OF COMMERCE NAVIGATING A SEA CHANGE

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1 A Weaker Peak Technology to the Rescue Transport s Rough Road Special Reports: Container Shipping; Canada Trade THE JOURNAL Sept V.12 N.33 OF COMMERCE $10.00 DELIVERING GLOBAL TRADE AND LOGISTICS INTELLIGENCE SINCE 1827 NAVIGATING A SEA CHANGE Logistics managers are answering calls for change with their own details on how to overhaul a frayed shipping business model

2 NAVIGATING A SEA CHANGE Logistics managers are answering calls for change with some of their own details on how to overhaul a frayed shipping business model 12 THE JOURNAL OF COMMERCE SEPTEMBER

3 PATRICK HALLORAN takes great pains to provide the carriers that transport Cardinal Health s global shipments of medical supplies with his best and most accurate forecasts of imports and exports, which he periodically s to shipping lines. The carriers compile them with forecasts ed by other shippers to create a rough outlook of demand. Halloran believes there has to be a better way to align supply and demand in the high-stakes business built on high-value assets. Why not share a platform so when carriers look at demand it s already normalized? Cardinal Health s director of global trade and logistics. By Peter T. Leach THE JOURNAL OF COMMERCE 13

4 He wants to improve the technology carriers use to compile shipper forecasts so they better allocate the amount of cargo space Cardinal needs, where it s needed and when. That s one of the growing array of ideas discussed as shippers in a wide range of fields, from pharmaceuticals to farm products, start a dialogue aimed at putting substantial proposals behind Maersk Line s broad call this year for sweeping change in shipping. Halloran is among several large importers and exporters working together on the GT Nexus Shipper Council to shape discussions with carriers about improving the exchange of electronic information. The council s big global shipper members are The council consists of about 60 companies, including large global manufacturers and third-party logistics providers with more than $1 trillion in combined revenue and more than 5 million 20-foot equivalent units in annual container volume. We have a very large group of committed shippers that have invested in technology to make their processes more efficient and were looking for ways to take this to a higher level, Halloran said. preparing to meet with Maersk Line and the 30 largest global shipping lines in the next six months to create a venue for discussing ways to improve shipper-carrier communications in response to the call by Maersk Line CEO Eivind Kolding in June for a change in the way the industry conducts business. Kolding s manifesto for change outlined three steps the ocean shipping industry needs to take: Provide better service at fair rates. Adopt technology that will ease the process of booking cargo and tracking shipments. Provide better visibility into carriers environmental footprints. We zeroed in on the technology part, not the fair rates or environment, because we said, This is something we can work with you, Maersk, on, and we encourage further and deeper dialogue, said Halloran, chairman of the shipper council. We wanted to see what we could bring to the table for our part as a large group of shippers. THE KEY NOW IS TO MOVE PAST DIALOGUE AND INTO ACTION. THE SHIPPER COUNCIL IS COMMITTED TO MAKING THIS HAPPEN. We share the same carriers, and, to some extent, we share the same platform, so we already have a standard in place, and that s usually the hard part to bring in a standard. The council s response to Maersk s call for change evolved out of discussions among council members at The Journal of Commerce s annual Trans-Pacific Maritime Conference in Long Beach last March. Six months ago, shipper council executives from Kraft Foods, Williams Sonoma, Rhodia and Cargill were speaking to a wellattended TPM event about this very thing, Halloran said. The key now is to move past dialogue and into action. The shipper council is committed to making this happen. The council has been advocating change for the past two years, members said. When we saw Mr. Kolding s announcement, we immediately saw an opportunity to take action, said Mike Murphy, associate director of logistics procurement at Kraft Foods Global. The shipper council members have some concrete ideas to make doing business with one another more productive and efficient using technology and jointly improving our processes. In its response to Maersk, the council members proposed four areas for initial attention, including: Managing allocations and improving forecasting on a secure neutral platform. Streamlining documentation and substituting electronic bills of lading for paper to act as one version of the truth. Using technology to improve business to business processes between shipper and carrier. Collaborating in the cloud. These are what we teed up. We re not expecting this to be the end of the list. There might be others that get prioritized, Halloran said. The council s subcommittee on carrier relations is working on setting up 14 THE JOURNAL OF COMMERCE SEPTEMBER

5 IF WE RE SUCCESSFUL, IT S AN ONGOING DIALOGUE, BECAUSE THINGS EVOLVE AND PROCESSES CHANGE. meetings with all the top carriers over the next two quarters through March. Maersk Line welcomes the council s response to Kolding s call for changes, but said the dialogue with shippers is likely to be only the beginning of a long process. It s not easy to change the way things have been done year after year, even when both carriers and shippers agree that the industry needs to change its operating model, said Timothy O Connell, senior director of trade and marketing for Maersk Line USA. He could not estimate how long the process of change would take, because the dialogue itself will shape the issues to be covered and the steps to be taken by both sides. This is an old business. It has regional geographies and traditions that will need to be examined, Halloran said. What goes on in China is different from what goes on in the U.S. and Europe. The local practice for booking and documenting cargo may be different in Qingdao from what it is in Malaysia, but the information is the same. Individual carriers differ in the way they want the electronic information presented, so the process of sorting all of this out will take a long time. If we re successful, it s an ongoing dialogue, because things evolve and processes change, he said. A year from now we ll be having ongoing meetings. Shippers know they have to evolve, too. The process also involves cultural changes for shippers and carriers. Over the last two years, Maersk has been trying to change its own culture to eliminate process inefficiencies while at the same time focusing on the needs of its shippers. One result is a stronger focus on schedule reliability, which Kolding emphasized in his call for industry changes, saying, What if we could guarantee that cargo would be on time, every time? O Connell said the attention to schedules feeds a larger focus on customer service rather than on internal operations. Having the mindset throughout the organization that delivering products on time that our customers need makes them and us very competitive. The reliability of Maersk s vessel schedule can been seen in the fact that the carrier has maintained its No. 1 position among the 20 largest carriers in Drewry s quarterly Schedule Reliability Insight for most of the last four years. Maersk has been meeting with groups of its customers since last year in what the carrier calls innovation exchanges at major U.S. ports to get feedback on steps to eliminate inefficiencies. There have been a lot of specifics about reliability and consistency and making it easier to do business, O Connell said. The more waste you take out of the system, the better off we are. Forecasting appears to be an area with some of the strongest interest for carriers and shippers alike. Every carrier, of course, craves better forecasts on how much cargo shippers plan to ship. The more we know about how many containers they plan to ship each week, even if it s three to four months out, the better off we are at being able to deliver on our commitments, but also at meeting our customers expectations, O Connell said. But providing better forecasts is easier said than done in a volatile global economic environment. Since the financial meltdown in 2008, more retailers and manufacturers than ever have been focused on risk mitigation and cash preservation, leaving many shippers to postpone production and distribution until as late as possible. That was one factor behind the breakdown in shipper-carrier relations at the end of 2009 and the first half of 2010, when a sudden influx of goods crashed against ocean carrier strategies to pare back capacity in line with diminished demand. Carriers had laid up almost 10 percent of their container fleet after shipper demand for space all but collapsed, along with freight rates. The rolled containers, heated exchanges over contract terms and no-show cargo and rapid spot rate increases left scars that are still evident across much of the industry. The latest message from shippers such as those on the GT Nexus Shippers Council is that the frayed relations could be turned into an opportunity. We re all in this together, O Connell said. As we ve looked at the needs of the industry, it has also made us look at how we operate and understand the need for our own changes. JOC Contact Peter T. Leach at pleach@joc.com. 16 THE JOURNAL OF COMMERCE SEPTEMBER