World Trade - 08 Aug 2009

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©2009 The Port of Long Beach

Thinking outside the docks

Inside

VOLUME 22

NUMBER 8

August 2009 16

FEATU RES

E XE C UTI V E B R I E F I N G

COVER STORY:

10 Green Matters 12 Supply Chain Watch 13 Tradewinds

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The Top U.S. Trade Partners Our annual survey of the top U.S. trade partners and our leading imports and exports.

COLUMNS 28

Taking Supply Chain Security to the Next Level

INSIDE WORLD TRADE

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Mobile security is playing a big part, but it’s not a silver bullet. By Dan McCue

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Staples Nails Sustainability

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Turning the page at World Trade while entering a new chapter of world trade. By Lara L. Sowinski

The office company’s embrace of environmentalism is paying off.

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Out with the Old, in with the New

By Gail Dutton

SCI-FI

Is Trade with Cuba a Reality?

50 The Cargo-Screening Robotic Ferret

Recent developments in the Obama administration could open the door wider. By Dan McCue

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Scientists at the University of Sheffield, England unleash a new ‘animal’ for screening cargo. By Jeremy N. Smith

REGION 44 NAFTA: Two Sides of the Coin Mexican manufacturing bounces back while Canada frets over U.S. protectionism. By Lara L. Sowinski

TRANSLATION 47 Talk About a Tough Sell Making the case for spending on translation services in a slow economy.

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By Jeffrey Jorgensen

WORLD TRADE, WT100 Volume 22, Number 8 (ISSN 1949-9159) is published 12 times annually, monthly, by BNP Media II, L.L.C., 2401 W. Big Beaver Rd., Suite 700, Troy, MI 48084-3333. Telephone: (248) 362-3700, Fax: (248) 362-0317. No charge for subscriptions to qualified individuals. Annual rate for subscriptions to nonqualified individuals in the U.S.A.: $104.00 USD. Annual rate for subscriptions to nonqualified individuals in Canada: $137.00 USD (includes GST & postage); all other countries: $154.00 (int’l mail) payable in U.S. funds. Printed in the U.S.A. Copyright 2009, by BNP Media II, L.L.C. All rights reserved. The contents of this publication may not be reproduced in whole or in part without the consent of the publisher. The publisher is not responsible for product claims and representations. Periodicals Postage Paid at Troy, MI and at additional mailing offices. POSTMASTER: Send address changes to: WORLD TRADE, P.O. Box 2144, Skokie, IL 60076. Canada Post: Publications Mail Agreement #40612608. GST account: 131263923. Send returns (Canada) to Bleuchip International, P.O. Box 25542, London, ON, N6C 6B2. Change of address: Send old address label along with new address to WORLD TRADE, P.O. Box 2144, Skokie, IL 60076.

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®

INSIDE WORLD TRADE

Group Publisher Tom Esposito Publisher Sarah Harding Managing Editor Lara L. Sowinski Art Director Michael T. Powell Contributing Writers Mark Bernstein, Richard Barovick, Gail Dutton, Joshua Kurlantzick, Andrea MacDonald, Clay Risen, Jeremy Smith, April Terreri, Amy Zuckerman

WORLD TRADE MAGAZINE EDITORIAL ADVISORY BOARD Grant Belanger Ford Motor Company Director South America Operations

Beth Enslow Global Supply Chain Resiliency Marsh, Inc.

Steve Palagyi Director, Pacific Region PRTM Consulting

Kurt Cavano, Chairman and CEO, TradeCard

Erik Autor Vice President and International Counsel National Retail Federation

Frank Vogl, Vogl Communications, Washington D.C. Thomas E. Crocker Co-Chair International Trade and Regulatory Group, Alston & Bird LLP

Susan G. Esserman Chair, International Department Steptoe & Johnson

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Sarah Harding 216.991.4861 [email protected] Randi Giambruno 516.377.3906 [email protected] Vito Laudati 630.694.4018 Fax: 248.283.6618 [email protected] Hong Kong Office Publicitas Wendy Lin Tel: 852.2527.3525, Fax: 852.2528.3260 Steve Beyer Tel: 847.516.1977, Cell: 630.699.7625 [email protected]

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Out with the Old, in with the New

A

s we turn the page at World Trade, you’ll notice that aside from our new name—WT100—we’ve begun to make some editorial changes too. Our Policy Perspectives column has been replaced with Green Matters—a column summarizing ‘green’ news in the logisLARA L. SOWINSKI tics sector as well as broader sustainability initiatives. Great Moments, which highlighted historical milestones in world trade, has been swapped out for SCI-fi (the “SCI” standing for Supply Chain Innovations), a column profiling cutting edge, radical, and in some cases ‘still on the drawing board’ developments and technologies that have potential for future supply chains. In this month’s annual survey of the U.S.’ leading trade partners and biggest imports and exports, one thing stayed the same, however, and that’s Canada’s position as our top trade partner. We again consulted Coface for their assessment of the risk associated with these trade partners and also added several new indices, like the Heritage Foundation’s Index of Economic Freedom and the World Economic Forum’s Global Competitiveness Ranking, to see how our top 15 trade partners fared on other fronts. It’s worth mentioning that our trade relationship with Canada isn’t entirely rosy at the moment, with the ‘Buy American’ provision contained within the American Recovery and Reinvestment Act causing a bit of friction with our northern neighbor. Susan Kohn Ross, International Trade Counsel with Mitchell Silberberg & Knupp LLP addressed this issue recently, calling into question the three arguments that are typically used to defend Buy American provisions.

The first argument states that most other countries have similar provisions. “But, since when did the fact that lots of folks do something make it right?” she asks. Moreover, taxpayer money shouldn’t be spent on foreign products, and third, using American-made inputs supports American jobs, say supporters of the Buy American provision. “Certainly, we all want to see full employment, but there are four industries that the U.S. has historically protected through high tariffs and non-tariff barriers (such as quotas)—automobiles, wearing apparel and textile products, footwear, and steel and steel products. How many of them are competitive in today’s world market?” Ross responds. She adds that, “As to spending taxpayer money for these infrastructure projects, shouldn’t the goal be to get the best return on our investment? All things being equal, including the safety and efficacy of the finished product, shouldn’t we use the cheapest inputs, even if they are foreign? Doesn’t the government have a fiduciary duty to get the best bang for the taxpayer buck?” And yet, just when it looks like rising protectionism is getting a foothold, our trade relations with Cuba are showing the earliest signs of reparation, as contributing editor Dan McCue reports this month. President Obama’s easing of family travel restrictions and remittances earlier this year has given hope to many in the trade community that the long-standing trade embargo will eventually be dismantled too. Administrations change. Trade policies change. World trade (and World Trade) changes. As always, we welcome your view. Drop us an email or visit us on Facebook and let us know what you see.

Lara L. Sowinski, Editor [email protected]

ALL Things to Some People SEREC 626-961-3666 FAX: 626-330-8458 WWW.SEREC.COM 15351 E. STAFFORD STREET CITY OF INDUSTRY, CA 91744 TOM FARRELL Owner/Director

T: 312-659-6818 [email protected]

INDUSTRIES SERVED B2B & B2C Manufacturing: Apparel, non durable consumer goods, Bath & Beauty, Toys….

REGIONS SERVED USA via Southern CA

WEB HIGHLIGHTS “Things we DO” section of www.SEREC.com

CATEGORIES 3PL Warehousing Fulfillment Replenishment Pick/Pack EDI E-Fulfillment Import Distribution Crossdocking Sub-Assembly Reverse logistics E-commerce Product visibility

Serec provides an exceptional array of fulfillment services thanks to our 45+ year history and impeccable compliance rating with virtually all retailers. Some of the many services we offer include: EDI order processing, pick and pack, labeling, pricing, and ticketing: light assembly, kitting, and promo packs; e-fulfillment consumer direct; inventory visibility; custom status reports; RFID if required; custom thermoforming; compliance consulting and outsource service; EDI services; UCC – 128 Bar code printing and labeling. If you do not see what you need, please ask as we accommodate most requests. Serec provides its clients with nearly 100 percent compliance. Our dedicated staff is a vital component of this astounding compliance statistic. One hundred percent compliance is more than just a number. A perfect record means that chargebacks are practically eliminated and it guarantees our clients will save money on their distribution and fulfillment. We pride ourselves on our flexibility and responsiveness. Whatever you need, whenever you need it, we ensure that your needs are met in a timely and accurate fashion.

Tom Farrell Owner/Director Tom Farrell, son of the founder, has provided an excellent bridge from the operational expertise available at Serec to the clients currently held at Serec and those interested in acquiring third party fulfillment/import distribution service offered by Serec. The company’s 45+ years experience in the industry has allowed for a historical evolution including growth and service to some great retail stores including Trader Joe’s, Sears, Adidas, Nike, LA Gear and Wilson.

GREEN MATTERS Port of Indiana Handling Equipment for Massive Wind Farm The Port of Indiana-Burns Harbor has begun handling shipments of wind turbines and blades, which will be used to construct one of the world’s largest wind farms in the northwestern part of the state. T he Me adow L a ke W i nd Farm—a 26,000-acre “clean energy” project—could eventually contain 600 turbines supplying power to more than 250,000 homes. On June 1, the port received the first shipment of generators and hubs built by Denmark-based Vestas Wind Systems. Later that month, 94 blades measuring 132feet long by 10-feet high and 6-feet wide were unloaded at the port, along with more generators and hubs.

Cold-ironing for Crowley at the Port of LA Crowley tugboats operating at the Port of Los Angeles have begun using newly installed shore-side electrical power when not on the job to cut fuel consumption and reduce carbon dioxide emissions. Shore-side electrical power, also known as cold ironing, is expected to reduce Crowley’s carbon dioxide emissions by more than 486,180 pounds in the first year alone, while significantly saving on fuel that was previously used to run the tugs’ generators. Crowley already has cold ironing capabilities in Seattle, Jacksonville, Pennsauken and Puerto Rico. “We are very pleased to be a part of this important green initiative with the Port of Los Angeles,” said Frosty Leonard, Crowley manager of marine operations in California. “Using shore-side power is not only the environmentally friendly thing to do, it’s just good business.”

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As an added benefit, Leonard said shore-side power eliminates the constant noise from the engines that disrupts the crews’ rest periods and provides engineers a quieter engine room in which to work.

PepsiCo Opens First Green Beverage Plant in China Beverage giant PepsiCo has opened the first green beverage plant in China that complies with the Green Building Council’s Leadership in Energy and Environmental Design (LEED) standards. The beverage facility, located in the western city of Chongqing, “is important to the company’s ongoing strategy to expand in emerging markets and broaden its portfolio of locally relevant products,” the company said. Compared to the average PepsiCo plant in China, the Chongqing plant uses 22 percent less water and 23 percent. To save energy, 75 percent of the plant’s indoor areas feature natural lighting, including a skylight in the packing area and warehouse, while a roof garden insulates the office building and saves energy for cooling and heating.

Dow Chemical in Pilot Project to Create Fuel from Algae, CO2 Dow Chemical has announced plans to partner with Algenol Biofuels in a pilot project to use algae and carbon dioxide to produce ethanol fuel. The site of the project will likely be located at Dow’s Freeport, Texas facility. The project will be based on Algenol’s technology, which mixes carbon dioxide and saltwater with algae in photobioreactors to produce the biofuel. Dow said the project aims for “a breakthrough process for ethanol production” that does not use food sources such as corn.

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KCS Railroad Greens its Locomotives Kansas City Southern railroad is adding 27 locomotives to its fleet that utilize Electro-Motive Diesel (EMD) technology. The locomotives minimize fuel consumption while maintaining emissions compliance, producing 25 percent fuel savings, 50 percent lube oil reductions, and 70 percent reduction in greenhouse gas emissions, which makes them U.S. Environmental Protection Agency (EPA) Tier II compliant and eligible for both state and federal funding as clean air projects. Eleven locomotives will be in service on the Kansas City Southern Railway Company network, while 16 locomotives will be in service on the Kansas City Southern de Mexico, S.A. de C.V.

The U.S. is the world’s top producer of corn-based ethanol, but critics say this diverts needed food supplies and land resources for fuel, while raising food prices on world markets.

vessel’s total electrical energy consumption, it can be combined with other energy-saving measures to reduce energy consumption and limit the vessel’s carbon footprint.

NYK Vessel Gets its Power from Solar

Green Technologies to Comprise 40 Percent of Siemens’ Orders

The world’s first solar-assisted auto carrier, the NYK Auriga Leader, called the Port of Long Beach last month with a shipment of Toyota automobiles. According to NYK Line executives, the shipment represents the first step towards a distant goal of developing a zero-emission vessel. The top deck of the NYK Auriga Leader is equipped with 328 solar panels. The panels generate 40 kilowatts of power that feed into the vessel’s auxiliary engine, which in turn supplies the ship’s electricity and other internal power requirements. Although solar power accounts for only about 0.8 percent of the

Government economic stimulus plans are expected to result in 15 billion euros ($21 billion) in orders worldwide between 20102012 for Siemens, with about 40 percent of that amount for environmental or “green” technologies, the company said recently. Already, the company’s production of such products as low-consumption light bulbs and wind turbines accounted for roughly 19 billion euros in Siemens’ 2007/2008 fiscal year. Meanwhile, in 2011, orders for green products are forecast to climb to 25 billion euros, Siemens said. WT

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SUPPLY CHAIN AIR

Freight Demand Stabilizing, Says IATA The International Air Transport Association (IATA) said recently that demand for airfreight has begun to stabilize, with May’s volumes posting a modest 3 percent increase over April’s figures. According to IATA, the latest figures represent a “first sign” of economic recovery in equity markets. Nonetheless, the industry group says the long-term outlook for airfreight remains grim. “Even if we look beyond the [economic] crisis, it is difficult to see a return to business as usual. This crisis is re-shaping the industry,” stated IATA directorgeneral Giovanni Bisignani. The impact of airline debt and low asset prices will also delay any recovery, according to IATA, which estimates the industry may lose $9 billion this year.

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mize flight routes, among other things, to slash its fuel costs and emissions of carbon dioxide and other heat-trapping gases. “Our customers are asking us to do this and are looking for green partners,” said Lynnette McIntire, a company spokeswoman. “We are a huge part of their supply chain.” On the other hand, rival FedEx says it plans to get 30 percent of its fuel from petroleum alternatives by 2030. According to the company’s CEO Fred Smith, FedEx will soon switch from MD-11s to Boeing 777s for its long-range, international routes. The company will also phase-out Boeing 727s for 757 models, which are 47 percent more fuel-efficient. Aviation accounts for about 10 percent of U.S. greenhouse gas emissions from transportation, or about 2.7 percent of the nation’s overall carbon footprint, according to the U.S. Department of Transportation.

OCEAN

UPS, FedEx to Trim Fuel Costs

Major Shipping Lines Hike AsiaU.S. Rates

United Parcel Service (UPS) and FedEx have both announced fuel saving measures that will not only trim costs but boost sustainability efforts too. For its part, UPS aims to cut its airline fleet’s greenhouse gas emissions 42 percent from 1990 levels during the next decade by using less fossil fuel in its jets. The company operates the world’s ninth-largest private airline fleet with 228 jumbo jets in service and 314 more chartered aircraft. UPS is planning to invest in more fuel-efficient aircraft models, introduce biofuels, reduce runway idling and opti-

The 14 shipping lines of the Transpacific Stabilization Agreement (TSA) say they will hike rates by $500 per 40-foot container on the eastbound Asia-U.S. route to end a price war caused by slumping demand, overcapacity and “panic.” The increase will take effect on August 10. Average revenue per container dropped as much as $1,200 from October to May, the TSA said. “The lines are taking the opportunity of the peak season to reduce losses,” remarked a shipping analyst. “That doesn’t mean demand has come back.”

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Maersk to Open Chassis Pool in NY/NJ Region Maersk Line is planning to open a chassis pool in the New York/ New Jersey port region during the third quarter—the first in a number of sites the company plans to unveil. The NY/NJ location will offer over 5,000 chassis, however Maersk will eventually make its total U.S. fleet of 90,000 chassis available throughout the U.S. The company said the new business model for its chassis fleet will fundamentally change its carbon footprint. It estimates that the program will cut carbon dioxide emissions by over 4,000 tons a year when the program is rolled out nationwide. The U.S. Environmental Protection Agency’s SmartWay Transport Partnership recommends the use of common chassis to reduce the environmental impact of drayage. “According to SmartWay, common chassis pools can help trucking companies save fuel and reduce greenhouse gas emissions by minimizing unnecessary truck movements and idling associated with switching chassis,” explained Lee Kindberg, Maersk Line’s environmental director.

RAIL

UP Investments Boosting Intermodal Union Pacific Railroad says that improvements on its network over the past few years are helping boost intermodal capacity and on-time performance, which is now at an all-time high. According to the railroad, recent routing upgrades have

reduced mileage and prevented congestion in certain lanes, such as a northern California-to-Dallas route that’s more than 1,000 miles shorter and takes 30 fewer hours to travel through compared with a previous route. The Omaha, Nebraska-based railroad plans to invest $1.7 billion during this year to strengthen the track infrastructure across its more than 32,000-mile system.

TRUCKING

Mexican Truck Ban Costly for Some U.S. Businesses The U.S. government’s decision this past spring to ban funding for a pilot program allowing Mexican trucks full access to U.S. highways prompted Mexico to impose retaliatory tariffs on U.S. exports to Mexico, which is making it costlier for many U.S. businesses. According to a report in the Dallas Morning News, eighty-five of the 90 U.S. exports targeted by the retaliatory tariffs are made or grown in Texas. And one company, Dallas-based cosmetics manufacturer Mary Kay, says the tariffs are costing the company an additional $450,000 each month. Mary Kay has joined with other companies to urge the Obama administration to find a solution that would allow Mexican trucks back onto U.S. highways. “Since the tariffs were imposed, we have worked nonstop to affect this issue,” noted Anne Crews, Mary Kay’s vice president for government relations. “This is having a real effect on U.S. companies and needs a quick resolution.” Transportation Secretary Ray LaHood has stated that he is optimistic that a solution could be found very soon. WT

TRADEWINDS THE LATEST TRENDS IN THE WORLD OF TRADE

Thawing U.S.-Russia Relations AMERICAN FIRMS SEEING SOME BUSINESS BREAKTHROUGHS Concerns over Russia’s red tape and weak legal system has hampered U.S. investment in recent years, but a recent business summit that coincided with President Obama’s meeting with Russian President Dmitry Medvedev resulted in several high-profile deals. PepsiCo said it would boost investment in Russia by $1 billion, bringing the company’s total outlay in Russia to $4 billion. It also opened a new bottling plant south of Moscow over the summer. Farm equipment manufacturer Deere & Co. plans to expand its operations in Russia by early 2010 with the support of the Russian government. The company already employs

about 2,000 people in Russia and has a presence in the country for 130 years. Nonetheless, U.S. Secretary of Commerce Gary Locke said U.S. investment in Russia is “a fraction of what it could be” because of excessive bureaucracy, which hampers trade. That’s the reason cited by Swedish furniture manufacture for deciding to postpone any new investment in Russia while also shelving plans to open an additional 30 stores there. Locke also said that Moscow should lift its restrictions on U.S. poultry and pork imports to encourage the U.S. Congress to repeal the Jackson-Vanik amendment, a point of contention between the two countries.

The 1974 law limited trade with Communist nations that restricted the emigration of Soviet Jews, but remains on the books due to lingering postCold War disputes on trade and other issues. Even still, Russia represents a potential goldmine for U.S. businesses and investors in the health care, information technology, and energy conservation sectors, among others, said Locke, adding that improved commercial relations could help mend political differences between the U.S. and Russia. Russia has also been trying for years to join the WTO, and while negotiations have moved forward somewhat with the U.S., talks with the EU and

Transportation Services Index (TSI)

June 111.5

July 112.9

August 110.8 September October 109.1 108.0 November 103.2

December February 100.3 January 99.1 97.8 March 95.6

April 94.6

May 94.0

JUNE 2008 – MAY 2009

The Freight Transportation Services Index (TSI) fell 0.6 percent in May to a level of 94.0 (2000=100), declining for the third consecutive month to the lowest level in 12 years, according to the U.S. Department of Transportation’s Bureau of Transportation Statistics (BTS) office. TSI is a single seasonally adjusted index of the month-to-month changes in the output of services provided by the for-hire transportation industries, including railroad, air, truck, inland waterways, pipeline, and local transit.

other WTO member-nations have a ways to go. Bilateral trade between the U.S. and Russia amounted to $36 billion last year, just 1 percent of all U.S. trade..

Paying for the Highway Trust Fund SENATOR LOOKS TO ‘HEAVY USERS’ California Senator Barbara Boxer wants ports, railroads, and trucking companies to be the primary source of funds for the Highway Trust Fund, which is expected to run out of money as soon as August. “I’m not going to keep going back to the American public on a gas tax. Let the heavy users like the truckers step up to the plate, and we can work together,” Boxer said during a recent Senate Environment and Public Works hearing. In June, the Obama administration asked Congress to extend the current highway program for 18 months to allow time to find money to replenish the Highway Trust Fund. The federal Highway Trust Fund was created in 1956 to ensure financing and maintenance for the U.S. Interstate Highway System and certain other roads. Money for the fund is raised indirectly via a federal fuel tax and related excise taxes.

NAM Warns Customs’ 10+2 Will Cost Billions RULE SET TO TAKE EFFECT NEXT JANUARY A survey conducted by the Customs and Border Coalition, a group launched by the National W W W. WO R L DT R A D E WT 1 0 0 .C O M

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TRADEWINDS

Names & News Kurz, Widdows Receive Awards

MOL Appoints An

The United Seamen’s Service (USS) 2009 40th Annual Admiral of the Ocean Sea Awards (AOTOS) will be presented to Donald Kurz, President and CEO of Keystone Shipping Co., headquartered in Philadelphia, and to Ronald Widdows, Group President and CEO of NOL (Neptune Orient Lines) of Singapore, parent company of American President Lines (APL). The maritime industry’s most prestigious honors will be awarded at a gala industry dinner and dance to be held at the Sheraton New York Hotel and Towers, New York City, on November 13, 2009.

Echo Global Logistics, a technology-driven transportation management firm, has announced that CEO Douglas Waggoner received the Ernst & Young Entrepreneur Of The Year® 2009 Award in the Emerging Companies category in the Midwest region. According to Ernst & Young LLP, the award recognizes outstanding entrepreneurs who are building and leading dynamic, growing businesses.

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Ryan in New Role at CEVA Logistics CEVA Logistics has appointed Matthew Ryan to the newly created position of Chief Operating Officer. This role will focus on ensuring CEVA continues to provide industry leading operational and supply chain service excellence.

Chipman Next CEO for Grant Thornton

Echo Global Logistics’ Waggoner Recognized

Association of Manufacturers (NAM), finds that U.S. Customs and Border Protection’s (CBP) 10+2 rule will end up costing the U.S. economy more than $20 billion annually. “The potential impact of this rule is huge,” warned John Engler, president of NAM. “To put the cost in perspective, it is virtually the equivalent of doubling the import tariffs that manufacturers now pay to bring

MOL has appointed Andrew An to the position of assistant vice president North America China sales. An joined MOL’s Atlanta office in 1997 as an account executive, and has since served in various sales assignments throughout the country.

Stephen Chipman will assume the CEO spot at accounting firm Grant Thornton on January 1, 2010. Chipman was most recently chief executive officer, Greater China Management Corporation, responsible for leading the development and growth of services for Grant Thornton in China.

TMCA Awards Abernathy The Transportation Marketing & Communications Asso-

products and components into the United States.” CBP’s Importer Security Filing rule, known as 10+2, requires importers to provide 10 data elements and ocean carriers an additional 2 elements to CBP no later than 24 hours before ocean cargo is laden on board a vessel destined to the U.S. The rule will be fully implemented on January 26, 2010. 2 0 0 9

ciation (TMCA) has awarded George Abernathy, executive vice president and chief operating offi cer for Transplace, as the “2009 TMCA Transportation Marketing Executive of the Year.” This honor was awarded June 2 at TMCA’s Annual Conference in San Diego, Calif.

Freese to Succeed Newsome at Hapag-Lloyd Hapag-Lloyd, the German ocean container carrier, announced that Wolfgang Freese will succeed Jim Newsome as president of Hapag-Lloyd (America) on September 1. Newsome will leave the company after 12 years to take a new job as president and chief executive officer of South Carolina State Ports Authority.

Sky-Trax Chooses McDonnell William H. McDonnell has been hired by Sky-Trax Inc. to serve as the company’s Chief Financial Officer. McDonnell will be responsible for the company’s financial controls, financial reporting, financial planning, day-to-day management of financial operations, and human resources.

At that time, CBP plans to enforce the rule with penalties of $5,000 per violation.

U.S. Logistics Costs Dropping FIRST TIME IN 6 YEARS, FINDS CSCMP REPORT The latest “State of Logistics Report” released by the Council of Supply Chain Management

Professionals (CSCMP) reveals that logistics costs fell to 9.4 percent of U.S. gross domestic product (GDP) in 2008—a stark contrast to the previous 5 years that saw logistics costs rise 50 percent overall. Inventory-carrying costs experienced a 13 percent drop in 2008, and were the driving force behind the year’s decline in logistics costs. The decrease in carrying costs was due to both a 2.2 percent drop in inventories and an 11.2 percent decrease in the inventory-carrying rate. Since 1988, the report has tracked and measured all costs associated with moving goods through the U.S. supply chain. The report benchmarks key metrics in logistics, such as transportation and inventory-carrying costs, freight volumes, and revenues, giving practitioners a bigpicture view of the performance of the supply chain process. Commenting on the report, Rick Blasgen, CSCMP president and CEO, said, “The economy will eventually recover, and when it does, those companies that use the statistics and industry insight contained in this report will be better prepared for the business boom ahead. This research details ways that company leaders can capitalize on the recovery when it occurs, such as restructuring their distribution networks to maximize efficiency and minimize miles, investing in technologies to facilitate ‘green’ transportation, and improving real-time data flows to increase visibility and enhance productivity.”

Asia-Pacific Primed for SaaS STRONG GROWTH FORECAST FOR ON-DEMAND APPS A survey by Springboard research shows that the AsiaPacific market for Software-asa-Service (SaaS) will grow from $35 million in 2008 to $193 million by 2012.

The survey revealed that 35 percent of the respondents intended to purchase SaaS-based ERP (enterprise resource planning) in the next 12 months. Around 20 percent of those surveyed were already using SaaS ERP. Analysts predict the SaaS market to grow faster in Asia, especially in the markets of China and India, than in U.S. or any Western market. SaaS is a model of software deployment whereby a provider licenses an application to customers for use as a service on demand.

Japan to Recognize U.S. Trade Security Programs MUTUAL RECOGNITION WILL HELP EXPEDITE CARGO CLEARANCES Officials from Japan and the U.S. have agreed to mutually recognize their respective trade security and facilitation programs to expedite bilateral trade. The U.S. trade security and facilitation program is the Customs-Trade Partnership Against Terrorism program, or C-TPAT. According to Japanese officials, the mutual recognition agreement is the second of its kind for Japan and the fifth of its kind in the world. The country already has a similar pact in place with New Zealand, while the U.S. has established agreements with New Zealand, Canada, and Jordan.

Tightening Security at India’s Top Box Port RECENT SNAFUS HIGHLIGHTED LAPSES Customs officials at the Port of Jawaharlal Nehru—India’s biggest container port—have issued new security regulations to improve container-screening procedures.

The move follows a string of incidents where containers, specifically those identified for scanning, evaded the customs agency’s scrutiny. “It has been noticed that sometimes containers, which are selected for scanning, are not presented for scanning and are being taken directly to respective freight stations without scanning. This non-reporting of selected containers to the scanners is defeating the very purpose of scanning in the heightened security scenario,” customs officials explained. The new procedures stipulate that once a container is selected for scanning, it will not be exempted from the process. India’s Port of Jawaharlal Nehru handles nearly 60 percent of India’s container traffic. In fiscal 2008-09, total volume handled by its three terminals was 3.95 million TEUs, compared with 4.06 million TEUs the previous year.

Seizures of Fake Goods Up 125% in EU MORE THAN HALF FROM CHINA The European Commission says the number of counterfeit seizures jumped 125 percent between 2007 and 2008, with over half coming from China. Customs officers seized 178 million counterfeit items last year that were headed for the 27 nations in the European Union, including CDs, DVDs, cigarettes, and clothing. In fact, CDs and DVDs accounted for 44 percent of confiscated items followed by cigarettes at 23 percent and clothing at 10 percent. The Commission found that more than half of the fake goods confiscated in 2008 came from China. Furthermore, a significant portion of the confiscated products were potentially dangerous for European consum-

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ers, the governing body said. Fake medicine came from India, forged food and drink products were from Indonesia, while the United Arab Emirates was listed as the main source of counterfeit cigarettes, said officials.

For her part, EU Trade Commissioner Catherine Ashton said, “The Chinese restrictions on raw materials distort competition and increase global prices, making things even more difficult for our companies in this economic downturn.”

EU, U.S. Challenge China’s Export Restraints

Athens Airport Improving Customs Clearances

WTO CALLED IN TO INVESTIGATE Trade officials from the EU and U.S. have requested investigations from the WTO over China’s export restraints on several important raw materials, including bauxite, coke, fluorspar, magnesium, manganese, silicon metal, silicon carbide, yellow phosphorus, and zinc. China is a major global producer of these raw materials. According to U.S. Trade Representative Ron Kirk, his agency “is very concerned that China appears to be restricting the exports of these materials at the expense of U.S. industries that need these materials, and their workers. This appears to be occurring despite strong WTO rules designed to discipline export restraints.”

OLYMPIC GAMES PROVIDED THE PUSH The Athens Airport is working with the EU to improve customs clearances and automate the cargo system to bring it up to par with other European airports. “It is vital that we provide a fast and flexible service to encourage more freight traffic at this airport,” said Vasiliki Kalamara, who took over as head of Airport Customs some eighteen months ago. Since the Olympic Games four years ago, Athens Airport has gradually introduced more flexible procedures and operating hours, particularly for freighters, which mostly operate at night. WT W W W. WO R L DT R A D E WT 1 0 0 .C O M

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The Outlook for the

Top U.S. Trade Partners While the downturn in the global economy is affecting trade partners across the board, some have higher risk factors than others. For this year’s snapshot of the risk factors associated with the top U.S. trade partners, we again turned to Coface, a world leader in tradecredit information and protection, for their expertise and analysis. The sobering news is that the 2008-2009 credit crisis, defined as a substantial rise in corporate defaults stemming from an economic shock, is quite serious, with simultaneous recessions in the world’s three major industrialized regions: Japan, Western Europe, and the United States. Furthermore, dwindling demand coupled with a credit crunch brought on by the banking crisis is a vicious cycle that can only be broken by a restoration of confidence, according to Coface. On a better note, the credit crisis should end by late 2009, Coface believes, and if the global economy has indeed reached the proverbial ‘bottom’ and has begun to stabilize, then we can say with assurance that we are setting foot on the path to recovery. –Lara Sowinski, Editor

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Canada The economy sagged slightly in the second half of 2008, a trend expected to continue in early 2009 before giving way to a period of stabilization and then a modest recovery toward year-end. The economic decline is attributable to persistently poor export performance—with a quarter of Canada’s growth dependent on economic conditions in the United States—and the downturn of investment. Although consumption has shown some strength, it has not sufficed to reverse the negative trend. Exports will continue to decline due to weakening demand from the United States for manufactured products, the Canadian dollar depreciation against the U.S. dollar notwithstanding. Amid falling world prices, meanwhile, raw material sales will decline more sharply in value than in volume. Investment will in general also trend down. Corporate investment will suffer from both sluggish demand and less favorable credit conditions. The downturn will be sharper in the western provinces—especially Alberta— which have suffered most from the bursting of the rawmaterials speculative bubble. The collapse of oil prices will moreover likely jeopardize several oil shale exploration and exploitation projects. Households are expected to invest slightly less on housing but that trend will be unlikely reach the proportions observed in the United States thanks to a more tightly supervised system of financing and the absence of past excesses. Sharp declines could nonetheless develop in major western urban areas. Consumption by households will likely manifest some strength reflecting their generally good financial health and limited indebtedness, the continued growth of real wages, and an unemployment rate that, although rising, remains at historically low levels. Public spending is similarly expected to remain an anchor of economic stability thanks to the public sector’s good financial health.

China After peaking in 2007 with 11.9 percent annual growth, the Chinese economy cooled in 2008 amid a slowdown of exports and domestic demand. Export growth slowed somewhat mainly as a result of sagging demand from industrialized countries, which absorb 46 percent of total sales abroad. Consumption declined, meanwhile, essentially as a result of growing inflation in 2008 and rising unemployment. Furthermore, a slowdown of investment is partly attributable to the narrowing of corporate margins, particularly in sectors with overcapacity (steel, car industry, real estate, etc.). To deal with the slowdown, the government has adopted a more expansionary monetary policy. Since late 2008, officials have similarly shifted gears on exchange rate policy to foster stabilization or depreciation of the yuan and bolster export sectors in difficulty. And with the leeway afforded by low public sector debt (15 percent of GDP) and a high savings rate, the government has decided to implement a $586 billion fiscal stimulus plan devoted to major infrastructure projects—with investments in transportation and electricity, reconstruction of areas devastated by the earthquake, among others—and

TOP 15 U.S. TRADE PARTNERS (total goods imported/exported in 2008; US$ billions)

Country

Value

1. Canada

$596.9

2. China

$409.2

3. Mexico

$367.5

4. Japan

$205.8

5. Germany

$152.3

6. United Kingdom

$112.4

7. South Korea

$82.9

8. France

$73.2

9. Saudi Arabia

$67.3

10. Venezuela

$64.0

11. Brazil

$63.4

12. Taiwan

$61.6

13. Netherlands

$61.4

14. Italy

$51.6

15. Belgium

$46.4

Source: U.S. Census Bureau

ural social measures (education, subsidies to rural populations, housing aid, etc.). The plann is intended to avert a severe-slowdown scenario that could cause a significant upsurge of payment defaults and an increase in social unrest. Despite the fiscal stimulus, the risk off payment failures in particular sectors willll nd nonetheless remain substantial. Low-end extiles, export sectors with tight margins, like textiles, shoes, and toys, suffered from the acceleration of the yuan appreciation in the first nine months of 2008, the rise of wages, and problems with product quality. Sectors like automotives and property where sales transactions are commonly made on credit have also been in difficulty. According to Coface monitoring records, payment behavior has been deteriorating—a trend likely to worsen in 2009 as the economic slowdown tightens its grip.

Mexico Affected mainly by the economic recession in the U.S. along with the international financial crisis, Mexico is expected to suffer a severe economic downturn in 2009, despite fiscal stimulus measures taken by the government. Monetary authorities will also experience difficulties in controlling inflation, attributable mainly to the peso depreciation and pessimistic expectations. Public debt remains moderate with its foreign comW W W. WO R L DT R A D E WT 1 0 0 .C O M

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TOP 15 COUNTRIES FOR U.S. IMPORTS

TOP 15 COUNTRIES FOR U.S. EXPORTS

(total goods imported in 2008; US$ billions)

(total goods exported in 2008; US$ billions)

Country

Value

% of Total Imports

Country

Value

% of Total Exports

1. China

$337.8

16.1%

1. Canada

$261.4

20.1%

2. Canada

$335.6

16.0%

2. Mexico

$151.5

11.7%

3. Mexico

$215.9

10.3%

3. China

$71.5

5.5%

4. Japan

$139.2

6.6%

4. Japan

$66.6

5.1%

5. Germany

$97.6

4.6%

5. Germany

$54.7

4.2%

6. United Kingdom

$58.6

2.8%

6. United Kingdom

$53.8

4.1%

7. Saudi Arabia

$54.8

2.6%

7. Netherlands

$40.2

3.1%

8. Venezuela

$51.4

2.4%

8. South Korea

$34.8

2.7%

9. South Korea

$48.1

2.3%

9. Brazil

$32.9

2.5%

10. France

$44.0

2.1%

10. France

$29.2

2.2%

11. Nigeria

$38.1

1.8%

11. Belgium

$29.0

2.2%

12. Taiwan

$36.3

1.7%

12. Singapore

$28.8

2.2%

13. Italy

$36.1

1.7%

13. Taiwan

$25.3

1.9%

14. Ireland

$31.6

1.5%

14. Australia

$22.5

1.7%

15. Malaysia

$30.7

1.5%

15. Switzerland

$22.0

1.7%

Total, Top 15 Countries

$1,555.8

74.1%

Total, Top 15 Countries

$924.2

71.1%

Total, All Countries

$2,100.4

100.0%

Total, All Countries

$1,300.5

100.0%

Source: U.S. Census Bureau

ponent in decline. But improvement in public na finances, still dependent on oil revenues, will re require further efforts on reform of both the t system and the state-run oil company tax PEMEX. It will thus be a very slow process. With a steady decline in oil production compounded by the fall of oil prices and the downturn of exports to the U.S. a transfers from emigrant workers, the and ex external account deficit will widen. To cover ve large and strongly growing financing its very needs and also to compensate for a significant drop in foreign direct investment, Mexico will have to turn not only to international financial institutions, but also to financial markets, though at a high cost. But the stable and moderate level of short-term debt and the flexibility of the exchange rate will tend to mitigate, albeit increasing, liquidity crisis risk. The relatively modest size of the banking sector has moreover sheltered it from exposure to risks resulting from the sub-prime crisis in the U.S. After the adoption of a limited reform of PEMEX in 2008, modernization of the economy continues to come up against strong social and political resistance. Too, the climate of insecurity and violence resulting from the organized criminal activities associated with narcotics trafficking moreover constitutes a challenge to the 20

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authority of President Felipe Calderon, whose success will partly depend on improvement in this area. In this context, the business environment leaves room for improvement and the credit crunch handicaps companies. Large private firms are faced with the drying up of international liquidity. The difficulties faced by the textile, clothing and shoe industries are, however, the traditional ones and result from an inability to compete with their Asian rivals.

Japan The spectacular fall of economic growth during the first quarter of 2009 (down an annualized 14.2 percent quarter-on-quarter and down 9.1 percent year-on-year), resulting from the decline in both exports and investment, bears out that of all industrialized countries Japan will likely suffer the most severe recession this year with GDP contracting by 7 percent. The lack of reaction by companies in failing to reduce their stocks and costs in the fourth quarter of 2008 paved the way for the fall of corporate profits to their lowest level since 1983. They will therefore have to revise their investment projects downward and adjust production. But production could, however, benefit temporarily from a technical recovery: The vast economic support plan implemented by China and focused chiefly on investment will likely

TOP 100 U.S. IMPORTS & EXPORTS (goods traded in 2008; in US$ millions)

Top 50 U.S. Goods Exports Commodity 1. Vehicles 2. Electrical machinery 3. Airplanes, engines, and parts 4. General industrial machines 5. Specialized industrial machines 6. Petroleum preparations 7. Scientific instruments 8. Chemicals - plastics 9. Chemicals - organic 10. Chemicals - medicinal 11. Power generating machines 12. ADP equipment and office machines 13. Metal ores and scrap 14. Chemicals - n.e.s. 15. Gold, nonmonetary 16. TVs, VCRs, etc. 17. Soybeans 18. Metal manufactures, n.e.s. 19. Iron and steel mill products 20. Corn 21. Paper and paperboard 22. Vegetables and fruits 23. Textile yarn, fabric 24. Chemicals - inorganic 25. Wheat 26. Chemicals - cosmetics 27. Meat and preparations 28. Plastic articles, n.e.s. 29. Pulp and waste paper 30. Animal feeds 31. Basketware, etc. 32. Gem diamonds 33. Coal 34. Aluminum 35. Printed materials 36. Artwork and antiques 37. Chemicals - dyeing 38. Metalworking machines 39. Mineral fuels, other 40. Natural gas 41. Records and magnetic media 42. Furniture and bedding 43. Toys, games, and sporting goods 44. Jewelry 45. Cotton, raw and linters 46. Chemicals - fertilizers 47. Cork, wood, and lumber 48. Copper 49. Fish and preparations 50. Rubber tires and tubes

Top 50 U.S. Goods Imports Exports $32,341 $27,752 $27,443 $17,995 $17,340 $14,704 $14,007 $13,586 $12,007 $11,619 $10,711 $9,746 $8,836 $8,454 $8,196 $8,145 $6,434 $6,145 $5,641 $5,110 $4,774 $4,196 $4,011 $4,006 $3,931 $3,712 $3,543 $3,158 $2,668 $2,618 $2,474 $2,292 $2,112 $2,085 $2,032 $2,015 $2,006 $1,954 $1,951 $1,946 $1,734 $1,653 $1,620 $1,605 $1,593 $1,503 $1,419 $1,327 $1,309 $1,261

Commodity 1. Crude oil 2. Vehicles 3. TVs, VCRs, etc. 4. Electrical machinery 5. ADP equipment and office machines 6. Petroleum preparations 7. Clothing 8. General industrial machines 9. Chemicals - medicinal 10. Chemicals - organic 11. Power generating machines 12. Natural gas 13. Specialized industrial machines 14. Scientific instruments 15. Iron and steel mill products 16. Furniture and bedding 17. Metal manufactures, n.e.s. 18. Airplanes, engines, and parts 19. Toys, games, and sporting goods 20. Vegetables and fruits 21. Textile yarn, fabric 22. Gem diamonds 23. Chemicals - plastics 24. Footwear 25. Paper and paperboard 26. Chemicals - inorganic 27. Plastic articles, n.e.s. 28. Aluminum 29. Chemicals - n.e.s. 30. Fish and preparations 31. Basketware, etc. 32. Copper 33. Rubber tires and tubes 34. Chemicals - cosmetics 35. Artwork and antiques 36. Metal ores and scrap 37. Jewelry 38. Platinum 39. Metalworking machines 40. Wood manufactures 41. Chemicals - fertilizers 42. Gold, nonmonetary 43. Lighting and plumbing 44. Travel goods 45. Records and magnetic media 46. Cork, wood, and lumber 47. Liquefied propane and butane 48. Optical goods 49. Printed materials 50. Meat and preparations

Imports $110,014 $69,829 $40,719 $37,171 $31,965 $28,539 $23,834 $22,672 $19,434 $16,254 $15,954 $12,798 $12,368 $12,250 $10,856 $10,789 $9,783 $9,222 $8,056 $7,346 $7,275 $6,699 $6,319 $6,292 $5,835 $5,052 $5,043 $4,269 $4,256 $4,002 $3,924 $3,603 $3,270 $3,099 $3,052 $2,931 $2,868 $2,861 $2,860 $2,819 $2,644 $2,495 $2,385 $2,296 $2,181 $2,039 $1,751 $1,711 $1,704 $1,596

Source: U.S. Census Bureau

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TOP 10 U.S. FOREIGN TRADE GATEWAYS (by Value of Shipment, in US$ billions)

Water

Value

Air

Value

Land

Value

1. Los Angeles

$180.2

1. New York (JFK)

$161.2

1. Detroit, MI

$136.6

2. New York-New Jersey

$165.2

2. Chicago O'Hare

$86.6

2. Laredo, TX

$110.4

3. Long Beach

$147.1

3. Los Angeles

$79.6

3. Buffalo-Niagara Falls, NY

$78.6

4. Houston

$114.6

4. San Francisco

$61.6

4. Port Huron, MI

$77.1

5. Charleston

$60.9

5. Anchorage

$45.3

5. El Paso, TX

$49.1

6. Savannah

$49.6

6. Dallas-Fort Worth

$41.5

6. Otay Mesa, CA

$30.7

7. Norfolk

$49.5

7. New Orleans

$41.1

7. Hidalgo, TX

$21.9

8. Baltimore

$42.0

8. Atlanta

$35.4

8. Champlain-Rouses Pt., NY

$21.5

9. Seattle

$37.6

9. Miami

$34.5

9. Nogales, AZ

$18.2

10. Oakland

$34.8

10. Cleveland

$27.3

10. Blaine, WA

$17.9

Source: U.S. Department of Transportation, Bureau of Transportation Statistics

enable Japanese J mechanicals and metal processing sect to limit the deterioration of their busisectors ne activity. That temporary relief from the ness o overall trend will, however, remain marginal since Japanese exports to China correlate with Chinese exports to the U.S. and European Union. The improvement in consumer conf fidence recorded in May was largely att attributable to various stimulus measures imple implemented by the government in the second quarter particularly p quarter, for purchases of vehicles and home furnishings. Despite these measures, household consumption—already relatively flat before the crisis— will decline in 2009 (down 2 percent), undermined by the rise of unemployment (5.9 percent) and the decline in disposable income (with financial assets constituting 70 percent of net wealth), and savings are expected to increase to 7.6 percent of disposable income.

Germany Undermined by the marked weakening of exports, the German economy slipped into recession in spring 2008, a trend expected to continue until autumn 2009 with a timid recovery possibly developing thereafter. Persistently sluggish household consumption will provide little backup support to the economy. In the context of a severe slowdown of the world economy and trade, exports, which had been the main growth engine (41 percent of GDP) until early 2008, are now proving to be the main vector of the recession. Half capital goods (including automotive vehicles) and half consumer goods, the export trend reflects both the end of the investment boom in emerging and raw material producing countries and the downturn of household demand from the major European and American trading partners. Faced with stagnating exports, eroding margins, and 22

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tightening credit, German industry will likely put its investments on hold. Nonetheless, household consumption will make a slightly positive contribution to growth despite the drop in capital goods purchases like automotives. In this context, corporate payment behavior, while satisfactory in 2008, could deteriorate in 2009 particularly in sectors heavily dependent on exports, like automotive and aeronautical subcontracting, textiles and clothing, maritime and river transport, and,to a lesser extent, metallurgy, chemicals, and industrial capital equipment.

United Kingdom With the growing impact of the financial and property crisis on household and corporate spending, the economic downturn will intensify in 2009. Households have been facing a rapid decline in home prices, which could ultimately fall 30 percent, and tightening credit conditions with their debt representing 170 percent of disposable income. A slumping employment market and the concomitant rise of unemployment—not only in financial services and construction but also in other sectors—will also be a drag on the economy. Only foreign trade is expected to make a slightly positive contribution to GDP growth, thanks to the drop in imports. Exports, meanwhile, are also expected to decline, but to a lesser extent, due to the sluggishness of foreign demand despite a weakening pound sterling, since a high proportion of sales abroad involve specialties, like pharmaceuticals, software, and IT services that are by nature relatively insensitive to price fluctuations. In a deteriorating environment, corporate health has been weakening, particularly in construction, property services, transport, machinery rental, distribution (home furnishings, automotives, consumer electronics, clothing), and outbound tourism: all sectors suffering from the defection of consumers. The highly competitive retail sector has been the riskiest of all. Greater London,

ON THE TOP OR IN THE TANK? Here’s How Our Top Trade Partners Stack Up on Other Indices

Heritage Foundation’s 2009 Index of Economic Freedom

World Economic Forum’s 2008-2009 Global Competitiveness Ranking

Transparency International’s 2008 Corruption Perceptions Index

Country

Index

Country

1. Canada

Free

1. Germany

7

1. Netherlands

7

2. Japan

Mostly free

2. Netherlands

8

2. Canada

9

3. Germany

Mostly free

3. Japan

9

3. Germany

14

4. UK

Mostly free

4. Canada

10

4. UK

16

5. France

Mostly free

5. UK

12

5. Japan

18 (tied)

6. Netherlands

Mostly free

6. South Korea

13

6. Belgium

18 (tied)

7. Belgium

Mostly free

7. France

16

7. France

23

8. Mexico

Moderately free

8. Taiwan

17

8. Taiwan

39

9. South Korea

Moderately free

9. Belgium

19

9. South Korea

40

10. Saudi Arabia

Moderately free

10. Saudi Arabia

27

10. Italy

55

11. Taiwan

Moderately free

11. China

30

11. China

72 (tied)

12. Italy

Moderately free

12. Italy

49

12. Mexico

72 (tied)

13. China

Mostly unfree

13. Mexico

60

13. Saudi Arabia

80 (tied)

14. Brazil

Mostly unfree

14. Brazil

64

14. Brazil

80 (tied)

15. Venezuela

105

15. Venezuela

Repressed

(Note: Hong Kong ranked first on this index, and North Korea last)

Ranking

(Note: The U.S. ranked first on this index, and Chad last)

with the preponderant role played by finance and construction, will be the hardest hit metropolitan area. The positive factors are few in number but nonetheless noteworthy: the pound sterling depreciation benefiting exporters, public sector support for short-term financing, the ongoing preparations for the 2012 Olympic Games, and an acceleration of public infrastructure and housing programs benefiting construction.

South Korea Despite adoption of expansionary monetary and fiscal policy, economic growth slowed in 2008 due mainly to sagging domestic demand affected by the rise of inflation, deterioration of the labor market, and bursting of speculative bubbles in the stock, property, and credit markets. The rationing of credit also undermined investment by smaller companies. The chaebols, South Korea’s family-controlled conglomerates, remained solid, however, benefiting from sufficient resources to continue investing. Exports decelerated to industrialized and Asian countries—which represent, respectively, 35 percent and 47 percent of sales abroad. In 2009, the economic slowdown could intensify, with domestic demand remaining flat. Consumption could

Country

15. Venezuela

Index

158

(Note: Denmark, New Zealand, and Sweden tied for first on this index, and Somalia last)

decline again amid a negative wealth effect linked to the collapse of the property and stock markets and the rationing of credit, with household debt representing 140 percent of disposable income. Moreover, companies also burdened with heavy foreign currency debt will suffer from the credit crunch. Construction, automotive, and ship owners will again be the sectors to suffer most. In addition, the export slowdown is expected to continue, particularly in electronics. Therefore, corporate payment behavior could deteriorate in 2009.

France The contraction of economic activity in 2008—down a marked 1.2 per cent in the fourth quarter—will continue in 2009 with a further decline of 2 percent expected. Industrial production will likely continue to fall, notably affected by the automotive sector’s difficulties. To cope with the decline in demand from the main European trading partners (the EU provides a market for 65 percent of export sales and Germany 14 percent) and from domestic customers, companies will go on postponing investments and adjusti ng their costs. Explosive growth of unemployment, erosion of financial assets, and limited increases in wage will prompt households to keep their W W W. WO R L DT R A D E WT 1 0 0 .C O M

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buying in check and to replenish emergency savings. Exports will tread water, particularly in the automotive and intermediate goods sectors. The current account deficit will nonetheless narrow with sluggish household consumption and the drop in investment undermining imports. The public sector deficit will widen significantly, (to a negative 5.3 percent) as a result of the economic downturn and the rescue measures taken by the government: bank-financing guarantees, support to companies and sectors in difficulty, and public investment spending. Public sector debt will grow meanwhile to nearly 74 per cent of GDP.

Saudi Arabia Driven by booming oil prices, the revenues raked in these past years have facilitated implementation of vast infrastructure projects, an increase in oil production capacity, a reduction in government debt, and a build-up of financial assets. The kingdom is now in a very strong economic and financial position expected to allow it to cope with the consequences of the world economic crisis that began to appear in 2008 with the fall of stock market indices and capitalizations, the drop in oil prices from July on, in conjunction with a shortage of liquidity and a weakening of foreign demand. In this context, strong growth in the first half, buoyed moreover by a sharp increase in oil production, subsequently gave signs of slowing down, particularly in the petrochemical and oil sectors. The economic downturn and the credit crunch affected household consumption and prompted private investors to cancel or postpone some projects. With inflation easing late in the year, officials took measures to increase liquidity and to stimulate the economy. Bank deposits, meanwhile, are guaranteed by the government. The leading OPEC oil-producing country, Saudi Arabia wi will likely continue in 2009 to make the most of the adjustment effort for the downward worldde demand trend. Oil production could thus d decline compared to 2008. The business climate improved with Saudi Arabia’s admission to the WTO late 2005. But, it continues to suffer from persistent weaknesses in governance terms. T performance of companies could suffer The fro from the economic slowdown with deterioration of their payment behavior, not unlikely in view of ttheir traditional vulnerability to a downturn of barrel prices. With barrel prices substantially below their average levels in 2008, a decline in hydrocarbon production will likely result in a sharp drop in export earnings and fiscal revenues, which still derive mainly from oil.

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kept inflation very high despite price controls. In view of the resulting huge differential in inflation between Venezuela and its main trading partners in conjunction with falling oil prices, a devaluation of the bolivar in 2009 seems necessary. However, the government is still seeking to delay the timing of a move that will only fan the flames of inflation even more. The trade surplus is expected to shrink markedly as a result of the decline in oil prices, the stagnation of production, the slowdowns affecting the main trading partners, and the country’s dependence on imports of consumer goods. In addition, the “21st century socialism” advocated by President Hugo Chávez has resulted in growing economic interventionism by the State, nationalizations, and increased barriers to private initiative in an unpredictable business environment. The President’s victory in the February 2009 referendum reinforces his position in allowing him to stand again for the late 2012 presidential election. Before that date, the November 2010 parliamentary elections will be a new test for President Chávez, whose popularity could be undermined by a prolonged deterioration of the economic situation.

Brazil After remaining strong in 2008, (and exceeding the 5 percent rate targeted by Brazil’s Growth Acceleration Program), the economy will suffer a very sharp contraction in 2009, dragged down by the effects of the world economic and financial crisis, despite government stimulus measures. Weaker export performance attributable to the marked deterioration of the international environment, in conjunction with import vigor, is expected to exacerbate the current account deficit. Liquidity crisis risk will increase due to the very sharp growth of already large external financing needs. Although foreign direct investment should cover nearly half of those needs, Brazilian companies will experience greater difficulty in obtaining financing abroad in 2009 than in past years. Overall, companies are being hampered by credit restrictions (particularly small- and medium-sized enterprises) and/or the exchange rate trend in regular business transactions, or due to debt contracted in foreign currencies, and their payment behavior will likely suffer in consequence. Some sectors continue to face chronic difficulties, such as garment and footwear industries, which are grappling with foreign competition. In other sectors, the more difficult economic conditions have taken their toll on agribusiness, the mining and steel industries, construction, automotives (car makers, parts manufacturers, dealers), and mass distribution (particularly in home appliances and information technology).

Venezuela

Taiwan

GDP growth is expected to collapse in 2009 with world oil prices and national production falling. The priority given to redistribution of oil export earnings to the detriment of productive investment has moreover jeopardized growth sustainability. Meanwhile, ill-advised fiscal and monetary policies, in conjunction with inadequate production capacity, have

After the strong 5.7 percent growth achieved in 2007, and even stronger 6.3 percent in the 2008 first quarter, the Taiwanese economy slowed dramatically for the remainder of the year. This slowdown is mainly attributable to the weakening of foreign demand, particularly from China, Hong Kong, and above all, the United States, the island’s main trading partner, considering that

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it is the ultimate re-export destination for about 70 percent of Taiwan’s exports to mainland China. Electronics exports, representing 76 percent of Taiwan’s GDP, and tourism have particularly suffered. Domestic demand has also sagged with several adverse trends undermining consumption: the upsurge of inflation (with the island importing all its energy and food), the negative wealth effect associated with the fall of stock market prices, and the rise of unemployment. Meanwhile, tightening credit conditions and dimmer sales prospects have prompted companies to postpone investments. Despite adoption of more expansionary policies, both monetary (interest rate reductions) and fiscal, the slowdown will likely tighten its grip on the economy in 2009 amid weaker performance by industrialized and emerging Asian economies. Taiwan’s economic growth could thus be negative in 2009. In this context, corporate payment behavior has continued to deteriorate and the narrowing margins of Taiwanese companies will bear watching.

Netherlands Production and exports continued to deteriorate in the first quarter of 2009 with full year growth expected to contract 4.7 percent. Given its open economy, the country is very dependent on demand from its four traditional trading partners (Germany, Belgium, France and the UK). Exports and investment will continue to decline, down respectively16.2 percent and 14.7 percent. With wage growth remaining very moderate and unemployment rising, the contraction of the disposable incomes of private individuals compounded by the erosion of their financial and property asset values will prompt households strained by very heavy debt (170 percent of disposable income) to cut back considerably on spending. The plans for rescuing the banking sector and stimulating the economy in conjunction with a slowdown in revenues from gas will wipe out the fiscal surplus the country has run since 2005 and increase the debt, nonetheless expected to remain relatively low (nearly 60 percent of GDP). Bankruptcies accelerated these past months, surging 96.4 per cent in the first quarter. The global credit crunch will further undermine weaker companies in the manufacturing sector, particularly electronics, information technology, and metal processing. Smaller companies that are reliant on the domestic market could be hurt by the slowdown in household consumption.

Italy The sluggishness that began to grip the Italian economy in 2007 has continued with growth likely to slacken for most of 2009 before giving way to a timid recovery. Household consumption is expected to remain on even keel despite the large wage increases won in 2008 and the fall of prices for energy and, to a lesser extent, food. Nonetheless, households will be facing higher unemployment, reflecting the stagnation of job creation and the growth of the working population. Although the government has provided underprivileged households with cards for making purchases at reduced prices and extended family allowances to wage earners with tem-

porary employment contracts, they should not expect significant aid from a government that has made a commitment to Brussels to bring public sector finances back into balance by 2010. p Although the competitiveness of exports is expected to stop deteriorating thanks to the light weakening of the euro against the he dollar and the moderate growth of the cost of labor in phase with productivity gains, sales abroad will be unlikely to show any sign of recovery before end 2009. They will be faced with weak demand in developed countries, their primary market. he Investment will only grow in the rated public sector thanks to the accelerated t t use of European subsidies for infrastructure, research, and environmental protection. Companies meanwhile will make further reductions in spending amid sluggish demand, tightening credit, and a drop in profitability. Moreover, corporate payment behavior, already below the world average, has deteriorated further. The benefit derived from the euro depreciation, if sustained, and the fall of prices for energy and raw materials, are being cancelled out by the drop in demand.

Belgium The economic downturn that began materializing during the fourth quarter of last year will continue in 2009 and growth will contract by 1.9 percent. The decline in demand from the main trading partners (with the European Union representing over 73 percent of Belgium’s export market), under way since the third quarter of 2008, will continue to undermine the country’s exports, which have also become less competitive due to high payroll costs (and are above the euro zone average). Industrial production will continue to fall, down about 4 percent, a trend that will only exacerbate the decline of the production capacity utilization rate, already down sharply in the fourth quarter of last year. Corporate investment will slow, also down about 4 percent, especially with the severe shocks that battered the banking sector in 2008, which prompted banks to tighten loan conditions. On a positive note, Belgium is a highly multicultural and multilingual country that enjoys a unique geographic location and the presence of European institutions, which have been assets to attracting foreign companies and developing foreign trade. The country is also at the heart of a major economic region and serves as the crossroads of many channels, whether road, rail, or water transport. WT Risk assessments were excerpted from the Coface Handbook of Country Risk 2009. Additional information is available online at www. trade-safely.com.

For reprints of this article, please contact Cindy Williams at [email protected] or 610-436-4220 ext. 8516.

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SUPPLY CHAIN SECURITY

Taking Supply Chain Security to the Next Level Mobile technology is playing a big part, but it’s not a silver bullet. BY DAN MCCUE

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echnology, mobile and otherwise, has had a profound effect on the transparency of supply chains on the local level. With little effort, and real-time GPS technology, logistics managers and fleet operators can easily see if a truck full of cargo has stopped for a suspicious amount of time, or been diverted from its planned route. Using simple push-talk phone technology, the manager can then quickly determine whether a problem exists or whether the driver is either stuck in traffic or gamely trying to avoid it. As for the drivers themselves—a case in point being drivers for the Coca-Cola Bottling Company—wireless receipt printers help them avoid going back and forth to their trucks to complete a client’s order. Some estimates suggest that simply cutting out that single trip to the truck allows Coke’s route managers to squeeze in as many as four additional stops per day.

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On the other end of the supply chain spectrum, bar code and RFID technology has allowed major food companies to track dangerous or spoiled cargo back to its specific source, limiting their exposure to losses due to massive recalls. “The applications and benefits of technology to supply chain management are endless,” said Mike Terzich, senior vice president of sales and marketing for Zebra Technologies, the Chicago-based manufacturer of thermal transfer bar code printers and related label design software. But if such applications appear to have revolutionized supply chain management over the past decade, many experts concede much, much more has to be done in the realms of both technology and information sharing to truly ensure door-to-door visibility of the world’s goods and raw materials. Key to understanding the true impact these technolo-

gies are having on supply chain transparency is to consider them as they exist in the real world: As both vast global networks and as more localized entities. Scott Szwast, global freight services marketing manager for UPS, said regardless of how complex it becomes, a supply chain is always—in essence—goods in motion.

“The ability to monitor these goods in real-time is critical, both in terms of business planning and security,” Szwast said. “This real-time visibility would, of course, be virtually impossible without mobile technology, which has simplified processes and allowed for greater supply chain optimization. And of course, the more simplified your processes, the easier they are to secure,” he said. What that means to people like Zebra Technologies’ Terzich, whose company has been expanding its portfolio to include RFID technology and software intended to addresses issues ranging from counterfeiting and diversion to food safety, is that they are constantly trying to fill a niche where people want to know more, and know it more quickly. “Part of it stems from the fear of terrorism, part is borne of the desire of high-branded companies to protect their corporate image—and in the process the jobs of their employees—from knockoffs, and part of it stems from retailers and end users of the goods in transit, who are seeking a higher level of confidence in the quality of the products they receive,” Terzich said. Between the terrorist attacks of Sept. 11, 2001 and the global economic crisis, which led to the current decline in world trade, some 48 million containers moved through global supply chains annually, Terzich noted. Technological solutions have inspired governments and supply chain mangers in the private sector to look beyond the basic desire to understand what’s in a container, where it has been and where it is going, and to continually look for new ways to facilitate and expedite global trade. UPS’ Szwast pointed to the Automated Commercial Environment (ACE) established by U.S. Customs and Border Protection as “a great example of government providing a framework for further connectivity and automation” for supply chain processes. ACE, which has been rolled out over several years, has transformed the processing of cargo from a shipment-by-shipment approach to an accounts-based system. At the same time, Customs has created a centralized Web portal to connect the agency more directly with the trade community. Over time, ACE has enabled the agency to compile profiles of all importers and exporters, as well as their shipment and payment activity. “UPS pioneered a system in 2002—prior to ACE— called Target Search to assist the Customs officials inspecting shipments coming through Worldport, UPS’s largest international air hub in Louisville,” Szwast said. “Target Search provides electronic information to Customs officials so that they can effectively target and select shipments for inspection ahead of time, expediting the customs clearance process.”

Zebra Technologies

A key ingredient to real-time visibility

Of course, developing a synergy with Customs officials is one thing, but what about sharing the cost? At the very least, what about spreading the cost of security across an organization? Fortunately, Szwast said, many of the same technologies are employed on both the security and operational side of the equation. “For example, at UPS our small package and ground freight drivers both use a wireless handheld computer that is key to tracking the goods being moved,” he said. “The device—called a Delivery Information Acquisition Device or DIAD—scans a barcode when the driver makes a delivery and, virtually in real-time, uploads that data to a mainframe where it is available to the customer for security and visibility purposes.” Szwast adds, “The same is true of a comprehensive portfolio of visibility systems that UPS makes available to customers.” Looking at the trade equation from a broader perspective, Szwast said standardization of processes and tools in support of international trade has been a key enabler of the growth in international commerce. “Incoterms are a great example of that,” he said, referring to the standardized international commercial terms promulgated by the International Chamber of Commerce.

Zebra Technologies’ mobile printers work on-site and on-demand for increased flexibility and efficiency.

It’s not one-size-fits-all

But not everyone agrees that the wider proliferation of technology over the past decade has made international logistics quite so supple. Among those with a deep perspective and perhaps a dissenter’s view on the global supply chain is David Fairnie, director of security for DP World, one of the largest marine terminal operators in the world with 49 marine terminals and 12 new developments across 31 countries. W W W. WO R L DT R A D E WT 1 0 0 .C O M

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David Fairnie, director of security for DP World, likes technology, but doesn’t subscribe to the notion that any one tech tool will provide complete transparency to a supply chain or even an individual facility. Nor should it, he said. “Whatever individual technology you’re talking about, I think of it in terms of being part of what Michael C. Kostelnik, Commissioner with U.S. Customs and Border Control, described as the layered defense system for supply chain security and transparency,” he remarked. “Yes, if a technology makes you feel that your supply chain is more transparent, use it, but also recognize that there are other layers, some of which you can put into place yourself, and others that for which you need to rely on others.” In Fairnie’s view, true supply chain transparency and, by extension, security, can only be achieved through the combined efforts of the public and private sector. “For instance, one layer is U.S. Customs using risk assessment engines to identify where the high-risk containers are and targeting those containers for inspection,” he said. “Now, that requires information to feed the engine, so another layer of protection for the global supply chain is the 10+2 rule that the U.S. has introduced, which requires importers and ocean

carriers to electronically submit to Customs a total of 12 data elements including manufacturer, seller, consolidator and buyer information, as well as the container staffing location and container status messages.” The next layer is inspections of cargo containers using X-ray and other screening that searches for weapons of mass effect. Then there’s the utili- CBP Air and Marine Assistant Commissioner Michael C. Kostelnik advocates a zation of e-seals, RFID, and multi-layered approach to supply chain security. the like. Only then does the use of mobile devices, GPS, and other technoloments are in line with the company’s goals. gies come into play. “The first thing you have to do is analyze “There is no silver bullet when it comes to your situation and determine what you really protecting the world’s supply chains,” Fairnie need to do,” Fairnie said. “One mistake people said. “I think there needs to be a combination make is they throw money at technology and of several, and I also think there is a value come away frustrated. Personally, I think it’s to identifying solutions that not only meet a poor choice to just automatically reach for a requirements on security, but also add value technology solution.” in terms of velocity and transparency.” He explained, “What we found at DP While some still argue against revising World is that it was not cost effective to their technology regime, citing fears that just rely on technology,” he continued. “The such investments will drive up shipping costs most cost effective approach is to invest a or slow cargo movement times, Fairnie said bit in people and then to invest in technolpaying attention to what one’s actual needs ogy as a tool, or extension of the human are is the best way to ensure future investside, of your operation.”

“To be perfectly honest, in my opinion and experience, I’m not sure technology has improved the visibility of global supply chains,” said Fairnie from his office in Dubai. (DP World is part of the Dubai World, a holding company controlled by Dubai’s royal family.) “While there are a wealth of technologies out there, we haven’t seen one technology emerge that’s been wholeheartedly embraced and adopted by logistics players,” he said. Fairnie believes one of the barriers to coming up with a one-size-fits-all supply chain technological solution is that there’s always more to using technology as a tool than simply taking it out of the box. “Before you get to the point [of selecting a technological solution to your supply chain challenges] you’ve really got to look at your people. ‘Do you have the appropriate people in the right positions?’ And only then look at the technology itself to determine whether it is appropriate to the environment, which in our case is heavy industry and dealing with trucks passing to and from our gates. The last step—before purchase and attempted implementation—is to then look at your processes.” He continues, “In the latter case, what you need to look at is how we apply technology and our people in such a way that not only protects our assets, but adds to the value of our operations.” 30

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As an example, Fairnie pointed to gate operations. In recent years, international legislation has mandated greater control over the access people and vehicles have to port terminals. Of course, a guard could check the ID of every individual who seeks access to the terminal, “but that’s a laborious process that would slow the flow of commerce,” he said. Technology then must have a role, whether it’s a simple badge system or one that incorporates biometric information. But at a time when companies are striving to get everything they can from their supply chain dollars, is it worth the expense to go as high-tech as possible? DP World didn’t just implement a biometric system at its gates and leave it at that. Its tech people realized that the cards could be a valuable tool for monitoring employee time and attendance. “That’s what I think of when I think of security technology having a value-added role,” Fairnie said. “You’ve implemented a security measure that also serves a payroll function, ensuring that you’re not paying individual employees too much or too little.” Another example Fairnie pointed to revolved around security surveillance. “Companies that make up the global supply chain spend an awful lot of money on health and safety,” he said. “They invest in education, safety equipment, train-

U.S. Customs and Border Control

A Layered Approach to Security

ing, and yet many of them still have accidents, lost-time injuries and fatalities. It’s a byproduct of an industry where you are always trying to do things quicker and faster. And of course, it’s human nature to say, ‘Well, what is the chance, really, of that container hitting me on the head?’” Nonetheless, “What we’ve found is that unless you truly follow up on this training, much of these investments are wasted,” Fairnie continued. “What we did at DP World was to use our integrated security system as a means of advancing our health and safety objectives,” he explained. “From a security point of view, we need to know what’s happening at the perimeter of our facility, and so we have cameras and sensors that are looking for nefarious acts, and feed information to our command and control center.” “However, we realized that this doesn’t have to be the focus of our system 100 percent of the time, and in fact, we could get more from the equipment by using it to identify when unsafe or unhealthy practices are occurring, and then reacting to it, by either contacting the person on his mobile device or actually responding to the scene.” When an unsafe practice occurs, such as in the case of a worker wandering into an area restricted to heavy equipment, the individual will be briefed on what they’ve done wrong, and be asked to sign a note promising to not to do it again. The information is then turned over to DP World’s Health and Safety Department, which then schedules the individual for retraining. “A single fatality can cost a company as much as $5 million, according to the insurance industry, and that’s not counting accident related delays and other intangibles,” Fairnie said. But if a company’s failing to grasp the most comprehensive and cost-effective applications of technology is one barrier to greater transparency of the global supply chain, it is not the only one. “In simple terms, everyone is waiting for U.S. Customs to make a determination on what it believes the desired technology to be, and that’s preventing their adoption in the private sector,” Fairnie said. “That’s because uncertainty over what the standard will be has a direct correlation to the ability of the manufacturer to mass produce it at the price that makes good business sense to those engaged in moving cargo.” According to Fairnie, “Until somebody mandates the use of a particular technology, whether it is an RFID or some other e-seal technology, movement in this area is going to be somewhat slow.” And, while the Automated Commercial Environment (ACE) might be working well in the U.S., at least for UPS, Fairnie believes that on a global scale there’s a lot of information that’s being generated by logistics operational processes worldwide that is simply being underutilized. “If you could suck this information up and feed it into a global information hub, it could then be used in a 32

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coordinated manner by governments Scott Szwast, global and individual agencies to provide a freight services better assessment of the risks that are marketing manager, UPS. out there,” he said. At present, two separate consortiums—the Smart Container Management Transportation Consortium (SCMTC) and the Integrity Project—both funded by the European Union in partnership with China, are evaluating differently approaches to creating just such a common user platform or information sharing exchange for governments, trading partners or both. The integrity project, for instance, is looking at significantly improving the reliability and predictability of door-to-door container chains through the development of a so-called “Shared Intermodal Container Information System.” In concept, authorized companies and authorities would have access through the system to planning and status information of selected transports. Research funded by the SCMTC is ultimately intended to overhaul the door-to-door container transport chain on a worldwide basis, creating a more efficient, market-driven and secure cargo movement process. But that’s not to say everyone is one board when it comes to the question of seeking a greater level of transparency in the supply chain through the implementation of technology. In fact, Earl Agron, vice president of security at APL, a wholly owned subsidiary of Singapore-based Neptune Orient Lines, a global transportation and logistics company engaged in shipping and related businesses, said there is little justification from either a business or security perspective for real-time visibility at the container level. “Today, ocean carriers, within hours of a container status change, record location data in their proprietary systems and make that data available to their customers,” Agron said. “The supply chain security benefit of realtime container visibility is negligible.

Further, he said, security must be risk-based. driving up the cost of shipments and without slowing cargo “One size does not fit all,” he emphasized. “People, pro- movements? cesses and training are the three keys that should receive “This is the million dollar question,” he said. “We always initial focus,” Agron said. “We must also employ overlap- need to balance security with trade or we might cripple the ping layers of security. Realizing the adversary is adapt- economic system we are trying to protect. Probably the able, the private sector should not pour all of its resources best means of improving security is increased collaboration into one expensive technological solution thinking it is the between the private and public sectors at both the local, fedsilver bullet. I have seen few technological security gad- eral and international levels.” gets that can be justified solely on security benefits,” he This again gets back to the concept of getting everyone continued, echoing the perspective described by Fairnie, on the same page when it comes to implementing technolthat, “The ideal solution is one that provides an enterprise ogy and crafting an international technology standard. with dual benefits—a commercial return on investment Fairnie said without an international standard or a comand improved security.” pliance requirement for a specific piece of technology, like In fact, Agron believes that advocates for end-to-end e-seals on cargo containers, people simply don’t see why supply chain visibility through technology or other means they have to go to the trouble of securing such items. are missing the point. “As we’ve seen in the past,” he said, “when the U.S. gov“End-to-end visibility does not provide improved ernment says, ‘This is what we want,’ then the industry is security in and of itself,” he said. “In addition to detection quick to comply.” achieved through technology, response to any alert must To some, however, “mandate,” is a dirty word—a stick also be possible to achieve improved security.” brandished without the industry having even been offered “What security is gained if, for a carrot as enticement. example, a gadget sends an alert “Enticements?” Fairnie said. International standards “Actually, I think there’s a fairly that a container door is opened but no immediate response by law good one: customs facilitation.” must be in place for enforcement is possible?” he said. Fairnie holds that in addition “Similarly, since containers can be to transparency what people want technology to be breached in less than 15 minutes, most in their supply chains is velocwhat security benefit is gained if a ity, and one of the biggest inhibitruly effective. visibility gadget detects a 30-minute tors to making supply chains move delay due to traffic congestion?” faster is the requirement for U.S. In addition, “Think of all of the nuisance alarms requir- Customs checks in the name of national security, and U.S. ing attention that would be created,” Agron added. “If only Treasury checks, as a means to tracking what kinds of goods 10 million of the world’s container fleet send data once are coming across the border. every hour that is almost a quarter billion messages every “If U.S. Customs could reward investment in technology day that needs to be analyzed. I am afraid we would be and a demonstrated commitment to greater transparency making the haystack so large that the probability of missing with a faster transit time through the inspection process, a threat would actually increase. This is one of the biggest that would be a big incentive,” he said. “At the same time, issues in applying technological security solutions at the I think they’d have to respond to those who haven’t taken container level.” steps to make their supply chains more transparent by But, Agron was far from complacent. In point of fact, saying, ‘In your case, we need to check every box.’” he does believe that since supply chains initiate and tranDespite all this, Fairnie grew somewhat introspective sit through multiple sovereign nations, “an economic and when asked if the proliferation of technology over the past interoperable international security standard is required. several years has made the supply chain more secure. Without one international standard, the effectiveness of any “In my personal opinion? The answer is ‘No,’” he ventechnology would be undermined,” Agron said. tured finally. “No, we are not in a secure world. In regards To get there, however, would be solving a whole host of to visibility, and speaking in general terms, as a terminal daunting challenges. Agron, for instance, sees the prolifera- operator, we don’t know what’s in the box when we accept tion of mobile phone, GPS and other technologies as adding it—other than what’s listed on the manifest.” more risk to the global supply chain because as the use of “If you don’t have some electronic or other means to technology expands, so too does the number of people who verify the contents, you can’t know, definitely, that somehave access to sensitive commercial information. thing else hasn’t been stuffed in the box. Right now, there’s “Information security becomes a critical risk that must still a lot of reliance on simple trust.” WT be carefully addressed,” he said. “Passwords, computer viruses, stolen laptops and lost thumb drives can result in Contributing writer Dan McCue lives in Charleston, SC where he serious security breaches that could result in significant writes frequently on global trade, foreign direct investment, and port-related issues. direct and consequential damages.” Keeping costs in check

But even in light of those concerns, Agron said there’s a broader question that has to be addressed—how does one create greater supply chain security without substantially

For reprints of this article, please contact Cindy Williams at [email protected] or 610-436-4220 ext. 8516.

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SUPPLY CHAIN SUSTAINABILITY

Staples Nails Sustainability The office products company’s embrace of environmentalism is paying off. BY GAIL DUTTON

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n 2000, Staples was picketed by the Dogwood Alliance and other forestry groups, which claimed it had insufficient recycled content in its paper products. The action left Staples execs surprised. Environmental responsibility, they believed, had always been part of their operations. In an effort to bridge the disconnect, Staples sat down with non-government agencies, suppliers and customers to formalize its environmental and social responsibility stances and to find ways to further improve them. The result has been a winning situation for all parties and, for Staples, a sustainability commitment that permeates every aspect of its $23 billion operations. With operations in 27 countries, and an even larger supply chain footprint, ensuring sustainability throughout the enterprise is no small task. Nonetheless, “We’re trying to weave in sustainability ethics into the way we think about business,” emphasizes Mark Buckley, vice president of environmental affairs. Buckley focuses upon four key areas: increasing the availability of ecofriendly products, making it easier for customers to recycle, boosting energy efficiency through renewable power, and providing environmental education for its customers.

Sustainable products

“These values are important to us,” Buckley says. To instill these values throughout the organization, Staples looked first to its own Staples-branded products, focusing upon paper and forestry products. Since deciding to increase the percentage of recycled paper used in its products, recycled paper content increased from below 10 percent to about 30 percent today. Staples also involved the forest owners and the paper 34

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mills in its efforts to increase sustainable practices. Although it doesn’t own timberlands or paper mills, it began buying products only from suppliers who do not accept old growth trees at their mills and are a member of the Paper Working Group, which is dedicated to conserving forests by developing ways to evaluate the environmental performance of paper manufacturers. Staples also is taking its message of sustainability to timberland owners. It is working in the southeastern United States with Georgia Pacific and the Forest Stewardship Council (FSC) to encourage small landowners to certify their forests as sustainable by creating a market for products from sustainable forests. The goal is to convince private tree farmers that they can increase their return on investment by certifying their forest practices as sustainable. One hallmark of the certification program, Buckley says, is selective logging rather than the clearcutting that is considered more effective in the western U.S. A pilot project is beginning now, with six or seven landowners and a few thousand acres of forest. “Our challenge,” Buckley says, “is being able to (extend sustainability) practices from the shelf to the stump.” Already, Staples offers nine Staples-brand products certified by the Forest Stewardship Council. Its goal is to sell primarily FSCcertified paper by 2010. Staples’ commitment to recycled content extends to binders made with recycled plastic, furniture made with post-consumer recycled steel and nontoxic and biobased cleaning products, both for its house brand and from outside vendors. The company now offers about 3000 products that it considers environmentally friendly, including recycled paper, non-toxic cleaners and Energy Star-compliant office products.

Staples’ Stats • • • •

Recycling

Ink cartridge recycling is available in all of Staples’ stores. “We work with two suppliers,” Buckley says, to collect and remanufacture cartridges. Remanufacturing involves extracting ink, reusing parts whenever possible, refilling the cartridges, testing them to ensure they meet OEM standards, and grinding up failed cartridges for the secondary plastics market. “The goal is to minimize waste,” he stresses. To that end, Staples’ American stores also accept electronic waste, including cell phones, mice, keyboards, printers, computer, monitors, fax machines, and similar equipment. The small devices can be recycled at no charge, but printers, PCs and other large items incur a $10 fee. The items are bagged and delivered to Staples’ recycling partner, which then destroys the data on the hard drives and separates them into their component parts for reuse or recycling. Its internal recycling program encompasses plastics, fluorescent lamps, paper and cardboard, as well as the ink and toner cartridges and personal electronics collected from customers. In 2007, the internal program collected 34,000 tons of cardboard and mixed paper and 300 tons of plastic film in the U.S. Transportation

Delivery truck fleet efficiency is an important part of business too, Buckley adds. “Mike Payette, manager of fleet equipment, has taken a very proactive approach,”

2008 Sales: $23 billion Operations: 27 countries on 5 continents 3000 products with recycled content Nearly 24 million ink and toner cartridges recycled in 2007 • 2 million pounds of e-waste were recycled in 2007 • Electricity usage was cut 15 percent per square foot between 2001 and 2007 • 540,000 gallons of diesel was saved through fleet fuel efficiency improvements

Staples’ DC in Killingly, Connecticut boasts a 74,000-square foot solar photovoltaic system that produces enough energy to cleanly power 14 percent of the facility’s needs.

Buckley points out. At Payette’s urging, Staples bought two diesel-electric hybrid trucks from Isuzu that are currently being tested in the Staples fleet. “He’s a pragmatic Yankee from Vermont,” Buckley summarizes. “Mike is very interested in alternative fuels and alternative drive trains. He wasn’t content to wait for production vehicles to come online, so he went to Isuzu in 2006” to add speed regulators to Staples trucks, limiting them to 60 miles per hour. “Mike wouldn’t take ‘no’ for an answer from Isuzu,” Buckley recounts. In the end, Staples got its speed regulators. Then, “We put a sign on the back of the trucks telling motorists the lower speeds weren’t the fault of the drivers.” As a result of these efforts, “Staples saved 540,000 gallons of diesel, reduced its costs by $2 million and reduced greenhouse gas emissions by 12 million pounds,” Buckley declares. Ocean freight and intermodal transportation are also on Staples’ radar, with the goal of enhancing transporW W W. WO R L DT R A D E WT 1 0 0 .C O M

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SUPPLY CHAIN SUSTAINABILITY

Evans Network Finds ‘Green’ in Load Matching What started out as a straightforward solution to reduce empty trailers for a customer has turned into a national environmental initiative for the Evans Network of Companies, a Pennsylvania-based logistics and transportation company. It all began a little over a year ago, when Evans Network began looking into the containers being imported and exported through the Port of NY/ NJ by Van Heusen. Simply put, the goal was to match up freight on both inbound and outbound moves to reduce empty containers being moved back and forth from Van Heusen’s facility in central Pennsylvania. “We ended up matching about 43 percent of the loads, saving roughly 10,000 gallons of fuel, and reducing about 222,000 pounds of CO2,” says Gerard “Gerry” Coyle, Vice President, Marketing and Agent Development, for Evans Network. Naturally, this prompted Coyle and Evans Network’s president and CEO, Albert Evans, Jr., to think on a bigger scale. The Export Coordination/Optimization-Match (ECO-Match) was the result, and it’s already underway at the ports of New York/New Jersey, Philadelphia, Charleston, and Savannah. Thinking back to the first load-matching program with Van Heusen, Coyle can’t help but ponder the impact on a national scale. “There are about 22 million containers that come into North American ports annually. Can you imagine if we were able to match 43 percent of those loads?” he asks. The answer: “We would save billions of gallons of fuel and billions of tons of CO2 in the atmosphere.”

tation effectiveness while lowering costs. To do this, Staples encourages its stores to place larger orders and to accept deliveries three times per week rather than five, and shares the savings with the stores, Buckley says. “We believe we all need to learn how to do business in a carbon constrained environment,” he says. Electricity

Energy efficiency concerns aren’t limited to the fleet. “Staples has twenty-four solar energy projects that pro36

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duce 4.5 MW of energy, with 150 more projects in the pipeline,” Buckley elaborates. The projects were developed in cooperation with Sun Edison, which installed turnkey solar systems on roofs of Staples’ buildings. “There is no capital investment,” by Staples, he underscores, but the company has signed a 20-year purchase agreement, obligating it to buy energy from this system. From Buckley’s perspective, “This is a long-term hedge…” against soaring energy rates. Energy costs were lowered, he explains, because this arrangement “leveraged pricing through aggregated loads and more open competition.” And, he adds, the solar energy generated correlates to peak demands, thereby reducing the energy purchased from conventional power sources in Staples’ own facilities. By shifting some of its load to solar, Staples is able to “…reduce its base building load, so we pay less for additional power,” he explains. In all, renewable energy accounted for 20 percent of Staples’ energy purchases in 2007. Aside from lowering energy bills and reducing the load from conventional power generation plants, the solar program also benefits the accounting department. Some 200 energy bills and contracts are aggregated into one bill and one contract, streamlining bill paying and contract management, he explained at the World Resource Institute’s sustainable Energy Summit in 2004. The company broke ground on its first LEED-certified green retail store in 2008. Education

Staples works closely with its suppliers and its facilities throughout the world to help them find ways to optimize operations, given their own situations. Since 2000, Staples has formed numerous collaborations to further sustainability efforts across its enterprise, and regularly audits its suppliers to identify areas of their own operations that Staples believes need improvement. Importantly, Buckley says the company will also share its expertise to help suppliers achieve the desired results. Business and consumer education is another point in Staples’ sustainability endeavor. Staples was a charter partner in “Earth 911 Business” to help its customers get the information they need to make better decisions and therefore improve their own sustainability efforts. The company partners with Earth Force to bring environmental education to teachers and students in several U.S. communities, in an attempt to enhance their engagement with environmental issues by deepening their understanding of the global environmental situation. Staples also collaborates closely with the U.S. EPA on e-cycling, and with the World Resources Institute, the Green Power Market Development Group, and many other non-governmental organizations on other environmental and sustainability issues. Notably, the company has formed alliances with several environmental firms, including the two groups that organized the pickets nine years ago. “We’re not alone,” Buckley points out. Its deep involvement with environmental causes has gone a long way to removing any doubts about the company’s sincere com-

mitment to sustainable business practices. “This is hugely important,” Buckley stresses. “The commitment to sustainability throughout the enterprise will give us a competitive advantage, and it’s also the right thing to do.”

Buckley underscores. “It’s good if Staples’ sustainability and ethics programs move the market in the right direction,” he says,” but the programs all have to pass the usual return on investment hurdles.” WT

Ethics

Gail Dutton is a World Trade contributing editor. She is a veteran writer

The result of this enterprise-wide emphasis on sustain- who specializes in the intersection of business and technology. able practices affects more than environmental concerns and is reverberating throughout the supply chain. BuckFor reprints of this article, please contact Cindy Williams ley reports that Staples now gives preference to suppliat [email protected] or 610-436-4220 ext. 8516. ers that can deliver goods with greater recycled content or that are proactively looking at their own operations to increase their own sustainability. For example, suppliers of large volume paper products, including copier and printer papers, are strongly encouraged to complete an environmental survey. That survey will become one of the criteria considered, in addition to their bids, before contracts are let. It also means that Staples is looking for suppliers nearer their major distribution centers in an effort to minimize shipping costs. Another key component of sustainability involves maintaining global ethical standards. Staples launched its worldwide anti-corruption focus in Direct calls from 2007. Expressed in simple language, North China East Canada the program clearly explains what is East China Prince Rupert expected. As suppliers embrace these South China Midwest US standards, personal and corporate exposure to corruption charges are reduced, and trust is enhanced among suppliers and between suppliers and their clients. Much of that trust is built upon the relationships that are formed through face-to-face meetings and workshops, as well as Staples’ commitment to source products ethically. In 2007, the company conducted more than 375 social accountability audits at 300 factories throughout the world to ensure that they meet the expected standards. COSCO is the first carrier to provide two sail“Staples will work with suppliers to ings weekly from China and Yokohama to help them improve,” Buckley emphaPrince Rupert. COSCO has listened to the sizes, sharing best practices and workmarket feedback and based on the success of ing as closely as needed. one weekly service, COSCO has introduced a The goal is to create a common lansecond weekly service. COSCO will now ship COSCO Container guage throughout the enterprise and Hong Kong, South China, East China and Lines Americas, Inc. the supply chain,” he explains. “IBM North China cargoes, including Yokohama to is a good example. It added Green Six North America via Prince Rupert. 100 Lighting Way Sigma consulting to its operations and Shorten your supply chain, reduce your overSecaucus, NJ 07094 lowered the defect rate and optimized head and experience the congestion-free port Tel: 800-242-7354 productivity. That shows companies of Prince Rupert, COSCO and the CN Rail. Fax: 201-422-8928 can do the right thing for the business www.cosco-usa.com Timothy E. Marsh and for the planet. They’re not diaVice President North American Sales SHIP WITH CONFIDENCE. metrically opposed.” [email protected] SHIP WITH COSCO. Staples’ program is ambitious, but it all has to make business sense,

COSCO Delivers

2 Weekly Sailings to Prince Rupert Prince Rupert

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U.S. TRADE POLICY

Is Trade with Cuba a Reality?

Humanitarian shipments were allowed under the Clinton administration, now a new President could open the door wider. BY DAN MCCUE

J

ust days after President Barack Obama announced a minor thaw in the longstanding estrangement between the United States and Cuba, Jack Maybank Jr. stood before an audience of entrepreneurs gathered at the College of Charleston in South Carolina and warned them not to misinterpret the opening as a newfound bridge to business relations with the United States’ most notorious neighbor. Yes, he acknowledged, the Obama administration’s gambit may indeed have been the first step in a long journey toward a normalization of relations—with all the implications of commercial exchange those relations imply—but the fact of the matter is that scores of U.S. companies have been doing business with Cuba for years. With the appropriate product, the opportunities are now, he explained. “Right now, at least 150 companies in 35 states are doing business with Cuba, thanks in large part to a loosening of the trade embargo during the Clinton years with regards to agricultural products,” the president and CEO of Charleston-based Maybank Industries said.

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In fact, it was the announcement of President Clinton’s decision regarding the embargo—a decision to allow the sale of products that fell into a very loosely defined category of “humanitarian” agricultural products—that inspired Maybank’s late father, Jack Maybank Sr., to throw caution to the wind in 2000 and make a little history of his own in U.S.-Cuba relations. For six years beginning in 2002, Maybank Shipping effectively cornered the market of moving goods (nominally lumber and newsprint) to Cuba through a string of U.S. ports extending from Jacksonville, Florida to Corpus Christi, Texas. From then until roughly two years ago, when the company became Maybank Industries and the family sold off its shipping component, the family-owned business made nearly monthly trips to Cuba. “Given the location of our operations, Cuba was a natural place for us to grow,” Maybank said. A photograph taken the day Maybank’s first vessel arrived at the Port of Havana on July 11, 2002, reveals how extraordinary a relationship it was: An American flag

flies over El Morro Castle, adjacent to the harbor; it was the first time the stars and stripes had done so since 1961. Seizing an opportunity

The elder Maybank first learned of the slight loosening of the longstanding embargo over Easter weekend in 2000. Within days, and not knowing a soul in the Communist country, Maybank set out for Cuba and waited several days before finally connecting with Pedro Alvarez, chairman of the Cuban food import company Alimport and the government official in charge of trade. Maybank’s decision to jump on the opportunity was a master stroke. Alvarez, and Cubans generally, it turned out, place a tremendous amount of weight on personal contact and in doing business face-to-face. “What we found was that when it comes to doing business in Cuba, everything revolves around friendship,” the younger Maybank said. “The folks at Alimport know their clients, know their clients’ wives, and remember birthdays.” “The other thing is that you can’t do anything over the phone or through e-mail, in large part because the communications network is not the best there. They like to see you, and they love to negotiate,” he continued. The forum at which Maybank spoke was co-sponsored by the College of Charleston’s School of Business and Economics and the South Carolina World Trade Center. More than three dozen entrepreneurs ranging from property developers and entertainment industry consultants to, in one case, a retired Ph.D. considering the start of a second career, crowded a conference room at the College’s Tate Center for Entrepreneurship, for the day-long session. Maria Conchita Mendez, another speaker on the day’s panel and director of Latin American trade and development for the Alabama State Port Authority, said she also sees Cuba as both a missed and future opportunity. She spoke from a unique perspective: Born in Cuba, she came to the United States immediately after the revolution. Today, she regularly sees cargo leaving her port for her home country, as the island nation is already Alabama’s top customer for poultry products. But its Mendez’s contention, given how close Cuba is to the U.S.—a mere 32 hours by cargo ship—that several more shiploads of goods could be making their way weekly through the Port of Alabama, if only the embargo was lifted and U.S. exporters could offer Cuba and its consumers a variety of goods. Pointing to economic development successes Alabama and the entire Southeast has enjoyed in recent years—luring Hyundai, Kia, Nissan and Toyota plants, not to mention foreign-based companies making everything from agricultural machinery to fiber-optic cable—

Mendez said the goods and infrastructure are already in place in the U.S. to slake pent up demand for new cars and other products. Thus far, President Obama has lifted longstanding restrictions on family travel and remittances to Cuba—a significant shift in U.S. policy—but is waiting to see how Cuba responds to a host of human rights and other issues before making further changes with respect to the trade embargo. “That saddens me, and it’s not just because I am a Cuban-American,” Mendez said. “I honestly believe that we are sacrificing our economies, jobs and economic development to a policy [the embargo] that has not worked.” “Once the embargo is lifted there are going to be tremendous opportunities in textiles, construction materials, electronics, communications and appliances,” she added. “You’re going to see a country go through a massive reconstruction process, and one for which they’ll need many goods and many products.”

Jack Maybank, Jr., president and CEO of Charleston, SC-based Maybank Industries, shakes hands with Cuban leader Fidel Castro.

Easier said than done

But that’s not to suggest that getting involved in trade with Cuba—even under the auspices of selling or moving agricultural humanitarian aid—is easy now or will be easy later, when and if the embargo is lifted. Maybank said despite President Clinton’s loosening of trade policy with Cuba, it was still enormously difficult for Maybank Shipping to actually carry out a trade transaction. To begin with, U.S. banks were, and continue to be, forbidden from doing business with Cuba under threat of being cut off from access to the Federal Reserve. That meant that to do a transaction and deliver its cargo, W W W. WO R L DT R A D E WT 1 0 0 .C O M

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U.S. TRADE POLICY Maybank Shipping had to work with third-party, international banks, which added to the cost of the individual transactions. Even then, U.S. rules forbid companies doing business with Cuba to extend credit to its trading partners. The U.S. government does not want any U.S. entity in a credit arrangement with Cuba because if there’s a dispute or disagreement over payment, there’s no way to enforce it through American courts. Everything must be handled on a cash-on-delivery basis, and unlike traditional trade shipping, where ships ideally discharge cargo and pick up some more at each port of call, nothing can be moved from Cuba—even if it is destined for someplace other than the United States. “There’s no question, you have to be committed,” Maybank said.

He then launched into an anecdote to illustrate his point. A Maybank barge had pulled into port in Cuba, and a Cuban inspector had come aboard and certified the cargo, a requisite step before payment is approved. But before payment could be handed over and the unloading of the vessel begun, it was learned that the bank handling the transaction had been blacklisted by the U.S. “It’s something that happened from time to time, whenever the U.S. deemed that a bank was ‘doing business with the enemy,’” Maybank said. “Basically, it meant that we were left hanging, and suddenly had to scramble and line up another bank.” While Maybank scrambled, his vessel was stuck at the dock and the clock was ticking on the fees it would be required to pay for its space at the wharf.

A Change in the U.S. Trade Policy The hallmark of the Bush administration trade policy was the pursuit of new bilateral free trade agreements (FTAs) between the United States and other countries. When the Administration took office in January 2001, the United States had FTAs with three countries: Israel, Canada, and Mexico. Over the course of eight years, the administration continued or began negotiations with 24 countries. It concluded FTAs with 16 of those countries and brought FTAs into force with 14 countries. The heavy emphasis on the pursuit of FTAs was signaled clearly by President Bush’s first trade representative, Robert B. Zoellick, just two months into the administration. Thus, the annual Trade Policy Agenda issued in March 2001 announced, “[O]ther countries have been moving forward with trade agreements while America has stalled. We cannot afford to stand still or be mired in partisan division while other nations seize the mantle of leadership from the United States.” To lay the groundwork for catching up in the trade agreement race, the Bush Administration set as one of its “top priorities” in 2001 (which it achieved in August 2002) the establishment of new “trade negotiating authority”—or what is popularly known as “Fast Track.” This was an understanding with Congress whereby the President would pursue particular objectives in trade agreements, and Congress would give legislation implementing the resulting agreements an ‘up-or-down’ vote, with no amendments, and within a set time period. (The lifespan of Fast Track legislation has passed; currently it is not operative and there has not been much mention of its revival).

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Today, eight years later, the Obama Administration has set itself on a very different course. Thus, the annual Trade Policy Agenda issued by the Office of the U.S. Trade Representative on March 2, 2009 states, “[W]e will consider proposals for new bilateral and regional agreements when they promise to deliver significant benefits consistent with our national economic policies. If new negotiating authority is required, we will seek that from Congress.” The contrast—a certainty that if we don’t negotiate more FTAs we will lose “the mantle of leadership” versus an openness to “consider proposals” for new agreements—is stark, but not surprising. For at least two reasons, it would have made no sense for the Obama administration to continue the steady pace of FTA negotiations that marked the last eight years. First, the support of Congress (and, in particular, the House of Representatives) for new FTAs is weak. Legislation to approve the U.S.-Central America-Dominican Republic FTA passed the House by only a single vote in July 2005—and only after a scene on the House floor that the Washington Post described as “resembl[ing] the wheeling and dealing on a car lot.” Two years later, Congress approved the U.S.-Peru FTA only after the parties amended the agreement (originally concluded in April 2006) to accommodate changes including worker rights, environmental protection, intellectual property rights, and port security, among others. And, in April 2008, when President Bush sent the U.S.-Colombia FTA to Congress, the House dispensed with the Congressional-Executive trade negotiating

BY THEODORE R. POSNER

authority deal altogether, amending House rules to make the implementing legislation ineligible for Fast Track treatment. Moreover, even if the Obama administration wanted to continue the FTA negotiation marathon, it is not at all clear whom it would negotiate with. FTAs are complicated deals. To comport with World Trade Organization (WTO) rules, they must eliminate barriers to substantially all trade in goods and services between the parties. The United States historically has gone even further in its FTAs. Among other things, it has insisted on opening markets for government procurement and investment, establishing detailed disciplines on the protection of intellectual property, and committing not to relax labor or environmental standards in ways that might distort trade and investment.

“The longer it took to line up another bank, the more expensive that delivery was becoming,” Maybank said. “And we couldn’t pass the costs on to Cuba, because the delay wasn’t Cuba’s fault.” While some challenges could be resolved and consigned to experience, others recurred. One of those was the matter of documentation. The United States has strict rules when it comes to documenting a shipment to Cuba, and requirements that reams of documents be filed with multiple federal agencies. Among the documents Maybank Shipping had to secure before sailing to Cuba was a temporary export license—not for the goods it was carrying, but for the ship itself, which technically, was being exported to Cuba as part of the transaction. That license needs to be renewed every year. Then,

The universe of countries that are willing and able to negotiate an FTA with the United States that would provide commercially meaningful benefi ts and that would not run up against insurmountable obstacles is relatively small. Several negotiations that began during the last administration with high hopes on both sides are now in negotiation limbo. The fate of the negotiation of a Transpacifi c Strategic Economic Partnership Agreement—an exercise begun last year involving the United States and Brunei, Chile, New Zealand and Singapore (known as the “P4”), and possibly other Asia-Pacific economies—also is uncertain. A key question then for the Obama administration, and in particular, for U.S. Trade Representative Ron Kirk, is this: If the era of the FTA negotiating marathon is at

the shipping line had to secure a State Department license to cover the ship’s crew, and only then could it begin filing documentation for the voyage with the U.S. Department of Commerce and the U.S. Coast Guard. “And you absolutely have to have all of your documentation in order at all times,” Maybank said. Jake Colvin, vice president for Global Trade issues at the National Foreign Trade Council, a Washington D.C.based think tank and trade advocacy organization, said these requirements are part and parcel of “the most comprehensive group of sanctions the U.S. places on trade with any country in the world.” “And, so strident has the U.S. been in trying to enforce this embargo that it has even attempted to enforce it in other countries where it has no legal jurisdiction,” he said. “As a result, the EU and Canada, among others,

an end, what will take its place as the hallmark of U.S. trade policy for the next four to eight years? It is difficult to discern an answer from the current administration’s first Trade Policy Agenda. That document says a lot about themes the administration will emphasize, but much less about concrete initiatives it will undertake. For example, it expresses a commitment to enhancing “social accountability and political transparency,” using trade as a policy tool for advancing energy and environmental goals, and being “a strong partner to developing countries.” However, it says little about steps the administration will take to fulfill these commitments. Here are three possible trends (by no means mutually exclusive) to look for as the Obama administration’s trade policy evolves: • First, look for a greater emphasis on regulatory cooperation outside the context of formal trade agreement negotiations. Governments—particularly major trading partners, such as the United States and the European Union—can provide a substantial economic benefit to their suppliers of goods and services by recognizing one another’s regulatory schemes or by avoiding costly and unnecessary regulatory divergences in the first place. Opportunities for cooperation may occur in areas such as consumer product safety, financial services, and many others. • Second, look for negotiation of international agreements that focus less on market access (i.e., the elimination of tariffs and other barriers to trade in goods and services) and more on pro-

visions to bolster the enforcement of existing disciplines. A case in point is the Anti-Counterfeiting Trade Agreement that the United States and Australia, Canada, the European Union, Japan, Jordan, Korea, Mexico, Morocco, New Zealand, Singapore, Switzerland, and the United Arab Emirates began negotiating in June of last year. That agreement aspires to promote greater cooperation and stronger enforcement in the area of intellectual property rights protection, and building on disciplines agreed to in the WTO Agreement on Trade-Related Aspects of Intellectual Property Rights. • Third, to the extent that international agreement negotiations do seek to expand market access, look for them to focus on individual sectors rather than broad swaths of the economy. An example is the U.S. and EU proposal on negotiation of an Environmental Goods and Services Agreement in the context of the Doha Round of WTO negotiations. While any market access negotiation will encounter obstacles, those obstacles are likely to be lower for a sector-specific negotiation than for a comprehensive free trade agreement negotiation. Theodore R. Posner, former director of international trade and investment at the National Security Council, is a Washington, D.C.-based partner with Crowell & Moring LLP’s International Trade Group where he focuses his practice on international arbitration, strategic counseling, and national security reviews.

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U.S. TRADE POLICY have adopted ‘blocking legislation’ to preserve the rights of companies within their border to trade with Cuba.”

Friedman said. “Not that it should dissuade you from your interest in Cuba, but it’s something you should be aware of and pay attention to.”

Know the culture

But if logistics and the teeth of the current embargo are Where there’s a will, there’s a way daunting, Douglas Friedman, director of the College of Jake Colvin said he believes that in many cases, untanCharleston’s Latin American and Caribbean Studies, gling ownership claims will “ultimately come down to a said those still wanting to do business with Cuba need matter of money.” “If there is a political will, a way will be found to to overcome one more hurdle: the potential of misunderresolve those issues,” he said. standing Cuba’s history and culture. Colvin also said an immediate and full lifting of the And as anyone experienced in international commerce knows, getting to know the culture of a new trad- embargo is too much to expect in any event. For the ing partner is a key prerequisite to a successful business moment, it would be enough for President Obama to send a message to Congress that he wants to lift the relationship. While most businessmen and women today view travel ban. “Cuba is an easy opportunity to show that there has Cuba through the prism of the Cold War and the nearly 50-year reign of Fidel Castro, Friedman said anyone been a change in U.S. policy, and the prospects for traveling to Cuba will find that the average Cuban on the change have never been better,” Colvin said. “Right now, we have people street doesn’t quote Karl Marx like Republican Congressman so much as Jose Marti, the 19th Henry Brown co-sponsoring a Century poet and journalist who Once the trade freedom-to-travel bill, and he’s was a leading figure in Cuba’s not the usual suspect. In fact, bid for independence from Spain embargo is lifted he’s anything but…but the fact in the late 1800s. he’s more receptive to a thawing Don’t be surprised either, he there are going to be is a signal of the direction we’re warned, to find that resentment moving in,” he continued, before of the U.S. goes back equally as tremendous adding, “of course, lifting the far. “Hard feelings toward the travel ban itself will be a major, U.S., and particularly U.S. busiopportunities for major development in the drive ness interests, were not cemented toward an expanded trade relawith Fidel Castro; in fact, they U.S. companies. tion.” go back to the island’s first two “After all, the one thing we wars for independence, a period all want as Americans when we during which U.S. interests began to take a very large stake in the Cuban economy,” travel is access to products and foods and the like that we are familiar with,” Colvin said. Friedman said. Maybank said the first step for anyone contemplating After the United States helped defeat Spain in 1898, Cuba’s independence leadership was ignored during the getting involved in the Cuban market is to secure a visa subsequent peace talks and the island effectively became to attend the annual Havana Trade Fair, which is typia possession of the U.S., with its right to intervene in cally held in late October or November. “You’ll have to secure permission to attend through Cuban affairs being written into the country’s Constitution, and the U.S. being given preferential treatment in your state’s Department of Agriculture, but the Cubans really respond to the efforts you’ve made if you attend,” the Cuban market. “So, you’ll be dealing with a country where U.S. Maybank said. “The other thing is, attending the fair will provide you economic and political interests had an overwhelming influence for decades,” Friedman said. “That is, until the with a real dose of reality,” he said. “It’s easy to romantimost recent revolution, which wasn’t a socialist revolu- cize a market that most U.S. companies have been shut tion, but rather a nationalist movement…it was a revolu- out of, but the reality is, while the United States doesn’t have an open trade relationship with Cuba, many other tion about sovereignty.” Castro, of course, did embrace Socialism in the wake countries do.” “Our niche, if you will, is our proximity,” Maybank of his seizing control of the Cuban government in 1959, and that—as well as the early twists and turns in Cuban said. WT history—will lead to several complications as the U.S. Contributing writer Dan McCue lives in Charleston, SC where he begins to move further toward normalized relations. The biggest complication will be property rights, writes frequently on global trade, foreign direct investment, and Friedman said. The U.S. still recognizes the property port-related issues. and ownership rights—both commercial and private—of the individuals who held title to buildings and real estate prior to Castro’s revolution. For reprints of this article, please contact Cindy Williams “That’s an issue that absolutely has to be addressed at [email protected] or 610-436-4220 ext. 8516. before full normalization of the relationship can occur,” 42

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REGION: N A F TA

NAFTA: Two Sides of the Coin Mexican manufacturing is making a comeback while Canada raises concerns about proliferating trade barriers.

T

BY LARA L. SOWINSKI

wo years ago, it looked like Mexico’s dominance of low-cost manufacturing would be lost forever to China. But as transportation and production costs have risen, China has become less of a bargain for many firms—American and foreign—who are now taking a second look at the U.S.’ southern neighbor. Last month, South Korea’s second-largest electronics manufacturer, LG Electronics, announced plans to expand production at its Reynosa, Mexico maquiladora, creating 1,200 new jobs in the process. In addition, the company will invest $100 million over the next three years in Mexico to increase annual production to $4 billion by 2012. LG currently operates three facilities in Mexico: a plant in Mexicali that manufactures LCD and plasma televisions, which will be consolidated with the Reynosa plant, and another in Monterrey for manufacturing refrigerators and microwave ovens. Other companies with maquiladora operations in Reynosa have also announced expansion plans this year. German medical products company BSN Medical said in April that it was moving 163 jobs from a facility in Florida to Reynosa; jukebox manufacturer Rowe International Corp. announced a relocation of 100 positions from its Michigan facility to the city; while Corning Cable Systems has also shifted some production there.

At the same time, Sony is boosting its workforce in Tijuana by 1,500 positions, although the news was tempered somewhat by the company’s decision to close an LCD television manufacturing plant in Mexicali—one of five plants being shuttered worldwide. Nonethless, Mexican officials are encouraged by the move, which represents a $10 million investment for Tijuana and an expansion of the company’s workforce to 5,000 employees from 3,500 by year’s end. Likewise, Mexican manufacturers are beginning to feel more hopeful about the economy as the steep declines in output have begun to level off. “The most critical part of the slump has passed,” said the corporate treasurer for Mexico City-based Industrias CH SAB, the country’s largest steelmaker, last month. The company’s customers include Caterpillar, U.S. Steel Corp., and Honda Motor Company. Rafael de la Fuente, an economist with BNP Paribas in New York, remarked that a recovery in U.S. manufacturing, which declined in June at its slowest pace since August, will dramatically help Mexican manufacturers of steel, petrochemicals, and other goods because the trade ties between Mexico and the U.S. are so deep: Last year, 80 percent of Mexico’s $291 billion in exports were destined for the U.S. Ready for a recovery

The current economy notwithstanding, there has been a noticeable rise in activity along the southern border as companies prepare for a return of robust business, while transportation providers and governments are at work making sure the infrastructure is in place to handle the long-awaited uptick in trade. Grayling Industries, an Alpharetta, Georgiabased manufacturer of asbestos abatement equipment, such as gloves and decontamination units, assembles the majority of its products in a 60,000 square foot, ISO-certified maquiladora in Juarez, Mexico. Most of the material used for its products comes from the U.S. and is shipped in full trailers and ocean containers, or by LTL, to its Juarez plant. Approximately 80 percent of the finished products are then sold to U.S. customers, representing about 600 full truckloads that cross over into El Paso, Texas each year. According to Carlos Rubio, director of finance and operations for Grayling, the company turned to technology enhancements to optimize its 44

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supply chain and weather the recession. “We started asking ourselves, ‘How can we use technology to increase cash flow, reduce costs, and create a win-win situation for ourselves and our suppliers?’” Grayling began with its freight company, ProLogistics, which rented a warehouse in El Paso, Texas to better manage Grayling’s freight and inventory under one roof. The next step, says Rubio, was to find a Web-based system that could interact with Grayling’s ERP, “and I ended up finding SmartTurn.” SmartTurn’s Web-based, on-demand inventory and warehouse management solution was a perfect fit for Grayling and the payoff was substantial, resulting in realtime visibility of what was in the El Paso warehouse at all times, and overall cost savings for Grayling of $83,000 a month due to improved operations along with a one-time savings of $300,000 to $400,000, estimates Rubio. In the meantime, key transportation arteries between the U.S. and Mexico are also getting upgrades. For starters, a new international bridge between Mission, Texas and Reynosa, Mexico is scheduled to open in October. The $168 million Anzalduas International Bridge will be one of the newest and largest southern border crossings, and equally important, will connect with I-69, which will eventually connect trade routes from Mexico and Latin America to the U.S. and Canada. In order to strengthen its cross-border capabilities, C.H. Robinson, one of the largest non-asset-based 3PLs in the world, announced last month that it had acquired certain assets of International Trade & Commerce (ITC), a U.S. customs brokerage company specializing in warehousing and distribution, headquartered in Laredo, Texas. The acquisition adds to C.H. Robinson’s presence in Mexico, where the company maintains offices in Mexico City, Guadalajara, Monterrey, and Nuevo Laredo. On the rail side, officials from Union Pacific Railroad and U.S. Customs and Border Protection (CBP) opened a new rail inspection building in Eagle Pass, Texas. The building will provide CBP officers with a one-stop location to process information and inspect incoming cross-border trains. At the same time, Ports America officials are hoping a new Pacer International service will boost business at the Puerta México Intermodal Facility in Toluca, Mexico. In May, Pacer launched six-day

Mexico’s Economic Outlook Simply put, the current business environment in Mexico remains tough, according to Atradius, the global trade credit insurance firm. “Operating in an economy heavily dependent on trade with the U.S., businesses in Mexico have been hurt both by the devaluation of the Mexico peso against the U.S. dollar and shrinking exports to Mexico’s main commercial partner. Sectors that are particularly affected include automotive components and assembly operations, as well as consumer electronics and similar segments undermined by weakening U.S. consumer spending,” said the firm. Nonetheless, the future looks a bit more promising. “Mexico’s financial position remains solid in the short-term as the government has run a prudent fiscal policy in recent years, reflective of the country’s investment grade ratings and reinforced by a newly granted $47 billion credit line

a week direct rail service to and from the terminal to handle automotive, third-party domestic, and other trans-border traffic. The non-stop, in-bond service parallels Pacer’s existing PacerMex ramp points throughout the U.S. and eastern Canada. Operated by Ports America, the Toluca terminal is designed to handle 150,000 containers and 2 million tons of cargo annually. The facility has direct access to Kansas City Southern de México S.A. de C.V.’s “N” line. The benefits of shipping by rail are not lost on Steve Hamilton, CEO of ChemLogix, who believes that intermodal inbond transportation is the best way to go when moving freight between the U.S. and Mexico, given the heightened safety concerns brought about recently by the illegal drug traders and cargo thieves, as well as customs delays and poor road conditions. “Intermodal inbond transportation offers a safer, greener, and more cost-effective alternative to trucking,” says Hamilton. “It basically means putting goods in a container and shipping via rail from a U.S. point to a Mexican point (or vice versa) without stopping at the border.” Transit time via rail between Chicago and Mexico City is about four to six days,

by the IMF that was provided under very flexible terms.” Furthermore, “The Mexican government has injected substantial stimulus into the domestic economy, equal to a projected 1.5 percent of GDP for 2009, in order to dampen the impact of the slowdown. However, the longer economic conditions, and oil prices, remain depressed the more difficult the situation will become for Mexico’s finances.” For more information, visit Atradius at www.atradius.us.

says Hamilton, which ends up being about the same as trucking. “For over a year, ChemLogix has successfully used this mode of trans-border transportation for bulk commodities in tank containers as well as traditional packaged freight in box containers. In addition to providing an easier option for transporting cross-border deliveries, intermodal inbond is much kinder to the environment,” he explains. Raising concerns in Canada

By contrast, security issues like those expressed by Hamilton have not been a factor when it comes to trade between the U.S. and Canada, as experts emphasized in a recent report commissioned by the Brookings Institution that criticized the manner in which U.S. officials apply a “one size fits all” approach to border security. “We need a constructive way to distinguish Canada and Mexico in terms of policy,” stressed Christopher Sands, a senior fellow at the Hudson Institute. There’s “no denying that the border is less efficient than it was before,” agreed David Bradley, CEO of the Canadian Trucking Alliance. Worse yet, the inefficiencies are being masked by lower trade W W W. WO R L DT R A D E WT 1 0 0 .C O M

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volumes brought about by the global recession, he said, and will resume full-force once trade volumes return to normal. “Creating a more secure, efficient, and flexible border will require the restoration of a risk assessment focus, real value-added benefits from participation in low-risk trade programs, appropriate levels of inspectors, and strategic investment in infrastructure— and not just bricks and mortar, but systems as well,” Bradley explained. And if concerns over tighter border security aren’t enough, the ‘Buy American’ provision contained within the American Recovery and Reinvestment Act (ARRA) has rankled trade interests on both sides of the border. In June, Canada’s 13 consul generals met with American reporters to express their growing anxiety about the legislation, which has already canned a number of Canadian contracts, partly over confusion about what’s allowable and what’s not under the provision. Specifically, while the provision states that stimulus money can only be spent on American-made iron, steel, and manu-

factured goods, there is an exception for countries (like Canada) that have an international trade deal with the U.S. However, the provision has caused some confusion for states and municipalities that, of course, aren’t covered by trade deals, and are therefore left wondering if they can buy only wholly U.S.-made products. News reports state that in various U.S. cities, mayors have canceled contracts or questioned bids. At a Marine camp in California, for instance, wastewater equipment made by IPEX, a Canadian firm, was ripped from the ground. “The last thing I want to do is start a trade war, but I’m afraid it’s already begun,” said the mayor of Halton Hills, a western suburb of Toronto. In June, Mayor Rick Bonnette convinced the Federation of Canadian Municipalities to pass a resolution saying that, in 120 days, towns and cities could begin barring materials from any nation that refuses goods from Canada. Indeed, worries about the growing protectionism in the U.S. are going to be high on the agenda when the “Three Amigos”—

President Obama, Mexico’s Felipe Calderon, and Canadian PM Stephen Harper—hold their traditional trilateral summit, which is tentatively scheduled for the second week of August in Guadalajara. Nonetheless, the undeniable strength of the U.S.-Canada trade relationship underlined by the massive exchange of goods and services between the two countries isn’t about to disappear anytime soon. As evidence, over the summer, Southwest Airlines took its first step into international cargo operations with Canada’s WestJet, with initial service starting with four cities: Calgary, Edmonton, Toronto, and Vancouver. “While we eventually hope to be able to transport cargo throughout both airlines’ entire route network, this initial phase will only allow for the export of cargo from the U.S. to Canada,” stated Southwest. “WestJet makes for a natural first partner for our entrance into international cargo shipments given our positive working relationship and eventual plans to offer passenger code-share service with the Canadian airline,” the carrier added. WT

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TR A N S L ATI O N

Talk About a Tough Sell Making the case for spending on translation services in a slow economy. BY JEFFREY JORGENSEN

W

hy should we translate? Many marketing executives, directors of business development, documentation managers, and technical writers ask or are asked this question. Although most technical writers and a growing number of marketing executives are aware of compelling reasons to translate, communicating and justifying those reasons in budget meetings can be a challenge. Given the current economic downturn, some companies are finding it more difficult to view translation of their materials as being cost beneficial. Every company has its eye on the bottom line and every penny must be saved. Translating a company’s materials for its international markets may be viewed as a luxury that fails to escape budget cuts. Not all English is the same

Because English has become a widely spoken language in business, decision makers may assume that translation into the reader’s target language is not necessary. Yet even if your readers have a working knowledge of English, their level of comprehension of the language and range of vocabulary can vary widely from user to user. Often when business leaders assume that customers or users speak English, they are referring

to a person with whom they conduct business and who is located somewhere within the European Union. In such cases, these users generally speak British English, not U.S. English, and may need to spend considerable time looking up simple terms that are well-known in U.S. English but that have an entirely different meaning in British English. For example, the “hood” of a car in Great Britain is referred to as a “bonnet,” while a “hood” in U.S. English is an article of apparel worn over the heading and not a piece of equipment that must be secured before operating a motorized vehicle. Moreover, the customer contacts with whom business leaders generally communicate may have a higher level of understanding of English than the user of your technical documentation. Business leaders can often form impressions of the end user based on their interactions with upper management colleagues in the customer or distributor organization. For example, assume your company has made a sale to a client in Germany who speaks excellent British English. It is not reasonable to expect that the customer contact who signed the sales agreement will be the person who will be reading your company’s technical manual. Rather, it is the machine operator who will use the document and that reader may have no knowledge of English. Or, if the machine operator is accustomed to speaking British English, the user may become confused by the many differences in terms between U.S. and British English. Professionalism is key

A common misconception that some business leaders hold is that the customer or distributor organization will have the time and resources to translate your company’s operating manuals. Not only do customers not have the time, skills, and resources to perform this task, but placing such expectations on the customer can demonstrate a lack of professionalism on the part of your firm as well as a lack of concern for the customer’s needs. In addition, if the customer or distributor does translate your content, they may choose to translate only the “high points” and miss important instructions that will ensure the correct operation of your product. In one case, such a translation resulted in a 350-page manual of important material being distilled into a document of roughly 35 to 75 pages for W W W. WO R L DT R A D E WT 1 0 0 .C O M

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use by the machine operator. The results of such abridged translations are that content is incorrect and incomplete, and your customer service department will see an increase in requests for support. Other considerations

Even if you know that your target audience speaks English, be aware, too, that certain regulatory requirements may dictate that you translate your post-sales material into the target language for the countries into which you will ship your product. For example, some members of the European Union may require that a foreign manufacturer translate post-sales material and packaging into the local language in order to market their goods in those countries. Meanwhile, experience has shown that customers make buying decisions based not only on the features of the equipment they purchase but also on their ability to properly use the equipment. For example, a customer may purchase your product over a competitor’s the first time they decide to make such a purchase. However, if the customer is unable to install or properly use the equipment because the operating manuals are not properly translated or are not translated at all, you can expect to lose their repeat business. The next time the customer wishes to purchase your product, they will recall their dissatisfaction with the guides that accompanied your product and choose your competitor’s offering instead. Some companies will also ensure that their marketing materials are translated correctly and are localized for the culture in the geographic areas where the product is sold. However, once the sale has been made, end users can become dissatisfied with the quality of the post-sales materials if those documents are not properly translated. The result is that customers will form impressions about your company’s commitment—or lack of commitment—to customer quality and satisfaction and choose not to buy your product the next time around. To develop brand loyalty, it is important to evaluate whether you are offering not just a high quality of translated marketing materials, but also that you translate the materials you provide post-sales. Cultural respect = increased sales

In today’s economy, retaining valued and established customers is vital to generating more sales and providing you with leads to 48

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other companies that can use your goods or services. Taking care of your existing customers on the post-sales side is critical to retaining their business in this highly competitive global market. When you consider the cost of translating your marketing or operational materials for international markets, be especially careful not to neglect your post-sales relationship with your customers. If yours is a manufacturing company that truly wants to penetrate, capture, maintain, and grow its market share in a foreign market, you should look carefully at creating brand loyalty by ensuring customer satisfaction. If you do not have your operational manuals professionally translated for the target market, you may be failing to demonstrate to your customers that

Proper translation of an operating manual assures safety and a positive customer experience. you understand and respect their culture. By making sure your materials are properly translated and that your customers in those foreign markets can use and maintain your equipment, you demonstrate the same respect for their culture that you demand for your own. When you provide complete and correct translations of your operational materials, you demonstrate that you appreciate your customers and begin to create brand loyalty. Safety first

More and more U.S. companies are realizing that for a safer work environment within their overseas operations they need to have their safety materials translated. In some cases, a senior member of the management team that is native to the local culture has performed the translations. However, even if the engineer within the local manufacturing facility is a native speaker, the industrial safety material in your documents may not be translated correctly and may not be easily or properly comprehended by the local worker. The consequences of failing to translate such important safety material can be seri-

ous, from a personal injury viewpoint as well as a legal standpoint. Incorrect translations, or a total lack of translations, can jeopardize the safety and lives of workers and leave your company open to litigation that can have serious financial consequences for your firm. Even those materials you produce for distribution within your company should merit analysis for possible translation. For example, a U.S. construction company with a large Spanish-speaking work force recently elected to translate all of the safety materials they distribute to employees. The benefits of investing in professional translations of these materials was soon realized when the company reduced employee down time by 20 percent and significantly increased productivity. Simple procedures that had been missed before because of a lack of understanding by the employees are now being performed when needed. Over time, with their employees having a better understanding of safety issues and procedures, the company should also expect to see a reduction in their insurance premiums. The success this company has achieved has been so great that they are now in the final stages of preparing all employee benefit guides for translation. The company believes that if its employees can read about their employee benefits and obligations in their native language, they can better understand the benefits and requirements, make greater use of the benefits available to them, and take greater ownership for their roles in the company. All of this equates to a more involved and more productive employee. The bottom line

In today’s economy, every company across the globe is looking at its bottom line and trying to find ways to control and lower their costs. Before you decide to eliminate translation costs from your company’s budget, consider the consequences your decision will have on customer loyalty, compliance with regulatory requirements, worker safety, legal liability, increased calls to customer service, and overall customer satisfaction. The short-term savings of eliminating translations can have serious effects on customer perception and satisfaction and can ultimately cost your company much more in the long run. WT Jeffrey Jorgensen is National Account Manager for International Communication by Design, Inc.

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