August 5, 2009
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We Have a Plan, Reiterates YRCW
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espite Bill Zollars’ repeated reassurances that YRC Worldwide (YRCW) recognizes its volumes, margins and cash flow have all continued to decline, and it has a plan to turn the company profitable, the story is wearing thin. In his most recent statement accompanying the company’s second-quarter earnings, Zollars, chairman, president and CEO of YRCW, said that as a result of the company’s focus on improving efficiencies and integrating the operations of Yellow Transportation and Roadway, “We recorded some significant charges that we believe are not reflective of the underlying operating results of our company. Although we will continue to enhance the efficiencies of our networks, we do not expect to record charges of this magnitude going forward.” The loss YRCW reported was $369 million for the second quarter. Excluding the significant changes Zollars refers to, the loss reported was $255 million. David Ross, analyst with Stifel Nicolaus stated, “YRC’s 2Q09 financial losses were abysmal, but cash flow is what is important at the moment, in our opinion. Unfortunately for YRC, cash flow remains significantly negative and could remain so even if wage/pension concessions go through.”
Ross is referring to concessions YRCW negotiated with the International Brotherhood of Teamsters (IBT) which are currently with the union membership for ratification of the modifications. That vote, which was endorsed by the IBT management, was expected to be completed in early August. The “We have a plan” mantra appears to be wearing thin with Ross. He says, “The theme of at least the last several YRC quarterly earnings releases and conference calls has been–’We know the numbers and trends look bad, but we’ve got a plan. Things will be better.’ And what has happened? Volumes, margins, and cash flow have sharply declined. It’s not just the economy; it’s the company–YRC is performing worse by far than any of its competitors.” The quarterly report indiTo ensure your delivery of your cated YRC National Transportation saw total shipments per day fall 37.1% and total tonbi-weekly digital magazine, nage per day was down 39.4% please fill out this short in the quarter. “The company continues to right size its net10 question subscriber form. work to support current and It takes less than 2 minutes! future shipment volumes,” it said. Total revenue per hunSubscribe Now
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Transport dredweight, including fuel surcharge was down 13.1%, when adjusting for rerates of $12 million not attributed to the second quarter revenue, and down 14.2% without adjusting for these items. Excluding fuel surcharge and adjusted for $12 million in rerates, total revenue per hundredweight for YRC National Transportation was down about 1.5%. At YRC Regional Transportation, total shipments per day were down 22.0% and total tonnage per day dropped 26.4%. Total revenue
A carrier perceived as having an uncertain future is perceived as a risk and shippers and consignees (as well as third party logistics providers) will begin to migrate business to other suppliers they perceive as having a stronger position or more certain future. per hundredweight, including fuel surcharge, was down 11.9%. Excluding fuel surcharge, total revenue per hundredweight for YRC Regional Transportation was down about one percent for the quarter. Anecdotal reports also indicate shippers have been moving freight to other carriers, though YRCW continues to claim it is winning new business. In its last conference call before the quarterly earnings announcement, YRCW management admitted to some freight diversions which it said were largely due to concerns over the impact of the integration of Yellow and Roadway operations. That business, Zollars reassured at that time, was beginning to return. Examining some of the details of a Securities Exchange Commission (SEC) 8K filing by YRCW, David Ross highlighted some changes in the company’s executive severance policy, suggesting there could be management changes in the future. “These changes point to the banks’ and the board’s willingness to let the company try what it can, including changing out some of the existing management team, to improve operations,” said Ross. The company’s filing noted, “YRC Worldwide also reported aggregated cash and available unused capacity under the credit facilities
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of $218 million at June 30, 2009, including $165 million of cash and cash equivalents. In addition, the company had $95 million in the revolver reserve created pursuant to the company’s credit agreement at June 30, 2009. The company completed $127 million of sale and financing leaseback transactions and closed on $14 million of excess properties during the second quarter.” The statement further noted that YRCW reported an equity investment impairment of $30 million which it said was related entirely to the company’s August 2008 65% investment in Shanghai Jiayu Logisitics. The write-down, explained YRCW, was “primarily a result of the declining economy in China and around the world.” The company counts as progress on its plan, the finalized amendment to its credit agreement with its lender group. “The amendment eliminates the third quarter 2009 earnings Logistics Today (ISSN 1547-1438) is a twice-monthly digital publication from Penton Media, Inc., 9800 Metcalf Avenue, Overland Park, KS 66212-2216. before interest, taxes, depreciation and amortizaEditorial Director/Associate Publisher ..... David Blanchard tion (EBITDA) covenant Editor-in-Chief ............................................Perry A. Trunick and establishes a fourth Contributing Editor....................................... Mary Aichlmayr quarter 2009 EBITDA Art Director............................................................ Bill Szilagyi covenant of $15 million Group Content Director and a first quarter 2010 Manufacturing & Supply Chain ..................... Steve Minter EBITDA covenant of $20 Vice President/Group Publisher ........................ John DiPaola million,” according to the National Sales Director/Associate Publisher............Jeff Mylin filing. Production Manager............................................ Rachel Klika Further, YRCW reported Online Sales & Marketing Manager . ........Jacquie Niemiec it can retain 100% of asMarketing Manager............................................Sarah Arnold Audience Development Manager............................Seth Olson set sales between July 31, 2009 and August 31, 2009, up to $50 million SALES (subject to certain condiLarry Kossack 847-383-6820 Mike Antell (978) 282-5625 tions) and the minimum Jason Washburn (216) 931-9511 Dave Altany 216-931-9245 liquidity covenant during Ron Lowy 216-931-9359 Chris Hartnett (281) 255-9272 that same period has been Bob Eck (352) 391-5577
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Transport eliminated. YRC Worldwide has reached agreement with the company’s International Brotherhood of Teamsters multi-employer, definedbenefit pension funds to provide certain of the company’s real estate as collateral in lieu of pension contribution payments during the second quarter. The company previously announced that it had finalized agreements with funds totaling $94 million, and the remaining funds have joined as participants in the same agreement for a total deferral of $128 million. The company’s employees represented by the IBT are currently voting on modifying their labor agreement with YRCW. Upon ratification of the modification, the company “expects an immediate benefit to monthly operating income and cash flow of approximately $45 million per month, increasing to $50 million per month in 2010.” The company expects gross capital expenditures of about $65 million in 2009 and over $100 million of cash proceeds from sales of excess properties. Sale and financing leaseback transactions are expected to generate over $300 million of cash proceeds in 2009. “Excluding payments related to sale and financing leaseback transactions, we expect interest expense of approximately $35 to $40 million in the third quarter of 2009.” Zollars expressed some optimism that, “We have seen signs of encouragement in the economy including stabilization in our absolute volumes, though we think it is too early to confirm that this is the bottom of the recession.” He added, “We remain optimistic that economic improvement could happen earlier than expected but we do not have it reflected in our financial plans until we progress through 2010.” What does it all mean? Logistics Today’s take is that in this business, uncertainty kills. A carrier perceived as having an uncertain future is perceived as a risk and shippers and consignees (as well as third party logistics providers) will begin to migrate business to other suppliers they perceive as having a stronger position or more certain future. This can turn the perceived risk into a selffulfilling prophecy. Implications that there could be management
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changes in the works are a mixed blessing. If the recovery plan is a solid one, these are the architects, engineers and implementers of that plan. Can it deliver on all of its promises without the guidance of certain key executives? On the other hand, if the plan is not perceived as strong and capable of delivering results, a change can be perceived as positive. But regardless of how senior management changes might be perceived, any transition will create uncertainty, and shippers don’t like uncertainty.
What’s your take? Join the discussion at YRC’s Future. . .your take?
News Employee Free Choice Act Compromise Not Enough Opponents may need to find a new nickname for the Employee Free Choice Act (H.R. 1409; S. 560). A report in the New York Times indicated Senate committee members working on the bill had proposed removing the controversial “card check” provision that would have simplified the process of collecting signatures to organize a non-union company or operation. Reactions in the business community point to portions of the bill they find equally if not more onerous. The bill was commonly referred to as the Card Check legislation because of a provision that would allow union organizers to collect signatures from workers directly without a secret-ballot election. Further, the provision set a threshold of 50% plus one as the level of support needed to organize. Many workers and opponents to the card-check provision argued the lack of a secret ballot would lead to union intimidation of workers. The unions countered that current rules allow companies to use strong tactics to influence workers to oppose unions. The House bill and its Senate companion version have been referred to committees in the respective legislative bodies where they have remained since March 2009. The report of a possible compromise was greeted with a flurry of reactions.
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Opponents barely breathed a sigh of relief that the compromise would set a 30% threshold on worker signatures which would in turn allow the union to petition the National Labor Relations Board for a secret-ballot election. Though this approach is not the automatic approval of the card check option, the compromise reportedly does not eliminate the requirement for mandatory arbitration if the union and company do not reach a contract agreement within 120 days. (The law the bill would replace requires only that both parties continue to bargain in good faith.) Another concern of business owners is the fact the EFCA would impose significant penalties on employers for unfair labor practices, but it does not treat unions in the same manner. Joel Anderson, president and CEO of the International Warehouse Logistics Association (IWLA) said, “The only thing being floated as being dropped from the bill is the secret ballot. The bill still keeps binding interest arbitration, which is a deep and broad line in the sand for employers. This provision would have a federal mediator decide on the first two-year contract for the employees and is still in the bill.” An IWLA member whose operations are already unionized called the binding arbitration and other provisions still in the bill “toxic issues” and reiterated the concern over the binding arbitration which would set wages in the first contract. IWLA’s Washington representative Pat O’Connor dug a little deeper into the election issue pointing out that the bill calls for elections to be held within 10 days, not the present 45 days. He also noted, in place of the open card check, ballots would be mailed to workers who would return a post card ballot. Taken together, these elements compress the election process and trigger the contract negotiation and the 120-day deadline for an agreement. O’Connor, like others opposing the bill, was concerned that the “last best offer” arbitration was still in place. If the parties do not reach an agreement in the specified time, he said, the federal arbitrator would choose the “last best offer” reached by a comparable company and union in the same geographical area.
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Employers and groups like the Coalition for a Democratic Workplace and the US Chamber of Commerce are watching but not waiting for further action. As O’Connor concludes, “There is not compromise that is acceptable.” He does not expect to see the legislative language of the compromise bill until “close to the last minute, to give us the least amount of time to mobilize.” Robert Voltmann, president and CEO of the Transportation Intermediaries Association (TIA) said his group has not been actively lobbying on the issue but it has followed the efforts of the American Trucking Associations and the US Chamber of Commerce. He didn’t expect action before the August Congressional recess, but he said, “I think they are going to get an ear full during recess and come back less willing to enact sweeping new government initiatives.” It appears that currently the last-best-hope for opponents is that the bill retains so many unacceptable provisions that its previous momentum grinds down to nothing. The concern remains that with 60 seats in the Senate, the Democrats and Independents who typically follow the Democratic lead, at least theoretically, can overcome a filibuster and move legislation on a partisan basis, but there appear to be hold outs on both sides of the aisle, making any prediction on the outcome difficult at best. And that’s keeping the lobbyists busy on Capitol Hill and trade associations continuing to promote action by members. Previous Coverage of the Employee Free Choice Act (H.R.1409; S.560): Specter Plays His Card Against Card Check Card Check Fight Is In The Senate Controversy Ahead as Employee Free Choice Act Introduced in Congress Union Members Oppose Card Check Says Poll Elections Have Consequences Costs Driving Trucking
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Editorial | Perry A. Trunick
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Carrier Corps Strategic thinking didn’t die, it just took a holiday.
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ne of the pressing questions in today’s transportation market is, with an overabundance of capacity and persistently low freight volumes, is the battle over marketshare degenerating into nothing more than a price war? There are certainly major players with the capacity to inflict damage on competitors through aggressive pricing. At least in some circles, the answer is “no.” Shippers are certainly price sensitive and some are downright obsessed, but most realize the current market dynamics will change and the balance between capacity an demand will swing back the other way. As shippers go back to the marketplace, they are doing two things simultaneously. One is to reduce the number of carriers they use. Yes, we’re back to talking about core carriers. And while they are reducing the overall number, they are also casting their net wide to see what other alternatives exist. If a shipper is going from 50 carriers to 35 core carriers, there is a base of incumbent carriers who, though not untouchable, will remain part of the foundation for the shipper’s routing guide. Some of the rest of the carriers making up this downsized corps will be new blood. That means some old carriers will find themselves seeking new business to make up for their shortfall. The objective measures of service and quality will govern most of the
choices of which incumbents start with a preferred status and which are acceptable but replaceable. And those carriers serving declining lanes or with less-thanstellar service will find their positions occupied by the new mix of carriers or bid out on the spot market. It’s a tough market, that’s certain. The hardest place to make a living is slogging it out head-to-head in a price-sensitive spot market. But that isn’t the whole market, and the experienced shippers are thinking ahead to when the tide turns and capacity tightens relative to demand. The shippers who were price-centric will find it difficult getting good carriers or they’ll see carriers resigning their business when market conditions offer more attractive routes, pricing and working relationships elsewhere. This is a good time for shippers to test the market and examine the capabilities of different providers and their willingness to develop a close, collaborative relationship that can be beneficial in the long term. But those requests for proposal (RFP) need to be clear in spelling out what is at stake. While carriers are trying to maintain some pricing discipline and distinguish themselves on quality and service, RFPs need to do the same. They need to reflect strategic goals and longterm perspective to differentiate them from a fishing expedition for lower prices. We’re increasingly hearing that the economy has stabilized, and the next step is growth. How long, how fast and how far remain to be seen, but the pendulum will swing back and those who have gotten past their panicked price shopping and are looking for long-term strategic advantage from the current transportation market will be well positioned when it does.
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Recalibrate Y
For Change
ou can’t plan for everything, but your operations plans should include enough flexible tools to allow you to adapt to changing conditions. At a time when many logistics operations would be ramping up for the seasonal consumer buying peak, most supply chains aren’t experiencing the historical surge in volumes. In fact, that surge may be largely relegated to history as the retail sector points to lower-than-traditional peak seasons for the last few years. Good practice for seasonality is just good practice for the business, says Art Smuck, vice president and general manager of operations for ATC Logistics and Electronics (ATCLE). For a good logistics person, practices don’t change much between down periods and upswings, he continues. You have to understand the flows, “The elements don’t change; what you do with them does.” A prime area where Smuck focuses attention is labor. He is a strong proponent of cross training and supplementing a fulltime workforce with temporary workers. But even those temporary workers require training, says Smuck, and that becomes a trigger point in planning. He offers that it can take 48 to 96 hours to train temporary workers in his operation. That doesn’t include any sourcing time with the agency providing the workers, pre-employment screening, drug testing or any other elements of the process of acquiring workers. That has to be part of the planning horizon and sets the trig-
Don’t forget the lessons learned planning for peak seasons.
ger point in Smuck’s planning. He needs to know what the forecast looks like in a sufficient window of time to allow for all of the steps to acquire the necessary temporary workforce. Come up short and you can’t get the work done as promised. Over estimate and you are paying for resources you aren’t using. With more logistics operations downsizing and relying on temporary workers to scale to demand, this peakseason strategy becomes much more a daily tactic. Chris Carey, president of Chris Carey Advisors LLC, also places a strong emphasis on labor as one of the strategies he used to help a third party logistics (3PL) company improve productivity, efficiency and profitability. Labor is the single largest expense you can mange in a distribution operation, he points out. You certainly want to work to utilize fixed assets more fully, he says, but you can’t do much with rents and utilities. Carey offers a before and after view of labor scheduling for his 3PL client. Labor scheduling and allocation were left to the general manager in each of the three facilities the company operates. There were no systems to manage daily labor levels, just the gut feel of the managers based on their experience. The managers called their regular agency with temporary labor requirements for the next day. One of the first steps Carey took with the operation was to identify the least number of tasks to be measured. The biggest failure
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Supply Chain people make, he says, is they get too granular. They get too many tasks that they try to measure and that makes goal setting nearly impossible. He took tasks like receiving, put-away, pick/pack etc. and measured current operations over a four- to eight-week period to establish productivity standards by task. That told him how many units per manhour each operation could process. From there, Carey took the client forecasts for the next day’s volumes and applied the productivity standard to determine the required workforce level. In almost every case, he notes, he got push-back from the operations managers. They stuck to the model, though, and allocated labor based on the established productivity standards. Carey also identified overtime as a defect in allocating time and labor to the throughput forecast. Overtime was only allowed for special circumstances and even then, the client had to agree to pay for the overtime. He agreed this same approach could work as a chargeback for a private warehouse on either a product line or department basis if the corporate systems are in place for the accounting. Even before productivity improvements were pursued, the labor management approach proved helpful in allocating resources and, with long-term forecasts, in planning and costing out month-bymonth throughput. ATCLE’s Smuck expands on the issue of coordinating forecasts and manpower planning. You need to be collaborative on forecasts, he says. You won’t have weeks, as a rule, you’ll have days to prepare, and that applies not only to the original demand forecast but also to the recalibrated forecasts that you should be seeing as an event horizon moves closer. While you solve for that riddle of directly supporting the demand, you also need peripheral vision, adds Smuck. As the basic demand changes, so do requirements for things like packaging. Goods coming from overseas will often be prepacked and may include promotion or consumer packaging along with the bulk shipment. But if you are sourcing printed card stock or blister packs locally for the goods, those orders will need to be adjusted along with the changes made in the incoming volumes. Also, says Smuck, there are other support services which will be affected. For a new product introduction, call center help lines will
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experience volumes in proportion to the goods that are being delivered to the market. Similarly, returns can spike when a new product introduction increases normal product traffic. There are other failure points that need to be accounted for, says Smuck. Plan for lift in the warehouse during heavy outbound traffic. What happens if a piece of equipment (or more) fails under the volume and constant use? How much actual buffer is needed if a new product introduction is using some new parts suppliers or pushing higher volumes onto existing part suppliers? What is their past performance and what is the expectation? What if one supplier fails to meet delivery deadlines? Reverse logistics should be planned just as carefully, says Smuck. If you are launching a new product or doing a promotion, where and how will you screen returns? If you can identify returns that can be made “available to promise,” it can preserve some sales and keep inventory and production in line by avoiding rushes to produce and expedite goods for orders which can be satisfied from stock. Warranty replacements are a good example of where goods returned with no defects can be reallocated, but that requires some planning on the front end to know which items don’t need repairs and could be used. The goal is to avoid surprises, says Smuck. He offers an example of a mobile phone supplier who was requiring the memories of its phones to be “reflashed” to update them before delivering them to customers. Smuck and another logistics company were providing the value-add service in the distribution channel. As they churned through the volumes of phones coming in, an engineer worked out a method that would allow Smuck’s group to increase its throughput. Meanwhile, the other distribution group was falling behind. Recalibrating demand with the customer, Smuck’s group was able to swing some of the volume over and help the customer avoid a bottleneck with the other distribution channel. Not one to accept a momentary victory, Smuck remained in close contact with all of the parties and as the problem at the other facility continued to escalate, his group was able to plan and increase its own capacity and keep the overall product introduction on track. As Smuck sums up, good discipline and good practices help you prepare for changes as they occur.
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News Cost Effective IT Alternative While companies look for cost-effective ways to improve operations and productivity using limited resources and constrained capital budgets, the warehouse management system (WMS) market is becoming increasingly saturated with products and providers, according to Ron Cain, chairman and CEO, and Ofer Nativ, director of IT Product Development of TMSi Logistics. This abundance of solutions can work to the advantage of users, suggest the two systems executives because it is forcing providers to develop new and innovative ways to offer their services to attract and retain customers. One approach many users are considering is software as a service (SaaS) systems. SaaS systems are generally targeted towards small- to medium-sized businesses with limited IT resources or who are looking to reduce the initial cost of implementing a WMS. Because SaaS costs are based on transactions they are often proportional to growth. A conventional WMS can require a large investment in IT infrastructure, IT resources, and maintenance. Infrastructure costs are generally a one time cost, but IT and maintenance prove to be continuous fixed costs over the life of the WMS, say Cain and Nativ. In a SaaS model, the vendor owns and operates the application, and is responsible for software, hardware, maintenance, and
upgrades. According to Forrester Research’s Total Economic Impact (TEI) studies, in most cases, SaaS delivers better TEI and lower cost than an installed system. A SaaS system is generally licensed from a provider based on the needs of an organization. If the WMS vendor charges by transaction, both companies gain when business improves and volume goes up. If business shrinks and volume goes down, the monthly fee will go down as well, resulting in lower costs for the business during slower periods. SaaS systems are generally Web-based and provide full visibility of the activity recorded in warehouses. These applications have the benefit of allowing clients to access the system using a standard Web browser, eliminating the need for installation of software on every work station. Since SaaS supports access via the Internet, users can view their inventory and real-time warehouse transactions anytime, anywhere. Cain and Nativ point out the traditional installed WMS model requires initial fees for licensing, maintenance and support, hardware (e.g. servers), and software (e.g. operating system and database licenses). Additional expenses include IT services such as patches, backup, disaster recovery, and troubleshooting. In the case of SaaS, companies lease the use of the WMS. A user pays one ongoing maintenance
and support fee which may be all inclusive. For an organization that already owns a WMS, there are additional points to consider. First, in order to upgrade the system, the company may be required to acquire a new version of the software. The new system must then be installed on a test server where business scenarios can be tested and data conversions can be prepared to provide a successful transition from the old version to the new version. Additionally, the risk of upgrading from an existing WMS, or implementing one for the first time, is greatly reduced, say Cain and Nativ, because there is significantly less burden on the IT department to oversee software installation and implementation since the vendor of the SaaS will manage it. The major concern that many users have when relying on SaaS systems is vendor reliability. Because the client is depending on an outside firm to house their data, arrangements must be made to ensure that, in the event that the vendor goes out of business or another issue arises, critical data will be transferred back to the client. “There seems to be a consensus emerging that SaaS thrives in a cost-conscious, capexconstrained economic environment, such as we’re currently experiencing,” says Phil Wainewright, CEO of the strategic consulting firm Procullux Ventures.
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Customs Announces ISF Import Penalties Customs has added teeth to the Importer Security Filings in the form of penalties for non-compliance.
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S Customs and Border Protection (CBP) moved forward another step with the implementation of Importer Security Filings (ISF) required under the Security and Accountability for Every Port Act of 2006 (SAFE Ports). Newly released guidelines describe violations and penalties for non-compliance and provide some options for penalty mitigation. The guidelines, which cover ocean carriers and importers, took effect July 17, 2009. They outline the penalties for non-compliance with ISF requirements, commonly referred to as 10 +2 because they require advance electronic filings of 10 data elements from importers and two from vessel operators. In addition to financial penalties, late, inaccurate or unfiled data could result in cargo being delayed or even seized by CBP.
Carrier Requirements and Penalties
Carriers are required to provide two pieces of information to CBP 48 hours before a vessel departs its last port prior arrival in the US. The vessel operator must supply an accurate vessel stowage plan and container status messages pertaining to containers loaded on vessels destined to the US. Vessels carrying exclusively breakbulk or bulk cargoes are excluded from filing a vessel stowage plan, otherwise the carrier must file its stowage plan 48 hours prior to departing. If the period of the voyage is less than 48 hours, the plan must be filed before the vessel arrives in the US. According to the newly issued guidelines, failure to submit a plan or submission of an inaccurate plan constitutes a violation. Though this responsibility and the violation falls on the car-
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Some Mitigating Factors According to US Customs and Border Protection (CBP), certain mitigating or aggravating factors can apply in the case of a violation of the Importer Security Filing requirements (commonly referred to as 10 +2). It’s new guidelines list some of those factors, though CBP cautions the list is not exhaustive. Mitigating factors for carriers submitting vessel stowage plans and container status messages include: Evidence of progress in the implementation of the vessel stow plan requirement during the flexible enforcement period (i.e., January 26, 2009 through January 26, 2010). Vessel stow plan information was filed late because of vessel diversion due to factors outside of the carrier’s control (e.g., due to weather). A carrier which has been validated and is in good standing with the Customs-Trade Partnership Against Terrorism (C-TPAT) program may receive additional mitigation of up to 50% of the normal mitigation amount. Demonstrated remedial action has been taken to prevent future violations. Regarding an inaccurate vessel stow plan, the presenting party acquired the information from another party in accordance with ordinary commercial practices, and can demonstrate that it reasonably believed the information to be true, and it was not reasonably able to verify the information. This is an extraordinary mitigating factor that may warrant cancellation of a claim without payment.
Aggravating Factors include: Lack of cooperation with CBP or CBP activity is impeded with regard to the case. Evidence of smuggling or attempt to introduce or introduction of merchandise contrary to law. This may be considered an extraordinary aggravating factor. Multiple errors on the vessel stow plan. There is a rising error rate which is indicative of deteriorating performance in the transmission of vessel stow plan information. Similar lists of mitigating and aggravating factors exist for importer violations on the 10 elements required under the SAFE Ports Act. The list and descriptions are contained in the CBP Bulletin dated July 17, 2009.
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rier, the penalties have implications for importers. Under the guidelines, the port directors at the US port can assess a liquidated damages claim of $50,000 for each vessel arrival. In addition to the liquidated damages claim, CBP can issue a DNL - do not load - hold, or deny or delay the vessel carrier’s preliminary entry permit/special license to unlade. And it may also assess other applicable statutory penalties. CBP may also withhold the release or transfer of the cargo until it receives the required information and has had the opportunity to review the documentation and conduct any necessary examination. In the case of a first violation, the claim can be canceled upon payment of $5,000 to $25,000, depending on the presence of mitigating or aggravating factors. On subsequent violations, the claim can be canceled with a payment of not less than $25,000. All of this is possible only if CBP determines the violation didn’t compromise law enforcement goals. No relief will be granted if law enforcement goals are compromised. For late or inaccurate filings, the liquidated damage claim can be canceled with payment of $2,500 to $10,000 for the first violation (depending on mitigating or aggravating factors). On subsequent violations, the claim can be canceled after payment of not less than $5,000. Again, there is no relief if CBP determines law enforcement goals were
Additional Background: The need for the Importer Security Filing requirement was spelled out in the Security Accountability for Every Port Act of 2006 (SAFE Port Act), but US Customs and Border Protection (CBP) didn’t issue its proposed rulemaking until January 2008. Requirements took effect in January 2009. At that time, CBP was reported to be “carefully monitoring” the progress the trade was making with compliance. The interim final rule on ISF provided a flexible enforcement period lasting twelve months after the effective date (January 26, 2009). Calming the Waters on 10 + 2
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Filing Requirements Under the SAFE Ports Act, importers and carriers are required to file electronically certain advance information on shipments of goods being imported into the US. • Data Required of Importers: • Seller • Buyer • Importer of record/FTZ applicant identification number • Consignee number(s) • Manufacturer (or supplier) • Ship to party • Country of origin • Commodity Harmonization Tariff Schedule of the United States (HTSUS) number • Container stuffing location • Consolidator • Data Required of Carriers: • Vessel Stow Plan • Container Status Messages (CSM)
compromised by the violation. Container status messages are required when container booking is confirmed, when the container undergoes a terminal gate inspection, when a container arrives or departs a facility (port, container yard or other facility), when a container enters or exits a facility (gate-in/gate-out), when a container is loaded or unloaded from a conveyance (loaded on/unloaded from), when a vessel carrying a container departs from or arrives at a port, when the container undergoes an intra-terminal movement, when a container is ordered stuffed or stripped or when a container is “shopped” for heavy repair. Penalties for violations apply to each CSM filed and parallel vessel stowage plan penalties but at a lower payment level of $1,000 to $2,000 per CSM for a first violation or not less than $2,500 per CSM for subsequent violations.
Importer Requirements and Penalties Importers (or their agents) must submit an Importer Security Filing (ISF) prior to the goods being laden at the foreign port for all non-bulk cargo destined to arrive in the US by vessel. An ISF is required for each shipment, including elements at the lowest bill of lading level (i.e., at the house bill level, if applicable). If there are changes after the filing and before the goods arrive in the US, the party filing the ISF is
required to submit them. Two of the required 10 elements, container stuffing location and consolidator/container stuffer, must be submitted as soon as possible and no later than 24 hours prior to vessel arrival in a US port. The other eight elements must be submitted no later than 24 hours prior to lading. There are some allowances relative to flexibility in the information submitted in certain elements. Importers can provide a “range of acceptable responses” based on the facts available to the importer. Updated information can be filed up to 24 hours prior to arrival in the US. Port directors can assess a liquidated damages claim of $5,000 per late or inaccurate ISF or for the first inaccurate ISF update. Failure to withdraw an ISF can also trigger liquidated damages of $5,000 per ISF. As with the carrier penalties, liquidated damages on first violations can be canceled with payment of $1,000 to $2,000 and subsequent violations, payment of not less than $2,500. If goods arrive without an ISF filed, CBP will withhold the release of the goods until it receives and reviews the documentation and conducts any necessary examination. It can also limit the permit to unlade cargo or it can seize the cargo. The full text of the guidelines is contained in the CBP Bulletin dated July 17, 2009 on pages 30-41. LT
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logisticstoday.com
Global Logistics
The Online Resource for Logistics Leaders
News Logistics Value Is In Service A recent global logistics trends study shows logistics costs low; value is in service. Miebach Consulting’s “Global Logistics Trends Study 2009—Go Local for Performance” indicates 20% of companies globally don’t know their logistics costs. In the automotive sector, that number rises to 28%. The good news, says Klaus-Peter Jung, Miebach Consulting, is that 80% do know their costs. Another interesting conclusion of the consultants is that logistics costs have less impact on corporate bottom lines than production and procurement. They quickly add that a greater significance may rest in the role logistics has as a key driver on service and customer satisfaction. Logistics can influence earnings much more by performance than by cost. In other words: Logistics is no longer only a cost factor but a performance driver for the companies. The Miebach study drew responses from 350 participants from around the world. It focused on achieving results on logistics costs, outsourcing, network design, technology and automation, supply chain security, green logistics and infrastructure. Delving into logistics costs, the study showed most of the logistics cost is transportation—seven of the eight industries covered and 11 of the 12 regions rank transportation as a key cost driver. It’s also the main area of outsourcing. The Global Logistics Trends Study confirms both existing studies and the general impression regarding outsourced services, citing transportation as an especially ripe market. But it also shows interesting future potentials in specific services, regions and industries. The pharmaceutical industry is becoming an increas-
ingly relevant market for third party logistics (3PL). Also, established outsourcing industries will focus on a wider service range in the future. Eastern Europe and the Middle East will lead the future outsourcing market while the Caribbean as well as Middle and South America will remain on a lower outsourcing level with a growing gap between those regions and the outsourcing leader. In contrast to what companies and logistics professionals might say in offical statements, the key driver for outsourcing has been and still is cost reduction. This is true regardless of region and is valid for nearly all industries. Logistics networks are not only driven by logistics costs. Purchasing, production technology and customer proximity also influence the degree of centralization. For instance, the high tech Industry will strengthen its centralized setup where Pharma as the current “centralization leader” trends towards a more de-centralized structure. High tech might be influenced by growing global standardization in assortment combined with reduced product life cycles, where pharma may be reacting to growing service requirements and regional legal regulations. The analysis also shows the smaller the company, the higher the tendency to future centralization. Key security problems occur with road transport (73% of the participants), followed by sea transport (30%) and warehousing (24%)—without regard for industry or region. Security problems are most often related to theft, whereas the problems of piracy and terrorism play a subordinated role. Eastern Europe and South America are looked upon as the most insecure areas worldwide. Surprisingly enough, except for northwest Europe, all of the participants view their own region as much less secure than rest of world does. This is an additional indicator for
our general conclusion that global supply chain management needs strong local know-how. On an international basis, logistics costs are 5% of the cost of goods sold. By region, logistics costs are 5.7% in southern Europe and middle America. They are 4.2% in both the Middle East and India. By industry, costs are 7.3% in consumer goods, 7.2% in wholesale, 3.4% in electronics and 1.9% in high tech. Among the key cost drivers identified, increasing transportation (including energy) and personnel rank high. Eastern Europe and the Middle East will lead the future outsourcing market—the Caribbean and Middle & South America will remain on a lower outsourcing level. Miebach states its assumption that the prime reason for the latter is the absence of major 3PL companies in these regions. Therefore, says Miebach, we see market potentials for the outsourcing industry on a long-term basis right there. Data suggest a correlation between the tendency to a lower degree of centralization and higher EBT (earnings before taxes). It seems that the closer companies are to their clients the more they profit. In short: “Go local for performance” is the success promising strategy and logistics and supply chain management is much more than a cost factor—they are key for customer satisfaction and, therefore, for the overall company success. If this is true—and no logistics professional should be in doubt about that— previous strategies dealing only with cost reduction must be reviewed regarding their impact on sales and customer satisfaction.
Global Logistics
Transport
Supply Chain
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