis technology, business manage-
ment, and fuel and fleet support. He also
utilizes the services of two other members
of the ownership body of the company,
Brown NationaLease, headquartered in
Des Moines, IA and FirstLease, headquar-
tered in Norcross, GA. A special service
NationaLease has been able to provide
the breeder is a biosecurity program from
Corcentric, a wholly-owned subsidiary of
“NationaLease has been very flexible,
changing as our needs have changed,”
says Torgesen. Miles per pig delivered has
been cut 11%, from nine miles to eight,
resulting in an annual savings of $80,000.
The reduction in trailers and power units
How the Biosecurity Program Works
riginally developed for Cargill, another NationaLease customer, the
proprietary automated system was customized to meet specific PIC USA
requirements. Oetjen explains the program manages the driver, trailer, tractor
and all of movements. “The driver can’t use a trailer that’s been used for delivery
to a production facility until it has been disinfected, dried and ‘baked’—a new
term in the industry—to remove any bacteria.”
The program doesn’t permit trailer movement from one producer to the next
until it is cleaned. The driver is required a certain amount of down time and
must take a shower and have a clean uniform. “The truck has to be disinfected
and can only be matched to a trailer that’s been disinfected and those can
only be matched to a driver that’s had downtime,” notes Oetjen. “If any one of
those is out of kilter, it will red flag it and the trailer can’t go. Obviously that
helps prevent the transfer of disease from one producer to the next. Typically
infection will be picked up in a processing plant because you have deliveries
from a variety of sources. Our trucks go back to their domicile locations where
they undergo what we call the ‘washout.’ We moved our domiciles to be closer
to source farms and closer to our washout facilities.”
Operations.Final.a.indd 16 7/31/08 8:51:08 AM
Outsourced Logistics | August 2008 | 17
tion, processing, diagnostics, routing
transportation and delivery.” All of its
functions will be consolidated under
the direction of the chief operating
officer. Intelligent Mail Barcode now
moves from development to imple-
mentation and is scheduled to move
into USPS functions in May 2009.
“The Postal Service has been evolv-
ing to meet the needs of our custom-
ers for more than 200 years. These
changes are an important continuation
of that tradition as they will enhance
our customer service and position us
where we should be in the competitive
marketplace,” commented Potter.
more competitive with
private shipping com-
With the realignment
there are two strategic focuses
for USPS. In one, all major ship-
ping and mailing products are
now in one division. The other
is claimed to “represent the
voice of the customer, giving
priority to the interests of busi-
ness and individual mailers.”
Looking to the future, the USPS’
Intelligent Mail Barcode will become
“the technical foundation of mail oper-
ations—acceptance, payment, verifica-
Citing recent changes in
federal law, Postmaster
General John E. Potter an-
nounced what he calls “a
sea change for some” as
the United States Postal
Service (USPS) realigned
several of its core func-
tions. The change in fed-
eral law he refers to is the
Postal Accountability and
Enhancement Act of 2006.
The new law’s intent is to streamline
the way the USPS sets prices. It also
adds a degree of flexibility in the way
it prices package shipping to make it



No need to be re-
minded that oil prices
are higher than ever.
Al though some of
these ideas may be
familiar, if even one is
effectively applied, real dollars may be saved. Shared here by
Ryder System, Inc. these simple strategies are aimed at mitigat-
ing the impact of rising fuel costs. These operating practices can
be implemented immediately to improve fleet fuel efficiency.
1. Train drivers to practice fuel-efficient driving techniques:
Speed is the largest single factor impacting large-truck fuel
economy. Simply reducing speed from 65mph to 55mph can
result in an improvement in miles per gallon of as much as 22%.
2. . Improve tire maintenance: Correct tire pressure, align-
ment and frequent tire maintenance have a significant impact on
fuel economy. Have drivers check for visual defects before start-
ing work each day and use the recommended inflation pressure
provided by the tire manufacturer.
3. Specify fuel-efficient equipment: New engine technolo-
gies, improved aerodynamics and weight-saving designs are
available to improve the fuel economy of today’s fleets. Ryder, for
example, has a line of RydeGreen vehicles that include several
“green” features designed to reduce fuel consumption, including
2007 engine technology, an auxiliary power unit to reduce idling,
frame-side fairings to reduce wind resistance, an automated
direct drive transmission and fuel efficient drive tires.
4. Implement an ongoing preventive maintenance program:
A well-maintained vehicle is a more fuel-efficient vehicle. Consider
outsourcing maintenance of the fleet to an experienced third-
party provider, or at least make sure the fleet is on a scheduled
maintenance program for even the most routine care to optimize
5. . Leverage technology: Take advantage of new telematics
and onboard diagnostics systems that help fleet owners analyze
fuel purchases, optimize routes and monitor idle time and vehicle
performance—all which mitigate rising fuel costs.
6. Integrate real-time inventory visibility in the warehouse:
Leverage innovative technology to streamline and improve the ac-
curacy of inventory levels and reduce unnecessary trips.
7. Optimize distribution networks: Establish regional distribu-
tion centers to serve customers on demand and optimize and
consolidate routes, reducing the number of loads to require fewer
trips and less idling.
8. Consider a dedicated fleet solution: Control routes, fuel
consumption and idle time with dedicated assets, drivers and
strategic route planning.
9. Improve transportation management: Coordinate supplier
shipments to consolidate freight costs and negotiate better rates
and leverage multiple modes.
10. Ryder, a provider of leading-edge transportation, logistics
and supply chain management solutions worldwide, offers a Pro-
TREAD driver training program that includes a specific module on
fuel management. It is available at
10 Steps to
Take for
Fuel Savings
The US Postal Service Restructures for Better Service
Operations.Final.a.indd 17 7/31/08 8:51:22 AM
18 | August 2008 | Outsourced Logistics



An Attack on Traffic Congestion
The US Department of Transportation (DOT) is joining with the
California Department of Transportation (Caltrans) in a test of Intelligent
Transportation Systems (ITS) technology aimed at reducing traffic con-
gestion. The $12.4 million public-private partnership is part of DOT’s
SafeTrip-21 initiative established to “reduce gridlock and traffic-related
fatalities and injuries on America’s roadways,” according to the agency. The
ITS technology to be tested includes Global Positioning System (GPS)-
equipped cellular telephones that will be used by as many as 10,000 vol-
unteer commuters and transit vehicles. They will transmit data from roads
in a 200-mile radius within the San Francisco Bay area to traffic manage-
ment centers.
Data gathered by these resources will be used to help Bay Area com-
muters make smart travel choices to avoid congestion. The DOT explains
that technologies will be merged to create a “consumer friendly platform”
that will offer trip planning and travel information; safety advisories; on-
board displays of commuter rail and transit bus connections; electronic
toll collection, parking reservations and payment services. Development
of a Vehicle Infrastructure Integration system utilizing WiFi and Dedicated
Short Range Communications is part of the program.
Paul Brubaker, administrator of DOT’s Research and Innovative
Technology Administration (RITA), claims that, “America has the ability—
right now—to radically change our driving experience using innovations
that exist today. As one of the communities selected last August to par-
ticipate in the Department’s Urban Partnership program, San Francisco al-
ready has shown its commitment to using innovative approaches to reduce
traffic congestion. Now, the Bay Area will become the site of one of the
world’s largest field-tests of Intelligent Transportation Systems technology.”
CSX Launches a National Gateway
The $700 million public-private infrastructure project will
create a freight transportation link between Mid-Atlantic ports
and the Midwest. The project was announced at the Dublin, OH
offices of Pacer International, a CSX customer. While an expanded
intermodal yard in the Columbus area is part of the overall plan,
the National Gateway will actually pass Ohio’s capitol city. A
second intermodal facility within Ohio would be built at Marion,
OH. Estimates are that the two terminals would cost CSX $130
million. The State of Ohio is expected to contribute $190 million
to the project.
CSX has committed $300 million to the National Gateway proj-
ect and will work with state and federal governmental entities to
create necessary double-stack clearance along the entire route.
At present, many overpasses along the route can only handle
single-stacked trains. The six states are Maryland, Virginia, North
Carolina, Pennsylvania, Ohio and West Virginia.
The three existing rail corridors to be upgraded are: The
I-70/I-76 Corridor between Washington, D.C. and northwest
Ohio; the I-95 Corridor between North Carolina and Baltimore via
Washington, D.C.; and the Carolina Corridor between Wilmington
and Charlotte, North Carolina.
The National Gateway is larger than the Heartland Corridor, a
$150 million double-stack project that involves Norfolk Southern.
A significant event for that project took place in March when the
Columbus-based Rickenbacker Terminal opened. When com-
pleted in 2010, rail freight along the Heartland Corridor will move
from Virginia Ports on to Columbus and from there to Chicago.
Michael J. Ward, CSX chairman, president and CEO, observed
that both his railroad and Norfolk Southern see Central Ohio as a
key area for logistics developments. “More and more the nation
is becoming aware of the tremendous safety, economic and en-
vironmental benefits that railroads create,” he claims. “Our trains
can move a ton of freight 423 miles on a single gallon of fuel, and
one train can carry the load of more than 280 trucks. The National
Gateway leverages those benefits to the fullest by combining the
resources and expertise of the public and private sectors.”
Schnieder Logistics
Grows Its Network
The new Regional Logistics Center
(RLC) in Toronto is it first outside the
US. The expanded brokerage service in
Canada is part of a move begun with
the opening of a Schneider Logistics
RLC in 2005. Since then, the company
has added the service centers in Atlanta,
Dallas and Reno, and moved its first
RLC from Evanston, IL to Chicago. All
told, Schneider Logistics has a network
of more than 10,000 third-party
The business model is one that
permits a Schneider RLC customer
t o i nt eract wi t h a si ngl e sal es
representative who then matches the
shipping need to the best transportation
mode. “With the addition of our new
Toronto-based RLC, we expand our
ability to provide the best shipping
solutions for our customers while
growi ng our rel at i onshi ps wi t h
independent transportation providers,”
says Mitch Weckop, general manager of
transportation for Schneider Logistics.
Operations.Final.a.indd 18 7/31/08 8:51:33 AM
At Toyota, we’re doing as much for the
environment as we are for material handling.
For every innovation like our System of
Active Stability™ (SAS) that revolutionized
operator safety, there are innovative
accomplishments in conservation.
Our zero-landfill manufacturing process
has eliminated landfill waste disposal
and increased our recycling by 70%.
We’ve reduced our CO2 emissions at our
manufacturing plants by 120,000 tons—
that’s roughly equivalent to planting 45,000
trees. We’ve implemented more than 1,700
energy-saving measures companywide.
And most recently, Toyota introduced the
cleanest I.C. lift truck in the world.
Number one with people. Number one with
the planet. No wonder Toyota is Earth’s
1 lift truck.
800- 2 2 6 - 0009 • t o y o t a f or k l i f t . c om
All Toyota 8-Series models count as 0.6 g/bhp-hr (0.8 g/kW-hr) HC+NOx towards
California’s end-user fleet average calculation—measures do not apply to diesel
configured models. Contact your local dealer for additional information.
Untitled-2 1 7/30/08 11:28:28 AM
20 | August 2008 | Outsourced Logistics
Outsourcing to a Sustainable 3PL
By Brewster Smith
orporate Sustainability has recently
gained significant traction in both the
public and private sectors evidenced by
the environmental marketing campaigns
of Wal-Mart and British Petroleum, recent Nobel Prize
recipients and increased venture capital funding for
sustainable business services. Although sustainability
is an evolving business discipline, the concept of being
environmentally responsible is not a novel idea and
it can be understood, in its most basic form, as the
practice of profitable environmental stewardship.
Implementing and maintaining a sustainable
business, however, is more complex than the above
definition would suggest. For starters, a common
practice among sustainable businesses is working with
a community of suppliers and/or trade partners that
demonstrate environmental stewardship. For example,
if an organization is considering outsourcing their
inbound or outbound transportation business, they
should seek out a prospective 3PL that is working to
implement fleet management techniques that will
reduce carbon dioxide and nitrous oxide emissions.
There are specific technologies that 3PL organizations
have implemented to optimize fuel economy and/
or improve their environmental stewardship record
(detailed below) and organizations looking to
outsource a logistics function should ensure that some
or all of these best practices are demonstrated by a
prospective 3PL.
Single Wide-Based Tires
There is a new generation of single wide-base tires
and wheels which are lighter than the two standard
tire configuration. Moreover, single wide-based tires
generate less rolling resistance and aerodynamic drag
than traditional combination tires thereby reducing
truck energy use and overall fuel consumption. The
EPA has reported that “by using wide-base tires, a
combination long-haul truck could save over 400
gallons of fuel per year and cut CO
emissions by more
than four metric tons annually.”
Tractor-Trailer Aerodynamics
In a separate study, the EPA has found that through
the use of aerodynamic devices such as tractor
roof fairings, cab extenders and side fairings, fleet
organizations can reduce wind resistance thereby
improving overall fuel economy. As a result,
aerodynamic devices can eliminate over 5 metric tons
of CO
emissions compared to a traditional tractor-
trailer combination not equipped with this technology.
Wireless Smog Emissions Testing
Many fleet organizations are investing in telematics
solutions to wirelessly and real-time manage the vehicle
and electrical integrity of their vehicles. One telematics
vendor enables fleet organizations to conduct wireless
and remote smog checks through a vehicle diagnostic
device which installs directly into the engine.
The South Coast Air Quality Management
District—a 3rd party enforcement agency in southern
CA, conducted a study of a 1,100 vehicle fleet getting
remote smog checks. The results suggest that there
could be a 700% reduction in CO
emissions from
2007-2014 via routine, wireless smog checks.
The caveat with this technology is that currently is
only available for light duty vehicles. The California Air
Resources Board is working on smog checks for heavy
duty vehicles but it is still in development.
As companies seek to become high performers
by outsourci ng any or al l of thei r l ogi sti cs
functions, it will behoove them to investigate (via
the traditional RFI/RFP process) how a prospective
3PL is practicing environmental stewardship through
the above mentioned business practices. Eventually,
environmental stewardship may no longer be an
option and could potentially migrate from being a cool
business trend to a mandatory business law.
Brewster Smith is a Senior Manager in Accenture’s
Supply Chain Management practice, based in Washington,
DC. His background is in fleet asset management as well as
transportation, inventory and network.
1 U.S. Environmental Protection Agency – Office of
Transportation and Air Quality
2 Networkcar: A subsidiary of Hughes Telematics
Community Voice
Operations.Final.a.indd 20 7/31/08 8:51:45 AM
Outsourced Logistics | August 2008 | 21
Prince Rupert
COSCO Delivers
2 Weekly Sailings to Prince Rupert
Direct calls from
North China East Canada
East China Prince Rupert
South China Midwest US
COSCO is the first carrier to provide two sail-
ings weekly from China and Yokomaha to
Prince Rupert. COSCO has listened to the
market feed back and based on the success
of one weekly service, COSCO has introduced
a second weekly service. COSCO will now ship
Hong Kong, South China, East China and
North China cargoes, including Yokohama to
North America via Prince Rupert.
Shorten your supply chain, reduce your over-
head and experience the congestion-free port
of Prince Rupert, COSCO and the CN Rail.
Timothy E. Marsh
Vice President North American Sales
COSCO Container
Lines Americas, Inc.
100 Lighting Way
Secaucus, NJ 07094
Tel: 800-242-7354
Fax: 201-422-8928
1-800-549-0595 with questions. AES
Compliance Seminars, and AESPcLink
Certification Workshops will be offered
in various cities in the United States. To
find out more about these seminars and
workshops, visit the Census Bureau
Web site at
the FTR. Anyone submitting paper after
September 30, 2008 will be in violation
of the FTR and subject to penalties.
The Census Bureau can assist with
information on the new FTR and filing
export i nf ormati on el ectroni cal l y
through the AES. Exporters may call
US Mandates
Automated Export
The US Census Bureau has issued
its final rule implementing provisions
requiring mandatory filing of export
information through the Automated
Export System (AES). It is a joint
venture between CBP, the Foreign
Trade Division of the Bureau of the
Census (Commerce), the Bureau of
Industry and Security (Commerce), the
Directorate of Defense Trade Controls
(State), other Federal agencies, and the
export trade community.
Becoming effective on July 2, 2008,
the Census Bureau now requires
mandatory filing of export information
through the Automated Export System
(AES) or through the AESDirect for all
shipments where a Shipper’s Export
Declaration (SED) is required.
The Census Bureau is providing an
additional 90 days to implement these
new requirements. After the 90-day
implementation period, which ends
September 30, 2008, exporters must
file export information electronically
through the AES or AESDirect.
Additionally, these new regulations
have tougher penalty provisions that
affect everyone in the export process,
says the Census Bureau. Penalties may
be imposed per violation of the Foreign
Trade Regulations (FTR) from $1,100
to $10,000 both civil and criminal,
for the delayed filing, failure to file,
false filing of export information, and/
or using the AES to further any illegal
activity. Also, all AES filers are faced
with new filing deadlines by mode of
transportation for reporting export
The Census Bureau has instructed
filers of export information to make
every effort to submit these data via
the AES or AESDirect to eliminate
the use of paper SEDs immediately.
During the 120-day implementation
phase, the Census Bureau will use
“informed compliance” to reach out to
filers identified as being in violation of
Operations 1-2 isla#A2A488.indd 21 7/31/08 12:37:01 PM
22 | August 2008 | Outsourced Logistics
The rush to reduce costs in manu-
facturing and procurement fueled a surge in outsourcing
and offshoring over the last decade that has almost taken
on a life of its own. The major business assumption driving
this trend was that it was less expensive to purchase goods
and manufacture overseas because labor and raw materials
and, therefore, capital projects, cost less.
At the same time, a “me, too” mentality was taking
hold—“If everyone else is doing it, it must be the right
thing to do.” In fact, it was some of the early successes that
may have helped drive this momentum.
Has the tide turned? Is it time to question some of those
Several factors, including rising energy costs, currency
devaluation and demographic changes in the “low cost”
countries, are challenging the accuracy of those earlier as-
Reconnecting With Your Network
Extended supply chains
have many moving parts in
manufacturing and logistics that
require regular maintenance.
By Alan Kosasky
and Ted Schaefer
Risk.Final.indd 22 7/31/08 9:22:38 AM
Outsourced Logistics | August 2008 | 23
cm to 1 inch, which was not precise enough for aircraft
engine tolerances, demonstrating that quality control over
offshore production can be tricky at best. Today, in the air-
craft industry, Boeing is purchasing a Global Aeronautica,
LLC fuselage sub-assembly plant in order to regain control
over the 787 Dreamliner manufacturing process. Clearly,
ensuring the control of final product quality is a key factor
in the outsourcing decision process—whether the source
is domestic or off shore—even before the logistics factors
enter the equation.
Tangible Planned Costs
In addition to quality, there are other costs, obvious
and otherwise, that can be overlooked when companies
are not thorough in their analysis of the TDC. Take the
case of a specialty chemicals manufacturer that received
an excellent price from an offshore manufacturer for a key
raw material. While it accounted for ocean freight costs, it
neglected to include import duties. Ultimately, its “great
price” resulted in a TDC of about 15% more than its origi-
nal delivered cost for local materials.
The first step to avoid this type of mistake is to perform
a complete analysis of the TDC, assuming everything goes
according to plan (unplanned costs will be considered
sumptions. Depending on the country of origin, the com-
bined impact of these factors has escalated costs by any-
where between 10% and 40% over the past three years.
A rigorous and continuing analysis of a company’s supply
chain network can reveal the true costs, benefits and risks
of manufacturing and distribution decisions.
The only accurate measure of success in any decision to
offshore manufacturing is the total delivered cost (TDC) of
the product to the final customer—not the price at which
it can be purchased or the manufacturing cost in the “low
cost” country. The TDC breaks down into obvious and
hidden, tangible and intangible components.
One under-appreciated cost component that has re-
cently come to the forefront is the cost of quality. In
the worst-case scenarios of toys with high lead content,
melamine-contaminated pet foods and chondroitin-laced
Heparin, multinationals certainly got their low prices, but
paid the monumental costs of widespread recalls, fines,
lost customer goodwill and damage to reputation.
The debacles that result from ignoring the cost of quality
are not new to this decade, nor are they limited to Chinese
exports. During World War II, for example, US-made
aircraft pistons for British fighters had to be scrapped be-
cause the US manufacturer used a conversion rate of 2.54
Reconnecting With Your Network
Risk.Final.indd 23 7/31/08 9:22:50 AM
24 | August 2008 | Outsourced Logistics
However, it is also important to include the costs that are incurred
when things don’t follow the plan.
Unplanned Costs
When it comes to offshore manufacturing, variability is the name
of the game—making profitability a moving target. Political, socio-
economic and demographic upheavals, changing marketplaces and
the multitude of factors that affect transit time all raise risks and
costs and reduce a manufacturer’s flexibility in terms of inventory
tracking and control, warehousing, distribution and customer ser-
vice. Every risk that comes with the increased time and variability
of an extended supply chain has an associated cost. Examining
these costs in greater detail is the second step in the process to make
a good decision.
The current US transportation-related infrastructure often causes
bottlenecks leading to delays and hence lost or delayed sales and/
or premium costs to expedite. Even now, US port and rail systems
are overburdened with imported cargo. Staging spaces and crane
capacity are inadequate, and rail and truck traffic out of ports often
approaches gridlock. Further, since container ships are getting big-
ger, some take five or more days to unload. Those are just everyday
delays and do not take into consideration the possibility of labor ac-
tions at US West Coast ports that could cause disruptions similar to
the lock-out that closed ports a few years ago.
A continued focus on security has brought with it an increasing
likelihood of more thorough cargo inspections at the port of entry,
delaying shipments by a week or more.
The current gridlock at US West Coast ports is worsening as US
export traffic increases with the weak dollar. Traditionally, ports
have dealt with a ratio of about three import containers to one ex-
port container, but now that ratio is approaching 2:1 as more and
more export containers take up scarce staging space, potentially
holding up incoming shipments.
Stuck in all this port congestion, trucks are idling longer, trig-
gering concerns over air quality and leading to an increase in envi-
ronmental regulations. The Ports of Los Angeles, Long Beach and
Oakland, for example, will levy a $35 per twenty-foot-container
equivalent environmental fee to mitigate pollution.
A number of ports are developing regulations on the type of fuel
ships can use while they are in port. While container ships are at
sea, they burn bunker fuel. The regulations would require that they
burn a low sulfur fuel when they come into ports in Europe and
on the US West Coast. We can expect to see higher fuel costs as the
price of bunker fuel soars and low sulfur fuel prices are even higher
with increased demand.
Weather is an uncontrollable variable that can cause substantial
delays, again increasing expediting costs and revenue shortfalls. A
typhoon in the Pacific Ocean could mean, at best, delays as a ship
below). The following table compares the most common domestic
and offshore transportation costs that should be included in this
type of analysis.
In addition, export taxes or tax rebates may apply, depending
on the country of origin for the shipment.
Although distribution center costs are listed for both domestic
and offshore manufacturing, the types and magnitudes of the costs
are likely to be quite different between the two supply chains. For
example, imported materials may require additional handling and
processing to be re-palletized to conform to the “standard” pallet
in use in the country of consumption.
The warehouse footprint and average dwell time of the material
in the warehouse will typically be larger for the imported materials.
Even if the order size, and thus the cycle time, of the goods are the
same for both imported and domestic materials, the safety stock
required to provide the same level of service can be significantly
higher for the imported material. This is evident upon inspection
of a simple safety stock formula for a fixed order quantity with
variable lead-time:
As the lead time between ordering for replenishment and re-
ceiving increases, the required safety stock increases. Likewise, as
the variability in the lead time increases, the required safety stock
A thorough examination of these items should result in a good
estimate of the TDC when everything goes according to plan.
Logistics Cost
Domestic Offshore
Drayage from factory
to embarkation port No Yes
Terminal handling fees
at embarkation port No Yes
Port taxes No Yes
Ocean freight No Yes
Insurance Yes Yes
Documentation fees No Yes
Import duty No Yes
Terminal handling fees
at debarkation port No Yes
Truck/rail freight to
distribution center Yes Yes
Distribution center costs Yes Yes

Safety Stock=z*√Avg Leadtime*Std Dev
+Avg Demand*STD Dev
Risk.Final.indd 24 7/31/08 9:22:58 AM
Outsourced Logistics | August 2008 | 25
days, not weeks or months. Thus, great care should be taken in the
assessment of total cost of inventory (working capital, damage, ob-
solescence) and the facilities and costs required to manage it, both
at the “average” level and during the peaks and valleys that often
accompany cross-ocean supply chains.
Tracking Tribulations
Inventory management with offshore manufacturing is further
complicated by having inventory in different places at different
times—on the ocean, waiting for an inspection in port, moving
on a train or already stored in the warehouse. All inventory must,
of course, be tracked, no matter where it is. Technology can help,
but only to a degree. Without sophisticated tracking processes,
products being shipped from overseas tend to go into a “black hole”
until they arrive at a port. It may take several days just to find out
whether a container has been loaded onto a ship as scheduled or
has been “rolled,” i.e., left behind because the ship left full without
it. Uncertainty means risk, and hence costs.
Several transportation management systems are available to track
inventory, all of which claim to provide clear line-of-sight to the in-
ventory throughout the supply chain. However, these technologies
can be difficult to implement. Moreover, they may be of limited use
in inventory management because the various carriers do not abide
by a single standard for communication and some carriers are spotty
at best in their delivery of status messages that drive the tracking
systems. Further, a number of third- and fourth-party logistics com-
panies claim to provide visibility of shipments around the world.
But these are also hampered by the lack of common standards, and
sometimes they are owned by a carrier that may have difficulty ob-
taining information from a competitor. Adding to the challenge are
the difficulties of communicating in multiple languages and across
different cultures, which may lead to misunderstandings and unmet
schedules. At best, tracking attempts present a fragmented picture,
regardless of how “easy” electronic commerce supposedly has be-
come. Inability to track shipments accurately calls for great flexibility,
and often additional costs, in inventory. Don’t forget to include these
tracking costs as part of the TDC analysis.
Costs That Change Over Time
Some companies do a thorough job of analyzing the entire cost
picture initially but forget to review their calculations regularly.
When this happens, they pay much more a year or so later when
rapid global change has suddenly made their decision unprofit-
able. A profitable outsourcing decision never depends on a single
number at a single moment in time, but needs to consider a range
of possibilities and a range of possible futures. This is the third step
in a good decision-making process.
Among the global changes that can dramatically affect manu-
detours around the affected area. Or, in the worst case, it may cause
losses as shipping containers are jettisoned or lost due to the storm.
Clearly, over the course of time some fraction of the replenish-
ment shipments will be expedited due to unexpected surges in
demand or delays in replenishment resulting from these and other
causes. The costs to expedite an overseas shipment can easily be
three to four times the cost of the planned mode of transport.
Even a small percentage of expedites can have a material effect
on the TDC. Therefore, an estimate of the number of expedites
should be built into the TDC of the imported material during the
initial analysis.
Out of Room in the Warehouse?
The foreseeable and unforeseeable delays of long supply chains
not only increase expediting costs and revenue shortfalls, they
also complicate supply chain management. One of the highest
hidden costs associated with offshore manufacturing is inventory.
Although logistics professionals recognize the need to add extra
days of inventory to cover the “pipeline” while the material is in
transit from an overseas location, they sometimes overlook the
need for additional safety stock to account for the longer lead time
for replenishment.
There are additional factors that also negatively affect warehous-
ing costs. Ocean transport of containers can be extremely variable,
forcing importers to plan for delays in receipt and also requiring
them to be able to accommodate larger quantities of material in a
single shipment. It is not uncommon, for example, to have two,
three or even five containers arrive at the same time, even though
they were all ordered one week apart. This multiplies the need for
warehousing and staging space and the labor costs for marshaling
and sorting the products. If extra warehousing space is not readily
available, it may mean paying a premium for third-party space or
last-minute arrangements.
As one manufacturer learned, equipment rentals, such as spe-
cial chassis for ISO-containers, may further increase these costs.
The manufacturer offshored production of a key intermediate
from the US Gulf Coast to Europe and found itself in a “feast or
famine” situation for months while its ISO-containers were stack-
ing up in Europe as they got rolled from one ship to the next.
The planning horizon for overseas manufacturing is much
longer, which adds uncertainties and risks and hence hidden
costs. Planning under these conditions is much more problematic
and challenging than for domestic manufacturing. The longer the
supply chain, the more the company is at the mercy of its forecast
accuracy. A longer supply chain can increase the risk of obsoles-
cence. Mistakes are not as easy to correct in an extended supply
chain as with a domestic manufacturer. The domestic supplier
may be able to provide additional products in a matter of hours or
Risk.Final.indd 25 7/31/08 9:23:05 AM
26 | August 2008 | Outsourced Logistics
over the time horizon of an offshoring or outsourcing decision. For
a number of years, many companies have taken advantage of a
17% tax rebate on products exported from China. However, based
on a protest brought to the WTO for unfair trading practices, this
rebate is being phased out, creating a step change increase in the
cost of goods that are now sourced from China. This kind of cost
increase could be a disaster if it were not anticipated.
Components of Complex Decisions
Making the right decision under such complex conditions and
evaluating it against many possible futures depends on three com-
ponents: the right tools, the right data and the right methods. Tools
must have the ability to:
· Calculate the total delivered cost.
· Account for all the elements of the total delivered cost, tangible
and intangible.
· Allow accurate forecasting over the length—both time and
distance—of the supply chain.
· Track the total cost so it can be used in decision-making.
· Model and compare the entire matrix of sourcing options
for all raw materials and components used in the manufacturing
· Account for the extreme variability that comes with global
With a short, domestic supply chain, it is easy to take quick,
corrective action if variability has been ignored in the beginning.
But with a global supply chain, the next shipment may be two
months away.
The data that supports decision-making covers all the cost
elements: raw material, manufacturing, transportation (ocean, air
and land), taxes and duties, warehousing, inventory and distribu-
tion. It also includes currency values and forecasts of changes in
those values.
A common pitfall is discounting the risks of currency fluctua-
tions, regulatory change and risks associated with transportation.
Discounting risks usually results in higher costs.
Even the most capable tool and the best data, however, can lead
to poor decisions if the underlying assumptions about a company’s
operations are incorrect. Many companies have the best forecast-
ing tools on the market, but their forecasts are not worth the paper
they are printed on because they do not follow a disciplined fore-
casting process. If an accurate forecast was assumed in the TDC
analysis, the inventory and expediting costs that were calculated
will be significantly lower than the actual costs will be.
Once a decision is made, sensitivity analysis can help ensure
it remains profitable. What would have to happen to reverse the
decision? Could it happen, and is it credible? For example, if expe-
diting 5% of all orders were to reverse the economics of the deci-
facturing costs are currency fluctuations, demographic and so-
cioeconomic changes and, of course, the ever-rising cost of fuel.
Such changes can quickly double manufacturing and transporta-
tion costs and can erase any return on investment (ROI) from an
overseas capital investment. Today, it is more critical than ever
to evaluate a planned infrastructure capital investment overseas
against many different futures to ensure it is robust enough to be
profitable under any conditions. Once a decision is made, contin-
ued vigilance and flexibility are just as critical.
Let’s say that to obtain a reasonable ROI an offshore facility has
to operate at reasonably full capacity for five years. What macro-
economic changes might occur in that country, and the world,
during those five years that could change the facility’s profitability?
India, for example, was the destination of choice for information
technology-related outsourcing just a few years ago. Now, that
country’s economy has grown, and these services have become
much more expensive. More jobs have become available for
people who used to depend on work in all-night call centers, and
computer manufacturers are paying much more to retain quality
personnel so they can maintain service levels for US consumers.
Similarly, in China, an emerging middle class is creating a larger
demand for consumer goods and skilled workers, resulting in
unprecedented job hopping that makes retaining good people
exceedingly difficult. Some estimates suggest China’s labor-cost
advantage will come to an end by 2010.
Whether companies outsource their services or manufacturing
operations, they need to remain vigilant to changes in workforce
demographics and salary costs. Even over as short an investment
horizon as five years, the changes in developing countries can be
Along with demographic changes, changing political and regu-
latory policies can have a significant impact on total delivered costs
Cost Table 1 text:
Logistics Cost Domestic Offshore
Drayage from factory to embarkation port No Yes
Terminal handling fees at embarkation port No Yes
Port taxes No Yes
Ocean freight No Yes
Insurance Yes Yes
Documentation fees No Yes
Import duty No Yes
Terminal handling fees at debarkation port No Yes
Truck/rail freight to distribution center Yes Yes
Distribution center costs Yes Yes
Risk.Final.indd 26 7/31/08 9:23:13 AM
Outsourced Logistics | August 2008 | 27
sion, is such a 5% expedite rate credible?
If so, perhaps domestic manufacturing or
a blended strategy would be more cost-
effective. It may be efficient, for example,
to obtain 90% of the products from a
developing country, using an inexpensive
method of transportation, while ordering
the remaining 10% from a more expen-
sive, but highly responsive domestic sup-
plier to mitigate expediting requirements.
Think Globally
Savvy logistics professionals are analyz-
ing the impact of all manufacturing and
distribution components to determine
the best sourcing matrix. They achieve
a proper balance between domestic and
overseas sourcing by correctly assessing
supply chain cost and risk. With a short,
domestic supply chain, it is usually easy
to take corrective action if the unexpected
happens. With a global supply chain, vari-
ability is not only more likely, but when it
bites, it takes a bigger chunk out of profits.
The trouble with variability is that it is an
uncomfortable concept, difficult to grasp
and it is hard to account for in calculations
of costs and benefits. A step in the right
direction is having good processes and
analytical tools for supply chain analy-
sis and forecasting. But don’t count on
analytical detail and forecasting to provide
the right answer automatically. Take the
time to think about how a decision will
operate under varying global conditions,
now and in a number of possible futures.
The most informed decisions will emerge
from regularly-scheduled reviews, which
include a combination of detailed analy-
sis and a wide-ranging perspective of the
global landscape.
Alan Kosasky is President and Ted Schaefer
is Director of Logistics and Supply Chain
Services with Profit Point, a company that spe-
cializes in helping businesses optimize complex
Hypothetically Speaking
Perhaps the best way to illustrate supply chain risks is to look at a simple
hypothetical offshoring decision made in early 2006. Let’s assume that a
manufacturing analysis has found a Chinese supplier with excellent quality
processes and a total manufacturing cost of 3.20 Yuan/lb, which then equated
to $0.40/lb. The best manufacturing cost in the US was $0.50/lb, which gave
the Chinese material a 20% manufacturing cost advantage over the domestic
After a detailed analysis, the TDC of the Chinese material is shown to be
$0.46/lb as shown in Table 1.
Table 2 shows the cost of the domestic material to be $0.528/lb, giving
the Chinese material a 13% TDC advantage over the domestic material.
However, over the next two years, because of the devaluation of the US dollar
against the Yuan and the loss of the export tax rebate, the relative costs of
the two materials are reversed, leaving the Chinese material with an 11%
disadvantage relative to the domestic material. In addition, this example
does not take into account the wage infation currently underway in China
and assumes a well-behaved supply chain without major interruptions. If
this decision had resulted in a long-term contract or the construction of
manufacturing facilities, the logistics professional who made the decision
might be searching for new employment.
Table 1
Chinese Sourced Item (all US $ cost per lb) 3/31/2006 3/31/2007 3/31/2008
Purchase Price of Material in Yuan 3.20 3.20 3.20
Purchase Price of Material in USD $ 0.399 $ 0.414 $ 0.454
Transportation Cost $ 0.077 $ 0.071 $ 0.076
Inventory Cost $ 0.024 $ 0.024 $ 0.030
Import Duties $ 0.029 $ 0.029 $ 0.032
Export Tax Rebates $ (0.068) $ (0.070) $ ---
Total Landed Cost $ 0.460 $ 0.468 $ 0.592
Table 2
Domestically Sourced Item
Purchase Price of Material $ 0.50 $ 0.50 $ 0.50
Transportation Cost $ 0.015 $ 0.017 $ 0.018
Inventory Cost $ 0.013 $ 0.013 $ 0.013
Currency Exchange
Import Duties
Export Tax Rebates
Total Landed Cost $ 0.528 $ 0.529 $ 0.531
Risk.Final.indd 27 7/31/08 9:23:21 AM
28 | August 2008 | Outsourced Logistics
Customers Helping
Customers Helping
With continuing increases in
governmental regulations regarding the movement of
freight, it is difficult to imagine being able to conduct a
vigorous trade program without the use of technology and
solutions that help keep abreast of current regulations.
Rather than maintaining internal staffs dedicated to keep-
ing themselves up to date on the regulations, many freight
forwarders, customs brokers and the like find it best for
their business to engage with a technology solution pro-
vider able to provide tools they in turn use to the benefit of
their shipping customers.
Dave Hockersmith, vice president US business & prod-
uct development for CargoWise edi, a solutions provider,
observes this trend to outsourcing for customs and trade
data by forwarders, brokers and logistics service provid-
ers coming about for several reasons. For one, previously
companies built programming internally or went to a few
key vendors for applications. “But as supply chains have
gotten more complicated and everyone is doing every-
thing, not just focused on one particular vertical market,”
he says, “they just don’t have the expertise internally to
develop and program and build an application that covers
all the bases.”
According to Hockersmith, another reason for out-
sourcing is that older systems can’t match the tools and
speed that is possible today with a SQL server database
and a Windows platform. A case in point is Mach 1 that
went live with his company’s ediEnterprise solution in
February in its US, Mexican and Singapore offices.
Technology.Final.indd 28 7/29/08 2:41:18 PM
Outsourced Logistics | August 2008 | 29
ber of consulting services with the
objective of delivering an end-to-
end solution.
“CargoWise edi has vastly up-
graded our ability to provide greater
supply chain visibility and shipment
status reports for our customers,”
claims John Gray, vice president of
administration for Mach 1. “By re-
placing our outdated AS400 system
with the CargoWise ediEnterprise
system we now have the ability to
display dispatch and operational
data on large screen plasma displays
in customer service and national
account control centers. The EDI
interchange integration with Mach
1 customers also enables us to pro-
mote our new capabilities to current
customers as well as prospects as we continue to build our
international customer base. It’s a wonderful new asset for
the company.”
In reflecting on changes within the freight forwarding
community, Hockersmith feels there has been a change in
attitude. Previously many in the business were protective
of their data, feeling it had to be controlled only by internal
resources. Today, he senses an increasing realization that
there is value in outsourcing and in keeping core people
focused on the business. In fact, there is even a trend to
outsourcing management of data centers and servers.
“We understand that many providers are working on
very fine margins,” says Hockersmith. “So we are trying
to give them tools to do their jobs better. We can never do
With headquarters in Tempe, AZ, Mach 1 Global
Services has operations throughout the world and offers a
wide range of services across its logistics platforms. Until
it put its new outsourced applications to work, Mach 1
was using software that ran on an AS400 and just wasn’t
capable of keeping up with internal growth and customer
CargoWise explains that its ediEnterprise is a modular
set of supply chain solutions designed to automate and
streamline operations and management for international
providers of logistics and trade services. In the case of
Mach 1, modules were aimed at increasing visibility of
global shipments, including ediForwarder, ediDocMan-
ager and ediWebtracker. CargoWise also provided a num-
Third party
collaborate with
technology suppliers
to be able to offer
their customers the
best trade solutions
By Roger Morton
Technology.Final.indd 29 7/29/08 2:41:52 PM
the point persons for its Trade Support
Network for the Automated Commercial
Environment (ACE). CBP has selected 11
core members, of which Amy Magnus is
one. “The Kewill partnership is impor-
tant for us because Celeste Catano, the
company’s principal designer, analyst and
developer for its Import and Customs
Brokerage software applications also
serves as an ACE Trade Ambassador. So I
meet with Customs on a very regular basis
and am always pleased to have Celeste
in the same room with me, sharing the
same information I’m hearing at about the
same time. There are some very important
changes that are coming up quickly and
partnership network it facilitates move-
ment of cargo through its primary markets
in North, Central and South America,
Europe and the Pacific Rim.
Solutions chosen are from Kewill. Ken
Halle, chief strategy officer, trade & logis-
tics, for the company notes that Deringer
is using Kewill’s Customs Brokerage,
Freight Forwarding and Forwarding/
Export, as well as the multi-carrier solu-
tion, Clippership, for handling small par-
cel shipments. While Deringer does have
add-ons, the core of its technology today
is Kewill.
US Customs & Border Protection (CBP)
has selected Trade Ambassadors to be
their jobs. That’s what they are the experts
at. But if we can get their people to work
a little bit more efficiently, then hopefully
they will be productive and profitable.”
As with Mach 1, A.N. Deringer, Inc.,
a privately held corporation providing
Customs brokerage and clearing services,
had its own legacy technology solution.
“We had an off the shelf product that we
self-programmed over the years,” recalls
Amy Magnus, Deringer district manager.
“It evolved over time and we discovered
that regulatory changes and requirements
were coming on so quickly we really
couldn’t keep up with it alone. We saw
the need for a partner who could help us
have a good IT solution so we could focus
on our internal processes to meet the
rapid changes.”
The company is very strong along the
northern US border. It owns and oper-
ates more than 30 offices and distribu-
tion centers in the US. Through a global
has the fleet management technology and human expertise to help you identify issues, translate data and determine the
I am comforted knowing that getting our pro-
cesses in order and communicating with the cli-
ents so they understand what is coming and what
will be required of them is getting accomplished

808LT28-31.indd 30 7/30/08 3:34:15 PM
they are moving, when they are released
by Customs or are on hold, for inspection
by another agency like the Food and Drub
Administration, for example.
Another benefit is that Deringer is able
to communicate with Customs in a much
more paperless environment than previ-
ously. The provider offers a great deal of
electronic data that does not have to be
printed. The lack of a need to print on
paper has been a savings for the company
and its customers. Imaging, memos and
event notifications are immediate, and
Our company is very happy to have
engaged with Kewill,” says Magnus. “We
could not have done this alone. There is so
much and it is so daunting and quite con-
fusing right now for all of us out here. We
are working together and talking together
about these changes and preparing for
them together. That is very comforting in
these uncertain times.”
pliant and to be ready for, in most cases,
the early adopters. The ESAR release in
January 2009 is an example. We are cur-
rently programming so we can be ready
for them. We can let people like Amy
worry about dealing with their customers
and how to continue to provide them with
good service while we worry about the
compliance changes.”
“I am comforted knowing that getting
our processes in order and communicating
with the clients so they understand what is
coming and what will be required of them
is getting accomplished,” claims Magnus. “I
partner with Kewill to make sure they are
prepared for me to be able to transmit data,
receive responses to that data and analyze
it so we can continue to evolve our product
to meet our client’s needs.”
Deringer has been able to use its Kewill
solutions to provide clients with visibility
into almost everything it is doing. Traders
are able to see where their goods are, how
if we’re not prepared for those changes,
then we are not going to be able to provide
solutions to our clients.”
Among the issues looming for trad-
ers, points out Magnus, is that starting in
early 2009, CBP’s ACE Entry Summary,
Accounts and Revenue at a Glance (ESAR)
will be available for early adopters. CBP
explains that ESAR, “will enable the
agency and its trade partners to truly inter-
act electronically. Throughout the upcom-
ing years, these enhanced account capa-
bilities, affecting virtually all CBP cargo
processes, will bring a dramatic, compre-
hensive change in the way CBP conducts
Magnus notes that among other things,
forwarders and brokers are going to have
to completely change the way that they
transmit entry-summary data. Halle says,
“We pride ourselves here always on having
the requirements ready and available for
our customers. We have to be 100% com-
© 2008 XATA Corporation
has the fleet management technology and human expertise to help you identify issues, translate data and determine the most cost-effective operations for your fleet. Visit
808LT28-31.indd 31 7/30/08 3:34:06 PM
32 | August 2008 | Outsourced Logistics
Asset-based vs. Resource Rich
ply chain starts to sound like greater investment in
resources, not fewer assets, and here too, outsourc-
ing provides some answers. A third party logistics
provider (3PL) can offer greater availability of rel-
evant strategic resources, suggests Jim Butts, a vice
president at CH Robinson. He includes network
analysis, consulting and supply and demand plan-
ning among those resources.
But just as the users of 3PL services are looking
for ways to focus on their core business and shed as-
sets and operations that don’t contribute to provid-
ing customer value, 3PLs themselves have evolved
an attitude of focusing on core competency. Start-up
Crane Worldwide will begin operating in the freight
forwarding segment applying the lessons of a com-
bined 185 years of experience among its executives.
The 3PL will practice what it preaches, according to
Companies outsource to
shed fixed costs, says Ron Cain, president and CEO
of TMSi. Often that equates to physical assets. In a
down market with stagnant growth, that decision
can translate into consolidating multiple distribu-
tion centers into fewer facilities or outsourcing a pri-
vate fleet operation to a dedicated contract carrier.
But it can also mean reducing inventory or moving
inventory through the supply chain faster.
Improving efficiency and flow in a global sup-
Users and logistics
service providers
focus on execution.
Asset.Final.indd 32 7/30/08 3:16:27 PM
Outsourced Logistics | August 2008 | 33
Asset-based vs. Resource Rich
uct or service to the customer.
· Liability issues - an area where many companies
want to maintain an arm’s length relationship.
· Technology issues - including the need to unify
on a single platform or lack of resources to imple-
ment or upgrade systems.
· Efficiency and control - which Cain and other
3PL providers suggest is the core of what 3PLs do.
The 3PL is in the business of efficiency improve-
ment and, with the right contract and the right
partner, the user’s control actually increases, he
3PLs are unabashedly asset light in a market that
increasingly values the end result—a culture of ex-
ecution as CH Robinsons’ Butts describes it. And for
the 3PL, the transition has taken it from a traditional
brokerage to a larger, more comprehensive solution
provider. Some users prefer to have a particular
color truck bump up against their dock every day,
he comments, “but increasingly we’re seeing that is
not the case.”
Taking a more strategic approach, logistics pro-
viders begin with a network analysis based on the
demands and expectations of the user and the user’s
customer, Butts points out. Cain concurs, saying
that part of the process for the 3PL is an analysis
of where the user’s needs are and where facilities
should be, based on volume. Solutions should be
based on effectiveness and productivity, adds Butts.
Establishing a baseline for the relationship is
critical to the success of any outsourcing contract.
Users don’t always have sufficient or accurate data
John Magee, CEO, and outsource what is not a core
competency and doesn’t drive customer value.
Cain at TMSi begins his discussion with a list of
reasons why users come to him and other 3PLs in
the first place:
· Shed fixed costs - often this means shifting con-
trol of assets to a 3PL or shedding assets in favor of
using the facilities and/or vehicles owned or con-
trolled by the 3PL.
· Increased service requirements - driven by the
user’s customers or market demands and extending
to a desire to see continuous improvement in net-
work performance.
· Logistics is not a core competency - or a facet of
logistics is viewed almost like a “necessary evil” or
cost component rather than a strategic asset.
· The logistics activity does not add value to prod-
By Perry A. Trunick
Asset.Final.indd 33 7/30/08 3:16:40 PM
34 | August 2008 | Outsourced Logistics
carriers themselves. How does the
3PL measure and manage carrier per-
formance? How does it identify and
address operational problems? How
does it vet carriers for financial stabil-
ity? And what is the 3PL’s payment
record with carriers?
The relationships a lead logistics
provider has with other providers
will be nearly as important as those
providers’ ability to perform. And that
leads to another issue for the 3PL, the
user’s performance. Reducing costs
throughout the supply chain often
means pinpointing the “bad actors,”
says Butts. As a middleman in the
logistics process, Butts notes the 3PL
serves both the providers (carriers)
and the users and must measure per-
formance on both sides. Impediments
for a carrier at pick up or delivery
locations can be as important to deal
with as the internal factors in the us-
er’s supply chain. A consignee who
takes eight hours to unload a truck or
a shipper facility that doesn’t keep ap-
pointments are as disruptive as a car-
rier that doesn’t perform. And while
a shipper (or its logistics service pro-
vider) will drop a carrier that doesn’t
perform, carriers or other service pro-
viders will also be reluctant to take as-
signments that are disruptive to their
Optimizing supply chain perfor-
mance is a matter of bringing the
right resources to bear on a problem,
measuring performance, and striving
for continuous improvement on all
sides. “Any company that has addi-
tional costs is going to be at a compet-
itive disadvantage,” points out Butts.
Increasingly, those resources are a
combination of a 3PLs operational
core and its relationships, agrees
Cain. Those assets often sit at a desk,
not in a parking lot.
managing relationships with other
3PLs that provide services that are
not part of the lead logistics providers’
core competency. The 3PL reaches
out to what it considers to be the
best-in-class providers for those ser-
vices and sits down with the manage-
ment teams to establish a reciprocal
relationship and set up a contract.
That relationship and contract will
be governed by the KPIs established
between the lead logistics provider
and its user customer and, though
the sub-contracted components will
be managed through the lead logistics
provider, it is the lead logistics pro-
vider who is ultimately responsible
to the user for the performance of the
entire supply chain.
It’s important for the lead logistics
provider to be open with the user
about the relationship, says Cain. But
the lead logistics provider (LLP) will
have the responsibility for the other
party’s performance and, with a care-
fully executed contract, the ability to
change providers should the user’s
needs change or if the provider does
not meet the performance require-
For companies like CH Robinson
that often perform carrier manage-
ment for their customers, the need
is similar, but it may manifest differ-
ently. For users, the visibility may be
the performance measurement sys-
tems the 3PL uses to manage car-
riers more than details about the
on their networks, and before setting
key performance indicators (KPIs) in
those circumstances, Cain says TMSi
will often establish the first 90 days
of a contract to develop that informa-
tion so that the parties can come back
together and establish realistic goals
and expectations along with the per-
formance measures and other critical
contract elements. Looking at those
needs also points to which resources
need to be employed, and this is an-
other key decision point for the 3PL
and the user.
Not long ago, everyone wanted to
be a one-stop shop, says Cain. The
3PLs wanted to handle everything
in-house. They were the expert at
everything. But even though logistics
service providers still want to be the
single face to their customer, there is
a pretty widespread recognition that
they don’t have the volume or exper-
tise to do it all, Cain continues.
This is one of the lessons Crane
Worldwide’s Magee acknowledges.
Customers took them into more and
more areas, he says, and in the new
company, the focus is on the core
competency. When users want you
to do more, there is a time to do more
and there is a time to say “no,” says
Magee. Stick to your focus and what
you do best, he cautions.
That said, 3PLs are developing not
only traditional 3PL relationships
with their users, but also act as lead
logistics providers, coordinating and
The 3PL is in the business of effi-
ciency improvement and, with the
right contract and the right partner,
the user’s control actually increases.
Asset.Final.indd 34 7/30/08 3:16:51 PM
S U P P L Y C H A I N , W A R E H O U S I N G & T R A N S P O R T A T I O N S O L U T I O N S
We’ll Customize A Supply Chain Solution For It
Whatever you manufacture or wherever you store and distribute your products, Ryder’s end-to-end supply chain solutions
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This is what we offer to hundreds of companies around the world, from electronics and car makers to consumer product
and aircraft manufacturers. We can do the same for you. Call 1-888-88-RYDER or visit
©2008 Ryder System, Inc. All rights reserved.
807LT45_Ryder.indd 1 7/30/08 11:29:34 AM
36 | August 2008 | Outsourced Logistics
Trends Report
oday’s customer-driven economy has transformed the lo-
gistics industry. To compete effectively, suppliers are rec-
ognizing they must do business their customer’s way—
finding methods to move products more quickly, effi-
ciently and cost effectively. Speed and agility are the name
of the game. As companies focus on cutting costs from
their supply chain, they must make sure that shelves are
stocked with the right product to meet demand in a mar-
ketplace where customers’ demands change every day. To
achieve these goals, more and more companies are finding that cross-docking
must play an integral part of their distribution model.
To gain a better understanding of cross-docking practices, issues, and
challenges, Saddle Creek Corporation ( commissioned
Field report.Final.indd 36 7/29/08 2:46:03 PM
Outsourced Logistics | August 2008 | 37
an independent party to survey industry
professionals who are responsible for and
involved in warehousing, distribution and/
or transportation. A total of 547 surveys
were completed in February 2008, mak-
ing this research statistically valid. Of these
respondents, 52% currently cross-dock,
13% do not cross-dock now but plan to
cross-dock in the next 18 to 24 months,
and 31% have no plans to cross-dock.
Of those who have implemented cross-
docking, 28% are veterans, having cross-
docked for more than 10 years. Another
through the use of a third-party ware-
house facility to handle the cross-docking
• From multiple plants (deconsoli-
dated) into a third-party cross-dock that,
within hours, picks and consolidates all
products from all plants into customer or
route orders and then delivers.
• Consolidating LTL into truckload
which reduces the number of deliveries to
retail outlets.
In keeping with the product-in/prod-
uct-out nature of cross-docking, 66% of
respondents report that products reside at
their cross-docking facility for one day or
less. For 29% of these respondents, prod-
ucts reside at their cross-docking facility
for half a day or less.
Cross-docks generally can be divided
into three levels of complexity:
• One-touch – Products are touched
only once, as they are received and loaded
outbound without being placed on the
warehouse dock. This is highest velocity
”load-as-you-go” and the focus is on cross-
dock productivity.
• Two-touch – Products are received
and staged on the dock then loaded out-
bound without being put into storage. The
focus is on outbound load optimization
and gaining transportation efficiencies.
• Multiple-touch – Products are
received and staged on the dock, then
30% have been cross-docking for four
to 10 years. However, the practice is still
drawing new practitioners, as 32% of
those who cross-dock have been operating
a cross-dock for just one to three years.
Many respondents plan to expand their
cross-docking efforts. About half of those
who currently cross-dock have considered
cross-docking more of their total SKU
throughput. This combination of new and
established cross-docking practitioners
helps to confirm the growing role of cross-
docking in the industry.
A Snapshot
Cross-docking is defined as the process
of receiving product and shipping it out
the same day or overnight without putting
it into storage. Cross-docks are generally
used for “hub-and-spoke” arrangements,
consolidation, or deconsolidation.
Typically, cross-docks can be developed
using a variety of strategies such as (but not
limited to) the following arrangements:
• Either pre-picked to a customer order
or bulk-picked to a pooling location to
handle the “last-mile” shipment to the
• Pre-picked orders to a less-than-truck-
load (LTL) carrier break-bulk facility from
where the LTL carrier’s network is used.
• Pre-picked orders transferred to LTL
Field report.Final.indd 37 7/29/08 2:46:22 PM
38 | August 2008 | Outsourced Logistics
also accommodates peaks and valleys in
the shipping cycle.
Cross-docks can be flexible and used
for promotions and seasonality as well
as long-term operations. An experienced
third-party provider can find the right
combination of companies with com-
plimentary shipping cycles. When one
company’s business is spiking, another’s
may be slower and vice versa. The 3PL
can ensure that there’s a consistent flow
across the dock, so costs can be shared
among customers.
In addition, business changes can make
it difficult to predict what a company’s
business will look like in the future, and
the current cross-dock design may not
meet future needs. A need for flexibility
prompts many users to look to outsourc-
ing as an alternative.
Of course, if a company has sufficient
volume, a dedicated cross-dock facility
may be most effective. If cross-docking
is not an internal core competency, some
third-party providers will build and man-
age a dedicated facility as well.
Many companies prefer to outsource
their cross-docking function for general
liability reasons. They want to avoid ex-
posure to that level of risk. They see the
potential danger to their reputation if just
one driver is involved in an accident that
results in a lawsuit. Third-party logistics
providers typically assume the vast major-
ity of liability.
Outsourcing trends
A significant number of respondents
plan to begin cross-docking or cross-dock
more in the next 18 to 24 months. Nearly
one-quarter of respondents who currently
cross-dock (23%) plan to increase out-
sourced cross-docking in the next one
to two years. Another 20% are unsure of
their plans. Similarly, more than a quar-
ter (28%) of those respondents who are
planning to cross-dock in the next two
years expect to use either a 3PL provider
exclusively or use both in-house resources
cross-docked, less-than-pallet quantities
also can work although they are more
labor intensive. In the course of more than
16 years of complex supply chain cross-
dock experience, Saddle Creek has found
that multiple SKUs in LTL quantities can
be cross-docked effectively.
Outsourcing Overview
Given all the variables of cross-docking,
many survey respondents say they look
to 3PLs to help manage the process. One-
third of respondents who currently cross-
dock use a 3PL either exclusively or in
addition to in-house resources.
On average, those using a 3PL out-
source 44% of their cross-dock volume,
with 29% outsourcing more than 75% of
their cross-dock volume.
Today, cross-docking practices for out-
sourced operations are closely aligned
with those operations handled in-house.
Companies that outsource are slightly
more likely to cross-dock temperature-
controlled goods. Of all the respondents
that cross-dock, 15% cross-dock temper-
ature-controlled goods while 20% of those
companies that outsource cross-dock
these products. Perhaps this reflects a de-
sire to steer clear of growing food safety
concerns by seeking out expert assistance.
Companies with high numbers of SKUs
seem to be somewhat more likely to out-
source their cross-dock operation. For
example, of those companies that out-
source, 28% handle 10,000 to 19,999
SKUs, while 22% of the total respondents
who cross-dock internally have that vari-
ety of SKUs.
Reasons for outsourcing
Companies outsource their cross-dock
operations for a variety of reasons, includ-
ing reducing costs, flexibility, efficiency
and managing risk.
Outsourcing to a third-party provider
offers the ability to share a cross-dock fa-
cility with multiple shippers. This not only
helps to defray the overhead costs, but it
reconfigured for shipment and loaded
outbound directly from the warehouse
dock. This method offers the greatest op-
portunity for customization and end-user
Customized programs that involve mul-
tiple touches are able to achieve the great-
est efficiencies when products are handled
the least, as reflected by the velocity with
which respondents’ products flow through
their cross-dock facilities.
Shipping practices
On average, respondents who currently
cross-dock report that approximately
27% of their throughput (both inbound
and outbound) volume is cross-docked.
Those who plan to cross-dock expect a
somewhat lower average (19%), probably
wanting to start cautiously. Saddle Creek’s
research shows that two-thirds of respon-
dents cross-dock more than 10% of their
throughput (both inbound and outbound)
volume, providing further evidence that
cross-docking is on the rise significantly.
Respondents who are currently cross-
docking are spread across the board when
it comes to the total number of SKUs in
their warehouse/DC operations. Roughly
a quarter of respondents who cross-dock
have less than 500 SKUs. Another quarter
have more than 10,000 SKUs, with the
remaining respondents distributed evenly
in between.
Trailer-load and LTL shipments are
the most common modes for inbound
and outbound shipments. For inbound
shipments, trailer loads (51%) are more
prevalent than less-than-trailer (LTL) loads
(34%). Outbound shipments have virtu-
ally the same breakdown.
When materials are not time-sensitive,
some companies use rail as a way to reduce
shipping costs. However, rail shipments
are extremely rare as the predominant
mode of transportation, making up just
2% for inbound or outbound shipments.
While products that are typically full-
pallet-in, full-pallet-out are most easily
Field Report
Field report.Final.indd 38 7/29/08 2:46:57 PM
Outsourced Logistics | August 2008 | 39
Single Greatest Cross-Docking Benefit
Improved service level 23%
Reduced transportation costs 17%
Reduced need for warehouse space 14%
Consolidated shipments to destination 11%
Savings from reduced inventory carryng costs 9%
Get products to market more quickly 5%
Improved inventory management 5%
Reduced labor costs 5%
Increased demand for JIT service 3%
Accommodate company growth 2%
Other 2%
Source: Saddle Creek Corporation ©2008
Percentage of Companies
Using Cross Docking
Currently cross-dock 52%
Plan to cross-dock 13%
No plans to cross-dock 31%
Don't know 5%
Source: Saddle Creek Corporation ©2008
SKUs also plan to outsource some or all
of their cross-dock operations when they
begin cross-docking.
Product types
While they will most often call upon
3PLs to handle durable goods, respondents
will look to their third-party partners to
handle other types of products as well. Of
companies that plan to use a 3PL exclu-
sively or in conjunction with their in-house
operations, 57% plan to cross-dock dry
goods, 27% plan to cross-dock USDA/FDA
regulated goods and 21% plan to cross-
dock high-value items.
Interestingly, respondents who plan to
increase their outsourced cross-docking
are more likely to ship sensitive products.
Outsourcing seems to be an appealing
way to handle cross-docking more SKU
throughput. Of respondents who cur-
rently cross-dock and have considered
cross-docking more of their total SKU
throughput, 77% plan to increase their
outsourced cross-docking operations.
Approximately a quarter of those with
fewer than 500 SKUs also intend to in-
crease their out sourced cross-docking.
When looking at those companies who
plan to begin cross-docking in the next
18 to 24 months, a significant number
of companies with fewer SKUs will enter
the mix, with 40% of these respondents
saying that outsourcing will play a part in
their operations. Nevertheless, roughly
a quarter of those with more than 5,000
and a 3PL.
Many of those who plan to outsource
expect to start small, with 32% saying
they’ll outsource less than 25% of their
shipments. Yet others (11%) anticipate
outsourcing more than 75% of their
shipments. Overall, respondents expect
to outsource an average of 41% of their
Size of operations
Those respondents with warehouse
operations totaling 500,000 to 999,000
square feet (37%) are most likely to in-
crease their outsourced cross-docking,
closely followed by those with 250,000 to
499,000 square feet of space (31%).
Conversely, those respondents least
likely to increase their outsourced cross-
docking are those with smaller-scale oper-
ations—less than 50,000 square feet.
For those companies just getting started
in the next 18 to 24 months, the sur-
vey shows that 43% of companies with
250,000 to 499,000 square feet of ware-
house space will use a 3PL in conjunction
with in-house efforts when they begin
cross-docking. Smaller operations of less
than 50,000 square feet are also expecting
to reap the benefits of cross-docking, how-
ever, with 38% of those companies say-
ing they’ll outsource some of their cross-
Mid-sized companies are most likely
to hand over their entire cross-dock op-
erations to a 3PL. Nearly a quarter of those
with operations of 100,000 to 249,000
square feet (21%) plan to hire a 3PL to
manage and set up their cross-dock.
Number of SKUs
Those most likely to increase outsourc-
ing are those respondents who currently
cross-dock with high numbers of SKUs.
A third of companies with 5,000 to 9,999
SKUs plan to increase their outsourcing.
Roughly a third of companies with 2,500
to 4,999 SKUs (30%) indicate similar
Field report.Final.indd 39 7/29/08 2:47:10 PM
40 | August 2008 | Outsourced Logistics
dock savings are transportation related.
Considerable freight savings can be
achieved by consolidating LTL shipments
into full loads—a practice that 62% of
respondents who cross-dock noted as a
benefit of cross-docking. Taking advantage
of transportation efficiencies also allows
companies to mitigate the impact of to-
day’s rising fuel costs.
Labor costs. Labor costs are clearly a
focus for companies who will begin cross-
docking in the near future. Of those re-
spondents who plan to cross-dock in the
next 18 to 24 months, 18% cited reduced
labor costs as the most anticipated benefit
of cross-docking.
Cross-docking is not without its chal-
lenges, of course. The majority of survey
respondents indicate that their operations
are effective, but there is room for im-
Moving Forward
A growing number of companies are
recognizing these benefits and making
cross-docking part of their distribution
solution. For many, using a 3PL
to help manage the process allows
them to minimize or avoid some
of the pitfalls with the practice.
Regardless of how the operation
is handled, it is important to es-
tablish clear objectives up front.
If goals include streamlining the
supply chain and getting prod-
ucts to market more efficiently
and economically, cross-docking
may be the right answer.
This article is based on a white
paper from Saddle Creek Corp., a
third-party logistics services com-
pany providing integrated warehous-
ing, transportation, contract packag-
ing and value-added services nation-
wide. A full copy of the paper, includ-
ing extensive charts, is available at or
calling 888-878-1177.
ried in the stores, so they have fewer over-
stocks, and yet the shelves are full. It’s all
about speed and turnover.
Minimized supply chain
Cross-docking offers opportunities for
cost control in many areas, most notably
warehouse space, labor and transportation.
Warehouse space costs. The inherent sim-
plicity of a traditional pallet-in, pallet-out
cross-dock makes it a fairly inexpensive
way to handle product. Since consider-
able volume can be handled on a rela-
tively small scale, companies can avoid the
major bricks-and-mortar investment of a
huge warehouse and the costs associated
with that facility.
Transportation costs. Survey respondents
also viewed cross-docking as a prescrip-
tion to combat rising transportation costs.
In fact, this benefit ranked second highest
when respondents were asked to select the
single greatest benefit of cross-docking.
It should come as no surprise, then,
that the biggest opportunities for cross-
For example, 17% of respondents who
currently cross-dock handle perishable
products, but 28% of those who plan to
increase outsourcing cross-dock perish-
able products.
The Value Proposition
With so many companies cross-docking
either on their own or with the help of a
third party, it is important to understand
what motivates them to use the practice.
Companies are finding that cross-docking
gives them an important opportunity to
take costs out of their supply chains and
accelerate the velocity of inventory, so they
can get their products to market more
quickly and economically.
As indicated by the survey results, im-
proved customer service—both to the di-
rect customer and the end user—is the
primary reason that companies consider
cross-docking. Cross-docking allows prod-
ucts to reach their end destination more
quickly and economically, ensuring that
products are on the shelves when needed
and supply chain costs can be reduced. In
many cases, cross-docking is part
of an effort to provide just-in-time
Reduced need for
warehouse space
As today’s business environ-
ment shifts from “supply chain”
to “demand chain,” companies are
faced with the challenges of mini-
mizing inventory and reducing
warehouse costs when possible
while keeping retailers’ shelves
Inventory costs money. Cross-
docking gives companies the abil-
ity to send products in Monday
night, deliver them Tuesday and
sell them later that same day.
Products coming into a cross-
docking center usually have been
pre-allocated against a replenish-
ment order. Less inventory is car-
Next steps
Approximately a third of those planning to cross-dock
are in the process of researching and evaluating potential
partners or have already selected a 3PL.
For those companies in the process of selecting a 3PL,
Saddle Creek encourages companies to look for the fol-
lowing criteria:
• Flexibility to right-size the operation to meet busi-
ness fluctuations.
• Built-in transportation capabilities with a reliable
carrier network.
• Experience in the cross-dock arena, preferably with
similar types of products.
• Reliability and a strong reputation in the market-
• Systems capability that allows close to real-time
visibility—ideally from plant to cash register, but at least
from inbound to outbound.
• Process and program design capability.
• Proven ability to reduce supply chain costs.
• Commitment to continuous improvement.
Field Report
Field report.Final.indd 40 7/29/08 2:47:29 PM
Outsourced Logistics | August 2008 | 41
at FedEx and UPS in the US. But with Europe’s largest
road network, Bakker was satisfied TNT was well posi-
tioned to retain that traffic that was seeking lower cost
alternatives by road. Road networks will be important
to TNT’s growth, said Bakker, recounting the company’s
position in emerging markets such as China, India, Brazil,
the Middle East and Southeast Asia. In each case the
company has built or is building a solid road network
through acquisition, expansion and integration of those
operations. China, India and Brazil are all now fully in-
tegrated into TNT’s international network, said Bakker.
In the Middle East, TNT is the only company connect-
ing all countries, he pointed out. Asked about Iran, he
n the 10 years TNT has been publicly traded on the
Amsterdam Stock Exchange, it has seen many ru-
mors, said Peter Bakker, CEO. It is the company pol-
icy, he said, never to comment on market rumors. And
with that, he began the earnings announcements for the
first half and dismissed any possibility of even a hint on the
veracity of a rumor that FedEx was seeking to acquire TNT.
Bakker said he was pleased with the results for the sec-
ond quarter and the first half despite a substantial drop
in Express volumes in June. The drop was the result
of customers responding to high prices and shifting
from premium air services to ground alternatives. In
that, TNT’s experience lags a trend already exhibited
Logistics Services
TNT Express
Volume Down
Logistics Services.Final.indd 41 7/30/08 11:20:15 AM
42 | August 2008 | Outsourced Logistics
competes. That said, TNT was not abandoning the North
American market and Lombard said it would continue
to provide access to North America and provide North
American customers ready access to its global network.
TNT has strong planning, modeling and optimization
tools that have allowed it to enhance the performance of
its global express network. Its recently announced Liege/
Singapore/Shanghai air service is an example. TNT was
able to determine that adding Singapore to the Liege/
Shanghai lane would significantly improve the balance in
the Europe/Asia lane.
Also to its advantage, TNT has adopted an express-
service strategy that drives its road networks to perform
as part of an express operation, not like a traditional less-
than-truckload (LTL) operation. This means scheduled
departures vs. holding trailers until full. Its recent acqui-
sitions are either top express companies in their regions
or LTL operations TNT will recast into express feeder
FedEx recently announced a planned expansion of a
European hub with a potential rail connection for parcels.
That facility could complement TNT’s Liege hub (which
concentrates some of its operations previously handled
at other European airports). FedEx could then access the
already ubiquitous TNT road network for pick up and de-
livery on international shipments and it wouldn’t have to
compete with TNT for intra-European parcel and freight
business-which should provide some instant cost savings
and efficiency improvements.
The TNT ground network in China and its road net-
work in Southeast Asia (connecting with southern China)
would also be a plus for FedEx and complement much of
the network it already has in the region. The “emerging
markets” strategy of TNT would also help FedEx avoid
costly investments to compete against an established car-
rier in those regions. Instead, it could provide moderate
investments to continue to grow and upgrade the existing
or developing TNT networks.
The deal, if there is in fact a deal pending, would not be
without potential barriers. Perhaps the biggest is the value
of the US dollar. That adds a significant premium to any
cash deal FedEx would make.
Board and shareholder approvals would be needed
at both companies, and though the Dutch government
no longer holds its special share in TNT, the Stichting
Bescherming TNT (Foundation Protection TNT) was
formed to “care for TNT’s interests, the enterprises con-
nected with TNT and all interested parties, such as share-
noted that operation is
handled by an indepen-
dent agent and TNT was
extending its Middle East
Road Network to that agent.
For those who were starved
for a major announcement,
Bakker offered only a state-
ment that TNT would em-
bark on a major cost cutting
program for Express. It will
optimize its network over
the next 18 months and con-
sider, in that process, whether portions of the air network
are being replaced by road services. It will also pursue
lean operations in hubs and depots. TNT reported over-
all growth for the group of 7.5% for the second quarter.
Express operational revenue grew 10.7% and core
volume was up 6.9%. The sharp volume decline in
June was recovering somewhat in July. The lag in re-
covering higher fuel costs during the quarter cost the
Express group an estimated €7 million ($11 million).
Mail showed operational revenue growth of 15.6%.
TNT expects its full-year 2008 results to come in at the
low end of its expected range. Express cost savings tar-
geted at €100-€125 million are expected to be fully real-
ized by 2010. And, TNT expects to generate €300-€400
million from real estate sales and working capital by the
end of 2009.
FedEx Rumored In TNT Buy
“No comment” is the rule, but that’s no denial that
FedEx may be in the market to acquire global express car-
rier TNT. Here’s why the rumor seems likely to be true.
TNT has been conducting an aggressive stock buyback
program. At the same time, it was streamlining the organi-
zation into a lean, mail and express company with strong
road networks supporting it in developing markets. In
a sense, it looks very much like the core FedEx Express
Asked repeatedly about the North American market,
Marie-Christine Lombard, group managing director of
express at TNT, said they had no interest in expanding
in territories other than developing markets. She told
Outsourced Logistics essentially that TNT had no desire
to try to win market share in a market that was already
dominated by major competitors. TNT would prefer to
be the number one express carrier in the markets where it
Logistics Services
Peter Bakker
Logistics Services.Final.indd 42 7/30/08 11:20:24 AM
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44 | August 2008 | Outsourced Logistics
holders and employees, by, among other
things, preventing as much as possible
influences which would threaten TNT’s
continuity, independence and identity con-
trary to such interests.” According to TNT,
the Foundation is an independent legal
entity and is not owned or controlled by
any other legal person. That is, it is inde-
pendent, including being independent of
TNT control. So, there is still a potential
“poison pill” defense should shareholders
feel any offer forthcoming from FedEx is
Labor is always a concern, and TNT has
recently concluded talks with a number
of its unions. In the US, FedEx is fac-
ing some challenges, and groups like the
International Brotherhood of Teamsters
(IBT) could mount a vocal opposition, but
may not be able to influence the outcome
of any acquisition talks.
Since this is only a rumor, the facts
could be skewed, and it may not be FedEx
that is seeking to acquire TNT. The other
likely contender is UPS, but it just got a
boost from a proposed $1 billion-per-year
contract to handle domestic air lift for
DHL Americas. It would seem unlikely
that DHL parent Deutsche Post World Net
(DPWN) would stand still while UPS uses
its money to go into competition with it
in its home market in Europe. In fact, the
DHL deal with UPS could have been the
break FedEx was waiting for to make a
move for TNT.
Regulators would have to weigh in
on the deal, and the potential for con-
cern would appear to be at the European
Commission, not in the US. With DPWN
still a strong player in Europe, it would
not appear a FedEx acquisition would be
anti-competitive. There might be initial
questions about foreign ownership of a
company that maintains an air fleet or over
the contracts to operate postal services in
Europe. Any official announcement would
likely address those issues. (I.e. Deutsche
Post set up ABX as the owner of the airline
operations of Airborne Express to forestall
problems with US limits on foreign own-
ership/control of a US airline.)
Logistics Services



Getting an 80,000 Pound Cargo Lift with a Blimp
The word “blimp” doesn’t appear in any material from either
Boeing Co. who is teaming with Calgary, Alberta Canada’s privately
owned SkyHook International Inc. to develop the JHL-40 (Jess
Heavy Lifter) rotorcraft. However, the neutrally buoyant aircraft has
a helium-filled envelope size that will support the vehicle’s weight
and fuel without a payload. As Boeing explains, “With the empty
weight of the aircraft supported by the envelope, the lift generated
by four rotors is dedicated solely to lifting the payload, leaving the
aircraft neutrally buoyant.” The aircraft will be able to lift a 40-ton
sling load and transport it as far as 200 miles without refueling.
The JHL-40’s initial use will be for industries such as energy,
mining and logging, and particularly, for environments like those
found in Arctic Canada and Alaska. Present conventional land and
water transport to these areas is characterized as being, “inadequate,
unreliable and costly.”
Boeing is designing the JHL-40 and will manufacture two
production prototypes of the aircraft at its Rotorcraft Systems
facility in Ridley Park, PA. Skyhook will own, maintain, operate
and service all JHL-40 aircraft for customers worldwide. “There
is a definite need for this technology,” says Pete Jess, SkyHook
president and chief operating officer. “The list of customers waiting
for SkyHook’s services is extensive, and they enthusiastically
support the development of the JHL-40. Companies have suggested
this new technology will enable them to modify their current
operational strategy and begin working much sooner on projects
that were thought to be 15 to 20 years away. This Boeing-SkyHook
technology represents an environmentally acceptable solution for
these companies’ heavy-lift short-haul challenges, and it’s the only
way many projects will be able to progress economically.”
The JHL-40 will begin commercial service as soon as Transport
Canada and the US Federal Aviation Administration certify it.
Logistics Services.Final.indd 44 7/30/08 11:20:43 AM
Outsourced Logistics | August 2008 | 45
TNT Begins Road Service
Between China and SEA
Global express company TNT began scheduled intra-
Asia road services linking China and five countries in
Southeast Asia. The Asia Road Network is 30% cheaper
than air and three times faster than sea, said TNT. The
services are initially available from the south of China via
international road services to Southeast Asia. The second
step of the service links with the Chinese domestic network
to connect Southeast Asia locations with other parts of
The Asia Road Network connects to TNT’s international
express network at Nanning, the capital of Guangxi
Zhuang Autonomous Region and Guangzhou, the capital of
Guangdong Province.
TNT’s Asia Road Network was first introduced at the
end of 2005 and now links over 125 cities across 5,000 km
(3,100 miles) in Vietnam, Thailand, Singapore, Malaysia
and Laos. It features door-to-door, day-definite distribution
service with track and trace capabilities. Truck departures
are scheduled and the vehicles are tracked using real-time
global positioning systems (GPS).
“China is a very important market for TNT’s strategic
growth in the region; similarly, the Chinese market is also
integral to many of our regional and global clients,” says
Marie-Christine Lombard, group managing director of
TNT’s Express division. “This extension in China is driven
by customer demand,” she continued. “Being customer
focused is at the center of how TNT approaches business.
Our customers want reliable, cost effective, and secure
transportation solutions and this unique service is exactly
The extension of TNT’s Asia Road Network into China
is timely as regional trade is expected to thrive. Under the
impending China-ASEAN Free Trade Area to be set up with
six ASEAN countries in 2010, the estimated bilateral trade
volume between China and ASEAN will reach US$250
billion, up from US$160 billion in 2006, according to the
Ministry of Transport of the People’s Republic of China.
“Our road service provides more choice to customers
shipping to and from China, said Michael Drake, managing
director of TNT Greater China. “It is up to three times faster
than sea freight and up to 30% cheaper than air freight.
That is a winning formula in times of high fuel prices,”
Due to China’s geographical proximity and close business
links, Vietnam, in particular, will benefit from TNT’s
completed Asia Road Network. As Vietnam’s economy
continues to grow, bilateral trade volume between both
countries is on the increase and offers strong business
opportunities for TNT.
Maersk Moves to Meet
Changing Tides of Trade
Targeting such geographic areas as the Eastern
Mediterranean, Africa and Latin America while cutting
back on transits between Asia and Europe, the shipping
giant is reacting to the realities of fuel costs and emerging
Maersk Line explains that in reaction to what it calls
significant increase in fuel costs it finds it necessary to
remove capacity from Asia-Europe lanes to “ensure the
sustainability of our services.” Previously it reduced overall
space by 2,000 FFE (forty-foot equivalent) weekly in its
AE5, AE7, AE2 and AE8 services. Even with the reductions
the shipping line maintained its coverage in all corridors
within the network.
The company has served Sub-Saharan Africa for more
than 40 years where it has a 25% market share and its own
offices in 35 countries in the region. It notes that average
growth of exports in the region is currently 7% per year and
import growth is 11% annually.
With these facts in mind, senior vice president Michel
Deleuran, Maersk’s Head of Network & Product, announced
the signing of an agreement with Hyundai Heavy Industries
for delivery of 18 container vessels in 2011 and 2012 that he
expects will be deployed in trade to and from Sub-Saharan
Africa. Each of the new ships will carry 4,500 TEU (twenty-
foot equivalent) and will be equipped with a waste heat
recovery system that reuses excess exhaust heat to generate
energy for propulsion or on-board electric consumption.
Over the past five years, trade between Asia and the East
Coast of South America has grown at a 20% clip annually
and is projected to continue to show double-digit growth
over the next five years. Trade between South America
and Europe has been growing at 25% annually. In reaction
to these increases, Maersk has ordered 16 new container
vessels from Daewoo Shipbuilding and Marine Engineering
Co. for delivery in the 2010–2012 time frame. Each ship is
to have a capacity of 7,500 TEU and to be equipped with
reefer plugs that will enable them to carry 1,700 refrigerated
containers each. As with the other vessels on order, these
will have waste heat recovery systems.
While Brazil and Argentina, in particular, have very fast
growing consumer markets, trade between South America’s
East Coast and Europe is driven by export of food such as
poultry, meat and fruit, all of which require refrigeration
in transport. In discussing the order of these new ships,
Deleuran says, “We expect continued strong growth in
these markets and that this order shows our long-term
commitment to providing service and support to our
customers’ increasing business in these trades.”
Logistics Services.Final.indd 45 7/30/08 11:20:52 AM
46 | August 2008 | Outsourced Logistics
When the Middleman
Doesn't pay
By James A. Calderwood, Esquire
iability for payment of freight charges has
evolved into a complex legal problem that
seems to be arising frequently when a ship-
per has arranged for a middleman (termed
“3PL,” “broker,” “forwarder,” “logistics manager” or
whatever) to arrange for the transportation of the
shipper’s freight. After the carrier delivers, the car-
rier looks to the middleman (let’s call it a “broker”
because that is the term used in the US Code) to
pay it. However, what happens if for some reason
the broker does not or cannot pay the carrier?
As one can expect, the carrier then says to the
shipper, “I hauled your goods and the broker you
hired engaged me on your behalf so you, shipper,
pay me.” The shipper responds that it paid the
broker who was to pay the carrier and it will not
pay twice.
One of the reasons some people are lawyer
averse is because lawyers can not always give
straight forward answers to straight forward ques-
tions. This is one of those circumstances.
In this scenario, is the shipper liable to the car-
rier for the unpaid freight charges?
The answer is that it depends on the paperwork
covering the shipment. This is what makes the is-
sue legally complex.
Under a decision earlier this year by the US
Court of Appeals for the Sixth Circuit the shipper
could be liable to the carrier even though it had
already paid the broker. The key is what kind of
contracts exist among the three parties, including
any bills of lading that have passed.
The appellate court decision involved a series of
shipments by Sears Roebuck & Co. arranged by
a broker named National Logistics Corporation
(NLC). According to the court decision, NLC was
engaged by Sears to provide brokerage services,
freight bill auditing and other services for Sears.
As part of its brokering services for Sears, NLC
arranged for a motor carrier, Oak Harbor Freight
Lines, to transport some of Sears’ freight. Oak
Harbor was to bill NLC and be paid by NLC.
For years Oak Harbor had a written contract
with NLC. Interestingly, the contract said that the
“shipper” would pay Oak Harbor if NLC did not.
For certain shipments Oak Harbor used a straight
bill of lading which indicated that Sears was the
consignee (these were shipments being returned
to Sears). For outbound shipments Sears generated
the bills of lading itself and, among other things,
instructed carriers to send their freight bills to
The court decision says that generally Oak
Harbor, the motor carrier, would send its freight
bills to NLC within three days of delivery. NLC
audited the invoices and collected the money
from Sears. NLC then paid Oak Harbor. Sears
terminated NLC with, at that time, over $400,000
due from NLC to Oak Harbor for hauling Sears
freight. Of this amount Sears had already paid
NLC $220,000. Oak Harbor tried to collect from
NLC, but to no avail. So it sued NLC and Sears.
Sears claimed it was not liable, but in a battle
over the wording of the contracts and the bills of
lading used in the transactions the lower court said
Sears was liable. The Court of Appeals agreed.
Shipper liability in third party payment (or really
non-payment) situations turns on the wording of
the legal documents. As a general proposition the
“consignor remains primarily liable” to a carrier,
at least this is what the US Supreme Court said
in 1982. However, this liability can be contracted
away, so it is very important that all parties know
what they are signing.
Logistics Services
Community Voice
Logistics Services.rev.indd 46 7/30/08 1:00:04 PM
Outsourced Logistics | August 2008 | 47
For instance, a bill of lading may
contain what are known as “non-
recourse” and “prepaid” provi-
sions. If they have been separately
signed or otherwise indicated by
the parties then the consignor may
well be released from any obliga-
tion to pay the carrier.
These bill of lading provisions
may, however, be overridden by
a transportation contract that is
drafted to cover a number of ship-
ments over a period of time. If for
instance a transportation contract
says that the carrier has to look to
the consignee not the consignor
for payment then the consignor
may be off the hook no matter
what a bill of lading says.
While a bill of lading is a type of
contract for carriage it is most of-
ten used for one-time, individual
shipments and is not intended to
cover a series of shipments over
time, that is what a transporta-
tion contract covers. Well drafted
transportation contracts usually
state that they take precedent over
any conflicting language in a bill of
lading. In such cases a bill of lad-
ing becomes only a routing docu-
ment and delivery receipt. This is
one reason many large shippers no
longer use bills of lading.
This matter involving Sears, a
motor carrier and a middleman
(broker) is all too typical of what
sometimes happens in today’s lo-
gistics markets. Various parties
have each entered into contracts
with one another (Sears with the
broker and the broker with the
carrier) at different times with
different terms and concepts
that may contradict each other.
I have seen some of these con-
tracts which are hopelessly out of
date by referring to sections of the
US Code and federal regulations
that no longer exist. The issues
become more confused when bills
of lading are signed for individual
shipments. There simply are no
“standard” bills of lading anymore
so their terms may vary.
Confused? When the middle-
man does not pay, the carrier will
almost certainly go after the con-
signor and consignee. Any court
action will probably result in the
judge trying to make sense out of
a confusing mess of conflicting
Calderwood is a partner with
the law firm of Zuckert, Scoutt &
Rasenberger, L.L.P., in Washington,
D.C., where he concentrates in trans-
portation matters. He can be reached
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48 | August 2008 | Outsourced Logistics
3PL File

Mission Statement: BDP seeks to strengthen its market leadership position
by leveraging its technology and quality of its staff to become the premier
provider of global logistics and transportation solutions. The vision is to be the
best provider of global logistics and transportation solutions.
Capabilities: Transport services including air, sea and domestic ground;
export and import logistics; trade and security compliance; a Lead Logistics
Provider; warehousing and distribution; project and energy logistics; chemical
logistics; Humanitarian aid; and Centrx, a BDP knowledge venture engaged in
logistics, transportation and trade management consulting.
Financial Rating/Stability: $1.6 billion in sales (2008 Estimate)
Ancillary Service Offered: BDP Global Network is an assemblage of
logistics and transportation specialists. It is one of the industry’s most prestigious
mid market logistics affiliations, representing a select group of BDP and private
third party providers with operations in more than 120 countries.
Technology Advantages: BDPXpedion is a comprehensive Web-based
business process and information technology (IT) platform that enables a
collaborative flow of decision-support communications between all parties in a
logistics process. BDPSmart is a comprehensive online logistics customer portal
providing global end-to-end visibility and proactive communications, supported
by management-by-exception protocols via a single, Web-based interface.
Collaborative Partners: BDP’s partnership strategy is built on a simple
but powerful tenet: To forge prudent relationships with organizations whose
strengths complement its core competencies—companies with good reputations,
solid infrastructure and strong, local market knowledge.
Specialized Logistics Services:
Centrx which focuses on improving processes and reducing costs related to the
global supply chain in the chemical, consumer and health care, and retail vertical
How It Differentiates ltself:
BDP subscribes to the market discipline of Customer Intimacy. Its approach to
management of international logistics embodies service specialization rather
than standardization within individual account relationships. While this model
demands more hands-on account management, at BDP the achievement of
service effectiveness and operating efficiency are not mutually exclusive. BDP is
structured in two strategic business units dedicated to Global Process Accounts
(GPA) and Customized Service Accounts (CSA). As a mid-market, non-asset
based enterprise, BDP is small enough to care
for its customers as customers rather than as a
commodity, while large enough to leverage value
on a global scale.
Company Name:
BDP International, Inc.
Stock Symbol:
US Headquarters:
510 Walnut St.,
Philadelphia, PA 19106
Website URL:
Foreign Locations/
Markets Served:
A global network
of wholly owned
operations, joint
ventures and affiliates
in more than 120
countries, including
more than 25 offices
across the US.
Key Personnel:
Richard Bolte, Jr.
President and CEO
Year Founded:
Number of
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