Ensenda: Going the ‘last mile’ 12China’s air cargo heats up 58Irrational carrier surcharges 66Tight capacity in Pacifi c trade 68

AUGUST 2004

www.americanshipper.com

CCuttinguttingcostscosts

David Fishermanager of global

transportation purchasing,Goodyear

Goodyear deflates transport spend 8On June 16, The Goodyear Tire & Rubber Co.’s transportation research group made companyhistory as global and regional 3PLs fought it out in an electronic bid for the tire giant’s North American business. “This is how competition should work in the forwarding business whenit comes to handling a large shipper’s freight,” said Goodyear’s David Fisher.

LOGISTICS 8ISPS enforcement ‘a bumpy voyage’ 18China Customs expands influence 24Struggles to classify merchandise 26Serving up enforcement 30ACE payment feature not without cost 34AES Option 4 still an option 36Planning for when things go wrong 38Apparel: ‘Year of the cliff’ 46

FORWARDING/NVOs 523PLs ripe again for consolidation 52Menlo’s maritime expansion 53Antidumping liability 55

TRANSPORT/INTEGRATORS 56DHL positions itself as alternative 56

TRANSPORT/AIR 58Polar Air to switch European hubs 64

TRANSPORT/OCEAN 66Record containership capacity on order 66Tight capacity in Pacific trade 72China Shipping raises $1 billion 74An American in Oslo 77Matson sails on Hawaiian economy 80Cargo hazards in a perilous climate 82Vessel operators ride green wave 86

TRANSPORT/INLAND 88Truck manifest nears completion 88Model shipper/trucker contract 88Study calls for chassis inspections 88

PORTS 89Houston awards Bayport contracts 89Savannah expansion progresses 89Rotterdam terminal gets backing 89SSA hands over UMM Qasr to Iraq 89

SERVICE ANNOUNCEMENTSSenator adds Montreal/North Europe slots ... Maersk Sealand adds 9th transpacifi c link

DEPARTMENTSComments & Letters 2Shippers’ Case Law 90Corporate Appointments 91Service Announcements 92Editorial 96

On the Cover

August 2004Vol. 46, No. 8

Going the ‘last mile’ 12Ensenda has found profit in arranging last-mile delivery services, the final supply chain link between distribution centers and product end users. Formed in 2001,the non-asset company has developed a national reachto oversee local delivery providers, using proprietarytechnology that brings selected local companies acrossthe U.S. and Canada into one delivery service.Customers say the company is one of a kind.

China’s air cargo heats up 58As Asian economic and export growth continuesto gain strength, Asian airlines are beginning to laythe groundwork to further challenge foreign airlinesfor air cargo supremacy in the region and on long-distance routes. Airlines in Japan, Korea, Taiwanand Hong Kong are rapidly investing in capacityto take advantage of economic growth that is expectedto exceed the world average during the next 20 years.

Irrational carrier surcharges 68Irritated by the lack of explanations about the costof several surcharges, shippers are questioning the level or the very need for the long-established port and fuel surcharges invoiced by container shipping lines. Ocean carriers, like providers of other modes, have longused surcharges to pass on to shippers any changesin underlying costs. But shippers argue the carriers should manage bunkers and CAFs as a cost of doing business.

Shippers’ NewsWire DAILY e-mail serviceTo subscribe call 1 (800) 874-6422 or on the Web at www.americanshipper.com

AMERICAN SHIPPER: AUGUST 2004 1

Goodyear deflates Goodyear deflates transportation spendtransportation spend

Tire company’s global service Tire company’s global service contracting strategy increases contracting strategy increases carrier competition for its business.carrier competition for its business.

BY CHRIS GILLISBY CHRIS GILLIS

8 AMERICAN SHIPPER: AUGUST 2004

AMERICAN SHIPPER: AUGUST 2004 9

for Goodyear, who watched the bidding unfold on a screen image projected from a laptop. The 3PL selection process for Latin America is part of Goodyear’s overall stra-tegic plan to increase competition among its transportation and logistics services providers and drive out millions of dollars a year in supply chain expenditures. On this day, more than 20 logistics firms bid for Goodyear’s Latin American business on a country-by-country basis. Goodyear staff monitored the progress of each country bid on a conference room screen. A digital ringer sounded each time a 3PL placed a bid. The bidding tested the 3PLs’ willingness to handle Goodyear’s Latin American cargo at a competitive price. However, in this case, the 3PLs had no exact knowledge of whom they were competing against. They could only view their rankings against others. For some countries, the bidding was so intense that it went into more than a dozen two-minute overtimes before a single 3PL provided the lowest bid. Most of the country-by-country bids were finished by noon. “These logistics providers came in today prepared to do battle,” Fisher said. “This is the best way for them to demonstrate interest in Goodyear.” During the summer, Goodyear will analyze the country-by-country bids, combined with other background criteria, to pick a handful of worthy contenders. These logistics firms will be invited to Akron to make presentations to Goodyear’s transportation purchasing group. The 3PL with the most convincing presentation will win Goodyear’s Latin American freight business.

“Our goal is to have a single logistics service provider for each region,” Fisher said. This is a large operational change for Goodyear, which once had relationships with about 200 forwarders and brokers worldwide. Latin America is the last market for Goodyear to implement its single 3PL service provider program, and perhaps the toughest to pull off. In North America and Asia, Goodyear has already contracted with Houston-based EGL. The company re-cently selected U.K.-based Exel to oversee its logistics needs in Europe, North Africa and the Middle East. Besides serving the regions, these forwarders are expected to work together to manage Goodyear’s global freight traffic. “Our expectation is that the forwarders

and brokers will have relationships not just with us, but also with each other,” Fisher said. “They are no longer competitors when it comes to our business. They are cousins sharing the same account,” he added. “They will have to discuss how together they can deliver maximum benefit to Goodyear’s business.” From the 3PLs’ perspective, they should enjoy a long-term relationship with this global shipper. The regional logistics providers are also responsible for managing the service performance of any subcontracted trans-portation activities for Goodyear freight within the region. Goodyear will realize some immediate transportation costs savings, such as $8 million a year in reduced documentation transfer fees. However, the company ex-pects the biggest benefits to its bottom line during the next several years. “We’re in the middle of an intense five-year plan to improve the logistics perfor-mance of our company,” Fisher said. “Our focus is first on the greatest cost savings opportunities.”

Global Contracting. The tire manufac-turer has spent the past two and half years tightening purchasing controls for ocean transportation, and has standardized its service contracts with the liner carriers. Like many multinational firms, Good-year used to manage its ocean carrier service contracts on a region-by-region basis. The company’s business regions for manufacturing include North America; European Union; Eastern Europe, North Africa and Middle East; Latin America; and Asia Pacific. Goodyear also has global business units for engineered products and chemicals. “This transportation purchasing model, while we lived with it for a long time, resulted in lots of leakage,” Fisher said. “No one was coordinating our international activity. There was little cohesion in the supply chain.” In mid-2002, Goodyear held a weeklong meeting in Akron that included its most knowledgeable transportation managers from the global regions. The goal was to lay the foundation for a standardized “boilerplate” contract in 2003 to “aggregate and leverage” the company’s entire spend on ocean transportation. This was no easy feat for Goodyear,

On the morning of June 16, The Goodyear Tire &

Rubber Co.’s transportation purchasing group

made company history as global and regional

third-party logistics firms fought it out in an electronic bid

for the tire giant’s Latin American business.

“This is how competition should work in the forwarding

business when it comes to handling a large shipper’s freight,”

said David Fisher, manager of global transportation purchasing

“Our expectation is thatthe forwarders and brokers

will have relationshipsnot just with us, but also

with each other. Theyare no longer competitors

when it comes to our business. they are cousins

sharing the same account.”

David Fisher manager of global transportation purchasing, Goodyear Tire & Rubber Co.

LOGISTICS

A shipment of tires is loaded on a vessel in Russia.

Reform Act. The U.S. Federal Maritime Commission has received a handful of peti-tions from the country’s largest NVOs, such as UPS, FedEx Trade Networks and DHL Danzas, seeking exemption under OSRA to enter confidential service contracts with shippers. “We as a shipper consider government sponsorship of this as a positive offering for the industry, because a lot of NVOs could adequately compete in this market,” Fisher told American Shipper. A portion of Goodyear’s ocean freight, however, remains outside the global tariff. The company uses bulk carriers, primarily PACC Lines and Indo Trans, to transport bundles of natural rubber from sources in Malaysia, Indonesia, Thailand and Singa-pore to the U.S. West Coast.

On A Roll? For now, competition among tire manufacturers remains fierce. Goodyear not only com-petes worldwide with other in-dustry players, such as Michelin, Bridgestone, and Cooper Tire & Rubber, it must confront numer-ous second-tier tire producers for market share. Goodyear makes both name brand and lower-priced private-label tires, which it sells to a large international network of dealers. The company is struggling for profitability. In 2003, Goodyear reported a net loss of $802.1 million. Between 2001 and 2002, Goodyear reported a combined net loss of $1.4 billion. The tire company recently completed an investigation over accounting ir-regularities, which resulted in the restatement of its financial results

back to 1999. Goodyear has started to narrow its losses in 2004 and reported a first quarter net loss of $76.9 million, compared to $196.5 million for the same quarter last year. Goodyear, with its plants and tire dealers scattered throughout the world, believes that improvements to how it manages its supply chain are one of the key strategic ingredient to the company’s return to profitability. “This one cuts right to the heart of what’s important,” said Goodyear chairman Robert J. Keegan at an Akron business roundtable in March. “Our new supply chain organization was designed, staffed and funded to create a competitive advantage in our industry for our customers and for us. “It’s designed to streamline and simplify the order process with unprecedented ac-curacy. And to get the right tire in the right place at the right time, and accomplishing this at low cost with low inventories.” ■

which moves more than 100,000 TEUs of cargo in about 2,200 trade lanes worldwide each year. During the meeting, the Goodyear team compressed its trade lanes into 150 bundles. They decided to allow carriers to bid on any lane in any bundle of the bid to increase competition. More than 35 liner carriers were given three days to bid on the Goodyear’s freight business. After the bids were returned, Good-year broke apart the bundles by lane for cost analysis. Awards were then implemented on a per-lane basis. The 2003 service contract structure resulted in a global transportation savings of more than 17 percent. The contract for all carriers also expanded credit (payment) terms for Goodyear by about 40 percent, and for the first time centralized access to ocean freight rates for all regions. It also established a standard-ized global routing guide and mechanisms for contract compliance and data visibility. Fisher admitted that the first year under the new contracting process was “intense” for the carriers. “There was some need to improve the process,” he said. Goodyear refined the terms and conditions of its contracts for 2004. The company also placed a portion of its contract proposal online and gave the carriers a week to submit their bids. Goodyear then took a week to analyze the results. The company gave the carriers another week to make any minor changes to better their offers before final-izing its contracts under the global tariff. “It’s a diplomatic process,” Fisher said. “We don’t want to treat the carriers like a commodity. All we’re doing is developing a global tariff to get everyone operating off the same page. We want to generate positive cash flow and keep our cargo moving.” Besides, Fisher said, some of Goodyear’s biggest customers are the ocean carriers themselves, because they need tires for their container chassis pools. Goodyear uses 12 selection criteria, such as payment and shipping terms, cargo transit times and frequency of sailings, to select its carriers for its contract. Carriers that participate in the global con-tract must provide Goodyear with monthly reports about the actual amounts of cargo moving through the port pairs. “We use this data to evaluate our own data,” Fisher said. “Our portfolio becomes crisper.” Fisher said Goodyear’s goal is not to put “false freight” in its global tariff. “We don’t want the carriers to bid for 100 containers

in a lane when we actually ship 80,” he said. “Our improved forecasts help the carriers determine how busy their ships will be.” Centralized control of global transporta-tion purchases also helps Goodyear manage changes in its business, such as adding trade lanes to serve new customers. “Be-cause we’ve done the lion’s share of work, contract maintenance work is generally straightforward. In the past, there were lots of people all over the world involved in contract changes,” Fisher said. While many shippers began experienc-ing freight rate increases from the carriers during the past two years, Goodyear kept its transportation spend steady through its contracts. The company even realized a 5-percent savings globally in transportation expenditures in 2003. “We held our own in the market last year, which was a victory for us,” Fisher said.

Goodyear anticipates that next year carriers will begin to experience capacity increases beyond what large shippers, such as itself, are able to absorb, which could start a backpedaling on future rate increases. Goodyear is already planning for improve-ments to its 2005 contract. The company wants to create additional incentives for the carriers, such as reverse or cross-trade lane definitions and continuous movement agreements. Goodyear will also use its 2005 contract to: • Leverage credit (payment) terms. • Leverage prices between container and breakbulk carriers. • Include inland trucking and delivery trucking within negotiations. Goodyear is open to the prospect of non-vessel-operating common carriers entering service contracts with shippers, a process banned under the 1998 Ocean Shipping

10 AMERICAN SHIPPER: AUGUST 2004