IWLQ0305 by Catharine Snell

Keys to Customer Integration - page 15

3PLExecutive FALL 2005

The

THE OFFICIAL PUBLICATION OF THE INTERNATIONAL WAREHOUSE LOGISTICS ASSOCIATION • www.iwla.com

IWLA Membership Your Competitive Advantage

Mega-Trends CHANGING THE INDUSTRY

Developing

Customs Competencies

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Contents Fe a t u re s 6

IWLA’s Marketing Toolkit: A Guided Tour by Jamie Wagner

Sept. 15

ELC Leadership Series Discussion Call

Oct. 2-7

* The Essentials Course Chicago

Oct. 20

IWLA Membership: Your Competitive Advantage by Joel R. Hoiland

I W L A Ed u c a t i o n & Tr a i n i n g S c h e d u l e

Play Your Position! What 3PLs Can Learn From Youth Soccer

Nov. 3-4

* Safety & Risk Conference Chicago

Feb. 16-17 2006

* Costs, Rates, RFP Responses Orlando

March 19

* Business Conference The Wynn Las Vegas Luxury Resort Las Vegas

March 19-23

* 115th Annual Convention The Wynn Las Vegas Luxury Resort Las Vegas

by Jim Bierfeldt

External Factors Key To Improving 3PL Service Performance by Diane Mollenkopf, Ph.D., and Howard Forman, Ph.D.

Logistics 2005: Assessing Seven Mega-Trends Changing the Industry by Benjamin Gordon

The Case For Building A New Customs Competency by Joel Webber

Make Your Real Estate Work For You by Margaret Susanne Guzek and Elise A. Couston

The Alternative Insurance Market: Why A Captive Insurer Might Make Sense For You by Michael Lopeman

De p a r t m e n t s 3 4 5 26

IWLA Education & Training Schedule Letter from the Board Legislative News Buyers’ Guide & Trade List

ELC Leadership Series Discussion Call

* Qualifies toward completion of IWLA’s prestigious Certified Logistics Professional (CLP) designation.

The 3PL Executive is published four times a year for the International Warehouse Logistics Association 2800 River Road, Suite 260 Chicago (Des Plaines), Illinois 60018 847-813-4699, fax 847-813-0115 www.iwla.com by Naylor Publications, Inc. 100 Sutherland Avenue Winnipeg, Manitoba R2W 3C7 800-665-2456, 204-947-0222 fax 204-947-2047 www.naylor.com Publisher Kathleen Gardner Editor Leslee Masters Senior Sales Manager Allen Reimer Sales Manager Steve Urias Publication Director Kim Davies Advertising Sales Robert Bartmanovich, Jeff Bunkin, Bert Eastman, Jim Ebling, Shayne Froelich, John O’Neill, Tara Sawatsky, Dawn Stokes, Chris Zabel Research Allie Hansen Advertising Art Lesley Helash Layout & Design Catharine Snell No part of this publication may be reproduced without permission of the publisher. Opinions expressed in this publication may or may not reflect the views of the Association and do not necessarily represent official positions or policies of the Association or its members. The association does not guarantee or endorse, unless expressly stated, any advertised product or service. The 3PL Executive staff works diligently to produce factually correct, error-free copy, but does not accept liability for printer or clerical mistakes. Appropriate retractions or corrections will be made upon proper written notice by readers. Published September 2005/IWL-Q0305/4120

THE 3PL EXECUTIVE

L e t t e r f ro m t h e B o a rd

IWLA Membership:

Building Relationships that Last a Lifetime

It became clear to me early on that the more involved I became in the Association, the more I would get back through networking and education.

s an IWLA board member and participant in the Association’s Membership Committee, colleagues often ask me why they should belong to the International Warehouse Logistics Association. It always causes me to think back to the early years of my own career in warehousing. I started out in this business lumping boxcars in 1973 for Acme Distribution in Denver. Through the mentoring and encouragement of Jack Grunwald, Acme’s owner, I became more involved in all aspects of the business. During that time, I also became involved in the American Warehouse Association, now the IWLA, and discovered a terrific group of people in the industry willing to mentor me as I grew and learned the business. Another mentor I met through IWLA was Joseph “Uncle Joe” Rutzky, president of Couzens Warehouse and then LaGrou Distribution. He is the most encouraging and helpful person that I know, and he helped me and so many others learn the warehouse business because he loved it so. His enthusiasm infected me, and kindled an interest in the warehouse business that still excites me to this day. It became clear to me early on that the more involved I became in the Association, the more I would get back through networking and education. I am appreciative of the IWLA members and what they have done for me…and what I can do for them in return. Likewise, it is very exciting for me to see my son Jeremy becoming involved in IWLA and establishing his own contacts, friends and mentors in the industry. There is no better place to grow, learn and network, and I hope he develops the lifelong friendships that I have through the Association. For me, warehousing is not just a job, it is an opportunity. I was able to go from lumping boxcars to owning my own company. PRISM Team Services celebrated its 12th year in business June 19, and I am getting more help today from IWLA members than ever before. The networking IWLA provides helped build that opportunity and business for our family, and for that I am grateful. The more you get involved, the more you will gain; together we can achieve great things! Jere Van Puffelen President of PRISM Team Services

FALL 2005

2 0 0 5 I W L A St a f f and Leadership

L e g i s l a t i ve Ne w s

ELECTED LEADERSHIP Chairman Robert R. Auray, Jr., CLP, AFH Logistics Solutions President & CEO Joel R. Hoiland, CAE Vice Chairman David Petitt, CLP, American Distribution Centers Secretary/Treasurer John Zevalkink, CLP, Columbian Logistics Network Immediate Past Chairman Anthony Becker, CLP, Port Jersey Logistics DIRECTORS

U.S. DoD Looks to Streamline Supply Chain by Patrick O’Connor

Bob Moran, CLP, Amware Logistics

oday, thousands of shippers serving the U.S. Department of Defense (DoD) in the continental U.S. initiate freight movements using commercial transportation providers to thousands of destinations. Multiple information systems are employed to execute and manage shipment activity with no centralized planning, coordination or control. As a result, DoD shippers act unilaterally by independently selecting mode, level of service and transportation provider. There is limited collaboration or coordination of movement. This is expected to change shortly with DoD’s recent introduction of the Defense Transportation Coordination Initiative (DTCI), a topic that has begun to generate much debate in the logistics community.

Richard Murphy, Jr., Murphy Warehouse Co.

Details

Bruce Abels, Saddle Creek Corp. John C. Auger, CLP, Brook Warehousing Systems Ben Gordon, BG Strategic Advisors Tommy Grimes, CLP, Grimes Logistics Linda C. Hotham, PACAM Group Tommy Hodges, Goggins Warehouse Co. Kent Hunter, J.D. Smith & Sons John Kelly, CALYX Transportation Group Jock Menzies, The Terminal Corp.

Jere Van Puffelen, Prism Team Service Doug Sibila, Peoples Services STAFF Joel R. Hoiland, CAE President & CEO Alex C. Glann Vice President & COO James “Jamie” Wagner Director of Marketing & Communications Nathan Noy Director of Legal & Regulatory Affairs Linda Wood Director of Education Scott Brewster Director of Member Services Karen Cioni Director of Operations Charles Schmidt Consulting Director of Media Relations Faith Ramey Member Services Coordinator Mandy Kalish Administrative Coordinator Barbara Glann Receptionist Rocio Lemke Administrative Assistant

THE 3PL EXECUTIVE

DTCI is a distribution initiative aimed at transforming DOD’s logistics services. It is part of the Under Secretary of Defense for Acquisition, Technology and Logistics’ goal to integrate logistics and make it more efficient. The premise is that DoD will increase operational effectiveness by reducing cycle times and improving predictability through the use of more dedicated truck schedules and cross docking operations. It also will generate efficiencies through best business practices such as increased consolidations and mode conversions. The DTCI coordinator would have the visibility of freight movement requirements across the continental U.S. and access to a network of transportation providers to schedule and fulfill those requirements. The initiative’s goal is a holistic program that leverages current commercial capabilities and proven best practices. It ultimately could include all freight movements in the continental U.S., all modes and all DoD shippers. The system will be phased in beginning with a minimum of 19 Defense Logistics Agency distribution centers across the country. What Comes Next?

DoD is interested in establishing a partnership with industry to ensure a smooth and effective transition to the DTCI, and a series of communication channels have been established, including meetings and the DTCI Web site www.acq.osd.mil/log/dtci. Members of IWLA that currently do business with DoD or are considering doing so are greatly encouraged to take part in the DTCI process. For more information, contact IWLA’s Director of Government and Legal Services Nathan Noy at nnoy@iwla.com. 5

IWLA Membership: by Joel R. Hoiland, CAE IWLA President and CEO

n today’s highly competitive business environment 3PLs promote their services as adding a competitive advantage to potential customers. And the facts are indisputable that a well-managed supply chain can reap benefits in the form of cost savings and improved efficiencies. But 3PLs themselves also have a valuable business partner that gives them an important competitive advantage: IWLA – The International Warehouse Logistics Association. IWLA is the only association dedicated to promoting and expanding the 3PL industry. It also offers members a wide variety of resources to improve their operations and get a leg up on logistics firms that don’t have access to all the Association offers. IWLA was formed by 3PL executives and is guided by those dedicated to advancing third-party warehousing and logistics providers. Its programs and services are tailored to meet these companies’ specialized needs. Here’s a sample: 1. Government Watch Dog – IWLA alerts members to actions that can impact their operations. The Association’s legal and government affairs staff stand ready to support any concern or crisis that may arise. 2. Market Visibility – In today’s marketplace, you can use all the visibility you can get. For no additional cost, IWLA members are listed on www.iwla.com, in our annual 3PL Buyer’s Guide & Directory and our electronic search engine Logistics Services Locator (constantly revised and improved). 3. Networking and Connections – The Annual Convention, regional meetings and special interest groups provide excellent venues to meet with peers and discuss key issues facing the 3PL industry. 4. Customer Credibility – When customers size up prospective providers they often ask if the company is involved in the industry trade association. If the answer is no, it may raise red flags. Is the provider committed to learning, improving and maintaining best of class in the industry or profession? A cus6

tomer’s selection criterion frequently comes down to intangibles. All things being equal….don’t let the small stuff derail your sales efforts. IWLA was formed by 3PL executives and is guided by those dedicated to advancing third-party warehousing and logistics providers. 5. Business Opportunities – The most successful companies in this industry are IWLA members! That says something. Join your peers to collaborate, partner and build your business. Use the tools available from IWLA to strengthen your operation and position it for success. New in June was the Marketing Toolkit, which contains a host of resources that members can use to help promote their businesses (see article, page 9). 6. This Week @ IWLA – News and information you need, when you need it. Delivered every week to your desktop with links, tips and alerts. This Week was launched in 2003 and has become one of the Association’s highest rated services…available only to members. 7. The 3PL Executive – Designed with you in mind. This member-focused magazine debuted at the 2004 Annual Convention. Its goal is to keep members informed and connected to the 3PL industry. 8. 3PL Buyer’s Guide & Directory – Only members of IWLA are listed in this annual publication. It debuted in May 2004 and is distributed to numerous customer groups and conferences, as well as selected mailings. FALL 2005

Experience

Leverage

Responsiveness

HKMB is Canada’s leading privately held international insurance broker. Extensive experience in the transportation and logistics industry has rewarded us with a diverse client base that includes a number of IWLA members.

Your Competitive Advantage

HKMB’s experience means we understand your business and can provide alternatives that meet your company’s requirements. HKMB’s size means we have leverage in the market so we can do a better job of advocating our clients’ interests. Being owner-managed means HKMB can respond quickly on critical issues and keep you moving in a fast-paced market. HKMB’s IWLA-endorsed insurance program rewards good management.

9. Logistics Services Locator (LSL) – Only members of IWLA are visible to potential customers on this Web-based 3PL search engine. The “new” LSL debuted in July 2004 and was updated just this past summer. It is the go-to tool for customers looking for 3PL service providers. 10. Standards of Excellence – Access new and better ways to run your business. Stay on top of the best practices in the industry. Don’t be left behind because you didn’t get the information. Maintain best of class operations to meet or beat the competition. 11. 3PL Learning Center – Access to knowledge from the vast resources of IWLA members through instructor-lead courses, web-based products, print materials, industry research, our Annual Business Outlook and Association events. The better the Association, the better you are and vice versa. 12. Co-Branding – Build company recognition in conjunction with IWLA and our newly expanded industry marketing initiatives. “Vision 2006” is our blueprint for the future. Check it out! 13. Procurement Advisory – Search out recommended vendors that offer superior products/services for IWLA members at discounted rates. 14. Insurance Services – Work with the IWLA Insurance Co. to provide cost-effective insurance products specifically designed for the warehouse logistics industry. 15. Legal Services – Use our standard terms and conditions, obtain expert contract review services, get advice on customer bankruptcies, assistance with warehouseman’s legal liability issues, claims litigation and other legal matters. New programs and services are added each year. For more information, check out our Website at www.iwla.com. The ROI will be noticeable from day one. THE 3PL EXECUTIVE

As an Assurex Global partner, HKMB can provide seamless global service

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8 Y

Membership Myth-Busters

ou’ve heard them all before – the myths of membership. You might even believe them! But membership in a trade association is a valuable resource with many benefits. Check out the following MythBusters! Myth #1

Membership costs too much. IWLA membership, at the high end of the dues rates, equals only $27.40 a day. At the low end it’s only $2.06 per day! This is a small cost for all the benefits IWLA offers its members. More important, just one good idea or contact obtained from your membership can mean tens of thousands of dollars in added profits! Myth #2

It takes too much time. Can you measure the time it takes to make you and your company more successful? Association involvement, including the Annual Convention, committee meetings and some behind-the-scenes work totals a lot less time than you think. In the end, you decide how much time you want to commit, whether it’s four hours a year or 40. Myth #3

Association issues don’t matter to me. Almost everything IWLA does matters to you in one way or another. The Association works tirelessly to give the membership what it wants – whether it be lobbying for repeal of an onerous law or regulation, reviewing contract language, developing effective marketing materials for members to use when presenting to prospects or creating educational programs that deal with real-world business problems and raise the level of profession8

alism in the industry. IWLA continuously works to make your businesses easier to operate and more profitable. Myth #4

I already know the people in my industry. Unfortunately, it is very difficult to know everyone. You may not know the member who joins this week, or next week or next month. You will not have the exposure to these new members’ ideas or knowledge. Every time you participate in an IWLA event, you can meet new people and learn something new.

by Scott Brewster

member-oriented organization. YOU select the officers and board members. On your behalf, they set the industry agenda, select the staff that serves you and pick the programs that help you become better at what you do. Nowhere in the world, other than your own home or business, can you call or e-mail a question or concern and be welcomed as family. Myth #8

Myth #6

Members have to attend too many meetings. Yes, IWLA does schedule many meetings – the Annual Convention, committee meetings, educational events, conferences. But each is information rich and designed specifically for the 3PL industry. Meetings emphasize action and full member participation, while education events are chock full of useful information disseminated by knowledgeable experts and industry practitioners. And even when you cannot attend a specific meeting, you can be sure that great work is still being done on your behalf.

I’ve already learned everything I need to know. While you might think you have complete knowledge of the 3PL industry today, the technology, business strategy and tactics are constantly changing. There is no better resource than IWLA for keeping you and your colleagues up to date on the latest industry research, news and trends. Just as important, IWLA provides a forum to share what you know with your peers. The more knowledge we all have, the stronger the industry as a whole.

What has IWLA done for you lately? Just look around. Read the This Week @ IWLA e-newsletter or the latest issue of this publication, The 3PL Executive, to learn what is going on in your business world. From our legal and government affairs services to education and marketing, you can rest secure in the knowledge that you are part of the IWLA family that is looking out for your best interests.

Myth #5

I’m just one person. I don’t really make a difference. All it takes is one person to set IWLA on an aggressive new legislative course. All it takes is one person to energize an IWLA group with new ideas and enthusiasm. All it takes is one person to organize a committee to deal with an industry issue. One person with passion can set exciting new initiatives in motion.

Myth #7

IWLA is not really interested in me. IWLA is first and foremost a

Scott Brewster is IWLA’s Director of Member Services. He can be reached at sbrewster@iwla.com. FALL 2005

IWLA’s by Jamie Wagner

Marketing Toolkit: A Guided Tour

n 2003, IWLA conducted a survey of members’ marketing efforts and support needs. This produced some surprising insights. Fully 89 percent stated marketing is a crucial component to their business, but the majority (79 percent) set aside less than one or two percent of their budgets for marketing activities. In addition, members believed market research is important to their business efforts (73 percent). Customer retention was also a concern. Two-thirds of respondents said that their firm experienced greater customer turnover than five or 10 years previously. The perception among respondents was that the customer churn after contracts expired had substantially increased. In short, 80 percent felt it important for the Association to support their business marketing efforts. The study found that IWLA members are very dependent on marketing efforts that supplement their corporate marketing budgets, and they come to IWLA looking for reliable marketing services and support to supplement their inhouse staff. Industry Marketing

As a result, the Board of Directors approved a plan to direct Association energies toward helping meet these member marketing needs, termed industry marketing. Development of a “Marketing Toolkit” was to be part of a larger initiative to bolster IWLA’s efforts to market and promote the 3PL industry to members’ customers. The primary purTHE 3PL EXECUTIVE

pose was to promote 3PL members and communicate the value of logistics outsourcing. These included: • a redesign of www.iwla.com • an update of the Logistics Services Locator (LSL) • presentations to interested groups about logistics outsourcing • advertising the advantages of logistics outsourcing in trade publications • issuing press releases covering industry activities • placing articles in trade publications to communicate the value of logistics outsourcing • publishing a printed Annual Buyer’s Guide • a revamped Marketing and Sales Conference The Toolkit Concept

The Marketing Toolkit was a major initiative of the industry marketing plan. It was intended to supplement and guide members’ efforts to sell the value of outsourcing,

market and sell their services, and retain customers. It was to be applicable and useful to the largest number of members and updated continuously as IWLA locates new data and fresh ideas. The Toolkit is designed to provide members with generic marketing collateral and educational items that they can customize and use. The Toolkit provides members with valuable resources on a wide range of topics. These resources are broken down into 13 categories: 1. Marketing 101 2. Marketing Planning 3. Marketing Research 4. The 2PL Environment 5. Product/Branding 6. Sales 7. Pricing & RFP Responses 8. Advertising 9. Electronic Marketing 10. Customer Retention 11. Communications & Public Relations 12. Global Marketing 13. Miscellaneous 9

IWLA’s Marketing Toolkit cont’d As an online resource, it is available whenever you need it, 24 hours a day, seven days a week. It contains a host of materials in various formats, including articles, research studies, white papers, presentations, best practices, tutorials, webinars, links, templates, listings of books, professional journals and e-newsletters, directories, references and marketing service providers.

The Toolkit is really a platform to build upon. It is expanding and evolving daily and already contains hundreds of useful files and links. And it has room to grow. For instance, in the sales category, over time, it may have resources on such vital topics as: roles in buyer decision-making, sales force compensation and motivation, selection and training, personal selling techniques, structuring the sales force,

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prospecting, sales performance analysis, sales technology, trade shows and telemarketing. The actual tools might include sales presentations, generic logistics case studies, benefits sheets, testimonials, lead generation methods, ads, brochures, direct mail, sales seminars and specialty advertising products (leave-behinds and gifts). It’s even a prototype for future IWLA toolkits, such as a Legal Toolkit, which is in the development process. In fact, it really is your Toolkit – members can dictate what types of resources are needed in the Toolkit. Currently, members will find: Tutorials, Resources & Links, Tips & Guidelines, Power Tools (templates), Marketing Services (providers) and Member Samples. Member Samples, an exciting new feature, allows members to learn from each other by posting, in virtually any format, marketing, communications and sales materials they are using “in the trenches.” So how do you use the Toolkit? It’s easy. Let’s say you are developing a fiscal year marketing plan. By searching through related sections of the toolkit, you can find: • templates of a warehouse logistics marketing plan, • issues to address (i.e. positioning, target market, opportunities), • market research, • sample promotional materials, • how-to’s, and • vendors that can help you develop and execute the plan. So test-drive the IWLA Marketing Toolkit for yourself today. You’ll find a robust resource that will help you leverage your current marketing efforts and bolster your business.

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Jamie Wagner is IWLA’s Director of Marketing and Communications. He can be reached at jwagner@iwla.com. FALL 2005

Play YOUR

Position!

The irony the coach recognizes is that scoring chances greatly increase if players stop chasing the ball and, instead, stake out a position on the field and wait for the ball to come to them. 3PLs often make the same mistake as the sixyear-old soccer player. They want to be part of every play. But in an increasingly competitive market, a “we’ll do anything for anybody” message won’t cut it. Customers know you can’t be an expert at everything. And even if you wanted to, you couldn’t afford it. The alternative is to leave this “opportunity de jour” marketing strategy behind and define your positioning in the market. Decide what area of the playing field you want to occupy and control. Positioning Your Company

What 3PLs Can Learn From Youth Soccer by Jim Bierfeldt

ver watch little kids play soccer? To them the ball is like a magnet that they follow, in one big pack, from sideline to sideline. They want to score, and you can’t score without the ball, right? So they bunch up and battle it out while, on the sidelines, the forlorn coach can be heard yelling in vain above the crying babies, screaming players and cheerleading parents, “Play your position!” THE 3PL EXECUTIVE

A positioning statement defines your marketing destination. It’s the perception your messages are designed to create. Without it, it’s hard to intelligently assess specific marketing tactics and messages because, as the Cheshire cat suggested to Alice, “If you don’t know where you are going, any road will take you there.” Examples of positioning strategies abound. In the auto industry, for instance, Volvos are positioned as safe cars, BMWs are drivers’ cars, while Mercedes are positioned as prestige cars for people who have “made it” – or want others to think they have. Smart brands are willing to sacrifice parts of a very large market in order to win a big share of a specific market segment. With the U.S. outsourced logistics market now at $90 billion, even small segments offer plenty of growth opportunity. But many 3PLs are not comfortable with market strategies that they perceive as limiting. Consequently, their messages remain general and undifferentiated. 11

Play Your Position cont’d Defining your position

The problem with this becomes more obvious when you put yourself in the place of the increasingly cynical buyer of logistics services, who is bombarded with thousands of messages daily, including those from logistics providers. When she reads on a 3PL web site or in a sales letter that “The road to your success starts with ABC Logistics, which offers unparalleled support for all your supply chain needs,” she tunes out. Why? Because minds are limited and can’t process all the information to which they are exposed. Vague over-promises such as this fall victim to selective perception. So, who wins in this little battle for mindshare? Not the prospective customer, who learns nothing of the provider. And not the 3PL, who has just wasted part of its marketing budget.

So how do you develop a positioning statement? Let’s start with what not to do. Don’t gather a bunch of company staffers in a boardroom for the purpose – yet. Good positioning strategy starts on the outside. First, consider your customers. What do they look like? (Your best prospects often look like your existing customers.) Why did they choose you? What are their needs and biggest frustrations? What are your prospects’ needs and frustrations? Then look at your marketplace. What trends are impacting your business or the markets you serve? How do you stack up against competitors? Finally, examine your own strengths and weaknesses. What are the unique ways in which you drive value for specific customers?

The best positions are typically found at the intersection of the customer’s challenge, current and future market trends and your company’s strengths. Consider all three and develop positioning options based on your analysis. Here’s a structure you can use: ABC IS A (insert category of company, such as regional warehousing, nationwide expedited transportation, etc.) COMPANY THAT HELPS (insert specific target market) TO (insert primary benefit you seek to deliver). UNLIKE (insert specific competitors or category of competitors), ABC (insert point/s of difference that provides prospects a reason to believe you can deliver on the promised benefit). Evaluate your options. The worst statements are highly general and really not positioning statements at all. The best are simple, important

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FALL 2005

(to your prospect), believable (can you pull it off?) and differentiating. Your positioning statement also should serve as your “elevator” speech – how you’d describe your company if you only had 15 seconds with a prospect in an elevator. Remember that positioning statements embody not just a message strategy, but a business strategy. A 3PL that positions itself as the “inventory management expert” must have a clear process for inventory reconciliation, a strong warehouse management system and other programs that demonstrate its expert capability and put teeth into its claims.

cialist providers that offer focused expertise. In the middle are the small and mid-tier generalists who offer neither scale nor expertise in a specific service, solution, industry or geography. For these providers, it may be wise to follow the advice of the youth soccer coach and play your position. After all, it’s better to kick the ball three times and get two

goals, than kick it 10 times with nothing to show. Jim Bierfeldt is a former 3PL marketing executive who is now president of Logistics Marketing Advisors LLC, a firm specializing in marketing and public relations strategy and support services for 3PLs. Contact him at jim@logisticsmarketing.com.

Direct Your Message to Those Most Likely to Buy

Research in the area of charitable giving suggests that multi-page fund raising letters achieve better results than shorter ones, even though more people read the shorter letter. That seems counter-intuitive, since more readers should mean more donations. But the research shows that the “extra” readers who take time to read shorter letters are not likely donors. The best prospective donors, however, read the letter regardless of length. There’s a lesson in this for 3PLs and all marketers. Focus your message on the specific target group you feel has the best fit with your unique value proposition and, therefore, are most likely to buy. With focus, your generic messages become aggressive, targeted messages with a point of view and a more specific, believable value proposition. Positioning Becomes More Important in a Consolidating Market

Third-party logistics is a consolidating market increasingly made up of large generalist providers that offer scale and convenience and speTHE 3PL EXECUTIVE

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FALL 2005

External Factors Key to Improving 3PL Service Performance

by Diane Mollenkopf, Ph.D., and Howard Forman, Ph.D.

Study shows that standardized procedures and communication are key to attaining Holy Grail of customer integration.

he ability to strategically manage supply chains has become increasingly important over the past decade and a half. In fact, companies increasingly consider a well-managed supply chain to be a significant competitive advantage. Much of this advantage stems from integrating logistics activities and building supply chain relationships. Today, 3PL executives are being challenged to identify and articulate their capabilities that impact performance and thus enhance organizational competitive advantage, both for themselves and for their customers. IWLA 3PL executives recently participated in an independent research initiative to identify which aspects of integration contribute most to improving service. Integration and Service

Integrating supply chain activities is a challenging undertaking, especially given the dynamic nature of organizational, technological and economic environments. A key objective of creating more integrated supply chains is enhanced service to customers. A 3PL that provides bet-

ter service to its customers will be a more valued partner, boding well for the financial performance of the 3PL. Thus, service performance is a significant metric, especially for 3PLs wishing to evaluate organizational achievements and develop selling points for potential customers. As a result, service performance was the focus of the research, which considered various factors related to integration and assessed their relative importance in helping firms improve service. These factors are identified and defined in Table 1. One hundred twenty-two 3PL executives participated in the survey. They provide services to a wide cross-section of industries including paper, food, chemical, manufacturing and retail. The means listed in Table 2 suggest that all of the factors identified in Table 1 were important for improving service performance. Additionally, more rigorous regression analyses (also Table 2) confirm these findings. However, ranking the relative importance of each factor reveals that external standardization and supply chain orientation are the two most

important factors underlying service performance, followed by external integration. Thus, while a firm’s internal integration and processes are important in ensuring the smooth flow of product and information along the supply chain, the interface of the 3PL and its customers’ boundaries are the most important for ensuring high levels of service. Interestingly, while technology is important in ensuring service performance, it is less important than the communication and coordination processes that link firms. This reinforces the notion that technology itself is not the solution, but rather a tool to enable successful solutions within supply chain settings. Recommended Actions

With respect to integration, the research results suggest that 3PLs need to focus their attention on several aspects that can help them improve their service: • Ensure that when working closely with customers, there are “standard operating procedures” in place for making major decisions. That way both parties know what

Table 1. Factors Affecting 3PL Service Performance

Process oriented strategies: Managers focus on managing internal processes such as managing scheduling activities and other cost reduction strategies. Internal integration: Involves functional activities within firms, enhancing flow of activities and/or information, through improved interdepartmental communication and coordination. External integration: Involves functional activities between organizations, enhancing flow of activities and/or information through improved communication and coordination. External standardization: Emphasis is placed on the need to standardize procedures across organizations. Supply chain orientation Measures how well individuals are in tune with important aspects of managing supply chains.

THE 3PL EXECUTIVE

External Factors Key cont’d to expect, and how to respond as various situations arise. This significantly reduces unexpected and unwanted surprises in the relationship. • Have common, agreed-to policies and procedures with customers for conducting business and sharing

information. Again, this helps avoid surprises and ensures that both parties have a level of trust in the other party to conduct business in a mutually beneficial way. • Adhere to collaboratively developed plans as closely as possible. Staying “on plan” helps to keep the strategic proposal on track.

Table 2. Analytical Results of Factors Impacting 3PL Service Performance Standardized Issue Regression Integration Issue Mean* Coefficient** External Standardization 5.03 .386 Supply Chain Orientation 5.59 .345 External Integration 4.67 .316 Internal Integration 5.15 .281 Process Strategy 5.24 .276

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Items were measured on a 7-point scale, ranging from “strongly disagree” (1) to “strongly agree” (7). Standardized regression coefficients are used to assess the relative importance of each factor in predicting a firm’s service performance. The higher the score, the more important the factor. Each factor is statistically significant at p<.01.

• Collaborate with customers to increase operational flexibility. For example, collaboratively planning and forecasting activities can assist in coordinating strategies to improve overall service. Collaboration also enables you to anticipate challenges before they become problems, and to react quickly when unforeseen events arise. • Meet regularly with customers to discuss respective and joint longterm strategic plans. This ensures that both firms are aware of what the other is doing, and the direction in which the respective businesses are going. This helps keep the relationship on track. • Devote time to managing your customer relationships. Ensure that your customers are spending equal time working with you in this management process. Interorganizational relationships can-

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FALL 2005

• Strategically manage transportation services. As inventories become leaner there is less room for delayed shipments; the transportation network must be carefully coordinated and managed. • Strategically share information with other members of the supply chain. Many of the previous points come down to this: information is key. Supply chain decisions will only be as good as the amount and quality of information on which they are based. The more information managers have, the better their chances for making excellent decisions. The path to integration can be facilitated if individuals involved have what we call a “supply chain orientation.” This is the degree to which individuals within the organization understand the supply chain management concept. In general, this includes the notion that supply

members must behave in a manner that will improve overall supply chain performance. While the survey results clearly suggest a supply chain orientation and a more outward and collaborative strategy are most important, internally integrated operations should not be ignored. In fact, 3PLs that are more integrated internally are better positioned to implement externally oriented strategies because they not only understand the importance of integration, but they are also engaged in cross-functional collaboration. Internal integration comes through standardized and customized information being shared across functional areas within the firm. This usually comes about through computerized information applications that provide timely information to all people within the organization, continued on page 26

Marketplace

not be managed by a single party. Open two-way communication is important. • Make sure that everyone in your organization understands that actual end-user demand drives the supply chain. Your customers should be able to share their understanding of end-user demand with you. This ensures that both organizations are focused on the same ultimate objectives. • Strategically manage inventory along the supply chain. This requires a detailed understanding of demand for the final product as well as supply uncertainties. Part of your collaborative planning and on-going dialogues need to center on inventory requirements and timing of inventory positioning and availability. This becomes especially critical in times of demand volatility or uncertainty.

THE 3PL EXECUTIVE

Logistics 2005:

or the 3PL business sector, 2005 has been a banner year. The logistics market has continued to expand in nearly every respect. Warehousing, freight forwarding, truck brokerage, dedicated contract carriage and a broad range of niche logistics segments are all exhibiting growth in excess of 10 percent. In the public marketplace, Eagle Global Logistics and Landstar are forecasting earnings growth in excess of 20 percent for the next few years, as are UTi, Expeditors and CH Robinson. Why, then, are stock market valuations retreating? After skyrocketing 58 percent in 2004, the basket of non-asset forwarders was down approximately one percent as of July 2005. Similarly, Eagle and Landstar are down 31 percent and 23 percent, respectively. What explains this anomaly? On balance, market valuations remain at or near record highs. For instance, non-asset forwarders are trading at an average of 29 times 2005 net earnings, and at 16 times 2005 earnings before interest, taxes, depreciation and amortization. This high valuation level reflects the strong threshold of confidence that investors continue to place in these firms. At the same time, a number of clouds are appearing on the horizon, threatening to dampen the strong historical performance top logistics firms have achieved. As a result, the logistics market is in the midst of competing pressures, reflecting both opportunities and challenges. These top-seven megatrends are outlined below.

1. Asset-Light Forwarding: Will the Party Continue?

The asset-light forwarding sector continues to exhibit powerful 18

growth, particularly in the all-important Asia-North America trade lane. For instance, Expeditors’ first quarter revenues are up 19 percent over the equivalent period in 2004. However, this represents a slower growth rate than Expeditors has achieved historically. Similarly, the ocean forwarding category has pulled ahead of the air forwarding market, reflecting the continued cost sensitivity of shippers. This divergence in market demand is causing some firms to falter. For instance, Eagle’s net profit is down two percent. Although Wall Street expects Eagle to recover and continue at a growth rate of more than 20 percent, the past quarter raises questions. 2. Assets: A Rising Tide Lifts All Boats…

The conventional wisdom has long maintained that assets are an albatross, to be avoided whenever possible. However, the past year has demonstrated the benefits of owning assets in capacity-constrained markets. For instance, Neptune Orient Lines has achieved a 16-percent jump in year-over-year profits. As President Kennedy once put it, “a rising tide lifts all boats.” Much of this growth is attributable to the explosion of demand for Asia-U.S. supply chain services. It will be critical to observe whether steamships flood the market with capacity in the coming two to three years, pulling down prices, as has happened historically. For the moment, however, it’s a great time to own assets in the shipping sector. 3. …But in Commodity Businesses, Assets Still Suffer

Perhaps a better way to rephrase the conventional wisdom is that assets outperform when capacity is scarce and underperform when the

reverse is true. In the trucking sector, a chronic oversupply of capacity is plaguing the less-than-truckload (LTL) category. For instance, Central Freight is losing money and considering asset sales to shore up its balance sheet. It is worth noting that the company’s market capitalization is approximately $55 million. Meanwhile, its real estate has been appraised at $103 million. In other words, investors are valuing the operating company at negative $48 million! This, on the heels of the Consolidated Freightways bankruptcy and the consolidation of USF and Roadway into Yellow, reflects the dim view investors hold of the LTL sector. In the truckload (TL) sector, the industry has not seen the same types of problems. However, the combination of skyrocketing fuel costs, insurance and driver shortages make FALL 2005

Assessing

Seven Mega-Trends Changing the Industry relying on intermodal for 34 percent and 28 percent of their total revenues, respectively. From 2002 to 2004, the number of domestic intermodal loadings grew from 10.5 million to 13 million, reflecting an 11 percent annual growth rate. Meanwhile, BNSF’s intermodal revenue is up slightly higher, at 12 percent year-over-year, reflecting the fact that they are gaining share at a faster clip. 5. Technology: Adoption Continues

for an unholy trinity. According to the American Trucking Associations (ATA), there is a current shortage of 20,000 truck drivers. If nothing is done, this is forecast to spike to 111,000 by 2013. While trucking companies have enjoyed a year of growth, inevitably these pressures will create inflation, which could squeeze future profits. 4. Intermodal: A Low-Cost Solution

If the preceding is enough bad news to give Dick Cheney another heart attack, the good news is that lower-cost logistics models are gaining traction. A prime example is intermodal. Increasingly, companies are seeking to combine inexpensive rail service with short-haul trucking. Railroads Burlington Northern Santa Fe (BNSF) and Canadian Pacific have been prime beneficiaries, THE 3PL EXECUTIVE

Technology analysts tend to view the technology market from extreme perspectives. Adoption is characterized as either dramatic or non-existent. In reality, new technologies are being adopted, but at a slower rate. In radio frequency identification (RFID), new capabilities are being rolled out, business sector by business sector. In the pharmaceutical sector, where the underlying products’ high value justifies more aggressive spending, Project JumpStart appears to have been a success. During an eight-week trial period, 13,500 pharmaceutical packages were shipped, tracked and traced. Participants included Abbott, Barr, Cardinal Health, CVS, J&J, McKesson, Pfizer, P&G and Rite Aid. Proof of concept was accomplished, as the project team read 98.6 percent of case tags and 96.8 percent of unit tags inside a case. Meanwhile, the real technology adoption is taking place on the Web. Online models continue to exhibit

by Benjamin Gordon

lower-cost, higher-service characteristics. For instance, at Seko, a global freight forwarder, online shipping volume surged five times, to 25 percent of their total revenues, in just one year. Similarly, at DHL, the company estimates that each electronic invoice saves $1.80. Online pick-up requests save $2 versus phone calls. And online payment cuts time to collect from 40 days to one day. Web-based technologies are continuing to deliver powerful savings and benefits for customers and for operators (see article on page 9). 6. Mergers March On

The level of merger and acquisition (M&A) activity in the logistics sector continues to expand to alltime record highs. In the past year, we have witnessed such high-profile deals as the acquisition of Tibbett & Britten by Exel, the acquisition of Unigistix by UTi, the acquisition of NewBreed by Warburg Pincus and the acquisition of Ozburn-Hessey Logistics by Welsh Carson. Customers are increasingly pressing for such transactions, as they simplify the number of logistics providers required to serve them. We can break the M&A trend down into two core components: Geographic convergence: PBB Global Logistics recently acquired Unicity Integrated Logistics and Unicity Customs Services. A primary reason for this move was to strengthen PBB’s position as a leading cross-border specialist and to concentrate on the 10 percent U.S.-Canada 19

Seven Mega-Trends cont’d cross-border transportation growth. Similarly, Yellow’s acquisition of GPS reflects their view of the importance of the Asia-U.S. trade lane. Meanwhile, European firms continue to look for U.S. opportunities, attracted by the relatively high growth potential in North America: 15 percent annual growth, versus three percent in Europe. Service convergence: The most common trend in M&A over the past five years has been the convergence of warehousing and global freight forwarding. Transactions such as Kuehne + Nagel-USCO, UTi-Standard, UTi-Unigistix and APL-GATX reflect this pattern. This year, PWC Logistics’ acquisition of Trans-Link and TransOceanic showcase the desire of a regional warehousing firm to transform into a global multi-service solutions provider.

7. The Logistics Function is Growing in Importance

Historically, logistics executives were treated as a secondary function within organizations. However, this is changing. In a world where the largest company (in revenues), WalMart, selects a CEO who rose through the ranks of the organization’s logistics division, the market is increasingly valuing the importance of supply chain executives. In a recent poll, more than 70 percent of CEOs surveyed by UPS-Harris Interactive called supply chain management “very” or “extremely” important. Of particular note is the recruiting world. Motorola just lured Stuart Reed from his position as IBM vice president of manufacturing to become senior vice president of global supply chain, reporting directly to CEO Ed Zander. This is a sign of the increased importance firms are attaching to logistics.

In sum, it has been another growth year for the logistics sector. However, as the above competing trends continue to play out, the gap between winners and losers will continue to widen. For logistics providers, it will be increasingly important to assess the market and invest in new capabilities. For logistics users, it will be crucial to evaluate providers and ensure they will be among the winners. And for logistics investors and acquirers, there will be continued opportunity to seek attractive niche businesses. Benjamin Gordon is Managing Director of BG Strategic Advisors, Inc. His firm provides investment banking and strategy consulting services to companies in the logistics and supply chain industry. He can be contacted at Ben@BGStrategicAdvisors.com , or 617-864-4966.

FALL 2005

The Case for Building a

New Customs Competency by Joel Webber

efore Sept. 11, 2001, U. S. Customs and Border Protection (CBP) addressed freight moves as a series of loads arriving at checkpoints. After 9-11, homeland security was added to its smuggling and narcotics interdiction missions, and the agency viewed cargo security as a new burden to be shouldered mainly by its field agents who searched or scanned from 2-5 percent of intermodal containers, trucks and the like at checkpoints. While these inspections rose sixfold as staff and equipment increased, CBP’s requirements of freight businesses were mostly passive. Beginning in 2003, shippers bringing goods into the U.S. had to send specified manifest data to the agency in advance of cargo’s arrival in the U.S. – a documentation burden that industry to date has largely delegated to customs brokers. And of course, since 9-11 most shippers, carriers and importers have had to put up with significant new delays at borders and ports. But in March 2005 CBP made a major shift to its approach. To supplement the existing stop-and-inspect protocol developed post 9-11, the agency now demands much more. It addresses the supply chain as a physical and information technology system, and makes business participants responsible for that system’s network-wide security. The agency continues searching and scanning activities, and has built an enhanced cargo intelligence capability based largely on the new advance

THE 3PL EXECUTIVE

On March 25 of this year, U.S. Customs and Border Protection (CBP) raised the bar on cross-border freight security and quietly transformed inbound logistics from Canada, Mexico and the rest of the world. This has made it imperative for outsourced logistics providers to acquire a new core competency to serve their clients: Customs Trade Partnership Against Terrorism (C-TPAT) compliance. 21

New Customs Competency cont’d manifest requirement. But it now places major new burdens on businesses to achieve and document such security, using a program which it used to describe – and still describes – as “voluntary”: the Customs-Trade Partnership Against Terrorism (C-TPAT). The new regulatory leverage is this: Be a member of C-TPAT and meet these new requirements, or your freight goes to the rear of the line at customs checkpoints. C-TPAT is voluntary as a legal technicality, and it has been since it was introduced in 2002. But as CBP Commissioner Robert Bonner said shortly after announcing the new framework, if a load is at a congested checkpoint, and not part of a C-TPAT-qualified network: “Good luck.” What does this new framework require? 1. Security throughout the supply chain – not just in one particular link. C-TPAT mem-

bers formerly answered for their own security, and agreed with CBP on issues like perimeter fences, video capability and background checks on their own personnel. There were no standards as such, and measures agreed to related solely to the C-TPAT company itself and its own operations. Now the C-TPAT firm answers for foreign suppliers and others in its supply chain: “Where an importer outsources or contracts elements of their supply chain, such as a foreign facility, conveyance, domestic warehouse or other elements, the importer must work with these business partners to ensure that pertinent security measures are in place and adhered to throughout their supply chain.” 2. An “audit trail” to confirm that such supply chain-wide processes are, in fact, followed: “Importers must have written and verifiable processes for the

selection of business partners including manufacturers, product suppliers and vendors.” 3. Adherence to specified levels of physical security, such as specified access controls for employees, visitors and deliveries; a seven-point inspection system to verify physical integrity of freight conveyances prior to their being loaded; and use of ISO 17712-standard security seals on such conveyances after they have been loaded. 4. For the first time in either CBP regulations or voluntary guidelines, there are requirements for identification, authentication and user authorization in logistics information systems. While this is at a very basic level, it is significant that such IT integrity is now a homeland security concern. This contrasts with the narrow documentation burden introduced by

What the Law Demands of 3PLs As to law and regulation, the answer is: “nothing.” C-TPAT is not open to warehouse-based 3PLs. 3PL personnel cannot attend the agency’s educational seminars on C-TPAT or even subscribe to the FAQ service by which the agency shares evolving standards to private business on a case-by-case basis. In fact, at this writing the status quo is even more confused: the March standards apply only to “importers,” but the C-TPAT program as a whole includes carriers and shippers as well. Also, the rumor sources that in fall 2004 correctly predicted the March change now indicate that similar new demands will apply to carriers and NVOCCs by the end of 2005.

FALL 2005

CBP advanced manifest requirements introduced in 2003, and delegated to the customs brokerage industry with relative ease. The March 25 guidelines encompass the entire supply chain, and its basic security from terrorist interference. Anyone managing a supply chain must adapt to it. As this article is finalized, CBP has extended similar new standards to C-TPAT members beyond the importers covered by the March 25 announcement: U.S./Canada and U.S./Mexico trucking, cross-border railroad operations, specified air and sea-borne freight intermediaries and U.S. marine port authorities and terminal operators. What To Do

What should a 3PL executive do about this? The practical answer is clear: Take care of your clients (see “What the Law Demands for 3PL2” for the law-specific answer). The outsourced logistics industry delivers value by redesigning business processes, then implementing them for client cost savings and operations

efficiency. CBP has just changed the rules of the game here. Learning the rules of that new game and then executing them has to be at the center of any 3PL’s core competencies. How does a provider of outsourced logistics services build this new core competency in C-TPAT compliance? First, realize that this new CBP framework is ambiguous. Lawyers and logistics executives alike are asking basic questions about it, with the agency offering little by way of public explanation. The agency has omitted the detail typical of regulatory demands, saying that C-TPAT is “voluntary.” In fact, they would object to the very phrase “C-TPAT compliance.” As a result, the logistics industry lacks the specificity required for compliance to such rules as hours-of-service or HAZMAT. Second, pay close attention to what your client’s CBP representative says (bearing in mind, again, that as a 3PL you are not the CTPAT member). The combination of wide agency discretion and lack

Important Links to U.S. Customs on New C-TPAT

Online Application for U.S./Canada Highway Carriers www.cbp.gov/xp/cgov/import/commercial_enforcement/ctpat/fast/us_canada/ highway_carriers/app_us_can_hwy.xml Online C-TPAT Application Process - Qualifications and Instructions www.cbp.gov/xp/cgov/import/commercial_enforcement/ctpat/fast/us_canada/ highway_carriers/app_us_can_hwy.xml www.cbp.gov/xp/cgov/import/commercial_enforcement/ctpat/ onlinectpat_app_process

of regulatory detail here has divergent implications. On one hand, CBP says this enables flexibility. But skeptics say it just gives the agency a free hand to demand what it wants of a company. Until we learn more from CBP statements and companyto-agency interactions, the CBP validator’s word is law. Third, find a way to learn what CBP is requiring of companies similar to your clients. The March guidelines introduce a new kind of interaction between agency policy and supply chain best practice. You as a manager – not the agency as rule-maker or even your counsel – can provide the operations detail needed to satisfy CBP that your clients’ freight warrants preferred treatment under C-TPAT. Meeting this new, higher standard of freight security will require the tools logistics executives have used for years. Bring operations management, supply chain design and legal talent into the room – and then follow through with discipline. And take a deep breath. It will take lots of focus, energy and probably at least a year or two to find our way on this. Joel Webber practices business and transportation law with the Chicagoarea law firm of Couri and Couri. He can be reached at 847-446-0044 or joel@transportbusinesslaw.com.

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THE 3PL EXECUTIVE

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Make Your Real Estate Work For You! by Margaret Susanne Guzek and Elise A. Couston

ew companies have as thin profit margins as 3PL providers. Keeping this in mind, it is prudent for CEOs and operations managers to be aware of the variety of ways to positively affect their company’s bottom line. The logistics industry is all too aware of the drains on a company’s profits – bankrupt clients, increased competition, stricter compliance standards by retailers, higher transportation costs, inflexible landlords and expensive real estate. While many of these factors are beyond the company’s control, the real estate factor is not. Negotiating a beneficial real estate deal can be a money-making proposition. With a knowledgeable real estate broker and some creativity, the 3PL provider can save money using the following strategies: • Free rent • Lease assumptions and buy-outs • Locating buildings with existing racking • Creative use of tenant improvement dollars While we seem to be slowly emerging from a soft real estate market, there is still high vacancy in some areas. Supply will most likely continue to outweigh demand for an undeterminable time, and tenants are still driving the deals. As a result, free rent up front should be part of all lease negotiations for periods of three years or longer. Most landlords expect this to be part of any potential deal. If there is resistance on the amount of free rent the tenant is 24

asking for, one way to bridge the gap in negotiations is to add the free rent period to the end of a lease. Thus, a five-year lease with five months free becomes a 65month lease. This creates a win/win situation for both the 3PL provider and the landlord. The 3PL pays no rent while it is transitioning into the building, and the landlord makes up the rent at the end of the term. For 3PL providers that have multiple locations, lease assumptions and buy-outs are creative ways to have a new landlord take over an existing lease. Both options work well for a 3PL who has lost its client and is still responsible for the lease. In a lease assumption, a new landlord will assume the lease rate on the current building where there is a lease obligation and amortize it into the new lease rate. The new landlord takes over the financial obligations of the old lease, while the 3PL tenant only pays rent on the new lease. Lease buy-outs are similar to lease assumptions; however, in a buy-out, the new landlord agrees to pay off the outstanding balance on the lease obligation up front. The new landlord does this because he is “hungry” for a tenant in his building, which may have been vacant for a year or more. The landlord may want to amortize a portion of this cost over the new lease term. An additional strategy that logistics providers should consider when searching for a new facility is locat-

ing buildings that already have racking in place. In every market, there are always a few buildings that have racking left from a previous tenant. Although not all racking will be operationally functional for a new 3PL, the cost savings, if it works, are significant. The building owner does not want to incur the cost of removing the racking and will usually incorporate the racking into a lease deal for a nominal price. One final tip: tenant improvement allowances can often be part of a lease negotiation. This is particularly true when new offices are being added or retrofitted, lighting needs upgrading or additional trailer parking is needed. A tenant can either ask the landlord to make the improvements or ask for an allowance to cover their cost. Don’t be bashful about asking for the allowance, and negotiate that any tenant improvement allowance not actually spent be applied to the rent. Getting the best deal on industrial real estate requires knowledge of the market, the property owners and what terms can be negotiated. The result is a lease agreement that is a win-win solution for all parties involved. Margaret Susanne Guzek is an associate and Elise A. Couston is a principal with Paine/Wetzel Oncor International, a Chicago-based real estate brokerage firm with national and international affiliates. Specialists in working with growing logistics providers, they can be reached at Margaret@painewetzel.com and Elisec@painewetzel.com. FALL 2005

The Alternative Insurance Market: Why a Captive Insurer Might Make Sense for You by Michael Lopeman

uch has been written about the alternative insurance market. Today, that segment has grown to comprise more than 50 percent of the total insurance industry. The alternative market includes large IWLA’s Captive Insurer

To help members deal with the vagaries of the commercial insurance underwriting cycle, IWLA has established a member-owned captive insurance company domiciled in the Cayman Islands. IWLA Insurance Co. offers workers compensation, general liability, auto liability and auto physical damage coverage in all states to any members with a minimum casualty premium of $250,000. The company was developed to address the specific needs and exposures of the outsourced warehouse logistics industry. Other benefits include: • Management by experienced insurance professionals who understand the warehouse logistics business, • Aggressive claims management • Innovative risk control programs Currently, more than 30 companies participate in this important member service. It generates approximately $21 million in written premiums, and grew 12 percent in the past fiscal year due to new member growth and the growth of existing members. For more information on the captive, contact Alex Glann, IWLA vice president and chief operating officer, at 847-813-4699 or aglann@iwla.com.

THE 3PL EXECUTIVE

deductible policies and captive insurers. These programs offer a wide variety of options to the insurance buyer – each with their accompanying advantages and drawbacks. Large deductible policies are familiar to most insurance buyers. The advantages they bring are lower premiums by reducing the fixed costs. They also allow more say in the claims handling process. Disadvantages include the changes in the tax deductibility of the insurance program and potential letters of credit. Also, if the program doesn’t have an aggregate stop loss, a bad year could cost a company substantially more that a traditional program. Because of these disadvantages, many companies are turning away from large deductible programs to group captive insurance companies. A group captive is a separate corporation, owned and controlled by its members. This type of program offers more stability than other insurance alternatives because it isolates members from the ups and downs of the insurance underwriting cycle. It also allows members to receive investment income and a return on unused premiums. There are several myths that persist about captives. One such myth is that captives are a substitute for commercial insurance. This is not so. Insuring through a group captive is just another method of retaining risk. Do captives save money on insurance premiums? This is an often-asked question, but it isn’t accurate to compare retaining risk in a captive to transfer of risk to an insurance company.

However, in the long run, paying premiums to oneself is always cheaper than paying premiums to an insurance company. We’ve all seen the ups and downs of the insurance market cycle. One day coverage is available at a reasonable cost, the next day it is not. A group captive offers more consistent budgeting over time, since it isn’t affected as dramatically by the swings in the market place. The buyer gets much more control over their insurance program. The makeup of the members in the group captive is also important. Individual members can receive an assessment if they have an unusually poor loss year. They also can experience risk shifting and sharing due to poor losses. It is therefore important to have a strong emphasis on loss control. Other benefits of a group captive include: • continuity of coverage • competitive advantages that can improve your bottom line • a forum for the exchange of ideas. Who should consider joining a group captive? Companies that are committed to safety, have a strong desire to control their insurance dollars and have better-than-average loss experience. As part of your risk financing decisions, the advantages of a group captive should be seriously considered. Michael Lopeman is vice president of marketing for Gallagher Captive Services Inc., Itasca, IL, an IWLA Purchasing Services Partner. 25

Bu ye r s’ Gu i d e & Tr a d e L i s t

External Factors Key continued from page 17 coupled with the maintenance of an integrated database that is accessible throughout the organization. The point of information sharing throughout the organization is to implement well-developed processes that lay the groundwork for consistent implementation of organizational strategies. Therefore, careful attention must be paid to developing appropriate internally integrated processes so as to support the external relationships with customers. By integrating their services with their customers’ operations, 3PLs can streamline their collective operations. By doing so, these 3PLs can leverage the resultant successes to market their services to future customers, even in the face of increasingly dynamic business environments.

Diane Mollenkopf, Ph.D., is an assistant professor in the Department of Marketing and Logistics at the University of Tennessee-Knoxville. Howard Forman, Ph.D., is Assistant Professor of Marketing at LeBow College of Business at Drexel University, Philadelphia, PA.

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F R E I G H T C O N T R O L S O F T WA R E Argos Software, Inc. . . . . . . . .16

PALLET RACKS Frazier Industrial Company . . .26 Kingway Inca-Clymer Material Handling . . . . . . . .14

HVLS FA N S MacroAir Technologies LLC . .13 INSURANCE Hunter Keilty Muntz & Beatty Insurance Brokers . . . . . . . . .7 I N T E G R ATION SOFTWA R E Boomi Incorporated . . . . . . . .12 LIGHTING Sylvania Lighting Services . . . .inside front cover LOGISTICS SERVICES FST Logistics . . . . . . . . . . . . .14 L O G I S T I C S S O F T WA R E Argos Software, Inc . . . . . . . .16 M ATERIAL HANDLING EQUIPMENT Litco International . . . . . . . . . .7 Ohio Rack, Inc. . . . . . . . . . . . .23 Western Pacific Storage Systems . . . . . . . . .14

PICK MODULES Western Pacific Storage Systems . . . . . . . . .14 P O R TS Port of Stockton . . . . . . . . . . .17 R UGGEDIZED COMPUTERS LXE Inc. . . . . . . . . . . . . . . . . .10 STORAGE SHELV E S Western Pacific Storage Systems . . . . . . . . .14 U N I T L OA D D E S I G N P R O D U C T S & SERVICES Millwood, Inc. . . . . . . . . . . . . .23 WMS VENDORS & TECHNOLOGY PROVIDERS Argos Software, Inc. . . . . . . . .16 Zethcon Corporation . . . . . . . .16

Logistics Partners in a Click! WORLD LEADER IN STRUCTURAL STEEL STORAGE SYSTEMS Introducing the new SelecDeck Full system case flow with universal adaptability! No more wheels popping out & no more tracks falling out!

Glide'N Pick Place hard-to-reach items at your fingertips! Reduce product damage & worker injury! Simplify slotting & increase pick faces! Label Beam Eliminates bar code

Use IWLA’s powerful search engine, the Logistics Services Locator (LSL), to quickly and easily find the best in the business to store and move what you need. Send RFIs in seconds for FREE.

damage! Saves time & money by not having to replace bar code labels! Reduces damage to pallet support bolts! Reduces picking errors!

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973.728.1428 E-mail: frazier@frazier.com Long Valley, NJ

FALL 2005

CLARIFICATION To the readers of 3PL Executive Magazine:

In the Summer issue of 3PL Executive Magazine, Naylor Publications, the official publisher of 3PL Executive, mistakenly published a full page advertisement for Lucas Systems, Inc. on the inside back cover of the magazine without Lucas’ knowledge or consent. The advertisement may have given the wrong impression about Vocollect products. In order to maintain its status as a Vocollect reseller through August 1, 2005, Lucas elected under a Court Order to retract this advertisement and issue this statement. Lucas has high regard for Vocollect voice recognition devices. Lucas actively promoted and sold Vocollect’s products for over four years. Vocollect’s voice recognition devices provide superb performance, reliability and customer satisfaction. Working with Vocollect’s flexible voice platform and tools, and the support which Vocollect’s system provides for peripheral devices, including barcode scanners and label printers, Lucas’ robust set of voice-based solutions has been meeting the tailored voice application requirements of our individual customers. Vocollect is a recognized leader for voice recognition devices in the United States and around the world. There are more Vocollect voice devices installed in more sites than those of any other company in the world.

Lucas’ association with Vocollect has been important as Lucas has established itself as a highly valued and recognized provider of voice systems to the distribution industry with a reputation for customer satisfaction and success stories. If the earlier advertisement was not clear in emphasizing the quality and utility of Vocollect voice recognition devices to voice solution systems, we regret this confusion and sincerely apologize.

W.S. Brown President and CEO Lucas Systems

Find out why top logistics outsourcing companies depend on IWLA

Membership in IWLA, the leading 3PL trade association, is one of the best investments a logistics outsourcing company can make to ensure continued growth and success. Here are just a few of the tangible benefits for you, your company and your associates. • Government Watch Dog – We alert you to legislative and regulatory actions that can impact your operation, and we actively represent your interests. We also stand ready to support you with legal concerns. • Market Visibility – For no additional cost, IWLA members are listed on www.iwla.com, in our annual The IWLA 3PL Buyers’ Guide & Directory, on our web-based search engine (the LSL) and more. • Networking & Connections – Our Annual Convention, conferences, and special interest groups provide excellent venues to meet with peers and discuss key issues facing the 3PL industry, saving you time and money.

Join IWLA today! For more information, go to iwla.com or call IWLA at 1-800-525-0165.

• Business Opportunities – The most successful companies in this industry are IWLA members! That says something. Join with your peers to collaborate, partner and build your business. • 3PL Logistics Services Locator (LSL) – Only members of IWLA are visible to potential customers on our new web-based search engine. This is the go-to tool for customers looking for 3PL service providers. • 3PL Learning Center – As a member, you have access to knowledge from the vast resources of IWLA and its members through courses, web-based products, printed materials, industry research, and Association events.

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