Going Global

Getting the right products where they're needed, when they're needed – even when the shipment originates a half world away – is the challenge facing U.S. truckers.

Nobody in their right mind disputes the fact that international trade has become vital to the U.S. economy, and America's transportation savvy has definitely played a key role.

Sophisticated logistics planning has increased distribution efficiency and helped make U.S. manufacturers more competitive overseas. High-service trucking companies guarantee delivery anywhere in the world. And while globalization presents challenges for U.S. trucking companies, it also presents opportunities.

"The question is, do you want to be a global competitor with the likes of UPS, FedEx and DHL, or will you provide asset-based services to those types of companies?" says logistics consultant Dick Armstrong, Armstrong & Associates.

STAYING HOME

U.S. carriers don't have to open overseas offices to be part of the international supply chain. "I don't think any of the major trucking companies will lose business in any consequential way, because there's only so much trucking capacity," Armstrong notes. So Schneider or Werner, for instance, may pick up some more customers with their international supply chain management services, but the freight won't necessarily move on Schneider or Werner trucks.

"Everybody has the same problem: There are only so many drivers," he says. "The companies that go global may see more top line revenue growth, and they may do better with certain accounts that need multifunctional transportation providers, but the guy who has capacity is going to get that capacity utilized."

"If I were a trucking business, what I'd do is focus on areas where I could have the greatest impact and make the most money," says Brooks Bentz, who co-leads the transportation division of Accenture, a global management consulting firm. The majority of containers still move inland from ports via train, and Bentz doesn't see that changing significantly. But trucks are still needed to move containers to and from railheads, which is an area were even very small carriers can shine.

The key: supply chain visibility.

Shippers like to know where their goods are all the time, and "trucking has often become the black hole" in international shipping, he explains. "Often what happens is, the container at the pier gets attached to a local drayman for delivery to a local consolidation center or rail head, and the drayman isn't connected to anybody's information chain. He doesn't have GPS tracking. He doesn't have Internet capability. He's not bar code-enabled so he can't scan the bill of lading or ocean freight bill. The big truckers don't have the problem, but a lot of the smaller, regional carriers don't have the technology to be a player, and to better serve their customers."

The beauty of making frequent and real-time communications a value-added service is that it doesn't have to cost much, Bentz notes. An owner-operator or driver can use wireless technology to get and receive schedules and other information in the cab of his truck. "Three hundred dollars for a BlackBerry may sound like a lot of money, but in the scope of running a business it's probably a wise investment," he says.

Similarly, dispatchers can be connected to other links in the distribution chain by the Internet or telephone, and they can stay in touch with their drivers by cell phone. "It doesn't have to be whiz bang stuff," he says, "but I think there's a vast opportunity to improve the flow of information in the supply chain."

Service appears to be a major factor in deciding how import freight moves in the U.S. In the Los Angeles/Long Beach area, Armstrong says, it's fairly common for 40-foot containers to be unloaded at distribution centers near the ports, then reloaded into 53-foot trailers to be trucked inland. The cost difference between truck and rail "isn't as large as you'd think," he notes, and "if you've got a stop-off en route, you can forget about doing it with the railroads."

Joe Bryan, managing director of Global Insight's trade and transportation group, has a couple of other reasons for the growing popularity of transloading/deconsolidation services near ports. One is that ocean shipping companies are becoming less lenient with their containers, often imposing what amounts to stiff fines for boxes kept out too long. Thus there's a cost incentive to get containers unloaded and back to the ports as quickly as possible.

Also, retailers generally decide what products go where based on the very latest point-of-sale information. "In order to do that efficiently, you have to get inside the container," he notes. "So they have import centers that are basically distribution centers near the ports."

If a shipper prefers not to run its own distribution center, for-hire trucking companies offer plenty of alternatives. Old Dominion, for instance, has terminals near port cities where it assembles goods for outgoing ocean containers and breaks out incoming containers into LTL shipments. The company also provides drayage services.

Schneider, as mentioned in the accompanying article, has American Port Services. Swift Transportation has terminals near all major California ports offering transloading of import and export cargo, local drayage, and coast-to-coast transportation.

The bottom line: There's plenty of international trade-related business to go around. Trucking companies that decide to stick to their core business will be dealing with shippers, 3PLs or even other carriers that want to buy their services, Bryan says, but "ultimately, they'll be able to play."

FEDEX FREIGHT: RELIABILITY AND VISIBILITY

"The demand for rapid, reliable LTL transportation is growing," says Doug Duncan, president of FedEx Freight. "If you look at the supply chain in the U.S., you find that more and more companies have adopted a fast-cycle logistics approach in order to take inventories out of the supply chain and move them closer to the end customer. I think you're going to see the same compression of that supply chain on a global basis that we've seen domestically over the last 10 years, and that's going to put a premium on transportation that's both visible and reliable to meet those demands."

FedEx Freight is ready. The FedEx division's operation network is designed to serve customers that are executing fast cycle logistics or just-in-time inventories. "Basically we can give them next-day delivery up to about 600 miles and second-day up to about 1,800 miles. All with money-back guaranteed reliability, which is what they need in this fast-cycle distribution networks," Duncan says.

This year FedEx bought Watkins Motor Lines, adding an established longhaul LTL network to its regional operations. The Watkins operations have been re-branded FedEx National LTL and FedEx Freight Canada. The combined network, including FedEx Freight, now includes more than 470 service centers operating nearly 54,000 tractors and trailers.

"Customers have continually told us our next-day and second-day service is fantastic, but sometimes they're more concerned about the economic cost of transportation than absolute speed," he explains. "FedEx Freight was never designed to do that. The addition of Watkins will give us a long-haul network that will still have great reliability, but it will have a little longer transit times and be a much more cost-effective solution for that particular side of the supply chain."

When customers need to ship internationally, FedEx Freight has plenty of resources. FedEx Express' global infrastructure is set up mainly for package delivery but can also accommodate freight business. FedEx Trade Networks, an international customs broker, freight forwarder and third-party logistics provider, has more than 300 offices around the world. Sister companies also include FedEx Supply Chain Services, offering a menu of transportation management services, and FedEx Custom Critical with its international airfreight operation. But choosing one doesn't necessarily get you any or all of the others.

"When you get into the forwarding world, there are lots of different options," Duncan explains. "Somebody may want FedEx Freight to pick up and FedEx Trade Networks to arrange the ocean transportation. Another customer might want us to get the shipment to the port, and somebody else will take it from there. Others need our services going inland, from a port to a distribution center or directly to somebody's door.

"It's the business of the freight forwarder to make all those individual, specialized arrangements depending on what the customer wants. Trade Networks is a stand-alone freight forwarder. Where we have our own assets or network we certainly offer them, but Trade Networks takes instructions from the shipper."

Increased international trade will have a big impact on distribution patterns in the U.S, Duncan says. More shipments will originate at a port or a nearby distribution center instead of the American heartland. FedEx freight just signed a deal to build one of its biggest terminals ever in San Bernardino, Calif., and much of its business will likely be linked to import traffic coming through Los Angeles and Long Beach. Duncan also expects to see more and more port distribution traffic coming through Canada and Mexico, "which makes our North American strategy that much more important."

Through its air express network, FedEx can now offer time definite deliveries – usually 24 or 48 hours – with tremendous on-time reliability, he says. Ocean shipments are harder to control, which makes rapid, reliable distribution even more critical once those goods reach the U.S.

"The hallmark of FedEx in all of its operating companies is absolutely reliability and custodial control," he says. "We monitor the movement of every shipment and we give great visibility of that movement to the customer. Those are things you'll find in all FedEx operating companies."

And while many other U.S. trucking companies are scrambling for drivers, FedEx Freight should be in pretty good shape. For years, the company has had an apprentice program that starts young people as freight handlers in one of their facilities. From there they can train to become P&D drivers, then line drivers. Some prefer to stay behind the wheel; others become driver trainers, dispatchers or supervisors.

"If we can get a worker through the first year – the night work, the stress and everything else – we generally keep them for almost a career, because there are lots of opportunities for them to advance and grow within the company."

EVANS DISTRIBUTION SYSTEMS: WORKING THE REGIONAL NICHE

Evans Distribution Systems was started in 1929 as the Central Detroit Warehouse Co. Today it's a full-service warehousing, packaging, transportation and third-party logistics provider with facilities in the Detroit area, Boston and Norfolk, Va. Although Evans is relatively small compared to other 3PLs, company officials feel they've found a big and important niche.

"We want to support our global customers, and one way to do that is by offering our regional expertise in trucking and in warehousing and other value-added services we provide," says Leslie Ajlouny, vice president of business development for Evans Distribution.

Globalization, she says, has changed and expanded what their customers expect as a logistics provider. "Instead of just crossdocking or delivering shipments as they come in, we're now frequently asked to provide quality inspection or relabeling." The company also offers a variety of packaging and inventory control services. "We're adding a lot more value through the supply chain – beyond just providing transportation," she notes.

Evans has no plans to expand overseas; instead they're looking for strategic alliances and partnerships that will allow them to be a part of their customers' global logistics chains.

Doug Ostrowski, general manager, transportation, notes that many of the big 3PLs are looking for small, regional providers like Evans. A relatively new trend is 4PLs, which coordinate 3PL services. "They've already got the globalization advantages with offices overseas. It's more advantageous for us to partner with them than to compete for those accounts."

Along with demands for extra services, globalization has put more pressure on final delivery, he says. "If you go back 25 or 30 years, the total automotive supply chain was maybe 200 to 2,000 miles and it was all domestic, so transit times were a day or two. Now the supply chains are thousands of miles and transit times can be as long as a month. If you're at the last day or two in that cycle there's a lot of added pressure to perform, to get the information to customers as things happen and to keep our on-time percentage extremely high."

Some of that is accomplished through investments in information technology in order to make the supply chain as visible as possible. "Nobody likes surprises, so part of our job is to eliminate surprises," notes Ajlouny.

Success also requires planning and flexibility. "We put a lot of time into operational contingency plans," Ostrowski says. "If there's a problem, dispatchers and operational managers will know about it in advance and they'll know how to respond."

One example: Evans provides custom packaging, inspection, warehousing and transportation services for Diageo North America's Crown Royal product. During the holidays the Canadian whiskey is sold in premium packages with collectible, hand-blown glassware from the Orient. One year the custom packaging, made in New York, was late arriving, so Evans had to quickly add an extra packaging line in order to meet holiday delivery targets.

Ostrowski says there have been instances when their Norfolk facility got the port to open on Sunday night so they could get a couple of hot containers released. "If you have a strong relationship with the provider handing off to you and with the provider after you, you can work together to come up with ways to make all this work for the customer," he notes.

Another client is JOKER Messelogistik GMbH, a European 3PL that coordinates the shipment of German-made show vehicles to the North American International Auto Show held each January in Detroit. The cars are shipped in ocean containers to Halifax, Nova Scotia, Canada, and then sent to Detroit by rail. In Detroit, Evans either takes them directly to Cobo Hall, where the show is held, or to their local service center for unpacking and sequencing. Evans also handles materials for the often elaborate and complicated displays. Everything must be delivered to Cobo Hall in the exact sequence for setup. After the show the displays must be dismantled and shipped out in precisely the right order.

Because Evans has worked in the Detroit auto industry for so many years, they're well acquainted with Cobo Hall and its receiving and shipping processes. As Ajlouny notes, the JOKER account illustrates the value of regional experience as well as industry expertise.

Evans has a dedicated fleet of about 50 trucks, including a mix of company drivers and owner-operators. It also maintains a database of about 180 trucking companies that serve its various locations. Ostrowski estimates that over half of the for-hire carriers working with 3PLs are smaller companies – less than 300 or even 100 trucks. "If you can build a relationship with the smaller carriers, you can help them grow and, at the same time, get the service you need on a personal basis," he explains. "You're not calling into a national call center. A lot of times you're dealing with the company owner or operations manager. We have good relationships with our carriers. We've seen many of them grow, and when they add capacity they usually give us first crack."

The company's slogan is, "It's Easier with Evans," and Ajlouny says that's not just a claim, it's a goal. "Being easy to work with is our number one priority. People like us. We understand and anticipate how things are changing and how the changes affect our customers, their supply chains, and the customers' customers. We're always trying to be in the right place with the right services and the right mix of technology to make it easy for everyone to do their jobs."

LANDSTAR SYSTEM: TAKING ITS BUSINESS MODEL OVERSEAS

Early this year Landstar put the various operations of its multi-modal group under one umbrella, Landstar Global Logistics. One reason for the change was to better define what those businesses are, says Ron Stanley, vice president and COO, Landstar System. Also, the company is getting ready to go overseas.

The two operating units that now make up Landstar Global – Landstar Logistics and Landstar Express America – have been involved in international shipping for more than 10 years, but they've focused primarily on the import/export needs of U.S. customers, Stanley explains. "We're in the process of taking the Landstar model global. We're going to start forming relationships with customers who are making decisions outside the U.S."

For those not familiar with Landstar's business model, the company offers a variety of trucking services through a network of independent sales agents and third-party capacity providers, including owner-operators leased to Landstar (called business capacity owners, or BCOs) and carriers working with its brokerage or contract carriage operations. This year Landstar added warehousing to its service menu and began signing independent "warehouse capacity owners," or WCOs.

"Our business model is very unique," says Jim Handoush, president of Landstar Global Logistics. "It's really about taking small business owners and bringing them under the Landstar umbrella, then delivering some of the support services that they need and allowing them to focus on satisfying their customers."

Among those services are sophisticated and constantly updated information systems that have put Landstar on InformationWeek magazine's annual list of America's most innovative IT users for the past eight years – this year number 36 among 500 companies.

Information is key to competing successfully in the international arena, Stanley notes. "You not only have to know what's going on with a shipment, you have to be able to pass that information to your partners so they can anticipate what's coming." Moreover, "We're not waiting for our operating partners to build their own systems. We build our systems with applications that push information to them. As we go overseas, our operating systems will have to meet the requirements of Landstar affiliates in other countries so we'll be able to operate there like we do here."

Landstar has more than 1,250 agents in North America, many who have international customers and expertise. Global shipments are now arranged through an international agent network, but the long-term plan is to sign exclusive agents in Europe, Asia and South America.

Target customers – here and abroad – are small to midsize shippers. "That's really our bread and butter and that's where we've seen a lot of growth," Handoush says. "For the most part, they don't have personnel within their companies who are international transportation experts, which is a great door opener for us. It gives us an inroad for managing all of their transportation requirements. They have a complete, single-source solution through us."

Or, actually, through the Landstar agent. A "plus" of the business model is that customers get the kind of one-on-one attention usually associated with small businesses. Landstar provides many of the necessary tools, such as IT systems, but they give agents a free hand to manage their own accounts.

Handoush says only about 5 percent of Global Logistics' domestic trucking needs are handled by Landstar's carrier group. The rest is handled by some 24,000 carriers in the brokerage database. "Our agents look at our internal carrier group capacity as another resource, but their goal is to make the best decision on behalf of their customers," he stresses. "The agents are the decision makers. They're the ones negotiating with the customer. For us to be a true, neutral third-party logistics provider, we have to make those businesses independent of our own capacity."

The success of Landstar's model depends on its ability to establish solid relationships with all of its affiliated small business. "Capacity is something we continue to focus on and develop," Stanley says. "The goal is to keep your capacity ahead of demand and we've accomplished that."

The company's owner-operator turnover is about 27 percent – among the lowest, if not the lowest, in the industry. Some reasons: The company pays well and pays quickly. It offers purchasing programs with discounts on fuel, tires and other products and services. Safety is emphasized with special events around the country, a couple of truck giveaways each year, and telephone conferences that have been held the third Thursday of every month for more than 12 years. Stanley says they often have 1,200 to 1,500 drivers on those calls.

"The No. 1 thing about our business model is that it creates a winning situation for everyone in the equation," Handoush says. "In the last couple of years – when things really got tight and when carriers had to make choices as to whose freight they were going to haul – we were on the top of the list.

"In the past, many customers wouldn't do business with 3PLs or brokers, but when things got tight and they couldn't move their freight, those same customers chose us because of our reputation and ability. Our business model gives us many opportunities and has helped us accelerate our growth."

Both Stanley and Handoush say they're confident that Landstar can duplicate that success overseas.

THE GLOBAL PLAYERS

Going global is not a choice for the undercapitalized or inexperienced. A shipment that starts in China can have a dozen hand-offs before it reaches its final destination in the U.S., and they all have to be included in the communications link. "Whoever does this has to be one of that limited group of companies that can really manage all of the information technology requirements," says logistics consultant Dick Armstrong, Armstrong & Associates.

U.S. trucking companies that opt to go international also must be ready and willing to compete with some of the world's biggest third-party logistics companies. In terms of 2005 revenues, the number one global 3PL was Exel, which recently merged with DHL Global Forwarding (number four last year). Number two is Swiss-based Kuehne & Nagel, the world leader in container volumes.

Schenker, number three in the 2005 3PL rankings, is also one of the biggest trucking companies in Europe. Earlier this year its parent, DB Logistics, bought American logistics company BAX Global, another major 3PL. Expansion into international logistics is a common growth strategy for European carriers, Armstrong notes.

"They had huge trucking operations, but when it came to doing things outside of Europe, they had to have another mechanism, so they became freight forwarders. Now the very large U.S. trucking companies are confronted with the same decision. Will they be trucking companies on one continent, or will they work out some mechanism to be global supply chain managers?"

U.S. companies are already well represented on Armstrong's list of the top 25 global 3PLs. Non-asset-based logistics providers include C.H. Robinson and Caterpillar Logistics. Expeditors International of Washington is a leading forwarder/NVOCC (non-vessel operating common carrier) in the Asia/U.S. lane. Texas-based Eagle Global Logistics is primarily an airfreight forwarder and logistics provider for U.S. Iraq operations.

TNT Logistics is considered to be the world's largest automotive 3PL and has extensive distribution and transportation operations in North America. Its Dutch parent, TNT N.V., recently sold the logistics division to affiliates of Apollo Management, a private equity firm with offices in New York, London and Los Angeles. Some of Apollo's current and past transportation and logistics industry investments include Pacer International and Quality Distribution.

Both UPS and FedEx have well-established global footprints. Both also have North American trucking operations that can tie into those global networks.

UPS Freight (formerly Overnite) offers truckload and LTL services in North America. Its international link is UPS Supply Chain Solutions. With the recent acquisition of Watkins Motor Lines, Fed Ex Freight added long-haul LTL to its regional LTL specialty. FedEx Trade Networks is the company's global 3PL.

Schneider Logistics last year was the number 10 global 3PL. Through its American Port Services subsidiary, purchased in 2005, Schneider provides transloading/deconsolidation, warehousing and distribution services in the U.S. Early this year it bought American Overseas Air Freight, an international freight forwarder. Schneider Logistics-Asia is headquartered in Shanghai. Schneider Logistics-Europe is based in The Netherlands and has a service center in the Czech Republic.

Penske Logistics operates some 12,000 dedicated fleet vehicles and 300 logistics centers throughout North America, South America and Europe. It recently formed a strategic alliance with ABX Logistics to provide integrated, global supply chain solutions for multinational corporations. ABX, based in Brussels, is a major sea and air freight forwarder and one of the top 10 freight transporters in Europe.

Ryder System expanded to the U.K. 35 years ago, starting with 250 rental trucks. Now it has 15,800 vehicles in Europe, operating out of 27 fleet management locations and 34 logistics centers. Several years ago it bought Singapore-based Ascent Logistics and formed Ryder-Ascent Logistics as the headquarters of its Asia/Pacific operations. Ryder also has operations in Latin America.

Con-way subsidiary Menlo Worldwide manages logistics activities in North America, Europe and Asia with dedicated facilities in 20 countries. It recently signed a contract to provide warehousing and fulfillment services for Siemens Ltd.'s Communications Group in Australia (Menlo has a similar program for Siemens in Texas). Con-way Freight and APL Logistics, a unit of Singapore-based Neptune Orient Lines, have a joint program offering rapid delivery LCL (less-than-container load) shipments from China to the U.S.

YRC Worldwide's Meridian IQ wasn't on last year's top 25 list, but is a global player with obvious growth plans. It has offices and facilities in North America, South America, Asia and Europe. Last year it bought Shanghai-based GPS Logistics and it has two joint ventures with Jin Jiang Investment, including a stake in JHJ, a Chinese freight-forwarding company.

Werner Enterprises stepped into the global arena this summer with the formation of Werner Global Logistics, an operating company within its VAS brokerage network. The company opened an office in Shanghai and is looking at other locations in Asia. Through a combination of company-owned assets and strategic alliances, Werner will offer an extensive menu of services in China, including site selection analysis, full container load (FCL) consolidation and warehousing, plus door-to-door freight forwarding and customs brokerage.

PORT CONGESTION: JUST ONE PIECE OF THE INFRASTRUCTURE PUZZLE

The growth of international trade continues to put pressure on congested U.S. ports. It has also renewed calls for integrated infrastructure planning that considers all modes of transportation.

"The transportation system in this country is a system, it's not an independent network." says Doug Duncan, president of FedEx Freight. "It's easy for us, as a trucking company, to just talk about highways; but I think that's a very short-sighted view. Transportation has to be viewed as a multimodal network if we want to do it in the most efficient way. If we let the railroads throw money at the rails, let the trucking companies throw money at the highways, and let the ports throw money at port construction, you won't get the most out of the dollars spent and won't address growing congestion."

"The key to optimizing scarce transportation capital (both public and private sector) is to take a comprehensive view of the big picture of all the transportation modes and use all of the modal assets and funding sources available in the most cost-effective and service-efficient way," says George Woodward, a transportation consultant and president of the University of Denver's Intermodal Transportation Institute.

Woodward also notes that one of the first steps toward modal flexible funding is to understand each mode's strengths – an objective of the institute's executive masters program for transportation managers.

"More education and public policy visibility is needed so that policy makers understand that the transportation modal silos of today's public and private transportation sectors and dedicated funding sources will not serve America well in the future."

"Transportation is dry toast to a lot of people," he says. "It's not highly visible. There isn't really a whole lot being done on transportation infrastructure issues and there's a crisis looming. There's enough data out there that says we really have a problem, but it's hard to get people fired up about it."