Click here to view the PDF version.

TRENDS IN TRANSPORTATION MANGEMENT
Acquisition of Clarke Logistics enhances PBB capabilities

Today’s shipper is looking increasingly to third party transportation management providers to handle the complexities of moving freight across the continent and outsourcing multiple functions such as scheduling, routing, carrier selection and tracking. Such providers are proving highly effective in managing long-distance shipments on behalf of customers, often implementing an ideal intermodal mix that combines expeditious truck transportation with cost-efficient rail transportation.

   A third party transportation management provider typically extends its broad network of carriers to the advantage of its customers. This, combined with volume-buying power, is key to obtaining cost-effective rates, while ensuring top-notch delivery performance. By comparison, shippers who are used to dealing directly with only a handful of carriers report facing recent availability and cost challenges as their traditional suppliers are forced to cope with ever-rising diesel costs, higher insurance premiums, driver shortages and traffic-related delays at key border points.

Businesses often outsource their transportation management needs to access logistics technologies that they do not already have in-house. This is increasingly important in today’s Just-in-Time world. Furthermore, cross-border shippers are also facing new customs and supply chain security regulations, such as advance notification, which necessitate real time data transmission capabilities.

PBB Global Logistics’ acquisition of Clarke Logistics capitalizes on these emerging transportation management trends and positions the company as a leading force in cross-border North American logistics.

“This is a very substantial and important acquisition for PBB,” says Mike Scott, President & CEO, PBB Global Logistics. “It expands our service offering, enlarges our network of locations and enhances our logistics resources, particularly by adding intermodal service to our North American Transportation capabilities.”

In addition to introducing key rail and intermodal capabilities to PBB’s service offering, the acquisition triples its North American Transportation volumes. The service offers highly flexible door-to-door FTL and LTL transport throughout the continent, while ensuring cost effectiveness, shipment visibility and customer service. It also provides transportation management for customers in almost all sectors of the economy, including those with stringent temperature-controlled requirements such as food and beverage.

“With Clarke Logistics, we are extending PBB’s leadership in cross-border logistics,” says Mr. Scott. “From trade planning to transportation, from customs clearance to warehousing, PBB has the expertise and ability to plan and execute integrated supply chain solutions that are customized to our clients’ needs.”

Clarke Logistics manages the movement of clients’ freight through rail, highway and intermodal transport between Canada, the United States and Mexico, as well as domestically in Canada and the United States. It is one of the largest intermodal transportation management providers in North America, handling freight for over 2,200 customers through a supplier network that includes in excess of 650 trucking carriers and all of North America’s major railroads.

Its 130 employees brings PBB’s total workforce to 1,100 and adds 14 locations to its North American network. This includes major operations in Chicago, Philadelphia and Memphis, key U.S. logistics hubs, as well as in Mexico with two locations. With these additions, PBB’s network of offices grows to 85 locations in North America and China.

“Clarke Logistics is excited to be joining forces with PBB,” says Doug Payne, President, Clarke Logistics. The acquisition brings considerable synergies to Clarke Logistics’ operations. PBB’s customs brokerage and distribution expertise represent an opportunity for customers to generate efficiencies through an integrated northbound and southbound supply chain. PBB also offers significant global logistics capabilities to Clarke Logistics’ customers, especially in the burgeoning China-North America trade lane.

CAN OUR PORTS KEEP UP?
Growing volumes and security rules add to congestion 

Ocean cargo is the backbone of the global economy, dwarfing airfreight and surface transportation as a method of getting goods from one continent to another. It is not surprising then that North America’s ports are experiencing the biggest capacity-related strain, driven by growing volumes from China and Southeast Asia.

The rising tide of trade: The U.S. Maritime Administration reports that ocean-bound imports and exports are up 11 percent for the year, suggesting that global trade is now solidly back on track. Nowhere is this more evident than at ports along the West Coast, where 60 percent of imports originate from China alone.

International trade shows little sign of subsiding. According to the National Chamber Foundation, a think tank affiliated with the U.S. Chamber of Commerce, every major U.S. container port is expected to at least double its volumes by 2020. Some West Coast ports are even projected to quadruple in volume.

To deal with capacity issues, U.S. ports are already spending over $3 billion annually on infrastructure improvements. But is it enough? Acquiring post-Panamax capabilities (accommodating vessels able to carry more than 13 containers abreast) is an important aspect in the capital plans of many ports, but it is an expensive proposition to purchase the necessary cranes, to dredge channels and to deepen piers.

In the meantime, congestion at ports is growing. Los Angeles and Long Beach have been recently taking twice as long as before to turn vessels around. At one point this past summer, intermodal containers unloaded at Vancouver were reportedly being delayed up to 20 days due to a shortage of equipment. North America’s ports are not alone: Europe’s Rotterdam and Antwerp ports have also been bursting at the seams as of late.

Security Strains: Compounding increased ocean freight volumes is the issue of port security. Ports have been dealing with advance notification requirements for nearly two years under the Container Security Initiative. And in that time, the frequency of customs examinations of containers has more than doubled, reducing turnaround times accordingly.

This past July, new International Maritime Organization security measures became mandatory for ports around the world. Under the standards set by the new International Ship and Port Facility Security (ISPS) code, ships and port facilities must demonstrate that they are implementing proper risk management procedures to protect against potential terrorist threats. Over 90 percent of participants have approved security plans in place, suggesting that compliance with the ISPS code has generally been good.

Security improvements, however, can be costly. The estimated cost associated with port security in the U.S. over the next decade ranges from $4.5 billion to $7.4 billion. Port authorities calling on federal funding of $400 million per year to fulfill security mandates are finding themselves well short of their target. In the administration’s 2005 budget presented to Congress, only $46 million is dedicated to helping ports. The Canadian government, for its part, has allocated $115 million over three years for port security enhancements.

To the extent that North American ports are forced to bear the costs of security, the impact will be felt in two ways. First, money that may otherwise have been dedicated to infrastructure improvements may be spent on security, which does not bode well for fixing congestion problems in the long run. Second, the cost of security may be passed onto shippers in the form of higher rates and surcharges.

One thing is certain: continued trade growth – and the prosperity it brings to North America – will require ongoing investments in port infrastructure as well as the cooperation of all parties (port authorities, carriers, shippers and government) in implementing the necessary security initiatives.

READY TO REPORT? AECI FOR AIR, RAIL AND TRUCK BEGINS 

Advance Electronic Cargo Information (AECI) is no longer an exclusive concern of ocean shippers. When mandatory cargo reporting came into effect earlier this year, Customs and Border Protection (CBP) extended a temporary reprieve for the air, rail and truck modes of transport to give both Customs and the industry time to prepare.

Rail cargo reporting – two hours prior to arrival at the border – was the first of the three to be implemented, effective July 12. Advance notification for air cargo followed soon thereafter, beginning August 13 for airports in 18 eastern states. The rule is now set to expand geographically to cover 20 central states on October 13, followed by the western states on December 13.

Advance notice requirements for air cargo depend on the length of any given flight. If the cargo originates in the Americas north of the Equator, cargo data must be submitted at “wheels up”. Otherwise, the data is required four hours prior to arrival. Filing is typically done through CBP’s Automated Manifest System (AMS), and many airlines have introduced fees to process any shipment data that is received manually.

AECI implementation for road transportation is expected in the near future, as early as November 15, and is being phased in at highway ports. No doubt this will have the most profound effect of all the modes, especially given the delays at many border crossings in recent months.

CBP will require truckers to use the Pre-Arrival Processing System (“PAPS”), although as a temporary accommodation it will allow shippers to continue using the Border Release Advanced Screening and Selectivity (BRASS) program if they are a frequent importer (tentatively defined as 50 entries per year) and use a carrier with a FAST-approved driver.

As CBP gears up for truck AECI, it has already introduced some related regulations. Since October 1, Customs has required 100% HS classification to 10 digits for all goods entering the United States. New ultimate consignee rules also went into effect on that date, preventing shipments without the required ultimate consignee identification from entering the U.S. Depending on the type of entry, this normally involves listing the name and address of the ultimate consignee, and possibly its Internal Revenue Service (IRS) employer identification number (EIN) or social security number (SSN).

FREIGHT ALLIANCE PROVIDES ACCESS TO GLOBAL MARKETS

In the increasingly complex world of international trade, global shippers are relying on the expertise of their logistics partners to handle the complexities of global shipping. In this environment, logistics companies often look to freight forwarding networks as a way to offer seamless international freight services.

Networks and alliances offer global logistics capabilities which some shippers mistakenly assume are strictly the domain of multinational freight organizations. In fact, networks have an advantage of being more flexible than multi-nationals, while guaranteeing a solid and reliable presence in each region of operation. “It’s ‘think global, act local’,” says Mike Scott, President & CEO, PBB Global Logistics. “With a network, you can have the standardization and cohesiveness of a multinational with the localized cultural and geopolitical knowledge of a domestic company.”

Partnerships are not new in global logistics. PBB itself has a long history with freight networks, and recently joined the World Freight Alliance (WFA). The company will serve as a North American partner, and the sole Canadian representative in the alliance, joining with other world class organizations to offer global freight coverage. The WFA is an organization of freight forwarders with established operations in over 200 countries. Members represent the very best in freight and logistics in their respective countries, with only one representative from each country around the globe.

As globalization continues to be a fact of life in the day-to-day operations of many companies, access to a reliable, flexible global logistics provider is becoming increasingly important. Networks such as the WFA offer significant advantages to global traders including substantial buying power, integrated information technology systems and flexibility in scope and coverage.

EXPANSION: BEST BUY CANADA EMBRACES SUPPLY CHAIN SOLUTIONS

An efficient supply chain is essential in the highly-competitive retail industry, but too often retailers focus exclusively on the logistics dedicated to their merchandise while ignoring other key supply chain areas. One innovative retailer who looks beyond merchandise and takes its entire supply chain very seriously is Best Buy Canada.

Best Buy is North America’s number one specialty retailer of consumer electronics, personal computers and entertainment software. The retail giant brings consumers a new and unique shopping experience that focuses on fun, interactivity and no-pressure browsing.

Since 1996, PBB has been a valued partner of Future Shop, which was acquired by Best Buy Canada Ltd. (BBYC) in 2001. Since that time, PBB has been helping both retailers expand across Canada.

PBB works with the company’s Display Management and Field Services Division in coordinating the movement of in-store displays, fixtures and hardware from BBYC vendors throughout Canada and the U.S. to Future Shop and Best Buy Canada stores or designated consolidation points. This involves complete end-to-end supply chain solutions including North American Transportation, Customs Brokerage and Warehousing & Distribution.

In the last year alone, PBB has managed 8,000 shipments, contributing to 19 store openings and relocations, and supporting over 100 existing stores.

By partnering with PBB, Best Buy Canada realizes efficiencies, cuts costs and achieves a faster supply chain. This is no small feat considering that its suppliers must follow strict guidelines and meet measurable pricing, service, experience and infrastructure criteria. An on-site account manager liaises between BBYC and PBB’s offices to optimize efficiencies and to ensure that all quality standards are met.

Key to the supply chain are two specialized Web sites developed by PBB to allow online ordering of fixtures by Best Buy Canada and Future Shop store personnel. Orders are received and fulfilled directly from PBB warehouses while confirmation is sent back to the store location. The Web sites also offer detailed tracking and tracing capabilities so that stores can follow their shipment from the time it leaves the warehouse until it arrives on site. The benefits for Best Buy Canada have been faster speed to market and highly accurate inventory data.

Every month, Web site activity is reviewed, along with key metrics relating to transportation, thereby streamlining Best Buy Canada’s supply chain. In addition, the BBYC Store Development Department and PBB team meet twice a year to review past achievements and set new SMART (Specific, Measurable, Achievable, Relevant, Time-bound) goals for the next six months. The result of these enhancements has been improved consistency in operations.

" We value our partnership with PBB and look to them as a vital part of the Display Management group,” says Dennis Silva, Senior Manager of Display Management and Field Services of Best Buy Canada Ltd. “Part of the reason we first selected PBB was because we felt they had the ability to grow with us and we have not been disappointed. Whether it’s a new store opening or renovations, we have come to rely on their expertise.”

For its contribution, PBB was named last year’s “Outstanding Vendor of the Year” in BBYC’s Display Management category. The award was in recognition of PBB’s 98 percent shipment accuracy and its record of exceeding delivery expectations by 1.5 days.

“PBB has always been committed to providing innovative solutions and excellent customer service to our clients,” says Mike Scott, President & CEO, PBB Global Logistics. “Our longstanding partnership with Best Buy Canada, and their faith in us, is a true testament to the commitment to quality that has been at the forefront of everything we do, allowing us to meet and exceed our customers’ goals.”

THE ABC'S OF HS END

With new Mandatory Harmonized System (HS) Code regulations now in place in Canada, importers must provide the full 10-digit HS codes for at least five items on a customs invoice. The intent of mandatory HS is to improve customs targeting in an effort to stop contraband goods and intercept security threats from entering the country.

The proper HS assessment also provides Statistics Canada with critical trade data and thus must be correct to the 10 digit level. In fact, the last two digits of the full 10-digit code have no impact on duty rates: they are simply there for statistical purposes to help guide public policy and assist business with market data.

The Harmonized System itself is an international classification system developed by the World Customs Organization. The system is used by more than 190 countries around the world and over 98 percent of international trade is classified in terms using the HS. Participant countries have standardized their national tariffs to the first six digits, and many use the remaining four digits for special purposes.

What the digits mean for an Empire Apple:

SUPPLY CHAIN SECURITY: BY THE NUMBERS

CSI-approved ports:   26

Containers entering U.S. ports daily:   25,000

Percentage of containers searched     by U.S. Customs, 2001:   2%

Percentage of containers searched today:   5%

Port compliance rate of new ISPS rules,     July 1, 2004 (when rules came into effect):   69%

Port compliance rate on July 27, 2004:   90%

FDA Prior Notices submitted daily:   20,000

Percentage of U.S. imports affected by     new FDA Bioterrorism rules:   20%

Number of facilities requiring FDA     registration:   400,000

Number registered, six months     after rules went into effect:   202,024

C-TPAT participants (U.S.):   7,000

PIP participants (Canada):   740

FAST-approved importers (Canada):   12

FAST-approved carriers (Canada):   301

FAST-approved drivers (Canada):   29,000

Cost of a new VACIS gamma ray     mobile scanning machine:   C$2 million

SABANES-OXLEY AND INTERNATIONAL TRADE  

CEOs and CFOs are coming to grips with the strict reporting requirements of the Sarbanes-Oxley Act. And they are finding the scope of the Act goes well beyond authentication of their company’s balance sheet. It is forcing businesses to take a hard look at all kinds of internal practices, including import and export processes, which previously may not have been on the boardroom radar screen.

The U.S. Congress passed the Sarbanes-Oxley Act in 2002 to protect shareholders in today’s post-Enron environment by increasing the transparency of financial reporting.

Section 404 of the Act is key. Annual reports must now include a statement outlining management’s responsibility for establishing internal controls, as well as providing an assessment of the effectiveness of existing controls. These measures are designed to build investor confidence in the reliability of a company’s financial reporting structure and protect investors against hidden potential liabilities or risks.

Likewise, the various provincial securities commissions in Canada are implementing similar rules, meaning that corporations on both sides of the border are dealing with the same kinds of challenges.

So what do these governance rules have to do with the prudent conduct of a company’s import and export practices? Plenty, depending on the extent that a company is exposed to risks that could potentially threaten shareholder value. The many trade regulations facing businesses today, and their associated penalties, are the source of considerable risk that could harm the bottom line, and a company’s share price.

A real-life example recently occurred when shares in a major watch manufacturer lost 4 percent of their value after whistleblowers alleged that the company evaded up to $180 million in taxes and customs duties by manipulating inter-company prices.

Other scenarios are easy to fathom. A defense contractor could risk its valuable government contracts if found to have inadvertently exported technology or controlled goods to prohibited countries. Or a consumer goods manufacturer could experience significant brand name damage due to negative publicity surrounding a drug seizure or terrorist threat stemming from one of its containers.

Complying with Sarbanes-Oxley requires effective internal controls, demonstrating that a company is compliant with customs regulations and other laws governing international trade.

Sarbanes-Oxley gives even more teeth to the U.S. Customs Modernization (Mod) Act, which shifted the onus of compliance from Customs to the trader. It emphasizes the importance of traders taking and showing “reasonable care”. Among the measures that a company can employ to demonstrate reasonable care is consulting with an expert – whether a lawyer, accountant, customs broker or trade specialist. If reasonable care is key to complying with the Mod Act, it stands to reason that it also promotes compliance with Sarbanes-Oxley.

Similarly, participation in Customs & Border Protection’s (CBP) Importer Self Assessment (ISA) program can be an important step in certifying that a business’ trade compliance controls are in order. ISA requires participation in the Customs-Trade Partnership Against Terrorism program. Furthermore, to be approved, companies must show that their system of business records ensures accuracy in its customs transactions.

The bottom line is that senior management must ensure that all international trade and supply chain functions are integrated into a company’s overall internal control and reporting processes. It means that compliance with trade regulations needs executive level attention. In essence, what used to be simply seen as good management practice is now the law in North America.

CROSSDOCKING TO CROSS THE BORDER

There is a valuable service that third party distribution centers can provide that does not even involve warehousing. The concept of crossdocking is simple: goods are received by a truck, are sorted on the dock and then shipped out on another truck. Typically pallets are organized upon receipt according to their destination and are often consolidated with other shipments going to the same place.

Using crossdocking methods, companies can reduce both the cost and time involved in transporting goods, without having to incur inventory and storage costs. Crossdocking can also fit in perfectly with transborder supply chains. There are considerable efficiencies to be realized by consolidating shipments into truckloads and clearing customs in a single instance.

However, execution of a strategy, whether domestic or crossborder, is not always straightforward. “Implementing a successful crossdocking system requires careful planning and conscientious day-to-day supervision,” says Ron Mazurek, Director, Distribution Development, PBB Global Logistics. “Supply chain management technology is a highly-effective tool for both planning and operations.”

Crossdocking relies heavily upon predictable production and shipping schedules and is most effective when large volumes of freight are involved. JIT manufacturers are naturally suited because their production methods are geared to such conditions. Large retailers needing to stock stores throughout a large geographic area are also turning to crossdocking. Manufacturers, however, who are accustomed to maintaining significant levels of inventory may find it difficult to rely on crossdocking to service their customers. They also potentially face the expense associated with equipment delays and unused capacity.

In addition to production planning, a good crossdocking strategy requires careful consideration of physical infrastructure and technology. Not surprisingly, third party logistics providers can be an important resource for both requirements. For example, PBB’s distribution facilities are specially equipped to handle crossdocking and are located in major logistics hubs throughout North America, providing excellent market coverage.

“While crossdocking can reduce the need for storage and picking, it will increase docking space requirements, equipment needs and human resources devoted to shipping and receiving,” says Mr. Mazurek.

The role of technology cannot be overlooked. Warehousing Management Systems (WMS), bar coding (ideally with radio frequency), and EDI/Internet connectivity are all essential to keeping track of the location, timing and destination of all shipments within the crossdocking operation. And because of the JIT nature of crossdocking, real time information is an absolute must: communication between all partners in the supply chain – shipper, crossdocker and carriers – is facilitated immensely by real time technology.

When sourcing potential crossdocking partners, make sure to carefully research the capabilities, infrastructure, technology and network that each can offer. Providers with integrated solutions are particularly well positioned to deliver cost-effective, service-oriented crossdocking. Furthermore, customs clearance and trade expertise can be very useful when planning a crossborder crossdocking strategy.

In recent years, crossdocking has been increasing in popularity thanks to the bottom line benefits of efficient distribution and lower transportation costs. As Just-in-Time production systems grow deeper and deeper roots in North American manufacturing, the crossdocking trend is certain to continue.