The themes within

The themes within

Ask nearly 200 top executives what they see as the major changes and challenges for their industry, and it's unlikely that anything less than a comprehensive and insightful barometer of boardroom sentiment will emerge. Such is most certainly the case in our annual year-end canvassing of executive level perspective in international trade and transportation. The comments make for good reading and are revealing in many ways. Without beating around the bush, here are some of the major themes that emerge this year:

Security: There was no way, so soon after the world was unalterably changed on Sept. 11, 2001, that security could not be a central issue of concern for this community. But dig deeper and it becomes clear why security remains such a dominant issue at the beginning of 2004. It's because security still remains largely an unknown for many companies in this sector. Executives understand in theory that security will play a central role in their operations for years to come. But exactly how, they don't know.

Dominic Taddeo of the Montreal Port Authority sees security as a "similar turning point" to that of the introduction of containerization in the 1950s. Yet the continuing lack of clear direction from the government, and the obvious security weaknesses that remain in the international supply chain, give many executives cause for concern.

"Efforts by the Bureau of Customs and Border Protection to screen cargo at origin are clearly a step in the right direction, but gaps remain," writes James Devine, president and chief executive of Howland Hook Container Terminal, soon to be renamed New York Container Terminal. One such gap is the screening of cargo at the origin - the location where the container is loaded. "This point in the security supply chain holds the greatest promise and potential for improvement," writes Thomas Thune Andersen, president and chief executive of Maersk Inc.

Congestion: Aside from security, congestion is emerging as the biggest issue facing the international trade sector. The nation is undergoing an economic transformation with the shift of manufacturing to Asia, yet it is clear from many statements that the transportation system is not adapting fast enough in response. Worse yet, the response from policymakers has been mostly in the form of state legislation appeasing local communities upset by pollution and highway congestion, rather than a coordinated, proactive and national response. What has heretofore been an "industry" issue is assuming national proportions with economic consequences.

"Right now, ports, railroads and roads on both the East and West coasts of the U.S. are struggling to cope with current volumes, let alone the more than 30 percent year-on-year growth forecast in volumes from China," writes Ron Widdows, chief executive of container line APL Ltd. "Congress appears to be slow in recognizing the urgency of the situation."

One emerging solution is the embrace of so-called public-private partnerships such as the Alameda Corridor in Southern California and the $1.5 billion upgrade to rail infrastructure in Chicago announced last summer.

Such projects are receiving more serious consideration in and out of Washington in part driven by what independent rail analyst Tony Hatch says is a long-term shift in intermodal traffic to railroads.

"The public benefits (of public-private partnerships) will be measured in the billions of dollars," writes Edward R. Hamberger, president and chief executive of the Association of American Railroads.

Too big too fast? A number of executives believe the industry's response to the growth in ocean container trade has been uneven. The point is made more than once in these comments that it makes no sense to build ships of 8,000- to 10,000-TEU capacities if the landside infrastructure doesn't operate on a similar scale. This is a central thesis in a terrific essay written by Booz Allen Hamilton consultant Steven Petracek beginning on Page 20. But others chime in as well. "While vessel cost per TEU may still be declining, the total point-to-point cost may indeed be increasing," and the level of service declining, writes George Hayashi, chairman, president and chief executive of MOL (America) Inc.

An economy on the mend. The importance of the recovery, which many are convinced is genuine, is not merely better business opportunities for all concerned. A rebound, especially an unexpected and dramatic one, can have tangible and sometimes disruptive effects on the supply chain. The turn of a business cycle from negative or neutral to positive usually prompts short term modal shifts as companies rush goods to market by switching from water to air or otherwise from slower to faster modes.

That is likely to happen in 2004, predicts Edward Wolfe, senior managing director of Bear Stearns & Co. "We would expect to see some products move back to truckload from intermodal and back to airfreight from ocean freight as shippers focus not just on price, but also on getting product back to the marketplace," he writes.

But Wolfe and others including Ted Scherck of Colography Group believe the underlying long term trend toward lower-cost freight transportation options - the trend that has undermined the domestic airfreight industry - will not change.

"The migration to economical surface transportation services will continue as businesses strive to get maximum mileage out of their transportation dollars," Scherck writes. Another impact will be on trucking, where some see a pinch in capacity in 2004.

"The strong economy will be met with the 'perfect storm' in the trucking industry of high insurance rates, high fuel costs, a driver shortage and hours-of-service rules," writes Bob Voltmann of the Transportation Intermediaries Association.

A new regulatory order? John Fossey of Drewry Shipping Consultants, always an insightful observer of liner shipping, believes the end of antitrust immunity is in sight. The push toward final deregulation of liner shipping is under way in Europe and will be followed in the U.S., Australia, Canada and Japan, he believes.

"This would create a fully deregulated international liner industry and lead to short-term instability in freight rates as carriers price their services mainly in the interests of maintaining market share," Fossey writes. It would ultimately lead to further consolidation. In the U.S. the central regulatory question is whether the Federal Maritime Commission will grant UPS and other large non-vessel-operating common carriers the right to sign confidential contracts, or decline and probably let Congress decide the issue. UPS has argued that times have changed since the 1998 Ocean Shipping Reform Act was passed, when global logistics companies didn't really exist. Does FMC chairman Steven Blust agree? Interestingly, he writes, "Regulation must provide certainty and structure, but cannot be permitted to stagnate when the trade continues to evolve."

Visibility: Year in, year out, "visibility" of cargo for logistics providers and shippers achieved through information systems is a subject for discussion in this issue. But this year there seems to be new energy and vitality surrounding the concept. It's partly driven by security; since information in electronic form is at the heart of the government's targeting strategy, the concept has received a huge underlying, if intangible boost.

Practically there are opportunities, such as downstream re-use of data originally entered into the Automated Manifest System pursuant to the 24-hour advanced manifest rule, as suggested by Andrew Bullen of IES. But there is evidence that beyond that, visibility is maturing as a tool in international logistics. The Internet is allowing more parties in the supply chain to inexpensively input and access information.

Visibility will grow even more powerful over time as technologies like radio-frequency identification (RFID) come into wider use and allow for more detailed product and status information to be put in electronic form.

Peter Tirschwell is editor of JoC Week. He can be reached at (973) 848-7158, or via e-mail at ptirschwell@joc.com.