Presentation made in March, 2014. Highlights ocean transport and supply chain management. Chaos with container lines, supply chain erosion caused by container lines, cycle time compression, multichannel, segmentation, and risk mitigation.

1. Global Logistics
Making Sense of it All
By Tom Craig – tomc@ltdmgmt.com

2. Topics
 Ocean Transport
 Supply Chain Management

3. Ocean Transport

4. State of the Industry
• Too many ships
• Slow growth of global trade
with recession
• Losses (especially Asia-
Europe)

5. The Times – They Are A Changing
Global Trade / Global Logistics

6. Top 10 Container Carriers
1996
1. APM-Maersk
2. Evergreen
3. P&O Nedlloyd
4. Sea-Land
5. COSCO
6. Hanjin
7. MSC
8. NYK
9. Mitsui
10. Hyundai
2010
1. APM-Maersk
2. MSC
3. CMA-CGM
4. APL
5. Evergreen
6. Hapag-Lloyd
7. COSCO
8. CSAV
9. CSCL
10. Hanjin

7. Top 10 Container Ports
1980
1. New York/New Jersey
2. Rotterdam
3. Hong Kong
4. Kaohsiung
5. Singapore
6. Hamburg
7. Oakland
8. Seattle
9. Kobe
10. Antwerp
2011
1. Shanghai
2. Singapore
3. Hong Kong
4. Shenzhen
5. Busan
6. Ningbo
7. Guangzhou
8. Qingdao
9. Dubai
10. Rotterdam

8. Top 10 North American Ports
2000
1. Long Beach
2. Los Angeles
3. New York/New Jersey
4. Charleston
5. Oakland
6. Seattle
7. Norfolk
8. Houston
9. Savannah
10. Tacoma
2011
1. Los Angeles
2. Long Beach
3. New York/New Jersey
4. Savannah
5. Vancouver
6. Oakland
7. Seattle
8. Virginia
9. Houston
10. Manzanillo

9. Ocean Transport
Mega Ships

10. Mega Ships
Mega Ship Aircraft Carrier

11. Issues They Face
• Megas (Triple E) – 18,000+ TEU (vs.
1,000 TEU in 1970’s)
• Lower Operating Costs
• How Will Ships be Filled?
• Which Ports Will Handle Them?
• How Will Ports Handle Them?
• What’s the Investment?
• Bottlenecks!

12. The P3 Network and More

13. The P3 Network
• Maersk, MSC, CMA-CGM – The 3 Largest
Carriers
• Formed an operating alliance
• FMC, EU, & China reviewed
• Three Issues –
• Market Share
• Big Ships
• Hubs/Ports Used

14. P3 Market Share
• 44% Asia-to-Europe
• 24% in the Trans-Pacific
• 42% in the Trans-Atlantic
Trade

15. P3 Vessel Size
• Average vessel for Asia-
Europe – increasing from
9,300 TEU to 14,200 by end
of 2015
• Maersk’s Largest Vessels –
surpass MSC and CMA CGM
when all Megas delivered
• Creates a Domino Effect

16. The G6 Alliance

17. The G6 Alliance
• From New World & Grand Alliances
 APL (#4)
 Hapag-Lloyd (#6)
 NYK
 OOCL
 Hyundai
 Mitsui

18.  COSCO (#7)
 Hanjin (#10)
 K Line
 Yang Ming
 Evergreen (#5) – May Join
The CKYH Alliance

19. Canals
 Panama Canal – 2015 or 2016 Expansion
 Updates on East Coast ports with bigger ships &
widening
 $1.6 Billion Overrun
 Construction was slowed during dispute
 Suez Canal - Congestion

20. Pending Chaos!?

21. Issues
• Supply (of ships/container
space) exceeds demand
• Pricing/Rates – flat and
somewhat low
• Will “Money People” sit still?
• Last time – carriers laid up
significant tonnage
“coincidentally” at same time

22. Singapore 2009

23. Shake Out Ahead?
 Financial
 Much red ink for last 5 years
 Hanjin – operating loss $225 Million / net loss
$631 Million for 2013
 M&A
 CSAV / Hapag-Lloyd (could this new carrier join
the P3?)

24. The Next Few Years
 As big ships are spread around globally
 More rate volatility in more trade lanes
 Schedule/Service Vagaries
 Dropped weekly sailings
 Fewer Carriers

25. Ocean Carriers &
Global Supply Chain Erosion

26. What Carriers Are Doing
 Fewer carriers in business
 Alliances, slot exchanges, and vessel sharing –
created and changed
 Shipping Routes – added and revised
 Sailing Schedules – made and reworked
 “Slow Steaming” – ongoing practice

27. What It All Means
 Irregular Performance
 Lack of service reliability
 Potential changes as to ports to handle ships

28. Which Means
 Increased uncertainty for planning
 Undermine inventory yield maximization
 More inventories and more capital tied up

29. Impact
TOTAL GLOBAL
INVENTORIES
REQUIRED
INVENTORY TO
MEET
REQUIRED TO
MEET SALES
SAFETY STOCK
ADDITIONAL
BUFFER TO
COMPENSATE
FOR
UNRELIABILTY

30. By The Way…
• How does all this factor into
your importing and carrier
selection (even if you use a
NVO)?
• Do you form an IGA shippers
association to leverage buying
power for import freight?
• Have you considered how
much is big and big – big
carriers and big shippers?

31. Questions???

32. Supply Chain Management

33. Is This Your Supply Chain?
 What do you know about your SC Performance?
 Are you doing much “fire-fighting” (reactive vs.
proactive)?
 Do you have little/no metrics, beyond complaints,
charge backs or costs?

34. Yours?
 Do you have a monolithic supply chain operation?
 Little/no service differentiation beyond customer
order requirements?
 Is it defined by costs, tasks, and/or functions?

35. Is This Your Supply Chain?

36. Perfect Order
 Delivered / Complete / Accurate / On-Time
 How well do you do with customer orders?
 How well do your suppliers do with your PO’s?

37. Benefits of Real SCM
 Customer Advantage –
 IT’S ABOUT THE CUSTOMER!!!
 Competitive differentiation
 Translates into better revenue and margins

38. Are You Happy
with the Supply
Chain That YOU
Built?

39. How Do You View Global Logistics?

40. SCM - Hot Topics
 Time Compression
 Omni-Channel / Multi-Channel
 Segmentation
 Risk Mitigation

41. Cycle Time Compression

42. Cycle Time
 Cycle Time – time from recognition of need (before PO
is issued) until product delivered to you – and sold,
and paid by customer (funds availability affects
procurement)
 Not just length, includes variance
 Time – important for business

43. Cycle Time
 Inventory-factor of uncertainty (buffer) – longer
than cycle time, more the uncertainty, more the
inventory
 Key factor for responsiveness and agility
 In Lean, extra time is waste

44. Cycle Time Compression
 Identify and assess each sub-cycle
 Look for gaps, redundancies, and meaningless
items
 External and internal (especially)
 Streamline practices and operations

45. SC Omni-Channel / Multi-Channel

46. What It Is
 Selling through multiple channels
 For B2C and B2B
 Sell 24/7 from anywhere in the world
 From any device (e-commerce and m-commerce)

47. Omni-Channel Examples
 Think Amazon and more
 Home Depot
 Building 3 e-commerce fulfillment centers
 100,000 products (vs. 35,000 for stores)

48. SCM Omni-Channel Issues
 Speed and accuracy of order shipment
 How to position inventory
 Where to position inventory
 What inventory to position
 Technology – integrated visibility for inventory and
orders in all channels

49. Multi/Omni-Channel
Direct shipping of gloves “from/for” other party’s ecommerce site
• E-tailer does not have to hold inventory
• Can your suppliers ship to customers elsewhere in the world for you?

50. Supply Chain Segmentation

51. What Segmentation Is
 Superior best practice
 Dividing business into discrete groups (not
based on business units) based on similar
characteristics
 Address important company issues
 Serve strategic purpose

52. Key Issues for
Segmenting
• Differing markets
• Product portfolios
• Customer portfolios
• Inventory yields
• Omni-Channel sales

53. More Issues for
Segmenting
• Global operations
• Channel partners
• Customer attrition
• Suppliers
• Supply chain risk

54. Why Segment???
 Stop one-size-fits-all “service” approach
 Reduce internal and external noise that
crates chaos and diverts resources
 Design and align operations for different
sectors
 Build competitive differentiation

55. How To Segment
1. Identify segments
2. Profile sectors – and customers in them
3. Determine how customers in each
segment differ for SC services
4. Evaluate supply chain services, including
ones not met, and performance for each
segment

56. Segment Approaches
 Cost – good concept – allocating and
assigning costs - no direct costs
 Value – economic – not good to identify
segment characteristics
 Need – drivers that segments have for
specific service(s)

57. What To Do With Results
1. Prioritize segments
2. Be specific
3. Evaluate the quality of service
4. Implement services for each segment
5. Develop metrics for each segment’s
service and measure
• Have Actionable Info

58. Example
Order Size and Annual Volume
Small Orders
Direct to Store
Delivery
Large Orders
with Demanding
Delivery
Small Orders and
No Real Volume
Medium Size
Orders with
Special
Preparation for
Select Products
Order Requirements

59. Large Order Segment
3rd Cut2nd Cut1st Cut
Large Orders
Rapid Order
Preparation &
Delivery
Same Day
Delivery
Nationwide
To Warehouses
Prepared for
Cross Docking
Regular
Delivery
Export

60. Special Preparation Segment
3rd Cut2nd Cut1st Cut
Mid-Size Orders
Time for
Picking Two
Products and
Making New
SKU
To Warehouses
To Stores to
Support Ads
Standard Orders To Warehouses

61. Direct to Store Segment
3rd Cut2nd Cut1st Cut
Small Orders
Picking and
Special
Packaging
Product
Placement in
DCs
Outside
Packager

62. Redesigned Supply Chain
Special
Handling---
Make New
SKUs & Small
Orders
New
Approach for
Positioning
Inventory --
Location and
In DCs
Geography/
Location--For
Demanding
Delivery &
Store Direct

63. Supply Chain Risk Mitigation

64. What Risk Is
 About business opportunity
 Concept traction - Fukushima
 Insurance focus - assets
 Plus contingency planning

65. Supply Chain Risk
 Complexity
 Geographic Scope
 Offshoring/sourcing
 Outsourcing
 Low inventory
 Lean manufacturing
 JIT manufacturing

66. Supply Chain Risk
 Deloitte Global Survey
 45% say SC risk program only somewhat
effective or not effective
 53% say SC disruptions have become more
costly
 48% say frequency of risk disruptions with
negative outcomes have increased

67. More From Deloitte
 Technology, industrial products, diversified
manufacturing most likely to say SC
disruptions have become more costly
 Most costly outcome – margin erosion
 71% say SC risk is important in strategic
decision-making

68. More
 Top challenges to risk management (RM)
 Lack of cross-functional collaboration (32%)
 Cost of implementing RM strategies (26%)
 SC RM is organized around silos (75%)
 Leads to lack of visibility and collaboration
 Makes difficult to assess and manage risk on
holistic basis

69. Threat Sources
• Natural disasters
• Geopolitical
• Pandemics
• Technological
• Terrorists
• Commodity prices

70. Sources
• Labor costs
• Currency
• Ports
• Markets
• Suppliers
• Execution

71. International Country Risk Guide
Source: PRS Group
1. Norway
2. Brunei
3. Luxembourg
4. Switzerland
5. Singapore
6. Sweden
7. Oman
8. United Arab Emirates
9. Germany
10. Canada
11. Hong Kong
12. Taiwan
#39 – China
#54 – Mexico
#62 - Thailand
#86 – Indonesia
#114 – Sri Lanka
#129 - Pakistan
13. Qatar
14. Saudi Arabia
15. Denmark
16. New Zealand
17. Japan
18. Kuwait
19. Finland
20. Korea Republic
21. Trinidad & Tobago
22. Netherlands
23. Australia
24. Austria
25. Malaysia

72. Suppliers
Tier 1 Suppliers and More

73. Risk
 Measure risk
 Financial impact
 Time to recover
 Identification and mitigation – not just for MNC’s
 Cannot mitigate what you do not identify
 For IGA?

74. Where Will Your
Supply Chain
Take You?